NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Lakeland Bancorp, Inc.
(the Company) is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Lakeland Bank (Lakeland). Lakeland operates under a state bank charter and provides full banking
services and, as a state bank, is subject to regulation by the New Jersey Department of Banking and Insurance. Lakeland generates commercial, mortgage and consumer loans and receives deposits from customers located primarily in Northern and Central
New Jersey. Through a third party, Lakeland also provides
non-deposit
products, such as securities brokerage services, including mutual funds and variable annuities.
Lakeland operates as a commercial bank offering a wide variety of commercial loans and leases and, to a lesser degree,
consumer credits. Its primary strategic aim is to establish a reputation and market presence as the small and middle market business bank in its principal markets. Lakeland funds its loans primarily by offering time, savings and money
market, and demand deposit accounts to both commercial enterprises and individuals. Additionally, it originates residential mortgage loans, and services such loans which are owned by other investors. Lakeland also has an equipment finance division
which provides equipment lease financing primarily to small and medium sized business clients and an asset based lending department which specializes in utilizing particular assets to fund the working capital needs of borrowers.
The Company and Lakeland are subject to regulations of certain state and federal agencies and, accordingly, are
periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, Lakelands business is particularly susceptible to being affected by state and federal legislation and
regulations.
Basis of Financial Statement Presentation
The accounting and reporting policies of the Company and its subsidiaries conform with accounting principles generally
accepted in the United States of America (U.S. GAAP) and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company, Lakeland, Lakeland NJ Investment Corp., Lakeland
Investment Corp., Lakeland Equity, Inc. and Lakeland Preferred Equity, Inc. All intercompany balances and transactions have been eliminated.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates in these financial
statements are as follows.
The principal estimates that are particularly susceptible to significant change in
the near term relate to the allowance for loan and lease losses, the valuation of the Companys investment securities portfolio, the realizability of the Companys deferred tax asset and the analysis of goodwill and intangible impairment.
The policies regarding these estimates are discussed below.
The Companys operating segments are
components of its enterprise for which separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Companys chief operating
decision maker is its Chief Executive Officer. All of the Companys financial services activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example,
commercial lending is dependent upon the ability of Lakeland to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. The situation is also similar for consumer and residential mortgage lending. Moreover,
the Company primarily operates in one market area, Northern and Central New Jersey and contiguous areas. Therefore, all significant operating decisions are based upon
-63-
analysis of the Company as one operating segment or unit. Accordingly, the Company has determined that it has one operating segment and thus one reporting segment.
Cash and Due from Banks
Cash and cash equivalents are defined as cash on hand, cash items in the process of collection, amounts due from banks and federal funds sold with an original maturity of three months or less. A portion
of Lakelands cash on hand and on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.
Investment Securities
Investment securities are classified
in one of three categories: held to maturity, trading, or available for sale. Investments in debt securities, for which management has both the ability and intent to hold to maturity, are carried at cost, adjusted for the amortization of premiums
and accretion of discounts computed by the effective interest method. Investments in debt and equity securities, which management believes may be sold prior to maturity due to changes in interest rates, prepayment risk, liquidity requirements, or
other factors, are classified as available for sale. Net unrealized gains and losses for such securities, net of tax effect, are reported as other comprehensive income (loss) and excluded from the determination of net income. The Company does not
engage in securities trading. Gains or losses on disposition of investment securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method. Losses are recorded through the
statement of income when the impairment is considered
other-than-temporary,
even if a decision to sell has not been made.
The Company evaluates its portfolio for impairment each quarter. In estimating
other-than-temporary
losses, the Company considers the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and whether
the Company is more likely than not to sell the security before recovery of its cost basis. If a security has been impaired for more than twelve months, and the impairment is deemed
other-than-temporary,
a
write down will occur in that quarter. If a loss is deemed to be
other-than-temporary,
it is recognized as a realized loss in the income statement with the security assigned a new cost basis.
If the Company intends to sell an impaired security, the Company records an
other-than-temporary
loss in an amount equal to the entire difference between the fair value and amortized cost. If a security is determined to be
other-than-temporarily
impaired, but the Company does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings in gain (loss) on securities, with the other portion of the loss recognized in other comprehensive income. If a
determination is made that an equity security is
other-than-temporarily
impaired, the unrealized loss will be recognized as an
other-than-temporary
impairment charge in
noninterest income as a component of gain (loss) on investment securities.
Loans and Leases and Allowance for Loan and
Lease Losses
Loans and leases that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are stated at the amount of unpaid principal and are net of unearned discount, unearned loan fees and an allowance for loan and lease losses.
Interest income is accrued as earned on a simple interest basis, adjusted for prepayments. All unamortized fees and costs
related to the loan are amortized over the life of the loan using the interest method. Accrual of interest is discontinued on a loan or lease when management believes, after considering economic and business conditions and collection efforts, that
the borrowers financial condition is such that full collection of interest and principal is doubtful. When a loan or lease is placed on such
non-accrual
status, all accumulated accrued interest
receivable is reversed out of current period income.
-64-
Commercial loans and leases are placed on a
non-accrual
status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrower they are maintained on a cash basis (which means
payments are applied when and as received rather than on a regularly scheduled basis), (b) payment in full of interest or principal is not expected, or (c) principal and interest have been in default for a period of 90 days or more unless the
obligation is both well-secured and in process of collection. Residential mortgage loans are placed on
non-accrual
status at the time principal and interest have been in default for a period of 90 days or
more, except where there exists sufficient collateral to cover the defaulted principal and interest payments, and the loans are
well-secured
and in the process of collection. Consumer loans are generally
placed on
non-accrual
and reviewed for
charge-off
when principal and interest payments are four months in arrears unless the obligations are well-secured and in the
process of collection. Interest thereafter on such
charged-off
consumer loans is taken into income when received only after full recovery of principal. As a general rule, a non-accrual asset may be restored to
accrual status when none of its principal or interest is due and unpaid, satisfactory payments have been received for a sustained period (usually six months), or when it otherwise becomes well-secured and in the process of collection.
Loans and leases are considered impaired when, based on current information and events, it is probable that Lakeland will
be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is measured based on the present value of expected cash flows discounted at
the loans effective interest rate, or as a practical expedient, Lakeland may measure impairment based on a loans observable market price, or the fair value of the collateral, less estimated costs to sell, if the loan is
collateral-dependent. Regardless of the measurement method, Lakeland measures impairment based on the fair value of the collateral when it is determined that foreclosure is probable. Most of Lakelands impaired loans are collateral-dependent.
Lakeland groups impaired commercial loans under $500,000 into a homogeneous pool and collectively evaluates them.
Interest received on impaired loans and leases may be recorded as interest income. However, if management is not reasonably certain that an impaired loan and lease will be repaid in full, or if a specific
time frame to resolve full collection cannot yet be reasonably determined, all payments received are recorded as reductions of principal.
Purchased
Credit-Impaired
(PCI) loans are loans acquired through acquisition or purchased at a discount that is due, in part, to credit quality. PCI
loans are accounted for in accordance with ASC Subtopic
310-30
and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the
allowance for loan losses). The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the covered loans, or the accretable yield, is recognized as interest income utilizing
the level-yield method over the life of the loans. 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 a valuation allowance. Reclassifications of the
non-accretable
difference to the accretable yield may occur subsequent to the
loan acquisition dates due to increases in expected cash flows of the loans and results in an increase in yield on a prospective basis. 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).
Loans are classified as troubled debt restructured loans in cases where borrowers experience financial difficulties and Lakeland makes certain concessionary modifications to contractual terms.
Restructured loans typically involve a modification of terms such as a reduction of the stated interest rate, an extended moratorium of principal payments and/or an extension of the maturity date at a stated interest rate lower than the current
market rate for a new loan with similar risk. Nonetheless, restructured loans are classified as impaired loans.
If an obligation has been restructured, it will continue to be classified as restructured until the obligation is fully
repaid or until it meets all of the following criteria: 1) the borrower is no longer
-65-
experiencing financial difficulties, 2) the rate is not less than the rate provided for similar credit risk, 3) other terms are no less favorable than similar new debt and 4) no concessions were
granted (any prior principal forgiveness is deemed to be an ongoing concession).
The allowance for loan and
lease losses is established through a provision for loan and lease losses charged to expense. Loan principal considered to be uncollectible by management is charged against the allowance for loan and lease losses. The allowance is an amount that
management believes will be adequate to absorb losses on existing loans and leases that may become uncollectible based upon an evaluation of known and inherent risks in the loan and lease portfolio. The evaluation takes into consideration such
factors as changes in the nature and size of the loan and lease portfolio, overall portfolio quality, specific problem loans and leases, and current economic conditions which may affect the borrowers ability to pay. The evaluation also
analyzes historical losses by loan and lease category, and considers the resulting loss rates when determining the reserves on current loan and lease total amounts. Additionally, management assesses the loss emergence period for each loan segment
and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from the date of a loss event (such as a personal bankruptcy) to the actual recognition of the loss (typically via the first full or partial loan
charge-off),
and is determined based upon a study of our past loss experience by loan segment. Loss reserves for specified problem loans and leases are also detailed. All of the factors considered in the analysis of
the adequacy of the allowance for loan and lease losses may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for loan and lease losses may be required that would adversely impact earnings in
future periods.
The determination of the adequacy of the allowance for loan and lease losses and the periodic
provisioning for estimated losses included in the consolidated financial statements is the responsibility of management and the Board of Directors. The evaluation process is undertaken on a quarterly basis.
Methodology employed for assessing the adequacy of the allowance consists of the following criteria:
|
|
|
The establishment of reserve amounts for all impaired loans and leases that have been designated as requiring attention by Lakeland.
|
|
|
|
The establishment of reserves for pools of homogeneous types of loans and leases not subject to specific review, including impaired loans under
$500,000, leases, 1 4 family residential mortgages, and consumer loans.
|
|
|
|
The establishment of reserve amounts for the unimpaired loans and leases in each portfolio based upon the historical average loss experience as
modified by managements assessment of the loss emergence period for these portfolios and managements evaluation of key factors.
|
Consideration is given to the results of ongoing credit quality monitoring processes, the adequacy and expertise of Lakelands lending staff, underwriting policies, loss histories, delinquency
trends, and the cyclical nature of economic and business conditions. Since many of Lakelands loans depend on the sufficiency of collateral as a secondary source of repayment, any adverse trend in the real estate markets could affect underlying
values available to protect Lakeland from loss.
A loan that management designates as impaired is reviewed for
charge-off
when it is placed on
non-accrual
status with a resulting charge-off if the loan is not secured by collateral having sufficient liquidation value to repay the loan.
Charge-offs are recommended by the Chief Credit Officer and approved by the Board.
Mortgage loans originated
and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Gains and losses on sales of loans are specifically identified and accounted for in accordance with U.S. GAAP which requires that an
entity engaged in mortgage banking activities classify the retained mortgage-backed security or other interest, which resulted from the securitization of a mortgage loan held for sale, based upon its ability and intent to sell or hold these
investments.
-66-
Bank Premises and Equipment
Bank premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation.
Depreciation expense is computed on the
straight-line
method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the
improvements or the terms of the related leases.
Other Real Estate Owned and Other Repossessed Assets
Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure (or
deed-in-lieu-of-foreclosure),
are carried at fair value less estimated disposal costs of the
acquired property. Costs relating to holding the assets are charged to expense. An allowance for OREO or other repossessed assets is established, through charges to expense, to maintain properties at fair value less estimated costs to sell.
Operating results of OREO and other repossessed assets, including rental income and operating expenses, are included in other expenses.
Mortgage Servicing
Lakeland performs various servicing
functions on loans owned by others. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received for these services. At December 31, 2016 and 2015, Lakeland was servicing approximately $26.9 million and
$30.0 million, respectively, of loans for others.
Lakeland originates certain mortgages under a
definitive plan to sell or securitize those loans and service the loans owned by the investor. Upon the transfer of the mortgage loans in a sale or a securitization, Lakeland records the servicing assets retained. Lakeland records mortgage servicing
rights and the loans based on relative fair values at the date of origination and evaluates the mortgage servicing rights for impairment at each reporting period. Lakeland also originates loans that it sells to other banks and investors and does not
retain the servicing rights.
Mortgage Servicing Rights
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the
income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of
estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the
estimated future net servicing income of the underlying loans. As of December 31, 2016 and 2015, Lakeland had originated mortgage servicing rights of $124,000 and $167,000, respectively.
Under the amortization measurement method, Lakeland subsequently measures servicing rights at fair value at each reporting
date and records any impairment in value of servicing assets in earnings in the period in which the impairment occurs. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual
prepayment speeds and default rates and losses. Servicing fee income, which is reported on the income statement as commissions and fees, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the
outstanding principal or a fixed amount per loan, and are recorded as income when earned.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been
surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been
-67-
isolated from the Company, put presumptively beyond the reach of the transferor and its creditors even in bankruptcy or other receivership, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before
their maturity or the ability to unilaterally cause the holder to return specific assets.
Derivatives
Lakeland enters into interest rate swaps (swaps) with loan customers to provide a facility to mitigate the
fluctuations in the variable rate on the respective loans. These swaps are matched in offsetting terms to swaps that Lakeland enters into with an outside third party. The swaps are reported at fair value in other assets or other liabilities.
Lakelands swaps qualify as derivatives, but are not designated as hedging instruments, thus any net gain or loss resulting from changes in the fair value is recognized in other noninterest income.
The credit risk associated with derivatives executed with customers is similar as that involved in extending loans and is
subject to normal credit policies. Collateral is obtained based on managements assessment of the customer. The positions of customer derivatives are recorded at fair value and changes in value are included in noninterest income on the
consolidated statement of income.
Cash flow hedges are used primarily to minimize the variability in cash
flows of assets or liabilities, or forecasted transactions caused by interest rate fluctuations. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income and are reclassified into
the line item in the income statement in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on the component of a derivative excluded in assessing hedge effectiveness are
recorded in the same income statement line item.
Further discussion of Lakelands financial derivatives
is set forth in Note 18 to the Consolidated Financial Statements.
Earnings Per Share
Earnings per share is calculated on the basis of the weighted average number of common shares outstanding during the year.
Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution
that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Unless otherwise indicated, all weighted average, actual shares or per share information in the financial statements have been
adjusted retroactively for the effect of stock dividends.
Employee Benefit Plans
The Company has certain employee benefit plans covering substantially all employees. The Company accrues such costs as
incurred.
