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 nine months ended September 30, 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 allowed 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.
During the second quarter of 2017, the Company revised the estimate of the fair value of the acquired assets as
of the acquisition date. This adjustment related to the fair market value of certain loans and the valuation of core deposit intangible which resulted in an increase of $685,000 to 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 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
|
|
|
259,985
|
|
Premises and equipment
|
|
|
3,125
|
|
Goodwill
|
|
|
11,147
|
|
Identifiable intangible assets
|
|
|
1,088
|
|
Accrued interest receivable and other assets
|
|
|
8,146
|
|
|
|
|
|
|
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 $691,000 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 January 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.
11
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 quarter and
the nine months ended September 30, 2016, the Company incurred $1.7 million and $4.1 million, respectively, 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 September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except per share data)
|
|
|
(in thousands, except per share data)
|
|
Net income available to common shareholders
|
|
$
|
13,723
|
|
|
$
|
11,327
|
|
|
$
|
39,405
|
|
|
$
|
29,565
|
|
Less: earnings allocated to participating securities
|
|
|
122
|
|
|
|
114
|
|
|
|
362
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
|
|
$
|
13,601
|
|
|
$
|
11,213
|
|
|
$
|
39,043
|
|
|
$
|
29,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
47,466
|
|
|
|
44,439
|
|
|
|
47,429
|
|
|
|
42,211
|
|
Share-based plans
|
|
|
226
|
|
|
|
220
|
|
|
|
231
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding -diluted
|
|
|
47,692
|
|
|
|
44,659
|
|
|
|
47,660
|
|
|
|
42,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.25
|
|
|
$
|
0.82
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.25
|
|
|
$
|
0.82
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no antidilutive options to purchase common stock excluded from the computation for
the three and nine months ended September 30, 2017 and 2016.
13
NOTE 4 INVESTMENT SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and U.S. government agencies
|
|
$
|
142,423
|
|
|
$
|
232
|
|
|
$
|
(824
|
)
|
|
$
|
141,831
|
|
|
$
|
118,537
|
|
|
$
|
102
|
|
|
$
|
(1,280
|
)
|
|
$
|
117,359
|
|
Mortgage-backed securities, residential
|
|
|
422,090
|
|
|
|
1,199
|
|
|
|
(3,320
|
)
|
|
|
419,969
|
|
|
|
406,851
|
|
|
|
1,174
|
|
|
|
(4,487
|
)
|
|
|
403,538
|
|
Mortgage-backed securities, multifamily
|
|
|
10,148
|
|
|
|
54
|
|
|
|
(36
|
)
|
|
|
10,166
|
|
|
|
10,192
|
|
|
|
30
|
|
|
|
(35
|
)
|
|
|
10,187
|
|
Obligations of states and political subdivisions
|
|
|
51,991
|
|
|
|
700
|
|
|
|
(277
|
)
|
|
|
52,414
|
|
|
|
48,868
|
|
|
|
391
|
|
|
|
(933
|
)
|
|
|
48,326
|
|
Debt securities
|
|
|
5,000
|
|
|
|
100
|
|
|
|
|
|
|
|
5,100
|
|
|
|
5,350
|
|
|
|
63
|
|
|
|
(1
|
)
|
|
|
5,412
|
|
Equity securities
|
|
|
15,460
|
|
|
|
2,738
|
|
|
|
(386
|
)
|
|
|
17,812
|
|
|
|
17,314
|
|
|
|
5,000
|
|
|
|
(432
|
)
|
|
|
21,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
647,112
|
|
|
$
|
5,023
|
|
|
$
|
(4,843
|
)
|
|
$
|
647,292
|
|
|
$
|
607,112
|
|
|
$
|
6,760
|
|
|
$
|
(7,168
|
)
|
|
$
|
606,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
33,449
|
|
|
$
|
180
|
|
|
$
|
(274
|
)
|
|
$
|
33,355
|
|
|
$
|
33,553
|
|
|
$
|
144
|
|
|
$
|
(430
|
)
|
|
$
|
33,267
|
|
Mortgage-backed securities, residential
|
|
|
46,590
|
|
|
|
315
|
|
|
|
(569
|
)
|
|
|
46,336
|
|
|
|
38,706
|
|
|
|
369
|
|
|
|
(598
|
)
|
|
|
38,477
|
|
Mortgage-backed securities, multifamily
|
|
|
1,983
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
1,970
|
|
|
|
2,059
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
2,015
|
|
Obligations of states and political subdivisions
|
|
|
50,993
|
|
|
|
543
|
|
|
|
(144
|
)
|
|
|
51,392
|
|
|
|
71,284
|
|
|
|
269
|
|
|
|
(385
|
)
|
|
|
71,168
|
|
Debt securities
|
|
|
2,006
|
|
|
|
26
|
|
|
|
|
|
|
|
2,032
|
|
|
|
2,012
|
|
|
|
51
|
|
|
|
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135,021
|
|
|
$
|
1,064
|
|
|
$
|
(1,000
|
)
|
|
$
|
135,085
|
|
|
$
|
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
|
|
September 30, 2017
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
4,825
|
|
|
$
|
4,862
|
|
|
$
|
18,662
|
|
|
$
|
18,699
|
|
Due after one year through five years
|
|
|
107,222
|
|
|
|
107,526
|
|
|
|
37,115
|
|
|
|
37,324
|
|
Due after five years through ten years
|
|
|
64,404
|
|
|
|
63,961
|
|
|
|
26,864
|
|
|
|
26,957
|
|
Due after ten years
|
|
|
22,963
|
|
|
|
22,996
|
|
|
|
3,807
|
|
|
|
3,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,414
