The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements Unaudited
Note 1. Significant Accounting Policies
Basis of
Presentation.
This quarterly report presents the consolidated financial statements of Lakeland Bancorp, Inc. and its subsidiaries,
including Lakeland Bank (Lakeland) and the Banks wholly owned subsidiaries (collectively, the Company). The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States
of America (U.S. GAAP) and predominant practices within the banking industry.
The Companys unaudited interim financial statements
reflect all adjustments, such as normal recurring accruals that are, in the opinion of management, necessary for the fair presentation of the results of the interim periods. The results of operations for the three and six months ended June 30,
2016 do not necessarily indicate the results that the Company will achieve for all of 2016.
Certain information and footnote disclosures
required under U.S. GAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission. You should read these interim financial statements in conjunction with the audited consolidated financial
statements and accompanying notes that are presented in the Lakeland Bancorp, Inc. Annual Report on Form 10-K for the year ended December 31, 2015.
Note 2. Acquisitions
Harmony Bank
On July 1, 2016, the Company completed its acquisition of Harmony Bank, a bank located in Ocean County, NJ. Effective upon the opening of
business on July 1, 2016, Harmony was merged into Lakeland Bank. This merger allows the Company to expand its presence to Ocean County. The merger agreement provided that shareholders of Harmony would receive 1.25 shares of the Company common
stock for each share of Harmony Bank common stock that they owned at the effective time of the merger. The Company issued an aggregate of approximately 3,201,109 shares of its common stock in the merger. Outstanding Harmony stock options were paid
out in cash at the difference between $14.31 (Lakelands closing stock price on July 1, 2016 of $11.45 multiplied by 1.25) and the average strike price of $9.07 for a total cash payment of $869,000. As of the opening of business
July 1, 2016, Harmony operated three branches in Ocean County, New Jersey, and had total assets, total loans, total deposits and total stockholders equity of $314 million, $261 million, $277 million, and $24 million, respectively. As the
merger has not been completed as of June 30, 2016, the transaction is not reflected in the balance sheet or results of operations for the periods presented in this document.
Pascack Bancorp
On January 7, 2016,
the Company completed its acquisition of Pascack Bancorp, Inc. (Pascack), a bank holding company headquartered in Waldwick, New Jersey. Pascack was the parent of Pascack Community Bank. This acquisition enables the Company to broaden its
presence in Bergen and Essex counties. Effective as of the close of business on January 7, 2016, Pascack merged into the Company, and Pascack Community Bank merged into Lakeland Bank. The Merger Agreement provided that the shareholders of Pascack
would receive, at their election, for each outstanding share of Pascack common stock that they own at the effective time of the merger, either 0.9576 shares of Lakeland Bancorp common stock or $11.35 in cash, subject to proration as described in the
Merger Agreement, so that 90% of the aggregate merger consideration was shares of Lakeland Bancorp common stock and 10% was cash. Lakeland Bancorp issued an aggregate of 3,314,284 shares of its common stock in the merger and paid approximately $4.4
million in cash excluding the cash paid in connection with the cancellation of Pascack stock options. Outstanding Pascack stock options were paid out in cash at the difference between $11.35 and an average strike price of $7.37 for a total cash
payment of $122,000. As of January 7, 2016, Pascack operated 8 branches in Bergen and Essex Counties in New Jersey, and had total assets, total loans, total deposits and total stockholders equity of $389.9 million, $320.9 million, $303.2
million and $26.9 million, respectively, before purchase accounting adjustments. This transaction resulted in $15.3 million of goodwill and generated $1.5 million in core deposit intangibles.
8
During the quarter ended June 30, 2016, the Company revised the estimated fair value of the
acquired assets as of the acquisition date as the result of additional information obtained. The adjustment related to the fair market value of certain fixed assets which resulted in a $158,000 decrease in goodwill.
The acquisition was accounted for under the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and
consideration exchanged were recorded at their estimated fair values as of the acquisition date. Pascacks assets were recorded at their preliminary estimated fair values as of January 7, 2016 and Pascacks results of operations are
included in the Companys Consolidated Statements of Income from that date forward.
The assets acquired and liabilities assumed in
the acquisition were recorded at their estimated fair values based on managements best estimates using information available at the date of the acquisition, including the use of a third party valuation specialist. The fair values are
preliminary estimates and subject to adjustment for up to one year after the closing date of the acquisition. The following table summarizes the estimated fair value of the acquired assets and liabilities assumed at the date of acquisition for
Pascack, net of cash consideration paid.
|
|
|
|
|
|
|
On Janaury 7,
2016
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
40,942
|
|
Securities held to maturity
|
|
|
3,925
|
|
Federal Home Loan Bank stock
|
|
|
2,962
|
|
Loans and leases
|
|
|
319,575
|
|
Premises and equipment
|
|
|
14,438
|
|
Goodwill
|
|
|
15,311
|
|
Identifiable intangible assets
|
|
|
1,514
|
|
Accrued interest receivable and other assets
|
|
|
6,672
|
|
|
|
|
|
|
Total assets acquired
|
|
|
405,339
|
|
|
|
|
|
|
Deposits
|
|
|
(304,466
|
)
|
Other borrowings
|
|
|
(57,308
|
)
|
Other liabilities
|
|
|
(6,344
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(368,118
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
37,221
|
|
|
|
|
|
|
Loans acquired in the Pascack acquisition were recorded at fair value and subsequently accounted for in
accordance with ASC Topic 310, and there was no carryover related allowance for loan and lease losses. The fair values of loans acquired from Pascack were estimated using cash flow projections based on the remaining maturity and repricing terms.
Cash flows were adjusted for estimated future credit losses and the rate of prepayments. Projected cash flows were then discounted to present value using a risk-adjusted market rate for similar loans.
9
The following is a summary of the loans acquired in the Pascack acquisition as of the closing
date.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Acquired
Credit
Impaired
Loans
|
|
|
Acquired
Non-Credit
Impaired
Loans
|
|
|
Total
Acquired
Loans
|
|
Contractually required principal and interest at acquisition
|
|
$
|
4,932
|
|
|
$
|
442,401
|
|
|
$
|
447,333
|
|
Contractual cash flows not expected to be collected (non-accretable difference)
|
|
|
4,030
|
|
|
|
|
|
|
|
4,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
$
|
902
|
|
|
$
|
442,401
|
|
|
$
|
443,303
|
|
Interest component of expected cash flows (accretable difference)
|
|
|
85
|
|
|
|
123,643
|
|
|
|
123,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of acquired loans
|
|
$
|
817
|
|
|
$
|
318,758
|
|
|
$
|
319,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The core deposit intangible totaled $1.5 million and is being estimated over its estimated useful life of
approximately 10 years using an accelerated method. The goodwill will be evaluated annually for impairment. The goodwill is not deductible for tax purposes.
The fair values of deposit liabilities with no stated maturities such as checking, money market and savings accounts, were assumed to equal
the carrying amounts since these deposits are payable on demand. The fair values of certificates of deposits and IRAs represent the present value of contractual cash flows discounted at market rates for similar certificates of deposit.
Direct costs related to the Pascack and Harmony acquisitions were expensed as incurred. During the six months ended June 30, 2016, the
Company incurred $2.4 million of merger and acquisition integration-related expenses, which have been separately stated in the Companys consolidated statements of income.
Supplemental Pro Forma Financial Information
The following table provides unaudited condensed pro forma financial information assuming that the Pascack acquisition had been completed as of
January 1, 2016, for the six months ended June 30, 2016 and as of January 1, 2015 for the six months ended June 30, 2015. The table below has been prepared for comparative purposes only and is not necessarily indicative of the
actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited proforma information does not reflect managements
estimate of any revenue-enhancing opportunities nor anticipated cost savings or the impact of conforming certain accounting policies of the acquired company to the Companys policies that may have occurred as a result of the integration and
consolidation of Pascacks operations. The pro forma information shown reflects adjustments related to certain purchase accounting fair value adjustments; amortization of core deposit and other intangibles; and related income tax effects. The
Company has not provided separate information regarding revenue and earnings of Pascack since the acquisition because of the manner in which Pascacks branches and lending team were immediately merged into Lakelands branches and lending
team making such information impracticable to provide.