We recognize the overfunded or underfunded status of pension and postretirement benefit plans in
accordance with U.S. GAAP. Actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations are recognized as a component of Accumulated Other Comprehensive Income, net of tax effects, until they are
amortized as a component of net periodic benefit cost.
Comprehensive Income (Loss)
The Company reports comprehensive income (loss) in addition to net income from operations. Other comprehensive income
(loss) Includes items recorded directly in equity such as unrealized gains or losses on securities available for sale as well unrealized gains (losses) recorded on derivatives and benefit plans.
-68-
Goodwill and Other Identifiable Intangible Assets
Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting
unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. For purposes of our goodwill impairment testing, we have identified a single reporting unit, community banking.
U.S. GAAP permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting
units fair value is less than its carrying amount before applying the
two-step
goodwill impairment test. The Company completed its annual qualitative assessment as of November 30, 2016 and concluded that
there was less than a 50% probability that the fair value of the reporting unit is less than its carrying amount and, therefore, the
two-step
goodwill impairment test was not required.
Bank Owned Life Insurance
Lakeland invests in bank owned life insurance (BOLI). BOLI involves the purchasing of life insurance by Lakeland on a chosen group of employees. Lakeland is owner and beneficiary of the
policies. At December 31, 2016 and 2015, Lakeland had $72.4 million and $65.4 million, respectively, in BOLI. Income earned on BOLI was $2.6 million, $2.0 million and $1.5 million for the years ended December 31, 2016, 2015
and 2014, respectively. BOLI is accounted for using the cash surrender value method and is recorded at its net realizable value.
Deferred Income Taxes
The Company accounts for income
taxes under the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted
tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. The principal types of differences between assets and liabilities for financial statement and tax
return purposes are allowance for loan and lease losses, core deposit intangibles, deferred loan fees and deferred compensation.
The Company evaluates tax positions that may be uncertain using a recognition threshold of
more-likely-than-not,
and a
measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. Additional information regarding the Companys uncertain tax positions is
set forth in Note 10 to the Consolidated Financial Statements.
Variable Interest Entities
Management has determined that Lakeland Bancorp Capital Trust II and Lakeland Bancorp Capital Trust IV (collectively,
the Trusts) qualify as variable interest entities. The Trusts issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. The Trusts hold, as their sole asset, subordinated debentures issued by the
Company. The Company is not considered the primary beneficiary of the Trusts, therefore the Trusts are not consolidated in the Companys financial statements.
The Companys maximum exposure to the Trusts is $30.0 million at December 31, 2016 which is the Companys
liability to the Trusts and includes the Companys investment in the Trusts.
The Federal Reserve has
issued guidance on the regulatory capital treatment for the trust preferred securities issued by the Trusts. The rule retains the current maximum percentage of total capital permitted for trust preferred securities at 25%, but enacts other changes
to the rules governing trust preferred securities that affect their use as part of the collection of entities known as restricted core capital elements. The rule allows bank holding companies to continue to count trust preferred
securities as Tier 1 Capital. The
-69-
Companys capital ratios continue to be categorized as well-capitalized under the regulatory framework for prompt corrective action. Under the Collins Amendment to the Dodd-Frank
Wall Street Reform and Consumer Protection Act, any new issuance of trust preferred securities by the Company would not be eligible as regulatory capital.
New Accounting Pronouncements
In January 2017, the
Financial Accounting Standards Board (FASB) issued an update to simplify the test for goodwill impairment. This amendment eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed
by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting units fair value. This update will be effective for the
Companys financial statements for fiscal years beginning after December 15, 2019. The adoption of this update is not expected to have a material impact on the Companys financial statements.
In January 2017, the FASB issued an update that clarifies the definition of a business as it pertains to business
combinations. This amendment affects all companies and other reporting organizations that must determine whether they have sold or acquired a business. This update will be effective for the Companys financial statements for 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 2016, the FASB issued an accounting standards update to address diversity in presentation in how certain cash receipts and cash payments are presented and classified in 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 adoption of this update is not expected to have a material impact on the Companys financial
statements.
In June 2016, the 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, 2016. The adoption of this update is not expected to have a material impact on the
Companys 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 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.
-70-
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 of the new guidance on its
consolidated financial statements. The Company expects to recognize a
right-of-use
asset and a lease liability for its operating lease commitments. Please refer to Note
14 for the Companys commitments under operating lease obligations.
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
-71-
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 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. In evaluating this standard, management has determined that the majority of revenue earned by the Company is from revenue streams not included in the scope of this standard and therefore management does not
expect the new revenue recognition guidance to have a material impact on its consolidated financial statements.
NOTE 2 - ACQUISITIONS
Harmony Bank
On July 1, 2016, the Company completed its acquisition of Harmony Bank (Harmony), a bank located in Ocean County, NJ. Effective upon the opening of business on July 1, 2016, Harmony was
merged into Lakeland Bank. Harmony operated three branches in Ocean County, New Jersey. 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 Companys 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 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.
During the fourth quarter of 2016, the Company revised the estimate of the fair value of the acquired assets as of the
acquisition date as a result of additional information obtained. The adjustment, related to the fair market value of certain loans, resulted in a $645,000 decrease to goodwill.
-72-
The acquisition was accounted for under the acquisition method of
accounting. Accordingly, 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 Harmony, net of cash consideration paid.
|
|
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
27,809
|
|
Securities available for sale
|
|
|
7,474
|
|
Securities held to maturity
|
|
|
6,885
|
|
Federal Home Loan Bank stock
|
|
|
780
|
|
Loans
|
|
|
260,815
|
|
Premises and equipment
|
|
|
3,125
|
|
Goodwill
|
|
|
10,462
|
|
Identifiable intangible assets
|
|
|
1,416
|
|
Accrued interest receivable and other assets
|
|
|
7,673
|
|
|
|
|
|
|
Total assets acquired
|
|
|
326,439
|
|
|
|
|
|
|
Deposits
|
|
|
(278,060
|
)
|
Other borrowings
|
|
|
(9,314
|
)
|
Other liabilities
|
|
|
(2,411
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(289,785
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
36,654
|
|
|
|
|
|
|
Loans acquired in the Harmony acquisition were recorded at fair value, and there was no
carryover related allowance for loan and lease losses. The fair values of loans acquired from Harmony 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.
The following is a summary of the loans accounted for in accordance with ASC
310-30
that were acquired in the Harmony acquisition as of the closing date.
|
|
|
|
|
|
|
Acquired
Credit
Impaired
Loans
|
|
|
|
(in thousands)
|
|
Contractually required principal and interest at acquisition
|
|
$
|
1,264
|
|
Contractual cash flows not expected to be collected
(non-accretable
difference)
|
|
|
398
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
|
866
|
|
Interest component of expected cash flows (accretable difference)
|
|
|
97
|
|
|
|
|
|
|
Fair value of acquired loans
|
|
$
|
769
|
|
|
|
|
|
|
The core deposit intangible totaled $1.0 million and is being amortized 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.
-73-
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.
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, which operated 8 branches in Bergen and Essex Counties in New Jersey. This acquisition enabled 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 owned 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 3,314,284 shares of its common stock in the merger and paid approximately $4.5 million in cash, including 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. This transaction resulted in $15.3 million of goodwill and generated $1.5 million in
core deposit intangibles.
During the second quarter of 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. Accordingly, 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.
|
|
|
|
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
40,942
|
|
Securities held to maturity
|
|
|
3,925
|
|
Federal Home Loan Bank stock
|
|
|
2,962
|
|
Loans
|
|
|
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 there was no
carryover related allowance for loan and lease losses. The fair values of loans acquired from Pascack were estimated
-74-
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.
The following is a
summary of the loans accounted for in accordance with ASC
310-30
that were acquired in the Pascack acquisition as of the closing date.
|
|
|
|
|
|
|
Acquired
Credit
Impaired
Loans
|
|
|
|
(in thousands)
|
|
Contractually required principal and interest at acquisition
|
|
$
|
4,932
|
|
Contractual cash flows not expected to be collected (non-accretable difference)
|
|
|
4,030
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
|
902
|
|
Interest component of expected cash flows (accretable difference)
|
|
|
85
|
|
|
|
|
|
|
Fair value of acquired loans
|
|
$
|
817
|
|
|
|
|
|
|
The core deposit intangible totaled $1.5 million and is being amortized 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
year ended December 31, 2016 and 2015, the Company incurred $4.1 million and $1.2 million, respectively, of merger and acquisition integration-related expenses, which have been separately stated in the Companys consolidated
statements of income.
-75-
Supplemental Pro Forma Financial Information
The following table provides unaudited condensed pro forma financial information assuming that the Pascack and Harmony
acquisitions had been completed as of January 1, 2016, for the year ended December 31, 2016 and as of January 1, 2015 for the year ended December 31, 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 acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited pro forma 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 companies to the Companys policies that may have occurred as a result of the
integration and consolidation of Pascacks and Harmonys 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. Harmony contributed net interest income, net income and earnings per share of $6.6 million, $3.3 million and $0.07, respectively, for the year
ended December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
Pro-Forma
December 31, 2016
|
|
|
Pro-Forma
December 31, 2015
|
|
|
|
(in thousands, except per share amounts)
|
|
Net interest income
|
|
$
|
151,556
|
|
|
$
|
140,702
|
|
Provision for loan losses
|
|
|
4,223
|
|
|
|
1,942
|
|
Noninterest income
|
|
|
21,859
|
|
|
|
22,428
|
|
Noninterest expense
|
|
|
100,512
|
|
|
|
103,965
|
|
Net income
|
|
|
45,378
|
|
|
|
38,109
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Fully diluted
|
|
$
|
1.01
|
|
|
$
|
0.86
|
|
NOTE 3 - EARNINGS PER SHARE
The Company uses the two class method to compute earnings per common share. Participating securities include
non-vested
restricted stock. The following tables
present the computation of basic and diluted earnings per share for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Income
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
|
(in thousands, except per share amounts)
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
41,518
|
|
|
|
42,912
|
|
|
$
|
0.97
|
|
Less: earnings allocated to participating securities
|
|
|
(396
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
41,122
|
|
|
|
42,912
|
|
|
$
|
0.96
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
202
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders plus assumed conversions
|
|
$
|
41,122
|
|
|
|
43,114
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-76-
There were no antidilutive options to purchase common stock to be excluded
from the above computation.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
Income
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
|
(in thousands, except per share amounts)
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
32,481
|
|
|
|
37,844
|
|
|
$
|
0.86
|
|
Less: earnings allocated to participating securities
|
|
|
(263
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
32,218
|
|
|
|
37,844
|
|
|
$
|
0.85
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders plus assumed conversions
|
|
$
|
32,218
|
|
|
|
37,993
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no antidilutive options to purchase common stock to be excluded from the above
computation.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
|
|
Income
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
|
(in thousands, except per share amounts)
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
31,129
|
|
|
|
37,749
|
|
|
$
|
0.82
|
|
Less: earnings allocated to participating securities
|
|
|
(222
|
)
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
30,907
|
|
|
|
37,749
|
|
|
$
|
0.82
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders plus assumed conversions
|
|
$
|
30,907
|
|
|
|
37,869
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 115,831 shares of common stock at a weighted average of $12.06 per
share were not included in the computation of diluted earnings per share because the option price and the grant date price were greater than the average market price during the period.
-77-
NOTE 4 - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and the fair value of the Companys available for sale and
held to maturity securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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)
|
|
AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and U.S. government agencies
|
|
$
|
118,537
|
|
|
$
|
102
|
|
|
$
|
(1,280
|
)
|
|
$
|
117,359
|
|
|
$
|
97,617
|
|
|
$
|
190
|
|
|
$
|
(674
|
)
|
|
$
|
97,133
|
|
Mortgage-backed securities, residential
|
|
|
406,851
|
|
|
|
1,174
|
|
|
|
(4,487
|
)
|
|
|
403,538
|
|
|
|
280,018
|
|
|
|
1,717
|
|
|
|
(2,283
|
)
|
|
|
279,452
|
|
Mortgage-backed securities, multifamily
|
|
|
10,192
|
|
|
|
30
|
|
|
|
(35
|
)
|
|
|
10,187
|
|
|
|
10,249
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
10,120
|
|
Obligations of states and political subdivisions
|
|
|
48,868
|
|
|
|
391
|
|
|
|
(933
|
)
|
|
|
48,326
|
|
|
|
35,639
|
|
|
|
910
|
|
|
|
(51
|
)
|
|
|
36,498
|
|
Debt securities
|
|
|
5,350
|
|
|
|
63
|
|
|
|
(1
|
)
|
|
|
5,412
|
|
|
|
498
|
|
|
|
3
|
|
|
|
|
|
|
|
501
|
|
Equity securities
|
|
|
17,314
|
|
|
|
5,000
|
|
|
|
(432
|
)
|
|
|
21,882
|
|
|
|
16,550
|
|
|
|
2,393
|
|
|
|
(298
|
)
|
|
|
18,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
607,112
|
|
|
$
|
6,760
|
|
|
$
|
(7,168
|
)
|
|
$
|
606,704
|
|
|
$
|
440,571
|
|
|
$
|
5,213
|
|
|
$
|
(3,435
|
)
|
|
$
|
442,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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)
|
|
HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
33,553
|
|
|
$
|
144
|
|
|
$
|
(430
|
)
|
|
$
|
33,267
|
|
|
$
|
30,477
|
|
|
$
|
289
|
|
|
$
|
(94
|
)
|
|
$
|
30,672
|
|
Mortgage-backed securities, residential
|
|
|
38,706
|
|
|
|
369
|
|
|
|
(598
|
)
|
|
|
38,477
|
|
|
|
36,466
|
|
|
|
411
|
|
|
|
(426
|
)
|
|
|
36,451
|
|
Mortgage-backed securities, multifamily
|
|
|
2,059
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
2,015
|
|
|
|
2,159
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
2,099
|
|
Obligations of states and political subdivisions
|
|
|
71,284
|
|
|
|
269
|
|
|
|
(385
|
)
|
|
|
71,168
|
|
|
|
45,617
|
|
|
|
809
|
|
|
|
(156
|
)
|
|
|
46,270
|
|
Debt securities
|
|
|
2,012
|
|
|
|
51
|
|
|
|
|
|
|
|
2,063
|
|
|
|
2,021
|
|
|
|
81
|
|
|
|
|
|
|
|
2,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
147,614
|
|
|
$
|
833
|
|
|
$
|
(1,457
|
)
|
|
$
|
146,990
|
|
|
$
|
116,740
|
|
|
$
|
1,590
|
|
|
$
|
(736
|
)
|
|
$
|
117,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table lists contractual maturities of investment securities classified as
available for sale and held to maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
December 31, 2016
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Due in one year or less
|
|
$
|
2,145
|
|
|
$
|
2,152
|
|
|
$
|
36,942
|
|
|
$
|
36,873
|
|
Due after one year through five years
|
|
|
87,659
|
|
|
|
87,734
|
|
|
|
29,935
|
|
|
|
30,085
|
|
Due after five years through ten years
|
|
|
70,239
|
|
|
|
68,632
|
|
|
|
35,437
|
|
|
|
35,044
|
|
Due after ten years
|
|
|
12,712
|
|
|
|
12,579
|
|
|
|
4,535
|
|
|
|
4,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,755
|
|
|
|
171,097
|
|
|
|
106,849
|
|
|
|
106,498
|
|
Mortgage-backed securities
|
|
|
417,043
|
|
|
|
413,725
|
|
|
|
40,765
|
|
|
|
40,492
|
|
Equity securities
|
|
|
17,314
|
|
|
|
21,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
607,112
|
|
|
$
|
606,704
|
|
|
$
|
147,614
|
|
|
$
|
146,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-78-
The following table shows proceeds from sales of securities, gross gains and
gross losses on sales and calls of securities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Sale proceeds
|
|
$
|
15,654
|
|
|
$
|
33,613
|
|
|
$
|
17,020
|
|
Gross gains
|
|
|
370
|
|
|
|
304
|
|
|
|
346
|
|
Gross losses
|
|
|
|
|
|
|
(63
|
)
|
|
|
(344
|
)
|
The above sale proceeds in 2014 include sales of $1.4 million in held to maturity
mortgage-backed securities of which the Company had already collected over 90% of the principal outstanding. The Company realized $73,000 in gains on sales of these securities.