|
|
|
|
199,345
|
|
|
|
86,448
|
|
|
|
86,779
|
|
Mortgage-backed securities
|
|
|
432,238
|
|
|
|
430,135
|
|
|
|
48,573
|
|
|
|
48,306
|
|
Equity securities
|
|
|
15,460
|
|
|
|
17,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
647,112
|
|
|
$
|
647,292
|
|
|
$
|
135,021
|
|
|
$
|
135,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows proceeds from sales of securities and gross gains and losses on
sales of securities for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Sale proceeds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,500
|
|
|
$
|
15,654
|
|
Gross gains
|
|
|
|
|
|
|
|
|
|
|
2,539
|
|
|
|
370
|
|
Gross losses
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
There were no other-than-temporary impairments during the nine months ended September 30,
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
$506.5 million and $443.4 million at September 30, 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
|
|
September 30, 2017
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Securities
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE FOR SALE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and U.S. government agencies
|
|
$
|
66,973
|
|
|
$
|
273
|
|
|
$
|
17,235
|
|
|
$
|
551
|
|
|
|
16
|
|
|
$
|
84,208
|
|
|
$
|
824
|
|
Mortgage-backed securities, residential
|
|
|
198,410
|
|
|
|
1,658
|
|
|
|
85,011
|
|
|
|
1,662
|
|
|
|
85
|
|
|
|
283,421
|
|
|
|
3,320
|
|
Mortgage-backed securities, multifamily
|
|
|
5,131
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
5,131
|
|
|
|
36
|
|
Obligations of states and political subdivisions
|
|
|
2,805
|
|
|
|
13
|
|
|
|
12,936
|
|
|
|
264
|
|
|
|
27
|
|
|
|
15,741
|
|
|
|
277
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
9,669
|
|
|
|
386
|
|
|
|
2
|
|
|
|
9,669
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
273,319
|
|
|
$
|
1,980
|
|
|
$
|
124,851
|
|
|
$
|
2,863
|
|
|
|
131
|
|
|
$
|
398,170
|
|
|
$
|
4,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
5,419
|
|
|
$
|
14
|
|
|
$
|
6,768
|
|
|
$
|
260
|
|
|
|
2
|
|
|
$
|
12,187
|
|
|
$
|
274
|
|
Mortgage-backed securities, residential
|
|
|
27,833
|
|
|
|
309
|
|
|
|
7,350
|
|
|
|
260
|
|
|
|
18
|
|
|
|
35,183
|
|
|
|
569
|
|
Mortgage-backed securities, multifamily
|
|
|
1,970
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
1,970
|
|
|
|
13
|
|
Obligations of states and political subdivisions
|
|
|
13,949
|
|
|
|
105
|
|
|
|
767
|
|
|
|
39
|
|
|
|
10
|
|
|
|
14,716
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,171
|
|
|
$
|
441
|
|
|
$
|
14,885
|
|
|
$
|
559
|
|
|
|
32
|
|
|
$
|
64,056
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 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 $4.9 million as of September 30, 2017.
As of September 30, 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 $9.7 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 September 30, 2017, the amortized cost of these securities was $10.1 million and the fair value was $9.7 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 September 30, 2017, the net amortized cost equaled the market value of the investment. There are no unfunded commitments related to these
investments.
NOTE 5 LOANS, LEASES AND OTHER REAL ESTATE
The following sets forth the composition of the Companys loan and lease portfolio:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(in thousands)
|
|
Commercial, secured by real estate
|
|
$
|
2,776,899
|
|
|
$
|
2,556,601
|
|
Commercial, industrial and other
|
|
|
342,775
|
|
|
|
350,228
|
|
Leases
|
|
|
71,698
|
|
|
|
67,016
|
|
Real estate - residential mortgage
|
|
|
329,625
|
|
|
|
349,581
|
|
Real estate - construction
|
|
|
241,207
|
|
|
|
211,109
|
|
Home equity and consumer
|
|
|
330,689
|
|
|
|
339,360
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases
|
|
|
4,092,893
|
|
|
|
3,873,895
|
|
|
|
|
|
|
|
|
|
|
Less: deferred fees
|
|
|
(3,720
|
)
|
|
|
(3,297
|
)
|
|
|
|
|
|
|
|
|
|
Loans and leases, net of deferred fees
|
|
$
|
4,089,173
|
|
|
$
|
3,870,598
|
|
|
|
|
|
|
|
|
|
|
17
At September 30, 2017 and December 31, 2016, home equity and consumer
loans included overdraft deposit balances of $327,000 and $364,000, respectively. At September 30, 2017 and December 31, 2016, the Company had $1.0 billion and $942 million, respectively, in loans pledged for actual and 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 $198,000 at September 30, 2017, which was $619,000 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. In the second quarter of 2017, a loan with a net
value of $218,000 was fully paid off. The carrying value of loans acquired in the Harmony acquisition was $524,000 at September 30, 2017 which was $245,000 less than the balance at acquisition date on July 1, 2016. In the second quarter of
2017, a loan with a net value of $247,000 was fully paid off.
