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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended		June 30, 2023
	OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission file number			000-17820

LAKELAND BANCORP, INC.

(Exact name of registrant as specified in its charter)


New Jersey			22-2953275
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

250 Oak Ridge Road, Oak Ridge, New Jersey 07438

(Address of principal executive offices and zip code)

(973) 697-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, no par value	LBAI	The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 1, 2023, there were 65,029,482 outstanding shares of Common Stock, no par value.

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LAKELAND BANCORP, INC.

Form 10-Q Index


		PAGE
	Part I. Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited)	8
	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56

Item 4.	Controls and Procedures	57

	Part II. Other Information

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3.	Defaults Upon Senior Securities	58

Item 4.	Mine Safety Disclosures	58

Item 5.	Other Information	58

Item 6.	Exhibits	59

Signatures		60

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets


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

Assets
Cash	$	194,256	$	223,299
Interest-bearing deposits due from banks	25,286		12,651
Total cash and cash equivalents	219,542		235,950
Investment securities available for sale, at fair value (allowance for credit losses of $0 at June 30, 2023 and $310 at December 31, 2022)	988,973		1,054,312
Investment securities held to maturity (fair value of $730,805 at June 30, 2023 and $760,455 at December 31, 2022 and allowance for credit losses of $146 at June 30, 2023 and $107 at December 31, 2022)	879,106		923,308
Equity securities, at fair value	17,429		17,283
Federal Home Loan Bank and other membership bank stock, at cost	53,103		42,483
Loans held for sale	563		536
Loans, net of deferred fees	8,101,287		7,866,050
Less: Allowance for credit losses	73,965		70,264
Total loans, net	8,027,322		7,795,786
Premises and equipment, net	55,114		55,429
Operating lease right-of-use assets	18,478		20,052
Accrued interest receivable	34,232		33,374
Goodwill	271,829		271,829
Other intangible assets	8,060		9,088
Bank owned life insurance	158,193		156,985
Other assets	166,022		167,425
Total Assets	$	10,897,966	$	10,783,840
Liabilities and Stockholders' Equity
Liabilities





Deposits	$	8,444,681	$	8,567,471
Federal funds purchased and securities sold under agreements to repurchase	938,718		728,797
Other borrowings	25,000		25,000
Subordinated debentures	194,486		194,264
Operating lease liabilities	19,710		21,449
Other liabilities	143,669		138,272
Total Liabilities	9,766,264		9,675,253
Stockholders' Equity
Common stock, no par value; authorized 100,000,000 shares; issued 65,159,220 shares and outstanding 65,028,185 shares at June 30, 2023 and issued 65,002,738 shares and outstanding 64,871,703 shares at December 31, 2022	856,807		855,425
Retained earnings	352,779		329,375
Treasury shares, at cost, 131,035 shares at June 30, 2023 and December 31, 2022	(1,452)		(1,452)
Accumulated other comprehensive loss	(76,432)		(74,761)
Total Stockholders' Equity	1,131,702		1,108,587
Total Liabilities and Stockholders' Equity	$	10,897,966	$	10,783,840

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share data)	2023		2022		2023		2022
Interest Income
Loans and fees	$	105,261	$	76,973	$	205,742	$	144,782
Federal funds sold and interest-bearing deposits with banks	1,981		235		2,709		417
Taxable investment securities and other	11,939		8,285		23,493		14,994
Tax-exempt investment securities	1,587		1,442		3,229		2,744
Total Interest Income	120,768		86,935		235,173		162,937
Interest Expense
Deposits	36,704		4,829		65,862		8,868
Federal funds purchased and securities sold under agreements to repurchase	10,365		150		17,587		170
Other borrowings	2,157		1,654		4,257		3,209
Total Interest Expense	49,226		6,633		87,706		12,247
Net Interest Income	71,542		80,302		147,467		150,690
Provision for credit losses	1,947		3,644		9,840		9,916
Net Interest Income after Provision for Credit Losses	69,595		76,658		137,627		140,774
Noninterest Income
Service charges on deposit accounts	2,844		2,711		5,633		5,337
Commissions and fees	1,863		2,555		3,788		4,661
Income on bank owned life insurance	1,021		820		1,797		1,650
(Loss) gain on equity securities	(135)		(364)		13		(849)
Gains on sales of loans held for sale	229		715		659		2,141

Swap income	361		399		417		399
Other income	486		227		627		504
Total Noninterest Income	6,669		7,063		12,934		13,843
Noninterest Expense
Compensation and employee benefits	27,585		26,938		57,581		54,617
Premises and equipment	7,992		7,679		15,969		15,651
FDIC insurance expense	1,627		672		2,590		1,344
Data processing expense	2,025		1,891		3,887		3,561
Merger-related expenses	242		—		537		4,585
Other expenses	7,537		7,888		15,049		15,269
Total Noninterest Expense	47,008		45,068		95,613		95,027
Income before provision for income taxes	29,256		38,653		54,948		59,590
Provision for income taxes	6,628		9,536		12,515		14,544
Net Income	$	22,628	$	29,117	$	42,433	$	45,046
Per Share of Common Stock
Basic earnings	$	0.34	$	0.44	$	0.65	$	0.69
Diluted earnings	$	0.34	$	0.44	$	0.64	$	0.69
Dividends paid	$	0.145	$	0.145	$	0.290	$	0.280

