Loans

6 Months Ended

Jun. 30, 2022

The following sets forth the composition of the Company’s loan portfolio:


(in thousands)	June 30, 2022		December 31, 2021
Non-owner occupied commercial	$	2,777,003	$	2,316,284
Owner occupied commercial	1,179,527		908,449
Multifamily	1,134,938		972,233
Non-owner occupied residential	221,339		177,097
Commercial, industrial and other	657,935		462,406
Construction	370,777		302,228
Equipment finance	134,136		123,212
Residential mortgage	622,417		438,710
Home equity and consumer	310,468		275,529
Total	$	7,408,540	$	5,976,148

Loans are recorded 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 $18.1 million at June 30, 2022 and $13.9 million at December 31, 2021. 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 totaled $3.2 million at June 30, 2022 and $5.8 million at December 31, 2021.

At June 30, 2022 and December 31, 2021, Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled $10.4 million and $56.6 million, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $248,000 and $184,000, at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022 and December 31, 2021, the Company had $2.56 billion and $2.30 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB").

The Company transferred approximately $10.1 million of commercial and residential mortgage loans from the loan portfolio to loans held for sale during the three months ended June 30, 2021 and subsequently sold these loans. For the six months ended June 30, 2021, the Company transferred from the loan portfolio to loans held for sale and subsequently sold approximately $15.1 million of commercial and residential mortgage loans. Excluding these loan transfers, there were no other sales of loans from the held for investment portfolio during the six months ended June 30, 2022 and 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, 2022.


	Term Loans by Origination Year
(in thousands)	2022		2021		2020		2019		2018		Pre-2018		Revolving Loans		Revolving to Term	Total
Non-owner occupied commercial
Pass	$	384,345	$	391,076	$	549,572	$	284,618	$	202,346	$	745,838	$	17,575	—	$	2,575,370
Watch	—		—		8,411		25,805		23,056		66,973		305		—	124,550
Special mention	—		—		955		14,320		5,678		29,048		—		—	50,001
Substandard	—		—		—		842		135		26,105		—		—	27,082
Total	384,345		391,076		558,938		325,585		231,215		867,964		17,880		—	2,777,003
Owner occupied commercial
Pass	109,598		227,056		183,891		92,936		76,526		338,059		12,757		—	1,040,823
Watch	—		—		9,549		7,135		7,071		32,358		—		—	56,113
Special mention	599		—		—		7,547		3,131		17,285		—		—	28,562
Substandard	—		—		11,147		18,968		2,180		21,734		—		—	54,029
Total	110,197		227,056		204,587		126,586		88,908		409,436		12,757		—	1,179,527
Multifamily
Pass	142,907		227,382		277,456		65,923		96,550		289,520		3,499		170	1,103,407
Watch	—		9		—		—		1,308		4,703		—		—	6,020
Special mention	162		—		2,445		3,904		—		14,234		—		—	20,745
Substandard	—		—		—		—		—		4,766		—		—	4,766
Total	143,069		227,391		279,901		69,827		97,858		313,223		3,499		170	1,134,938
Non-owner occupied residential
Pass	20,118		30,678		22,358		22,310		16,810		74,016		7,787		367	194,444
Watch	—		—		2,536		4,136		3,384		7,584		75		—	17,715
Special mention	—		—		—		627		829		5,852		—		—	7,308
Substandard	—		—		—		—		—		1,822		50		—	1,872
Total	20,118		30,678		24,894		27,073		21,023		89,274		7,912		367	221,339



Commercial, industrial and other
Pass	17,959		67,348		24,424		66,410		14,219		41,999		380,592		973	613,924
Watch	—		1,106		7,300		359		(1)		1,274		14,260		—	24,298
Special mention	—		—		—		2,862		46		2,577		1,238		—	6,723
Substandard	—		96		125		846		5,609		824		5,490		—	12,990
Total	17,959		68,550		31,849		70,477		19,873		46,674		401,580		973	657,935




Construction
Pass	32,411		171,287		77,972		35,700		9,982		5,059		10,322		—	342,733
Watch	—		—		—		999		13,500		—		612		—	15,111
Special mention	250		—		2,227		—		—		—		—		—	2,477
Substandard	—		—		—		—		—		10,456		—		—	10,456
Total	32,661		171,287		80,199		36,699		23,482		15,515		10,934		—	370,777








