UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013.

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO                     .

Commission file number: 000-17820

LAKELAND BANCORP, INC.

(Exact name of registrant as specified in its charter)

New Jersey	22-2953275
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
250 Oak Ridge Road, Oak Ridge, New Jersey	07438
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (973) 697-2000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, no par value	NASDAQ

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨	Smaller Reporting Company  ¨

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 30, 2013, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $342,000,000, based on the closing sale price as reported on the NASDAQ Global Select Market.

The number of shares outstanding of the registrant’s common stock, as of March 1, 2014, was 36,100,437.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

LAKELAND BANCORP, INC.

Form 10-K Index

PART I
		PAGE
Item 1.	Business		1
Item 1A.	Risk Factors		14
Item 1B.	Unresolved Staff Comments		20
Item 2.	Properties		20
Item 3.	Legal Proceedings		21
Item 3A.	Executive Officers of the Registrant		21
Item 4.	Mine Safety Disclosures		22
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		23
Item 6.	Selected Financial Data		25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		51
Item 8.	Financial Statements and Supplementary Data		52
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		109
Item 9A.	Controls and Procedures		109
Item 9B.	Other Information		112
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		113
Item 11.	Executive Compensation		117
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		146
Item 13.	Certain Relationships and Related Transactions, and Director Independence		149
Item 14.	Principal Accounting Fees and Services		150
PART IV
Item 15.	Exhibits and Financial Statement Schedules		152
Signatures			156

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PART I

ITEM 1—Business.

GENERAL

Lakeland Bancorp, Inc. (the “Company” or “Lakeland Bancorp”) is a bank holding company headquartered in Oak Ridge, New Jersey. The Company was organized in March of 1989 and commenced operations on May 19, 1989, upon the consummation of the acquisition of all of the outstanding stock of Lakeland Bank, formerly named Lakeland State Bank (“Lakeland” or the “Bank” or “Lakeland Bank”). Through Lakeland, the Company currently operates 52 banking offices, located in Bergen, Essex, Morris, Passaic, Somerset, Sussex, Union and Warren counties in New Jersey. Lakeland offers a full range of lending services, including commercial loans and leases, real estate and consumer loans to small and medium-sized businesses, professionals and individuals located in its markets.

The Company has shown substantial growth through a combination of organic growth and acquisitions. Since 1998, Lakeland has opened 27 new branch offices (including acquired branches). The Company has acquired five community banks with an aggregate asset total of approximately $1.1 billion at the date of acquisition, including the acquisition of Somerset Hills Bank and its parent, Somerset Hills Bancorp (“Somerset Hills”), which closed on May 31, 2013. All of the acquired banks have been merged into Lakeland and their holding companies, if applicable, have been merged into the Company.

At the time of acquisition, Somerset Hills had $356.1 million in total assets, $10.4 million in investment securities, $246.5 million in loans (including $2.5 million in mortgages held for sale), and $311.8 million in deposits ($80.8 million in non-interest bearing demand deposits and $231.0 million in interest-bearing deposits) at fair value. Goodwill amounted to $22.9 million and Core Deposit Intangibles were $2.7 million. Merger related costs totaled $2.8 million in 2013.

At December 31, 2013, Lakeland Bancorp had total consolidated assets of $3.3 billion, total consolidated deposits of $2.7 billion, total consolidated loans, net of the allowance for loan and lease losses, of $2.4 billion and total consolidated stockholders’ equity of $351.4 million.

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“Forward-Looking Statements”). Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such Forward-Looking Statements. Certain factors which could materially affect such results and the future performance of the Company are described in Item 1A—Risk Factors of this Annual Report on Form 10-K.

Unless otherwise indicated, all weighted average, actual shares and per share information contained in this Annual Report on Form 10-K have been adjusted retroactively for the effect of stock dividends, including the Company’s 5% stock dividend which was distributed on April 16, 2012.

Commercial Bank Services

Through Lakeland, the Company offers a broad range of lending, depository, and related financial services to individuals, small to medium sized businesses and municipalities located primarily in northern and central New Jersey. In the lending area, these services include short and medium term loans, lines of credit, letters of credit, interest rate swaps, inventory and accounts receivable financing, real estate construction loans, mortgage loans and merchant credit card services. In addition to commercial real estate loans, Lakeland makes commercial and industrial loans, which are not always secured by real estate. Lakeland’s Equipment Finance Division provides a solution to small and medium sized companies who prefer to finance equipment over other financial alternatives. Lakeland’s Asset Based Loan Department provides commercial borrowers with another lending alternative.

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Depository products include demand deposits, as well as savings, money market and time accounts. The Company also offers wire transfer, internet banking, mobile banking and night depository services to the business community and municipal relationships. In addition, Lakeland offers cash management services, such as remote capture of deposits and overnight sweep repurchase agreements.

Consumer Banking

Lakeland also offers a broad range of consumer banking services, including checking accounts, savings accounts, NOW accounts, money market accounts, certificates of deposit, internet banking, mobile banking, secured and unsecured loans, consumer installment loans, home equity loans, mortgage loans, and safe deposit services. Lakeland also provides wealth management services.

As a result of the merger with Somerset Hills, Lakeland acquired a mortgage company subsidiary, which originates and sells residential mortgage loans, and a 50% interest in a title insurance company.

Other Services

Investment and advisory services for individuals and businesses are also available.

Competition

Lakeland faces considerable competition in its market areas for deposits and loans from other depository institutions. Many of Lakeland’s depository institution competitors have substantially greater resources, broader geographic markets, and higher lending limits than Lakeland and are also able to provide more services and make greater use of media advertising. In recent years, intense market demands, economic pressures, increased customer awareness of products and services, and the availability of electronic services have forced banking institutions to diversify their services and become more cost-effective.

Lakeland also competes with credit unions, brokerage firms, insurance companies, money market mutual funds, consumer finance companies, mortgage companies and other financial companies, some of which are not subject to the same degree of regulation and restrictions as Lakeland in attracting deposits and making loans. Interest rates on deposit accounts, convenience of facilities, products and services, and marketing are all significant factors in the competition for deposits. Competition for loans comes from other commercial banks, savings institutions, insurance companies, consumer finance companies, credit unions, mortgage banking firms and other institutional lenders. Lakeland primarily competes for loan originations through its structuring of loan transactions and the overall quality of service it provides. Competition is affected by the availability of lendable funds, general and local economic conditions, market interest rates, and other factors that are not readily predictable.

The Company expects that the level of competition will continue in the future.

Concentration

The Company is not dependent for deposits or exposed by loan concentrations to a single customer or a small group of customers the loss of any one or more of which would have a material adverse effect upon the financial condition of the Company.

Employees

At December 31, 2013, the Company had 550 full-time equivalent employees. None of these employees is covered by a collective bargaining agreement. The Company considers relations with its employees to be good.

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SUPERVISION AND REGULATION

General

The Company is a registered bank holding company under the federal Bank Holding Company Act of 1956, as amended (the “Holding Company Act”), and is required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require pursuant to the Holding Company Act. The Company is subject to examination by the Federal Reserve Board.

Lakeland is a state chartered banking association subject to supervision and examination by the Department of Banking and Insurance of the State of New Jersey (the “Department”) and the Federal Deposit Insurance Corporation (the “FDIC”). The regulations of the State of New Jersey and FDIC govern most aspects of Lakeland’s business, including reserves against deposits, loans, investments, mergers and acquisitions, borrowings, dividends, and location of branch offices. Lakeland is subject to certain restrictions imposed by law on, among other things, (i) the maximum amount of obligations of any one person or entity which may be outstanding at any one time, (ii) investments in stock or other securities of the Company or any subsidiary of the Company, and (iii) the taking of such stock or securities as collateral for loans to any borrower.

The Holding Company Act

The Holding Company Act limits the activities which may be engaged in by the Company and its subsidiaries to those of banking, the ownership and acquisition of assets and securities of banking organizations, and the management of banking organizations, and to certain non-banking activities which the Federal Reserve Board finds, by order or regulation, to be so closely related to banking or managing or controlling a bank as to be a proper incident thereto. The Federal Reserve Board is empowered to differentiate between activities by a bank holding company or a subsidiary thereof and activities commenced by acquisition of a going concern.

With respect to non-banking activities, the Federal Reserve Board has by regulation determined that several non-banking activities are closely related to banking within the meaning of the Holding Company Act and thus may be performed by bank holding companies. Although the Company’s management periodically reviews other avenues of business opportunities that are included in that regulation, the Company has no present plans to engage in any of these activities other than providing investment brokerage services.

With respect to the acquisition of banking organizations, the Company is required to obtain the prior approval of the Federal Reserve Board before it may, by merger, purchase or otherwise, directly or indirectly acquire all or substantially all of the assets of any bank or bank holding company, if, after such acquisition, it will own or control more than 5% of the voting shares of such bank or bank holding company.

Regulation of Bank Subsidiaries

There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, which govern the extent to which a bank subsidiary may finance or otherwise supply funds to its holding company or its holding company’s non-bank subsidiaries. Under federal law, no bank subsidiary may, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent or the non-bank subsidiaries of its parent (other than direct subsidiaries of such bank which are not financial subsidiaries) or take their securities as collateral for loans to any borrower. Each bank subsidiary is also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions.

Commitments to Affiliated Institutions

The policy of the Federal Reserve Board provides that a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to commit resources to support such subsidiary banks in circumstances in which it might not do so absent such policy.

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Interstate Banking

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permits bank holding companies to acquire banks in states other than their home state, regardless of applicable state law. New Jersey enacted legislation to authorize interstate banking and branching and the entry into New Jersey of foreign country banks. New Jersey did not authorize de novo branching into the state. However, under federal law, federal savings banks, which meet certain conditions, may branch de novo into a state, regardless of state law. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) removes the restrictions on interstate branching contained in the Riegle-Neal Act, and allows national banks and state banks to establish branches in any state if, under the laws of the state in which the branch is to be located, a state bank chartered by that state would be permitted to establish the branch.

Gramm-Leach-Bliley Act of 1999

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (the “Modernization Act”) became effective in early 2000. The Modernization Act:

• allows bank holding companies meeting management, capital, and Community Reinvestment Act standards to engage in a substantially broader range of non-banking activities than previously was permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies; if a bank holding company elects to become a financial holding company, it files a certification, effective in 30 days, and thereafter may engage in certain financial activities without further approvals;

• allows insurers and other financial services companies to acquire banks;

• removes various restrictions that previously applied to bank holding company ownership of securities firms and mutual fund advisory companies; and

• establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations.

The Modernization Act also modified other financial laws, including laws related to financial privacy and community reinvestment.

The USA PATRIOT Act

In response to the events of September 11, 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), was signed into law on October 26, 2001. The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, Title III of the USA PATRIOT Act encourages information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.

Among other requirements, Title III of the USA PATRIOT Act imposes the following requirements with respect to financial institutions:

• All financial institutions must establish anti-money laundering programs that include, at a minimum: (i) internal policies, procedures, and controls; (ii) specific designation of an anti-money laundering compliance officer; (iii) ongoing employee training programs; and (iv) an independent audit function to test the anti-money laundering program.

• The Secretary of the Department of the Treasury, in conjunction with other bank regulators, was authorized to issue regulations that provide for minimum standards with respect to customer identification at the time new accounts are opened.

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• Financial institutions that establish, maintain, administer, or manage private banking accounts or correspondent accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States) are required to establish appropriate, specific and, where necessary, enhanced due diligence policies, procedures, and controls designed to detect and report money laundering.

• Financial institutions are prohibited from establishing, maintaining, administering or managing correspondent accounts for foreign shell banks (foreign banks that do not have a physical presence in any country), and will be subject to certain record keeping obligations with respect to correspondent accounts of foreign banks.

• Bank regulators are directed to consider a holding company’s effectiveness in combating money laundering when ruling on Federal Reserve Act and Bank Merger Act applications.

The United States Treasury Department has issued a number of implementing regulations which address various requirements of the USA PATRIOT Act and are applicable to financial institutions such as Lakeland. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers.

Sarbanes-Oxley Act of 2002

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the “SOA”) was signed into law. The stated goals of the SOA are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

The SOA generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”).

The SOA includes very specific additional disclosure requirements and corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. The SOA represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

The SOA addresses, among other matters:

• audit committees for all reporting companies;

• certification of financial statements by the chief executive officer and the chief financial officer;

• the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement;

• a prohibition on insider trading during pension plan black out periods;

• disclosure of off-balance sheet transactions;

• a prohibition on personal loans to directors and officers (other than loans made by an insured depository institution (as defined in the Federal Deposit Insurance Act), if the loan is subject to the insider lending restrictions of Section 22(h) of the Federal Reserve Act);

• expedited filing requirements for Form 4’s;

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• disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;

• “real time” filing of periodic reports;

• the formation of a public accounting oversight board;

• auditor independence; and

• various increased criminal penalties for violations of the securities laws.

The SEC has enacted various rules to implement various provisions of the SOA with respect to, among other matters, disclosure in periodic filings pursuant to the Exchange Act.

Regulation W

Transactions between a bank and its “affiliates” are quantitatively and qualitatively restricted under the Federal Reserve Act. The Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember banks in the same manner and to the same extent as if they were members of the Federal Reserve System. The Federal Reserve Board has also issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with respect to affiliate transactions. Regulation W incorporates the exemption from the affiliate transaction rules but expands the exemption to cover the purchase of any type of loan or extension of credit from an affiliate. Affiliates of a bank include, among other entities, the bank’s holding company and companies that are under common control with the bank. The Company is considered to be an affiliate of Lakeland. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates:

• to an amount equal to 10% of the bank’s capital and surplus, in the case of covered transactions with any one affiliate; and

• to an amount equal to 20% of the bank’s capital and surplus, in the case of covered transactions with all affiliates.

In addition, a bank and its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, as those prevailing at the time for comparable transactions with nonaffiliated companies. A “covered transaction” includes:

• a loan or extension of credit to an affiliate;

• a purchase of, or an investment in, securities issued by an affiliate;

• a purchase of assets from an affiliate, with some exceptions;

• the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party; and

• the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate.

In addition, under Regulation W:

• a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;

• covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices; and

• with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by certain types of collateral with a market value ranging from 100% to 130%, depending on the type of collateral, of the amount of the loan or extension of credit.

Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the Federal Reserve Board decides to treat these subsidiaries as affiliates.

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Community Reinvestment Act

Under the Community Reinvestment Act (“CRA”), as implemented by FDIC regulations, a state bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the FDIC, in connection with its examination of a state non-member bank, to assess the bank’s record of meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by the bank. Under the FDIC’s CRA evaluation system, the FDIC focuses on three tests: (i) a lending test, to evaluate the institution’s record of making loans in its service areas; (ii) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and businesses; and (iii) a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices.

Securities and Exchange Commission

The common stock of the Company is registered with the SEC under the Exchange Act. As a result, the Company and its officers, directors, and major stockholders are obligated to file certain reports with the SEC. The Company is subject to proxy and tender offer rules promulgated pursuant to the Exchange Act. You may read and copy any document the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the Public Reference Room. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, such as the Company.

The Company maintains a website at http://www.lakelandbank.com. The Company makes available on its website the proxy statements and reports on Forms 8-K, 10-K and 10-Q that it files with the SEC as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Additionally, the Company has adopted and posted on its website a Code of Ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. The Company intends to disclose any amendments to or waivers of the Code of Ethics on its website.

Effect of Government Monetary Policies

The earnings of the Company are and will be affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Federal Reserve Board have had, and will likely continue to have, an important impact on the operating results of commercial banks through the Board’s power to implement national monetary policy in order to, among other things, curb inflation or combat a recession. The Federal Reserve Board has a major effect upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of, among other things, the discount rate of borrowings of banks and the reserve requirements against bank deposits. The policies of the Federal Reserve Board, such as its bond-buying program referred to as quantitative easing, and the tapering of such program, affects interest rates. It is not possible to predict the nature and impact of future changes in monetary fiscal policies.

Dividend Restrictions

The Company is a legal entity separate and distinct from Lakeland. Virtually all of the revenue of the Company available for payment of dividends on its capital stock will result from amounts paid to the Company by Lakeland. All such dividends are subject to various limitations imposed by federal and state laws and by regulations and policies adopted by federal and state regulatory agencies. Under state law, a bank may not pay

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dividends unless, following the dividend payment, the capital stock of the bank would be unimpaired and either (a) the bank will have a surplus of not less than 50% of its capital stock, or, if not, (b) the payment of the dividend will not reduce the surplus of the bank.