10
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pro-Forma
June 30, 2016
|
|
|
Pro-Forma
June 30, 2015
|
|
Net interest income
|
|
$
|
69,209
|
|
|
$
|
64,518
|
|
Provision for loan losses
|
|
|
2,085
|
|
|
|
1,610
|
|
Noninterest income
|
|
|
9,756
|
|
|
|
9,887
|
|
Noninterest expense
|
|
|
46,978
|
|
|
|
46,506
|
|
Net income
|
|
|
19,855
|
|
|
|
17,528
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Fully diluted
|
|
$
|
0.48
|
|
|
$
|
0.42
|
|
Note 3. Earnings Per Share
The following schedule shows the Companys earnings per share calculations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30
,
|
|
(In thousands, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income available to common shareholders
|
|
$
|
10,130
|
|
|
$
|
7,862
|
|
|
$
|
18,238
|
|
|
$
|
16,192
|
|
Less: earnings allocated to participating securities
|
|
|
106
|
|
|
|
68
|
|
|
|
162
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
|
|
$
|
10,024
|
|
|
$
|
7,794
|
|
|
$
|
18,076
|
|
|
$
|
16,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
41,238
|
|
|
|
37,854
|
|
|
|
41,084
|
|
|
|
37,827
|
|
Share-based plans
|
|
|
168
|
|
|
|
134
|
|
|
|
161
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
41,406
|
|
|
|
37,988
|
|
|
|
41,245
|
|
|
|
37,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.24
|
|
|
$
|
0.21
|
|
|
$
|
0.44
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.24
|
|
|
$
|
0.21
|
|
|
$
|
0.44
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no antidilutive options to purchase common stock to be excluded from the computation for the three
and six months ended June 30, 2016.
Options to purchase 83,437 shares of common stock at a weighted average price of $12.29 per
share were outstanding and were not included in the computations of diluted earnings per share for the three and six months ended June 30, 2015 because the exercise price was greater than the average market price.
11
Note 4. Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available For Sale
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
U.S. treasury and U.S. government agencies
|
|
$
|
90,746
|
|
|
$
|
2,034
|
|
|
$
|
|
|
|
$
|
92,780
|
|
|
$
|
97,617
|
|
|
$
|
190
|
|
|
$
|
(674
|
)
|
|
$
|
97,133
|
|
Mortgage-backed securities, residential
|
|
|
292,829
|
|
|
|
4,835
|
|
|
|
(119
|
)
|
|
|
297,545
|
|
|
|
280,018
|
|
|
|
1,717
|
|
|
|
(2,283
|
)
|
|
|
279,452
|
|
Mortgage-backed securities, multifamily
|
|
|
10,220
|
|
|
|
288
|
|
|
|
|
|
|
|
10,508
|
|
|
|
10,249
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
10,120
|
|
Obligations of states and political subdivisions
|
|
|
39,225
|
|
|
|
1,390
|
|
|
|
(8
|
)
|
|
|
40,607
|
|
|
|
35,639
|
|
|
|
910
|
|
|
|
(51
|
)
|
|
|
36,498
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
|
|
3
|
|
|
|
|
|
|
|
501
|
|
Equity securities
|
|
|
16,715
|
|
|
|
2,490
|
|
|
|
(255
|
)
|
|
|
18,950
|
|
|
|
16,550
|
|
|
|
2,393
|
|
|
|
(298
|
)
|
|
|
18,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
449,735
|
|
|
$
|
11,037
|
|
|
$
|
(382
|
)
|
|
$
|
460,390
|
|
|
$
|
440,571
|
|
|
$
|
5,213
|
|
|
$
|
(3,435
|
)
|
|
$
|
442,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
U.S. government agencies
|
|
$
|
26,589
|
|
|
$
|
974
|
|
|
$
|
|
|
|
$
|
27,563
|
|
|
$
|
30,477
|
|
|
$
|
289
|
|
|
$
|
(94
|
)
|
|
$
|
30,672
|
|
Mortgage-backed securities, residential
|
|
|
37,972
|
|
|
|
882
|
|
|
|
(33
|
)
|
|
|
38,821
|
|
|
|
36,466
|
|
|
|
411
|
|
|
|
(426
|
)
|
|
|
36,451
|
|
Mortgage-backed securities, multifamily
|
|
|
2,110
|
|
|
|
23
|
|
|
|
|
|
|
|
2,133
|
|
|
|
2,159
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
2,099
|
|
Obligations of states and political subdivisions
|
|
|
57,534
|
|
|
|
1,370
|
|
|
|
(62
|
)
|
|
|
58,842
|
|
|
|
45,617
|
|
|
|
809
|
|
|
|
(156
|
)
|
|
|
46,270
|
|
Other debt securities
|
|
|
2,016
|
|
|
|
72
|
|
|
|
|
|
|
|
2,088
|
|
|
|
2,021
|
|
|
|
81
|
|
|
|
|
|
|
|
2,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
126,221
|
|
|
$
|
3,321
|
|
|
$
|
(95
|
)
|
|
$
|
129,447
|
|
|
$
|
116,740
|
|
|
$
|
1,590
|
|
|
$
|
(736
|
)
|
|
$
|
117,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following table shows investment securities by stated maturity. Securities backed by
mortgages have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay, and are, therefore, classified separately with no specific maturity date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
2,389
|
|
|
$
|
2,405
|
|
|
$
|
20,956
|
|
|
$
|
20,924
|
|
Due after one year through five years
|
|
|
73,837
|
|
|
|
75,555
|
|
|
|
23,854
|
|
|
|
24,629
|
|
Due after five years through ten years
|
|
|
48,059
|
|
|
|
49,516
|
|
|
|
34,112
|
|
|
|
35,442
|
|
Due after ten years
|
|
|
5,686
|
|
|
|
5,911
|
|
|
|
7,217
|
|
|
|
7,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,971
|
|
|
|
133,387
|
|
|
|
86,139
|
|
|
|
88,493
|
|
Mortgage-backed securities
|
|
|
303,049
|
|
|
|
308,053
|
|
|
|
40,082
|
|
|
|
40,954
|
|
Equity securities
|
|
|
16,715
|
|
|
|
18,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
449,735
|
|
|
$
|
460,390
|
|
|
$
|
126,221
|
|
|
$
|
129,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows proceeds from sales of securities and gross gains on sales of securities for the
periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Sale proceeds
|
|
$
|
|
|
|
$
|
11,472
|
|
|
$
|
15,654
|
|
|
$
|
11,472
|
|
Gross gains
|
|
|
|
|
|
|
28
|
|
|
|
370
|
|
|
|
28
|
|
Gross losses
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
There were no other-than-temporary impairments for the six months ended June 30, 2016 or 2015.
Gains or losses on sales of investment 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 $357.0 million and $347.7 million at June 30,
2016 and December 31, 2015, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
13
The following table indicates the length of time individual securities have been in a continuous
unrealized loss position at June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Number of
Securities
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
|
(in thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities, residential
|
|
$
|
5,089
|
|
|
$
|
22
|
|
|
$
|
16,727
|
|
|
$
|
97
|
|
|
|
14
|
|
|
$
|
21,816
|
|
|
$
|
119
|
|
Obligations of states and political subdivisions
|
|
|
888
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
888
|
|
|
|
8
|
|
Equity securities
|
|
|
234
|
|
|
|
42
|
|
|
|
4,774
|
|
|
|
213
|
|
|
|
2
|
|
|
|
5,008
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,211
|
|
|
$
|
72
|
|
|
$
|
21,501
|
|
|
$
|
310
|
|
|
|
17
|
|
|
$
|
27,712
|
|
|
$
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities, residential
|
|
$
|
2,291
|
|
|
$
|
10
|
|
|
$
|
1,121
|
|
|
$
|
23
|
|
|
|
3
|
|
|
$
|
3,412
|
|
|
$
|
33
|
|
Obligations of states and political subdivisions
|
|
|
15,204
|
|
|
|
61
|
|
|
|
752
|
|
|
|
1
|
|
|
|
13
|
|
|
|
15,956
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,495
|
|
|
$
|
71
|
|
|
$
|
1,873
|
|
|
$
|
24
|
|
|
|
16
|
|
|
$
|
19,368
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Number of
Securities
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
|
(in thousands)
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and U.S. government agencies
|
|
$
|
80,192
|
|
|
$
|
674
|
|
|
$
|
|
|
|
$
|
|
|
|
|
16
|
|
|
$
|
80,192
|
|
|
$
|
674
|
|
Mortgage-backed securities, residential
|
|
|
103,749
|
|
|
|
1,043
|
|
|
|
50,095
|
|
|
|
1,240
|
|
|
|
50
|
|
|
|
153,844
|
|
|
|
2,283
|
|
Mortgage-backed securities, multifamily
|
|
|
10,120
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
10,120
|
|
|
|
129
|
|
Obligations of states and political subdivisions
|
|
|
2,051
|
|
|
|
4
|
|
|
|
1,466
|
|
|
|
47
|
|
|
|
7
|
|
|
|
3,517
|
|
|
|
51
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
247
|
|
|
|
24
|
|
|
|
4,643
|
|
|
|
274
|
|
|
|
3
|
|
|
|
4,890
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,359
|
|
|
$
|
1,874
|
|
|
$
|
56,204
|
|
|
$
|
1,561
|
|
|
|
78
|
|
|
$
|
252,563
|
|
|
$
|
3,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
15,683
|
|
|
$
|
94
|
|
|
$
|
|
|
|
$
|
|
|
|
|
3
|
|
|
$
|
15,683
|
|
|
$
|
94
|
|
Mortgage-backed securities, residential
|
|
|
20,283
|
|
|
|
262
|
|
|
|
6,687
|
|
|
|
164
|
|
|
|
11
|
|
|
|
26,970
|
|
|
|
426
|
|
Mortgage-backed securities, multifamily
|
|
|
1,223
|
|
|
|
18
|
|
|
|
876
|
|
|
|
42
|
|
|
|
2
|
|
|
|
2,099
|
|
|
|
60
|
|
Obligations of states and political subdivisions
|
|
|
9,181
|
|
|
|
149
|
|
|
|
2,043
|
|
|
|
7
|
|
|
|
15
|
|
|
|
11,224
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,370
|
|
|
$
|
523
|
|
|
$
|
9,606
|
|
|
$
|
213
|
|
|
|
31
|
|
|
$
|
55,976
|
|
|
$
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management has evaluated the securities in the above table and has concluded that none of the securities are
other-than-temporarily impaired. The cause of the fair values being below cost is due to interest rate movements and is deemed temporary. All investment securities are evaluated on a periodic basis to identify any factors that would require a
further analysis. In evaluating the Companys securities, management considers the following items:
|
|
|
The Companys ability and intent to hold the securities, including an evaluation of the need to sell the security to meet certain liquidity measures, or whether the Company has sufficient levels of cash to hold the
identified security in order to recover the entire amortized cost of the security;
|
14
|
|
|
The financial condition of the underlying issuer;
|
|
|
|
The credit ratings of the underlying issuer and if any changes in the credit rating have occurred;
|
|
|
|
The length of time the securitys fair value has been less than amortized cost; and
|
|
|
|
Adverse conditions related to the security or its issuer if the issuer has failed to make scheduled payments or other factors.