Equipment finance
Pass	36,420		42,348		25,403		21,294		6,838		1,732		—		—	134,035


Substandard	—		—		—		47		53		1		—		—	101
Total	36,420		42,348		25,403		21,341		6,891		1,733		—		—	134,136





Residential mortgage
Pass	160,644		172,440		113,014		35,930		21,742		116,327		—		—	620,097


Substandard	—		—		—		455		328		1,537		—		—	2,320
Total	160,644		172,440		113,014		36,385		22,070		117,864		—		—	622,417


	Term Loans by Origination Year
(in thousands)	2022		2021		2020		2019		2018		Pre-2018		Revolving Loans		Revolving to Term		Total
Consumer
Pass	27,484		32,985		9,498		4,608		3,780		25,172		205,305		—		308,832


Substandard	33		—		—		—		—		953		650		—		1,636
Total	27,517		32,985		9,498		4,608		3,780		26,125		205,955		—		310,468
Total loans	$	932,930	$	1,363,811	$	1,328,283	$	718,581	$	515,100	$	1,887,808	$	660,517	$	1,510	$	7,408,540

The following table presents the risk category of loans by class of loan and vintage as of December 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	$	363,459	$	516,131	$	295,944	$	189,592	$	195,733	$	562,338	$	18,795	—	$	2,141,992
Watch	—		—		25,292		14,660		4,641		47,011		130		—	91,734
Special mention	—		458		—		5,749		14,639		6,602		—		—	27,448
Substandard	119		431		332		2,656		8,000		43,572		—		—	55,110
Total	363,578		517,020		321,568		212,657		223,013		659,523		18,925		—	2,316,284
Owner occupied commercial
Pass	209,515		133,292		83,395		54,019		48,850		252,001		8,343		108	789,523
Watch	—		5,757		2,134		900		280		24,873		—		—	33,944
Special mention	—		9,694		21,837		12,632		95		17,851		—		—	62,109
Substandard	5		—		—		2,597		1,299		18,972		—		—	22,873
Total	209,520		148,743		107,366		70,148		50,524		313,697		8,343		108	908,449
Multifamily
Pass	225,060		255,016		72,438		71,366		73,122		207,509		18,161		1,281	923,953
Watch	—		966		—		13,709		854		6,497		—		—	22,026
Special mention	—		2,470		—		—		8,944		2,948		—		—	14,362
Substandard	—		—		5,485		1,321		—		4,987		99		—	11,892
Total	225,060		258,452		77,923		86,396		82,920		221,941		18,260		1,281	972,233






Non-owner occupied residential
Pass	28,476		18,527		16,928		15,695		18,048		51,194		7,288		—	156,156
Watch	—		—		—		—		651		5,057		—		—	5,708
Special mention	—		—		523		837		1,205		284		515		—	3,364
Substandard	—		3,062		510		4,797		988		2,512		—		—	11,869
Total	28,476		21,589		17,961		21,329		20,892		59,047		7,803		—	177,097








Commercial, industrial and other
Pass	100,921		23,940		65,225		11,636		3,808		37,479		191,293		872	435,174
Watch	939		461		446		—		1,378		173		5,056		—	8,453
Special mention	—		—		—		—		1,896		443		1,365		—	3,704
Substandard	101		7,352		—		1,276		496		422		5,428		—	15,075
Total	101,961		31,753		65,671		12,912		7,578		38,517		203,142		872	462,406






Construction
Pass	108,585		84,993		40,847		30,125		23,578		3,654		—		—	291,782

Special mention	—		—		—		—		10,446		—		—		—	10,446

Total	108,585		84,993		40,847		30,125		34,024		3,654		—		—	302,228






Equipment finance
Pass	50,482		30,486		27,626		10,238		3,128		803		—		—	122,763


Substandard	—		—		216		177		56		—		—		—	449
Total	50,482		30,486		27,842		10,415		3,184		803		—		—	123,212









Residential mortgage
Pass	171,442		112,680		27,228		20,784		9,103		96,510		—		—	437,747


Substandard	12		—		—		123		694		134		—		—	963
Total	171,454		112,680		27,228		20,907		9,797		96,644		—		—	438,710