If, in the opinion of the FDIC, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which could include the payment of dividends), the FDIC may require, after notice and hearing, that such bank cease and desist from such practice or, as a result of an unrelated practice, require the bank to limit dividends in the future. The Federal Reserve Board has similar authority with respect to bank holding companies. In addition, the Federal Reserve Board and the FDIC have issued policy statements which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Regulatory pressures to reclassify and charge off loans and to establish additional loan loss reserves can have the effect of reducing current operating earnings and thus impacting an institution’s ability to pay dividends. Further, as described herein, the regulatory authorities have established guidelines with respect to the maintenance of appropriate levels of capital by a bank or bank holding company under their jurisdiction. Compliance with the standards set forth in these policy statements and guidelines could limit the amount of dividends which the Company and Lakeland may pay. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), banking institutions which are deemed to be “undercapitalized” will, in most instances, be prohibited from paying dividends. See “FDICIA.” See also “New Capital Rules.”

Capital Adequacy Guidelines

The Federal Reserve Board has adopted risk-based capital guidelines. These guidelines establish minimum levels of capital and require capital adequacy to be measured in part upon the degree of risk associated with certain assets. Under current guidelines, all banks and bank holding companies must have a core or Tier 1 capital to risk-weighted assets ratio of at least 4% and a total capital to risk-weighted assets ratio of at least 8%. At December 31, 2013, the Company’s Tier 1 capital to risk-weighted assets ratio and total capital to risk-weighted assets ratio were 11.73% and 12.98%, respectively.

In addition, the Federal Reserve Board and the FDIC have approved leverage ratio guidelines (Tier 1 capital to average quarterly assets, less goodwill) for bank holding companies such as the Company. These guidelines provide for a minimum leverage ratio of 3% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other holding companies are required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The Company’s leverage ratio was 8.90% at December 31, 2013.

See “FDICIA” and “New Capital Rules.”

FDICIA

Enacted in December 1991, FDICIA substantially revised the bank regulatory provisions of the Federal Deposit Insurance Act and several other federal banking statutes. Among other things, FDICIA requires federal banking agencies to broaden the scope of regulatory corrective action taken with respect to banks that do not meet minimum capital requirements and to take such actions promptly in order to minimize losses to the FDIC. Under FDICIA, federal banking agencies were required to establish minimum levels of capital (including both a leverage limit and a risk-based capital requirement) and specify for each capital measure the levels at which depository institutions will be considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.”

Under regulations adopted under these provisions, for an institution to be well capitalized it must have a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6% and a Tier 1 leverage ratio of at least 5% and not be subject to any specific capital order or directive. For an institution to be adequately capitalized it must have a total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least

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4% and a Tier 1 leverage ratio of at least 4% (or in some cases 3%). Under the regulations, an institution will be deemed to be undercapitalized if it has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio that is less than 4%, or a Tier 1 leverage ratio of less than 4% (or in some cases 3%). An institution will be deemed to be significantly undercapitalized if it has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3% and will be deemed to be critically undercapitalized if it has a ratio of tangible equity to total assets that is equal to or less than 2%. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating or is deemed to be in an unsafe or unsound condition or to be engaging in unsafe or unsound practices. As of December 31, 2013, Lakeland met all regulatory requirements for classification as well capitalized under the current regulatory framework.

See “New Capital Rules” below.

Additional Regulation of Capital

The current federal regulatory authorities’ risk-based capital guidelines are based upon the 1988 capital accord (“Basel I”) of the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies and regulations to which they apply. Actions of the Committee have no direct effect on banks in participating countries. In 2004, the Basel Committee published a new capital accord (“Basel II”) to replace Basel I. Basel II provides two approaches for setting capital standards for credit risk—an internal ratings-based approach tailored to individual institutions’ circumstances and a standardized approach that bases risk weightings on external credit assessments to a much greater extent than permitted in existing risk-based capital guidelines. Basel II also would set capital requirements for operational risk and refine the existing capital requirements for market risk exposures.

In 2009, the United States Treasury Department issued a policy statement (the “Treasury Policy Statement”) entitled “Principles for Reforming the U.S. and International Regulatory Capital Framework for Banking Firms,” which contemplates changes to the existing regulatory capital regime involving substantial revisions to major parts of the Basel I and Basel II capital frameworks and affecting all regulated banking organizations. The Treasury Policy Statement calls for, among other things, higher and stronger capital requirements for all banking firms, with changes to the regulatory capital framework to be phased in over a period of several years.

On December 17, 2009, the Basel Committee issued a set of proposals (the “2009 Capital Proposals”) that would significantly revise the definitions of Tier 1 capital and Tier 2 capital. Among other things, the 2009 Capital Proposals would re-emphasize that common equity is the predominant component of Tier 1 capital. Concurrently with the release of the 2009 Capital Proposals, the Basel Committee also released a set of proposals related to liquidity risk exposure (the “2009 Liquidity Proposals”). The 2009 Liquidity Proposals include the implementation of (i) a “liquidity coverage ratio” or LCR, designed to ensure that a bank maintains an adequate level of unencumbered, high-quality assets sufficient to meet the bank’s liquidity needs over a 30-day time horizon under an acute liquidity stress scenario and (ii) a “net stable funding ratio” or NSFR, designed to promote more medium and long-term funding of the assets and activities of banks over a one-year time horizon.

The Dodd-Frank Act includes certain provisions, often referred to as the “Collins Amendment,” concerning the capital requirements of the United States banking regulators. These provisions are intended to subject bank holding companies to the same capital requirements as their bank subsidiaries and to eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital. Under the Collins Amendment, trust preferred securities issued by a company, such as Lakeland Bancorp, with total consolidated assets of less than $15 billion before May 19, 2010 and treated as regulatory capital are grandfathered, but any such securities issued later are not eligible as regulatory capital. The banking regulators

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were required to develop regulations setting minimum risk-based and leverage capital requirements for holding companies and banks on a consolidated basis that are no less stringent than the generally applicable requirements in effect for depository institutions under the prompt corrective action regulations. The banking regulators were also required to seek to make capital standards countercyclical so that the required levels of capital increase in times of economic expansion and decrease in times of economic contraction. See “The Dodd-Frank Act” and “New Capital Rules.”

New Capital Rules

In December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity generally referred to as “Basel III.” In July 2013, the Federal Reserve Board, the FDIC and the Comptroller of the Currency adopted final rules (the “New Rules”), which implement certain provisions of Basel III and the Dodd-Frank Act. The New Rules replace the general risk-based capital rules of the various banking agencies with a single, integrated regulatory capital framework. The New Rules require higher capital cushions and more stringent criteria for what qualifies as regulatory capital.

For bank holding companies and banks like Lakeland Bancorp and Lakeland Bank, January 1, 2015 is the start date for compliance with the revised minimum regulatory capital ratios and for determining risk-weighted assets under what the New Rules call a “standardized approach.” As of January 1, 2015, Lakeland Bancorp and Lakeland Bank will be required to maintain the following minimum capital ratios, expressed as a percentage of risk-weighted assets:

• Common Equity Tier 1 Capital Ratio of 4.5% (this is a new concept and requirement, and is referred to as the “CET1”);

• Tier 1 Capital Ratio (CET1 capital plus “Additional Tier 1 capital”) of 6.0%; and

• Total Capital Ratio (Tier 1 capital plus Tier 2 capital) of 8.0%.

In addition, Lakeland Bancorp and Lakeland Bank will be subject to a leverage ratio of 4% (calculated as Tier 1 capital to average consolidated assets as reported on the consolidated financial statements).

The New Rules also require a “capital conservation buffer.” When fully phased in on January 1 2019, Lakeland Bancorp and Lakeland Bank will be required to maintain a 2.5% capital conservation buffer, which is composed entirely of CET1, on top of the minimum risk-weighted asset ratios described above, resulting in the following minimum capital ratios:

• CET1 of 7%;

• Tier 1 Capital Ratio of 8.5%; and

• Total Capital Ratio of 10.5%.

The purpose of the capital conservation buffer is to absorb losses during periods of economic stress. Banking institutions with a CET1, Tier 1 Capital Ratio and Total Capital Ratio above the minimum set forth above but below the capital conservation buffer will face constraints on their ability to pay dividends, repurchase equity and pay discretionary bonuses to executive officers, based on the amount of the shortfall. The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level, and increase by 0.625% on each subsequent January 1 until it reaches 2.5% on January 1, 2019.

The New Rules also adopted a “countercyclical capital buffer,” which is not applicable to Lakeland Bancorp or Lakeland Bank. That buffer is applicable only to “advanced approaches banking organizations,” which generally are those with consolidated total assets of at least $250 billion.

The New Rules provide for several deductions from and adjustments to CET1, which will be phased in between January 1, 2015 and January 1 2018. For example, mortgage servicing rights, deferred tax assets

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dependent upon future taxable income and significant investments in common equity issued by nonconsolidated financial entities must be deducted from CET1 to the extent that any one of those categories exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.

Under current capital standards, the effects of accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under the New Rules, the effects of certain accumulated other comprehensive income items are not excluded; however, banking organizations such as Lakeland Bancorp and Lakeland Bank may make a one-time permanent election to continue to exclude these items effective as of January 1, 2015.

While the New Rules generally require the phase-out of non-qualifying capital instruments such as trust preferred securities and cumulative perpetual preferred stock, holding companies with less than $15 billion in total consolidated assets as of December 31, 2009, such as Lakeland Bancorp, may permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in Additional Tier 1 or Tier 2 capital, respectively, until they redeem such instruments or until the instruments mature.

The New Rules prescribe a standardized approach for calculating risk-weighted assets that expands the risk-weighting categories from the current four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. Government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories. In addition, the New Rules provide more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increase the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.

Consistent with the Dodd-Frank Act, the New Rules adopt alternatives to credit ratings for calculating the risk-weighting for certain assets.

With respect to Lakeland Bank, the New Rules revise the “prompt corrective action” regulations under Section 38 of the Federal Deposit Insurance Act by (i) introducing a CET1 ratio requirement at each capital quality level (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the current 6%); and (iii) requiring a leverage ratio of 5% to be well-capitalized (as compared to the current required leverage ratio of 3% or 4%). The New Rules do not change the total risk-based capital requirement for any “prompt corrective action” category. When the capital conservation buffer is fully phased in, the capital ratios applicable to depository institutions under the New Rules will exceed the ratios to be considered well-capitalized under the prompt corrective action regulations.

The Company believes that as of December 31, 2013, Lakeland Bancorp and Lakeland Bank would meet all capital requirements under the New Rules on a fully phase-in basis, if such requirements were currently in effect.

Federal Deposit Insurance and Premiums

Substantially all of the deposits of Lakeland are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and are subject to deposit insurance assessments to maintain the DIF. As a result of the Dodd-Frank Act, the basic federal deposit insurance limit was permanently increased from at least $100,000 to at least $250,000. As mandated by Section 343 of the Dodd-Frank Act, the FDIC had adopted rules providing for temporary unlimited deposit insurance for traditional noninterest-bearing transaction accounts and IOLTA accounts beginning December 31, 2010, but these temporary rules expired December 31, 2012. As a result, as of January 1, 2013, (i) noninterest-bearing transaction accounts are no longer insured separately from depositors’ other accounts at the same FDIC-insured depository institution, and such accounts will instead be added to any of

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a depositor’s other accounts in the applicable ownership category, and the aggregate balance insured up to at least the standard maximum deposit insurance amount of $250,000 per depositor at each separately chartered FDIC-insured depository institution, and (ii) funds deposited in IOLTAs will no longer be insured under Section 343 of the Dodd-Frank Act, but because IOLTAs are fiduciary accounts, they generally qualify for pass-through coverage on a per-client basis.

On November 12, 2009, the FDIC adopted the final rule which required insured depository institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012. On December 30, 2009, the Company remitted an FDIC prepayment in the amount of $18.0 million. An institution’s prepaid assessment was based on the total base assessment rate that the institution paid for the third quarter of 2009, adjusted quarterly by an estimated annual growth rate of 5% through the end of 2012, plus, for 2011 and 2012, an increase in the total base assessment rate on September 30, 2009 by an annualized three basis points. The prepaid assessment in excess of the amounts that were determined to be actually due to the FDIC, totaling $8.4 million, was returned to Lakeland Bank in June 2013.

In November 2010, the FDIC approved a rule to change the assessment base from adjusted domestic deposits to average consolidated total assets minus average tangible equity, as required by the Dodd-Frank Act. These new assessment rates began in the second quarter of 2011 and were paid at the end of September 2011. Since the new base is larger than the current base, the FDIC’s rule lowered the total base assessment rates to between 2.5 and 9 basis points for banks in the lowest risk category, and 30 to 45 basis points for banks in the highest risk category. The Company paid $2.0 million in total FDIC assessments in 2013 (including the FICO premium described below), compared to $2.2 million in 2012.

Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (“DRR”), that is, the ratio of the DIF to insured deposits. The FDIC has adopted a plan under which it will meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. The FDIC has not yet announced how it will implement this offset.

In addition to deposit insurance assessments, the FDIC is required to continue to collect from institutions payments for the servicing of obligations of the Financing Corporation (“FICO”) that were issued in connection with the resolution of savings and loan associations, so long as such obligations remain outstanding. Lakeland paid a FICO premium of approximately $140,000 in 2013 and expects to pay a premium of approximately $185,000 in 2014.

The Dodd-Frank Act

The Dodd-Frank Act, which was signed into law on July 21, 2010, will continue to have a broad impact on the financial services industry as a result of significant regulatory and compliance changes, including, among other things, (i) enhanced resolution authority over troubled and failing banks and their holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the FDIC for federal deposit insurance; and (v) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years.

The following is a summary of certain provisions of the Dodd-Frank Act:

• Minimum Capital Requirements. The Dodd-Frank Act requires new capital rules and the application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies. In addition to making bank holding companies subject to the same

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capital requirements as their bank subsidiaries, these provisions (often referred to as the Collins Amendment to the Dodd-Frank Act) were also intended to eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital. See “New Capital Rules” for a description of new capital requirements adopted by U.S. federal banking regulators in 2013 and the treatment of trust preferred securities under such rules.

• Deposit Insurance. The Dodd-Frank Act makes permanent the $250,000 deposit insurance limit for insured deposits. Amendments to the Federal Deposit Insurance Act also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to the Deposit Insurance Fund (“DIF”) will be calculated. Under the amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity during the assessment period. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15 percent to 1.35 percent of the estimated amount of total insured deposits and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. In December 2010, the FDIC increased the designated reserve ratio to 2.0 percent.

• Shareholder Votes. The Dodd-Frank Act requires publicly traded companies like Lakeland Bancorp to give shareholders a non-binding vote on executive compensation and so-called “golden parachute” payments in certain circumstances. The Dodd-Frank Act also authorizes the SEC to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials.

• Transactions with Affiliates. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained. These requirements became effective during 2011.

• Transactions with Insiders. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors. These requirements became effective during 2011.

• Enhanced Lending Limits. The Dodd-Frank Act strengthened the previous limits on a depository institution’s credit exposure to one borrower which limited a depository institution’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expanded the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions.

• Compensation Practices. The Dodd-Frank Act provides that the appropriate federal regulators must establish standards prohibiting as an unsafe and unsound practice any compensation plan of a bank holding company or other “covered financial institution” that provides an insider or other employee with “excessive compensation” or compensation that gives rise to excessive risk or could lead to a material financial loss to such firm. In June 2010, prior to the Dodd-Frank Act, the bank regulatory agencies promulgated the Interagency Guidance on Sound Incentive Compensation Policies, which sets forth three key principles concerning incentive compensation arrangements:

• such arrangements should provide employees incentives that balance risk and financial results in a manner that does not encourage employees to expose the financial institution to imprudent risks;

• such arrangements should be compatible with effective controls and risk management; and

• such arrangements should be supported by strong corporate governance with effective and active oversight by the financial institution’s board of directors.

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Together, the Dodd-Frank Act and the recent guidance from the bank regulatory agencies on compensation may impact the Company’s compensation practices.