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022

Net income	$	22,628	$	29,117	$	42,433	$	45,046
Other comprehensive loss, net of tax:
Unrealized losses on securities available for sale	(9,000)		(19,688)		(1,418)		(50,653)


Amortization of gain on debt securities reclassified to held to maturity	(127)		(148)		(253)		(283)


Other comprehensive loss	(9,127)		(19,836)		(1,671)		(50,936)
Total comprehensive income (loss)	$	13,501	$	9,281	$	40,762	$	(5,890)

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended June 30, 2023 and 2022


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

April 1, 2022	$	852,110	$	266,460	$	(1,452)	$	(27,836)	$	1,089,282


Net income	—		29,117		—		—		29,117
Other comprehensive loss, net of tax	—		—		—		(19,836)		(19,836)


Stock-based compensation	1,159		—		—		—		1,159
Retirement of restricted stock	(63)		—		—		—		(63)

Cash dividends on common stock of $0.145 per share	—		(9,514)		—		—		(9,514)
June 30, 2022	$	853,206	$	286,063	$	(1,452)	$	(47,672)	$	1,090,145

April 1, 2023	$	855,657	$	339,680	$	(1,452)	$	(67,305)	$	1,126,580


Net income	—		22,628		—		—		22,628
Other comprehensive loss, net of tax	—		—		—		(9,127)		(9,127)


Stock-based compensation	1,192		—		—		—		1,192
Retirement of restricted stock	(42)		—		—		—		(42)

Cash dividends on common stock of $0.145 per share	—		(9,529)		—		—		(9,529)
June 30, 2023	$	856,807	$	352,779	$	(1,452)	$	(76,432)	$	1,131,702

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2023 and 2022


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

January 1, 2022	$	565,862	$	259,340	$	(1,452)	$	3,264	$	827,014


Net income	—		45,046		—		—		45,046
Other comprehensive loss, net of tax	—		—		—		(50,936)		(50,936)

Issuance of stock for 1st Constitution acquisition	285,742		—		—		—		285,742
Stock based compensation	2,598		—		—		—		2,598
Retirement of restricted stock	(996)		—		—		—		(996)

Cash dividends on common stock of $0.280 per share	—		(18,323)		—		—		(18,323)
June 30, 2022	$	853,206	$	286,063	$	(1,452)	$	(47,672)	$	1,090,145

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


Net income	—		42,433		—		—		42,433
Other comprehensive loss, net of tax	—		—		—		(1,671)		(1,671)


Stock based compensation	2,917		—		—		—		2,917
Retirement of restricted stock	(1,535)		—		—		—		(1,535)

Cash dividends on common stock of $0.290 per share	—		(19,029)		—		—		(19,029)
June 30, 2023	$	856,807	$	352,779	$	(1,452)	$	(76,432)	$	1,131,702

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	For the Six Months Ended June 30,
(in thousands)	2023		2022
Cash Flows from Operating Activities:
Net income	$	42,433	$	45,046
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees and costs	2,781		2,580
Depreciation and amortization	2,223		3,320
Amortization of intangible assets	1,028		1,189
Amortization of operating lease right-of-use assets	2,041		2,058
Provision for credit losses	9,840		9,916
Loans originated for sale	(20,109)		(41,914)
Proceeds from sales of loans held for sale	20,742		49,450

(Gain) loss on equity securities	(13)		849
Income on bank owned life insurance	(1,577)		(1,558)
Gains on proceeds from bank owned life insurance policies	(220)		(92)
Gains on sales of loans held for sale	(659)		(2,141)
Gains on other real estate and other repossessed assets	(11)		(12)
Loss on sales of premises and equipment	—		215
Loss on sale of asset	41		—


Impairment of property held for sale	—		100
Stock-based compensation	2,917		2,598

Excess tax benefits	129		65
Increase in other assets	(922)		(18,209)
Increase in other liabilities	3,356		13,855
Net Cash Provided by Operating Activities	64,020		67,315
Cash Flows from Investing Activities:
Net cash acquired in acquisitions	—		326,236
Proceeds from repayments and maturities of available for sale securities	55,252		82,343
Proceeds from repayments and maturities of held to maturity securities	45,317		66,692


Purchase of available for sale securities	—		(308,075)
Purchase of held to maturity securities	(3,540)		(62,306)
Purchase of equity securities	(133)		(1,075)

Death benefit proceeds from bank owned life insurance policy	716		134
Proceeds from redemptions of Federal Home Loan Bank stock	110,949		9,240
Purchases of Federal Home Loan Bank stock	(121,569)		(24,591)
Net increase in loans	(232,516)		(329,049)

