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Loans

12 Months Ended

Dec. 31, 2020

LOANS

When the Company adopted ASU 2016-13 for measuring credit losses, 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 for a full description of the segments. All disclosures as of December 31, 2020 are presented in accordance with ASU 2016-13. The Company did not reclassify comparative financial periods and has presented those disclosures under previously applicable U.S. GAAP.

The following table summarizes the composition of the Company’s loan portfolio:


(in thousands)	December 31, 2020
Non-owner occupied commercial	$	2,398,946
Owner occupied commercial	827,092
Multifamily	813,225
Non-owner occupied residential	200,229
Total commercial, secured by real estate	4,239,492
Commercial, industrial and other	718,189


Construction	266,883
Equipment finance	116,690
Residential mortgage	377,380
Consumer	302,598
Total	$	6,021,232


(in thousands)	December 31, 2019
Commercial, secured by real estate	$	3,589,593
Commercial, industrial and other	431,934

Construction	335,169
Equipment finance	111,076
Residential mortgage	335,191
Consumer	337,977
Total loans	5,140,940
Net deferred fees	(3,117)
Loans, net of deferred fees	$	5,137,823

Loans are recognized 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 $16.1 million at December 31, 2020. 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 $10.0 million at December 31, 2020.

Included in the balance of commercial, industrial and other at December 31, 2020 is $284.6 million of PPP loans. At December 31, 2020 and December 31, 2019, consumer loans included overdraft deposit balances of $650,000 and $789,000, respectively. At December 31, 2020 and December 31, 2019, the Company had $2.28 billion and $1.29 billion of loans pledged for potential borrowings at FHLB.

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 CARES Act or the interagency statement issued by bank regulatory agencies are considered 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.

Prior to the adoption of ASU 2016-13, management used a numeric risk rating system with one (1) being the strongest rating and (9), the weakest. Ratings 1 through 5W were considered "Pass" ratings; however a rating of 5W, or "Watch" loans required more than the usual amount of monitoring. Rating 6, "Other Assets Especially Mentioned" was used for loans that are now defined under "Special Mention" above. Ratings of 7, 8 and 9 are defined above as "Substandard," "Doubtful" and "Loss," respectively.

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


	Term Loans by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term		Total
Non-owner occupied commercial
Pass	$	570,665	$	376,681	$	217,931	$	251,751	$	187,605	$	509,573	$	50,071	$	2,246	$	2,166,523
Watch	770		638		8,498		5,936		19,579		47,680		315		—		83,416
Special mention	3,400		3,131		8,377		9,115		19,936		7,894		2,895		—		54,748
Substandard	—		—		2,809		15,903		14,844		60,703		—		—		94,259
Total	574,835		380,450		237,615		282,705		241,964		625,850		53,281		2,246		2,398,946
Owner occupied commercial
Pass	116,512		76,224		80,244		81,215		62,118		245,330		11,072		179		672,894
Watch	11,347		22,932		411		3,651		8,038		23,612		673		—		70,664
Special mention	—		2,218		929		113		4,317		38,638		—		—		46,215
Substandard	434		16		3,038		641		5,770		27,376		44		—		37,319
Total	128,293		101,390		84,622		85,620		80,243		334,956		11,789		179		827,092
Multifamily
Pass	251,708		59,694		85,748		93,368		117,155		145,786		21,713		—		775,172
Watch	—		—		600		—		—		8,472		—		—		9,072
Special mention	9,781		—		—		2,399		—		1,124		—		—		13,304
Substandard	—		5,481		—		—		9,512		684		—		—		15,677
Total	261,489		65,175		86,348		95,767		126,667		156,066		21,713		—		813,225
Non-owner occupied residential
Pass	23,506		24,378		27,752		24,344		21,488		53,200		8,180		171		183,019
Watch	—		300		—		1,174		—		5,757		—		—		7,231
Special mention	—		496		1,199		392		293		656		655		—		3,691
Substandard	876		512		1,200		1,295		692		1,713		—		—		6,288
Total	24,382		25,686		30,151		27,205		22,473		61,326		8,835		171		200,229