|
If the above factors indicate that an additional analysis is required, management will perform and consider the results of a discounted cash
flow analysis.
As of June 30, 2016, the equity securities include investments in equity stocks and investments in investment funds
that use net asset value per share to measure fair value. The equity stocks represent investments in other financial institutions for market appreciation purposes. Those equities had a purchase price of $2.7 million and a market value of $5.0
million as of June 30, 2016.
The investment funds include $2.9 million that are primarily invested in community development loans
that are guaranteed by the Small Business Administration (SBA). Because the funds are primarily guaranteed by the federal government there are minimal changes in market 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 June 30, 2016, the net amortized cost equaled the market value of the investment. There are no unfunded commitments related to this
investment.
The investment funds also include $11.0 million that are invested in government guaranteed loans, mortgage-backed securities,
small business loans and other instruments supporting affordable housing and economic development. 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. As of
June 30, 2016, the amortized cost of these securities was $11.0 million and the fair value was $11.0 million. 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 this investment.
Note 5. Loans, Leases and Other Real Estate
The following sets forth the composition of the Companys loan and lease portfolio as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Commercial, secured by real estate
|
|
$
|
2,200,147
|
|
|
$
|
1,761,589
|
|
Commercial, industrial and other
|
|
|
313,062
|
|
|
|
307,044
|
|
Leases
|
|
|
63,338
|
|
|
|
56,660
|
|
Real estate - residential mortgage
|
|
|
383,823
|
|
|
|
389,692
|
|
Real estate - construction
|
|
|
152,978
|
|
|
|
118,070
|
|
Home equity and consumer
|
|
|
340,956
|
|
|
|
334,891
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
3,454,304
|
|
|
|
2,967,946
|
|
|
|
|
|
|
|
|
|
|
Less: deferred fees
|
|
|
(2,922
|
)
|
|
|
(2,746
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred fees
|
|
$
|
3,451,382
|
|
|
$
|
2,965,200
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016 and December 31, 2015, home equity and consumer loans included overdraft deposit
balances of $512,000 and $705,000, respectively. At June 30, 2016 and December 31, 2015, the Company had $807.0 million and $738.7 million in loans pledged for actual and potential borrowings at the Federal Home Loan Bank of New York
(FHLB).
15
The carrying value of loans acquired in the Pascack acquisition and accounted for in accordance
with ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, was $0.8 million at June 30, 2016, which was substantially the same as the balance at the Pascack acquisition date of January 7,
2016. Under ASC Subtopic 310-30, these loans, referred to as purchased credit impaired (PCI) loans, may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The Company elected
to account for the loans with evidence of credit deterioration individually rather than aggregate them into pools. The difference between the undiscounted cash flows expected at acquisition and the investment in the acquired loans, or the
accretable yield, is recognized as interest income utilizing the level-yield method over the life of each loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition,
or the non-accretable difference, are not recognized as a yield adjustment, as a loss accrual or as a valuation allowance.
Increases in expected cash flows subsequent to the acquisition are recognized prospectively through an adjustment of the yield on the loans
over the remaining life, while decreases in expected cash flows are recognized as impairments through a loss provision and an increase in the allowance for loan and lease losses. Valuation allowances (recognized in the allowance for loan and lease
losses) on these impaired loans reflect only losses incurred after the acquisition (representing all cash flows that were expected at acquisition but currently are not expected to be received).
There were no material increases or decreases in the expected cash flows between acquisition date and June 30, 2016. The Company
recognized $31,000 of interest income on the credit impaired loans acquired.
Non-Performing Assets and Past Due Loans
The following schedule sets forth certain information regarding the Companys non-performing assets and its accruing troubled debt
restructurings, excluding PCI loans:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Commercial, secured by real estate
|
|
$
|
12,554
|
|
|
$
|
10,446
|
|
Commercial, industrial and other
|
|
|
41
|
|
|
|
103
|
|
Leases
|
|
|
159
|
|
|
|
316
|
|
Real estate - residential mortgage
|
|
|
8,865
|
|
|
|
8,664
|
|
Home equity and consumer
|
|
|
3,325
|
|
|
|
3,167
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans and leases
|
|
$
|
24,944
|
|
|
$
|
22,696
|
|
Other real estate and other repossessed assets
|
|
|
1,594
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-PERFORMING ASSETS
|
|
$
|
26,538
|
|
|
$
|
23,679
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings, still accruing
|
|
$
|
9,509
|
|
|
$
|
10,108
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans included $2.4 million and $2.5 million of troubled debt restructurings as of June 30,
2016 and December 31, 2015, respectively. As of June 30, 2016 and December 31, 2015, the Company had $7.0 million and $7.9 million, respectively, in residential mortgages and consumer home equity loans that were in the process of
foreclosure.