Proceeds from sales of other real estate and repossessed assets	1,925		12
Proceeds from dispositions and sales of premises and equipment	—		598
Purchases of premises and equipment	(3,498)		(2,664)
Net Cash Used in Investing Activities	(147,097)		(242,505)




















Cash Flows from Financing Activities:
Net decrease in deposits	(122,688)		(114,308)
Increase in federal funds purchased and securities sold under agreements to repurchase	209,921		325,753






Retirement of restricted stock	(1,535)		(996)
Dividends paid	(19,029)		(18,323)
Net Cash Provided by Financing Activities	66,669		192,126
Net (decrease) increase in cash and cash equivalents	(16,408)		16,936
Cash and cash equivalents, beginning of period	235,950		228,530
Cash and cash equivalents, end of period	$	219,542	$	245,466

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Lakeland Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	For the Six Months Ended June 30,
(in thousands)	2023		2022
Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes	$	13,148	$	10,153
Cash paid during the period for interest	82,273		12,467





Right-of-use assets obtained in exchange for new lease liabilities	467		89
Acquisitions:
Non-cash assets acquired:
Federal Home Loan Bank stock	—		1,247
Investment securities available for sale	—		217,774
Investment securities held to maturity	—		124,485
Loans held for sale	—		4,620
Loans	—		1,095,266
Fixed Assets	—		13,748
Operating lease right-of-use assets	—		12,991
Goodwill and other intangible assets, net	—		124,570
Bank owned life insurance	—		37,580
Other assets	—		8,820
Total non-cash assets acquired	—		1,641,101
Liabilities assumed:
Deposits	—		1,650,613
Subordinated debt	—		14,734
Operating lease liabilities	—		12,991
Other liabilities	—		3,257
Total liabilities assumed	—		1,681,595
Common stock issued	$	—	$	285,742

The accompanying notes are an integral part of these consolidated financial statements.

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Lakeland Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

Note 1 – Significant Accounting Policies

Basis of Presentation

This quarterly report presents the consolidated financial statements of Lakeland Bancorp, Inc. and its subsidiaries, including Lakeland Bank (“Lakeland”) and Lakeland’s wholly owned subsidiaries (collectively, the “Company”). The accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“U.S. GAAP”) and predominant practices within the banking industry. The Company’s unaudited interim financial statements reflect all adjustments, such as normal recurring accruals that are in the opinion of management, necessary for the fair presentation of the results of the interim periods. The results of operations for the six months ended June 30, 2023 do not necessarily indicate the results that the Company will achieve for all of 2023.

Certain information and footnote disclosures required under U.S. GAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission. These unaudited interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Note 2 – Business Combinations

Provident Financial Services, Inc.

On September 26, 2022, the Company entered into a definitive merger agreement with Provident Financial Services, Inc. ("Provident") pursuant to which the companies will combine in an all-stock merger. Under the terms of the merger agreement, the Company will merge with and into Provident, with Provident as the surviving corporation, and Lakeland Bank will merge with and into Provident Bank, with Provident Bank as the surviving bank. Following the closing of the transaction, Lakeland shareholders will receive 0.8319 shares of Provident common stock for each share of Lakeland common stock they own. Upon completion of the transaction, which was subject to both Provident and Lakeland shareholder approval, Provident shareholders will own approximately 58% and Lakeland shareholders will own approximately 42% of the combined company. As of September 26, 2022, the transaction is valued at approximately $1.3 billion on a fully diluted basis. The combined company is expected to have more than $25 billion in total assets, $18 billion in total loans and $20 billion in total deposits.

The transaction has been approved by the boards of directors of both companies and, on February 1, 2023, shareholders of each company approved the proposed merger. The merger is expected to close in the second half of 2023, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals.

The Company incurred merger-related expenses on the anticipated transaction with Provident of $242,000 during the second quarter of 2023 and $537,000 for the six months ended June 30, 2023.

1st Constitution Bancorp

On January 6, 2022, the Company completed its acquisition of 1st Constitution Bancorp ("1st Constitution"), a bank holding company headquartered in Cranbury, New Jersey. 1st Constitution was the parent of 1st Constitution Bank, which operated 25 branches in Bergen, Mercer, Middlesex, Monmouth, Ocean and Somerset Counties in New Jersey. This acquisition enabled the Company to establish a presence in Mercer, Middlesex and Monmouth Counties and broaden its presence in the other counties. Effective as of the close of business on January 6, 2022, 1st Constitution merged into the Company and 1st Constitution Bank merged into Lakeland. Pursuant to the merger agreement, the shareholders of 1st Constitution received for each outstanding share of 1st Constitution common stock that they owned at the effective time of the merger, 1.3577 shares of Lakeland Bancorp, Inc. common stock. The Company issued 14,020,495 shares of its common stock in the merger. Outstanding 1st Constitution stock options were paid out in cash at the difference between $25.55 and an average strike price of $15.95 for a total cash payment of $559,000.

