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 class	Trading Symbol	Name of exchange on which registered
Common Stock, no par value	LBAI	The 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
	Part I. Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 (unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 4.	Controls and Procedures	52

	Part II. Other Information

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	55

Signatures		56

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets


	March 31, 2023		December 31, 2022
(dollars in thousands)	(unaudited)

Assets
Cash	$	261,261	$	223,299
Interest-bearing deposits due from banks	13,681		12,651
Total cash and cash equivalents	274,942		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 value	17,496		17,283
Federal Home Loan Bank and other membership bank stock, at cost	45,806		42,483
Loans held for sale	—		536
Loans, net of deferred fees	7,952,553		7,866,050
Less: Allowance for credit losses	71,403		70,264
Total loans, net	7,881,150		7,795,786
Premises and equipment, net	55,556		55,429
Operating lease right-of-use assets	19,329		20,052
Accrued interest receivable	34,220		33,374
Goodwill	271,829		271,829
Other intangible assets	8,572		9,088
Bank owned life insurance	157,761		156,985
Other assets	138,955		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 repurchase	813,328		728,797
Other borrowings	25,000		25,000
Subordinated debentures	194,376		194,264
Operating lease liabilities	20,644		21,449
Other liabilities	120,370		138,272
Total Liabilities	9,710,661		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 earnings	339,680		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' Equity	1,126,580		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)		2023		2022
Interest Income
Loans and fees		$	100,481	$	67,809
Federal funds sold and interest-bearing deposits with banks		728		182
Taxable investment securities and other		11,554		6,709
Tax-exempt investment securities		1,642		1,302
Total Interest Income		114,405		76,002
Interest Expense
Deposits		29,158		4,039
Federal funds purchased and securities sold under agreements to repurchase		7,222		20
Other borrowings		2,100		1,555
Total Interest Expense		38,480		5,614
Net Interest Income		75,925		70,388
Provision for credit losses		7,893		6,272
Net Interest Income after Provision for Credit Losses		68,032		64,116
Noninterest Income
Service charges on deposit accounts		2,789		2,626
Commissions and fees		1,925		2,106
Income on bank owned life insurance		776		830
Gain (loss) on equity securities		148		(485)
Gains on sales of loans held for sale		430		1,426

Swap income		56		—
Other income		141		277
Total Noninterest Income		6,265		6,780
Noninterest Expense
Compensation and employee benefits		29,996		27,679
Premises and equipment		7,977		7,972
FDIC insurance expense		963		672
Data processing expense		1,862		1,670
Merger-related expenses		295		4,585
Other expenses		7,512		7,381
Total Noninterest Expense		48,605		49,959
Income before provision for income taxes		25,692		20,937
Provision for income taxes		5,887		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)		2023		2022

Net income		$	19,805	$	15,929
Other comprehensive gains (loss), net of tax:
Unrealized gains (losses) on securities available for sale		7,582		(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 Stock		Accumulated 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 acquisition	285,742		—		—		—		285,742
Stock based compensation	1,439		—		—		—		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 compensation	1,725		—		—		—		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)	2023		2022
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 costs	1,287		1,271
Depreciation and amortization	1,011		1,665
Amortization of intangible assets	516		596
Amortization of operating lease right-of-use assets	1,032		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 sale	11,307		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	—		3
Loss on sale of asset	41		—


Stock-based compensation	1,725		1,439

Excess tax benefits	138		79
Decrease (increase) in other assets	22,861		(1,860)
Decrease in other liabilities	(19,156)		(1,379)
Net Cash Provided by Operating Activities	36,761		29,340
Cash Flows from Investing Activities:
Net cash acquired in acquisitions	—		326,236
Proceeds from repayments and maturities of available for sale securities	28,151		41,454
Proceeds from repayments and maturities of held to maturity securities	19,579		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 stock	48,022		—
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 assets	1,919		8
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 repurchase	84,531		(3,542)






Retirement of restricted stock	(1,493)		(933)
Dividends paid	(9,500)		(8,809)
Net Cash Provided by Financing Activities	43,067		119,373
Net increase in cash and cash equivalents	38,992		193,139
Cash and cash equivalents, beginning of period	235,950		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)	2023		2022
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 interest	37,444		6,969