16
An age analysis of past due loans, segregated by class of loans as of June 30, 2016 and
December 31, 2015, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
Than
|
|
|
|
|
|
|
|
|
Total
|
|
|
Investment Greater
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
89 Days
|
|
|
Total
|
|
|
|
|
|
Loans
|
|
|
than 89 Days and
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
and Leases
|
|
|
Still Accruing
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
5,357
|
|
|
$
|
4,150
|
|
|
$
|
9,269
|
|
|
$
|
18,776
|
|
|
$
|
2,181,371
|
|
|
$
|
2,200,147
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
792
|
|
|
|
213
|
|
|
|
136
|
|
|
|
1,141
|
|
|
|
311,921
|
|
|
|
313,062
|
|
|
|
|
|
Leases
|
|
|
145
|
|
|
|
25
|
|
|
|
159
|
|
|
|
329
|
|
|
|
63,009
|
|
|
|
63,338
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
2,168
|
|
|
|
1,263
|
|
|
|
6,906
|
|
|
|
10,337
|
|
|
|
373,486
|
|
|
|
383,823
|
|
|
|
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,978
|
|
|
|
152,978
|
|
|
|
|
|
Home equity and consumer
|
|
|
650
|
|
|
|
146
|
|
|
|
2,568
|
|
|
|
3,364
|
|
|
|
337,592
|
|
|
|
340,956
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,112
|
|
|
$
|
5,797
|
|
|
$
|
19,038
|
|
|
$
|
33,947
|
|
|
$
|
3,420,357
|
|
|
$
|
3,454,304
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
1,465
|
|
|
$
|
693
|
|
|
$
|
7,853
|
|
|
$
|
10,011
|
|
|
$
|
1,751,578
|
|
|
$
|
1,761,589
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
205
|
|
|
|
|
|
|
|
103
|
|
|
|
308
|
|
|
|
306,736
|
|
|
|
307,044
|
|
|
|
|
|
Leases
|
|
|
62
|
|
|
|
26
|
|
|
|
316
|
|
|
|
404
|
|
|
|
56,256
|
|
|
|
56,660
|
|
|
|
|
|
Real estateresidential mortgage
|
|
|
1,361
|
|
|
|
725
|
|
|
|
7,472
|
|
|
|
9,558
|
|
|
|
380,134
|
|
|
|
389,692
|
|
|
|
|
|
Real estateconstruction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,070
|
|
|
|
118,070
|
|
|
|
|
|
Home equity and consumer
|
|
|
876
|
|
|
|
141
|
|
|
|
3,498
|
|
|
|
4,515
|
|
|
|
330,376
|
|
|
|
334,891
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,969
|
|
|
$
|
1,585
|
|
|
$
|
19,242
|
|
|
$
|
24,796
|
|
|
$
|
2,943,150
|
|
|
$
|
2,967,946
|
|
|
$
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
The Company defines impaired loans as all non-accrual loans and leases with recorded investments of $500,000 or greater. Impaired loans also
includes all loans modified in troubled debt restructurings. Impaired loans as of June 30, 2016 and December 31, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Investment in
|
|
|
Principal
|
|
|
Specific
|
|
|
Income
|
|
|
Investment in
|
|
June 30, 2016
|
|
Impaired Loans
|
|
|
Balance
|
|
|
Allowance
|
|
|
Recognized
|
|
|
Impaired Loans
|
|
|
|
(in thousands)
|
|
Loans without specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
12,615
|
|
|
$
|
13,090
|
|
|
$
|
|
|
|
$
|
116
|
|
|
$
|
13,015
|
|
Commercial, industrial and other
|
|
|
95
|
|
|
|
95
|
|
|
|
|
|
|
|
2
|
|
|
|
96
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
3,129
|
|
|
|
3,146
|
|
|
|
|
|
|
|
8
|
|
|
|
2,084
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
537
|
|
|
|
537
|
|
|
|
|
|
|
|
|
|
|
|
545
|
|
|
|
|
|
|
|
Loans with specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
7,630
|
|
|
|
8,143
|
|
|
|
493
|
|
|
|
145
|
|
|
|
6,924
|
|
Commercial, industrial and other
|
|
|
916
|
|
|
|
916
|
|
|
|
43
|
|
|
|
20
|
|
|
|
938
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Real estate - residential mortgage
|
|
|
934
|
|
|
|
1,008
|
|
|
|
31
|
|
|
|
15
|
|
|
|
938
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,247
|
|
|
|
1,406
|
|
|
|
103
|
|
|
|
30
|
|
|
|
1,201
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
20,245
|
|
|
$
|
21,233
|
|
|
$
|
493
|
|
|
$
|
261
|
|
|
$
|
19,939
|
|
Commercial, industrial and other
|
|
|
1,011
|
|
|
|
1,011
|
|
|
|
43
|
|
|
|
22
|
|
|
|
1,034
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Real estate - residential mortgage
|
|
|
4,063
|
|
|
|
4,154
|
|
|
|
31
|
|
|
|
23
|
|
|
|
3,022
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,784
|
|
|
|
1,943
|
|
|
|
103
|
|
|
|
30
|
|
|
|
1,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,103
|
|
|
$
|
28,341
|
|
|
$
|
670
|
|
|
$
|
336
|
|
|
$
|
25,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Investment in
|
|
|
Principal
|
|
|
Specific
|
|
|
Income
|
|
|
Investment in
|
|
December 31, 2015
|
|
Impaired Loans
|
|
|
Balance
|
|
|
Allowance
|
|
|
Recognized
|
|
|
Impaired Loans
|
|
|
|
(in thousands)
|
|
Loans without specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
14,065
|
|
|
$
|
14,712
|
|
|
$
|
|
|
|
$
|
344
|
|
|
$
|
12,928
|
|
Commercial, industrial and other
|
|
|
209
|
|
|
|
887
|
|
|
|
|
|
|
|
14
|
|
|
|
749
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
2,195
|
|
|
|
2,242
|
|
|
|
|
|
|
|
|
|
|
|
2,096
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
Home equity and consumer
|
|
|
574
|
|
|
|
575
|
|
|
|
|
|
|
|
5
|
|
|
|
762
|
|
|
|
|
|
|
|
Loans with specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
5,721
|
|
|
|
5,918
|
|
|
|
598
|
|
|
|
271
|
|
|
|
6,249
|
|
Commercial, industrial and other
|
|
|
1,023
|
|
|
|
1,023
|
|
|
|
77
|
|
|
|
32
|
|
|
|
717
|
|
Leases
|
|
|
6
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
832
|
|
|
|
865
|
|
|
|
73
|
|
|
|
37
|
|
|
|
840
|
|
Real estate - construction
|
|
|
380
|
|
|
|
380
|
|
|
|
21
|
|
|
|
13
|
|
|
|
308
|
|
Home equity and consumer
|
|
|
1,001
|
|
|
|
1,013
|
|
|
|
73
|
|
|
|
54
|
|
|
|
1,006
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
19,786
|
|
|
$
|
20,630
|
|
|
$
|
598
|
|
|
$
|
615
|
|
|
$
|
19,177
|
|
Commercial, industrial and other
|
|
|
1,232
|
|
|
|
1,910
|
|
|
|
77
|
|
|
|
46
|
|
|
|
1,466
|
|
Leases
|
|
|
6
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
3,027
|
|
|
|
3,107
|
|
|
|
73
|
|
|
|
37
|
|
|
|
2,936
|
|
Real estate - construction
|
|
|
380
|
|
|
|
380
|
|
|
|
21
|
|
|
|
13
|
|
|
|
402
|
|
Home equity and consumer
|
|
|
1,575
|
|
|
|
1,588
|
|
|
|
73
|
|
|
|
59
|
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,006
|
|
|
$
|
27,621
|
|
|
$
|
843
|
|
|
$
|
770
|
|
|
$
|
25,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans was $336,000 and $394,000, respectively, for the six months ended
June 30, 2016 and 2015. Interest that would have been accrued on impaired loans during the first six months of 2016 and 2015 had the loans been performing under original terms would have been $828,000 and $794,000, respectively.
Credit Quality Indicators
The class of
loans is determined by internal risk rating. Management closely and continually monitors the quality of its loans and leases and assesses the quantitative and qualitative risks arising from the credit quality of its loans and leases. Lakeland
assigns a credit risk rating to all commercial 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 Lakelands loan portfolios. The risk rating system assists senior management in evaluating Lakelands commercial loan portfolio, analyzing trends, and determining the proper level of required
reserves to be recommended to the Board. In assigning risk ratings, management considers, among other things, a borrowers debt service coverage, earnings strength, loan to value ratios, industry conditions and economic conditions. Management
categorizes commercial loans and commitments into a one (1) to nine (9) numerical structure with rating 1 being the strongest rating and rating 9 being the weakest. Ratings 1 through 5W are considered Pass ratings.
18
The following table shows the Companys commercial loan portfolio as of June 30, 2016
and December 31, 2015, by the risk ratings discussed above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
Real Estate-
|
|
June 30, 2016
|
|
Real Estate
|
|
|
and Other
|
|
|
Construction
|
|
Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
$
|
|
|
|
$
|
4,790
|
|
|
$
|
|
|
2
|
|
|
|
|
|
|
12,859
|
|
|
|
|
|
3
|
|
|
90,333
|
|
|
|
39,328
|
|
|
|
|
|
4
|
|
|
664,396
|
|
|
|
120,918
|
|
|
|
21,003
|
|
5
|
|
|
1,299,359
|
|
|
|
111,842
|
|
|
|
128,998
|
|
5W - Watch
|
|
|
74,293
|
|
|
|
8,824
|
|
|
|
271
|
|
6 - Other assets especially mentioned
|
|
|
23,139
|
|
|
|
4,918
|
|
|
|
1,472
|
|
7 - Substandard
|
|
|
48,627
|
|
|
|
9,583
|
|
|
|
1,234
|
|
8 - Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
9 - Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,200,147
|
|
|
$
|
313,062
|
|
|
$
|
152,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
Real Estate-
|
|
December 31, 2015
|
|
Real Estate
|
|
|
and Other
|
|
|
Construction
|
|
Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
$
|
|
|
|
$
|
3,517
|
|
|
$
|
|
|
2
|
|
|
|
|
|
|
9,662
|
|
|
|
|
|
3
|
|
|
65,199
|
|
|
|
56,895
|
|
|
|
|
|
4
|
|
|
526,909
|
|
|
|
111,702
|
|
|
|
19,125
|
|
5
|
|
|
1,044,888
|
|
|
|
105,301
|
|
|
|
94,535
|
|
5W - Watch
|
|
|
43,342
|
|
|
|
4,259
|
|
|
|
146
|
|
6 - Other assets especially mentioned
|
|
|
34,570
|
|
|
|
4,105
|
|
|
|
1,851
|
|
7 - Substandard
|
|
|
46,681
|
|
|
|
11,603
|
|
|
|
2,413
|
|
8 - Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
9 - Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,761,589
|
|
|
$
|
307,044
|
|
|
$
|
118,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The risk rating tables above do not include consumer or residential loans or leases because they are evaluated
on their payment status.
