LAKELAND BANCORP INC - Quarter Report: 2023 September (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 September 30, 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 November 1, 2023, there were 65,030,275 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 September 30, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	8
	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55

Item 4.	Controls and Procedures	56

	Part II. Other Information

Item 1.	Legal Proceedings	56

Item 1A.	Risk Factors	57

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	57

Item 3.	Defaults Upon Senior Securities	57

Item 4.	Mine Safety Disclosures	57

Item 5.	Other Information	57

Item 6.	Exhibits	58

Signatures		59

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets


	September 30, 2023		December 31, 2022
(dollars in thousands)	(unaudited)

Assets
Cash	$	327,616	$	223,299
Interest-bearing deposits due from banks	26,209		12,651
Total cash and cash equivalents	353,825		235,950
Investment securities available for sale, at fair value (allowance for credit losses of $0 at September 30, 2023 and $310 at December 31, 2022)	942,510		1,054,312
Investment securities held to maturity (fair value of $656,725 at September 30, 2023 and $760,455 at December 31, 2022 and allowance for credit losses of $146 at September 30, 2023 and $107 at December 31, 2022)	847,699		923,308
Equity securities, at fair value	17,207		17,283
Federal Home Loan Bank and other membership bank stock, at cost	53,580		42,483
Loans held for sale	1,251		536
Loans, net of deferred fees	8,294,057		7,866,050
Less: Allowance for credit losses	75,159		70,264
Total loans, net	8,218,898		7,795,786
Premises and equipment, net	53,993		55,429
Operating lease right-of-use assets	17,475		20,052
Accrued interest receivable	36,612		33,374
Goodwill	271,829		271,829
Other intangible assets	7,559		9,088
Bank owned life insurance	159,009		156,985
Other assets	195,362		167,425
Total Assets	$	11,176,809	$	10,783,840
Liabilities and Stockholders' Equity
Liabilities





Deposits	$	8,602,503	$	8,567,471
Federal funds purchased and securities sold under agreements to repurchase	728,769		728,797
Long-term Federal Home Loan Bank of New York advances	325,000		25,000
Subordinated debentures	194,596		194,264
Operating lease liabilities	18,618		21,449
Other liabilities	171,696		138,272
Total Liabilities	10,041,182		9,675,253
Stockholders' Equity
Common stock, no par value; authorized 100,000,000 shares; issued 65,161,310 shares and outstanding 65,030,275 shares at September 30, 2023 and issued 65,002,738 shares and outstanding 64,871,703 shares at December 31, 2022	857,707		855,425
Retained earnings	365,498		329,375
Treasury shares, at cost, 131,035 shares at September 30, 2023 and December 31, 2022	(1,452)		(1,452)
Accumulated other comprehensive loss	(86,126)		(74,761)
Total Stockholders' Equity	1,135,627		1,108,587
Total Liabilities and Stockholders' Equity	$	11,176,809	$	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 September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	2023		2022		2023		2022
Interest Income
Loans and fees	$	111,618	$	84,924	$	317,360	$	229,706
Federal funds sold and interest-bearing deposits with banks	1,307		429		4,016		846
Taxable investment securities and other	12,078		9,589		35,571		24,583
Tax-exempt investment securities	1,536		1,485		4,765		4,229
Total Interest Income	126,539		96,427		361,712		259,364
Interest Expense
Deposits	45,058		13,618		110,920		22,486
Federal funds purchased and securities sold under agreements to repurchase	10,186		717		27,773		887
Other borrowings	2,389		1,807		6,646		5,016
Total Interest Expense	57,633		16,142		145,339		28,389
Net Interest Income	68,906		80,285		216,373		230,975
Provision for credit losses	1,262		1,358		11,102		11,274
Net Interest Income after Provision for Credit Losses	67,644		78,927		205,271		219,701
Noninterest Income
Service charges on deposit accounts	1,996		2,808		7,629		8,145
Commissions and fees	1,731		2,212		5,519		6,873
Income on bank owned life insurance	816		1,468		2,613		3,118
Loss on equity securities	(294)		(464)		(281)		(1,313)
Gains on sales of loans held for sale	349		355		1,008		2,496

Swap income	697		711		1,114		1,110
Other income	123		143		750		647
Total Noninterest Income	5,418		7,233		18,352		21,076
Noninterest Expense
Compensation and employee benefits	26,156		26,636		83,737		81,253
Premises and equipment	7,888		7,574		23,857		23,225
FDIC insurance expense	1,354		690		3,944		2,034
Data processing expense	1,932		1,419		5,819		4,980
Merger-related expenses	198		3,488		735		8,073
Other expenses	6,840		8,004		21,889		23,273
Total Noninterest Expense	44,368		47,811		139,981		142,838
Income before provision for income taxes	28,694		38,349		83,642		97,939
Provision for income taxes	6,455		9,603		18,970		24,147
Net Income	$	22,239	$	28,746	$	64,672	$	73,792
Per Share of Common Stock
Basic earnings	$	0.34	$	0.44	$	0.98	$	1.13
Diluted earnings	$	0.34	$	0.44	$	0.98	$	1.13
Dividends paid	$	0.145	$	0.145	$	0.435	$	0.425

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 September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022

Net income	$	22,239	$	28,746	$	64,672	$	73,792
Other comprehensive loss, net of tax:
Unrealized losses on securities available for sale	(9,583)		(27,972)		(11,001)		(78,625)


Amortization of gain on debt securities reclassified to held to maturity	(111)		(137)		(364)		(420)


Other comprehensive loss	(9,694)		(28,109)		(11,365)		(79,045)
Total comprehensive income (loss)	$	12,545	$	637	$	53,307	$	(5,253)

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 September 30, 2023 and 2022


(in thousands, except per share data)	Common Stock		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total

July 1, 2022	$	853,206	$	286,063	$	(1,452)	$	(47,672)	$	1,090,145


Net income	—		28,746		—		—		28,746
Other comprehensive loss, net of tax	—		—		—		(28,109)		(28,109)


Stock-based compensation	1,209		—		—		—		1,209
Retirement of restricted stock	(79)		—		—		—		(79)

Cash dividends on common stock of $0.145 per share	—		(9,506)		—		—		(9,506)
September 30, 2022	$	854,336	$	305,303	$	(1,452)	$	(75,781)	$	1,082,406

July 1, 2023	$	856,807	$	352,779	$	(1,452)	$	(76,432)	$	1,131,702


Net income	—		22,239		—		—		22,239
Other comprehensive loss, net of tax	—		—		—		(9,694)		(9,694)


Stock-based compensation	915		—		—		—		915
Retirement of restricted stock	(15)		—		—		—		(15)

Cash dividends on common stock of $0.145 per share	—		(9,520)		—		—		(9,520)
September 30, 2023	$	857,707	$	365,498	$	(1,452)	$	(86,126)	$	1,135,627

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 Nine Months Ended September 30, 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	—		73,792		—		—		73,792
Other comprehensive loss, net of tax	—		—		—		(79,045)		(79,045)

Issuance of stock for 1st Constitution acquisition	285,742		—		—		—		285,742
Stock based compensation	3,807		—		—		—		3,807
Retirement of restricted stock	(1,075)		—		—		—		(1,075)

Cash dividends on common stock of $0.425 per share	—		(27,829)		—		—		(27,829)
September 30, 2022	$	854,336	$	305,303	$	(1,452)	$	(75,781)	$	1,082,406

January 1, 2023	$	855,425	$	329,375	$	(1,452)	$	(74,761)	$	1,108,587


Net income	—		64,672		—		—		64,672
Other comprehensive loss, net of tax	—		—		—		(11,365)		(11,365)


Stock based compensation	3,832		—		—		—		3,832
Retirement of restricted stock	(1,550)		—		—		—		(1,550)

Cash dividends on common stock of $0.435 per share	—		(28,549)		—		—		(28,549)
September 30, 2023	$	857,707	$	365,498	$	(1,452)	$	(86,126)	$	1,135,627

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 Nine Months Ended September 30,
(in thousands)	2023		2022
Cash Flows from Operating Activities:
Net income	$	64,672	$	73,792
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees and costs	4,052		4,264
Depreciation and amortization	3,734		4,071
Amortization of intangible assets	1,529		1,770
Amortization of operating lease right-of-use assets	3,044		3,098
Provision for credit losses	11,102		11,274
Loans originated for sale	(36,761)		(53,280)
Proceeds from sales of loans held for sale	37,054		61,449

Loss on equity securities	281		1,313
Income on bank owned life insurance	(2,392)		(2,376)
Gains on proceeds from bank owned life insurance policies	(220)		(742)
Gains on sales of loans held for sale	(1,008)		(2,496)
Gains on other real estate and other repossessed assets	(15)		(17)
Loss on sales of premises and equipment	—		218
Loss on sale of assets	41		—


Impairment of property held for sale	—		100
Stock-based compensation	3,832		3,807

Excess tax benefits	130		62
Increase in other assets	(29,079)		(68,258)
Increase in other liabilities	30,356		60,647
Net Cash Provided by Operating Activities	90,352		98,696
Cash Flows from Investing Activities:
Net cash acquired in acquisitions	—		326,236
Proceeds from repayments and maturities of available for sale securities	87,761		111,966
Proceeds from repayments and maturities of held to maturity securities	82,971		108,875