The acquisition was accounted for under the acquisition method of accounting and accordingly, the assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values as of the acquisition date, including the use of a fair market value specialist. The calculation of goodwill was subject to change for up to one year after the closing date of the transaction as additional information relative to closing date estimates and uncertainties became available. No adjustments were made in the year after the close of the acquisition and all accounting is considered final. 1st Constitution's results of operations have been included in the Company's Consolidated Statements of Income from January 6, 2022 forward. Further information can be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

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

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Note 3 – Earnings Per Share

The following schedule shows the Company’s earnings per share calculations for the periods presented:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share data)	2023		2022		2023		2022
Net income available to common shareholders	$	22,628	$	29,117	$	42,433	$	45,046
Less: earnings allocated to participating securities	244		357		439		510
Net income allocated to common shareholders	$	22,384	$	28,760	$	41,994	$	44,536
Weighted average number of common shares outstanding - basic	65,059		64,828		65,013		64,397
Share-based plans	113		161		187		218
Weighted average number of common shares outstanding - diluted	65,172		64,989		65,200		64,615
Basic earnings per share	$	0.34	$	0.44	$	0.65	$	0.69
Diluted earnings per share	$	0.34	$	0.44	$	0.64	$	0.69

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

Note 4 – Investment Securities

The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's available for sale securities are as follows:


	June 30, 2023
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. Treasury and U.S. government agencies	$	359,909	$	105	$	(26,323)	$	—	$	333,691
Mortgage-backed securities, residential	337,275		—		(39,471)		—		297,804
Collateralized mortgage obligations, residential	160,507		—		(16,070)		—		144,437
Mortgage-backed securities, multifamily	989		—		(221)		—		768
Collateralized mortgage obligations, multifamily	50,183		—		(4,846)		—		45,337
Asset-backed securities	48,566		14		(1,117)		—		47,463
Obligations of states and political subdivisions	21,875		—		(838)		—		21,037
Corporate bonds	115,651		—		(17,215)		—		98,436
Total	$	1,094,955	$	119	$	(106,101)	$	—	$	988,973


	December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. Treasury and U.S. government agencies	$	383,958	$	100	$	(28,419)	$	—	$	355,639
Mortgage-backed securities, residential	351,355		6		(40,748)		—		310,613
Collateralized mortgage obligations, residential	170,502		—		(16,444)		—		154,058
Mortgage-backed securities, multifamily	1,000		—		(215)		—		785
Collateralized mortgage obligations, multifamily	51,108		—		(4,775)		—		46,333
Asset-backed securities	54,105		—		(1,710)		—		52,395
Obligations of states and political subdivisions	22,112		—		(989)		(1)		21,122
Corporate bonds	124,394		—		(10,718)		(309)		113,367
Total	$	1,158,534	$	106	$	(104,018)	$	(310)	$	1,054,312

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The amortized cost, gross unrealized gains and losses, allowance for credit losses and the fair value of the Company's held to maturity investment securities are as follows:


	June 30, 2023
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	$	10,765	$	10	$	(699)	$	—	$	10,076
Mortgage-backed securities, residential	347,134		31		(56,223)		—		290,942
Collateralized mortgage obligations, residential	12,661		—		(2,586)		—		10,075
Mortgage-backed securities, multifamily	5,048		—		(741)		—		4,307

Obligations of states and political subdivisions	500,644		18		(87,438)		(25)		413,199
Corporate bonds	3,000		—		(673)		(121)		2,206
Total	$	879,252	$	59	$	(148,360)	$	(146)	$	730,805


	December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
U.S. government agencies	$	11,099	$	11	$	(725)	$	—	$	10,385
Mortgage-backed securities, residential	360,683		57		(58,128)		—		302,612
Collateralized mortgage obligations, residential	13,026		—		(2,570)		—		10,456
Mortgage-backed securities, multifamily	5,094		—		(747)		—		4,347

Obligations of states and political subdivisions	530,513		2		(100,400)		(7)		430,108
Corporate bonds	3,000		—		(353)		(100)		2,547
Total	$	923,415	$	70	$	(162,923)	$	(107)	$	760,455

The following table lists contractual maturities of investment securities classified as available for sale and held to maturity as of June 30, 2023. Mortgage-backed and asset-backed securities are not shown by maturity because expected maturities may differ from contractual maturities due to underlying loan prepayments of the issuer. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available for Sale				Held to Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	43,295	$	42,447	$	40,956	$	40,835
Due after one year through five years	245,438		228,532		34,856		32,895
Due after five years through ten years	148,560		127,771		85,531		73,664
Due after ten years	60,142		54,414		353,066		278,087
	497,435		453,164		514,409		425,481
Mortgage-backed and asset-backed securities	597,520		535,809		364,843		305,324
Total	$	1,094,955	$	988,973	$	879,252	$	730,805

During the three and six months ended June 30, 2023 and 2022, there were no sales of available for sale securities. Gains or losses on sales of securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.