Allowance for Loan and Lease Losses
In 2015, the Company refined and enhanced its assessment of the adequacy of the allowance for loan and lease losses by extending the lookback
period on its commercial loan portfolios from three years to five years and by extending the lookback period for all other portfolios from two to three years in order to capture more of the economic cycle. It also enhanced its qualitative factor
framework to include a factor that captures the risk related to appraised real estate values, and how those values could change in relation to a change in capitalization rates. This enhancement is meant to increase the level of precision in the
allowance for loan and lease losses. As a result, the Company no longer has an unallocated segment in its allowance for loan losses, as the risks and uncertainties meant to be captured by the unallocated allowance have been included in
the qualitative framework for the respective portfolios.
19
The following table details activity in the allowance for loan and lease losses by portfolio
segment for the three and six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
20,077
|
|
|
$
|
2,597
|
|
|
$
|
588
|
|
|
$
|
2,266
|
|
|
$
|
1,504
|
|
|
$
|
3,521
|
|
|
$
|
30,553
|
|
Charge-offs
|
|
|
(139
|
)
|
|
|
(171
|
)
|
|
|
(205
|
)
|
|
|
(213
|
)
|
|
|
|
|
|
|
(317
|
)
|
|
|
(1,045
|
)
|
Recoveries
|
|
|
26
|
|
|
|
34
|
|
|
|
21
|
|
|
|
1
|
|
|
|
|
|
|
|
67
|
|
|
|
149
|
|
Provision
|
|
|
395
|
|
|
|
(248
|
)
|
|
|
220
|
|
|
|
110
|
|
|
|
284
|
|
|
|
249
|
|
|
|
1,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
20,359
|
|
|
$
|
2,212
|
|
|
$
|
624
|
|
|
$
|
2,164
|
|
|
$
|
1,788
|
|
|
$
|
3,520
|
|
|
$
|
30,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
12,560
|
|
|
$
|
3,307
|
|
|
$
|
1,038
|
|
|
$
|
3,298
|
|
|
$
|
637
|
|
|
$
|
6,924
|
|
|
$
|
2,741
|
|
|
$
|
30,505
|
|
Charge-offs
|
|
|
(805
|
)
|
|
|
(64
|
)
|
|
|
(102
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
(415
|
)
|
|
|
|
|
|
|
(1,475
|
)
|
Recoveries
|
|
|
325
|
|
|
|
42
|
|
|
|
|
|
|
|
2
|
|
|
|
6
|
|
|
|
29
|
|
|
|
|
|
|
|
404
|
|
Provision
|
|
|
1,839
|
|
|
|
(417
|
)
|
|
|
18
|
|
|
|
(195
|
)
|
|
|
82
|
|
|
|
(619
|
)
|
|
|
32
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
13,919
|
|
|
$
|
2,868
|
|
|
$
|
954
|
|
|
$
|
3,016
|
|
|
$
|
725
|
|
|
$
|
5,919
|
|
|
$
|
2,773
|
|
|
$
|
30,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
20,223
|
|
|
$
|
2,637
|
|
|
$
|
460
|
|
|
$
|
2,588
|
|
|
$
|
1,591
|
|
|
$
|
3,375
|
|
|
$
|
30,874
|
|
Charge-offs
|
|
|
(274
|
)
|
|
|
(796
|
)
|
|
|
(275
|
)
|
|
|
(306
|
)
|
|
|
|
|
|
|
(937
|
)
|
|
|
(2,588
|
)
|
Recoveries
|
|
|
81
|
|
|
|
76
|
|
|
|
22
|
|
|
|
4
|
|
|
|
|
|
|
|
113
|
|
|
|
296
|
|
Provision
|
|
|
329
|
|
|
|
295
|
|
|
|
417
|
|
|
|
(122
|
)
|
|
|
197
|
|
|
|
969
|
|
|
|
2,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
20,359
|
|
|
$
|
2,212
|
|
|
$
|
624
|
|
|
$
|
2,164
|
|
|
$
|
1,788
|
|
|
$
|
3,520
|
|
|
$
|
30,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
13,577
|
|
|
$
|
3,196
|
|
|
$
|
582
|
|
|
$
|
4,020
|
|
|
$
|
553
|
|
|
$
|
6,333
|
|
|
$
|
2,423
|
|
|
$
|
30,684
|
|
Charge-offs
|
|
|
(1,351
|
)
|
|
|
(74
|
)
|
|
|
(529
|
)
|
|
|
(106
|
)
|
|
|
(20
|
)
|
|
|
(676
|
)
|
|
|
|
|
|
|
(2,756
|
)
|
Recoveries
|
|
|
364
|
|
|
|
84
|
|
|
|
20
|
|
|
|
3
|
|
|
|
106
|
|
|
|
59
|
|
|
|
|
|
|
|
636
|
|
Provision
|
|
|
1,329
|
|
|
|
(338
|
)
|
|
|
881
|
|
|
|
(901
|
)
|
|
|
86
|
|
|
|
203
|
|
|
|
350
|
|
|
|
1,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
13,919
|
|
|
$
|
2,868
|
|
|
$
|
954
|
|
|
$
|
3,016
|
|
|
$
|
725
|
|
|
$
|
5,919
|
|
|
$
|
2,773
|
|
|
$
|
30,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Loans receivable summarized by portfolio segment and impairment method are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
June 30, 2016
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
20,245
|
|
|
$
|
1,011
|
|
|
$
|
|
|
|
$
|
4,063
|
|
|
$
|
|
|
|
$
|
1,784
|
|
|
$
|
27,103
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
2,179,493
|
|
|
|
311,720
|
|
|
|
63,338
|
|
|
|
379,760
|
|
|
|
152,978
|
|
|
|
339,153
|
|
|
$
|
3,426,442
|
|
Ending Balance: Loans acquired with deteriorated credit quality
|
|
|
409
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
$
|
759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance (1)
|
|
$
|
2,200,147
|
|
|
$
|
313,062
|
|
|
$
|
63,338
|
|
|
$
|
383,823
|
|
|
$
|
152,978
|
|
|
$
|
340,956
|
|
|
$
|
3,454,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes deferred fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
December 31, 2015
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
19,786
|
|
|
$
|
1,232
|
|
|
$
|
6
|
|
|
$
|
3,027
|
|
|
$
|
380
|
|
|
$
|
1,575
|
|
|
$
|
26,006
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
1,741,803
|
|
|
|
305,812
|
|
|
|
56,654
|
|
|
|
386,665
|
|
|
|
117,690
|
|
|
|
333,316
|
|
|
$
|
2,941,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance (1)
|
|
$
|
1,761,589
|
|
|
$
|
307,044
|
|
|
$
|
56,660
|
|
|
$
|
389,692
|
|
|
$
|
118,070
|
|
|
$
|
334,891
|
|
|
$
|
2,967,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes deferred fees
|
21
The allowance for loan and lease losses is summarized by portfolio segment and impairment
classification as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
June 30, 2016
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
493
|
|
|
$
|
43
|
|
|
$
|
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
103
|
|
|
$
|
670
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
19,866
|
|
|
|
2,169
|
|
|
|
624
|
|
|
|
2,133
|
|
|
|
1,788
|
|
|
|
3,417
|
|
|
$
|
29,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
20,359
|
|
|
$
|
2,212
|
|
|
$
|
624
|
|
|
$
|
2,164
|
|
|
$
|
1,788
|
|
|
$
|
3,520
|
|
|
$
|
30,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
December 31, 2015
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
598
|
|
|
$
|
77
|
|
|
$
|
1
|
|
|
$
|
73
|
|
|
$
|
21
|
|
|
$
|
73
|
|
|
$
|
843
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
19,625
|
|
|
|
2,560
|
|
|
|
459
|
|
|
|
2,515
|
|
|
|
1,570
|
|
|
|
3,302
|
|
|
$
|
30,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
20,223
|
|
|
$
|
2,637
|
|
|
$
|
460
|
|
|
$
|
2,588
|
|
|
$
|
1,591
|
|
|
$
|
3,375
|
|
|
$
|
30,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lakeland also maintains a reserve for unfunded lending commitments which is included in other liabilities.
This reserve was $2.5 million and $2.0 million at June 30, 2016 and December 31, 2015, respectively. The Company analyzes the adequacy of the reserve for unfunded lending commitments in conjunction with its analysis of the adequacy of the
allowance for loan and lease losses. For more information on this analysis, see Risk Elements in Managements Discussion and Analysis.
Troubled Debt Restructurings
Troubled
debt restructurings are those loans where concessions have been made due to borrowers financial difficulties. 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 Company considers the potential losses on these loans as well as the remainder of its
impaired loans while considering the adequacy of the allowance for loan and lease losses.