Gains or losses on sales of securities are based on the net proceeds and the adjusted carrying amount of the securities
sold using the specific identification method.
Securities with a carrying value of approximately
$443.4 million and $347.7 million at December 31, 2016 and 2015, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
The following table indicates the length of time individual securities have been in a continuous unrealized loss position
at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
|
|
(dollars in thousands)
|
|
AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and U.S. government agencies
|
|
$
|
94,153
|
|
|
$
|
1,280
|
|
|
$
|
|
|
|
$
|
|
|
|
|
18
|
|
|
$
|
94,153
|
|
|
$
|
1,280
|
|
Mortgage-backed securities, residential
|
|
|
292,873
|
|
|
|
4,078
|
|
|
|
15,453
|
|
|
|
409
|
|
|
|
91
|
|
|
|
308,326
|
|
|
|
4,487
|
|
Mortgage-backed securities, multifamily
|
|
|
5,178
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
5,178
|
|
|
|
35
|
|
Obligations of states and political subdivisions
|
|
|
29,904
|
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
29,904
|
|
|
|
933
|
|
Debt securities
|
|
|
350
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
350
|
|
|
|
1
|
|
Equity securities
|
|
|
6,030
|
|
|
|
94
|
|
|
|
4,720
|
|
|
|
338
|
|
|
|
2
|
|
|
|
10,750
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
428,488
|
|
|
$
|
6,421
|
|
|
$
|
20,173
|
|
|
$
|
747
|
|
|
|
167
|
|
|
$
|
448,661
|
|
|
$
|
7,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
17,147
|
|
|
$
|
430
|
|
|
$
|
|
|
|
$
|
|
|
|
|
3
|
|
|
$
|
17,147
|
|
|
$
|
430
|
|
Mortgage-backed securities, residential
|
|
|
27,909
|
|
|
|
535
|
|
|
|
1,061
|
|
|
|
63
|
|
|
|
15
|
|
|
|
28,970
|
|
|
|
598
|
|
Mortgage-backed securities, multifamily
|
|
|
2,015
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2,015
|
|
|
|
44
|
|
Obligations of states and political subdivisions
|
|
|
50,302
|
|
|
|
384
|
|
|
|
401
|
|
|
|
1
|
|
|
|
43
|
|
|
|
50,703
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
97,373
|
|
|
$
|
1,393
|
|
|
$
|
1,462
|
|
|
$
|
64
|
|
|
|
63
|
|
|
$
|
98,835
|
|
|
$
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-79-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
(dollars 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
|
|
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 with unrealized losses has impairments that are
other-than-temporary.
Fair value below cost is solely due to interest rate movements and is deemed temporary.
Investment securities, including the mortgage-backed securities and corporate securities, are evaluated on a periodic
basis to determine if factors are identified that would require 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;
|
|
|
|
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 an additional analysis is required, management will perform a
discounted cash flow analysis evaluating the security.
As of December 31, 2016, the equity securities include
investments in other financial institutions for market appreciation purposes. These equities had a purchase price of $2.8 million and market value of $7.8 million as of December 31, 2016.
As of December 31, 2016, equity securities also included $14.1 million in investment funds that do not have a quoted
market price, but use net asset value per share or its equivalent to measure fair value.
The investment funds
include $3.3 million in funds 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 within 60 days notice at the net asset value less unpaid management fees with the approval of the fund manager. As of December 31, 2016, the net amortized cost
equaled the market value of the investment. There are no unfunded commitments related to this investment.
-80-
The investment funds also include $10.8 million in funds 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 December 31, 2016, the amortized cost of these securities was $11.2 million and the fair value was $10.8 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 AND LEASES AND OTHER REAL ESTATE
The following sets forth the composition of Lakelands loan and
lease portfolio:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Commercial, secured by real estate
|
|
$
|
2,556,601
|
|
|
$
|
1,761,589
|
|
Commercial, industrial and other
|
|
|
350,228
|
|
|
|
307,044
|
|
Leases
|
|
|
67,016
|
|
|
|
56,660
|
|
Real estate - residential mortgage
|
|
|
349,581
|
|
|
|
389,692
|
|
Real estate - construction
|
|
|
211,109
|
|
|
|
118,070
|
|
Home equity and consumer
|
|
|
339,360
|
|
|
|
334,891
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
3,873,895
|
|
|
|
2,967,946
|
|
Less deferred fees
|
|
|
(3,297
|
)
|
|
|
(2,746
|
)
|
|
|
|
|
|
|
|
|
|
Loans and leases, net of deferred fees
|
|
$
|
3,870,598
|
|
|
$
|
2,965,200
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 and 2015, home equity and consumer loans included overdraft
deposit balances of $364,000 and $705,000, respectively. At December 31, 2016 and December 31, 2015, Lakeland had $942.0 million and $738.7 million in loans pledged for potential borrowings at the Federal Home Loan Bank of New York
(FHLB).
Purchased Credit Impaired Loans
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 $627,000 at December 31, 2016, which was $190,000 less than the balance at the time of acquisition on January 7, 2016. The
carrying value of loans acquired in the Harmony acquisition was $781,000 at December 31, 2016 which was substantially the same as the balance at acquisition date on July 1, 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 following table presents changes in the accretable yield for PCI loans (in thousands). There were no PCI loans in 2015.
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
Balance, beginning of period
|
|
$
|
|
|
Acquisitions
|
|
|
182
|
|
Accretion
|
|
|
(98
|
)
|
Net reclassification non-accretable difference
|
|
|
61
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
145
|
|
|
|
|
|
|
-81-
Portfolio Segments
Lakeland currently manages its credit products and the respective exposure to credit losses (credit risk) by the following
specific portfolio segments which are levels at which Lakeland develops and documents its systematic methodology to determine the allowance for loan and lease losses attributable to each respective portfolio segment. These segments are:
|
|
|
Commercial, secured by real estate - consists of commercial mortgage loans secured by owner occupied
properties and
non-owner
occupied properties. The loans secured by owner occupied properties involve a variety of property types to conduct the borrowers operations. The primary source of repayment for this type of loan is
the cash flow from the business and is based upon the borrowers financial health and the ability of the borrower and the business to repay. The loans secured by
non-owner
occupied properties involve
investment properties for warehouse, retail, office space, etc., with a history of occupancy and cash flow. This commercial real estate category contains mortgage loans to the developers and owners of commercial real estate where the borrower
intends to operate or sell the property at a profit and use the income stream or proceeds from the sale(s) to repay the loan.
|
|
|
|
Commercial, industrial and other - are loans made to provide funds for equipment and general corporate needs. Repayment of a loan primarily uses the
funds obtained from the operation of the borrowers business. Commercial loans also include lines of credit that are utilized to finance a borrowers
short-term
credit needs and/or to finance a
percentage of eligible receivables and inventory.
|
|
|
|
Leases - includes a small portfolio of equipment leases, which consists of leases primarily for essential equipment used by small to medium sized
businesses.
|
|
|
|
Real estate - residential mortgage - contains permanent mortgage loans principally to consumers secured by residential real estate. Residential real
estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores,
debt-to-income
ratios, and
collateral values. Loans may be either conforming or
non-conforming.
|
|
|
|
Real estate-construction - construction loans, as defined, are intended to finance the construction of commercial properties and include loans for the
acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrowers ability to control costs and adhere to time schedules
and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance
loan funds to pay interest charges on the outstanding balance of the loan.
|
|
|
|
Home equity and consumer - includes primarily home equity loans and lines, installment loans, personal lines of credit and automobile loans. The home
equity category consists mainly of loans and revolving lines of credit to consumers which are secured by residential real estate. These loans are typically secured with second mortgages on the homes, although many are secured with first mortgages.
Other consumer loans include installment loans used by customers to purchase automobiles, boats and recreational vehicles.
|
-82-
Non-accrual
and Past Due Loans
The following schedule sets forth certain information regarding Lakelands
non-accrual
loans and leases, its other real estate owned and other repossessed assets, and accruing troubled debt restructurings (TDRs) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Commercial, secured by real estate
|
|
$
|
10,413
|
|
|
$
|
10,446
|
|
Commercial, industrial and other
|
|
|
167
|
|
|
|
103
|
|
Leases
|
|
|
153
|
|
|
|
316
|
|
Real estate - residential mortgage
|
|
|
6,048
|
|
|
|
8,664
|
|
Real estate - construction
|
|
|
1,472
|
|
|
|
|
|
Home equity and consumer
|
|
|
2,151
|
|
|
|
3,167
|
|
|
|
|
|
|
|
|
|
|
Total
non-accrual
loans and leases
|
|
|
20,404
|
|
|
|
22,696
|
|
Other real estate and other repossessed assets
|
|
|
1,072
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
TOTAL
NON-PERFORMING
ASSETS
|
|
$
|
21,476
|
|
|
$
|
23,679
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings, still accruing
|
|
$
|
8,802
|
|
|
$
|
10,108
|
|
|
|
|
|
|
|
|
|
|
Non-accrual
loans included $2.4 million and
$2.5 million of TDRs for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, the Company had $3.7 million in residential mortgages and consumer home equity loans included in the table above that were in the
process of foreclosure.
