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LAKELAND BANCORP INC - Quarter Report: 2023 March (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 
March 31, 2023
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number
000-17820
LAKELAND BANCORP, INC.
(Exact name of registrant as specified in its charter)
New Jersey
22-2953275
(State or other jurisdiction of
 incorporation  or organization) 
 (I.R.S. Employer
Identification No.)
250 Oak Ridge Road, Oak Ridge, New Jersey 07438
 (Address of principal executive offices and zip code)
(973) 697-2000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Stock, no par valueLBAIThe NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).  Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer     Accelerated filer     Non-accelerated filer   Smaller reporting company   Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes      No  

APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 1, 2023, there were 65,018,978 outstanding shares of Common Stock, no par value.
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LAKELAND BANCORP, INC.
Form 10-Q Index
 
  PAGE
Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022
Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022 (unaudited)
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022 (unaudited)
Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited)
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited)
Item 5.
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PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2023December 31, 2022
(dollars in thousands)(unaudited)
Assets
Cash$261,261 $223,299 
Interest-bearing deposits due from banks13,681 12,651 
Total cash and cash equivalents274,942 235,950 
Investment securities available for sale, at fair value (allowance for credit losses of $160 at March 31, 2023 and $310 at December 31, 2022)
1,029,127 1,054,312 
Investment securities held to maturity (fair value of $762,720 at March 31, 2023 and $760,455 at December 31, 2022 and allowance for credit losses of $157 at March 31, 2023 and $107 at December 31, 2022)
902,498 923,308 
Equity securities, at fair value17,496 17,283 
Federal Home Loan Bank and other membership bank stock, at cost45,806 42,483 
Loans held for sale— 536 
Loans, net of deferred fees7,952,553 7,866,050 
Less: Allowance for credit losses71,403 70,264 
Total loans, net7,881,150 7,795,786 
Premises and equipment, net55,556 55,429 
Operating lease right-of-use assets19,329 20,052 
Accrued interest receivable34,220 33,374 
Goodwill271,829 271,829 
Other intangible assets8,572 9,088 
Bank owned life insurance157,761 156,985 
Other assets138,955 167,425 
Total Assets$10,837,241 $10,783,840 
Liabilities and Stockholders' Equity
Liabilities
Deposits$8,536,943 $8,567,471 
Federal funds purchased and securities sold under agreements to repurchase813,328 728,797 
Other borrowings25,000 25,000 
Subordinated debentures194,376 194,264 
Operating lease liabilities20,644 21,449 
Other liabilities120,370 138,272 
Total Liabilities9,710,661 9,675,253 
Stockholders' Equity
Common stock, no par value; authorized 100,000,000 shares; issued 65,148,180 shares and outstanding 65,017,145 shares at March 31, 2023 and issued 65,002,738 shares and outstanding 64,871,703 shares at December 31, 2022
855,657 855,425 
Retained earnings339,680 329,375 
Treasury shares, at cost, 131,035 shares at March 31, 2023 and December 31, 2022
(1,452)(1,452)
Accumulated other comprehensive loss(67,305)(74,761)
Total Stockholders' Equity1,126,580 1,108,587 
Total Liabilities and Stockholders' Equity$10,837,241 $10,783,840 
The accompanying notes are an integral part of these consolidated financial statements.
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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
 For the Three Months Ended March 31,
(in thousands, except per share data)20232022
Interest Income
Loans and fees$100,481 $67,809 
Federal funds sold and interest-bearing deposits with banks728 182 
Taxable investment securities and other11,554 6,709 
Tax-exempt investment securities1,642 1,302 
Total Interest Income114,405 76,002 
Interest Expense
Deposits29,158 4,039 
Federal funds purchased and securities sold under agreements to repurchase7,222 20 
Other borrowings2,100 1,555 
Total Interest Expense38,480 5,614 
Net Interest Income75,925 70,388 
Provision for credit losses7,893 6,272 
Net Interest Income after Provision for Credit Losses68,032 64,116 
Noninterest Income
Service charges on deposit accounts2,789 2,626 
Commissions and fees1,925 2,106 
Income on bank owned life insurance776 830 
Gain (loss) on equity securities148 (485)
Gains on sales of loans held for sale430 1,426 
Swap income56 — 
Other income141 277 
Total Noninterest Income6,265 6,780 
Noninterest Expense
Compensation and employee benefits29,996 27,679 
Premises and equipment7,977 7,972 
FDIC insurance expense963 672 
Data processing expense1,862 1,670 
Merger-related expenses295 4,585 
Other expenses7,512 7,381 
Total Noninterest Expense48,605 49,959 
Income before provision for income taxes25,692 20,937 
Provision for income taxes5,887 5,008 
Net Income$19,805 $15,929 
Per Share of Common Stock
Basic earnings$0.30 $0.25 
Diluted earnings$0.30 $0.25 
Dividends paid$0.145 $0.135 
The accompanying notes are an integral part of these consolidated financial statements.
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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
 For the Three Months Ended March 31,
(in thousands)20232022
Net income$19,805 $15,929 
Other comprehensive gains (loss), net of tax:
Unrealized gains (losses) on securities available for sale7,582 (30,965)
Amortization of gain on debt securities reclassified to held to maturity(126)(135)
Other comprehensive income (loss)7,456 (31,100)
Total comprehensive income (loss)$27,261 $(15,171)
The accompanying notes are an integral part of these consolidated financial statements.
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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the Three Months Ended March 31, 2023 and 2022
(in thousands, except per share data)Common
Stock
Retained
Earnings
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Total
 
January 1, 2022$565,862 $259,340 $(1,452)$3,264 $827,014 
Net income— 15,929 — — 15,929 
Other comprehensive loss, net of tax— — — (31,100)(31,100)
Issuance of stock for 1st Constitution acquisition285,742 — — — 285,742 
Stock based compensation1,439 — — — 1,439 
Retirement of restricted stock(933)— — — (933)
Cash dividends on common stock of $0.135 per share
— (8,809)— — (8,809)
March 31, 2022$852,110 $266,460 $(1,452)$(27,836)$1,089,282 
January 1, 2023$855,425 $329,375 $(1,452)$(74,761)$1,108,587 
Net income— 19,805 — — 19,805 
Other comprehensive income, net of tax— — — 7,456 7,456 
Stock based compensation1,725 — — — 1,725 
Retirement of restricted stock(1,493)— — — (1,493)
Cash dividends on common stock of $0.145 per share
— (9,500)— — (9,500)
March 31, 2023$855,657 $339,680 $(1,452)$(67,305)$1,126,580 
The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
 For the Three Months Ended March 31,
(in thousands)20232022
Cash Flows from Operating Activities:
Net income$19,805 $15,929 
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees and costs1,287 1,271 
Depreciation and amortization1,011 1,665 
Amortization of intangible assets516 596 
Amortization of operating lease right-of-use assets1,032 1,021 
Provision for credit losses (benefit)7,893 6,272 
Loans originated for sale(10,341)(25,379)
Proceeds from sales of loans held for sale11,307 31,462 
(Gain) loss on equity securities(148)485 
Income on bank owned life insurance(776)(777)
Gains on proceeds from bank owned life insurance policies— (53)
Gains on sales of loans held for sale(430)(1,426)
Gains on other real estate and other repossessed assets(4)(8)
Loss on sales of premises and equipment— 
Loss on sale of asset41 — 
Stock-based compensation1,725 1,439 
Excess tax benefits138 79 
Decrease (increase) in other assets22,861 (1,860)
Decrease in other liabilities(19,156)(1,379)
Net Cash Provided by Operating Activities36,761 29,340 
Cash Flows from Investing Activities:
Net cash acquired in acquisitions— 326,236 
Proceeds from repayments and maturities of available for sale securities28,151 41,454 
Proceeds from repayments and maturities of held to maturity securities19,579 42,432 
Purchase of available for sale securities— (269,070)
Purchase of held to maturity securities— (35,648)
Purchase of equity securities(65)(32)
Death benefit proceeds from bank owned life insurance policy— 95 
Proceeds from redemptions of Federal Home Loan Bank stock48,022 — 
Purchases of Federal Home Loan Bank stock(51,345)(119)
Net increase in loans(85,085)(60,109)
Proceeds from sales of other real estate and repossessed assets1,919 
Proceeds from dispositions and sales of premises and equipment— 123 
Purchases of premises and equipment(2,012)(944)
Net Cash (Used in) Provided by Investing Activities(40,836)44,426 
Cash Flows from Financing Activities:
Net (decrease) increase in deposits(30,471)132,657 
Increase (decrease) in federal funds purchased and securities sold under agreements to repurchase84,531 (3,542)
Retirement of restricted stock(1,493)(933)
Dividends paid(9,500)(8,809)
Net Cash Provided by Financing Activities43,067 119,373 
Net increase in cash and cash equivalents38,992 193,139 
Cash and cash equivalents, beginning of period235,950 228,530 
Cash and cash equivalents, end of period$274,942 $421,669 

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Lakeland Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)

