Loans

6 Months Ended

Jun. 30, 2021

Receivables [Abstract]

Loans

Loans

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 and six months ended June 30, 2021, and as of 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)	June 30, 2021		December 31, 2020
Non owner occupied commercial	$	2,330,376	$	2,398,946
Owner occupied commercial	870,535		827,092
Multifamily	902,394		813,225
Non owner occupied residential	189,765		200,229
Commercial, industrial and other	565,704		718,189
Construction	335,167		266,883
Equipment finance	121,096		116,690
Residential mortgage	391,589		377,380
Home equity and consumer	282,206		302,598
Total	$	5,988,832	$	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 $14.3 million at June 30, 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 $11.0 million at June 30, 2021 and $10.0 million at December 31, 2020.

At June 30, 2021 and December 31, 2020, Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled $207.0 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 $272,000 and $650,000, at June 30, 2021 and December 31, 2020, respectively. At June 30, 2021 and December 31, 2020, the Company had $2.26 billion and $2.28 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB").

The Company transferred approximately $15.1 million of commercial and residential mortgage loans from the loan portfolio to loans held for sale during the six months ended June 30, 2021 and subsequently sold these loans. Excluding the loan transfers, there were no other sales to loans from the held for investment portfolio during the six months ended June 30, 2021.

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 June 30, 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	$	145,375	$	552,563	$	304,739	$	198,074	$	239,433	$	652,362	$	17,694	—	$	2,110,240
Watch	—		—		25,822		11,898		4,746		49,686		820		—	92,972
Special mention	—		3,368		3,090		8,310		12,318		30,293		60		—	57,439
Substandard	—		899		—		2,657		10,668		55,501		—		—	69,725
Total	145,375		556,830		333,651		220,939		267,165		787,842		18,574		—	2,330,376
Owner occupied commercial
Pass	106,751		115,766		103,388		64,984		74,217		297,020		7,100		336	769,562
Watch	—		1,561		2,887		892		283		17,496		20		—	23,139
Special mention	—		—		2,166		13,706		105		28,296		—		—	44,273
Substandard	—		—		18		2,968		1,814		28,717		44		—	33,561
Total	106,751		117,327		108,459		82,550		76,419		371,529		7,164		336	870,535
Multifamily
Pass	109,244		252,490		78,034		89,956		81,657		240,963		10,261		—	862,605
Watch	—		—		—		—		4,571		5,701		—		—	10,272
Special mention	—		12,176		—		—		2,400		1,099		—		—	15,675
Substandard	—		—		5,484		1,325		—		6,833		200		—	13,842
Total	109,244		264,666		83,518		91,281		88,628		254,596		10,461		—	902,394
Non owner occupied residential
Pass	18,362		21,396		18,334		18,497		19,397		62,191		7,863		430	166,470
Watch	—		—		—		—		1,045		5,245		—		—	6,290
Special mention	—		—		1,025		845		486		930		515		—	3,801
Substandard	—		3,315		512		5,031		1,861		2,485		—		—	13,204
Total	18,362		24,711		19,871		24,373		22,789		70,851		8,378		430	189,765

	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term		Total
Commercial, industrial and other
Pass	157,098		89,379		73,878		13,950		5,116		40,518		155,183		330		535,452
Watch	395		283		544		107		1,515		223		3,229		80		6,376
Special mention	—		—		1		306		2,004		809		4,057		—		7,177
Substandard	—		7,300		48		2,206		645		1,565		4,935		—		16,699
Total	157,493		96,962		74,471		16,569		9,280		43,115		167,404		410		565,704
Construction
Pass	43,967		101,838		88,989		33,067		26,442		3,694		329		—		298,326
Watch	—		—		—		13,707		12,867		—		—		—		26,574
Special mention	—		—		—		—		9,752		—		—		—		9,752
Substandard	—		—		—		—		—		515		—		—		515
Total	43,967		101,838		88,989		46,774		49,061		4,209		329		—		335,167
Equipment finance
Pass	27,986		35,644		34,792		15,132		5,554		1,724		—		—		120,832
Substandard	—		—		98		90		76		—		—		—		264
Total	27,986		35,644		34,890		15,222		5,630		1,724		—		—		121,096
Residential mortgage
Pass	75,321		120,307		32,126		29,708		13,105		120,884		—		—		391,451
Substandard	—		—		—		—		—		138		—		—		138
Total	75,321		120,307		32,126		29,708		13,105		121,022		—		—		391,589
Consumer
Pass	11,986		12,951		7,512		5,763		3,921		30,293		209,027		—		281,453
Substandard	33		—		—		—		1		566		153		—		753
Total	12,019		12,951		7,512		5,763		3,922		30,859		209,180		—		282,206
Total loans	$	696,518	$	1,331,236	$	783,487	$	533,179	$	535,999	$	1,685,747	$	421,490	$	1,176	$	5,988,832

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

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

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.

June 30, 2021			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,323,132	$	521	$	434	$	6,289	$	7,244	$	2,330,376
Owner occupied commercial	861,430		2,942		138		6,025		9,105		870,535
Multifamily	902,394		—		—		—		—		902,394
Non-owner occupied residential	186,653		137		2,160		815		3,112		189,765
Commercial, industrial and other	564,271		264		26		1,143		1,433		565,704
Construction	334,652		—		—		515		515		335,167
Equipment finance	120,671		133		93		199		425		121,096
Residential mortgage	391,123		466		—		—		466		391,589
Consumer	281,091		831		275		9		1,115		282,206
Total	$	5,965,417	$	5,294	$	3,126	$	14,995	$	23,415	$	5,988,832

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 at June 30, 2021 and December 31, 2020:

June 30, 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	$	11,427	$	—	$	—	$	6,403
Owner occupied commercial	7,152		—		—		5,811
Multifamily	195		—		—		—
Non-owner occupied residential	1,305		—		—		853
Commercial, industrial and other	1,449		—		—		723
Construction	515		—		—		515
Equipment finance	264		—		—		—
Consumer	308		—		—		—
Total	$	22,615	$	—	$	—	$	14,305

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 June 30, 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 $797,000 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 June 30, 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.

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. The Consolidated Appropriations Act, 2021 (the "CAA"), which was signed into law on December 27, 2020, 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 June 30, 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.

At June 30, 2021 and December 31, 2020, TDRs totaled $4.4 million and $5.0 million, respectively. Accruing TDRs totaled $3.6 million and non-accrual TDRs totaled $812,000 at June 30, 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 and six months ended June 30, 2021 and June 30, 2020 that met the definition of a TDR. As of June 30, 2020, commercial loans totaling $967.0 million were granted 90-day, COVID-related payment deferments, of which 87% were commercial real estate loans. In addition, payment deferments on residential and consumer loans totaled $53.0 million at June 30, 2020. There were no restructured loans that subsequently defaulted in the six months ended June 30, 2021; however, one construction loan totaling $694,000 and two consumer loans totaling $73,000 that were TDRs within the previous twelve months had subsequently defaulted in the six months ended June 30, 2020.