An age analysis of past due loans, segregated by class of loans as of December 31,
2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than
89 Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total Loans
and Leases
|
|
|
Recorded
Investment Greater
than 89 Days and
Still Accruing
|
|
|
|
(in thousands)
|
|
Commercial, secured by real estate
|
|
$
|
6,082
|
|
|
$
|
1,234
|
|
|
$
|
9,313
|
|
|
$
|
16,629
|
|
|
$
|
2,539,972
|
|
|
$
|
2,556,601
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
1,193
|
|
|
|
213
|
|
|
|
42
|
|
|
|
1,448
|
|
|
|
348,780
|
|
|
|
350,228
|
|
|
|
|
|
Leases
|
|
|
132
|
|
|
|
78
|
|
|
|
153
|
|
|
|
363
|
|
|
|
66,653
|
|
|
|
67,016
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
2,990
|
|
|
|
1,057
|
|
|
|
5,330
|
|
|
|
9,377
|
|
|
|
340,204
|
|
|
|
349,581
|
|
|
|
|
|
Real estate - construction
|
|
|
3,409
|
|
|
|
|
|
|
|
1,472
|
|
|
|
4,881
|
|
|
|
206,228
|
|
|
|
211,109
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,260
|
|
|
|
129
|
|
|
|
2,049
|
|
|
|
3,438
|
|
|
|
335,922
|
|
|
|
339,360
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,066
|
|
|
$
|
2,711
|
|
|
$
|
18,359
|
|
|
$
|
36,136
|
|
|
$
|
3,837,759
|
|
|
$
|
3,873,895
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than
89 Days
|
|
|
Total
Past Due
|
|
|
Current
|
|
|
Total Loans
and Leases
|
|
|
Recorded
Investment Greater
than 89 Days and
Still Accruing
|
|
|
|
(in thousands)
|
|
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 estate - residential mortgage
|
|
|
1,361
|
|
|
|
725
|
|
|
|
7,472
|
|
|
|
9,558
|
|
|
|
380,134
|
|
|
|
389,692
|
|
|
|
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-83-
Impaired Loans
Lakelands policy regarding impaired loans is discussed in Note 1 Summary of Accounting Policies Loans
and Leases and Allowance for Loan and Lease Losses. The Company defines impaired loans as all
non-accrual
loans with recorded investments of $500,000 or greater. Impaired loans also includes all loans modified
in troubled debt restructurings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Recorded
Investment in
Impaired Loans
|
|
|
Contractual
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Interest
Income
Recognized
|
|
|
Average
Investment in
Impaired Loans
|
|
|
|
(in thousands)
|
|
Loans without related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
12,764
|
|
|
$
|
13,195
|
|
|
$
|
|
|
|
$
|
229
|
|
|
$
|
13,631
|
|
Commercial, industrial and other
|
|
|
603
|
|
|
|
603
|
|
|
|
|
|
|
|
24
|
|
|
|
1,109
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
1,880
|
|
|
|
3,146
|
|
|
|
|
|
|
|
16
|
|
|
|
2,430
|
|
Real estate - construction
|
|
|
1,471
|
|
|
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Home equity and consumer
|
|
|
139
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
Loans with related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
5,860
|
|
|
|
6,142
|
|
|
|
392
|
|
|
|
273
|
|
|
|
6,549
|
|
Commercial, industrial and other
|
|
|
349
|
|
|
|
349
|
|
|
|
12
|
|
|
|
17
|
|
|
|
360
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Real estate - residential mortgage
|
|
|
1,031
|
|
|
|
1,100
|
|
|
|
31
|
|
|
|
30
|
|
|
|
1,011
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,188
|
|
|
|
1,211
|
|
|
|
94
|
|
|
|
59
|
|
|
|
1,184
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
18,624
|
|
|
$
|
19,337
|
|
|
$
|
392
|
|
|
$
|
502
|
|
|
$
|
20,180
|
|
Commercial, industrial and other
|
|
|
952
|
|
|
|
952
|
|
|
|
12
|
|
|
|
41
|
|
|
|
1,469
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Real estate - residential mortgage
|
|
|
2,911
|
|
|
|
4,246
|
|
|
|
31
|
|
|
|
46
|
|
|
|
3,441
|
|
Real estate - construction
|
|
|
1,471
|
|
|
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Home equity and consumer
|
|
|
1,327
|
|
|
|
1,350
|
|
|
|
94
|
|
|
|
59
|
|
|
|
1,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,285
|
|
|
$
|
27,356
|
|
|
$
|
529
|
|
|
$
|
648
|
|
|
$
|
26,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-84-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Recorded
Investment in
Impaired Loans
|
|
|
Contractual
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Interest
Income
Recognized
|
|
|
Average
Investment in
Impaired Loans
|
|
|
|
(in thousands)
|
|
Loans without related 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 related 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Recorded
Investment in
Impaired Loans
|
|
|
Contractual
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Interest
Income
Recognized
|
|
|
Average
Investment in
Impaired Loans
|
|
|
|
(in thousands)
|
|
Loans without related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
14,172
|
|
|
$
|
15,520
|
|
|
$
|
|
|
|
$
|
436
|
|
|
$
|
16,092
|
|
Commercial, industrial and other
|
|
|
327
|
|
|
|
1,697
|
|
|
|
|
|
|
|
43
|
|
|
|
1,513
|
|
Real estate - residential mortgage
|
|
|
1,681
|
|
|
|
1,681
|
|
|
|
|
|
|
|
|
|
|
|
308
|
|
Real estate - construction
|
|
|
188
|
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
464
|
|
Home equity and consumer
|
|
|
741
|
|
|
|
741
|
|
|
|
|
|
|
|
7
|
|
|
|
153
|
|
|
|
|
|
|
|
Loans with related allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
5,666
|
|
|
|
5,818
|
|
|
|
634
|
|
|
|
156
|
|
|
|
3,858
|
|
Commercial, industrial and other
|
|
|
425
|
|
|
|
425
|
|
|
|
10
|
|
|
|
9
|
|
|
|
342
|
|
Real estate - residential mortgage
|
|
|
1,238
|
|
|
|
1,238
|
|
|
|
217
|
|
|
|
19
|
|
|
|
438
|
|
Home equity and consumer
|
|
|
1,255
|
|
|
|
1,255
|
|
|
|
1,031
|
|
|
|
41
|
|
|
|
975
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
19,838
|
|
|
$
|
21,338
|
|
|
$
|
634
|
|
|
$
|
592
|
|
|
$
|
19,950
|
|
Commercial, industrial and other
|
|
|
752
|
|
|
|
2,122
|
|
|
|
10
|
|
|
|
52
|
|
|
|
1,855
|
|
Real estate - residential mortgage
|
|
|
2,919
|
|
|
|
2,919
|
|
|
|
217
|
|
|
|
19
|
|
|
|
746
|
|
Real estate - construction
|
|
|
188
|
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
464
|
|
Home equity and consumer
|
|
|
1,996
|
|
|
|
1,996
|
|
|
|
1,031
|
|
|
|
48
|
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,693
|
|
|
$
|
28,927
|
|
|
$
|
1,892
|
|
|
$
|
711
|
|
|
$
|
24,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest which would have been accrued on impaired loans and leases during 2016, 2015 and
2014 was $1.7 million, $1.6 million and $1.8 million, respectively.
-85-
Credit Quality Indicators
The class of loans are 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. It is the policy of Lakeland to require that a Credit Risk Rating be assigned 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 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 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. Pass ratings on loans are given to loans that management considers to be of acceptable or
better quality. A rating of 5W, or Watch is a loan that requires more than the usual amount of monitoring due to declining earnings, strained cash flow, increasing leverage and/or weakening market. These borrowers generally have limited
additional debt capacity and modest coverage and average or below average asset quality, margins and market share. Rating 6, Other Assets Especially Mentioned is used for loans exhibiting identifiable credit weakness which if not checked
or corrected could weaken the loan quality or inadequately protect the banks credit position at some future date. Rating 7, Substandard, is used on loans that are inadequately protected by the current sound worth and paying
capacity of the obligors or of the collateral pledged, if any. A substandard loan has a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt. Rating 8, Doubtful, are loans that exhibit all of the weaknesses
inherent in substandard loans, but have the added characteristics that the weaknesses make collection or liquidation in full improbable on the basis of existing facts. Rating 9, Loss, is a rating for loans or portions of loans that are
considered uncollectible and of such little value that their continuance as bankable loans is not warranted.
The following table shows Lakelands commercial loan portfolio as of December 31, 2016 and 2015, by the risk ratings
discussed above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Commercial,
Secured by
Real
Estate
|
|
|
Commercial,
Industrial
and
Other
|
|
|
|
|
RISK RATING
|
|
|
|
Real Estate -
Construction
|
|
1
|
|
$
|
|
|
|
$
|
1,449
|
|
|
$
|
|
|
2
|
|
|
|
|
|
|
26,743
|
|
|
|
|
|
3
|
|
|
82,102
|
|
|
|
36,644
|
|
|
|
|
|
4
|
|
|
729,281
|
|
|
|
135,702
|
|
|
|
28,177
|
|
5
|
|
|
1,615,331
|
|
|
|
129,366
|
|
|
|
175,595
|
|
5W - Watch
|
|
|
68,372
|
|
|
|
6,395
|
|
|
|
1,223
|
|
6 - Other assets especially mentioned
|
|
|
33,015
|
|
|
|
5,242
|
|
|
|
|
|
7 - Substandard
|
|
|
28,500
|
|
|
|
8,687
|
|
|
|
6,114
|
|
8 - Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
9 - Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,556,601
|
|
|
$
|
350,228
|
|
|
$
|
211,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-86-
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Commercial,
Secured by
Real
Estate
|
|
|
Commercial,
Industrial
and
Other
|
|
|
|
|
RISK RATING
|
|
|
|
Real Estate -
Construction
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This table does not include residential mortgage loans, consumer 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 will no longer have 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. As such, the unallocated allowance has in essence been reallocated to the certain portfolios based on the risks and uncertainties it was meant to capture.
-87-
The following table details activity in the allowance for loan and lease
losses by portfolio segment and the related recorded investment in loans and leases for the years ended December 31, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Commercial,
Secured by
Real Estate
|
|
|
Commercial,
Industrial
and
Other
|
|
|
Leases
|
|
|
Real
Estate
-
Residential
Mortgage
|
|
|
Real Estate -
Construction
|
|
|
Home
Equity and
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
20,223
|
|
|
$
|
2,637
|
|
|
$
|
460
|
|
|
$
|
2,588
|
|
|
$
|
1,591
|
|
|
$
|
3,375
|
|
|
$
|
30,874
|
|
Charge-offs
|
|
|
(410
|
)
|
|
|
(796
|
)
|
|
|
(366
|
)
|
|
|
(1,103
|
)
|
|
|
|
|
|
|
(1,980
|
)
|
|
|
(4,655
|
)
|
Recoveries
|
|
|
297
|
|
|
|
202
|
|
|
|
31
|
|
|
|
8
|
|
|
|
18
|
|
|
|
247
|
|
|
|
803
|
|
Provision
|
|
|
1,113
|
|
|
|
(320
|
)
|
|
|
423
|
|
|
|
471
|
|
|
|
743
|
|
|
|
1,793
|
|
|
|
4,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
21,223
|
|
|
$
|
1,723
|
|
|
$
|
548
|
|
|
$
|
1,964
|
|
|
$
|
2,352
|
|
|
$
|
3,435
|
|
|
$
|
31,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment
|
|
$
|
392
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
94
|
|
|
$
|
529
|
|
Ending balance: Collectively evaluated for impairment
|
|
|
20,831
|
|
|
|
1,711
|
|
|
|
548
|
|
|
|
1,933
|
|
|
|
2,352
|
|
|
|
3,341
|
|
|
$
|
30,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
21,223
|
|
|
$
|
1,723
|
|
|
$
|
548
|
|
|
$
|
1,964
|
|
|
$
|
2,352
|
|
|
$
|
3,435
|
|
|
$
|
31,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOANS AND LEASES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment
|
|
$
|
18,624
|
|
|
$
|
952
|
|
|
$
|
|
|
|
$
|
2,911
|
|
|
$
|
1,471
|
|
|
$
|
1,327
|
|
|
$
|
25,285
|
|
Ending balance: Collectively evaluated for impairment
|
|
|
2,536,858
|
|
|
|
349,001
|
|
|
|
67,016
|
|
|
|
346,670
|
|
|
|
209,638
|
|
|
|
338,019
|
|
|
$
|
3,847,202
|
|
Ending balance: Loans acquired with deteriorated credit quality
|
|
|
1,119
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
1,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance (1)
|
|
$
|
2,556,601
|
|
|
$
|
350,228
|
|
|
$
|
67,016
|
|
|
$
|
349,581
|
|
|
$
|
211,109
|
|
|
$
|
339,360
|
|
|
$
|
3,873,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes deferred fees
|
-88-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Commercial,
Secured by
Real Estate
|
|
|
Commercial,
Industrial
and Other
|
|
|
Leases
|
|
|
Real
Estate -
Residential
Mortgage
|
|
|
Real Estate -
Construction
|
|
|
Home
Equity and
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
13,577
|
|
|
$
|
3,196
|
|
|
$
|
582
|
|
|
$
|
4,020
|
|
|
$
|
553
|
|
|
$
|
6,333
|
|
|
$
|
2,423
|
|
|
$
|
30,684
|
|
Charge-offs
|
|
|
(1,821
|
)
|
|
|
(205
|
)
|
|
|
(548
|
)
|
|
|
(375
|
)
|
|
|
(20
|
)
|
|
|
(1,511
|
)
|
|
|
|
|
|
|
(4,480
|
)
|
Recoveries
|
|
|
2,221
|
|
|
|
183
|
|
|
|
26
|
|
|
|
63
|
|
|
|
106
|
|
|
|
129
|
|
|
|
|
|
|
|
2,728
|
|
Provision
|
|
|
6,246
|
|
|
|
(537
|
)
|
|
|
400
|
|
|
|
(1,120
|
)
|
|
|
952
|
|
|
|
(1,576
|
)
|
|
|
(2,423
|
)
|
|
|
1,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
20,223
|
|
|
$
|
2,637
|
|
|
$
|
460
|
|
|
$
|
2,588
|
|
|
$
|
1,591
|
|
|
$
|
3,375
|
|
|
$
|
|
|
|
$
|
30,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOANS AND LEASES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
-89-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Commercial,
Secured by
Real Estate
|
|
|
Commercial,
Industrial
and Other
|
|
|
Leases
|
|
|
Real
Estate -
Residential
Mortgage
|
|
|
Real Estate -
Construction
|
|
|
Home
Equity and
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
14,463
|
|
|
$
|
5,331
|
|
|
$
|
504
|
|
|
$
|
3,214
|
|
|
$
|
542
|
|
|
$
|
2,737
|
|
|
$
|
3,030
|
|
|
$
|
29,821
|
|
Charge-offs
|
|
|
(2,282
|
)
|
|
|
(999
|
)
|
|
|
(597
|
)
|
|
|
(827
|
)
|
|
|
(25
|
)
|
|
|
(2,697
|
)
|
|
|
|
|
|
|
(7,427
|
)
|
Recoveries
|
|
|
999
|
|
|
|
1,039
|
|
|
|
19
|
|
|
|
42
|
|
|
|
106
|
|
|
|
220
|
|
|
|
|
|
|
|
2,425
|
|
Provision
|
|
|
397
|
|
|
|
(2,175
|
)
|
|
|
656
|
|
|
|
1,591
|
|
|
|
(70
|
)
|
|
|
6,073
|
|
|
|
(607
|
)
|
|
|
5,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,577
|
|
|
$
|
3,196
|
|
|
$
|
582
|
|
|
$
|
4,020
|
|
|
$
|
553
|
|
|
$
|
6,333
|
|
|
$
|
2,423
|
|
|
$
|
30,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment
|
|
$
|
634
|
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
217
|
|
|
$
|
|
|
|
$
|
1,031
|
|
|
$
|
|
|
|
$
|
1,892
|
|
Ending balance: Collectively evaluated for impairment
|
|
|
12,943
|
|
|
|
3,186
|
|
|
|
582
|
|
|
|
3,803
|
|
|
|
553
|
|
|
|
5,302
|
|
|
|
2,423
|
|
|
$
|
28,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
13,577
|
|
|
$
|
3,196
|
|
|
$
|
582
|
|
|
$
|
4,020
|
|
|
$
|
553
|
|
|
$
|
6,333
|
|
|
$
|
2,423
|
|
|
$
|
30,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOANS AND LEASES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: Individually evaluated for impairment
|
|
$
|
19,838
|
|
|
$
|
752
|
|
|
$
|
|
|
|
$
|
2,919
|
|
|
$
|
188
|
|
|
$
|
1,996
|
|
|
$
|
|
|
|
$
|
25,693
|
|
Ending balance: Collectively evaluated for impairment
|
|
|
1,509,923
|
|
|
|
237,500
|
|
|
|
54,749
|
|
|
|
428,271
|
|
|
|
63,832
|
|
|
|
335,646
|
|
|
|
|
|
|
$
|
2,629,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance (1)
|
|
$
|
1,529,761
|
|
|
$
|
238,252
|
|
|
$
|
54,749
|
|
|
$
|
431,190
|
|
|
$
|
64,020
|
|
|
$
|
337,642
|
|
|
$
|
|
|
|
$
|
2,655,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes deferred fees
|
Lakeland also maintains a reserve for unfunded lending commitments which are included in other liabilities. This reserve was $2.5 million and $2.0 million at December 31, 2016 and December 31,
2015, respectively. Lakeland 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
TDRs are those loans where significant 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, an extended 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. Lakeland considers the potential losses on these loans as well as the remainder of its impaired loans when considering the adequacy of the allowance for loan losses.