Purchase of available for sale securities	—		(312,904)
Purchase of held to maturity securities	(10,955)		(99,249)
Purchase of equity securities	(205)		(1,125)

Death benefit proceeds from bank owned life insurance policy	716		1,825
Proceeds from redemptions of Federal Home Loan Bank stock	169,586		42,900
Purchases of Federal Home Loan Bank stock	(180,683)		(53,650)
Net increase in loans	(424,352)		(487,444)

Proceeds from sales of other real estate and repossessed assets	1,930		17
Proceeds from dispositions and sales of premises and equipment	—		598
Purchases of premises and equipment	(4,289)		(3,726)
Net Cash Used in Investing Activities	(277,520)		(365,681)




















Cash Flows from Financing Activities:
Net increase in deposits	35,171		61,788
(Decrease) increase in federal funds purchased and securities sold under agreements to repurchase	(29)		251,334
Proceeds from long-term Federal Home Loan Bank of New York advances	300,000		—





Retirement of restricted stock	(1,550)		(1,075)
Dividends paid	(28,549)		(27,829)
Net Cash Provided by Financing Activities	305,043		284,218
Net increase in cash and cash equivalents	117,875		17,233
Cash and cash equivalents, beginning of period	235,950		228,530
Cash and cash equivalents, end of period	$	353,825	$	245,763

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	For the Nine Months Ended September 30,
(in thousands)	2023		2022
Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes	$	20,409	$	24,829
Cash paid during the period for interest	140,405		28,163





Right-of-use assets obtained in exchange for new lease liabilities	467		739
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 nine months ended September 30, 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 was 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 closing of the merger remains 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 $198,000 during the third quarter of 2023 and $735,000 for the nine months ended September 30, 2023 compared to $3.5 million for the three and nine months ended September 30, 2022.

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.

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Direct costs related to the 1st Constitution acquisition were expensed as incurred in 2022. The Company incurred no merger-related expenses in the third quarter of 2022 and $4.6 million of merger-related expenses in the nine months ended September 30, 2022 that have been separately stated in the Company's Consolidated Statements of Income.

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 September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	2023		2022		2023		2022
Net income available to common shareholders	$	22,239	$	28,746	$	64,672	$	73,792
Less: earnings allocated to participating securities	221		339		660		847
Net income allocated to common shareholders	$	22,018	$	28,407	$	64,012	$	72,945
Weighted average number of common shares outstanding - basic	65,064		64,842		65,030		64,547
Share-based plans	158		219		180		208
Weighted average number of common shares outstanding - diluted	65,222		65,061		65,210		64,755
Basic earnings per share	$	0.34	$	0.44	$	0.98	$	1.13
Diluted earnings per share	$	0.34	$	0.44	$	0.98	$	1.13

There were no antidilutive options to purchase common stock excluded from the computation for the three and nine months ended September 30, 2023 and 2022.

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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:


	September 30, 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	$	347,515	$	114	$	(26,741)	$	—	$	320,888
Mortgage-backed securities, residential	328,434		—		(49,151)		—		279,283
Collateralized mortgage obligations, residential	155,532		—		(17,499)		—		138,033
Mortgage-backed securities, multifamily	861		—		(221)		—		640
Collateralized mortgage obligations, multifamily	49,588		—		(5,452)		—		44,136
Asset-backed securities	46,681		—		(857)		—		45,824
Obligations of states and political subdivisions	20,387		—		(1,385)		—		19,002
Corporate bonds	112,598		—		(17,894)		—		94,704
Total	$	1,061,596	$	114	$	(119,200)	$	—	$	942,510


	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

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:


	September 30, 2023
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	$	10,598	$	9	$	(690)	$	—	$	9,917
Mortgage-backed securities, residential	339,427		—		(71,117)		—		268,310
Collateralized mortgage obligations, residential	12,474		—		(3,062)		—		9,412
Mortgage-backed securities, multifamily	5,024		—		(883)		—		4,141

Obligations of states and political subdivisions	477,322		15		(114,639)		(25)		362,673
Corporate bonds	3,000		—		(607)		(121)		2,272
Total	$	847,845	$	24	$	(190,998)	$	(146)	$	656,725

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	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 September 30, 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	$	57,725	$	56,140	$	19,963	$	19,882
Due after one year through five years	228,358		211,652		36,981		34,401
Due after five years through ten years	136,143		115,478		96,873		78,179
Due after ten years	58,274		51,324		337,103		242,400
	480,500		434,594		490,920		374,862
Mortgage-backed and asset-backed securities	581,096		507,916		356,925		281,863
Total	$	1,061,596	$	942,510	$	847,845	$	656,725

During the three and nine months ended September 30, 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 $1.58 billion and $1.34 billion at September 30, 2023 and December 31, 2022, respectively, were pledged to secure public deposits, expand secured borrowing capacity 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:


September 30, 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	$	11,753	$	20	$	296,137	$	26,721	59	$	307,890	$	26,741
Mortgage-backed securities, residential	860		6		278,423		49,145		132	279,283		49,151
Collateralized mortgage obligations, residential	—		—		138,033		17,499		100	138,033		17,499
Mortgage-backed securities, multifamily	—		—		640		221		1	640		221
Collateralized mortgage obligations, multifamily	—		—		44,136		5,452		20	44,136		5,452
Asset-backed securities	2,899		27		42,925		830		17	45,824		857
Obligations of states and political subdivisions	2,075		40		16,927		1,345		46	19,002		1,385
Corporate bonds	—		—		94,703		17,894		46	94,703		17,894
Total	$	17,587	$	93	$	911,924	$	119,107	421	$	929,511	$	119,200
Held to Maturity
U.S. government agencies	$	—	$	—	$	8,833	$	690	3	$	8,833	$	690
Mortgage-backed securities, residential	11,286		493		257,024		70,624		191	268,310		71,117
Collateralized mortgage obligations, residential	—		—		9,412		3,062		11	9,412		3,062
Mortgage-backed securities, multifamily	—		—		4,141		883		4	4,141		883

Obligations of states and political subdivisions	7,579		92		344,587		114,547		350	352,166		114,639
Corporate bonds	—		—		2,393		607		1	2,393		607
Total	$	18,865	$	585	$	626,390	$	190,413	560	$	645,255	$	190,998


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

Mortgage-backed securities, 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
Corporate bonds	—		—		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 guaranteed by

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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:


September 30, 2023	AAA		AA		A		BB		Not Rated		Total
(in thousands)
U.S. government agencies	$	10,598	$	—	$	—	$	—	$	—	$	10,598
Mortgage-backed securities, residential	339,427		—		—		—		—		339,427
Collateralized mortgage obligations, residential	12,474		—		—		—		—		12,474
Mortgage-backed securities, multifamily	5,024		—		—		—		—		5,024

Obligations of states and political subdivisions	152,795		311,224		—		—		13,303		477,322
Corporate bonds	—		—		—		3,000		—		3,000
Total	$	520,318	$	311,224	$	—	$	3,000	$	13,303	$	847,845


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 $17.2 million and $17.3 million at September 30, 2023 and December 31, 2022, respectively. For the three and nine months ended September 30, 2023 and 2022, the Company recorded no sales of equity securities or Community Reinvestment funds. The Company recorded fair value losses on equity securities of $294,000 for the third quarter of 2023 and fair value losses of $464,000 for the third quarter of 2022. The Company recorded fair value losses on equity securities of $281,000 for the nine months ended September 30, 2023 and losses of $1,313,000 for the nine months ended September 30, 2022. Fair value gain or loss on equity securities are recorded in noninterest income.

As of September 30, 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 September 30, 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 $9.4 million of investment in government guaranteed loans, mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development as of September 30, 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.

Note 5 – Loans

The following sets forth the composition of the Company’s loan portfolio:


(in thousands)	September 30, 2023		December 31, 2022
Non-owner occupied commercial	$	2,980,811	$	2,906,014
Owner occupied commercial	1,299,977		1,246,189
Multifamily	1,361,628		1,260,814
Non-owner occupied residential	208,560		218,026
Commercial, industrial and other	632,919		606,711
Construction	333,998		380,100
Equipment finance	174,946		151,574
Residential mortgage	956,535		765,552
Home equity and consumer	344,683		331,070
Total	$	8,294,057	$	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 $28.0 million at September 30, 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 $1.6 million at September 30, 2023 and $2.1 million at December 31, 2022.

Consumer loans included overdraft deposit balances of $557,000 and $1.3 million, at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 and December 31, 2022, the Company had $4.29 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.

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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.

