The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Significant Accounting Policies
Basis of Presentation.
This quarterly report presents the consolidated financial statements of Lakeland Bancorp, Inc. (the Company) and its subsidiary, Lakeland Bank
(Lakeland or Lakeland Bank). The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (U.S. GAAP) and predominant practices within the banking
industry.
The Companys unaudited interim financial statements reflect all adjustments, such as normal recurring accruals that are,
in the opinion of management, necessary for the fair presentation of the results of the interim periods. The results of operations for the three months ended March 31, 2016 do not necessarily indicate the results that the Company will achieve
for all of 2016. You should read these interim financial statements in conjunction with the audited consolidated financial statements and accompanying notes that are presented in the Lakeland Bancorp, Inc. Annual Report on Form 10-K for the year
ended December 31, 2015.
On January 7, 2016, the Company completed its acquisition of Pascack Bancorp, Inc. (Pascack).
For more information, see Note 2 below.
The financial information in this quarterly report has been prepared in accordance with the
Companys customary accounting practices. 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.
Note 2. Acquisitions
Harmony Bank
Lakeland Bancorp, Lakeland Bank and Harmony Bank signed a merger agreement on February 17, 2016, pursuant to which Harmony Bank will be
merged with and into Lakeland Bank, with Lakeland Bank as the surviving bank. The merger agreement provides that shareholders of Harmony Bank will receive 1.25 shares of Lakeland Bancorp common stock for each share of Harmony Bank common stock that
they own at the effective time of the merger. Lakeland Bancorp expects to issue an aggregate of approximately 3.0 million shares of its common stock in the merger and will cash out Harmony Bank options that remain outstanding at the effective
time of the merger. The closing of the merger is subject to receipt of approvals from regulators, approval of the merger by Harmony Banks shareholders and other customary conditions. Harmony Bank, a New Jersey state-chartered commercial bank
that focuses on serving consumers and small-to-medium-size businesses, is headquartered in Jackson, New Jersey, with additional branch offices in Lakewood and Toms River, New Jersey. As of December 31, 2015, Harmony Bank had total assets, total
loans, total deposits and total stockholders equity of $295 million, $241 million, $257 million and $28 million, respectively.
Pascack Bancorp
On
January 7, 2016, the Company completed its acquisition of Pascack Bancorp, Inc. (Pascack), a bank holding company headquartered in Waldwick, New Jersey. Pascack was the parent of Pascack Community Bank. This acquisition enables the
Company to broaden its presence in Bergen and Essex counties. Effective as of the close of business on January 7, 2016, Pascack merged into the Company, and Pascack Community Bank merged into Lakeland Bank. The Merger Agreement provided that
the shareholders of Pascack would receive, at their election, for each outstanding share of Pascack common stock that they own at the effective time of the merger, either 0.9576 shares of Lakeland Bancorp common stock or $11.35 in cash, subject to
proration as described in the Merger Agreement, so that 90% of the aggregate merger consideration was shares of Lakeland Bancorp common stock and 10% was cash. Lakeland Bancorp issued an aggregate of 3,314,284 shares of its common stock in the
merger and paid approximately $4.4 million in cash excluding the cash paid in connection with the cancellation of Pascack stock options. Outstanding Pascack stock options were paid out in cash at the difference between $11.35 and an average strike
price of $7.37 for a total cash payment of $122,000. As of January 7, 2016, Pascack had total assets, total loans, total deposits and total stockholders equity of $390 million, $320 million, $303 million and $27 million, respectively.
8
The acquisition was accounted for under the acquisition method of accounting and accordingly,
assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values as of the acquisition date. Pascacks assets were recorded at their preliminary estimated fair values as of January 7, 2016 and
Pascacks results of operations will be included in the Companys Consolidated Statements of Income from that date forward.
The
assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values based on managements best estimates using information available at the date of the acquisition, including the use of a third party
valuation specialist. The fair values are preliminary estimates and subject to adjustment for up to one year after the closing date of the acquisition. The following table summarizes the estimated fair value of the acquired assets and liabilities
(in thousands).
|
|
|
|
|
Consideration Paid
|
|
|
|
|
Lakeland Bancorp stock issued
|
|
$
|
37,221
|
|
Cash Payment
|
|
|
4,367
|
|
Fair value of Pascack stock options converted to Lakeland Bancorp stock options
|
|
|
122
|
|
|
|
|
|
|
Total Consideration Paid
|
|
$
|
41,710
|
|
|
|
|
|
|
Recognized amounts of identifiable assets and liabilities assumed at fair value
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
45,431
|
|
Securities held to maturity
|
|
|
3,925
|
|
Federal Home Loan Bank stock
|
|
|
2,962
|
|
Loans and leases
|
|
|
319,575
|
|
Premises and equipment
|
|
|
14,438
|
|
Identifiable intangible assets
|
|
|
1,514
|
|
Accrued interest receivable and other assets
|
|
|
6,672
|
|
Deposits
|
|
|
(304,466
|
)
|
Other borrowings
|
|
|
(57,308
|
)
|
Other liabilities
|
|
|
(6,502
|
)
|
|
|
|
|
|
Total identifiable assets
|
|
$
|
26,241
|
|
|
|
|
|
|
Goodwill
|
|
$
|
15,469
|
|
|
|
|
|
|
Loans acquired in the Pascack acquisition were recorded at fair value and subsequently accounted for in
accordance with ASC Topic 310, and there was no carryover related allowance for loan and lease losses. The fair values of loans acquired from Pascack were estimated using cash flow projections based on the remaining maturity and repricing terms.
Cash flows were adjusted for estimated future credit losses and the rate of prepayments. Projected cash flows were then discounted to present value using a risk-adjusted market rate for similar loans.
9
The following is a summary of the loans acquired in the Pascack acquisition as of the closing
date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Acquired
|
|
|
|
|
|
|
Credit
|
|
|
Non-Credit
|
|
|
Total
|
|
|
|
Impaired
|
|
|
Impaired
|
|
|
Acquired
|
|
(in thousands)
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
Contractually required principal and interest at acquisition
|
|
$
|
4,932
|
|
|
$
|
442,401
|
|
|
$
|
447,333
|
|
Contractual cash flows not expected to be collected (non-accretable difference)
|
|
|
4,030
|
|
|
|
|
|
|
|
4,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected cash flows at acquisition
|
|
$
|
902
|
|
|
$
|
442,401
|
|
|
$
|
443,303
|
|
Interest component of expected cash flows (accretable difference)
|
|
|
85
|
|
|
|
123,643
|
|
|
|
123,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of acquired loans
|
|
$
|
817
|
|
|
$
|
318,758
|
|
|
$
|
319,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The core deposit intangible totaled $1.5 million and is being estimated over its estimated useful life of
approximately 10 years using an accelerated method. The goodwill will be evaluated annually for impairment. The goodwill is not deductible for tax purposes.
The fair values of deposit liabilities with no stated maturities such as checking, money market and savings accounts, were assumed to equal
the carrying amounts since these deposits are payable on demand. The fair values of certificates of deposits and IRAs represent the present value of contractual cash flows discounted at market rates for similar certificates of deposit.
Direct costs related to the acquisition were expensed as incurred. During the three months ended March 31, 2016, the Company incurred
$1.7 million of merger and acquisition integration-related expenses, which have been separately stated in the Companys Consolidated Statements of Income.
Supplemental Pro Forma Financial Information
The following table presents financial information regarding the former Pascack operations included in our Consolidated Statements of Income
from the date of the acquisition (January 7, 2016) through March 31, 2016 under the column Actual from acquisition date through March 31, 2016. In addition, the table provides unaudited condensed pro forma financial information
assuming that the Pascack acquisition had been completed as of January 1, 2016, for the three months ended March 31, 2016 and as of January 1, 2015 for the three months ended March 31, 2015. The table below has been prepared for
comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the
unaudited proforma information does not reflect managements estimate of any revenue-enhancing opportunities nor anticipated cost savings or the impact of conforming certain accounting policies of the acquired company to the Companys
policies that may have occurred as a result of the integration and consolidation of Pascacks operations. The pro forma information shown reflects adjustments related to certain purchase accounting fair value adjustments; amortization of core
deposit and other intangibles; and related income tax effects.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual from
|
|
|
|
|
|
|
|
|
|
acquisition to
|
|
|
Pro-forma
|
|
|
Pro-forma
|
|
(in thousands)
|
|
March 31, 2016
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Net interest income
|
|
$
|
3,098
|
|
|
$
|
34,107
|
|
|
$
|
32,116
|
|
Provision for loan losses
|
|
|
|
|
|
|
1,075
|
|
|
|
870
|
|
Noninterest income
|
|
|
102
|
|
|
|
4,871
|
|
|
|
4,866
|
|
Noninterest expense
|
|
|
1,653
|
|
|
|
23,948
|
|
|
|
22,670
|
|
Net income
|
|
|
1,037
|
|
|
|
9,350
|
|
|
|
8,955
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted
|
|
|
|
|
|
$
|
0.23
|
|
|
$
|
0.22
|
|
10
Note 3. Share-Based Compensation
The Company grants stock options, restricted stock and restricted stock units (RSUs) under the 2009 Equity Compensation Program. Share-based
compensation expense of $754,000 and $567,000 was recognized for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, there was unrecognized compensation cost of $324,000 related to unvested restricted stock;
that cost is expected to be recognized over a weighted average period of approximately 1.2 years. Unrecognized compensation expense related to unvested stock options was approximately $41,000 as of March 31, 2016 and is expected to be
recognized over a period of 1.2 years. Unrecognized compensation expense related to RSUs was approximately $1.9 million as of March 31, 2016, and that cost is expected to be recognized over a period of 1.2 years.
