2021
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Lakeland’s activities in 2021 were highlighted
by a transformational merger that positions us for
continued success in our rapidly changing marketplace;
ongoing progress toward diversity, equity and inclusion;
and leadership in supporting our communities.
DEAR FELLOW SHAREHOLDERS
The events of 2021 posed challenges for all of us – from individuals, families and
communities, to organizations large and small. Among the forces that shaped
our lives in the past year, the persistence of the COVID-19 pandemic, economic
pressures due to global supply chain issues and the return of inflation, and
continued divisions and disparities within our society head the list.
In considering how to respond to such challenges, it is
often helpful for organizations to ask such fundamental
questions as: “What purpose do we serve?” and “How
can we use our resources to create value and expand
opportunities for all our stakeholders?” At Lakeland, we
answered those questions by doubling down on our
mission:
Total assets rose to $8.20 billion at year-end 2021 from
$7.66 billion a year earlier. Total loans ended the year at
$5.98 billion, versus $6.02 billion at the end of 2020. Asset
quality improved substantially, as non-performing assets
declined to 0.21% of total assets at December 31, 2021,
from 0.56% a year earlier. Total deposits increased to $6.97
billion from $6.46 billion comparing year-end 2021 to 2020.
To inspire and enable the communities we serve to
achieve financial stability and success. With a passion
for excellence, we strive to exceed the expectations of
our customers, associates, and shareholders.
In keeping with our mission, in 2021 Lakeland prepared
to extend our services to new markets and customers
through a major acquisition; provided lending and savings
products to support the financial aspirations of people
and organizations; continued our digital transformation to
better serve customers and operate more productively;
engaged with and supported our communities; and
maintained our focus on building a diverse, inclusive and
responsible enterprise; all while delivering record earnings
performance.
We are proud of our accomplishments – and even prouder
of the commitment, resiliency and professionalism of our
Lakeland associates. Thanks to their efforts, we lived our
purpose, saw our customers and communities through
another difficult year, and strengthened our foundation for
a promising future.
DELIVERING PROFITABLE GROWTH
Lakeland’s financial results for 2021 were distinguished
by record profitability, solid asset and deposit growth with
stellar credit quality. Net income reached an all-time high
of $95.0 million or $1.85 per diluted share, compared
to $57.5 million and diluted EPS of $1.13 for 2020. Our
return on average assets was 1.19%, return on average
common equity was 11.95%, and return on average
tangible common equity was 14.93%.
During the 2021 third quarter, we further strengthened our
financial position through a $150 million subordinated debt
offering with an interest rate of 2.875% fixed for five years.
The offering was used, in part, to redeem $75 million of
higher-cost 5.125% subordinated notes.
Lakeland’s record performance again enabled us to deliver
returns for our shareholders, as the Board of Directors
declared quarterly cash dividends totaling $0.53 per share
during 2021 compared to $0.50 per share in 2020, an
increase of 6%.
TRANSFORMING OUR FUTURE
In July 2021, Lakeland Bancorp and 1st Constitution Bancorp
entered into a definitive agreement providing for the merger
of 1st Constitution with Lakeland. The merger was completed
on January 6, 2022, and is truly a transformative event.
As a result, Lakeland has become one of the largest New
Jersey-headquartered banking institutions, with an expanded
footprint serving many of the state’s most attractive
banking markets. Together, we have over $10 billion in
assets, a shared legacy of strong customer service with solid
performance, and exciting opportunities for growth.
Importantly, Lakeland has gained a talented, accomplished
team with proven expertise in additional product lines. In
connection with the merger, Robert F. Mangano, President
and Chief Executive Officer of 1st Constitution, has joined
the Boards of Directors of Lakeland Bancorp and Lakeland
Bank. We welcome Bob and the 1st Constitution associates
to our Lakeland Bank family, and look forward to serving our
customers and communities, creating opportunities for our
associates, and growing together.
REPORT TO SHAREHOLDERS
INVESTING IN DIGITAL BANKING
Lakeland made steady progress in 2021 in implementing
our digital strategy, which is designed to provide solutions
and services for the variety of ways our customers want
to bank today – and tomorrow. One area of focus has
been on building the core competencies that will be
critical to delivering technology-enabled financial services
at a competitive level. Diverse, talented individuals were
added in key roles such as Project Management, Business
Analysis, and Quality Assurance. We are incorporating a
new customer relationship management platform and a
customer insights system, which securely aggregate data
from across the Bank to provide a more complete view of
our customers and their needs.
A wide range of digital customer-facing solutions were
launched during the past year, including: a new business
banking platform, enhancements to our residential loan
origination software, mobile banking account alerts, and
a fraud detection system. Another important priority,
enhancing the Bank’s online account opening capabilities,
is a focus for 2022. While our digital transformation
journey is far from complete, we are extremely pleased
with our progress to date and excited about the potential
benefits to our customer service, marketing capabilities,
and operational efficiencies.
ADVANCING ESG, EMBRACING DIVERSITY
Customers, investors, employees and other stakeholders
are increasingly looking to corporations for environmental,
social and governance (ESG) leadership in a wide range
of areas, such as business ethics; diversity, equity and
inclusion; employee well-being; climate change; access
to financial services; data protection and cyber security;
among many others. We understand that ESG-related
policies and actions not only affect the well-being
of people, communities and society, but also have
implications for risk mitigation and long-term financial
performance and value. Accordingly, we have developed
a detailed roadmap, overseen by the Board of Directors,
to ensure that our approach to ESG issues is aligned with
stakeholders’ priorities and corporate best practices. We
are working to develop ESG measurement and disclosure
programs that are consistent with widely recognized
global standards, and will have more to say on our plans
in the future.
We know that Lakeland will only be successful if we have
a workforce that reflects our community and society,
and represents diverse backgrounds, experiences and
perspectives. In 2021, we made important strides in
expanding our diversity, equity and inclusion (DEI)
initiatives. To increase awareness of DEI among
associates, and enhance the well-being of associates
generally, we launched a Cultural Connections newsletter
and held a series of listening sessions on wide-ranging
topics such as social justice; the needs of working
women; issues of relevance to various racial, ethnic and
religious groups; as well as parenting and self-care.
To increase diversity in our workforce, we partnered on
recruitment efforts with organizations such as the African
American, Hispanic and New Jersey LGBT chambers of
commerce, which have led to an increase in hiring diverse
talent. The third class of our Leader Engagement and
Development (LEAD) Program graduated in 2021; the
program continues to be an important tool for fostering
the leadership abilities and management potential of
diverse members of our team.
A survey of Lakeland associates in 2021 found that 94%
believe we are committed to diversity and 90% agree
we are making progress with our initiatives. We are
encouraged by these findings and we are committed to
moving our efforts forward.
ENGAGING WITH OUR COMMUNITY
As we noted earlier, a key element of our mission is to
encourage the stability and success of our communities.
In 2021 – as the strains of COVID-19 were felt across
our society – Lakeland supported organizations that
provide healthcare, economic assistance, education
and other vital resources. Some of our more significant
community-oriented efforts included contributions for
inner-city pediatric dentistry services; support for a
community college technical training program; and our
annual Scholarship Golf Outing, which aids local students
who are pursuing higher education.
In addition, our Healthcare Banking team provided
millions of dollars in credit, as well as other financial
services, to enable the work of assisted living and
memory care facilities, ambulatory surgical centers,
medical practices, behavioral health and substance
abuse centers, and other healthcare providers across our
market area.
REPORT TO SHAREHOLDERS
RECOGNIZING EXCELLENCE
ENHANCED OPPORTUNITIES, ENDURING VALUES
We are honored that several independent organizations
have again recognized Lakeland’s commitment to
excellence during 2021, including the following:
• Lakeland Bank was named to the list of America’s
Best-In-State Banks 2021 for the third consecutive
year, based on an annual consumer survey by Forbes
magazine and Statista.
• The respected industry publication American Banker
awarded Lakeland the designation of Best Banks to
Work For, one of only 90 banks across the U.S.
• We have been recognized for several years as one of
New Jersey’s 50 Fastest Growing Companies by NJBIZ,
the state’s premier business news publication.
• Lakeland again received a 5-Star rating (the highest
possible rating) by Bauer Financial, an independent
bank rating agency, based on our superior financial
condition.
Lakeland enters 2022 as a $10 billion-asset institution with a
presence in one of the most attractive banking markets in the
U.S. Along with the opportunities that come with our greater
size and scale, we have a responsibility to meet the needs of
our expanded customer base, growing team of associates,
and extended communities. To do that, we will remain true to
the values of superior service and community-driven culture
that we have lived by since Lakeland was founded in 1969.
Going forward, we will work relentlessly to help our
customers reach their financial goals, invest in innovative
digital solutions to respond to the evolving needs of
consumers and businesses, attract and develop a diverse
team of talented people, lend support to our neighbors, and
deliver for our shareholders and society.
As always, we are grateful to our customers and shareholders
for their trust in Lakeland, to our Board for their leadership
and sound governance, and to our associates for their
dedication and professionalism. We will continue to strive to
be worthy of your confidence and support.
Sincerely,
Thomas J. Shara
Mary Ann Deacon
President & CEO
Board Chair
FINANCIAL HIGHLIGHTS: LAKELAND BANCORP, INC. AND SUBSIDIARIES
FOR THE YEAR
(dollars and shares in thousands, except per-share data)
2021
2020
2019
2018
Net Income
Return on Average Assets
Return on Average Stockholders’ Equity
Net Interest Margin
Efficiency Ratio
Tangible Common Equity Ratio
Dividends Paid on Common Stock
PER-SHARE DATA
Earnings Per Share
— Basic
— Diluted
Cash Dividends Per Common Share
Book Value Per Common Share
Tangible Book Value Per Common Share
Weighted Average Shares Outstanding
— Basic
— Diluted
AT YEAR END
Loans, Net of Deferred Fees
Total Deposits
Total Assets
Stockholders’ Equity
Loans to Deposits
Ratio of Net Charge-Offs to Average Loans Outstanding
Ratio of Non-Performing Assets to Total Assets
Tier 1 Leverage Ratio
Tier 1 Risk-Based Capital Ratio
Total Risk-Based Capital Ratio
CET1 Ratio
$
95,041
$
57,518
$
70,672
$
63,401
1.19%
11.95%
3.13%
53.23%
8.31%
0.80%
7.74%
3.09%
54.54%
8.05%
1.12%
10.14%
3.33%
54.83%
8.62%
1.15%
10.59%
3.36%
56.09%
8.57%
$
27,119
$
25,457
$
24,919
$
21,307
$
$
$
$
$
1.85
1.85
0.53
16.34
13.21
50,624
50,870
$
$
$
$
$
1.13
1.13
0.50
15.13
11.97
50,540
50,650
$
$
$
$
$
1.39
1.38
0.49
14.36
11.18
50,477
50,642
$
$
$
$
$
1.32
1.32
0.45
13.14
10.22
47,578
47,766
$ 5,976,148
$ 6,021,232
$ 5,137,823
$ 4,456,733
6,965,823
6,455,783
5,293,779
4,620,670
8,198,056
7,664,297
6,711,236
5,806,093
827,014
85.79%
0.04%
0.21%
8.51%
11.15%
14.48%
10.67%
763,784
93.27%
0.03%
0.56%
8.37%
10.22%
12.84%
9.73%
725,263
97.05%
0.00%
0.32%
9.41%
11.02%
13.40%
10.46%
623,739
96.45%
0.05%
0.22%
9.39%
11.27%
13.71%
10.62%
TOTAL ASSETS
(in millions)
NET INCOME
(in millions)
TOTAL LOANS
(in millions)
TOTAL DEPOSITS
(in millions)
$6,711
$5,806
$8,198
$7,664
$70.7
$63.4
$95.0
$6,021
$5,976
$5,138
$57.5
$4,457
$5,294
$4,621
$6,966
$6,456
2018
2019
2020
2021
2018
2019
2020
2021
2018
2019
2020
2021
2018
2019
2020
2021
LAKELAND BANCORP AND LAKELAND BANK BOARD OF DIRECTORS
Mary Ann Deacon
Secretary and Treasurer,
Deacon Homes, Inc.
Thomas J. Shara
President and CEO,
Lakeland Bancorp, Inc.
Bruce D. Bohuny
President,
Brooks Builders
Brian M. Flynn
CPA and Partner,
PKF O’Connor Davies
Mark J. Fredericks
President,
Keil Oil, Inc. and Fredericks
Fuel and Heating Service
Brian Gragnolati
President and CEO,
Atlantic Health System
James E. Hanson II
President and CEO,
The Hampshire Companies
Janeth C. Hendershot
Former Senior Vice President,
Munich-American Risk Partners
Lawrence R. Inserra, Jr.
Chairman of the Board
and CEO,
Inserra Supermarkets, Inc.
Robert F. Mangano
Former President and CEO,
1st Constitution Bank
Robert E. McCracken
Funeral Director/Manager,
Smith-McCracken
Funeral Home
Robert Nicholson III
President and CEO,
Northern Resources Corporation
CHAIRMEN EMERITUS
John W. Fredericks
Robert B. Nicholson
TRANSFORMATION, DIVERSITY AND COMMUNITY
INVESTING IN TRANSFORMATION, DIVERSITY
AND OUR COMMUNITIES
Lakeland’s activities in 2021 were highlighted by a
transformational merger that positions us for continued
success in our rapidly changing marketplace; ongoing
progress toward diversity, equity and inclusion; and
leadership in supporting our communities.
1ST CONSTITUTION BANCORP MERGER
Our merger with 1st Constitution Bancorp brings together
two banking institutions with outstanding records of
customer and community service, complementary
geographies, and exciting potential for future performance
and growth. The combination provides an entry into
attractive markets, including a new presence in Mercer,
Monmouth and Middlesex Counties and an expanded
footprint in Bergen, Ocean and Somerset Counties.
Pennsylvania
23
Highland Mills, NY
Sussex
206
Sussex/Wantage
Vernon
Branchville Downtown
New York
West Milford
87
Hampton
Lafayette
Franklin
Passaic
Newfoundland
Ringwood
Wanaque
Sparta Town Center
Milton
Fredon
15
Andover
Bloomingdale
Butler
287
Wyckoff
Park Ridge
Waldwick
Westwood
Bergen
Rochelle Park
80
Teaneck
Englewood
Hackensack(2)
Cedar Crest
Boonton
Denville
Montville
23
Wayne
Totowa
Little Falls
80
Warren
Stanhope
Wharton
Morris
206
Mendham
Morristown
287
Madison
Bernardsville
Summit
Caldwell
Essex
23
Clifton
Nutley
Carlstadt
Fort Lee
280
78
Hudson
w York
e
N
On a strategic level, the merger squarely aligns with the
long-term vision for growth of our enterprise. It vaults
Lakeland into the ranks of the largest independent
community banks in our market – with the scale and
resources to serve the ever-changing needs of consumers
and businesses. Our range of products and services
has been expanded across the organization, including
the addition of 1st Constitution’s mortgage warehouse
business and residential mortgage banking division, which
builds on the strengths of Lakeland Mortgage.
We are also pleased that Robert F. Mangano, President
and Chief Executive Officer of 1st Constitution, has
joined Lakeland’s Boards of Directors effective with the
completion of the merger. Bob has had a distinguished
career in New Jersey banking for nearly five decades and
is a highly-esteemed veteran of the industry. Since joining
1st Constitution in 1996, he has built the bank into a
respected, first-class organization. He previously served
in senior executive roles and leadership positions at other
community banks and, earlier in his career, at one of New
Jersey’s largest commercial banking institutions. Among his
community activities, he serves on the Board of Trustees
of the Englewood Hospital Medical Center and its parent
board, and is Chairman of the hospital’s Audit Committee.
Union
95
287
Iselin
Perth Amboy
78
Hunterdon
Hillsborough
Somerset
Skillman
Hopewell
Princeton
Plainsboro
Mercer
Cranbury (2)
Hightstown
Middlesex
Jamesburg
G
A
R
D
E
N
S
T
A
TE P
A
R
K
W
A
Y
Monmouth
Rumson
Fair Haven
Little Silver
Shrewsbury
Long Branch
Asbury Park
Administrative Center
Milton Operations & Training Center
Regional Loan Office
Loan Production Office
95
Hamilton
Freehold
195
Jackson
Lakewood
Burlington
Ocean
Tom’s River (2)
Manahawkin
9
9
Bernardsville
Bernardsville
Cranbury
Cranbury
Denville
Denville
Fort Lee
Fort Lee
Freehold
Freehold
Jackson
Jackson
Waldwick
Waldwick
Montville
Montville
Oak Ridge
Oak Ridge
Teaneck
Teaneck
Highland Mills, NY
Highland Mills, NY
Toms River
Toms River
Hillsborough
Hillsborough
Totowa
Totowa
TRANSFORMATION, DIVERSITY AND COMMUNITY
opportunity. This commitment was more important than
ever in 2021 as our communities continued to cope
with the impact of COVID-19. Below are a few of the
many community activities Lakeland and our associates
supported last year.
• Our 48th Annual Scholarship Golf Outing raised
$200,000 to support the Bank’s scholarship program.
Scholarships will be presented in 2022 to students at
more than 100 educational institutions throughout the
markets we serve. The Annual Scholarship Outing is the
cornerstone of Lakeland’s philanthropic endeavors and
brings together hundreds of our associates, customers
and business partners who are determined to help make
the dream of pursuing a higher education possible.
• Lakeland awarded a $10,000 Community Impact
Grant to Sussex County Community College (SCCC)
to support its start-up Electrical Lineworker program.
Designed to provide the training needed for a
successful career in this important field, the program
will help fill the void of skilled workers in this vital
industry.
• We continued our three-year annual commitment of
$15,000 to support the pediatric dentistry residency
program sponsored by St. Joseph’s Health Foundation.
This program provides access to professional oral care
for some of the most vulnerable children and families in
Paterson and the surrounding communities.
• Supporting programs that address homelessness is
one of Lakeland’s philanthropic priorities. A $10,000
Housing Impact Grant presented to Ocean’s Harbor
House in Toms River, New Jersey will provide
the financial means to continue their Supervised
Transitional Living Program, which provides housing,
services and programs for homeless youth throughout
the region.
• Lakeland awarded a $20,000 Grant to Norwescap
to help establish a Cultural and Community Center
in Sussex Borough. The Center will be utilized for
the senior residents as well as community events,
celebrations, and other activities that promote culture
and bring people in the community together.
RECOGNITION FOR OUR COMMITMENT TO
DIVERSITY
Lakeland has continued its determined efforts to
attract and maintain a diverse workforce and to foster
an environment that is supportive of diversity, equity
and inclusion. Our expanding range of DEI initiatives
includes the creation of an associate-led Diversity Task
Force, awareness training and listening sessions for our
associates, as well as a number of recruitment and career
development efforts.
The person largely responsible for moving our programs
forward is Alethea Batts, Lakeland’s Chief Diversity and
Inclusion Officer. We are proud that Alethea was named
by the New Jersey Bankers Association as the inaugural
recipient of its Excellence in Diversity award in February
2022. Significantly, Alethea was nominated by her peers
in recognition of her leadership qualities, ability to impact
the culture of the bank and community, and her role in
influencing others to be more diversity conscious.
In accepting the award, Alethea noted, “We have witnessed
a far-reaching and historical transformation across many
industries to make diversity, equity and inclusion a priority. I
am passionate about the work that I do and about driving the
DEI agenda to new limits. As leaders in the banking industry,
each of you can lead from where you stand to broaden the
focus on the value of diversity, equity and inclusion in the
workplace. You can be the advocates for change.”
MAKING A DIFFERENCE IN OUR COMMUNITIES
As a community bank, Lakeland has a responsibility to
support the communities where we live and work – not
only by providing financial services, but also by investing
in programs that foster health, education, and economic
LAKELAND BANCORP AND LAKELAND BANK OFFICERS
LAKELAND BANCORP OFFICERS
Mary Ann Deacon
Board Chair
Thomas J. Shara
President and Chief Executive
Officer
Ronald E. Schwarz
Sr. Executive Vice President and
Chief Operating Officer
Paul Ho-Sing-Loy
Executive Vice President and Chief
Information Officer
Ellen Lalwani
Executive Vice President
and Chief Banking Officer
Timothy Matteson
Executive Vice President/Chief
Administrative Officer/General
Counsel and Corporate Secretary
James M. Nigro
Executive Vice President and
Chief Risk Officer
John F. Rath III
Executive Vice President and
Chief Lending Officer
Thomas F. Splaine, Jr.
Executive Vice President and
Chief Financial Officer
LAKELAND BANK OFFICERS
PRESIDENT/CHIEF EXECUTIVE OFFICER Thomas J. Shara
SENIOR EXECUTIVE VICE PRESIDENT/CHIEF OPERATING OFFICER Ronald E. Schwarz
EXECUTIVE VICE PRESIDENTS
John Andreacio
EVP/Commercial Lending Group
Leader
Karen Garrera
EVP/Chief Retail Officer
Paul Ho-Sing-Loy
EVP/Chief Information Officer
Ellen Lalwani
EVP/Chief Banking Officer
Timothy Matteson
EVP/Chief Administrative Officer/
General Counsel/Corporate
Secretary
James M. Nigro
EVP/Chief Risk Officer
Stephen C. Novak
EVP/Senior Commercial Real Estate
Officer & Group Leader
John F. Rath III
EVP/Chief Lending Officer
Thomas F. Splaine, Jr.
EVP/Chief Financial Officer
Thomas C. Stackhouse
EVP/Chief Credit Officer
Jenifer Thoma
EVP/Chief Human Resources
Officer
David S. Yanagisawa
EVP/Senior Loan Officer/
Commercial Lending
FIRST SENIOR VICE PRESIDENTS
Alethea Batts
First SVP/Learning and
Development, Chief Diversity
Officer
Leonard Carlucci
First SVP/Commercial Lending
Team Leader
Brendan Eccleston
First SVP/Deputy General Counsel
Walter Hrycyna
First SVP/Director of Warehouse
Lending
Mary T. Karakos
First SVP/Commercial Loan Chief
Administrative Officer
Ronald Krauskopf
First SVP/Group Leader/Healthcare,
Insurance and SBA Lending
Rita A. Myers
First SVP/Comptroller
Bharat G. Naran
First SVP/Information Technology
Director
Mary Kaye Nardone
First SVP/Chief Information
Security Officer
Patricia Nuccio
First SVP/Digital Director
Elaine C. Petit
First SVP/Director of
Enterprise Solutions
Susan Scimone-Bellini
First SVP/Senior Regional
Administrator
Vickie Tomasello
First SVP/Chief Audit Officer
Leonard Van Dam
First SVP/Group Leader/
Commercial Loans
Laurie A. Veith
First SVP/Director of Operations
SENIOR VICE PRESIDENTS
John D. Allen
SVP/Treasurer
Christina Barbaro
SVP/Senior Operations Officer
Thomas Berger
SVP/Warehouse Lending Officer
Lisa Borghese
SVP/Commercial Lending
Relationship Manager
Kenneth Bostwick, Jr.
SVP/Director of Retail Sales
Bruce Bready
SVP/Small Business
Lending Manager
Steven Breeman
SVP/Asset Based Lending
Team Leader
Roxanne Camejo
SVP/Community Development
Officer
Kathy Coffey-Biancamano
SVP/Market Manager
Raymond Cordts
SVP/Business Development Officer
Victoria Duffin
SVP/Director of Marketing
James Erickson
SVP/Commercial Lending Team
Leader
Robert Feldmann
SVP/Commercial Lending Team
Leader
Pamela Frie
SVP/Small Business
Administration Team Leader
Gary L. Garris
SVP/Project Management Office
Lead
Tina George
SVP/Facilities and Purchasing
Officer
Andrenaia Giordano
SVP/Commercial Lending Team
Leader
Daniel S. Gonzalez
SVP/Commercial Lending Team
Leader
Joseph Gorga
SVP/Commercial Lending Team
Leader
Carl Grau
SVP/Enterprise Solutions
Brent Howard
SVP/Commercial Lending Team
Leader
Robert Ingram
SVP/Equipment Finance Director
Julie Koop
SVP/Human Resources
Daniel Leary
SVP/Business Banking Manager
Nina E. Luongo
SVP/Government Banking
Richard Machtinger
SVP/Commercial Real Estate Credit
Officer
Bernadette Macko
SVP/Treasury Management Team
Leader
Timothy McNaught
SVP/Commercial Lending Team
Leader
Lisa Mills
SVP/Compliance Officer
Nancy Minette
SVP/Professional Services
Debra J. Morgan
SVP/Regional Administrator
M. Keith Niedergall
SVP/Regional Administrator
Andrea Pagiazitis
SVP/Regional Administrator
Anthony Penta
SVP/Commercial Lending Team
Leader
David Pick
SVP/Systems Architect
Theresa Ruvo
SVP/Branch Administrator
Neill Schreyer
SVP/Asset Recovery Manager
Steve Seong
SVP/Small Business Administration
Team Leader
Jerry Slavik
SVP/Market Manager
Linda Smith
SVP/Construction Lending
Administration Manager
Susan K. Smith
SVP/Credit Administration Manager
Mandar Soman
SVP/Operational Risk Manager
Mary Stine
SVP/Commercial and Industrial
Credit Officer
Robert Surovich
SVP/Commercial Lending
Relationship Manager
Marlena Taglieri
SVP/BSA-AML Officer
Drew TerWaarbeek
SVP/Regional Administrator
Henrik Tvedt Jr.
SVP/Product and Delivery Channel
Manager
Timothy Van Slooten
SVP/Financial Services Program
Manager
David Ver Hage
SVP/Loan Operations Officer
Michael J. Vessa
SVP/Commercial Lending
Relationship Officer
Bruno Viscariello
SVP/Director of Mortgage Sales
Margaret Volk
SVP/Director of Mortgage and
Consumer Lending
Jeffrey Wichman
SVP/Credit Manager
LAKELAND BANK OFFICERS (cont’d.)
CORPORATE ADVISORY COUNCIL
Jon F. Hanson II, Council Chairman
Chairman, The Hampshire
Companies, LLC
Daniel J. Geltrude, CPA
Managing Member, Geltrude &
Company, LLC
Jerrold Grossman, PhD
President, Genesis BPS
Jerome Lombardo
President, CJ Lombardo Company
Bruce M. Meisel
CEO, First Westwood Realty, LLC
Carmen M. Penta, CPA
Consultant, Addeo, Polacco & Penta, LLC
Charles H. Shotmeyer
President, Shotmeyer Brothers
LAKELAND BANK OFFICES
NEW JERSEY
BERGEN
Carlstadt
325 Garden Street
Englewood
42 North Dean Street
Fort Lee
180 Main Street
Hackensack-Main Street
25 Main Street
Hackensack-Polifly Road
9 Polifly Road
Park Ridge
165 Kinderkamack Road
Rochelle Park
1 East Passaic Street
Teaneck
417 Cedar Lane
Waldwick
64 Crescent Avenue
Westwood
21 Jefferson Avenue
Wyckoff
652 Wyckoff Avenue
ESSEX
Caldwell
49-53 Bloomfield Avenue
Nutley
356 Franklin Avenue
MERCER
Hamilton
3659 Nottingham Way
Hightstown
140 Mercer Street
Hopewell
86 E Broad Street
Princeton
2000 Windrows Drive
NEW YORK
ORANGE
Highland Mills
556 State Route 32 North
MIDDLESEX
Cranbury North
2650 Route 130 & Dey Road
Cranbury South
74 N Main Street
Jamesburg
1 Harrison Street
Perth Amboy
145 Fayette Street
Plainsboro
11 Schalks Crossing Road
MONMOUTH
Asbury Park
511 Cookman Avenue
Fair Haven
636 River Road
Freehold
3441 US Highway 9
Little Silver
517 Prospect Avenue
Long Branch
444 Ocean Blvd N
Rumson
20 Bingham Avenue
Shrewsbury
500 Broad Street
MORRIS
Boonton
321 West Main Street
Butler
1410 Route 23 North
Denville
55 Broadway
Madison
265 Main Street
Mendham
106 East Main Street, Suite A
Milton
5729 Berkshire Valley Road
Montville
166 Changebridge Road
Morristown
151 South Street
Pompton Plains-Cedar Crest
Village
1 Cedar Crest Drive
Wharton
350 North Main Street
OCEAN
Jackson
2120 West County Line Road
Lakewood
500 River Avenue
Manahawkin
280 Route 72 East
Toms River East
1216 Route 37 East
Toms River North
1012 Hooper Avenue
PASSAIC
Bloomingdale
28 Main Street
Clifton
11 Ackerman Avenue
Little Falls
86-88 Main Street
Newfoundland
2717 Route 23 South
Ringwood
45 Skyline Drive
Totowa
650 Union Blvd # 1
Wanaque
103 Ringwood Avenue
Wayne
231 Black Oak Ridge Road
West Milford
1527 Union Valley Road
SOMERSET
Bernardsville
155 Morristown
Hillsborough
32 New Amwell Road
Skillman
995 Route 518
SUSSEX
Andover
615 Route 206 North
Branchville Downtown
3 Broad Street
Franklin
25 Route 23 South
Fredon
395 Route 94 North
Lafayette
37 Route 15 South
Newton-Hampton
11 Hampton House Road
Sparta
7 Town Center Drive
Stanhope
143 Route 183 North
Wantage
455 Route 23 North
Vernon
529 Route 515 South, Suite 101
UNION
Summit
510 Morris Avenue
REGIONAL LOAN OFFICES
Bernardsville
Cranbury
Denville
Fort Lee
Freehold
Highland Mills, NY
Hillsborough
Iselin
Jackson
Montville
Oak Ridge
Skillman
Teaneck
Toms River
Totowa
Waldwick
Corporate Headquarters
250 Oak Ridge Road
Oak Ridge, NJ 07438
Milton Annex
5736 Berkshire Valley Road
Oak Ridge, NJ 07438
Milton Operations &
Training Center
5716 Berkshire Valley Road
P.O. Box 326
Oak Ridge, NJ 07438
CONNECTED TO OUR COMMUNITY
Lakeland associates present a $15,000 grant
to support St. Joseph’s Pediatric Dentistry Division.
Lakeland associates present a $20,000 grant to Norwescap to support a
Cultural and Community Center in Sussex Borough.
Lakeland’s Golf Committee reveals the 2021 Scholarship Outing
raised $200,000 which will be awarded to students in 2022.
Lakeland associates present a $10,000 grant to Ocean’s Harbor House in Toms
River to support the Supervised Transitional Living Program which provides
housing, services and programs for homeless youth throughout the region.
LAKELAND HAS A RESPONSIBILITY
TO SUPPORT THE COMMUNITIES
WHERE WE LIVE AND WORK BY
INVESTING IN PROGRAMS THAT
FOSTER HEALTH, EDUCATION,
AND ECONOMIC OPPORTUNITY.
Lakeland awards a $10,000 Community Impact Grant to Sussex County
Community College to support a new Electrical Lineworker program.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2021.
☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
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
(State or other jurisdiction of
incorporation or organization)
22-2953275
(I.R.S. Employer
Identification No.)
250 Oak Ridge Road, Oak Ridge, New Jersey 07438
(Address of principal executive offices and zip code)
(973) 697-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, no par value
Trading Symbol
LBAI
Name of exchange on which registered
The Nasdaq Stock Market
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 ☐
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 ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☒
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2021, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
approximately $846,945,000, 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 February 22, 2022, was 64,648,502.
DOCUMENTS INCORPORATED BY REFERENCE:
Lakeland Bancorp, Inc. Proxy Statement for its 2022 Annual Meeting of Shareholders (Part III).
LAKELAND BANCORP, INC.
Form 10-K Index
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
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[THIS PAGE INTENTIONALLY LEFT BLANK]
ITEM 1 - Business.
PART I
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 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”). As of February 28, 2022, Lakeland operates 69 branch offices located
throughout northern and central New Jersey and in Highland Mills, New York; six New Jersey regional commercial lending
centers strategically located in our market area and one New York commercial lending center to serve the Hudson Valley
region. Lakeland offers an extensive suite of financial products and services for businesses and consumers.
The Company has grown through a combination of organic growth and acquisitions. Since 1998, the Company has
acquired nine community banks with an aggregate asset total of approximately $4.16 billion, including its most recent
acquisition of 1st Constitution Bank and its parent, 1st Constitution Bancorp ("1st Constitution Bancorp"), which was
completed on January 6, 2022. At January 6, 2022, 1st Constitution Bancorp had approximately $1.88 billion in assets, $1.12
billion in loans and $1.65 billion in deposits. All of the acquired banks have been merged into Lakeland and the acquired
holding companies, if applicable, have been merged into the Company.
At December 31, 2021, Lakeland Bancorp had total consolidated assets of $8.20 billion, total consolidated deposits of
$6.97 billion, total consolidated loans, net of the allowance for credit losses on loans, of $5.92 billion and total consolidated
stockholders’ equity of $827.0 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.
Commercial Bank Services
Through Lakeland, the Company offers a broad range of lending, depository, and related financial services to
individuals and small to medium sized businesses located primarily in northern and central New Jersey, the Hudson Valley
region in New York and surrounding areas. In the lending area, these services include commercial real estate loans,
commercial and industrial loans, short and medium term loans, lines of credit, letters of credit, inventory and accounts
receivable financing, real estate construction loans, residential mortgage loans, Small Business Administration (“SBA”) loans
and merchant credit card services. The Company participated in the SBA's Paycheck Protection Program ("PPP") beginning in
April 2020. Through Lakeland’s equipment finance division, the Company provides a financing solution to small and medium-
sized companies that prefer to lease equipment over other financial alternatives. Lakeland’s asset-based loan department
provides commercial borrowers with another lending alternative.
Depository products include demand deposits, as well as savings, money market and time accounts. Lakeland offers
online banking, mobile banking and wire transfer 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,
interest-bearing checking accounts, money market accounts, certificates of deposit, online banking, secured and unsecured
loans, consumer installment loans, mortgage loans, and safe deposit services.
Other Services
Investment advisory services for individuals and businesses are also available. Additionally, the Bank provides
commercial title insurance services through Lakeland Title Group LLC and life insurance products through Lakeland Financial
Services Agency, Inc.
Competition
Lakeland faces intense 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.
-1-
Lakeland also competes with credit unions, brokerage firms, insurance companies, money market mutual funds,
consumer finance companies, mortgage companies, fintechs 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, financial technology 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, interest rates,
and other factors that are not readily predictable. The Company expects that competition will continue or intensify in the future.
Concentration
The Company is not dependent on deposits or exposed by loan concentrations to a single customer or a few customers,
the loss of any one or more of which would have a material adverse effect upon the financial condition of the Company.
Human Capital Resources
At December 31, 2021,
the Company employed 717 associates,
including 36 part-time associates, of which
approximately 68% are women. The Company employed 711 associates, including 43 part-time associates at December 31,
2020. As a financial institution, approximately 52% of our associates are located at branch or loan production offices and the
remainder are located at our administrative offices. The success of our business is highly dependent on our associates, who are
dedicated to our mission to inspire and enable the communities we serve to achieve financial stability and success. We seek to
hire well-qualified associates to sustain and build on our culture of service and performance. Our selection and promotion
processes are without bias and include the active recruitment of minorities and women. None of our associates are covered by a
collective bargaining agreement.
We encourage the growth and development of our associates and, whenever possible, seek to fill positions by
promotion and transfer from within the Company. Continual learning and career development is advanced through annual
performance and development conversations between associates and their managers, internally developed training programs,
customized corporate training engagements and educational
reimbursement programs. Our Leader Engagement and
Development (LEAD) Program was launched in 2018 to foster leadership abilities and cultivate effective management
approaches. To date, 51 associates have completed the program. Reimbursement is available to associates enrolled in pre-
approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to our business, in
compliance with Section 127 of the Internal Revenue Code, and for seminars, conferences and other training events associates
attend in connection with their job duties or professional certification requirements.
The safety, health and wellness of our associates is a top priority. The COVID-19 pandemic presented unique
challenges with regard to maintaining associate safety while continuing successful operations. We instituted remote working
plans at the start of the pandemic and were able to transition, over a short period of time, many of our eligible associates to
effectively working from remote locations. We ensured a safely-distanced working environment for associates performing
customer-facing activities at branches and operations centers, closing branch lobbies as necessary. All associates are prohibited
from working on-site when they, or a close family member, experience symptoms of a possible COVID-19 illness and generally
used their paid time off to cover compensation during such absences. On an ongoing basis, we further promote the health and
wellness of our associates by strongly encouraging work-life balance, offering flexible work schedules, keeping the associate
portion of health care premiums to a minimum and sponsoring various wellness programs, whereby associates are encouraged
to incorporate healthy habits into their daily routines.