The following table presents changes in the accretable
yield for PCI loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Balance, beginning of period
|
|
$
|
133
|
|
|
$
|
65
|
|
|
$
|
145
|
|
|
$
|
|
|
Acquisitions
|
|
|
|
|
|
|
97
|
|
|
|
|
|
|
|
182
|
|
Accretion
|
|
|
(40
|
)
|
|
|
(32
|
)
|
|
|
(138
|
)
|
|
|
(63
|
)
|
Net reclassification
non-accretable
difference
|
|
|
35
|
|
|
|
|
|
|
|
121
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
128
|
|
|
$
|
130
|
|
|
$
|
128
|
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(in thousands)
|
|
Commercial, secured by real estate
|
|
$
|
5,348
|
|
|
$
|
10,413
|
|
Commercial, industrial and other
|
|
|
172
|
|
|
|
167
|
|
Leases
|
|
|
110
|
|
|
|
153
|
|
Real estate - residential mortgage
|
|
|
4,410
|
|
|
|
6,048
|
|
Real estate - construction
|
|
|
1,472
|
|
|
|
1,472
|
|
Home equity and consumer
|
|
|
2,033
|
|
|
|
2,151
|
|
|
|
|
|
|
|
|
|
|
Total
non-accrual
loans and leases
|
|
$
|
13,545
|
|
|
$
|
20,404
|
|
Other real estate and other repossessed assets
|
|
|
1,168
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
TOTAL
NON-PERFORMING
ASSETS
|
|
$
|
14,713
|
|
|
$
|
21,476
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings, still accruing
|
|
$
|
11,279
|
|
|
$
|
8,802
|
|
|
|
|
|
|
|
|
|
|
Non-accrual
loans included $2.4 million of
troubled debt restructurings for each of the periods ended September 30, 2017 and December 31, 2016. At September 30, 2017 and December 31, 2016, the Company had $3.5 million and $3.7 million, respectively, in
residential mortgages and consumer home equity loans that were in the process of foreclosure.
18
An age analysis of past due loans, segregated by class of loans as of
September 30, 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)
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
2,616
|
|
|
$
|
678
|
|
|
$
|
4,810
|
|
|
$
|
8,104
|
|
|
$
|
2,768,795
|
|
|
$
|
2,776,899
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
1,830
|
|
|
|
343
|
|
|
|
103
|
|
|
|
2,276
|
|
|
|
340,499
|
|
|
|
342,775
|
|
|
|
|
|
Leases
|
|
|
512
|
|
|
|
91
|
|
|
|
110
|
|
|
|
713
|
|
|
|
70,985
|
|
|
|
71,698
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
3,733
|
|
|
|
320
|
|
|
|
3,687
|
|
|
|
7,740
|
|
|
|
321,885
|
|
|
|
329,625
|
|
|
|
|
|
Real estate - construction
|
|
|
|
|
|
|
765
|
|
|
|
1,472
|
|
|
|
2,237
|
|
|
|
238,970
|
|
|
|
241,207
|
|
|
|
|
|
Home equity and consumer
|
|
|
841
|
|
|
|
411
|
|
|
|
1,544
|
|
|
|
2,796
|
|
|
|
327,893
|
|
|
|
330,689
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,532
|
|
|
$
|
2,608
|
|
|
$
|
11,726
|
|
|
$
|
23,866
|
|
|
$
|
4,069,027
|
|
|
$
|
4,092,893
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2017 and December 31, 2016 are as follows:
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
Investment in
|
|
|
Principal
|
|
|
Specific
|
|
|
Investment in
|
|
|
Income
|
|
September 30, 2017
|
|
Impaired Loans
|
|
|
Balance
|
|
|
Allowance
|
|
|
Impaired Loans
|
|
|
Recognized
|
|
|
|
(in thousands)
|
|
Loans without specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
10,852
|
|
|
$
|
11,125
|
|
|
$
|
|
|
|
$
|
13,491
|
|
|
$
|
259
|
|
Commercial, industrial and other
|
|
|
635
|
|
|
|
635
|
|
|
|
|
|
|
|
635
|
|
|
|
19
|
|
Real estate - residential mortgage
|
|
|
967
|
|
|
|
984
|
|
|
|
|
|
|
|
1,011
|
|
|
|
12
|
|
Real estate - construction
|
|
|
1,472
|
|
|
|
1,472
|
|
|
|
|
|
|
|
1,472
|
|
|
|
|
|
Home equity and consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
5,425
|
|
|
|
5,757
|
|
|
|
480
|
|
|
|
5,030
|
|
|
|
151
|
|
Commercial, industrial and other
|
|
|
169
|
|
|
|
169
|
|
|
|
10
|
|
|
|
328
|
|
|
|
12
|
|
Real estate - residential mortgage
|
|
|
992
|
|
|
|
1,125
|
|
|
|
5
|
|
|
|
1,006
|
|
|
|
22
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,078
|
|
|
|
1,107
|
|
|
|
9
|
|
|
|
1,120
|
|
|
|
40
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
16,277
|
|
|
$
|
16,882
|
|
|
$
|
480
|
|
|
$
|
18,521
|
|
|
$
|
410
|
|
Commercial, industrial and other
|
|
|
804
|
|
|
|
804
|
|
|
|
10
|
|
|
|
963
|
|
|
|
31
|
|
Real estate - residential mortgage
|
|
|
1,959
|
|
|
|
2,109
|
|
|
|
5
|
|
|
|
2,017
|
|
|
|
34
|
|
Real estate - construction
|
|
|
1,472
|
|
|
|
1,472
|
|
|
|
|
|
|
|
1,472
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,078
|
|
|
|
1,107
|
|
|
|
9
|
|
|
|
1,120
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,590
|
|
|
$
|
22,374
|
|
|
$
|
504
|
|
|
$
|
24,093
|
|
|
$
|
515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $0.5 million for each of the nine months
ended September 30, 2017 and 2016, respectively. Interest that would have been accrued on impaired loans during the first nine months of 2017 and 2016 had the loans been performing under original terms would have been $1.2 million and
$1.1 million, 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 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.