In the first three months of 2016, the Company granted 23,952 shares of restricted stock to non-employee directors at a grant date fair value
of $10.02 per share under the 2009 Equity Compensation Program. The restricted stock vests one year from the date it was granted. Compensation expense on this restricted stock is expected to be $240,000 over a one year period.
In the first three months of 2016, the Company granted 139,726 RSUs at a weighted average grant date fair value of $10.04 per share under the
Companys 2009 Equity Compensation Program. These units vest within a range of two to three years. A portion of these RSUs will vest subject to certain performance conditions in the restricted stock unit agreement. There are also certain
provisions in the compensation program which state that if a holder of the RSUs reaches a certain age and years of service, the person has effectively earned a portion of the RSUs at that time. Compensation expense on the restricted stock units
issued in the first quarter of 2016 is expected to average approximately $468,000 per year over a three year period. In the first three months of 2015, the Company granted 120,509 RSUs at a weighted average grant date fair value of $11.01 per share
under the Companys 2009 Equity Compensation Program. Compensation expense on these restricted stock units is expected to average approximately $442,000 per year over a three year period.
There were no grants of stock options in the first three months of 2016 or 2015.
Option activity under the Companys stock option plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
|
|
|
|
|
|
average
|
|
|
contractual
|
|
|
|
|
|
|
Number of
|
|
|
exercise
|
|
|
term
|
|
|
Aggregate
|
|
|
|
shares
|
|
|
price
|
|
|
( in years)
|
|
|
intrinsic value
|
|
Outstanding, January 1, 2016
|
|
|
175,892
|
|
|
$
|
8.38
|
|
|
|
|
|
|
$
|
602,236
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2016
|
|
|
175,892
|
|
|
$
|
8.38
|
|
|
|
4.78
|
|
|
$
|
313,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2016
|
|
|
154,891
|
|
|
$
|
8.22
|
|
|
|
4.45
|
|
|
$
|
298,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference
between the Companys closing stock price on the last trading day of the first three months of 2016 and the exercise price, multiplied by the number of in-the-money options).
There were no stock options exercised during the first three months of 2016. The aggregate intrinsic value of stock options exercised during
the three months ended March 31, 2015 was $50,000. Exercise of stock options during the first three months of 2015 resulted in cash receipts of $93,000.
11
Information regarding the Companys restricted stock and changes during the three months
ended March 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
average
|
|
|
|
shares
|
|
|
price
|
|
Outstanding, January 1, 2016
|
|
|
73,500
|
|
|
$
|
9.33
|
|
Granted
|
|
|
23,952
|
|
|
|
10.02
|
|
Vested
|
|
|
(54,360
|
)
|
|
|
9.33
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2016
|
|
|
43,092
|
|
|
$
|
9.71
|
|
|
|
|
|
|
|
|
|
|
Information regarding the Companys RSUs and changes during the three months ended March 31, 2016 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
average
|
|
|
|
shares
|
|
|
price
|
|
Outstanding, January 1, 2016
|
|
|
200,910
|
|
|
$
|
10.87
|
|
Granted
|
|
|
139,726
|
|
|
|
10.04
|
|
Vested
|
|
|
(66,748
|
)
|
|
|
10.28
|
|
Forfeited
|
|
|
(763
|
)
|
|
|
10.80
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2016
|
|
|
273,125
|
|
|
$
|
10.59
|
|
|
|
|
|
|
|
|
|
|
Note 4. Comprehensive Income
The components of other comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
March 31, 2015
|
|
|
|
|
|
|
Before
|
|
|
Tax Benefit
|
|
|
Net of
|
|
|
Before
|
|
|
Tax Benefit
|
|
|
Net of
|
|
For the quarter ended:
|
|
tax amount
|
|
|
(Expense)
|
|
|
tax amount
|
|
|
tax amount
|
|
|
(Expense)
|
|
|
tax amount
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Net unrealized gains on available for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized holding gains arising during period
|
|
$
|
6,563
|
|
|
($
|
2,406
|
)
|
|
$
|
4,157
|
|
|
$
|
4,225
|
|
|
($
|
1,550
|
)
|
|
$
|
2,675
|
|
Reclassification adjustment for net gains arising during the period
|
|
|
(370
|
)
|
|
|
137
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
$
|
6,193
|
|
|
($
|
2,269
|
)
|
|
$
|
3,924
|
|
|
$
|
4,225
|
|
|
($
|
1,550
|
)
|
|
$
|
2,675
|
|
Change in minimum pension liability
|
|
|
64
|
|
|
|
(26
|
)
|
|
|
38
|
|
|
|
8
|
|
|
|
(3
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net
|
|
$
|
6,257
|
|
|
($
|
2,295
|
)
|
|
$
|
3,962
|
|
|
$
|
4,233
|
|
|
($
|
1,553
|
)
|
|
$
|
2,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The following table shows the changes in the balances of each of the components of other
comprehensive income for the periods presented (in thousands):
Changes in Accumulated Other Comprehensive Income by Component (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
|
|
|
|
|
|
|
Gains on
|
|
|
|
|
|
|
|
|
(Losses) on
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Pension Items
|
|
|
Total
|
|
|
Securities
|
|
|
Pension Items
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Beginning Balance
|
|
$
|
1,154
|
|
|
($
|
4
|
)
|
|
$
|
1,150
|
|
|
$
|
1,531
|
|
|
($
|
8
|
)
|
|
$
|
1,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income before classifications
|
|
|
4,157
|
|
|
|
38
|
|
|
|
4,195
|
|
|
|
2,675
|
|
|
|
5
|
|
|
|
2,680
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
(233
|
)
|
|
|
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
3,924
|
|
|
|
38
|
|
|
|
3,962
|
|
|
|
2,675
|
|
|
|
5
|
|
|
|
2,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,078
|
|
|
$
|
34
|
|
|
$
|
5,112
|
|
|
$
|
4,206
|
|
|
($
|
3
|
)
|
|
$
|
4,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
all amounts are net of tax.
|
13
Note 5. Statement of Cash Flow Information, Supplemental Information
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Supplemental schedule of noncash investing and financing activities:
|
|
|
|
|
Cash paid during the period for income taxes
|
|
$
|
4,575
|
|
|
$
|
4,706
|
|
Cash paid during the period for interest
|
|
|
3,569
|
|
|
|
2,403
|
|
Transfer of loans and leases into other repossessed assets and other real estate owned
|
|
|
263
|
|
|
|
266
|
|
Acquisition of Pascack:
|
|
|
|
|
|
|
|
|
Non-cash assets acquired:
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
|
2,962
|
|
|
|
|
|
Investment securities held for maturity
|
|
|
3,925
|
|
|
|
|
|
Loans, including loans held for sale
|
|
|
319,575
|
|
|
|
|
|
Goodwill and other intangible assets, net
|
|
|
16,983
|
|
|
|
|
|
Other assets
|
|
|
21,110
|
|
|
|
|
|
Total non-cash assets acquired
|
|
|
364,555
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
(304,466
|
)
|
|
|
|
|
Other borrowings
|
|
|
(57,308
|
)
|
|
|
|
|
Other liabilities
|
|
|
(6,502
|
)
|
|
|
|
|
Total liabilities assumed
|
|
|
(368,276
|
)
|
|
|
|
|
Common stock issued and fair value of stock options converted to Lakeland Bancorp stock
options
|
|
|
37,221
|
|
|
|
|
|
14
Note 6. Earnings Per Share
The following schedule shows the Companys earnings per share for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
(In thousands, except per share data)
|
|
2016
|
|
|
2015
|
|
Net income available to common shareholders
|
|
$
|
8,108
|
|
|
$
|
8,330
|
|
Less: earnings allocated to participating securities
|
|
|
58
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common shareholders
|
|
$
|
8,050
|
|
|
$
|
8,280
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
|
|
40,931
|
|
|
|
37,800
|
|
Share-based plans
|
|
|
161
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - diluted
|
|
|
41,092
|
|
|
|
37,937
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.20
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
There were no antidilutive options to purchase common stock to be excluded from the computation for the three
months ended March 31, 2016.
Options to purchase 113,023 shares of common stock at a weighted average price of $12.06 per share were
outstanding and were not included in the computations of diluted earnings per share for the three months ended March 31, 2015 because the exercise price was greater than the average market price.