In 2020, we appointed our first Chief Diversity Officer, with a mandate to focus on workforce diversity, vendor/
supplier diversity and cultivating more diverse leadership, among other vital issues. We sponsor Share Your Voice “listening”
roundtables for associates, with the assistance of outside experts. A Diversity Task Force was created to give associates more
opportunity for input into relevant issues. We provided associates with access to information and assistance on topics ranging
from diversity to wellness, parenting and other personal issues and concerns.
Associate retention helps us operate efficiently and achieve our business objectives. We provide competitive wages,
annual bonuses, stock awards, a 401(k) Plan with an employer matching contribution in addition to a discretionary employer
annual contribution, healthcare and insurance benefits, health savings, flexible spending accounts, paid time off, family leave
and an employee assistance program. At December 31, 2021, approximately 29% of our current staff had been with us for 10
years or more.
-2-
General
SUPERVISION AND REGULATION
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 has also
elected financial holding company status under the Modernization Act, as further discussed below. The Company is subject to
examination by the Federal Reserve Board.
Lakeland is a state chartered commercial bank 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.
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. The Company has also elected "financial holding company" status, which allows it to engage in a
broader array of financial activities than a standard bank holding company. 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
Federal law and Federal Reserve Board policy 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.
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. 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.
-3-
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. 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 or if the subsidiary
is a "financial subsidiary" that engages in an activity that is not permitted for the bank directly.
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. Receipt of a "Needs to Improve" or "Substantial Noncompliance" ratings can, among other
things, obstruct regulatory approval for new branches and mergers. The CRA requires all institutions to make public disclosure
of their CRA ratings. Lakeland Bank received an “Outstanding” CRA rating in its most recent examination.
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. 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.
-4-
The Company maintains a website at http://www.lakelandbank.com. The Company makes available on its
website, free of charge, 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. 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 New Jersey state law, a bank may not pay 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 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 credit 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. Banking institutions that fail to maintain the minimum capital ratios, or that maintain the
requisite minimum capital ratios but do so at a level below the minimum capital ratios plus the applicable capital conservation
buffer, will face constraints on their ability to pay dividends. See “Capital Requirements” below.
Capital Requirements
Pursuant
to the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA), each federal
institution would be
banking agency has promulgated regulations,
considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically
undercapitalized,” and to take certain mandatory and discretionary supervisory actions based on the capital level of the
institution. To qualify to engage in activities as a financial holding company under the Gramm-Leach-Bliley Act, all
depository institutions must be “well capitalized.” The financial holding company of a bank will be put under directives to
raise its capital levels or divest its activities if the depository institution falls from that level.
specifying the levels at which a financial
In July 2013,
the Federal Reserve Board,
the FDIC and the Comptroller of
the Currency adopted final
rules establishing a new comprehensive capital framework for U.S. banking organizations (the “Basel Rules”). The Basel
for
Rules implemented the Basel Committee’s December 2010 framework, commonly referred to as Basel
strengthening international capital standards as well as certain provisions of the Dodd-Frank Act, as discussed below.
The Basel Rules substantially revised the risk-based capital requirements applicable to bank holding companies and
depository institutions, including the Company and Lakeland, compared to prior U.S. risk-based capital rules. The Basel Rules
define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital
ratios. The Basel Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory
capital ratios and replace the existing risk-weighting approach, which was derived from Basel I capital accords of the Basel
Committee, with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004
Basel II capital accords. The Basel Rules also implement the requirements of Section 939A of the Dodd-Frank Act to
remove references to credit ratings from the federal banking agencies’ rules.
III,
The Basel Rules became effective for us on January 1, 2015 (subject to phase-in periods for certain components).
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For bank holding companies and banks like the Company and Lakeland, January 1, 2015 was the start date for
compliance with the revised minimum regulatory capital ratios and for determining risk-weighted assets under what the Basel
Rules call a “standardized approach.” As of January 1, 2015, the Company and Lakeland were 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 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, the Company and Lakeland are subject to a leverage ratio requirement of 4.0% (calculated as Tier 1 capital
to average consolidated assets as reported on the consolidated financial statements).
The Basel Rules also require a “capital conservation buffer.” As of the full phase-in on January 1, 2019, the Company
and Lakeland were required to maintain a 2.5% capital conservation buffer, in addition to the minimum capital ratios described
above, effectively resulting in the following minimum capital ratios on January 1, 2019:
•
•
•
CET1 of 7.0%;
Tier 1 Capital Ratio of 8.5%; and
Total Capital Ratio of 10.5%.
The purpose of the capital conservation buffer is to ensure that banking organizations conserve capital when it is
needed most, allowing them to weather periods of economic stress. Banking institutions with a CET1, Tier 1 Capital Ratio and
Total Capital Ratio above the minimum capital ratios but below the minimum capital ratios plus 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 Basel Rules provide for several deductions from and adjustments to CET1, which were phased in as of January 1,
2018. For example, mortgage servicing rights and deferred tax assets dependent upon future taxable income were required to be
deducted from CET1 to the extent that any one of those categories exceeds 10% of CET1 or all such categories in the aggregate
exceeded 15% of CET1. However, subsequent regulatory amendments raised the limit on mortgage servicing rights and
deferred tax assets to 25% of CETI and removed the aggregate limit.
Under prior capital standards, the effects of accumulated other comprehensive income items included in capital were
excluded for the purposes of determining regulatory capital ratios. Under the Basel Rules, the effects of certain accumulated
other comprehensive income items are not excluded; however, banking organizations such as the Company and Lakeland were
permitted to make a one-time permanent election to continue to exclude these items effective as of January 1, 2015. Lakeland
Bancorp and Lakeland Bank made such an election to continue to exclude these items.
While the Basel 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 the Company, were permitted to 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 until they redeem
such instruments or until the instruments mature.
The Basel Rules prescribe a standardized approach for calculating risk-weighted assets that expands the risk-weighting
categories from the previous four 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 Basel
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 Basel Rules adopt alternatives to credit ratings for calculating the risk-
weighting for certain assets.
With respect to Lakeland, the Basel 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 (a new standard); (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% (increased from 6%); and (iii) requiring a leverage ratio of 5% to be well-capitalized (increased from the previously
required leverage ratio of 3% or 4%). The Basel Rules do not change the total risk-based capital requirement for any “prompt
corrective action” category.
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Effective as of January 1, 2015, the FDIC’s regulations implementing these provisions of FDICIA provide that an
institution will be classified as “well capitalized” if it (i) has a total risk-based capital ratio of at least 10.0 percent, (ii) has a
Tier 1 risk-based capital ratio of at least 8.0 percent, (iii) has a CET1 ratio of at least 6.5 percent, (iv) has a Tier 1 leverage ratio
of at least 5.0 percent, and (v) meets certain other requirements. An institution will be classified as “adequately capitalized” if it
(i) has a total risk-based capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 6.0 percent, (iii)
has a CET1 ratio of at least 4.5 percent, (iv) has a Tier 1 leverage ratio of at least 4.0 percent, and (v) does not meet the
definition of “well capitalized.” An institution will be classified as “undercapitalized” if it (i) has a total risk-based capital ratio
of less than 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 6.0 percent, (iii) has a CET1 ratio of less than 4.5
percent or (iv) has a Tier 1 leverage ratio of less than 4.0 percent. An institution will be classified as “significantly
undercapitalized” if it (i) has a total risk-based capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital ratio of
less than 4.0 percent, (iii) has a CET1 ratio of less than 3.0 percent or (iv) has a Tier 1 leverage ratio of less than 3.0 percent. An
institution will be classified as “critically undercapitalized” if it has a tangible equity to total assets ratio that is equal to or less
than 2.0 percent. An insured depository institution may be deemed to be in a lower capitalization category if it receives an
unsatisfactory examination rating.
As of December 31, 2021, the Company and Lakeland met all capital requirements under the Basel Rules as then in
effect, including the fully phased-in capital conservation buffer requirement. The Bank was classified as "well capitalized" on
that date.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) was signed into law in May
2018. The EGRRCPA, among other matters, amended the Federal Deposit Insurance Act to require federal banking agencies to
develop a specified Community Bank Leverage Ratio (the ratio of a bank's Tier 1 capital to its average total consolidated assets)
for banks with assets of less than $10 billion. Qualifying participating banks that exceed this ratio shall be deemed to comply
with all other capital and leverage requirements. In September 2019, the FDIC approved a final rule allowing community banks
with a leverage capital ratio of at least 9% to be considered in compliance with Basel III capital requirements and exempt from
the Basel Rules calculations. Under the final rule, banks with less than $10 billion in assets may elect the Community Bank
Leverage Ratio framework if they meet the 9% ratio and if they hold 25% or less of assets in off-balance-sheet exposures, and
5% or less of assets in trading assets and liabilities. For institutions that fall below the 9% capital requirement but remain above
8%, the final rule establishes a two-quarter grace period to either meet the qualifying criteria again or comply with the generally
applicable capital rule. An eligible financial institution that opts into this new framework and then fails to satisfy this new
framework after expiration of the grace period will then be required to satisfy the generally applicable capital requirements.
Management did not elect to use the Community Bank Leverage Ratio framework.
Federal Deposit Insurance and Premiums
Lakeland’s deposits 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 to $250,000.
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. The FDIC’s rule also
lowered the total base assessment rates, which are now established for banks of less than $10 billion of assets at 1.5 to 16 basis
points for banks with the strongest composite examination rating, and 11 to 30 basis points for banks in the highest risk
category with the weakest examination rating.
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 adopted a plan under which the DIF 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 required 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%. In March 2016, the FDIC adopted a rule that imposes a surcharge on the quarterly
assessments of insured depository institutions with total consolidated assets of $10 billion or more. The surcharge equaled an
annual rate of 4.5 basis points applied to the institution’s assessment base, with certain adjustments. When the DIF Reserve
Ratio is at or above 1.38% in a given quarter, credits were applied to banks' assessment payments. The Company began
receiving the Small Bank Assessment credit in the third quarter of 2019 and, as a result, made no FDIC assessment payments in
the third and fourth quarter of 2019. Full payments to the FDIC resumed in the second quarter of 2020. The Company paid $2.3
million and $2.1 million in total FDIC assessments in 2021 and 2020, respectively.
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CARES Act
The Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020 and
provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic.
The CARES Act authorized the SBA to temporarily guarantee loans under a new 7(a) loan program called the Paycheck
Protection Program ("PPP"). As a qualified SBA lender, we were automatically authorized to originate PPP loans. An eligible
business could apply for a PPP loan up to the lesser of (1) 2.5 times its average monthly payroll costs or (2) $10.0 million. PPP
loans have (a) an interest rate of 1.00%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred
for six months from the date of the disbursement. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The
entire principal amount of the borrower's PPP loan is eligible to be reduced by the loan forgiveness amount under the PPP so
long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll
expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.
In June 2020, Congress passed the Paycheck Protection Program Flexibility Act ("PPP Flexibility") to ease provisions
of PPP related to the time period permitted to use the proceeds of loans, the deferral period of principal and interest payments
on loans not forgiven and an extension of the maturity date of loan and loan forgiveness on loans. Key changes included (a)
extending from two to five years the minimum maturity of any remaining loan balance after an application for loan forgiveness
(for those loans closed after the enactment of PPP Flexibility); (b) extending the “covered period” (i.e., when costs that are
eligible for forgiveness must be paid or incurred) from eight weeks to 24 weeks (or December 31, 2020, whichever is earlier);
(c) reducing from 75 percent to 60 percent the amount of loan proceeds that must be used for payroll costs although the
remainder must continue to be allocated to interest on mortgages, rent, and utilities; (d) permitting an exemption from
reductions in loan forgiveness amounts based on reductions in full-time equivalent employees if the borrower, in good faith,
documents an inability to return to the same level of business activity due to standards for sanitation, social distancing, or other
worker or customer safety requirements established by the Department of Health and Human Services ("HHS"), the Center for
Disease Control ("CDC") or Occupational, Safety and Health Administration ("OSHA"); and (e) allowing deferral of payments
until the amount of forgiveness is remitted by the SBA to the lender or, if the borrower has not applied for forgiveness, ten
months after the expiration of the covered period. The provisions of PPP Flexibility became effective upon enactment and will
apply to all loans made under the PPP. The SBA released guidance on PPP loan forgiveness, which presently includes three
different application methods depending primarily on the size of the PPP loan, reductions in staffing or salaries, or a business’
inability to operate at pre-COVID levels due to compliance with certain federally imposed requirements related to COVID-19.
To qualify for full forgiveness, businesses must document that at least 60% of the PPP loan amount was used towards payroll
costs and that the remaining 40% was used for other eligible costs such as mortgage interest, rent payments and/or utilities.
Forgiveness was originally intended to be reduced by any Economic Injury Disaster Loan (“EIDL”) advance amount the
business received.
Section 4013 of the CARES Act, as interpreted by the "Interagency Statement on Loan Modifications and Reporting
for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)" (the “Revised Statement”), dated
April 17, 2020, includes criteria that enable financial institutions to exclude from TDR status loans that are modified in
connection with COVID-19. Under these provisions, TDR status is not required for the term of a loan modification if (i) the
loan modification is made in connection with COVID-19, (ii) the loan was not past due more than 30 days as of December 31,
2019 and (iii) the loan modification is entered into during the period between March 1, 2020, and the earlier of (a) 60 days after
COVID-19 is no longer characterized as a National Emergency or (b) December 31, 2020. Furthermore, pursuant to the
Revised Statement, for loan modifications that do not meet these criteria but are made in connection with COVID-19, such
loans may be presumed not to be TDR if they are current at a time the loan modification program was implemented and the
modifications are short-term (e.g., six months). If the criteria are not met under either Section 4013 or the Revised Statement,
banks are required to follow their existing accounting policies to determine whether COVID-related modifications should be
accounted for as a TDR.
The CARES Act also provided financial institutions with the option to defer adoption of the Financial Accounting
Standards Board's Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses: Measurement of
Credit Losses on Financial Instruments (Topic 326) ("ASU 2016-13") until the earlier of the end of the national emergency or
December 31, 2020. The CARES Act also required the federal banking agencies to temporarily lower the Community Bank
Leverage Ratio from 9% of average total consolidated assets to 8% for the remainder of 2020. The ratio rose to 8.5% for
calendar year 2021 and will revert to 9% thereafter.
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On December 27, 2020, the Consolidated Appropriations Act, 2021 (the "CAA") was signed into law. In addition to
providing funding for normal government operations, this bill provides for additional COVID-19 relief. The CAA extended
certain provisions of the CARES Act, provided additional funding for others and contained new relief provisions. CAA
eliminated the reduction PPP forgiveness by EIDL received and extended loan modification deadline to the end of the National
Emergency or December 31, 2021. CAA further extended the option to delay ASU 2016-13 implementation until January 1,
2022; however, the Company has adopted this standard as of December 31, 2020, and has applied it retroactively to January 1,
2020. The Company has elected to suspend the classification of loan modifications as TDR if they qualify under all applicable
guidance.
Change in Control Act
Under the Change in Bank Control Act, no person (including a company or other business entity) may acquire
“control” of a bank or bank holding company, unless the appropriate federal agency has been given 60 days’ prior written
notice and has not issued a notice disapproving the proposed acquisition. The agency takes into consideration certain factors,
including the competence, experience, integrity and financial resources of the acquirer and the competitive effects of the
acquisition. Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing
more than 25% of any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or
a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over
the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class
of voting stock under certain circumstances, such as where the company involved has its shares registered under the Securities
Exchange Act of 1934. Any “company”, as defined in the Bank Holding Company Act of 1956, would be required to receive
the prior approval of the Federal Reserve Board to acquire “control” of the company or bank, as defined in that statute and
Federal Reserve Board regulations, and would then be regulated as a bank holding company.
New Jersey law specifies similar prior approval requirements by the New Jersey Department of Banking and Insurance
for acquisitions of New Jersey banks or holding companies.
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.
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.
Credit Risks
Our allowance for credit losses on loans may not be adequate to cover actual losses.
Like all commercial banks, Lakeland Bank maintains an allowance for credit losses on loans to provide for loan
defaults and non-performance. If our allowance for credit losses on loans is not adequate to cover actual loan losses, we may be
required to significantly increase future provisions for credit losses on loans, which could materially and adversely affect our
operating results. The Company adopted ASU 2016-13, pertaining to the measurement of credit losses on financial instruments
("CECL"), on December 31, 2020, effective January 1, 2020. This update requires the measurement of all expected credit losses
for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and
supportable forecasts. Financial
institutions, such as Lakeland, and other organizations will now use forward-looking
information to better inform their credit loss estimates.
Our CECL methodology includes the following key factors and assumptions for all loan portfolio segments: a) the
calculation of a baseline lifetime loss by applying a segment-specific historical average annual loss rate, calculated using an
open pool method, applied over the remaining life of each instrument; b) a single set of economic forecast inputs for the
reasonable and supportable period; c) a reasonable and supportable forecast period, which reflects management's expectations
of losses based on forward-looking economic scenarios over that time; d) baseline lifetime loss rates adjusted for changes in
macroeconomic conditions over the reasonable and supportable forecast period via a series of adjustment factors developed
using a third-party developed and supported top-down statistical model suite that uses a set of relevant economic forecast inputs
sourced from a leading global forecasting firm; e) a reversion period (after the reasonable and supportable forecast period)
using a straight-line approach; f) a historical loss period which represents a full economic credit cycle (with the exception of
equipment finance loans which uses a shorter time period due to circumstances unique to that segment); and g) expected
prepayment rates estimated on more recent historical experience adjusted for refinance incentive, seasoning and burnout, as
applicable. 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. The Company also
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considers five standard qualitative general reserve factors ("qualitative adjustments"): nature and volume of loans, lending
management, policy and procedures, independent review and changes in environment. Qualitative adjustments are designed to
address risks that are not captured in the quantitative reserves (“quantitative reserve”). Other qualitative adjustments or model
overlays may also be recorded based on expert credit judgment in circumstances where, in the Company’s view, the standard
qualitative reserve factors do not capture all relevant risk factors. Federal regulatory agencies, as an integral part of their
examination process, review our loans and the corresponding allowance for credit losses. While we believe that our allowance
for credit losses on loans in relation to our current loan portfolio is adequate to cover current and expected losses, we cannot
assure you that we will not need to increase our allowance for credit losses on loans or that the regulators will not require us to
increase this allowance. Future increases in our allowance for credit losses on loans could materially and adversely affect our
earnings and profitability.
Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held
for investment and held-to-maturity debt securities, at the net amount expected to be collected. This differs significantly from
the "incurred loss" model required under previous GAAP, which delayed recognition until it was probable a loss had been
incurred. Accordingly, the adoption of the CECL model significantly affected how we determined our allowance for credit
losses on loans and may create more volatility in the level of our allowance for credit losses.
Any future quarterly changes to our allowance will depend on the current state of the economy, forecasted
macroeconomic conditions, the composition and performance of our loan portfolio at the time and other factors captured
through qualitative adjustments, including idiosyncratic factors.
The concentration of our commercial real estate loan portfolio may subject us to increased regulatory analysis, or
otherwise adversely affect our business and operating results.
The FDIC, the Federal Reserve and the OCC have promulgated joint guidance on sound risk management practices for
financial institutions with concentrations in commercial real estate (CRE) lending. The 2006 interagency guidance did not
establish specific CRE lending limits or caps; rather, the guidance set forth supervisory criteria to serve as levels of bank CRE
concentration above which certain financial institutions may be identified for further supervisory analysis. According to the
guidelines, institutions could be subject to further analysis if (i) their loans for construction, land, and land development (CLD)
represent 100% or more of the institution's total risk-based capital, or (ii) their total non-owner occupied CRE loans (including
CLD loans), as defined, represent 300% or more of the institution’s total risk-based capital, and further, that the institution’s
non-owner occupied CRE loan portfolio has increased by 50% or more during the previous 36 months.
The Bank’s total reported CLD loans represented 35% of total risk-based capital at December 31, 2021. The Bank’s
total reported CRE loans to total capital was 423% at December 31, 2021, while the Bank’s CRE portfolio has increased by
40% over the preceding 36 months. The growth rate of the preceding 36 months included the acquisition of Highlands State
Bank.
The Bank’s CRE portfolio is segmented and spread among various property types including retail, office, multi-family,
mixed use, industrial, hospitality, healthcare, special use and residential and commercial construction. Management regularly
reviews and evaluates its CRE portfolio, including concentrations within the various property types based on current market
conditions and risk appetite as well as by utilizing stress testing on material exposures and believes its underwriting practices
are sound.
There is no assurance that in the future we will not exceed the levels set forth in the guidelines. Furthermore, the
concentration of our commercial real estate portfolio could materially and adversely affect our business and operating results,
including our overall profitability, and/or adversely impact the growth of our business, including the growth and composition of
our overall loan portfolio.
Our mortgage banking operations expose us to risks that are different than the risks associated with our retail banking
operations.
The Bank’s 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, a 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 (as
amended or supplemented to date, including by the EGRRCPA (see "Item 1. Business - Supervision and Regulation - Capital
Requirements" above), may expose the Company 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.
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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
deterioration in economic conditions, particularly in the markets we lend in, could have the following consequences, any of
which could materially adversely affect our business:
•
•
•
•
loan 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.
Deterioration in the real estate market, particularly in New Jersey and the metropolitan New York area, could
adversely affect our business. A decline in real estate values in New Jersey and the metropolitan New York area would reduce
our ability to recover on defaulted loans by selling the underlying real estate, which would increase the possibility that we may
suffer losses on defaulted loans.
We may suffer losses in our loan portfolio despite our underwriting practices.
We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices. Although we
believe that our underwriting criteria are appropriate for the various kinds of loans that we make, we may incur losses on loans
that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for credit
losses on loans.
Liquidity and Interest Rate Risks
We are subject to interest rate risk and variations in interest rates that 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
actions taken or statements made by the Federal Reserve Board.
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. Our interest-earning assets may not reprice as slowly or rapidly as our interest-bearing liabilities. Changes in market
interest rates could materially and adversely affect our net interest spread, asset quality, levels of prepayments, cash flows,
market value of our securities portfolio, loan and deposit growth, costs and yields on loans and deposits and our overall
profitability. Competition for our deposits can increase significantly as a result of the interest rate environment.
The Federal Open Market Committee of the Federal Reserve Board (the "FOMC") lowered the federal funds rate to
near zero percent in 2020. However, the FOMC has indicated that it intends to raise interest rates beginning in 2022. A
sustained increase in market interest rates could adversely affect our earnings. A significant portion of our loans have fixed
interest rates and longer terms than our deposits and borrowings. As is the case with many banks and savings institutions, our
emphasis on gathering core deposits, which have no stated maturity date, has resulted in our interest-bearing liabilities having a
shorter duration than our asset. Our net interest income could be adversely affected if the rates we pay on deposits and
borrowings increase more rapidly than the rates we earn on loans.
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A decrease in our ability to borrow funds could adversely affect our liquidity.
Our ability to obtain funding from the Federal Home Loan Bank ("FHLB") 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 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.
Public funds deposits are an important source of funds for us and a reduced level of those deposits may hurt our profits
and liquidity.
Public funds deposits are a significant source of funds for our lending and investment activities. The Company’s public
funds deposits consist of deposits from local government entities, domiciled in the state of New Jersey, such as school districts,
counties and other municipalities, and are collateralized by letters of credit from the FHLB and investment securities. Given our
use of these high-average balance public funds deposits as a source of funds, our inability to retain such funds could adversely
affect our liquidity. In addition, Governor Phil Murphy of New Jersey has proposed the creation of a state-owned bank which
would accept public revenues to be invested in New Jersey. A bill was introduced in the New Jersey legislature in January 2018
that calls for the establishment of such a state-run bank. The legislation remains pending, and while no assurance can be
provided that such a bank will be created, to the extent that a state-run bank is established and accepts public revenues, the
amount of the Company’s public funds deposits could be reduced, which could adversely affect our liquidity.
Further, our public funds deposits are primarily demand deposit accounts or short-term time deposits and are therefore
more sensitive to interest rate risks. If we are forced to pay higher rates on our public funds accounts to retain those funds, or if
we are unable to retain such funds and we are forced to resort to other sources of funds for our lending and investment
activities, such as borrowings from the FHLB, the interest expense associated with these other funding sources may be higher
than the rates we are currently paying on our public funds deposits, which would adversely affect our net income.
The transition from LIBOR as a reference rate may adversely impact our net income.
In 2017, the United Kingdom's Financial Conduct Authority announced that after 2021 it would no longer compel
banks to submit the rates required to calculate the London Interbank Offered Rate ("LIBOR"). The use of LIBOR in new
contracts was discontinued on December 31, 2021. Certain USD LIBOR tenors will continue to be published on a
representative basis until June 30, 2023. At this time, no consensus exists as to what rate or rates may become acceptable
alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities
and variable rate loans, subordinated debentures or other securities or financial arrangements, given LIBOR's role in
determining market interest rates globally.
Regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among
other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended
alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar
LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. At this time, it is not
possible to predict whether these specific recommendations and proposals will be broadly accepted, whether they will continue
to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.
We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes
that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and
additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will
differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing
models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition
process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate
impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on
our business, financial condition and results of operations.
Declines in value may adversely impact our investment portfolio.
As of December 31, 2021, the Company had approximately $1.59 billion in its investment portfolio, with $770.0
million designated as available for sale and $825.0 million designated as held to maturity. For securities available for sale, ASU
2016-13 requires entities to determine if impairment is related to credit loss or non-credit loss. If an assessment of the security
indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the
amortized cost basis of the security, and if the present value of cash flows is less than the amortized cost basis, a credit loss
exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. Held to
maturity securities are evaluated under the allowance for credit losses model. Held to maturity securities are charged off against
the allowance when deemed to be uncollectible and adjustments to the allowance are reported as a component of credit loss
expense. If the credit loss expense is significant enough it could affect the ability of Lakeland to upstream dividends to the
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Company, 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.
Information Technology or Cybersecurity Risks
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.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our
operations and to store sensitive data. Any failure, interruption or breach in security of these systems could result in significant
disruption to our operations. Information security breaches and cybersecurity-related incidents may include, but are not limited
to, attempts to access information, including customer and company information, malicious code, computer viruses and denial
of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer
information), account takeovers, unavailability of service or other events. These types of threats may derive from human error,
fraud or malice on the part of external or internal parties, or may result from accidental technological failure. Further, to access
our products and services our customers may use computers and mobile devices that are beyond our security control systems.
Our technologies, systems, networks and software, and those of other financial institutions have been, and are likely to continue
to be, the target of cybersecurity threats and attacks, which may range from uncoordinated individual attempts to sophisticated
and targeted measures directed at us. The risk of a security breach or disruption, particularly through cyber attack or cyber
intrusion, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world
have increased.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable
information in various information systems that we maintain and in those maintained by third parties with whom we contract to
provide data services. We also maintain important internal company data such as personally identifiable information about our
employees and information relating to our operations. The integrity and protection of that customer and company data is
important to our business and our reputation. Our collection of such customer and company data is subject to extensive
regulation and oversight.
Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and
other communications in attempts to misappropriate passwords, bank account information or other personal information or to
introduce viruses or other malware through “Trojan horse” programs to our information systems and/or our customers'
computers. Though we endeavor to mitigate these threats through product improvements, use of encryption and authentication
technology and customer and employee education, such cyber attacks against us, our merchants and our third party service
providers remain a serious issue. The pervasiveness of cybersecurity incidents in general and the risks of cyber crime are
complex and continue to evolve. More generally, publicized information concerning security and cyber-related problems could
inhibit
the use or growth of electronic or web-based applications or solutions as a means of conducting commercial
transactions.
Although we make significant efforts to maintain the security and integrity of our information systems and have
implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security
efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
Even the most well protected information, networks, systems and facilities remain potentially vulnerable because attempted
security breaches, particularly cyber attacks and intrusions, or disruptions will occur in the future, and because the techniques
used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some
cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these
techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us
to entirely mitigate this risk. While we maintain specific “cyber” insurance coverage, which would apply in the event of various
breach scenarios, the amount of coverage may not be adequate in any particular case. Furthermore, because cyber threat
scenarios are inherently difficult to predict and can take many forms, some breaches may not be covered under our cyber
insurance coverage. A security breach or other significant disruption of our information systems or those related to our
customers, merchants and our third party vendors, including as a result of cyber attacks, could (i) disrupt the proper functioning
of our networks and systems and therefore our operations and/or those of certain of our customers; (ii) result in the
unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable
information of ours or our customers; (iii) result in a violation of applicable privacy, data breach and other laws, subjecting us
to additional regulatory scrutiny and expose us to civil litigation, governmental fines and possible financial liability; (iv) require
significant management attention and resources to remedy the damages that result; or (v) harm our reputation or cause a
decrease in the number of customers that choose to do business with us. The occurrence of any of the foregoing could have a
material adverse effect on our business, financial condition and results of operations.
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The inability to stay current with technological change could adversely affect our business model.
Financial institutions continually are required to maintain and upgrade technology in order to provide the most current
products and services to their customers, as well as create operational efficiencies. This technology requires personnel
resources, as well as significant costs to implement. Failure to successfully implement technological change could adversely
affect the Company’s business, results of operations and financial condition.
The Company embarked on a digital strategy initiative in 2019, which impacts all operational areas of the Bank. There
are no guarantees that enhancing the Company's digital capabilities will expand Lakeland's market presence as a community
bank or result
the cost of
implementation and the anticipated increase in revenue may not occur as expected.
in an ability to better compete long-term in a fast-paced digital marketplace. In addition,
Our operations rely on certain third party vendors.
We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations.
These third party vendors are sources of operational and informational security risk to us, including risks associated with
operational errors, information system interruptions or breaches and unauthorized disclosures of sensitive or confidential client
or customer information. If these vendors encounter any of these issues, or if we have difficulty communicating with them, we
could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation
risk that could have a material adverse effect on our business and, in turn, our financial condition and results of operations.
In addition, our operations are exposed to risk that these vendors will not perform in accordance with the contracted
arrangements under service level agreements. While we have selected these external vendors carefully, we do not control their
actions. The failure of an external vendor to perform in accordance with the contracted arrangements under service level
agreements, because of changes in the vendor’s organizational structure, financial condition, support for existing products and
services or strategic focus or for any other reason, could be disruptive to our operations, which could have a material adverse
effect on our business and, in turn, our financial condition and results of operations. Replacing these external vendors could also
entail significant delay and expense.
Legal and Regulatory Risks
The Company and the Bank are subject to more stringent capital and liquidity requirements.
More stringent capital requirements have been imposed 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 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 “Item 1. Business-Supervision and Regulation-Capital Requirements,” banks and
bank holding companies are required to maintain a capital conservation buffer on top of minimum risk-weighted asset ratios.
Banking institutions which do not maintain capital in excess of the Basel Rule standards including the capital
conservation buffer 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 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. We are also subject to numerous laws and
regulations designed to protect consumers. The Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws
and regulations impose nondiscriminatory lending requirements on financial institutions. 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.
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The New Jersey Department of Banking and Insurance, the FDIC and the Federal Reserve Board periodically examine
our business, including our compliance with laws and regulations, and the Consumer Financial Protection Bureau (the "CFPB"
has the authority to examine us for compliance with federal consumer financial laws. The U.S. Department of Justice also has
enforcement authority over fair lending laws. If a regulator were to determine that any aspect of our operations had become
unsatisfactory or were in violation of any law or regulation, it may take a number of different remedial actions as it deems
appropriate, including enjoining “unsafe or unsound” practices, requiring affirmative action to correct any conditions resulting
from any violation or practice, issuing an administrative order that can be judicially enforced, directing an increase in our
capital, restricting our growth (including restrictions on mergers and acquisitions activity, geographic expansion or entering into
new lines of business, assessing civil monetary penalties against our officers or directors, removing officers and directors or, if
it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, terminating our
deposit insurance and placing us into receivership or conservatorship. If we become subject to any regulatory actions, it could
have a material adverse effect on our business, results of operations, financial condition and growth prospects. Private parties
may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation. Such
actions could have a material adverse effect on our business, financial condition or results of operations.
The United States Congress and federal regulatory agencies continually review banking laws, regulations and policies
including changes in interpretation or
for possible changes. Changes to statutes, regulations or regulatory policies,
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 Bank and its subsidiaries, and we
do not have significant operations of our own. We currently depend on Lakeland Bank’s cash and liquidity to pay our operating
expenses and dividends to shareholders. The availability of dividends from Lakeland Bank is limited by various statutes and
regulations. The inability of the Company to receive dividends from Lakeland Bank 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 “Item 1. Business-Supervision and Regulation-Capital Requirements,” as a general
matter, banks and bank holding companies are required to maintain a capital conservation buffer on top of minimum risk-
weighted asset ratios. 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 Lakeland Bank fails to maintain the applicable minimum capital ratios and the capital conservation buffer,
distributions to Lakeland Bancorp may be prohibited or limited.
The Company is subject to heightened regulatory requirements as a result of total assets exceeding $10 billion.
With the closing of the acquisition of 1st Constitution Bancorp on January 6, 2022, the Company's total assets exceed
$10 billion. Banks with assets in excess of $10 billion are subject to requirements imposed by the Dodd-Frank Act and its
implementing regulations, including the examination authority of the CFPB to assess compliance with Federal consumer
financial laws, imposition of higher FDIC premiums, reduced debit card interchange fees and enhanced risk management
frameworks, all of which increase operating costs and reduce earnings. In addition, in accordance with a memorandum of
understanding entered into between the CFPB and the U.S. Department of Justice, the two agencies have agreed to coordinate
efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations and
have done so on a number of occasions.
Additional costs have been and will be incurred to implement processes, procedures and monitoring of compliance
with these imposed requirements, including investing significant management attention and resources to make necessary
changes to comply with the new statutory and regulatory requirements under the Dodd-Frank Act. The Company faces the risk
of failing to meet these requirements, which may negatively impact results of operations and financial condition. While the
effect of any presently contemplated or future changes in the laws or regulations or their interpretations would have is
unpredictable, these changes could be materially adverse to the Company's investors.
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Strategic and External Risks
The effect of future tax reform is uncertain and may adversely affect our business.
State and federal legislation for tax reform may increase our overall tax expense and negatively impact certain balance
sheet and tax provisions taken by the Company.
The current national administration has indicated that tax reform, increasing the federal corporate tax rate, is a
possibility. Such an increase would increase the Company's income tax expense as a percent of its taxable income. Other tax
reform could adversely impact the property values of real estate used to secure loans or may create an additional tax burden for
many borrowers, particularly in high tax jurisdictions such as the states of New Jersey and New York where the Company
operates. These and other federal and state tax changes could significantly impact the financial health of our customers,
potentially resulting, in among other things, an inability to repay loans or maintain deposits at the Bank. Any negative financial
impact to our customers resulting from tax reform could adversely impact our financial condition and earnings.
In addition, in September 2020, the State of New Jersey enacted further changes in tax law, that were retroactive to the
beginning of 2020, which extended a temporary surcharge of 2.5% on corporations earning New Jersey allocated income in
excess of $1.0 million through 2023. In 2024, the New Jersey tax rate is scheduled to revert back to no surcharge.
The ultimate impact of any tax reform on our business, customers and shareholders, whether federal or state, is
uncertain and could be adverse.
Severe weather, acts of terrorism, geopolitical and other external events could impact our ability to conduct business.
Weather-related events have adversely impacted our market area in recent years, especially areas located near coastal
waters and flood prone areas. Such events that may cause significant flooding and other storm-related damage may become
more common events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at
compromising operating and communication systems and the metropolitan New York area, including New Jersey, remain
central targets for potential acts of terrorism. Such events could cause significant damage, impact the stability of our facilities
and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing
repayment of our loans, and result in the loss of revenue. While we have established and regularly test disaster recovery
procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial
condition. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict,
including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events.
The outbreak of COVID-19 could continue to materially, adversely affect our business operations, financial condition,
results of operations and cash flows.
