The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The
accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation.
This quarterly report presents the consolidated financial statements of Lakeland Bancorp, Inc. and its subsidiaries, including Lakeland Bank
(Lakeland) and the Banks wholly owned subsidiaries (collectively, the Company). The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America
(U.S. GAAP) and predominant practices within the banking industry. The Companys unaudited interim financial statements reflect all adjustments, such as normal recurring accruals that are, in the opinion of management, necessary for
the fair presentation of the results of the interim periods. The results of operations for the three months ended March 31, 2017 do not necessarily indicate the results that the Company will achieve for all of 2017.
Certain information and footnote disclosures required under U.S. GAAP have been condensed or omitted, as permitted by rules and regulations of
the Securities and Exchange Commission. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes that are presented in the Companys Annual Report on
Form
10-K
for the year ended December 31, 2016.
NOTE 2 ACQUISITIONS
Harmony Bank
On July 1, 2016, the
Company completed its acquisition of Harmony Bank (Harmony), a bank with three branches located in Ocean County, NJ. Effective upon the opening of business on July 1, 2016, Harmony was merged into Lakeland Bank. This merger allows
the Company to expand its presence to Ocean County. The merger agreement provided that shareholders of Harmony would receive 1.25 shares of the Company common stock for each share of Harmony Bank common stock that they owned at the effective time of
the merger. The Company issued an aggregate of 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.
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.
9
|
|
|
|
|
|
|
On July 1,
2016
|
|
|
|
(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. 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.
10
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 own at the effective time of the merger, either 0.9576 shares of Lakeland Bancorp common stock or $11.35 in cash, subject to proration as described in the merger agreement, so that 90% of
the aggregate merger consideration was shares of Lakeland Bancorp common stock and 10% was cash. Lakeland Bancorp issued 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.
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 following table summarizes
the estimated fair value of the acquired assets and liabilities assumed at the date of acquisition for Pascack, net of cash consideration paid.
|
|
|
|
|
|
|
On Janaury 7,
2016
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
40,942
|
|
Securities held to maturity
|
|
|
3,925
|
|
Federal Home Loan Bank stock
|
|
|
2,962
|
|
Loans
|
|
|
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 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.
11
|
|
|
|
|
|
|
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 three months ended March 31, 2016, the
Company incurred $1.7 million of merger and acquisition integration-related expenses, which have been separately stated in the Companys consolidated statements of income.
12
NOTE 3 EARNINGS PER SHARE
The following schedule shows the Companys earnings per share calculations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except per share data)
|
|
Net income available to common shareholders
|
|
$
|
12,312
|
|
|
$
|
8,108
|
|
Less: earnings allocated to participating securities
|
|
|
121
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
|
|
$
|
12,191
|
|
|
$
|
8,050
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
47,354
|
|
|
|
40,931
|
|
Share-based plans
|
|
|
269
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - diluted
|
|
|
47,623
|
|
|
|
41,092
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
There were no antidilutive options to purchase common stock excluded from the computation for the three months
ended March 31, 2017 and 2016.
13
NOTE 4 INVESTMENT SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
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
|
|
$
|
136,058
|
|
|
$
|
108
|
|
|
$
|
(1,120
|
)
|
|
$
|
135,046
|
|
|
$
|
118,537
|
|
|
$
|
102
|
|
|
$
|
(1,280
|
)
|
|
$
|
117,359
|
|
Mortgage-backed securities, residential
|
|
|
468,194
|
|
|
|
1,227
|
|
|
|
(4,160
|
)
|
|
|
465,261
|
|
|
|
406,851
|
|
|
|
1,174
|
|
|
|
(4,487
|
)
|
|
|
403,538
|
|
Mortgage-backed securities, multifamily
|
|
|
10,177
|
|
|
|
39
|
|
|
|
(37
|
)
|
|
|
10,179
|
|
|
|
10,192
|
|
|
|
30
|
|
|
|
(35
|
)
|
|
|
10,187
|
|
Obligations of states and political subdivisions
|
|
|
54,258
|
|
|
|
549
|
|
|
|
(678
|
)
|
|
|
54,129
|
|
|
|
48,868
|
|
|
|
391
|
|
|
|
(933
|
)
|
|
|
48,326
|
|
Debt securities
|
|
|
5,000
|
|
|
|
151
|
|
|
|
|
|
|
|
5,151
|
|
|
|
5,350
|
|
|
|
63
|
|
|
|
(1
|
)
|
|
|
5,412
|
|
Equity securities
|
|
|
15,428
|
|
|
|
2,602
|
|
|
|
(444
|
)
|
|
|
17,586
|
|
|
|
17,314
|
|
|
|
5,000
|
|
|
|
(432
|
)
|
|
|
21,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
689,115
|
|
|
$
|
4,676
|
|
|
$
|
(6,439
|
)
|
|
$
|
687,352
|
|
|
$
|
607,112
|
|
|
$
|
6,760
|
|
|
$
|
(7,168
|
)
|
|
$
|
606,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
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
|
|
$
|
33,519
|
|
|
$
|
159
|
|
|
$
|
(354
|
)
|
|
$
|
33,324
|
|
|
$
|
33,553
|
|
|
$
|
144
|
|
|
$
|
(430
|
)
|
|
$
|
33,267
|
|
Mortgage-backed securities, residential
|
|
|
39,917
|
|
|
|
341
|
|
|
|
(610
|
)
|
|
|
39,648
|
|
|
|
38,706
|
|
|
|
369
|
|
|
|
(598
|
)
|
|
|
38,477
|
|
Mortgage-backed securities, multifamily
|
|
|
2,034
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
2,002
|
|
|
|
2,059
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
2,015
|
|
Obligations of states and political subdivisions
|
|
|
70,929
|
|
|
|
402
|
|
|
|
(277
|
)
|
|
|
71,054
|
|
|
|
71,284
|
|
|
|
269
|
|
|
|
(385
|
)
|
|
|
71,168
|
|
Debt securities
|
|
|
2,010
|
|
|
|
45
|
|
|
|
|
|
|
|
2,055
|
|
|
|
2,012
|
|
|
|
51
|
|
|
|
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
148,409
|
|
|
$
|
947
|
|
|
$
|
(1,273
|
)
|
|
$
|
148,083
|
|
|
$
|
147,614
|
|
|
$
|
833
|
|
|
$
|
(1,457
|
)
|
|
$
|
146,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The following table shows investment securities by stated maturity. Securities backed by
mortgages have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay, and are, therefore, classified separately with no specific maturity date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
March 31, 2017
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
2,283
|
|
|
$
|
2,303
|
|
|
$
|
37,144
|
|
|
$
|
37,100
|
|
Due after one year through five years
|
|
|
103,618
|
|
|
|
103,824
|
|
|
|
30,755
|
|
|
|
30,937
|
|
Due after five years through ten years
|
|
|
72,107
|
|
|
|
70,971
|
|
|
|
34,034
|
|
|
|
33,876
|
|
Due after ten years
|
|
|
17,308
|
|
|
|
17,228
|
|
|
|
4,525
|
|
|
|
4,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,316
|
|
|
|
194,326
|
|
|
|
106,458
|
|
|
|
106,433
|
|
Mortgage-backed securities
|
|
|
478,371
|
|
|
|
475,440
|
|
|
|
41,951
|
|
|
|
41,650
|
|
Equity securities
|
|
|
15,428
|
|
|
|
17,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
689,115
|
|
|
$
|
687,352
|
|
|
$
|
148,409
|
|
|
$
|
148,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows proceeds from sales of securities and gross gains on sales of securities for the
periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Sale proceeds
|
|
$
|
4,499
|
|
|
$
|
15,654
|
|
Gross gains
|
|
|
2,539
|
|
|
|
370
|
|
There were no other-than-temporary impairments during the three months ended March 31, 2017 or 2016.
