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Loans and Other Real Estate
 9 Months Ended
Sep. 30, 2019
Receivables [Abstract]  
Loans and Other Real Estate LOANS AND OTHER REAL ESTATE
The following sets forth the composition of the Company’s loan portfolio:
(in thousands)
September 30, 2019
 
December 31, 2018
 
 
 
 
Commercial, secured by real estate
$
3,442,973

 
$
3,057,779

Commercial, industrial and other
391,486

 
336,735

Equipment finance
104,689

 
87,925

Real estate - residential mortgage
337,482

 
329,854

Real estate - construction
306,440

 
319,545

Home equity and consumer
342,928

 
328,609

Total loans
4,925,998

 
4,460,447

Less: deferred fees
(2,584
)
 
(3,714
)
Loans, net of deferred fees
$
4,923,414

 
$
4,456,733


At September 30, 2019 and December 31, 2018, home equity and consumer loans included overdraft deposit balances of $391,000 and $452,000, respectively. At September 30, 2019 and December 31, 2018, the Company had $1.35 billion and $1.16 billion, respectively, in loans pledged for actual and potential borrowings at the Federal Home Loan Bank of New York (“FHLB”).
Purchased Credit Impaired Loans
The following sets forth the carrying value of the purchased credit impaired ("PCI") loans acquired in mergers:
(in thousands)
September 30, 2019
 
December 31, 2018
Acquisition
 
 
 
  Highlands
$
11,627

 
$
—

  Pascack Community Bank ("Pascack")
122

 
157

  Harmony Bank ("Harmony")
456

 
495

Total
$
12,205

 
$
652


The carrying value of loans acquired in the Highlands merger and accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” was $13.8 million at acquisition on January 4, 2019.
The following table presents changes in the accretable yield for PCI loans:
 
For the Three Months Ended
 
For the Nine Months Ended
(in thousands)
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
 
 
 
 
 
 
 
 
Balance, beginning of period
$
1,191

 
$
100

 
$
81

 
$
129

Acquisitions
—

 
—

 
1,431

 
—

Accretion
(306
)
 
(58
)
 
(687
)
 
(145
)
Net reclassification non-accretable difference
16

 
41

 
76

 
99

Balance, end of period
$
901

 
$
83

 
$
901

 
$
83


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:
(in thousands)
September 30, 2019
 
December 31, 2018
 
 
 
 
Commercial, secured by real estate
$
9,164

 
$
7,192

Commercial, industrial and other
795

 
1,019

Equipment finance
271

 
501

Real estate - residential mortgage
3,250

 
1,986

Home equity and consumer
2,437

 
1,432

Total non-accrual loans
$
15,917

 
$
12,130

Other real estate and other repossessed assets
944

 
830

TOTAL NON-PERFORMING ASSETS
$
16,861

 
$
12,960

Troubled debt restructurings, still accruing
$
5,029

 
$
9,293


Non-accrual loans included $1.6 million and $3.6 million of troubled debt restructurings at September 30, 2019 and December 31, 2018, respectively. At September 30, 2019 and December 31, 2018, the Company had $1.0 million and $1.5 million, respectively, in residential mortgages and consumer home equity loans that were in the process of foreclosure which are included in non-accrual loans in the above table.
An age analysis of past due loans, excluding PCI loans which are accounted for on a pool basis, segregated by class of loans as of September 30, 2019 and December 31, 2018, is as follows:
(in thousands)
30-59 Days Past Due
 
60-89 Days Past Due
 
Greater Than 89 Days Past Due
 
Total Past Due
 
Current
 
Total Loans
 
Recorded Investment  Greater than 89 Days and Still Accruing
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
4,800