The outbreak of COVID-19 has materially, adversely impacted supply chains and certain industries in which our
customers operate and could materially impair their ability to fulfill their obligations to us. Further, additional outbreaks of
COVID-19 variants could lead to an economic recession or other severe disruptions in the U.S. economy and may disrupt
banking and other financial activity in the areas in which we operate and could potentially create widespread business
continuity issues for us.
Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and
other financial transactions. The spread of the highly infectious COVID-19 caused severe disruptions in the U.S. economy at
large, and for small businesses in particular, which disrupted our operations. COVID-19 resulted in a decrease in our
customers’ businesses, a decrease in consumer confidence and business generally and a disruption in the services provided by
our vendors. Continued disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and
losses on our loans, declines in wealth management revenues, negatively impact regional economic conditions, result in
declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate, loan originations and
deposit availability and negatively impact the implementation of our growth strategy. Furthermore, COVID-19 could negatively
impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas
in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key
personnel or a significant number of employees were to become unavailable due to the effects of COVID-19 and the additional
restrictions imposed to contain COVID-19 in our market areas. Although we have business continuity plans and other
safeguards in place, there is no assurance that such plans and safeguards will be effective.
Moreover, we rely on many third parties in our business operations, including the appraisers of the real property
collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and
analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices,
and courthouses. In light of the extent of the measures taken in responding to a continuing pandemic, many of these entities
may limit the availability and access of their services. For example, loan origination could be delayed due to the limited
availability of real estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in
recording offices or the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC
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filings in those counties. If the third-party service providers continue to have limited capacities for a prolonged period or if
additional limitations or potential disruptions in these services materialize, it may negatively affect our operations.
Further, the COVID-19 outbreak created increased operational challenges, as we worked to respond to customers'
urgent needs. During 2020 and 2021, we processed more than 3,300 applications for PPP loans in excess of $475.7 million,
which resulted in significant demands and pressures on our operations. We will continue to face increased operational demands
and pressures as we process applications for loan forgiveness, monitor and service our book of PPP loans and pursue recourse
under the SBA guarantees and against borrowers for any PPP loan defaults.
An outbreak of any other epidemic, pandemic or outbreak of a highly contagious disease, occurring in the United States
or in the geographies in which we conduct operations could materially adversely affect our business operations,
financial condition, results of operations and cash flows.
An outbreak of other highly infectious or contagious diseases, could have a materially adverse impact on certain
industries in which our customers operate and could materially impair their ability to fulfill their obligations to us. Further, the
spread of such an outbreak, could lead to an economic recession or other severe disruptions in the U.S. economy and may
disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business
continuity issues for us.
Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and
other financial transactions. The spread of highly infectious or contagious diseases could cause severe disruptions in the U.S.
economy at large, and for small businesses in particular, which could disrupt our operations and if the global response to
contain the outbreak is unsuccessful, we could experience a material adverse effect on our business, financial condition, results
of operations and cash flows. An outbreak of other highly infectious or contagious diseases may result in a decrease in our
customers’ businesses, a decrease in consumer confidence and business generally or a disruption in the services provided by our
vendors. Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our
loans, declines in wealth management revenues, negatively impact regional economic conditions, result in declines in local loan
demand, liquidity of loan guarantors, loan collateral (particularly in real estate, loan originations and deposit availability and
negatively impact the implementation of our growth strategy. Furthermore, such an outbreak could negatively impact the ability
of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we
operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a
significant number of employees were to become unavailable due to the effects of the outbreak and the restrictions imposed to
contain it in our market areas. Although we have business continuity plans and other safeguards in place, there is no assurance
that such plans and safeguards will be effective.
Moreover, we rely on many third parties in our business operations, including the appraisers of the real property
collateral, vendors that supply essential services such as loan servicers, providers of financial information, systems and
analytical tools and providers of electronic payment and settlement systems, and local and federal government agencies, offices,
and courthouses. In light of developing measures responding to an outbreak or pandemic, many of these entities may limit the
availability and access of their services. For example, loan origination could be delayed due to the limited availability of real
estate appraisers for the collateral. Loan closings could be delayed related to reductions in available staff in recording offices or
the closing of courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those
counties. If the third-party service providers continue to have limited capacities for a prolonged period or if additional
limitations or potential disruptions in these services materialize, it may negatively affect our operations.
We face intense competition from other financial services and financial services technology companies, and competitive
pressures could adversely affect our business or financial performance.
The Company faces intense competition in its markets and geographic region. The Company expects competitive
pressures to intensify in the future, especially in light of legislative and regulatory initiatives arising out of the recent global
economic crisis, technological innovations that alter the barriers to entry, current economic and market conditions, and
government monetary and fiscal policies. Competition with financial services technology companies, or technology companies
partnering with financial services companies, may be particularly intense, due to, among other things, differing regulatory
environments. Competitive pressures may drive the Company to take actions that the Company might otherwise eschew, such
as lowering the interest rates or fees on loans or raising the interest rates on deposits in order to keep or attract high-quality
customers. These pressures also may accelerate actions that the Company might otherwise elect to defer, such as substantial
investments in technology or infrastructure. Whatever the reason, actions that the Company takes in response to competition
may adversely affect its results of operations and financial condition. These consequences could be exacerbated if the Company
is not successful in introducing new products and other services, achieving market acceptance of its products and other services,
developing and maintaining a strong customer base, or prudently managing expenses.
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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.
Operational Risks
The Company may incur impairment to goodwill.
We are required to test our goodwill at least annually. Our valuation methodology for assessing impairment requires
management to consider a variety of factors, including the current market price of our common shares, the estimated net present
value of our assets and liabilities and information concerning the terminal valuation of similarly situated insured depository
institutions. 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 and our stock price.
We could be adversely affected by failure in our internal controls.
We continue to devote a significant amount of effort, time and resources to continually strengthen our controls and
ensure compliance with complex accounting standards and banking regulations. A failure in our internal controls could have a
significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may
have of us.
Our risk management strategies may not be fully effective in mitigating our risk exposures in all market environments
or against all types of risk.
We have devoted significant resources to develop our risk management policies and procedures and expect to continue
to do so in the future. Nonetheless, our risk management strategies may not be fully effective in mitigating our risk exposure in
all market environments or against all types of risk, including risks that are unidentified or unanticipated. As our products and
services change and grow and the markets in which we operate evolve, our risk management strategies may not always adapt to
those changes. Some of our methods of managing risk are based upon our use of observed historical market behavior and
management’s judgment. As a result, these methods may not predict future risk exposures, which could be significantly greater
than the historical measures indicate. Management of market, credit, liquidity, operational, legal, regulatory and compliance
risks requires, among other things, policies and procedures to record properly and verify a large number of transactions and
events and these policies and procedures may not be fully effective. While we employ a broad and diversified set of risk
monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot
anticipate every economic and financial outcome or the timing of such outcomes. Any of these circumstances could have an
adverse effect on our business, financial condition and results of operations.
The inability to attract and retain key personnel could adversely affect our Company’s business.
The success of the Company depends partially on the ability to attract and retain a high level of experienced personnel.
The inability to attract and retain key employees, as well as find suitable replacements, if necessary, could adversely affect the
Company’s customer relationships and internal operations.
The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or
estimates used in our critical accounting policies are inaccurate.
The preparation of financial statements and related disclosure in conformity with GAAP requires us to make
judgments, assumptions and estimates that affect
the amounts reported in our consolidated financial statements and
accompanying notes. Item 7 of this report captioned “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” describes our significant accounting policy and methods used in the preparation of our consolidated
financial statements that we consider “critical” because they require judgments, assumptions and estimates that materially affect
our consolidated financial statements and related disclosures. As a result, if future events differ significantly from the
judgments, assumptions and estimates in our critical accounting policy, those events or assumptions could have a material
impact on our consolidated financial statements and related disclosures.
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If we do not successfully integrate any banks that we have acquired and may acquire in the future, the combined
company may be adversely affected.
The Company has grown through a combination of organic growth and acquisitions. Since 1998, we have acquired
nine community banks, including our most recent acquisition of 1st Constitution Bank and its parent, 1st Constitution Bancorp,
which was completed on January 6, 2022. All of the acquired banks have been merged into Lakeland and the acquired holding
companies, if applicable, have been merged into the Company.
Acquisitions involve a number of risks and challenges, including integrating the branches and operations acquired, and
the associated internal controls and regulatory functions, into our operations; limiting the outflow of deposits held by new
customers and successfully retaining and managing acquired loans; attracting new deposits and generating new interest-earning
assets in geographic areas not previously served; and retaining key employees. Additionally, no assurance can be given that the
operation of acquired branches would not adversely affect our existing profitability; that we would be able to achieve results in
the future similar to those achieved by our existing banking business; that we would be able to compete effectively in the
market areas served by acquired branches; or that we would be able to manage growth resulting from the transaction
effectively. We face the additional risks that the anticipated benefits of the acquisition may not be realized fully or at all, or
within the time period expected, and that integration may result in unforeseen expenses and divert management’s attention and
resources. These integration risks could have an adverse effect on the Company for an undetermined period after completion of
the merger. Acquisitions also typically involve the payment of a premium over book and trading values and, therefore, may
result in dilution of our book and tangible book value per share.
ITEM 1B - Unresolved Staff Comments.
Not applicable.
ITEM 2 – Properties.
As of December 31, 2021, Lakeland operated 48 branch offices located throughout Bergen, Essex, Morris, Ocean,
Passaic, Somerset, Sussex, and Union counties in New Jersey and in Highland Mills, New York. Lakeland also operates six
New Jersey regional commercial lending centers in Bernardsville, Iselin, Jackson, Montville, Teaneck and Waldwick and one
New York commercial lending center to serve the Hudson Valley region. In addition to the Company’s principal office located
at 250 Oak Ridge Road, Oak Ridge, New Jersey 07438, the Company leases two operations locations in Milton, New Jersey.
The aggregate net book value of premises and equipment was $45.9 million at December 31, 2021. As of
December 31, 2021, 27 of the Company’s facilities were owned and 31 were leased for various terms.
ITEM 3 - Legal Proceedings.
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 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 February 22, 2022, there were approximately 3,298 shareholders of record of the common stock.
The following chart compares the Company’s cumulative total shareholder return (on a dividend reinvested basis) over
the past five years commencing December 31, 2016 and ending December 31, 2021 with the NASDAQ Market Index and the
Peer Group Index. The Peer Group Index is the Zacks Regional Northeast Banks Index, which consists of 95 Regional
Northeast Banks.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
December 2021
325.00
300.00
275.00
250.00
225.00
200.00
175.00
150.00
125.00
100.00
75.00
50.00
2016
2017
2018
2019
2020
2021
Lakeland Bancorp, Inc.
Regional Northeast Banks
NASDAQ Market Index
Company/Market/Peer Group
Lakeland Bancorp, Inc.
NASDAQ Market Index
Regional Northeast Banks
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
$
$
100.00
100.00
100.00
$
100.75
129.64
104.70
$
79.37
125.96
91.39
$
95.99
172.18
110.53
$
73.18
249.52
88.89
112.91
304.85
119.82
-20-
The following table presents information regarding shares of our common stock repurchased during the fourth quarter
of 2021.
Period
October 1 to October 31, 2021
November 1 to November 30, 2021
December 1 to December 31, 2021
Total Number of
Shares (or Units)
Purchased (1)
Weighted
Average Price
Paid per Share
(or Unit)
Total Number of
Shares (or Units)
Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum
Number of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
— $
—
—
—
—
—
—
—
—
2,393,423
2,393,423
2,393,423
(1) On October 24, 2019,
the Company announced that
its Board of Directors authorized a share repurchase
program. Under the repurchase program, the Company may repurchase up to 2,524,458 shares of its common stock, or
approximately 5% of its outstanding shares of common stock at September 30, 2019. Repurchases may be made from time to
time through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of
repurchases will be at the discretion of the Company and will depend on a variety of factors, including general market
legal and contractual requirements and the Company's financial
conditions,
performance. This program has no expiration date.
the trading price of the common stock,
ITEM 6 - {Reserved}.
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 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. The Company has omitted comparative discussion of 2020 and
2019 results, which are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as
filed with the Securities and Exchange Commission on March 8, 2021.
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 credit 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 in Item 1A in this Annual Report on Form 10-K, 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 ongoing COVID-19 outbreak and its effects on economic activity; government
responses to the COVID-19 pandemic, including vaccination mandates, which may affect our workforce, human capital
resources and infrastructure; 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; 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 equipment
financing activities; successful implementation, deployment and upgrades of new and existing technology, systems, services
and products; customers’ acceptance of Lakeland’s products and services; failure to realize anticipated efficiencies and
synergies from the merger of 1st Constitution Bancorp into Lakeland Bancorp and the merger of 1st Constitution Bank into
Lakeland Bank; and unanticipated expenses, including litigation expenses, related to the merger.
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.
-21-
Strategy
The Company, through its wholly owned subsidiary, Lakeland Bank, operates 69 banking offices including those
offices obtained in the acquisition of 1st Constitution Bank. The offices are located in northern and central New Jersey and
Highland Mills, New York. 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 wealth management services.
Lakeland’s growth has come from a combination of organic growth and acquisitions. In addition to organic growth,
through December 31, 2021, the Company has acquired eight community banks with an aggregate asset total of approximately
$2.28 billion at the date of the respective acquisitions. The Company completed its most recent acquisition of 1st Constitution
Bancorp (NASDAQ: FCCY (“1st Constitution” effective January 6, 2022 with 1st Constitution merging into Lakeland
Bancorp, Inc. and 1st Constitution’s wholly-owned subsidiary, 1st Constitution Bank, merging into Lakeland Bank. As of
January 6, 2022, 1st Constitution had approximately $1.88 billion in assets, $1.12 billion in loans, $1.65 billion in deposits and
25 branches. The acquisition represents a significant addition to Lakeland’s New Jersey franchise and the combined
organization will have over $10 billion in assets. 1st Constitution's financial information is not included in our December 31,
2021 and 2020 financial information contained herein. The Company’s strategy is to continue growing 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.
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 offers online banking, mobile banking and cash management services to meet the needs of its business
and consumer customers. In 2019, the Company embarked on a digital strategy initiative, impacting all operational areas of
Lakeland, with a focus on providing a superior customer experience, evolving our product and service delivery and enhancing
our operational functionality and cost-effectiveness. Throughout 2020 and 2021 the Company continued to build its
infrastructure to implement the strategy. We hired a highly-skilled team, strengthened our project management and delivery
capabilities and continue to organize data housed in various areas of the Company. Investments were also made in customer
relationship management tools, which will provide an enhanced view of our customers. In the coming year, we will continue to
apply these emerging capabilities to gain insights into our customers and align our products and services with their needs.
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 its net interest income, see “Interest Rate
Risk” in the discussion below.
The Company generates noninterest 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 securities sales, fees
from wealth management services and investment product sales, income from the origination and sale of residential mortgages
and SBA loans and other fees. The Company’s operating expenses consist primarily of compensation and benefits expense,
premises and equipment expense, data processing expense, FDIC insurance expense, 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.
The Company continues to control its expenses by continually reviewing its ongoing noninterest expense, including
evaluating its compensation expense, ongoing service contract expense, marketing expenses and other expenses. The Company
also controls its expenses by leveraging its technology investments that maximize the efficient delivery of products and services
to its customers, which allows it further to evaluate its infrastructure. Lakeland will continue to consolidate and close branches
when an evaluation determines a significant cost savings may be obtained through the consolidation or closure. In addition,
opportunities to open new branches are also evaluated.
Critical Accounting Estimates
The accounting and reporting policies of the Company and Lakeland conform with U.S. generally accepted accounting
principles (“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.
-22-
On December 31, 2020, effective January 1, 2020, the Company adopted new accounting guidance, which requires
entities to estimate and recognize an allowance for lifetime expected credit losses for loans and other financial assets measured
at amortized cost. Previously, an allowance was recognized based on probable and reasonably estimable incurred losses
inherent in the loan portfolio at the balance sheet date. See Note 1 to the Company's financial statements included in Item 8 of
this Annual Report on Form 10-K for further discussion of the Company's accounting policies and methodologies for
establishing the allowance and the liability for off-balance-sheet commitments.
The allowance for credit losses is a critical accounting estimate for the following reasons:
•
•
•
estimates relating to the allowance for credit losses require management to project future loan performance,
including cash flows, delinquencies, charge-offs and collateral values, based on a reasonable and supportable
forecast period utilizing forward-looking economic scenarios in order to estimate potential credit losses;
the allowance for credit losses is influenced by factors outside of management's control such as industry and
business trends, geopolitical events and the effects of laws and regulations as well as economic conditions
including, but not limited to, interest rates, housing prices, GDP, inflation and unemployment; and
judgment is required to determine whether the models used to generate the allowance for credit losses produce
results that appropriately reflect a current estimate of lifetime expected credit losses.
loan level
The Company uses an open pool loss-rate method to calculate an institution-specific historical loss rate based on
historical
loss experience for collectively assessed loans with similar risk characteristics. The Company’s
methodology considers relevant information about past and current economic conditions, as well as a single economic forecast
over a reasonable and supportable period. The loss rate is applied over the remaining life of loans to develop a “baseline
lifetime loss.” The baseline lifetime loss is adjusted for changes in macroeconomic variables, including but not limited to
interest rates, housing prices, GDP and unemployment, over the reasonable and supportable forecast period. After the
reasonable and supportable forecast period, the adjusted loss rate reverts on a straight-line basis to the historical loss rate. The
reasonable and supportable forecast and the reversion periods are established for each portfolio segment. The Company
measures expected credit losses of financial assets by multiplying the adjusted loss rates to the amortized cost basis of each
asset taking into consideration amortization, prepayment and defaults. Changes in any of these factors, assumptions or the
availability of new information, could require that the allowance be adjusted in future periods, perhaps materially.
The Company considers five standard qualitative general reserve factors ("qualitative adjustments"): nature and
volume of loans, lending management, policy and procedures, independent review and changes in environment. Qualitative
adjustments are designed to address risks that are not captured in the quantitative reserves (“quantitative reserve”). Other
qualitative adjustments or model overlays may also be recorded based on expert credit judgment in circumstances where, in the
Company’s view, the standard qualitative reserve factors do not capture all relevant risk factors. The use of qualitative reserves
may require significant judgment that may impact the amount of allowance recognized.
Because management's estimates of the allowance for credit losses involve a high degree of judgment, the subjectivity
of the assumptions used and the potential for changes in the forecasted economic environment that could result in changes to
the amount of the allowance recorded, there is uncertainty inherent in such estimates. Changes in these estimates could
significantly impact the allowance and provision for credit losses.
The COVID-19 pandemic resulted in a deterioration in U.S. economic conditions and an increase in economic
uncertainty. As a result, the Company's future loss estimates may vary considerably as a result of the changes in the economy
compared to management's December 31, 2021 assumptions; the magnitude and duration of the pandemic; and the impact of
the national monetary and fiscal response.
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, 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.
Executive Summary
The Company reported earnings of $95.0 million and diluted earnings per share of $1.85 for 2021 and asset growth of
7%. Deposits grew 8% and non-performing assets declined 60% for the year. The 2021 results were favorably impacted by
negative provisions for credit losses totaling $10.9 million due to improvements in asset quality and forecasted macroeconomic
conditions. In addition, net interest income increased $27.1 million in 2021 when compared to 2020 and the net interest margin
for 2021 was 3.13%.
-23-
While we continue to monitor developments related to COVID-19, including its impact on our employees, our
customers and the communities we serve, the level of inflation, unemployment and interest rate increases by the Federal
Reserve Bank ("FRB" also can affect our business. The Company may experience changes in the value of collateral securing
outstanding loans, reductions in the credit quality of borrowers and the inability of borrowers to repay loans in accordance with
their terms. Management is actively managing credit risk in the Company's commercial loan portfolio.
Our branch lobbies are open at normal operating hours for customers; however, we may close them from time to time
as conditions warrant. Proper COVID-19 protocols are in place in our branches and corporate offices to ensure the continued
safety of our associates and customers. Management identified that the COVID-19 pandemic could adversely affect the
liquidity of the Company and took specific steps to minimize the risk. In addition to processes already in place to closely
monitor changes in liquidity needs, including those that may result from the COVID-19 pandemic, the Company increased
collateral and expanded access to additional borrowings should it be necessary in order to meet liquidity needs. While the
Company is unable to predict actual fluctuations in deposit or cash balances, management continues to monitor liquidity and
believes that its current level of liquidity is sufficient to meet its current and future operational needs.
On January 6, 2022, the Company completed its acquisition of 1st Constitution with 1st Constitution merging into
Lakeland Bancorp and 1st Constitution’s wholly-owned subsidiary, 1st Constitution Bank, merging into Lakeland Bank. As of
January 6, 2022, 1st Constitution had approximately $1.88 billion in assets, $1.12 billion in loans and $1.65 billion in deposits.
The acquisition represents a significant addition to Lakeland’s New Jersey franchise and the combined organization will have
over $10 billion in assets. Full systems integration was completed in February 2022.
Financial Overview
The following table presents certain key aspects of the Company's performance for the years ended December 31,
2021 and 2020 and will be discussed further in this management’s discussion and analysis:
(in thousands, except per share data)
Income Statement
Interest income
Interest expense
Net interest income
(Benefit) provision for credit losses
Net interest income after (benefit) provision for credit losses
Total other income
Total operating expense
Income before income tax expense
Income tax expense
Net income
At or for the Years Ended
12/31/2021
12/31/2020
Change
$
257,318
$
248,842
$
8,476
22,483
234,835
(10,896)
245,731
22,361
140,757
127,335
32,294
95,041
41,155
207,687
27,222
180,465
27,110
132,798
74,777
17,259
57,518
$
$
(18,672)
27,148
(38,118)
65,266
(4,749)
7,959
52,558
15,035
37,523
$
-24-
(Dollars in thousands, except per share data)
Share Data:
Basic earnings per common share
Diluted earnings per common share
Average common shares outstanding
Diluted average common shares outstanding
Balance Sheet:
Total loans
Allowance for credit losses on loans
Total assets
Total deposits
Stockholders' equity
Selected ratios of the Company:
Return on average assets
Return on average common equity
Return on average tangible common equity
Leverage ratio
Loans to deposits
Allowance for credit losses on loans to total loans
Non-performing loans to total loans
At or for the Years Ended
12/31/2021
12/31/2020
Change
$
$
1.85
1.85
$
1.13
1.13
0.72
0.72
50,624
50,870
50,540
50,650
84
220
$ 5,976,148
$ 6,021,232
$
(45,084)
58,047
8,198,056
6,965,823
827,014
71,124
7,664,297
6,455,783
763,784
(13,077)
533,759
510,040
63,230
1.19 %
11.95 %
14.93 %
8.51 %
85.79 %
0.97 %
0.28 %
0.80 %
7.74 %
9.86 %
8.37 %
93.27 %
1.18 %
0.71 %
0.39 %
4.21 %
5.07 %
0.14 %
(7.48)%
(0.21)%
(0.43)%
The Company recorded net income of $95.0 million, or $1.85 per diluted share, for the year ended December 31, 2021
compared to net income of $57.5 million, or $1.13 per diluted share, for 2020. The financial results for 2021 were favorably
impacted by a negative provision for credit losses of $10.9 million compared to a provision for credit losses of $27.2 million for
2020. The Company's net interest margin was 3.13% for 2021 compared to 3.09% for 2020.
In 2021, return on average assets was 1.19%, return on average common equity was 11.95% and return on average
tangible common equity was 14.93%. This compared to 2020 ratios of return on average assets of 0.80%, return on average
common equity of 7.74% and return on average tangible common equity of 9.86%.
Total assets at December 31, 2021 were $8.20 billion, increasing $533.8 million or 7% compared to $7.66 billion at
December 31, 2020. Total investment securities increased $648.4 million as the Company deployed excess cash into securities.
Total loans declined $45.1 million during 2021 to $5.98 billion at December 31, 2021 in large part due to the decline in PPP
loans of $228.1 million. Other loan segments experienced growth during the year, including $159.0 million in multifamily
loans, $81.4 million in owner occupied commercial loans, $61.3 million in residential loans and $35.3 million in construction
loans.
Non-performing assets declined by $25.8 million during 2021 to $17.0 million at December 31, 2021 compared to
$42.8 million at December 31, 2020. During 2021, the Company sold $21.7 million in non-performing loans primarily in the
commercial secured by real estate loan category, resulting in net charge offs to the allowance for credit losses of $706,000 as
well as recovered interest on non-accrual loans of $755,000.
Total deposits increased $510.0 million, or 8%, from December 31, 2020 to December 31, 2021, including an increase
of $222.2 million, or 15% in noninterest bearing deposits. During 2021, increases in savings and interest-bearing transaction
accounts of $606.8 million and noninterest-bearing deposit accounts of $222.2 million were partially offset by a decline in time
deposit balances of $319.0 million,
The Company issued $150 million of fixed-to-floating rate subordinated notes in September 2021 at 2.875% per
annum until September 2026 when the interest rate will reset quarterly to the three-month Secured Overnight Financing Rate
("SOFR") plus a spread of 220 basis points. The Company also redeemed $75 million of 5.125% fixed-to-floating rate
subordinated notes, that were scheduled to reset quarterly to the current three-month LIBOR rate plus 397 basis points in
September 2021.
-25-
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.
For 2021, the Company's net interest margin was 3.13% compared to 3.09% for 2020. The increase in net interest
margin resulted primarily from a 41 basis point decrease in the cost of interest-bearing liabilities.
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 21% tax rate.
(dollars in thousands)
Assets
Interest-earning assets:
Loans (1)
Taxable investment securities and
other
Tax-exempt securities
Federal funds sold (2)
2021
Interest
Income/
Expense
Average
Rates
Earned/
Paid
Average
Balance
2020
Interest
Income/
Expense
Average
Rates
Earned/
Paid
Average
Balance
2019
Interest
Income/
Expense
Average
Rates
Earned/
Paid
Average
Balance
$ 6,003,325
$ 237,037
3.95 % $ 5,626,273
$ 229,036
4.07 % $ 4,938,298
$ 233,535
4.73 %
1,017,140
17,208
143,363
352,834
3,333
440
1.69 %
2.32 %
0.12 %
808,629
80,594
220,329
17,811
2,085
348
2.20 %
2.59 %
0.16 %
799,103
19,722
70,271
87,997
1,911
1,720
2.47 %
2.72 %
1.95 %
4.36 %
Total interest-earning assets
7,516,662
258,018
3.43 % 6,735,825
249,280
3.70 % 5,895,669
256,888
Noninterest-earning assets:
Allowance for credit losses
Other assets
Total Assets
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
(64,537)
522,780
$ 7,974,905
(61,898)
534,439
$ 7,208,366
(39,840)
466,825
$ 6,322,654
Savings accounts
$
642,298
$
334
0.05 % $
535,754
$
325
0.06 % $
500,650
$
335
0.07 %
Interest-bearing transaction
accounts
Time deposits
Federal funds purchased
Securities sold under agreements
to repurchase
Long -term borrowings
3,613,484
882,379
2,287
92,824
162,643
Total interest-bearing liabilities
5,395,915
Noninterest-bearing liabilities:
1,671,889
111,547
795,554
$ 7,974,905
Demand deposits
Other liabilities
Stockholders’ equity
Total Liabilities and
Stockholders' Equity
Net interest income/spread
Tax equivalent basis adjustment
Net Interest Income
Net Interest Margin (3)
10,817
5,642
8
70
5,612
22,483
0.30 % 3,035,626
0.64 % 1,064,187
0.35 %
40,536
0.07 %
3.40 %
51,889
244,000
17,396
14,338
449
107
8,540
0.57 % 2,653,404
1.35 %
1.09 %
0.21 %
3.44 %
922,412
52,421
42,615
290,329
31,157
17,756
1,341
130
9,734
0.42 % 4,971,992
41,155
0.83 % 4,461,831
60,453
1.17 %
1.92 %
2.52 %
0.30 %
3.31 %
1.35 %
1,362,918
130,231
743,225
$ 7,208,366
1,092,827
70,959
697,037
$ 6,322,654
235,535
3.02 %
208,125
2.87 %
196,435
3.00 %
700
$ 234,835
438
$ 207,687
401
$ 196,034
3.13 %
3.09 %
3.33 %
(1)
Includes non-accrual loans, loans held for sale and deferred loan fees. Average deferred loan fees totaled $9.7 million in 2021, $7.7
million in 2020 and $3.0 million in 2019.
Includes interest-bearing cash accounts.
(2)
(3) Net interest income on a tax equivalent basis divided by interest-earning assets.
-26-
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 two years. This information is
presented on a tax equivalent basis assuming a 21% 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. There are no out-of-period items
or adjustments in the table below.
2021 vs. 2020
2020 vs. 2019
Increase (Decrease)
Due to Change in:
Rate
Volume
Total
Change
Increase (Decrease)
Due to Change in:
Rate
Volume
Total
Change
(in thousands)
Interest Income
Loans
Taxable investment securities and other
Tax-exempt investment securities
Federal funds sold
Total interest income
Interest Expense
Savings deposits
Interest-bearing transaction accounts
Time deposits
Federal funds purchased
Securities sold under agreements to
repurchase
Long -term borrowings
Total interest expense
Net Interest Income
$
$
15,031
4,032
1,478
177
20,718
32
4,360
(2,134)
(259)
(183)
(2,833)
(1,017)
21,735
$
(7,030) $
(4,635)
(230)
(85)
(11,980)
8,001 $
(603)
1,248
92
8,738
9
(6,579)
(8,696)
(442)
(23)
(10,939)
(6,562)
(183)
147
(95)
(17,655)
5,675
$
30,269 $ (34,768) $
233
270
1,111
31,883
30
5,388
3,589
(262)
(2,144)
(96)
(2,483)
(39,491)
(40)
(19,149)
(7,007)
(630)
(4,499)
(1,911)
174
(1,372)
(7,608)
(10)
(13,761)
(3,418)
(892)
(36)
(2,928)
(18,672)
27,410 $
46
(1,610) 2
7,181
24,702 $ (13,012) $
(69)
416
(26,479)
(23)
(1,194)
(19,298)
11,690
$
Net interest income on a tax equivalent basis for 2021 was $235.5 million, compared to $208.1 million in 2020, due
primarily to lower interest rates on interest-bearing liabilities as well as growth in average earning assets of $780.8 million
partially offset by lower yields on interest-earning assets. The unfavorable effect on net interest income due to the decrease in
yield on interest-earning assets was partially mitigated by an increase in interest income earned on free funds (interest-earning
assets funded by noninterest-bearing liabilities) resulting from an increase in average noninterest-bearing deposits of $309.0
million.
Interest income on a tax equivalent basis increased from $249.3 million in 2020 to $258.0 million in 2021, an increase
of $8.7 million, or 4%. The increase in interest income resulted from a $780.8 million increase in average interest-earning assets
partially offset by lower yields on interest-earning assets. The decrease in yield on interest-earning assets was due primarily to a
reduction in the yield on loans and investment securities due to decreases in the prime rate and LIBOR during 2020 and 2021.
The average balance of loans increased $377.1 million compared to 2020, while the yield on average loans of 3.95% in 2021
was 12 basis points lower than 2020. The yield on average taxable investment securities decreased 51 basis points, while the
yield on tax-exempt investment securities decreased 27 basis points compared to 2020.
Total interest expense decreased $18.7 million from $41.2 million in 2020 to $22.5 million in 2021. Total average
interest-bearing liabilities increased $423.9 million, mostly due to the increase in total average interest-bearing deposits of
$502.6 million as a result of organic growth, offset in part by a decrease in average long-term borrowings of $81.4 million. The
cost of average interest-bearing liabilities decreased from 0.83% in 2020 to 0.42% in 2021, largely driven by lower market
interest rates as well as a change in the mix of interest-bearing liabilities. The cost of interest-bearing transaction accounts, time
deposits and long-term borrowings decreased by 27 basis points, 71 basis points, and four basis points, respectively, compared
to 2020.
-27-
Provision for Credit Losses
The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at
amortized cost at December 31, 2020, effective January 1, 2020. The Company applied the standard's provisions as a
cumulative-effect adjustment of $3.4 million to retained earnings as of January 1, 2020. ASU 2016-13 requires the
measurement of expected credit losses for financial assets, including investments, loans and certain off-balance-sheet credit
exposures, measured at amortized cost. See Note 1 - Summary of Significant Accounting Policies to the Company's financial
statements for a description of the adoption of ASU 2016-13 and the Company's allowance methodology.
In determining the allowance for credit
loans and off-balance-sheet credit exposures,
management measures expected credit losses based on relevant information about past events, current conditions, reasonable
and supportable forecasts, prepayments and future economic conditions. The key assumptions of the methodology include the
lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative
adjustments. The Company uses its best judgment to assess economic conditions and loss data in estimating the allowance for
credit losses.
losses on investments,
In 2021, the Company recorded a $10.9 million benefit for credit losses compared to a $27.2 million provision for
2020. The benefit is comprised of a benefit for credit losses on loans of $10.9 million, a benefit for off-balance-sheet exposures
of $243,000 and a provision for credit losses on securities of $262,000. The benefit for credit losses on loans was due primarily
to an improvement in forecasted macroeconomic conditions, a decrease in nonperforming assets and continued strength in the
asset quality of loans. The Company charged off $4.6 million and recovered $2.4 million in 2021 compared to $2.1 million and
$541,000, respectively, in 2020.
Noninterest Income
Noninterest income of $22.4 million in 2021 decreased by $4.7 million compared to 2020. The decrease in noninterest
income was due primarily to a $4.1 million reduction in swap income compared to 2020 as demand for swap transactions
waned due to changes in the yield curve, which decreased demand for these transactions. Service charges on deposit accounts
increased $708,000 compared to 2020 due primarily to increases in debit card income. Commissions and fees in 2021 increased
$1.1 million compared to 2020 due primarily to increases in commercial loan fees and investment commission income. Gains
on sales of loans decreased $1.1 million compared to 2020, due primarily to the Company retaining more originated residential
mortgage loans in the loan portfolio. Gain on sales and calls of investment securities totaled $9,000 in 2021 compared to
$1.2 million in 2020. Noninterest income represented 9% of total revenue in 2021. Total revenue is defined as net interest
income plus noninterest income.
Noninterest Expense
Noninterest expense in 2021 totaled $140.8 million, an increase of $8.0 million from the $132.8 million recorded for
2020. The increase in noninterest expense was due primarily to an increase in compensation and employee benefit expense of
$6.1 million in 2021, from 2020, as a result of an increase in staffing levels and normal merit increases. In 2021, premises and
equipment expense increased $2.9 million compared to 2020 due primarily to an increase in information technology service
agreement expense. The increase was expected as part of the Company's digital strategy initiative, which began in 2019.
Noninterest expense in 2021 also included merger-related expenses of $1.8 million for the acquisition of 1st Constitution
Bancorp. Other operating expense decreased $3.6 million due primarily to the long-term debt prepayment fees totaling
$4.1 million recorded in 2020 resulting from the prepayment of $114.9 million in FHLB debt at a weighted average rate of
2.11%. In addition, the Company recorded $831,000 of long-term debt extinguishment costs in 2021 as a result of the
redemption of $75.0 million of fixed-to-floating rate subordinated notes.
-28-
The efficiency ratio, a non-GAAP measure, expresses the relationship between noninterest expense (excluding long-
term debt prepayment fees, merger related expenses and core deposit amortization to total tax-equivalent revenue (excluding
gains and/or losses on securities and gain and/or losses on debt extinguishment.
(dollars in thousands)
Calculation of Efficiency Ratio (a Non-GAAP Measure)
Total noninterest expense
Amortization of core deposit intangibles
Merger related expenses
Long-term debt prepayment fees
Long-term debt extinguishment costs
Noninterest expense, as adjusted
Net interest income
Noninterest income
Total revenue
Tax-equivalent adjustment on municipal securities
Gains on sales of investment securities and debt extinguishment
Total revenue, as adjusted
Efficiency ratio (Non-GAAP)
Income Taxes
For the Years Ended December 31,
2021
2020
$
$
$
$
140,757
(868)
(1,782)
—
(831)
137,276
234,835
22,361
257,196
700
(9)
257,887
$
$
$
$
132,798
(1,025)
—
(4,133)
—
127,640
207,687
27,110
234,797
438
(1,213)
234,022
53.23 %
54.54 %
The Company’s effective income tax rate was 25.4% and 23.1% in the years ended December 31, 2021 and 2020,
respectively. The increased effective tax rate for 2021 was primarily a result of tax advantaged items declining as a percentage
of pretax income due to the increase in pretax income.