15
Note 7. Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVAILABLE FOR SALE
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
U.S. treasury and U.S. government agencies
|
|
$
|
85,624
|
|
|
$
|
1,320
|
|
|
$
|
|
|
|
$
|
86,944
|
|
|
$
|
97,617
|
|
|
$
|
190
|
|
|
$
|
(674
|
)
|
|
$
|
97,133
|
|
Mortgage-backed securities, residential
|
|
|
284,449
|
|
|
|
3,825
|
|
|
|
(473
|
)
|
|
|
287,801
|
|
|
|
280,018
|
|
|
|
1,717
|
|
|
|
(2,283
|
)
|
|
|
279,452
|
|
Mortgage-backed securities, multifamily
|
|
|
10,235
|
|
|
|
217
|
|
|
|
|
|
|
|
10,452
|
|
|
|
10,249
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
10,120
|
|
Obligations of states and political subdivisions
|
|
|
35,734
|
|
|
|
1,118
|
|
|
|
(25
|
)
|
|
|
36,827
|
|
|
|
35,639
|
|
|
|
910
|
|
|
|
(51
|
)
|
|
|
36,498
|
|
Other debt securities
|
|
|
500
|
|
|
|
1
|
|
|
|
|
|
|
|
501
|
|
|
|
498
|
|
|
|
3
|
|
|
|
|
|
|
|
501
|
|
Equity securities
|
|
|
16,634
|
|
|
|
2,260
|
|
|
|
(272
|
)
|
|
|
18,622
|
|
|
|
16,550
|
|
|
|
2,393
|
|
|
|
(298
|
)
|
|
|
18,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
433,176
|
|
|
$
|
8,741
|
|
|
$
|
(770
|
)
|
|
$
|
441,147
|
|
|
$
|
440,571
|
|
|
$
|
5,213
|
|
|
$
|
(3,435
|
)
|
|
$
|
442,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD TO MATURITY
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
U.S. government agencies
|
|
$
|
28,519
|
|
|
$
|
852
|
|
|
$
|
|
|
|
$
|
29,371
|
|
|
$
|
30,477
|
|
|
$
|
289
|
|
|
$
|
(94
|
)
|
|
$
|
30,672
|
|
Mortgage-backed securities, residential
|
|
|
36,976
|
|
|
|
652
|
|
|
|
(79
|
)
|
|
|
37,549
|
|
|
|
36,466
|
|
|
|
411
|
|
|
|
(426
|
)
|
|
|
36,451
|
|
Mortgage-backed securities, multifamily
|
|
|
2,134
|
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
2,136
|
|
|
|
2,159
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
2,099
|
|
Obligations of states and political subdivisions
|
|
|
46,148
|
|
|
|
1,067
|
|
|
|
(6
|
)
|
|
|
47,209
|
|
|
|
45,617
|
|
|
|
809
|
|
|
|
(156
|
)
|
|
|
46,270
|
|
Other debt securities
|
|
|
2,019
|
|
|
|
73
|
|
|
|
|
|
|
|
2,092
|
|
|
|
2,021
|
|
|
|
81
|
|
|
|
|
|
|
|
2,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,796
|
|
|
$
|
2,651
|
|
|
$
|
(90
|
)
|
|
$
|
118,357
|
|
|
$
|
116,740
|
|
|
$
|
1,590
|
|
|
$
|
(736
|
)
|
|
$
|
117,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The following table shows investment securities by stated maturity. Securities backed by
mortgages have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay, and are, therefore, classified separately with no specific maturity date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Due in one year or less
|
|
$
|
3,438
|
|
|
$
|
3,458
|
|
|
$
|
8,393
|
|
|
$
|
8,393
|
|
Due after one year through five years
|
|
|
73,180
|
|
|
|
74,520
|
|
|
|
18,505
|
|
|
|
18,958
|
|
Due after five years through ten years
|
|
|
40,364
|
|
|
|
41,317
|
|
|
|
43,365
|
|
|
|
44,716
|
|
Due after ten years
|
|
|
4,876
|
|
|
|
4,977
|
|
|
|
6,423
|
|
|
|
6,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,858
|
|
|
|
124,272
|
|
|
|
76,686
|
|
|
|
78,672
|
|
Mortgage-backed securities
|
|
|
294,684
|
|
|
|
298,253
|
|
|
|
39,110
|
|
|
|
39,685
|
|
Equity securities
|
|
|
16,634
|
|
|
|
18,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
433,176
|
|
|
$
|
441,147
|
|
|
$
|
115,796
|
|
|
$
|
118,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows proceeds from sales of securities and gross gains on sales of securities for the
periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Sale proceeds
|
|
$
|
15,654
|
|
|
$
|
|
|
Gross gains
|
|
|
370
|
|
|
|
|
|
There were no losses on sales of securities or other-than-temporary impairments for the three months ended
March 31, 2016 or 2015.
Gains or losses on sales of investment securities are based on the net proceeds and the adjusted carrying
amount of the securities sold using the specific identification method.
Securities with a carrying value of approximately $361.7 million
and $347.7 million at March 31, 2016 and December 31, 2015, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.
17
The following table indicates the length of time individual securities have been in a continuous
unrealized loss position at March 31, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
Number of
|
|
|
|
|
|
Unrealized
|
|
AVAILABLE FOR SALE
|
|
Fair value
|
|
|
Losses
|
|
|
Fair value
|
|
|
Losses
|
|
|
securities
|
|
|
Fair value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities, residential
|
|
$
|
27,362
|
|
|
$
|
105
|
|
|
$
|
54,644
|
|
|
$
|
368
|
|
|
|
27
|
|
|
$
|
82,006
|
|
|
$
|
473
|
|
Obligations of states and political subdivisions
|
|
|
785
|
|
|
|
4
|
|
|
|
1,179
|
|
|
|
21
|
|
|
|
2
|
|
|
|
1,964
|
|
|
|
25
|
|
Equity securities
|
|
|
711
|
|
|
|
49
|
|
|
|
4,731
|
|
|
|
223
|
|
|
|
4
|
|
|
|
5,442
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,858
|
|
|
$
|
158
|
|
|
$
|
60,554
|
|
|
$
|
612
|
|
|
|
33
|
|
|
$
|
89,412
|
|
|
$
|
770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities, residential
|
|
$
|
2,592
|
|
|
$
|
3
|
|
|
$
|
6,467
|
|
|
$
|
76
|
|
|
|
5
|
|
|
$
|
9,059
|
|
|
$
|
79
|
|
Mortgage-backed securities, multifamily
|
|
|
|
|
|
|
|
|
|
|
903
|
|
|
|
5
|
|
|
|
1
|
|
|
|
903
|
|
|
|
5
|
|
Obligations of states and political subdivisions
|
|
|
7,214
|
|
|
|
4
|
|
|
|
752
|
|
|
|
2
|
|
|
|
8
|
|
|
|
7,966
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,806
|
|
|
$
|
7
|
|
|
$
|
8,122
|
|
|
$
|
83
|
|
|
|
14
|
|
|
$
|
17,928
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
Number of
|
|
|
|
|
|
Unrealized
|
|
AVAILABLE FOR SALE
|
|
Fair value
|
|
|
Losses
|
|
|
Fair value
|
|
|
Losses
|
|
|
securities
|
|
|
Fair value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and U.S. government agencies
|
|
$
|
80,192
|
|
|
$
|
674
|
|
|
$
|
|
|
|
$
|
|
|
|
|
16
|
|
|
$
|
80,192
|
|
|
$
|
674
|
|
Mortgage-backed securities, residential
|
|
|
103,749
|
|
|
|
1,043
|
|
|
|
50,095
|
|
|
|
1,240
|
|
|
|
50
|
|
|
|
153,844
|
|
|
|
2,283
|
|
Mortgage-backed securities, multifamily
|
|
|
10,120
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
10,120
|
|
|
|
129
|
|
Obligations of states and political subdivisions
|
|
|
2,051
|
|
|
|
4
|
|
|
|
1,466
|
|
|
|
47
|
|
|
|
7
|
|
|
|
3,517
|
|
|
|
51
|
|
Equity securities
|
|
|
247
|
|
|
|
24
|
|
|
|
4,643
|
|
|
|
274
|
|
|
|
3
|
|
|
|
4,890
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
196,359
|
|
|
$
|
1,874
|
|
|
$
|
56,204
|
|
|
$
|
1,561
|
|
|
|
78
|
|
|
$
|
252,563
|
|
|
$
|
3,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD TO MATURITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agencies
|
|
$
|
15,683
|
|
|
$
|
94
|
|
|
$
|
|
|
|
$
|
|
|
|
|
3
|
|
|
$
|
15,683
|
|
|
$
|
94
|
|
Mortgage-backed securities, residential
|
|
|
20,283
|
|
|
|
262
|
|
|
|
6,687
|
|
|
|
164
|
|
|
|
11
|
|
|
|
26,970
|
|
|
|
426
|
|
Mortgage-backed securities, multifamily
|
|
|
1,223
|
|
|
|
18
|
|
|
|
876
|
|
|
|
42
|
|
|
|
2
|
|
|
|
2,099
|
|
|
|
60
|
|
Obligations of states and political subdivisions
|
|
|
9,181
|
|
|
|
149
|
|
|
|
2,043
|
|
|
|
7
|
|
|
|
15
|
|
|
|
11,224
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,370
|
|
|
$
|
523
|
|
|
$
|
9,606
|
|
|
$
|
213
|
|
|
|
31
|
|
|
$
|
55,976
|
|
|
$
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Management has evaluated the securities in the above table and has concluded that none of the
securities are other-than-temporarily impaired. The cause of the fair values being below cost is due to interest rate movements and is deemed temporary. All investment securities are evaluated on a periodic basis to identify any factors that would
require a further analysis. In evaluating the Companys securities, management considers the following items:
|
|
|
The Companys ability and intent to hold the securities, including an evaluation of the need to sell the security to meet certain liquidity measures, or whether the Company has sufficient levels of cash to hold the
identified security in order to recover the entire amortized cost of the security;
|
|
|
|
The financial condition of the underlying issuer;
|
|
|
|
The credit ratings of the underlying issuer and if any changes in the credit rating have occurred;
|
|
|
|
The length of time the securitys fair value has been less than amortized cost; and
|
|
|
|
Adverse conditions related to the security or its issuer if the issuer has failed to make scheduled payments or other factors.
|
If the above factors indicate that an additional analysis is required, management will perform and consider the results of a discounted cash
flow analysis.
As of March 31, 2016, the equity securities include investments in other financial institutions for market
appreciation purposes. Those equities had a purchase price of $2.7 million and a market value of $4.8 million as of March 31, 2016.
As of March 31, 2016, equity securities also included $13.8 million in investment funds that do not have a quoted market price but use
net asset value per share or its equivalent to measure fair value.