Gains or losses on sales of investment securities are based on the net proceeds and the adjusted carrying amount of the securities sold using
the specific identification method.
Securities with a carrying value of approximately $499.7 million and $443.4 million at
March 31, 2017 and December 31, 2016, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
15
The following table indicates the length of time individual securities have been in a continuous
unrealized loss position for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
Number of
|
|
|
|
|
|
Unrealized
|
|
March 31, 2017
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
102,370
|
|
|
$
|
1,120
|
|
|
$
|
|
|
|
$
|
|
|
|
|
19
|
|
|
$
|
102,370
|
|
|
$
|
1,120
|
|
Mortgage-backed securities, residential
|
|
|
318,895
|
|
|
|
3,774
|
|
|
|
14,574
|
|
|
|
386
|
|
|
|
93
|
|
|
|
333,469
|
|
|
|
4,160
|
|
Mortgage-backed securities, multifamily
|
|
|
5,160
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
5,160
|
|
|
|
37
|
|
Obligations of states and political subdivisions
|
|
|
26,837
|
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
26,837
|
|
|
|
678
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
9,514
|
|
|
|
444
|
|
|
|
2
|
|
|
|
9,514
|
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
453,262
|
|
|
$
|
5,609
|
|
|
$
|
24,088
|
|
|
$
|
830
|
|
|
|
162
|
|
|
$
|
477,350
|
|
|
$
|
6,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
12,180
|
|
|
$
|
354
|
|
|
$
|
|
|
|
$
|
|
|
|
|
2
|
|
|
$
|
12,180
|
|
|
$
|
354
|
|
Mortgage-backed securities, residential
|
|
|
29,330
|
|
|
|
545
|
|
|
|
1,049
|
|
|
|
65
|
|
|
|
19
|
|
|
|
30,379
|
|
|
|
610
|
|
Mortgage-backed securities, multifamily
|
|
|
2,002
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2,002
|
|
|
|
32
|
|
Obligations of states and political subdivisions
|
|
|
42,516
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
42,516
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86,028
|
|
|
$
|
1,208
|
|
|
$
|
1,049
|
|
|
$
|
65
|
|
|
|
51
|
|
|
$
|
87,077
|
|
|
$
|
1,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
Number of
|
|
|
|
|
|
Unrealized
|
|
December 31, 2016
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Fair Value
|
|
|
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
|
|
Other 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Management has evaluated the securities in the above table and has concluded that none of the
securities are other-than-temporarily impaired. The fair values being below cost is due to interest rate movements and is deemed temporary. All investment securities are evaluated on a periodic basis to identify any factors that would require a
further analysis. In evaluating the Companys securities, management considers the following items:
|
|
|
The Companys ability and intent to hold the securities, including an evaluation of the need to sell the security to meet certain liquidity measures, or whether the Company has sufficient levels of cash to hold the
identified security in order to recover the entire amortized cost of the security;
|
|
|
|
The financial condition of the underlying issuer;
|
|
|
|
The credit ratings of the underlying issuer and if any changes in the credit rating have occurred;
|
|
|
|
The length of time the securitys fair value has been less than amortized cost; and
|
|
|
|
Adverse conditions related to the security or its issuer if the issuer has failed to make scheduled payments or other factors.
|
If the above factors indicate that an additional analysis is required, management will perform and consider the results of a discounted cash
flow analysis.
As of March 31, 2017, the equity securities include investments in other financial institutions for market
appreciation purposes. These equities had a purchase price of $2.1 million and a market value of $4.7 million as of March 31, 2017.
As of March 31, 2017, the equity securities also included $12.9 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 $9.6 million that are
invested in government guaranteed loans, mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development. The Company may redeem these funds at the net asset value calculated at the end
of the current business day less any unpaid management fees. As of March 31, 2017, the amortized cost of these securities was $10.1 million and the fair value was $9.6 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 these investments.
The investment funds also include $3.3 million that are primarily invested in community development loans that are guaranteed by the
Small Business Administration (SBA). Because the funds are primarily guaranteed by the federal government there are minimal changes in market value between accounting periods. These funds can be redeemed with 60 days notice at the net
asset value less unpaid management fees with the approval of the fund manager. As of March 31, 2017, the net amortized cost equaled the market value of the investment. There are no unfunded commitments related to this investment.
NOTE 5 LOANS, LEASES AND OTHER REAL ESTATE
The following sets forth the composition of the Companys loan and lease portfolio:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Commercial, secured by real estate
|
|
$
|
2,650,542
|
|
|
$
|
2,556,601
|
|
Commercial, industrial and other
|
|
|
342,264
|
|
|
|
350,228
|
|
Leases
|
|
|
67,488
|
|
|
|
67,016
|
|
Real estate - residential mortgage
|
|
|
344,890
|
|
|
|
349,581
|
|
Real estate - construction
|
|
|
231,430
|
|
|
|
211,109
|
|
Home equity and consumer
|
|
|
338,104
|
|
|
|
339,360
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
3,974,718
|
|
|
|
3,873,895
|
|
|
|
|
|
|
|
|
|
|
Less: deferred fees
|
|
|
(3,564
|
)
|
|
|
(3,297
|
)
|
|
|
|
|
|
|
|
|
|
Loans and leases, net of deferred fees
|
|
$
|
3,971,154
|
|
|
$
|
3,870,598
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2017 and December 31, 2016, home equity and consumer loans included overdraft deposit
balances of $339,000 and $364,000, respectively. At March 31, 2017 and December 31, 2016, the Company had $908.4 million and $942.0 million, respectively, in loans pledged for actual and potential borrowings at the Federal Home
Loan Bank of New York (FHLB).