Financial Condition
Total assets at December 31, 2021 were $8.20 billion, an increase of $533.8 million, or 7%, from $7.66 billion at
December 31, 2020. Loans, net of deferred fees, were $5.98 billion and $6.02 billion at December 31, 2021 and 2020,
respectively, a decrease of $45.1 million, or 1% during 2021. Investment securities were $1.62 billion and $973.2 million
December 31, 2021 and 2020, respectively an increase of $648.1 million or 67% during 2021, as the Company deployed excess
cash into investment securities. Total deposits were $6.97 billion at December 31, 2021, an increase of $510.0 million, or 8%,
from December 31, 2020. Borrowings were $310.5 million at December 31, 2021 a decrease of $2.3 million or 1% from
December 31, 2020.
Loans
Lakeland primarily serves New Jersey, the Hudson Valley region in New York and the surrounding areas. Its
equipment finance division serves a broader market with a primary focus on the Northeast. At the time of adoption of CECL,
the loan portfolio segmentation was expanded to nine portfolio segments, taking into consideration common loan attributes and
risk characteristics, as well as historical reporting metrics and data availability. See Note 1 to the Company's financial
statements for a full description of the segments. The information below for December 31, 2021 and December 31, 2020, is
presented in accordance with ASU 2016-13. The Company did not reclassify comparative financial periods prior to
December 31, 2020, and has presented those disclosures under previously applicable U.S. GAAP.
At December 31, 2021, the amortized cost of loans totaled $5.98 billion, an decrease of $45.1 million when compared
to the balance at December 31, 2020 of $6.02 billion. Commercial, industrial and other loans decreased $255.8 million in 2021
due primarily to a decline in PPP loans which totaled $56.6 million and $284.6 million, at December 31, 2021 and
December 31, 2020, respectively. Partially offsetting this decrease was increases in other loan categories, including multifamily
loans of $159.0 million, owner occupied commercial loans of $81.4 million and residential loans of $61.3 million. For detailed
information on the composition of the Company’s loan portfolio, see Note 5 in Notes to Consolidated Financial Statements
contained in this Annual Report on Form 10-K.
-29-
The following table presents the classification of Lakeland's loans by major category:
(in thousands)
Non-owner occupied commercial
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total
December 31, 2021
December 31, 2020
$
$
2,316,284
908,449
972,233
177,097
462,406
302,228
123,212
438,710
275,529
5,976,148
$
$
2,398,946
827,092
813,225
200,229
718,189
266,883
116,690
377,380
302,598
6,021,232
At December 31, 2021, concentrations of loans exceeding 10% by segment of total loans outstanding included non-
owner occupied commercial loans, owner occupied commercial loans, multifamily loans and commercial, industrial and other
loans. Commercial, industrial and other includes $56.6 million of PPP loans, which are expected to be fully guaranteed by the
SBA. 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 tables present loan maturities and sensitivity to changes in interest rates at December 31, 2021:
(in thousands)
Non-owner occupied commercial
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential Mortgage
Consumer
Total loans
(in thousands)
Non-owner occupied commercial
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential Mortgage
Consumer
Total loans
Within
One Year
After One
but Within
Five Years
After Five
Years but
Within Fifteen
Years
After Fifteen
Years
Total
$
$
113,472
78,719
35,685
15,675
186,313
108,102
4,238
2,252
2,128
546,584
$
$
593,974
229,672
190,370
36,778
193,871
80,036
112,145
18,079
13,294
1,468,219
$
$
1,500,937
534,745
707,115
116,176
74,098
114,090
6,829
91,981
65,696
3,211,667
$
$
107,901 $
65,313
39,063
8,468
8,124
—
—
326,398
194,411
749,678 $
2,316,284
908,449
972,233
177,097
462,406
302,228
123,212
438,710
275,529
5,976,148
Amounts due after one year
at predetermined rates
Amount due after one year
at floating or adjustable
rates
580,502
245,353
258,979
46,078
155,751
29,522
118,974
324,252
81,681
1,841,092
$
$
1,622,310
584,377
677,569
115,344
120,342
164,604
—
112,206
191,720
3,588,472
$
$
-30-
Risk Elements
Commercial loans 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 of all contractual principal
and interest 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 and closed-end consumer 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 the loans are well-secured and
in the process of collection. Open-end consumer loans secured by real estate 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 and 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.
Non-accrual loans decreased to $17.0 million at December 31, 2021 from $42.8 million at December 31, 2020
primarily due to sales of non-performing loans of $21.3 million. Commercial, industrial and other non-accruals increased $4.1
million when compared to December 31, 2020 as a result of one new non-accrual totaling $6.1 million. Non-accruals as of
December 31, 2021 include three loan relationships between $500,000 and $1.0 million totaling $1.8 million, and three loan
relationships exceeding $1.0 million totaling $13.1 million. All non-accrual loans are in various stages of litigation, foreclosure,
or workout. Non-accrual loans included $127,000 and $1.1 million in troubled debt restructurings as of December 31, 2021 and
2020, respectively.
At December 31, 2021 and 2020, Lakeland had $3.3 million and $3.9 million, respectively, in loans that are TDRs and
still accruing. Restructured loans that are still accruing 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 difficulties of the borrower where the borrower has
demonstrated the ability to repay based on the modified terms of the loan.
At December 31, 2021 and 2020, the Company had $102.3 million and $139.4 million, respectively, of loans that were
rated substandard that were not classified as non-performing. There were no additional loans at December 31, 2021, other than
those designated non-performing or substandard, where Lakeland was aware of any credit conditions of any borrowers that
would indicate a possibility of the borrowers not complying with the present terms and conditions of repayment and which may
result in such loans being included as non-accrual, past due or renegotiated at a future date.
The Company adopted ASU 2016-13 in 2020, with an adjustment to the allowance for credit losses on loans of $6.7
million, using a modified retrospective approach. For further information see Notes 1, 5 and 6 to the Company's Consolidated
Financial Statements.
The following tables present the historical relationships between credit ratios, including allowance for credit losses to
total loans, non-accrual loans to total loans, allowance for credit losses to non-accrual loans and net charge-offs to average loans
by loan category:
(dollars in thousands)
As of and for the Year Ended December 31,
2019
2020
2021
Allowance for credit losses on loans to total loans outstanding
0.97 %
1.18 %
0.78 %
Allowance for credit losses on loans
Total loans outstanding
Non-accrual loans to total loans outstanding
Non-accrual loans
Total loans outstanding
Allowance for credit losses on loans to non-accrual loans
Allowance for credit losses on loans
Non-accrual loans
$
$
$
58,047
5,976,148
0.28 %
16,981
5,976,148
341.83 %
58,047
16,981
$
$
$
71,124
6,021,232
0.71 %
42,763
6,021,232
166.32 %
71,124
42,763
$
$
$
40,003
5,137,823
0.41 %
21,138
5,137,823
189.25 %
40,003
21,138
-31-
(dollars in thousands)
Net charge-offs (recoveries) during the period to average loans outstanding:(1)
2021
2020
2019
As of and for the Year Ended December 31,
Non-owner occupied commercial (1)
Net charge-offs during the period
Average amount outstanding
Owner occupied commercial (1)
Net (recoveries) charge-offs during the period
Average amount outstanding
Multifamily (1)
Net charge-offs during the period
Average amount outstanding
Non owner occupied residential (1)
Net charge-offs (recoveries) during the period
Average amount outstanding
Total Commercial, secured by real estate (1)
Net charge-offs during the period
Average amount outstanding
Commercial, industrial and other
Net (recoveries) charge-offs during the period
Average amount outstanding
Construction
Net recoveries during the period
Average amount outstanding
Equipment finance
Net charge-offs during the period
Average amount outstanding
Residential mortgage
Net (recoveries) charge-offs during the period
Average amount outstanding
Consumer
Net charge-offs during the period
Average amount outstanding
Total loans
Net charge-offs (recoveries) during the period
Average amount outstanding
$
$
$
$
$
$
$
$
$
$
$
0.10 %
2,246
2,347,575
— %
(20)
870,727
— %
28
889,456
0.03 %
58
188,166
0.05 %
2,312
4,295,924
(0.08)%
(487)
593,979
(0.01)%
(21)
312,107
0.24 %
285
120,252
(0.02)%
(64)
398,141
0.05 %
137
281,896
0.04 %
2,162
6,002,299
$
$
$
$
$
$
$
$
$
$
$
— %
24
2,252,386
0.05 %
348
763,183
— %
—
675,633
(0.01)%
(22)
202,555
0.01 %
350
3,893,757
0.09 %
607
644,844
(0.01)%
(23)
300,434
0.19 %
219
117,158
0.03 %
95
340,356
0.08 %
264
327,567
0.03 %
1,512
5,624,116
$
$
$
$
$
$
$
0.01 %
293
3,440,392
(0.11)%
(455)
399,432
(0.04)%
(126)
318,075
0.08 %
82
99,378
— %
(16)
336,566
0.01 %
37
343,158
— %
(185)
4,937,001
(1) The Company expanded its loan segments with the adoption of ASU 2016-13 on December 31, 2020.
-32-
For 2021 and 2020, the ratio of the allowance for credit losses on loans to total loans outstanding was 0.97% and
1.18%, respectively. The Company recorded a benefit to the provision of credit losses on loans in 2021 of $10.9 million due to
an improvement in forecasted macroeconomic conditions, a decrease in nonperforming loans and continued improvement in
asset quality. The ratio of non-accrual loans to total loans improved to 0.28% in 2021 from 0.71% in 2020 due to a reduction in
non-accrual loans of $25.8 million. In addition, the reduction in the allowance for credit losses on loans and in non-accrual
loans caused the ratio of allowance for credit losses on loans to non-accrual loans to improve 341.83% from 166.32%.
Management believes, based on appraisals and estimated selling costs, that the majority of its non-performing loans
are well secured and that the reserves on its non-performing loans are adequate. Based upon the process employed and giving
recognition to all accompanying factors related to the loan portfolio, management considers the allowance for credit losses on
loans to be adequate at December 31, 2021.
Net charge-offs as a percentage of average loans outstanding remain at low levels at 0.04% and 0.03% for 2021 and
2020, respectively. The primary category showing an increase in net charge-offs was non-owner occupied commercial loans,
totaling $2.2 million in 2021.
The following table presents the allowance for credit losses on loans allocated by loan category and the percent of
loans in each category to total loans at the dates indicated. The allowance for credit losses on loans allocated to each category is
not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb
losses in other categories.
(dollars in thousands)
Non-owner occupied commercial
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total
Investment Securities
December 31, 2021
December 31, 2020
Allowance
% of Loans in
Each Category
Allowance
% of Loans in
Each Category
$
$
20,071
3,964
8,309
2,380
9,891
838
3,663
3,914
5,017
58,047
38.7 % $
15.2 %
16.3 %
3.0 %
7.7 %
5.1 %
2.1 %
7.3 %
4.6 %
100.0 % $
25,910
3,955
7,253
3,321
13,665
786
6,552
3,623
6,059
71,124
39.9 %
13.7 %
13.5 %
3.3 %
11.9 %
4.4 %
1.9 %
6.4 %
5.0 %
100.0 %
Investment securities totaled $1.59 billion at December 31, 2021, increasing $648.4 million compared to $946.5
million at December 31, 2020. 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. During the third quarter of 2021, the
Company transferred $494.2 million of previously designated available for sale securities to a held to maturity designation at
estimated fair value. The securities transferred had an unrealized net gain of $3.8 million at the time of transfer, which was
reflected, net of taxes, in accumulated other comprehensive income. Subsequent amortization will be recognized over the life of
the securities. The Company recorded net amortization of $383,000 during 2021. For detailed information on the composition
and maturity distribution of the Company’s investment securities portfolio, see Note 4 in Notes to Consolidated Financial
Statements contained in this Annual Report on Form 10-K.
-33-
The following table presents 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 as
of December 31, 2021, at book value:
(dollars in thousands)
Available for Sale
U.S. Treasury and U.S. government agencies
Amount
Yield
Mortgage-backed securities, residential
Amount
Yield
Collateralized mortgage obligations, residential
Amount
Yield
Mortgage-backed securities, multifamily
Amount
Yield
Collateralized mortgage obligations, commercial
Amount
Yield
Asset-backed securities
Amount
Yield
Debt securities
Amount
Yield
Total securities
Amount
Yield
Within
One Year
Over One
but Within
Five Years
Over Five
but Within
Ten Years
After Ten
Years
Total
$ 12,063
$ 54,788
$ 82,897
$ 53,639
$ 203,387
2.03 %
1.36 %
1.49 %
1.93 %
1.60 %
1
5.15 %
518
3.55 %
—
— %
2,411
18,051
217,512
237,975
2.39 %
2.29 %
1.32 %
1.40 %
1,628
4,693
184,452
191,291
2.65 %
1.72 %
1.48 %
1.50 %
—
— %
—
— %
1,741
(0.70)%
1,741
(0.70)%
4,661
2.44 %
6,274
6,046
15,538
32,519
2.86 %
2.09 %
2.19 %
2.34 %
—
— %
—
— %
—
— %
—
— %
52,584
52,584
0.77 %
0.77 %
3,621
1.87 %
42,838
4,000
50,459
3.72 %
3.25 %
3.55 %
$ 17,243
$ 68,722
$ 154,525
$ 529,466
$ 769,956
2.19 %
1.59 %
2.23 %
1.42 %
1.61 %
-34-
(dollars in thousands)
Held to Maturity
U.S. Treasury and U.S. government agencies
Amount
Yield
Mortgage-backed securities, residential
Amount
Yield
Collateralized mortgage obligations, residential
Amount
Yield
Mortgage-backed securities, multifamily
Amount
Yield
Obligations of states and political subdivisions
Amount
Yield
Debt securities
Amount
Yield
Total securities
Amount
Yield
Other Assets
Within
One Year
Over One
but Within
Five Years
Over Five
but Within
Ten Years
After Ten
Years
Total
$ 10,013
$
7,011
$
1,648
$
2.16 %
1.76 %
2.09 %
— $ 18,672
— %
2.00 %
—
— %
—
— %
—
— %
50
5.05 %
1
1.30 %
14
5.04 %
967
2.27 %
370,183
370,247
1.48 %
1.48 %
12,953
13,921
2.05 %
2.07 %
—
— %
2,710
1.91 %
—
— %
2,710
1.91 %
11,332
27,036
37,880
340,318
416,566
1.21 %
0.76 %
1.51 %
1.94 %
1.80 %
—
— %
—
— %
2,840
3.00 %
—
— %
2,840
3.00 %
$ 21,345
$ 34,098
$ 46,059
$ 723,454
$ 824,956
1.66 %
0.97 %
1.67 %
1.71 %
1.67 %
Assets included within "other assets" on the Company's balance sheet decreased from $110.3 million at December 31,
2020 to $71.8 million at December 31, 2021 primarily due to a reduction in swap assets of $36.9 million. Demand for swap
transactions declined in 2021 because of changes in the yield curve.
Deposits
Total deposits increased from $6.46 billion at December 31, 2020 to $6.97 billion at December 31, 2021, an increase of
$510.0 million, or 8%. Savings and interest-bearing transaction accounts and noninterest-bearing deposits increased
$606.8 million and $222.2 million, respectively, while time deposits decreased $319.0 million. The increase in deposits during
2021 can be attributed to organic growth, PPP-related deposits and money market promotions.
-35-
The average amount of deposits, the average rates paid on deposits and the balance of uninsured deposits (i.e., the
portion of deposit accounts that exceed the FDIC insurance limit for the years indicated are summarized in the following table:
(dollars in thousands)
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
2021
Year Ended December 31,
2020
2019
Noninterest-bearing demand
deposits
Interest-bearing transaction
accounts
Savings
Time deposits
Total
$
1,671,889
— % $
1,362,918
— % $
1,092,827
— %
3,613,484
642,298
882,379
6,810,050
$
0.30 %
0.05 %
0.64 %
0.25 % $
3,035,626
535,754
1,064,187
5,998,485
0.57 %
0.06 %
1.35 %
0.53 % $
2,653,404
500,650
922,412
5,169,293
1.17 %
0.07 %
1.92 %
0.95 %
Uninsured deposits
December 31, 2021
$3,256,006
December 31, 2020
$3,059,345
December 31, 2019
$2,429,110
The aggregate amount of outstanding time deposits that are uninsured in excess of $250,000, broken down by time
remaining to maturity at December 31, 2021, was as follows:
(in thousands)
Within 3 months
Over 3 through 6 months
Over 6 through 12 months
Over 12 months
Total
$
$
30,293
44,429
25,626
8,594
108,942
Federal Home Loan Bank Advances and Other Borrowings
Lakeland may borrow from time to time from the Federal Home Loan Bank ("FHLB") and other correspondent banks
as part of its overall funding and liquidity management program. FHLB advances totaled $25.0 million at December 31, 2021
and December 31, 2020, with a weighted average interest rate of 0.77%. These advances are collateralized by first mortgage
loans and have prepayment penalties. In 2020, the Company repaid an aggregate of $114.9 million in advances and recorded
$4.1 million in long-term prepayment fees.
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 noninterest income.
In 2016, the Company entered into two five-year cash flow hedges in order to hedge the variable cash outflows
associated with its subordinated debentures. The notional value of these hedges was $30.0 million. The Company’s objectives
in using the cash flow hedge was to add stability to interest expense and to manage its exposure to interest rate movements. The
Company used interest rate swaps designated as cash flow hedges which involved the receipt of variable amounts from a
counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the
underlying notional amount. In these particular hedges the Company was paying a third party an average of 1.10% in exchange
for a payment at three-month LIBOR over a five-year period. The effective portion of changes in the fair value of derivatives
designated and that qualify as cash flow hedges were recorded in accumulated other comprehensive income and were
subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2021, the
Company did not record any hedge ineffectiveness. During 2021, the $30.0 million in notional value of the swaps matured and
the Company did not enter into any additional hedges. Further discussion of Lakeland’s financial derivatives can be found in
Note 20 to the Consolidated Financial Statements.
-36-
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 $95.1 million in 2021 compared to $85.0 million in 2020.
Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits. In 2021,
Lakeland generated $510.1 million in deposit growth compared to $1.16 billion in 2020.
Sales of securities and overnight funds. At year-end 2021, the Company had $770.0 million in securities
designated “available for sale.” Of these securities, $528.5 million was pledged to secure public deposits and for
other purposes required by applicable laws and regulations.
Repayments on loans and investments 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 and short term based on the market value of collateral pledged. Lakeland had no
overnight and short-term borrowings from the FHLB on December 31, 2021. Lakeland also has overnight federal
funds lines available for it to borrow up to $215.0 million from correspondent banks. Lakeland had no borrowings
against these lines at December 31, 2021. Lakeland also has the ability to utilize a 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, 2021.
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 10 to the Consolidated Financial Statements.
Management and the Board of Directors 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. Cash and cash equivalents
totaling $228.5 million at December 31, 2021, decreased $41.6 million from December 31, 2020. Operating activities provided
$95.1 million in net cash. Investing activities used $615.3 million in net cash, primarily reflecting net purchases of investments
securities. Financing activities provided $478.6 million in net cash primarily reflecting a net increase in deposits and
subordinated debt of $510.1 million and $59.4 million, respectively, partially offset by a decrease in federal funds purchased
and securities sold under agreements to repurchase and dividends paid of $63.1 million and $27.1 million, respectively.
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. Actual results could differ
materially from anticipated results due to a variety of factors, including uncertainties relating to the effects of the COVID-19
pandemic; 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.
-37-
Off Balance Sheet Arrangements and Aggregate Contractual Obligations
The following table sets forth contractual obligations and other commitments representing required cash outflows as of
December 31, 2021. Interest on subordinated debentures and other borrowings is calculated based on current contractual
interest rates.
(in thousands)
Total
Within
One Year
Payment Due Period
After
One but
Within Three
Years
After Three
but Within
Five Years
After
Five Years
Minimum annual rentals or noncancellable
operating leases
Benefit plan commitments
Remaining contractual maturities of time
deposits
Subordinated debentures
Loan commitments and lines of credit
Other borrowings
Interest on other borrowings (1)
Standby letters of credit
Total
$
$
19,595
4,521
$
3,077
397
$
5,467
798
$
4,033
745
7,018
2,581
759,227
179,043
1,141,138
25,000
53,178
19,486
$ 2,201,188
653,645
—
783,038
—
5,375
19,041
$ 1,464,573
$
87,845
—
158,937
—
10,764
445
264,256
$
17,737
—
30,115
25,000
10,390
—
88,020
$
—
179,043
169,048
—
26,649
—
384,339
(1) Includes interest on other borrowings and subordinated debentures at a weighted rate of 2.63%.
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.
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
interest rates could adversely affect net interest income. Conversely, when interest-earning assets reprice more quickly than
interest-bearing liabilities, an increase in market interest 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 Risk
Committee. 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 Chief
Financial Officer, Chief Operating Officer, Chief Lending Officer, Chief Banking Officer, Chief Credit Officer, Chief Risk
Officer and certain other senior officers. 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.
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.
-38-
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,
decay rates 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.
Management reviews the accuracy of its model by back testing its results (comparing predicted results in past models
with current data, and it periodically reviews its prepayment assumptions, decay rates and other assumptions.
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 2021 (the base case is $223.7 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.
Rate Ramp
Asset/Liability Policy limit
December 31, 2021
December 31, 2020
Changes in Interest Rates
+200 bp
-100 bp
(5.0)%
(0.9)%
0.2 %
(5.0)%
0.8 %
1.4 %
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.
Rate Shock
Asset/Liability Policy limit
December 31, 2021
December 31, 2020
Changes in Interest Rates
+300 bp
+200 bp
+100 bp
-100 bp
(15.0)%
(0.9)%
0.5 %
(10.0)%
(0.7)%
0.4 %
(5.0)%
(0.5)%
0.6 %
(5.0)%
(0.4)%
1.5 %
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, 2021 (the base case) was $1.28 billion. The information provided for the net portfolio value
assumes fluctuations or rate shocks for changes in interest rates as shown in the table below.
Rate Shock
Asset/Liability Policy limit
December 31, 2021
December 31, 2020
Changes in Interest Rates
+300 bp
+200 bp
+100 bp
-100 bp
(25.0)%
(10.9)%
0.3 %
(20.0)%
(7.0)%
1.5 %
(10.0)%
(2.7)%
2.8 %
(10.0)%
(7.0)%
(10.1)%
The Company's net portfolio value change in the -100 basis point scenario was -10.1% for 2020 compared to its policy
limit of -10.0% resulting from the effects of the extremely low interest rate environment at the time. Management determined
that no corrective action was necessary at the time and the portfolio value change was within policy limits during 2021.
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 alternative
scenarios, depending on the economic environment, in its interest rate management decisions.
-39-
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling
changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates, which
may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While
management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay
rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table
presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net
interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such
measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net
interest income and will differ from actual results.
Effects of Inflation
The impact of inflation, as it affects banks, differs substantially from the impact on non-financial institutions. Banks
have assets which are primarily monetary in nature and which tend to move with inflation. This is especially true for banks with
a high percentage of rate sensitive interest-earning assets and interest-bearing liabilities. A bank can further reduce the impact
of inflation with proper management of its rate sensitivity gap. This gap represents the difference between interest rate sensitive
assets and interest rate sensitive liabilities. Lakeland attempts to structure its assets and liabilities and manages its gap to protect
against substantial changes in interest rate scenarios, in order to minimize the potential effects of inflation.
Capital Resources
Stockholders’ equity increased from $763.8 million on December 31, 2020 to $827.0 million on December 31, 2021,
which was primarily due to $95.0 million of net income, partially offset by the payment of cash dividends on common stock of
$27.1 million.
Book value per common share (total common stockholders’ equity divided by the number of shares outstanding
increased from $15.13 on December 31, 2020 to $16.34 on December 31, 2021, primarily as a result of an increase in retained
net income. Tangible book value per share was $13.21 on December 31, 2021, increasing from $11.97 on December 31, 2020.
For more information see “Non-GAAP Financial Measures.”
The Company and Lakeland are subject to various regulatory capital requirements that are monitored by federal and
state banking agencies. Failure to meet minimum capital requirements can lead to certain supervisory actions by regulators; any
supervisory action could have a direct material adverse effect on the Company or Lakeland’s financial statements. As of
December 31, 2021, the Company and Lakeland met all capital adequacy requirements to which they are subject.
The following table reflects capital ratios of the Company and Lakeland as of December 31, 2021 and 2020:
Tier 1 Capital
to Total Average
Assets Ratio
December 31,
Common Equity
Tier 1
to Risk-Weighted
Assets Ratio
December 31,
Tier 1 Capital
to Risk-Weighted
Assets Ratio
December 31,
Total Capital
to Risk-Weighted
Assets Ratio
December 31,
2021
2020
2021
2020
2021
2020
2021
2020
8.51 %
9.70 %
8.37 % 10.67 %
9.04 % 12.71 %
9.73 % 11.15 % 10.22 % 14.48 %
11.03 % 12.71 % 11.03 % 13.67 %
12.84 %
12.22 %
4.00 %
4.00 %
7.00 %
7.00 %
8.50 %
8.50 % 10.50 %
10.50 %
5.00 %
5.00 %
6.50 %
6.50 %
8.00 %
8.00 % 10.00 %
10.00 %
Company
Lakeland
Required capital ratios
including conservation
buffer
“Well capitalized”
institution under FDIC
regulations
-40-
The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act” was signed into law during the
second quarter of 2018. The Act, among other matters, amends the Federal Deposit Insurance Act to require federal banking
agencies to develop a specified Community Bank Leverage Ratio (the ratio of a bank's equity capital to its average total
consolidated assets for banks with assets of less than $10 billion. Qualifying participating banks that exceed this ratio shall be
deemed to comply with all other capital and leverage requirements. In September 2019, the FDIC approved a final rule allowing
community banks with a leverage capital ratio of at least 9% to be considered in compliance with Basel III capital requirements
and exempt from the Basel Calculation. Under the final rule, banks with less than $10 billion in assets may elect the community
bank leverage ratio framework if they meet the 9% ratio and if they hold 25% or less of assets in off-balance-sheet exposures,
and 5% or less of assets in trading assets and liabilities. For institutions that fall below the 9% capital requirement but remain
above 8%, the final rule establishes a two-quarter grace period to either meet the qualifying criteria again or comply with the
generally applicable capital rule. In 2020, the CARES Act required the federal banking agencies to temporarily lower the
Community Bank Leverage Ratio from 9% of average total consolidated assets to 8% for the remainder of 2020. The ratio rose
to 8.5% for calendar year 2021 and will revert to 9% thereafter. Management did not elect to use the Community Bank
Leverage Ratio framework for Lakeland Bancorp or Lakeland Bank.
Non-GAAP Financial Measures
Calculation of Tangible Book Value Per Common Share
(in thousands, except per share amounts)
Total common stockholders’ equity at end of period - GAAP
Less:
Goodwill
Other identifiable intangible assets, net
Total tangible common stockholders’ equity at end of period - Non-GAAP
Shares outstanding at end of period
Book value per share - GAAP
Tangible book value per share - Non-GAAP
Calculation of Tangible Common Equity to Tangible Assets
(dollars in thousands)
Total tangible common stockholders’ equity at end of period - Non-GAAP
Total assets at end of period - GAAP
Less:
Goodwill
Other identifiable intangible assets, net
Total tangible assets at end of period - Non-GAAP
Common equity to assets - GAAP
Tangible common equity to tangible assets - Non-GAAP
$
$
$
$
$
$
$
December 31,
2021
2020
827,014
$
763,784
156,277
2,420
668,317
50,606
16.34
13.21
$
$
$
156,277
3,288
604,219
50,480
15.13
11.97
December 31,
2021
2020
668,317
8,198,056
156,277
2,420
8,039,359
$
$
$
604,219
7,664,297
156,277
3,288
7,504,732
10.09 %
8.31 %
9.97 %
8.05 %
-41-
Calculation of Return on Average Tangible Common Equity:
(dollars in thousands)
For the Years Ended December 31,
2020
2021
2019
Net income - GAAP
Total average common stockholders’ equity - GAAP
Less:
Average goodwill
Average other identifiable intangible assets, net
Total average tangible common stockholders’ equity - Non-GAAP
$
$
$
95,041
795,554
156,277
2,866
636,411
$
$
$
57,518
743,225
156,277
3,816
583,132
$
$
$
70,672
697,037
154,971
4,883
537,183
Return on average common stockholders’ equity - GAAP
11.95 %
7.74 %
10.14 %
Return on average tangible common stockholders’ equity - Non-GAAP
14.93 %
9.86 %
13.16 %
Recent Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board ("FASB") issued Update 2021-08, an update to Topic 805,
Business Combinations. The update provides guidance to improve the accounting for acquired revenue contracts with
customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an
acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The
amendment provides specific guidance on how to recognize and measure acquired contract assets and contract liabilities from
revenue contracts in a business combination. The amendments in this ASU apply to all entities that enter into a business
combination within the scope of Subtopic 805-10, Business Combinations - Overall. This ASU will be effective for financial
statements issued by public business entities for fiscal years and interim periods beginning after December 15, 2022. The
Company does not expect the ASU to have a material impact on the Company's financial statements.
In March 2020, FASB issued Update 2020-04, an update to Topic 848, Reference Rate Reform. The update provides
guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial
reporting. The update provides optional expedients and exceptions for applying generally accepted accounting principles to
contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met and only
applies to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be
discontinued because of reference rate reform. In addition,
the update provides optional expedients for applying the
requirements of certain Topics or Industry Subtopics in the Codification for contracts that are modified because of reference
rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. The
ASU allows companies to apply the standard as of the beginning of the interim period that includes March 12, 2020 or any date
thereafter. The Company is currently assessing the impact to its financial statements; however, the impact is not expected to be
material.
In January 2020, FASB issued Update 2020-01, an update to Topic 321, Investments, Topic 323, Joint Ventures and
Topic 815, Derivatives and Hedging. The update clarifies the accounting for certain equity securities upon the application or
discontinuation of the equity method of accounting in accordance with Topic 321. In addition, the update clarifies scope
considerations for forward contracts and purchased options on certain securities. This update will be effective for financial
statements issued for fiscal years and interim periods beginning after December 15, 2020. The update did not have a material
impact on the Company's financial statements.
In December 2019, FASB issued Update 2019-12, an update to Topic 740, Income Taxes, as part of an initiative to
reduce complexity in accounting standards for income taxes. The amendments also improve consistent application of and
simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This update will be effective for
financial statements issued for fiscal years and interim periods beginning after December 15, 2021 with early adoption
permitted. The Company does not expect the update to have a material impact on the Company's financial statements.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk.
See Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
-42-
Item 8 - Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Lakeland Bancorp, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Lakeland Bancorp, Inc. and subsidiaries (the Company) as
of December 31, 2021 and 2020,
the related consolidated statements of income, comprehensive income, changes in
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related
notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 28, 2022 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the
recognition and measurement of credit losses as of December 31, 2020, applied retroactively to January 1, 2020, due to the
adoption of ASC Topic 326, Financial Instruments – Credit Losses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for credit losses for loans evaluated on a collective basis
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company’s total allowance for credit losses on
loans as of December 31, 2021 was $58.0 million, of which $53.8 million related to the allowance for credit losses on loans
evaluated on a collective basis (collective ACL). Loans that share similar risk characteristics are grouped into respective
portfolio segments for collective assessment, and as such make up the collective ACL. The Company uses an open pool
loss-rate methodology that considers relevant information about past and current economic conditions, as well as a single
economic forecast over a reasonable and supportable period. The company’s historical loss rate is adjusted for changes in
economic forecast over the reasonable and supportable forecast period. The expected credit losses are the product of
multiplying the Company’s adjusted loss rate by the amortized cost basis of each asset taking into consideration
amortization, prepayment and defaults. After the reasonable and supportable forecast period, the adjusted loss rate reverts
-43-
on a straight-line basis to the historical loss rate. The reasonable and supportable and the reversion periods are established
for each portfolio segment. A portion of the collective ACL is comprised of qualitative adjustments designed to address
risks that are not previously captured in the open pool loss-rate model.
We identified the assessment of the collective ACL as a critical audit matter. A high degree of audit effort, including
specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the
collective ACL due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the
collective ACL methodology, including methods and models used to estimate the (1) adjusted loss rate and its significant
assumptions, comprising the economic forecast and macroeconomic variables, the reasonable and supportable forecast
period including the reversion period, and estimated prepayments, and (2) the qualitative adjustments. The assessment also
included an evaluation of the conceptual soundness and performance of the open pool loss-rate model. In addition, auditor
judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL
estimate, including controls over the:
•
•
•
•
•
•
development of the collective ACL methodology, including the selection of the open pool loss-rate model
continued use and appropriateness of changes made to the open pool loss-rate model
performance monitoring of the open pool loss-rate model
identification and determination of the significant assumptions used to measure the adjusted loss rate in the open pool
loss-rate model
development of the qualitative adjustments
analysis of the collective ACL results, trends and ratios.
We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and
assumptions that the Company used, and considered the relevance and reliability of such data, factors and assumptions. In
addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in:
•
•
•
•
•
•
•
evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting
principles
evaluating judgments made by the Company relative to the assessment of the open-pool loss-rate model by comparing
them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices
assessing the conceptual soundness and performance monitoring of the open pool loss-rate model by inspecting the
model documentation to determine whether the model is suitable for its intended use
evaluating the selection of the economic forecast and macroeconomic variables by comparing it to the Company’s
business environment and relevant industry practices
evaluating the length of the reasonable and supportable forecast period and reversion period, by comparing them to
specific portfolio risk characteristics and trends
evaluating the judgments made by management in developing estimated prepayments by comparing to specific
portfolio risk characteristics and trends
evaluating the methodology used to develop the qualitative adjustments and the effect of those on the collective ACL
compared with relevant credit risk factors and consistency with credit trends.
We also assessed the sufficiency of the audit evidence obtained related to the collective ACL by evaluating the:
•
•
•
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practices
potential bias in the accounting estimates
We have served as the Company’s auditor since 2013.
Short Hills, New Jersey
February 28, 2022
-44-
Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
2021
2020
(dollars in thousands)
Assets
Cash
Interest-bearing deposits due from banks
Total cash and cash equivalents
Investment securities, available for sale, at estimated fair value (allowance for
credit losses of $83 at December 31, 2021, and $2 at December 31, 2020)
Investment securities, held to maturity (estimated fair value of $815,211 at
December 31, 2021, and $93,868 at December 31, 2020, and allowance for
credit losses of $181 at December 31, 2021, and none at December 31, 2020)
Equity securities, at fair value
Federal Home Loan Bank and other membership stock, at cost
Loans held for sale
Loans, net of deferred fees
Less: Allowance for credit losses
Total loans, net
Premises and equipment, net
Operating lease right-of-use assets
Accrued interest receivable
Goodwill
Other identifiable intangible assets
Bank owned life insurance
Other assets
Total Assets
Liabilities and Stockholders' Equity
Liabilities
Deposits
Federal funds purchased and securities sold under agreements to repurchase
Other borrowings
Subordinated debentures
Operating lease liabilities
Other liabilities
Total Liabilities
Stockholders’ Equity
Common stock, no par value; authorized 100,000,000 shares; issued 50,737,400
shares and outstanding 50,606,365 shares at December 31, 2021, and issued
50,610,681 shares and outstanding 50,479,646 shares at December 31, 2020
Retained earnings
Treasury shares, at cost, 131,035 shares at December 31, 2021 and December 31,
2020
Accumulated other comprehensive income
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
The accompanying notes are an integral part of these statements.