-90-
The following table summarizes loans that have been restructured during the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31,
2016
|
|
|
For the Year Ended
December 31,
2015
|
|
|
|
Number of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Number of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
1
|
|
|
$
|
303
|
|
|
$
|
303
|
|
|
|
2
|
|
|
$
|
1,458
|
|
|
$
|
1,458
|
|
Commercial, industrial and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1,934
|
|
|
|
1,934
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
14
|
|
|
|
14
|
|
Real estate - residential mortgage
|
|
|
1
|
|
|
|
255
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
396
|
|
|
|
396
|
|
Home equity and consumer
|
|
|
3
|
|
|
|
285
|
|
|
|
285
|
|
|
|
1
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
$
|
843
|
|
|
$
|
843
|
|
|
|
8
|
|
|
$
|
3,811
|
|
|
$
|
3,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents loans modified as TDRs within the previous 12 months from
December 31, 2016 and 2015 that have defaulted during the subsequent twelve months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, 2016
|
|
|
For the Year Ended
December 31, 2015
|
|
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Real estate - residential mortgage
|
|
|
1
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
1
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
$
|
417
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party Loans
Lakeland has entered into lending transactions in the ordinary course of business with directors, executive officers,
principal stockholders and affiliates of such persons on similar terms, including interest rates and collateral, as those prevailing for comparable transactions with other borrowers not related to Lakeland. At December 31, 2016 and 2015, loans to
these related parties amounted to $22.3 million and $28.4 million, respectively. There were new loans of $5.8 million to related parties and repayments of $11.9 million from related parties in 2016.
Mortgages Held for Sale
Residential mortgages originated by the bank and held for sale in the secondary market are carried at the lower of cost or fair market value. Fair value is generally determined by the value of purchase
commitments on individual loans. Losses are recorded as a valuation allowance and charged to earnings. As of December 31, 2016, Lakeland had $1.7 million in mortgages held for sale compared to $1.2 million as of December 31, 2015.
-91-
Leases
Future minimum lease payments of lease receivables are as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
24,007
|
|
2018
|
|
|
18,588
|
|
2019
|
|
|
12,874
|
|
2020
|
|
|
7,962
|
|
2021
|
|
|
2,982
|
|
Thereafter
|
|
|
603
|
|
|
|
|
|
|
|
|
$
|
67,016
|
|
|
|
|
|
|
Other Real Estate and Other Repossessed Assets
At December 31, 2016, Lakeland had other real estate owned and other repossessed assets of $1.1 million and $9,000,
respectively. The other real estate owned that the Company held at December 31, 2016 included $1.1 million in residential property acquired as a result of foreclosure proceedings or through a deed in lieu of foreclosure. At December 31, 2015,
Lakeland 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 December 31, 2015 included $805,000 in residential property acquired as a result of
foreclosure proceedings or through a deed in lieu of foreclosure. For the years ended December 31, 2016, 2015 and 2014, Lakeland had writedowns of $0, $119,000 and $135,000, respectively, on other real estate and other repossessed assets which are
included in other real estate and repossessed asset expense in the Statement of Income.
NOTE 6 - PREMISES AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Lives
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(in thousands)
|
|
Land
|
|
|
Indefinite
|
|
|
$
|
10,981
|
|
|
$
|
6,039
|
|
Buildings and building improvements
|
|
|
10 to 50 years
|
|
|
|
49,475
|
|
|
|
35,469
|
|
Leasehold improvements
|
|
|
10 to 25 years
|
|
|
|
12,967
|
|
|
|
10,361
|
|
Furniture, fixtures and equipment
|
|
|
2 to 30 years
|
|
|
|
33,692
|
|
|
|
35,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,115
|
|
|
|
87,769
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
54,879
|
|
|
|
51,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,236
|
|
|
$
|
35,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $5.0 million, $4.0 million and $3.9 million for
the years ended December 31, 2016, 2015 and 2014, respectively.
NOTE 7 - TIME DEPOSITS
At December 31, 2016, the schedule of maturities of certificates of deposit is as follows (in thousands):
|
|
|
|
|
Year
|
|
|
|
2017
|
|
$
|
356,419
|
|
2018
|
|
|
117,231
|
|
2019
|
|
|
32,815
|
|
2020
|
|
|
34,439
|
|
2021
|
|
|
4,004
|
|
|
|
|
|
|
|
|
$
|
544,908
|
|
|
|
|
|
|
-92-
NOTE 8 - DEBT
Lines of Credit
As a member of the Federal Home Loan Bank
of New York (FHLB), Lakeland has the ability to borrow overnight based on the market value of collateral pledged. As of December 31, 2016 and 2015, there were no overnight borrowings from the FHLB. As of December 31, 2016, Lakeland also had
overnight federal funds lines available for it to borrow up to $192.0 million. Lakeland had borrowed $32.0 million and $115.0 million against these lines as of December 31, 2016 and 2015, respectively. Lakeland may also borrow from
the discount window of the Federal Reserve Bank of New York based on the market value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of December 31, 2016 or 2015.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
Short-term borrowings at December 31, 2016 and 2015 consisted of short-term securities sold under agreements to repurchase
and federal funds purchased. Securities underlying the agreements were under Lakelands control. The following tables summarize information relating to securities sold under agreements to repurchase and federal funds purchased for the years
presented. For purposes of the tables, the average amount outstanding was calculated based on a daily average.
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Purchased
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(dollars in thousands)
|
|
Balance at December 31
|
|
$
|
32,000
|
|
|
$
|
115,000
|
|
|
$
|
81,000
|
|
Interest rate at December 31
|
|
|
0.85
|
%
|
|
|
0.65
|
%
|
|
|
0.35
|
%
|
Maximum amount outstanding at any
month-end
during the year
|
|
$
|
133,434
|
|
|
$
|
130,000
|
|
|
$
|
117,000
|
|
Average amount outstanding during the year
|
|
$
|
8,708
|
|
|
$
|
22,734
|
|
|
$
|
17,605
|
|
Weighted average interest rate during the year
|
|
|
0.71
|
%
|
|
|
0.45
|
%
|
|
|
0.39
|
%
|
|
|
|
|
Securities Sold Under Agreements to Repurchase
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(dollars in thousands)
|
|
Balance at December 31
|
|
$
|
24,354
|
|
|
$
|
36,234
|
|
|
$
|
27,935
|
|
Interest rate at December 31
|
|
|
0.02
|
%
|
|
|
0.02
|
%
|
|
|
0.02
|
%
|
Maximum amount outstanding at any
month-end
during the year
|
|
$
|
32,872
|
|
|
$
|
40,140
|
|
|
$
|
54,550
|
|
Average amount outstanding during the year
|
|
$
|
27,535
|
|
|
$
|
31,293
|
|
|
$
|
38,192
|
|
Weighted average interest rate during the year
|
|
|
0.03
|
%
|
|
|
0.03
|
%
|
|
|
0.03
|
%
|
Other Borrowings
FHLB Debt
At December 31, 2016, advances from the FHLB
totaling $220.9 million will mature within four years. These advances are collateralized by certain securities and first mortgage loans. The advances had a weighted average interest rate of 1.81%.
At December 31, 2015, advances from the FHLB totaling $221.9 million will mature within three years. These advances
are collateralized by certain securities and first mortgage loans. The advances had a weighted average interest rate of 1.38%.
-93-
FHLB debt matures as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
115,039
|
|
2018
|
|
|
80,896
|
|
2019
|
|
|
19,930
|
|
2020
|
|
|
5,001
|
|
|
|
|
|
|
|
|
$
|
220,866
|
|
|
|
|
|
|
Long-term Securities Sold Under Agreements to Repurchase
At December 31, 2016, Lakeland had $40.0 million in long-term securities sold under agreements to repurchase compared
to $50.0 million at December 31, 2015. These borrowings were able to be called at various dates starting in 2010. These borrowings are collateralized by certain securities. The borrowings had a weighted average interest rate of 3.26% and 2.80%
on December 31, 2016 and December 31, 2015, respectively. These long-term securities sold under agreements to repurchase mature as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
|
|
2018
|
|
|
30,000
|
|
2019
|
|
|
|
|
Thereafter
|
|
|
10,000
|
|
|
|
|
|
|
|
|
$
|
40,000
|
|
|
|
|
|
|
The above FHLB debt and long-term securities sold under agreements to repurchase are
collateralized by certain securities. At times the market value of securities collateralizing our borrowings may decline due to changes in interest rates and may necessitate our lenders to issue a margin call which requires Lakeland to
pledge additional securities to meet that margin call. As of December 31, 2016, the Company had $81.6 million in mortgage-backed securities pledged for its short-term and long-term securities sold under agreements to repurchase.
Subordinated Debentures
On September 30, 2016, the Company completed an offering of $75.0 million of fixed to floating rate subordinated notes due September 30, 2026. The notes will bear interest at a rate of 5.125% per
annum until September 30, 2021 and will then reset quarterly to the then current three-month LIBOR plus 397 basis points until maturity in September, 2026, or their earlier redemption. The debt is included in Tier 2 capital for Lakeland Bancorp.
Debt issuance costs totaled $1.5 million and are being amortized to maturity. Subordinated debt is presented net of issuance costs on the consolidated balance sheet.
In May 2007, the Company issued $20.6 million of junior subordinated debentures due August 31, 2037 to Lakeland
Bancorp Capital Trust IV, a Delaware business trust. The distribution rate on these securities was 6.61% for 5 years and floats at LIBOR plus 152 basis points thereafter. The debentures are the sole asset of the Trust. The Trust issued 20,000 shares
of trust preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Companys obligations under the debentures and related documents, taken together, constitute a full, irrevocable and unconditional guarantee on a
subordinated basis by the Company of the Trusts obligations under the preferred securities. The preferred securities are callable by the Company on or after August 1, 2012, or earlier if the deduction of related interest for federal income
taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2037. On August 3, 2015, the Company acquired and
extinguished $10.0 million of Lakeland Bancorp Capital Trust IV debentures and recorded a $1.8 million gain on the extinguishment of debt.
-94-
In June 2003, the Company also issued $20.6 million of junior
subordinated debentures due June 30, 2033 to Lakeland Bancorp Capital Trust II, a Delaware business trust. The distribution rate on these securities was 5.71% for 5 years and floats at LIBOR plus 310 basis points thereafter. The debentures are the
sole asset of the Trust. The Trust issued 20,000 shares of trust preferred securities, $1,000 face value, for total proceeds of $20.0 million. The Companys obligations under the debentures and related documents, taken together, constitute
a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the Trusts obligations under the preferred securities. The preferred securities are callable by the Company on or after June 30, 2008, or earlier if
the deduction of related interest for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted, or certain other contingencies arise. The preferred securities must be redeemed upon maturity of the debentures in 2033.
In June 2016, the Company entered into two cash flow swaps in order to hedge the variable cash outflows
associated with the junior subordinated debentures issued to Lakeland Capital Trust II and Lakeland Capital Trust IV. For more information please see Note 18 Derivatives.
NOTE 9 - STOCKHOLDERS EQUITY
On December 14, 2016, the
Company successfully completed an
at-the-market
common stock issuance. A total of 2,739,650 shares of the Companys common stock were sold at a weighted average price of $18.25, representing gross
proceeds to the Company of approximately $50.0 million. Net proceeds from the transaction, after the sales commission and other expenses, were approximately $48.7 million.
On July 1, 2016, the Company completed its acquisition of Harmony Bank, a bank located in Ocean County, NJ. Lakeland
Bancorp issued an aggregate of 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.
On January 7, 2016, the
Company completed its acquisition of Pascack Bancorp, Inc. (Pascack), a bank holding company headquartered in Waldwick, New Jersey. Lakeland Bancorp issued 3,314,284 shares of its common stock in the merger and paid approximately
$4.5 million in cash, including 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.
In the second quarter of 2014, the Company paid a 5% stock dividend.
NOTE 10 - INCOME TAXES
The components of income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Current tax provision
|
|
$
|
22,308
|
|
|
$
|
16,991
|
|
|
$
|
15,193
|
|
Deferred tax benefit
|
|
|
(987
|
)
|
|
|
(824
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
21,321
|
|
|
$
|
16,167
|
|
|
$
|
15,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-95-
The income tax provision reconciled to the income taxes that would have been
computed at the statutory federal rate of 35% is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Federal income tax, at statutory rates
|
|
$
|
21,994
|
|
|
$
|
17,028
|
|
|
$
|
16,201
|
|
Increase (deduction) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt
income
|
|
|
(1,671
|
)
|
|
|
(1,467
|
)
|
|
|
(1,387
|
)
|
State income tax, net of federal income tax effect
|
|
|
552
|
|
|
|
132
|
|
|
|
337
|
|
Other, net
|
|
|
446
|
|
|
|
474
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
21,321
|
|
|
$
|
16,167
|
|
|
$
|
15,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net deferred tax asset consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
(in thousands)
|
|
Allowance for loan and lease losses
|
|
$
|
13,775
|
|
|
$
|
13,445
|
|
Stock based compensation plans
|
|
|
1,095
|
|
|
|
857
|
|
Purchase accounting fair market value adjustments
|
|
|
2,752
|
|
|
|
431
|
|
Non-accrued
interest
|
|
|
730
|
|
|
|
632
|
|
Deferred compensation
|
|
|
2,648
|
|
|
|
2,207
|
|
Depreciation and amortization
|
|
|
1,486
|
|
|
|
|
|
Other-than-temporary impairment loss on investment securities
|
|
|
255
|
|
|
|
255
|
|
Unrealized losses on securities available for sale
|
|
|
292
|
|
|
|
|
|
Unfunded pension benefits
|
|
|
|
|
|
|
9
|
|
Other, net
|
|
|
767
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
23,800
|
|
|
|
18,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Core deposit intangible from acquired companies
|
|
|
1,366
|
|
|
|
631
|
|
Undistributed income from subsidiary not consolidated for tax return purposes (REIT)
|
|
|
924
|
|
|
|
845
|
|
Deferred loan costs
|
|
|
1,545
|
|
|
|
1,433
|
|
Prepaid expenses
|
|
|
641
|
|
|
|
549
|
|
Depreciation and amortization
|
|
|
|
|
|
|
1,440
|
|
Deferred gain on securities
|
|
|
194
|
|
|
|
194
|
|
Unfunded pension benefits
|
|
|
18
|
|
|
|
|
|
Unrealized gains on securities available for sale
|
|
|
|
|
|
|
622
|
|
Unrealized gains on hedging derivative
|
|
|
361
|
|
|
|
|
|
Other
|
|
|
841
|
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
5,890
|
|
|
|
6,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets, included in other assets
|
|
$
|
17,910
|
|
|
$
|
12,110
|
|
|
|
|
|
|
|
|
|
|
The Company recorded net deferred tax assets (liabilities) of $4.4 million and
($164,000) as a result of the acquisitions of Pascack and Harmony, respectively.
