Loans

12 Months Ended

Dec. 31, 2022

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


(in thousands)	December 31, 2022		December 31, 2021
Non-owner occupied commercial	$	2,906,014	$	2,316,284
Owner occupied commercial	1,246,189		908,449
Multifamily	1,260,814		972,233
Non-owner occupied residential	218,026		177,097
Commercial, industrial and other	606,711		462,406
Construction	380,100		302,228
Equipment finance	151,574		123,212
Residential mortgage	765,552		438,710
Consumer	331,070		275,529
Total	$	7,866,050	$	5,976,148

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 $24.5 million at December 31, 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 total $2.1 million and $5.8 million at December 31, 2022 and December 31, 2021, respectively.

At December 31, 2022 and December 31, 2021, Small Business Association ("SBA") Paycheck Protection Program ("PPP") loans totaled $435,000 and $56.6 million, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $1.3 million and $184,000 at December 31, 2022 and December 31, 2021, respectively. Loans pledged for potential borrowings at the FHLB totaled $2.89 billion and $2.30 billion at December 31, 2022 and December 31, 2021, respectively.

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 December 31, 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	$	673,235	$	391,748	$	495,618	$	271,109	$	183,971	$	703,852	$	19,317	$	2,502	$	2,741,352
Watch	1,272		—		21,720		26,906		12,099		48,314		—		—		110,311
Special mention	—		—		494		830		15,586		16,304		—		—		33,214
Substandard	—		—		—		—		133		21,004		—		—		21,137
Total	674,507		391,748		517,832		298,845		211,789		789,474		19,317		2,502		2,906,014
Owner occupied commercial
Pass	267,754		198,131		191,603		85,343		61,581		317,434		13,328		—		1,135,174
Watch	—		—		2,888		3,520		4,728		28,659		75		—		39,870
Special mention	585		17,778		5,749		1,862		3,701		20,292		—		—		49,967
Substandard	—		97		8,876		1,899		475		9,831		—		—		21,178
Total	268,339		216,006		209,116		92,624		70,485		376,216		13,403		—		1,246,189
Multifamily
Pass	312,910		221,306		265,187		67,072		95,432		249,021		5,288		—		1,216,216
Watch	—		5,817		11,692		—		—		2,504		—		—		20,013
Special mention	500		—		2,421		—		—		11,274		—		—		14,195
Substandard	—		—		—		3,864		—		6,526		—		—		10,390
Total	313,410		227,123		279,300		70,936		95,432		269,325		5,288		—		1,260,814




Non-owner occupied residential
Pass	37,445		29,365		22,133		24,205		18,489		67,114		7,513		21		206,285
Watch	—		—		—		2,068		—		5,244		75		—		7,387
Special mention	—		—		—		507		822		1,017		—		—		2,346
Substandard	—		—		—		—		—		2,008		—		—		2,008
Total	37,445		29,365		22,133		26,780		19,311		75,383		7,588		21		218,026





Commercial, industrial and other
Pass	48,719		51,894		27,644		57,124		13,936		39,892		339,040		245		578,494
Watch	251		704		237		211		—		1,424		10,001		—		12,828
Special mention	375		258		—		179		36		378		4,878		—		6,104
Substandard	776		242		—		450		4,722		183		2,912		—		9,285
Total	50,121		53,098		27,881		57,964		18,694		41,877		356,831		245		606,711


	Term Loans by Origination Year
(in thousands)	2022		2021		2020		2019		2018		Pre-2018		Revolving Loans		Revolving to Term		Total
Construction
Pass	79,420		172,849		35,295		31,447		7,245		4,005		19,294		—		349,555
Watch	1,159		5,480		10,299		—		—		—		171		—		17,109

Substandard	—		95		—		—		—		13,341		—		—		13,436
Total	80,579		178,424		45,594		31,447		7,245		17,346		19,465		—		380,100
Equipment finance
Pass	74,840		36,087		20,382		15,738		3,862		546		—		—		151,455