 For the Three Months Ended March 31,
(in thousands)20232022
Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes$257 $5,619 
Cash paid during the period for interest37,444 6,969 
Right-of-use assets obtained in exchange for new lease liabilities309 89 
Acquisitions:
Non-cash assets acquired:
Federal Home Loan Bank stock— 1,247 
Investment securities available for sale— 217,774 
Investment securities held to maturity— 124,485 
Loans held for sale— 4,620 
Loans— 1,095,266 
Fixed Assets— 13,748 
Operating lease right-of-use assets— 12,991 
Goodwill and other intangible assets, net— 124,570 
Bank owned life insurance— 37,580 
Other assets— 8,820 
Total non-cash assets acquired— 1,641,101 
Liabilities assumed:
Deposits— 1,650,613 
Subordinated debt— 14,734 
Operating lease liabilities— 12,991 
Other liabilities— 3,257 
Total liabilities assumed— 1,681,595 
Common stock issued$— $285,742 
The accompanying notes are an integral part of these consolidated financial statements.
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Lakeland Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
Note 1 – Significant Accounting Policies
Basis of Presentation
This quarterly report presents the consolidated financial statements of Lakeland Bancorp, Inc. and its subsidiaries, including Lakeland Bank (“Lakeland”) and Lakeland’s wholly owned subsidiaries (collectively, the “Company”). The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“U.S. GAAP”) and predominant practices within the banking industry. The Company’s unaudited interim financial statements reflect all adjustments, such as normal recurring accruals that are in the opinion of management, necessary for the fair presentation of the results of the interim periods. The results of operations for the three months ended March 31, 2023 do not necessarily indicate the results that the Company will achieve for all of 2023.
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 Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Note 2 – Business Combinations
Provident Financial Services, Inc.
On September 26, 2022, the Company entered into a definitive merger agreement with Provident Financial Services, Inc. ("Provident") pursuant to which the companies will combine in an all-stock merger. Under the terms of the merger agreement, the Company will merge with and into Provident, with Provident as the surviving corporation, and Lakeland Bank will merge with and into Provident Bank, with Provident Bank as the surviving bank. Following the closing of the transaction, Lakeland shareholders will receive 0.8319 shares of Provident common stock for each share of Lakeland common stock they own. Upon completion of the transaction, which was subject to both Provident and Lakeland shareholder approval, Provident shareholders will own approximately 58% and Lakeland shareholders will own approximately 42% of the combined company. As of September 26, 2022, the transaction is valued at approximately $1.3 billion on a fully diluted basis. The combined company is expected to have more than $25 billion in total assets, $18 billion in total loans and $20 billion in total deposits.
The transaction has been approved by the boards of directors of both companies and, on February 1, 2023, shareholders of each company approved the proposed merger. The merger is expected to close in the second quarter of 2023, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals.
The Company incurred merger-related expenses on the anticipated transaction with Provident of $295,000 during the first quarter of 2023.
1st Constitution Bancorp
On January 6, 2022, the Company completed its acquisition of 1st Constitution Bancorp ("1st Constitution"), a bank holding company headquartered in Cranbury, New Jersey. 1st Constitution was the parent of 1st Constitution Bank, which operated 25 branches in Bergen, Mercer, Middlesex, Monmouth, Ocean and Somerset Counties in New Jersey. This acquisition enabled the Company to establish a presence in Mercer, Middlesex and Monmouth Counties and broaden its presence in the other counties. Effective as of the close of business on January 6, 2022, 1st Constitution merged into the Company and 1st Constitution Bank merged into Lakeland. Pursuant to the merger agreement, the shareholders of 1st Constitution received for each outstanding share of 1st Constitution common stock that they owned at the effective time of the merger, 1.3577 shares of Lakeland Bancorp, Inc. common stock. The Company issued 14,020,495 shares of its common stock in the merger. Outstanding 1st Constitution stock options were paid out in cash at the difference between $25.55 and an average strike price of $15.95 for a total cash payment of $559,000.
The acquisition was accounted for under the acquisition method of accounting and accordingly, the assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values as of the acquisition date, including the use of a fair market value specialist. The calculation of goodwill was subject to change for up to one year after the closing date of the transaction as additional information relative to closing date estimates and uncertainties became available. No adjustments were made in the year after the close of the acquisition and all accounting is considered final. 1st Constitution's results of operations have been included in the Company's Consolidated Statements of Income from January 6, 2022 forward. Further information can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
Direct costs related to the 1st Constitution acquisition were expensed as incurred. The Company incurred no merger-related expenses in the first quarter of 2023 and $4.6 million of merger-related expenses in the first quarter of 2022 that have been separately stated in the Company's Consolidated Statements of Income.
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Note 3 – Earnings Per Share
The following schedule shows the Company’s earnings per share calculations for the periods presented:
 For the Three Months Ended March 31,
(in thousands, except per share data)20232022
Net income available to common shareholders
$19,805 $15,929 
Less: earnings allocated to participating securities
196 164 
Net income allocated to common shareholders
19,609 $15,765 
Weighted average number of common shares outstanding - basic
64,96663,961 
Share-based plans262277
Weighted average number of common shares outstanding - diluted
65,228 64,238 
Basic earnings per share$0.30 $0.25 
Diluted earnings per share$0.30 $0.25 
There were no antidilutive options to purchase common stock excluded from the computation for the three months ended March 31, 2023 and 2022.
Note 4 – Investment Securities
The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's available for sale securities are as follows:
 March 31, 2023
(in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair
Value
U.S. Treasury and U.S. government agencies$372,114 $95 $(23,790)$— $348,419 
Mortgage-backed securities, residential344,792 (36,615)— 308,183 
Collateralized mortgage obligations, residential165,787 — (14,069)— 151,718 
Mortgage-backed securities, multifamily994 — (206)— 788 
Collateralized mortgage obligations, multifamily50,692 — (4,270)— 46,422 
Asset-backed securities50,826 — (1,577)— 49,249 
Obligations of states and political subdivisions21,993 — (701)(2)21,290 
Corporate bonds115,703 — (12,487)(158)103,058 
Total$1,122,901 $101 $(93,715)$(160)$1,029,127 
 December 31, 2022
(in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair
Value
U.S. Treasury and U.S. government agencies$383,958 $100 $(28,419)$— $355,639 
Mortgage-backed securities, residential351,355 (40,748)— 310,613 
Collateralized mortgage obligations, residential170,502 — (16,444)— 154,058 
Mortgage-backed securities, multifamily1,000 — (215)— 785 
Collateralized mortgage obligations, multifamily51,108 — (4,775)— 46,333 
Asset-backed securities54,105 — (1,710)— 52,395 
Obligations of states and political subdivisions22,112 — (989)(1)21,122 
Corporate bonds124,394 — (10,718)(309)113,367 
Total$1,158,534 $106 $(104,018)$(310)$1,054,312 
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The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's held to maturity investment securities are as follows:
 March 31, 2023
(in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair
Value
U.S. government agencies$10,968 $10 $(622)$— $10,356 
Mortgage-backed securities, residential354,514 123 (52,843)— 301,794 
Collateralized mortgage obligations, residential12,813 — (2,325)— 10,488 
Mortgage-backed securities, multifamily5,071 — (665)— 4,406 
Obligations of states and political subdivisions516,289 (83,042)(45)433,206 
Corporate bonds3,000 — (418)(112)2,470 
Total$902,655 $137 $(139,915)$(157)$762,720 
 December 31, 2022
(in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair
Value
U.S. government agencies$11,099 $11 $(725)$— $10,385 
Mortgage-backed securities, residential360,683 57 (58,128)— 302,612 
Collateralized mortgage obligations, residential13,026 — (2,570)— 10,456 
Mortgage-backed securities, multifamily5,094 — (747)— 4,347 
Obligations of states and political subdivisions530,513 (100,400)(7)430,108 
Corporate bonds3,000 — (353)(100)2,547 
Total$923,415 $70 $(162,923)$(107)$760,455 
The following table lists contractual maturities of investment securities classified as available for sale and held to maturity as of March 31, 2023. Mortgage-backed and asset-backed securities are not shown by maturity because expected maturities may differ from contractual maturities due to underlying loan prepayments of the issuer. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 Available for SaleHeld to Maturity
(in thousands)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in one year or less$42,276 $41,645 $54,927 $54,712 
Due after one year through five years250,381 235,641 33,746 32,297 
Due after five years through ten years155,291 139,130 77,738 68,421 
Due after ten years61,862 56,351 363,846 290,602 
509,810 472,767 530,257 446,032 
Mortgage-backed and asset-backed securities613,091 556,360 372,398 316,688 
Total$1,122,901 $1,029,127 $902,655 $762,720 
During the three months ended March 31, 2023 and 2022, there were no sales of available for sale securities. Gains or losses on sales of securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.
Securities with a carrying value of approximately $1.68 billion and $1.34 billion at March 31, 2023 and December 31, 2022, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
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The following tables indicate the length of time individual securities have been in a continuous unrealized loss position for the periods presented:
March 31, 2023Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
Number of
Securities
Fair ValueUnrealized
Losses
Available for Sale
U.S. Treasury and U.S. government agencies
$13,915 $30 $319,832 $23,760 62 $333,747 $23,790 
Mortgage-backed securities, residential5,635 315 301,414 36,300 134 307,049 36,615 
Collateralized mortgage obligations, residential16,300 503 135,417 13,566 104 151,717 14,069 
Mortgage-backed securities, multifamily— — 788 206 788 206 
Collateralized mortgage obligations, multifamily10,716 141 35,706 4,129 20 46,422 4,270 
Asset-backed securities
3,316 13 45,933 1,564 17 49,249 1,577 
Obligations of states and political subdivisions
1,214 11 18,461 690 42 19,675 701 
Corporate bonds32,800 3,411 70,259 9,076 47 103,059 12,487 
Total$83,896 $4,424 $927,810 $89,291 427 $1,011,706 $93,715 
Held to Maturity
U.S. government agencies$— $— $9,115 $622 $9,115 $622 
Mortgage-backed securities, residential20,853 849 274,937 51,994 183 295,790 52,843 
Collateralized mortgage obligations, residential— — 10,488 2,325 11 10,488 2,325 
Mortgage-backed securities, multifamily— — 4,406 665 4,406 665 
Obligations of states and political subdivisions
49,185 177 379,143 82,865 366 428,328 83,042 
Corporate bonds— — 2,582 418 2,582 418 
Total$70,038 $1,026 $680,671 $138,889 568 $750,709 $139,915 
December 31, 2022Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
Number of
Securities
Fair ValueUnrealized
Losses
Available for Sale
U.S. Treasury and U.S. government agencies
$114,514 $5,856 $229,094 $22,563 67 $343,608 $28,419 
Mortgage-backed securities, residential127,363 12,399 182,079 28,349 135 309,442 40,748 
Collateralized mortgage obligations, residential66,316 3,958 87,742 12,486 104 154,058 16,444 
Mortgage-backed securities, multifamily— — 786 215 786 215 
Collateralized mortgage obligations, multifamily37,407 2,861 8,926 1,914 20 46,333 4,775 
Asset-backed securities
34,871 977 17,524 733 17 52,395 1,710 
Obligations of states and political subdivisions
3,771 276 16,746 713 46 20,517 989 
Corporate bonds88,489 7,437 22,880 3,281 49 111,369 10,718 
Total$472,731 $33,764 $565,777 $70,254 439 $1,038,508 $104,018 
Held to Maturity
U.S. government agencies$6,671 $336 $2,412 $389 $9,083 $725 
Mortgage-backed securities, residential$32,549 $2,275 $264,035 $55,853 182 $296,584 $58,128 
Collateralized mortgage obligations, residential4,668 516 5,787 2,054 12 10,455 2,570 
Collateralized mortgage obligations, multifamily2,671 376 1,676 371 4,347 747 
Obligations of states and political subdivisions
82,459 3,689 341,076 96,711 379 423,535 100,400 
Debt securities
— — 2,647 353 2,647 353 
Total$129,018 $7,192 $617,633 $155,731 581 $746,651 $162,923 
For available for sale securities, the Company assesses whether a loss is from credit or other factors and considers the extent to which fair value is less than amortized cost, adverse changes to the rating of the security by a rating agency, a security's market yield as compared to similar securities and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. In the first quarter of 2023, the Company recorded a provision and a subsequent charge-off of $6.6 million in subordinated debt securities of Signature Bank which failed in March 2023.
For held to maturity securities, management measures expected credit losses on a collective basis by major security type. All of the mortgage-backed securities are issued by U.S. government agencies and are either explicitly or implicitly
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guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses and, therefore, the expectation of non-payment is zero. A range of historical losses method is utilized in estimating the net amount expected to be collected for mortgage-backed securities, collateralized mortgage obligations and obligations of states and political subdivisions.
The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.
Credit Quality Indicators
Credit ratings, which are updated monthly, are a key measure for estimating the probability of a bond's default and for monitoring credit quality on an on-going basis. For bonds other than U.S. Treasuries and bonds issued or guaranteed by U.S. government agencies, credit ratings issued by one or more nationally recognized statistical rating organizations are considered in conjunction with an assessment by the Company's management. Investment grade reflects a credit quality of BBB or above.
The tables below indicate the credit profile of the Company's held to maturity investment securities at amortized cost:
March 31, 2023 AAA  AA  A  BBB  Not Rated  Total
(in thousands)
U.S. government agencies$10,968 $— $— $— $— $10,968 
Mortgage-backed securities, residential354,514 — — — — 354,514 
Collateralized mortgage obligations, residential12,813 — — — — 12,813 
Mortgage-backed securities, multifamily5,071 — — — — 5,071 
Obligations of states and political subdivisions154,133 315,110 1,008 — 46,038 516,289 
Corporate bonds— — — 3,000 — 3,000 
Total$537,499 $315,110 $1,008 $3,000 $46,038 $902,655 
December 31, 2022 AAA  AA  A  BBB  Not Rated  Total
(in thousands)
U.S. government agencies$11,099 $— $— $— $— $11,099 
Mortgage-backed securities, residential360,683 — — — — 360,683 
Collateralized mortgage obligations, residential13,026 — — — — 13,026 
Mortgage-backed securities, multifamily5,094 — — — — 5,094 
Obligations of states and political subdivisions156,661 317,566 1,020 — 55,266 530,513 
Corporate bonds— — — 3,000 — 3,000 
Total$546,563 $317,566 $1,020 $3,000 $55,266 $923,415 
Equity securities at fair value
The Company has an equity securities portfolio, which primarily consists of investments in Community Reinvestment funds. The fair value of the equity portfolio was $17.5 million and $17.3 million at March 31, 2023 and December 31, 2022, respectively. For the three months ended March 31, 2023 and 2022, the Company recorded no sales of equity securities or Community Reinvestment funds. The Company recorded fair value gains on equity securities of $148,000 for the first quarter of 2023 and fair value losses of $485,000 for the first quarter of 2022. Fair value gain or loss on equity securities are recorded in noninterest income.
As of March 31, 2023, the Company's investments in Community Reinvestment funds include $7.8 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 fair value between accounting periods. These funds can be redeemed with 60 days' notice at the net asset value less unpaid management fees with the approval of the fund manager. As of March 31, 2023, the net amortized cost equaled the fair value of the investment. There are no unfunded commitments related to these investments.
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The Community Reinvestment funds also included $9.7 million of investment in government guaranteed loans, mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development as of March 31, 2023. The Company may redeem these funds at the net asset value calculated at the end of the current business day less any unpaid management fees. There are no restrictions on redemptions for the holdings in these investments other than the notice required by the fund manager. There are no unfunded commitments related to these investments.
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Note 5 – Loans
The following sets forth the composition of the Company’s loan portfolio:
(in thousands)March 31, 2023December 31, 2022
Non-owner occupied commercial$2,943,897 $2,906,014 
Owner occupied commercial1,205,635 1,246,189 
Multifamily1,275,771 1,260,814 
Non-owner occupied residential210,203 218,026 
Commercial, industrial and other562,677 606,711 
Construction404,994 380,100 
Equipment finance161,889 151,574 
Residential mortgage857,427 765,552 
Home equity and consumer330,060 331,070 
Total$7,952,553 $7,866,050 
Loans are recorded at amortized cost, which includes principal balance and net deferred loan fees and costs. The Company elected to exclude accrued interest receivable from amortized cost. Accrued interest receivable is reported separately in the Consolidated Balance Sheets and totaled $25.1 million at March 31, 2023 and $24.5 million at December 31, 2022. Loan origination fees and certain direct loan origination costs are deferred and the net fee or cost is recognized in interest income as an adjustment of yield. Net deferred loan fees are included in loans by respective segment and totaled $162,000 at March 31, 2023 and $2.1 million at December 31, 2022.
At March 31, 2023 and December 31, 2022, SBA Paycheck Protection Program ("PPP") loans totaled $390,000 and $435,000, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $1.0 million and $1.3 million, at March 31, 2023 and December 31, 2022, respectively. At March 31, 2023 and December 31, 2022, the Company had $3.11 billion and $2.89 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB"), respectively.

Credit Quality Indicators
Management closely and continually monitors the quality of its loans and assesses the quantitative and qualitative risks arising from the credit quality of its loans. Lakeland assigns a credit risk rating to all loans and loan commitments. The credit risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within the loan portfolios. The risk rating system assists senior management in evaluating the loan portfolio and analyzing trends. In assigning risk ratings, management considers, among other things, the borrower’s ability to service the debt based on relevant information such as current financial information, historical payment experience, credit documentation, public information and current economic conditions.
Management categorizes loans and commitments into the following risk ratings:
Pass: "Pass" assets are well protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value of any underlying collateral.
Watch: "Watch" assets require more than the usual amount of monitoring due to declining earnings, strained cash flow, increasing leverage and/or weakening market. These borrowers generally have limited additional debt capacity and modest coverage and average or below average asset quality, margins and market share.
Special Mention: "Special mention" assets exhibit identifiable credit weakness, which if not checked or corrected could weaken the loan quality or inadequately protect the bank’s credit position at some future date.
Substandard: "Substandard" assets are inadequately protected by the current sound worth and paying capacity of the obligors or of the collateral pledged, if any. A substandard loan has a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt.
Doubtful: "Doubtful" assets exhibit all of the weaknesses inherent in substandard loans, but have the added characteristics that the weaknesses make collection or liquidation in full improbable on the basis of existing facts.
Loss: “Loss” is a rating for loans or portions of loans that are considered uncollectible and of such little value that their continuance as bankable loans is not warranted.