The following table presents the risk category of loans by class of loan and vintage as of September 30, 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	$	282,616	$	607,149	$	375,816	$	483,092	$	261,792	$	811,752	$	13,441	—	$	2,835,658
Watch	—		2,163		—		14,874		6,204		63,468		—		—	86,709
Special mention	—		740		—		4,919		2,999		19,331		—		—	27,989
Substandard	—		—		—		—		—		30,265		190		—	30,455
Total	282,616		610,052		375,816		502,885		270,995		924,816		13,631		—	2,980,811
Owner occupied commercial
Pass	45,560		329,969		224,064		151,745		89,835		342,321		9,639		2,589	1,195,722
Watch	—		—		3,705		1,681		3,351		31,793		250		—	40,780
Special mention	—		563		19,677		7,121		1,830		8,939		—		—	38,130
Substandard	—		—		450		14,137		4,876		5,882		—		—	25,345
Total	45,560		330,532		247,896		174,684		99,892		388,935		9,889		2,589	1,299,977
Multifamily
Pass	112,532		300,790		238,475		247,965		64,022		334,182		3,301		4,524	1,305,791
Watch	—		887		5,722		24,346		—		2,442		—		—	33,397
Special mention	—		500		—		2,382		3,804		13,544		—		—	20,230
Substandard	—		—		1,106		—		—		1,104		—		—	2,210
Total	112,532		302,177		245,303		274,693		67,826		351,272		3,301		4,524	1,361,628
Non-owner occupied residential
Pass	8,865		35,314		28,630		19,869		24,186		77,488		6,326		—	200,678
Watch	—		—		—		—		—		4,056		75		—	4,131
Special mention	—		—		—		—		497		1,494		—		—	1,991
Substandard	—		—		—		—		542		1,218		—		—	1,760
Total	8,865		35,314		28,630		19,869		25,225		84,256		6,401		—	208,560



Commercial, industrial and other
Pass	15,782		42,041		43,031		22,830		28,435		45,516		396,257		1,171	595,063
Watch	2,558		208		332		—		—		1,212		7,196		—	11,506
Special mention	94		—		4		—		175		1,515		2,261		—	4,049
Substandard	—		375		436		30		—		319		21,141		—	22,301
Total	18,434		42,624		43,803		22,860		28,610		48,562		426,855		1,171	632,919





Current YTD period:
Gross charge-offs	—		—		14		—		—		13		—		—	27
Construction
Pass	28,135		149,584		83,866		8,370		4,835		4,663		13,824		—	293,277
Watch	1,895		1,100		9,627		14,837		—		—		564		—	28,023

Substandard	—		—		—		—		—		12,698		—		—	12,698
Total	30,030		150,684		93,493		23,207		4,835		17,361		14,388		—	333,998








Current YTD period:
Gross charge-offs	—		13		—		—		—		—		—		—	13

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	Term Loans by Origination Year
(in thousands)	2023		2022		2021		2020		2019		Pre-2019		Revolving Loans		Revolving to Term		Total
Equipment finance
Pass	62,946		61,210		26,615		12,904		7,937		1,130		—		—		172,742


Substandard	146		1,180		149		40		685		4		—		—		2,204
Total	63,092		62,390		26,764		12,944		8,622		1,134		—		—		174,946
Current YTD period:
Gross charge-offs	—		—		178		—		31		10		—		—		219




Residential mortgage
Pass	230,091		314,063		160,849		102,277		33,438		113,498		—		—		954,216


Substandard	—		—		249		428		454		1,188		—		—		2,319
Total	230,091		314,063		161,098		102,705		33,892		114,686		—		—		956,535




Consumer
Pass	18,759		41,834		28,878		7,449		3,622		20,173		222,636		—		343,351


Substandard	—		69		—		—		—		1,227		—		36		1,332
Total	18,759		41,903		28,878		7,449		3,622		21,400		222,636		36		344,683
Current YTD period:
Gross charge-offs	196		6		23		—		1		19		—		—		245

Total loans	$	809,979	$	1,889,739	$	1,251,681	$	1,141,296	$	543,519	$	1,952,422	$	697,101	$	8,320	$	8,294,057
Current YTD period:
Gross charge-offs	196		19		215		—		32		42		—		—		504

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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.


September 30, 2023			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,980,580	$	—	$	—	$	231	$	231	$	2,980,811
Owner occupied commercial	1,293,112		152		—		6,713		6,865		1,299,977
Multifamily	1,361,628		—		—		—		—		1,361,628
Non-owner occupied residential	208,414		146		—		—		146		208,560
Commercial, industrial and other	632,518		184		—		217		401		632,919
Construction	333,998		—		—		—		—		333,998
Equipment finance	173,380		601		508		457		1,566		174,946
Residential mortgage	945,995		7,551		1,645		1,344		10,540		956,535
Consumer	343,525		630		—		528		1,158		344,683
Total	$	8,273,150	$	9,264	$	2,153	$	9,490	$	20,907	$	8,294,057


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 September 30, 2023 and December 31, 2022:


September 30, 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	$	798	$	—	$	—	$	—
Owner occupied commercial	7,026		—		—		6,634
Multifamily	1,106		—		—		1,106
Non-owner occupied residential	—		—		—		—
Commercial, industrial and other	217		—		—		—
Construction	—		—		—		—
Equipment finance	626		—		—		—
Residential mortgage	2,319		—		—		—
Consumer	1,331		—		—		—
Total	$	13,423	$	—	$	—	$	7,740


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
Multifamily	—		—		—		—
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 September 30, 2023 and December 31, 2022, there were no loans that were past due more than 89 days and still accruing. The Company had $392,000 and $898,000 in residential mortgages and consumer loans included in non-accrual and that were in the process of foreclosure at September 30, 2023 and December 31, 2022, respectively.

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 September 30, 2023, net PCD loans acquired from 1st Constitution totaled $72.1 million.

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Troubled Debt Restructurings and Modifications of Loans to Debtors Experiencing Financial Difficulty

The Company adopted Accounting Standards Update 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02") as of January 1, 2023. 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 and nine months ended September 30, 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 and nine months ended September 30, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted during the nine months ended September 30, 2023 or 2022, respectively.

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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 September 30, 2023, loans totaling $8.21 billion were evaluated collectively and the allowance on these balances totaled $72.7 million and loans totaling $80.5 million were evaluated on an individual basis with the specific allocations of the allowance for credit losses totaling $2.5 million. Loans evaluated on an individual basis include $72.4 million in PCD loans, which had a specific allowance for credit losses of $2.5 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 September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Balance at beginning of the period	$	73,965	$	68,836	$	70,264	$	58,047
Initial allowance for credit losses on PCD loans	—		—		—		12,077
Charge-offs on PCD loans	—		—		—		(7,634)
Charge-offs	(217)		(56)		(504)		(595)
Recoveries	84		88		437		760
Net recoveries (charge-offs)	(133)		32		(67)		(7,469)
Provision for credit loss - loans	1,327		11		4,962		6,224
Balance at end of the period	$	75,159	$	68,879	$	75,159	$	68,879

The increase in the provision for credit losses on loans for the third quarter of 2023 compared to the third quarter of 2022 included an increase in qualitative factors across multiple segments, which was partially offset by a decrease in the total of individually evaluated loans. The decrease in the provision for credit losses from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 was predominantly due to the provision for the 1st Constitution's acquired non-purchased credit deteriorated loans recorded at the time of acquisition in January 2022. Charge-offs in the nine months ended September 30, 2022 include $7.6 million in charge-offs on 1st Constitution's acquired PCD loans.

The following tables detail activity in the allowance for credit losses on loans by portfolio segment for the three and nine months ended 2023 and 2022:


(in thousands)	Balance at June 30, 2023		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at September 30, 2023
Non-owner occupied commercial	$	23,543	$	—	$	—	$	(62)	$	23,481
Owner occupied commercial	6,164		—		—		332		6,496
Multifamily	9,037		—		—		196		9,233
Non-owner occupied residential	2,404		—		—		2		2,406
Commercial, industrial and other	8,879		(14)		14		130		9,009
Construction	2,732		—		—		(148)		2,584
Equipment finance	6,484		(136)		—		518		6,866
Residential mortgage	9,605		—		—		304		9,909
Consumer	5,117		(67)		70		55		5,175
Total	$	73,965	$	(217)	$	84	$	1,327	$	75,159

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(in thousands)	Balance at June 30, 2022		Initial allowance for credit losses on PCD loans		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at September 30, 2022
Non owner occupied commercial	$	23,926	$	—	$	—	$	—	$	294	$	24,220
Owner occupied commercial	6,938		—		—		—		(666)		6,272
Multifamily	8,441		—		—		—		426		8,867
Non owner occupied residential	2,893		—		—		—		(101)		2,792
Commercial, industrial and other	10,089		—		—		49		(1,171)		8,967
Construction	2,937		—		—		—		(48)		2,889
Equipment finance	2,253		—		—		23		258		2,534
Residential mortgage	6,579		—		—		—		861		7,440
Consumer	4,780		—		(56)		16		158		4,898
Total	$	68,836	$	—	$	(56)	$	88	$	11	$	68,879


(in thousands)	Balance at December 31, 2022		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at September 30, 2023
Non-owner occupied commercial	$	23,462	$	—	$	—	$	19	$	23,481
Owner occupied commercial	6,696		—		6		(206)		6,496
Multifamily	9,425		—		—		(192)		9,233
Non-owner occupied residential	2,643		—		—		(237)		2,406
Commercial, industrial and other	8,836		(27)		225		(25)		9,009
Construction	2,968		(13)		—		(371)		2,584
Equipment finance	3,445		(219)		25		3,615		6,866
Residential mortgage	8,041		—		—		1,868		9,909
Consumer	4,748		(245)		181		491		5,175
Total	$	70,264	$	(504)	$	437	$	4,962	$	75,159