22
The following table summarizes loans that have been restructured during the three and six months
ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
|
(dollars in thousands)
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
2
|
|
|
$
|
1,458
|
|
|
$
|
1,458
|
|
Commercial, industrial and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
784
|
|
|
|
784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
4
|
|
|
$
|
2,242
|
|
|
$
|
2,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
|
(dollars in thousands)
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
2
|
|
|
$
|
1,458
|
|
|
$
|
1,458
|
|
Commercial, industrial and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1,933
|
|
|
|
1,933
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
14
|
|
|
|
14
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
396
|
|
|
|
396
|
|
Home equity and consumer
|
|
|
3
|
|
|
|
285
|
|
|
|
285
|
|
|
|
1
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
$
|
285
|
|
|
$
|
285
|
|
|
|
8
|
|
|
$
|
3,810
|
|
|
$
|
3,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes as of June 30, 2016 and 2015, loans that were restructured within the
previous twelve months that have subsequently defaulted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
|
(dollars in thousands)
|
|
Defaulted Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
483
|
|
Home equity and consumer
|
|
|
1
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
$
|
162
|
|
|
|
1
|
|
|
$
|
483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Other Real Estate and Other Repossessed Assets
At June 30, 2016, the Company had other real estate owned of $1.6 million. It had no other repossessed assets as of June 30, 2016. At
December 31, 2015, the Company had other real estate owned and other repossessed assets of $934,000 and $49,000, respectively. The other real estate owned that the Company held at June 30, 2016 and December 31, 2015 included $1.0
million and $805,000, respectively, in residential property acquired as a result of foreclosure proceedings or through a deed in lieu of foreclosure.
Note 6. Derivatives
Lakeland is a party
to interest rate derivatives that are not designated as hedging instruments. Under a program, 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 the interest rate swaps associated with
this program 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 June 30, 2016 and December 31, 2015, Lakeland
had $7.2 million and $2.5 million, respectively, in available for sale securities pledged for collateral on its interest rate swaps with the financial institution.
In June 2016, the Company entered into two 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 Companys objectives in using the cash flow hedge is 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 is 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 six months ended June 30, 2016, the Company did not record any
hedge ineffectiveness.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest
expense as interest payments are made on the Companys debt. During the next twelve months, the Company estimates that $141,000 will be reclassified as an increase to interest expense should the rate environment remain the same.
24
The following table presents summary information regarding these derivatives for the periods
presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Notional Amount
|
|
|
Average
Maturity (Years)
|
|
|
Weighted Average
Fixed Rate
|
|
|
Weighted Average
Variable Rate
|
|
Fair Value
|
|
Customer interest rate swaps
|
|
$
|
82,229
|
|
|
|
11.8
|
|
|
|
4.13
|
%
|
|
1 Mo Libor + 2.01
|
|
$
|
6,078
|
|
3rd Party interest rate swaps
|
|
|
(82,229
|
)
|
|
|
11.8
|
|
|
|
4.13
|
%
|
|
1 Mo Libor + 2.01
|
|
|
(6,078
|
)
|
Interest rate swap (cash flow hedge)
|
|
|
30,000
|
|
|
|
5
|
|
|
|
1.10
|
%
|
|
3 Mo. Libor
|
|
|
(193
|
)
|
|
|
|
|
|
|
December 31, 2015
|
|
Notional Amount
|
|
|
Average
Maturity (Years)
|
|
|
Weighted Average
Fixed Rate
|
|
|
Weighted Average
Variable Rate
|
|
Fair Value
|
|
Customer interest rate swaps
|
|
$
|
35,664
|
|
|
|
14.6
|
|
|
|
4.54
|
%
|
|
1 Mo Libor + 2.00
|
|
$
|
1,518
|
|
3rd party interest rate swaps
|
|
|
(35,664
|
)
|
|
|
14.6
|
|
|
|
4.54
|
%
|
|
1 Mo Libor + 2.00
|
|
|
(1,518
|
)
|
Note 7. Goodwill and Intangible Assets
The Company has recorded goodwill of $125.3 million and $110.0 million at June 30, 2016 and December 31, 2015, respectively, which
includes $15.3 million from the Pascack merger in 2016, $22.9 million from the Somerset Hills acquisition in 2013 and $87.1 million from prior acquisitions. 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, Community Banking.
The Company recorded $1.5 million and $2.7 million in core deposit intangible for the Pascack and
Somerset Hills acquisitions, respectively. Year-to-date, it has amortized $331,000 in core deposit intangible including $138,000 and $193,000 for Pascack and Somerset Hills, respectively. The estimated future amortization expense for the remainder
of 2016 and for each of the succeeding five years ended December 31 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
Pascack
|
|
|
Somerset
Hills
|
|
2016
|
|
$
|
138
|
|
|
$
|
173
|
|
2017
|
|
|
248
|
|
|
|
316
|
|
2018
|
|
|
220
|
|
|
|
267
|
|
2019
|
|
|
193
|
|
|
|
218
|
|
2020
|
|
|
165
|
|
|
|
168
|
|
2021
|
|
|
138
|
|
|
|
119
|
|
Note 8. Borrowings
At June 30, 2016, the Company had federal funds purchased and securities sold under agreements to repurchase of $99.6 million and $24.0
million respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. The Company also had $50.0 million in long-term securities sold under agreements to repurchase included in other
borrowings which have maturities ranging from one to seven years. As of June 30, 2016, the Company had $102.5 million in mortgage backed securities pledged for its securities sold under agreements to repurchase.
25
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 Lakeland to pledge additional collateral to meet that margin call.
Note 9. Share-Based Compensation
The
Company grants restricted stock, restricted stock units (RSUs) and stock options under the 2009 Equity Compensation Program. Share-based compensation expense of $1.1 million and $912,000 was recognized for the six months ended June 30, 2016 and
2015, respectively. As of June 30, 2016, there was unrecognized compensation cost of $240,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately 0.59 years. Unrecognized
compensation expense related to RSUs was approximately $1.7 million as of June 30, 2016, and that cost is expected to be recognized over a period of 1.36 years. Unrecognized compensation expense related to unvested stock options was approximately
$32,000 as of June 30, 2016 and is expected to be recognized over a period of 0.92 years.
In the first six months of 2016, the
Company granted 23,952 shares of restricted stock to non-employee directors at a grant date fair value of $10.02 per share under the 2009 Equity Compensation Program. The restricted stock vests one year from the date it was granted. Compensation
expense on this restricted stock is expected to be $240,000 over a one year period.
Information regarding the Companys restricted
stock and changes during the six months ended June 30, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Price
|
|
Outstanding, January 1, 2016
|
|
|
73,500
|
|
|
$
|
9.33
|
|
Granted
|
|
|
23,952
|
|
|
|
10.02
|
|
Vested
|
|
|
(54,360
|
)
|
|
|
9.33
|
|
Forfeited
|
|
|
(168
|
)
|
|
|
9.12
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
42,924
|
|
|
$
|
9.72
|
|
|
|
|
|
|
|
|
|
|
In the first six months of 2016, the Company granted 150,226 RSUs to certain officers at a weighted average
grant date fair value of $10.06 per share under the Companys 2009 Equity Compensation Program. These units 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 agreement. There are also certain provisions in the compensation program which state that if a recipient 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 restricted stock units issued in the first half of 2016 is expected to average approximately $504,000 per year over a three year period. In the first six months of 2015, the Company granted 129,509 RSUs at a weighted
average grant date fair value of $11.06 per share under the Companys 2009 Equity Compensation Program. Compensation expense on these restricted stock units is expected to average approximately $477,000 per year over a three year period.
26
Information regarding the Companys RSUs and changes during the six months ended
June 30, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Price
|
|
Outstanding, January 1, 2016
|
|
|
200,910
|
|
|
$
|
10.87
|
|
Granted
|
|
|
150,226
|
|
|
|
10.06
|
|
Vested
|
|
|
(66,749
|
)
|
|
|
10.28
|
|
Forfeited
|
|
|
(6,157
|
)
|
|
|
10.65
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
278,230
|
|
|
$
|
10.58
|
|
|
|
|
|
|
|
|
|
|
There were no grants of stock options in the first six months of 2016 or 2015. Option activity under the
Companys stock option plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, January 1, 2016
|
|
|
175,892
|
|
|
$
|
8.38
|
|
|
|
|
|
|
$
|
602,236
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2016
|
|
|
175,892
|
|
|
$
|
8.38
|
|
|
|
4.53
|
|
|
$
|
530,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2016
|
|
|
165,274
|
|
|
$
|
8.30
|
|
|
|
4.38
|
|
|
$
|
509,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference
between the Companys closing stock price on the last trading day of the first six months of 2016 and the exercise price, multiplied by the number of in-the-money options).
The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2015 was $63,000. Exercise of stock options
during the first six months of 2015 resulted in cash receipts of $113,000.