Right-of-use assets obtained in exchange for new lease liabilities	309		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)		2023		2022
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		64,966		63,961
Share-based plans		262		277
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 Losses		Fair Value
U.S. Treasury and U.S. government agencies	$	372,114	$	95	$	(23,790)	$	—	$	348,419
Mortgage-backed securities, residential	344,792		6		(36,615)		—		308,183
Collateralized mortgage obligations, residential	165,787		—		(14,069)		—		151,718
Mortgage-backed securities, multifamily	994		—		(206)		—		788
Collateralized mortgage obligations, multifamily	50,692		—		(4,270)		—		46,422
Asset-backed securities	50,826		—		(1,577)		—		49,249
Obligations of states and political subdivisions	21,993		—		(701)		(2)		21,290
Corporate bonds	115,703		—		(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 Losses		Fair Value
U.S. Treasury and U.S. government agencies	$	383,958	$	100	$	(28,419)	$	—	$	355,639
Mortgage-backed securities, residential	351,355		6		(40,748)		—		310,613
Collateralized mortgage obligations, residential	170,502		—		(16,444)		—		154,058
Mortgage-backed securities, multifamily	1,000		—		(215)		—		785
Collateralized mortgage obligations, multifamily	51,108		—		(4,775)		—		46,333
Asset-backed securities	54,105		—		(1,710)		—		52,395
Obligations of states and political subdivisions	22,112		—		(989)		(1)		21,122
Corporate bonds	124,394		—		(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 Losses		Fair Value
U.S. government agencies	$	10,968	$	10	$	(622)	$	—	$	10,356
Mortgage-backed securities, residential	354,514		123		(52,843)		—		301,794
Collateralized mortgage obligations, residential	12,813		—		(2,325)		—		10,488
Mortgage-backed securities, multifamily	5,071		—		(665)		—		4,406

Obligations of states and political subdivisions	516,289		4		(83,042)		(45)		433,206
Corporate bonds	3,000		—		(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 Losses		Fair Value
U.S. government agencies	$	11,099	$	11	$	(725)	$	—	$	10,385
Mortgage-backed securities, residential	360,683		57		(58,128)		—		302,612
Collateralized mortgage obligations, residential	13,026		—		(2,570)		—		10,456
Mortgage-backed securities, multifamily	5,094		—		(747)		—		4,347

Obligations of states and political subdivisions	530,513		2		(100,400)		(7)		430,108
Corporate bonds	3,000		—		(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 Sale				Held 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 years	250,381		235,641		33,746		32,297
Due after five years through ten years	155,291		139,130		77,738		68,421
Due after ten years	61,862		56,351		363,846		290,602
	509,810		472,767		530,257		446,032
Mortgage-backed and asset-backed securities	613,091		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, 2023	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized 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, residential	5,635		315		301,414		36,300		134	307,049		36,615
Collateralized mortgage obligations, residential	16,300		503		135,417		13,566		104	151,717		14,069
Mortgage-backed securities, multifamily	—		—		788		206		1	788		206
Collateralized mortgage obligations, multifamily	10,716		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 bonds	32,800		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	3	$	9,115	$	622
Mortgage-backed securities, residential	20,853		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	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		1	2,582		418
Total	$	70,038	$	1,026	$	680,671	$	138,889	568	$	750,709	$	139,915


December 31, 2022	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized 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, residential	127,363		12,399		182,079		28,349		135	309,442		40,748
Collateralized mortgage obligations, residential	66,316		3,958		87,742		12,486		104	154,058		16,444
Mortgage-backed securities, multifamily	—		—		786		215		1	786		215
Collateralized mortgage obligations, multifamily	37,407		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 bonds	88,489		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	3	$	9,083	$	725
Mortgage-backed securities, residential	$	32,549	$	2,275	$	264,035	$	55,853	182	$	296,584	$	58,128
Collateralized mortgage obligations, residential	4,668		516		5,787		2,054		12	10,455		2,570

