Loans

9 Months Ended

Sep. 30, 2022

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


(in thousands)	September 30, 2022		December 31, 2021
Non-owner occupied commercial	$	2,873,824	$	2,316,284
Owner occupied commercial	1,141,290		908,449
Multifamily	1,186,036		972,233
Non-owner occupied residential	222,597		177,097
Commercial, industrial and other	613,228		462,406
Construction	381,109		302,228
Equipment finance	137,999		123,212
Residential mortgage	690,453		438,710
Home equity and consumer	322,290		275,529
Total	$	7,568,826	$	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 $20.9 million at September 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 $2.5 million at September 30, 2022 and $5.8 million at December 31, 2021.

At September 30, 2022 and December 31, 2021, SBA Paycheck Protection Program ("PPP") loans totaled $734,000 and $56.6 million, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $345,000 and $184,000, at September 30, 2022 and December 31, 2021, respectively. At September 30, 2022 and December 31, 2021, the Company had $2.81 billion and $2.30 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB"), respectively.

The Company transferred approximately $6.6 million of commercial and residential mortgage loans from the loan portfolio to loans held for sale during the three months ended September 30, 2021 and subsequently sold these loans. For the nine months ended September 30, 2021, the Company transferred from the loan portfolio to loans held for sale and subsequently sold approximately $21.7 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 nine months ended September 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.

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 September 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	$	568,312	$	387,895	$	536,408	$	276,115	$	199,556	$	727,912	$	16,019	—		$	2,712,217
Watch	—		—		2,939		25,627		9,375		63,784		—		—		101,725
Special mention	—		—		946		14,347		10,298		9,511		—		—		35,102
Substandard	—		—		—		852		134		23,754		40		—		24,780
Total	568,312		387,895		540,293		316,941		219,363		824,961		16,059		—		2,873,824
Owner occupied commercial
Pass	145,236		201,964		183,610		89,761		62,778		328,032		11,800		83		1,023,264
Watch	—		17,771		2,955		7,068		6,971		29,766		—		—		64,531
Special mention	592		—		5,746		4,479		3,171		15,026		—		—		29,014
Substandard	—		—		9,704		—		1,150		13,627		—		—		24,481
Total	145,828		219,735		202,015		101,308		74,070		386,451		11,800		83		1,141,290
Multifamily
Pass	222,643		223,070		265,900		64,363		94,302		262,993		1,149		—		1,134,420
Watch	—		5,848		11,801		3,060		1,301		4,018		—		—		26,028
Special mention	400		—		2,433		—		—		11,344		—		—		14,177
Substandard	—		—		—		3,884		—		7,527		—		—		11,411
Total	223,043		228,918		280,134		71,307		95,603		285,882		1,149		—		1,186,036
Non-owner occupied residential
Pass	28,029		30,019		21,232		24,220		16,238		75,526		7,789		20		203,073
Watch	—		—		2,524		2,079		3,368		6,729		75		—		14,775
Special mention	—		—		—		623		826		1,034		—		—		2,483
Substandard	—		—		—		—		—		2,266		—		—		2,266
Total	28,029		30,019		23,756		26,922		20,432		85,555		7,864		20		222,597



Commercial, industrial and other
Pass	41,596		55,217		29,656		64,466		15,274		41,636		328,418		329		576,592
Watch	500		1,035		126		322		—		1,239		18,680		138		22,040
Special mention	—		—		—		3,104		41		639		937		—		4,721
Substandard	776		102		—		445		5,082		(119)		3,589		—		9,875
Total	42,872		56,354		29,782		68,337		20,397		43,395		351,624		467		613,228





Construction
Pass	50,985		182,764		63,804		32,071		20,752		4,915		10,402		—		365,693
Watch	941		—		—		—		—		—		294		—		1,235
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		2,228		—		—		11,953		—		—		14,181
Total	51,926		182,764		66,032		32,071		20,752		16,868		10,696		—		381,109








Equipment finance
Pass	51,471		39,053		22,714		18,269		5,351		909		—		—		137,767


Substandard	—		60		—		139		33		—		—		—		232
Total	51,471		39,113		22,714		18,408		5,384		909		—		—		137,999






Residential mortgage
Pass	241,176		170,411		111,322		35,659		20,801		108,824		—		—		688,193


Substandard	—		—		—		449		326		1,485		—		—		2,260
Total	241,176		170,411		111,322		36,108		21,127		110,309		—		—		690,453




Consumer
Pass	38,954		32,160		9,036		4,357		3,469		23,034		210,084		—		321,094


Substandard	33		—		—		—		25		856		282		—		1,196
Total	38,987		32,160		9,036		4,357		3,494		23,890		210,366		—		322,290
Total loans	$	1,391,644	$	1,347,369	$	1,285,084	$	675,759	$	480,622	$	1,778,220	$	609,558	$	570	$	7,568,826

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








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 were not reported as past due or placed on non-accrual status provided the borrowers met the criteria in the CARES Act or otherwise 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.


September 30, 2022			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,873,092	$	421	$	—	$	311	$	732	$	2,873,824
Owner occupied commercial	1,131,553		1,051		8,198		488		9,737		1,141,290
Multifamily	1,186,036		—		—		—		—		1,186,036
Non-owner occupied residential	221,212		517		—		868		1,385		222,597
Commercial, industrial and other	609,403		116		141		3,568		3,825		613,228
Construction	381,109		—		—		—		—		381,109
Equipment finance	137,172		607		173		47		827		137,999
Residential mortgage	687,242		1,391		490		1,330		3,211		690,453
Consumer	321,679		518		4		89		611		322,290
Total	$	7,548,498	$	4,621	$	9,006	$	6,701	$	20,328	$	7,568,826


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 September 30, 2022 and December 31, 2021:


September 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	$	307	$	—	$	—	$	—
Owner occupied commercial	10,322		—		—		9,638

Non-owner occupied residential	868		—		—		450
Commercial, industrial and other	3,623		—		—		—

Equipment finance	226		—		—		—
Residential mortgage	2,226		—		—		—
Consumer	798		—		31		—
Total	$	18,370	$	—	$	31	$	10,088


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 September 30, 2022, there was one loan with a recorded investment of $31,000 that was 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 $871,000 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 September 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 September 30, 2022, net PCD loans acquired from 1st Constitution totaled $101.1 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 and related legislation provided relief from TDR classification for certain loan modifications related to the COVID-19 pandemic beginning March 1, 2020 through December 31, 2021. 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 Company elected this provision of the CARES Act and excluded modified loans that met the required guidelines for relief from its TDR classification. At September 30, 2022, no loans were on COVID-related deferrals as any 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 September 30, 2022 and December 31, 2021, TDRs totaled $3.1 million and $3.5 million, respectively. Accruing TDRs totaled $3.1 million and there were no non-accrual TDRs at September 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 nine months ended September 30, 2022 that met the definition of a TDR. During the three and nine months ended September 30, 2021, there was one consumer loan totaling $116,000 that was restructured that met the definition of a TDR. There were no restructured loans that subsequently defaulted in the nine months ended September 30, 2022 and 2021.