• The Consumer Financial Protection Bureau (“Bureau”). The Dodd-Frank Act created the Bureau. The Bureau is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The Bureau has rulemaking authority over many of the statutes governing products and services offered to bank consumers. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are more stringent than those regulations promulgated by the Bureau and state attorneys general are permitted to enforce consumer protection rules adopted by the Bureau against state-chartered institutions. The Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Institutions with $10 billion or less in assets, such as the Bank, will continue to be examined for compliance with the consumer laws by their primary bank regulators.

• De Novo Banking. The Dodd-Frank Act allows de novo interstate branching by banks.

On December 10, 2013, the federal banking regulatory agencies approved regulations implementing the Volcker Rule. The Volcker Rule implements Section 619 of the Dodd-Frank Act. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading, acquiring or retaining ownership interest in a hedge fund or private equity fund, referred to as covered funds, and sponsoring a hedge fund or private equity fund.

Many aspects of the Dodd-Frank Act still remain subject to rulemaking by various regulatory agencies and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry more generally. The elimination of the prohibition on the payment of interest on demand deposits could materially increase our interest expense, depending on our competitors’ responses. Provisions in the legislation that require revisions to the capital requirements of the Company and the Bank could require the Company and the Bank to seek additional sources of capital in the future. See “New Capital Rules.”

Proposed Legislation

From time to time proposals are made in the United States Congress, the New Jersey Legislature, and before various bank regulatory authorities, which would alter the powers of, and place restrictions on, different types of banking organizations. It is impossible to predict the impact, if any, of potential legislative trends on the business of the Company and its subsidiaries.

In accordance with federal law providing for deregulation of interest on all deposits, banks and thrift organizations are now unrestricted by law or regulation from paying interest at any rate on most time deposits. It is not clear whether deregulation and other pending changes in certain aspects of the banking industry will result in further increases in the cost of funds in relation to prevailing lending rates.

ITEM 1A—Risk Factors.

Our business, financial condition, operating results and cash flows can be affected by a number of factors, including, but not limited to, those set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.

Recently enacted legislation, particularly the Dodd-Frank Act, could materially and adversely affect us by increasing compliance costs, heightening our risk of noncompliance with applicable regulations, and changing the competitive landscape in the banking industry.

From time to time, the U.S. Congress and state legislatures consider changing laws and enact new laws to further regulate the financial services industry. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, was signed into law. The Dodd-Frank Act has resulted

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in sweeping changes in the regulation of financial institutions. As discussed in the section herein entitled “Business-Supervision and Regulation,” the Dodd-Frank Act contains numerous provisions that affect all banks and bank holding companies. Many of the provisions in the Dodd-Frank Act remain subject to regulatory rule-making and implementation, the effects of which are not yet known. Although we cannot predict the specific impact and long-term effects that the Dodd-Frank Act and the regulations promulgated thereunder will have on us and our prospects, our target markets and the financial industry more generally, we believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to impose additional administrative and regulatory burdens that will obligate us to incur additional expenses and will adversely affect our margins and profitability. For example, the elimination of the prohibition on the payment of interest on demand deposits could materially increase our interest expense, depending on our competitors’ responses. Provisions in the legislation that require revisions to the capital requirements of the Company and the Bank, and the adoption by federal regulators in July 2013 of new capital requirements described under “Business-Supervision and Regulation-New Capital Rules,” could require the Company and the Bank to seek additional sources of capital in the future. More stringent consumer protection regulations could materially and adversely affect our profitability. We will also have a heightened risk of noncompliance with all of the additional regulations. Finally, the impact of some of these new regulations is not known and may affect our ability to compete long-term with larger competitors.

The Company and the Bank may be subject to more stringent capital and liquidity requirements.

The Dodd-Frank Act also imposes more stringent capital requirements on bank holding companies such as Lakeland Bancorp by, among other things, imposing leverage ratios on bank holding companies and prohibiting new trust preferred issuances from counting as Tier I capital. These restrictions will limit our future capital strategies. Under the Dodd-Frank Act, our currently outstanding trust preferred securities will continue to count as Tier I capital, but we will be unable to issue replacement or additional trust preferred securities which would count as Tier I capital.

As further described above under “Business-Supervision and Regulation-New Capital Rules,” we will be required to meet new capital requirements beginning on January 1, 2015. In addition, beginning in 2016, banks and bank holding companies will be required to maintain a capital conservation buffer on top of minimum risk-weighted asset ratios. When fully phased in on January 1, 2019, the capital conservation buffer will be 2.5%. Banking institutions which do not maintain capital in excess of the capital conservation buffer will face constraints on the payment of dividends, equity repurchases and compensation based on the amount of the shortfall. Accordingly, if the Bank fails to maintain the applicable minimum capital ratios and the capital conservation buffer, distributions to Lakeland Bancorp may be prohibited or limited.

Future increases in minimum capital requirements could adversely affect our net income. Furthermore, our failure to comply with the minimum capital requirements could result in our regulators taking formal or informal actions against us which could restrict our future growth or operations.

The Company’s future growth may require the Company to raise additional capital in the future, but that capital may not be available when it is needed or may be available only at an excessive cost.

The Company is required by regulatory authorities to maintain adequate levels of capital to support its operations. The Company anticipates that current capital levels will satisfy regulatory requirements for the foreseeable future. The Company, however, may at some point choose to raise additional capital to support its continued growth. The Company’s ability to raise additional capital will depend, in part, on conditions in the capital markets at that time, which are outside of the Company’s control. Accordingly, the Company may be unable to raise additional capital, if and when needed, on terms acceptable to the Company, or at all. If the Company cannot raise additional capital when needed, its ability to further expand operations through internal growth and acquisitions could be materially impacted. In the event of a material decrease in the Company’s stock price, future issuances of equity securities could result in dilution of existing shareholder interests.

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If the recent economic recovery does not continue or the economy deteriorates, our operations and results could be adversely impacted.

While moderate economic growth may have resumed recently in the U.S., the rate of this growth is uncertain. If such growth slows or the U.S. and global economies deteriorate, our business operations, including our ability to originate or sell loans, could be adversely impacted.

A decrease in our ability to borrow funds could adversely affect our liquidity.

Our ability to obtain funding from the Federal Home Loan Bank or through our overnight federal funds lines with other banks could be negatively affected if we experienced a substantial deterioration in our financial condition or if such funding became restricted due to a further deterioration in the financial markets. While we have a contingency funds management plan to address such a situation if it were to occur (such plan includes deposit promotions, the sale of securities and the curtailment of loan growth, if necessary), a significant decrease in our ability to borrow funds could adversely affect our liquidity.

We are subject to interest rate risk and variations in interest rates may negatively affect our financial performance.

We are unable to predict actual fluctuations of market interest rates. Rate fluctuations are influenced by many factors, including:

• inflation or deflation;

• excess growth or recession;

• a rise or fall in unemployment;

• tightening or expansion of the money supply;

• domestic and international disorder;

• instability in domestic and foreign financial markets; and

• policies of the Federal Reserve Board, including a possible tapering of quantitative easing.

Both increases and decreases in the interest rate environment may reduce our profits. We expect that we will continue to realize income from the difference or “spread” between the interest we earn on loans, securities and other interest-earning assets, and the interest we pay on deposits, borrowings and other interest-bearing liabilities. Our net interest spreads are affected by the differences between the maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities. While we monitor our “gap position” over various timeframes and scenarios, changes in market interest rates could materially and adversely affect our net interest spread, asset quality, levels of prepayments, cash flows, the market value of our securities portfolio, loan and deposit growth, costs and yields on loans and deposits and our overall profitability.

Declines in value may adversely impact our investment portfolio.

As of December 31, 2013, the Company had approximately $431.1 million and $101.7 million in available for sale and held to maturity investment securities, respectively. We may be required to record impairment charges on our investment securities if they suffer a decline in value that is considered other-than-temporary. Numerous factors, including lack of liquidity for sales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could have a negative effect on our investment portfolio in future periods. If an impairment charge is significant enough it could affect the ability of Lakeland to upstream dividends to us, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders and could also negatively impact our regulatory capital ratios.

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The Company may incur impairment to goodwill.

We review our goodwill at least annually. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely on projections of future operating performance. We operate in a competitive environment and projections of future operating results and cash flows may vary significantly from actual results. Additionally, if our analysis results in an impairment to our goodwill, we would be required to record a non-cash charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such charge could have a material adverse effect on our results of operations, our capital ratios and our stock price.

The extensive regulation and supervision to which we are subject impose substantial restrictions on our business.

The Company, Lakeland and certain non-bank subsidiaries are subject to extensive regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole. Such laws are not designed to protect our shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Lakeland is also subject to a number of laws which, among other things, govern its lending practices and require the Bank to establish and maintain comprehensive programs relating to anti-money laundering and customer identification. The United States Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputational damage, which could have a material adverse effect on our business, financial condition and results of operations.

Lakeland’s ability to pay dividends is subject to regulatory limitations which, to the extent that our holding company requires such dividends in the future, may affect our holding company’s ability to pay its obligations and pay dividends to shareholders.

As a bank holding company, the Company is a separate legal entity from Lakeland and its subsidiaries, and we do not have significant operations of our own. We currently depend on Lakeland’s cash and liquidity to pay our operating expenses and dividends to shareholders. The availability of dividends from Lakeland is limited by various statutes and regulations. The inability of the Company to receive dividends from Lakeland could adversely affect our financial condition, results of operations, cash flows and prospects and the Company’s ability to pay dividends.

In addition, as described under “Business-Supervision and Regulation-New Capital Rules,” beginning in 2016, banks and bank holding companies will be required to maintain a capital conservation buffer on top of minimum risk-weighted asset ratios. When fully phased in on January 1, 2019, the capital conservation buffer will be 2.5%. Banking institutions which do not maintain capital in excess of the capital conservation buffer will face constraints on the payment of dividends, equity repurchases and compensation based on the amount of the shortfall. Accordingly, if the Bank fails to maintain the applicable minimum capital ratios and the capital conservation buffer, distributions to Lakeland Bancorp may be prohibited or limited.

Our allowance for loan and lease losses may not be adequate to cover actual losses.

Like all commercial banks, Lakeland maintains an allowance for loan and lease losses to provide for loan and lease defaults and non-performance. If our allowance for loan and lease losses is not adequate to cover actual loan and lease losses, we may be required to significantly increase future provisions for loan and lease losses, which could materially and adversely affect our operating results. Our allowance for loan and lease losses is

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determined by analyzing historical loan and lease losses, current trends in delinquencies and charge-offs, plans for problem loan and lease resolution, the opinions of our regulators, changes in the size and composition of the loan and lease portfolio and other environmental factors. We also consider the possible effects of economic events, which are difficult to predict. The amount of future losses is affected by changes in economic, operating and other conditions, including changes in interest rates, many of which are beyond our control. These losses may exceed our current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and the allowance for loan and lease losses. While we believe that our allowance for loan and lease losses in relation to our current loan portfolio is adequate to cover current losses, we cannot assure you that we will not need to increase our allowance for loan and lease losses or that regulators will not require or encourage us to increase this allowance. Future increases in our allowance for loan and lease losses could materially and adversely affect our earnings and profitability.

Our mortgage banking operations expose us to risks that are different from community banking.

The Bank’s mortgage banking operations expose us to risks that are different from our retail banking operations. Our mortgage banking operations are dependent upon the level of demand for residential mortgages. During higher and rising interest rate environments, the level of refinancing activity tends to decline, which can lead to reduced volumes of business and lower revenues that may not exceed our fixed costs to run the business. In addition, mortgages sold to third-party investors are typically subject to certain repurchase provisions related to borrower refinancing, defaults, fraud or other reasons stipulated in the applicable third-party investor agreements. If the fair value of a loan when repurchased is less than the fair value when sold, the bank may be required to charge such shortfall to earnings.

In addition, the “ability to repay” and “Qualified Mortgage” rules promulgated as required by the Dodd-Frank Act, effective January 10, 2014, may expose the Company and our Sullivan Financial Services, Inc. subsidiary to greater losses, reduced volume and litigation related expenses and delays in taking title to collateral real estate, if these loans do not perform and borrowers challenge whether the rules were satisfied when originating the loans.

We are subject to various lending and other economic risks that could adversely affect our results of operations and financial condition.

Economic, political and market conditions, trends in industry and finance, legislative and regulatory changes, changes in governmental monetary and fiscal policies and inflation affect our business. These factors are beyond our control. A further deterioration in economic conditions, particularly in New Jersey, could have the following consequences, any of which could materially adversely affect our business:

• loan and lease delinquencies may increase;

• problem assets and foreclosures may increase;

• demand for our products and services may decrease; and

• collateral for loans made by us may decline in value, in turn reducing the borrowing ability of our customers.

Further deterioration in the real estate market, particularly in New Jersey, could adversely affect our business. As real estate values in New Jersey decline, our ability to recover on defaulted loans by selling the underlying real estate is reduced, which increases the possibility that we may suffer losses on defaulted loans.

We face strong competition from other financial institutions, financial service companies and other organizations offering services similar to the services that we provide.

Many competitors offer the types of loans and banking services that we offer. These competitors include other state and national banks, savings associations, regional banks and other community banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. Many of our competitors

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have greater financial resources than we do, which may enable them to offer a broader range of services and products, and to advertise more extensively, than we do. Our inability to compete effectively would adversely affect our business.

The Company’s framework for managing risks may not be effective in mitigating risk and loss to the Company; for example, the Company’s internal control may be ineffective.

One critical component of the Company’s risk management framework is its system of internal controls. Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide reasonable, but not absolute, assurances that the objectives of the controls are met. Any failure or circumvention of the Company’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations, and financial condition.

The occurrence of any failure, breach, or interruption in service involving our systems or those of our service providers could damage our reputation, cause losses, increase our expenses, and result in a loss of customers, an increase in regulatory scrutiny, or expose us to civil litigation and possibly financial liability, any of which could adversely impact our financial condition, results of operations and the market price of our stock.

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits and our loans. Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, the security of our computer systems, software and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code and cyber attacks that could have a security impact. In addition, breaches of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to our confidential or other information or the confidential or other information of our customers, clients or counterparties. If one or more of such events were to occur, the confidential and other information processed and stored in, and transmitted through, our computer systems and networks could potentially be jeopardized, or could otherwise cause interruptions or malfunctions in our operations or the operations of our customers, clients or counterparties. This could cause us significant reputational damage or result in our experiencing significant losses.

Furthermore, we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. We also may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance we maintain. In addition, we routinely transmit and receive personal, confidential and proprietary information by e-mail and other electronic means. We have discussed and worked with our customers, clients and counterparties to develop secure transmission capabilities, but we do not have, and may be unable to put in place, secure capabilities with all of these constituents, and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of such information.

While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, we outsource certain aspects of our data processing to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communication with them, our ability to adequately process and account for customer transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

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If we do not successfully integrate any banks that we have acquired or may acquire in the future, the combined company may be adversely affected.

If we make additional acquisitions in the future, we will need to integrate the acquired entities into our existing business and systems. We may experience difficulties in accomplishing this integration or in effectively managing the combined company after any future acquisition. Any actual cost savings or revenue enhancements that we may anticipate from a future acquisition will depend on future expense levels and operating results, the timing of certain events and general industry, regulatory and business conditions. Many of these events will be beyond our control, and we cannot assure you that if we make any acquisitions in the future, we will be successful in integrating those businesses into our own.

ITEM 1B—Unresolved Staff Comments.

Not Applicable.

ITEM 2—Properties.

The Company’s principal office is located at 250 Oak Ridge Road, Oak Ridge, New Jersey 07438. The Company completed construction of a new training and operations center in Milton, New Jersey in mid-2012. The Bank purchased an assignment of an existing lease for this facility which expires on February 28, 2016, and contains five (5) five-year options to renew, at the Bank’s discretion, at fixed base rent amounts. To the extent that the Bank exercises all of the options, the lease will expire on February 28, 2041.