21
The following table shows the Companys commercial loan portfolio as of September 30,
2017 and December 31, 2016, by the risk ratings discussed above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Commercial,
Secured by
Real Estate
|
|
|
Commercial,
Industrial
and Other
|
|
|
Real Estate -
Construction
|
|
RISK RATING
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
$
|
|
|
|
$
|
422
|
|
|
$
|
|
|
2
|
|
|
|
|
|
|
27,151
|
|
|
|
|
|
3
|
|
|
81,240
|
|
|
|
37,590
|
|
|
|
|
|
4
|
|
|
822,168
|
|
|
|
87,799
|
|
|
|
11,770
|
|
5
|
|
|
1,764,207
|
|
|
|
165,864
|
|
|
|
225,286
|
|
5W - Watch
|
|
|
59,085
|
|
|
|
9,095
|
|
|
|
1,531
|
|
6 - Other assets especially mentioned
|
|
|
27,706
|
|
|
|
8,651
|
|
|
|
|
|
7 - Substandard
|
|
|
22,493
|
|
|
|
6,203
|
|
|
|
2,620
|
|
8 - Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
9 - Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,776,899
|
|
|
$
|
342,775
|
|
|
$
|
241,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Commercial,
Secured by
Real Estate
|
|
|
Commercial,
Industrial
and Other
|
|
|
Real Estate -
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.
Allowance for Loan and
Lease Losses
The Company continually evaluates, through its governance process, the development of the allowance for
loan and lease losses methodology. During the third quarter of 2017, the Company refined and enhanced its quantitative framework by implementing a migration analysis to determine the historical loss factors. It also enhanced its qualitative
framework to be responsive to the migration analysis. These enhancements are meant to increase the level of precision in the allowance for loan and lease losses and did not result in a change in the required allowance.
22
The following table details activity in the allowance for loan and lease losses by portfolio
segment for the three and nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 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)
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
23,344
|
|
|
$
|
1,688
|
|
|
$
|
529
|
|
|
$
|
1,754
|
|
|
$
|
2,596
|
|
|
$
|
2,912
|
|
|
$
|
32,823
|
|
Charge-offs
|
|
|
(315
|
)
|
|
|
(196
|
)
|
|
|
(87
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
(173
|
)
|
|
|
(869
|
)
|
Recoveries
|
|
|
26
|
|
|
|
28
|
|
|
|
7
|
|
|
|
3
|
|
|
|
4
|
|
|
|
76
|
|
|
|
144
|
|
Provision
|
|
|
1,673
|
|
|
|
572
|
|
|
|
65
|
|
|
|
(90
|
)
|
|
|
(135
|
)
|
|
|
(258
|
)
|
|
|
1,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
24,728
|
|
|
$
|
2,092
|
|
|
$
|
514
|
|
|
$
|
1,569
|
|
|
$
|
2,465
|
|
|
$
|
2,557
|
|
|
$
|
33,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 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
|
|
$
|
20,359
|
|
|
$
|
2,212
|
|
|
$
|
624
|
|
|
$
|
2,164
|
|
|
$
|
1,788
|
|
|
$
|
3,520
|
|
|
$
|
30,667
|
|
Charge-offs
|
|
|
(119
|
)
|
|
|
|
|
|
|
(44
|
)
|
|
|
(386
|
)
|
|
|
|
|
|
|
(724
|
)
|
|
|
(1,273
|
)
|
Recoveries
|
|
|
131
|
|
|
|
30
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
46
|
|
|
|
212
|
|
Provision
|
|
|
996
|
|
|
|
(327
|
)
|
|
|
12
|
|
|
|
282
|
|
|
|
236
|
|
|
|
564
|
|
|
|
1,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
21,367
|
|
|
$
|
1,915
|
|
|
$
|
596
|
|
|
$
|
2,061
|
|
|
$
|
2,024
|
|
|
$
|
3,406
|
|
|
$
|
31,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 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)
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
21,223
|
|
|
$
|
1,723
|
|
|
$
|
548
|
|
|
$
|
1,964
|
|
|
$
|
2,352
|
|
|
$
|
3,435
|
|
|
|
31,245
|
|
Charge-offs
|
|
|
(618
|
)
|
|
|
(430
|
)
|
|
|
(250
|
)
|
|
|
(408
|
)
|
|
|
(609
|
)
|
|
|
(784
|
)
|
|
|
(3,099
|
)
|
Recoveries
|
|
|
390
|
|
|
|
150
|
|
|
|
39
|
|
|
|
3
|
|
|
|
24
|
|
|
|
301
|
|
|
|
907
|
|
Provision
|
|
|
3,733
|
|
|
|
649
|
|
|
|
177
|
|
|
|
10
|
|
|
|
698
|
|
|
|
(395
|
)
|
|
|
4,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
24,728
|
|
|
$
|
2,092
|
|
|
$
|
514
|
|
|
$
|
1,569
|
|
|
$
|
2,465
|
|
|
$
|
2,557
|
|
|
$
|
33,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 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