(in thousands)	Balance at December 31, 2021		Initial allowance for credit losses on PCD loans		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at September 30, 2022
Non owner occupied commercial	$	20,071	$	1,312	$	(4)	$	4	$	2,837	$	24,220
Owner occupied commercial	3,964		1,137		(38)		351		858		6,272
Multifamily	8,309		4		—		—		554		8,867
Non owner occupied residential	2,380		175		—		14		223		2,792
Commercial, industrial and other	9,891		2,413		(1,128)		127		(2,336)		8,967
Construction	838		6,843		(6,807)		3		2,012		2,889
Equipment finance	3,663		—		(121)		102		(1,110)		2,534
Residential mortgage	3,914		179		—		48		3,299		7,440
Consumer	5,017		14		(131)		111		(113)		4,898
Total	$	58,047	$	12,077	$	(8,229)	$	760	$	6,224	$	68,879

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The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit losses at September 30, 2023 and December 31, 2022:


September 30, 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	$	—	$	2,951,929	$	28,882	$	2,980,811	$	570	$	22,911	$	23,481
Owner occupied commercial	6,474		1,261,978		31,525		1,299,977		907		5,589		6,496
Multifamily	1,106		1,354,839		5,683		1,361,628		5		9,228		9,233
Non-owner occupied residential	523		207,018		1,019		208,560		14		2,392		2,406
Commercial, industrial and other	—		628,946		3,973		632,919		827		8,182		9,009
Construction	—		333,998		—		333,998		—		2,584		2,584
Equipment finance	—		174,946		—		174,946		—		6,866		6,866
Residential mortgage	—		955,332		1,203		956,535		149		9,760		9,909
Consumer	—		344,544		139		344,683		—		5,175		5,175
Total loans	$	8,103	$	8,213,530	$	72,424	$	8,294,057	$	2,472	$	72,687	$	75,159


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 September 30, 2023, the balance of the allowance for credit loss on available for sale and held to maturity securities was $0 and $146,000, 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.

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The allowance for credit losses on securities is summarized in the following tables:


Available for Sale	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Balance at beginning of the period	$	—	$	2,802	$	310	$	83

Charge-offs	$	—	$	—	(6,640)		—
Recoveries	$	—	$	—	—		—
Net charge-offs	$	—	$	—	(6,640)
(Benefit) provision for credit loss expense	—		1,363		6,330		4,082
Balance at end of the period	$	—	$	4,165	$	—	$	4,165


Held to Maturity	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Balance at beginning of the period	$	146	$	190	$	107	$	181




(Benefit) provision for credit loss expense	—		(38)		39		(29)
Balance at end of the period	$	146	$	152	$	146	$	152

The provision for credit loss expense for available for sale securities increased from $4.1 million for the nine months ended September 30, 2022 to $6.3 million for the nine months ended September 30, 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 $8.3 million at September 30, 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.

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 September 30, 2023 and December 31, 2022, the balance of the allowance for credit losses for off-balance sheet exposures was $2.8 million and $3.0 million, respectively. For the three months ended September 30, 2023 and three months ended September 30, 2022, the Company recorded a benefit for credit losses on off-balance-sheet exposures of $65,000 and a provision for credit losses on off-balance sheet exposures of $22,000, respectively. For the nine months ended September 30, 2023 and nine months ended September 30, 2022, the Company recorded a benefit for credit losses on off-balance sheet exposures of $229,000 and a provision for credit losses on off-balance sheet exposures of $997,000, respectively.

Note 7 – Leases

The Company leases certain premises and equipment under operating leases. Portions of certain properties are subleased for terms extending through 2025. At September 30, 2023, the Company had lease liabilities totaling $18.6 million and right-of-use assets totaling $17.5 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.

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At September 30, 2023, the weighted average remaining lease term for operating leases was 8.07 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.21%. 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 September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Operating lease cost	$	1,152	$	1,248	$	3,506	$	3,716
Short-term lease cost	—		—		—		18
Variable lease cost	15		15		44		48
Sublease income	$	(32)	$	(32)	(97)		(96)
Net lease cost	$	1,135	$	1,231	$	3,453	$	3,686

The table below presents other information on the Company's operating leases for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
(in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,297	$	3,050
Right-of-use assets obtained in exchange for new operating lease liabilities	467		739

There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the nine months ended September 30, 2023 or September 30, 2022. At September 30, 2023, the Company had no leases that had not yet commenced.

A maturity analysis of operating lease liabilities and a reconciliation of the undiscounted cash flows to the total operating lease liability at September 30, 2023 are as follows:


(in thousands)
Within one year	$	4,613
After one year but within three years	6,811
After three years but within five years	3,910
After five years	6,082
Total undiscounted cash flows	21,416
Discount on cash flows	(2,798)
Total operating lease liabilities	$	18,618

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Note 8 - Deposits

The following table sets forth the details of total deposits:


(dollars in thousands)	September 30, 2023				December 31, 2022

Noninterest-bearing demand	$	1,857,324	21.6	%	$	2,113,289	24.7	%
Interest-bearing checking	3,118,189		36.2	%	3,079,249		35.9	%
Money market	1,014,116		11.8	%	1,192,353		13.9	%
Savings	729,941		8.5	%	974,403		11.4	%
Certificates of deposit $250 thousand and under	1,401,588		16.3	%	901,505		10.5	%
Certificates of deposit over $250 thousand	481,345		5.6	%	306,672		3.6	%
Total deposits	$	8,602,503	100.0	%	$	8,567,471	100.0	%

At September 30, 2023 and December 31, 2022, certificates of deposit obtained through brokers totaled $160.0 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 September 30, 2023, the Company had $625.0 million overnight and short-term borrowings from the FHLB and $700.0 million at December 31, 2022. At September 30, 2023, Lakeland had overnight and short-term federal funds lines available to borrow up to $175.6 million from correspondent banks. Lakeland had $74.4 million in overnight borrowings from correspondent banks at September 30, 2023 and no overnight or short-term borrowings from correspondent banks at December 31, 2022. 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 September 30, 2023 or December 31, 2022.

Also included in the balances at September 30, 2023 and December 31, 2022 were short-term securities sold under agreements to repurchase of $29.4 million and $28.8 million, respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. As of September 30, 2023, the Company had $20.9 million of mortgage-backed securities and $14.4 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

At September 30, 2023, the Company had advances from the FHLB, which totaled $325.0 million, with a weighted average rate of 4.71%.. These advances are collateralized by first mortgage loans and have prepayment penalties. At December 31, 2022, The Company had advances from the FHLB, which totaled $25.0 million and had a weighted average rate of 0.77%. The schedule of maturities of advances at September 30, 2023 is as follows:


(in thousands)
Within one year	$	—
After one but within two years	25,000
After two years but within three years	—
After three years but within four years	300,000
	$	325,000

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.

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Restricted Stock

The following is a summary of the Company’s restricted stock activity during the nine months ended September 30, 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, September 30, 2023	18,520	$	17.95

In the first nine 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 nine 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 third quarter of 2023 and 2022, respectively, and $249,000 and $262,000 for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, there was unrecognized compensation cost of $83,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately 0.3 years.

Restricted Stock Units

The following is a summary of the Company’s RSU activity during the nine months ended September 30, 2023:


	Number of Shares	Weighted Average Price
Outstanding, January 1, 2023	589,420	$	17.21
Granted	269,070	19.15
Vested	(230,957)	16.31
Forfeited	(48,903)	18.25
Outstanding, September 30, 2023	578,630	$	18.38

In the first nine 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 nine months of 2022, the Company granted 315,419 RSUs under the Plan at a weighted average grant date fair value of $17.99 per share. Compensation expense on these RSUs is expected to average approximately $1.9 million per year over a three-year period.

For the third quarter of 2023 and 2022, the Company recognized share-based compensation expense on RSUs of $833,000 and $1.1 million, respectively, and $3.6 million and $3.5 million for the nine months ended September 30, 2023 and 2022, respectively. Unrecognized compensation expense related to RSUs was approximately $5.9 million as of September 30, 2023, and that cost is expected to be recognized over a period of 1.26 years.

Stock Options

At September 30, 2023 and December 31, 2022, there were no stock options outstanding under the Plan. There were no stock option grants in the first nine months of 2023 or 2022. There were no stock options exercised during the first nine 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 and nine months ended September 30, 2023 and 2022:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022

Deposit-Related Fees and Charges
Debit card interchange income	$	744	$	1,686	$	4,077	$	4,995
Overdraft charges	875		802		2,476		2,327
ATM service charges	205		220		580		599
Demand deposit fees and charges	150		79		429		166
Savings service charges	22		21		67		58
Total deposit-related fees and charges	1,996		2,808		7,629		8,145
Commissions and fees
Loan fees	513		712		1,637		2,302
Wire transfer charges	480		502		1,386		1,484
Investment services income	200		457		911		1,562
Merchant fees	303		300		898		853
Commissions from sales of checks	89		88		268		263
Safe deposit income	108		105		314		258
Other income	30		42		87		129
Total commissions and fees	1,723		2,206		5,501		6,851
Gains on sales of loans held for sale	349		355		1,008		2,496
Other income
Gains on customer swap transactions	697		711		1,114		1,110
Title insurance income	—		44		19		46
Other income	87		82		673		870
Total other income	784		837		1,806		2,026
Revenue not from contracts with customers	566		1,027		2,408		1,558
Total Noninterest Income	$	5,418	$	7,233	$	18,352	$	21,076
Timing of Revenue Recognition:
Products and services transferred at a point in time	4,852		6,206		15,944		19,518

Revenue not from contracts with customers	566		1,027		2,408		1,558
Total Noninterest Income	$	5,418	$	7,233	$	18,352	$	21,076