Securities with a carrying value of approximately $1.63 billion and $1.34 billion at June 30, 2023 and December 31, 2022, respectively, were pledged to secure public deposits, expand secured borrowing capacity and for other purposes required by applicable laws and regulations.

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The following tables indicate the length of time individual securities have been in a continuous unrealized loss position for the periods presented:


June 30, 2023	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
Available for Sale
U.S. Treasury and U.S. government agencies	$	13,654	$	26	$	306,321	$	26,297	60	$	319,975	$	26,323
Mortgage-backed securities, residential	6,258		393		291,546		39,078		134	297,804		39,471
Collateralized mortgage obligations, residential	8,929		505		135,508		15,565		100	144,437		16,070
Mortgage-backed securities, multifamily	—		—		768		221		1	768		221
Collateralized mortgage obligations, multifamily	7		—		45,330		4,846		20	45,337		4,846
Asset-backed securities	—		—		44,361		1,117		14	44,361		1,117
Obligations of states and political subdivisions	2,055		45		18,242		793		45	20,297		838
Corporate bonds	8,651		1,349		89,784		15,866		47	98,435		17,215
Total	$	39,554	$	2,318	$	931,860	$	103,783	421	$	971,414	$	106,101
Held to Maturity
U.S. government agencies	$	—	$	—	$	8,897	$	699	3	$	8,897	$	699
Mortgage-backed securities, residential	22,367		1,160		264,797		55,063		187	287,164		56,223
Collateralized mortgage obligations, residential	—		—		10,075		2,586		11	10,075		2,586
Mortgage-backed securities, multifamily	—		—		4,307		741		4	4,307		741

Obligations of states and political subdivisions	34,249		155		372,367		87,283		357	406,616		87,438
Corporate bonds	—		—		2,327		673		1	2,327		673
Total	$	56,616	$	1,315	$	662,770	$	147,045	563	$	719,386	$	148,360


December 31, 2022	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
Available for Sale
U.S. Treasury and U.S. government agencies	$	114,514	$	5,856	$	229,094	$	22,563	67	$	343,608	$	28,419
Mortgage-backed securities, residential	127,363		12,399		182,079		28,349		135	309,442		40,748
Collateralized mortgage obligations, residential	66,316		3,958		87,742		12,486		104	154,058		16,444
Mortgage-backed securities, multifamily	—		—		786		215		1	786		215
Collateralized mortgage obligations, multifamily	37,407		2,861		8,926		1,914		20	46,333		4,775
Asset-backed securities	34,871		977		17,524		733		17	52,395		1,710
Obligations of states and political subdivisions	3,771		276		16,746		713		46	20,517		989
Corporate bonds	88,489		7,437		22,880		3,281		49	111,369		10,718
Total	$	472,731	$	33,764	$	565,777	$	70,254	439	$	1,038,508	$	104,018
Held to Maturity
U.S. government agencies	$	6,671	$	336	$	2,412	$	389	3	$	9,083	$	725
Mortgage-backed securities, residential	$	32,549	$	2,275	$	264,035	$	55,853	182	$	296,584	$	58,128
Collateralized mortgage obligations, residential	4,668		516		5,787		2,054		12	10,455		2,570

Mortgage-backed securities, multifamily	2,671		376		1,676		371		4	4,347		747
Obligations of states and political subdivisions	82,459		3,689		341,076		96,711		379	423,535		100,400
Corporate bonds	—		—		2,647		353		1	2,647		353
Total	$	129,018	$	7,192	$	617,633	$	155,731	581	$	746,651	$	162,923

For available for sale securities, the Company assesses whether a loss is from credit or other factors and considers the extent to which fair value is less than amortized cost, adverse changes to the rating of the security by a rating agency, a security's market yield as compared to similar securities and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. In the first quarter of 2023, the Company recorded a provision and a subsequent charge-off of $6.6 million in subordinated debt securities of Signature Bank, which failed in March 2023.

For held to maturity securities, management measures expected credit losses on a collective basis by major security type. All of the mortgage-backed securities are issued by U.S. government agencies and are either explicitly or implicitly

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guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses and, therefore, the expectation of non-payment is zero. A range of historical losses method is utilized in estimating the net amount expected to be collected for mortgage-backed securities, collateralized mortgage obligations and obligations of states and political subdivisions.

The gross unrealized losses reported for residential mortgage-backed securities relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation and U.S. government agencies such as Government National Mortgage Association. The total gross unrealized losses, shown in the tables above, were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

Credit Quality Indicators

Credit ratings, which are updated monthly, are a key measure for estimating the probability of a bond's default and for monitoring credit quality on an on-going basis. For bonds other than U.S. Treasuries and bonds issued or guaranteed by U.S. government agencies, credit ratings issued by one or more nationally recognized statistical rating organizations are considered in conjunction with an assessment by the Company's management. Investment grade reflects a credit quality of BBB or above.