-45-
$
$
$
$
$
199,158
29,372
228,530
769,956
824,956
17,368
9,049
1,943
5,976,148
58,047
5,918,101
45,916
15,222
19,209
156,277
2,420
117,356
71,753
8,198,056
6,965,823
106,453
25,000
179,043
16,523
78,200
7,371,042
$
$
262,327
7,763
270,090
855,746
90,766
14,694
11,979
1,335
6,021,232
71,124
5,950,108
48,495
16,772
19,339
156,277
3,288
115,115
110,293
7,664,297
6,455,783
169,560
25,000
118,257
18,183
113,730
6,900,513
565,862
259,340
(1,452)
3,264
827,014
8,198,056
$
562,421
191,418
(1,452)
11,397
763,784
7,664,297
Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
Interest Income
Loans and fees
Federal funds sold and interest-bearing deposits with banks
Taxable investment securities and other
Tax-exempt investment securities
Total Interest Income
Interest Expense
Deposits
Federal funds purchased and securities sold under agreements to
repurchase
Other borrowings
Total Interest Expense
Net Interest Income
(Benefit) provision for credit losses (1)
Net Interest Income after (Benefit) Provision for Credit
Losses
Noninterest Income
Service charges on deposit accounts
Commissions and fees
Income on bank owned life insurance
(Loss) gain on equity securities
Gains on sales of loans
Gains on investment securities transactions, net
Swap income
Other income
Total Noninterest Income
Noninterest Expense
Compensation and employee benefits
Premises and equipment
FDIC insurance expense
Data processing expense
Merger related expenses
Other operating expenses
Total Noninterest Expense
Income before provision for income taxes
Provision for income taxes
Net Income
Per Share of Common Stock
Basic earnings
Diluted earnings
Cash dividends paid
Years Ended December 31,
2020
2019
2021
$
$
$
$
$
237,037
440
17,208
2,633
257,318
16,793
78
5,612
22,483
234,835
(10,896)
245,731
9,856
6,939
2,676
(285)
2,264
9
634
268
22,361
82,589
24,773
2,341
5,454
1,782
23,818
140,757
127,335
32,294
95,041
1.85
1.85
0.53
$
$
$
$
$
229,036
348
17,811
1,647
248,842
32,059
556
8,540
41,155
207,687
27,222
180,465
9,148
5,868
2,657
(552)
3,322
1,213
4,719
735
27,110
76,470
21,871
2,123
4,964
—
27,370
132,798
74,777
17,259
57,518
1.13
1.13
0.50
$
$
$
$
$
233,535
1,720
19,722
1,510
256,487
49,248
1,471
9,734
60,453
196,034
2,130
193,904
11,205
6,230
2,740
496
1,660
—
3,231
1,234
26,796
75,347
19,710
431
4,913
3,178
23,177
126,756
93,944
23,272
70,672
1.39
1.38
0.49
(1) The Company adopted ASU 2016-13 as of December 31, 2020. Prior year periods have not been restated.
The accompanying notes are an integral part of these statements.
-46-
Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the Years Ended December 31,
2020
2019
2021
$
95,041
$
57,518
$
70,672
(10,651)
(6)
2,784
(265)
(25)
30
(8,133)
86,908
$
10,338
(872)
—
—
(292)
(25)
9,149
66,667
$
10,718
—
—
—
(586)
(46)
10,086
80,758
$
(in thousands)
Net Income
Other Comprehensive Income (Loss), Net of Tax:
Unrealized (losses) gains on securities available for sale
Reclassification for securities gains included in net income
Net gain on securities reclassified from available for sale to held to
maturity
Amortization of gain on debt securities reclassified to held to
maturity
Unrealized losses on derivatives
Change in pension liability, net
Other comprehensive (loss) income
Total Comprehensive Income
The accompanying notes are an integral part of these statements.
-47-
Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 2021, 2020 and 2019
(in thousands)
Common
Stock
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance at January 1, 2019
$
514,703
$
116,874
$
— $
(7,838) $
623,739
Cumulative adjustment for adoption of ASU 842
Net income
Other comprehensive income, net of tax
Issuance of stock for Highlands acquisition
Stock based compensation
Retirement of restricted stock
Exercise of stock options
Cash dividends on common stock
Balance at December 31, 2019
Cumulative adjustment for adoption of ASU
2016-13
Net income
Other comprehensive income, net of tax
Treasury stock
Stock based compensation
Retirement of restricted stock
Cash dividends on common stock
Balance at December 31, 2020
Net income
Other comprehensive loss, net of tax
Stock based compensation
Retirement of restricted stock
Exercise of stock options
Cash dividends on common stock
Balance at December 31, 2021
—
—
—
43,417
2,545
(715)
313
—
125
70,672
—
—
—
—
—
(24,919)
—
—
—
—
—
—
—
—
—
—
10,086
—
—
—
—
—
125
70,672
10,086
43,417
2,545
(715)
313
(24,919)
$
560,263
$
162,752
$
— $
2,248
$
725,263
—
—
—
—
2,659
(501)
(3,395)
57,518
—
—
—
—
—
(25,457)
—
—
—
(1,452)
—
—
—
—
—
9,149
—
—
—
—
(3,395)
57,518
9,149
(1,452)
2,659
(501)
(25,457)
$
562,421
$
191,418
$
(1,452) $
11,397
$
763,784
—
—
4,073
(651)
19
—
95,041
—
—
—
—
(27,119)
—
—
—
—
—
—
—
(8,133)
—
—
—
—
95,041
(8,133)
4,073
(651)
19
(27,119)
$
565,862
$
259,340
$
(1,452) $
3,264
$
827,014
The accompanying notes are an integral part of these statements.
-48-
Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
d
activities:
Net (accretion) amortization of premiums, discounts and deferred loan fees
Depreciation and amortization
Amortization of intangible assets
Amortization of operating lease right-of-use assets
(Benefit) provision for credit losses
Stock-based compensation
Loans originated for sale
Proceeds from sales of loans held for sale
Gains on investment securities transactions, net
Gains on sales of loans held for sale
Income on bank owned life insurance
Gain on death benefit from bank owned life insurance
Change in fair value of equity securities
(Gains) losses on other real estate and other repossessed assets
Loss on sale of premises and equipment
Long-term debt prepayment penalty
Long-term debt extinguishment costs
Deferred tax expense (benefit)
Excess tax (deficiencies) benefits
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Net cash acquired in acquisitions
Proceeds from repayments and maturities of available for sale securities
Proceeds from repayments and maturities of held to maturity securities
Proceeds from sales of equity securities
Proceeds from sales of available for sale securities
Purchase of available for sale securities
Purchase of held to maturity securities
Purchase of equity securities
Proceeds from redemptions of Federal Home Loan Bank stock
Purchases of Federal Home Loan Bank stock
Death benefit proceeds from bank owned life insurance
Net decrease (increase) in loans
Proceeds from sales of loans previously held for investment
Proceeds from dispositions and sales of bank premises and equipment
Purchases of premises and equipment
Proceeds from sales of other real estate and other repossessed assets
Net Cash Used in Investing Activities:
-49-
Years Ended December 31,
2020
2019
2021
$
95,041
$
57,518
$
70,672
(3,981)
5,126
868
2,267
(10,896)
4,073
(56,956)
58,612
(9)
(2,264)
(2,550)
(126)
285
(32)
281
—
831
5,422
(89)
36,589
(37,389)
95,103
—
181,706
66,709
—
4,402
(611,589)
(310,128)
(2,959)
13,817
(10,887)
470
35,945
21,765
278
(4,851)
32
(615,290)
(728)
3,858
1,025
2,668
27,222
2,659
(113,203)
116,933
(1,213)
(3,322)
(2,657)
—
552
(88)
77
4,133
—
(6,763)
(132)
(53,982)
50,434
84,991
—
700,409
38,941
4,148
130,912
(921,343)
(6,377)
(2,772)
106,808
(96,282)
—
(876,021)
—
50
(7,539)
1,044
(928,022)
3,660
1,645
1,182
2,592
2,130
2,545
(57,605)
59,748
—
(1,660)
(2,740)
—
(496)
72
497
—
—
2,854
189
(13,246)
15,092
87,131
13,454
147,130
31,457
1,287
—
(211,503)
(21,453)
(1,343)
95,643
(103,080)
121
(252,441)
—
1,827
(5,936)
860
(303,977)
Years Ended December 31,
2020
2019
2021
510,077
1,162,206
264,279
(63,107)
—
—
—
147,738
(88,330)
19
(651)
(27,119)
478,627
(41,560)
270,090
228,530
29,111
23,372
494,164
21,689
—
—
—
717
$
$
(159,098)
25,000
(169,948)
(1,452)
—
—
—
(501)
(25,457)
830,750
(12,281)
282,371
270,090
22,486
42,600
—
—
393
—
—
1,159
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
94,753
46,260
(89,353)
—
—
—
313
(715)
(24,919)
290,618
73,772
208,599
282,371
15,944
59,949
—
—
665
18,651
20,203
1,748
1,767
22,734
426,118
23,125
9,304
483,048
409,638
40,957
2,490
453,085
43,417
(in thousands)
Cash Flows from Financing Activities:
Net increase in deposits
(Decrease) increase in federal funds purchased and securities sold under
agreements to repurchase
Proceeds from other borrowings
Repayments of other borrowings
Purchase of treasury stock
Net proceeds from issuance of subordinated debt
Redemption of subordinated debentures
Exercise of stock options
Retirement of restricted stock
Dividends paid
Net Cash Provided by Financing Activities:
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes
Cash paid during the period for interest
Transfer of debt securities to held to maturity at fair value
Transfer of loans to loans held for sale
Transfer of loans into other real estate owned
Initial recognition of operating lease right-of-use assets
Initial recognition of operating lease liabilities
Right-of-use assets obtained in exchange for new lease liabilities
Acquisitions:
Non-cash assets acquired:
Federal Home Loan Bank stock
Investment securities
Loans, including loans held for sale
Goodwill and other intangible assets, net
Other assets
Total non-cash assets acquired
Liabilities assumed:
Deposits
Other borrowings
Other liabilities
Total liabilities assumed
Common stock issued for acquisitions
The accompanying notes are an integral part of these statements.
-50-
Lakeland Bancorp, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Lakeland Bancorp, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and
management of its wholly owned subsidiary, Lakeland Bank (“Lakeland”). Lakeland operates under a state bank charter and
provides full banking services and, as a state bank, is subject to regulation by the New Jersey Department of Banking and
Insurance and the Federal Deposit Insurance Corporation. Lakeland generates commercial, mortgage and consumer loans and
receives deposits from customers located primarily in northern and central New Jersey and the metropolitan New York area.
Lakeland also provides non-deposit products, such as securities brokerage services including mutual funds, variable annuities
and insurance.
Lakeland operates as a commercial bank offering a wide variety of commercial loans and, to a lesser degree, consumer
credits. Its primary strategic aim is to establish a reputation and market presence as the “small and middle market business
bank” in its principal markets. Lakeland funds its loans primarily by offering demand deposit, savings and money market, and
time deposit accounts to commercial enterprises, individuals and municipalities in the communities we serve. Additionally, it
originates residential mortgage loans, and services such loans which are owned by other investors. Lakeland also has an
equipment finance division which provides loans to finance equipment primarily to small and medium-sized business clients
and an asset-based lending department which specializes in utilizing particular assets to fund the working capital needs of
borrowers.
The Company and Lakeland are subject to regulations of certain state and federal agencies and, accordingly, are
periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking
activities, Lakeland’s business is particularly susceptible to being affected by state and federal legislation and regulations.
Basis of Financial Statement Presentation
The accounting and reporting policies of the Company and its subsidiaries conform with U.S.generally accepted
accounting principles (“U.S. GAAP”) and predominant practices within the banking industry. The consolidated financial
statements include the accounts of the Company, Lakeland, Lakeland NJ Investment Corp., Lakeland Investment Corp.,
Lakeland Equity, Inc. and Lakeland Preferred Equity, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain reclassifications have been made in the consolidated financial statements to conform with
current year classifications.
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. The principal estimate that is particularly susceptible to significant change in
the near term relates to the allowance for credit losses. The policies regarding this estimate are discussed below.
The Company’s chief operating decision maker is its Chief Executive Officer. All of the Company’s financial services
activities are interrelated and each activity is dependent and assessed based on how each of the activities of the Company
supports the others. For example, commercial lending is dependent upon the ability of the Company to fund itself with deposits
and other borrowings and to manage interest rate and credit risk. The situation is also similar for consumer and residential
the Company primarily operates in one market area, northern and central New Jersey,
mortgage lending. Moreover,
metropolitan New York and contiguous areas. Therefore, all significant operating decisions are based upon analysis of the
Company as one operating segment or unit. Accordingly, the Company has determined that it has one operating segment and
thus one reporting segment.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, cash items in the process of collection, amounts due from
banks and federal funds sold with an original maturity of three months or less. A portion of Lakeland’s cash on hand and on
deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.
Securities
Debt investment securities are classified as held to maturity or available for sale. Management determines the
appropriate classification of securities at the time of purchase. Investments in securities, for which management has both the
ability and intent to hold to maturity, are classified as held to maturity and carried at cost, adjusted for the amortization of
premiums and accretion of discounts computed by the effective interest method. Investments in debt securities, which
management believes may be sold prior to maturity due to changes in interest rates, prepayment risk, liquidity requirements or
other factors, are classified as available for sale. Net unrealized gains and losses for such securities, net of tax effect, are
reported as other comprehensive income or loss in stockholders' equity and excluded from the determination of net income.
-51-
Gains or losses on disposition of securities are based on the net proceeds and the adjusted carrying amount of the securities sold
using the specific identification method.
For securities available for sale, the Company adopted Accounting Standards Update ("ASU") 2016-13 - Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") on
December 31, 2020, effective January 1, 2020, which eliminates the concept of other than temporary impairment and instead
requires entities to determine if impairment is related to credit loss or non-credit loss. In making the assessment of whether a
loss is from credit or other factors, management considers the extent to which fair value is less than amortized cost, any changes
to the rating of the security by a rating agency and adverse conditions related to the security, among other factors. If this
assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are
compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost basis, a
credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis.
Subsequent activity related to the credit loss component in the form of write-offs or recoveries is recognized as part of the
allowance for credit losses on securities available for sale.
The allowance for credit losses on held-to-maturity debt securities under ASU 2016-13 is initially recognized upon
acquisition of the securities, and subsequently remeasured on a recurring basis. Held-to-maturity securities are reviewed upon
acquisition to determine whether it has experienced a more-than-insignificant deterioration in credit quality since its original
issuance date, i.e., if they meet the definition of a purchased credit impaired asset (“PCDs”). Non-PCD held-to-maturity
securities are carried at cost and adjusted for amortization of premiums or accretion of discounts. Expected credit losses on
held-to-maturity debt securities through the life of the financial instrument are estimated and recognized as an allowance for
credit losses on the balance sheet with a corresponding adjustment to current earnings. Subsequent favorable or adverse changes
in expected cash flow will first decrease or increase the allowance for credit losses.
Management measures expected credit losses on held to maturity securities on a collective basis by major security
type. The held to maturity portfolio is classified into the following major security types: U.S. government agencies, mortgage-
backed securities-residential, collateralized mortgage obligations-residential, mortgage-backed securities-multi-family,
collateralized mortgage obligations-multi-family and obligations of states and political subdivisions. All of the mortgage-
backed securities are issued by U.S. government agencies and are either explicitly or implicitly guaranteed by the U.S.
government, are highly rated by major rating agencies and have a long history of no credit losses and, therefore, the expectation
of non-payment is zero.
At each reporting period, the Company evaluates whether the securities in a segment continue to exhibit similar risk
characteristics as the other securities in the segment. If the risk characteristics of a security change, such that they are no longer
similar to other securities in the segment, the Company will evaluate the security with a different segment that shares more
similar risk characteristics. A range of historical losses method is utilized in estimating the net amount expected to be collected
for mortgage-backed securities, collateralized mortgage obligations and obligations of states and political subdivisions.
A debt security, either available for sale or held to maturity, is designated as non-accrual if the payment of interest is
past due and unpaid for 30 days or more. Once a security is placed on non-accrual, accrued interest receivable is reversed and
further interest income recognition is ceased. Since the non-accrual policy results in a timely reversal of interest receivable, the
Company does not record an allowance for credit losses on interest receivable. The security will not be restored to accrual status
until the security has been current on interest payments for a sustained period, i.e., a consecutive period of six months or two
quarters; and the Company expects repayment of the remaining contractual principal and interest. However, if the security
continues to be in deferral status, or the Company does not expect to collect the remaining interest payments and the contractual
principal, charge-off is to be assessed. Upon charge-off, the allowance is written off and the loss represents a permanent write-
down of the cost basis of the security. The Company made the election to exclude accrued interest receivable on securities from
the estimate of credit losses. Accrued interest receivable totaled $5.3 million and $3.3 million on securities at December 31,
2021 and 2020, respectively.
Prior to January 1, 2020, we regularly evaluated our debt securities to determine whether there have been any events or
economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment. A debt
security was considered impaired if the fair value was less than its amortized cost basis at the reporting date. If impaired, the
Company then assessed whether the unrealized loss was other-than-temporary. An unrealized loss on a debt security was
generally deemed to be other-than-temporary and a credit loss was deemed to exist if the present value, discounted at the
security’s effective rate, of the expected future cash flows was less than the amortized cost basis of the debt security. As a
result, the credit loss component of an other-than-temporary impairment write-down for debt securities was recorded in
earnings while the remaining portion of the impairment loss was recognized, net of tax, in other comprehensive income
provided that the Company did not intend to sell the underlying debt security and it was more-likely-than not that the Company
would not have to sell the debt security prior to recovery of the unrealized loss, which may be to maturity. If the Company
intended to sell any securities with an unrealized loss or it was more-likely-than not that the Company would be required to sell
the investment securities, before recovery of their amortized cost basis, then the entire unrealized loss would be recorded in
earnings.
-52-
The Company has an equity securities portfolio which consists of investments in Community Reinvestment funds and
investments in other financial institutions for market appreciation purposes. During the fourth quarter of 2020, the Company
sold the remainder of its investments in other financial institutions. Net unrealized gains and losses for this portfolio are
recognized through net income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are
carried at the amount of unpaid principal and are net of unearned discount, unearned loan fees and an allowance for credit
losses. The Company elected to exclude accrued interest receivable balances from the amortized cost basis. Interest receivable
is included as a separate line item on the consolidated balance sheets. The Company also elected not to estimate an allowance
on interest receivable balances because it has policies in place that provide for the accrual of interest to cease on a timely basis
when all contractual amounts due are not expected and accrued and unpaid interest is reversed.
Interest income is accrued as earned on a simple interest basis, adjusted for prepayments. All unamortized fees and
costs related to the loan are amortized over the life of the loan using the interest method. Accrual of interest is discontinued on a
loan when management believes, after considering economic and business conditions and collection efforts, that the borrower’s
financial condition is such that full collection of interest and principal is doubtful. When a loan is placed on such non-accrual
status, all accumulated accrued interest receivable is reversed out of current period income.
At the time of adoption of ASU 2016-13, the Company expanded its portfolio of collectively assessed loans to include
nine portfolio segments, taking into consideration common loan attributes and risk characteristics, as well as historical reporting
metrics and data availability. Loan attributes and risk characteristics considered in segmentation include: borrower type,
repayment source, collateral type, product type, purpose or nature of financing, typical contractual maturity and repayment
terms, interest rate structure, credit management metrics, lending policies and procedures, and personnel responsible for
underwriting, approval, monitoring, and collections. The close alignment of the portfolio segments is consistent with shared
drivers of credit loss (e.g., unemployment, interest rates, property values, etc.) expected among loans within the various
segments.
The nine segments include:
1. Non-owner Occupied Commercial: Permanent mortgages extended to investors and secured by non-owner
occupied commercial real estate, such as office, retail, industrial and mixed-use properties. Primary source of
repayment for these loans is rental income. These loans are generally originated with contractual terms of up to
ten years with amortization based on a 25-year schedule. They are generally fully advanced with no unfunded
commitment.
2. Owner Occupied Commercial: Permanent mortgages extended to businesses and secured by owner occupied
commercial real estate, such as office, retail, and industrial properties. Primary source of repayment for these
loans is operating cash flow. These loans are generally originated with contractual terms of up to ten years with
amortization based on a 25-year schedule. They are generally fully advanced with no unfunded commitment.
3. Multifamily: Permanent mortgages extended to investors and secured by multifamily residential real estate.
Primary source of repayment for these loans is rental income. These loans are generally originated with
contractual terms of up to ten years with amortization based on a 30-year schedule. They are generally fully
advanced with no unfunded commitment.
4. Non-owner Occupied Residential: Permanent mortgages extended to investors and secured by one to four family
residential real estate. Primary source of repayment for these loans is rental income. These loans are generally
originated with contractual terms of up to ten years with amortization based on a 25-year schedule. They are
generally fully advanced with no unfunded commitment.
5. Commercial, Industrial and Other: Commercial loans extended to businesses. These loans may be either unsecured
or secured by various types of collateral, such as accounts receivable, inventory, equipment, and/or real estate.
Primary source of repayment for these loans is operating cash flow. These loans are generally originated with
terms of one to seven years and may be used for working capital (i.e. revolving lines of credit) or purchase of
fixed assets (i.e. term loans). This category includes loans originated under the Small Business Administration's
("SBA") Paycheck Protection Program ("PPP"), which has no corresponding allowance for credit loss because
they are 100% guaranteed by the SBA.
6. Construction: Interim loans for the development or construction of commercial or residential property. Repayment
may come from either the sale or refinance of the real estate that secures the loan. These loans are typically
originated with a term of one to three years with interest-only payments. These loans are advanced as development
or construction progresses and usually reflect an unfunded commitment during the loan term.
-53-
7. Equipment Finance: Term financing extended to businesses. These loans are typically originated for the purchase
of fixed assets, such as machinery, equipment, and vehicles and are secured by the acquired assets. Primary source
of repayment for these loans is operating cash flow. These loans are generally originated with terms of three to
five years with repayment in equal monthly installments over the term of the loan.
8. Residential: Permanent mortgages extended to consumers and secured by owner occupied one to four family
residential real estate held in portfolio. Primary source of repayment for these loans is personal income. These
loans are generally originated with contractual terms of 15 to 30 years and are fully amortizing over their term.
They are fully advanced at closing with no unfunded commitment.
9. Consumer: Loans extended to consumers with primary source of repayment being personal
income. The
Consumer segment includes home equity lines of credit, closed-end home equity loans (secured by both first and
junior liens) and other consumer loans, such as automobile and revolving credit plans.
Commercial loans are placed on non-accrual status with all accrued interest and unpaid interest reversed if (a) because
of the deterioration in the financial position of the borrowers 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 and closed-end consumer 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 the loans are well-secured and in the process of collection.
Open-end consumer loans secured by real estate are generally placed on non-accrual 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 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.
With the adoption of ASU 2016-13, loans acquired in a business combination that have experienced a more-than-
significant deterioration in credit quality since origination are considered purchased credit deteriorated ("PCD") loans.
Management evaluates acquired loans for deterioration in credit quality based on the following: (a) non-accrual status; (b)
troubled debt restructured designation; (c) risk rating lower than "Pass," and (d) delinquency status. At the acquisition date, an
estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans
without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the
purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial
allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD
loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to
noncredit factors and results in a discount or premium, which is recognized through interest income on a level-yield basis over
the lives of the related loans. All loans considered to be purchased credit-impaired ("PCI") prior to the adoption of ASU
2016-13 were converted to PCD upon adoption.
For acquired loans not deemed to be PCD at acquisition, the differences between the initial fair value and the unpaid
principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition
date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense. The subsequent
measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit
losses for originated loans.
Allowance for Credit Losses
Upon the adoption of ASU 2016-13, the allowance for credit losses reserve including the allowance for the funded
portion and the reserve for the unfunded portion, represents management’s estimate of current expected credit losses in the
Company’s loan portfolio over its expected life, which is the contract term adjusted for expected prepayments and options to
extend the contractual term that are not unconditionally cancellable by us. Management’s measurement of expected credit
losses is based on relevant information about past events, current conditions, prepayments and reasonable and supportable
forecasts of future economic conditions. It is presented as an offset to the amortized cost basis or as a separate liability in the
case of off-balance-sheet credit exposures. The Company uses an open pool loss-rate method to calculate an institution-specific
historical loss rate based on historical loan level loss experience for collectively assessed loans with similar risk characteristics.
The Company’s methodology considers relevant information about past and current economic conditions, as well as a single
economic forecast over a reasonable and supportable period. The loss rate is applied over the remaining life of loans to develop
a “baseline lifetime loss.” The baseline lifetime loss is adjusted for changes in macroeconomic variables, including but not
limited to interest rates, housing prices, GDP and unemployment, over the reasonable and supportable forecast period. After the
reasonable and supportable forecast period, the adjusted loss rate reverts on a straight-line basis to the historical loss rate. The
reasonable and supportable forecast and the reversion periods are established for each portfolio segment. The Company
measures expected credit losses of financial assets by multiplying the adjusted loss rates to the amortized cost basis of each
-54-
asset taking into consideration amortization, prepayment and defaults. Changes in any of these factors, assumptions or the
availability of new information, could require that the allowance be adjusted in future periods, perhaps materially.
Qualitative Adjustments: The Company considers five standard qualitative general reserve factors ("qualitative
adjustments"): nature and volume of loans, lending management, policy and procedures, independent review and changes in
environment. Qualitative adjustments are designed to address risks that are not captured in the quantitative reserves
(“quantitative reserve”). Other qualitative adjustments or model overlays may also be recorded based on expert credit judgment
in circumstances where, in the Company’s view, the standard qualitative reserve factors do not capture all relevant risk factors.
The use of qualitative reserves may require significant judgment that may impact the amount of allowance recognized.
Prior to the adoption of ASU 2016-13, the allowance for loan losses was determined in accordance with previous
applicable U.S. GAAP and was the estimated amount considered necessary to cover probable and reasonably estimable incurred
losses inherent in the loan portfolio at the balance sheet date. In determining the allowance, management would make
significant estimates and judgments. The allowance was established through a provision for loan losses charged against income.
Loan principal considered to be uncollectible by management was charged against the allowance. Management believed that the
allowance was adequate to cover identifiable losses, as well as estimated losses inherent in the portfolio for which certain losses
are probable but not specifically identifiable.
When an individual loan no longer demonstrates the similar credit risk characteristics as other loans within its current
segment, the Company evaluates each for expected credit losses on an individual basis. All non-accrual loans $500,000 and
above and all loans designated as troubled debt restructured loans (“TDRs”) are individually evaluated. For collateral-
dependent loans, the Company considers the fair value of the collateral, net of anticipated selling costs and other adjustments.
For non collateral-dependent individually evaluated loans, the impairment will be measured using the present value of expected
future cash flows discounted at the loan's effective interest rate. Shortfalls in collateral or cash flows are charged-off or
specifically reserved for in the period the short-fall is identified. Charge-offs are recommended by the Chief Credit Officer and
approved by the Company's Board of Directors.
TDRs are those loans where significant concessions have been made to borrowers experiencing financial difficulties.
Restructured loans typically involve a modification of terms such as a reduction of the stated interest rate lower than the current
market rate of a new loan with similar risk, an extended moratorium of principal payments and/or an extension of the maturity
date. Insignificant delays in payments are not considered TDRs. Loans that are classified as TDRs will continue to be classified
as a TDR until it is fully repaid or until it meets all of the following criteria: 1) the borrower is no longer experiencing financial
difficulties, 2) the rate is not less than the rate provided for similar credit risk, 3) other terms are no less favorable than similar
new debt and 4) no concessions were granted. Prior to the adoption of ASU 2016-13, all loans with the TDR designation were
considered to be impaired, even if they were accruing. With the adoption of ASU 2016-13, the definition of impaired loans was
removed from accounting guidance.
To identify loans which meet the definition of a reasonably expected TDR under ASC 326-20, the Company has
determined the following criteria to be used in assessing whether a loan is considered a reasonably expected TDR:
•
•
•
•
A loan with a risk rating of Special Mention, or worse;
A loan identified as a foreclosure in process;
Indicated via review and assessment that a modification is probable; and
A modification approved, on a net concession/modification basis, that benefits the customer.
The methods for estimating expected credit losses on reasonably expected TDRs are the same as those specified for
existing TDRs. Reasonably expected TDR’s $500,000 and above that are anticipated to remain on accrual status will normally
have their reserves determined using the discounted cash flow method, while those below $500,000 will be included in, and be
assessed as part of, the population of collectively evaluated pooled loans. Reasonably expected TDRs that are anticipated to be
placed on non-accrual status will be considered collateral-dependent.
Section 4013 of the CARES Act, as interpreted by the "Interagency Statement on Loan Modifications and Reporting
for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)" (“Revised Statement”), dated April
17, 2020, includes criteria that enable financial institutions to exclude from TDR status loans that are modified in connection
with COVID-19. Under these provisions, TDR status is not required for the term of a loan modification if (i) the loan
modification was made in connection with COVID-19, (ii) the loan was not past due more than 30 days as of December 31,
2019 and (iii) the loan modification was entered into during the period between March 1, 2020, and the earlier of (a) 60 days
after COVID-19 was no longer characterized as a National Emergency or (b) December 31, 2020. In December 2020, CAA
extended this guidance to modifications made until the earlier of January 1, 2022 or 60 days after the end of the COVID-19
national emergency. Furthermore, pursuant to the Revised Statement, for loan modifications that do not meet these criteria but
are made in connection with COVID-19, such loans may be presumed not to be TDR if the loan was current at the time the loan
modification program was implemented and the modifications are short-term (e.g., six months). If the criteria are not met under
either Section 4013 or the Revised Statement, banks are required to follow their existing accounting policies to determine
-55-
whether COVID-related modifications should be accounted for as a TDR. The Company has elected to suspend the
classification of loan modifications as TDR if they qualify under Section 4013 or the Revised Statement. For past due status, the
CARES Act also provides for lenders to continue to report loans in the same delinquency bucket they were in at the time of
modification. The Company applied this guidance beginning in 2020.
Prior to the adoption of ASU 2016-13, the Company defined impaired loans, a concept that is eliminated in Topic 326,
as all non-accrual loans with recorded investments of $500,000 or greater. Impaired loans also included all loans modified as
troubled debt restructurings. Loans were considered impaired when, based on current information and events, it was probable
that Lakeland would 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 was measured based on the present value of expected cash flows discounted at the loan’s effective interest
rate, or as a practical expedient, Lakeland measured impairment based on a loan’s observable market price, or the fair value of
the collateral, less estimated costs to sell, if the loan was collateral-dependent. Regardless of the measurement method,
Lakeland measured impairment based on the fair value of the collateral when it was determined that foreclosure was probable.
Most of Lakeland’s impaired loans were collateral-dependent. Shortfalls in collateral or cash flows were charged-off or
specifically reserved for in the period the short-fall was identified. Charge-offs were recommended by the Chief Credit Officer
and approved by the Company's Board of Directors.
Lakeland grouped impaired commercial loans under $500,000 into homogeneous pools and collectively evaluated
them. Interest received on impaired loans was recorded as interest income. However, if management was not reasonably certain
that an impaired loan would be repaid in full, or if a specific time frame to resolve full collection could not yet be reasonably
determined, all payments received were recorded as reductions of principal.
A loan that management designated as impaired was reviewed for charge-off when it was placed on non-accrual status
with a resulting charge-off if the loan was not secured by collateral having sufficient liquidation value to repay the loan if the
loan was collateral dependent or charged off if deemed uncollectible. For a loan that was not collateral dependent, a reserve
would be established for any shortfall in expected cash flows. Charge-offs were recommended by the Chief Credit Officer and
approved by the Board of Directors.
Off-Balance Sheet Credit Exposures
The Company is required to include the unfunded commitment that is expected to be funded in the future within the
allowance calculation. The Company participates in lending that results in an off-balance-sheet unfunded commitment balance.
Funding commitments are currently underwritten with conditionally cancellable language by the Company. To determine the
expected funding balance remaining, the Company uses a historical utilization rate for each of the segments to calculate the
expected commitment balance and determines the expected credit loss based on the same method used to calculate the
quantitative reserve for funded loans, applied to the expected balance over the remaining life of the loan, taking into
consideration amortization, prepayments and defaults. The allowance for credit reserve for unfunded lending commitments is
recorded in other liabilities in the consolidated balance sheets and the corresponding provision is included in the provision for
credit losses. Prior to the adoption of ASU 2016-13, the Company recorded a provision for unfunded lending commitments in
its other noninterest expense in the consolidated statements of income.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or
estimated fair value. Gains and losses on sales of loans are specifically identified and accounted for in accordance with U.S.
GAAP which requires that an entity engaged in mortgage banking activities classify the retained mortgage-backed security or
other interest, which resulted from the securitization of a mortgage loan held for sale, based upon its ability and intent to sell or
hold these investments.
Premises and Equipment, Net
Premises and equipment,
less accumulated depreciation.
Depreciation expense is computed on the straight-line method over the estimated useful lives of the assets. Leasehold
improvements are depreciated over the shorter of the estimated useful lives of the improvements or the terms of the related
leases.
including leasehold improvements, are stated at cost
Other Real Estate Owned and Other Repossessed Assets
Other real estate owned ("OREO") and other repossessed assets, representing property acquired through foreclosure
(or deed-in-lieu-of-foreclosure), are carried at fair value less estimated disposal costs of the acquired property. Costs relating to
holding the assets are charged to expense. An allowance for OREO or other repossessed assets is established, through charges
to expense, to maintain properties at fair value less estimated costs to sell. Operating results of OREO and other repossessed
assets, including rental income and operating expenses, are included in other expenses.
-56-
Mortgage Servicing
Lakeland performs various servicing functions on loans owned by others. A fee, usually based on a percentage of the
outstanding principal balance of the loan, is received for these services. At December 31, 2021 and 2020, Lakeland was
servicing approximately $35.3 million and $34.1 million, respectively, of loans for others.
Lakeland originates certain mortgages under a definitive plan to sell those loans and service the loans owned by the
investor. Upon the transfer of the mortgage loans in a sale, Lakeland records the servicing assets retained. Lakeland records
mortgage servicing rights and the loans based on relative fair values at the date of origination and evaluates the mortgage
servicing rights for impairment at each reporting period. Lakeland also originates loans that it sells to other banks and investors
and does not retain the servicing rights.
Mortgage Servicing Rights
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the
income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage
servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated
future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which
requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future
net servicing income of the underlying loans. As of December 31, 2021 and 2020, Lakeland had originated mortgage servicing
rights of $188,000 and $129,000, respectively.
Under the amortization measurement method, Lakeland subsequently measures servicing rights at fair value at each
reporting date and records any impairment in value of servicing assets in earnings in the period in which the impairment occurs.
The fair values of servicing rights are subject to fluctuations as a result of changes in estimated and actual prepayment speeds
and default rates and losses. Servicing fee income, which is reported on the income statement as commissions and fees, is
recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a
fixed amount per loan, and are recorded as income when earned.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control
over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, put
presumptively beyond the reach of the transferor and its creditors even in bankruptcy or other receivership, (2) the transferee
obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred
assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity or the ability to unilaterally cause the holder to return specific assets.
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 swap income.
The credit risk associated with derivatives executed with customers is similar as that involved in extending loans and is
subject to normal credit policies. Collateral is obtained based on management’s assessment of the customer. The positions of
customer derivatives are recorded at fair value and changes in value are included in swap income on the consolidated statement
of income.
Cash flow hedges are used primarily to minimize the variability in cash flows of assets or liabilities, or forecasted
transactions caused by interest rate fluctuations. Changes in the fair value of derivatives designated as cash flow hedges are
recorded in accumulated other comprehensive income and are reclassified into the line item in the income statement in which
the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on
the component of a derivative excluded in assessing hedge effectiveness are recorded in the same income statement line item.
Further discussion of Lakeland’s financial derivatives is set forth in Note 20 to the Consolidated Financial Statements.
Earnings Per Share
Earnings per share is calculated on the basis of the weighted average number of common shares outstanding during the
year. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the
weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential
dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common
stock.
-57-
Employee Benefit Plans
The Company has certain employee benefit plans covering substantially all employees. The Company accrues such
costs as incurred. We recognize the overfunded or underfunded status of pension and postretirement benefit plans in accordance
with U.S. GAAP. Actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations are
recognized as a component of Accumulated Other Comprehensive Income, net of tax effects, until they are amortized as a
component of net periodic benefit cost.
Comprehensive Income (Loss
The Company reports comprehensive income (loss) in addition to net income from operations. Other comprehensive
income or loss includes items recorded directly in equity such as unrealized gains or losses on securities available for sale, net
gain on securities transferred from available for sale to held to maturity and unrealized gains or losses recorded on derivatives
and benefit plans.