The Company evaluates the
realizability of its deferred tax assets by examining its earnings history and projected future earnings and by assessing whether it is more likely than not that carryforwards would not be realized. Based upon the majority of the Companys
deferred tax assets having no expiration date, the Companys earnings history, and the projections of future earnings, the Companys management believes that it is more likely than not that all of the Companys deferred tax assets as
of December 31, 2016 will be realized.
-96-
The Company evaluates tax positions that may be uncertain using a
recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. The Company had an
unrecognized tax benefit of $111,000 as of December 31, 2013. In 2014, the Company reevaluated this unrecognized tax benefit and concluded that based on current information the tax position that it has taken is more likely than not to be upheld.
Therefore, the Company recognized the tax benefit in the fourth quarter of 2014.
The Company is subject to
U.S. federal income tax law as well as income tax of various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few
significant exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for the years before 2014 or to state and local examinations by tax authorities for the years before 2013.
NOTE 11 - EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
The Company has a profit sharing plan for all its eligible employees. The Companys annual contribution to the plan is determined by its Board of Directors. Annual contributions are allocated to
participants on a point basis with accumulated benefits payable at retirement, or, at the discretion of the plan committee, upon termination of employment. Contributions made by the Company were approximately $600,000 a year for each of the years
ended 2016, 2015, and 2014.
Benefit Obligations from Somerset Hills Acquisition
Somerset Hills, acquired by the Company in 2013, entered into a
non-qualified
Supplemental Executive Retirement Plan (SERP) with its former Chief Executive Officer and its Chief Financial Officer which entitles them to a benefit of $48,000 and $24,000, respectively, per year for 15 years after the earlier of
retirement or death. The beneficiary of the Chief Financial Officer is currently being paid out under the plan. As of December 31, 2016 and 2015, the Company has a liability of $717,000 and $745,000, respectively, for these SERPs and has recognized
an expense of $0, $95,000 and $109,000 in 2016, 2015 and 2014, respectively.
Retirement Savings Plans (401(k) plans)
Beginning in January 2002, the Company began contributing to its 401(k) plan. All eligible employees can
contribute a portion of their annual salary with the Company matching up to 50% of the employees contributions. The Companys contributions in 2016, 2015 and 2014 totaled $911,000, $760,000 and $740,000, respectively.
Pension Plan
Newton Trust Company, acquired by the Company in 2004, had a defined benefit pension plan (the Plan) that was frozen prior to the acquisition by the Company. All participants of the Plan ceased accruing
benefits as of that date.
In 2014, the Company filed appropriate forms with the Internal Revenue Service and
the Pension Benefit Guaranty Corporation to terminate the Plan and awaited approval from both entities. As a result of the Companys intent to terminate the plan, the Company changed the portfolio allocation of the plan to minimize the
fluctuation of the market value of the Plans assets. The Company also recorded a realized loss for the difference between the plan assets and the estimated payout of the plan of approximately $293,000 in 2014 and $238,000 in 2015.
-97-
In 2015, the Company received the requisite approvals and terminated the
plan. The Company made lump sum payments totaling $2.6 million as a result of this termination.
The
accumulated benefit obligation as of December 31, 2015 is as follows:
|
|
|
|
|
(in thousands)
|
|
2015
|
|
Accumulated postretirement benefit obligation
|
|
$
|
2,334
|
|
Interest cost
|
|
|
14
|
|
Actuarial loss
|
|
|
213
|
|
Divestiture curtailments or settlements
|
|
|
(2,508
|
)
|
Estimated benefit payments
|
|
|
(53
|
)
|
|
|
|
|
|
Total accumulated postretirement benefit obligation
|
|
|
|
|
|
|
Fair value of plan assets beginning of period
|
|
|
2,020
|
|
Return on plan assets
|
|
|
9
|
|
Benefits paid
|
|
|
(2,561
|
)
|
Contribution
|
|
|
532
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
|
|
|
|
Funded status
|
|
|
|
|
Unrecognized net actuarial loss
|
|
|
|
|
|
|
|
|
|
Liability
|
|
$
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
|
|
|
|
|
|
|
The components of net periodic pension cost are as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2015
|
|
|
2014
|
|
Amortization of actuarial loss
|
|
$
|
84
|
|
|
$
|
39
|
|
Interest cost on APBO
|
|
|
14
|
|
|
|
94
|
|
Expected return on plan assets
|
|
|
(74
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement cost
|
|
$
|
24
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
Deferred Compensation Arrangements
High Point Financial Corp., a bank holding company acquired in 1999, had established deferred compensation arrangements
for certain directors and executives of High Point Financial Corp. and its subsidiary, the National Bank of Sussex County. The deferred compensation plans differ, but generally provide for annual payments for ten to fifteen years following
retirement. The Companys liabilities under these arrangements are being accrued from the commencement of the plans over the participants remaining periods of service. The Company intends to fund its obligations under the deferred
compensation arrangements with the increase in cash surrender value of life insurance policies that it has purchased on the respective participants. The deferred compensation plans do not hold any assets. For the years ended December 31, 2016, 2015
and 2014, there were expenses related to this plan of $3,000, $4,000 and $16,000, respectively. As of December 31, 2016 and 2015, the accrued liability for these plans was $214,000 and $241,000, respectively.
Supplemental Executive Retirement Plans
In 2003, the Company entered into a supplemental executive retirement plan (SERP) agreement with its former CEO that provides annual retirement benefits of $150,000 a year for a 15 year period when the
former CEO reached the age of 65. Our former CEO retired and is receiving annual retirement benefits
-98-
pursuant to the plan. In 2008, the Company entered into a SERP agreement with its current CEO that provides annual retirement benefits of $150,000 for a 15 year period when the CEO reaches the
age of 65. In November 2008, the Company entered into a SERP with its Regional President and Chief Operating Officer that provides annual retirement benefits of $90,000 a year for a 10 year period upon his reaching the age of 65. In December 2014,
the Company entered into a SERP with a Regional President that provides $84,500 a year for a 15 year period upon his reaching the age of 66 in November 2016. The Company intends to fund its obligations under the deferred compensation arrangements
with the increase in cash surrender value of bank owned life insurance policies. In 2016, 2015 and 2014, the Company recorded compensation expense of $746,000, $814,000 and $359,000, respectively, for these plans.
Deferred Compensation Agreement
In February 2015, the Company entered into a Deferred Compensation Agreement with its CEO where it would contribute $16,500 monthly into a deferral account which would earn interest at an annual rate of
the Companys prior year return on equity, provided that the Companys return on equity remained in a range of 0% to 15%. The Company has agreed to make such contributions each month that the CEO is actively employed from February 2015
through December 31, 2022. The expense incurred in 2016 and 2015 was $222,000 and $188,000, respectively, and the accrued liability at December 31, 2016 and 2015 was $410,000 and $188,000, respectively. Following the CEOs normal retirement
date, he shall be paid out in 180 consecutive monthly installments.
Elective Deferral Plan
In March 2015, the Company established an Elective Deferral Plan for eligible executives in which the executive may elect
to contribute a portion of his base salary and bonus to a deferral account which will earn an interest rate of 75% of the Companys prior year return on equity provided that the return on equity remains in the range of 0% to 15%. The Company
recorded an expense of $22,000 and $3,000 in 2016 and 2015, respectively, and had a liability recorded of $512,000 and $190,000 at December 31, 2016 and 2015, respectively.
NOTE 12 - DIRECTORS RETIREMENT PLAN
The Company provides a plan
that any director who became a member of the Board of Directors prior to 2009 who completes five years of service may retire and continue to be paid for a period of ten years at a rate ranging from $5,000 through $17,500 per annum, depending upon
years of credited service. This plan is unfunded. The following tables present the status of the plan and the components of net periodic plan cost for the years then ended. The measurement date for the accumulated benefit obligation is December 31
of the years presented.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Accrued plan cost included in other liabilities
|
|
$
|
671
|
|
|
$
|
702
|
|
|
|
|
|
|
|
|
|
|
Amount not recognized as component of net postretirement benefit cost
|
|
|
|
|
|
|
|
|
Recognized in accumulated other comprehensive income
Net actuarial gain
|
|
$
|
(2
|
)
|
|
$
|
(41
|
)
|
Unrecognized prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts not recognized as a component of net postretirement benefit (benefit)
|
|
$
|
(2
|
)
|
|
$
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
-99-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Net periodic plan cost included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
19
|
|
|
$
|
19
|
|
|
$
|
26
|
|
Interest cost
|
|
|
26
|
|
|
|
46
|
|
|
|
39
|
|
Amortization of prior service cost
|
|
|
12
|
|
|
|
13
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57
|
|
|
$
|
78
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A discount rate of 3.68% and 3.87% was assumed in the plan valuation for 2016 and 2015,
respectively. As the benefit amount is not dependent upon compensation levels, a rate of increase in compensation assumption was not utilized in the plan valuation.
The directors retirement plan holds no plan assets. The benefits expected to be paid in each of the next five years
and in aggregate for the five years thereafter are as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
70
|
|
2018
|
|
|
75
|
|
2019
|
|
|
63
|
|
2020
|
|
|
63
|
|
2021
|
|
|
37
|
|
2022 - 2026
|
|
|
223
|
|
The Company expects its contribution to the directors retirement plan to be $70,000
in 2017.
The amount in accumulated other comprehensive income expected to be recognized as a component of net
periodic benefit cost in 2017 is $1,000.
NOTE 13 - STOCK-BASED COMPENSATION
Employee Stock Option Plans
The Companys shareholders approved the 2009 Equity Compensation Program, which authorizes the granting of incentive stock options, supplemental stock options, restricted shares and restricted stock
units to employees of the Company, including those employees serving as officers and directors of the Company. The plan authorizes the issuance of up to 2.3 million shares in connection with options and awards granted under the 2009 program.
The Companys stock option grants under this plan expire 10 years from the date of grant, ninety days after termination of service other than for cause, or one year after death or disability of the grantee. In 2014, the Company began issuing
restricted stock units (RSUs), some of which have performance conditions attached to them. The Company generally issues shares for option exercises from its treasury stock using the cost method or issues new shares if no treasury shares are
available.
The Company established the 2000 Equity Compensation Program which authorizes the granting of
incentive stock options, supplemental stock options and restricted stock to employees of the Company, which includes those employees serving as officers and directors of the Company. The plan authorized 2,613,185 shares of common stock of the
Company. All of the Companys stock option grants expire 10 years from the date of grant, thirty days after termination of service other than for cause, or one year after death or disability of the grantee. The Company has no option or
restricted stock awards with market or performance conditions attached to them under the 2000 Equity Compensation Program. No further awards will be granted from the 2000 program.
The Company has outstanding stock options issued to its directors as well as options assumed under the Somerset
Hills stock option plans at the time of merger. As of both December 31, 2016 and 2015, 111,829 options granted to directors were outstanding. As of December 31, 2016 and 2015, there were 23,415 and 64,057 options outstanding, respectively,
under the Somerset Hills stock option plans.
-100-
Excess tax benefits of stock based compensation were $67,000, $59,000 and
$70,000 for the years 2016, 2015 and 2014, respectively.
A summary of the status of the Companys option
plans as of December 31, 2016 and the changes during the year ending on that date is represented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year
|
|
|
175,892
|
|
|
$
|
8.38
|
|
|
|
|
|
|
$
|
602,236
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(40,642
|
)
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
135,250
|
|
|
$
|
8.79
|
|
|
|
4.18
|
|
|
$
|
1,450,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at
year-end
|
|
|
124,750
|
|
|
$
|
8.72
|
|
|
|
3.99
|
|
|
$
|
1,343,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the Companys
non-vested
options under the Companys option plans as of December 31, 2016 and changes for the year then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Grant-date
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Non-vested,
January 1, 2016
|
|
|
21,001
|
|
|
$
|
3.31
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(10,500
|
)
|
|
|
3.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested,
December 31, 2016
|
|
|
10,501
|
|
|
$
|
3.31
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, there was $14,000 of unrecognized compensation expense related
to unvested stock options under the 2009 Equity Compensation Program. Compensation expense recognized for stock options was $35,000, $35,000 and $42,000 for 2016, 2015 and 2014, respectively.
The aggregate intrinsic values of options exercised in 2016 and 2015 were $292,000 and $68,000, respectively. Exercise of
stock options during 2016 and 2015 resulted in cash receipts of $285,000 and $124,000, respectively. The total fair value of options that vested in 2016 and 2015 were $35,000 and $35,000, respectively.
Information regarding the Companys restricted stock for the year ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Price
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2016
|
|
|
73,500
|
|
|
$
|
9.33
|
|
Granted
|
|
|
23,952
|
|
|
|
10.02
|
|
Vested
|
|
|
(54,362
|
)
|
|
|
9.33
|
|
Forfeited
|
|
|
(215
|
)
|
|
|
9.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
42,875
|
|
|
$
|
9.72
|
|
|
|
|
|
|
|
|
|
|
-101-
In 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 Companys 2009 Equity Compensation Program. These shares will vest over a one year period, totaling $240,000 in compensation
expense. No restricted stock was granted in 2015. In 2014, the Company granted 1,942 shares of restricted stock at a grant date fair value of $11.21 per share under the Companys 2009 Equity Compensation Program. These shares vest over a five
year period. Compensation expense on these shares is expected to average approximately $4,000 per year for the next five years.
The total fair value of the restricted stock vested during the year ended December 31, 2016 was approximately $507,000. Compensation expense recognized for restricted stock was $353,000, $497,000 and
$707,000 in 2016, 2015 and 2014, respectively. There was approximately $74,000 in unrecognized compensation expense related to restricted stock grants as of December 31, 2016, which is expected to be recognized over a period of 0.38 years.
In 2016, the Company granted 180,926 RSUs at a weighted average grant date fair value of $10.45 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 holder of the RSUs reaches a certain age and years of service, the person has effectively earned a portion of the RSUs at that time. Compensation expense on these restricted stock
units is expected to average approximately $630,000 per year over a three year period. In 2015, the Company granted 137,009 RSUs at a weighted average grant date fair value of $11.08 per share under the Companys 2009 Equity Compensation
Program. These units vest within a range of two to three years. Compensation expense on these restricted stock units is expected to average approximately $506,000 per year over a three year period. In 2014, the Company granted 127,791 RSUs at a
weighted average grant date fair value of $10.65 per share under the Companys 2009 Equity Compensation Program. Compensation expense on these restricted stock units is expected to average $453,000 per year over a three year period.