The funds include $2.9 million in funds that are primarily invested in
community development loans that are guaranteed by the Small Business Administration (SBA). Because the funds are primarily guaranteed by the federal government there are minimal changes in market value between accounting periods. These funds can be
redeemed with 60 days notice at the net asset value less unpaid management fees with the approval of the fund manager. As of March 31, 2016, the net amortized cost equaled the market value of the investment. There are no unfunded commitments
related to this investment.
The funds also include $10.9 million in funds that are invested in government guaranteed loans,
mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development. The Company may redeem these funds at the net asset value calculated at the end of the current business day less any
unpaid management fees. As of March 31, 2016, the amortized cost of these securities was $11.0 million and the fair value was $10.9 million. There are no restrictions on redemptions for the holdings in these investments other than the notice
required by the fund manager. There are no unfunded commitments related to this investment.
Note 8. Loans, Leases and Other Real Estate.
The following sets forth the composition of Lakelands loan and lease portfolio as of March 31, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Commercial, secured by real estate
|
|
$
|
2,118,682
|
|
|
$
|
1,761,589
|
|
Commercial, industrial and other
|
|
|
332,097
|
|
|
|
307,044
|
|
Leases
|
|
|
60,925
|
|
|
|
56,660
|
|
Real estate - residential mortgage
|
|
|
392,387
|
|
|
|
389,692
|
|
Real estate - construction
|
|
|
124,653
|
|
|
|
118,070
|
|
Home equity and consumer
|
|
|
340,217
|
|
|
|
334,891
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
3,368,961
|
|
|
|
2,967,946
|
|
|
|
|
|
|
|
|
|
|
Less: deferred fees
|
|
|
(2,589
|
)
|
|
|
(2,746
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net of deferred fees
|
|
$
|
3,366,372
|
|
|
$
|
2,965,200
|
|
|
|
|
|
|
|
|
|
|
19
At March 31, 2016 and December 31, 2015, home equity and consumer loans included
overdraft deposit balances of $460,000 and $705,000, respectively. At March 31, 2016 and December 31, 2015, the Company had $842.7 million and $738.7 million in loans pledged for actual and potential borrowings at the Federal Home Loan
Bank of New York (FHLB).
The carrying value of acquired loans acquired and accounted for in accordance with ASC Subtopic 310-30,
Loans and Debt Securities Acquired with Deteriorated Credit Quality, was $0.8 million at March 31, 2016, which was substantially the same as the balance at the Pascack acquisition date of January 7, 2016. Under ASC Subtopic
310-30, loans may be aggregated and accounted for as pools of loans if the loans being aggregated have common risk characteristics. The Company elected to account for the loans with evidence of credit deterioration individually rather than aggregate
them into pools. The difference between the undiscounted cash flows expected at acquisition and the investment in the acquired loans, or the accretable yield, is recognized as interest income utilizing the level-yield method over the
life of each loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the non-accretable difference, are not recognized as a yield adjustment, as a loss accrual
or as a valuation allowance.
Increases in expected cash flows subsequent to the acquisition are recognized prospectively through an
adjustment of the yield on the loans over the remaining life, while decreases in expected cash flows are recognized as impairments through a loss provision and an increase in the allowance for loan and lease losses. Valuation allowances (recognized
in the allowance for loan and lease losses) on these impaired loans reflect only losses incurred after the acquisition (representing all cash flows that were expected at acquisition but currently are not expected to be received).
There were no material increases or decreases in the expected cash flows between January 7, 2016 and March 31, 2016. The Company
recognized $16,000 of interest income on the credit impaired loans acquired.
Non-Performing Assets and Past Due Loans
The following schedule sets forth certain information regarding the Companys non-performing assets and its accruing troubled debt
restructurings:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Commercial, secured by real estate
|
|
$
|
11,943
|
|
|
$
|
10,446
|
|
Commercial, industrial and other
|
|
|
1,163
|
|
|
|
103
|
|
Leases
|
|
|
282
|
|
|
|
316
|
|
Real estate - residential mortgage
|
|
|
8,330
|
|
|
|
8,664
|
|
Home equity and consumer
|
|
|
3,249
|
|
|
|
3,167
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans and leases
|
|
$
|
24,967
|
|
|
$
|
22,696
|
|
Other real estate and other repossessed assets
|
|
|
792
|
|
|
|
983
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-PERFORMING ASSETS
|
|
$
|
25,759
|
|
|
$
|
23,679
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings, still accruing
|
|
$
|
10,545
|
|
|
$
|
10,108
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans included $2.1 million and $2.5 million of troubled debt restructurings as of March 31,
2016 and December 31, 2015, respectively. As of March 31, 2016 and December 31, 2015, the Company had $7.1 million and $7.9 million, respectively, in residential mortgages and consumer home equity loans that were in the process of
foreclosure.
20
An age analysis of past due loans, segregated by class of loans as of March 31, 2016 and
December 31, 2015, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
|
|
Total
|
|
|
Investment greater
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Than
|
|
|
Total
|
|
|
|
|
|
Loans
|
|
|
than 89 Days and
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
89 Days
|
|
|
Past Due
|
|
|
Current
|
|
|
and Leases
|
|
|
still accruing
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
5,274
|
|
|
$
|
3,450
|
|
|
$
|
10,514
|
|
|
$
|
19,238
|
|
|
$
|
2,099,444
|
|
|
$
|
2,118,682
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
92
|
|
|
|
|
|
|
|
251
|
|
|
|
343
|
|
|
|
331,754
|
|
|
|
332,097
|
|
|
|
|
|
Leases
|
|
|
161
|
|
|
|
85
|
|
|
|
282
|
|
|
|
528
|
|
|
|
60,397
|
|
|
|
60,925
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
1,365
|
|
|
|
215
|
|
|
|
8,329
|
|
|
|
9,909
|
|
|
|
382,478
|
|
|
|
392,387
|
|
|
|
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,653
|
|
|
|
124,653
|
|
|
|
|
|
Home equity and consumer
|
|
|
1,220
|
|
|
|
171
|
|
|
|
2,620
|
|
|
|
4,011
|
|
|
|
336,206
|
|
|
|
340,217
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,112
|
|
|
$
|
3,921
|
|
|
$
|
21,996
|
|
|
$
|
34,029
|
|
|
$
|
3,334,932
|
|
|
$
|
3,368,961
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
1,465
|
|
|
$
|
693
|
|
|
$
|
7,853
|
|
|
$
|
10,011
|
|
|
$
|
1,751,578
|
|
|
$
|
1,761,589
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
205
|
|
|
|
|
|
|
|
103
|
|
|
|
308
|
|
|
|
306,736
|
|
|
|
307,044
|
|
|
|
|
|
Leases
|
|
|
62
|
|
|
|
26
|
|
|
|
316
|
|
|
|
404
|
|
|
|
56,256
|
|
|
|
56,660
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
1,361
|
|
|
|
725
|
|
|
|
7,472
|
|
|
|
9,558
|
|
|
|
380,134
|
|
|
|
389,692
|
|
|
|
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,070
|
|
|
|
118,070
|
|
|
|
|
|
Home equity and consumer
|
|
|
876
|
|
|
|
141
|
|
|
|
3,498
|
|
|
|
4,515
|
|
|
|
330,376
|
|
|
|
334,891
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,969
|
|
|
$
|
1,585
|
|
|
$
|
19,242
|
|
|
$
|
24,796
|
|
|
$
|
2,943,150
|
|
|
$
|
2,967,946
|
|
|
$
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Impaired Loans
The Company defines impaired loans as all non-accrual loans and leases with recorded investments of $500,000 or greater. Impaired loans also
includes all loans modified in troubled debt restructurings. Impaired loans as of March 31, 2016, March 31, 2015 and December 31, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Investment in
|
|
|
Principal
|
|
|
Specific
|
|
|
Income
|
|
|
Investment in
|
|
March 31, 2016
|
|
Impaired loans
|
|
|
Balance
|
|
|
Allowance
|
|
|
Recognized
|
|
|
Impaired loans
|
|
|
|
(in thousands)
|
|
Loans without specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
13,636
|
|
|
$
|
14,721
|
|
|
$
|
|
|
|
$
|
61
|
|
|
$
|
13,437
|
|
Commercial, industrial and other
|
|
|
773
|
|
|
|
793
|
|
|
|
|
|
|
|
1
|
|
|
|
237
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
2,187
|
|
|
|
2,194
|
|
|
|
|
|
|
|
4
|
|
|
|
2,187
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
552
|
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