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The following table presents the risk category of loans by class of loan and vintage as of March 31, 2023.
Term Loans by Origination Year
(in thousands)20232022202120202019Pre-2019Revolving LoansRevolving to TermTotal
Non-owner occupied commercial
  Pass$76,797 $673,699 $385,422 $490,130 $285,439 $855,149 $16,413 — $2,783,049 
  Watch— 1,266 — 21,546 8,908 62,092 — — 93,812 
  Special mention— — — 5,476 824 29,599 — — 35,899 
  Substandard— — — — — 31,137 — — 31,137 
    Total76,797 674,965 385,422 517,152 295,171 977,977 16,413 — 2,943,897 
Owner occupied commercial
  Pass9,281 264,688 192,035 155,887 81,383 376,200 13,061 337 1,092,872 
  Watch— — 3,926 1,697 3,428 31,468 1,540 — 42,059 
  Special mention— 578 16,933 5,705 4,924 18,671 — — 46,811 
  Substandard— — 97 14,669 1,883 7,244 — — 23,893 
    Total9,281 265,266 212,991 177,958 91,618 433,583 14,601 337 1,205,635 
Multifamily
  Pass42,496 303,711 219,965 263,675 66,132 335,446 1,085 — 1,232,510 
  Watch— — 5,785 11,674 — 2,483 — — 19,942 
  Special mention— 500 — 2,408 3,844 11,203 — — 17,955 
  Substandard— — — — — 5,364 — — 5,364 
    Total42,496 304,211 225,750 277,757 69,976 354,496 1,085 — 1,275,771 
Non-owner occupied residential
  Pass1,516 36,575 29,077 20,250 25,280 81,870 5,301 — 199,869 
  Watch— — — — — 5,412 75 — 5,487 
  Special mention— — — — 1,040 2,093 — — 3,133 
  Substandard— — — — — 1,714 — — 1,714 
    Total1,516 36,575 29,077 20,250 26,320 91,089 5,376 — 210,203 
Commercial, industrial and other
  Pass5,943 48,052 47,449 26,114 42,404 49,927 296,529 462 516,880 
  Watch— 237 643 211 260 2,716 7,908 — 11,975 
  Special mention— 1,145 245 — 158 2,257 23,971 — 27,776 
  Substandard— — 217 — 434 3,058 2,337 — 6,046 
    Total5,943 49,434 48,554 26,325 43,256 57,958 330,745 462 562,677 
Construction
  Pass9,154 101,953 177,536 25,512 32,093 4,685 20,934 — 371,867 
  Watch— 1,455 5,913 11,758 — — 323 — 19,449 
  Substandard— — 95 — — 13,583 — — 13,678 
    Total9,154 103,408 183,544 37,270 32,093 18,268 21,257 — 404,994 
Equipment finance
  Pass22,953 71,381 32,882 17,975 13,314 3,000 — — 161,505 
  Substandard— 100 91 55 109 29 — — 384 
    Total22,953 71,481 32,973 18,030 13,423 3,029 — — 161,889 
  Current YTD period:
    Gross charge-offs— — 61 — — — — — 61 
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Term Loans by Origination Year
(in thousands)20232022202120202019Pre-2019Revolving LoansRevolving to TermTotal
Residential mortgage
  Pass104,154 319,686 165,213 109,090 34,879 122,487 — — 855,509 
  Substandard— — — — 471 1,447 — — 1,918 
    Total104,154 319,686 165,213 109,090 35,350 123,934 — — 857,427 
Consumer
  Pass5,440 44,471 30,291 8,383 3,966 22,741 213,637 — 328,929 
  Substandard— — — — — 768 31 332 1,131 
    Total5,440 44,471 30,291 8,383 3,966 23,509 213,668 332 330,060 
  Current YTD period:
    Gross charge-offs65 — — — — 78 
Total loans$277,734 $1,869,497 $1,313,815 $1,192,215 $611,173 $2,083,843 $603,145 $1,131 $7,952,553 
  Current YTD period:
    Gross charge-offs65 67 — — — — 139 

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The following table presents the risk category of loans by class of loan and vintage as of December 31, 2022.
Term Loans by Origination Year
(in thousands)20222021202020192018Pre-2018Revolving LoansRevolving to TermTotal
Non-owner occupied commercial
  Pass$673,235 $391,748 $495,618 $271,109 $183,971 $703,852 $19,317 2,502 $2,741,352 
  Watch1,272 — 21,720 26,906 12,099 48,314 — — 110,311 
  Special mention— — 494 830 15,586 16,304 — — 33,214 
  Substandard— — — — 133 21,004 — — 21,137 
    Total674,507 391,748 517,832 298,845 211,789 789,474 19,317 2,502 2,906,014 
Owner occupied commercial
  Pass267,754 198,131 191,603 85,343 61,581 317,434 13,328 — 1,135,174 
  Watch— — 2,888 3,520 4,728 28,659 75 — 39,870 
  Special mention585 17,778 5,749 1,862 3,701 20,292 — — 49,967 
  Substandard— 97 8,876 1,899 475 9,831 — — 21,178 
    Total268,339 216,006 209,116 92,624 70,485 376,216 13,403 — 1,246,189 
Multifamily
  Pass312,910 221,306 265,187 67,072 95,432 249,021 5,288 — 1,216,216 
  Watch— 5,817 11,692 — — 2,504 — — 20,013 
  Special mention500 — 2,421 — — 11,274 — — 14,195 
  Substandard— — — 3,864 — 6,526 — — 10,390 
    Total313,410 227,123 279,300 70,936 95,432 269,325 5,288 — 1,260,814 
Non-owner occupied residential
  Pass37,445 29,365 22,133 24,205 18,489 67,114 7,513 21 206,285 
  Watch— — — 2,068 — 5,244 75 — 7,387 
  Special mention— — — 507 822 1,017 — — 2,346 
  Substandard— — — — — 2,008 — — 2,008 
    Total37,445 29,365 22,133 26,780 19,311 75,383 7,588 21 218,026 
Commercial, industrial and other
  Pass48,719 51,894 27,644 57,124 13,936 39,892 339,040 245 578,494 
  Watch251 704 237 211 — 1,424 10,001 — 12,828 
  Special mention375 258 — 179 36 378 4,878 — 6,104 
  Substandard776 242 — 450 4,722 183 2,912 — 9,285 
    Total50,121 53,098 27,881 57,964 18,694 41,877 356,831 245 606,711 
Construction
  Pass79,420 172,849 35,295 31,447 7,245 4,005 19,294 — 349,555 
  Watch1,159 5,480 10,299 — — — 171 — 17,109 
  Substandard— 95 — — — 13,341 — — 13,436 
    Total80,579 178,424 45,594 31,447 7,245 17,346 19,465 — 380,100 
Equipment finance
  Pass74,840 36,087 20,382 15,738 3,862 546 — — 151,455 
  Substandard— — — 97 22 — — — 119 
    Total74,840 36,087 20,382 15,835 3,884 546 — — 151,574 
Residential mortgage
  Pass323,636 167,791 110,199 35,180 20,218 106,391 — — 763,415 
  Substandard— — — 490 341 1,306 — — 2,137 
    Total323,636 167,791 110,199 35,670 20,559 107,697 — — 765,552 
Consumer
  Pass47,282 31,368 8,658 4,143 3,093 21,482 213,857 — 329,883 
  Substandard33 — — — 23 853 278 — 1,187 
    Total47,315 31,368 8,658 4,143 3,116 22,335 214,135 — 331,070 
Total loans$1,870,192 $1,331,010 $1,241,095 $634,244 $450,515 $1,700,199 $636,027 $2,768 $7,866,050 

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Past Due and Non-Accrual Loans
Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. A loan is generally considered non-performing when it is placed on non-accrual status. A loan is generally placed on non-accrual status when it becomes 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection.
The following tables present the payment status of the recorded investment in past due loans as of the periods noted, by class of loans.
March 31, 2023Past Due
(in thousands)Current30 - 59 Days60 - 89 DaysGreater than 89 daysTotalTotal Loans
Non-owner occupied commercial$2,943,274 $— $— $623 $623 $2,943,897 
Owner occupied commercial1,197,244 1,288 — 7,103 8,391 1,205,635 
Multifamily1,275,187 — — 584 584 1,275,771 
Non-owner occupied residential210,186 — 17 — 17 210,203 
Commercial, industrial and other560,510 — — 2,167 2,167 562,677 
Construction404,014 — — 980 980 404,994 
Equipment finance160,504 946 408 31 1,385 161,889 
Residential mortgage852,974 3,395 — 1,058 4,453 857,427 
Consumer328,326 1,066 273 395 1,734 330,060 
Total$7,932,219 $6,695 $698 $12,941 $20,334 $7,952,553 
December 31, 2022Past Due
(in thousands)Current30 - 59 Days60 - 89 DaysGreater than 89 daysTotalTotal Loans
Non-owner occupied commercial$2,905,049 $346 $— $619 $965 $2,906,014 
Owner occupied commercial1,235,134 2,854 477 7,724 11,055 1,246,189 
Multifamily1,260,135 — 679 — 679 1,260,814 
Non-owner occupied residential217,407 178 — 441 619 218,026 
Commercial, industrial and other603,731 55 2,922 2,980 606,711 
Construction379,120 — — 980 980 380,100 
Equipment finance150,842 494 238 — 732 151,574 
Residential mortgage760,638 3,031 271 1,612 4,914 765,552 
Consumer330,119 841 62 48 951 331,070 
Total$7,842,175 $7,799 $1,730 $14,346 $23,875 $7,866,050 
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The following tables present information on non-accrual loans at March 31, 2023 and December 31, 2022:
March 31, 2023
(in thousands)Non-accrualInterest Income Recognized on Non-accrual LoansAmortized Cost Basis of Loans > 89 days Past due but still accruingAmortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial$908 $— $— $— 
Owner occupied commercial8,757 — — 8,482 
Multifamily584 — — — 
Non-owner occupied residential— — — — 
Commercial, industrial and other2,221 — — — 
Construction980 — — 980 
Equipment finance379 — — — 
Residential mortgage1,918 — — — 
Consumer1,131 — — 72 
Total$16,878 $— $— $9,534 
December 31, 2022
(in thousands)Non-accrualInterest Income Recognized on Non-accrual LoansAmortized Cost Basis of Loans > 89 days Past due but still accruingAmortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial$618 $— $— $— 
Owner occupied commercial9,439 — — 8,859 
Non-owner occupied residential441 — — 440 
Commercial, industrial and other2,978 — — — 
Construction980 — — 980 
Equipment finance114 — — — 
Residential mortgage2,011 — — — 
Consumer781 — — 79 
Total$17,362 $— $— $10,358 
At March 31, 2023 and December 31, 2022, there were no loans that were past due more than 89 days and still accruing. The Company had no residential mortgages and consumer loans included in non-accrual and that were in the process of foreclosure at March 31, 2023 and $898,000 in residential mortgages and consumer home equity loans included in total non-accrual loans that were in the process of foreclosure at December 31, 2022.
Purchased Credit Deteriorated ("PCD") Loans
The following summarizes the PCD loans acquired in the 1st Constitution acquisition as of the closing date, January 6, 2022.
(in thousands)PCD Loans
Gross amortized cost basis$140,300 
Interest component of expected cash flows (accretable difference)(3,792)
Allowance for credit losses on PCD loans(12,077)
Net PCD loans$124,431 
    At March 31, 2023, net PCD loans acquired from 1st Constitution totaled $81.1 million.

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Troubled Debt Restructurings and Modifications of Loans to Debtors Experiencing Financial Difficulty
During the three months ended March 31, 2023, the Company adopted Accounting Standards Update 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02"). Among other things, ASU 2022-02 eliminates the recognition and measurement guidance of troubled debt restructured loans ("TDRs") so that creditors will apply the same guidance to all modifications when determining whether a modification results in a new receivable or continuation of an existing receivable. ASU 2022-02 requires vintage disclosures of gross charge-offs as shown in the vintage disclosure above. It also replaces the historical disclosure of TDRs with the new disclosure of modifications of receivables to debtors experiencing financial difficulty.
Prior to the adoption of ASU 2022-02, loans were classified as TDRs in cases where borrowers experienced financial difficulties and Lakeland made certain concessionary modifications to contractual terms. Restructured loans typically involved 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.
During the three months ended March 31, 2023, there were no loan modifications that met the definition of a modification to a debtor experiencing financial difficulty. At December 31, 2022, TDRs totaled $2.6 million, all of which were accruing TDRs. There were no loans that were restructured during the three months ended March 31, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted in the three months ended March 31, 2023 and 2022.
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Note 6 - Allowance for Credit Losses
The Company measures expected credit losses for financial assets measured at amortized cost, including loans, investments and certain off-balance-sheet credit exposures in accordance with ASU 2016-13. See Note 1 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a description of the Company's methodology.
Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. At March 31, 2023, loans totaling $7.86 billion were evaluated collectively and the allowance on these balances totaled $68.0 million and loans totaling $93.3 million were evaluated on an individual basis with the specific allocations of the allowance for credit losses totaling $3.4 million. Loans evaluated on an individual basis include $81.4 million in PCD loans, which had a specific allowance for credit losses of $2.7 million. The Company made the election to exclude accrued interest receivable from the estimate of credit losses.
Allowance for Credit Losses - Loans
The allowance for credit losses on loans is summarized in the following table:
For the Three Months Ended March 31,
(in thousands)20232022
Balance at beginning of the period$70,264 $58,047 
Initial allowance for credit losses on PCD loans— 12,077 
Charge-offs on PCD loans— (7,634)
Charge-offs(139)(170)
Recoveries65 162 
  Net charge-offs(74)(7,642)
Provision for credit loss - loans1,213 4,630 
Balance at end of the period$71,403 $67,112 
The provision for credit losses on loans for the first quarter of 2023 included a slight increase in qualitative factors due to uncertainty in the economy, which was partially offset by a decrease in the total of individually evaluated loans, while the provision for the three months ended March 31, 2022 was predominantly due to the provision for the 1st Constitution's acquired non-purchased credit deteriorated loans. Charge-offs in the three months ended March 31, 2022 include $7.6 million in charge-offs on 1st Constitution's acquired PCD loans.
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The following tables detail activity in the allowance for credit losses on loans by portfolio segment for the three months ended March 31, 2023 and 2022:
(in thousands)
Balance at December 31, 2022
Charge-offsRecoveriesProvision (Benefit) for Credit Loss
Balance at March 31, 2023
Non-owner occupied commercial$23,462 $— $— $819 $24,281 
Owner occupied commercial6,696 — — (638)6,058 
Multifamily9,425 — — (415)9,010 
Non-owner occupied residential2,643 — — (50)2,593 
Commercial, industrial and other8,836 — 35 (760)8,111 
Construction2,968 — — 137 3,105 
Equipment finance3,445 (61)15 1,049 4,448 
Residential mortgage8,041 — — 903 8,944 
Consumer4,748 (78)15 168 4,853 
Total$70,264 $(139)$65 $1,213 $71,403 
(in thousands)Balance at December 31, 2021Initial allowance for credit losses on PCD loansCharge-offsRecoveries(Benefit) Provision for Credit Loss
Balance at March 31, 2022
Non owner occupied commercial$20,071 $1,312 $(4)$— $2,270 $23,649 
Owner occupied commercial3,964 1,137 (34)10 1,048 6,125 
Multifamily8,309 — — (13)8,300 
Non owner occupied residential2,380 175 — 14 339 2,908 
Commercial, industrial and other9,891 2,413 (823)45 148 11,674 
Construction838 6,843 (6,807)850 1,727 
Equipment finance3,663 — (97)15 (1,122)2,459 
Residential mortgage3,914 179 — 48 1,545 5,686 
Consumer5,017 14 (39)27 (435)4,584 
Total$58,047 $12,077 $(7,804)$162 $4,630 $67,112 
The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit losses at March 31, 2023 and December 31, 2022:
March 31, 2023Loans Allowance for Credit Losses
(in thousands) Individually evaluated for impairment Collectively evaluated for impairmentAcquired with deteriorated credit qualityTotalIndividually evaluated for impairmentCollectively evaluated for impairment Total
Non-owner occupied commercial$— $2,910,091 $33,806 $2,943,897 $749 $23,532 $24,281 
Owner occupied commercial8,297 1,167,784 29,554 1,205,635 811 5,247 6,058 
Multifamily— 1,269,415 6,356 1,275,771 9,005 9,010 
Non-owner occupied residential523 208,629 1,051 210,203 15 2,578 2,593 
Commercial, industrial and other2,027 551,333 9,317 562,677 1,669 6,442 8,111 
Construction980 404,014 — 404,994 — 3,105 3,105 
Equipment finance— 161,889 — 161,889 — 4,448 4,448 
Residential mortgage— 856,218 1,209 857,427 159 8,785 8,944 
Consumer— 329,912 148 330,060 — 4,853 4,853 
Total loans$11,827 $7,859,285 $81,441 $7,952,553 $3,408 $67,995 $71,403 
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December 31, 2022Loans Allowance for Credit Losses
(in thousands)Individually evaluated for impairmentCollectively evaluated for impairmentAcquired with deteriorated credit qualityTotalIndividually evaluated for impairmentCollectively evaluated for impairmentTotal
Non-owner occupied commercial$— $2,871,950 $34,064 2,906,014 $753 $22,709 $23,462 
Owner occupied commercial12,041 1,202,919 31,229 1,246,189 983 5,713 6,696 
Multifamily— 1,254,412 6,402 1,260,814 9,420 9,425 
Non-owner occupied residential441 216,516 1,069 218,026 16 2,627 2,643 
Commercial, industrial and other2,806 594,568 9,337 606,711 2,150 6,686 8,836 
Construction980 379,120 — 380,100 — 2,968 2,968 
Equipment finance— 151,574 — 151,574 — 3,445 3,445 
Residential mortgage— 764,340 1,212 765,552 181 7,860 8,041 
Consumer— 330,920 150 331,070 4,745 4,748 
Total loans$16,268 $7,766,319 $83,463 $7,866,050 $4,091 $66,173 $70,264 
Allowance for Credit Losses - Securities
At March 31, 2023, the balance of the allowance for credit loss on available for sale and held to maturity securities was $160,000 and $157,000, respectively. At December 31, 2022, the Company reported an allowance for credit losses on available for sale securities of $310,000 and an allowance for credit losses on held to maturity securities of $107,000.
The allowance for credit losses on securities is summarized in the following tables:
Available for SaleFor the Three Months Ended March 31,
(in thousands)20232022
Balance at beginning of the period$310 $83 
Charge-offs$(6,640)$— 
Recoveries$— $— 
  Net charge-offs $(6,640)$— 
Provision for credit loss expense6,490 1,184 
Balance at end of the period$160 $1,267 
Held to MaturityFor the Three Months Ended March 31,
(in thousands)20232022
Balance at beginning of the period$107 $181 
Provision for credit loss expense50 18 
Balance at end of the period$157 $199 