Substandard	—		—		—		97		22		—		—		—		119
Total	74,840		36,087		20,382		15,835		3,884		546		—		—		151,574
Residential mortgage
Pass	323,636		167,791		110,199		35,180		20,218		106,391		—		—		763,415


Substandard	—		—		—		490		341		1,306		—		—		2,137
Total	323,636		167,791		110,199		35,670		20,559		107,697		—		—		765,552



Consumer
Pass	47,282		31,368		8,658		4,143		3,093		21,482		213,857		—		329,883


Substandard	33		—		—		—		23		853		278		—		1,187
Total	47,315		31,368		8,658		4,143		3,116		22,335		214,135		—		331,070
Total loans	$	1,870,192	$	1,331,010	$	1,241,095	$	634,244	$	450,515	$	1,700,199	$	636,027	$	2,768	$	7,866,050

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


	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	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 are not reported as past due or placed on non-accrual status provided the borrowers have met the criteria in the CARES Act, the Appropriations 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.


December 31, 2022			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,905,049	$	346	$	—	$	619	$	965	$	2,906,014
Owner occupied commercial	1,235,134		2,854		477		7,724		11,055		1,246,189
Multifamily	1,260,135		—		679		—		679		1,260,814
Non-owner occupied residential	217,407		178		—		441		619		218,026
Commercial, industrial and other	603,731		55		3		2,922		2,980		606,711
Construction	379,120		—		—		980		980		380,100
Equipment finance	150,842		494		238		—		732		151,574
Residential mortgage	760,638		3,031		271		1,612		4,914		765,552
Consumer	330,119		841		62		48		951		331,070
Total	$	7,842,175	$	7,799	$	1,730	$	14,346	$	23,875	$	7,866,050


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 December 31, 2022 and December 31, 2021.


December 31, 2022
(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	$	618	$	—	$	—	$	—
Owner occupied commercial	9,439		—		—		8,859

Non-owner occupied residential	441		—		—		440
Commercial, industrial and other	2,978		—		—		—
Construction	980		—		—		980
Equipment finance	114		—		—		—
Residential mortgage	2,011		—		—		—
Consumer	781		—		—		79
Total	$	17,362	$	—	$	—	$	10,358


December 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	$	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 December 31, 2022, there were no loans that were past due more than 89 days and still accruing and at December 31, 2021, there was one loan with a recorded investment of $1,000 that was past due more than 89 days and still accruing. At December 31, 2022 and 2021, the Company had $898,000 and $930,000, respectively, in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure.

Purchased Credit Deteriorated Loans

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


(in thousands)
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 December 31, 2022, net PCD loans acquired from 1st Constitution totaled $83.1 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 December 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.

At December 31, 2022, TDRs totaled $2.6 million and were all accruing. At December 31, 2021, TDRs totaled $3.5 million, with accruing TDRs and non-accrual TDRs totaling $3.3 million and $127,000, respectively. There were no loans that was restructured during 2022 that met the definition of a TDR, while one consumer loan totaling $115,000 was restructured during 2021 that met the definition of a TDR. There were no restructured loans that subsequently defaulted in 2022 or 2021.

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, 2022 and 2021, loans to these related parties amounted to $67.5 million and $64.0 million, respectively. There were new loans of $15.3 million to related parties and repayments of $11.8 million from related parties in 2022.

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, 2022, Lakeland had $536,000 in mortgages held for sale compared to $1.9 million as of December 31, 2021.

Equipment Finance Receivables

Future minimum payments of equipment finance receivables at December 31, 2022 are expected as follows:


(in thousands)
2023	$	48,726
2024	40,900
2025	30,713
2026	20,317
2027	9,260
Thereafter	1,658
	$	151,574

Other Real Estate and Other Repossessed Assets

At December 31, 2022 and December 31, 2021, Lakeland had no other real estate owned and held no other repossessed assets. For the years ended December 31, 2022 and December 31, 2021, Lakeland had no writedowns of other real estate owned and for the year ended December 31, 2020 had writedowns of $39,000 recorded in other expense in the Consolidated Statement of Income.