552
|
|
|
|
|
|
|
|
Loans with specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
6,262
|
|
|
|
6,339
|
|
|
|
488
|
|
|
|
69
|
|
|
|
6,273
|
|
Commercial, industrial and other
|
|
|
991
|
|
|
|
991
|
|
|
|
41
|
|
|
|
11
|
|
|
|
991
|
|
Leases
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Real estate - residential mortgage
|
|
|
824
|
|
|
|
716
|
|
|
|
63
|
|
|
|
9
|
|
|
|
826
|
|
Real estate - construction
|
|
|
375
|
|
|
|
375
|
|
|
|
4
|
|
|
|
4
|
|
|
|
375
|
|
Home equity and consumer
|
|
|
1,271
|
|
|
|
1,271
|
|
|
|
105
|
|
|
|
14
|
|
|
|
1,174
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
19,898
|
|
|
$
|
21,060
|
|
|
$
|
488
|
|
|
$
|
130
|
|
|
$
|
19,710
|
|
Commercial, industrial and other
|
|
|
1,764
|
|
|
|
1,784
|
|
|
|
41
|
|
|
|
12
|
|
|
|
1,228
|
|
Leases
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Real estate - residential mortgage
|
|
|
3,011
|
|
|
|
2,910
|
|
|
|
63
|
|
|
|
13
|
|
|
|
3,013
|
|
Real estate - construction
|
|
|
375
|
|
|
|
375
|
|
|
|
4
|
|
|
|
4
|
|
|
|
375
|
|
Home equity and consumer
|
|
|
1,823
|
|
|
|
1,823
|
|
|
|
105
|
|
|
|
14
|
|
|
|
1,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,874
|
|
|
$
|
27,955
|
|
|
$
|
701
|
|
|
$
|
173
|
|
|
$
|
26,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Investment in
|
|
|
Principal
|
|
|
Specific
|
|
|
Income
|
|
|
Investment in
|
|
March 31, 2015
|
|
Impaired loans
|
|
|
Balance
|
|
|
Allowance
|
|
|
Recognized
|
|
|
Impaired loans
|
|
|
|
(in thousands)
|
|
Loans without specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
12,802
|
|
|
$
|
15,058
|
|
|
$
|
|
|
|
$
|
99
|
|
|
$
|
13,177
|
|
Commercial, industrial and other
|
|
|
1,177
|
|
|
|
1,281
|
|
|
|
|
|
|
|
3
|
|
|
|
233
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
2,160
|
|
|
|
2,160
|
|
|
|
|
|
|
|
4
|
|
|
|
2,162
|
|
Real estate - construction
|
|
|
169
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
Home equity and consumer
|
|
|
765
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
|
741
|
|
|
|
|
|
|
|
Loans with specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
5,563
|
|
|
|
5,695
|
|
|
|
351
|
|
|
|
58
|
|
|
|
5,449
|
|
Commercial, industrial and other
|
|
|
684
|
|
|
|
1,191
|
|
|
|
5
|
|
|
|
5
|
|
|
|
695
|
|
Leases
|
|
|
14
|
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
753
|
|
|
|
753
|
|
|
|
72
|
|
|
|
9
|
|
|
|
753
|
|
Real estate - construction
|
|
|
394
|
|
|
|
394
|
|
|
|
2
|
|
|
|
1
|
|
|
|
92
|
|
Home equity and consumer
|
|
|
1,331
|
|
|
|
1,331
|
|
|
|
1,014
|
|
|
|
16
|
|
|
|
1,243
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
18,365
|
|
|
$
|
20,753
|
|
|
$
|
351
|
|
|
$
|
157
|
|
|
$
|
18,626
|
|
Commercial, industrial and other
|
|
|
1,861
|
|
|
|
2,472
|
|
|
|
5
|
|
|
|
8
|
|
|
|
928
|
|
Leases
|
|
|
14
|
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
2,913
|
|
|
|
2,913
|
|
|
|
72
|
|
|
|
13
|
|
|
|
2,915
|
|
Real estate - construction
|
|
|
563
|
|
|
|
563
|
|
|
|
2
|
|
|
|
1
|
|
|
|
270
|
|
Home equity and consumer
|
|
|
2,096
|
|
|
|
2,096
|
|
|
|
1,014
|
|
|
|
16
|
|
|
|
1,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,812
|
|
|
$
|
28,811
|
|
|
$
|
1,458
|
|
|
$
|
195
|
|
|
$
|
24,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
Unpaid
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Investment in
|
|
|
Principal
|
|
|
Specific
|
|
|
Income
|
|
|
Investment in
|
|
December 31, 2015
|
|
Impaired loans
|
|
|
Balance
|
|
|
Allowance
|
|
|
Recognized
|
|
|
Impaired loans
|
|
|
|
(in thousands)
|
|
Loans without specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
14,065
|
|
|
$
|
14,712
|
|
|
$
|
|
|
|
$
|
344
|
|
|
$
|
12,928
|
|
Commercial, industrial and other
|
|
|
209
|
|
|
|
887
|
|
|
|
|
|
|
|
14
|
|
|
|
749
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
2,195
|
|
|
|
2,242
|
|
|
|
|
|
|
|
|
|
|
|
2,096
|
|
Real estate - construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
Home equity and consumer
|
|
|
574
|
|
|
|
575
|
|
|
|
|
|
|
|
5
|
|
|
|
762
|
|
|
|
|
|
|
|
Loans with specific allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
5,721
|
|
|
|
5,918
|
|
|
|
598
|
|
|
|
271
|
|
|
|
6,249
|
|
Commercial, industrial and other
|
|
|
1,023
|
|
|
|
1,023
|
|
|
|
77
|
|
|
|
32
|
|
|
|
717
|
|
Leases
|
|
|
6
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
832
|
|
|
|
865
|
|
|
|
73
|
|
|
|
37
|
|
|
|
840
|
|
Real estate - construction
|
|
|
380
|
|
|
|
380
|
|
|
|
21
|
|
|
|
13
|
|
|
|
308
|
|
Home equity and consumer
|
|
|
1,001
|
|
|
|
1,013
|
|
|
|
73
|
|
|
|
54
|
|
|
|
1,006
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
$
|
19,786
|
|
|
$
|
20,630
|
|
|
$
|
598
|
|
|
$
|
615
|
|
|
$
|
19,177
|
|
Commercial, industrial and other
|
|
|
1,232
|
|
|
|
1,910
|
|
|
|
77
|
|
|
|
46
|
|
|
|
1,466
|
|
Leases
|
|
|
6
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
3,027
|
|
|
|
3,107
|
|
|
|
73
|
|
|
|
37
|
|
|
|
2,936
|
|
Real estate - construction
|
|
|
380
|
|
|
|
380
|
|
|
|
21
|
|
|
|
13
|
|
|
|
402
|
|
Home equity and consumer
|
|
|
1,575
|
|
|
|
1,588
|
|
|
|
73
|
|
|
|
59
|
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,006
|
|
|
$
|
27,621
|
|
|
$
|
843
|
|
|
$
|
770
|
|
|
$
|
25,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest that would have been accrued on impaired loans during the first three months of 2016 and 2015 had the
loans been performing under original terms would have been $450,000 and $420,000, respectively. Interest that would have accrued for the year ended December 31, 2015 was $1.6 million.
Credit Quality Indicators
The class of
loans are determined by internal risk rating. Management closely and continually monitors the quality of its loans and leases and assesses the quantitative and qualitative risks arising from the credit quality of its loans and leases. It is the
policy of Lakeland to require that a Credit Risk Rating be assigned to all commercial loans and loan commitments. The Credit Risk Rating System has been developed by management to provide a methodology to be used by Loan Officers, department heads
and Senior Management in identifying various levels of credit risk that exist within Lakelands loan portfolios. The risk rating system assists Senior Management in evaluating Lakelands commercial loan portfolio, analyzing trends, and
determining the proper level of required reserves to be recommended to the Board. In assigning risk ratings, management considers, among other things, a borrowers debt service coverage, earnings strength, loan to value ratios, industry
conditions and economic conditions. Management categorizes commercial loans and commitments into a one (1) to nine (9) numerical structure with rating 1 being the strongest rating and rating 9 being the weakest. Ratings 1 through 5W are
considered Pass ratings.
24
The following table shows the Companys commercial loan portfolio as of March 31, 2016
and December 31, 2015, by the risk ratings discussed above (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
|
secured by
|
|
|
industrial
|
|
|
Real estate-
|
|
Risk Rating
|
|
real estate
|
|
|
and other
|
|
|
construction
|
|
1
|
|
$
|
|
|
|
|
4,188
|
|
|
$
|
|
|
2
|
|
|
|
|
|
|
11,252
|
|
|
|
|
|
3
|
|
|
92,705
|
|
|
|
59,705
|
|
|
|
|
|
4
|
|
|
667,804
|
|
|
|
121,085
|
|
|
|
16,466
|
|
5
|
|
|
1,207,653
|
|
|
|
110,240
|
|
|
|
104,961
|
|
5W - Watch
|
|
|
62,758
|
|
|
|
7,572
|
|
|
|
146
|
|
6 - Other Assets Especially Mentioned
|
|
|
37,417
|
|
|
|
5,912
|
|
|
|
1,846
|
|
7 - Substandard
|
|
|
50,345
|
|
|
|
12,143
|
|
|
|
1,234
|
|
8 - Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
9 - Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,118,682
|
|
|
$
|
332,097
|
|
|
$
|
124,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
|
secured by
|
|
|
industrial
|
|
|
Real estate-
|
|
Risk Rating
|
|
real estate
|
|
|
and other
|
|
|
construction
|
|
1
|
|
$
|
|
|
|
$
|
3,517
|
|
|
$
|
|
|
2
|
|
|
|
|
|
|
9,662
|
|
|
|
|
|
3
|
|
|
65,199
|
|
|
|
56,895
|
|
|
|
|
|
4
|
|
|
526,909
|
|
|
|
111,702
|
|
|
|
19,125
|
|
5
|
|
|
1,044,888
|
|
|
|
105,301
|
|
|
|
94,535
|
|
5W - Watch
|
|
|
43,342
|
|
|
|
4,259
|
|
|
|
146
|
|
6 - Other Assets Especially Mentioned
|
|
|
34,570
|
|
|
|
4,105
|
|
|
|
1,851
|
|
7 - Substandard
|
|
|
46,681
|
|
|
|
11,603
|
|
|
|
2,413
|
|
8 - Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
9 - Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,761,589
|
|
|
$
|
307,044
|
|
|
$
|
118,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The risk rating tables above do not include consumer or residential loans or leases because they are evaluated
on their payment status.