The provision for credit loss expense for available for sale securities increased from $1.2 million in the first quarter of 2022 to $6.5 million in the first quarter of 2023 as a result of a $6.6 million provision and subsequent charge-off of subordinated debt securities of Signature Bank which failed in March 2023.
Accrued interest receivable on securities is reported as a component of accrued interest receivable on the consolidated balance sheets and totaled $9.1 million at March 31, 2023 and $8.7 million at December 31, 2022. The Company made the election to exclude accrued interest receivable from the estimate of credit losses on securities.
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Allowance for Credit Losses - Off-Balance-Sheet Exposures
The allowance for credit losses on off-balance sheet exposures is reported in other liabilities in the Consolidated Balance Sheets. The liability represents an estimate of expected credit losses arising from off-balance sheet exposures such as letters of credit, guarantees and unfunded loan commitments. The process for measuring lifetime expected credit losses on these exposures is consistent with that for loans as discussed above, but is subject to an additional estimate reflecting the likelihood that funding will occur. No liability is recognized for off balance sheet credit exposures that are unconditionally cancellable by the Company. Adjustments to the liability are reported as a component of the provision for credit losses.
At March 31, 2023 and December 31, 2022, the balance of the allowance for credit losses for off-balance sheet exposures was $3.1 million and $3.0 million, respectively. For the three months ended March 31, 2023 and three months ended March 31, 2022, the Company recorded a provision for credit losses on off-balance-sheet exposures of $140,000 and $440,000, respectively.
Note 7 – Leases
The Company leases certain premises and equipment under operating leases. Portions of certain properties are subleased for terms extending through 2046. At March 31, 2023, the Company had lease liabilities totaling $20.6 million and right-of-use assets totaling $19.3 million related to these leases. At December 31, 2022, the Company had lease liabilities totaling $21.4 million and right-of-use assets totaling $20.1 million. The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. The Company uses its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.
At March 31, 2023, the weighted average remaining lease term for operating leases was 8.16 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.15%. At December 31, 2022, the weighted average remaining lease term for operating leases was 8.23 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.13%.
As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. Lease costs were as follows:
For the Three Months Ended March 31,
(in thousands)20232022
Operating lease cost$1,190 $1,226 
Short-term lease cost— 10 
Variable lease cost15 17 
Sublease income(32)(30)
Net lease cost$1,173 $1,223 
The table below presents other information on the Company's operating leases for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
(in thousands)20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$1,113 $930 
Right-of-use assets obtained in exchange for new operating lease liabilities309 89 
There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the three months ended March 31, 2023 or March 31, 2022. At March 31, 2023, the Company had no leases that had not yet commenced.
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A maturity analysis of operating lease liabilities and a reconciliation of the undiscounted cash flows to the total operating lease liability at March 31, 2023 are as follows:
(in thousands)
Within one year$3,649 
After one year but within three years7,914 
After three years but within five years4,926 
After five years7,249 
Total undiscounted cash flows23,738 
Discount on cash flows(3,094)
Total operating lease liabilities$20,644 
Note 8 - Deposits
    The following table sets forth the details of total deposits:
(dollars in thousands)March 31, 2023December 31, 2022
Noninterest-bearing demand$1,998,590 23.4 %$2,113,289 24.7 %
Interest-bearing checking2,938,992 34.4 %3,079,249 35.9 %
Money market1,093,983 12.8 %1,192,353 13.9 %
Savings885,066 10.4 %974,403 11.4 %
Certificates of deposit $250 thousand and under1,233,856 14.5 %901,505 10.5 %
Certificates of deposit over $250 thousand386,456 4.5 %306,672 3.6 %
Total deposits$8,536,943 100.0 %$8,567,471 100.0 %
At March 31, 2023 and December 31, 2022, certificates of deposit obtained through brokers totaled $175.0 million and $33.1 million, respectively. Brokered deposits are included in the Consolidated Balance Sheets as certificates of deposit $250,000 and under.
Note 9 – Borrowings
Overnight and Short-Term Borrowings
At March 31, 2023, the Company had $775.0 million overnight and short-term borrowings from the FHLB and $700.0 million at December 31, 2022. In addition, Lakeland had $10.0 million overnight and short-term borrowings from correspondent banks at March 31, 2023 and and no overnight and short-term borrowings at December 31, 2022. At March 31, 2023, Lakeland had overnight and short-term federal funds lines available to borrow up to $240.0 million from correspondent banks. Lakeland may also borrow from the discount window or under the Bank Term Funding Program ("BTFP") of the Federal Reserve Bank of New York based on the fair value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of March 31, 2023 or December 31, 2022.
Also included in the balances at March 31, 2023 and December 31, 2022 were short-term securities sold under agreements to repurchase of $28.3 million and $28.8 million, respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. As of March 31, 2023, the Company had $22.9 million of mortgage-backed securities and $16.0 million of collateralized mortgage obligations pledged for its securities sold under agreements to repurchase.
At times, the fair 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.
FHLB Advances
The Company had one advance from the FHLB, which totaled $25.0 million at both March 31, 2023 and December 31, 2022, with a weighted average interest rate of 0.77% and a maturity date in 2025. The advance was collateralized by first mortgage loans and has prepayment penalties.
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Note 10 – Share-Based Compensation
The Company's 2018 Omnibus Equity Incentive Plan (the "Plan") authorizes the granting of incentive stock options, supplemental stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), other stock-based awards and cash-based awards to officers, employees and non-employee directors of, and consultants and advisors to, the Company and its subsidiaries.
Restricted Stock
The following is a summary of the Company’s restricted stock activity during the three months ended March 31, 2023:
Number of
Shares
Weighted
Average
Price
Outstanding, January 1, 202317,722 $19.74 
Granted18,520 17.95 
Vested(17,722)19.74 
Outstanding, March 31, 202318,520 $17.95 
In the first three months of 2023, the Company granted 18,520 shares of restricted stock to non-employee directors at a grant date fair value of $17.95 per share under the Plan. The restricted stock vests one year from the date it was granted. Compensation expense on this restricted stock is expected to be $332,000 over a one year period. In the first three months of 2022, the Company granted 17,722 shares of restricted stock to non-employee directors at a grant date fair value of $19.74 per share. The restricted stock vested one year from the date it was granted with a compensation expense of $350,000 over such period.
The Company recognized share-based compensation expense on its restricted stock of $83,000 and $87,000 for the first quarter of 2023 and 2022, respectively. As of March 31, 2023, there was unrecognized compensation cost of $249,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately 0.8 years.
Restricted Stock Units
The following is a summary of the Company’s RSU activity during the three months ended March 31, 2023:
Number of
Shares
Weighted
Average
Price
Outstanding, January 1, 2023589,420 $17.21 
Granted269,070 19.15 
Vested(219,695)16.27 
Forfeited(1,932)18.56 
Outstanding, March 31, 2023636,863 $18.35 
In the first three months of 2023, the Company granted 269,070 RSUs under the Plan at a weighted average grant date fair value of $19.15 per share. These units vest within a range of 2 to 3 years. A portion of these RSUs will vest subject to certain performance conditions in the applicable RSU 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 these RSUs is expected to average approximately $1.7 million per year over a three-year period. In the first three months of 2022, the Company granted 298,554 RSUs under the Plan at a weighted average grant date fair value of $18.07 per share. Compensation expense on these RSUs is expected to average approximately $1.8 million per year over a three-year period.
For the first quarter of 2023 and 2022, the Company recognized share-based compensation expense on RSUs of $1.6 million and $1.4 million. Unrecognized compensation expense related to RSUs was approximately $8.6 million as of March 31, 2023, and that cost is expected to be recognized over a period of 1.73 years.
Stock Options
At March 31, 2023 and December 31, 2022, there were no stock options outstanding under the Plan. There were no stock option grants in the first three months of 2023 or 2022. There were no stock options exercised during the first three months of 2023 or 2022.
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Note 11 – Revenue Recognition
The Company’s primary source of revenue is interest income generated from loans and investment securities. Interest income is recognized according to the terms of the financial instrument agreement over the life of the loan or investment security unless it is determined that the counterparty is unable to continue making interest payments. Interest income also includes prepaid interest fees from commercial customers, which approximates the interest foregone on the balance of the loan prepaid.
The Company’s additional source of income, also referred to as noninterest income, is generated from deposit related fees, interchange fees, loan fees, merchant fees, loan sales, investment services and other miscellaneous income and is largely based on contracts with customers. In these cases, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The Company considers a customer to be any party to which the Company will provide goods or services that are an output of the Company’s ordinary activities in exchange for consideration. There is little seasonality with regards to revenue from contracts with customers and all inter-company revenue is eliminated when the Company’s financial statements are consolidated.
Generally, the Company enters into contracts with customers that are short-term in nature where the performance obligations are fulfilled and payment is processed at the same time. Such examples include revenue related to merchant fees, interchange fees and investment services income. In addition, revenue generated from existing customer relationships such as deposit accounts are also considered short-term in nature, because the relationship may be terminated at any time and payment is processed at the time performance obligations are fulfilled. As a result, the Company does not have contract assets, contract liabilities or related receivable accounts for contracts with customers. In cases where collectability is a concern, the Company does not record revenue.
Generally, the pricing of transactions between the Company and each customer is either (i) established within a legally enforceable contract between the two parties, as is the case with loan sales, or (ii) disclosed to the customer at a specific point in time, as is the case when a deposit account is opened or before a new loan is underwritten. Fees are usually fixed at a specific amount or as a percentage of a transaction amount. No judgment or estimates by management are required to record revenue related to these transactions and pricing is clearly identified within these contracts.
The Company primarily operates in one geographic region, Northern and Central New Jersey and contiguous areas. Therefore, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.
We disaggregate our revenue from contracts with customers by contract-type and timing of revenue recognition, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Noninterest income not generated from customers during the Company’s ordinary activities primarily relates to income from bank owned life insurance, gains/losses on the sale of investment securities, gains/losses on the sale of other real estate owned, gains/losses on the sale of property, plant and equipment and mortgage servicing rights.
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The following table sets forth the components of noninterest income for the three months ended March 31, 2023 and 2022:
For the Three Months Ended March 31,
(in thousands)20232022
Deposit-Related Fees and Charges
Debit card interchange income$1,610 $1,572 
Overdraft charges840 769 
ATM service charges178 171 
Demand deposit fees and charges139 94 
Savings service charges22 20 
Total deposit-related fees and charges2,789 2,626 
Commissions and fees
Loan fees547 809 
Wire transfer charges432 457 
Investment services income429 405 
Merchant fees 291 251 
Commissions from sales of checks88 84 
Safe deposit income103 54 
Other income31 37 
Total commissions and fees1,921 2,097 
Gains on sales of loans held for sale430 1,426 
Other income
Gains on customer swap transactions56 — 
Title insurance income19 — 
Other income133 269 
Total other income208 269 
Revenue not from contracts with customers917 362 
Total Noninterest Income$6,265 $6,780 
Timing of Revenue Recognition:
Products and services transferred at a point in time5,348 6,418 
Revenue not from contracts with customers917 362 
Total Noninterest Income$6,265 $6,780 
Note 12 - Other Operating Expenses
The following table presents the major components of other operating expenses for the periods indicated:
For the Three Months Ended March 31,
(in thousands)20232022
Consulting and advisory board fees1,001 1,054 
ATM and debit card expense724 657 
Telecommunications expense657 582 
Marketing expense511 397 
Intangible asset amortization516 596 
Other operating expenses4,103 4,095 
Total other operating expenses$7,512 $7,381 
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Note 13 – Comprehensive Income (Loss)
The components of other comprehensive income (loss) are as follows:
For the Three Months Ended
 March 31, 2023March 31, 2022
(in thousands)Before
Tax Amount
Tax Benefit
(Expense)
Net of
Tax Amount
Before
Tax Amount
Tax BenefitNet of
Tax Amount
Unrealized gains (losses) on available for sale securities arising during the period$10,298 $(2,716)$7,582 $(41,964)$10,999 $(30,965)
Amortization of gain on debt securities reclassified to held to maturity from available for sale(172)46 (126)(176)41 (135)
Other comprehensive income (loss), net$10,126 $(2,670)$7,456 $(42,140)$11,040 $(31,100)
The following tables show the changes in the balances of each of the components of other comprehensive income (loss) for the periods presented, net of tax:
For the Three Months Ended March 31, 2023
(in thousands)Unrealized Gains
(Losses) on
Available for  Sale
Securities
Amortization of Gain on Debt Securities Reclassified to Held to MaturityTotal
Beginning balance$(76,729)$1,968 $(74,761)
Net current period other comprehensive income 7,582 (126)7,456 
Ending balance$(69,147)$1,842 $(67,305)
For the Three Months Ended March 31, 2022
(in thousands)Unrealized Gains
(Losses) on
Available for  Sale
Securities
Amortization of Gain on Debt Securities Reclassified to Held to MaturityTotal
Beginning balance$745 $2,519 $3,264 
Net current period other comprehensive loss(30,965)(135)(31,100)
Ending balance$(30,220)$2,384 $(27,836)
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Note 14 – Derivatives
Lakeland is a party to interest rate derivatives that are not designated as hedging instruments. Lakeland executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Lakeland executes with a third-party financial institution, such that Lakeland minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties. Lakeland had no investment securities available for sale pledged for collateral on its interest rate swaps with financial institutions at March 31, 2023 and December 31, 2022.
The following table presents summary information regarding these derivatives for the periods presented (dollars in thousands):
March 31, 2023Notional AmountAverage
Maturity (Years)
Weighted Average
Fixed Rate
Weighted Average
Variable Rate
Fair
 Value
Classified in Other Assets:
Third Party interest rate swaps$887,187 7.33.66 %
1 Mo. SOFR + 2.00
$77,078 
Third Party interest rate swaps48,237 1.23.40 %
1 Mo. LIBOR + 2.52
1,335 
Customer interest rate swaps78,914 8.15.41 %
1 Mo. SOFR + 1.88
2,312 
Classified in Other Liabilities:
Customer interest rate swaps$887,187 7.33.66 %
1 Mo. SOFR + 2.00
$(77,078)
Customer interest rate swaps48,237 1.23.40 %
1 Mo. LIBOR + 2.52
(1,335)
Third Party interest rate swaps78,914 8.15.41 %
1 Mo. SOFR + 1.88
(2,312)
December 31, 2022Notional
 Amount
Average
Maturity  (Years)
Weighted 
Average
Fixed Rate
Weighted Average
Variable Rate
Fair
 Value
Classified in Other Assets:
Third Party interest rate swaps$918,758 7.53.70 %
1 Mo. SOFR + 2.00
$94,800 
Third Party interest rate swaps48,497 1.53.40 %
1 Mo. LIBOR + 2.52
1,841 
Customer interest rate swaps51,864 8.55.60 %
1 Mo. SOFR + 1.95
1,207 
Classified in Other Liabilities:
Customer interest rate swaps $918,758 7.53.70 %
1 Mo. SOFR + 2.00
(94,800)
Customer interest rate swaps48,497 1.53.40 %
1 Mo. LIBOR + 2.52
(1,841)
Third party interest rate swaps51,864 8.55.60 %
1 Mo. SOFR + 1.95
(1,207)
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Note 15 – Goodwill and Other Intangible Assets
The Company had goodwill of $271.8 million at March 31, 2023 and December 31, 2022. The Company recorded $115.6 million in goodwill from the 1st Constitution merger in January 2022 as further described in Note 2 of the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The Company reviews its goodwill and intangible assets annually, on November 30, or more frequently if conditions warrant, for impairment. In testing goodwill for impairment, the Company compares the estimated fair value of its reporting unit to its carrying amount, including goodwill. The Company has determined that it has one reporting unit. During the three months ended March 31, 2023, there were no triggering events that would more likely than not reduce the fair value of our one reporting unit below its carrying amount. There was no impairment of goodwill recognized during the three months ended March 31, 2023 and 2022.
The Company had core deposit intangibles of $8.6 million and $9.1 million at March 31, 2023 and December 31, 2022, respectively. The Company recorded core deposit intangible of $9.0 million in connection with the 1st Constitution acquisition. Amortization of core deposit intangible totaled $516,000 and $596,000 for the first quarters of 2023 and 2022, respectively. The estimated future amortization expense for the remainder of 2023 and for each of the succeeding five years ended December 31 is as follows (in thousands):
For the Year Ended
2023$1,513 
20241,737 
20251,465 
20261,193 
2027955 
2028724 
Note 16 – Fair Value Measurement and Fair Value of Financial Instruments
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest level priority to unobservable inputs (level 3 measurements). The following describes the three levels of fair value hierarchy:
Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities; includes U.S. Treasury Notes, and other U.S. Government Agency securities that actively trade in over-the-counter markets; equity securities and mutual funds that actively trade in over-the-counter markets.
Level 2 – quoted prices for similar assets or liabilities in active markets; or quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability including yield curves, volatilities and prepayment speeds.
Level 3 – unobservable inputs for the asset or liability that reflect the Company’s own assumptions about assumptions that market participants would use in the pricing of the asset or liability and that are consequently not based on market activity but upon particular valuation techniques.
The Company’s assets that are measured at fair value on a recurring basis are its investment securities available for sale, equity securities and its interest rate swaps. The Company obtains fair values on its securities using information from a third-party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1 securities. The Company has U.S. Treasury Notes that are classified as Level 1 securities. Level 2 securities were primarily comprised of U.S. Agency bonds, residential mortgage-backed securities, obligations of state and political subdivisions and corporate securities. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the Company’s third-party pricing service. This review includes a comparison to non-binding third-party quotes.
The fair values of derivatives are based on valuation models 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).
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Recurring Fair Value Measurements
The following table sets forth the Company’s financial assets that were accounted for at fair value on a recurring basis as of the periods presented by level within the fair value hierarchy. During the three months ended March 31, 2023 and during 2022, 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:
March 31, 2023Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies$155,661 $192,758 $— $348,419 
Mortgage-backed securities, residential— 308,183 — 308,183 
Collateralized mortgage obligations, residential— 151,718 — 151,718 
Mortgage-backed securities, multifamily— 788 — 788 
Collateralized mortgage obligations, multifamily— 46,422 — 46,422 
Asset-backed securities— 49,249 — 49,249 
Obligations of states and political subdivisions— 21,290 — 21,290 
Corporate bonds— 103,058 — 103,058 
Total investment securities, available for sale155,661 873,466 — 1,029,127 
Equity securities— 17,496 — 17,496 
Derivative assets— 80,725 — 80,725 
Total Assets$155,661 $971,687 $— $1,127,348 
Liabilities:
Derivative liabilities$— $80,725 $— $80,725 
Total Liabilities$— $80,725 $— $80,725 
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December 31, 2022Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies$162,438 $193,201 $— $355,639 
Mortgage-backed securities, residential— 310,613 — 310,613 
Collateralized mortgage obligations, residential— 154,058 — 154,058 
Mortgage-backed securities, multifamily— 785 — 785 
Collateralized mortgage obligations, multifamily— 46,333 — 46,333 
Asset-backed securities— 52,395 — 52,395 
Obligations of states and political subdivisions— 21,122 — 21,122 
Corporate bonds— 113,367 — 113,367 
Total investment securities, available for sale162,438 891,874 — 1,054,312 
Equity securities— 17,283 — 17,283 
Derivative assets— 97,848 — 97,848 
Total Assets$162,438 $1,007,005 $— $1,169,443 
Liabilities:
Derivative liabilities$— $97,848 $— $97,848 
Total Liabilities$— $97,848 $— $97,848 
Non-Recurring Fair Value Measurements
The Company has a held for sale loan portfolio that consists of residential mortgages that are being sold in the secondary market. The Company records these mortgages at the lower of cost or fair value. Fair value is generally determined by the value of purchase commitments.
Loans that do not have similar risk characteristics to the segments reported must be individually evaluated to determine an appropriate allowance. Management has identified criteria and procedures for identifying whether a loan should be individually evaluated for calculation of expected credit losses. If a loan is identified as meeting any of the criteria, it is deemed to have risk characteristics that are unique and will be separated from a pool. Those loans that are considered to have unique risk characteristics are then subjected to an individual allowance evaluation using either the fair value of the collateral, less estimated costs to sell, if collateral-dependent or the discounted cash flow method.
Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure or deed in lieu of foreclosure, are carried at fair value less estimated disposal costs of the acquired property. Fair value on other real estate owned is based on the appraised value of the collateral using discount rates or capitalization rates similar to those used in impaired loan valuation. The fair value of other repossessed assets is estimated by inquiry through a recognized valuation resource. At March 31, 2023 and December 31, 2022, the Company had no OREO or other repossessed assets.
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 individually evaluated loans, OREO and other repossessed assets.
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The following table summarized the Company’s financial assets that are measured at fair value on a non-recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
(in thousands)(Level 1)(Level 2)(Level 3)Total
Fair Value
March 31, 2023
Assets:
Individually evaluated loans$— $— $2,484 $2,484 
December 31, 2022
Assets:
Individually evaluated loans$— $— $4,489 $4,489 
Fair Value of Certain Financial Instruments
Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instruments. Management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.
The estimation methodologies used, the estimated fair values and recorded book balances at March 31, 2023 and December 31, 2022, 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 purchased 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 is measured using information from the same third-party servicer used for investment securities available for sale using the same methodologies discussed above.
FHLB stock is an equity interest that can be sold to the issuing FHLB, to other FHLBs, or to other member banks at its par value. Because ownership of these securities is restricted, they do not have a readily determinable fair value. As such, the Company’s FHLB stock is recorded at cost or par value and is evaluated for impairment each reporting period by considering the ultimate recoverability of the investment rather than temporary declines in value. The Company’s evaluation primarily includes an evaluation of liquidity, capitalization, operating performance, commitments, and regulatory or legislative events.
The net loan portfolio has been valued using an exit price approach, which incorporates a buildup discount rate calculation that uses a swap rate adjusted for credit risk, servicing costs, a liquidity premium and a prepayment premium.
For fixed maturity certificates of deposit, fair value 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.
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The following table presents the carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments not carried at fair value as of March 31, 2023 and December 31, 2022:
March 31, 2023Carrying
Value
Fair
Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Financial Assets:
Investment securities, held to maturity
U.S. government agencies$10,968 $10,356 $— $10,356 $— 
Mortgage-backed securities, residential354,514 301,794 — 301,794 — 
Collateralized mortgage obligations, residential12,813 10,488 — 10,488 — 
Mortgage-backed securities, multifamily5,071 4,406 — 4,406 — 
Obligations of states and political subdivisions516,244 433,206 — 433,206 — 
Corporate bonds2,888 2,470 — 2,470 — 
Total investment securities, held to maturity$902,498 $762,720 $— $762,720 $— 
Federal Home Loan Bank and other membership bank stocks45,806 45,806 — 45,806 — 
Loans, net7,881,150 7,544,311 — — 7,544,311 
Financial Liabilities:
Certificates of deposit1,620,312 1,593,446 — 1,593,446 — 
Other borrowings25,000 23,291 — 23,291 — 
Subordinated debentures194,376 147,970 — — 147,970 
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December 31, 2021Carrying
Value
Fair
Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Financial Assets:
Investment securities, held to maturity
U.S. government agencies$11,099 $10,385 $— $10,385 $— 
Mortgage-backed securities, residential360,683 302,612 — 302,612 — 
Collateralized mortgage obligations, residential13,026 10,456 — 10,456 — 
Mortgage-backed securities, multifamily5,094 4,347 — 4,347 — 
Obligations of states and political subdivisions530,506 430,108 — 428,635 1,473 
Corporate bonds2,900 2,547 — 2,547 — 
Total investment securities, held to maturity923,308 760,455 — 758,982 1,473 
Federal Home Loan Bank and other membership bank stocks42,483 42,483 — 42,483 — 
Loans, net7,795,786 7,561,997 — — 7,561,997 
Financial Liabilities:
Certificates of deposit1,208,177 1,174,230 — 1,174,230 — 
Other borrowings25,000 23,001 — 23,001 — 
Subordinated debentures194,264 160,933 — — 160,933 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Note Regarding Forward Looking Statements
The information disclosed in this document includes various forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to credit quality (including delinquency trends and the allowance for credit losses), corporate objectives and other financial and business matters. The words “anticipates,” “projects,” “intends,” “estimates,” “expects,” “believes,” “plans,” “may,” “will,” “should,” “could” and other similar expressions are intended to identify such forward-looking statements. The Company cautions that these forward-looking statements are necessarily speculative and speak only as of the date made, and are subject to numerous assumptions, risks and uncertainties, all of which may change over time. Actual results could differ materially from such forward-looking statements. Accordingly, you should not put undue reliance on forward-looking statements.
In addition to the risk factors disclosed elsewhere in this document and in the Company's most recently filed Annual Report on Form 10-K, as updated by the Company's subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, the following factors, among others, could cause the Company’s actual results to differ materially and adversely from such forward-looking statements: changes in levels of inflation and market interest rates, which may affect demand for our products and the value of our financial instruments; pricing pressures on loan and deposit products; changes in the financial services industry and the U.S. and global capital markets; changes in economic conditions nationally, regionally and in the Company’s markets; the nature and timing of actions of the Federal Reserve Board and other regulators; the nature and timing of legislation affecting the financial services industry; changes in federal and state tax laws; government intervention in the U.S. financial system; credit risks of Lakeland’s lending activities; the effects of the recent turmoil in the banking industry (including the failures of three financial institutions); successful implementation, deployment and upgrades of new and existing technology, systems, services and products; customers’ acceptance of Lakeland’s products and services; and expenses related to our proposed merger with Provident Financial Services, Inc. ("Provident"), unexpected delays related to the merger, inability to obtain regulatory approvals or satisfy other closing conditions required to complete the merger, and failure to realize anticipated efficiencies and synergies from the merger.
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The above-listed risk factors are not exhaustive, particularly as to possible future events, and new risk factors may emerge from time to time. Certain events may occur that could cause the Company’s actual results to be materially different than those described in the Company’s periodic filings with the Securities and Exchange Commission. Any statements made by the Company that are not historical facts should be considered to be forward-looking statements. The Company is not obligated to update and does not undertake to update any of its forward-looking statements made herein.
Critical Accounting Policies, Judgments and Estimates
The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company, Lakeland and its subsidiaries, including Lakeland NJ Investment Corp., Lakeland Investment Corp., Lakeland Equity, Inc., Lakeland Preferred Equity, Inc., 1st Constitution Investment Company of New Jersey, Inc. and 1st Constitution Real Estate Corporation. All intercompany balances and transactions have been eliminated.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. There have been no material changes in the Company’s critical accounting policies, judgments and estimates, including assumptions or estimation techniques utilized, as compared to those disclosed in the Company’s most recent Annual Report on Form 10-K.
Executive Summary
During the first quarter of 2023, the banking industry experienced volatility with high-profile bank failures and industry-wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding confidence in the banking system. Despite industry concerns, the Company's liquidity position remains strong. The Company took a number of preemptive actions, which included pro-active outreach to clients and actions to maximize its funding sources in response to these recent developments, including increasing brokered time deposits by $141.9 million, and increasing collateralized lines of credit with the FHLB. We also increased our usage of the Insured Cash Sweep ("ICS") product, as a method to increase the level of our customers' deposit insurance. As of May 1, 2023, the Company's estimated uninsured and uncollateralized deposits are $2.1 billion and we have borrowing capacity of $2.1 billion compared to March 31, when the Company had uninsured deposits of $2.2 billion and borrowing capacity of $1.5 billion. Furthermore, the Company's capital ratios remain above levels considered by the regulators to be "well-capitalized" as of March 31, 2023. For more information, see "Liquidity" below.
On September 27, 2022, the Company and Provident announced that they had entered into a definitive merger agreement pursuant to which the companies will combine in an all-stock merger, then valued at approximately $1.3 billion. The merger proposes to combine two complementary banking platforms into a company that will have more than $25 billion in assets, $18 billion in total loans and $20 billion in total deposits. On February 1, 2023, the shareholders of both the Company and Provident approved the transaction. The merger is expected to close in the second quarter of 2023, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals.
Financial Overview
The Company reported net income of $19.8 million and earnings per diluted share ("EPS") of $0.30 for the three months ended March 31, 2023, compared to net income of $15.9 million and EPS of $0.25 for the three months ended March 31, 2022. Excluding non-recurring items, net income for the first three months of 2023 would have been $24.7 million, or $0.38 per share, compared to $19.5 million, or $0.30 per share, for the first three months of 2022. Please see "Non-GAAP financial Measures" below for further detail. For the first quarter of 2023, annualized return on average assets was 0.75%, annualized return on average common equity was 7.17% and annualized return on average tangible common equity was 9.57%. Excluding non-recurring items, annualized return on average assets was 0.94%, annualized return on average common equity was 8.96% and annualized return on average tangible common equity was 11.95%.
In the first quarter of 2023, the Company recorded a provision for credit losses of $7.9 million compared to $6.3 million in the first quarter of 2022.
Net interest margin was 3.07% in the first quarter of 2023 compared to 3.02% in the first quarter of 2022. The increase in net interest margin compared to the first quarter 2022 was due primarily to an increase in yields on loans and securities partially offset by an increase in yield on interest-bearing liabilities.
Total loans, net of deferred fees, grew $86.5 million, or 1%, to $7.95 billion during the first three months of 2023. Total deposits decreased $30.5 million to $8.54 billion during the first three months of 2023.
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Comparison of Operating Results for the Three Months Ended March 31, 2023 and 2022
Net Income
Net income was $19.8 million, or $0.30 per diluted share, for the first three months of 2023 compared to net income of $15.9 million, or $0.25 per diluted share, for the first three months of 2022. Net income increased primarily as a result of a reduction in merger related expenses which totaled $4.6 million in the first quarter of 2022 resulting from the acquisition of 1st Constitution Bancorp compared to $295,000 in the first quarter of 2023 resulting from the anticipated merger with Provident Financial.
Net interest income on a tax equivalent basis for the first three months of 2023 was $76.4 million, compared to $70.7 million for the first three months of 2022. The increase in net interest income was due primarily to an increase in yields on interest-earning assets partially offset by an increase in the cost of interest-bearing deposits. The net interest margin of 3.07% in the first three months of 2023 increased from 3.02% for the same period in 2022, primarily due to the increase in the yield on interest-earning assets. The components of net interest income are discussed in greater detail below.
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The following table reflects the components of the Company’s net interest income, setting forth for the periods presented, (1) average assets, liabilities and stockholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) the Company’s net interest spread (i.e., the average yield on interest-earning assets less the average cost of interest-bearing liabilities) and (5) the Company’s net interest margin. Rates for the three months ended March 31, 2023 and March 31, 2022 are computed on a tax equivalent basis using a tax rate of 21%.
For the Three Months Ended March 31, 2023For the Three Months Ended March 31, 2022
(dollars in thousands)Average
Balance
Interest
Income/
Expense
Average
Rates
Earned/
Paid
Average
Balance
Interest
Income/
Expense
Average
Rates
Earned/
Paid
ASSETS
Interest-earning assets:
Loans (1)$7,900,426 $100,481 5.10 %$7,021,462 $67,809 3.92 %
Taxable investment securities and other1,771,565 11,554 2.61 %1,674,562 6,709 1.60 %
Tax-exempt securities345,511 2,078 2.41 %345,016 1,648 1.91 %
Federal funds sold (2)73,839 728 4.00 %463,247 182 0.16 %
Total interest-earning assets
10,091,341 114,841 4.56 %9,504,287 76,348 3.25 %
Noninterest-earning assets:
Allowance for credit losses(71,292)(70,032)
Other assets
678,758 704,182 
TOTAL ASSETS
$10,698,807 $10,138,437 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings accounts$928,796 $652 0.28 %$1,131,359 $484 0.17 %
Interest-bearing transaction accounts4,224,024 19,259 1.85 %4,399,531 2,665 0.25 %
Time deposits1,385,661 9,247 2.71 %879,427 890 0.40 %
Federal funds purchased589,056 7,101 4.82 %— — — %
Securities sold under agreements to repurchase28,555 121 1.70 %104,633 20 0.08 %
Long-term borrowings219,308 2,100 3.83 %217,983 1,555 2.85 %
Total interest-bearing liabilities
7,375,400 38,480 2.11 %6,732,933 5,614 0.34 %
Noninterest-bearing liabilities:
Demand deposits2,040,070 2,194,038 
Other liabilities162,981 115,553 
Stockholders' equity1,120,356 1,095,913 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$10,698,807 $10,138,437 
Net interest income/spread
76,361 2.45 %70,734 2.92 %
Tax equivalent basis adjustment
436 346 
NET INTEREST INCOME$75,925 $70,388 
Net interest margin (3)3.07 %3.02 %