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 September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Consulting and advisory board fees	900		1,007		2,822		2,988
ATM and debit card expense	757		659		2,218		2,025
Telecommunications expense	531		582		1,818		1,728
Marketing expense	565		816		1,623		1,973
Intangible asset amortization	501		581		1,529		1,770
Other real estate owned and other repossessed assets expense	—		1		—		1


Other operating expenses	3,586		4,358		11,879		12,788
Total other operating expenses	$	6,840	$	8,004	$	21,889	$	23,273

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Note 13 – Comprehensive Income (Loss)

The components of other comprehensive income (loss) are as follows:


	For the Three Months Ended
	September 30, 2023						September 30, 2022
(in thousands)	Before Tax Amount		Tax Benefit		Net of Tax Amount		Before Tax Amount		Tax Benefit		Net of Tax Amount
Unrealized losses on available for sale securities arising during the period	$	(13,104)	$	3,521	$	(9,583)	$	(38,037)	$	10,065	$	(27,972)



Amortization of gain on debt securities reclassified to held to maturity from available for sale	(152)		41		(111)		(187)		50		(137)


Other comprehensive loss, net	$	(13,256)	$	3,562	$	(9,694)	$	(38,224)	$	10,115	$	(28,109)


	For the Nine Months Ended
	September 30, 2023						September 30, 2022
(in thousands)	Before Tax Amount		Tax Benefit		Net of Tax Amount		Before Tax Amount		Tax Benefit		Net of Tax Amount
Unrealized losses on available for sale securities arising during the period	$	(15,174)	$	4,173	$	(11,001)	$	(106,759)	$	28,134	$	(78,625)



Amortization of gain on debt securities reclassified to held to maturity from available for sale	(498)		134		(364)		(566)		146		(420)


Other comprehensive loss, net	$	(15,672)	$	4,307	$	(11,365)	$	(107,325)	$	28,280	$	(79,045)

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 September 30, 2023
(in thousands)	Unrealized Losses on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Total
Beginning balance	$	(78,147)	$	1,715	$	(76,432)

Net current period other comprehensive loss	(9,583)		(111)		(9,694)


Ending balance	$	(87,730)	$	1,604	$	(86,126)


	For the Three Months Ended September 30, 2022
(in thousands)	Unrealized Losses on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Total
Beginning balance	$	(49,908)	$	2,236	$	(47,672)

Net current period other comprehensive loss	(27,972)		(137)		(28,109)


Ending balance	$	(77,880)	$	2,099	$	(75,781)

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	For the For the Nine Months Ended September 30, 2023
(in thousands)	Unrealized 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 loss	(11,001)		(364)		(11,365)


Ending balance	$	(87,730)	$	1,604	$	(86,126)


	For the For the Nine Months Ended September 30, 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	(78,625)		(420)		(79,045)


Ending balance	$	(77,880)	$	2,099	$	(75,781)

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 September 30, 2023 and December 31, 2022.

The following table presents summary information regarding these derivatives for the periods presented (dollars in thousands):


September 30, 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	$	1,149,054	6.5	4.10	%	1 Mo. SOFR + 2.02	$	122,106

Customer interest rate swaps	16,250		7.0	6.33	%	1 Mo. SOFR + 2.10	180

Classified in Other Liabilities:
Customer interest rate swaps	$	1,149,054	6.5	4.10	%	1 Mo. SOFR + 2.02	$	(122,110)

Third Party interest rate swaps	16,250		7.0	6.33	%	1 Mo. SOFR + 2.10	(180)

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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)

Note 15 – Goodwill and Other Intangible Assets

The Company had goodwill of $271.8 million at September 30, 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 and nine months ended September 30, 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 and nine months ended September 30, 2023 and 2022.

The Company had core deposit intangibles of $7.6 million and $9.1 million at September 30, 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 $501,000 and $581,000 for the third quarters of 2023 and 2022, respectively, and $1.5 million and $1.8 million for the nine months ended September 30, 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	$	501
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.

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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).

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 nine months ended September 30, 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:


September 30, 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	$	143,474	$	177,414	$	—	$	320,888
Mortgage-backed securities, residential	—		279,283		—		279,283
Collateralized mortgage obligations, residential	—		138,033		—		138,033
Mortgage-backed securities, multifamily	—		640		—		640
Collateralized mortgage obligations, multifamily	—		44,136		—		44,136
Asset-backed securities	—		45,824		—		45,824
Obligations of states and political subdivisions	—		19,002		—		19,002
Corporate bonds	—		94,704		—		94,704
Total investment securities, available for sale	143,474		799,036		—		942,510
Equity securities	—		17,207		—		17,207
Derivative assets	—		122,286		—		122,286
Total Assets	$	143,474	$	938,529	$	—	$	1,082,003
Liabilities:
Derivative liabilities	$	—	$	122,290	$	—	$	122,290
Total Liabilities	$	—	$	122,290	$	—	$	122,290

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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 September 30, 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
September 30, 2023
Assets:
Individually evaluated loans	$	—	$	—	$	—	$	—




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 September 30, 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 September 30, 2023 and December 31, 2022:


September 30, 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	$	10,598	$	9,917	$	—	$	9,917	$	—
Mortgage-backed securities, residential	339,427		268,310		—		268,310		—
Collateralized mortgage obligations, residential	12,474		9,412		—		9,412		—
Mortgage-backed securities, multifamily	5,024		4,141		—		4,141		—

Obligations of states and political subdivisions	477,297		362,673		—		357,694		4,979
Corporate bonds	2,879		2,272		—		2,272		—
Total investment securities, held to maturity	$	847,699	$	656,725	$	—	$	651,746	$	4,979
Federal Home Loan Bank and other membership bank stocks	53,580		53,580		—		53,580		—
Loans, net	8,218,898		7,722,899		—		—		7,722,899
Financial Liabilities:
Certificates of deposit	1,882,933		1,867,124		—		1,867,124		—
Long-term FHLB advances	325,000		326,507		—		326,507		—
Subordinated debentures	194,596		144,443		—		—		144,443

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December 31, 2022	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		—
Long-term FHLB advances	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 nine months ended September 30, 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 $126.9 million in the nine months ended September 30, 2023, 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 September 30, 2023, the Company had $2.3 billion in deposits that were both uninsured and uncollateralized and we have cash and additional borrowing capacity of $2.5 billion. Furthermore, the Company's capital ratios remain above levels considered by the regulators to be "well-capitalized" as of September 30, 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 remains subject to satisfaction of customary closing conditions, including receipt of regulatory approvals.

Financial Overview

The Company reported net income of $22.2 million and earnings per diluted share ("EPS") of $0.34 for the three months ended September 30, 2023, compared to net income of $28.7 million and EPS of $0.44 for the three months ended September 30, 2022. For the third quarter of 2023, annualized return on average assets was 0.81%, annualized return on average common equity was 7.76% and annualized return on average tangible common equity was 10.29%, compared to 1.10%, 10.33%, and 13.87%, respectively, for the third quarter of 2022.

For the nine months ended September 30, 2023, the Company reported net income of $64.7 million, compared to $73.8 million for the same period in 2022. Diluted earnings per share for the nine months ended September 30, 2023 was $0.98 compared to $1.13 for the first nine months of 2022. Annualized return on average assets, annualized return on average common equity, and annualized return on average tangible common equity was 0.80%, 7.66% and 10.18%, respectively, compared to 0.96%, 8.99% and 12.08% for the same period in 2022.

Net interest margin for the third quarter of 2023 of 2.68% decreased 60 basis points compared to the third quarter of 2022 and decreased 15 basis points compared to the second quarter of 2023. Net interest margin for the nine months ended September 30, 2023 decreased 38 basis points to 2.85% from the same period last year.

Total loans, net of deferred fees, grew $428.0 million, or 5%, to $8.29 billion during the first nine months of 2023. Total deposits increased $35.0 million to $8.60 billion during the first nine months of 2023.

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Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022

Net Income

Net income was $22.2 million or $0.34 per diluted share, for the third quarter of 2023 compared to net income of $28.7 million or $0.44 per diluted share, for the third quarter of 2022. The decrease in net income compared to the third quarter of 2022 was due primarily to a decrease of $11.4 million in net interest income and a decrease in noninterest income of $1.8 million.

Net Interest Income

Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. The Company’s net interest income is determined by: (i) the volume of interest-earning assets that it holds and the yields that it earns on those assets, and (ii) the volume of interest-bearing liabilities that it has assumed and the rates that it pays on those liabilities.

Net interest income on a tax equivalent basis for the third quarter of 2023 was $69.3 million, compared to $80.7 million for the third quarter of 2022. The net interest margin decreased 60 basis points to 2.68% in the third quarter of 2023 from 3.28% in the third quarter of 2022. The decrease in net interest income compared to the third quarter of 2022 was due primarily to the increase in the cost of interest-bearing liabilities, which increased from 0.94% to 2.96%. 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 September 30, 2023 and September 30, 2022 are computed on a tax equivalent basis using a tax rate of 21%.