Collateralized mortgage obligations, multifamily	2,671		376		1,676		371		4	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		1	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, residential	354,514		—		—		—		—		354,514
Collateralized mortgage obligations, residential	12,813		—		—		—		—		12,813
Mortgage-backed securities, multifamily	5,071		—		—		—		—		5,071

Obligations of states and political subdivisions	154,133		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, residential	360,683		—		—		—		—		360,683
Collateralized mortgage obligations, residential	13,026		—		—		—		—		13,026
Mortgage-backed securities, multifamily	5,094		—		—		—		—		5,094

Obligations of states and political subdivisions	156,661		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, 2023		December 31, 2022
Non-owner occupied commercial	$	2,943,897	$	2,906,014
Owner occupied commercial	1,205,635		1,246,189
Multifamily	1,275,771		1,260,814
Non-owner occupied residential	210,203		218,026
Commercial, industrial and other	562,677		606,711
Construction	404,994		380,100
Equipment finance	161,889		151,574
Residential mortgage	857,427		765,552
Home equity and consumer	330,060		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)	2023		2022		2021		2020		2019		Pre-2019		Revolving Loans		Revolving to Term	Total
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
Total	76,797		674,965		385,422		517,152		295,171		977,977		16,413		—	2,943,897
Owner occupied commercial
Pass	9,281		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
Total	9,281		265,266		212,991		177,958		91,618		433,583		14,601		337	1,205,635
Multifamily
Pass	42,496		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
Total	42,496		304,211		225,750		277,757		69,976		354,496		1,085		—	1,275,771
Non-owner occupied residential
Pass	1,516		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
Total	1,516		36,575		29,077		20,250		26,320		91,089		5,376		—	210,203



Commercial, industrial and other
Pass	5,943		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
Total	5,943		49,434		48,554		26,325		43,256		57,958		330,745		462	562,677





Construction
Pass	9,154		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
Total	9,154		103,408		183,544		37,270		32,093		18,268		21,257		—	404,994








Equipment finance
Pass	22,953		71,381		32,882		17,975		13,314		3,000		—		—	161,505


Substandard	—		100		91		55		109		29		—		—	384
Total	22,953		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)	2023		2022		2021		2020		2019		Pre-2019		Revolving Loans		Revolving to Term		Total

Residential mortgage
Pass	104,154		319,686		165,213		109,090		34,879		122,487		—		—		855,509


Substandard	—		—		—		—		471		1,447		—		—		1,918
Total	104,154		319,686		165,213		109,090		35,350		123,934		—		—		857,427




Consumer
Pass	5,440		44,471		30,291		8,383		3,966		22,741		213,637		—		328,929


Substandard	—		—		—		—		—		768		31		332		1,131
Total	5,440		44,471		30,291		8,383		3,966		23,509		213,668		332		330,060
Current YTD period:
Gross charge-offs	65		6		6		—		1		—		—		—		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-offs	65		6		67		—		1		—		—		—		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)	2022		2021		2020		2019		2018		Pre-2018		Revolving Loans		Revolving to Term		Total
Non-owner occupied commercial
Pass	$	673,235	$	391,748	$	495,618	$	271,109	$	183,971	$	703,852	$	19,317	2,502		$	2,741,352
Watch	1,272		—		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
Total	674,507		391,748		517,832		298,845		211,789		789,474		19,317		2,502		2,906,014
Owner occupied commercial
Pass	267,754		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 mention	585		17,778		5,749		1,862		3,701		20,292		—		—		49,967
Substandard	—		97		8,876		1,899		475		9,831		—		—		21,178
Total	268,339		216,006		209,116		92,624		70,485		376,216		13,403		—		1,246,189
Multifamily
Pass	312,910		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 mention	500		—		2,421		—		—		11,274		—		—		14,195
Substandard	—		—		—		3,864		—		6,526		—		—		10,390
Total	313,410		227,123		279,300		70,936		95,432		269,325		5,288		—		1,260,814






Non-owner occupied residential
Pass	37,445		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
Total	37,445		29,365		22,133		26,780		19,311		75,383		7,588		21		218,026