(1)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.
(2)Includes interest-bearing cash accounts.
(3)Net interest income divided by interest-earning assets.
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On a tax equivalent basis, interest income increased $38.5 million, or 50%, from $76.3 million in the three months ended March 31, 2022, to $114.8 million in the same period of 2023. The increase in interest income was primarily due to an increase in the yields of interest-earning assets. Average loans increased $879.0 million compared to the first three months of 2022 which also increased interest income. The yield on average loans of 5.10% in the three months ended March 31, 2023, was 118 basis points higher than the same period in 2022 due to the rising interest rate environment. Average taxable and tax-exempt investment securities increased $97.0 million and $495,000, respectively, for the first three months of 2023 compared to the same period in 2022 due to purchases of securities. The yield on average taxable investment securities increased 101 basis points, while the yield on average tax-exempt investment securities increased 50 basis points. Average federal funds sold decreased $389.4 million in the first three months of 2023 compared to the same period in 2022, while the yield on federal funds sold increased 384 basis points. Average federal funds sold decreased from the same period last year to help fund the increase in loans discussed above.
Total interest expense of $38.5 million in the first three months of 2023 was $32.9 million greater than the interest expense reported for the same period in 2022. Total average interest-bearing liabilities increased $642.5 million, while the cost of average interest-bearing liabilities increased from 0.34% in the three months ended March 31, 2022 to 2.11% in the first three months of 2023. Rates paid increased in all categories of interest-bearing deposits due to the rising interest rate environment. The cost of borrowings and time deposits increased by 250 basis points and 231 basis points, respectively. Additionally, higher costing average borrowings and time deposits balances increased $514.3 million and $506.2 million, respectively. Average time deposits as a percent of interest-bearing liabilities increased from 13% in the three months ended March 31, 2022 to 19% in the three months ended March 31, 2023. Federal funds purchased, which includes overnight borrowings from the Federal Home Loan Bank of New York, averaged $589.1 million, or 8%, of total interest-bearing liabilities during the three months ended March 31, 2023, compared to no federal funds purchased in the three months ended March 31, 2022. Time deposits and borrowings typically have a higher rate than savings and interest-bearing transaction accounts.
Provision for Credit Losses
In the three months ended March 31, 2023, the Company recorded a $7.9 million provision for credit losses compared to a $6.3 million provision for the same period last year. As of March 31, 2023, the provision was comprised of a provision for credit losses on loans of $1.2 million, a provision for credit losses on securities of $6.5 million and a provision for off-balance-sheet exposures of $140,000. The provision for credit losses on loans in the three months ended March 31, 2022 was comprised of a provision for credit losses on loans of $4.6 million, a provision for credit losses on securities of $1.2 million and a provision for off-balance-sheet exposures of $440,000. The decrease in the provision recorded for loans and off-balance-sheet exposures in the first quarter of 2023 was due primarily to the increased provision in the first quarter of 2022 recorded for non-PCD loans acquired in the 1st Constitution merger. The provision for credit losses on securities during the first three months of 2023 was primarily due to a $6.6 million provision and subsequent charge-off of subordinated debt securities of a failed financial institution. Charge-offs totaled $6.8 million (including $6.6 million in the aforementioned investment security) and recoveries totaled $65,000 in the first three months of 2023 compared to $7.8 million in charge-offs and $162,000 in recoveries in the first three months of 2022. For more information regarding the determination of the provision, see “Risk Elements” below.
Noninterest Income
The Company recorded noninterest income of $6.3 million in the three months ended March 31, 2023, a decrease of $515,000 from $6.8 million in the same period in 2022 due primarily to a $996,000 decrease in gains on sales of loans. Commissions and fees decreased $181,000 due primarily to a decrease in loan fees. Partially offsetting these unfavorable balances was gains on equity securities which totaled $148,000 in the first quarter of 2023 compared to losses of $485,000 in the three months ended March 31, 2022. Additionally, service charges on deposit accounts increased $163,000 compared to the first three months of 2022 due to an increase in overdraft fee income.
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Noninterest Expense
Noninterest expense in the three months ended March 31, 2023 and 2022 totaled $48.6 million and $50.0 million, respectively, decreasing $1.4 million from the same period last year. The decrease in noninterest expense was primarily due to merger-related expenses which totaled $295,000 in the first quarter of 2023 compared to $4.6 million during the first quarter of 2022. Merger-related expenses during the current quarter was a result of the anticipated merger with Provident Financial, while merger-related expenses for the first quarter of 2022 was due to the acquisition of 1st Constitution Bancorp. Compensation and employee benefits increased $2.3 million resulting primarily from increased commissions, bonus expense, share based compensation expense and normal merit increases. FDIC insurance expense increased $291,000 due to an estimated increase in 2023 assessment rates related to Lakeland's asset size exceeding $10 billion. Other operating expenses in the first quarter of 2023 increased $131,000 compared to the same period in 2022 due primarily to increased marketing expense. The Company’s efficiency ratio, a non-GAAP financial measure, was 57.84% in the first three months of 2023, compared to 57.77% for the same period in 2022. The Company uses this ratio because it believes that the ratio provides a good comparison of period-to-period performance and because the ratio is widely accepted in the banking industry.
The following table shows the calculation of the efficiency ratio for the periods presented:
 Three Months Ended March 31,
(dollars in thousands)20232022
Total noninterest expense$48,605 $49,959 
Less:
Amortization of core deposit intangibles516 596 
Merger-related expenses295 4,585 
Noninterest expense, as adjusted$47,794 $44,778 
Net interest income$75,925 $70,388 
Noninterest income6,265 6,780 
Total revenue82,190 77,168 
Tax-equivalent adjustment on municipal securities436 346 
Less:
Gains on sales of investment securities— — 
Total revenue, as adjusted$82,626 $77,514 
Efficiency ratio57.84 %57.77 %
Income Tax Expense
The effective tax rate in the first three months of 2023 was 22.9% compared to 23.9% during the same period last year due primarily to tax-advantaged items increasing as a percentage of pretax income.
Financial Condition
The Company’s total assets increased $53.4 million from December 31, 2022, to $10.84 billion at March 31, 2023. Total loans, net of deferred fees, were $7.95 billion, an increase of $86.5 million, or 1% from $7.87 billion at December 31, 2022. Total deposits were $8.54 billion, a decrease of $30.5 million from December 31, 2022, while total borrowings increased $84.6 million to $1.03 billion at March 31, 2023.
Loans
Lakeland primarily serves New Jersey, the Hudson Valley region in New York and the surrounding areas. Its equipment finance division serves a broader market with a primary focus on the Northeast United States. Total loans, net of deferred fees, totaled $7.95 billion at March 31, 2023, an increase of $86.5 million as compared to December 31, 2022. Loan balances increased from December 31, 2022 in residential mortgages by $91.9 million, or 12%, offset by declines in commercial, industrial and other loans of $44.0 million or 7%. For more information on the loan portfolio, see Note 5 in Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Risk Elements
Commercial loans are placed on a non-accrual status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrower, they are maintained on a cash basis (which means payments are applied when and as received rather than on a regularly scheduled basis), (b) payment of all contractual principal
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and interest is not expected, or (c) principal and interest have been in default for a period of 90 days or more unless the obligation is both well-secured and in process of collection. Residential mortgage loans and closed-end consumer loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more, except where there exists sufficient collateral to cover the defaulted principal and interest payments, and the loans are well-secured and in the process of collection. Open-end consumer loans secured by real estate are generally placed on non-accrual status and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection. Interest thereafter on such charged-off consumer loans is taken into income when received only after full recovery of principal. As a general rule, a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid and satisfactory payments have been received for a sustained period (usually six months), or when it otherwise becomes well-secured and in the process of collection.
Non-performing assets, including non-accrual PCD loans, decreased $484,000 from $17.4 million at December 31, 2022 to $16.9 million at March 31, 2023. Owner occupied commercial non-accrual loans and commercial, industrial and other loans decreased $682,000 and $757,000, respectively, due to principal paydowns. The impact of these principal paydowns was partially offset by the addition of a multifamily non-accrual loan of $584,000. Non-accrual loans at March 31, 2023 included three loan relationships with a balance of $1 million or greater, totaling $10.3 million and three loan relationships between $500,000 and $1.0 million, totaling $2.4 million. At March 31, 2023 and December 31, 2022 there were no loans that were past due more than 89 days and still accruing.
During the three months ended March 31, 2023, the Company adopted Accounting Standards Update 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02"). Among other things, ASU 2022-02 eliminates the recognition and measurement guidance of TDRs so that creditors will apply the same guidance to all modifications when determining whether a modification results in a new receivable or continuation of an existing receivable. ASU 2022-02 requires vintage disclosures of gross charge-offs as shown in the vintage disclosure contained in Note 5 in Notes to the Financial Statements contained in this Quarterly Report on Form 10-Q. It also replaces the disclosure of TDRs with the disclosure of modifications of receivables to debtors experiencing financial difficulty.
During the three months ended March 31, 2023, there were no loan modifications that met the definition of a modification to a debtor experiencing financial difficulty. At December 31, 2022, TDRs totaled $2.6 million, all of which were accruing. There were no loans that were restructured during the three months ended March 31, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted in the three months ended March 31, 2023 and 2022.
At March 31, 2023 and December 31, 2022, the Company had $68.0 million and $63.5 million, respectively, of loans that were rated substandard that were not classified as non-performing. There were no loans at March 31, 2023, other than those designated non-performing or substandard, where the Company was aware of any credit conditions of any borrowers or obligors that would indicate a strong possibility of the borrowers not complying with present terms and conditions of repayment and which may result in such loans being included as non-accrual, past due or renegotiated at a future date.
Allowance for Credit Losses on Loans
The Company accounts for the allowance for credit losses using Accounting Standards Update ("ASU") 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires the measurement of expected credit losses for financial assets measured at amortized cost, including loans and certain off-balance-sheet credit exposures. Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation.
The overall balance of the allowance for credit losses on loans of $71.4 million at March 31, 2023 increased $1.1 million from December 31, 2022, an increase of 2%.