The tables below indicate the credit profile of the Company's held to maturity investment securities at amortized cost:


June 30, 2023	AAA		AA		A		BBB		Not Rated		Total
(in thousands)
U.S. government agencies	$	10,765	$	—	$	—	$	—	$	—	$	10,765
Mortgage-backed securities, residential	347,134		—		—		—		—		347,134
Collateralized mortgage obligations, residential	12,661		—		—		—		—		12,661
Mortgage-backed securities, multifamily	5,048		—		—		—		—		5,048

Obligations of states and political subdivisions	153,506		313,581		—		—		33,557		500,644
Corporate bonds	—		—		—		3,000		—		3,000
Total	$	529,114	$	313,581	$	—	$	3,000	$	33,557	$	879,252


December 31, 2022	AAA		AA		A		BBB		Not Rated		Total
(in thousands)
U.S. government agencies	$	11,099	$	—	$	—	$	—	$	—	$	11,099
Mortgage-backed securities, residential	360,683		—		—		—		—		360,683
Collateralized mortgage obligations, residential	13,026		—		—		—		—		13,026
Mortgage-backed securities, multifamily	5,094		—		—		—		—		5,094

Obligations of states and political subdivisions	156,661		317,566		1,020		—		55,266		530,513
Corporate bonds	—		—		—		3,000		—		3,000
Total	$	546,563	$	317,566	$	1,020	$	3,000	$	55,266	$	923,415

Equity securities at fair value

The Company has an equity securities portfolio, which primarily consists of investments in Community Reinvestment funds. The fair value of the equity portfolio was $17.4 million and $17.3 million at June 30, 2023 and December 31, 2022, respectively. For the three and six months ended June 30, 2023 and 2022, the Company recorded no sales of equity securities or Community Reinvestment funds. The Company recorded fair value losses on equity securities of $135,000 for the second quarter of 2023 and fair value losses of $364,000 for the second quarter of 2022. The Company recorded fair value gains on equity securities of $13,000 for the six months ended June 30, 2023 and losses of $849,000 for the six months ended June 30, 2022. Fair value gain or loss on equity securities are recorded in noninterest income.

As of June 30, 2023, the Company's investments in Community Reinvestment funds include $7.8 million that are primarily invested in community development loans that are guaranteed by the Small Business Administration (“SBA”). Because the funds are primarily guaranteed by the federal government, there are minimal changes in fair value between accounting periods. These funds can be redeemed with 60 days' notice at the net asset value less unpaid management fees with the approval of the fund manager. As of June 30, 2023, the net amortized cost equaled the fair value of the investment. There are no unfunded commitments related to these investments.

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The Community Reinvestment funds also included $9.6 million of investment in government guaranteed loans, mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development as of June 30, 2023. The Company may redeem these funds at the net asset value calculated at the end of the current business day less any unpaid management fees. There are no restrictions on redemptions for the holdings in these investments other than the notice required by the fund manager. There are no unfunded commitments related to these investments.

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Note 5 – Loans

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


(in thousands)	June 30, 2023		December 31, 2022
Non-owner occupied commercial	$	2,991,124	$	2,906,014
Owner occupied commercial	1,201,049		1,246,189
Multifamily	1,314,255		1,260,814
Non-owner occupied residential	205,818		218,026
Commercial, industrial and other	594,790		606,711
Construction	354,918		380,100
Equipment finance	173,469		151,574
Residential mortgage	922,109		765,552
Home equity and consumer	343,755		331,070
Total	$	8,101,287	$	7,866,050

Loans are recorded at amortized cost, which includes principal balance and net deferred loan fees and costs. The Company elected to exclude accrued interest receivable from amortized cost. Accrued interest receivable is reported separately in the Consolidated Balance Sheets and totaled $25.2 million at June 30, 2023 and $24.5 million at December 31, 2022. Loan origination fees and certain direct loan origination costs are deferred and the net fee or cost is recognized in interest income as an adjustment of yield. Net deferred loan fees are included in loans by respective segment and totaled $1.3 million at June 30, 2023 and $2.1 million at December 31, 2022.

At June 30, 2023 and December 31, 2022, SBA Paycheck Protection Program ("PPP") loans totaled $389,000 and $435,000, respectively, and are included in the balance of commercial, industrial and other loans. Consumer loans included overdraft deposit balances of $604,000 and $1.3 million, at June 30, 2023 and December 31, 2022, respectively. At June 30, 2023 and December 31, 2022, the Company had $4.34 billion and $2.89 billion of loans pledged for potential borrowings at the Federal Home Loan Bank of New York ("FHLB"), respectively.

Credit Quality Indicators

Management closely and continually monitors the quality of its loans and assesses the quantitative and qualitative risks arising from the credit quality of its loans. Lakeland assigns a credit risk rating to all loans and loan commitments. The credit risk rating system has been developed by management to provide a methodology to be used by loan officers, department heads and senior management in identifying various levels of credit risk that exist within the loan portfolios. The risk rating system assists senior management in evaluating the loan portfolio and analyzing trends. In assigning risk ratings, management considers, among other things, the borrower’s ability to service the debt based on relevant information such as current financial information, historical payment experience, credit documentation, public information and current economic conditions.