The Company operates 52 banking locations in Bergen, Essex, Morris, Passaic, Somerset, Sussex, Union and Warren counties in New Jersey. The following chart provides information about the Company’s leased banking locations:

Location	Lease Expiration Date
Bristol Glen	October 31, 2014
Caldwell	September 30, 2024
Carlstadt	July 15, 2021
Cedar Crest	August 19, 2016
Hackensack	March 31, 2018
Hampton	September 30, 2019
Little Falls	November 30, 2015
Madison	September 1, 2015
Madison Avenue	April 30, 2017
Mendham	December 31, 2015
Morristown	May 31, 2018
North Haledon	June 30, 2017
Park Ridge	December 31, 2014
Pompton Plains	April 30, 2015
Ringwood	February 28, 2018
Rochelle Park	January 12, 2019
Sparta	August 31, 2032
Summit	September 30, 2014
Sussex/Wantage	June 19, 2017
Vernon	September 30, 2027
Wantage	October 31, 2016
Wayne	May 31, 2028
Wharton	July 31, 2015
Woodland Commons	August 31, 2016
West Caldwell	March 31, 2029

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The Company has also entered into a lease for one additional location for loan production purposes in Wyckoff, New Jersey (this lease expires on February 28, 2017).

All other offices of the Company and Lakeland are owned and are unencumbered.

ITEM 3—Legal Proceedings.

As previously reported, on or about February 15, 2013, the Company was served with a Civil Action Summons and Class Action Complaint, captioned Higgenbottom v. McClure, et al., that was filed in the Superior Court of New Jersey, Chancery Division, Somerset County, Docket No. C-12006-13. The complaint states that the plaintiff is bringing the class action on behalf of the public stockholders of Somerset Hills Bancorp against the Board of Directors of Somerset Hills for their alleged breach of fiduciary duties arising out of the Agreement and Plan of Merger, dated as of January 28, 2013, by and between the Company and Somerset Hills Bancorp. The merger with Somerset Hills closed on May 31, 2013.

The parties negotiated a settlement of the complaint, which was approved by the court by order dated January 30, 2014. No amounts are payable to the class under the settlement. The parties did not agree on the issue of the amount of attorney’s fees to be paid to the plaintiff. In its January 30, 2014 decision, the Court denied without prejudice the application for attorney’s fees, pending a hearing to be scheduled in the near future. Subsequent to the date of the court’s order, the parties agreed to a payment of plaintiff’s attorneys’ fees and costs in the amount of $52,500, which was approved by the court and paid by the insurance carrier.

There are no pending legal proceedings involving the Company or Lakeland other than those arising in the normal course of business. Management does not anticipate that the potential liability, if any, arising out of such legal proceedings will have a material effect on the financial condition or results of operations of the Company and Lakeland on a consolidated basis.

ITEM 3A—Executive Officers of the Registrant.

The following table sets forth the name and age of each executive officer of the Company. Each officer is appointed by the Company’s Board of Directors. Unless otherwise indicated, the persons named below have held the position indicated for more than the past five years.

Name and Age	Officer of the Company Since		Position with the Company, its Subsidiary Banks, and Business Experience
Thomas J. Shara Age 56		2008	President and CEO, Lakeland Bancorp, Inc. and Lakeland Bank (April 2, 2008 – Present); President and Chief Credit Officer (May 2007 – April 1, 2008) and Executive Vice President and Senior Commercial Banking Officer (February 2006 – May 2007), TD Banknorth, N.A.’s Mid-Atlantic Division; Executive Vice President and Senior Loan Officer, Hudson United Bancorp and Hudson United Bank (prior years to February 2006)
Robert A. Vandenbergh Age 62		1999	Regional President – Lakeland Bank (January 29, 2013 – Present) and Senior Executive Vice President and Chief Operating Officer of the Company (October 2008 – Present); Senior Executive Vice President and Chief Operating Officer of Lakeland Bank (October 2008 – January 29, 2013); Senior Executive Vice President and Chief Lending Officer of the Company (December 2006 – October 2008); Executive Vice President and Chief Lending Officer of the Company (October 1999 – December 2006)

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Name and Age	Officer of the Company Since		Position with the Company, its Subsidiary Banks, and Business Experience
Joseph F. Hurley Age 63		1999	Executive Vice President and Chief Financial Officer of the Company (November 1999 – Present)
Stewart E. McClure Age 63		2013	Regional President – Lakeland Bank (May 31, 2013 – Present); President, Chief Executive Officer and Chief Operating Officer, and a director, of Somerset Hills Bancorp and Somerset Hills Bank (prior years to May 31, 2013)
Jeffrey J. Buonforte Age 62		1999	Executive Vice President and Senior Government Banking/Business Services Officer of the Company (June 2009 – Present); Executive Vice President and Chief Retail Officer of the Company (November 1999 – June 2009)
Louis E. Luddecke Age 67		1999	Executive Vice President and Chief Operations Officer of the Company (October 1999 – Present)
David S. Yanagisawa Age 62		2008	Executive Vice President and Chief Lending Officer of the Company (November 2008 – Present); Senior Vice President, TD Bank, N.A. (February 2006 – November 2008); Hudson United Bank, Senior Vice President (1997 – February 2006)
James R. Noonan Age 62		2003	Executive Vice President and Chief Credit Officer of the Company (December 2003 – Present)
Ronald E. Schwarz Age 58		2009	Executive Vice President and Chief Retail Officer of the Company (June 2009 – Present); Executive Vice President and Market Executive of Sovereign Bank (June 2006 – June 2009); Senior Vice President and Director of Retail Banking of Independence Community Bank (June 1999 – June 2006)
Timothy J. Matteson, Esq. Age 44		2008	Executive Vice President and General Counsel of the Company (March 2012 to Present); Senior Vice President and General Counsel of the Company (September 2008 – March 2012); Assistant General Counsel, Israel Discount Bank (November 2007 – September 2008); Senior Attorney and Senior Vice President, TD Banknorth, N.A. (February 2006 – May 2007); General Counsel and Senior Vice President, Hudson United Bancorp and Hudson United Bank (January 2005 – February 2006)

ITEM 4—MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5—MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Shares of the common stock of Lakeland Bancorp, Inc. have been traded under the symbol “LBAI” on the NASDAQ Global Select Market (or the NASDAQ National Market) since February 22, 2000 and in the over the counter market prior to that date. As of December 31, 2013, there were 3,138 shareholders of record of the common stock. The following table sets forth the range of the high and low daily closing prices of the common stock as provided by NASDAQ and dividends declared for the periods presented. All information is adjusted for the Company’s 5% stock dividends distributed on April 16, 2012.

	High		Low		Dividends Declared
Year ended December 31, 2013
First Quarter	$	10.36	$	9.40	$	0.070
Second Quarter		10.43		9.08		0.070
Third Quarter		11.65		10.54		0.070
Fourth Quarter		12.64		11.04		0.075
	High		Low		Dividends Declared
Year ended December 31, 2012
First Quarter	$	10.21		$8.33	$	0.057
Second Quarter		10.52		8.75		0.060
Third Quarter		10.97		9.09		0.060
Fourth Quarter		10.77		8.45		0.070

Dividends on the Company’s common stock are within the discretion of the Board of Directors of the Company and are dependent upon various factors, including the future earnings and financial condition of the Company and Lakeland and bank regulatory policies.

The Bank Holding Company Act of 1956 restricts the amount of dividends the Company can pay. Accordingly, dividends should generally only be paid out of current earnings, as defined.

The New Jersey Banking Act of 1948 restricts the amount of dividends paid on the capital stock of New Jersey chartered banks. Accordingly, no dividends shall be paid by such banks on their capital stock unless, following the payment of such dividends, the capital stock of the bank will be unimpaired and the bank will have a surplus of not less than 50% of its capital stock, or, if not, the payment of such dividend will not reduce the surplus of the bank. Under this limitation, approximately $248.5 million was available for the payment of dividends from Lakeland to the Company as of December 31, 2013.

Capital guidelines and other regulatory requirements may further limit the Company’s and Lakeland’s ability to pay dividends. See “Item 1—Business—Supervision and Regulation—Dividend Restrictions” and “—New Capital Rules.”

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Performance Graph

The following chart compares the Company’s cumulative total shareholder return (on a dividend reinvested basis) over the past five years with the NASDAQ Market Index and the Peer Group Index. The Peer Group Index is the Zacks (formerly Morningstar) Regional Northeast Banks Index, which consists of 147 Regional Northeast Banks.

Company/Market/Peer Group	12/31/2008		12/31/2009		12/31/2010		12/31/2011		12/31/2012		12/31/2013
Lakeland Bancorp, Inc.		100.00		59.07		103.88		87.90		111.79		139.68
NASDAQ Market Index		100.00		145.34		171.70		170.34		200.57		281.14
Zacks Regional Northeast Banks		100.00		95.08		111.83		104.68		138.11		192.05

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ITEM 6—Selected Financial Data.

SELECTED CONSOLIDATED FINANCIAL DATA

The following should be read in conjunction with Management’s Discussion and Analysis and Results of Operations and the Company’s consolidated financial statements included in item 7 and 8 of this report. The selective financial data set forth below has been derived from the Company’s audited consolidated financial statements.

	2013			2012			2011			2010			2009
	(in thousands except per share data)
Years Ended December 31
Interest income	$	114,199		$	110,959		$	117,524		$	125,649		$	133,822
Interest expense		9,657			15,446			20,111			25,895			40,443
Net interest income		104,542			95,513			97,413			99,754			93,379
Provision for loan and lease losses		9,343			14,907			18,816			19,281			51,615
Noninterest income excluding gains on investment securities, other-than-temporary impairment losses and gain on debt extinguishment		18,925			17,856			16,888			17,654			15,952
Gains on sales of investment securities		839			1,049			1,229			1,742			3,845
Other than temporary impairment losses on equity securities		—			—			—			(128	)		(940	)
Gain on early debt extinguishment		1,197			—			—			—			—
Noninterest expenses		78,741			67,673			68,151			70,405			73,794
Income (loss) before income taxes (benefit)		37,419			31,838			28,563			29,336			(13,173	)
Income tax provision (benefit)		12,450			10,096			8,712			10,125			(7,777	)
Net income (loss)		24,969			21,742			19,851			19,211			(5,396	)
Dividends on preferred stock and accretion		—			620			2,167			3,987			3,194
Net income (loss) available to common shareholders	$	24,969		$	21,122		$	17,684		$	15,224		$	(8,590	)
Per-Share Data(1)
Weighted average shares outstanding:
Basic		33,088			27,619			26,572			26,352			26,099
Diluted		33,240			27,692			26,681			26,384			26,099
Earnings (loss) per share:
Basic	$	0.75		$	0.76		$	0.66		$	0.57		($	0.33	)
Diluted	$	0.75		$	0.76		$	0.66		$	0.57		($	0.33	)
Cash dividend per common share	$	0.29		$	0.25		$	0.23		$	0.19		$	0.27
Book value per common share	$	9.74		$	9.45		$	8.99		$	8.40		$	8.05
Tangible book value per common share(2)	$	6.63		$	6.52		$	5.75		$	5.10		$	4.68
At December 31
Investment securities available for sale and other(6)	$	439,044		$	399,092		$	471,944		$	487,107		$	375,530
Investment securities held to maturity		101,744			96,925			71,700			66,573			81,821
Loans and leases, net of deferred costs		2,469,016			2,146,843			2,041,575			2,014,617			2,017,035
Goodwill and other identifiable intangible assets		112,398			87,111			87,111			87,689			88,751
Total assets		3,317,791			2,918,703			2,825,950			2,792,674			2,723,968
Total deposits		2,709,205			2,370,997			2,249,653			2,195,889			2,157,187
Total core deposits(3)		2,413,119			2,067,205			1,890,101			1,783,040			1,691,447
Term borrowings		160,238			136,548			232,322			272,322			223,222
Total stockholders’ equity		351,424			280,867			259,783			260,709			267,986
Performance ratios
Return on Average Assets(4)		0.80	%		0.77	%		0.71	%		0.69	%		NM
Return on Average Common Equity(4)		7.78	%		8.48	%		8.53	%		8.70	%		NM
Return on Average Equity(4)		7.78	%		8.42	%		7.79	%		7.13	%		NM
Efficiency ratio(5)		59.74	%		58.33	%		56.87	%		56.40	%		62.06	%
Net Interest Margin (tax equivalent basis)		3.69	%		3.70	%		3.85	%		3.95	%		3.74	%
Loans to Deposits		91.13	%		90.55	%		90.75	%		91.74	%		93.50	%
Capital ratios
Common Equity to Asset ratio		10.59	%		9.62	%		8.54	%		7.99	%		7.78	%
Tangible common equity to tangible assets(3)		7.46	%		6.84	%		5.63	%		5.01	%		4.68	%
Equity to Asset ratio		10.59	%		9.62	%		9.19	%		9.34	%		9.84	%
Tier 1 leverage ratio		8.90	%		8.62	%		8.33	%		9.21	%		9.44	%
Tier 1 risk-based capital ratio		11.73	%		11.52	%		11.23	%		12.43	%		12.65	%
Total risk-based capital ratio		12.98	%		12.77	%		13.39	%		13.68	%		13.90	%

(1) Restated for 5% stock dividends in 2012 and 2011.

(2) A non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation of such measures to data calculated in accordance with generally accepted accounting principles.

(3) Core deposits represent all deposits with the exception of time deposits.

(4) Ratios for 2009 are not meaningful (NM) and therefore not presented.

(5) Ratio represents non-interest expense, excluding other real estate expense, other repossessed asset expense, long-term debt prepayment fee, merger related expenses, provision for unfunded lending commitments and core deposit amortization, as a percentage of total revenue (calculated on a tax equivalent basis), excluding gains (losses) on securities and gain on debt extinguishment. Total revenue represents net interest income (calculated on a tax equivalent basis) plus non-interest income.

(6) Includes investment in Federal Home Loan Bank and other membership stock, at cost

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ITEM 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This section presents a review of Lakeland Bancorp, Inc.’s consolidated results of operations and financial condition. You should read this section in conjunction with the selected consolidated financial data that is presented on the preceding page as well as the accompanying consolidated financial statements and notes to financial statements. As used in the following discussion, the term “Company” refers to Lakeland Bancorp, Inc. and “Lakeland” refers to the Company’s wholly owned banking subsidiary—Lakeland Bank.

Statements Regarding Forward-Looking Information

The information disclosed in this document includes various forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to credit quality (including delinquency trends and the allowance for loan and lease losses), corporate objectives, and other financial and business matters. The words “anticipates,” “projects,” “intends,” “estimates,” “expects,” “believes,” “plans,” “may,” “will,” “should,” “could,” and other similar expressions are intended to identify such forward-looking statements. The Company cautions that these forward-looking statements are necessarily speculative and speak only as of the date made, and are subject to numerous assumptions, risks and uncertainties, all of which may change over time. Actual results could differ materially from such forward-looking statements.

In addition to the risk factors disclosed elsewhere in this document, the following factors, among others, could cause the Company’s actual results to differ materially and adversely from such forward-looking statements: changes in the financial services industry and the U.S. and global capital markets, changes in economic conditions nationally, regionally and in the Company’s markets, the nature and timing of actions of the Federal Reserve Board and other regulators, the nature and timing of legislation affecting the financial services industry including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, government intervention in the U.S. financial system, changes in levels of market interest rates, pricing pressures on loan and deposit products, credit risks of Lakeland’s lending and leasing activities, customers’ acceptance of Lakeland’s products and services, competition and the failure to realize anticipated efficiencies and synergies in the merger of Somerset Hills Bank into Lakeland Bank and Somerset Hills Bancorp into the Company.

The above-listed risk factors are not necessarily exhaustive, particularly as to possible future events, and new risk factors may emerge from time to time. Certain events may occur that could cause the Company’s actual results to be materially different than those described in the Company’s periodic filings with the Securities and Exchange Commission. Any statements made by the Company that are not historical facts should be considered to be forward-looking statements. The Company is not obligated to update and does not undertake to update any of its forward-looking statements made herein.

Strategy

The Company, through its wholly owned subsidiary, Lakeland Bank, operates 52 banking offices located in Northern and Central New Jersey. Lakeland offers a broad range of lending, depository, and related financial services to individuals and small to medium sized businesses located in its market areas. Lakeland also offers a broad range of consumer banking services, including lending, depository, safe deposit services and other non-traditional banking services.