17
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 $444,000 at March 31, 2017, which was $372,000 less than the balance at the time of acquisition on January 7,
2016. In first quarter 2017, one of the Pascack purchased credit impaired (PCI) loans totaling $127,000 experienced further credit deterioration and was fully charged off. The carrying value of loans acquired in the Harmony acquisition
was $779,000 at March 31, 2017 which was substantially the same as the balance at acquisition date on July 1, 2016.
The
following table presents changes in the accretable yield for PCI loans:
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2017
|
|
|
|
(in thousands)
|
|
Balance, beginning of period
|
|
$
|
145
|
|
Acquisitions
|
|
|
|
|
Accretion
|
|
|
(51
|
)
|
Net reclassification non-accretable difference
|
|
|
86
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
180
|
|
|
|
|
|
|
Non-Performing
Assets and Past Due Loans
The following schedule sets forth certain information regarding the Companys
non-performing
assets and its accruing troubled debt restructurings, excluding PCI loans:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Commercial, secured by real estate
|
|
$
|
8,971
|
|
|
$
|
10,413
|
|
Commercial, industrial and other
|
|
|
136
|
|
|
|
167
|
|
Leases, including leases held for sale
|
|
|
179
|
|
|
|
153
|
|
Real estate - residential mortgage
|
|
|
4,715
|
|
|
|
6,048
|
|
Real estate - construction
|
|
|
1,472
|
|
|
|
1,472
|
|
Home equity and consumer
|
|
|
2,270
|
|
|
|
2,151
|
|
|
|
|
|
|
|
|
|
|
Total
non-accrual
loans and leases
|
|
$
|
17,743
|
|
|
$
|
20,404
|
|
Other real estate and other repossessed assets
|
|
|
710
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
TOTAL
NON-PERFORMING
ASSETS
|
|
$
|
18,453
|
|
|
$
|
21,476
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings, still accruing
|
|
$
|
11,553
|
|
|
$
|
8,802
|
|
|
|
|
|
|
|
|
|
|
Non-accrual
loans included $2.2 million and $2.4 million of
troubled debt restructurings at March 31, 2017 and December 31, 2016, respectively. The Company had $3.7 million in residential mortgages and consumer home equity loans that were in the process of foreclosure at each of March 31,
2017 and December 31, 2016.
18
An age analysis of past due loans, segregated by class of loans as of March 31, 2017 and
December 31, 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
Than
|
|
|
|
|
|
|
|
|
Total
|
|
|
Investment Greater
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
89 Days
|
|
|
Total
|
|
|
|
|
|
Loans
|
|
|
than 89 Days and
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
and Leases
|
|
|
Still Accruing
|
|
|
|
(in thousands)
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
4,288
|
|
|
$
|
1,263
|
|
|
$
|
8,241
|
|
|
$
|
13,792
|
|
|
$
|
2,636,750
|
|
|
$
|
2,650,542
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
87
|
|
|
|
74
|
|
|
|
109
|
|
|
|
270
|
|
|
|
341,994
|
|
|
|
342,264
|
|
|
|
|
|
Leases
|
|
|
347
|
|
|
|
29
|
|
|
|
179
|
|
|
|
555
|
|
|
|
66,933
|
|
|
|
67,488
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
3,622
|
|
|
|
|
|
|
|
3,827
|
|
|
|
7,449
|
|
|
|
337,441
|
|
|
|
344,890
|
|
|
|
|
|
Real estate - construction
|
|
|
1,029
|
|
|
|
|
|
|
|
1,471
|
|
|
|
2,500
|
|
|
|
228,930
|
|
|
|
231,430
|
|
|
|
|
|
Home equity and consumer
|
|
|
468
|
|
|
|
122
|
|
|
|
1,814
|
|
|
|
2,404
|
|
|
|
335,700
|
|
|
|
338,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,841
|
|
|
$
|
1,488
|
|
|
$
|
15,641
|
|
|
$
|
26,970
|
|
|
$
|
3,947,748
|
|
|
$
|
3,974,718
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Impaired Loans
The Company defines impaired loans as all
non-accrual
loans and leases with recorded investments of
$500,000 or greater. Impaired loans also include all loans that have been modified in troubled debt restructurings. Impaired loans as of March 31, 2017 and December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Investment in
|
|
|
Principal
|
|
|
Specific
|
|
|
Investment in
|
|
|
Income
|
|
March 31, 2017
|
|
Impaired Loans
|
|
|
Balance
|
|
|
Allowance
|
|
|
Impaired Loans
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
Loans without specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
15,093
|
|
|
$
|
15,484
|
|
|
$
|
|
|
|
$
|
12,859
|
|
|
$
|
67
|
|
Commercial, industrial and other
|
|
|
583
|
|
|
|
583
|
|
|
|
|
|
|
|
583
|
|
|
|
6
|
|
Real estate - residential mortgage
|
|
|
974
|
|
|
|
991
|
|
|
|
|
|
|
|
838
|
|
|
|
4
|
|
Real estate - construction
|
|
|
1,472
|
|
|
|
1,472
|
|
|
|
|
|
|
|
1,471
|
|
|
|
|
|
Home equity and consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
4,970
|
|
|
|
5,249
|
|
|
|
282
|
|
|
|
4,981
|
|
|
|
49
|
|
Commercial, industrial and other
|
|
|
327
|
|
|
|
377
|
|
|
|
10
|
|
|
|
327
|
|
|
|
4
|
|
Real estate - residential mortgage
|
|
|
1,018
|
|
|
|
1,095
|
|
|
|
37
|
|
|
|
1,022
|
|
|
|
7
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,170
|
|
|
|
1,193
|
|
|
|
106
|
|
|
|
1,170
|
|
|
|
14
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
20,063
|
|
|
$
|
20,733
|
|
|
$
|