Goodwill and Other Identifiable Intangible Assets
Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill and other
intangible assets. On January 1, 2020, we adopted ASU 2017-04, “Simplifying the Test for Goodwill Impairment” which
simplifies how an entity is required to test goodwill for impairment. The guidance removed step two of the goodwill
impairment test, which had required a hypothetical purchase price allocation. The ASU does not change the optional qualitative
assessment which allows companies to assess qualitative factors to determine whether it is more likely than not that the carrying
amount of a reporting unit exceeds its fair value, commonly referred to as the qualitative assessment or step zero. Goodwill is
allocated to Lakeland's one reporting unit at the date goodwill is actually recorded.
As of December 31, 2021, the carrying value of goodwill totaled $156.3 million. The Company performed its annual
goodwill impairment test, as of November 30, 2021, and determined that the fair value of the Company’s single reporting unit
to be in excess of its carrying value. The Company qualitatively assessed the current economic environment, including the
estimated impact of the COVID-19 pandemic on macroeconomic variables and economic forecasts, and on the Company's
stock price, considering how these might impact the fair value of its reporting unit. After consideration of these items, the
Company determined that it was more-likely-than-not that the fair value of its reporting unit was above its book value as of our
goodwill impairment test date. The Company will test goodwill for impairment between annual test dates if an event occurs or
circumstances change that would indicate the fair value of the reporting unit is below its carrying amount. No events have
occurred and no circumstances have changed since the annual impairment test date that would indicate the fair value of the
reporting unit is below its carrying amount.
Bank Owned Life Insurance
Lakeland invests in bank owned life insurance (“BOLI”). BOLI involves the purchasing of life insurance by Lakeland
on a chosen group of employees. Lakeland is the owner and beneficiary of the policies. At December 31, 2021 and 2020,
Lakeland had $117.4 million and $115.1 million, respectively, in BOLI. Income earned on BOLI was $2.7 million for the each
of the years ended December 31, 2021, 2020 and 2019. BOLI is accounted for using the cash surrender value method and is
recorded at its net realizable value.
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 credit losses, core deposit intangibles, deferred loan fees and
deferred compensation.
Variable Interest Entities
Management has determined that Lakeland Bancorp Capital Trust II and Lakeland Bancorp Capital Trust IV
(collectively, “the Trusts”) qualify as variable interest entities. The Trusts issued mandatorily redeemable preferred stock to
investors and loaned the proceeds to the Company. The Trusts hold, as their sole asset, subordinated debentures issued by the
Company. The Company is not considered the primary beneficiary of the Trusts, therefore the Trusts are not consolidated in the
Company’s financial statements.
The Company’s maximum exposure to the Trusts is $30.0 million at December 31, 2021, which is the Company’s
liability to the Trusts and includes the Company’s investment in the Trusts.
-58-
The Federal Reserve has issued guidance on the regulatory capital treatment for the trust preferred securities issued by
the Trusts. The rule retains the current maximum percentage of total capital permitted for trust preferred securities at 25%, but
enacts other changes to the rules governing trust preferred securities that affect their use as part of the collection of entities
known as “restricted core capital elements.” The rule allows bank holding companies to continue to count trust preferred
securities as Tier 1 Capital. The Company’s capital ratios continue to be categorized as “well-capitalized” under the regulatory
framework for prompt corrective action. Under the Collins Amendment to the Dodd-Frank Wall Street Reform and Consumer
Protection Act, any new issuance of trust preferred securities by the Company would not be eligible as regulatory capital.
Note 2 - Business Combinations
The Company completed its acquisition of Highlands Bancorp, Inc. ("Highlands"), a bank holding company
headquartered in Vernon, New Jersey, on January 4, 2019. Highlands was the parent of Highlands State Bank, which operated
four branches in Sussex, Passaic and Morris Counties in New Jersey. This acquisition enabled the Company to broaden its
presence in those counties.
The acquisition was accounted for under the acquisition method of accounting and accordingly, the assets acquired and
liabilities assumed in the acquisition were recorded at their estimated fair values as of the acquisition date. Highlands' assets
were recorded at their fair values as of January 4, 2019 and Highlands' results of operations are included in the Company's
Consolidated Statements of Income from that date forward.
Direct costs related to acquisitions were expensed as incurred. In 2021 and 2019, the Company recorded $1.8 million
and $3.2 million of merger and integration-related expenses, respectively, which have been separately stated in the Company’s
Consolidated Statements of Income. The Company recorded no merger related expenses in 2020.
Note 3 - Earnings Per Share
The Company uses the two class method to compute earnings per common share. Participating securities include non-
vested restricted stock and non-vested restricted stock units. The following tables present the computation of basic and diluted
earnings per share for the periods presented.
Year Ended December 31, 2021
(in thousands, except per share amounts)
Basic earnings per share
Net income available to common shareholders
Less: earnings allocated to participating securities
Net income available to common shareholders
Effect of dilutive securities
Stock options and restricted stock
Diluted earnings per share
Net income available to common shareholders plus assumed
conversions
Year Ended December 31, 2020
(in thousands, except per share amounts)
Basic earnings per share
Net income available to common shareholders
Less: earnings allocated to participating securities
Net income available to common shareholders
Effect of dilutive securities
Stock options and restricted stock
Diluted earnings per share
Net income available to common shareholders plus assumed
conversions
$
$
$
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
95,041
1,142
93,899
—
$
50,624
—
50,624
246
93,899
50,870
$
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
57,518
511
57,007
—
$
50,540
—
50,540
110
$
57,007
50,650
$
1.87
0.02
1.85
—
1.85
1.14
0.01
1.13
—
1.13
-59-
Year Ended December 31, 2019
(in thousands, except per share amounts)
Basic earnings per share
Net income available to common shareholders
Less: earnings allocated to participating securities
Net income available to common shareholders
$
Effect of dilutive securities
Stock options and restricted stock
Diluted earnings per share
Net income available to common shareholders plus assumed
conversions
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
70,672
596
70,076
—
$
50,477
—
50,477
1.40
0.01
1.39
165
(0.01)
$
70,076
50,642
$
1.38
There were no antidilutive options to purchase common stock to be excluded from the above computations.
Note 4 - Securities
The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's
investment securities available for sale are as follows:
December 31, 2021
(in thousands)
U.S. Treasury and U.S. government agencies
Mortgage-backed securities, residential
Collateralized mortgage obligations, residential
Mortgage-backed securities, multifamily
Collateralized mortgage obligations, multifamily
Asset-backed securities
Debt securities
Total
Amortized
Cost
202,961 $
238,456
191,086
1,816
32,254
52,518
49,598
768,689 $
$
$
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
1,215 $
1,250
1,693
—
511
153
959
5,781 $
(789) $
(1,731)
(1,488)
(75)
(246)
(87)
(15)
(4,431) $
December 31, 2020
— $
—
—
—
—
—
(83)
(83) $
(in thousands)
U.S. Treasury and U.S. government agencies
Mortgage-backed securities, residential
Collateralized mortgage obligations, residential
Mortgage-backed securities, multifamily
Collateralized mortgage obligations, multifamily
Asset-backed securities
Obligations of states and political subdivisions
Debt securities
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
$
$
63,868 $
224,978
204,093
1,944
39,628
40,915
228,790
35,056
839,272 $
1,447 $
3,718
4,967
—
1,909
—
5,149
616
17,806 $
(313) $
(540)
(22)
—
(2)
(225)
(228)
—
(1,330) $
— $
—
—
—
—
—
(1)
(1)
(2) $
-60-
Fair
Value
203,387
237,975
191,291
1,741
32,519
52,584
50,459
769,956
Fair
Value
65,002
228,156
209,038
1,944
41,535
40,690
233,710
35,671
855,746
The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's
investment securities held to maturity are as follows:
(in thousands)
U.S. government agencies
Mortgage-backed securities, residential
Collateralized mortgage obligations, residential
Mortgage-backed securities, multifamily
Obligations of states and political subdivisions
Debt securities
Total
(in thousands)
U.S. government agencies
Mortgage-backed securities, residential
Collateralized mortgage obligations, residential
Mortgage-backed securities, multifamily
Obligations of states and political subdivisions
Total
December 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
$
$
18,672 $
370,247
13,921
2,710
416,587
3,000
825,137 $
293 $
718
168
26
810
31
2,046 $
— $
(5,989)
—
(2)
(5,800)
—
(11,791) $
December 31, 2020
— $
—
—
—
(21)
(160)
(181) $
Fair
Value
18,965
364,976
14,089
2,734
411,576
2,871
815,211
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Fair
Value
$
$
25,565 $
39,276
14,590
705
10,630
90,766 $
779 $
1,469
532
54
280
3,114 $
— $
(12)
—
—
—
(12) $
— $
—
—
—
—
— $
26,344
40,733
15,122
759
10,910
93,868
During the third quarter of 2021, the Company transferred $494.2 million of previously designated investment
securities available for sale to a held to maturity designation at estimated fair value. The reclassification for the period ended
September 30, 2021 is permitted as the Company has appropriately determined the ability and intent to hold these securities as
an investment until maturity or call. The securities transferred had an unrealized net gain of $3.8 million at the time of transfer,
which is reflected, net of taxes, in accumulated other comprehensive income on the consolidated balance sheet. Subsequent
amortization will be recognized over the life of the securities. The Company recorded net amortization of $383,000 during the
year ended December 31, 2021.
The following table lists contractual maturities of investment securities classified as available for sale and held to
maturity as of December 31, 2021. Expected maturities will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment penalties.
(in thousands)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed and asset-backed securities
Total
Available for Sale
Held to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
$
12,005
58,188
124,825
57,541
252,559
516,130
768,689
$
$
12,063
58,409
125,735
57,639
253,846
516,110
769,956
$
$
21,345
34,047
42,528
340,339
438,259
386,878
825,137
$
$
21,497
34,192
42,315
335,408
433,412
381,799
815,211
For the year ended December 31, 2021, there were proceeds from sales of available for sale securities of $4.4 million
with gross gains on sales of securities of $9,000 and no gross losses on sales of securities. There were proceeds from sales of
available for sale securities of $130.9 million with gross gains on sales of securities of $1.3 million and gross losses on sales of
securities of $248,000 for the year ended December 31, 2020. There were no sales of securities for the year ended
-61-
December 31, 2019. Gains or losses on sales of securities are based on the net proceeds and the adjusted carrying amount of the
securities sold using the specific identification method.
Securities with a carrying value of approximately $1.04 billion and $578.0 million at December 31, 2021 and
December 31, 2020, respectively, were pledged to secure public deposits and for other purposes required by applicable laws
and regulations.
The following tables indicate the length of time individual securities have been in a continuous unrealized loss position
for the periods presented:
December 31, 2021
Less Than 12 Months
12 Months or Longer
Total
(dollars in thousands)
AVAILABLE FOR SALE
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
U.S. Treasury and U.S. government agencies
$
76,106
$
322
$
14,670
$
Mortgage-backed securities, residential
Collateralized mortgage obligations, residential
Mortgage-backed securities, multifamily
Collateralized mortgage obligations, multifamily
Asset-backed securities
Debt securities
Total
HELD TO MATURITY
Mortgage-backed securities, residential
Mortgage-backed securities, multifamily
Obligations of states and political subdivisions
176,990
86,749
—
9,083
14,688
15,325
378,941
340,474
2,051
307,827
$
$
$
$
1,465
1,429
—
210
87
(5)
3,508
5,882
2
5,800
$
$
14,582
5,000
1,741
1,072
—
980
38,045
2,376
—
—
$
$
467
266
59
75
36
—
20
923
$
107
—
—
Total
$
650,352
$
11,684
$
2,376
$
107
$
15
45
18
1
4
3
8
94
96
1
239
336
$
90,776
$
191,572
91,749
1,741
10,155
14,688
16,305
416,986
342,850
2,051
307,827
$
$
$
$
789
1,731
1,488
75
246
87
15
4,431
5,989
2
5,800
$
652,728
$
11,791
December 31, 2020
Less Than 12 Months
12 Months or Longer
Total
(dollars in thousands)
AVAILABLE FOR SALE
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
U.S. Treasury and U.S. government agencies
$
4,966
$
29
$
17,652
$
284
Mortgage-backed securities, residential
Collateralized mortgage obligations, residential
Mortgage-backed securities, multifamily
Collateralized mortgage obligations, multifamily
Asset-backed securities
Obligations of states and political subdivisions
Total
HELD TO MATURITY
Mortgage-backed securities, residential
Total
84,137
23,858
1,943
2,527
40,690
15,901
174,022
2,561
2,561
$
$
$
$
$
$
471
22
—
2
225
228
977
12
12
$
$
$
5,656
—
—
—
—
—
69
—
—
—
—
—
23,308
$
353
— $
— $
—
—
6
30
7
1
1
6
10
61
4
4
$
22,618
$
89,793
23,858
1,943
2,527
40,690
15,901
197,330
2,561
2,561
$
$
$
$
$
$
313
540
22
—
2
225
228
1,330
12
12
For available for sale securities, the Company assesses whether a loss is from credit or other factors and considers the
extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse
conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of
cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present
value of cash flows is less than the amortized cost, a credit loss exists and an allowance is created, limited by the amount that
the fair value is less than the amortized cost basis.
For held to maturity securities, management measures expected credit losses on a collective basis by major security
type. All of the mortgage-backed securities are issued by U.S. government agencies and are either explicitly or implicitly
guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses and,
therefore, the expectation of non-payment is zero. A range of historical losses method is utilized in estimating the net amount
expected to be collected for mortgage-backed securities, collateralized mortgage obligations and obligations of states and
political subdivisions.
-62-
The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued
by U.S. government sponsored entities such as Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation, and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized
losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative
to when the investment securities were purchased, and not due to the credit quality of the investment securities.
Credit Quality Indicators
Credit ratings, which are updated monthly, are a key measure for estimating the probability of a bond's default and for
monitoring credit quality on an on-going basis. For bonds other than U.S. Treasuries and bonds issued or guaranteed by U.S.
government agencies, credit ratings issued by one or more nationally recognized statistical rating organization are considered in
conjunction with an assessment by the Company's management. Investment grade reflects a credit quality of A or above.
The tables below indicate the credit profile of the Company's investment securities held to maturity at amortized cost
for the periods presented:
December 31, 2021
(in thousands)
AAA
AA
A
BBB
Not Rated
Total
U.S. Treasury and U.S. government agencies
$
18,672
$
— $
— $
— $
— $
18,672
Mortgage-backed securities, residential
Collateralized mortgage obligations,
residential
Mortgage-backed securities, multifamily
Obligations of states and political
subdivisions
Debt securities
Total
December 31, 2020
(in thousands)
U.S. Treasury and U.S. government agencies
Mortgage-backed securities, residential
Collateralized mortgage obligations, residential
Mortgage-backed securities, multifamily
Obligations of states and political subdivisions
Total
Equity securities at fair value
370,247
13,921
2,710
—
—
—
—
—
—
143,777
270,909
—
—
1,068
—
—
—
—
—
3,000
—
—
—
833
—
370,247
13,921
2,710
416,587
3,000
$ 549,327
$ 270,909
$
1,068
$
3,000
$
833
$ 825,137
AAA
AA
Total
$
25,565
$
— $
39,276
14,590
705
2,959
—
—
—
7,671
$
83,095
$
7,671
$
25,565
39,276
14,590
705
10,630
90,766
The Company has an equity securities portfolio which consists of investments in Community Reinvestment funds. The
fair value of the equity portfolio was $17.4 million and $14.7 million at December 31, 2021 and December 31, 2020,
respectively. The Company recorded no sales of equity securities for the year ended December 31, 2021 and recorded $4.1
million and $1.3 million of proceeds from sales of equity securities for the years ended December 31, 2020 and 2019,
respectively. The Company recorded $285,000 and $552,000 in fair value losses on equity securities in noninterest income for
the year ended December 31, 2021 and 2020, respectively. and fair value gains on equity securities of $496,000 during 2019.
As of December 31, 2021, the Company's investments in Community Reinvestment funds include $6.8 million that are
primarily invested in community development loans that are guaranteed by the SBA. Because the funds are primarily
guaranteed by the federal government, there are minimal changes in fair value between accounting periods. These funds can be
redeemed with 60 days' notice at the net asset value less unpaid management fees with the approval of the fund manager. As of
December 31, 2021, the net amortized cost equaled the fair value of the investment. There are no unfunded commitments
related to these investments.
The Community Reinvestment funds also include $10.5 million of investment in government guaranteed loans,
mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic
development as of December 31, 2021. The Company may redeem these funds at the net asset value calculated at the end of the
current business day less any unpaid management fees. There are no restrictions on redemptions for the holdings in these
investments other than the notice required by the fund manager. There are no unfunded commitments related to these
investments.
-63-
Note 5 – Loans
The following table summarizes the composition of the Company’s loan portfolio.
(in thousands)
Non-owner occupied commercial
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total
December 31, 2021
December 31, 2020
$
$
2,316,284
908,449
972,233
177,097
462,406
302,228
123,212
438,710
275,529
5,976,148
$
$
2,398,946
827,092
813,225
200,229
718,189
266,883
116,690
377,380
302,598
6,021,232
Loans are recognized at amortized cost, which includes principal balance and net deferred loan fees and costs. The
Company elected to exclude accrued interest receivable from amortized cost. Accrued interest receivable is reported separately
in the Consolidated Balance Sheets and totaled $13.9 million at December 31, 2021 and $16.1 million at December 31, 2020.
Loan origination fees and certain direct loan origination costs are deferred and the net fee or cost is recognized in interest
income as an adjustment of yield. Net deferred loan fees are included in loans by respective segment and total $5.8 million and
$10.0 million at December 31, 2021 and December 31, 2020, respectively.
At December 31, 2021 and December 31, 2020, Small Business Association ("SBA") Paycheck Protection Program
("PPP") loans totaled $56.6 million and $284.6 million, respectively, and are included in the balance of commercial, industrial
and other loans. Consumer loans included overdraft deposit balances of $184,000 and $650,000 at December 31, 2021 and
December 31, 2020, respectively. Loans pledged for potential borrowings at the Federal Home Loan Bank of New York
("FHLB") totaled $2.30 billion and $2.28 billion at December 31, 2021 and December 31, 2020, respectively.
Credit Quality Indicators
Management closely and continually monitors the quality of its loans and assesses the quantitative and qualitative risks
arising from the credit quality of its loans. Lakeland assigns a credit risk rating to all loans and loan commitments. The credit
risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads
and senior management in identifying various levels of credit risk that exist within the loan portfolios. The risk rating system
assists senior management in evaluating the loan portfolio and analyzing trends. In assigning risk ratings, management
considers, among other things, the borrower’s ability to service the debt based on relevant information such as current financial
information, historical payment experience, credit documentation, public information and current economic conditions.
Management categorizes loans and commitments into the following risk ratings:
Pass: "Pass" assets are well protected by the current net worth and paying capacity of the obligor or guarantors, if any,
or by the fair value of any underlying collateral.
Watch: "Watch" assets require more than the usual amount of monitoring due to declining earnings, strained cash
flow, increasing leverage and/or weakening market. These borrowers generally have limited additional debt capacity and
modest coverage and average or below average asset quality, margins and market share.
Special Mention: "Special mention" assets exhibit identifiable credit weakness, which if not checked or corrected
could weaken the loan quality or inadequately protect the bank’s credit position at some future date.
Substandard: "Substandard" assets are inadequately protected by the current sound worth and paying capacity of the
obligors or of the collateral pledged, if any. A substandard loan has a well-defined weakness or weaknesses that may jeopardize
the liquidation of the debt.
Doubtful: "Doubtful" assets that exhibit all of the weaknesses inherent in substandard loans, but have the added
characteristics that the weaknesses make collection or liquidation in full improbable on the basis of existing facts.
Loss: “Loss” is a rating for loans or portions of loans that are considered uncollectible and of such little value that their
continuance as bankable loans is not warranted.
-64-
The following table presents the risk category of loans by class of loan and vintage as of December 31, 2021.
Term Loans by Origination Year
(in thousands)
2021
2020
2019
2018
2017
Pre-2017
Revolving
Loans
Revolving
to Term
Total
Non-owner occupied commercial
Pass
Watch
Special mention
Substandard
$
363,459
$ 516,131
$ 295,944
$ 189,592
$ 195,733
$ 562,338
$
18,795
$
— $2,141,992
—
—
119
—
458
431
25,292
—
332
14,660
5,749
2,656
4,641
14,639
8,000
47,011
6,602
43,572
130
—
—
—
—
—
91,734
27,448
55,110
Total
363,578
517,020
321,568
212,657
223,013
659,523
18,925
— 2,316,284
Owner occupied commercial
Pass
Watch
Special mention
Substandard
Total
Multifamily
Pass
Watch
Special mention
Substandard
Pass
Watch
Special mention
Substandard
Total
209,515
133,292
—
—
5
5,757
9,694
—
83,395
2,134
21,837
—
209,520
148,743
107,366
225,060
255,016
72,438
—
—
—
966
2,470
—
—
—
5,485
77,923
54,019
900
12,632
2,597
70,148
71,366
13,709
—
1,321
86,396
48,850
252,001
8,343
108
789,523
280
95
1,299
50,524
24,873
17,851
18,972
—
—
—
—
—
—
33,944
62,109
22,873
313,697
8,343
108
908,449
73,122
207,509
18,161
1,281
923,953
854
8,944
—
6,497
2,948
4,987
—
—
99
—
—
—
22,026
14,362
11,892
82,920
221,941
18,260
1,281
972,233
Total
225,060
258,452
Non-owner occupied residential
28,476
18,527
16,928
15,695
18,048
—
—
—
28,476
—
—
3,062
21,589
—
523
510
17,961
—
837
4,797
21,329
Commercial, industrial and other
Pass
Watch
Special mention
Substandard
Total
Construction
Pass
100,921
23,940
65,225
11,636
939
—
101
101,961
461
—
7,352
31,753
446
—
—
65,671
—
—
1,276
12,912
108,585
84,993
40,847
30,125
Special mention
—
—
—
—
Total
108,585
84,993
40,847
30,125
Equipment finance
Pass
Substandard
Total
Residential mortgage
Pass
Substandard
Total
Consumer
Pass
Substandard
Total
50,482
30,486
—
—
50,482
30,486
27,626
216
27,842
171,442
112,680
27,228
12
—
—
171,454
112,680
27,228
35,283
10,476
32
—
35,315
10,476
5,358
—
5,358
10,238
177
10,415
20,784
123
20,907
4,561
—
4,561
651
1,205
988
20,892
3,808
1,378
1,896
496
7,578
23,578
10,446
34,024
3,128
56
3,184
9,103
694
9,797
3,260
—
3,260
51,194
5,057
284
2,512
59,047
7,288
—
515
—
7,803
—
—
—
—
—
156,156
5,708
3,364
11,869
177,097
37,479
191,293
872
435,174
173
443
422
5,056
1,365
5,428
38,517
203,142
3,654
—
3,654
803
—
803
96,510
134
96,644
—
—
—
—
—
—
—
—
—
24,888
190,481
630
526
25,518
191,007
—
—
—
872
—
—
—
—
—
—
—
—
—
34
—
34
8,453
3,704
15,075
462,406
291,782
10,446
302,228
122,763
449
123,212
437,747
963
438,710
274,341
1,188
275,529
Total loans
$ 1,294,431
$1,216,192 $ 691,764
$ 469,450
$ 435,192
$1,419,344 $ 447,480
$
2,295
$5,976,148
-65-
The following table presents the risk category of loans by class of loan and vintage as of December 31, 2020.
$
2020
(in thousands)
Non-owner occupied commercial
570,665
Pass
770
Watch
3,400
Special mention
Substandard
—
574,835
Total
116,512
11,347
—
434
128,293
Owner occupied commercial
Pass
Watch
Special mention
Substandard
Total
Multifamily
Pass
Watch
Special mention
Substandard
Total
251,708
—
9,781
—
261,489
Non-owner occupied residential
23,506
Pass
—
Watch
Special mention
—
876
Substandard
24,382
Total
Commercial, industrial and other
299,091
Pass
287
Watch
Special mention
—
7,177
Substandard
306,555
Total
Construction
Pass
Watch
Special mention
Substandard
Total
Equipment finance
Pass
Substandard
Total
Residential mortgage
Pass
Substandard
Total
Consumer
Pass
Substandard
Total
Total loans
56,734
—
—
—
56,734
41,528
—
41,528
127,336
—
127,336
15,999
33
16,032
,
$ 1,537,184
,
Term Loans by Origination Year
y
g
2019
2018
2017
2016
Pre-2016
Revolving
Loans
Revolving
to Term
Total
$ 376,681
638
3,131
—
380,450
$ 217,931
8,498
8,377
2,809
237,615
$ 251,751
5,936
9,115
15,903
282,705
$ 187,605
19,579
19,936
14,844
241,964
$ 509,573
47,680
7,894
60,703
625,850
$
76,224
22,932
2,218
16
101,390
59,694
—
—
5,481
65,175
24,378
300
496
512
25,686
84,917
3,701
—
50
88,668
77,117
—
—
—
77,117
41,717
98
41,815
43,910
52
43,962
80,244
411
929
3,038
84,622
85,748
600
—
—
86,348
27,752
—
1,199
1,200
30,151
16,245
156
884
3,559
20,844
69,627
2,183
—
—
71,810
20,697
88
20,785
34,252
233
34,485
81,215
3,651
113
641
85,620
93,368
—
2,399
—
95,767
24,344
1,174
392
1,295
27,205
7,216
1,643
764
1,547
11,170
29,303
11,959
8,321
206
49,789
8,834
74
8,908
17,548
1,015
18,563
62,118
8,038
4,317
5,770
80,243
117,155
—
—
9,512
126,667
21,488
—
293
692
22,473
18,358
301
2,275
1,497
22,431
7,681
—
—
719
8,400
3,162
64
3,226
245,330
23,612
38,638
27,376
334,956
145,786
8,472
1,124
684
156,066
53,200
5,757
656
1,713
61,326
41,900
369
—
729
42,998
328
—
—
515
843
426
2
428
12,108
—
12,108
139,616
1,310
140,926
50,071
315
2,895
—
53,281
11,072
673
—
44
11,789
21,713
—
—
—
21,713
8,180
—
655
—
8,835
208,519
2,324
4,727
9,422
224,992
2,190
—
—
—
2,190
—
—
—
—
—
—
9,844
57
9,901
,
$ 834,164
7,490
31
7,521
,
$ 594,181
5,333
2
5,335
,
$ 585,062
4,632
—
4,632
,
$ 522,144
-66-
224,549
263
224,812
,
$1,397,462 $ 547,612
31,861
2,208
34,069
,
,
2,246
—
—
—
2,246
$2,166,523
83,416
54,748
94,259
2,398,946
179
—
—
—
179
—
—
—
—
—
171
—
—
—
171
531
—
—
—
531
—
—
—
—
—
—
—
—
—
—
—
672,894
70,664
46,215
37,319
827,092
775,172
9,072
13,304
15,677
813,225
183,019
7,231
3,691
6,288
200,229
676,777
8,781
8,650
23,981
718,189
242,980
14,142
8,321
1,440
266,883
116,364
326
116,690
374,770
2,610
377,380
166
130
296
,
3,423
299,874
2,724
302,598
,
,
$6,021,232
$
Past Due and Non-accrual Loans
Loans are considered past due if required principal and interest payments have not been received as of the date such
payments were contractually due. A loan is generally considered non-performing when it is placed on non-accrual status. A
loan is generally placed on non-accrual status when it becomes 90 days past due if such loan has been identified as presenting
uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing
status if such loan is both well secured and in the process of collection.
In the absence of other intervening factors, loans granted payment deferrals related to COVID-19 are not reported as
past due or placed on non-accrual status provided the borrowers have met the criteria in the CARES Act or otherwise have met
the criteria included in an interagency statement issued by bank regulatory agencies.
The following tables present the payment status of the recorded investment in past due loans as of the periods noted,
by class of loans.
December 31, 2021
(in thousands)
Non-owner occupied commercial
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total
December 31, 2020
(in thousands)
Non-owner occupied commercial
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total
Past Due
Current
30 - 59
Days
60 - 89
Days
Greater than
89 days
Total
Total Loans
$ 2,312,557
$
— $
718
$
3,009
$
3,727
$ 2,316,284
905,751
972,233
174,245
461,659
302,228
122,923
437,574
20
—
—
154
—
211
255
—
—
136
—
—
41
64
2,678
—
2,716
593
—
37
817
274,426
$ 5,963,596
$
705
1,345
$
135
1,094
$
263
10,113
Current
$ 2,384,233 $
811,408
812,597
197,802
716,337
265,649
115,124
374,370
300,127
$ 5,977,647 $
30-59 Days
1,256
2,759
208
482
125
—
1,338
1,046
1,041
8,255
Past Due
60-89 Days
306
$
350
—
294
—
—
98
156
73
1,277
$
Greater than
89 days
$
$
13,151
12,575
420
1,651
1,727
1,234
130
1,808
1,357
34,053
2,698
—
2,852
747
—
289
1,136
1,103
12,552
908,449
972,233
177,097
462,406
302,228
123,212
438,710
275,529
$ 5,976,148
Total
14,713
15,684
628
2,427
1,852
1,234
1,566
3,010
2,471
43,585
Total Loans
$ 2,398,946
827,092
813,225
200,229
718,189
266,883
116,690
377,380
302,598
$ 6,021,232
$
$
$
-67-
The following tables present information on non-accrual loans at December 31, 2021 and December 31, 2020.
December 31, 2021
(in thousands)
Non-accrual
Interest Income
Recognized on
Non-accrual
Loans
Amortized Cost
Basis of Loans >=
90 days Past due
but still accruing
Amortized Cost
Basis of Non-accrual
Loans without
Related Allowance
Non-owner occupied commercial
$
3,009
$
— $
— $
Owner occupied commercial
Non-owner occupied residential
Commercial, industrial and other
Equipment finance
Residential mortgage
Consumer
Total
December 31, 2020
(in thousands)
Non-owner occupied commercial
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total
$
$
$
2,810
2,852
6,763
43
817
687
—
—
—
—
—
—
16,981
$
— $
—
—
—
—
—
1
1
$
2,624
2,398
2,567
1,122
—
694
—
9,405
Interest Income
Recognized on
Non-accrual
Loans
Amortized Cost
Basis of Loans >=
90 days Past due
but still accruing
Non-accrual
16,537
14,271
626
2,217
2,633
1,440
327
2,469
2,243
42,763
$
$
— $
—
—
—
—
—
—
—
—
— $
Amortized Cost
Basis of Non-accrual
Loans without
Related Allowance
14,719
12,371
—
1,580
1,418
1,234
—
1,015
—
32,337
— $
—
—
—
—
—
—
—
1
1
$
At December 31, 2021 and December 31, 2020, there was one loan with a recorded investment of $1,000 that was past
due more than 89 days and still accruing. The Company had $930,000 and $1.7 million in residential mortgages and consumer
home equity loans included in total non-accrual loans that were in the process of foreclosure at December 31, 2021 and
December 31, 2020, respectively.
-68-
Impaired Loans
The following table presents, under previously applicable GAAP, loans individually evaluated for impairment by the
portfolio segments existing at December 31, 2019.
Recorded
Investment in
Impaired Loans
Contractual
Unpaid
Principal
Balance
Related
Allowance
Interest
Income
Recognized
Average
Investment in
Impaired Loans
$
$
$
12,478
1,391
1,663
—
803
—
3,470
113
—
23
1,512
671
15,948
1,504
1,663
23
2,315
671
22,124
$
$
$
12,630
1,381
1,661
—
815
—
3,706
113
—
23
1,682
765
16,336
1,494
1,661
23
2,497
765
22,776
$
$
$
— $
—
—
—
—
—
228
5
—
10
104
5
228
5
—
10
104
5
352
$
$
164
16
2
—
—
—
190
6
—
—
19
29
354
22
2
—
19
29
426
$
$
$
10,386
1,334
82
—
233
—
4,554
113
—
21
926
693
14,940
1,447
82
21
1,159
693
18,342
(in thousands)
Loans without related allowance:
Commercial, secured by real estate
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Loans with related allowance:
Commercial, secured by real estate
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total:
Commercial, secured by real estate
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Troubled Debt Restructurings
Loans are classified as troubled debt restructured loans ("TDR") in cases where borrowers experience financial
difficulties and Lakeland makes certain concessionary modifications to contractual terms. Restructured loans typically involve a
modification of terms such as a reduction of the stated interest rate, a moratorium of principal payments and/or an extension of
the maturity date at a stated interest rate lower than the current market rate of a new loan with similar risk.
The CARES Act provided relief from TDR classification for certain loan modifications related to the COVID-19
pandemic beginning March 1, 2020 through the earlier of 60 days after the end of the pandemic or December 31, 2020.
Additionally, banking regulatory agencies issued interagency guidance that COVID-19 related short-term modifications (i.e.,
six months or less) granted to borrowers that were current as of the loan modification program implementation date do not need
to be considered TDRs. The Consolidated Appropriations Act, 2021 (the "CAA"), which was signed into law on December 27,
2020, extended this guidance to modifications made until the earlier of January 1, 2022 or 60 days after the end of the
COVID-19 national emergency. The Company elected this provision of the CARES Act and excluded modified loans that met
the required guidelines for relief from its TDR classification. At December 31, 2021, no loans were on COVID-related deferrals
as the remaining 90-day loan deferments expired and borrowers began paying their pre-deferral loan payments in the first
quarter of 2021. For most commercial loans, borrowers are paying their pre-deferral loan payments plus an additional monthly
amount to catch up on the payments that were deferred. None of these modifications were considered TDRs.
At December 31, 2021 and 2020, TDRs totaled $3.5 million and $5.0 million, respectively. Accruing TDRs totaled
$3.3 million and non-accrual TDRs totaled $127,000 at December 31, 2021. Accruing TDRs and non-accrual TDRs totaled
$3.9 million and $1.1 million, respectively, at December 31, 2020. There was one consumer loan totaling $115,000 that was
restructured during 2021 that met the definition of a TDR, while no loans were restructured during 2020 that met the definition
of a TDR. There were no restructured loans that subsequently defaulted in 2021; however, two consumer loans totaling $83,000
that were TDRs within the previous twelve months had subsequently defaulted in 2020.
-69-
Related Party Loans
Lakeland has entered into lending transactions in the ordinary course of business with directors, executive officers,
principal stockholders and affiliates of such persons on similar terms, including interest rates and collateral, as those prevailing
for comparable transactions with other borrowers not related to Lakeland. At December 31, 2021 and 2020, loans to these
related parties amounted to $64.0 million and $75.7 million, respectively. There were new loans of $5.0 million to related
parties and repayments of $16.7 million from related parties in 2021.
Mortgages Held for Sale
Residential mortgages originated by the bank and held for sale in the secondary market are carried at the lower of cost
or fair market value. Fair value is generally determined by the value of purchase commitments on individual loans. Losses are
recorded as a valuation allowance and charged to earnings. As of December 31, 2021, Lakeland had $1.9 million in mortgages
held for sale compared to $1.3 million as of December 31, 2020.
Equipment Finance Receivables
Future minimum payments of equipment finance receivables at December 31, 2021 are expected as follows:
(in thousands)
2022
2023
2024
2025
2026
Thereafter
$
$
40,997
34,476
25,736
15,388
5,885
730
123,212
Other Real Estate and Other Repossessed Assets
At December 31, 2021 and December 31, 2020, Lakeland had no other real estate owned and held no other
repossessed assets. For the year ended December 31, 2021, Lakeland had no writedowns of other real estate owned and for the
years ended December 31, 2020 and 2019 had writedowns of $39,000 and $153,000, respectively, recorded in other expense in
the Consolidated Statement of Income.
Note 6 - Allowance for Credit Losses
The Company adopted ASU 2016-13, which requires the measurement of expected credit losses for financial assets
measured at amortized cost, including loans and certain off-balance-sheet credit exposures on December 31, 2020, effective
January 1, 2020. See Note 1 - Summary of Significant Accounting Policies for a description of the adoption of ASU 2016-13
and the Company's allowance methodology.
Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon
key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods,
prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk
characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded
from the collective evaluation. At December 31, 2021, loans totaling $5.95 billion were evaluated collectively and the
allowance on these balances totaled $53.8 million and loans evaluated on an individual basis totaled $21.2 million with the
specific allocations of the allowance for credit losses totaling $4.3 million.