Lakeland’s growth has come from a combination of organic growth and acquisitions. Since 1998, Lakeland has opened 27 new branch offices (including acquired branches). The Company has acquired five community banks with an aggregate asset total of approximately $1.1 billion at the date of acquisition including the acquisition of the Somerset Hills Bank and its parent, Somerset Hills Bancorp, which closed on May 31, 2013. All acquired banks have been merged into Lakeland and their holding companies, if applicable, have been merged into the Company. The Company’s strategy is to continue growth both organically and through acquisition should opportunities allow. The Company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets.

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The Company’s strategic aim is to provide an adequate return to its shareholders by focusing on profitable growth through services that meet the needs of its customers in its market areas. This will be accomplished by continuing to offer commercial and consumer loan, deposit and other financial product services in a changing economic and technological environment. The Company recognizes that there are more service delivery channels than the traditional branch office and has offered internet banking, mobile banking and cash management services to meet the needs of its business and consumer customers.

The Company’s results of operations are primarily dependent upon net interest income, the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. For information on how interest rate change can influence the Company’s net interest income and how the Company manages it net interest income, see “Interest Rate Risk” below.

The Company generates non-interest income such as income from retail and business account fees, loan servicing fees, loan origination fees, appreciation in the cash surrender value of bank owned life insurance, income from loan or securities sales, fees from wealth management services and investment product sales and other fees. The Company’s operating expenses consist primarily of compensation and benefits expense, occupancy and equipment expense, data processing expense, the amortization of intangible assets, marketing and advertising expense and other general and administrative expenses. The Company’s results of operations are also affected by general economic conditions, changes in market interest rates, changes in asset quality, changes in asset values, actions of regulatory agencies and government policies.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Company and Lakeland conform with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and predominant practices within the banking industry. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates implicit in these financial statements are as follows. For additional accounting policies and detail, refer to Note 1 to the consolidated financial statements included in item 8 of this report.

Allowance for loan and lease losses. The allowance for loan and lease losses is established through a provision for loan and lease losses charged to expense. Loan principal considered to be uncollectible by management is charged against the allowance for loan and lease losses. The allowance is an amount that management believes will be adequate to absorb losses on existing loans and leases that may become uncollectible based upon an evaluation of known and inherent risks in the loan and lease portfolio. The evaluation takes into consideration such factors as changes in the nature and size of the loan and lease portfolio, overall portfolio quality, specific problem loans and leases, and current economic conditions which may affect the borrowers’ ability to pay. The evaluation also analyzes historical losses by loan and lease category, and considers the resulting loss rates when determining the reserves on current loan and lease total amounts. Loss estimates for specified problem loans and leases are also detailed. All of the factors considered in the analysis of the adequacy of the allowance for loan and lease losses may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for loan and lease losses may be required that would adversely impact earnings in future periods.

The determination of the adequacy of the allowance for loan and lease losses and the periodic provisioning for estimated losses included in the consolidated financial statements is the responsibility of management and the Board of Directors. The evaluation process is undertaken on a quarterly basis.

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Methodology employed for assessing the adequacy of the allowance consists of the following criteria:

• The establishment of specific reserve amounts for all specifically identified classified loans and leases that have been designated as requiring attention by Lakeland or Lakeland’s external loan review consultants.

• The establishment of reserves for pools of homogeneous types of loans and leases not subject to specific review, including impaired commercial loans under $500,000, leases, 1 – 4 family residential mortgages, and consumer loans.

• The establishment of reserve amounts for the non-classified loans and leases in each portfolio based upon the historical average loss experience for these portfolios and management’s evaluation of key environmental factors.

• Lakeland also maintains an unallocated component in its allowance for loan and lease losses. Management believes that the unallocated amount is warranted for inherent factors that cannot be practically assigned to individual loss categories, such as the periodic updating of appraisals on impaired loans, as well as periodic updating of commercial loan credit risk ratings by loan officers and Lakeland’s internal credit review process.

Consideration is given to the results of ongoing credit quality monitoring processes, the adequacy and expertise of Lakeland’s lending staff, underwriting policies, loss histories, delinquency trends, and the cyclical nature of economic and business conditions. Since many of Lakeland’s loans depend on the sufficiency of collateral as a secondary source of repayment, any adverse trend in the real estate markets could affect underlying values available to protect Lakeland from loss.

A loan is reviewed for charge-off when it is placed on non-accrual status with a resulting charge-off if the loan is not secured by collateral having sufficient liquidation value to repay the loan and all accrued interest and the loan is not in the process of collection. Charge-offs are recommended by the Chief Credit Officer and approved by the Board on a monthly basis.

Loans and leases are considered impaired when, based on current information and events, it is probable that Lakeland will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is measured based on the present value of expected cash flows discounted at the loan’s effective interest rate, or as a practical expedient, Lakeland may measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral-dependent. Regardless of the measurement method, Lakeland measures impairment based on the fair value of the collateral when it is determined that foreclosure is probable. Most of Lakeland’s impaired loans are collateral- dependent. Lakeland groups impaired commercial loans under $500,000 into a homogeneous pool and collectively evaluates them. Interest received on impaired loans and leases may be recorded as interest income. However, if management is not reasonably certain that an impaired loan and lease will be repaid in full, or if a specific time frame to resolve full collection cannot yet be reasonably determined, all payments received are recorded as reductions of principal.

Fair value measurements and fair value of financial instruments. Fair values of financial instruments are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security.

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to

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determine whether an other-than-temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer which may include projections of cash flows, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Company’s results of operations and financial condition.

Income taxes. The Company accounts for income taxes under the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. The principal types of differences between assets and liabilities for financial statement and tax return purposes are allowance for loan and lease losses, core deposit intangible, deferred loan costs and deferred compensation.

The Company evaluates the realizability of its deferred tax assets by examining its earnings history and projected future earnings and by assessing whether it is more likely than not that carryforwards would not be realized. Based upon the majority of the Company’s deferred tax assets having no expiration date, the Company’s earnings history, and the projections of future earnings, the Company’s management believes that it is more likely than not that all of the Company’s deferred tax assets as of December 31, 2013 will be realized.

The Company evaluates tax positions that may be uncertain using a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. Additional information regarding the Company’s uncertain tax positions is set forth in Note 9 to the Notes to the audited Consolidated Financial Statements contained herein.

Goodwill and other identifiable intangible assets. The Company reviews goodwill for impairment annually as of November 30 or when circumstances indicate a potential for impairment at the reporting unit level. U.S. GAAP requires at least an annual review of the fair value of a reporting unit that has goodwill in order to determine if it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. If this qualitative test determines it is unlikely (less than 50% probability) the carrying value of the reporting unit is less than its fair value, then the company does not have to perform a Step One impairment test. If the probability is greater than 50%, a Step One goodwill impairment test is required. The Step One test compares the fair value of each reporting unit to the carrying value of its net assets, including goodwill. The Company has determined that it has one reporting unit, Community Banking.

The Company performed a qualitative analysis to determine whether “the weight of evidence, the significance of all identified events and circumstances” indicated a greater than 50% likelihood existed that the carrying value of the reporting unit exceeded its fair value and if a Step One test would be required. The Company identified nine qualitative assessments that are relative to the banking industry and to the Company. These factors included macroeconomic factors, banking industry conditions, banking merger and acquisition trends, Lakeland’s historical performance, the Company’s stock price, the expected performance of Lakeland, the change of control premium of the Company versus its peers and other miscellaneous factors. After reviewing and weighting these factors, the Company, as well as a third party adviser, determined as of November 30, 2013 that there was a less than 50% probability that the fair value of the Company was less than its carrying amount. Therefore, no Step One test was required.

Use of Non-GAAP Disclosures

Reported amounts are presented in accordance with U.S. GAAP. The Company’s management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity,

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tangible assets and the efficiency ratio, which excludes certain items considered to be non-recurring from earnings, is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

Financial Overview

The year ended December 31, 2013 represented a year of continued growth for the Company. As discussed in this management’s discussion and analysis:

• Net income available to common shareholders increased $3.8 million or 18% to $25.0 million in 2013. Included in 2013 earnings was $2.8 million in expenses related to the merger with Somerset Hills Bancorp. Exclusive of these expenses, net income was $27.1 million and fully diluted earnings per share for 2013 was $0.81 per common share, a 7% increase over the $0.76 reported in 2012.

• The Somerset Hills acquisition, which was consummated on May 31, 2013, added six full service branches, $356.1 million in total assets, $10.4 million in investment securities, $246.5 million in loans (including $2.5 million in residential mortgages held for sale), and $311.8 million in deposits ($80.8 million in non-interest bearing demand deposits and $231.0 million in interest-bearing deposits) at fair value. For more information on the Somerset Hills acquisition, please see Note 2—Acquisitions to the Notes to the audited Consolidated Financial Statements contained herein.

• Excluding the loans acquired in the Somerset Hills acquisition, total loans increased $79.2 million, or 4%, from 2012 to 2013. Commercial Real Estate Loans increased $120.1 million, or 11%, from December 31, 2012 to December 31, 2013 excluding the impact of the Somerset Hills loans.

• Non-performing assets declined $11.1 million, or 39%, to $17.5 million at December 31, 2013 compared to December 31, 2012. The Allowance for Loan and Lease Losses at December 31, 2013 was 176% of non-accruing loans compared to 103% at December 31, 2012.

• As a result of improving loan quality, the provision for loan and lease losses was reduced from $14.9 million in 2012 to $9.3 million in 2013.

• The Company’s net interest margin at 3.69% for 2013 remained stable throughout the year and compared to 3.70% in 2012.

• During 2013, the Company acquired and extinguished $9.0 million of Lakeland Bancorp Capital Trust I debentures and recorded a $1.2 million pre-tax gain on extinguishment of debt.

Net income

Net income for 2013 was $25.0 million compared to net income of $21.7 million in 2012. Net income available to common shareholders in 2013 was $25.0 million or $0.75 per diluted share compared to $21.1 million or $0.76 per diluted share in 2012.

Net interest income

Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. The Company’s net interest income is determined by: (i) the volume of interest-earning assets that it holds and the yields that it earns on those assets, and (ii) the volume of interest-bearing liabilities that it has assumed and the rates that it pays on those liabilities.

Net interest income for 2013 on a tax-equivalent basis was $105.5 million, representing an increase of $9.0 million, or 9%, from the $96.5 million earned in 2012. The increase in net interest income primarily resulted from a 30 basis point decline in the cost of interest-bearing liabilities, partially offset by a 26 basis point decrease in the yield on interest-earning assets. The net interest spread as a result increased 4 basis points to 3.59%. The

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increase in net interest spread was augmented by an increase in income earned on free funds (interest-earning assets funded by non-interest bearing liabilities) resulting from an increase in average non-interest bearing deposits of $101.8 million. The components of net interest income will be discussed in greater detail below.

Interest income and expense volume/rate analysis. The following table shows the impact that changes in average balances of the Company’s assets and liabilities and changes in average interest rates have had on the Company’s net interest income over the past three years. This information is presented on a tax equivalent basis assuming a 35% tax rate. If a change in interest income or expense is attributable to a change in volume and a change in rate, the amount of the change is allocated proportionately.

INTEREST INCOME AND EXPENSE VOLUME/RATE ANALYSIS

(tax equivalent basis, in thousands)

	2013 vs. 2012									2012 vs. 2011
	Increase (Decrease) Due to Change in:						Total Change			Increase (Decrease) Due to Change in:						Total Change
	Volume			Rate						Volume			Rate
Interest Income
Loans and leases	$	9,677		$	(5,861	)	$	3,816		$	4,284		$	(8,356	)	$	(4,072	)
Taxable investment securities and other		(241	)		(348	)		(589	)		(560	)		(1,748	)		(2,308	)
Tax-exempt investment securities		170			(215	)		(45	)		(5	)		(279	)		(284	)
Federal funds sold		23			19			42			—			—			—
Total interest income		9,629			(6,405	)		3,224			3,719			(10,383	)		(6,664	)
Interest Expense
Savings deposits		26			(169	)		(143	)		25			(113	)		(88	)
Interest-bearing transaction accounts		887			(1,953	)		(1,066	)		488			(1,449	)		(961	)
Time deposits		(182	)		(864	)		(1,046	)		(753	)		(732	)		(1,485	)
Borrowings		(1,755	)		(1,779	)		(3,534	)		(1,110	)		(1,021	)		(2,131	)
Total interest expense		(1,024	)		(4,765	)		(5,789	)		(1,350	)		(3,315	)		(4,665	)
NET INTEREST INCOME (TAX EQUIVALENT BASIS)	$	10,653		$	(1,640	)	$	9,013		$	5,069		$	(7,068	)	$	(1,999	)

The following table reflects the components of the Company’s net interest income, setting forth for the years presented, (1) average assets, liabilities and stockholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) the Company’s net interest spread (i.e., the average yield on interest-earning assets less the average cost of interest-bearing liabilities) and (5) the Company’s net interest margin. Rates are computed on a tax equivalent basis assuming a 35% tax rate.

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CONSOLIDATED STATISTICS ON A TAX EQUIVALENT BASIS

	2013								2012								2011
	Average Balance			Interest Income/ Expense		Average rates earned/ paid			Average Balance			Interest Income/ Expense		Average rates earned/ paid			Average Balance			Interest Income/ Expense		Average rates earned/ paid
	(dollars in thousands)
Assets
Interest-earning assets:
Loans and leases (A)	$	2,317,158		$	104,329		4.50	%	$	2,073,562		$	100,513		4.85	%	$	1,997,652		$	104,585		5.24	%
Taxable investment securities and other		423,249			7,985		1.89	%		435,733			8,574		1.97	%		460,413			10,882		2.36	%
Tax-exempt securities		73,768			2,757		3.74	%		70,309			2,802		3.98	%		70,437			3,086		4.38	%
Federal funds sold (B)		41,870			93		0.22	%		30,373			51		0.17	%		31,939			51		0.16	%
Total interest-earning assets		2,856,045			115,164		4.03	%		2,609,977			111,940		4.29	%		2,560,441			118,604		4.63	%
Noninterest earning assets:
Allowance for loan and lease losses		(30,053	)							(29,091	)							(29,064	)
Other assets		276,868								252,055								251,452
TOTAL ASSETS	$	3,102,860							$	2,832,941							$	2,782,829
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Savings accounts	$	370,980		$	223		0.06	%	$	347,766		$	366		0.11	%	$	330,646		$	454		0.14	%
Interest-bearing transaction accounts		1,341,691			3,747		0.28	%		1,171,318			4,813		0.41	%		1,088,678			5,774		0.53	%
Time deposits		309,384			2,119		0.68	%		329,355			3,165		0.96	%		400,442			4,650		1.16	%
Borrowings		169,048			3,568		2.11	%		237,814			7,102		2.99	%		272,744			9,233		3.39	%
Total interest-bearing liabilities		2,191,103			9,657		0.44	%		2,086,253			15,446		0.74	%		2,092,510			20,111		0.96	%
Noninterest-bearing liabilities:
Demand deposits		576,421								474,579								422,568
Other liabilities		14,513								13,826								12,776
Stockholders’ equity		320,823								258,283								254,975
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,102,860							$	2,832,941							$	2,782,829
Net interest income/spread					105,507		3.59	%					96,494		3.55	%					98,493		3.67	%
Tax equivalent basis adjustment					965								981								1,080
NET INTEREST INCOME				$	104,542							$	95,513							$	97,413
Net interest margin (C)							3.69	%							3.70	%							3.85	%

(A) Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.

(B) Includes interest-bearing cash accounts.

(C) Net interest income on a tax equivalent basis divided by interest-earning assets.

Interest income on a tax equivalent basis increased from $111.9 million in 2012 to $115.2 million in 2013, an increase of $3.2 million, or 3%. The increase in interest income was primarily due to a $243.6 million increase in average loans and leases partially offset by a decrease in the yield on interest earning assets. The increase in average loans and leases is due primarily to the acquisition of Somerset Hills’ loans and leases which totaled $243.9 million at the time of acquisition. The decline in yield on earning assets is primarily a result of loans being refinanced at lower rates and lower yields on new loans and investments. The yield on average loans and leases at 4.50% in 2013 was 35 basis points lower than 2012. The yield on average taxable and tax exempt investment securities decreased by 8 basis points and 24 basis points, respectively, compared to 2012.