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As of and for the Three Months Ended March 31,
As of and for the Year Ended
(dollars in thousands)20232022December 31, 2022
Allowance for credit losses on loans to total loans outstanding0.90 %0.94 %0.89 %
Allowance for credit losses on loans$71,403 $67,112 $70,264 
Total loans outstanding7,952,553 7,137,793 7,866,050 
Non-accrual loans to total loans outstanding0.21 %0.28 %0.22 %
Non-accrual loans$16,878 $19,740 $17,362 
Total loans outstanding7,952,553 7,137,793 7,866,050 
Allowance for credit losses on loans to non-accrual loans423.05 %339.98 %404.70 %
Allowance for credit losses on loans$71,403 $67,112 $70,264 
Non-accrual loans16,878 19,740 17,362 
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As of and for the Three Months Ended March 31,
As of and for the Year Ended
(dollars in thousands)20232022December 31, 2022
Net charge-offs (recoveries) during the period to average loans outstanding:
Non-owner occupied commercial— %— %— %
Net charge-offs during the period$— $$— 
Average amount outstanding2,922,664 2,751,934 2,798,805 
Owner occupied commercial— %0.01 %(0.03)%
Net recoveries during the period$— $24 $(313)
Average amount outstanding1,234,056 1,012,050 1,120,776 
Multifamily— %— %— %
Net charge-offs during the period$— $— $— 
Average amount outstanding1,278,138 1,028,108 1,138,937 
Non owner occupied residential— %(0.03)%(0.01)%
Net (recoveries) charge-offs during the period$— $(14)$(14)
Average amount outstanding214,975 200,107 215,342 
Commercial, industrial and other(0.02)%0.46 %0.15 %
Net charge-offs (recoveries) during the period$(35)$778 $977 
Average amount outstanding562,161 675,920 644,329 
Construction— %6.60 %1.74 %
Net charge-offs (recoveries) during the period$— $6,804 $6,804 
Average amount outstanding391,806 412,520 391,253 
Equipment finance0.12 %0.27 %0.05 %
Net charge-offs during the period$46 $82 $70 
Average amount outstanding155,029 123,428 132,384 
Residential mortgage— %(0.04)%(0.01)%
Net recoveries during the period$— $(48)$(48)
Average amount outstanding811,347 522,526 624,492 
Consumer0.08 %0.02 %0.02 %
Net charge-offs (recoveries) during the period$63 $12 $72 
Average amount outstanding329,642 289,551 308,368 
Total loans — %0.44 %0.10 %
Net charge-offs during the period$74 $7,642 $7,548 
Average amount outstanding7,899,818 7,016,144 7,374,686 
Non-accrual loans of $16.9 million at March 31, 2023 decreased $484,000 from December 31, 2022. The allowance for credit losses as a percent of total loans was 0.90% at March 31, 2023 compared to 0.89% at December 31, 2022. The decrease in net charge-offs as a percent of average loans resulted from charge-offs of PCD loans from the 1st Constitution acquisition in the first three months of 2022.
Management believes, based on appraisals and estimated selling costs, that the majority of the Company's non-performing loans are adequately secured and that reserves on its non-performing loans are adequate. Based upon the process employed and giving recognition to all accompanying factors related to the loan portfolio, management considers the allowance for credit losses to be adequate at March 31, 2023.
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Net charge-offs as a percentage of average loans outstanding was 0.00% and 0.44% for the three months ended March 31, 2023 and 2022, respectively, with the change predominately related to 1st Constitution PCD loans charged off in the first quarter of 2022.
Investment Securities
Investment securities decreased $46.0 million in the three months ended March 31, 2023 to $1.93 billion at March 31, 2023 compared to $1.98 billion at December 31, 2022. For detailed information on the composition and maturity distribution of the Company’s investment securities portfolio, see Note 4 in Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.
Deposits
Total deposits decreased from $8.57 billion at December 31, 2022 to $8.54 billion at March 31, 2023, a decrease of $30.5 million. Savings and interest-bearing transaction accounts decreased $328.0 million, or 6%, while total time deposits increased $412.1 million, or 34% as depositors moved funds to higher yielding non-core products. Included in the time deposit increase was an increase in brokered deposits of $141.9 million. Noninterest-bearing deposits also decreased $114.7 million, during the three months ended March 31, 2023 to $2.0 billion. The Company tracks its uninsured deposits (i.e., deposit relationships that exceeded the $250,000 FDIC insurance limit) and deposits that are not collateralized by loans or investment securities. As of March 31, 2023, the Company had $3.8 billion in uninsured deposits, $2.2 billion of which were not collateralized. Uninsured and uncollateralized deposits as a percent of total deposits were 25.26% at March 31, 2023 compared to 26.81% at December 31, 2022.
Liquidity
“Liquidity” measures whether an entity has sufficient cash flow to meet its financial obligations and commitments on a timely basis. The Company is liquid when its subsidiary bank has the cash available to meet the borrowing and cash withdrawal requirements of customers and the Company can pay for current and planned expenditures and satisfy its debt obligations.
Lakeland funds loan demand and operation expenses from several sources:
Net income. Cash provided by operating activities was $36.8 million for the first three months of 2023 compared to $29.3 million for the same period in 2022.
Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits.
Sales of investment securities. At March 31, 2023 the Company had $1.03 billion in securities designated “available for sale.” Of these securities, $938.3 million were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
Principal repayments on loans.
Credit lines. As a member of the FHLB, Lakeland has the ability to borrow overnight based on the fair value of collateral pledged. Lakeland had $775.0 million of overnight borrowings from the FHLB on March 31, 2023. Lakeland had remaining availability of $974.1 million for borrowing at the FHLB on March 31, 2023. Lakeland also has overnight federal funds lines available for it to borrow up to $250.0 million, of which $10 million was outstanding at March 31, 2023. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York or through the Bank Term Funding Program (the"BTFP"). In the first quarter of 2023, the BTFP was created to make additional funding available for eligible depository institutions to help assure that banks have the ability to meet the needs of their depositors. Lakeland has the ability to borrow from the Federal Reserve both from the discount window and through the BTFP program up to the value of collateral pledged. As of March 31, 2023, Lakeland had availability to borrow up to $267.0 million from the Federal Reserve, although it has no present intention to do so. Lakeland had no borrowings with the Federal Reserve Bank of New York as of March 31, 2023.
Other borrowings. Lakeland can also generate funds by utilizing long-term debt or securities sold under agreements to repurchase that would be collateralized by security or mortgage collateral. At times, the fair value 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.
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Management and the Board monitor the Company’s liquidity through the Asset/Liability Committee, which monitors the Company’s compliance with certain regulatory ratios and other various liquidity guidelines. Management is closely monitoring changes in liquidity needs. The Company has increased collateral and expanded access to additional borrowings should it be necessary in order to meet liquidity needs. While we are unable to predict actual fluctuations in deposit or cash balances, management continues to monitor liquidity and believes that its current level of liquidity is sufficient to meet its current and future operational needs.
The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain an adequate level of liquidity. A discussion of the cash flow statement for the three months ended March 31, 2023 follows.
Cash and cash equivalents totaling $274.9 million on March 31, 2023 increased $39.0 million from December 31, 2022. Operating activities provided $36.8 million in net cash. Investing activities used $40.8 million in net cash, primarily due to loan funding of $85.1 million, partially offset by proceeds from repayments and maturities of investments securities of $47.7 million. Financing activities provided $43.1 million in net cash primarily due to increases of $84.5 million in federal funds purchased and securities sold under agreements to repurchase, partially offset by a $30.5 million decrease in deposits and dividends paid of $9.5 million. The Company anticipates that it will have sufficient funds available to meet its current loan commitments and deposit maturities.
The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of March 31, 2023. Interest on subordinated debentures and long-term borrowed funds is calculated based on current contractual interest rates.
(in thousands)TotalWithin
One Year
After One
But Within
Three Years
After Three
But Within
Five Years
After
Five Years
Minimum annual rentals on noncancellable operating leases
$23,738 $3,649 $7,914 $4,926 $7,249 
Benefit plan commitments4,026 395 745 745 2,141 
Remaining contractual maturities of time deposits
1,620,312 1,175,449 435,237 9,626 — 
Subordinated debentures194,376 — — — 194,376 
Loan commitments1,643,138 1,172,632 190,399 47,697 232,410 
Other borrowings25,000 — 25,000 — — 
Interest on other borrowings (1)80,285 8,153 16,048 15,899 40,185 
Standby letters of credit32,702 29,681 1,666 1,355 — 
Total$3,623,577 $2,389,959 $677,009 $80,248 $476,361 
(1) Includes interest on other borrowings and subordinated debentures at a weighted rate of 3.71%.    
Capital Resources
Total stockholders’ equity increased to $1.13 billion on March 31, 2023 from $1.11 billion on December 31, 2022, an increase of $18.0 million. Book value per common share increased to $17.33 on March 31, 2023 from $17.09 on December 31, 2022. Tangible book value per share increased from $12.76 per share on December 31, 2022 to $13.01 per share on March 31, 2023. Please see “Non-GAAP Financial Measures” below. The increase in stockholders’ equity from December 31, 2022 to March 31, 2023 was due in part to $19.8 million of net income and a reduction in other comprehensive loss of $7.5 million partially offset by the payment of cash dividends on common stock of $9.5 million.
The Company and Lakeland are subject to various regulatory capital requirements that are monitored by federal banking agencies. Failure to meet minimum capital requirements can lead to certain supervisory actions by regulators; any supervisory action could have a direct material adverse effect on the Company or Lakeland or their financial statements. The Company and Lakeland Bank include in their Common Tier 1 Capital ("CET1") common stock and related surplus, and retained earnings net of treasury stock. In connection with the adoption of the Basel III Capital Rules, we elected to opt out of the requirement to include components of accumulated other comprehensive income/loss in CET1. As of March 31, 2023, the Company and Lakeland met all capital adequacy requirements to which they are subject.     
As of March 31, 2023, the Company’s capital levels remained characterized as “well-capitalized.”
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The capital ratios for the Company and Lakeland Bank for the periods presented are as follows: 
 Tier 1 Capital to Total
Average Assets Ratio
Common Equity Tier 1 to
Risk-Weighted Assets
Ratio
Tier 1 Capital to Risk-
Weighted Assets Ratio
Total Capital to Risk-
Weighted Assets Ratio
March 31, 2023December 31, 2022March 31, 2023December 31, 2022March 31, 2023December 31, 2022March 31, 2023December 31, 2022
The Company9.13 %9.16 %10.81 %10.71 %11.33 %11.24 %13.93 %13.83 %
Lakeland Bank9.95 %10.03 %12.36 %12.31 %12.36 %12.31 %13.21 %13.15 %
Required capital ratios including conservation buffer4.00 %4.00 %7.00 %7.00 %8.50 %8.50 %10.50 %10.50 %
“Well capitalized” institution under FDIC Regulations5.00 %5.00%6.50 %6.50%8.00 %8.00%10.00 %10.00%
Non-GAAP Financial Measures
Reported amounts are presented in accordance with U.S. GAAP. The Company’s management uses certain supplemental non-GAAP information in its analysis of the Company’s financial results. Specifically, the Company provides measurements and ratios based on tangible equity and tangible assets. These measures are utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors.
The Company also provides measures based on what it believes are its operating earnings on a consistent basis, and excludes material non-routine operating items which affect the GAAP reporting of results of operations. The Company’s management believes that providing this information to analysts and investors allows them to better understand and evaluate the Company’s core financial results for the periods in question.
These disclosures should not be viewed as a substitute for financial results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.
(dollars in thousands, except share and per share amounts)March 31, 2023December 31, 2022
Calculation of Tangible Book Value per Common Share
Total common stockholders’ equity at end of period - GAAP$1,126,580 $1,108,587 
Less:
Goodwill271,829 271,829 
Other identifiable intangible assets, net8,572 9,088 
Total tangible common stockholders’ equity at end of period - Non-GAAP$846,179 $827,670 
Shares outstanding at end of period65,017 64,872 
Book value per share - GAAP$17.33 $17.09 
Tangible book value per share - Non-GAAP$13.01 $12.76 
Calculation of Tangible Common Equity to Tangible Assets
Total tangible common stockholders’ equity at end of period - Non-GAAP$846,179 $827,670 
Total assets at end of period$10,837,241 $10,783,840 
Less:
Goodwill271,829 271,829 
Other identifiable intangible assets, net8,572 9,088 
Total tangible assets at end of period - Non-GAAP$10,556,840 $10,502,923 
Common equity to assets - GAAP10.40 %10.28 %
Tangible common equity to tangible assets - Non-GAAP8.02 %7.88 %
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 For the Three Months Ended March 31,
(dollars in thousands)20232022
Calculation of Return on Average Tangible Common Equity
Net income - GAAP$19,805 $15,929 
Total average common stockholders’ equity
$1,120,356 $1,095,913 
Less:
Average goodwill271,829 265,409 
Average other identifiable intangible assets, net
8,904 10,851 
Total average tangible common stockholders’ equity - Non-GAAP
$839,623 $819,653 
Return on average common stockholders’ equity - GAAP
7.17 %5.89 %
Return on average tangible common stockholders’ equity - Non-GAAP
9.57 %7.88 %