|
|
|
(393
|
)
|
|
|
(796
|
)
|
|
|
(319
|
)
|
|
|
(692
|
)
|
|
|
|
|
|
|
(1,661
|
)
|
|
|
(3,861
|
)
|
Recoveries
|
|
|
212
|
|
|
|
106
|
|
|
|
26
|
|
|
|
5
|
|
|
|
|
|
|
|
159
|
|
|
|
508
|
|
Provision
|
|
|
1,325
|
|
|
|
(32
|
)
|
|
|
429
|
|
|
|
160
|
|
|
|
433
|
|
|
|
1,533
|
|
|
|
3,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
21,367
|
|
|
$
|
1,915
|
|
|
$
|
596
|
|
|
$
|
2,061
|
|
|
$
|
2,024
|
|
|
$
|
3,406
|
|
|
$
|
31,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
September 30, 2017
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
16,277
|
|
|
$
|
804
|
|
|
$
|
|
|
|
$
|
1,959
|
|
|
$
|
1,472
|
|
|
$
|
1,078
|
|
|
$
|
21,590
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
2,759,905
|
|
|
|
341,970
|
|
|
|
71,698
|
|
|
|
327,666
|
|
|
|
239,735
|
|
|
|
329,607
|
|
|
|
4,070,581
|
|
Ending Balance: Loans acquired with deteriorated credit quality
|
|
|
717
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance (1)
|
|
$
|
2,776,899
|
|
|
$
|
342,775
|
|
|
$
|
71,698
|
|
|
$
|
329,625
|
|
|
$
|
241,207
|
|
|
$
|
330,689
|
|
|
$
|
4,092,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real Estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
Secured by
|
|
|
Industrial
|
|
|
|
|
|
Residential
|
|
|
Real Estate-
|
|
|
Equity and
|
|
|
|
|
September 30, 2017
|
|
Real Estate
|
|
|
and Other
|
|
|
Leases
|
|
|
Mortgage
|
|
|
Construction
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
480
|
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
504
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
24,248
|
|
|
|
2,082
|
|
|
|
514
|
|
|
|
1,564
|
|
|
|
2,465
|
|
|
|
2,548
|
|
|
|
33,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
24,728
|
|
|
$
|
2,092
|
|
|
$
|
514
|
|
|
$
|
1,569
|
|
|
$
|
2,465
|
|
|
$
|
2,557
|
|
|
$
|
33,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
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 periods ended September 30, 2017 and December 31, 2016. The Company analyzes the adequacy of the reserve for unfunded lending commitments quarterly.
Troubled Debt Restructurings
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, 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 and nine months
ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
|
(dollars in thousands)
|
|
Commercial, secured by real estate
|
|
|
1
|
|
|
$
|
473
|
|
|
$
|
473
|
|
|
|
1
|
|
|
$
|
303
|
|
|
$
|
303
|
|
Real estate - residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
255
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
$
|
473
|
|
|
$
|
473
|
|
|
|
2
|
|
|
$
|
558
|
|
|
$
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
|
(dollars in thousands)
|
|
Commercial, secured by real estate
|
|
|
5
|
|
|
$
|
3,511
|
|
|
$
|
3,511
|
|
|
$
|
1
|
|
|
$
|
303
|
|
|
$
|
303
|
|
Commercial, industrial and other
|
|
|
2
|
|
|
|
124
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
255
|
|
|
|
255
|
|
Home equity and consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
285
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
$
|
3,635
|
|
|
$
|
3,635
|
|
|
$
|
5
|
|
|
$
|
843
|
|
|
$
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes as of September 30, 2017 and 2016, loans that were
restructured within the previous twelve months that have subsequently defaulted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
|
(dollars in thousands)
|
|
Real estate - residential mortgage
|
|
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
255
|
|
Home equity and consumer
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
2
|
|
|
$
|
417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Other Real Estate and Other Repossessed Assets
At September 30, 2017, the Company had other real estate owned and other repossessed assets of $1.2 million 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. Included in other real estate owned was residential property acquired as a result of
foreclosure proceedings totaling $1.0 million and $1.1 million that the Company held at the periods ended September 30, 2017 and December 31, 2016, respectively.