Interest income on a tax equivalent basis decreased from $118.6 million in 2011 to $111.9 million in 2012, a decrease of $6.7 million, or 6%. The decrease in interest income was due to a 34 basis point decrease in the average yield on interest-earning assets, as a result of loans being refinanced at lower rates and lower yields on new loans and investments. The yield on average loans and leases at 4.85% in 2012 was 39 basis points lower than 2011. The yield on average taxable and tax-exempt investment securities decreased by 39 basis points to 1.97% and 40 basis points to 3.98%, respectively, in 2012.

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Total interest expense decreased from $15.4 million in 2012 to $9.7 million in 2013, a decrease of $5.8 million, or 37%. The cost of average interest-bearing liabilities decreased from 0.74% in 2012 to 0.44% in 2013 as a result of declining rates and a change in mix of interest earning liabilities. The decrease in yield was due primarily to an 88 basis point reduction in the cost of borrowings, a $68.8 million reduction in higher yielding average borrowings, a $20.0 million reduction in higher yielding time deposits and the continuing low rate environment. In the fourth quarter of 2012, the Company redeemed a $25.8 million subordinated debenture that was paying 7.535%. In the second quarter of 2013, the Company acquired and extinguished $9 million in subordinated debentures that were paying LIBOR plus 310 basis points. From 2012 to 2013, average savings accounts and interest-bearing transaction accounts increased by $23.2 million and $170.4 million, respectively. Average rates paid on interest-bearing liabilities declined in all categories.

Total interest expense decreased from $20.1 million in 2011 to $15.4 million in 2012, a decrease of $4.7 million, or 23%. Average interest-bearing liabilities decreased $6.3 million while the cost of those liabilities decreased from 0.96% in 2011 to 0.74% in 2012. The decrease in yield was due primarily to the continuing low rate environment and a $71.1 million reduction in higher yielding time deposits as customers preferred to keep their deposits in short-term transaction accounts. Additionally, higher yielding average borrowings decreased $34.9 million to $237.8 million in 2012. Contributing to the decrease in borrowings was a payment early in the fourth quarter of 2012 of a $25.8 million subordinated debenture with a yield of 7.535% The decrease in time deposits and borrowings was offset by increases in savings accounts, interest-bearing transaction accounts, and non-interest bearing deposits of $17.1 million, $82.6 million, and $52.0 million, respectively.

Net Interest Margin

Net interest margin is calculated by dividing net interest income on a fully taxable equivalent basis by average interest-earning assets. The Company’s net interest margin was 3.69%, 3.70% and 3.85% for 2013, 2012 and 2011, respectively. The decrease in net interest margin from 2011 to 2012 was primarily a result of the decrease in yield on interest-earning assets.

Provision for Loan and Lease Losses

In determining the provision for loan and lease losses, management considers national and local economic conditions; trends in the portfolio including orientation to specific loan types or industries; experience, ability and depth of lending management in relation to the complexity of the portfolio; adequacy and adherence to policies, procedures and practices; levels and trends in delinquencies, impaired loans and leases and net charge-offs and the results of independent third party loan review.

The provision for loan and lease losses decreased from $14.9 million in 2012 to $9.3 million in 2013. Net charge-offs decreased from $14.4 million or 0.69% of average loans and leases in 2012 to $8.5 million or 0.36% of average loans and leases in 2012. The lower provision resulted from a decline in non-performing assets and from lower charge-offs during 2013.

The provision for loan and lease losses decreased from $18.8 million in 2011 to $14.9 million in 2012. Net charge-offs decreased from $17.7 million or 0.89% of average loans and leases in 2011 to $14.4 million or 0.69% of average loans and leases in 2012. The lower provision resulted from a decline in non-performing assets and from lower charge-offs during 2012. During the second quarter of 2012, Lakeland sold a group of primarily non-performing loans with a net book value of $4.5 million and recorded a charge-off of $1.9 million.

Noninterest Income

Noninterest income increased $2.1 million, or 11%, to $21.0 million in 2013 compared to 2012. In 2013 the Company recorded a $1.2 million pre-tax gain on the purchase and early extinguishment of $9.0 million of Lakeland Bancorp Capital Trust I debentures. Gain on sales of investment securities was $839,000 in 2013

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compared to $1.0 million in 2012. Income on bank owned life insurance at $1.4 million in 2013 increased $66,000 or 5% compared to 2012 due primarily to the addition of policies acquired in the Somerset Hills merger. Other income at $2.1 million in 2013 was $576,000 higher than 2012 primarily due to increases in gain on sale of loans and gain on sale of other real estate, partially offset by a reduction in gain on sale of leases. Noninterest income represented 17% of total revenue in 2013. (Total revenue is defined as net interest income plus noninterest income).

Noninterest income increased $788,000, or 4%, to $18.9 million in 2012 compared to 2011. Service charges on deposit accounts at $10.5 million increased $242,000, or 2%, due primarily to the implementation of a new demand deposit pricing structure in the second quarter of 2012. Commissions and fees totaled $4.5 million in 2012 and were $788,000 or 21% higher than 2011 due to an increase in investment commission income and loan fees. Gains on sales of investment securities decreased $180,000 from 2011 to 2012. Although other income at $1.5 million in 2012 remained at substantially the same level as 2011, net gains on the sale of bank owned properties was offset by declines in gains on leasing related assets. The decline in gains on leasing related assets reflects the reduction in the leasing portfolio. Noninterest income represented 17% of total revenue in 2012.

Noninterest Expense

Noninterest expense totaling $78.7 million increased $11.1 million in 2013 compared to 2012. In 2013 noninterest expense included $2.8 million in merger related expenses and $288,000 in core deposit intangible amortization resulting from the Somerset Hills acquisition. Salary and employee benefits at $41.9 million increased by $3.3 million, or 9%, primarily as a result of increased staffing levels from the six new Somerset Hills’ branches, the retention of some administrative personnel from the Somerset Hills acquisition, and normal salary increases. Net occupancy expense at $8.1 million in 2013 increased $985,000 from 2012, due primarily to expenses relating to the six new branch locations acquired in the Somerset Hills acquisition and a new branch opening in the fourth quarter of 2012. Furniture and equipment at $6.2 million increased $1.4 million from 2012 due primarily to the new branches previously mentioned, increased service contract expenses and increased depreciation costs resulting from the upgrading of the Company’s computer systems. Long-term debt prepayment fees was $1.2 million in 2013 compared to $782,000 in 2012. FDIC insurance expense at $2.0 million in 2013 decreased $149,000 compared to the same period last year due primarily to improved assessment rates resulting from a reduction in nonperforming assets. Legal expense at $1.0 million and other real estate and repossessed asset expense at $24,000 decreased $204,000 and $75,000, respectively, due primarily to the reduction in nonperforming assets. Other expenses at $11.6 million in 2013 increased $2.1 million compared to the same period in 2012 primarily due to an increase in data processing expenses reflecting technological improvements, an increase in telecommunications expense and Somerset Hills costs. Also included in other expenses was an additional $600,000 in professional fees related to costs associated with the resignation of the Company’s external accountants.

Noninterest expense totaling $67.7 million decreased $478,000 in 2012 compared to 2011. FDIC insurance expense at $2.2 million was $627,000 lower than the same period in 2011 as a result of changes made by the FDIC in the method of calculating assessment rates. Legal expense and expenses on other real estate and other repossessed assets decreased $456,000 and $681,000, respectively, compared to 2011, resulting from the decline in Lakeland’s non-performing assets. During the third quarter of 2011, Lakeland completed core deposit intangible amortization on an earlier acquisition, which resulted in a $577,000 decrease in that category. Marketing expense at $2.0 million decreased $375,000 or 16% due to the elimination of several marketing programs in 2012. Net occupancy expense at $7.1 million increased $204,000 compared to 2011 primarily as a result of increases in rental expense and depreciation expense for the new training and operations center, partially offset by a decline in snow removal expenses. Salaries and employee benefits at $38.6 million increased $2.1 million or 6% primarily due to normal salary increases, benefit increases and adjustments made to benefit plans to reflect the current interest rate environment.

The efficiency ratio, a non-GAAP measure, expresses the relationship between noninterest expense (excluding other real estate and other repossessed asset expense, long-term debt repayment fees, merger related

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expenses, provision for unfunded lending commitments and core deposit amortization) to total tax-equivalent revenue (excluding gains (losses) on securities and gain on debt extinguishment). In 2013, the Company’s efficiency ratio on a tax equivalent basis was 59.74% compared to 58.33% in 2012 as a result of expenses increasing at a greater rate than revenue. The efficiency ratio was 56.87% in 2011.

	For the year ended December 31,
	2013			2012			2011			2010			2009
	(dollars in thousands)
Calculation of efficiency ratio (a non-GAAP measure)
Total non-interest expense	$	78,741		$	67,673		$	68,151		$	70,405		$	73,794
Less:
Amortization of core deposit intangibles		(288	)		—			(577	)		(1,062	)		(1,062	)
Other real estate owned and other repossessed asset expense		(24	)		(99	)		(780	)		(483	)		(1,002	)
Merger related expenses		(2,834	)		—			—			—			—
Long-term debt prepayment fee		(1,209	)		(782	)		(800	)		(1,835	)		(3,075	)
Provision for unfunded lending commitments		(55	)		(93	)		(375	)		(195	)		(58	)
Non-interest expense, as adjusted	$	74,331		$	66,699		$	65,619		$	66,830		$	68,597
Net interest income	$	104,542		$	95,513		$	97,413		$	99,754		$	93,379
Noninterest income		20,961			18,905			18,117			19,268			18,857
Total revenue		125,503			114,418			115,530			119,022			112,236
Plus: Tax-equivalent adjustment on municipal securities		965			981			1,080			1,082			1,206
Less: Gains on sales of investment securities and debt extinguishment		(2,036	)		(1,049	)		(1,229	)		(1,614	)		(2,905	)
Total revenue, as adjusted	$	124,432		$	114,350		$	115,381		$	118,490		$	110,537
Efficiency ratio (Non-GAAP)		59.74	%		58.33	%		56.87	%		56.40	%		62.06	%

Income Taxes

The Company’s effective income tax rate was 33.3%, 31.7% and 30.5%, in the years ended December 31, 2013, 2012 and 2011, respectively. The effective tax rate increase in 2013 and 2012 was primarily a result of increased earnings and because of a reduction of tax advantaged items as a percent of pre-tax income. Tax advantaged items include interest income on tax-exempt securities and income on bank owned life insurance.

Financial Condition

Total assets increased from $2.92 billion on December 31, 2012 to $3.32 billion on December 31, 2013, an increase of $399.1 million, or 14%. This includes Somerset Hills’ assets which were $356.1 million at the time of acquisition. Total loans were $2.47 billion, an increase of $323.1 million from $2.15 billion at December 31, 2012. Somerset Hills’ loans totaled $243.9 million at the time of acquisition. Total deposits were $2.71 billion, an increase of $338.2 million from December 31, 2012. Somerset Hills’ deposits totaled $311.8 million at the time of acquisition. Total assets at year-end 2012 increased $92.8 million or 3% from year-end 2011.

Loans and Leases

Lakeland primarily serves Northern and Central New Jersey and the surrounding areas. Its equipment finance division serves a broader market with a primary focus on the Northeast. All of its borrowers are U.S. residents or entities.

Gross loans and leases at $2.47 billion increased by $323.1 million from December 31, 2012. This includes Somerset Hills’ loans which totaled $243.9 million at the time of acquisition. Excluding Somerset Hills’ loans, total loans have increased 4% from December 31, 2012 primarily in the commercial loans secured by real estate

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category. Excluding the impact of the Somerset Hills’ loans of $144.6 million, commercial loans secured by real estate increased $120.1 million, or 11%, from December 31, 2012 to December 31, 2013. Leases also increased $14.6 million, or 54%, resulting from increased demand for equipment financing and from broadening our market area. Excluding the impact of the Somerset Hills’ loans of $22.0 million, commercial, industrial and other loans decreased $24.3 million, or 11%, resulting from large payoffs and reduced demand in a competitive lending market. Real Estate-Residential mortgages declined $29.7 million, or 7%, excluding the impact of Somerset Hills’ residential mortgages of $39.3 million. The decline in residential mortgages resulted from an increase in long-term rates which occurred in the middle of 2013 causing the level of refinancings to decline. Lakeland is also selling a larger percentage of its residential mortgage originations than it has in past years. Gross loans and leases at $2.15 billion as of December, 31 2012 increased $105.9 million, or 5%, compared to December 31, 2011 primarily due to increases in commercial loans secured by real estate and residential mortgages, which increased $112.2 million and $17.0 million, respectively, partially offset by a $32.9 million decline in real estate construction loans.

The following table sets forth the classification of Lakeland’s gross loans and leases by major category as of December 31 for each of the last five years:

	December 31,
	2013			2012			2011		2010		2009
							(in thousands)
Commercial, secured by real estate	$	1,389,861		$	1,125,137		$	1,012,982	$	970,240	$	914,223
Commercial, industrial and other		213,808			216,129			209,915		194,259		172,744
Leases		41,332			26,781			28,879		65,640		113,160
Leases held for sale		—			—			—		1,517		7,314
Real estate—residential mortgage		432,831			423,262			406,222		403,561		382,750
Real estate—construction		53,119			46,272			79,138		70,775		108,338
Home equity and consumer		339,338			309,626			304,190		306,322		315,598
		2,470,289			2,147,207			2,041,326		2,012,314		2,014,127
Plus deferred costs (fees)		(1,273	)		(364	)		249		2,303		2,908
Loans and leases net of deferred costs (fees)	$	2,469,016		$	2,146,843		$	2,041,575	$	2,014,617	$	2,017,035

At December 31, 2013, there were no concentrations of loans or leases exceeding 10% of total loans and leases outstanding other than loans that are secured by real estate. Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other related conditions.

The following table sets forth maturities and sensitivity to changes in interest rates in commercial loans in Lakeland’s loan portfolio at December 31, 2013:

	Within one year		After one but within five years		After five years		Total
	(in thousands)
Commercial, secured by real estate	$	95,835	$	211,580	$	1,082,446	$	1,389,861
Commercial, industrial and other		124,767		63,653		25,388		213,808
Real estate—construction		32,996		3,697		16,426		53,119
Total	$	253,598	$	278,930	$	1,124,260	$	1,656,788
Predetermined rates	$	41,996	$	201,173	$	213,933	$	457,102
Floating or adjustable rates		211,602		77,757		910,327		1,199,686
Total	$	253,598	$	278,930	$	1,124,260	$	1,656,788

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Risk Elements

Commercial loans and leases are placed on a non-accrual status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrower they are maintained on a cash basis (which means payments are applied when and as received rather than on a regularly scheduled basis), (b) payment in full of interest or principal is not expected, or (c) principal and interest have been in default for a period of 90 days or more unless the obligation is both well-secured and in process of collection. Residential mortgage loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more, except where there exists sufficient collateral to cover the defaulted principal and interest payments, and management’s knowledge of the specific circumstances warrant continued accrual. Consumer loans are generally placed on non-accrual status and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection. Interest thereafter on such charged-off consumer loans is taken into income when received only after full recovery of principal. As a general rule, a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid, satisfactory payments have been received for a sustained period (usually six months), or when it otherwise becomes well-secured and in the process of collection.

The following schedule sets forth certain information regarding Lakeland’s non-accrual (including troubled debt restructurings that are on non-accrual) and past due loans and leases and other real estate owned and other repossessed assets as of December 31, for each of the last five years:

	At December 31,
(dollars in thousands)	2013			2012			2011			2010			2009
Commercial, secured by real estate	$	7,697		$	10,511		$	16,578		$	12,905		$	20,811
Commercial, industrial, and other		88			1,476			4,608			1,702			2,047
Leases, including leases held for sale		—			32			575			6,277			3,511
Real estate—residential mortgage		6,141			8,733			11,610			12,834			5,465
Real estate-construction		831			4,031			12,393			6,321			4,987
Home equity and consumer		2,175			3,197			3,252			2,930			1,890
Total non-accrual loans and leases		16,932			27,980			49,016			42,969			38,711
Other real estate and other repossessed assets		520			529			1,182			1,592			1,864
TOTAL NON-PERFORMING ASSETS	$	17,452		$	28,509		$	50,198		$	44,561		$	40,575
Non-performing assets as a percent of total assets		0.53	%		0.98	%		1.78	%		1.60	%		1.49	%
Loans and leases past due 90 days or more and still accruing	$	1,997		$	1,437		$	1,367		$	1,218		$	1,437
Troubled debt restructurings, still accruing	$	10,289		$	7,336		$	8,856		$	9,073		$	3,432

Non-accrual loans and leases decreased to $16.9 million on December 31, 2013 from $28.0 million at December 31, 2012. Non-performing loans and leases decreased in all categories. Commercial secured by real estate; commercial, industrial and other; residential mortgages and construction real estate decreased $2.8 million, $1.4 million, $2.6 million and $3.2 million, respectively.