For the Three Months Ended March 31
(Dollars in thousands, except per share amounts)20232022
Calculation of EPS excluding non-routine transactions
Net income - GAAP$19,805 $15,929 
Non-Routine Transactions:
Charge-off of investment security, net of tax4,642 — 
Tax deductible merger-related expenses3,435 
Tax effect on tax deductible merger-related expenses(1)(1,033)
Non-tax deductible merger-related expenses290 1,149 
  Effect of non-routine transactions, net of tax$4,936 $3,551 
Net income available to common shareholders excluding non-routine transactions$24,741 $19,480 
Less: Earnings allocated to participating securities196 164 
Net Income, excluding non-routine transactions$24,545 $19,316 
Weighted average shares - Basic64,966 63,961 
Weighted average shares - Diluted65,228 64,238 
Basic earnings per share - GAAP$0.30 $0.25 
Diluted earnings per share - GAAP$0.30 $0.25 
Basic earnings per share, adjusted for non-routine transactions$0.38 $0.30 
Diluted earnings per share, adjusted for non-routine transactions$0.38 $0.30 
Calculation of return on average assets excluding non-routine transactions
Net Income, excluding non-routine transactions$24,741 $19,480 
Average assets10,698,807 10,138,437 
Return on average assets - GAAP0.75 %0.64 %
Return on average assets, adjusted for non-routine transactions0.94 %0.78 %
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For the Three Months Ended September 30,
(Dollars in thousands)20222021
Calculation of return on average equity excluding non-routine transactions
Net Income, excluding non-routine transactions$24,741 $19,480 
Total average common stockholders' equity1,120,356 1,095,913 
Return on average common stockholders' equity - GAAP7.17 %5.89 %
Return on average common stockholders' equity, adjusted for non-routine transactions8.96 %7.21 %
Calculation of return on average tangible common equity excluding non-routine transactions
Net Income, excluding non-routine transactions$24,741 $19,480 
Total average tangible common stockholders' equity - Non-GAAP839,623 819,653 
Return on average tangible common stockholders' equity - Non-GAAP9.57 %7.88 %
Return on average tangible common stockholders' equity - Non-GAAP, adjusted for non-routine transactions11.95 %9.64 %