25
Allowance for Loan and Lease Losses
In 2015, The Company refined and enhanced its assessment of the adequacy of the allowance for loan and lease losses by extending the lookback
period on its commercial loan portfolios from three years to five years and by extending the lookback period for all other portfolios from two to three years in order to capture more of the economic cycle. It also enhanced its qualitative factor
framework to include a factor that captures the risk related to appraised real estate values, and how those values could change in relation to a change in capitalization rates. This enhancement is meant to increase the level of precision in the
allowance for loan and lease losses. As a result, the Company will no longer have an unallocated segment in its allowance for loan losses, as the risks and uncertainties meant to be captured by the unallocated allowance have been
included in the qualitative framework for the respective portfolios. As such, the unallocated allowance has in essence been reallocated to the certain portfolios based on the risks and uncertainties it was meant to capture.
The following table details activity in the allowance for loan and lease losses by portfolio segment for the three months ended March 31,
2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
secured by
|
|
|
industrial
|
|
|
|
|
|
residential
|
|
|
Real estate-
|
|
|
equity and
|
|
|
|
|
|
|
|
Allowance for Loan and Lease Losses:
|
|
real estate
|
|
|
and other
|
|
|
Leases
|
|
|
mortgage
|
|
|
construction
|
|
|
consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Beginning Balance
|
|
$
|
20,223
|
|
|
$
|
2,637
|
|
|
$
|
460
|
|
|
$
|
2,588
|
|
|
$
|
1,591
|
|
|
$
|
3,375
|
|
|
$
|
0
|
|
|
$
|
30,874
|
|
Charge-offs
|
|
|
(135
|
)
|
|
|
(625
|
)
|
|
|
(70
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
(620
|
)
|
|
|
|
|
|
|
(1,543
|
)
|
Recoveries
|
|
|
55
|
|
|
|
42
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
147
|
|
Provision
|
|
|
(66
|
)
|
|
|
543
|
|
|
|
197
|
|
|
|
(232
|
)
|
|
|
(87
|
)
|
|
|
720
|
|
|
|
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
20,077
|
|
|
$
|
2,597
|
|
|
$
|
588
|
|
|
$
|
2,266
|
|
|
$
|
1,504
|
|
|
$
|
3,521
|
|
|
$
|
|
|
|
$
|
30,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
secured by
|
|
|
industrial
|
|
|
|
|
|
residential
|
|
|
Real estate-
|
|
|
equity and
|
|
|
|
|
|
|
|
Allowance for Loan and Lease Losses:
|
|
real estate
|
|
|
and other
|
|
|
Leases
|
|
|
mortgage
|
|
|
construction
|
|
|
consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Beginning Balance
|
|
$
|
13,577
|
|
|
$
|
3,196
|
|
|
$
|
582
|
|
|
$
|
4,020
|
|
|
$
|
553
|
|
|
$
|
6,333
|
|
|
$
|
2,423
|
|
|
$
|
30,684
|
|
Charge-offs
|
|
|
(546
|
)
|
|
|
(10
|
)
|
|
|
(427
|
)
|
|
|
(17
|
)
|
|
|
(20
|
)
|
|
|
(261
|
)
|
|
|
|
|
|
|
(1,281
|
)
|
Recoveries
|
|
|
39
|
|
|
|
42
|
|
|
|
20
|
|
|
|
1
|
|
|
|
100
|
|
|
|
30
|
|
|
|
|
|
|
|
232
|
|
Provision
|
|
|
(510
|
)
|
|
|
79
|
|
|
|
863
|
|
|
|
(706
|
)
|
|
|
4
|
|
|
|
822
|
|
|
|
318
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
12,560
|
|
|
$
|
3,307
|
|
|
$
|
1,038
|
|
|
$
|
3,298
|
|
|
$
|
637
|
|
|
$
|
6,924
|
|
|
$
|
2,741
|
|
|
$
|
30,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Loans receivable summarized by portfolio segment and impairment method are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
secured by
|
|
|
industrial
|
|
|
|
|
|
residential
|
|
|
Real estate-
|
|
|
equity and
|
|
|
|
|
|
|
real estate
|
|
|
and other
|
|
|
Leases
|
|
|
mortgage
|
|
|
construction
|
|
|
consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
At March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
19,898
|
|
|
$
|
1,764
|
|
|
$
|
3
|
|
|
$
|
3,011
|
|
|
$
|
375
|
|
|
$
|
1,823
|
|
|
$
|
26,874
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
2,098,460
|
|
|
|
329,885
|
|
|
|
60,922
|
|
|
|
389,376
|
|
|
|
124,278
|
|
|
|
338,371
|
|
|
$
|
3,341,292
|
|
Ending Balance: Loans acquired with deteriorated credit quality
|
|
|
324
|
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
$
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance (1)
|
|
$
|
2,118,682
|
|
|
$
|
332,097
|
|
|
$
|
60,925
|
|
|
$
|
392,387
|
|
|
$
|
124,653
|
|
|
$
|
340,217
|
|
|
$
|
3,368,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes deferred fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
secured by
|
|
|
industrial
|
|
|
|
|
|
residential
|
|
|
Real estate-
|
|
|
equity and
|
|
|
|
|
|
|
real estate
|
|
|
and other
|
|
|
Leases
|
|
|
mortgage
|
|
|
construction
|
|
|
consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
19,786
|
|
|
$
|
1,232
|
|
|
$
|
6
|
|
|
$
|
3,027
|
|
|
$
|
380
|
|
|
$
|
1,575
|
|
|
$
|
26,006
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
1,741,803
|
|
|
|
305,812
|
|
|
|
56,654
|
|
|
|
386,665
|
|
|
|
117,690
|
|
|
|
333,316
|
|
|
$
|
2,941,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance (1)
|
|
$
|
1,761,589
|
|
|
$
|
307,044
|
|
|
$
|
56,660
|
|
|
$
|
389,692
|
|
|
$
|
118,070
|
|
|
$
|
334,891
|
|
|
$
|
2,967,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes deferred fees
|
27
The allowance for loan and lease losses is summarized by portfolio segment and impairment
classification as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
secured by
|
|
|
industrial
|
|
|
|
|
|
residential
|
|
|
Real estate-
|
|
|
equity and
|
|
|
|
|
|
|
real estate
|
|
|
and other
|
|
|
Leases
|
|
|
mortgage
|
|
|
construction
|
|
|
consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
At March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
488
|
|
|
$
|
41
|
|
|
$
|
|
|
|
$
|
63
|
|
|
$
|
4
|
|
|
$
|
105
|
|
|
$
|
701
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
19,589
|
|
|
|
2,556
|
|
|
|
588
|
|
|
|
2,203
|
|
|
|
1,500
|
|
|
|
3,416
|
|
|
$
|
29,852
|
|
Ending Balance: Loans acquired with deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
20,077
|
|
|
$
|
2,597
|
|
|
$
|
588
|
|
|
$
|
2,266
|
|
|
$
|
1,504
|
|
|
$
|
3,521
|
|
|
$
|
30,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial,
|
|
|
Commercial,
|
|
|
|
|
|
Real estate-
|
|
|
|
|
|
Home
|
|
|
|
|
|
|
secured by
|
|
|
industrial
|
|
|
|
|
|
residential
|
|
|
Real estate-
|
|
|
equity and
|
|
|
|
|
|
|
real estate
|
|
|
and other
|
|
|
Leases
|
|
|
mortgage
|
|
|
construction
|
|
|
consumer
|
|
|
Total
|
|
|
|
(in thousands)
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: Individually evaluated for impairment
|
|
$
|
598
|
|
|
$
|
77
|
|
|
$
|
1
|
|
|
$
|
73
|
|
|
$
|
21
|
|
|
$
|
73
|
|
|
$
|
843
|
|
Ending Balance: Collectively evaluated for impairment
|
|
|
19,625
|
|
|
|
2,560
|
|
|
|
459
|
|
|
|
2,515
|
|
|
|
1,570
|
|
|
|
3,302
|
|
|
$
|
30,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
20,223
|
|
|
$
|
2,637
|
|
|
$
|
460
|
|
|
$
|
2,588
|
|
|
$
|
1,591
|
|
|
$
|
3,375
|
|
|
$
|
30,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lakeland also maintains a reserve for unfunded lending commitments which is included in other liabilities.
This reserve was $2.2 million and $2.0 million at March 31, 2016 and December 31, 2015, respectively. The Company analyzes the adequacy of the reserve for unfunded lending commitments in conjunction with its analysis of the adequacy of the
allowance for loan and lease losses. For more information on this analysis, see Risk Elements in Managements Discussion and Analysis.
Troubled Debt Restructurings
Troubled
debt restructurings are those loans where concessions have been made due to borrowers financial difficulties. Restructured loans typically involve a modification of terms such as a reduction of the stated interest rate, a moratorium of
principal payments and/or an extension of the maturity date at a stated interest rate lower than the current market rate of a new loan with similar risk. The Company considers the potential losses on these loans as well as the remainder of its
impaired loans while considering the adequacy of the allowance for loan and lease losses.