282
|
|
|
$
|
17,840
|
|
|
$
|
116
|
|
Commercial, industrial and other
|
|
|
910
|
|
|
|
960
|
|
|
|
10
|
|
|
|
910
|
|
|
|
10
|
|
Real estate - residential mortgage
|
|
|
1,992
|
|
|
|
2,086
|
|
|
|
37
|
|
|
|
1,860
|
|
|
|
11
|
|
Real estate - construction
|
|
|
1,472
|
|
|
|
1,472
|
|
|
|
|
|
|
|
1,471
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,170
|
|
|
|
1,193
|
|
|
|
106
|
|
|
|
1,196
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,607
|
|
|
$
|
26,444
|
|
|
$
|
435
|
|
|
$
|
23,277
|
|
|
$
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Investment in
|
|
|
Principal
|
|
|
Specific
|
|
|
Investment in
|
|
|
Income
|
|
December 31, 2016
|
|
Impaired Loans
|
|
|
Balance
|
|
|
Allowance
|
|
|
Impaired Loans
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
Loans without specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
12,764
|
|
|
$
|
13,195
|
|
|
$
|
|
|
|
$
|
13,631
|
|
|
$
|
229
|
|
Commercial, industrial and other
|
|
|
603
|
|
|
|
603
|
|
|
|
|
|
|
|
1,109
|
|
|
|
24
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
1,880
|
|
|
|
3,146
|
|
|
|
|
|
|
|
2,430
|
|
|
|
16
|
|
Real estate - construction
|
|
|
1,471
|
|
|
|
1,471
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
Home equity and consumer
|
|
|
139
|
|
|
|
139
|
|
|
|
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
5,860
|
|
|
|
6,142
|
|
|
|
392
|
|
|
|
6,549
|
|
|
|
273
|
|
Commercial, industrial and other
|
|
|
349
|
|
|
|
349
|
|
|
|
12
|
|
|
|
360
|
|
|
|
17
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
1,031
|
|
|
|
1,100
|
|
|
|
31
|
|
|
|
1,011
|
|
|
|
30
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,188
|
|
|
|
1,211
|
|
|
|
94
|
|
|
|
1,184
|
|
|
|
59
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
18,624
|
|
|
$
|
19,337
|
|
|
$
|
392
|
|
|
$
|
20,180
|
|
|
$
|
502
|
|
Commercial, industrial and other
|
|
|
952
|
|
|
|
952
|
|
|
|
12
|
|
|
|
1,469
|
|
|
|
41
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
2,911
|
|
|
|
4,246
|
|
|
|
31
|
|
|
|
3,441
|
|
|
|
46
|
|
Real estate - construction
|
|
|
1,471
|
|
|
|
1,471
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,327
|
|
|
|
1,350
|
|
|
|
94
|
|
|
|
1,572
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,285
|
|
|
$
|
27,356
|
|
|
$
|
529
|
|
|
$
|
26,675
|
|
|
$
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans was $151,000 and $173,000 for the three months ended
March 31, 2017 and 2016, respectively. Interest that would have been accrued on impaired loans during the first three months of 2017 and 2016 had the loans been performing under original terms would have been $345,000 and $450,000,
respectively.
Credit Quality Indicators
The class of loans is determined by internal risk rating. Management closely and continually monitors the quality of its loans and leases and
assesses the quantitative and qualitative risks arising from the credit quality of its loans and leases. Lakeland assigns a credit risk rating to all commercial loans and loan commitments. The credit risk rating system has been developed by
management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within Lakelands commercial loan portfolios. The risk rating system assists senior
management in evaluating Lakelands commercial loan portfolio, analyzing trends, and determining the proper level of required reserves to be recommended to the Board. In assigning risk ratings, management considers, among other things, a
borrowers
21
debt service coverage, earnings strength, loan to value ratios, industry conditions and economic conditions. Management categorizes commercial loans and commitments into a one (1) to nine
(9) numerical structure with rating 1 being the strongest rating and rating 9 being the weakest. Ratings 1 through 5W are considered Pass ratings.
The following table shows the Companys commercial loan portfolio as of March 31, 2017 and December 31, 2016, by the risk
ratings discussed above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
Real Estate -
|
|
March 31, 2017
|
|
Real Estate
|
|
|
and Other
|
|
|
Construction
|
|
RISK RATING
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
$
|
|
|
|
$
|
473
|
|
|
$
|
|
|
2
|
|
|
|
|
|
|
29,814
|
|
|
|
|
|
3
|
|
|
83,095
|
|
|
|
36,051
|
|
|
|
|
|
4
|
|
|
778,932
|
|
|
|
124,448
|
|
|
|
30,291
|
|
5
|
|
|
1,677,338
|
|
|
|
125,912
|
|
|
|
197,268
|
|
5W - Watch
|
|
|
49,190
|
|
|
|
8,809
|
|
|
|
1,245
|
|
6 - Other assets especially mentioned
|
|
|
34,019
|
|
|
|
8,012
|
|
|
|
|
|
7 - Substandard
|
|
|
27,968
|
|
|
|
8,745
|
|
|
|
2,626
|
|
8 - Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
9 - Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,650,542
|
|
|
$
|
342,264
|
|
|
$
|
231,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
Real Estate -
|
|
December 31, 2016
|
|
Real Estate
|
|
|
and Other
|
|
|
Construction
|
|
RISK RATING
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The risk rating tables above do not include residential mortgage loans, consumer loans, or leases because they
are evaluated on their payment status.