Compensation expense for restricted stock units was $1.5 million, $1.1 million and $641,000 in 2016, 2015 and 2014, respectively. There was approximately $1.4 million in unrecognized compensation expense related to restricted stock
units as of December 31, 2016, which is expected to be recognized over a period of 1.2 years.
Information
regarding the Companys RSUs and changes during the year ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
RSUs
|
|
|
Weighted
Average
Price
|
|
|
|
|
|
Outstanding, January 1, 2016
|
|
|
200,910
|
|
|
$
|
10.87
|
|
Granted
|
|
|
180,926
|
|
|
|
10.45
|
|
Vested
|
|
|
(66,749
|
)
|
|
|
10.28
|
|
Forfeited
|
|
|
(12,743
|
)
|
|
|
10.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
302,344
|
|
|
$
|
10.76
|
|
|
|
|
|
|
|
|
|
|
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Lease Obligations
Lakeland is obligated under various
non-cancelable
operating leases on building and land used for office space and banking purposes. These leases contain renewal options and escalation clauses. Rent expense under long-term operating leases amounted to
approximately $3.2 million, $2.7 million and $2.7 million for the years ended December 31, 2016, 2015 and 2014, respectively, including rent expense to related parties of $141,000 in 2016, $143,000 in 2015, and $139,000, in 2014. At
December 31, 2016, the
-102-
minimum commitments under all noncancellable leases with remaining terms of more than one year and expiring through 2033 are as follows (in thousands):
|
|
|
|
|
Year
|
|
|
|
2017
|
|
$
|
3,179
|
|
2018
|
|
|
3,080
|
|
2019
|
|
|
2,889
|
|
2020
|
|
|
2,660
|
|
2021
|
|
|
2,470
|
|
Thereafter
|
|
|
17,701
|
|
|
|
|
|
|
|
|
$
|
31,979
|
|
|
|
|
|
|
|
|
|
|
|
Litigation
There are no pending legal proceedings involving the Company or Lakeland other than those arising in the normal course of
business. Management does not anticipate that the potential liability, if any, arising out of such legal proceedings will have a material effect on the financial condition or results of operations of the Company and Lakeland on a consolidated basis.
NOTE 15 - FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET
RISK AND CONCENTRATIONS OF CREDIT RISK
Lakeland is party to financial instruments with
off-balance-sheet
risk
in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the consolidated financial
statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement Lakeland has in particular classes of financial instruments.
Lakelands exposure to credit loss in the event of
non-performance
by the
other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. Lakeland uses the same credit policies in making commitments and
conditional obligations as it does for
on-balance-sheet
instruments.
Lakeland generally requires collateral or other security to support financial instruments with credit risk. The
approximate contract amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Financial instruments whose contract amounts represent credit risk
|
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
921,979
|
|
|
$
|
773,058
|
|
Standby letters of credit and financial guarantees written
|
|
|
15,170
|
|
|
|
11,060
|
|
At December 31, 2016 and 2015 there were $10,000 and $8,000, respectively, in commitments
to lend additional funds to borrowers whose terms have been modified in troubled debt restructurings.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other
-103-
termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. Lakeland evaluates each customers creditworthiness on a
case-by-case
basis. The amount of collateral obtained, if deemed necessary by Lakeland upon extension of credit, is based
on managements credit evaluation.
Standby letters of credit are conditional commitments issued by
Lakeland to guarantee the payment by or performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Lakeland holds deposit
accounts, residential or commercial real estate, accounts receivable, inventory and equipment as collateral to support those commitments for which collateral is deemed necessary. The extent of collateral held for those commitments at December 31,
2016 and 2015 varies based on managements credit evaluation.
Lakeland issues financial and performance
letters of credit. Financial letters of credit require Lakeland to make payment if the customer fails to make payment, as defined in the agreements. Performance letters of credit require Lakeland to make payments if the customer fails to perform
certain
non-financial
contractual obligations. Lakeland defines the initial fair value of these letters of credit as the fees received from the customer. Lakeland records these fees as a liability when issuing
the letters of credit and amortizes the fee over the life of the letter of credit.
The maximum potential
undiscounted amount of future payments of these letters of credit as of December 31, 2016 is $15.2 million and they expire through 2024. Lakelands exposure under these letters of credit would be reduced by actual performance, subsequent
termination by the beneficiaries and by any proceeds that Lakeland obtained in liquidating the collateral for the loans, which varies depending on the customer.
As of December 31, 2016, Lakeland had $922.0 million in loan and lease commitments, with $646.1 million maturing within one year, $128.4 million maturing after one year but within three
years, $12.7 million maturing after three years but within five years, and $134.9 million maturing after five years. As of December 31, 2016, Lakeland had $15.2 million in standby letters of credit, with $14.6 million maturing
within one year, $481,000 maturing after one year but within three years, $32,000 maturing after three years but within five years and $80,000 maturing after five years.
Lakeland grants loans primarily to customers in New Jersey, the Hudson Valley Region in New York State, and surrounding
areas. Certain of Lakelands consumer loans and lease customers are more diversified nationally. Although Lakeland has a diversified loan portfolio, a large portion of its loans are secured by commercial or residential real property. Although
Lakeland has a diversified loan portfolio, a substantial portion of its debtors ability to honor their contracts is dependent upon the economy. Commercial and standby letters of credit were granted primarily to commercial borrowers.
NOTE 16 - COMPREHENSIVE INCOME
The Company reports comprehensive income in addition to net income (loss) from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the calculation of net income.
-104-
The following table shows the changes in the balances of each of the
components of other comprehensive income for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
|
(in thousands)
|
|
Unrealized losses on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses arising during period
|
|
$
|
(1,816
|
)
|
|
$
|
778
|
|
|
$
|
(1,038
|
)
|
Less reclassification adjustment for net gains realized in net income
|
|
|
370
|
|
|
|
(137
|
)
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on available for sale securities
|
|
|
(2,186
|
)
|
|
|
915
|
|
|
|
(1,271
|
)
|
Unrealized gain on derivatives
|
|
|
1,033
|
|
|
|
(361
|
)
|
|
|
672
|
|
Change in pension liabilities
|
|
|
70
|
|
|
|
(28
|
)
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net
|
|
$
|
(1,083
|
)
|
|
$
|
526
|
|
|
$
|
(557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
|
(in thousands)
|
|
Unrealized losses on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses arising during period
|
|
$
|
(375
|
)
|
|
$
|
155
|
|
|
$
|
(220
|
)
|
Less reclassification adjustment for net gains realized in net income
|
|
|
241
|
|
|
|
(84
|
)
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized losses on available for sale securities
|
|
|
(616
|
)
|
|
|
239
|
|
|
|
(377
|
)
|
Change in pension liabilities
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net
|
|
$
|
(613
|
)
|
|
$
|
240
|
|
|
$
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
|
|
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
|
(in thousands)
|
|
Unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during period
|
|
$
|
9,663
|
|
|
$
|
(3,483
|
)
|
|
$
|
6,180
|
|
Less reclassification adjustment for net gains realized in net income
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on available for sale securities
|
|
|
9,660
|
|
|
|
(3,482
|
)
|
|
|
6,178
|
|
Change in pension liabilities
|
|
|
31
|
|
|
|
(11
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
|
|
$
|
9,691
|
|
|
$
|
(3,493
|
)
|
|
$
|
6,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-105-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December
31, 2016
|
|
|
For the Year Ended
December
31, 2015
|
|
|
For the Year Ended
December
31, 2014
|
|
|
|
Unrealized
Gains and
Losses on
Available-
for-Sale
Securities
|
|
|
Unrealized
Gains (Losses)
on Derivatives
|
|
|
Pension
Items
|
|
|
Total
|
|
|
Unrealized
Gains and
Losses on
Available-
for-Sale
Securities
|
|
|
Pension
Items
|
|
|
Total
|
|
|
Unrealized
Gains and
Losses on
Available-
for-Sale
Securities
|
|
|
Pension
Items
|
|
|
Total
|
|
Beginning balance
|
|
$
|
1,154
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
1,150
|
|
|
$
|
1,531
|
|
|
$
|
(8
|
)
|
|
$
|
1,523
|
|
|
$
|
(4,647
|
)
|
|
$
|
(28
|
)
|
|
$
|
(4,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Other comprehensive income (loss) before classifications
|
|
|
(1,038
|
)
|
|
|
672
|
|
|
|
42
|
|
|
|
(324
|
)
|
|
|
(220
|
)
|
|
|
4
|
|
|
|
(216
|
)
|
|
|
6,180
|
|
|
|
20
|
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
|
(157
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
(1,271
|
)
|
|
|
672
|
|
|
|
42
|
|
|
|
(557
|
)
|
|
|
(377
|
)
|
|
|
4
|
|
|
|
(373
|
)
|
|
|
6,178
|
|
|
|
20
|
|
|
|
6,198
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(117
|
)
|
|
$
|
672
|
|
|
$
|
38
|
|
|
$
|
593
|
|
|
$
|
1,154
|
|
|
$
|
(4
|
)
|
|
$
|
1,150
|
|
|
$
|
1,531
|
|
|
$
|
(8
|
)
|
|
$
|
1,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: All amounts are net of tax.
NOTE 17 - FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
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.
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 on particular valuation techniques.
The Companys assets that are measured at fair value on a recurring basis are its available for sale investment
securities and its interest rate swaps. The Company obtains fair values on its securities using information from a third party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1
securities. The Company has U.S. Treasury Notes 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
-106-
include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the
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 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).
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 year ended December 31, 2016 and 2015, the Company did not make any transfers between recurring Level 1 fair value measurements and recurring Level 2 fair value measurements. Financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
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)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
5,931
|
|
|
$
|
111,428
|
|
|
$
|
|
|
|
$
|
117,359
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
413,725
|
|
|
|
|
|
|
|
413,725
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
48,326
|
|
|
|
|
|
|
|
48,326
|
|
Corporate debt securities
|
|
|
|
|
|
|
5,412
|
|
|
|
|
|
|
|
5,412
|
|
Equity securities
|
|
|
7,748
|
|
|
|
14,134
|
|
|
|
|
|
|
|
21,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
13,679
|
|
|
|
593,025
|
|
|
|
|
|
|
|
606,704
|
|
|
|
|
|
|
Other Assets(1)
|
|
|
|
|
|
|
3,378
|
|
|
|
|
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
13,679
|
|
|
$
|
596,403
|
|
|
$
|
|
|
|
$
|
610,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities(1)
|
|
$
|
|
|
|
$
|
2,345
|
|
|
$
|
|
|
|
$
|
2,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
2,345
|
|
|
$
|
|
|
|
$
|
2,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-107-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
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)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
4,888
|
|
|
$
|
92,245
|
|
|
$
|
|
|
|
$
|
97,133
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
289,572
|
|
|
|
|
|
|
|
289,572
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
36,498
|
|
|
|
|
|
|
|
36,498
|
|
Corporate debt securities
|
|
|
|
|
|
|
501
|
|
|
|
|
|
|
|
501
|
|
Equity securities
|
|
|
5,052
|
|
|
|
13,593
|
|
|
|
|
|
|
|
18,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
9,940
|
|
|
|
432,409
|
|
|
|
|
|
|
|
442,349
|
|
|
|
|
|
|
Other Assets(1)
|
|
|
|
|
|
|
1,518
|
|
|
|
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
9,940
|
|
|
$
|
433,927
|
|
|
$
|
|
|
|
$
|
443,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities(1)
|
|
$
|
|
|
|
$
|
1,518
|
|
|
$
|
|
|
|
$
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
1,518
|
|
|
$
|
|
|
|
$
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Non-hedging
interest rate derivatives
|
The following table sets forth the Companys financial assets subject to fair value adjustments (impairment) on a
non-recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
Fair Value
|
|
|
|
(in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans and Leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,285
|
|
|
$
|
25,285
|
|
Loans held for sale
|
|
|
|
|
|
|
1,742
|
|
|
|
|
|
|
|
1,742
|
|
Other real estate owned and other repossessed assets
|
|
|
|
|
|
|
|
|
|
|
1,072
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
Fair Value
|
|
|
|
(in thousands)
|
|
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 and leases are evaluated and valued at the time the loan is identified as
impaired at the lower of cost or market value. 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 income approach to value the collateral using discount rates (with ranges of 5-11%) or capitalization rates (with ranges of
5-9%)
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
-108-
reliance on this type of collateral. Appraised and reported values may be discounted 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. Impaired loans and leases 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 fair 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
carried at fair value less estimated disposal costs of the acquired property. Fair value on other real estate owned is based on the appraised value of the collateral using discount rates or capitalization rates similar to those used in impaired loan
valuation. The fair value of other repossessed assets is estimated by inquiry through a recognized valuation resource.
Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Changes in economic conditions, locally or nationally, could impact the value of the
estimated amounts of impaired loans, OREO and other repossessed assets.
Fair Value of Certain Financial Instruments
Estimated fair values have been determined by the Company using the best available data and an estimation
methodology suitable for each category of financial instruments. Management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active
markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.
The estimation methodologies used, the estimated fair values, and recorded book balances at December 31, 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 $34.6 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.
Federal
Home Loan Bank of New York (FHLB) stock is an equity interest that can be sold to the issuing FHLB, to other FHLBs, or to other member banks at its par value. Because ownership of these securities is restricted, they do not have a readily
determinable fair value. As such, the 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.
-109-
The net loan portfolio at December 31, 2016 and December 31, 2015 has been
valued using a present value discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate for new loans with similar credit risk. The valuation of our loan portfolio
is consistent with accounting guidance but does not fully incorporate the exit price approach.
For fixed
maturity certificates of deposit, fair value was estimated based on the present value of discounted cash flows using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
The fair value of long-term debt is based upon the discounted value of
contractual cash flows. The Company estimates the discount rate using the rates currently offered for similar borrowing arrangements. The fair value of subordinated debentures is based on bid/ask prices from brokers for similar types of instruments.
The fair values of commitments to extend credit and standby letters of credit are estimated using the fees
currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For
fixed-rate
loan commitments, fair value
also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them
or otherwise settle the obligations with the counterparties at the reporting date. The fair values of commitments to extend credit and standby letters of credit are deemed immaterial.
