Debt

12 Months Ended

Dec. 31, 2022

Debt Disclosure [Abstract]

Debt

Debt

Overnight and Short-Term Borrowings

At December 31, 2022, overnight and short-term borrowings from FHLB totaled $700.0 million and at December 31, 2021, there were no overnight and short-term borrowings. Lakeland may borrow from the FHLB up to the amount of collateral pledged. In addition, Lakeland had no overnight and short-term borrowings from correspondent banks at December 31, 2022 or December 31, 2021. At December 31, 2022, Lakeland had overnight and short-term federal funds lines available to borrow up to $250.0 million from correspondent banks. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York based on the fair value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of December 31, 2022 or 2021.

Other short-term borrowings at December 31, 2022 and 2021 consisted of short-term securities sold under agreements to repurchase totaling $28.8 million and $106.5 million, respectively. Securities underlying the agreements were under Lakeland’s control. At December 31, 2022, the Company had $25.6 million in mortgage-backed securities and $13.8 million in collateralized mortgage obligations pledged for its short-term securities sold under agreements to repurchase.

FHLB Advances

Advances from the FHLB totaled $25.0 million at both December 31, 2022 and December 31, 2021, with a weighted average interest rate of 0.77% and maturity in 2025. The advance was collateralized by first mortgage loans and has prepayment penalties. There were no FHLB advance prepayments in 2022 or 2021.

Subordinated Debentures

On January 6, 2022, the Company acquired $18.0 million of fixed to floating rate subordinated notes in connection with the 1st Constitution acquisition with a fair value of $14.7 million. In May 2006, 1st Constitution established 1st Constitution Capital Trust II ("Trust II"), a Delaware business trust and wholly-owned subsidiary of 1st Constitution, for the sole purpose of issuing $18.0 million of trust preferred securities (the "Capital Securities"). Trust II utilized the $18.0 million in proceeds, along with $557,000 invested in Trust II by 1st Constitution to purchase $18.6 million of floating rate junior subordinated debentures issued by 1st Constitution and due to mature on June 15, 2036. The subordinated debentures were dated June 15, 2006 and pay interest at a rate of LIBOR plus a spread of 165 basis points which resets quarterly until maturity or earlier redemption. The Capital Securities were issued in connection with a pooled offering involving approximately 50 other financial institution holding companies. All of the Capital Securities were sold to a single pooling vehicle. The floating rate junior subordinated debentures are the only asset of Trust II and have terms that mirrored the Capital Securities. These debentures are redeemable in whole or in part prior to maturity. Trust II is obligated to distribute all proceeds of a redemption of these debentures, whether voluntary or upon maturity, to holders of the Capital Securities. The Company's obligation with respect to the Capital Securities and the debentures, when taken together, provided a full and unconditional guarantee on a

subordinated basis by Lakeland as successor to 1st Constitution of the obligations of Trust II to pay amounts when due on the Capital Securities. Interest payments on the floating rate junior subordinated debentures flow through Trust II to the pooling vehicle.

The Company completed an offering of $150.0 million of fixed to floating rate subordinated notes on September 15, 2021, due on September 15, 2031. The notes bear interest at a rate of 2.875% until September 15, 2026, and will then reset quarterly to the then current Benchmark rate, which is expected to be the three-month term Secured Overnight Financing Rate ("SOFR") plus a spread of 220 basis points. The debt is included in Tier 2 capital for the Company. Debt issuance costs totaled $2.3 million and are being amortized to maturity. Subordinated debt is presented net of issuance costs on the consolidated balance sheets.

On January 4, 2019, the Company acquired subordinated notes in connection with the Highlands acquisition. Highlands issued $5.0 million of fixed rate notes in May 2014 bearing an interest rate of 8.00% per annum until maturity on May 16, 2024. In October 2015, Highlands issued $7.5 million of fixed rate notes bearing an interest rate of 6.94% until maturity on October 1, 2025. The Company redeemed both issuances in 2021.

On September 30, 2016, the Company completed an offering of $75.0 million of fixed to floating rate subordinated notes due September 30, 2026. The notes paid interest at a rate of 5.125% per annum until September 30, 2021 when they were to reset quarterly to the then current three-month LIBOR plus 397 basis points until maturity in September 30, 2026 or their earlier redemption. The debt was included in Tier 2 capital for the Company. Debt issuance costs totaled $1.5 million and were being amortized to maturity. On September 30, 2021, the Company redeemed this issuance which resulted in an acceleration of unamortized debt issuance costs of $831,000.

In May 2007, the Company issued $20.6 million of junior subordinated debentures due August 31, 2037 to Lakeland Bancorp Capital Trust IV, a Delaware business trust. The distribution rate on these securities was 6.61% for five years and floats at LIBOR plus 152 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares of trust preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Company’s obligations under the debentures and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the Trust’s obligations under the preferred securities. The preferred securities are callable by the Company on or after August 1, 2012, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2037. On August 3, 2015, the Company acquired and extinguished $10.0 million of Lakeland Bancorp Capital Trust IV debentures and recorded a $1.8 million gain on the extinguishment of debt.

In June 2003, the Company issued $20.6 million of junior subordinated debentures due June 30, 2033 to Lakeland Bancorp Capital Trust II, a Delaware business trust. The distribution rate on these securities was 5.71% for five years and floats at LIBOR plus 310 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares of trust preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Company’s obligations under the debentures and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the Trust’s obligations under the preferred securities. The preferred securities are callable by the Company on or after June 30, 2008, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2033.

In June 2016, the Company entered into two five-year cash flow swaps totaling $30.0 million in order to hedge the variable cash outflows associated with the junior subordinated debentures issued to Lakeland Bancorp Capital Trust II and Lakeland Bancorp Capital Trust IV. Both of these swaps matured in 2021. For more information please see Note 20 – Derivatives.