Commercial loan non-accruals included 3 loan relationships between $500,000 and $1.0 million totaling $1.8 million, and 2 loan relationships exceeding $1.0 million totaling $2.3 million. The largest of the commercial loan non-accruals was $1.3 million. All non-accrual loans and leases are in various stages of litigation, foreclosure, or workout. Non-accrual loans included $2.3 million and $3.4 million in troubled debt restructurings for the years ended December 31, 2013 and 2012, respectively.

At December 31, 2013, Lakeland had $10.3 million in loans that were restructured and still accruing. Restructured loans are those loans where Lakeland has granted concessions to the borrower in payment terms in rate and/or in maturity as a result of the financial condition of the borrower.

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For 2013, the gross interest income that would have been recorded, had the loans and leases classified at year-end as impaired been performing in conformance with their original terms, is approximately $2.2 million. The amount of interest income actually recorded on those loans and leases for 2013 was $877,000. The resultant loss of $1.3 million for 2013 compares with prior year losses of $2.1 million for 2012 and $2.4 million for 2011.

As of December 31, 2013, Lakeland had impaired loans and leases totaling $24.6 million (consisting primarily of non-accrual and restructured loans and leases), compared to $31.5 million at December 31, 2012. The valuation allowance of these loans and leases is based primarily on the fair value of the underlying collateral. Based upon such evaluation, $910,000 has been allocated to the allowance for loan and lease losses for impairment at December 31, 2013 compared to $873,000 at December 31, 2012. At December 31, 2013, Lakeland also had $62.5 million in loans and leases that were rated substandard that were not classified as non-performing or impaired compared to $42.7 million at December 31, 2012.

There were no additional loans or leases at December 31, 2013, other than those designated non-performing, impaired or substandard, where Lakeland was aware of any credit conditions of any borrowers that would indicate a strong possibility of the borrowers not complying with the present terms and conditions of repayment and which may result in such loans or leases being included as non-accrual, past due or renegotiated at a future date.

The following table sets forth for each of the five years ended December 31, 2013, the historical relationships among the amount of loans and leases outstanding, the allowance for loan and lease losses, the provision for loan and lease losses, the amount of loans and leases charged off and the amount of loan and lease recoveries:

	December 31,
	2013			2012			2011			2010			2009
	(dollars in thousands)
Balance of the allowance at the beginning of the year	$	28,931		$	28,416		$	27,331		$	25,563		$	25,053
Loans and leases charged off:
Commercial, secured by real estate		2,026			7,287			5,352			7,510			2,524
Commercial, industrial and other		1,324			949			5,249			3,298			2,632
Leases		206			999			2,858			4,307			22,972
Leases held for sale		—			—			—			—			22,122
Real estate—residential mortgage		1,257			1,822			1,772			397			433
Real estate-construction		3,854			2,888			3,636			1,756			200
Home equity and consumer		1,624			2,074			3,010			2,250			2,499
Total loans and leases charged off		10,291			16,019			21,877			19,518			53,382
Recoveries:
Commercial, secured by real estate		1,061			280			2,084			134			135
Commercial, industrial and other		260			428			439			62			134
Leases		121			504			1,206			1,391			1,777
Real estate—residential mortgage		99			66			32			7			—
Real estate-construction		14			43			67			—			—
Home equity and consumer		283			306			318			411			231
Total Recoveries		1,838			1,627			4,146			2,005			2,277
Net charge-offs:		8,453			14,392			17,731			17,513			51,105
Provision for loan and lease losses charged to operations		9,343			14,907			18,816			19,281			51,615
Ending balance	$	29,821		$	28,931		$	28,416		$	27,331		$	25,563
Ratio of net charge-offs to average loans and leases outstanding:		0.36	%		0.69	%		0.89	%		0.88	%		2.55	%
Ratio of allowance at end of year as a percentage of year-end total loans and leases		1.21	%		1.35	%		1.39	%		1.36	%		1.27	%

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The ratio of the allowance for loan and lease losses to loans and leases outstanding reflects management’s evaluation of the underlying credit risk inherent in the loan portfolio as discussed above in “Critical Accounting Policies, Judgements and Estimates—Allowance for Loan and Lease Losses.”

The overall balance of the allowance for loan losses increased $890,000 at December 31, 2013 compared to levels at December 31, 2012. The components of the allowance also changed to reflect the changes both in the portfolios and in the levels of non-performing loans within the portfolio segments. The allowance for loan and leases losses for the commercial secured by real estate portfolio decreased from $16.3 million to $14.5 million to reflect a decline in net charge-offs of $6.0 million or 86% from 2012 to 2013 and to reflect a decline in non-accrual loans of $2.8 million or 27% from December 31, 2012 to December 31, 2013. The allowance for loan and leases losses for the leasing portfolio decreased from $578,000 to $504,000 reflecting the decline in non-performing loans as well as a decline in net charge-offs in that portfolio. The allowance for loan and leases losses for the home equity and consumer portfolio declined from $2.8 million to $2.7 million due primarily to a decrease in net charge-offs and a decline in non-performing loans. The allowance for loan and lease losses decreased for residential mortgages primarily due to a reduction in net charge-offs, a decline in non-performing loans and a decline in loans outstanding.

Non-performing loans and leases decreased from $28.0 million on December 31, 2012 to $16.9 million on December 31, 2013 and the allowance for loan and lease losses was 1.21% of total loans and leases on December 31, 2013 compared to 1.35% of total loans and leases on December 31, 2012. The decline in the allowance for loan and lease losses as a percent of total loans results from the $243.9 million increase in loans resulting from the Somerset Hills acquisition, which is accounted for under acquisition accounting. Excluding the Somerset Hills loans, the allowance as a percent of total loans would be 1.34%. As discussed above, the decrease in non-accruals was in all categories. Management believes, based on appraisals and estimated selling costs that the majority of these loans are well secured and reserves on these loans are adequate. Based upon the process employed and giving recognition to all accompanying factors related to the loan and lease portfolio, management considers the allowance for loan and lease losses to be adequate at December 31, 2013.

The following table shows how the allowance for loan and lease losses is allocated among the various types of loans and leases that Lakeland has outstanding. This allocation is based on management’s specific review of the credit risk of the outstanding loans and leases in each category as well as historical trends.

	At December 31,
	2013					2012					2011					2010					2009
	Allowance		% of Loans in Each Category			Allowance		% of Loans in Each Category			Allowance		% of Loans in Each Category			Allowance		% of Loans in Each Category			Allowance		% of Loans in Each Category
	(in thousands)
Commercial, secured by real estate	$	14,463		56.2	%	$	16,258		52.4	%	$	16,618		49.6	%	$	11,366		48.2	%	$	9,285		45.4	%
Commercial, industrial and other		5,331		8.7	%		5,103		10.1	%		3,477		10.3	%		5,113		9.7	%		4,647		8.6	%
Leases		504		1.7	%		578		1.2	%		688		1.4	%		3,477		3.3	%		4,308		6.0	%
Real estate—residential mortgage		3,214		17.5	%		3,568		19.7	%		3,077		19.9	%		2,628		20.1	%		1,286		19.0	%
Real estate—construction		542		2.2	%		587		2.2	%		1,424		3.9	%		2,176		3.5	%		3,198		5.4	%
Home equity and consumer		2,737		13.7	%		2,837		14.4	%		3,132		14.9	%		2,571		15.2	%		2,839		15.6	%
Unallocated		3,030					—					—					—					—
	$	29,821		100.0	%	$	28,931		100.0	%	$	28,416		100.0	%	$	27,331		100.0	%	$	25,563		100.0	%

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Investment Securities

The Company has classified its investment securities into the available for sale and held to maturity categories based on its intent and ability to hold the securities to maturity. The Company has no investment securities classified as trading securities.

The following table sets forth the carrying value of the Company’s investment securities, both available for sale and held to maturity, as of December 31 for each of the last three years. Investment securities available for sale are stated at fair value while securities held for maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts.

	December 31,
	2013		2012		2011
	(in thousands)
U.S. Treasury and U.S. government agencies	$	89,897	$	102,660	$	52,608
Mortgage-backed securities, residential		339,098		278,624		370,101
Mortgage-backed securities, multifamily		2,355		1,421		—
Obligations of states and political subdivisions		80,394		77,421		76,528
Equity securities		16,146		15,516		23,132
Other debt securities		4,960		14,993		21,275
	$	532,850	$	490,635	$	543,644

The Company does not own any collateralized debt obligations, pooled trust preferred securities or preferred stock with the Federal National Mortgage Association or the Federal Home Loan Mortgage Association. The Company also does not own any interests in any hedge funds or private equity funds that are designated “covered funds” under the Volcker Rule issued in December 2013. All of the Company’s mortgage-backed securities are issued by U.S. Government or U.S. Government sponsored entities.

The following table sets forth the maturity distribution and weighted average yields (calculated on the basis of the stated yields to maturity, considering applicable premium or discount), on a fully taxable equivalent basis, of investment securities available for sale as of December 31, 2013, at fair value:

Available for sale	Within one year			Over one but within five years			Over five but within ten years			After ten years			Total
	(dollars in thousands)
U.S. Treasury and U.S. government agencies
Amount	$	—		$	24,141		$	46,024		$	—		$	70,165
Yield		—	%		1.18	%		1.54	%		—	%		1.42	%
Mortgage-backed securities, residential
Amount		—			4,861			29,495			270,146			304,502
Yield		—	%		3.25	%		2.09	%		2.16	%		2.17	%
Obligations of states and political subdivisions
Amount		3,984			11,213			19,999			1,677			36,873
Yield		2.81	%		3.45	%		3.38	%		2.61	%		3.30	%
Other debt securities
Amount		—			2,615			—			805			3,420
Yield		—	%		1.91	%		—	%		1.04	%		1.71	%
Other equity securities
Amount		16,146			—			—			—			16,146
Yield		2.05	%		—	%		—	%		—	%		2.05	%
Total securities
Amount	$	20,130		$	42,830		$	95,518		$	272,628		$	431,106
Yield		2.20	%		2.05	%		2.10	%		2.16	%		2.14	%

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The following table sets forth the maturity distribution and weighted average yields (calculated on the basis of the stated yields to maturity, considering applicable premium or discount), on a fully taxable equivalent basis, of investment securities held to maturity as of December 31, 2013, at amortized cost:

Held to maturity	Within one year			Over one but within five years			Over five but within ten years			After ten years			Total
	(dollars in thousands)
U.S. Treasury and U.S. government agencies
Amount	$	—		$	5,004		$	14,728			—		$	19,732
Yield		—	%		1.98	%		2.05	%		0.00	%		2.03	%
Mortgage-backed securities, residential
Amount		—			576			996			33,024			34,596
Yield		—	%		4.20	%		4.70	%		2.81	%		2.89	%
Mortgage-backed securities, multifamily
Amount		—			—			1,361			994			2,355
Yield		—	%		—	%		1.66	%		2.35	%		1.95	%
Obligations of states and political subdivisions
Amount		7,246			11,478			17,793			7,004			43,521
Yield		1.84	%		4.26	%		3.28	%		2.51	%		3.17	%
Other debt securities
Amount		—			1,540			—			—			1,540
Yield		—	%		5.48	%		—	%		—	%		5.48	%
Total securities
Amount	$	7,246		$	18,598		$	34,878		$	41,022		$	101,744
Yield		1.84	%		3.75	%		2.74	%		2.69	%		2.86	%

Other Assets

Other assets decreased from $23.1 million at December 31, 2012 to $19.8 million at December 31, 2013 primarily due to a refund of the prepaid FDIC assessment of $8.4 million, partially offset by an increase in net deferred taxes of $5.0 million resulting from an unrealized loss in securities available for sale.

Deposits

Total deposits increased from $2.37 billion on December 31, 2012 to $2.71 billion on December 31 2013, an increase of $338.2 million, or 14%. Somerset Hills’ deposits totaled $311.8 million at the time of acquisition. Noninterest bearing deposits increased $102.6 million, or 21%, to $600.7 million. Excluding $80.8 million in Somerset Hills’ demand deposits, noninterest bearing demand deposits have increased by $21.8 million, or 4%, from year-end 2012. Savings and interest-bearing transaction accounts increased $243.3 million. At the time of acquisition Somerset Hills had savings and interest-bearing transaction accounts of $199.1 million.

Total deposits increased from $2.25 billion on December 31, 2011 to $2.37 billion on December 31, 2012, an increase of $121.3 million, or 5%.

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The average amount of deposits and the average rates paid on deposits for the years indicated are summarized in the following table:

	Year Ended December 31, 2013					Year Ended December 31, 2012					Year Ended December 31, 2011
	Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	576,421		—	%	$	474,579		—	%	$	422,568		—	%
Interest-bearing transaction accounts		1,341,691		0.28	%		1,171,318		0.41	%		1,088,678		0.53	%
Savings		370,980		0.06	%		347,766		0.11	%		330,646		0.14	%
Time deposits		309,384		0.68	%		329,355		0.96	%		400,442		1.16	%
Total	$	2,598,476		0.23	%	$	2,323,018		0.36	%	$	2,242,334		0.49	%

As of December 31, 2013, the aggregate amount of outstanding time deposits issued in amounts of $100,000 or more, broken down by time remaining to maturity, was as follows (in thousands):

Maturity
Within 3 months	$	28,911
Over 3 through 6 months		24,490
Over 6 through 12 months		32,978
Over 12 months		28,848
Total	$	115,227

Derivatives

Lakeland enters into interest rate swaps (“swaps”) with loan customers to provide a facility to mitigate the fluctuations in the variable rate on the respective loans. These swaps are matched in offsetting terms to swaps that Lakeland enters into with an outside third party. The swaps are reported at fair value in other assets or other liabilities. Lakeland’s swaps qualify as derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in other non-interest income. Further discussion of Lakeland’s financial derivatives is set forth in Note 18 to the audited Consolidated Financial Statements.

Liquidity

“Liquidity” measures whether an entity has sufficient cash flow to meet its financial obligations and commitments on a timely basis. The Company is liquid when its subsidiary bank has the cash available to meet the borrowing and cash withdrawal requirements of customers and the Company can pay for current and planned expenditures and satisfy its debt obligations.

Lakeland funds loan demand and operation expenses from several sources:

• Net income. Cash provided by operating activities was $50.7 million in 2013 compared to $48.6 million and $49.9 million in 2012 and 2011, respectively.

• Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits. In 2013, Lakeland generated $26.5 million in deposit growth excluding the impact of Somerset Hills’ deposits, compared to $121.3 million in deposits generated in 2012.

• Sales of securities and overnight funds. At year-end 2013, the Company had $431.1 million in securities designated “available for sale.” Of these securities, $281.3 million was pledged to secure public deposits and for other purposes required by applicable laws and regulations.

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• Repayments on loans and leases can also be a source of liquidity to fund further loan growth.

• Overnight credit lines. As a member of the Federal Home Loan Bank of New York (FHLB), Lakeland has the ability to borrow overnight based on the market value of collateral pledged. Lakeland had no overnight borrowings from the FHLB on December 31, 2013. Lakeland also has overnight federal funds lines available for it to borrow up to $162.0 million. Lakeland had borrowings against these lines of $50.0 million at December 31, 2013. Lakeland also has the ability to utilize an unsecured line of credit from the FHLB to secure a portion of its public deposits. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York based on the market value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of December 31, 2013.

• Other borrowings. Lakeland can also generate funds by utilizing long-term debt or securities sold under agreements to repurchase that would be collateralized by security or mortgage collateral. At times the market values of securities collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires the Company to pledge additional collateral to meet that margin call. For more information regarding the Company’s borrowings, see Note 7 to the Consolidated Financial Statements.