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
September 30, 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 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 nine months ended September 30, 2017, the Company did not record any hedge ineffectiveness. The Company recognized $10,000 of accumulated other comprehensive income that was reclassified into interest expense for the first nine 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 $71,000 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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
|
|
$
|
87,511
|
|
|
|
9.2
|
|
|
|
3.78
|
%
|
|
|
1 Mo. LIBOR + 2.12
|
|
|
$
|
2,831
|
|
Customer interest rate swaps
|
|
|
98,223
|
|
|
|
11.1
|
|
|
|
4.64
|
%
|
|
|
1 Mo. LIBOR + 2.19
|
|
|
|
2,549
|
|
Interest rate swap (cash flow hedge)
|
|
|
30,000
|
|
|
|
3.8
|
|
|
|
1.10
|
%
|
|
|
3 Mo. LIBOR
|
|
|
|
871
|
|
Classified in Other Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer interest rate swaps
|
|
$
|
87,511
|
|
|
|
9.2
|
|
|
|
3.78
|
%
|
|
|
1 Mo. LIBOR + 2.12
|
|
|
$
|
(2,831
|
)
|
3rd Party interest rate swaps
|
|
|
98,223
|
|
|
|
11.1
|
|
|
|
4.64
|
%
|
|
|
1 Mo. LIBOR + 2.19
|
|
|
|
(2,549
|
)
|
|
|
|
|
|
|
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
|
|
27
NOTE 7 GOODWILL AND INTANGIBLE ASSETS
The Company had goodwill of $136.4 million and $135.7 million for the periods ended September 30, 2017 and
December 31, 2016, respectively. The Company reviews its goodwill and intangible assets annually, on November 30, or more frequently if conditions warrant, for impairment. In testing goodwill for impairment, the Company compares the
estimated fair value of its reporting unit to its carrying amount, including goodwill. The Company has determined that it has one reporting unit, Community Banking.
The Company had core deposit intangible of $2.5 million and $3.3 million for the periods ended September 30,
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
|
|
$
|
164
|
|
2018
|
|
|
594
|
|
2019
|
|
|
504
|
|
2020
|
|
|
415
|
|
2021
|
|
|
326
|
|
2022
|
|
|
236
|
|
NOTE 8 BORROWINGS
Repurchase Agreements
At September 30, 2017, the Company had federal funds purchased and securities sold under agreements to repurchase of
$102.9 million and $31.1 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 1 year. As of September 30, 2017, the Company had $59.5 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 the first quarter 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 $2.0 million and $1.5 million was recognized for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, there was unrecognized
compensation cost of $77,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately 0.34 years. Unrecognized compensation expense related to RSUs was approximately $2.1 million as
of September 30, 2017, and that cost is expected to be recognized over a period of 1.34 years. There was no unrecognized compensation expense related to unvested stock options as of September 30, 2017.
In the first nine 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
28
first nine 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 nine months ended September 30,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Price
|
|
Outstanding, January 1, 2017
|
|
|
42,875
|
|
|
$
|
9.72
|
|
Granted
|
|
|
13,176
|
|
|
|
18.20
|
|
Vested
|
|
|
(32,904
|
)
|
|
|
9.79
|
|
Forfeited
|
|
|
(59
|
)
|
|
|
9.39
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2017
|
|
|
23,088
|
|
|
$
|
14.46
|
|
|
|
|
|
|
|
|
|
|
In the first nine months of 2017, the Company granted 130,523 RSUs to certain officers at a
weighted average grant date fair value of $19.91 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 nine months of 2017 is expected to average approximately $866,000 per year over a three year period. In the first nine months of 2016, the Company granted 168,726 RSUs
at a weighted average grant date fair value of $10.22 per share under the Companys 2009 Equity Compensation Program. Compensation expense on these restricted stock units is expected to average approximately $575,000 per year over a three year
period.
The following is a summary of the Companys RSU activity during the nine months ended September 30,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Price
|
|
Outstanding, January 1, 2017
|
|
|
302,344
|
|
|
$
|
10.76
|
|
Granted
|
|
|
130,523
|
|
|
|
19.91
|
|
Vested
|
|
|
(148,585
|
)
|
|
|
13.01
|
|
Forfeited
|
|
|
(9,446
|
)
|
|
|
12.55
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2017
|
|
|
274,836
|
|
|
$
|
13.83
|
|
|
|
|
|
|
|
|
|
|
29
There were no grants of stock options in the first nine 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
|
|
|
(31,769
|
)
|
|
|
9.84
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2017
|
|
|
103,481
|
|
|
$
|
8.47
|
|
|
|
4.52
|
|
|
$
|
1,236,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2017
|
|
|
103,481
|
|
|
$
|
8.47
|
|
|
|
4.52
|
|
|
$
|
1,236,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total
pre-tax
intrinsic value (the difference between the Companys closing stock price on the last trading day of the period and the exercise price, multiplied by the number of
in-the-money
options).