 
$
1,898

 
$
7,124

 
$
13,822

 
$
3,422,449

 
$
3,436,271

 
$
—

Commercial, industrial and other
29

 
197

 
409

 
635

 
389,690

 
390,325

 
—

Equipment finance
41

 
93

 
271

 
405

 
104,284

 
104,689

 
—

Real estate - residential mortgage
1,217

 
166

 
2,904

 
4,287

 
332,798

 
337,085

 
—

Real estate - construction
694

 
—

 
—

 
694

 
302,322

 
303,016

 
—

Home equity and consumer
1,682

 
76

 
1,771

 
3,529

 
338,878

 
342,407

 
—

 
$
8,463

 
$
2,430

 
$
12,479

 
$
23,372

 
$
4,890,421

 
$
4,913,793

 
$
—

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
1,477

 
$
639

 
$
2,080

 
$
4,196

 
$
3,052,931

 
$
3,057,127

 
$
—

Commercial, industrial and other
173

 
243

 
750

 
1,166

 
335,569

 
336,735

 
—

Equipment finance
533

 
13

 
501

 
1,047

 
86,878

 
87,925

 
—

Real estate - residential mortgage
743

 
111

 
1,776

 
2,630

 
327,224

 
329,854

 
—

Real estate - construction
—

 
—

 
—

 
—

 
319,545

 
319,545

 
—

Home equity and consumer
1,917

 
216

 
850

 
2,983

 
325,626

 
328,609

 
—

 
$
4,843

 
$
1,222

 
$
5,957

 
$
12,022

 
$
4,447,773

 
$
4,459,795

 
$
—


Impaired Loans
The Company defines impaired loans as all non-accrual loans with recorded investments of $500,000 or greater. Impaired loans also include all loans that have been modified in troubled debt restructurings, but excludes PCI loans. Impaired loans as of September 30, 2019 and December 31, 2018 are as follows:
(in thousands)
Recorded
Investment in
Impaired  Loans
 
Contractual
Unpaid
Principal
Balance
 
Specific
Allowance
 
Average
Investment in
Impaired  Loans
 
Interest
Income
Recognized
September 30, 2019
 
 
 
 
 
 
 
 
 
Loans without specific allowance:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
10,886

 
$
11,457

 
$
—

 
$
10,399

 
$
157

Commercial, industrial and other
628

 
617

 
—

 
1,341

 
13

Equipment finance
—

 
—

 
—

 
—

 
—

Real estate - residential mortgage
1,678

 
1,672

 
—

 
75

 
—

Real estate - construction
—

 
—

 
—

 
—

 
—

Home equity and consumer
—

 
—

 
—

 
—

 
—

Loans with specific allowance:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
2,934

 
3,162

 
201

 
4,088

 
128

Commercial, industrial and other
121

 
121

 
6

 
121

 
5

Equipment finance
25

 
25

 
11

 
25

 
2

Real estate - residential mortgage
686

 
855

 
3

 
698

 
15

Real estate - construction
—

 
—

 
—

 
—

 
—

Home equity and consumer
695

 
788

 
5

 
713

 
22

Total:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
13,820

 
$
14,619

 
$
201

 
$
14,487

 
$
285

Commercial, industrial and other
749

 
738

 
6

 
1,462

 
18

Equipment finance
25

 
25

 
11

 
25

 
2

Real estate - residential mortgage
2,364

 
2,527

 
3

 
773

 
15

Real estate - construction
—

 
—

 
—

 
—

 
—

Home equity and consumer
695

 
788

 
5

 
713

 
22

 
$
17,653

 
$
18,697

 
$
226

 
$
17,460

 
$
342

(in thousands)
Recorded
Investment in
Impaired  Loans
 
Contractual
Unpaid
Principal
Balance
 
Specific
Allowance
 
Average
Investment in
Impaired  Loans
 
Interest
Income
Recognized
December 31, 2018
 
 
 
 
 
 
 
 
 
Loans without specific allowance:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
9,284

 
$
9,829

 
$
—

 
$
7,369

 
$
188

Commercial, industrial and other
1,151

 
1,449

 
—

 
1,834

 
19

Equipment finance
301

 
597

 
—

 
376

 
—

Real estate - residential mortgage
—

 
—

 
—

 
242

 
4

Real estate - construction
—

 
—

 
—

 
726

 
—

Home equity and consumer
—

 
—

 
—

 
—

 
—

Loans with specific allowance:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
7,270

 
7,597

 
307

 
7,594

 
317

Commercial, industrial and other
209

 
209

 
7

 
209

 
12

Equipment finance
30

 
30

 
14

 
19

 
—

Real estate - residential mortgage
730

 
884

 
4

 
745

 
20

Real estate - construction
—

 
—

 
—

 
—

 
—

Home equity and consumer
727

 
765

 
6

 
898

 
32

Total:
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
$
16,554

 
$
17,426

 
$
307

 
$
14,963

 
$
505

Commercial, industrial and other
1,360

 
1,658

 
7

 
2,043

 
31

Equipment finance
331

 
627

 
14

 
395

 
—

Real estate - residential mortgage
730

 
884

 
4

 
987

 
24

Real estate - construction
—

 
—

 
—

 
726

 
—

Home equity and consumer
727

 
765

 
6

 
898

 
32

 
$
19,702

 
$
21,360

 
$
338

 
$
20,012

 
$
592


Interest income recognized on impaired loans was $342,000 and $450,000 for the nine months ended September 30, 2019 and 2018, respectively. Interest that would have been accrued on impaired loans during the first nine months of 2019 and 2018 had the loans been performing under original terms would have been $703,000 and $842,000, 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 assesses the quantitative and qualitative risks arising from the credit quality of its loans. Lakeland assigns a credit risk rating to all commercial loans and loan commitments. The credit risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within Lakeland’s commercial 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, guarantor support, 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 September 30, 2019 and December 31, 2018, by the risk ratings discussed above (in thousands):
September 30, 2019
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Real Estate -
Construction
RISK RATING
 