28
The following table summarizes loans that have been restructured during the three months ended
March 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,149
|
|
|
|
1,149
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
14
|
|
|
|
14
|
|
Real estateresidential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estateconstruction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
396
|
|
|
|
396
|
|
Home equity and consumer
|
|
|
3
|
|
|
|
285
|
|
|
|
285
|
|
|
|
1
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
$
|
285
|
|
|
$
|
285
|
|
|
|
4
|
|
|
$
|
1,568
|
|
|
$
|
1,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes as of March 31, 2016 and 2015, loans that were restructured within the
previous 12 months that have subsequently defaulted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
Number of
|
|
|
Recorded
|
|
|
Number of
|
|
|
Recorded
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Contracts
|
|
|
Investment
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
Defaulted Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, secured by real estate
|
|
|
1
|
|
|
$
|
635
|
|
|
|
|
|
|
$
|
|
|
Commercial, industrial and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - residential mortgage
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
483
|
|
Real estateconstruction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and consumer
|
|
|
2
|
|
|
|
227
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
$
|
862
|
|
|
|
2
|
|
|
$
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages Held for Sale
Residential mortgages originated by the bank and held for sale in the secondary market are carried at the lower of cost or fair market value.
Fair market value is generally determined by the value of purchase commitments on individual loans. Losses are recorded as a valuation allowance and charged to earnings. The Company had $1.2 million in mortgages held for sale for each of the periods
ending March 31, 2016 and December 31, 2015.
Other Real Estate and Other Repossessed Assets
At March 31, 2016, the Company had other real estate owned and other repossessed assets of $776,000 and $16,000, respectively. At
December 31, 2015, the Company had other real estate owned and other repossessed assets of $934,000 and $49,000, respectively. The other real estate owned that the Company held at March 31, 2016 and December 31, 2015 included $648,000
and $805,000, respectively, in residential property acquired as a result of foreclosure proceedings or through a deed in lieu of foreclosure.
29
Note 9. Estimated Fair Value of Financial Instruments and Fair Value Measurement
Fair Value Measurement
Fair value
is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date.
U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurements) and the lowest level priority to unobservable inputs (level 3 measurements). The following describes the three levels of fair value hierarchy:
Level 1 unadjusted quoted prices in active markets for identical assets or liabilities; includes U.S. Treasury Notes, and other U.S.
Government Agency securities that actively trade in over-the-counter markets; equity securities and mutual funds that actively trade in over-the-counter markets.
Level 2 quoted prices for similar assets or liabilities in active markets; or quoted prices for identical or similar assets or
liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability including yield curves, volatilities, and prepayment speeds.
Level 3 unobservable inputs for the asset or liability that reflect the Companys own assumptions about assumptions that market
participants would use in the pricing of the asset or liability and that are consequently not based on market activity but upon particular valuation techniques.
The Companys assets that are measured at fair value on a recurring basis are its available for sale investment securities. The
Company obtains fair values on its securities using information from a third party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1 securities. The Company has U.S. Treasury
Notes and certain equity securities that are classified as Level 1 securities. Level 2 securities were primarily comprised of U.S. Agency bonds, residential mortgage-backed securities, obligations of state and political subdivisions and corporate
securities. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models supported with market data information. Standard inputs include benchmark yields, reported trades,
issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the Companys third party pricing service. This review includes a comparison to non-binding third-party quotes.
The fair values of derivatives are based on valuation models from a third party using current market terms (including interest rates and
fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).
30
The following table sets forth the Companys financial assets that were accounted for at
fair value on a recurring basis as of the periods presented by level within the fair value hierarchy. During the three months ended March 31, 2016, the Company did not make any transfers between any levels within the fair value hierarchy.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government agencies
|
|
$
|
86,944
|
|
|
$
|
6,014
|
|
|
$
|
80,930
|
|
|
$
|
|
|
Mortgage backed securities
|
|
|
298,253
|
|
|
|
|
|
|
|
298,253
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
36,827
|
|
|
|
|
|
|
|
36,827
|
|
|
|
|
|
Other debt securities
|
|
|
501
|
|
|
|
|
|
|
|
501
|
|
|
|
|
|
Equity securities
|
|
|
4,833
|
|
|
|
4,825
|
|
|
|
8
|
|
|
|
|
|
Investments measured at net asset value*
|
|
|
13,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
441,147
|
|
|
|
10,839
|
|
|
|
416,519
|
|
|
|
|
|
Non-hedging interest rate derivatives
|
|
|
3,505
|
|
|
|
|
|
|
|
3,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
444,652
|
|
|
$
|
10,839
|
|
|
$
|
420,024
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging interest rate derivatives
|
|
$
|
3,505
|
|
|
$
|
|
|
|
$
|
3,505
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
3,505
|
|
|
$
|
|
|
|
$
|
3,505
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government agencies
|
|
$
|
97,133
|
|
|
$
|
4,888
|
|
|
$
|
92,245
|
|
|
$
|
|
|
Mortgage backed securities
|
|
|
289,572
|
|
|
|
|
|
|
|
289,572
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
36,498
|
|
|
|
|
|
|
|
36,498
|
|
|
|
|
|
Other debt securities
|
|
|
501
|
|
|
|
|
|
|
|
501
|
|
|
|
|
|
Equity securities
|
|
|
5,060
|
|
|
|
5,052
|
|
|
|
8
|
|
|
|
|
|
Investments measured at net asset value*
|
|
|
13,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
442,349
|
|
|
|
9,940
|
|
|
|
418,824
|
|
|
|
|
|
|
|
|
|
|
Non-hedging interest rate derivatives
|
|
|
1,518
|
|
|
|
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
443,867
|
|
|
$
|
9,940
|
|
|
$
|
420,342
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-hedging interest rate derivatives
|
|
$
|
1,518
|
|
|
$
|
|
|
|
$
|
1,518
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
1,518
|
|
|
$
|
|
|
|
$
|
1,518
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in
the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
|
31
The following table sets forth the Companys assets subject to fair value adjustments
(impairment) on a nonrecurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Impaired Loans and Leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,874
|
|
|
$
|
26,874
|
|
Loans held for sale
|
|
|
|
|
|
|
1,150
|
|
|
|
|
|
|
|
1,150
|
|
Other real estate owned and other repossessed assets
|
|
|
|
|
|
|
|
|
|
|
792
|
|
|
|
792
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans and Leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,006
|
|
|
$
|
26,006
|
|
Loans held for sale
|
|
|
|
|
|
|
1,233
|
|
|
|
|
|
|
|
1,233
|
|
Other real estate owned and other repossessed assets
|
|
|
|
|
|
|
|
|
|
|
983
|
|
|
|
983
|
|
Impaired loans are evaluated and valued at the time the loan is identified as impaired at the lower of cost or
market value of the underlying collateral. Because most of Lakelands impaired loans are collateral dependent, fair value is generally measured based on the value of the collateral, less estimated costs to sell, securing these loans and leases
and is classified at a level 3 in the fair value hierarchy. Collateral may be real estate, accounts receivable, inventory, equipment and/or other business assets. The value of the real estate is assessed based on appraisals by qualified third party
licensed appraisers. The appraisers may use the sales comparison approach, the cost approach or the income approach to value the collateral using discount rates (with ranges of 5-11%) or capitalization rates (with ranges of 4-9%) to evaluate the
property. The value of the equipment may be determined by an appraiser, if significant, inquiry through a recognized valuation resource, or by the value on the borrowers financial statements. Field examiner reviews on business assets may be
conducted based on the loan exposure and reliance on this type of collateral. Appraised and reported values may be adjusted based on managements historical knowledge, changes in market conditions from the time of valuation, and/or
managements expertise and knowledge of the client and clients business. Loans that are not collateral dependent are evaluated based on a discounted cash flow method. Impaired loans are reviewed and evaluated on at least a quarterly basis
for additional impairment and adjusted accordingly, based on the same factors identified above.
The Company has a held for sale loan
portfolio that consists of residential mortgages that are being sold in the secondary market. The Company records these mortgages at the lower of cost or market value. Fair value is generally determined by the value of purchase commitments.
Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure, are recorded at fair value
less estimated disposal costs of the acquired property on the date of acquisition and thereafter remeasured and carried at lower of cost or fair market value. Fair value on other real estate owned is based on the appraised value of the collateral
using the sales comparison approach or the income approach with discount rates or capitalization rates similar to those used in impaired loan valuation. The fair value of other repossessed assets is estimated by inquiry through recognized valuation
resources.
Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Changes
in economic conditions, locally or nationally, could impact the value of the estimated amounts of impaired loans, OREO and other repossessed assets.
Fair Value of Certain Financial Instruments
Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each
category of financial instruments. 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.
32
The estimation methodologies used, the estimated fair values, and recorded book balances at
March 31, 2016 and December 31, 2015 are outlined below.
This summary, as well as the table below, excludes financial assets
and liabilities for which carrying value approximates fair value. For financial assets, these include cash and cash equivalents. For financial liabilities, these include noninterest bearing demand deposits, savings and interest-bearing transaction
accounts and federal funds sold and securities sold under agreements to repurchase. The estimated fair value of demand, savings and interest-bearing transaction accounts is the amount payable on demand at the reporting date. Carrying value is used
because there is no stated maturity on these accounts, and the customer has the ability to withdraw the funds immediately. Also excluded from this summary and the following table are those financial instruments recorded at fair value on a recurring
basis, as previously described.
The fair value of Investment Securities Held to Maturity was measured using information from the same
third-party servicer used for Investment Securities Available for Sale using the same methodologies discussed above. Investment Securities Held to Maturity includes $8.1 million in short-term municipal bond anticipation notes and $1.0 million in
subordinated debt that are non-rated and do not have an active secondary market or information readily available on standard financial systems. As a result, the securities are classified as Level 3 securities. These are investments that management
performs a credit analysis on before investing in these securities.
FHLB stock is an equity interest that can be sold to the issuing
FHLB, to other Federal Home Loan Banks, or to other member banks at its par value. Because ownership of these securities is restricted, they do not have a readily determinable fair value. As such, the Companys FHLB Stock is recorded at cost or
par value and is evaluated for impairment each reporting period by considering the ultimate recoverability of the investment rather than temporary declines in value. The Companys evaluation primarily includes an evaluation of liquidity,
capitalization, operating performance, commitments, and regulatory or legislative events.
