Loans

3 Months Ended

Mar. 31, 2021

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 nine 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 months ended March 31, 2021, and 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)	March 31, 2021		December 31, 2020
Non owner occupied commercial	$	2,375,024	$	2,398,946
Owner occupied commercial	857,506		827,092
Multifamily	858,168		813,225
Non owner occupied residential	195,534		200,229
Commercial, industrial and other	740,566		718,189
Construction	291,252		266,883
Equipment finance	119,428		116,690
Residential mortgage	385,778		377,380
Home equity and consumer	285,690		302,598
Total	$	6,108,946	$	6,021,232

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 $15.5 million at March 31, 2021 and $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 $12.9 million at March 31, 2021 and $10.0 million at December 31, 2020.

At March 31, 2021 and December 31, 2020 Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled $346.2 million and $284.6 million, respectively and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $220,000 and $650,000, at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021 and December 31, 2020, the Company had $2.22 billion and $2.28 billion of loans pledged for potential borrowings at Federal Home Loan Bank ("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 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 March 31, 2021:


	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term	Total
Non owner occupied commercial
Pass	$	49,980	$	555,372	$	363,885	$	202,094	$	248,758	$	681,691	$	44,550	2,115	$	2,148,445
Watch	—		200		6,531		11,985		5,880		63,270		247		—	88,113
Special mention	—		3,384		3,112		8,343		9,047		22,541		80		—	46,507
Substandard	—		901		—		2,658		15,847		72,523		—		30	91,959
Total	49,980		559,857		373,528		225,080		279,532		840,025		44,877		2,145	2,375,024
Owner occupied commercial
Pass	61,379		118,138		80,308		78,770		81,400		299,935		8,217		175	728,322
Watch	—		1,574		22,907		904		—		22,279		800		—	48,464
Special mention	—		—		2,211		923		109		41,790		—		—	45,033
Substandard	—		—		—		2,995		1,971		30,666		44		11	35,687
Total	61,379		119,712		105,426		83,592		83,480		394,670		9,061		186	857,506
Multifamily
Pass	34,418		253,176		59,642		103,577		85,258		260,562		20,931		—	817,564
Watch	—		—		—		600		3,164		8,413		—		—	12,177
Special mention	—		9,731		—		—		2,399		1,113		—		—	13,243
Substandard	—		—		5,483		—		—		9,701		—		—	15,184
Total	34,418		262,907		65,125		104,177		90,821		279,789		20,931		—	858,168
Non owner occupied residential
Pass	7,245		23,958		23,965		24,219		23,282		68,676		8,076		823	180,244
Watch	—		—		299		—		1,074		5,361		—		—	6,734
Special mention	—		—		496		916		498		941		515		—	3,366
Substandard	—		746		512		1,227		1,166		1,539		—		—	5,190
Total	7,245		24,704		25,272		26,362		26,020		76,517		8,591		823	195,534
Commercial, industrial and other
Pass	130,518		236,340		74,724		14,621		5,978		40,974		193,086		408	696,649
Watch	—		285		592		132		1,579		603		11,776		—	14,967
Special mention	—		—		—		788		651		2,534		4,684		—	8,657
Substandard	—		7,307		50		2,643		1,533		2,013		4,984		1,763	20,293
Total	130,518		243,932		75,366		18,184		9,741		46,124		214,530		2,171	740,566
Construction
Pass	17,527		88,821		82,098		48,338		24,190		5,332		330		—	266,636
Watch	—		—		—		2,179		12,866		—		—		—	15,045
Special mention	—		—		—		—		8,853		—		—		—	8,853
Substandard	—		—		—		—		203		515		—		—	718
Total	17,527		88,821		82,098		50,517		46,112		5,847		330		—	291,252
Equipment finance
Pass	14,135		38,700		38,555		17,934		7,314		2,491		—		—	119,129
Watch	—		—		—		—		—		—		—		—	—
Special mention	—		—		—		—		—		—		—		—	—
Substandard	—		—		98		107		94		—		—		—	299
Total	14,135		38,700		38,653		18,041		7,408		2,491		—		—	119,428


	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term		Total
Residential mortgage
Pass	43,620		121,557		35,159		32,159		14,558		136,258		—		—		383,311
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		51		230		740		1,446		—		—		2,467
Total	43,620		121,557		35,210		32,389		15,298		137,704		—		—		385,778
Consumer
Pass	3,764		15,063		8,664		6,846		4,803		33,285		210,525		—		282,950
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		33		56		130		1		2,038		261		221		2,740
Total	3,764		15,096		8,720		6,976		4,804		35,323		210,786		221		285,690
Total loans	$	362,586	$	1,475,286	$	809,398	$	565,318	$	563,216	$	1,818,490	$	509,106	$	5,546	$	6,108,946

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
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


	Term Loans by Origination Year
(in thousands)	2020		2019		2018		2017		2016		Pre-2016		Revolving Loans		Revolving to Term		Total
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
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
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
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
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
Watch	—		—		—		—		—		—		—		—		—
Special mention	—		—		—		—		—		—		—		—		—
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

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 tables present the payment status of the recorded investment in past due loans as of the periods noted, by class of loans.


March 31, 2021			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,362,259	$	2,640	$	396	$	9,729	$	12,765	$	2,375,024
Owner occupied commercial	845,931		2,479		1,454		7,642		11,575		857,506
Multifamily	857,961		207		—		—		207		858,168
Non-owner occupied residential	192,199		1,236		1,122		977		3,335		195,534
Commercial, industrial and other	737,642		177		875		1,872		2,924		740,566
Construction	290,737		—		—		515		515		291,252
Equipment finance	118,113		1,114		22		179		1,315		119,428
Residential mortgage	382,994		1,357		—		1,427		2,784		385,778
Consumer	282,534		1,640		—		1,516		3,156		285,690
Total	$	6,070,370	$	10,850	$	3,869	$	23,857	$	38,576	$	6,108,946


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, including PCD loans on non-accrual, at March 31, 2021 and December 31, 2020:


March 31, 2021
(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	$	12,835	$	—	$	—	$	11,193
Owner occupied commercial	8,797		—		—		6,972
Multifamily	201		—		—		—
Non-owner occupied residential	1,417		—		—		852
Commercial, industrial and other	2,252		—		—		1,361
Construction	718		—		—		515
Equipment finance	300		—		—		—
Residential mortgage	2,328		—		—		740
Consumer	2,277		—		—		—
Total	$	31,125	$	—	$	—	$	21,633


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

At March 31, 2021, there were no loans that were past due more than 89 days and still accruing and at December 31, 2020, one loan with a recorded investment of $1,000 was past due more than 89 days and still accruing. The Company had $1.6 million and $1.7 million in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at March 31, 2021 and December 31, 2020, respectively.

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 March 31, 2021 and December 31, 2020, TDRs totaled $4.9 million and $5.0 million, respectively. Accruing TDRs totaled $3.8 million and non-accrual TDRs totaled $1.1 million at March 31, 2021. Accruing TDRs and non-accrual TDRs totaled $3.9 million and $1.1 million, respectively, at December 31, 2020. There were no loans that were restructured during the three months ended March 31, 2021 or 2020. There were no restructured loans that subsequently defaulted in the first quarter of 2021 and in the first quarter of 2020, there were two consumer loans with a recorded investment of $83,000 that were restructured in the previous 12 months and subsequently defaulted.

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. 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 this provision of the CARES Act and excluded modified loans that met the required guidelines for relief from its TDR classification. At March 31, 2021, 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.