	For the Three Months Ended September 30, 2023						For the Three Months Ended September 30, 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)	$	8,167,362	$	111,618	5.42	%	$	7,517,878	$	84,924	4.43	%
Taxable investment securities and other	1,700,309		12,078		2.84	%	1,806,894		9,589		2.12	%
Tax-exempt securities	312,844		1,944		2.49	%	353,825		1,880		2.12	%
Federal funds sold (2)	95,860		1,307		5.41	%	77,200		429		2.21	%
Total interest-earning assets	10,276,375		126,947		4.86	%	9,755,797		96,822		3.90	%
Noninterest-earning assets:
Allowance for credit losses	(74,955)						(69,472)
Other assets	674,133						672,275
Total Assets	$	10,875,553					$	10,358,600

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Savings accounts	$	759,232	$	461	0.24	%	$	1,092,222	$	696	0.25	%
Interest-bearing transaction accounts	4,103,217		26,901		2.60	%	4,337,559		10,634		0.97	%
Time deposits	1,856,266		17,696		3.78	%	905,735		2,288		1.00	%
Federal funds purchased	718,367		10,020		5.46	%	116,685		669		2.24	%
Securities sold under agreements to repurchase	26,215		166		2.48	%	124,043		48		0.15	%
Long-term borrowings	232,573		2,389		4.02	%	219,082		1,807		3.23	%
Total interest-bearing liabilities	7,695,870		57,633		2.96	%	6,795,326		16,142		0.94	%
Noninterest-bearing liabilities:
Demand deposits	1,871,516						2,325,391
Other liabilities	170,780						133,738
Stockholders' equity	1,137,387						1,104,145
Total Liabilities and Stockholders’ Equity	$	10,875,553					$	10,358,600
Net interest income/spread			69,314		1.90	%			80,680		2.96	%
Tax equivalent basis adjustment			408						395
Net Interest Income			$	68,906					$	80,285
Net interest margin (3)					2.68	%					3.28	%

(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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Interest income on a tax equivalent basis increased $30.1 million to $126.9 million in the third quarter of 2023 from $96.8 million in the third quarter of 2022. Average loans increased $649.5 million to $8.17 billion in the third quarter of 2023 compared to $7.52 billion in the third quarter of 2022, due primarily to growth in commercial and residential lending. The yield earned on loans increased by 99 basis points to 5.42% in the third quarter of 2023 from the third quarter of 2022 due primarily to the increase in market rates. Total average taxable investment securities decreased $106.6 million to $1.70 billion for the third quarter of 2023 from the third quarter of 2022, while average tax-exempt securities decreased $41.0 million to $312.8 million for the same periods, due to pay downs and maturities in the investment portfolio. The yield on average taxable investment securities increased 72 basis points from the third quarter of 2022 to 2.84% for the third quarter of 2023, and the yield on average tax-exempt investment securities increased 37 basis points to 2.49% due to increases in market rates from the third quarter of 2022 to the same period in 2023. Average federal funds sold in the third quarter of 2023 increased $18.7 million compared to the third quarter of 2022, while the yield increased 320 basis points to 5.41% for the third quarter of 2023 as short-term market rates have risen in 2022 and 2023.

Total interest expense of $57.6 million in the third quarter of 2023 increased by $41.5 million from the $16.1 million reported for the same period in 2022. The cost of average interest-bearing liabilities increased from 0.94% in the third quarter of 2022 to 2.96% in the third quarter of 2023, largely driven by increases in interest-bearing deposit costs as well as increased borrowing costs resulting from an increase in both the volume and rate of overnight borrowings. Total interest-bearing deposits increased by $383.2 million from the third quarter of 2022 to $6.72 billion, while the cost of interest-bearing deposits increased 184 basis points. For the third quarter of 2023, savings and interest-bearing transaction account average balances decreased $333.0 million and $234.3 million, respectively, when compared to the same period in 2022, and average time deposits increased $950.5 million reflecting a change in customer deposit preferences driven by the market interest rate increase. In addition, federal funds purchased increased $601.7 million from third quarter of 2022 to the same period in 2023 while the cost of federal funds purchased increased 322 basis points within the same time period. The increase in federal funds purchased results from funding loan growth and keeping more on balance sheet liquidity in response to industry-wide concerns over liquidity.

Provision for Credit Losses

In determining the allowance for credit losses on investments, loans and off-balance-sheet credit exposures, management measures expected credit losses based on relevant information about past events, current conditions, reasonable and supportable forecasts, prepayments and future economic conditions. The key assumptions of the methodology include the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The Company uses its best judgment to assess economic conditions and loss data in estimating the allowance for credit losses.

In the third quarter of 2023, a $1.3 million provision for credit losses was recorded, compared to a $1.4 million provision for credit losses for the same period last year. The provision for third quarter of 2023 was comprised of a provision for credit losses on loans of $1.3 million, a benefit for credit losses on securities of $0 and a benefit on off-balance-sheet exposures of $65,000. In the third quarter of 2022, the provision was comprised of a provision for credit losses on loans of $11,000, a provision for credit losses on securities of $1.3 million and a provision on off-balance-sheet exposures of $22,000. The Company recorded loan charge-offs of $217,000 and recoveries on loans of $84,000 in the third quarter of 2023 compared to loan charge-offs of $56,000 and loan recoveries of $88,000 in the third quarter of 2022. For more information, see Note 6 in Notes to the Consolidated Statements in this Form 10-Q.

Noninterest Income

Noninterest income decreased $1.8 million to $5.4 million for the third quarter of 2023 compared to $7.2 million during the same period in 2022. Service charges on deposit accounts decreased $812,000 compared to the third quarter of 2022 due primarily to a decline in debit card interchange income resulting from the impact of the Durbin amendment which became effective for Lakeland in the third quarter of 2023. Income on bank owned life insurance decreased $652,000 from the third quarter of 2022 due primarily to death benefits received during the third quarter of 2022. Commissions and fees decreased $481,000 from the third quarter of 2022 due primarily to a decrease in loan fee income and investment services income. Losses on equity securities totaled $294,000 for the three months ended September 30, 2023 compared to losses of $464,000 in the same period of 2022.

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Noninterest Expense

Noninterest expense for the third quarter of 2023 of $44.4 million decreased $3.4 million compared to the third quarter of 2022. Merger-related expenses declined from $3.5 million from the third quarter of 2022 to $198,000 for the third quarter of 2023 due to the timing of expenses incurred. Other operating expenses in the third quarter of 2023 decreased $1.2 million compared to the same period in 2022 due primarily to decreased marketing expense, consulting fees, appraisal expenses and other expenses. Compensation and employee benefits decreased $480,000 from the third quarter of 2022 to the third quarter of 2023 as a result of a decline in headcount related to the anticipated merger with Provident. FDIC insurance expense increased $664,000 due to an increase in the 2023 assessment rate related to Lakeland's asset size exceeding $10 billion.

The Company’s efficiency ratio, a non-GAAP financial measure, was 58.43% in the third quarter of 2023, compared to 49.76% for the same period last year, primarily as a result of decreased revenue due to the increased cost of funds in the rising interest rate environment. 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:


	For the Three Months Ended September 30,
(dollars in thousands)	2023			2022

Total noninterest expense	$	44,368		$	47,811
Less:
Amortization of core deposit intangibles	501			581
Merger-related expenses	198			3,488


Noninterest expense, as adjusted	$	43,669		$	43,742

Net interest income	$	68,906		$	80,285
Noninterest income	5,418			7,233
Total revenue	74,324			87,518
Tax-equivalent adjustment on municipal securities	408			395


Total revenue, as adjusted	$	74,732		$	87,913
Efficiency ratio	58.43		%	49.76		%

Income Tax Expense

The effective tax rate in the third quarter of 2023 was 22.5% compared to 25.0% during the same period in 2022 primarily as a result of tax advantaged items increasing as a percentage of pretax income.

Comparison of Operating Results for the Nine Months Ended September 30, 2023 and 2022

Net Income

Net income was $64.7 million, or $0.98 per diluted share, for the first nine months of 2023 compared to net income of $73.8 million, or $1.13 per diluted share, for the first nine months of 2022. Net income decreased primarily as a result of a decrease in net interest income of $14.6 million compared to the nine months ended September 30, 2022 because of an increase in the market interest rate environment.

Net interest income on a tax equivalent basis for the first nine months of 2023 was $217.6 million, compared to $232.1 million for the first nine months of 2022. The decrease in net interest income was due primarily to an increase in the cost of interest-bearing liabilities partially offset by an increase in the yield on interest earning assets. The net interest margin of 2.85% in the first nine months of 2023 decreased from 3.23% for the same period in 2022, primarily due to the increase in the cost of interest-bearing deposits partially offset by an increase in the yield in 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 nine months ended September 30, 2023 and September 30, 2022 are computed on a tax equivalent basis using a tax rate of 21%.