 
 
 
 
1
$
—

 
$
2,655

 
$
—

2
—

 
17,865

 
—

3
71,581

 
34,392

 
—

4
910,695

 
91,329

 
18,871

5
2,245,570

 
208,024

 
273,997

5W - Watch
103,619

 
24,302

 
8,487

6 - Other assets especially mentioned
50,155

 
3,805

 
967

7 - Substandard
61,353

 
9,114

 
4,118

8 - Doubtful
—

 
—

 
—

9 - Loss
—

 
—

 
—

Total
$
3,442,973

 
$
391,486

 
$
306,440

December 31, 2018
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Real Estate -
Construction
RISK RATING
 
 
 
 
 
1
$
—

 
$
1,119

 
$
—

2
—

 
18,462

 
—

3
69,995

 
36,367

 
—

4
933,577

 
91,145

 
17,375

5
1,910,423

 
168,474

 
297,625

5W - Watch
61,626

 
7,798

 
3,493

6 - Other assets especially mentioned
38,844

 
2,033

 
—

7 - Substandard
43,314

 
11,337

 
1,052

8 - Doubtful
—

 
—

 
—

9 - Loss
—

 
—

 
—

Total
$
3,057,779

 
$
336,735

 
$
319,545


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

Allowance for Loan Losses
The following table details activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2019 and 2018:
(in thousands)
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Equipment Finance
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
Three Months Ended September 30, 2019
 
Beginning Balance
$
28,095

 
$
2,633

 
$
1,055

 
$
1,606

 
$
2,708

 
$
2,565

 
$
38,662

Charge-offs
(314
)
 
(425
)
 
—

 
—

 
—

 
(70
)
 
(809
)
Recoveries
72

 
32

 
—

 
55

 
39

 
68

 
266

Provision
672

 
218

 
55

 
(57
)
 
(186
)
 
(166
)
 
536

Ending Balance
$
28,525

 
$
2,458

 
$
1,110

 
$
1,604

 
$
2,561

 
$
2,397

 
$
38,655

(in thousands)
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Equipment Finance
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
Three Months Ended September 30, 2018
 
Beginning Balance
$
26,174

 
$
2,012

 
$
1,264

 
$
1,585

 
$
3,063

 
$
2,506

 
$
36,604

Charge-offs
(24
)
 
(151
)
 
(368
)
 
(38
)
 
—

 
(172
)
 
(753
)
Recoveries
135

 
177

 
2

 
2

 
4

 
76

 
396

Provision
1,361

 
(70
)
 
(12
)
 
(62
)
 
(166
)
 
(5
)
 
1,046

Ending Balance
$
27,646

 
$
1,968

 
$
886

 
$
1,487

 
$
2,901

 
$
2,405

 
$
37,293

(in thousands)
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Equipment Finance
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
27,881

 
$
1,742

 
$
987

 
$
1,566

 
$
3,015

 
$
2,497

 
$
37,688

Charge-offs
(501
)
 
(610
)
 
(380
)
 
(50
)
 
—

 
(197
)
 
(1,738
)
Recoveries
212

 
1,076

 
2

 
66

 
104

 
201

 
1,661

Provision
933

 
250

 
501

 
22

 
(558
)
 
(104
)
 
1,044

Ending Balance
$
28,525

 
$
2,458

 
$
1,110

 
$
1,604

 
$
2,561

 
$
2,397

 
$
38,655

(in thousands)
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Equipment Finance
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
25,704

 
$
2,313

 
$
630

 
$
1,557

 
$
2,731

 
$
2,520

 
$
35,455

Charge-offs
(256
)
 
(1,452
)
 
(463
)
 
(131
)
 
(248
)
 
(416
)
 
(2,966
)
Recoveries
440

 
273

 
7

 
7

 
12

 
243

 
982

Provision
1,758

 
834

 
712

 
54

 
406

 
58

 
3,822

Ending Balance
$
27,646

 
$
1,968

 
$
886

 
$
1,487

 
$
2,901

 
$
2,405

 
$
37,293



Loans receivable summarized by portfolio segment and impairment method are as follows:
(in thousands)
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Equipment Finance
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance: Individually evaluated for impairment
$
13,820