27
Note 10. Comprehensive Income
The components of other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
For the quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains (losses) arising during period
|
|
$
|
2,684
|
|
|
($
|
987
|
)
|
|
$
|
1,697
|
|
|
($
|
3,466
|
)
|
|
$
|
1,289
|
|
|
($
|
2,177
|
)
|
Reclassification adjustment for net gains arising during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
9
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
$
|
2,684
|
|
|
($
|
987
|
)
|
|
$
|
1,697
|
|
|
($
|
3,492
|
)
|
|
$
|
1,298
|
|
|
($
|
2,194
|
)
|
Unrealized loss on derivatives
|
|
|
(193
|
)
|
|
|
67
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liability
|
|
|
8
|
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
8
|
|
|
|
(3
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net
|
|
$
|
2,499
|
|
|
($
|
922
|
)
|
|
$
|
1,577
|
|
|
($
|
3,484
|
)
|
|
$
|
1,295
|
|
|
($
|
2,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
For the six months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains arising during period
|
|
$
|
9,247
|
|
|
($
|
3,393
|
)
|
|
$
|
5,854
|
|
|
$
|
759
|
|
|
($
|
261
|
)
|
|
$
|
498
|
|
Reclassification adjustment for net gains arising during the period
|
|
|
(370
|
)
|
|
|
137
|
|
|
|
(233
|
)
|
|
|
(26
|
)
|
|
|
9
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
$
|
8,877
|
|
|
($
|
3,256
|
)
|
|
$
|
5,621
|
|
|
$
|
733
|
|
|
($
|
252
|
)
|
|
$
|
481
|
|
Unrealized loss on derivatives
|
|
|
(193
|
)
|
|
|
67
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liability
|
|
|
72
|
|
|
|
(28
|
)
|
|
|
44
|
|
|
|
16
|
|
|
|
(6
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
|
|
$
|
8,756
|
|
|
($
|
3,217
|
)
|
|
$
|
5,539
|
|
|
$
|
749
|
|
|
($
|
258
|
)
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
The following table shows the changes in the balances of each of the components of other
comprehensive income for the periods presented (in thousands):
Changes in Accumulated Other Comprehensive Income by component, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2016
|
|
|
For the three months ended June 30, 2015
|
|
|
|
Unrealized
Gains on
Available-for-Sale
Securities
|
|
|
Unrealized
Losses
on Derivatives
|
|
|
Pension Items
|
|
|
Total
|
|
|
Unrealized Gains
(Losses) on
Available-for-Sale
Securities
|
|
|
Pension Items
|
|
|
Total
|
|
Beginning Balance
|
|
$
|
5,078
|
|
|
$
|
|
|
|
$
|
34
|
|
|
$
|
5,112
|
|
|
$
|
4,206
|
|
|
($
|
3
|
)
|
|
$
|
4,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Other comprehensive income (loss) before classifications
|
|
|
1,697
|
|
|
|
(126
|
)
|
|
|
6
|
|
|
|
1,577
|
|
|
|
(2,177
|
)
|
|
|
5
|
|
|
|
(2,172
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
1,697
|
|
|
|
(126
|
)
|
|
|
6
|
|
|
|
1,577
|
|
|
|
(2,194
|
)
|
|
|
5
|
|
|
|
(2,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
6,775
|
|
|
($
|
126
|
)
|
|
$
|
40
|
|
|
$
|
6,689
|
|
|
$
|
2,012
|
|
|
$
|
2
|
|
|
$
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2016
|
|
|
For the six months ended June 30, 2015
|
|
|
|
Unrealized
Gains on
Available-for-sale
Securities
|
|
|
Unrealized
Losses
on Derivatives
|
|
|
Pension Items
|
|
|
Total
|
|
|
Unrealized
Gains on
Available-for-sale
Securities
|
|
|
Pension Items
|
|
|
Total
|
|
Beginning Balance
|
|
$
|
1,154
|
|
|
$
|
|
|
|
($
|
4
|
)
|
|
$
|
1,150
|
|
|
$
|
1,531
|
|
|
($
|
8
|
)
|
|
$
|
1,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before classifications
|
|
|
5,854
|
|
|
|
(126
|
)
|
|
|
44
|
|
|
|
5,772
|
|
|
|
498
|
|
|
|
10
|
|
|
|
508
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
5,621
|
|
|
|
(126
|
)
|
|
|
44
|
|
|
|
5,539
|
|
|
|
481
|
|
|
|
10
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
6,775
|
|
|
($
|
126
|
)
|
|
$
|
40
|
|
|
$
|
6,689
|
|
|
$
|
2,012
|
|
|
$
|
2
|
|
|
$
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11. Estimated Fair Value of Financial Instruments and Fair Value Measurement
Fair Value Measurement
Fair value
is 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 following describes the three levels of fair value hierarchy:
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.
29
Level 2 quoted prices for similar assets or liabilities in active markets; or quoted
prices for identical or similar assets or liabilities in markets that are not 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 Companys 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 upon particular valuation techniques.
The Companys assets that are measured at fair value on a recurring basis are its available for sale investment securities. 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 and certain equity securities 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,
issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the Companys 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 from a third party 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).
30
The following table sets forth the Companys 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 six months ended June 30, 2016, the Company did not make any transfers between any levels within the fair value hierarchy.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
(in thousands)
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government agencies
|
|
$
|
92,780
|
|
|
$
|
6,060
|
|
|
$
|
86,720
|
|
|
$
|
|
|
Mortgage backed securities
|
|
|
308,053
|
|
|
|
|
|
|
|
308,053
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
40,607
|
|
|
|
|
|
|
|
40,607
|
|
|
|
|
|
Equity securities
|
|
|
18,950
|
|
|
|
5,038
|
|
|
|
13,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
460,390
|
|
|
|
11,098
|
|
|
|
449,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
6,078
|
|
|
|
|
|
|
|
6,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
466,468
|
|
|
$
|
11,098
|
|
|
$
|
455,370
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
6,271
|
|
|
$
|
|
|
|
$
|
6,271
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
6,271
|
|
|
$
|
|
|
|
$
|
6,271
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government agencies
|
|
$
|
97,133
|
|
|
$
|
4,888
|
|
|
$
|
92,245
|
|
|
$
|
|
|
Mortgage backed securities
|
|
|
289,572
|
|
|
|
|
|
|
|
289,572
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
36,498
|
|
|
|
|
|
|
|
36,498
|
|
|
|
|
|
Other debt securities
|
|
|
501
|
|
|
|
|
|
|
|
501
|
|
|
|
|
|
Equity securities
|
|
|
18,645
|
|
|
|
5,052
|
|
|
|
13,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
442,349
|
|
|
|
9,940
|
|
|
|
432,409
|
|
|
|
|
|
Derivative Assets
|
|
|
1,518
|
|
|
|
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
443,867
|
|
|
$
|
9,940
|
|
|
$
|
433,927
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
1,518
|
|
|
$
|
|
|
|
$
|
1,518
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
1,518
|
|
|
$
|
|
|
|
$
|
1,518
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
The following table sets forth the Companys assets subject to fair value adjustments
(impairment) on a nonrecurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Fair Value
|
|
|
|
(in thousands)
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans and Leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
27,103
|
|
|
$
|
27,103
|
|
Loans held for sale
|
|
|
|
|
|
|
6,463
|
|
|
|
|
|
|
|
6,463
|
|
Other real estate owned and other repossessed assets
|
|
|
|
|
|
|
|
|
|
|
1,594
|
|
|
|
1,594
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans and Leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,006
|
|
|
$
|
26,006
|
|
Loans held for sale
|
|
|
|
|
|
|
1,233
|
|
|
|
|
|
|
|
1,233
|
|
Other real estate owned and other repossessed assets
|
|
|
|
|
|
|
|
|
|
|
983
|
|
|
|
983
|
|
Impaired loans are evaluated and valued at the time the loan is identified as impaired at the lower of cost or
market value of the underlying collateral. Because most of Lakelands impaired loans are collateral dependent, fair value is generally measured based on the value of the collateral, less estimated costs to sell, securing these loans and leases
and is classified at a level 3 in the fair value hierarchy. Collateral may be real estate, accounts receivable, inventory, equipment and/or other business assets. The value of the real estate is assessed based on appraisals by qualified third party
licensed appraisers. The appraisers may use the sales comparison approach, the cost approach or the income approach to value the collateral using discount rates (with ranges of 5-11%) or capitalization rates (with ranges of 4-9%) to evaluate the
property. The value of the equipment may be determined by an appraiser, if significant, inquiry through a recognized valuation resource, or by the value on the borrowers financial statements. Field examiner reviews on business assets may be
conducted based on the loan exposure and reliance on this type of collateral. Appraised and reported values may be adjusted based on managements historical knowledge, changes in market conditions from the time of valuation, and/or
managements expertise and knowledge of the client and clients business. Loans that are not collateral dependent are evaluated based on a discounted cash flow method. Impaired loans are reviewed and evaluated on at least a quarterly basis
for additional impairment and adjusted accordingly, based on the same factors identified above.