There were 31,769 stock options exercised during the
first nine months of 2017. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2017 was $318,000. Exercise of stock options during the first nine months of 2017 resulted in cash receipts of
$313,000.
30
NOTE 10 COMPREHENSIVE INCOME
The components of other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
Before
|
|
|
Tax Benefit
|
|
|
Net of
|
|
|
Before
|
|
|
Tax Benefit
|
|
|
Net of
|
|
For the quarter ended:
|
|
Tax Amount
|
|
|
(Expense)
|
|
|
Tax Amount
|
|
|
Tax Amount
|
|
|
(Expense)
|
|
|
Tax Amount
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net unrealized gains (losses) on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains (losses) arising during period
|
|
$
|
267
|
|
|
$
|
(97
|
)
|
|
$
|
170
|
|
|
$
|
(825
|
)
|
|
$
|
323
|
|
|
$
|
(502
|
)
|
Reclassification adjustment for net losses arising during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses)
|
|
|
267
|
|
|
|
(97
|
)
|
|
|
170
|
|
|
|
(825
|
)
|
|
|
323
|
|
|
|
(502
|
)
|
Unrealized gains on derivatives
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
267
|
|
|
|
(93
|
)
|
|
|
174
|
|
Change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net
|
|
$
|
270
|
|
|
$
|
(98
|
)
|
|
$
|
172
|
|
|
$
|
(560
|
)
|
|
$
|
230
|
|
|
$
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
Tax Benefit
|
|
|
Net of
|
|
|
Before
|
|
|
Tax Benefit
|
|
|
Net of
|
|
For the nine months ended:
|
|
Tax Amount
|
|
|
(Expense)
|
|
|
Tax Amount
|
|
|
Tax Amount
|
|
|
(Expense)
|
|
|
Tax Amount
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Net unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains arising during period
|
|
$
|
3,112
|
|
|
$
|
(1,179
|
)
|
|
$
|
1,933
|
|
|
$
|
8,422
|
|
|
$
|
(3,070
|
)
|
|
$
|
5,352
|
|
Reclassification adjustment for net gains arising during the period
|
|
|
(2,524
|
)
|
|
|
884
|
|
|
|
(1,640
|
)
|
|
|
(370
|
)
|
|
|
137
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
|
588
|
|
|
|
(295
|
)
|
|
|
293
|
|
|
|
8,052
|
|
|
|
(2,933
|
)
|
|
|
5,119
|
|
Unrealized gains (losses) on derivatives
|
|
|
(162
|
)
|
|
|
57
|
|
|
|
(105
|
)
|
|
|
74
|
|
|
|
(26
|
)
|
|
|
48
|
|
Change in minimum pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
(28
|
)
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
|
|
$
|
426
|
|
|
$
|
(238
|
)
|
|
$
|
188
|
|
|
$
|
8,196
|
|
|
$
|
(2,987
|
)
|
|
$
|
5,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
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 September 30, 2017
|
|
|
For the Three Months Ended September 30, 2016
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Gains on
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
Gains
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
Gains (Losses)
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
on Derivatives
|
|
|
Pension Items
|
|
|
Total
|
|
|
Securities
|
|
|
on Derivatives
|
|
|
Pension Items
|
|
|
Total
|
|
Beginning balance
|
|
$
|
6
|
|
|
$
|
565
|
|
|
$
|
38
|
|
|
$
|
609
|
|
|
$
|
6,775
|
|
|
$
|
(126
|
)
|
|
$
|
40
|
|
|
$
|
6,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before classifications
|
|
|
170
|
|
|
|
2
|
|
|
|
|
|
|
|
172
|
|
|
|
(502
|
)
|
|
|
174
|
|
|
|
(2
|
)
|
|
|
(330
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
170
|
|
|
|
2
|
|
|
|
|
|
|
|
172
|
|
|
|
(502
|
)
|
|
|
174
|
|
|
|
(2
|
)
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
176
|
|
|
$
|
567
|
|
|
$
|
38
|
|
|
$
|
781
|
|
|
$
|
6,273
|
|
|
|
48
|
|
|
$
|
38
|
|
|
$
|
6,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2017
|
|
|
For the Nine Months Ended September 30, 2016
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) on
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Gains on
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
Gains (losses)
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
Gains
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
on Derivatives
|
|
|
Pension Items
|
|
|
Total
|
|
|
Securities
|
|
|
on Derivatives
|
|
|
Pension Items
|
|
|
Total
|
|
Beginning Balance
|
|
$
|
(117
|
)
|
|
$
|
672
|
|
|
$
|
38
|
|
|
$
|
593
|
|
|
$
|
1,154
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before classifications
|
|
|
1,933
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
1,828
|
|
|
|
5,352
|
|
|
|
48
|
|
|
|
42
|
|
|
|
5,442
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(1,640
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,640
|
)
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
293
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
188
|
|
|
|
5,119
|
|
|
|
48
|
|
|
|
42
|
|
|
|
5,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
176
|
|
|
$
|
567
|
|
|
$
|
38
|
|
|
$
|
781
|
|
|
$
|
6,273
|
|
|
|
48
|
|
|
$
|
38
|
|
|
$
|
6,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11 ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or
most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair
value into three broad levels giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest level priority to unobservable inputs (level 3 measurements). The
following describes the three levels of fair value hierarchy:
Level 1 unadjusted quoted prices in active markets for
identical assets or liabilities; includes U.S. Treasury Notes, and other U.S. Government Agency securities that actively trade in
over-the-counter
markets; equity
securities and mutual funds that actively trade in
over-the-counter
markets.