Commercial, industrial and other
Pass	48,719		51,894		27,644		57,124		13,936		39,892		339,040		245		578,494
Watch	251		704		237		211		—		1,424		10,001		—		12,828
Special mention	375		258		—		179		36		378		4,878		—		6,104
Substandard	776		242		—		450		4,722		183		2,912		—		9,285
Total	50,121		53,098		27,881		57,964		18,694		41,877		356,831		245		606,711






Construction
Pass	79,420		172,849		35,295		31,447		7,245		4,005		19,294		—		349,555
Watch	1,159		5,480		10,299		—		—		—		171		—		17,109

Substandard	—		95		—		—		—		13,341		—		—		13,436
Total	80,579		178,424		45,594		31,447		7,245		17,346		19,465		—		380,100






Equipment finance
Pass	74,840		36,087		20,382		15,738		3,862		546		—		—		151,455


Substandard	—		—		—		97		22		—		—		—		119
Total	74,840		36,087		20,382		15,835		3,884		546		—		—		151,574







Residential mortgage
Pass	323,636		167,791		110,199		35,180		20,218		106,391		—		—		763,415


Substandard	—		—		—		490		341		1,306		—		—		2,137
Total	323,636		167,791		110,199		35,670		20,559		107,697		—		—		765,552








Consumer
Pass	47,282		31,368		8,658		4,143		3,093		21,482		213,857		—		329,883


Substandard	33		—		—		—		23		853		278		—		1,187
Total	47,315		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, 2023			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,943,274	$	—	$	—	$	623	$	623	$	2,943,897
Owner occupied commercial	1,197,244		1,288		—		7,103		8,391		1,205,635
Multifamily	1,275,187		—		—		584		584		1,275,771
Non-owner occupied residential	210,186		—		17		—		17		210,203
Commercial, industrial and other	560,510		—		—		2,167		2,167		562,677
Construction	404,014		—		—		980		980		404,994
Equipment finance	160,504		946		408		31		1,385		161,889
Residential mortgage	852,974		3,395		—		1,058		4,453		857,427
Consumer	328,326		1,066		273		395		1,734		330,060
Total	$	7,932,219	$	6,695	$	698	$	12,941	$	20,334	$	7,952,553


December 31, 2022			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,905,049	$	346	$	—	$	619	$	965	$	2,906,014
Owner occupied commercial	1,235,134		2,854		477		7,724		11,055		1,246,189
Multifamily	1,260,135		—		679		—		679		1,260,814
Non-owner occupied residential	217,407		178		—		441		619		218,026
Commercial, industrial and other	603,731		55		3		2,922		2,980		606,711
Construction	379,120		—		—		980		980		380,100
Equipment finance	150,842		494		238		—		732		151,574
Residential mortgage	760,638		3,031		271		1,612		4,914		765,552
Consumer	330,119		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-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans > 89 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	908	$	—	$	—	$	—
Owner occupied commercial	8,757		—		—		8,482
Multifamily	584		—		—		—
Non-owner occupied residential	—		—		—		—
Commercial, industrial and other	2,221		—		—		—
Construction	980		—		—		980
Equipment finance	379		—		—		—
Residential mortgage	1,918		—		—		—
Consumer	1,131		—		—		72
Total	$	16,878	$	—	$	—	$	9,534


December 31, 2022
(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans > 89 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	618	$	—	$	—	$	—
Owner occupied commercial	9,439		—		—		8,859

Non-owner occupied residential	441		—		—		440
Commercial, industrial and other	2,978		—		—		—
Construction	980		—		—		980
Equipment finance	114		—		—		—
Residential mortgage	2,011		—		—		—
Consumer	781		—		—		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)		2023		2022
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)
Recoveries		65		162
Net charge-offs		(74)		(7,642)
Provision for credit loss - loans		1,213		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-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at March 31, 2023
Non-owner occupied commercial	$	23,462	$	—	$	—	$	819	$	24,281
Owner occupied commercial	6,696		—		—		(638)		6,058
Multifamily	9,425		—		—		(415)		9,010
Non-owner occupied residential	2,643		—		—		(50)		2,593
Commercial, industrial and other	8,836		—		35		(760)		8,111
Construction	2,968		—		—		137		3,105
Equipment finance	3,445		(61)		15		1,049		4,448
Residential mortgage	8,041		—		—		903		8,944
Consumer	4,748		(78)		15		168		4,853
Total	$	70,264	$	(139)	$	65	$	1,213	$	71,403