Management categorizes loans and commitments into the following risk ratings:

Pass: "Pass" assets are well protected by the current net worth and paying capacity of the obligor or guarantors, if any, or by the fair value of any underlying collateral.

Watch: "Watch" assets require more than the usual amount of monitoring due to declining earnings, strained cash flow, increasing leverage and/or weakening market. These borrowers generally have limited additional debt capacity and modest coverage and average or below average asset quality, margins and market share.

Special Mention: "Special mention" assets exhibit identifiable credit weakness, which if not checked or corrected could weaken the loan quality or inadequately protect the bank’s credit position at some future date.

Substandard: "Substandard" assets are inadequately protected by the current sound worth and paying capacity of the obligors or of the collateral pledged, if any. A substandard loan has a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt.

Doubtful: "Doubtful" assets exhibit all of the weaknesses inherent in substandard loans, but have the added characteristics that the weaknesses make collection or liquidation in full improbable on the basis of existing facts.

Loss: “Loss” is a rating for loans or portions of loans that are considered uncollectible and of such little value that their continuance as bankable loans is not warranted.

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The following table presents the risk category of loans by class of loan and vintage as of June 30, 2023.


	Term Loans by Origination Year
(in thousands)	2023		2022		2021		2020		2019		Pre-2019		Revolving Loans		Revolving to Term	Total
Non-owner occupied commercial
Pass	$	180,461	$	664,822	$	383,091	$	480,262	$	278,174	$	831,539	$	18,989	—	$	2,837,338
Watch	764		1,260		—		21,375		8,875		58,777		—		—	91,051
Special mention	—		—		—		4,951		3,021		24,617		—		—	32,589
Substandard	—		—		—		—		—		30,146		—		—	30,146
Total	181,225		666,082		383,091		506,588		290,070		945,079		18,989		—	2,991,124
Owner occupied commercial
Pass	19,416		264,157		207,564		154,511		73,809		360,207		8,140		234	1,088,038
Watch	—		—		3,718		1,689		3,390		30,667		250		—	39,714
Special mention	—		1,310		20,191		5,707		1,840		17,997		—		—	47,045
Substandard	—		—		97		14,133		4,916		7,106		—		—	26,252
Total	19,416		265,467		231,570		176,040		83,955		415,977		8,390		234	1,201,049
Multifamily
Pass	68,918		302,926		240,378		249,302		65,575		328,008		2,723		—	1,257,830
Watch	—		—		5,753		24,477		—		2,463		—		—	32,693
Special mention	—		500		1,119		2,395		3,824		10,890		—		—	18,728
Substandard	—		—		—		—		—		5,004		—		—	5,004
Total	68,918		303,426		247,250		276,174		69,399		346,365		2,723		—	1,314,255
Non-owner occupied residential
Pass	3,448		35,027		28,833		20,029		24,831		79,203		5,675		4	197,050
Watch	—		—		—		—		—		3,855		75		—	3,930
Special mention	—		—		—		—		500		1,743		—		—	2,243
Substandard	—		—		—		41		548		2,006		—		—	2,595
Total	3,448		35,027		28,833		20,070		25,879		86,807		5,750		4	205,818



Commercial, industrial and other
Pass	13,029		45,275		46,009		24,715		29,601		47,435		343,805		1,507	551,376
Watch	2,556		223		583		72		162		2,447		6,488		—	12,531
Special mention	98		—		—		—		203		424		2,641		—	3,366
Substandard	—		375		464		—		—		348		26,330		—	27,517
Total	15,683		45,873		47,056		24,787		29,966		50,654		379,264		1,507	594,790





Current YTD period:
Gross charge-offs	—		—		—		—		—		13		—		—	13
Construction
Pass	22,533		119,661		122,275		22,832		5,827		4,662		17,122		3,711	318,623
Watch	2		1,798		8,131		13,194		—		—		472		—	23,597

Substandard	—		—		—		—		—		12,698		—		—	12,698
Total	22,535		121,459		130,406		36,026		5,827		17,360		17,594		3,711	354,918








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

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	Term Loans by Origination Year
(in thousands)	2023		2022		2021		2020		2019		Pre-2019		Revolving Loans		Revolving to Term		Total
Equipment finance
Pass	49,046		66,112		29,587		15,427		9,976		1,958		—		—		172,106


Substandard	64		269		135		47		837		11		—		—		1,363
Total	49,110		66,381		29,722		15,474		10,813		1,969		—		—		173,469
Current YTD period:
Gross charge-offs	—		—		60		—		13		10		—		—		83




Residential mortgage
Pass	183,889		316,549		163,362		104,090		33,785		118,480		—		—		920,155


Substandard	—		—		—		195		459		1,300		—		—		1,954
Total	183,889		316,549		163,362		104,285		34,244		119,780		—		—		922,109




Consumer
Pass	12,756		42,949		29,623		8,088		3,769		21,263		222,820		2		341,270


Substandard	—		—		—		—		—		690		29		1,766		2,485
Total	12,756		42,949		29,623		8,088		3,769		21,953		222,849		1,768		343,755
Current YTD period:
Gross charge-offs	138		6		18		—		1		15		—		—		178

Total loans	$	556,980	$	1,863,213	$	1,290,913	$	1,167,532	$	553,922	$	2,005,944	$	655,559	$	7,224	$	8,101,287
Current YTD period:
Gross charge-offs	138		19		78		—		14		38		—		—		287

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The following table presents the risk category of loans by class of loan and vintage as of December 31, 2022.