	Term Loans by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term		Total
Commercial, industrial and other
Pass	299,091		84,917		16,245		7,216		18,358		41,900		208,519		531		676,777
Watch	287		3,701		156		1,643		301		369		2,324		—		8,781
Special mention	—		—		884		764		2,275		—		4,727		—		8,650
Substandard	7,177		50		3,559		1,547		1,497		729		9,422		—		23,981
Total	306,555		88,668		20,844		11,170		22,431		42,998		224,992		531		718,189
Construction
Pass	56,734		77,117		69,627		29,303		7,681		328		2,190		—		242,980
Watch	—		—		2,183		11,959		—		—		—		—		14,142
Special mention	—		—		—		8,321		—		—		—		—		8,321
Substandard	—		—		—		206		719		515		—		—		1,440
Total	56,734		77,117		71,810		49,789		8,400		843		2,190		—		266,883
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
Pass	15,999		9,844		7,490		5,333		4,632		31,861		224,549		166		299,874


Substandard	33		57		31		2		—		2,208		263		130		2,724
Total	16,032		9,901		7,521		5,335		4,632		34,069		224,812		296		302,598
Total loans	$	1,537,184	$	834,164	$	594,181	$	585,062	$	522,144	$	1,397,462	$	547,612	$	3,423	$	6,021,232

Prior to the adoption of ASU 2016-13, the Company did not present the risk category of all loans, but only of commercial loans. The following table presents the risk category of commercial loans as of December 31, 2019 by class of loan:


(in thousands)	Commercial, Secured by Real Estate		Commercial, Industrial and Other		Construction		Total Commercial Loans
Risk Rating
1	$	—	$	898	$	—	$	898
2	—		17,988		—		17,988
3	74,072		39,112		—		113,184
4	965,825		107,376		17,941		1,091,142
5	2,332,863		215,975		307,824		2,856,662
5W - Watch	100,347		30,192		6,959		137,498
6 - Other assets especially mentioned	55,438		11,328		—		66,766
7 - Substandard	61,048		9,065		2,445		72,558


Total	$	3,589,593	$	431,934	$	335,169	$	4,356,696

Past Due and Non-accrual Loans

Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. A loan is generally considered non-performing when it is placed on non-accrual status. A loan is generally placed on non-accrual status when it becomes 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection.

In the absence of other intervening factors, loans granted payment deferrals related to COVID-19 are not reported as past due or placed on non-accrual status provided the borrowers have met the criteria in the CARES Act or otherwise have met the criteria included in an interagency statement issued by bank regulatory agencies.

The following table presents the payment status of the recorded investment in past due loans, including PCD loans, as of December 31, 2020 by class of loans.


			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Commercial, secured by real estate:
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
Total commercial, secured by real estate	4,206,040		4,705		950		27,797		33,452		4,239,492
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

An aging analysis of past due loans, excluding PCI loans, which were accounted for on a pool basis, segregated by class of loans as of December 31, 2019.


			Past Due
(in thousands)	Current		30-59 Days		60-89 Days		Greater than 89 days		Total		Total Loans
Commercial, secured by real estate	$	3,569,008	$	3,578	$	1,200	$	9,702	$	14,480	$	3,583,488
Commercial, industrial and other	429,502		353		71		1,064		1,488		430,990
Construction	333,418		—		—		967		967		334,385
Equipment financing	110,546		166		80		284		530		111,076
Residential mortgage	331,337		1,138		251		2,075		3,464		334,801
Consumer	334,059		1,573		287		1,533		3,393		337,452
Total	$	5,107,870	$	6,808	$	1,889	$	15,625	$	24,322	$	5,132,192

The following table presents information on non-accrual loans, including PCD loans on non-accrual, at December 31, 2020:


(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
Non-owner occupied commercial	$	16,537	$	—	$	—	$	14,719
Owner occupied commercial	14,271		—		—		12,371
Multifamily	626		—		—		—
Non-owner occupied residential	2,217		—		—		1,580
Commercial, industrial and other	2,633		—		—		1,418
Construction	1,440		—		—		1,234
Equipment finance	327		—		—		—
Residential mortgage	2,469		—		—		1,015
Consumer	2,243		—		1		—
Total	$	42,763	$	—	$	1	$	32,337

The following table presents non-accrual loans, excluding PCI loans, at December 31, 2019:


(in thousands)	December 31, 2019
Commercial, secured by real estate	$	12,314
Commercial, industrial and other	1,539
Construction	967
Equipment finance	284
Residential mortgage	3,428
Consumer	2,606
Total non-accrual loans	$	21,138

At December 31, 2020, there was one loan with a recorded investment of $1,000 that was past due more than 89 days and still accruing and at December 31, 2019, no loans were past due more than 89 days and still accruing. The Company had $1.7 million and $2.0 million in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure.

Impaired Loans

The following table presents, under previously applicable GAAP, loans individually evaluated for impairment by the portfolio segments existing at December 31, 2019 and 2018.


December 31, 2019	Recorded Investment in Impaired Loans		Contractual Unpaid Principal Balance		Related Allowance		Interest Income Recognized		Average Investment in Impaired Loans
(in thousands)
Loans without related allowance:
Commercial, secured by real estate	$	12,478	$	12,630	$	—	$	164	$	10,386
Commercial, industrial and other	1,391		1,381		—		16		1,334
Construction	1,663		1,661		—		2		82
Equipment finance	—		—		—		—		—
Residential mortgage	803		815		—		—		233
Consumer	—		—		—		—		—
Loans with related allowance:
Commercial, secured by real estate	3,470		3,706		228		190		4,554
Commercial, industrial and other	113		113		5		6		113
Construction	—		—		—		—		—
Equipment finance	23		23		10		—		21
Residential mortgage	1,512		1,682		104		19		926
Consumer	671		765		5		29		693
Total:
Commercial, secured by real estate	$	15,948	$	16,336	$	228	$	354	$	14,940
Commercial, industrial and other	1,504		1,494		5		22		1,447
Construction	1,663		1,661		—		2		82
Equipment finance	23		23		10		—		21
Residential mortgage	2,315		2,497		104		19		1,159
Consumer	671		765		5		29		693
	$	22,124	$	22,776	$	352	$	426	$	18,342


December 31, 2018	Recorded Investment in Impaired Loans		Contractual Unpaid Principal Balance		Related Allowance		Interest Income Recognized		Average Investment in Impaired Loans
(in thousands)
Loans without related allowance:
Commercial, secured by real estate	$	9,284	$	9,829	$	—	$	188	$	7,369
Commercial, industrial and other	1,151		1,449		—		19		1,834
Construction	—		—		—		—		726
Equipment finance	301		597		—		—		376
Residential mortgage	—		—		—		4		242
Consumer	—		—		—		—		—
Loans with related allowance:
Commercial, secured by real estate	7,270		7,597		307		317		7,594
Commercial, industrial and other	209		209		7		12		209
Construction	—		—		—		—		—
Equipment finance	30		30		14		—		19
Residential mortgage	730		884		4		20		745
Consumer	727		765		6		32		898
Total:
Commercial, secured by real estate	$	16,554	$	17,426	$	307	$	505	$	14,963
Commercial, industrial and other	1,360		1,658		7		31		2,043
Construction	—		—		—		—		726
Equipment finance	331		627		14		—		395
Residential mortgage	730		884		4		24		987
Consumer	727		765		6		32		898
	$	19,702	$	21,360	$	338	$	592	$	20,012

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.