	For the Nine Months Ended September 30, 2023						For the Nine Months Ended September 30, 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)	$	8,023,336	$	317,360	5.23	%	$	7,257,990	$	229,706	4.18	%
Taxable investment securities and other	1,737,165		35,571		2.73	%	1,770,121		24,583		1.86	%
Tax-exempt securities	328,555		6,032		2.45	%	353,229		5,353		2.02	%
Federal funds sold (2)	105,575		4,016		5.09	%	235,742		846		0.48	%
Total interest-earning assets	10,194,631		362,979		4.71	%	9,617,082		260,488		3.58	%
Noninterest-earning assets:
Allowance for credit losses	(72,960)						(69,232)
Other assets	673,183						682,682
TOTAL ASSETS	$	10,794,854					$	10,230,532

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings accounts	$	839,000	$	1,650	0.26	%	$	1,125,580	$	1,686	0.20	%
Interest-bearing transaction accounts	4,111,262		67,775		2.20	%	4,368,492		16,842		0.51	%
Time deposits	1,656,678		41,495		3.35	%	862,958		3,958		0.61	%
Federal funds purchased	697,959		27,358		5.17	%	48,473		794		2.16	%
Securities sold under agreements to repurchase	27,727		415		1.97	%	110,560		93		0.11	%
Long-term borrowings	223,818		6,646		3.92	%	218,679		5,016		2.06	%
Total interest-bearing liabilities	7,556,444		145,339		2.56	%	6,734,742		28,389		0.56	%
Noninterest-bearing liabilities:
Demand deposits	1,948,503						2,277,192
Other liabilities	160,409						121,677
Stockholders' equity	1,129,498						1,096,921
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,794,854					$	10,230,532
Net interest income/spread			217,640		2.15	%			232,099		3.02	%
Tax equivalent basis adjustment			1,267						1,124
NET INTEREST INCOME			$	216,373					$	230,975
Net interest margin (3)					2.85	%					3.23	%

(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 $102.5 million, or 39%, from $260.5 million in the nine months ended September 30, 2022, to $363.0 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 resulting from the increased interest rate environment. Average loans increased $765.3 million, or 11%, compared to the first nine months of 2022 which also contributed to the increase in interest income. The yield on average loans of 5.23% in the nine months ended September 30, 2023, was 105 basis points higher than the same period in 2022 due to the rising interest rate environment. Average tax-exempt securities decreased $24.7 million for the first nine months of 2023 compared to the same period in 2022 due to maturities of securities. The yield on average taxable investment securities increased 87 basis points, while the yield on average tax-exempt investment securities increased 43 basis points. Average federal funds sold decreased $130.2 million in the first nine months of 2023 compared to the same period in 2022, while the yield on federal funds sold increased 461 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 $145.3 million in the first nine months of 2023 was $117.0 million greater than the interest expense reported for the same period in 2022. Total average interest-bearing liabilities increased $821.7 million, while the cost of average interest-bearing liabilities increased from 0.56% in the nine months ended September 30, 2022 to 2.56% in the first nine 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 272 basis points and 274 basis points, respectively. Additionally, higher costing average borrowings and time deposit balances increased $571.8 million and $793.7 million, respectively. Average time deposits as a percent of interest-bearing liabilities increased from 13% in the nine months ended September 30, 2022 to 22% in the nine months ended September 30, 2023. Federal funds purchased, which includes overnight borrowings from the Federal Home Loan Bank of New York, averaged $698.0 million or 9%, of total interest-bearing liabilities during the nine months ended September 30, 2023, compared to $48.5 million, or less than 1% of interest-bearing liabilities in the nine months ended September 30, 2022. Time deposits and borrowings typically have a higher rate than savings and interest-bearing transaction accounts.

Provision for Credit Losses

In the nine months ended September 30, 2023, the Company recorded a $11.1 million provision for credit losses compared to a $11.3 million provision for the same period last year. As of September 30, 2023, the provision was comprised of a provision for credit losses on loans of $5.0 million, a provision for credit losses on securities of $6.4 million and a benefit for off-balance-sheet exposures of $229,000. The provision for credit losses on loans in the nine months ended September 30, 2022 was comprised of a provision for credit losses on loans of $6.2 million, a provision for credit losses on securities of $4.1 million and a provision for off-balance-sheet exposures of $997,000. The provision for credit losses on securities during the first nine months of 2023 was primarily due to a $6.6 million provision and subsequent charge-off of subordinated debt securities of Signature Bank which failed in March 2023. Charge-offs totaled $7.1 million (including $6.6 million in the aforementioned investment security) and recoveries totaled $437,000 in the first nine months of 2023 compared to $8.2 million in charge-offs and $760,000 in recoveries in the first nine months of 2022. Charge-offs taken during the first nine months of 2022 included $7.6 million in charge-offs of 1st Constitution purchased credit deteriorated loans. For more information regarding the determination of the provision, see “Risk Elements” below.

Noninterest Income

For the nine months ended September 30, 2023, noninterest income totaled $18.4 million, a decrease of $2.7 million as compared to the nine months ended September 30, 2022. Gains on sales of loans decreased $1.5 million compared to the nine months ended September 30, 2022 due primarily to lower sale volume. Commissions and fees decreased $1.4 million driven primarily by a decrease in loan fees and investment services income. Service charges on deposit accounts decreased $516,000 from the nine months ended September 30, 2022 for the same reason discussed in the quarterly comparison. Partially offsetting these unfavorable variances was a decline in losses on equity securities to $281,000 in the nine months ended September 30, 2023 from losses of $1.3 million in the nine months ended September 30, 2022.

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Noninterest Expense

Noninterest expense for the nine months ended September 30, 2023 of $140.0 million decreased $2.9 million compared to the nine months ended September 30, 2022. The decrease in noninterest expense was primarily due to decreases in merger-related expenses which totaled $735,000 in the nine months ended September 30, 2023 compared to $8.1 million during the nine months ended September 30, 2022. Merger-related expenses during the current year are as a result of the anticipated merger with Provident, while expenses in the nine months ended September 30, 2022 related both to the anticipated merger with Provident, as well as the acquisition of 1st Constitution. Other operating expenses decreased from $23.3 million for the nine months ended September 30, 2022 to $21.9 million for nine months ended September 30, 2023 for the same reasons discussed in the quarterly comparison. Offsetting these decreases in expense were increases in compensation and employee benefits which increased $2.5 million resulting primarily from increased commissions, bonus expense and normal merit increases. FDIC expense increased from the first half of 2022 to the first half of 2023 for the same reasons referred to above in the quarterly comparison. The Company’s efficiency ratio, a non-GAAP financial measure, was 58.36% in the first nine months of 2023, compared to 52.53% 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:


	Nine Months Ended September 30,
(dollars in thousands)	2023			2022

Total noninterest expense	$	139,981		$	142,838
Less:
Amortization of core deposit intangibles	1,529			1,770
Merger-related expenses	735			8,073


Noninterest expense, as adjusted	$	137,717		$	132,995

Net interest income	$	216,373		$	230,975
Noninterest income	18,352			21,076
Total revenue	234,725			252,051
Tax-equivalent adjustment on municipal securities	1,267			1,124
Less:
Gains on sales of investment securities	—			—
Total revenue, as adjusted	$	235,992		$	253,175
Efficiency ratio	58.36		%	52.53		%

Income Tax Expense

The effective tax rate in the first nine months of 2023 was 22.7% compared to 24.7% 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 $393.0 million from December 31, 2022, to $11.18 billion at September 30, 2023. Total loans, net of deferred fees, were $8.29 billion, an increase of $428.0 million, or 5% from $7.87 billion at December 31, 2022. Total deposits were $8.60 billion, an increase of $35.0 million from December 31, 2022, while total borrowings increased $300.3 million to $1.25 billion at September 30, 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 $8.29 billion at September 30, 2023, an increase of $428.0 million as compared to December 31, 2022. Loan balances increased from December 31, 2022 in residential mortgages by $191.0 million, or 25%, commercial loans by $200.0 million or 3%, and equipment financing by $23.4 million or 15%. 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.

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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 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 $3.9 million, or 23%, from $17.4 million at December 31, 2022 to $13.4 million at September 30, 2023. Owner occupied commercial non-accrual loans, commercial, industrial and other and construction loans decreased $2.4 million, $2.8 million, and $980,000, respectively, due to principal paydowns. The impact of these principal paydowns was partially offset by the increase in multifamily and consumer non-accruals of $1.1 million and $550,000, respectively. Non-accrual loans at September 30, 2023 included two loan relationships with a balance of $1 million or greater, totaling $7.6 million and one loan relationship between $500,000 and $1.0 million, totaling $828,000. At September 30, 2023 and December 31, 2022 there were no loans that were past due more than 89 days and still accruing.

During the nine months ended September 30, 2022, 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 the 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 nine months ended September 30, 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 and nine months ended September 30, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted in the nine months ended September 30, 2023 and 2022.

At September 30, 2023 and December 31, 2022, the Company had $87.2 million and $63.5 million, respectively, of loans that were rated substandard that were not classified as non-performing. There was one loan relationship totaling $21.1 million that was downgraded to substandard in the second quarter of 2023 that was not classified as non-performing. There were no loans at September 30, 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 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 $75.2 million at September 30, 2023 increased $4.9 million from December 31, 2022, an increase of 7%.