(in thousands)	Balance at December 31, 2021		Initial allowance for credit losses on PCD loans		Charge-offs		Recoveries		(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 commercial	3,964		1,137		(34)		10		1,048		6,125
Multifamily	8,309		4		—		—		(13)		8,300
Non owner occupied residential	2,380		175		—		14		339		2,908
Commercial, industrial and other	9,891		2,413		(823)		45		148		11,674
Construction	838		6,843		(6,807)		3		850		1,727
Equipment finance	3,663		—		(97)		15		(1,122)		2,459
Residential mortgage	3,914		179		—		48		1,545		5,686
Consumer	5,017		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, 2023	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Acquired with deteriorated credit quality		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Non-owner occupied commercial	$	—	$	2,910,091	$	33,806	$	2,943,897	$	749	$	23,532	$	24,281
Owner occupied commercial	8,297		1,167,784		29,554		1,205,635		811		5,247		6,058
Multifamily	—		1,269,415		6,356		1,275,771		5		9,005		9,010
Non-owner occupied residential	523		208,629		1,051		210,203		15		2,578		2,593
Commercial, industrial and other	2,027		551,333		9,317		562,677		1,669		6,442		8,111
Construction	980		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, 2022	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Acquired with deteriorated credit quality		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Non-owner occupied commercial	$	—	$	2,871,950	$	34,064	2,906,014		$	753	$	22,709	$	23,462
Owner occupied commercial	12,041		1,202,919		31,229		1,246,189		983		5,713		6,696
Multifamily	—		1,254,412		6,402		1,260,814		5		9,420		9,425
Non-owner occupied residential	441		216,516		1,069		218,026		16		2,627		2,643
Commercial, industrial and other	2,806		594,568		9,337		606,711		2,150		6,686		8,836
Construction	980		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		3		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 Sale	For the Three Months Ended March 31,
(in thousands)	2023		2022
Balance at beginning of the period	$	310	$	83

Charge-offs	$	(6,640)	$	—
Recoveries	$	—	$	—
Net charge-offs	$	(6,640)	$	—
Provision for credit loss expense	6,490		1,184
Balance at end of the period	$	160	$	1,267


Held to Maturity	For the Three Months Ended March 31,
(in thousands)	2023		2022
Balance at beginning of the period	$	107	$	181




Provision for credit loss expense	50		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)		2023		2022
Operating lease cost		$	1,190	$	1,226
Short-term lease cost		—		10
Variable lease cost		15		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)	2023		2022
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 liabilities	309		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 years	7,914
After three years but within five years	4,926
After five years	7,249
Total undiscounted cash flows	23,738
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, 2023				December 31, 2022

Noninterest-bearing demand	$	1,998,590	23.4	%	$	2,113,289	24.7	%
Interest-bearing checking	2,938,992		34.4	%	3,079,249		35.9	%
Money market	1,093,983		12.8	%	1,192,353		13.9	%
Savings	885,066		10.4	%	974,403		11.4	%
Certificates of deposit $250 thousand and under	1,233,856		14.5	%	901,505		10.5	%
Certificates of deposit over $250 thousand	386,456		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, 2023	17,722	$	19.74
Granted	18,520	17.95
Vested	(17,722)	19.74

Outstanding, March 31, 2023	18,520	$	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, 2023	589,420	$	17.21
Granted	269,070	19.15
Vested	(219,695)	16.27
Forfeited	(1,932)	18.56
Outstanding, March 31, 2023	636,863	$	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)		2023		2022