22
Allowance for Loan and Lease Losses
The following table details activity in the allowance for loan and lease losses by portfolio segment for the three months ended March 31,
2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Beginning Balance
|
|
$
|
21,223
|
|
|
$
|
1,723
|
|
|
$
|
548
|
|
|
$
|
1,964
|
|
|
$
|
2,352
|
|
|
$
|
3,435
|
|
|
$
|
31,245
|
|
Charge-offs
|
|
|
(220
|
)
|
|
|
(163
|
)
|
|
|
(43
|
)
|
|
|
(141
|
)
|
|
|
(609
|
)
|
|
|
(184
|
)
|
|
|
(1,360
|
)
|
Recoveries
|
|
|
219
|
|
|
|
95
|
|
|
|
4
|
|
|
|
|
|
|
|
15
|
|
|
|
154
|
|
|
|
487
|
|
Provision
|
|
|
861
|
|
|
|
137
|
|
|
|
(7
|
)
|
|
|
2
|
|
|
|
620
|
|
|
|
(395
|
)
|
|
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
22,083
|
|
|
$
|
1,792
|
|
|
$
|
502
|
|
|
$
|
1,825
|
|
|
$
|
2,378
|
|
|
$
|
3,010
|
|
|
$
|
31,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Beginning Balance
|
|
$
|
20,223
|
|
|
$
|
2,637
|
|
|
$
|
460
|
|
|
$
|
2,588
|
|
|
$
|
1,591
|
|
|
$
|
3,375
|
|
|
$
|
30,874
|
|
Charge-offs
|
|
|
(135
|
)
|
|
|
(625
|
)
|
|
|
(70
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
(620
|
)
|
|
|
(1,543
|
)
|
Recoveries
|
|
|
55
|
|
|
|
42
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
46
|
|
|
|
147
|
|
Provision
|
|
|
(66
|
)
|
|
|
543
|
|
|
|
197
|
|
|
|
(232
|
)
|
|
|
(87
|
)
|
|
|
720
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
20,077
|
|
|
$
|
2,597
|
|
|
$
|
588
|
|
|
$
|
2,266
|
|
|
$
|
1,504
|
|
|
$
|
3,521
|
|
|
$
|
30,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Loans receivable summarized by portfolio segment and impairment method are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
March 31, 2017
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
20,063
|
|
|
$
|
910
|
|
|
$
|
|
|
|
$
|
1,992
|
|
|
$
|
1,472
|
|
|
$
|
1,170
|
|
|
$
|
25,607
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
2,629,495
|
|
|
|
341,126
|
|
|
|
67,488
|
|
|
|
342,898
|
|
|
|
229,958
|
|
|
|
336,923
|
|
|
|
3,947,888
|
|
Ending Balance: Loans acquired with deteriorated credit quality
|
|
|
984
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance (1)
|
|
$
|
2,650,542
|
|
|
$
|
342,264
|
|
|
$
|
67,488
|
|
|
$
|
344,890
|
|
|
$
|
231,430
|
|
|
$
|
338,104
|
|
|
$
|
3,974,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
December 31, 2016
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
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
|
24
The allowance for loan and lease losses is summarized by portfolio segment and impairment
classification as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Commercial,
Secured by
Real Estate
|
|
|
Commercial,
Industrial
and Other
|
|
|
Leases
|
|
|
Real Estate-
Residential
Mortgage
|
|
|
Real Estate-
Construction
|
|
|
Home
Equity and
Consumer
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
282
|
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
37
|
|
|
$
|
|
|
|
$
|
106
|
|
|
$
|
435
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
21,801
|
|
|
|
1,782
|
|
|
|
502
|
|
|
|
1,788
|
|
|
|
2,378
|
|
|
|
2,904
|
|
|
$
|
31,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
22,083
|
|
|
$
|
1,792
|
|
|
$
|
502
|
|
|
$
|
1,825
|
|
|
$
|
2,378
|
|
|
$
|
3,010
|
|
|
$
|
31,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lakeland also maintains a reserve for unfunded lending commitments which is included in other liabilities.
This reserve was $2.5 million for each of the quarters ended March 31, 2017 and December 31, 2016. The Company analyzes the adequacy of the reserve for unfunded lending commitments quarterly.
Troubled Debt Restructurings
Troubled
debt restructurings are those loans where concessions have been made due to borrowers financial difficulties. Restructured loans typically involve a modification of terms such as a reduction of the stated interest rate, a moratorium of
principal payments and/or an extension of the maturity date at a stated interest rate lower than the current market rate of a new loan with similar risk. The Company considers the potential losses on these loans as well as the remainder of its
impaired loans while considering the adequacy of the allowance for loan and lease losses.
25
The following table summarizes loans that have been restructured during the three months ended
March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
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
|
|
|
2
|
|
|
$
|
2,879
|
|
|
$
|
2,879
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Home equity and consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
285
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
$
|
2,879
|
|
|
$
|
2,879
|
|
|
|
3
|
|
|
$
|
285
|
|
|
$
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes as of March 31, 2017 and 2016, loans that were restructured within the
previous twelve months that have subsequently defaulted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
|
(dollars in thousands)
|
|
Commercial, secured by real estate
|
|
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
635
|
|
Real estate - residential mortgage
|
|
|
1
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
$
|
226
|
|
|
|
3
|
|
|
$
|
862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Real Estate and Other Repossessed Assets
At March 31, 2017, the Company had other real estate owned and other repossessed assets of $710,000 and $0, respectively. At
December 31, 2016, the Company 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 March 31, 2017 and December 31, 2016 included
$710,000 and $1.1 million, respectively, in residential property acquired as a result of foreclosure proceedings or through a deed in lieu of foreclosure.
NOTE 6 DERIVATIVES
Lakeland is a party
to interest rate derivatives that are not designated as hedging instruments. Under a program, Lakeland executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate
swaps with customers are simultaneously offset by interest rate swaps that Lakeland executes with a third party, such that Lakeland minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with
this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other,
except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties. Lakeland had $7.5 million in available for sale securities
pledged for collateral on its interest rate swaps with the financial institution at each of March 31, 2017 and December 31, 2016.
In June 2016, the Company entered into two cash flow hedges in order to hedge the variable cash outflows associated with its subordinated
debentures. The notional value of these hedges was $30.0 million. The Companys objectives in using the cash flow hedge are 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
26
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 three months ended March 31, 2017, the Company did not record any hedge ineffectiveness. The Company recognized $8,000 of
accumulated other comprehensive income that was reclassified into interest expense for the first three months of 2017.