Management and the Board monitor the Company’s liquidity through the asset/liability committee, which monitors the Company’s compliance with certain regulatory ratios and other various liquidity guidelines.

The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain an adequate level of liquidity. A discussion of the cash flow statement for year ended December 31, 2013 follows.

Cash and cash equivalents totaling $102.7 million on December 31, 2013, decreased $4.8 million from December 31, 2012. Operating activities provided $50.7 million in net cash. Investing activities used $66.1 million in net cash, primarily reflecting an increase in loans and leases and investment securities partially offset by net cash acquired in the acquisition of Somerset Hills. Financing activities provided $10.5 million in net cash primarily reflecting a net increase of $26.5 million in deposits, partially offset by an early extinguishment of subordinated debentures and the payment of dividends.

The Company’s management believes that its current level of liquidity is sufficient to meet its current and anticipated operational needs, including current loan commitments, deposit maturities and other obligations. This constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from anticipated results due to a variety of factors, including uncertainties relating to general economic conditions; unanticipated decreases in deposits; changes in or failure to comply with governmental regulations; and uncertainties relating to the analysis of the Company’s assessment of rate sensitive assets and rate sensitive liabilities and the extent to which market factors indicate that a financial institution such as Lakeland should match such assets and liabilities.

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The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of December 31, 2013. Interest on subordinated debentures and other borrowings is calculated based on current contractual interest rates.

			Payment due period
(dollars in thousands)	Total		Within one year		After one but within three years		After three but within five years		After five years
Minimum annual rentals or noncancellable operating leases	$	19,899	$	2,526	$	4,230	$	2,856	$	10,287
Benefit plan commitments		5,537		209		396		602		4,330
Remaining contractual maturities of time deposits		296,086		214,479		61,804		19,110		693
Subordinated debentures		41,238		—		—		0		41,238
Loan commitments		589,619		486,714		55,514		766		46,625
Other borrowings		119,000		30,000		30,000		39,000		20,000
Interest on other borrowings*		30,338		3,223		6,182		3,959		16,974
Standby letters of credit		9,244		8,705		459		—		80
Total	$	1,110,961	$	745,856	$	158,585	$	66,293	$	140,227

* Includes interest on other borrowings and subordinated debentures at a weighted rate of 2.08%.

Interest Rate Risk

Closely related to the concept of liquidity is the concept of interest rate sensitivity (i.e., the extent to which assets and liabilities are sensitive to changes in interest rates). As a financial institution, the Company’s potential interest rate volatility is a primary component of its market risk. Fluctuations in interest rates will ultimately impact the level of income and expense recorded on a large portion of the Company’s assets and liabilities, and the market value of all interest-earning assets, other than those which possess a short term to maturity. Based upon the Company’s nature of operations, the Company is not subject to foreign currency exchange or commodity price risk. The Company does not own any trading assets and does not have any off balance sheet hedging transactions in place, such as interest rate swaps and caps.

The Company’s net income is largely dependent on net interest income. Net interest income is susceptible to interest rate risk to the extent that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. For example, when interest-bearing liabilities mature or reprice more quickly than interest-earning assets, an increase in market rates could adversely affect net interest income. Conversely, when interest-earning assets reprice more quickly than interest-bearing liabilities, an increase in market rates could increase net interest income.

The Company’s Board of Directors has adopted an Asset/Liability Policy designed to stabilize net interest income and preserve capital over a broad range of interest rate movements. This policy outlines guidelines and ratios dealing with, among others, liquidity, volatile liability dependence, investment portfolio composition, loan portfolio composition, loan-to-deposit ratio and gap analysis ratio. Key quantitative measurements include the percentage change of net interest income in various interest rate scenarios (net interest income at risk) and changes in the market value of equity in various rate environments (net portfolio value at risk). The Company’s performance as compared to the Asset/Liability Policy is monitored by its Board of Directors. In addition, to effectively administer the Asset/Liability Policy and to monitor exposure to fluctuations in interest rates, the Company maintains an Asset/Liability Committee (the “ALCO”), consisting of the Chief Executive Officer, the Regional Presidents, the Chief Financial Officer, Chief Lending Officer, Chief Retail Officer, Chief Credit Officer, certain other senior officers and certain directors. This committee meets quarterly to review the Company’s financial results and to develop strategies to implement the Asset/Liability Policy and to respond to market conditions.

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The Company monitors and controls interest rate risk through a variety of techniques, including use of an interest rate risk management model. With the interest rate risk management model, the Company projects future net interest income, and then estimates the effect of various changes in interest rates and balance sheet growth rates on that projected net interest income. The Company also uses the interest rate risk management model to calculate the change in net portfolio value over a range of interest rate change scenarios.

Interest rate sensitivity modeling is done at a specific point in time and involves a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will respond to general changes in market rates, future cash flows and discount rates.

Net interest income simulation considers the relative sensitivities of the balance sheet including the effects of interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the probability of interest rate changes and the behavioral response of the balance sheet to those changes. Market Value of Portfolio Equity represents the fair value of the net present value of assets, liabilities and off-balance-sheet items. Changes in estimates and assumptions made for interest rate sensitivity modeling could have a significant impact on projected results and conclusions. These assumptions could include prepayment rates, sensitivity of non-maturity deposits and other similar assumptions. Therefore, if our assumptions should change, this technique may not accurately reflect the impact of general interest rate movements on the Company’s net interest income or net portfolio value.

The starting point (or “base case”) for the following table is an estimate of the following year’s net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at year-end levels. The net interest income estimated for 2014 (the base case) is $111.4 million. The information provided for net interest income assumes that changes in interest rates change gradually in equal increments (“rate ramp”) over the twelve month period.

	Changes in interest rates
Rate Ramp	+200 bp			-200 bp
Asset/Liability Policy Limit		-5.0	%		-5.0	%
December 31, 2013		-3.9	%		-2.0	%
December 31, 2012		-4.9	%		-2.2	%

The ALCO’s policy review of interest rate risk includes policy limits for net interest income changes in various “rate shock” scenarios. Rate shocks assume that current interest rates change immediately. The information provided for net interest income assumes fluctuations or “rate shocks” for changes in interest rates as shown in the table below.

	Changes in interest rates
Rate Shock	+400 bp			+300 bp			+200 bp			+100 bp			-100 bp			-200 bp			-300 bp			-400 bp
Asset/Liability Policy Limit		-20.0	%		-15.0	%		-10.0	%		-5.0	%		-5.0	%		-10.0	%		-15.0	%		-20.0	%
December 31, 2013		-11.2	%		-8.2	%		-5.1	%		-2.1	%		-4.8	%		-7.1	%		-8.2	%		-8.2	%
December 31, 2012		-8.7	%		-6.4	%		-4.2	%		-2.1	%		-4.1	%		-4.6	%		-4.6	%		-4.6	%

The base case for the following table is an estimate of the Company’s net portfolio value for the periods presented using current discount rates, and assuming the Company’s interest-sensitive assets and liabilities remain at year-end levels. The net portfolio value at December 31, 2013 (the base case) was $465.6 million. The information provided for the net portfolio value assumes fluctuations or rate shocks for changes in interest rates as shown in the table below.

	Changes in interest rates
Rate Shock	+300 bp			+200 bp			+100 bp			-100 bp			-200 bp			-300 bp
Asset/Liability Policy Limit		-35.0	%		-25.0	%								-25.0	%		-35.0	%
December 31, 2013		-17.8	%		-11.3	%		-5.0	%		1.6	%		-1.5	%		-6.0	%
December 31, 2012		-14.6	%		-7.4	%		-2.3	%		-5.1	%		-8.9	%		-7.8	%

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The information set forth in the above tables is based on significant estimates and assumptions, and constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995.

The information in the above tables represent the policy scenario that the ALCO reviews on a quarterly basis. There are also other scenarios run that the ALCO examines that vary depending on the economic environment. These scenarios include a yield curve flattening scenario and scenarios that show more dramatic changes in rates. The committee uses the appropriate scenarios, depending on the economic environment, in its interest rate management decisions.

Capital Resources

Stockholders’ equity increased from $280.9 million on December 31, 2012 to $351.4 million on December 31, 2013. The increase in stockholders’ equity from December 31, 2012 to December 31, 2013 was primarily due to stock issued of $57.4 million for the acquisition of Somerset Hills and $25.0 million in net income, partially offset by other comprehensive loss on the Company’s available for sale securities portfolio of $8.6 million and the payment of dividends on common stock of $8.2 million.

Book value per common share (total common stockholders’ equity divided by the number of shares outstanding) increased from $9.45 on December 31, 2012 to $9.74 on December 31, 2013 primarily as a result of net income. Book value per common share was $8.99 on December 31, 2011. Tangible book value per share increased from $6.52 on December 31, 2012 to $6.63 on December 31, 2013. For more information see “Non-GAAP Financial Measures.”

The FDIC’s risk-based capital policy statement imposes a minimum capital standard on insured banks. The minimum ratio of risk-based capital to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. At least half of the total capital is to be comprised of common stock equity and qualifying perpetual preferred stock, less goodwill (“Tier I capital”). The remainder (“Tier II capital”) may consist of mandatory convertible debt securities, qualifying subordinated debt, other preferred stock and a portion of the allowance for loan and lease losses. The Federal Reserve Board has adopted a similar risk-based capital guideline for the Company which is computed on a consolidated basis.

In addition, the bank regulators have adopted minimum leverage ratio guidelines (Tier I capital to average quarterly assets, less goodwill) for financial institutions. These guidelines provide for a minimum leverage ratio of 3% for financial institutions that meet certain specified criteria, including that they have the highest regulatory rating. All other holding companies are required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points.

The following table reflects capital ratios of the Company and Lakeland as of December 31, 2013 and 2012:

	Tier 1 Capital to Total Average Assets Ratio December 31,						Tier 1 Capital to Risk-Weighted Assets Ratio December 31,						Total Capital to Risk-Weighted Assets Ratio December 31,
	2013			2012			2013			2012			2013			2012
Capital Ratios:
The Company		8.90	%		8.62	%		11.73	%		11.52	%		12.98	%		12.77	%
Lakeland Bank		8.38	%		7.98	%		11.04	%		10.66	%		12.29	%		11.92	%
“Well capitalized” institution under FDIC Regulations		5.00	%		5.00	%		6.00	%		6.00	%		10.00	%		10.00	%

Basel III

On July 2, 2013, the FRB approved the final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks. Under the final rules, minimum requirements will

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increase for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules also implement strict eligibility criteria for regulatory capital instruments. On July 9, 2013, the FDIC also approved, as an interim final rule, the regulatory capital requirements for U.S. banks, following the actions of the FRB. The FDIC’s rule is identical in substance to the final rules issued by the FRB. The phase-in period for the final rules will begin for the Company on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule through January 1, 2019. The Company believes that as of December 31, 2013, Lakeland Bancorp and Lakeland Bank would meet all the requirements under the new rules on a fully phase-in basis, if such requirements were fully in effect.

Non-GAAP Financial Measures

	December 31,
	2013			2012			2011			2010			2009
	(In thousands, except per share amounts)
Calculation of tangible book value per common share
Total common stockholders’ equity at end of period—GAAP	$	351,424		$	280,867		$	241,303		$	223,235		$	211,963
Less:
Goodwill		109,974			87,111			87,111			87,111			87,111
Other identifiable intangible assets, net		2,424			—			—			578			1,640
Total tangible common stockholders’ equity at end of period—Non- GAAP	$	239,026		$	193,756		$	154,192		$	135,546		$	123,212
Shares outstanding at end of period(1)		36,070			29,726			26,836			26,588			26,319
Book value per share—GAAP(1)	$	9.74		$	9.45		$	8.99		$	8.40		$	8.05
Tangible book value per share—Non-GAAP(1)	$	6.63		$	6.52		$	5.75		$	5.10		$	4.68
Calculation of tangible common equity to tangible assets
Total tangible common stockholders’ equity at end of period—Non- GAAP	$	239,026		$	193,756		$	154,192		$	135,546		$	123,212
Total assets at end of period—GAAP	$	3,317,791		$	2,918,703		$	2,825,950		$	2,792,674		$	2,723,968
Less:
Goodwill		109,974			87,111			87,111			87,111			87,111
Other identifiable intangible assets, net		2,424			—			—			578			1,640
Total tangible assets at end of period—Non-GAAP	$	3,205,393		$	2,831,592		$	2,738,839		$	2,704,985		$	2,635,217
Common equity to assets—GAAP		10.59	%		9.62	%		8.54	%		7.99	%		7.78	%
Tangible common equity to tangible assets—Non-GAAP		7.46	%		6.84	%		5.63	%		5.01	%		4.68	%

(1) Adjusted for 5% stock dividends in 2012 and 2011.

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	For the years ended December 31,
	2013			2012			2011			2010			2009
	(dollars in thousands)
Calculation of return on average tangible common equity
Net income (loss)—GAAP	$	24,969		$	21,742		$	19,851		$	19,211		$	(5,396	)
Total average common stockholders’ equity—GAAP	$	320,923		$	256,364		$	232,711		$	220,796		$	217,062
Less:
Average goodwill		100,753			87,111			87,111			87,111			87,111
Average other identifiable intangible assets, net		1,513			—			166			1,120			2,182
Total average tangible common stockholders’ equity—Non GAAP	$	218,657		$	169,253		$	145,434		$	132,565		$	127,769
Return on average common stockholders’ equity—GAAP		7.78	%		8.48	%		8.53	%		8.70	%		-2.49	%
Return on average tangible common stockholders’ equity—Non-GAAP		11.42	%		12.85	%		13.65	%		14.49	%		-4.22	%

(dollars in thousands, except per share amounts)	Including Merger Related Expenses			Excluding Merger Related Expenses
Reconciliation of Earnings Per Share—December 31, 2013	$	24,969		$	24,969
Merger Related Expenses:
Tax Deductible—$1,652,000 net of tax		—			978
Non Tax Deductible—$1,182,000		—			1,182
Net Effect of Merger Related Expenses	$	—		$	2,160
Net Income Available to Common Shareholders ex-Merger Related Expenses	$	24,969			27,129
Less: Earnings Allocated to Participating Securities		(178	)		(178	)
	$	24,791		$	26,951
Weighted Average Shares—Basic		33,088			33,088
Weighted Average Shares—Diluted		33,240			33,240
Basic Earnings Per Common Share	$	0.75		$	0.81
Diluted Earnings Per Common Share	$	0.75		$	0.81

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Quarterly financial data (unaudited)

The following represents summarized quarterly financial data of the Company, which in the opinion of management reflected all adjustments, consisting only of nonrecurring adjustments, necessary for a fair presentation of the Company’s results of operations.

	Quarter ended
	March 31, 2013		June 30, 2013		September 30, 2013		December 31, 2013
	(in thousands, except per share amounts)
Total interest income	$	26,569	$	27,630	$	29,855	$	30,145
Total interest expense		2,633		2,484		2,368		2,172
Net interest income		23,936		25,146		27,487		27,973
Provision for loan and lease losses		3,183		2,594		1,879		1,687
Noninterest income (excluding investment securities gains and gain on debt extinguishment)		4,546		4,595		4,645		5,139
Gains on investment securities, net		505		1		—		333
Gain on debt extinguishment		—		1,197		—		—
Long term debt prepayment fee		526		—		—		683
Merger related expenses		631		1,452		744		7
Core deposit intangible amortization		—		41		123		124
Noninterest expense		17,070		17,900		19,540		19,900
Income before taxes		7,577		8,952		9,846		11,044
Income taxes		2,469		3,049		3,229		3,703
Net Income Available to Common Stockholders	$	5,108	$	5,903	$	6,617	$	7,341
Earnings per share of common stock
Basic	$	0.17	$	0.19	$	0.19	$	0.20
Diluted	$	0.17	$	0.19	$	0.19	$	0.20

	Quarter ended
	March 31, 2012		June 30, 2012		September 30, 2012		December 31, 2012
	(in thousands, except per share amounts)
Total interest income	$	28,294	$	27,938	$	27,495	$	27,232
Total interest expense		4,348		4,190		3,840		3,068
Net interest income		23,946		23,748		23,655		24,164
Provision for loan and lease losses		4,556		3,877		3,350		3,124
Noninterest income		4,025		4,530		4,640		4,661
Gains on investment securities, net		32		241		—		776
Long term debt prepayment fee