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	As of and for the Nine Months Ended September 30,						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	0.91		%	0.91		%	0.89		%
Allowance for credit losses on loans	$	75,159		$	68,879		$	70,264
Total loans outstanding	8,294,057			7,568,826			7,866,050

Non-accrual loans to total loans outstanding	0.16		%	0.24		%	0.22		%
Non-accrual loans	$	13,423		$	18,370		$	17,362
Total loans outstanding	8,294,057			7,568,826			7,866,050

Allowance for credit losses on loans to non-accrual loans	559.93		%	374.95		%	404.70		%
Allowance for credit losses on loans	$	75,159		$	68,879		$	70,264
Non-accrual loans	13,423			18,370			17,362

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	As of and for the Nine Months Ended September 30,						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	$	—		$	—		$	—
Average amount outstanding	2,959,490			2,757,621			2,798,805

Owner occupied commercial	—		%	(0.04)		%	(0.03)		%
Net recoveries during the period	$	(6)		$	(313)		$	(313)
Average amount outstanding	1,215,238			1,095,030			1,120,776

Multifamily	—		%	—		%	—		%
Net charge-offs during the period	$	—		$	—		$	—
Average amount outstanding	1,302,379			1,112,123			1,138,937

Non owner occupied residential	—		%	(0.01)		%	(0.01)		%
Net recoveries during the period	$	—		$	(14)		$	(14)
Average amount outstanding	210,179			215,445			215,342

Commercial, industrial and other	(0.05)		%	0.20		%	0.15		%
Net charge-offs (recoveries) during the period	$	(198)		$	1,001		$	977
Average amount outstanding	577,767			655,499			644,329

Construction	—		%	2.28		%	1.74		%
Net charge-offs during the period	$	13		$	6,804		$	6,804
Average amount outstanding	374,741			397,371			391,253

Equipment finance	0.16		%	0.02		%	0.05		%
Net charge-offs during the period	$	194		$	19		$	70
Average amount outstanding	165,715			128,657			132,384

Residential mortgage	—		%	(0.01)		%	(0.01)		%
Net recoveries during the period	$	—		$	(48)		$	(48)
Average amount outstanding	880,245			590,848			624,492

Consumer	0.03		%	0.01		%	0.02		%
Net charge-offs (recoveries) during the period	$	64		$	20		$	72
Average amount outstanding	336,721			302,696			308,368

Total loans	—		%	0.14		%	0.10		%
Net (recoveries) charge-offs during the period	$	67		$	7,469		$	7,548
Average amount outstanding	8,022,475			7,255,290			7,374,686

Non-accrual loans of $13.4 million at September 30, 2023 decreased $3.9 million from December 31, 2022. The allowance for credit losses as a percent of total loans was 0.91% at September 30, 2023 compared to 0.89% at December 31, 2022. Net charge-offs as a percentage of average loans outstanding was 0.00% and 0.14% for the nine months ended September 30, 2023 and 2022, respectively, with the change predominately related to 1st Constitution PCD loans charged off in the first quarter of 2022.

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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 September 30, 2023.

Investment Securities

Investment securities decreased $187.4 million in the nine months ended September 30, 2023 to $1.79 billion at September 30, 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 increased from $8.57 billion at December 31, 2022 to $8.60 billion at September 30, 2023, an increase of $35.0 million. Savings and interest-bearing transaction accounts decreased $383.8 million, or 7%, while total time deposits increased $674.8 million, or 56% as depositors moved funds to higher yielding non-core products. Included in the time deposit increase was an increase in brokered deposits of $126.9 million that was used to fund deposit outflow and loan growth. Noninterest-bearing deposits also decreased $256.0 million during the nine months ended September 30, 2023 to $1.9 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 September 30, 2023, the Bank had on-balance sheet liquidity and funding capacity that represented 112% of uninsured and uncollateralized deposits.

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 $90.4 million for the first nine months of 2023 compared to $98.7 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 September 30, 2023, the Company had $942.5 million in securities designated “available for sale.” Of these securities, $859.5 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 $625.0 million of overnight borrowings from the FHLB on September 30, 2023. Lakeland had remaining availability of $1.54 billion for borrowing at the FHLB on September 30, 2023. Lakeland also has overnight federal funds lines available for it to borrow up to $250.0 million, $74.4 million of which was borrowed overnight on September 30, 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 September 30, 2023, Lakeland had availability to borrow up to $247.1 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 September 30, 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 pledged 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 nine months ended September 30, 2023 follows.

Cash and cash equivalents totaling $353.8 million on September 30, 2023 increased $117.9 million from December 31, 2022. Operating activities provided $90.4 million in net cash. Investing activities used $277.5 million in net cash, primarily due to loan funding of $424.4 million, partially offset by proceeds from repayments and maturities of investments securities of $170.7 million. Financing activities provided $305.0 million in net cash primarily due to increases of $300.0 million in long-term FHLB advances. 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 September 30, 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	$	21,416	$	4,613	$	6,811	$	3,910	$	6,082
Benefit plan commitments	3,901		382		745		745		2,029
Remaining contractual maturities of time deposits	1,882,933		1,648,861		230,599		3,473		—
Subordinated debentures	194,596		—		—		—		194,596
Loan commitments	1,543,876		1,074,501		134,866		84,032		250,477
Long-term FHLB advances	325,000		—		25,000		300,000		—
Interest on other borrowings (1)	140,447		23,632		46,825		31,488		38,502
Standby letters of credit	30,500		28,974		171		1,355		—
Total	$	4,142,669	$	2,780,963	$	445,017	$	425,003	$	491,686

(1) Includes interest on other borrowings and subordinated debentures at a weighted rate of 4.54%.

Capital Resources

Total stockholders’ equity increased to $1.14 billion on September 30, 2023 from $1.11 billion on December 31, 2022, an increase of $27.0 million. Book value per common share increased to $17.46 on September 30, 2023 from $17.09 on December 31, 2022. Tangible book value per share increased from $12.76 per share on December 31, 2022 to $13.17 per share on September 30, 2023. Please see “Non-GAAP Financial Measures” below. The increase in stockholders’ equity from December 31, 2022 to September 30, 2023 was due in part to $64.7 million of net income partially offset by other comprehensive loss of $11.4 million and by the payment of cash dividends on common stock of $28.5 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 September 30, 2023, the Company and Lakeland met all capital adequacy requirements to which they are subject.

As of September 30, 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
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
The Company	9.24	%	9.16	%	10.80	%	10.71	%	11.31	%	11.24	%	13.87	%	13.83	%
Lakeland Bank	10.04	%	10.03	%	12.29	%	12.31	%	12.29	%	12.31	%	13.16	%	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)	September 30, 2023			December 31, 2022
Calculation of Tangible Book Value per Common Share
Total common stockholders’ equity at end of period - GAAP	$	1,135,627		$	1,108,587
Less:
Goodwill	271,829			271,829
Other identifiable intangible assets, net	7,559			9,088
Total tangible common stockholders’ equity at end of period - Non-GAAP	$	856,239		$	827,670
Shares outstanding at end of period	65,030			64,872
Book value per share - GAAP	$	17.46		$	17.09
Tangible book value per share - Non-GAAP	$	13.17		$	12.76
Calculation of Tangible Common Equity to Tangible Assets
Total tangible common stockholders’ equity at end of period - Non-GAAP	$	856,239		$	827,670

Total assets at end of period	$	11,176,809		$	10,783,840
Less:
Goodwill	271,829			271,829
Other identifiable intangible assets, net	7,559			9,088
Total tangible assets at end of period - Non-GAAP	$	10,897,421		$	10,502,923
Common equity to assets - GAAP	10.16		%	10.28		%
Tangible common equity to tangible assets - Non-GAAP	7.86		%	7.88		%

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	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(dollars in thousands)	2023			2022			2023			2022
Calculation of Return on Average Tangible Common Equity
Net income - GAAP	$	22,239		$	28,746		$	64,672		$	73,792
Total average common stockholders’ equity	$	1,137,387		$	1,104,145		$	1,129,498		$	1,096,936
Less:
Average goodwill	271,829			271,829			271,829			269,713
Average other identifiable intangible assets, net	7,887			9,982			8,378			10,464
Total average tangible common stockholders’ equity - Non-GAAP	$	857,671		$	822,334		$	849,291		$	816,759
Return on average common stockholders’ equity - GAAP	7.76		%	10.33		%	7.66		%	8.99		%
Return on average tangible common stockholders’ equity - Non-GAAP	10.29		%	13.87		%	10.18		%	12.08		%

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.

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. In December 2022, FASB issued Update 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which allows companies to apply the standard as of the beginning of the interim period that includes March 12, 2020 or any date thereafter until December 31, 2024. During 2023, the Company continued to convert LIBOR-based loans to SOFR and does not expect the impact to its financial statements to be material.

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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 $276.3 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)	%
September 30, 2023	(2.8)	%	2.0	%
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)	%
September 30, 2023	(8.8)	%	(7.0)	%	(5.2)	%	(2.5)	%	1.6	%	2.6	%	3.0	%	2.7	%
December 31, 2022	(7.1)	%	(5.4)	%	(3.8)	%	(1.6)	%	0.7	%	0.4	%	(1.0)	%	(1.7)	%

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 September 30, 2023 (the base case) was $1.50 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)	%
September 30, 2023	(18.3)	%	(14.3)	%	(10.1)	%	(4.7)	%	3.7	%	6.2	%	7.3	%	5.8	%
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.

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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 September 30, 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

There are no pending legal proceedings involving the Company or Lakeland other than those arising in the normal course of business. Management does not anticipate that the potential liability, if any, arising out of such legal proceedings will have a material effect on the financial condition or results of operations of the Company and Lakeland on a consolidated basis. All previously disclosed actions related to the merger with Provident filed against the Company and its directors were dismissed without payment or any settlement.

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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, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.


Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

The following table presents information regarding shares of our common stock repurchased during the third 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


July 1 to July 31, 2023	—	$—	—	2,393,423
August 1 to August 31, 2023	—	—	—	2,393,423
September 1 to September 30, 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

During the three months ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as that term is used in SEC regulations.

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: November 8, 2023