 
$
749

 
$
25

 
$
2,364

 
$
—

 
$
695

 
$
17,653

Ending Balance: Collectively evaluated for impairment
3,422,451

 
389,576

 
104,664

 
334,721

 
303,016

 
341,712

 
4,896,140

Ending Balance: Loans acquired with deteriorated credit quality
6,702

 
1,161

 
—

 
397

 
3,424

 
521

 
12,205

Ending Balance (1)
$
3,442,973

 
$
391,486

 
$
104,689

 
$
337,482

 
$
306,440

 
$
342,928

 
$
4,925,998

(in thousands)
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Equipment Finance
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance: Individually evaluated for impairment
$
16,554

 
$
1,360

 
$
331

 
$
730

 
$
—

 
$
727

 
$
19,702

Ending Balance: Collectively evaluated for impairment
3,040,573

 
335,375

 
87,594

 
329,124

 
319,545

 
327,882

 
4,440,093

Ending balance: Loans acquired with deteriorated credit quality
652

 
—

 
—

 
—

 
—

 
—

 
652

Ending Balance (1)
$
3,057,779

 
$
336,735

 
$
87,925

 
$
329,854

 
$
319,545

 
$
328,609

 
$
4,460,447

(1)
Excludes deferred fees
The allowance for loan losses is summarized by portfolio segment and impairment classification as follows:
(in thousands)
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Equipment Finance
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance: Individually evaluated for impairment
$
201

 
$
6

 
$
11

 
$
3

 
$
—

 
$
5

 
$
226

Ending Balance: Collectively evaluated for impairment
28,324

 
2,452

 
1,099

 
1,601

 
2,561

 
2,392

 
38,429

Ending Balance
$
28,525

 
$
2,458

 
$
1,110

 
$
1,604

 
$
2,561

 
$
2,397

 
$
38,655

(in thousands)
Commercial,
Secured by
Real Estate
 
Commercial,
Industrial
and Other
 
Equipment Finance
 
Real Estate-
Residential
Mortgage
 
Real Estate-
Construction
 
Home
Equity and
Consumer
 
Total
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance: Individually evaluated for impairment
$
307

 
$
7

 
$
14

 
$
4

 
$
—

 
$
6

 
$
338

Ending Balance: Collectively evaluated for impairment
27,574

 
1,735

 
973

 
1,562

 
3,015

 
2,491

 
37,350

Ending Balance
$
27,881

 
$
1,742

 
$
987

 
$
1,566

 
$
3,015

 
$
2,497

 
$
37,688


Lakeland also maintains a reserve for unfunded lending commitments which is included in other liabilities. This reserve was $1.8 million and $2.3 million as of September 30, 2019 and December 31, 2018, respectively. 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 losses.
The following table summarizes loans that have been restructured during the three and nine months ended September 30, 2019 and 2018:
 
For the Three Months Ended September 30, 2019
 
For the Three Months Ended September 30, 2018
(dollars in thousands)
Number of
Contracts
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
 
Number of
Contracts
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
 
 
Commercial, secured by real estate
—

 
$
—

 
$
—

 
1

 
$
1,175

 
$
1,175

Home equity and consumer
2

 
83

 
83

 
—

 
—

 
—

 
2

 
83

 
83

 
1

 
1,175

 
1,175

 
For the Nine Months Ended September 30, 2019
 
For the Nine Months Ended September 30, 2018
(dollars in thousands)
Number of
Contracts
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
 
Number of
Contracts
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, secured by real estate
—

 
$
—

 
$
—

 
4

 
$
3,002

 
$
3,002

Commercial, industrial and other
—

 
—

 
—

 
1

 
950

 
950

Home equity and consumer
2

 
$
83

 
$
83

 
—

 
—

 
—

 
2


$
83


$
83


5


$
3,952


$
3,952


The following table summarizes as of September 30, 2019 and 2018, loans that were restructured within the previous twelve months that have subsequently defaulted:
 
September 30, 2019
 
September 30, 2018
(dollars in thousands)
Number of
Contracts
 
Recorded
Investment
 
Number of
Contracts
 
Recorded
Investment
 
 
Commercial, secured by real estate
—

 
$
—

 
1

 
$
171

Home equity and consumer
2

 
$
83

 
—

 
$
—

 
2

 
$
83

 
1

 
$
171


Other Real Estate and Other Repossessed Assets
At September 30, 2019 and December 31, 2018, the Company had other real estate owned of $944,000 and $830,000, respectively. Included in other real estate owned was residential property acquired as a result of foreclosure proceedings totaling $879,000 and $702,000 at September 30, 2019 and December 31, 2018, respectively. There were no balances of other repossessed assets at both September 30, 2019 and December 31, 2018.