Loans

6 Months Ended

Jun. 30, 2023

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


(in thousands)	June 30, 2023		December 31, 2022
Non-owner occupied commercial	$	2,991,124	$	2,906,014
Owner occupied commercial	1,201,049		1,246,189
Multifamily	1,314,255		1,260,814
Non-owner occupied residential	205,818		218,026
Commercial, industrial and other	594,790		606,711
Construction	354,918		380,100
Equipment finance	173,469		151,574
Residential mortgage	922,109		765,552
Home equity and consumer	343,755		331,070
Total	$	8,101,287	$	7,866,050

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 $25.2 million at June 30, 2023 and $24.5 million at December 31, 2022. 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 $1.3 million at June 30, 2023 and $2.1 million at December 31, 2022.

At June 30, 2023 and December 31, 2022, SBA Paycheck Protection Program ("PPP") loans totaled $389,000 and $435,000, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $604,000 and $1.3 million, at June 30, 2023 and December 31, 2022, respectively. At June 30, 2023 and December 31, 2022, the Company had $4.34 billion and $2.89 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB"), 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 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, 2023.


	Term Loans by Origination Year
(in thousands)	2023		2022		2021		2020		2019		Pre-2019		Revolving Loans		Revolving to Term	Total
Non-owner occupied commercial
Pass	$	180,461	$	664,822	$	383,091	$	480,262	$	278,174	$	831,539	$	18,989	—	$	2,837,338
Watch	764		1,260		—		21,375		8,875		58,777		—		—	91,051
Special mention	—		—		—		4,951		3,021		24,617		—		—	32,589
Substandard	—		—		—		—		—		30,146		—		—	30,146
Total	181,225		666,082		383,091		506,588		290,070		945,079		18,989		—	2,991,124
Owner occupied commercial
Pass	19,416		264,157		207,564		154,511		73,809		360,207		8,140		234	1,088,038
Watch	—		—		3,718		1,689		3,390		30,667		250		—	39,714
Special mention	—		1,310		20,191		5,707		1,840		17,997		—		—	47,045
Substandard	—		—		97		14,133		4,916		7,106		—		—	26,252
Total	19,416		265,467		231,570		176,040		83,955		415,977		8,390		234	1,201,049
Multifamily
Pass	68,918		302,926		240,378		249,302		65,575		328,008		2,723		—	1,257,830
Watch	—		—		5,753		24,477		—		2,463		—		—	32,693
Special mention	—		500		1,119		2,395		3,824		10,890		—		—	18,728
Substandard	—		—		—		—		—		5,004		—		—	5,004
Total	68,918		303,426		247,250		276,174		69,399		346,365		2,723		—	1,314,255
Non-owner occupied residential
Pass	3,448		35,027		28,833		20,029		24,831		79,203		5,675		4	197,050
Watch	—		—		—		—		—		3,855		75		—	3,930
Special mention	—		—		—		—		500		1,743		—		—	2,243
Substandard	—		—		—		41		548		2,006		—		—	2,595
Total	3,448		35,027		28,833		20,070		25,879		86,807		5,750		4	205,818



Commercial, industrial and other
Pass	13,029		45,275		46,009		24,715		29,601		47,435		343,805		1,507	551,376
Watch	2,556		223		583		72		162		2,447		6,488		—	12,531
Special mention	98		—		—		—		203		424		2,641		—	3,366
Substandard	—		375		464		—		—		348		26,330		—	27,517
Total	15,683		45,873		47,056		24,787		29,966		50,654		379,264		1,507	594,790





Current YTD period:
Gross charge-offs	—		—		—		—		—		13		—		—	13
Construction
Pass	22,533		119,661		122,275		22,832		5,827		4,662		17,122		3,711	318,623
Watch	2		1,798		8,131		13,194		—		—		472		—	23,597

Substandard	—		—		—		—		—		12,698		—		—	12,698
Total	22,535		121,459		130,406		36,026		5,827		17,360		17,594		3,711	354,918








Current YTD period:
Gross charge-offs	—		13		—		—		—		—		—		—	13


	Term Loans by Origination Year
(in thousands)	2023		2022		2021		2020		2019		Pre-2019		Revolving Loans		Revolving to Term		Total
Equipment finance
Pass	49,046		66,112		29,587		15,427		9,976		1,958		—		—		172,106