Federal regulatory agencies, as an integral part of their examination process, review our loans and the corresponding
allowance for credit losses. While we believe that our allowance for credit losses on loans in relation to our current loan
portfolio is adequate to cover current and expected losses, we cannot assure you that we will not need to increase our allowance
for credit losses on loans or that the regulators will not require us to increase this allowance. Future increases in our allowance
for credit losses on loans could materially and adversely affect our earnings and profitability.
-70-
Allowance for Credit Losses - Loans
The allowance for credit losses is summarized in the following table:
(in thousands)
Balance at beginning of the period
Impact of adopting ASU 2016-13
Charge-offs
Recoveries
Net charge-offs
Provision for credit loss - loans
Balance at end of the period
2021
2020
$
71,124
$
—
(4,589)
2,427
(2,162)
(10,915)
$
58,047
$
40,003
6,656
(2,053)
541
(1,512)
25,977
71,124
Accrued interest receivable on loans, reported as a component of accrued interest receivable on the consolidated
balance sheet, totaled $13.9 million and $16.1 million at December 31, 2021 and December 31, 2020, respectively. The
Company made the election to exclude accrued interest receivable from the estimate of credit losses.
The following table details activity in the allowance for credit losses by portfolio segment for the years ended
December 31, 2021 and 2020:
(in thousands)
Balance at
December 31,
2020
Charge-offs
Recoveries
(Benefit)
Provision for
Credit Loss -
Loans
Balance at
December 31,
2021
Non-owner occupied commercial
$
25,910 $
(2,708) $
462 $
(3,593) $
20,071
Owner occupied commercial
Multifamily
Non-owner occupied residential
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total
3,955
7,253
3,321
13,665
786
6,552
3,623
6,059
(282)
(28)
(223)
(401)
(54)
(346)
(113)
(434)
302
—
165
888
75
61
177
297
(11)
1,084
(883)
(4,261)
31
(2,604)
227
(905)
3,964
8,309
2,380
9,891
838
3,663
3,914
5,017
$
71,124 $
(4,589) $
2,427 $
(10,915) $
58,047
(in thousands)
Balance at
December 31,
2019 (1)
Impact of
adopting
ASU
2016-13
Charge-offs
Recoveries
(Benefit)
Provision for
Credit Loss -
Loans
Balance at
December 31,
2020
Non owner occupied commercial
$
— $
17,027 $
(53) $
29 $
8,907 $
25,910
Owner occupied commercial
Multifamily
Non owner occupied residential
Commercial, secured by real
estate
Commercial, industrial and other
Construction
Equipment finance
Residential mortgage
Consumer
Total
—
—
—
3,080
3,717
2,801
28,950
(28,950)
3,289
2,672
957
1,725
2,410
2,850
(2,396)
2,481
1,217
4,829
(369)
—
—
—
(814)
(77)
(284)
(116)
(340)
21
—
22
—
207
100
65
21
76
1,223
3,536
498
—
8,133
487
3,333
776
(916)
3,955
7,253
3,321
—
13,665
786
6,552
3,623
6,059
$
40,003 $
6,656 $
(2,053) $
541 $
25,977 $
71,124
(1) With the adoption of ASU 2016-13 in 2020, the Company expanded its portfolio segments.
-71-
The allowance for credit losses decreased to $58.0 million, 0.97% of total loans, at December 31, 2021, compared to
$71.1 million, 1.18% of total loans, at December 31, 2020. The decrease from December 31, 2020, was primarily due to an
improvement in forecasted macroeconomic conditions, a reduction in nonperforming assets and continued strength in asset
quality. The change in the allowance within the loan segments during the two comparable periods is principally due to changes
in the Company's level of loan growth and the impact of changes in various economic factors on particular segments. The
Company adopted ASU 2016-13 at December 31, 2020, and recorded an increase in the allowance for credit losses on loans of
$6.7 million effective January 1, 2020.
The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit
or loan losses for the years ended December 31, 2021 and 2020:
December 31, 2021
Loans
Allowance for Credit Losses
Individually
evaluated
Collectively
evaluated
Acquired
with
deteriorated
credit quality
$
3,063
$ 2,313,047
$
6,678
—
901,638
972,233
174
133
—
908,449
972,233
2,567
174,463
67
177,097
6,537
—
—
1,416
—
455,306
302,228
123,212
437,294
275,529
563
—
—
—
—
462,406
302,228
123,212
438,710
275,529
(in thousands)
Non-owner occupied
commercial
Owner occupied commercial
Multifamily
Non-owner occupied
residential
Commercial, industrial and
other
Construction
Equipment finance
Residential mortgage
Consumer
Total loans
Total
Individually
evaluated
Collectively
evaluated
Total
$ 2,316,284
$
— $
20,071
$
20,071
69
—
—
4,182
—
—
—
—
3,895
8,309
2,380
5,709
838
3,663
3,914
5,017
3,964
8,309
2,380
9,891
838
3,663
3,914
5,017
$
20,261
$ 5,954,950
$
937
$ 5,976,148
$
4,251
$
53,796
$
58,047
December 31, 2020
Loans
Allowance for Credit Losses
(in thousands)
Non owner occupied
commercial
Owner occupied commercial
Multifamily
Non owner occupied
residential
Commercial, industrial and
other
Construction
Equipment finance
Residential mortgage
Consumer
Total loans
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Acquired
with
deteriorated
credit quality
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
Total
$
12,112
$ 2,382,717
$
4,117
$ 2,398,946
$
355
$
25,555
$
25,910
16,547
—
809,935
813,225
1,459
198,334
1,596
515
—
1,490
—
715,129
265,649
116,690
375,482
302,099
610
—
436
1,464
719
—
408
499
827,092
813,225
200,229
718,189
266,883
116,690
377,380
302,598
96
—
43
3,859
7,253
3,278
3,955
7,253
3,321
830
12,835
13,665
—
—
—
31
786
6,552
3,623
6,028
786
6,552
3,623
6,059
$
33,719
$ 5,979,260
$
8,253
$ 6,021,232
$
1,355
$
69,769
$
71,124
-72-
Allowance for Credit Losses - Securities
At December 31, 2021, the balance of the allowance for credit loss on available for sale and held to maturity securities
was $83,000 and $181,000, respectively. At December 31, 2020, the Company reported an allowance for credit losses on
available for sale securities of $2,000 and no allowance for credit losses on held to maturity securities. For the year ended
December 31, 2021, the Company recorded a provision for credit losses of $84,000 and $178,000 on securities available for
sale and held to maturity, respectively, in the provision for credit losses on the Consolidated Statement of Income. For the year
ended December 31, 2020, the Company, recorded a provision of $2,000 on securities available for sale and a benefit of
$30,000 on securities held to maturity. The Company adopted ASU 2016-13 at December 31, 2020, and recorded an increase in
the allowance for credit losses on held to maturity securities of $30,000 effective January 1, 2020. Prior year disclosures have
not been restated.
Accrued interest receivable on securities is reported as a component of accrued interest receivable on the consolidated
balance sheet and totaled $5.3 million and $3.3 million at December 31, 2021 and December 31, 2020, respectively. The
Company made the election to exclude accrued interest receivable from the estimate of credit losses on securities.
Allowance for Credit Losses - Off-Balance-Sheet Exposures
The allowance for credit losses on off-balance-sheet exposures is reported in other liabilities in the Consolidated
Balance Sheets. The liability represents an estimate of expected credit losses arising from off balance sheet exposures such as
letters of credit, guarantees and unfunded loan commitments. The process for measuring lifetime expected credit losses on these
exposures is consistent with that for loans as discussed above, but is subject to an additional estimate reflecting the likelihood
that funding will occur. No liability is recognized for off balance sheet credit exposures that are unconditionally cancellable by
the Company. Adjustments to the liability are reported as a component of credit loss expense.
At December 31, 2021 and December 31, 2020, the balance of the allowance for credit losses for off-balance-sheet
exposures was $2.3 million and $2.6 million, respectively. The Company recorded a benefit for credit losses on off-balance-
sheet exposures in other noninterest expense of $243,000 for the year ended December 31, 2021 and a provision for unfunded
lending commitments in other noninterest expense of $1.3 million for the year ended December 31, 2020. The Company
adopted ASU 2016-13 at December 31, 2020, and recorded a decrease in the allowance for credit losses for off-balance-sheet
exposures of $498,000 effective January 1, 2020. Prior year disclosures have not been restated.
Note 7 - Premises and Equipment
(in thousands)
Land
Buildings and building improvements
Leasehold improvements
Furniture, fixtures and equipment
Less accumulated depreciation and amortization
Estimated
Useful Lives
December 31,
2021
2020
Indefinite $
10 to 50 years
10 to 25 years
2 to 30 years
$
9,444
42,115
13,976
32,569
98,104
52,188
45,916
$
$
9,926
44,312
14,017
35,046
103,301
54,806
48,495
Depreciation expense was $6.8 million, $6.5 million and $5.9 million for the years ended December 31, 2021, 2020
and 2019, respectively.
Note 8 – Leases
The Company leases certain premises and equipment under operating leases. Portions of certain properties are
subleased for terms extending through 2027. At December 31, 2021, the Company had lease liabilities totaling $16.5 million
and right-of-use assets totaling $15.2 million related to these leases. At December 31, 2020, the Company had lease liabilities
totaling $18.2 million and right-of-use assets totaling $16.8 million. The calculated amount of the right-of-use asset and lease
liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum
lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If at
lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include
the extended term in the calculation of the right-of-use asset and lease liability. The Company uses its incremental borrowing
rate at lease inception, on a collateralized basis, over a similar term.
-73-
For the year ended December 31, 2021, the weighted average remaining lease term for operating leases was 9.16 years
and the weighted average discount rate used in the measurement of operating lease liabilities was 3.41%. For the year ended
December 31, 2020, the weighted average remaining lease term for operating leases was 9.69 years and the weighted average
discount rate used in the measurement of operating lease liabilities was 3.41%.
As the Company elected not to separate lease and non-lease components and instead to account for them as a single
lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.
Lease costs were as follows:
(in thousands)
Operating lease cost
Variable lease cost
Sublease income
Net lease cost
2021
2020
2019
$
$
3,154
$
3,312
$
67
(121)
90
(122)
3,100
$
3,280
$
3,293
133
(122)
3,304
The table below presents other information on the Company's operating leases for the years ended December 31, 2021
and 2020:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
2021
2020
2019
Operating cash flows from operating leases
Right-of-use asset obtained in exchange for new operating lease liabilities
$
2,757 $
717
$
2,790
1,159
2,654
1,748
There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the
year ended December 31, 2021 and 2020. At December 31, 2021 and 2020, the Company had no leases that had not yet
commenced.
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total
operating lease liability at December 31, 2021 is as follows:
(in thousands)
Within one year
After one year but within three years
After three years but within five years
After 5 years
Total undiscounted cash flows
Discount on cash flows
Total lease liability
$
$
3,077
5,467
4,033
7,018
19,595
(3,072)
16,523
Note 9 - Deposits
The following table sets forth the details of total deposits:
(dollars in thousands)
December 31, 2021
December 31, 2020
Noninterest-bearing demand
Interest-bearing checking
Money market
Savings
Certificates of deposit $250 thousand and under
Certificates of deposit over $250 thousand
$
1,732,452
2,219,658
1,577,385
677,101
623,393
135,834
24.9 % $
31.9 %
22.6 %
9.7 %
8.9 %
2.0 %
1,510,224
2,057,052
1,225,890
584,361
895,056
183,200
23.4 %
31.9 %
19.0 %
9.1 %
13.8 %
2.8 %
Total deposits
$
6,965,823
100.0 % $
6,455,783
100.0 %
-74-
At December 31, 2021, the schedule of maturities of certificates of deposit is as follows:
(in thousands)
2022
2023
2024
2025
2026
Total
$
$
653,645
74,095
13,750
17,459
278
759,227
At December 31, 2021 and 2020, certificates of deposit obtained through brokers totaled $114.3 million and $236.7
million, respectively.
Interest expense on deposits is as follows:
(in thousands)
Checking accounts
Money market accounts
Savings
Certificates of deposit
Total
Note 10 - Debt
Overnight and Short-Term Borrowings
2021
2020
2019
4,591
$
9,095
$
6,226
334
5,642
8,301
325
14,338
16,793
$
32,059
$
18,023
13,134
335
17,756
49,248
$
$
At December 31, 2021, there were no overnight and short-term borrowings from FHLB and at December 31, 2020,
overnight and short-term borrowings totaled $100.0 million. In addition, Lakeland had no overnight and short-term borrowings
from correspondent banks at December 31, 2021 or December 31, 2020. At December 31, 2021, Lakeland had overnight and
short-term federal funds lines available to borrow up to $215.0 million from correspondent banks. 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, 2021 or 2020.
Other short-term borrowings at December 31, 2021 and 2020 consisted of short-term securities sold under agreements
to repurchase totaling $106.5 million and $69.6 million, respectively. Securities underlying the agreements were under
Lakeland’s control. At December 31, 2021, the Company had $46.2 million in mortgage-backed securities, $46.7 million in
collateralized mortgage obligations, $23.2 million in agency securities and $5.0 million in U.S. treasury notes pledged for its
short-term securities sold under agreements to repurchase.
FHLB Advances
Advances from the Federal Home Loan Bank ("FHLB") totaled $25.0 million at both December 31, 2021
December 31, 2020, with a weighted average interest rate of 0.77% and maturity in 2025. The advance was collateralized by
first mortgage loans and have prepayment penalties. There were no FHLB advance prepayments in 2021, however in 2020, the
Company repaid an aggregate of $114.9 million in advances from the FHLB and recorded $4.1 million in long-term debt
prepayment fees.
Subordinated Debentures
On September 15, 2021, the Company completed an offering of $150.0 million of fixed to floating rate subordinated
notes due on September 15, 2031. The notes bear interest at a rate of 2.875% per annum until September 15, 2026, and will then
reset quarterly to the then current Benchmark rate, which is expected to be the three-month term Secured Overnight Financing
Rate ("SOFR") plus a spread of 220 basis points. The debt is included in Tier 2 capital for the Company. Debt issuance costs
totaled $2.3 million and are being amortized to maturity. Subordinated debt is presented net of issuance costs on the
consolidated balance sheets.
On January 4, 2019, the Company acquired subordinated notes in connection with the Highlands acquisition.
Highlands issued $5.0 million of fixed rate notes in May 2014 bearing an interest rate of 8.00% per annum until maturity on
May 16, 2024. In October 2015, Highlands issued $7.5 million of fixed rate notes bearing an interest rate of 6.94% until
maturity on October 1, 2025. The Company redeemed both issuances in 2021.
-75-
On September 30, 2016, the Company completed an offering of $75.0 million of fixed to floating rate subordinated
notes due September 30, 2026. The notes paid interest at a rate of 5.125% per annum until September 30, 2021 when they were
to reset quarterly to the then current three-month LIBOR plus 397 basis points until maturity in September 30, 2026 or their
earlier redemption. The debt was included in Tier 2 capital for the Company. Debt issuance costs totaled $1.5 million and were
being amortized to maturity. On September 30, 2021, the Company redeemed this issuance which resulted in an acceleration of
unamortized debt issuance costs of $831,000.
In May 2007, the Company issued $20.6 million of junior subordinated debentures due August 31, 2037 to Lakeland
Bancorp Capital Trust IV, a Delaware business trust. The distribution rate on these securities was 6.61% for 5 years and floats
at LIBOR plus 152 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares of trust
preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Company’s obligations under the debentures
and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the
Company of the Trust’s obligations under the preferred securities. The preferred securities are callable by the Company on or
after August 1, 2012, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier I
capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of
the debentures in 2037. On August 3, 2015, the Company acquired and extinguished $10.0 million of Lakeland Bancorp Capital
Trust IV debentures and recorded a $1.8 million gain on the extinguishment of debt.
In June 2003, the Company issued $20.6 million of junior subordinated debentures due June 30, 2033 to Lakeland
Bancorp Capital Trust II, a Delaware business trust. The distribution rate on these securities was 5.71% for 5 years and floats at
LIBOR plus 310 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares of trust
preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Company’s obligations under the debentures
and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the
Company of the Trust’s obligations under the preferred securities. The preferred securities are callable by the Company on or
after June 30, 2008, or earlier if the deduction of related interest for federal income taxes is prohibited, treatment as Tier I
capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of
the debentures in 2033.
In June 2016, the Company entered into two five-year cash flow swaps totaling $30.0 million in order to hedge the
variable cash outflows associated with the junior subordinated debentures issued to Lakeland Bancorp Capital Trust II and
Lakeland Bancorp Capital Trust IV. Both of these swaps matured in 2021. For more information please see Note 20 –
Derivatives.
Note 11 - Stockholders’ Equity
On October 22, 2019, the Board of Directors of Lakeland approved a share repurchase program whereby the
Company may repurchase up to 2,524,458 shares of its common stock, or approximately 5% of its outstanding shares of
common stock at September 30, 2019. The Company had 50,489,161 shares outstanding as of September 30, 2019.
Repurchases may be made from time to time through a combination of open market and privately negotiated repurchases. The
specific timing, price and quantity of repurchases will be at the discretion of the Company and will depend on a variety of
factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and the
Company's financial performance. Open market purchases may be conducted in accordance with the limitations of Rule 10b-18
of the Securities and Exchange Commission (the "SEC"). Repurchases may be made pursuant to trading plans adopted in
accordance with SEC Rule 10b5-1, which would permit common stock to be repurchased when the Company might otherwise
be precluded from doing so under insider trading laws. The repurchase program does not obligate the Company to repurchase
any particular number of shares and may be terminated at any time without notice, in the Company’s discretion. As of
December 31, 2021, the Company had repurchased 131,035 shares.
Note 12 - Income Taxes
The components of income taxes are as follows:
(in thousands)
Current tax provision
Deferred tax (benefit) expense
Total provision for income taxes
Years Ended December 31,
2020
2019
2021
$
$
26,872
5,422
32,294
$
$
24,022
(6,763)
17,259
$
$
20,418
2,854
23,272
-76-
The income tax provision reconciled to the income taxes that would have been computed at the statutory federal rate of
21% as follows:
(in thousands)
Federal income tax, at statutory rates
Increase (deduction) in taxes resulting from:
Tax-exempt income
State income tax, net of federal income tax effect
Excess tax expense (benefits) from employee share-based
payments
Other, net
Provision for income taxes
$
The net deferred tax asset consisted of the following:
(in thousands)
Deferred tax assets:
Allowance for credit losses
Stock based compensation plans
Purchase accounting fair market value adjustments
Non-accrued interest
Deferred compensation
Loss on equity securities
Federal net operating loss carryforward
Unrealized loss on pension plans
Unrealized loss on derivatives
Other, net
Gross deferred tax assets
Deferred tax liabilities:
Core deposit intangible from acquired companies
Undistributed income from subsidiary not consolidated for tax return purposes
(REIT)
Deferred loan costs
Depreciation and amortization
Prepaid expenses
Unrealized gain on investment securities
Other
Gross deferred tax liabilities
Net deferred tax assets
Years Ended December 31,
2020
2019
2021
$
26,740
$
15,703
$
19,728
(1,114)
6,176
89
403
32,294
$
(961)
2,178
132
207
17,259
$
(952)
4,322
(189)
363
23,272
December 31,
2021
2020
$
$
17,837
1,446
1,487
504
2,796
136
303
—
—
514
25,023
705
903
2,150
1,660
824
1,228
235
7,705
17,318
$
$
21,300
985
2,174
664
2,570
50
875
13
42
508
29,181
852
852
1,822
793
578
4,746
260
9,903
19,278
Upon the adoption of ASU 2016-13 in 2020, the Company recorded a net deferred tax asset of $1.4 million.
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, 2021 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. The Company had no unrecognized tax benefits or related interest or penalties at
December 31, 2021 or 2020.
-77-
The Company is subject to U.S. federal income tax law as well as income tax of various state jurisdictions. Tax
regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require
significant judgment to apply. With few significant exceptions, the Company is no longer subject to U.S. federal examinations
by tax authorities for the years before 2018 or to state and local examinations by tax authorities for the years before 2018.
Note 13 - Benefit Plans
401(k plan
The Company has a 401(k) plan covering substantially all employees providing they meet eligibility requirements. The
Company matches 50% of the first 6% contributed by the participants to the 401(k) plan. The Company’s contributions in 2021,
2020 and 2019 totaled $1.6 million, $1.5 million and $1.3 million, respectively.
Supplemental Executive Retirement Plans
In 2003, the Company entered into a non-qualified Supplemental Executive Retirement Plan (“SERP”) agreement with
its former Chief Executive Officer ("CEO") that provides annual retirement benefits of $150,000 a year for 15 years when the
former CEO reached the age of 65. The former CEO retired and is receiving annual retirement benefits pursuant to the plan. In
2008, the Company entered into a SERP agreement with its current CEO that provides annual retirement benefits of $150,000
for 15 years when the CEO reaches the age of 65. Also in 2008, the Company entered into a SERP with a former Regional
President that provides annual retirement benefits of $90,000 a year for ten years upon his reaching the age of 65. In 2016, the
Company entered into a SERP with a former Regional President that provides $84,500 a year for 15 years upon his reaching the
age of 66. Both former Regional Presidents are receiving the annual retirement benefits pursuant to the plans.
Somerset Hills Bank, acquired by the Company in 2013, entered into a SERP with its former CEO and its Chief
Financial Officer ("CFO") which entitles them to a benefit of $48,000 and $24,000, respectively, per year for 15 years after the
earlier of retirement or death. The former CEO and the beneficiary of the CFO are currently being paid out under the plan.
The Company intends to fund its obligations under the deferred compensation arrangements with the increase in cash
surrender value of bank owned life insurance policies. In 2021, 2020 and 2019, the Company recorded compensation expense
of $163,000, $411,000 and $430,000, respectively, for these plans. The accrued liability for these plans was $3.8 million and
$4.1 million for the years ended December 31, 2021 and 2020, respectively.
Deferred Compensation Agreement
In 2015, the Company entered into a Deferred Compensation Agreement with its CEO where it would contribute
$16,500 monthly into a deferral account which would earn interest at an annual rate of the Company’s prior year return on
equity, provided that the Company’s return on equity remained in a range of 0% to 15%. The Company has agreed to make
such contributions each month that the CEO is actively employed from February 2015 through December 31, 2022. The
expense incurred in 2021, 2020 and 2019 was $331,000, $339,000 and $311,000, respectively, and the accrued liability at
December 31, 2021 and 2020 was $1.9 million and $1.6 million, respectively. Following the CEO’s normal retirement date, he
shall be paid out in 180 consecutive monthly installments.
Elective Deferral Plan
In 2015, the Company established an Elective Deferral Plan for eligible executives in which the executive may elect to
contribute a portion of their base salaries and bonuses to a deferral account that will earn an interest rate of 75% of the
Company’s prior year return on equity provided that the return on equity remains in the range of 0% to 15%. The Company
recorded an expense of $183,000, $162,000 and $136,000 in 2021, 2020 and 2019, respectively, and had a liability recorded of
$3.2 million and $2.6 million at December 31, 2021 and 2020, respectively.
Directors Retirement Plan
The Company maintains an Amended and Restated Directors' Deferred Compensation Plan, which applies to directors
appointed to the Company's Board of Directors prior to January 1, 2009. The non-qualified, defined benefit plan provides
participants, who after completing five years of service, may retire and receive benefit payments ranging from $5,000 through
$17,500 per annum, depending upon years of credited service, for a period of ten years. The plan is unfunded and holds no
assets.
At December 31, 2021 and 2020, the directors' deferred compensation plan had a recorded liability of $647,000 and
$655,000, respectively. The was no balance recognized in accumulated other comprehensive income for pension items at
December 31, 2021, while a net actuarial loss of $30,000 was recognized in accumulated other comprehensive income at
December 31, 2020. This amount was not recognized as a component of net postretirement benefit cost in 2020.
-78-
The net periodic plan cost included the following components:
(in thousands)
Service cost
Interest cost
Amortization of gain
Years Ended December 31,
2020
2019
2021
$
$
22
16
—
38
$
$
18
17
—
35
$
$
14
22
(2)
34
A discount rate of 2.49%, 2.21% and 2.89% was assumed in the plan valuation for 2021, 2020 and 2019, respectively.
As the benefit amount is not dependent upon compensation levels, a rate of increase in compensation assumption was not
utilized in the plan valuation. The Company expects its contribution to the directors' retirement plan to be $38,000 in 2022.
The benefits expected to be paid in each of the next five years and in aggregate for the five years thereafter are as
follows:
(in thousands)
2022
2023
2024
2025
2026
2027-2031
$
38
38
38
37
27
200
Note 14 - Stock-Based Compensation
The Company's 2018 Omnibus Equity Incentive Plan (the "Plan") authorizes the granting of incentive stock options,
supplemental stock options, stock appreciation rights, restricted shares, restricted stock units ("RSUs"), other stock-based
awards and cash-based awards to officers, employees and non-employee directors of, and consultants and advisors to, the
Company and its subsidiaries. The Plan authorized the issuance of up to 2.0 million shares of Company common stock.
Restricted Stock
The following is a summary of the Company's restricted stock activity during the year ended December 31, 2021:
Outstanding, beginning of year
Granted
Vested
Outstanding, end of year
Number of
Shares
Weighted
Average
Price
23,910
$
16,028
(23,903)
16,035
$
14.77
13.72
14.78
13.72
In 2021, the Company granted 16,028 shares of restricted stock to non-employee directors at a grant date fair value of
$13.72 per share under the Company’s 2018 Omnibus Equity Incentive Plan. The restricted stock vests one year from the date it
was granted. Compensation expense on this restricted stock is expected to be $220,000 over a one year period. In 2020, the
Company granted 23,852 shares of restricted stock to non-employee directors at a grant date fair value of $14.78 per share
under the Company’s 2018 Omnibus Equity Incentive Plan. These shares vested over a one year period and totaled $353,000 in
compensation expense. In 2019, the Company granted 13,052 shares of restricted stock to non-employee directors at a grant
date fair value of $15.96 per share under the Company’s 2018 Omnibus Equity Incentive Plan. These shares vested over a one
year period and totaled $208,000 in compensation expense.
The total fair value of the restricted stock vested during the year ended December 31, 2021 was approximately
$353,000. Compensation expense recognized for restricted stock was $330,000, $242,000 and $212,000 in 2021, 2020 and
2019, respectively. There was no unrecognized compensation expense related to restricted stock grants as of December 31,
2021.
-79-
Restricted Stock Units
The following is a summary of the Company's RSU activity during the year ended December 31, 2021:
Outstanding, beginning of year
Granted
Vested
Forfeited
Outstanding, end of year
Number of
RSUs
Weighted
Average
Price
$
372,552
376,966
(146,133)
(12,043)
591,342
$
16.63
17.21
18.19
15.21
16.64
In 2021, the Company granted 376,966 RSUs at a weighted average grant date fair value of $17.21 per share under the
Company’s 2018 Omnibus Equity Incentive Plan. The RSUs vest within a range of two to three years. A portion of these RSUs
will vest subject to certain performance conditions in the restricted stock unit agreements. There are also certain provisions in
the compensation program which state that if a holder of the RSUs reaches a certain age and years of service, the person has
effectively earned a portion of the RSUs at that time. Compensation expense on the RSUs granted in 2021 is expected to
average approximately $2.2 million per year over a three year period.
In 2020, the Company granted 176,869 RSUs at a weighted average grant date fair value of $15.34 per share under the
Company’s 2018 Omnibus Equity Incentive Plan. These RSUs vest within a range of two to three years, with compensation
expense expected to average approximately $904,000 per year over a three year period. In 2019, the Company granted 149,559
RSUs at a weighted average grant date fair value of $16.54 per share under the Company’s 2018 Omnibus Equity Incentive
Plan. Compensation expense on these RSUs was expected to average $825,000 per year over a three year period.
Compensation expense for restricted stock units totaled $3.7 million, $2.4 million and $2.3 million in 2021, 2020 and
2019, respectively. There was approximately $5.1 million in unrecognized compensation expense related to RSUs as of
December 31, 2021, which is expected to be recognized over a period of 1.06 years.
Stock Options
The following is a summary of the Company's stock option activity during the year ended December 31, 2021:
Outstanding, beginning of year
Exercised
Outstanding, end of year
Options exercisable at year-end
Number of
Shares
Weighted
Average
Exercise
Price
2,764
$
(2,764)
— $
— $
6.94
6.94
—
—
Weighted
Average
Remaining
Contractual
Term
(in Years)
Aggregate
Intrinsic
Value
1.07 $
15,934
0.00 $
0.00 $
—
—
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, which is the difference
between the Company's closing stock price on the last trading day of the period and the exercise price, multiplied by the number
of in-the-money options. There were no stock option grants during 2021 or 2020. The 2,764 stock options exercised during
2021 had an intrinsic value of $27,000 and resulted in $19,000 in cash receipts. No stock options were exercised during 2020.
As of December 31, 2021, there was no unrecognized compensation expense related to unvested stock options and there was no
compensation expense recognized for stock options for 2021, 2020 and 2019.
Excess tax deficiencies on stock based compensation was $89,000 for 2021 and $132,000 for 2020, while excess tax
benefits of stock based compensation totaled $189,000 for the year 2019.
Note 15 - Revenue Recognition
The Company’s primary source of revenue is interest income generated from loans and investment securities. Interest
income is recognized according to the terms of the financial instrument agreement over the life of the loan or investment
security unless it is determined that the counterparty is unable to continue making interest payments. Interest income also
includes prepaid interest fees from commercial customers, which approximates the interest foregone on the balance of the loan
prepaid.
-80-
The Company’s additional source of income, also referred to as noninterest income, is generated from deposit related
fees, interchange fees, loan fees, merchant fees, loan sales and other miscellaneous income and is largely based on contracts
with customers. In these cases, the Company recognizes revenue when it satisfies a performance obligation by transferring
control over a product or service to a customer. The Company considers a customer to be any party to which the Company will
provide goods or services that are an output of the Company’s ordinary activities in exchange for consideration. There is little
seasonality with regards to revenue from contracts with customers and all inter-company revenue is eliminated when the
Company’s financial statements are consolidated.
Generally, the Company enters into contracts with customers that are short-term in nature where the performance
obligations are fulfilled and payment is processed at the same time. Such examples include revenue related to merchant fees,
interchange fees and investment services income. In addition, revenue generated from existing customer relationships such as
deposit accounts are also considered short-term in nature, because the relationship may be terminated at any time and payment
is processed at the time performance obligations are fulfilled. As a result, the Company does not have contract assets, contract
liabilities or related receivable accounts for contracts with customers. In cases where collectability is a concern, the Company
does not record revenue.
Generally, the pricing of transactions between the Company and each customer is either (i) established within a legally
enforceable contract between the two parties, as is the case with the loan sales, or (ii) disclosed to the customer at a specific
point in time, as is the case when a deposit account is opened or before a new loan is underwritten. Fees are usually fixed at a
specific amount or as a percentage of a transaction amount. No judgment or estimates by management are required to record
revenue related to these transactions and pricing is clearly identified within these contracts.
The Company primarily operates in one geographic region, northern and central New Jersey, metropolitan New York
and contiguous areas. Therefore, all significant operating decisions are based upon analysis of the Company as one operating
segment or unit.
We disaggregate our revenue from contracts with customers by contract-type and timing of revenue recognition, as we
believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic
factors. Noninterest income not generated from customers during the Company’s ordinary activities primarily relates to
mortgage servicing rights, gains/losses on the sale of investment securities, gains/losses on the sale of other real estate owned,
gains/losses on the sale of property, plant and equipment, and income from bank owned life insurance.
-81-
The following table sets forth the components of noninterest income for the years ended December 31, 2021, 2020 and
2019:
(in thousands)
Deposit-Related Fees and Charges
Debit card interchange income
Overdraft charges
ATM service charges
Demand deposit fees and charges
Savings service charges
Total deposit-related fees and charges
Commissions and Fees
Loan fees
Wire transfer charges
Investment services income
Merchant fees
Commissions from sales of checks
Safe deposit income
Other income
Total commissions and fees
Gains on Sale of Loans
Other Income
Gains on customer swap transactions
Title insurance income
Other income
Total other income
Revenue not from contracts with customers
Total Noninterest Income
Timing of Revenue Recognition
Products and services transferred at a point in time
Products and services transferred over time
Revenue not from contracts with customers
Total Noninterest Income
Note 16 - Other Operating Expenses
2021
2020
2019
6,213
2,476
660
446
61
9,856
1,858
1,533
1,837
984
301
320
189
7,022
2,264
634
109
404
1,147
2,072
22,361
20,266
23
2,072
22,361
$
$
$
$
5,431
2,582
522
540
73
9,148
1,227
1,412
1,630
833
292
345
181
5,920
3,322
4,719
177
438
5,334
3,386
27,110
23,649
75
3,386
27,110
$
$
$
$
5,719
4,052
826
501
107
11,205
1,510
1,223
1,651
813
407
364
250
6,218
1,660
3,231
183
1,463
4,877
2,836
26,796
23,885
75
2,836
26,796
$
$
$
$
The following table presents the major components of other operating expenses for the periods indicated:
(in thousands)
Consulting and advisory board fees
ATM and debit card expense
Telecommunications expense
Marketing expense
Core deposit intangible amortization
Other real estate owned and other repossessed assets expense
Long-term debt prepayment penalties
Long-term debt extinguishment costs
Other operating expenses
Total other operating expenses
$
$
2021
2020
2019
2,856
2,528
2,099
1,642
868
—
—
831
12,994
23,818
$
$
3,937
2,331
1,875
1,253
1,025
53
4,133
—
12,763
27,370
$
$
2,635
2,377
1,943
1,945
1,182
256
—
—
12,839
23,177
-82-
Note 17 - Commitments and Contingencies
Litigation
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.
Financial Instruments with Off-Balance-Sheet Risk and Concentrations of Credit Risk
The Company is a party to transactions with off-balance-sheet risk in the normal course of business in order to meet
the financing needs of its customers and consists of commitments to extend credit. These transactions involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts recognized in the accompanying consolidated balance
sheets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract and generally have fixed expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Lakeland evaluates each customer’s creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by Lakeland upon extension of credit, is based on management’s credit
evaluation of the borrower. At December 31, 2021 and 2020, Lakeland had $1.14 billion and $1.11 billion, respectively, in
commitments to originate loans, including unused lines of credit.
Lakeland issues financial standby letters of credit and performance letters of credit that are conditional commitments
issued by Lakeland to guarantee the payment by or performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Lakeland holds deposit
accounts, residential or commercial real estate, accounts receivable, inventory and equipment as collateral to support those
commitments for which collateral is deemed necessary. The extent of collateral held for those commitments varies based on
management’s credit evaluation. Lakeland’s exposure under these letters of credit would be reduced by actual performance,
subsequent termination by the beneficiaries and by any proceeds that Lakeland obtained in liquidating the collateral for the
loans, which varies depending on the customer. The maximum potential undiscounted amount of future payments of these
letters of credit as of December 31, 2021 and 2020 was $19.5 million and $14.8 million, respectively, and they expire through
2024. The fair value of Lakeland's liability for financial standby letters of credit was insignificant at December 31, 2021.
At December 31, 2021, there were $39,000 of commitments to lend additional funds to borrowers whose terms have
been modified in troubled debt restructurings. There were no such commitments to lend additional funds at December 31, 2020.
Note 18 - Comprehensive Income (Loss)
The Company reports comprehensive income or loss in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income.
The following table shows the changes in the balances of each of the components of other comprehensive income
(loss) for the periods presented.