The net loan portfolio at March 31, 2016
and December 31, 2015 has been valued using a present value discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. The valuation
of the Companys loan portfolio is consistent with accounting guidance but does not fully incorporate the exit price approach.
For
fixed maturity certificates of deposit, fair value was 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.
33
The following table presents the carrying values, fair values and placement in the fair value
hierarchy of the Companys financial instruments as of March 31, 2016 and December 31, 2015:
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Quoted Prices in
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Significant
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Active Markets
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Other
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Significant
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for Identical
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Observable
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Unobservable
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Carrying
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Fair
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Assets
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Inputs
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Inputs
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Value
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Value
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(Level 1)
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(Level 2)
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(Level 3)
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(in thousands)
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March 31, 2016
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Financial Instruments - Assets
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Investment securities held to maturity
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$
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115,796
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|
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$
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118,357
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$
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|
|
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$
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109,253
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$
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9,104
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Federal Home Loan Bank and other membership bank stocks
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16,193
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16,193
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16,193
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Loans and leases, net
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3,335,819
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3,346,814
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3,346,814
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Financial Instruments - Liabilities
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Certificates of Deposit
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483,793
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|
484,520
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484,520
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Other borrowings
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310,031
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314,739
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314,739
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Subordinated debentures
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31,238
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21,867
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21,867
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|
|
|
|
|
December 31, 2015
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Financial Instruments - Assets
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Investment securities held to maturity
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$
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116,740
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$
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117,594
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$
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$
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110,293
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$
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7,301
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Federal Home Loan Bank and other membership bank stocks
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14,087
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14,087
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14,087
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Loans and leases, net
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2,934,326
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2,930,188
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2,930,188
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Financial Instruments - Liabilities
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|
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Certificates of Deposit
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|
|
343,321
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|
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341,998
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341,998
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Other borrowings
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|
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271,905
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|
|
|
275,409
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275,409
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Subordinated debentures
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|
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31,238
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24,366
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24,366
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Note 10. Derivatives
Lakeland is a party to interest rate derivatives that are not designated as hedging instruments. Under a program, Lakeland executes interest
rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Lakeland executes with a third party, such that
Lakeland minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and
the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability
of default and loss given default for all counterparties. As of March 31, 2016 and December 31, 2015, Lakeland had $4.6 million and $2.5 million, respectively, in available for sale securities pledged for collateral on its interest rate
swaps with the financial institution.
34
The following table presents summary information regarding these derivatives for the periods
presented (dollars in thousands):
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Average
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Weighted Average
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Weighted Average
|
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March 31, 2016
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Notional Amount
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|
|
Maturity (Years)
|
|
|
Fixed Rate
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|
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Variable Rate
|
|
Fair Value
|
|
Customer interest rate swaps
|
|
$
|
46,263
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|
|
|
13.3
|
|
|
|
4.360
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%
|
|
1 Mo Libor + 1.99
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$
|
3,505
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|
3rd Party interest rate swaps
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|
|
(46,263
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)
|
|
|
13.3
|
|
|
|
4.360
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%
|
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1 Mo Libor + 1.99
|
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(3,505
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)
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Average
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Weighted Average
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Weighted Average
|
|
|
|
December 31, 2015
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Notional Amount
|
|
|
Maturity (Years)
|
|
|
Fixed Rate
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Variable Rate
|
|
Fair Value
|
|
Customer interest rate swaps
|
|
$
|
35,664
|
|
|
|
14.6
|
|
|
|
4.540
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%
|
|
1 Mo Libor + 2.00
|
|
$
|
1,518
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|
3rd party interest rate swaps
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|
|
(35,664
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)
|
|
|
14.6
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|
|
|
4.540
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%
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1 Mo Libor + 2.00
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|
|
(1,518
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)
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Note 11. Goodwill and Intangible Assets
The Company has recorded goodwill of $125.4 million and $110.0 million at March 31, 2016 and December 31, 2015, respectively, which
includes $15.5 million from the Pascack merger in 2016, $22.9 million from the Somerset Hills acquisition in 2013 and $87.1 million from prior acquisitions. The Company reviews its goodwill and intangible assets annually, on November 30, or
more frequently if conditions warrant, for impairment. In testing goodwill for impairment, the Company compares the estimated fair value of its reporting unit to its carrying amount, including goodwill. The Company has determined that it has one
reporting unit, Community Banking.
The Company recorded $1.5 million and $2.7 million in core deposit intangible for the Pascack and
Somerset Hills acquisitions, respectively. Year-to-date, it has amortized $167,000 in core deposit intangible including $69,000 and $98,000 for Pascack and Somerset Hills, respectively. The estimated future amortization expense for the remainder of
2016 and for each of the succeeding five years ended December 31 is as follows (dollars in thousands):
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|
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|
|
Somerset
|
|
For the year ended:
|
|
|
Pascack
|
|
|
|
Hills
|
|
2016
|
|
$
|
206
|
|
|
$
|
267
|
|
2017
|
|
|
248
|
|
|
|
316
|
|
2018
|
|
|
220
|
|
|
|
267
|
|
2019
|
|
|
193
|
|
|
|
218
|
|
2020
|
|
|
165
|
|
|
|
168
|
|
2021
|
|
|
138
|
|
|
|
119
|
|
Note 12. Borrowings
At March 31, 2016, the Company had federal funds purchased and securities sold under agreements to repurchase of $100.3 million and $28.5
million respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. The Company also had $50.0 million in long-term securities sold under agreements to repurchase included in other
borrowings which have maturities ranging from one to seven years. As of March 31, 2016, the Company had $104.7 million in securities pledged for its securities sold under agreements to repurchase, including $103.7 million in mortgage backed
securities and $1.0 million in U.S. government agency securities.
35
At times the market values of securities collateralizing our securities sold under agreements to
repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a margin call which requires Lakeland to pledge additional collateral to meet that margin call.
Note 13. Early Redemption and Extinguishment of Debt
On August 3, 2015, The Company redeemed and extinguished $10.0 million of Lakeland Bancorp Capital Trust IV debentures and recorded a $1.8
million gain on the redemption and extinguishment of debt. The interest rate on this debenture floated at LIBOR plus 152 basis points and had a rate of 1.80% at the time of extinguishment.
Note 14. Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (FASB) issued an accounting standards update to simplify employee
share-based payment accounting. The areas for simplification in this update involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. This update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2017. The Company is currently assessing the impact
that the guidance will have on the Companys consolidated financial statements.
In March, 2016, the FASB issued an accounting
standards update that requires that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met, including the clearly and closely related criterion. The amendments in
this update clarify the requirements for assessing whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This update will be effective for
financial statements issued for fiscal years and interim periods beginning after December 15, 2016. This guidance will be applied on a modified retrospective basis as of the beginning of the fiscal year that the amendment is effective. The
adoption of this update is not expected to have a material impact on the Companys financial statements.
In February 2016, FASB
issued accounting guidance that requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely
unchanged under the new guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, with early adoption permitted. A modified retrospective approach
must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact that the guidance will have on the Companys
consolidated financial statements.
In January 2016, the FASB issued an accounting standards update intended to improve the recognition
and measurement of financial instruments. Specifically, the accounting standards update requires all equity instruments, with the exception of those that are accounted for under the equity method of accounting, to be measured at fair value with
changes in the fair value recognized through net income. Additionally, public business entities are required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The amendments in this update
also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the
liability at fair value in accordance with the fair value option for financial instruments. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this
update is not expected to have a material impact on the Companys financial statements.
In September 2015, the FASB issued an
accounting standards update simplifying the accounting for adjustments made to provisional amounts recognized in a business combination, eliminating the requirement to retrospectively account for those adjustments. To simplify the accounting for
adjustments made to provisional amounts, the amendments in the accounting standards update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the
adjustment amount is determined. The acquirer is required to also record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to
the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements
the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This amendment is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this update did not have a material impact on the Companys financial statements.
36
In May 2015, the FASB issued an accounting standards update clarifying how investments valued
using the net asset value practical expedient within the fair value hierarchy should be classified. The accounting standards update was issued to address diversity in practice by exempting investments measured using the net asset value expedient
from categorization in the fair value hierarchy. This accounting standards update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this update did not have a
material impact on the Companys financial statements.
In April 2015, the FASB issued an accounting standards update requiring that
debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability consistent with the presentation of debt discounts. The purpose of this update is to
simplify the presentation of debt issuance costs and to align the U.S. GAAP presentation of debt more closely with international accounting standards. In August 2015, the FASB issued a subsequent update which discussed presentation and subsequent
measurement of debt issuance costs associated with line-of-credit arrangements. These amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of these updates did
not have a material impact on the Companys financial statements.
In January 2015, the FASB issued an accounting standards update
regarding the elimination of the concept of the extraordinary items from the statement of operations. The purpose of this update is to simplify the statement of operations presentation and to align the U.S. GAAP income statement more closely with
international accounting standards. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this update did not have a material impact on the Companys
financial statements.
In May 2014, the FASB issued an accounting standards update that clarifies the principles for recognizing revenue.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
these goods or services. In March and April, 2016, the FASB issued further implementation guidance regarding revenue recognition. This additional guidance included clarification on certain principal versus agent considerations within the
implementation of the guidance as well as clarification related to identifying performance obligations and licensing. The guidance along with its updates is effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2017. The Company is still evaluating the potential impact on the Companys financial statements.
PART I
ITEM 2