The following table presents the carrying values, fair values and placement in the fair value hierarchy of the
Companys financial instruments as of December 31, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
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)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
147,614
|
|
|
$
|
146,990
|
|
|
$
|
|
|
|
$
|
111,403
|
|
|
$
|
35,587
|
|
Federal Home Loan and other membership bank stock
|
|
|
15,099
|
|
|
|
15,099
|
|
|
|
|
|
|
|
15,099
|
|
|
|
|
|
Loans and leases, net
|
|
|
3,839,353
|
|
|
|
3,832,465
|
|
|
|
|
|
|
|
|
|
|
|
3,832,465
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
544,908
|
|
|
|
543,399
|
|
|
|
|
|
|
|
543,399
|
|
|
|
|
|
Other borrowings
|
|
|
260,866
|
|
|
|
264,586
|
|
|
|
|
|
|
|
264,586
|
|
|
|
|
|
Subordinated debentures
|
|
|
104,784
|
|
|
|
94,476
|
|
|
|
|
|
|
|
|
|
|
|
94,476
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
116,740
|
|
|
$
|
117,594
|
|
|
$
|
|
|
|
$
|
110,293
|
|
|
$
|
7,301
|
|
Federal Home Loan and other membership bank stock
|
|
|
14,087
|
|
|
|
14,087
|
|
|
|
|
|
|
|
14,087
|
|
|
|
|
|
Loans and leases, net
|
|
|
2,934,326
|
|
|
|
2,930,188
|
|
|
|
|
|
|
|
|
|
|
|
2,930,188
|
|
|
|
|
|
|
|
Financial 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
|
|
-110-
NOTE 18 - 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 December 31, 2016 and 2015, Lakeland had $7.5 million and $2.5 million, respectively, in securities pledged for collateral on its interest rate swaps.
In June 2016, the Company entered into two cash flow hedges in order to hedge the variable cash outflows
associated with its floating rate subordinated debentures (See Note 8). The notional value of these hedges was $30.0 million. The Companys objective 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 year
ended December 31, 2016, the Company did not record any hedge ineffectiveness. The Company recognized $49,000 of accumulated other comprehensive income that was reclassified into interest expense during 2016.
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 $30,000 will be reclassified as an increase to interest expense should the rate environment remain the same.
The following table presents summary information regarding these derivatives for the periods presented (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Notional Amount
|
|
|
Average
Maturity (Years)
|
|
|
Weighted Average
Rate Fixed
|
|
|
Weighted Average
Variable Rate
|
|
Fair Value
|
|
Customer interest rate swaps
|
|
$
|
129,252
|
|
|
|
10.9
|
|
|
|
4.030
|
%
|
|
1 Mo. LIBOR + 2.10
|
|
$
|
(2,345
|
)
|
3rd party interest rate swaps
|
|
|
(129,252
|
)
|
|
|
10.9
|
|
|
|
4.030
|
%
|
|
1 Mo. LIBOR + 2.10
|
|
|
2,345
|
|
Interest rate swap (cash flow hedge)
|
|
|
30,000
|
|
|
|
4.5
|
|
|
|
1.10
|
%
|
|
3 Mo. LIBOR
|
|
|
1,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Notional Amount
|
|
|
Average
Maturity (Years)
|
|
|
Weighted Average
Rate Fixed
|
|
|
Weighted Average
Variable Rate
|
|
Fair Value
|
|
Customer interest rate swaps
|
|
$
|
35,664
|
|
|
|
14.6
|
|
|
|
4.540
|
%
|
|
1 Mo. LIBOR + 2.00
|
|
$
|
1,518
|
|
3rd party interest rate swaps
|
|
|
(35,664
|
)
|
|
|
14.6
|
|
|
|
4.540
|
%
|
|
1 Mo. LIBOR + 2.00
|
|
|
(1,518
|
)
|
NOTE 19 - REGULATORY MATTERS
The Bank Holding Company Act of 1956 restricts the amount of dividends the Company can pay. Accordingly, dividends should generally only be paid out of current earnings, as defined.
The New Jersey Banking Act of 1948 restricts the amount of dividends paid on the capital stock of New Jersey chartered
banks. Accordingly, no dividends shall be paid by such banks on their capital stock unless, following the payment of such dividends, the capital stock of Lakeland will be unimpaired, and: (1) Lakeland will have a surplus, as defined, of not
less than 50% of its capital stock, or, if not, (2) the
-111-
payment of such dividend will not reduce the surplus, as defined, of Lakeland. Under these limitations, approximately $480.9 million was available for payment of dividends from Lakeland to
the Company as of December 31, 2016.
The Company and Lakeland are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Companys and Lakelands consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve
quantitative measures of the Companys and Lakelands assets, liabilities and certain
off-balance-sheet
items as calculated under regulatory accounting practices. The Companys and
Lakelands capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulations to ensure capital adequacy require the Company and Lakeland to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2016, that the Company
and Lakeland met all capital adequacy requirements to which they are subject.
As of December 31, 2016, the
most recent notification from the FDIC categorized Lakeland as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Lakeland must maintain minimum total risk-based, Tier 1 risk-based,
common equity Tier 1 capital and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the institutions category.
As of December 31, 2016 and 2015, the Company and Lakeland have the following capital ratios based on the then current
regulations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
To Be Well Capitalized
Under Prompt
Corrective
Action Provisions
|
|
December 31, 2016
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
549,391
|
|
|
|
13.48
|
%
|
|
>
$
|
325,965
|
|
|
|
>
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Lakeland
|
|
|
530,458
|
|
|
|
13.03
|
|
|
|
325,561
|
|
|
|
8.00
|
|
|
>
$
|
406,952
|
|
|
|
>
10.00
|
%
|
|
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
442,124
|
|
|
|
10.85
|
%
|
|
>
$
|
244,474
|
|
|
|
>
6.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Lakeland
|
|
|
496,737
|
|
|
|
12.21
|
|
|
|
244,171
|
|
|
|
6.00
|
|
|
>
$
|
325,561
|
|
|
|
>
8.00
|
%
|
|
|
|
|
|
|
|
Common equity Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
412,124
|
|
|
|
10.11
|
%
|
|
>
$
|
183,355
|
|
|
|
>
4.50
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Lakeland
|
|
|
496,737
|
|
|
|
12.21
|
|
|
|
183,128
|
|
|
|
4.50
|
|
|
>
$
|
264,519
|
|
|
|
>
6.50
|
%
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
442,124
|
|
|
|
9.07
|
%
|
|
>
$
|
194,927
|
|
|
|
>
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Lakeland
|
|
|
496,737
|
|
|
|
10.21
|
|
|
|
194,691
|
|
|
|
4.00
|
|
|
>
$
|
243,364
|
|
|
|
>
5.00
|
%
|
-112-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized Under
|
|
|
|
|
|
|
|
|
|
For Capital Adequacy
|
|
|
Prompt Corrective Action
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Provisions
|
|
December
31, 2015
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
351,779
|
|
|
|
11.61
|
%
|
|
> $
|
242,299
|
|
|
|
> 8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Lakeland
|
|
|
328,574
|
|
|
|
10.87
|
|
|
|
241,880
|
|
|
|
8.00
|
|
|
> $
|
302,350
|
|
|
|
> 10.00
|
%
|
|
|
|
|
|
|
|
Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
318,867
|
|
|
|
10.53
|
%
|
|
> $
|
181,724
|
|
|
|
> 6.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Lakeland
|
|
|
295,662
|
|
|
|
9.78
|
|
|
|
181,410
|
|
|
|
6.00
|
|
|
> $
|
241,880
|
|
|
|
> 8.00
|
%
|
|
|
|
|
|
|
|
Common equity Tier 1 capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
288,867
|
|
|
|
9.54
|
%
|
|
> $
|
136,293
|
|
|
|
> 4.50
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Lakeland
|
|
|
295,662
|
|
|
|
9.78
|
|
|
|
136,057
|
|
|
|
4.50
|
|
|
> $
|
196,527
|
|
|
|
> 6.50
|
%
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
$
|
318,867
|
|
|
|
8.70
|
%
|
|
> $
|
146,594
|
|
|
|
> 4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Lakeland
|
|
|
295,662
|
|
|
|
8.08
|
|
|
|
146,453
|
|
|
|
4.00
|
|
|
> $
|
183,066
|
|
|
|
> 5.00
|
%
|
The final rules implementing the Basel Committee on Banking Supervisions capital
guidelines for U.S. Banks became effective for the Company on January 1, 2015, with full compliance with all the final rules requirements phased in over a
multi-year
schedule, to be fully phased in by
January 1, 2019. The Basel Rules require a capital conservation buffer. When fully phased in on January 1, 2019, the Company and Lakeland will be required to maintain a 2.5% capital conservation buffer in addition to the minimum capital
ratios set forth in the above table. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and increases by 0.625% every January 1 until it reaches 2.5% on January 1, 2019.
NOTE 20 GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has recorded goodwill of $135.7 million and $110.0 million at December 31, 2016 and December 31, 2015, respectively, which includes $10.5 million from the Harmony merger in
2016, $15.3 million from the Pascack merger in 2016 and $110.0 million from prior acquisitions.
Core
Deposit Intangible was $3.3 million on December 31, 2016 compared to $1.5 million on December 31, 2015. The Company recorded $1.0 million, $1.5 million and $2.7 million in core deposit intangible for the Harmony, Pascack and
Somerset Hills acquisitions, respectively. In 2016, it has amortized $734,000 in core deposit intangible including $275,000, $366,000 and $93,000 for Pascack, Somerset Hills and Harmony, respectively. The estimated future amortization expense for
each of the succeeding five years ended December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
Somerset
Hills
|
|
|
Pascack
|
|
|
Harmony
|
|
2017
|
|
$
|
316
|
|
|
$
|
248
|
|
|
$
|
176
|
|
2018
|
|
|
267
|
|
|
|
220
|
|
|
|
157
|
|
2019
|
|
|
218
|
|
|
|
193
|
|
|
|
139
|
|
2020
|
|
|
168
|
|
|
|
165
|
|
|
|
120
|
|
2021
|
|
|
119
|
|
|
|
138
|
|
|
|
102
|
|
-113-
NOTE 21 - CONDENSED FINANCIAL INFORMATION PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
11,675
|
|
|
$
|
15,921
|
|
Investment securities, available for sale
|
|
|
7,757
|
|
|
|
5,060
|
|
Investment securities, held to maturity
|
|
|
1,000
|
|
|
|
1,000
|
|
Investment in subsidiaries
|
|
|
631,500
|
|
|
|
406,538
|
|
Other assets
|
|
|
5,018
|
|
|
|
3,265
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
656,950
|
|
|
$
|
431,784
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
2,122
|
|
|
$
|
30
|
|
Subordinated debentures
|
|
|
104,784
|
|
|
|
31,238
|
|
Total stockholders equity
|
|
|
550,044
|
|
|
|
400,516
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
656,950
|
|
|
$
|
431,784
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
20,687
|
|
|
$
|
23,376
|
|
|
$
|
16,581
|
|
Other income
|
|
|
199
|
|
|
|
1,987
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INCOME
|
|
|
20,886
|
|
|
|
25,363
|
|
|
|
16,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on subordinated debentures
|
|
|
2,171
|
|
|
|
1,009
|
|
|
|
1,068
|
|
Noninterest expenses
|
|
|
442
|
|
|
|
605
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EXPENSE
|
|
|
2,613
|
|
|
|
1,614
|
|
|
|
1,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before (benefit) provision for income taxes
|
|
|
18,273
|
|
|
|
23,749
|
|
|
|
15,302
|
|
Income taxes (benefit) provision
|
|
|
(845
|
)
|
|
|
67
|
|
|
|
(447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed income of subsidiaries
|
|
|
19,118
|
|
|
|
23,682
|
|
|
|
15,749
|
|
Equity in undistributed income of subsidiaries
|
|
|
22,400
|
|
|
|
8,799
|
|
|
|
15,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
41,518
|
|
|
$
|
32,481
|
|
|
$
|
31,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-114-
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,518
|
|
|
$
|
32,481
|
|
|
$
|
31,129
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on securities
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
Amortization of subordinated debt costs
|
|
|
30
|
|
|
|
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
|
|
|
|
|
(1,830
|
)
|
|
|
|
|
(Increase) decrease in other assets
|
|
|
(922
|
)
|
|
|
3,861
|
|
|
|
(174
|
)
|
Increase (decrease) in other liabilities
|
|
|
1,010
|
|
|
|
176
|
|
|
|
(46
|
)
|
Equity in undistributed income of subsidiaries
|
|
|
(22,400
|
)
|
|
|
(8,799
|
)
|
|
|
(15,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
19,236
|
|
|
|
25,860
|
|
|
|
15,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in acquisition
|
|
|
(5,356
|
)
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(62
|
)
|
|
|
(56
|
)
|
|
|
(471
|
)
|
Purchases of held to maturity securities
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
Sale of land held for sale
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Proceeds from sale of available for sale securities
|
|
|
|
|
|
|
29
|
|
|
|
|
|
Contribution to subsidiary
|
|
|
(124,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(129,791
|
)
|
|
|
(1,027
|
)
|
|
|
(411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid on common and preferred stock
|
|
|
(16,007
|
)
|
|
|
(12,586
|
)
|
|
|
(10,836
|
)
|
Issuance of stock to the dividend reinvestment and stock purchase plan
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Proceeds from issuance of common stock, net
|
|
|
48,678
|
|
|
|
22
|
|
|
|
|
|
Proceeds from issuance of subordinated debt, net
|
|
|
73,516
|
|
|
|
|
|
|
|
|
|
Redemption of subordinated debentures, net
|
|
|
|
|
|
|
(8,170
|
)
|
|
|
|
|
Retirement of restricted stock
|
|
|
(206
|
)
|
|
|
(254
|
)
|
|
|
(104
|
)
|
Excess tax benefits
|
|
|
43
|
|
|
|
59
|
|
|
|
70
|
|
Exercise of stock options
|
|
|
285
|
|
|
|
124
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
106,309
|
|
|
|
(20,805
|
)
|
|
|
(10,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(4,246
|
)
|
|
|
4,028
|
|
|
|
4,415
|
|
Cash and cash equivalents, beginning of year
|
|
|
15,921
|
|
|
|
11,893
|
|
|
|
7,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
11,675
|
|
|
$
|
15,921
|
|
|
$
|
11,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-115-