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 $15,000 will be
reclassified as a decrease 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Notional Amount
|
|
|
Average
Maturity (Years)
|
|
|
Weighted Average
Fixed Rate
|
|
|
Weighted Average
Variable Rate
|
|
|
Fair Value
|
|
Classified in Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd Party interest rate swaps
|
|
$
|
88,190
|
|
|
|
9.7
|
|
|
|
3.78
|
%
|
|
|
1 Mo. LIBOR + 2.12
|
|
|
$
|
3,779
|
|
Customer interest rate swaps
|
|
|
63,539
|
|
|
|
12.8
|
|
|
|
4.61
|
%
|
|
|
1 Mo. LIBOR + 2.11
|
|
|
|
1,497
|
|
Interest rate swap (cash flow hedge)
|
|
|
30,000
|
|
|
|
4.3
|
|
|
|
1.10
|
%
|
|
|
3 Mo. LIBOR
|
|
|
|
1,055
|
|
Classified in Other Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer interest rate swaps
|
|
$
|
88,190
|
|
|
|
9.7
|
|
|
|
3.78
|
%
|
|
|
1 Mo. LIBOR + 2.12
|
|
|
$
|
(3,779
|
)
|
3rd Party interest rate swaps
|
|
|
63,539
|
|
|
|
12.8
|
|
|
|
4.61
|
%
|
|
|
1 Mo. LIBOR + 2.11
|
|
|
|
(1,497
|
)
|
|
|
|
|
|
|
December 31, 2016
|
|
Notional Amount
|
|
|
Average
Maturity (Years)
|
|
|
Weighted Average
Fixed Rate
|
|
|
Weighted Average
Variable Rate
|
|
|
Fair Value
|
|
Customer interest rate swaps
|
|
$
|
129,252
|
|
|
|
10.9
|
|
|
|
4.03
|
%
|
|
|
1 Mo. LIBOR + 2.10
|
|
|
$
|
(2,345
|
)
|
3rd party interest rate swaps
|
|
|
(129,252
|
)
|
|
|
10.9
|
|
|
|
4.03
|
%
|
|
|
1 Mo. LIBOR + 2.10
|
|
|
|
2,345
|
|
Interest rate swap (cash flow hedge)
|
|
|
30,000
|
|
|
|
4.5
|
|
|
|
1.10
|
%
|
|
|
3 Mo. LIBOR
|
|
|
|
1,033
|
|
NOTE 7 GOODWILL AND INTANGIBLE ASSETS
The Company has goodwill of $135.7 million for each of the periods ended March 31, 2017 and December 31, 2016. The Company
reviews its goodwill and intangible assets annually, on November 30, or more frequently if conditions warrant, for impairment. In testing goodwill for impairment, the Company compares the estimated fair value of its reporting unit to its
carrying amount, including goodwill. The Company has determined that it has one reporting unit, Community Banking.
27
The Company had core deposit intangible of $3.1 million and $3.3 million for the
periods ended March 31, 2017 and December 31, 2016, respectively. The estimated future amortization expense for the remainder of 2017 and for each of the succeeding five years ended December 31 is as follows (dollars in thousands):
|
|
|
|
|
For the Year Ended
|
|
|
|
|
2017
|
|
$
|
546
|
|
2018
|
|
|
645
|
|
2019
|
|
|
549
|
|
2020
|
|
|
454
|
|
2021
|
|
|
359
|
|
2022
|
|
|
263
|
|
NOTE 8 BORROWINGS
Repurchase Agreements
At March 31,
2017, the Company had federal funds purchased and securities sold under agreements to repurchase of $60.0 million and $24.9 million respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts
with our customers. The Company also had $20.0 million in long-term securities sold under agreements to repurchase included in other borrowings which mature within 2 years. As of March 31, 2017, the Company had $55.0 million in
mortgage backed securities pledged for its securities sold under agreements to repurchase.
At times the market values of securities
collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a margin call which requires Lakeland to pledge additional collateral to meet that
margin call.
Prepayment of Borrowings
In February and March of 2017, the Company repaid an aggregate of $20.0 million in long-term securities sold under agreements to
repurchase and recorded $2.2 million in long-term debt prepayment fees. The Company also repaid an aggregate of $34.0 million in borrowings from the Federal Home Loan Bank of New York and recorded $638,000 in long-term debt prepayment
fees.
NOTE 9 SHARE-BASED COMPENSATION
The Company grants restricted stock, restricted stock units (RSUs) and stock options under the 2009 Equity Compensation Program.
Share-based compensation expense of $1.2 million and $754,000 was recognized for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017, there was unrecognized compensation cost of $251,000 related to
unvested restricted stock that is expected to be recognized over a weighted average period of approximately 0.84 years. Unrecognized compensation expense related to RSUs was approximately $2.5 million as of March 31, 2017, and that cost is
expected to be recognized over a period of 1.76 years. There was $3,000 in unrecognized compensation expense related to unvested stock options as of March 31, 2017 and that cost is expected to be recognized over a period of 0.2 years.
In the first three months of 2017, the Company granted 13,176 shares of restricted stock to
non-employee
directors at a grant date fair value of $18.20 per share under the 2009 Equity Compensation Program. The restricted stock vests one year from the date it was granted. Compensation expense on this
restricted stock is expected to be $240,000 over a one year period. In the first three months of 2016, the Company granted 23,952 shares of restricted stock to non-employee directors at a grant date fair value of $10.02 per share under the 2009
Equity Compensation Program. The restricted stock vested one year from the date it was granted. Compensation expense on this restricted stock was $240,000 over a one year period.
The following is a summary of the Companys restricted stock activity during the three months ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Price
|
|
Outstanding, January 1, 2017
|
|
|
42,875
|
|
|
$
|
9.72
|
|
Granted
|
|
|
13,176
|
|
|
|
18.20
|
|
Vested
|
|
|
(32,904
|
)
|
|
|
9.79
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
23,147
|
|
|
$
|
14.44
|
|
|
|
|
|
|
|
|
|
|
28
In the first three months of 2017, the Company granted 115,923 RSUs to certain officers at a
weighted average grant date fair value of $19.97 per share under the Companys 2009 Equity Compensation Program. These units vest within a range of two to three years. A portion of these RSUs will vest subject to certain performance conditions
in the restricted stock unit agreement. There are also certain provisions in the compensation program which state that if a recipient of the RSUs reaches a certain age and years of service, the person has effectively earned a portion of the RSUs at
that time. Compensation expense on the restricted stock units issued in the first three months of 2017 is expected to average approximately $772,000 per year over a three year period. In the first three months of 2016, the Company granted 139,726
RSUs at a weighted average grant date fair value of $10.04 per share under the Companys 2009 Equity Compensation Program. Compensation expense on these restricted stock units is expected to average approximately $468,000 per year over a three
year period.