Deposit-Related Fees and Charges
Debit card interchange income		$	1,610	$	1,572
Overdraft charges		840		769
ATM service charges		178		171
Demand deposit fees and charges		139		94
Savings service charges		22		20
Total deposit-related fees and charges		2,789		2,626
Commissions and fees
Loan fees		547		809
Wire transfer charges		432		457
Investment services income		429		405
Merchant fees		291		251
Commissions from sales of checks		88		84
Safe deposit income		103		54
Other income		31		37
Total commissions and fees		1,921		2,097
Gains on sales of loans held for sale		430		1,426
Other income
Gains on customer swap transactions		56		—
Title insurance income		19		—
Other income		133		269
Total other income		208		269
Revenue not from contracts with customers		917		362
Total Noninterest Income		$	6,265	$	6,780
Timing of Revenue Recognition:
Products and services transferred at a point in time		5,348		6,418

Revenue not from contracts with customers		917		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)		2023		2022
Consulting and advisory board fees		1,001		1,054
ATM and debit card expense		724		657
Telecommunications expense		657		582
Marketing expense		511		397
Intangible asset amortization		516		596



Other operating expenses		4,103		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, 2023						March 31, 2022
(in thousands)	Before Tax Amount		Tax Benefit (Expense)		Net of Tax Amount		Before Tax Amount		Tax Benefit		Net 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 Maturity		Total
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 Maturity		Total
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, 2023	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:
Third Party interest rate swaps	$	887,187	7.3	3.66	%	1 Mo. SOFR + 2.00	$	77,078
Third Party interest rate swaps	48,237		1.2	3.40	%	1 Mo. LIBOR + 2.52	1,335
Customer interest rate swaps	78,914		8.1	5.41	%	1 Mo. SOFR + 1.88	2,312

Classified in Other Liabilities:
Customer interest rate swaps	$	887,187	7.3	3.66	%	1 Mo. SOFR + 2.00	$	(77,078)
Customer interest rate swaps	48,237		1.2	3.40	%	1 Mo. LIBOR + 2.52	(1,335)
Third Party interest rate swaps	78,914		8.1	5.41	%	1 Mo. SOFR + 1.88	(2,312)


December 31, 2022	Notional 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	7.5	3.70	%	1 Mo. SOFR + 2.00	$	94,800
Third Party interest rate swaps	48,497		1.5	3.40	%	1 Mo. LIBOR + 2.52	1,841
Customer interest rate swaps	51,864		8.5	5.60	%	1 Mo. SOFR + 1.95	1,207

Classified in Other Liabilities:
Customer interest rate swaps	$	918,758	7.5	3.70	%	1 Mo. SOFR + 2.00	(94,800)
Customer interest rate swaps	48,497		1.5	3.40	%	1 Mo. LIBOR + 2.52	(1,841)
Third party interest rate swaps	51,864		8.5	5.60	%	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
2024	1,737
2025	1,465
2026	1,193
2027	955
2028	724

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, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	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 sale	155,661		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, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	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 sale	162,438		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, 2023	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Investment securities, held to maturity
U.S. government agencies	$	10,968	$	10,356	$	—	$	10,356	$	—
Mortgage-backed securities, residential	354,514		301,794		—		301,794		—
Collateralized mortgage obligations, residential	12,813		10,488		—		10,488		—
Mortgage-backed securities, multifamily	5,071		4,406		—		4,406		—

Obligations of states and political subdivisions	516,244		433,206		—		433,206		—
Corporate bonds	2,888		2,470		—		2,470		—
Total investment securities, held to maturity	$	902,498	$	762,720	$	—	$	762,720	$	—
Federal Home Loan Bank and other membership bank stocks	45,806		45,806		—		45,806		—
Loans, net	7,881,150		7,544,311		—		—		7,544,311
Financial Liabilities:
Certificates of deposit	1,620,312		1,593,446		—		1,593,446		—
Other borrowings	25,000		23,291		—		23,291		—
Subordinated debentures	194,376		147,970		—		—		147,970

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December 31, 2021	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Investment securities, held to maturity
U.S. government agencies	$	11,099	$	10,385	$	—	$	10,385	$	—
Mortgage-backed securities, residential	360,683		302,612		—		302,612		—
Collateralized mortgage obligations, residential	13,026		10,456		—		10,456		—
Mortgage-backed securities, multifamily	5,094		4,347		—		4,347		—