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.
32
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).
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 nine months ended September 30, 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:
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
5,697
|
|
|
$
|
136,134
|
|
|
$
|
|
|
|
$
|
141,831
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
430,135
|
|
|
|
|
|
|
|
430,135
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
52,414
|
|
|
|
|
|
|
|
52,414
|
|
Other debt securities
|
|
|
|
|
|
|
5,100
|
|
|
|
|
|
|
|
5,100
|
|
Equity securities
|
|
|
4,858
|
|
|
|
12,954
|
|
|
|
|
|
|
|
17,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
10,555
|
|
|
|
636,737
|
|
|
|
|
|
|
|
647,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
6,251
|
|
|
|
|
|
|
|
6,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
10,555
|
|
|
$
|
642,988
|
|
|
$
|
|
|
|
$
|
653,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
5,380
|
|
|
$
|
|
|
|
$
|
5,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
5,380
|
|
|
$
|
|
|
|
$
|
5,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
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)
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans and leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,590
|
|
|
$
|
21,590
|
|
Loans held for sale
|
|
|
|
|
|
|
2,221
|
|
|
|
|
|
|
|
2,221
|
|
Other real estate owned and other repossessed assets
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
|
1,168
|
|
|
|
|
|
|
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 and/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 and/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.
35
The estimation methodologies used, the estimated fair values, and recorded book
balances at September 30, 2017 and December 31, 2016 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 $16.1 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 September 30, 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.
36
The following table presents the carrying values, fair values and placement in
the fair value hierarchy of the Companys financial instruments as of September 30, 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)
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities held to maturity
|
|
$
|
135,021
|
|
|
$
|
135,085
|
|
|
$
|
|
|
|
$
|
118,002
|
|
|
$
|
17,083
|
|
Federal Home Loan Bank and other membership bank stocks
|
|
|
12,783
|
|
|
|
12,783
|
|
|
|
|
|
|
|
12,783
|
|
|
|
|
|
Loans and leases, net
|
|
|
4,055,248
|
|
|
|
4,057,939
|
|
|
|
|
|
|
|
|
|
|
|
4,057,939
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
720,040
|
|
|
|
717,318
|
|
|
|
|
|
|
|
717,318
|
|
|
|
|
|
Other borrowings
|
|
|
196,539
|
|
|
|
195,253
|
|
|
|
|
|
|
|
195,253
|
|
|
|
|
|
Subordinated debentures
|
|
|
104,872
|
|
|
|
96,717
|
|
|
|
|
|
|
|
|
|
|
|
96,717
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
94,476
|
|
NOTE 12 RECENT ACCOUNTING PRONOUNCMENTS
In August 2017, the Financial Accounting Standards Board (FASB) issued an update intended to improve and simplify accounting rules
around hedge accounting. Amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial
statements. The amendments in this update also make certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. This
update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2019. The Company is still evaluating the impact that this guidance will have on its financial statements.
In July 2017, the FASB issued guidance which simplifies the accounting for certain financial instruments with down round features, a provision
in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. The provisions of the new guidance related to down rounds are effective
for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of this update is not expected to have a material impact on the Companys financial statements
because the Company does not have any equity-linked financial instruments that have such down round features.
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In May 2017, the FASB issued an update which provides clarity and reduces
diversity in practice when accounting for the modification of terms and conditions for share-based payment awards. Previous accounting guidance did not distinguish between modifications which were substantive from modifications that were merely
administrative. The accounting standards update requires entities to account for the effects of a modification unless the following three conditions are met: the fair value of the modified award is the same as the fair value of the original award
immediately before the original award is modified; the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and the classification of the modified
award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This update will be 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 March 2017, the 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 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.
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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, during the first nine months of 2017, the Company recorded $582,000 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 by reviewing its existing lease contracts and service contracts that may include embedded leases. The Company expects an increase to assets and liabilities as a result of
recognizing a
right-of-use
asset and a lease liability for its operating lease commitments.
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 also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance
obligations. 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. The Company is continuing its overall assessment of revenue streams and reviewing contracts potentially affected by the guidance including deposit
related fees, interchange fees and merchant fee income to determine the potential impact the new guidance is expected to have on the Companys consolidated financial statements. The Company will adopt the guidance on January 1, 2018 using
the modified retrospective method with a cumulative-effect adjustment to opening retained earnings.
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