Recent Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board ("FASB") issued Update 2022-03, "Fair Value Measurement (Topic 820)" ("ASU 2022-03"). The guidance clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibits the sale of an equity security, amends a related illustrative example, and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. This ASU will be effective for financial statements issued by public business entities for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company does not expect ASU 2022-03 to have a material impact on the Company's financial statements.
In March 2022, FASB issued Update 2022-02, "Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures" ("ASU 2022-02"). The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. The Company adopted ASU 2022-02 in the first quarter of 2023. The adoption of this standard has not had a material impact on the consolidated financial statements. For more information, see Note 5 to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.
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In October 2021, FASB issued Update 2021-08, an update to Topic 805, Business Combinations. The update provides guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment provides specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this ASU apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations - Overall. This ASU will be effective for financial statements issued by public business entities for fiscal years and interim periods beginning after December 15, 2022. The Company does not expect the ASU to have a material impact on the Company's financial statements.
In March 2020, FASB issued Update 2020-04, an update to Topic 848, Reference Rate Reform. The update provides guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The update provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met and only applies to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In addition, the update provides optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification for contracts that are modified because of reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. The ASU allows companies to apply the standard as of the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Company is currently assessing the impact to its financial statements; however, the impact is not expected to be material.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company manages interest rate risk and market risk by identifying and quantifying interest rate risk exposures using simulation analysis and economic value at risk models. Net interest income simulation considers the relative sensitivities of the balance sheet including the effects of interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the probability of interest rate changes and the behavioral response of the balance sheet to those changes. Market Value of Portfolio Equity represents the fair value of the net present value of assets, liabilities and off-balance-sheet items. Changes in estimates and assumptions made for interest rate sensitivity modeling could have a significant impact on projected results and conclusions. These assumptions could include prepayment rates, sensitivity of non-maturity deposits and other similar assumptions. Therefore, if our assumptions should change, this technique may not accurately reflect the impact of general interest rate movements on the Company’s net interest income or net portfolio value.
The starting point (or “base case”) for the following table is an estimate of the following year’s net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at period-end levels. The net interest income estimated for this purpose for the next twelve months (the base case) is $296.7 million. The information provided for net interest income assumes that changes in interest rates change gradually in equal increments (“rate ramp”) over the twelve month period.
 Changes in Interest Rates
Rate Ramp+200 bp-200 bp
Asset/Liability Policy limit(5.0)%(5.0)%
March 31, 2023(2.5)%1.7 %
December 31, 2022(2.0)%1.1 %
The Company’s review of interest rate risk includes policy limits for net interest income changes in various “rate shock” scenarios. Rate shocks assume that current interest rates change immediately. The information provided for net interest income assumes fluctuations or “rate shocks” for changes in interest rates as shown in the table below.
 Changes in Interest Rates
Rate Shock+400 bp+300 bp+200 bp+100 bp-100 bp-200 bp-300 bp-400 bp
Asset/Liability Policy limit(25.0)%(20.0)%(15.0)%(10.0)%(10.0)%(15.0)%(20.0)%(25.0)%
March 31, 2023(9.2)%(7.1)%(4.9)%(2.2)%1.5 %2.0 %1.1 %0.7 %
December 31, 2022(7.1)%(5.4)%(3.8)%(1.6)%0.7 %0.4 %(1.0)%(1.7)%
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The base case for the following table is an estimate of the Company’s net portfolio value for the periods presented using current discount rates, and assuming the Company’s interest-sensitive assets and liabilities remain at period-end levels. The net portfolio value at March 31, 2023 (the base case) was $1.77 billion. The information provided for the net portfolio value assumes fluctuations or “rate shocks” for changes in interest rates as shown in the table below. Rate shocks assume that current interest rates change immediately.
 Changes in Interest Rates
Rate Shock+400 bp+300 bp+200 bp+100 bp-100 bp-200 bp-300 bp-400 bp
Asset/Liability Policy limit(35.0)%(25.0)%(20.0)%(10.0)%(10.0)%(20.0)%(25.0)%(35.0)%
March 31, 2023(16.1)%(12.2)%(8.1)%(3.6)%2.4 %3.2 %1.3 %(6.0)%
December 31, 2022(13.8)%(10.3)%(6.6)%(2.9)%1.9 %1.9 %(0.5)%(6.0)%
The information set forth in the above tables and the net interest income estimate set forth above are based on significant estimates and assumptions, and constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. For more information regarding the Company’s market risk and assumptions used in the Company’s simulation models, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.
Item 4.  Controls and Procedures
(a)Disclosure controls and procedures. As of the end of the Company’s most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and are operating in an effective manner and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b)Changes in internal controls over financial reporting. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.   Legal Proceedings
Litigation related to the merger with Provident has been filed against the Company consisting of the following actions: Stein v. Lakeland Bancorp, Inc. et al., Case No. 1:22-cv-09946, filed in the U.S. District Court for the Southern District of New York (“S.D.N.Y.”) on November 22, 2022; O’Dell v. Lakeland Bancorp, Inc. et al., Case No. 1:22-cv-09980, filed in the S.D.N.Y. on November 23, 2022; Bushansky v. Lakeland Bancorp, Inc. et al., Case No. 2:22-cv-07131, filed in the U.S. District Court for the District of New Jersey (“D.N.J.”) on December 7, 2022; Kaplan v. Lakeland Bancorp, Inc. et al., Case No. 2:22-cv-07193, filed in the D.N.J. on December 8, 2022; and Reinhardt v. Lakeland Bancorp, Inc. et al., Case No. 1:23-cv-00113, filed in the S.D.N.Y. on January 6, 2023. The complaints in the Stein, O’Dell, Bushansky, Kaplan and Reinhardt actions are brought by alleged Lakeland shareholders and assert claims against the Company and the members of its board of directors and allege, among other things, that the defendants caused a materially incomplete and misleading registration statement relating to the proposed merger to be filed with the SEC in violation of Section 14(a) and Section 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder. The Company disputes and believes it has meritorious defenses against these claims and plans to vigorously defend itself; however, the outcome of any litigation is uncertain.
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There are no pending legal proceedings involving the Company or Lakeland other than those relating to the merger with Provident or those arising in the normal course of business. Management does not anticipate that the potential liability, if any, arising out of such legal proceedings will have a material effect on the financial condition or results of operations of the Company and Lakeland on a consolidated basis.
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Item 1A.   Risk Factors
There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, except as described below.
Recent industry events may have an impact on the Company and its common stock.
Recent events impacting the financial services industry, including the failures of First Republic Bank, Silicon Valley Bank and Signature Bank, have resulted in decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a possible recession. These recent events have adversely impacted and could continue to adversely impact the market price and volatility of the Company's common stock.
These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. Inability to access short-term funding, loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. We may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause substantial and cascading disruption within the financial markets and increased expenses. The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.
Lawmakers’ Failure to Address the Federal Debt Ceiling in a Timely Manner, Downgrades of the U.S. Credit Rating and Uncertain Credit and Financial Market Conditions May Affect the Stability of Securities Issued or Guaranteed by the Federal Government, which May Affect the Valuation or Liquidity of our Investment Securities Portfolio and Increase Future Borrowing Costs.

As a result of uncertain political, credit and financial market conditions, including the potential consequences of the federal government defaulting on its obligations for a period of time due to federal debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose credit default and liquidity risks. Given that future deterioration in the United States credit and financial markets is a possibility, no assurance can be made that losses or significant deterioration in the fair value of our U.S. government issued or guaranteed investments will not occur. At March 31, 2023, we had approximately $155.7 million, $203.7 million and $879.5 million invested in U.S. Treasury securities, U.S. government agency securities, and residential mortgage-backed securities issued or guaranteed by government-sponsored enterprises, respectively. Downgrades to the U.S. credit rating could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until U.S. political, credit and financial market conditions have been sufficiently resolved or stabilized, it may increase our future borrowing costs.
    
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information regarding shares of our common stock repurchased during the first quarter of 2023.
PeriodTotal Number of Shares (or Units) Purchased (1)Weighted Average Price Paid per Share (or Unit)Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Number of shares at December 31, 20222,393,423
January 1 to January 31, 2023— $— — 2,393,423
February 1 to February 28, 2023— — — 2,393,423
March 1 to March 31, 2023— — — 2,393,423
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(1)On October 24, 2019, the Company announced that its Board of Directors authorized a new share repurchase program. Under the repurchase program, the Company may repurchase up to 2,524,458 shares of its common stock, or approximately 5% of its outstanding shares of common stock at September 30, 2019. Repurchases may be made from time to time through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of the Company and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and the Company's financial performance. The share repurchase program has no expiration date.
Item 3.   Defaults Upon Senior SecuritiesNot Applicable
Item 4.   Mine Safety DisclosuresNot Applicable
Item 5.   Other InformationNot applicable
Item 6.   Exhibits
2.1
3.1
3.2
4.1
4.2
4.3
31.1
31.2
32.1
101.INSInline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document)
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Lakeland Bancorp, Inc.
(Registrant)
/s/ Thomas J. Shara
Thomas J. Shara
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas F. Splaine
Thomas F. Splaine
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 9, 2023

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