Obligations of states and political subdivisions	530,506		430,108		—		428,635		1,473
Corporate bonds	2,900		2,547		—		2,547		—
Total investment securities, held to maturity	923,308		760,455		—		758,982		1,473
Federal Home Loan Bank and other membership bank stocks	42,483		42,483		—		42,483		—
Loans, net	7,795,786		7,561,997		—		—		7,561,997
Financial Liabilities:
Certificates of deposit	1,208,177		1,174,230		—		1,174,230		—
Other borrowings	25,000		23,001		—		23,001		—
Subordinated debentures	194,264		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, 2023						For 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 other	1,771,565		11,554		2.61	%	1,674,562		6,709		1.60	%
Tax-exempt securities	345,511		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 accounts	4,224,024		19,259		1.85	%	4,399,531		2,665		0.25	%
Time deposits	1,385,661		9,247		2.71	%	879,427		890		0.40	%
Federal funds purchased	589,056		7,101		4.82	%	—		—		—	%
Securities sold under agreements to repurchase	28,555		121		1.70	%	104,633		20		0.08	%
Long-term borrowings	219,308		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 deposits	2,040,070						2,194,038
Other liabilities	162,981						115,553
Stockholders' equity	1,120,356						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)	2023			2022

Total noninterest expense	$	48,605		$	49,959
Less:
Amortization of core deposit intangibles	516			596
Merger-related expenses	295			4,585


Noninterest expense, as adjusted	$	47,794		$	44,778

Net interest income	$	75,925		$	70,388
Noninterest income	6,265			6,780
Total revenue	82,190			77,168
Tax-equivalent adjustment on municipal securities	436			346
Less:
Gains on sales of investment securities	—			—
Total revenue, as adjusted	$	82,626		$	77,514
Efficiency ratio	57.84		%	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)	2023			2022			December 31, 2022

Allowance for credit losses on loans to total loans outstanding	0.90		%	0.94		%	0.89		%
Allowance for credit losses on loans	$	71,403		$	67,112		$	70,264
Total loans outstanding	7,952,553			7,137,793			7,866,050

Non-accrual loans to total loans outstanding	0.21		%	0.28		%	0.22		%
Non-accrual loans	$	16,878		$	19,740		$	17,362
Total loans outstanding	7,952,553			7,137,793			7,866,050

Allowance for credit losses on loans to non-accrual loans	423.05		%	339.98		%	404.70		%
Allowance for credit losses on loans	$	71,403		$	67,112		$	70,264
Non-accrual loans	16,878			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)	2023			2022			December 31, 2022
Net charge-offs (recoveries) during the period to average loans outstanding:
Non-owner occupied commercial	—		%	—		%	—		%
Net charge-offs during the period	$	—		$	4		$	—
Average amount outstanding	2,922,664			2,751,934			2,798,805

Owner occupied commercial	—		%	0.01		%	(0.03)		%
Net recoveries during the period	$	—		$	24		$	(313)
Average amount outstanding	1,234,056			1,012,050			1,120,776

Multifamily	—		%	—		%	—		%
Net charge-offs during the period	$	—		$	—		$	—
Average amount outstanding	1,278,138			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 outstanding	214,975			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 outstanding	562,161			675,920			644,329

Construction	—		%	6.60		%	1.74		%
Net charge-offs (recoveries) during the period	$	—		$	6,804		$	6,804
Average amount outstanding	391,806			412,520			391,253

Equipment finance	0.12		%	0.27		%	0.05		%
Net charge-offs during the period	$	46		$	82		$	70
Average amount outstanding	155,029			123,428			132,384

Residential mortgage	—		%	(0.04)		%	(0.01)		%
Net recoveries during the period	$	—		$	(48)		$	(48)
Average amount outstanding	811,347			522,526			624,492

Consumer	0.08		%	0.02		%	0.02		%
Net charge-offs (recoveries) during the period	$	63		$	12		$	72
Average amount outstanding	329,642			289,551			308,368