	Term Loans by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Pre-2017		Revolving Loans		Revolving to Term		Total
Consumer
Pass	35,283		10,476		5,358		4,561		3,260		24,888		190,481		34		274,341


Substandard	32		—		—		—		—		630		526		—		1,188
Total	35,315		10,476		5,358		4,561		3,260		25,518		191,007		34		275,529
Total loans	$	1,294,431	$	1,216,192	$	691,764	$	469,450	$	435,192	$	1,419,344	$	447,480	$	2,295	$	5,976,148

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, 2022			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,776,310	$	364	$	—	$	329	$	693	$	2,777,003
Owner occupied commercial	1,176,764		1,538		928		297		2,763		1,179,527
Multifamily	1,134,938		—		—		—		—		1,134,938
Non-owner occupied residential	220,207		294		230		608		1,132		221,339
Commercial, industrial and other	653,324		76		—		4,535		4,611		657,935
Construction	370,777		—		—		—		—		370,777
Equipment finance	133,686		347		49		54		450		134,136
Residential mortgage	618,384		2,604		—		1,429		4,033		622,417
Consumer	309,404		237		398		429		1,064		310,468
Total	$	7,393,794	$	5,460	$	1,605	$	7,681	$	14,746	$	7,408,540


December 31, 2021			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,312,557	$	—	$	718	$	3,009	$	3,727	$	2,316,284
Owner occupied commercial	905,751		20		—		2,678		2,698		908,449
Multifamily	972,233		—		—		—		—		972,233
Non-owner occupied residential	174,245		—		136		2,716		2,852		177,097
Commercial, industrial and other	461,659		154		—		593		747		462,406
Construction	302,228		—		—		—		—		302,228
Equipment finance	122,923		211		41		37		289		123,212
Residential mortgage	437,574		255		64		817		1,136		438,710
Consumer	274,426		705		135		263		1,103		275,529
Total	$	5,963,596	$	1,345	$	1,094	$	10,113	$	12,552	$	5,976,148

The following tables present information on non-accrual loans at June 30, 2022 and December 31, 2021:


June 30, 2022
(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans > 89 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	324	$	—	$	—	$	—
Owner occupied commercial	12,587		—		—		12,084

Non-owner occupied residential	839		—		—		462
Commercial, industrial and other	4,882		—		—		288

Equipment finance	112		—		—		—
Residential mortgage	2,249		—		—		210
Consumer	1,168		—		—		—
Total	$	22,161	$	—	$	—	$	13,044


December 31, 2021
(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans > 89 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	3,009	$	—	$	—	$	2,624
Owner occupied commercial	2,810		—		—		2,398

Non-owner occupied residential	2,852		—		—		2,567
Commercial, industrial and other	6,763		—		—		1,122

Equipment finance	43		—		—		—
Residential mortgage	817		—		—		694
Consumer	687		—		1		—
Total	$	16,981	$	—	$	1	$	9,405

At June 30, 2022, there were no loans that were past due more than 89 days and still accruing and at December 31, 2021, one loan with a recorded investment of $1,000 was past due more than 89 days and still accruing. The Company had $1.7 million and $930,000 in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at June 30, 2022 and December 31, 2021, respectively.

Purchased Credit Deteriorated Loans

The following summarizes the PCD loans acquired in the 1st Constitution acquisition as of the closing date, January 6, 2022.


(in thousands)	PCD Loans
Gross amortized cost basis	$	140,300
Interest component of expected cash flows (accretable difference)	(3,792)
Allowance for credit losses on PCD loans	(12,077)
Net PCD loans	$	124,431

At June 30, 2022, net PCD loans acquired from 1st Constitution totaled $104.7 million.

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, 2022, 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, 2022 and December 31, 2021, TDRs totaled $4.1 million and $3.5 million, respectively. Accruing TDRs totaled $3.2 million and non-accrual TDRs totaled $928,000 at June 30, 2022. Accruing TDRs and non-accrual TDRs totaled $3.3 million and $127,000, respectively, at December 31, 2021. There were no loans that were restructured during the three and six months ended June 30, 2022 and 2021 that met the definition of a TDR. There were no restructured loans that subsequently defaulted in the six months ended June 30, 2022 and 2021.