The following is a summary of the Companys RSU activity during the three months ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Price
|
|
Outstanding, January 1, 2017
|
|
|
302,344
|
|
|
$
|
10.76
|
|
Granted
|
|
|
115,923
|
|
|
|
19.97
|
|
Vested
|
|
|
(146,485
|
)
|
|
|
13.05
|
|
Forfeited
|
|
|
(7,220
|
)
|
|
|
12.33
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
264,562
|
|
|
$
|
13.48
|
|
|
|
|
|
|
|
|
|
|
There were no grants of stock options in the first three months of 2017 or 2016. Option activity under the
Companys stock option plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(in years)
|
|
|
Value
|
|
Outstanding, January 1, 2017
|
|
|
135,250
|
|
|
$
|
8.79
|
|
|
|
4.18
|
|
|
$
|
1,450,533
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(30,387
|
)
|
|
|
9.87
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
104,863
|
|
|
$
|
8.47
|
|
|
|
4.96
|
|
|
$
|
1,168,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2017
|
|
|
94,363
|
|
|
$
|
8.35
|
|
|
|
4.83
|
|
|
$
|
1,060,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total
pre-tax
intrinsic value (the difference between the Companys closing stock price on the last trading day of period and the exercise price, multiplied by the number of
in-the-money
options).
29
There were 30,387 stock options exercised during the first three months of 2017. The aggregate
intrinsic value of stock options exercised during the three months ended March 31, 2017 was $304,000. Exercise of stock options during the first three months of 2017 resulted in cash receipts of $300,000. There were no stock options exercised
during the first three months of 2016.
NOTE 10 COMPREHENSIVE INCOME
The components of other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
For the quarter ended:
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
Before
Tax Amount
|
|
|
Tax Benefit
(Expense)
|
|
|
Net of
Tax Amount
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net unrealized gains (losses) on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains arising during period
|
|
$
|
1,184
|
|
|
$
|
(450
|
)
|
|
$
|
734
|
|
|
$
|
6,563
|
|
|
$
|
(2,406
|
)
|
|
$
|
4,157
|
|
Reclassification adjustment for net gains arising during the period
|
|
|
(2,539
|
)
|
|
|
890
|
|
|
|
(1,649
|
)
|
|
|
(370
|
)
|
|
|
137
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
|
(1,355
|
)
|
|
|
440
|
|
|
|
(915
|
)
|
|
|
6,193
|
|
|
|
(2,269
|
)
|
|
|
3,924
|
|
Unrealized gain on derivatives
|
|
|
21
|
|
|
|
(7
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
(26
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net
|
|
$
|
(1,334
|
)
|
|
$
|
433
|
|
|
$
|
(901
|
)
|
|
$
|
6,257
|
|
|
$
|
(2,295
|
)
|
|
$
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the changes in the balances of each of the components of other comprehensive income
for the periods presented, net of tax (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
|
|
For the Three Months Ended March 31, 2016
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
|
|
|
|
|
|
|
Gains (Losses) on
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
(Losses) on
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
Gains
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
on Derivatives
|
|
|
Pension Items
|
|
|
Total
|
|
|
Securities
|
|
|
Pension Items
|
|
|
Total
|
|
Beginning balance
|
|
$
|
(117
|
)
|
|
$
|
672
|
|
|
$
|
38
|
|
|
$
|
593
|
|
|
$
|
1,154
|
|
|
$
|
(4
|
)
|
|
$
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before classifications
|
|
|
734
|
|
|
|
14
|
|
|
|
|
|
|
|
748
|
|
|
|
4,157
|
|
|
|
38
|
|
|
|
4,195
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(1,649
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,649
|
)
|
|
|
(233
|
)
|
|
|
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
(915
|
)
|
|
|
14
|
|
|
|
|
|
|
|
(901
|
)
|
|
|
3,924
|
|
|
|
38
|
|
|
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(1,032
|
)
|
|
$
|
686
|
|
|
$
|
38
|
|
|
$
|
(308
|
)
|
|
$
|
5,078
|
|
|
$
|
34
|
|
|
$
|
5,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11 ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT
Fair Value Measurement
Fair value is
defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. U.S.
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into
30
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 upon particular valuation techniques.
The Companys assets that are measured at fair value on a recurring basis are its available for sale investment securities. The
Company obtains fair values on its securities using information from a third party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1 securities. The Company has U.S. Treasury
Notes and certain equity securities that are classified as Level 1 securities. Level 2 securities were primarily comprised of U.S. Agency bonds, residential mortgage-backed securities, obligations of state and political subdivisions and
corporate securities. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models supported with market data information. Standard inputs include benchmark yields,
reported trades, issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the Companys third party pricing service. This review includes a comparison to
non-binding
third-party quotes.
The fair values of derivatives are based on valuation models from
a third party using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).
31
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 three months ended March 31, 2017, the Company did not make any transfers between any levels within the fair value hierarchy.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
March 31, 2017
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
5,938
|
|
|
$
|
129,108
|
|
|
$
|
|
|
|
$
|
135,046
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
475,440
|
|
|
|
|
|
|
|
475,440
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
54,129
|
|
|
|
|
|
|
|
54,129
|
|
Other debt securities
|
|
|
|
|
|
|
5,151
|
|
|
|
|
|
|
|
5,151
|
|
Equity securities
|
|
|
4,688
|
|
|
|
12,898
|
|
|
|
|
|
|
|
17,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
10,626
|
|
|
|
676,726
|
|
|
|
|
|
|
|
687,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
6,331
|
|
|
|
|
|
|
|
6,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
10,626
|
|
|
$
|
683,057
|
|
|
$
|
|
|
|
$
|
693,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
5,276
|
|
|
$
|
|
|
|
$
|
5,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
5,276
|
|
|
$
|
|
|
|
$
|
5,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Other 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
|
|
Derivative assets
|
|
|
|
|
|
|
3,378
|
|
|
|
|
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
13,679
|
|
|
$
|
596,403
|
|
|
$
|
|
|
|
$
|
610,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
2,345
|
|
|
$
|
|
|
|
$
|
2,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
2,345
|
|
|
$
|
|
|
|
$
|
2,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
The following table sets forth the Companys 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
Fair Value
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans and leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25,607
|
|
|
$
|
25,607
|
|
Loans held for sale
|
|
|
|
|
|
|
767
|
|
|
|
|
|
|
|
767
|
|
Other real estate owned and other repossessed assets
|
|
|
|
|
|
|
|
|
|
|
710
|
|
|
|
710
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Impaired loans are evaluated and valued at the time the loan is identified as impaired at the lower of cost or
market value of the underlying collateral. Because most of Lakelands impaired loans are collateral dependent, fair value is generally measured based on the value of the collateral, less estimated costs to sell, securing these loans and leases
and is classified at a level 3 in the fair value hierarchy. Collateral may be real estate, accounts receivable, inventory, equipment and/or other business assets. The value of real estate is assessed based on appraisals by qualified third party
licensed appraisers. The appraisers may use the sales comparison approach, the cost approach or the income approach to value the collateral using discount rates (with ranges of
5-11%)
or capitalization rates
(with ranges of
5-10%)
to evaluate the property. The value of the equipment may be determined by an appraiser, if significant, inquiry through a recognized valuation resource, or by the value on the
borrowers financial statements. Field examiner reviews on business assets may be conducted based on the loan exposure and reliance on this type of collateral. Appraised and reported values may be adjusted based on managements historical
knowledge, changes in market conditions from the time of valuation, and/or managements expertise and knowledge of the client and clients business. Loans that are not collateral dependent are evaluated based on a discounted cash flow
method. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.