At December 31, 2020 and 2019, TDRs totaled $5.0 million and $7.3 million, respectively. Accruing TDRs totaled $3.9 million and non-accrual TDRs totaled $1.1 million at December 31, 2020. Accruing TDRs and non-accrual TDRs totaled $5.7 million and $1.6 million, respectively, at December 31, 2019.

There were no new TDRs in 2020. The following table summarizes loans that were restructured during 2019:


	For the Year Ended December 31, 2019
(dollars in thousands)		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment










Real estate - construction		1	694		694
Home equity and consumer		2	83		83
Total		3	$	777	$	777

The following table presents loans modified as TDRs within the previous twelve months from December 31, 2020 and 2019 that have defaulted during the subsequent twelve months:

For the Year Ended December 31, 2020

For the Year Ended December 31, 2019

(dollars in thousands)

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

Consumer

—

At December 31, 2020, approximately $9.7 million of loans, or 0.2% of total loans, remained on COVID-related deferral. During the second half of 2020, many 90-day loan deferments expired and borrowers began paying their pre-deferral loan payments. 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.

Purchased Credit Deteriorated Loans

The Company adopted ASU 2016-13, using the prospective transition approach for financial assets purchased with credit deterioration ("PCD") that were previously classified as purchased credit impaired ("PCI") and accounted for under ASC 310-30. Management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption, in accordance with ASU 2016-13. Upon adoption, the amortized cost basis of PCD assets was adjusted to reflect the addition of $1.3 million to the allowance for credit losses. The remaining noncredit discount, based on the adjusted amortized cost basis, will be accreted into interest income at the effective interest rate as of January 1, 2020.

In accordance with ASC 310-30, prior to the adoption of ASU 2016-13, the following presents the carrying value of the purchased credit impaired loans ("PCI") loans acquired in mergers:


(in thousands)	December 31, 2019
Acquisition
Highlands	$	8,194
Pascack Community Bank	113
Harmony Bank	441
Total	$	8,748

The following table presents the changes in accretable yield for PCI loans during the year ended December 31, 2019 in accordance with ASC 310-30, prior to the adoption of ASU 2016-13:


(in thousands)	2019
Balance, beginning of period	$	81
Acquisitions	1,431
Accretion	(1,236)
Net reclassification non-accretable difference	87
Balance, end of period	$	363

Related Party Loans

Lakeland has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons on similar terms, including interest rates and collateral, as those prevailing for comparable transactions with other borrowers not related to Lakeland. At December 31, 2020 and 2019, loans to these related parties amounted to $75.7 million and $55.4 million, respectively. There were new loans of $2.2 million to related parties and repayments of $6.6 million from related parties in 2020. There was a net addition of $24.7 million in existing loans for related party relationships that either commenced or ceased during 2020.

Mortgages Held for Sale

Residential mortgages originated by the bank and held for sale in the secondary market are carried at the lower of cost or fair market value. Fair value is generally determined by the value of purchase commitments on individual loans. Losses are recorded as a valuation allowance and charged to earnings. As of December 31, 2020, Lakeland had $1.3 million in mortgages held for sale compared to $1.7 million as of December 31, 2019.

Equipment Finance Receivables

Future minimum payments of equipment finance receivables at December 31, 2020 are expected as follows:


(in thousands)
2021	$	38,605
2022	32,001
2023	24,379
2024	15,295
2025	5,378
Thereafter	1,032
	$	116,690

Other Real Estate and Other Repossessed Assets

At December 31, 2020, Lakeland had no other real estate owned, while at December 31, 2019, Lakeland had other real estate of $563,000, consisting of residential property acquired as a result of foreclosure proceedings or through a deed in lieu of foreclosure. Lakeland held no other repossessed assets at December 31, 2020 or 2019. For the years ended December 31, 2020, 2019 and 2018, Lakeland had writedowns of $39,000, $153,000 and $70,000, respectively, recorded in other real estate and repossessed asset expense in the Consolidated Statement of Income.