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 market value. Fair value is generally determined by the value of purchase commitments.
Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure, are recorded at fair value
less estimated disposal costs of the acquired property on the date of acquisition and thereafter remeasured and carried at lower of cost or fair market value. Fair value on other real estate owned is based on the appraised value of the collateral
using the sales comparison approach or the income approach with 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 recognized valuation
resources.
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.
32
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. 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 June 30, 2016 and December 31, 2015 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. Investment Securities Held to Maturity includes $19.5 million in short-term municipal bond anticipation
notes and $1.0 million in subordinated debt that are non-rated and do not have an active secondary market or information readily available on standard financial systems. As a result, the securities are classified as Level 3 securities. These are
investments that management performs a credit analysis on before investing in these securities.
FHLB stock is an equity interest that can
be sold to the issuing FHLB, to other Federal Home Loan Banks, 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 Companys 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 Companys evaluation primarily includes an
evaluation of liquidity, capitalization, operating performance, commitments, and regulatory or legislative events.
The net loan portfolio
at June 30, 2016 and December 31, 2015 has been valued using a present value discounted cash flow where market prices are not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit
risk. The valuation of the Companys loan portfolio is consistent with accounting guidance but does not fully incorporate the exit price approach.
For fixed maturity certificates of deposit, fair value is 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 value of commitments to extend credit and standby letters of credit are deemed immaterial.
33
The following table presents the carrying values, fair values and placement in the fair value
hierarchy of the Companys financial instruments as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
(in thousands)
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments - Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
126,221
|
|
|
$
|
129,447
|
|
|
$
|
|
|
|
$
|
109,946
|
|
|
$
|
19,501
|
|
Federal Home Loan Bank and other membership bank stocks
|
|
|
15,797
|
|
|
|
15,797
|
|
|
|
|
|
|
|
15,797
|
|
|
|
|
|
Loans and leases, net
|
|
|
3,420,715
|
|
|
|
3,439,536
|
|
|
|
|
|
|
|
|
|
|
|
3,439,536
|
|
|
|
|
|
|
|
Financial Instruments - Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
477,336
|
|
|
|
478,596
|
|
|
|
|
|
|
|
478,596
|
|
|
|
|
|
Other borrowings
|
|
|
294,771
|
|
|
|
300,956
|
|
|
|
|
|
|
|
300,956
|
|
|
|
|
|
Subordinated debentures
|
|
|
31,238
|
|
|
|
21,242
|
|
|
|
|
|
|
|
|
|
|
|
21,242
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments - Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
116,740
|
|
|
$
|
117,594
|
|
|
$
|
|
|
|
$
|
110,293
|
|
|
$
|
7,301
|
|
Federal Home Loan Bank and other membership bank stocks
|
|
|
14,087
|
|
|
|
14,087
|
|
|
|
|
|
|
|
14,087
|
|
|
|
|
|
Loans and leases, net
|
|
|
2,934,326
|
|
|
|
2,930,188
|
|
|
|
|
|
|
|
|
|
|
|
2,930,188
|
|
|
|
|
|
|
|
Financial Instruments - Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
343,321
|
|
|
|
341,998
|
|
|
|
|
|
|
|
341,998
|
|
|
|
|
|
Other borrowings
|
|
|
271,905
|
|
|
|
275,409
|
|
|
|
|
|
|
|
275,409
|
|
|
|
|
|
Subordinated debentures
|
|
|
31,238
|
|
|
|
24,366
|
|
|
|
|
|
|
|
|
|
|
|
24,366
|
|
34
Note 12. Statement of Cash Flow Information, Supplemental Information
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Supplemental schedule of noncash investing and financing activities:
|
|
|
|
|
Cash paid during the period for income taxes
|
|
$
|
10,682
|
|
|
$
|
7,645
|
|
Cash paid during the period for interest
|
|
|
7,501
|
|
|
|
5,016
|
|
Transfer of loans and leases into other repossessed assets and other real estate owned
|
|
|
1,280
|
|
|
|
760
|
|
Acquisition of Pascack:
|
|
|
|
|
|
|
|
|
Non-cash assets acquired:
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
|
2,962
|
|
|
|
|
|
Investment securities held for maturity
|
|
|
3,925
|
|
|
|
|
|
Loans, including loans held for sale
|
|
|
319,575
|
|
|
|
|
|
Goodwill and other intangible assets, net
|
|
|
16,825
|
|
|
|
|
|
Other assets
|
|
|
21,110
|
|
|
|
|
|
Total non-cash assets acquired
|
|
|
364,397
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
(304,466
|
)
|
|
|
|
|
Other borrowings
|
|
|
(57,308
|
)
|
|
|
|
|
Other liabilities
|
|
|
(6,344
|
)
|
|
|
|
|
Total liabilities assumed
|
|
|
(368,118
|
)
|
|
|
|
|
Common stock issued and fair value of stock options converted to Lakeland Bancorp stock
options
|
|
|
37,221
|
|
|
|
|
|
Note 13. Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued an accounting standards update pertaining to the measurement
of credit losses on financial instruments. 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
financials. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This update is intended to improve financial reporting by requiring timelier recording of credit losses
on loans and other financial instruments held by financial institutions and other organizations. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2019. The Company
is currently assessing the impact that the guidance will have on the Companys consolidated financial statements.
In March 2016, the
FASB issued an accounting standards update to simplify employee share-based payment accounting. The areas for simplification in this update involve several aspects of the accounting for employee share-based payment transactions, including the income
tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This update will be effective for financial statements issued for fiscal years and interim periods beginning after
December 15, 2017. The Company is currently assessing the impact that the guidance will have on the Companys consolidated financial statements.
In March, 2016, the FASB issued an accounting standards update that requires that embedded derivatives be separated from the host contract and
accounted for separately as derivatives if certain criteria are met, including the clearly and closely related criterion. The amendments in this update clarify the requirements for assessing whether contingent call or put options that
can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This update
35
will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2016. This guidance will be applied on a modified retrospective basis as
of the beginning of the fiscal year that the amendment is effective. The adoption of this update is not expected to have a material impact on the Companys financial statements.
In February 2016, FASB issued accounting guidance that requires all lessees to recognize a lease liability and a right-of-use asset, measured
at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018,
including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The Company is currently assessing the impact that the guidance will have on the Companys consolidated financial statements.
In January 2016, the FASB issued an accounting standards update intended to improve the recognition and measurement of financial instruments.
Specifically, the accounting standards update requires all equity instruments, with the exception of those that are accounted for under the equity method of accounting, to be measured at fair value with changes in the fair value recognized through
net income. Additionally, public business entities are required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments in this update also require an entity to present separately
in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the
fair value option for financial instruments. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this update is not expected to have a material impact
on the Companys financial statements.
In September 2015, the FASB issued an accounting standards update simplifying the accounting
for adjustments made to provisional amounts recognized in a business combination, eliminating the requirement to retrospectively account for those adjustments. To simplify the accounting for adjustments made to provisional amounts, the amendments in
the accounting standards update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required
to also record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting
had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period
earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This amendment is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2015. The adoption of this update did not have a material impact on the Companys financial statements.
In May 2015, the FASB issued an accounting standards update clarifying how investments valued using the net asset value practical expedient
within the fair value hierarchy should be classified. The accounting standards update was issued to address diversity in practice by exempting investments measured using the net asset value expedient from categorization in the fair value hierarchy.
This accounting standards update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this update did not have a material impact on the Companys financial
statements.
In April 2015, the FASB issued an accounting standards update requiring that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability consistent with the presentation of debt discounts. The purpose of this update is to simplify the presentation of debt issuance costs
and to align the U.S. GAAP presentation of debt more closely with international accounting standards. In August 2015, the FASB issued a subsequent update which discussed presentation and subsequent measurement of debt issuance costs associated with
line-of-credit arrangements. These amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of these updates did not have a material impact on the Companys
financial statements.
In January 2015, the FASB issued an accounting standards update regarding the elimination of the concept of the
extraordinary items from the statement of operations. The purpose of this update is to simplify the statement of operations presentation and to align the U.S. GAAP income statement more closely with international accounting standards. This update is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this update did not have a material impact on the Companys financial statements.
In May 2014, the FASB issued an accounting standards update that clarifies the principles for recognizing revenue. The core principle of the
guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to a
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customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for these goods or services. To achieve that core principle, an entity should apply
the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In 2016, the FASB issued further implementation guidance regarding revenue recognition. This additional guidance included
clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing. The guidance along with its updates is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is still evaluating the potential impact on the Companys financial statements.
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