The Company has a held for sale loan portfolio that consists of residential mortgages that are being sold in the secondary market. The Company
records these mortgages at the lower of cost or market value. Fair value is generally determined by the value of purchase commitments.
Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure, are recorded at
fair value less estimated disposal costs of the acquired property on the date of acquisition and thereafter
re-measured
and carried at lower of cost or fair market value. Fair value on other real estate owned
is based on the appraised value of the collateral using the sales comparison approach or the income approach with discount rates or capitalization rates similar to those used in impaired loan valuation. The fair value of other repossessed assets is
estimated by inquiry through recognized valuation resources.
Changes in the assumptions or methodologies used to estimate fair values may
materially affect the estimated amounts. Changes in economic conditions, locally or nationally, could impact the value of the estimated amounts of impaired loans, OREO and other repossessed assets.
Fair Value of Certain Financial Instruments
Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each
category of financial instruments. There may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree
of subjectivity in estimating financial instrument fair values.
The estimation methodologies used, the estimated fair values, and
recorded book balances at March 31, 2017 and December 31, 2016 are outlined below.
33
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 $34.8 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.
Management performs a credit analysis before investing in these securities.
FHLB stock is an equity interest that can be sold to the
issuing FHLB, to other Federal Home Loan Banks, or to other member banks at its par value. Because ownership of these securities is restricted, they do not have a readily determinable fair value. As such, the Companys FHLB stock is recorded at
cost or par value and is evaluated for impairment each reporting period by considering the ultimate recoverability of the investment rather than temporary declines in value. The Companys evaluation primarily includes an evaluation of
liquidity, capitalization, operating performance, commitments, and regulatory or legislative events.
The net loan portfolio at
March 31, 2017 and December 31, 2016 has been valued using a present value discounted cash flow where market prices are not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit
risk. The valuation of the Companys loan portfolio is consistent with accounting guidance but does not fully incorporate the exit price approach.
For fixed maturity certificates of deposit, fair value is estimated based on the present value of discounted cash flows using the rates
currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
The fair value of long-term debt is based upon the discounted value of contractual cash flows. The Company estimates the discount rate using
the rates currently offered for similar borrowing arrangements. The fair value of subordinated debentures is based on bid/ask prices from brokers for similar types of instruments.
The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates
and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the
reporting date. The fair value of commitments to extend credit and standby letters of credit are deemed immaterial.
34
The following table presents the carrying values, fair values and placement in the fair value
hierarchy of the Companys financial instruments as of March 31, 2017 and 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)
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
148,409
|
|
|
$
|
148,083
|
|
|
$
|
|
|
|
$
|
112,270
|
|
|
$
|
35,813
|
|
Federal Home Loan Bank and other membership bank stocks
|
|
|
12,072
|
|
|
|
12,072
|
|
|
|
|
|
|
|
12,072
|
|
|
|
|
|
Loans and leases, net
|
|
|
3,939,564
|
|
|
|
3,938,438
|
|
|
|
|
|
|
|
|
|
|
|
3,938,438
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
559,107
|
|
|
|
557,035
|
|
|
|
|
|
|
|
557,035
|
|
|
|
|
|
Other borrowings
|
|
|
173,425
|
|
|
|
173,600
|
|
|
|
|
|
|
|
173,600
|
|
|
|
|
|
Subordinated debentures
|
|
|
104,813
|
|
|
|
95,191
|
|
|
|
|
|
|
|
|
|
|
|
95,191
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
147,614
|
|
|
$
|
146,990
|
|
|
$
|
|
|
|
$
|
111,403
|
|
|
$
|
35,587
|
|
Federal Home Loan Bank and other membership bank stocks
|
|
|
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
|
|
|
|
|
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94,476
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NOTE 12 RECENT ACCOUNTING PRONOUNCMENTS
In March 2017, the Financial Accounting Standards Board (FASB) issued an update which shortens the amortization period for certain
callable debt securities held at a premium to the earliest call date. Under current GAAP, entities amortize the premium as an adjustment of yield over the contractual life of the instrument even if the holder is certain that the call will be
exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. The update shortens the amortization period for certain callable debt securities held at a
premium and requires the premium be amortized to the earliest call date. This update will be effective for annual and interim periods beginning after December 15, 2018. Entities are required to apply the amendments on a modified retrospective
basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this update is not expected to have a material impact on the Companys financial statements.
In March 2017, the FASB issued an update which improves the presentation of net periodic pension cost and net periodic postretirement benefit
cost in a companys income statement. The amendment requires that an employer report the service cost component in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The
other components of net benefit cost are to be presented in the income statement separately
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from the service cost component and outside a subtotal of income from operations, if one is presented. The amendment is effective for annual 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 January 2017,
the 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 forecasts. 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 evaluating its existing
systems and data to support the new standard as well as 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. The standard specifically requires excess tax benefits and tax deficiencies to be recorded in the income statement when awards vest or are settled. The Company adopted this accounting standards update in the first quarter of
2017. As a result, the Company recorded $573,000 in excess tax benefits in the income statement. The Company elected to continue its existing practice of estimating the number of awards that will be forfeited. The Company elected to apply the cash
flow classification guidance prospectively, and therefore, prior periods have not been adjusted.
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. The Company adopted this
accounting standards update in the first quarter of 2017. The adoption of this update did not have a material impact on the Companys financial statements.
In February 2016, FASB issued accounting guidance that requires all lessees to recognize a lease liability and a
right-of-use
asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the
new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach must be applied for
leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact 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.
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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 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.
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