Substandard	64		269		135		47		837		11		—		—		1,363
Total	49,110		66,381		29,722		15,474		10,813		1,969		—		—		173,469
Current YTD period:
Gross charge-offs	—		—		60		—		13		10		—		—		83




Residential mortgage
Pass	183,889		316,549		163,362		104,090		33,785		118,480		—		—		920,155


Substandard	—		—		—		195		459		1,300		—		—		1,954
Total	183,889		316,549		163,362		104,285		34,244		119,780		—		—		922,109




Consumer
Pass	12,756		42,949		29,623		8,088		3,769		21,263		222,820		2		341,270


Substandard	—		—		—		—		—		690		29		1,766		2,485
Total	12,756		42,949		29,623		8,088		3,769		21,953		222,849		1,768		343,755
Current YTD period:
Gross charge-offs	138		6		18		—		1		15		—		—		178

Total loans	$	556,980	$	1,863,213	$	1,290,913	$	1,167,532	$	553,922	$	2,005,944	$	655,559	$	7,224	$	8,101,287
Current YTD period:
Gross charge-offs	138		19		78		—		14		38		—		—		287

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






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

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.

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, 2023			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,990,533	$	—	$	—	$	591	$	591	$	2,991,124
Owner occupied commercial	1,192,553		98		1,692		6,706		8,496		1,201,049
Multifamily	1,312,870		1,119		—		266		1,385		1,314,255
Non-owner occupied residential	205,803		15		—		—		15		205,818
Commercial, industrial and other	593,029		14		76		1,671		1,761		594,790
Construction	354,918		—		—		—		—		354,918
Equipment finance	172,290		757		276		146		1,179		173,469
Residential mortgage	917,114		2,669		1,215		1,111		4,995		922,109
Consumer	341,819		391		74		1,471		1,936		343,755
Total	$	8,080,929	$	5,063	$	3,333	$	11,962	$	20,358	$	8,101,287


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

The following tables present information on non-accrual loans at June 30, 2023 and December 31, 2022:


June 30, 2023
(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	$	864	$	—	$	—	$	—
Owner occupied commercial	8,076		—		—		7,675
Multifamily	266		—		—		—
Non-owner occupied residential	41		—		—		—
Commercial, industrial and other	1,737		—		—		—
Construction	—		—		—		—
Equipment finance	644		—		—		—
Residential mortgage	1,954		—		—		—
Consumer	2,486		—		—		68
Total	$	16,068	$	—	$	—	$	7,743


December 31, 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	$	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

At June 30, 2023 and December 31, 2022, there were no loans that were past due more than 89 days and still accruing. The Company had no residential mortgages and consumer loans included in non-accrual and that were in the process of foreclosure at June 30, 2023 and $898,000 in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at December 31, 2022.

Purchased Credit Deteriorated ("PCD") 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, 2023, net PCD loans acquired from 1st Constitution totaled $74.2 million.

Troubled Debt Restructurings and Modifications of Loans to Debtors Experiencing Financial Difficulty

The Company adopted Accounting Standards Update 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02") as of January 1, 2023. Among other things, ASU 2022-02 eliminates the recognition and measurement guidance of troubled debt restructured loans ("TDRs") so that creditors will apply the same guidance to all modifications when determining whether a modification results in a new receivable or continuation of an existing receivable. ASU 2022-02 requires vintage disclosures of gross charge-offs as shown in the vintage disclosure above. It also replaces the historical disclosure of TDRs with the new disclosure of modifications of receivables to debtors experiencing financial difficulty.

Prior to the adoption of ASU 2022-02, loans were classified as TDRs in cases where borrowers experienced financial difficulties and Lakeland made certain concessionary modifications to contractual terms. Restructured loans typically involved 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.

During the three and six months ended June 30, 2023, there were no loan modifications that met the definition of a modification to a debtor experiencing financial difficulty. At December 31, 2022, TDRs totaled $2.6 million, all of which were accruing TDRs. There were no loans that were restructured during the three and six months ended June 30, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted during the six months ended June 30, 2023 or 2022, respectively.