(in thousands)
Year Ended December 31, 2021
Tax Benefit
(Expense)
Before
Tax Amount
Net of
Tax Amount
Unrealized holding losses on securities available for sale arising
during the period
Reclassification adjustment for securities gains included in net
income
Net unrealized losses on securities available for sale
Net gain on securities reclassified from available for sale to held to
maturity
Amortization of gain on debt securities reclassified to held to
maturity from available for sale
Unrealized gains on derivatives
Change in pension liability, net
Other comprehensive loss
$
(15,117) $
4,466
$
(10,651)
(9)
(15,126)
3
4,469
3,814
(1,030)
(383)
143
43
(11,509) $
118
(168)
(13)
3,376
$
$
(6)
(10,657)
2,784
(265)
(25)
30
(8,133)
-83-
(in thousands)
Unrealized holding gains on securities available for sale arising
during the period
Reclassification adjustment for securities gains included in net
income
Unrealized holding gains on securities available for sale arising
during the period
Unrealized losses on derivatives
Change in pension liability, net
Other comprehensive income
(in thousands)
Unrealized holding gains on securities available for sale arising
during the period
Unrealized losses on derivatives
Change in pension liability, net
Other comprehensive income
Before
Tax Amount
Year Ended December 31, 2020
Tax Benefit
(Expense)
Net of
Tax Amount
$
14,049
$
(3,711) $
10,338
(1,213)
12,836
(413)
(36)
12,387
$
341
(3,370)
121
11
(3,238) $
(872)
9,466
(292)
(25)
9,149
Before
Tax Amount
Year Ended December 31, 2019
Tax Benefit
(Expense)
Net of
Tax Amount
14,763
(828)
(64)
13,871
$
(4,045)
242
18
(3,785) $
10,718
(586)
(46)
10,086
$
$
(in thousands)
Unrealized
Gains
(Losses) on
Available-
for-Sale
Securities
Amortization
of Gain on
Debt
Securities
Reclassified
to Held to
Maturity
Unrealized
Gains
(Losses) on
Derivatives
Pension
Items
Total
Balance at January 1, 2019
Net current period other comprehensive income
(loss)
Balance at December 31, 2019
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive income
Net current period other comprehensive income
(loss)
Balance at December 31, 2020
Net unrealized gain on securities reclassified from
available for sale to held to maturity
Other comprehensive (loss) income before
reclassifications
Amounts reclassified from accumulated other
comprehensive income
Net current period other comprehensive (loss)
income
Balance at December 31, 2021
$
$
$
$
(8,782) $
— $
903
$
41
$
(7,838)
10,718
1,936
$
10,338
(872)
9,466
11,402
$
(2,784)
(7,867)
(6)
—
— $
(586)
317
$
(46)
(5) $
10,086
2,248
—
—
(292)
(25)
10,021
—
—
(872)
—
— $
(292)
25
$
(25)
(30) $
9,149
11,397
2,784
(265)
—
—
(25)
—
—
30
—
—
(8,127)
(6)
(7,873)
745
$
(265)
2,519
$
(25)
— $
30
— $
(8,133)
3,264
-84-
Note 19 - Fair Value Measurement and Fair Value of Financial Instruments
Fair Value Measurement
Accounting standards related to fair value measurements define fair value, provide a framework for measuring fair
value and establish related disclosure requirements. Fair value is broadly defined as the price that would be received to sell an
asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction
between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels giving the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (level 1 measurements) and the lowest level priority to unobservable inputs
(level 3 measurements).
The three levels of fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities; includes U.S. treasury notes and
other U.S. government agency securities that actively trade in over-the-counter markets; equity securities and mutual funds that
actively trade in over-the-counter markets.
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or
liabilities in markets that are less active; or inputs other than quoted prices that are observable for the asset or liability including
yield curves, volatilities, and prepayment speeds.
Level 3 - Unobservable inputs for the asset or liability that reflect the Company’s own assumptions about assumptions
that market participants would use in the pricing of the asset or liability and that are consequently not based on market activity
but on particular valuation techniques.
The Company’s assets that are measured at fair value on a recurring basis are its investment securities available for
sale, equity securities and its interest rate swaps. The Company obtains fair values on its securities using information from a
third party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1
securities. The Company has U.S. treasury notes that are classified as Level 1 securities. Level 2 securities were primarily
comprised of U.S. agency bonds, residential mortgage-backed securities, obligations of state and political subdivisions and
corporate securities. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or
through the use of pricing models supported with market data information. Standard inputs include benchmark yields, reported
trades, broker-dealer quotes, issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information
received from the Company’s third party pricing service. This review includes a comparison to non-binding third-party quotes.
The fair values of derivatives are based on valuation models using current market terms (including interest rates and
fees), the remaining terms of the agreements and the credit worthiness of the counter-party as of the measurement date (Level
2).
Recurring Fair Value Measurements
The following table sets forth the Company’s financial assets that were accounted for at fair value on a recurring basis
as of the periods presented by level within the fair value hierarchy. During the years ended December 31, 2021 and 2020, the
Company did not make any transfers between recurring Level 1 fair value measurements and recurring Level 2 fair value
measurements. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant
to the fair value measurement:
-85-
December 31, 2021
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies
Mortgage-backed securities, residential
Collateralized mortgage obligations, residential
Mortgage-backed securities, multifamily
Collateralized mortgage obligations,
multifamily
Asset-backed securities
Corporate debt securities
Total securities available for sale
Equity securities, at fair value
Derivative assets
Total Assets
Liabilities:
Derivative liabilities
Total Liabilities
December 31, 2020
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies
Mortgage-backed securities
Collateralized mortgage obligations
Mortgage-backed securities, multifamily
Collateralized mortgage obligations,
multifamily
Asset-backed securities
Obligations of states and political subdivisions
Corporate debt securities
Total securities available for sale
Equity securities, at fair value
Derivative assets
Total Assets
Liabilities:
Derivative liabilities
Total Liabilities
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
$
$
$
$
104,861
—
—
—
—
—
—
104,861
—
—
104,861
$
$
— $
— $
98,526
237,975
191,291
1,741
32,519
52,584
50,459
665,095
17,368
43,799
726,262
43,799
43,799
$
$
$
$
— $
—
—
—
—
—
—
—
—
—
— $
— $
— $
203,387
237,975
191,291
1,741
32,519
52,584
50,459
769,956
17,368
43,799
831,123
43,799
43,799
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
$
$
$
$
9,392
—
—
—
—
—
—
—
9,392
—
—
9,392
$
$
— $
— $
55,610
228,156
209,038
1,944
41,535
40,690
233,710
35,671
846,354
14,694
80,734
941,782
80,877
80,877
$
$
$
$
— $
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
65,002
228,156
209,038
1,944
41,535
40,690
233,710
35,671
855,746
14,694
80,734
951,174
80,877
80,877
-86-
Non-Recurring Fair Value Measurements
The Company has a held for sale loan portfolio that consists of residential mortgages that are being sold in the
secondary market. The Company records these mortgages at the lower of cost or fair market value. Fair value is generally
determined by the value of purchase commitments.
Loans that do not have similar risk characteristics to the segments reported must be individually evaluated to determine
an appropriate allowance. Management has identified criteria and procedures for identifying whether a loan should be
individually evaluated for calculation of expected credit losses. If a loan is identified as meeting any of the criteria, it is deemed
to have risk characteristics that are unique and will be separated from a pool. Those loans that are considered to have unique
risk characteristics are then subjected to an individual allowance evaluation using either the fair value of the collateral, less
estimated costs to sell, if collateral-dependent or the discounted cash flow method.
Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure or
deed in lieu of foreclosure, are carried at fair value less estimated disposal costs of the acquired property. Fair value on other
real estate owned is based on the appraised value of the collateral using discount rates or capitalization rates similar to those
used in impaired loan valuation. The fair value of other repossessed assets is estimated by inquiry through a recognized
valuation resource.
Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts.
Changes in economic conditions, locally or nationally, could impact the value of the estimated amounts of impaired loans,
OREO and other repossessed assets.
The following table summarized the Company’s financial assets that are measured at fair value on a non-recurring
basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
December 31, 2021
(in thousands)
Assets:
Individually evaluated loans
December 31, 2020
(in thousands)
Assets:
Individually evaluated loans
(Level 1)
(Level 2)
(Level 3)
Total
Fair Value
— $
— $
7,113
$
7,113
(Level 1)
(Level 2)
(Level 3)
Total
Fair Value
— $
— $
2,417
$
2,417
$
$
Fair Value of Certain Financial Instruments
Estimated fair values have been determined by the Company using the best available data and an estimation
methodology suitable for each category of financial instruments. Management is concerned that there may not be reasonable
comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.
The estimation methodologies used, the estimated fair values, and recorded book balances at December 31, 2021 and
December 31, 2020 are outlined below.
This summary, as well as the table below, excludes financial assets and liabilities for which carrying value
approximates fair value. For financial assets, these include cash and cash equivalents. For financial liabilities, these include
noninterest-bearing demand deposits, savings and interest-bearing transaction accounts and federal funds sold and securities
sold under agreements to repurchase. The estimated fair value of demand, savings and interest-bearing transaction accounts is
the amount payable on demand at the reporting date. Carrying value is used because there is no stated maturity on these
accounts and the customer has the ability to withdraw the funds immediately. Also excluded from this summary and the
following table are those financial instruments recorded at fair value on a recurring basis, as previously described.
The fair value of investment securities held to maturity was measured using information from the same third-party
servicer used for investment securities available for sale using the same methodologies discussed above.
FHLB stock is an equity interest that can be sold to the issuing FHLB, to other FHLBs, or to other member banks at its
par value. Because ownership of these securities is restricted, they do not have a readily determinable fair value. As such, the
Company’s FHLB stock is recorded at cost or par value and is evaluated for impairment each reporting period by considering
the ultimate recoverability of the investment rather than temporary declines in value. The Company’s evaluation primarily
includes an evaluation of liquidity, capitalization, operating performance, commitments, and regulatory or legislative events.
-87-
The net loan portfolio is valued using an exit price approach, which incorporates a build-up discount rate calculation
that uses a swap rate adjusted for credit risk, servicing costs, a liquidity premium and a prepayment premium.
For fixed maturity certificates of deposit, fair value was estimated based on the present value of discounted cash flows
using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
The fair value of long-term debt is based upon the discounted value of contractual cash flows. The Company estimates
the discount rate using the rates currently offered for similar borrowing arrangements. The fair value of subordinated debentures
is based on bid/ask prices from brokers for similar types of instruments.
The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting date. The fair values of commitments to extend credit and standby letters of credit are deemed
immaterial.
The following table summarized the carrying values, fair values and placement in the fair value hierarchy of the
Company’s financial instruments as of December 31, 2021 and December 31, 2020:
Carrying
Value
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
18,672
370,247
$
18,965
364,976
$
— $
—
18,965
364,976
$
December 31, 2021
(in thousands)
Financial Assets:
Investment securities held to maturity
U.S. Treasury and U.S. government agencies
Mortgage-backed securities, residential
Collateralized mortgage obligations,
residential
Mortgage-backed securities, multifamily
Collateralized mortgage obligations,
multifamily
Obligations of states and political
subdivisions
Corporate bonds
Total investment securities held to maturity, net
Federal Home Loan and other membership
bank stock
Loans, net
Financial Liabilities:
Certificates of deposit
Other borrowings
Subordinated debentures
—
—
—
—
—
832
—
832
14,089
2,734
—
410,744
2,871
814,379
9,049
—
—
5,900,876
753,483
24,604
—
—
—
175,243
13,921
2,710
14,089
2,734
—
—
416,566
2,840
824,956
411,576
2,871
815,211
9,049
5,918,101
9,049
5,900,876
759,227
25,000
179,043
753,483
24,604
175,243
—
—
—
—
—
—
—
—
—
—
—
-88-
December 31, 2020
(in thousands)
Financial Assets:
Investment securities held to maturity
U.S. Treasury and U.S. government agencies
Mortgage-backed securities, residential
Collateralized mortgage obligations,
residential
Mortgage-backed securities, multifamily
Obligations of states and political
subdivisions
Total investment securities held to maturity, net
Federal Home Loan and other membership
bank stock
Loans, net
Financial Liabilities:
Certificates of deposit
Other borrowings
Subordinated debentures
Note 20 - Derivatives
Carrying
Value
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
25,565
39,276
$
26,344
40,733
— $
—
$
26,344
40,733
14,590
705
10,630
90,766
15,122
759
10,910
93,868
11,979
5,950,108
11,979
5,939,413
1,078,256
25,000
118,257
1,077,620
25,206
118,208
—
—
—
—
—
—
—
—
—
15,122
759
10,910
93,868
11,979
—
1,077,620
25,206
—
—
—
—
—
—
—
—
5,939,413
—
—
118,208
Lakeland is a party to interest rate derivatives that are not designated as hedging instruments. Lakeland executes
interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest
rate swaps with customers are simultaneously offset by interest rate swaps that Lakeland executes with a third party, such that
Lakeland minimizes its net risk exposure resulting from such transactions. Because these interest rate swaps do not meet the
strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are
recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the
counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for
all counterparties. As of December 31, 2021 and 2020, Lakeland had $55.1 million and $83.2 million, respectively, in securities
pledged for collateral on its interest rate swaps.
In June 2016, the Company entered into two cash flow hedges in order to hedge the variable cash outflows associated
with its floating rate subordinated debentures. For more information, see Note 10 to the Company's consolidated financial
statements. The notional value of these hedges was $30.0 million. The Company’s objective in using the cash flow hedge was
to add stability to interest expense and to manage its exposure to interest rate movements. The Company used interest rate
swaps designated as cash flow hedges which involved the receipt of variable amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In
these particular hedges, the Company was paying a third party an average of 1.10% in exchange for a payment at 3 month
LIBOR. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are
recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the
hedged forecasted transaction affects earnings. During the year ended December 31, 2021, the Company did not record any
hedge ineffectiveness. The Company recognized $142,000 and $50,000 of accumulated other comprehensive expense that was
reclassified into interest expense during 2021 and 2020, respectively. On June 30, 2021, $20.0 million in notional value of the
swaps matured and on August 1, 2021, the remaining $10.0 million matured. The Company did not enter into any hedges in
2021.
-89-
The following tables present summary information regarding these derivatives for the periods presented (dollars in
thousands):
December 31, 2021
Classified in Other Assets:
Third party interest rate swaps
Customer interest rate swaps
Classified in Other Liabilities:
Customer interest rate swaps
Third party interest rate swaps
December 31, 2020
Classified in Other Assets:
3rd Party interest rate swaps
Customer interest rate swaps
Classified in Other Liabilities:
Customer interest rate swaps
3rd party interest rate swaps
Interest rate swap (cash flow hedge)
Note 21 - Regulatory Matters
Notional
Amount
Average
Maturity
(Years)
Weighted
Average
Rate Fixed
Weighted Average
Variable Rate
326,941
607,688
326,941
607,688
7.7
8.2
7.7
8.2
3.14 %
3.97 %
3.14 %
3.97 %
1 Mo. LIBOR + 2.32
1 Mo. LIBOR + 1.87
1 Mo. LIBOR + 2.32
1 Mo. LIBOR + 1.87
Notional
Amount
Average
Maturity
(Years)
Weighted
Average
Rate Fixed
Weighted Average
Variable Rate
73,075
907,069
73,075
907,069
30,000
9.5
8.7
9.5
8.7
0.5
3.20 %
3.79 %
3.20 %
3.79 %
1.10 %
1 Mo. LIBOR + 2.55
1 Mo. LIBOR + 1.99
1 Mo. LIBOR + 2.55
1 Mo. LIBOR + 1.99
3 Mo. LIBOR
$
$
$
$
Fair Value
$
$
9,847
33,952
(9,847)
(33,952)
Fair Value
$
$
503
80,231
(503)
(80,231)
(143)
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 Lakeland will be unimpaired,
and: (1) Lakeland will have a surplus, as defined, of not less than 50% of its capital stock, or, if not, (2) the payment of such
dividend will not reduce the surplus, as defined, of Lakeland. Under these limitations, approximately $782.9 million was
available for payment of dividends from Lakeland to the Company as of December 31, 2021.
The Company and Lakeland are subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possible additional discretionary –
actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Lakeland’s consolidated
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures of the Company’s and Lakeland’s assets,
liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company’s and
Lakeland’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulations to ensure capital adequacy require the Company and Lakeland to
maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2021, that the Company
and Lakeland met all capital adequacy requirements to which they are subject.
As of December 31, 2021, the most recent notification from the FDIC categorized Lakeland as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well capitalized, Lakeland must maintain minimum
total risk-based, Tier 1 risk-based, common equity Tier 1 capital and Tier 1 leverage ratios as set forth in the table below. There
are no conditions or events since that notification that management believes have changed the institution’s category.
-90-
As of December 31, 2021 and 2020, the Company and Lakeland have the following capital ratios based on the then
current regulations:
(dollars in thousands)
December 31, 2021
Actual
Amount
Ratio
Total capital (to risk-weighted assets)
For Capital
Adequacy Purposes with
Capital Conservation Buffer
Ratio
Amount
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Company
Lakeland
$ 903,415
14.48 % >
$ 654,978
> 10.50%
N/A
N/A
852,339
13.67 %
654,692
10.50 % >
$ 623,516
> 10.00%
Tier 1 capital (to risk-weighted assets)
Company
Lakeland
$ 695,634
11.15 % >
$ 530,220
> 8.50%
N/A
N/A
792,363
12.71 %
529,989
8.50 % >
$ 498,813
> 8.00%
Common equity Tier 1 capital (to risk-weighted assets)
Company
Lakeland
$ 665,634
10.67 % >
$ 436,652
> 7.00%
N/A
N/A
792,363
12.71 %
436,461
7.00 % >
$ 405,285
> 6.50%
Tier 1 capital (to average assets)
Company
Lakeland
$ 695,634
8.51 % >
$ 326,813
> 4.00%
N/A
N/A
792,363
9.70 %
326,734
4.00 % >
$ 408,418
> 5.00%
(dollars in thousands)
December 31, 2020
Actual
Amount
Ratio
Total capital (to risk-weighted assets)
For Capital
Adequacy Purposes with
Capital Conservation Buffer
Ratio
Amount
To Be Well Capitalized Under
Prompt Corrective Action
Provisions
Amount
Ratio
Company
Lakeland
$ 783,107
12.84 % >
$ 640,632
> 10.50%
N/A
N/A
745,276
12.22 %
640,416
10.50 % >
$ 609,920
> 10.00%
Tier 1 capital (to risk-weighted assets)
Company
Lakeland
$ 623,644
10.22 % >
$ 518,607
> 8.50%
N/A
N/A
672,832
11.03 %
518,432
8.50 % >
$ 487,936
> 8.00%
Common equity Tier 1 capital (to risk-weighted assets)
Company
Lakeland
$ 593,644
9.73 % >
$ 427,088
> 7.00%
N/A
N/A
672,832
11.03 %
426,944
7.00 % >
$ 396,448
> 6.50%
Tier 1 capital (to average assets)
Company
Lakeland
$ 623,644
8.37 % >
$ 298,096
> 4.00%
N/A
N/A
672,832
9.04 %
297,748
4.00 % >
$ 372,185
> 5.00%
Note 22 - Goodwill and Other Intangible Assets
The Company reported goodwill of $156.3 million at December 31, 2021 and 2020. The Company reviews its
goodwill and intangible assets annually, on November 30, or more frequently if conditions warrant, for impairment. In testing
goodwill for impairment, the Company compares the estimated fair value of its reporting unit to its carrying amount, including
goodwill. The Company has determined that it has one reporting unit. During the year ended December 31, 2021, there were no
triggering events that would more likely than not reduce the fair value of our one reporting unit below its carrying amount.
There was no impairment of goodwill recognized during the years ended December 31, 2021 and 2020.
-91-
Core deposit intangible was $2.4 million on December 31, 2021 compared to $3.3 million on December 31, 2020. In
2021, 2020 and 2019, amortization of core deposit intangible totaled $868,000, $1.0 million and $1.2 million, respectively. The
estimated future amortization expense for each of the succeeding five years ended December 31 is as follows:
(in thousands)
2022
2023
2024
2025
2026
$
711
554
425
317
210
Note 23 - Subsequent Event (Unaudited)
1st Constitution Bancorp
On January 6, 2022, the Company completed its acquisition of 1st Constitution Bancorp ("1st Constitution"), a bank
holding company headquartered in Cranbury, New Jersey. 1st Constitution was the parent of 1st Constitution Bank, which
operated 25 branches in Bergen, Mercer, Middlesex, Monmouth, Ocean and Somerset Counties in New Jersey. This acquisition
enabled the Company to broaden its presence in those counties. Effective as of the close of business on January 6, 2022, 1st
Constitution merged into the Company and 1st Constitution Bank merged into Lakeland. Pursuant to the merger agreement, the
shareholders of 1st Constitution received for each outstanding share of 1st Constitution common stock that they owned at the
effective time of the merger, 1.3577 shares of Lakeland Bancorp, Inc. common stock. The Company issued 14,020,495 shares
of its common stock in the merger. Outstanding 1st Constitution options were paid out in cash at the difference between $25.55
and an average strike price of $15.95 for a total cash payment of $559,000. Given the close proximity between the transaction
closing date and the Company’s Annual Report on Form 10-K, the preliminary purchase price allocation has not yet been
completed. Management expects to complete the initial accounting for 1st Constitution, including the purchase price allocation,
later in the first quarter of 2022. As a result, the estimated fair values of the assets acquired and liabilities assumed, the
valuation techniques and inputs used to measure and develop the fair values and any goodwill recorded will be disclosed in the
Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2022. Full system integration was completed in
February 2022 and three 1st Constitution Bank and one Lakeland Bank branches were closed.
Note 24 - Condensed Financial Information - Parent Company Only
Condensed Balance Sheets
(in thousands)
Assets
Cash and due from banks
Investment in subsidiaries
Other assets
Total Assets
Liabilities and Stockholders’ Equity
Other liabilities
Subordinated debentures
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
December 31,
2021
2020
$
$
$
$
40,228
954,506
12,639
1,007,373
1,316
179,043
827,014
1,007,373
$
$
$
$
28,366
843,711
11,274
883,351
1,310
118,257
763,784
883,351
-92-
Condensed Statements of Income
(in thousands)
Income
Dividends from subsidiaries
Other income (loss)
Total Income
Expense
Interest on subordinated debentures
Noninterest expenses
Total Expense
Income before benefit for income taxes
Income taxes benefit
Income before equity in undistributed income of subsidiaries
Equity in undistributed income of subsidiaries
Net Income Available to Common Shareholders
Years Ended December 31,
2020
2019
2021
$
$
$
50,648
34
50,682
$
29,961
(486)
29,475
5,419
1,498
6,917
43,765
(1,445)
45,210
49,831
95,041
$
5,968
549
6,517
22,958
(1,645)
24,603
32,915
57,518
$
36,905
408
37,313
5,983
464
6,447
30,866
(1,646)
32,512
38,160
70,672
-93-
Condensed Statements of Cash Flows
(in thousands)
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Years Ended December 31,
2020
2019
2021
$
95,041
$
57,518
$
70,672
Gain on sale of equity securities
Amortization of subordinated debt costs
Benefit for credit losses
Long-term debt extinguishment costs
Change in fair value of equity securities
Excess tax (deficiency) benefits
Increase in other assets
Increase in other liabilities
Equity in undistributed income of subsidiaries
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities
Purchases of equity securities
Proceeds from maturity of held to maturity securities
Proceeds from sale of equity securities
Net cash received from business acquisition
Contribution to subsidiary
Net Cash (Used in) Provided by Investing Activities
Cash Flows from Financing Activities
Cash dividends paid on common stock
Proceeds from issuance of common stock, net
Proceeds from issuance of subordinated debt, net
Redemption of subordinated debentures, net
Purchase of treasury stock
Retirement of restricted stock
Exercise of stock options
Net Cash Provided by (Used in) Financing Activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and Cash Equivalents, End of Year
—
547
—
831
—
(89)
(1,443)
149
(49,831)
45,205
—
—
—
—
(65,000)
(65,000)
(27,119)
—
147,738
(88,330)
—
(651)
19
31,657
11,862
28,366
40,228
$
(149)
37
(12)
—
786
(132)
(1,462)
25
(32,915)
23,696
(49)
1,000
1,148
—
—
2,099
(25,457)
—
—
—
(1,452)
(501)
—
(27,410)
(1,615)
29,981
28,366
$
—
36
—
—
(197)
189
(1,873)
121
(38,160)
30,788
(82)
—
1,287
24
—
1,229
(24,919)
—
—
—
—
(715)
313
(25,321)
6,696
23,285
29,981
$
-94-
ITEM 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not Applicable
ITEM 9A – Controls and Procedures.
Disclosure Controls
As of the end of the period covered by this Annual Report on Form 10-K, the Company’s management, including the
Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) pursuant to Securities
Exchange Act Rule 15d-15(b).
Based on their evaluation as of December 31, 2021, the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective in ensuring that the information required to be disclosed by the
Company in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms and are operating in an effective manner and
that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The management of Lakeland Bancorp, Inc. and its subsidiaries (the “Company”) is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934.
The Company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and the board of directors of the
Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate
because of changes in conditions or because of declines in the degree of compliance with policies or procedures.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2021. In making this assessment, the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).
As of December 31, 2021, based on management’s assessment, the Company’s internal control over financial
reporting was effective.
Our independent registered public accounting firm, KPMG LLP, audited our internal control over financial reporting
as of December 31, 2021. Their report, dated February 28, 2022, expressed an unqualified opinion on our internal control over
financial reporting.
Changes in Internal Controls Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter
ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
-95-
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Lakeland Bancorp, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Lakeland Bancorp, Inc. and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated
statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-
year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report
dated February 28, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Short Hills, New Jersey
February 28, 2022
-96-
ITEM 9B – Other Information.
None.
ITEM 9C – Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.
None.
PART III
ITEM 10 – Directors, Executive Officers and Corporate Governance.
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s
definitive proxy statement for its 2022 Annual Meeting of Shareholders.
ITEM 11 - Executive Compensation.
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s
definitive proxy statement for its 2022 Annual Meeting of Shareholders.
ITEM 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The Company responds to this Item by incorporating by reference the material responsive to this Item in the
Company’s definitive proxy statement for its 2022 Annual Meeting of Shareholders.
EQUITY COMPENSATION PLAN INFORMATION
The following table gives information about the Company’s common stock that may be issued upon the exercise of
options under the Company’s 2018 Omnibus Equity Incentive Plan as of December 31, 2021. This plan was the Company’s
only equity compensation plans in existence as of December 31, 2021.
Plan Category
Equity Compensation Plans Approved by Shareholders
Equity Compensation Plans Not Approved by Shareholders
TOTAL
(a)
Number Of
Securities To Be
Issued Upon
Exercise Of
Outstanding
Options, Warrants
and Rights
(b)
Weighted-Average
Exercise Price Of
Outstanding Options,
Warrants and Rights
(c)
Number Of Securities
Remaining Available
For Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected In Column
(a))
607,377
—
607,377
$
$
—
—
—
1,247,587
—
1,247,587
ITEM 13 - Certain Relationships and Related Transactions, and Director Independence.
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s
definitive proxy statement for its 2022 Annual Meeting of Shareholders.
ITEM 14 - Principal Accounting Fees and Services.
Our independent registered public accounting firm is KPMG LLP, Short Hills, NJ, Auditor Firm ID is 185.
The Company required by this Item 14 is incorporated by reference from the "Audit Matters" section of the 2022 Proxy
Statement.
-97-
ITEM 15 - Exhibits and Financial Statement Schedules.
PART IV
(a) 1.
Report:
The following portions of the Company’s consolidated financial statements are set forth in Item 8 of this Annual
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Consolidated Balance Sheets as of December 31, 2021 and 2020.
Consolidated Statements of Income for each of the three years in the period ended December 31, 2021.
Consolidated Statements of Comprehensive Income for each of the three years in the period ended
December 31, 2021.
Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period
ended December 31, 2021.
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,
2021.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
(a) 2.
Financial Statement Schedules
All financial statement schedules are omitted as the information, if applicable, is presented in the consolidated
financial statements or notes thereto.
(a) 3.
Exhibits
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1+
10.2+
10.3+
Agreement and Plan of Merger, dated as of July 11, 2021, by and between Lakeland Bancorp, Inc. and
1st Constitution Bancorp is incorporated by reference to Exhibit 2.1 to Registrant's Current Report on
Form 8-K filed with the SEC on July 12, 2021.
Registrant's Restated Certificate of Incorporation, dated July 24, 2018, is incorporated by reference to
Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2018.
Registrant's Amended and Restated Bylaws are incorporated by reference to Exhibit 3.1 to Registrant's
Current Report on Form 8-K filed with the SEC on April 9, 2020.
Indenture, dated as of September 30, 2016, between Lakeland Bancorp, Inc. and U.S. Bank National
Association, as Trustee, is incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report
on Form 8-K filed with the SEC on September 30, 2016
First Supplemental Indenture, dated as of September 30, 2016, between Lakeland Bancorp, Inc. and
U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K filed with the SEC on September 30, 2016.
Description of the Registrant's Securities is incorporated by reference to Exhibit 4.3 to the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2019
Indenture, dated as of September 15, 2021, between Lakeland Bancorp, Inc. and U.S. Bank National
Association, as Trustee, is incorporated by reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K filed with the SEC on September 15, 2021.
First Supplemental Indenture, dated as of September 15, 2021, between Lakeland Bancorp, Inc. and
U.S. Bank National Association, as Trustee, is incorporated by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K filed with the SEC on September 15, 2021.
Lakeland Bancorp, Inc. 2018 Omnibus Equity Incentive Plan is incorporated by reference to Exhibit
10.1 to the Registrant's Current Report on Form 8-K filed with the SEC on May 11, 2018.
Lakeland Bancorp, Inc. 2009 Equity Compensation Program, as amended and restated effective
February 27, 2014, is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed with the SEC on February 28, 2014.
Lakeland Bancorp, Inc. Elective Deferral Plan is incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on March 20, 2015.
-98-
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
Lakeland Bancorp, Inc. Directors’ Deferred Compensation Plan, as amended and restated, is
incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed with the
SEC on December 30, 2008.
Employment Agreement, dated as of April 2, 2008 and executed on May 22, 2008, among Lakeland
Bancorp, Inc., Lakeland Bank and Thomas J. Shara, is incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on May 28, 2008.
Amendment, dated August 7, 2015, to Employment Agreement, dated April 2, 2008 and executed May
22, 2008, among Lakeland Bancorp, Inc., Lakeland Bank and Thomas J. Shara, is incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August
7, 2015.
Supplemental Executive Retirement Plan Agreement for Thomas J. Shara, effective as of April 2, 2008,
among Lakeland Bancorp, Inc., Lakeland Bank and Thomas J. Shara is incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 28, 2008.
Deferred Compensation Agreement, dated February 27, 2015, among Lakeland Bancorp, Inc.,
Lakeland Bank and Thomas J. Shara, is incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on March 2, 2015.
Change in Control Agreement, dated as of June 12, 2009, among Lakeland Bancorp, Inc., Lakeland
Bank and Ronald E. Schwarz, is incorporated by reference to Exhibit 10.25 to the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2010.
Amendment, dated August 7, 2015, to Change in Control Agreement, dated June 12, 2009, among
Lakeland Bancorp, Inc., Lakeland Bank and Ronald E. Schwarz, is incorporated by reference to Exhibit
10.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 7, 2015.
Amendment, dated May 9, 2019, to Change in Control Agreement, dated June 12, 2009, among
Lakeland Bancorp, Inc., Lakeland Bank and Ronald E. Schwarz, is incorporated by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q filed with the SEC on May 9, 2019.
Change of Control Agreement, dated October 31, 2013, among Lakeland Bancorp, Inc., Lakeland Bank
and Timothy J. Matteson, is incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2013.
Amendment, dated November 6, 2014, to Change in Control Agreement, dated October 31, 2013,
among Lakeland Bancorp, Inc., Lakeland Bank and Timothy J. Matteson, as incorporated by reference
to Exhibit 10.1 to the Registrants' Quarterly Report on Form 10-Q for the quarter ended September 30,
2014.
Amendment, dated August 7, 2015, to Change in Control Agreement, dated October 31, 2013, as
amended, among Lakeland Bancorp, Inc., Lakeland Bank and Timothy J. Matteson, is incorporated by
reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the period ended June
30, 2015.
Change in Control Agreement, dated as of April 11, 2016, among Lakeland Bancorp, Inc., Lakeland
Bank and James Nigro, is incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q filed with the SEC on May 10, 2016.
Change in Control Agreement, dated as of March 15, 2017, among Lakeland Bancorp, Inc., Lakeland
Bank and Thomas Splaine, is incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed with the SEC on March 16, 2017.
Amended Change in Control Agreement, dated January 1, 2018, among Lakeland Bancorp, Inc.,
Lakeland Bank and Ellen Lalwani, is incorporated by reference to Exhibit 10.30 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2017.
Change in Control Agreement, dated January 1, 2018, among Lakeland Bancorp, Inc., Lakeland Bank
and John Rath, is incorporated by reference to Exhibit 10.31 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 2017.
Change in Control Agreement, dated March 1, 2019, among Lakeland Bancorp, Inc., Lakeland Bank
and Paul Ho Sing Loy, is incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report
on Form 10-Q filed with the SEC on May 9, 2019.
Somerset Hills Bancorp 2001 Combined Stock Option Plan is incorporated by reference to Exhibit 4.6
to the Registrant’s Registration Statement on Form S-8 filed with the SEC on June 3, 2013.
-99-
10.21+
10.22+
10.23
10.24+
21.1
23.1
24.1
31.1
31.2
32.1
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Somerset Hills Bancorp 2007 Equity Incentive Plan is incorporated by reference to Exhibit 4.7 to the
Registrant’s Registration Statement on Form S-8 filed with the SEC on June 3, 2013.
Somerset Hills Bancorp 2012 Equity Incentive Plan is incorporated by reference to Exhibit 4.8 to the
Registrant’s Registration Statement on Form S-8 filed with the SEC on June 3, 2013.
Master Agreement, dated October 31, 2017 among Lakeland Bancorp, Inc., Lakeland Bank and Fiserv
Solutions, LLC, is incorporated by reference to Exhibit 10.29 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2017.
Amendatory Agreement, dated January 6, 2022, to the Change in Control Agreement by and among
Lakeland Bancorp, Inc., and Ronald E. Schwarz, is incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed with the SEC on January 6, 2022.
Subsidiaries of Registrant.
Consent of KPMG LLP.
Power of Attorney.
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Inline XBRL Instance Document (The instance document does not appear in the interactive data file
because its XBRL tags are embedded within the Inline XBRL document)
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)
+ Denotes management contract or compensatory plan, contract or arrangement.
ITEM 16 – Form 10-K Summary.
Not applicable.
-100-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LAKELAND BANCORP, INC.
Dated: February 28, 2022
By:
/s/ Thomas J. Shara
Thomas J. Shara
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ Bruce D. Bohuny*
Bruce D. Bohuny
/s/ Mary Ann Deacon*
Mary Ann Deacon
/s/ Brian M. Flynn*
Brian M. Flynn
/s/ Mark J. Fredericks*
Mark J. Fredericks
/s/ Brian Gragnolati*
Brian Gragnolati
/s/ James E. Hanson II*
James E. Hanson II
/s/ Janeth C. Hendershot*
Janeth C. Hendershot
/s/ Lawrence R. Inserra, Jr.*
Lawrence R. Inserra, Jr.
/s/ Robert F. Mangano*
Robert F. Mangano
/s/ Robert E. McCracken*
Robert E. McCracken
/s/ Robert B. Nicholson, III*
Robert B. Nicholson, III
Director
Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
-101-
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
February 28, 2022
Signature
/s/ Thomas J. Shara
Thomas J. Shara
/s/ Thomas Splaine
Thomas Splaine
*By:
/s/ Thomas J. Shara
Thomas J. Shara
Attorney-in-Fact
Capacity
Director, President and Chief Executive
Officer (Principal Executive Officer)
Date
February 28, 2022
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting
Officer)
February 28, 2022
February 28, 2022
-102-
LAKELAND INVESTOR INFORMATION
STOCK LISTING
Common shares of Lakeland Bancorp, Inc., trade on the Nasdaq Global Select under the symbol “LBAI.”
DIVIDEND CALENDAR
Dividends on Lakeland Bancorp, Inc. common stock are customarily payable on or about the 15th of February, May, August
and November.
REGISTRAR AND TRANSFER AGENT
EQ Shareowner Services
P.O. Box 64874
St Paul, MN 55164-0874
888-556-0419
651-450-4064 (outside the United States)
www.shareowneronline.com
CORPORATE HEADQUARTERS
Lakeland Bancorp, Inc.
250 Oak Ridge Road
Oak Ridge, NJ 07438
973-697-2000
INFORMATION ON LAKELAND BANCORP, INC., CAN ALSO BE FOUND ON THE INTERNET AT LAKELANDBANK.COM
250 Oak Ridge Road | Oak Ridge, NJ 07438
t: 973-697-2000 | LakelandBank.com | Stock symbol: LBAI
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