Total loans	—		%	0.44		%	0.10		%
Net charge-offs during the period	$	74		$	7,642		$	7,548
Average amount outstanding	7,899,818			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)	Total		Within 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 commitments	4,026		395		745		745		2,141
Remaining contractual maturities of time deposits	1,620,312		1,175,449		435,237		9,626		—
Subordinated debentures	194,376		—		—		—		194,376
Loan commitments	1,643,138		1,172,632		190,399		47,697		232,410
Other borrowings	25,000		—		25,000		—		—
Interest on other borrowings (1)	80,285		8,153		16,048		15,899		40,185
Standby letters of credit	32,702		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, 2023		December 31, 2022		March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
The Company	9.13	%	9.16	%	10.81	%	10.71	%	11.33	%	11.24	%	13.93	%	13.83	%
Lakeland Bank	9.95	%	10.03	%	12.36	%	12.31	%	12.36	%	12.31	%	13.21	%	13.15	%
Required capital ratios including conservation buffer	4.00	%	4.00	%	7.00	%	7.00	%	8.50	%	8.50	%	10.50	%	10.50	%
“Well capitalized” institution under FDIC Regulations	5.00	%	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, 2023			December 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:
Goodwill	271,829			271,829
Other identifiable intangible assets, net	8,572			9,088
Total tangible common stockholders’ equity at end of period - Non-GAAP	$	846,179		$	827,670
Shares outstanding at end of period	65,017			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:
Goodwill	271,829			271,829
Other identifiable intangible assets, net	8,572			9,088
Total tangible assets at end of period - Non-GAAP	$	10,556,840		$	10,502,923
Common equity to assets - GAAP	10.40		%	10.28		%
Tangible common equity to tangible assets - Non-GAAP	8.02		%	7.88		%

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	For the Three Months Ended March 31,
(dollars in thousands)		2023			2022
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 goodwill		271,829			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)	2023			2022
Calculation of EPS excluding non-routine transactions
Net income - GAAP	$	19,805		$	15,929

Non-Routine Transactions:
Charge-off of investment security, net of tax	4,642			—
Tax deductible merger-related expenses	5			3,435
Tax effect on tax deductible merger-related expenses	(1)			(1,033)
Non-tax deductible merger-related expenses	290			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 securities	196			164
Net Income, excluding non-routine transactions	$	24,545		$	19,316

Weighted average shares - Basic	64,966			63,961
Weighted average shares - Diluted	65,228			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 assets	10,698,807			10,138,437

Return on average assets - GAAP	0.75		%	0.64		%
Return on average assets, adjusted for non-routine transactions	0.94		%	0.78		%

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	For the Three Months Ended September 30,
(Dollars in thousands)	2022			2021
Calculation of return on average equity excluding non-routine transactions
Net Income, excluding non-routine transactions	$	24,741		$	19,480
Total average common stockholders' equity	1,120,356			1,095,913

Return on average common stockholders' equity - GAAP	7.17		%	5.89		%
Return on average common stockholders' equity, adjusted for non-routine transactions	8.96		%	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-GAAP	839,623			819,653

Return on average tangible common stockholders' equity - Non-GAAP	9.57		%	7.88		%
Return on average tangible common stockholders' equity - Non-GAAP, adjusted for non-routine transactions	11.95		%	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.


Period	Total 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 Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

Number of shares at December 31, 2022					2,393,423
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

(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 Securities			Not Applicable


Item 4. Mine Safety Disclosures			Not Applicable


Item 5. Other Information			Not applicable

Item 6. Exhibits


2.1			Agreement and Plan of Merger, dated September 26, 2022, by and among Provident Financial Services, Inc., NL 239 Corp. and Lakeland Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed with the SEC on September 27, 2022)
3.1			Lakeland Bancorp, Inc. Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018)
3.2			Lakeland Bancorp, Inc. Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K, filed with the SEC on April 9, 2020)
4.1			Indenture, dated September 15, 2021, between Lakeland Bancorp, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 15, 2021)
4.2			First Supplemental Indenture, dated September 15, 2021, between Lakeland Bancorp, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 15, 2021)
4.3			Form of 2.875% Fixed-to-Floating Rate Subordinated Notes due 2031 (included in Exhibit 4.2)
31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			Inline 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.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

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