	Term Loans by Origination Year
(in thousands)	2022		2021		2020		2019		2018		Pre-2018		Revolving Loans		Revolving to Term		Total
Non-owner occupied commercial
Pass	$	673,235	$	391,748	$	495,618	$	271,109	$	183,971	$	703,852	$	19,317	2,502		$	2,741,352
Watch	1,272		—		21,720		26,906		12,099		48,314		—		—		110,311
Special mention	—		—		494		830		15,586		16,304		—		—		33,214
Substandard	—		—		—		—		133		21,004		—		—		21,137
Total	674,507		391,748		517,832		298,845		211,789		789,474		19,317		2,502		2,906,014
Owner occupied commercial
Pass	267,754		198,131		191,603		85,343		61,581		317,434		13,328		—		1,135,174
Watch	—		—		2,888		3,520		4,728		28,659		75		—		39,870
Special mention	585		17,778		5,749		1,862		3,701		20,292		—		—		49,967
Substandard	—		97		8,876		1,899		475		9,831		—		—		21,178
Total	268,339		216,006		209,116		92,624		70,485		376,216		13,403		—		1,246,189
Multifamily
Pass	312,910		221,306		265,187		67,072		95,432		249,021		5,288		—		1,216,216
Watch	—		5,817		11,692		—		—		2,504		—		—		20,013
Special mention	500		—		2,421		—		—		11,274		—		—		14,195
Substandard	—		—		—		3,864		—		6,526		—		—		10,390
Total	313,410		227,123		279,300		70,936		95,432		269,325		5,288		—		1,260,814






Non-owner occupied residential
Pass	37,445		29,365		22,133		24,205		18,489		67,114		7,513		21		206,285
Watch	—		—		—		2,068		—		5,244		75		—		7,387
Special mention	—		—		—		507		822		1,017		—		—		2,346
Substandard	—		—		—		—		—		2,008		—		—		2,008
Total	37,445		29,365		22,133		26,780		19,311		75,383		7,588		21		218,026







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






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

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






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


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







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


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








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


Substandard	33		—		—		—		23		853		278		—		1,187
Total	47,315		31,368		8,658		4,143		3,116		22,335		214,135		—		331,070
Total loans	$	1,870,192	$	1,331,010	$	1,241,095	$	634,244	$	450,515	$	1,700,199	$	636,027	$	2,768	$	7,866,050

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Past Due and Non-Accrual Loans

Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. A loan is generally considered non-performing when it is placed on non-accrual status. A loan is generally placed on non-accrual status when it becomes 90 days past due if such loan has been identified as presenting uncertainty with respect to the collectability of interest and principal. A loan past due 90 days or more may remain on accruing status if such loan is both well secured and in the process of collection.

The following tables present the payment status of the recorded investment in past due loans as of the periods noted, by class of loans.


June 30, 2023			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,990,533	$	—	$	—	$	591	$	591	$	2,991,124
Owner occupied commercial	1,192,553		98		1,692		6,706		8,496		1,201,049
Multifamily	1,312,870		1,119		—		266		1,385		1,314,255
Non-owner occupied residential	205,803		15		—		—		15		205,818
Commercial, industrial and other	593,029		14		76		1,671		1,761		594,790
Construction	354,918		—		—		—		—		354,918
Equipment finance	172,290		757		276		146		1,179		173,469
Residential mortgage	917,114		2,669		1,215		1,111		4,995		922,109
Consumer	341,819		391		74		1,471		1,936		343,755
Total	$	8,080,929	$	5,063	$	3,333	$	11,962	$	20,358	$	8,101,287


December 31, 2022			Past Due
(in thousands)	Current		30 - 59 Days		60 - 89 Days		Greater than 89 days		Total		Total Loans
Non-owner occupied commercial	$	2,905,049	$	346	$	—	$	619	$	965	$	2,906,014
Owner occupied commercial	1,235,134		2,854		477		7,724		11,055		1,246,189
Multifamily	1,260,135		—		679		—		679		1,260,814
Non-owner occupied residential	217,407		178		—		441		619		218,026
Commercial, industrial and other	603,731		55		3		2,922		2,980		606,711
Construction	379,120		—		—		980		980		380,100
Equipment finance	150,842		494		238		—		732		151,574
Residential mortgage	760,638		3,031		271		1,612		4,914		765,552
Consumer	330,119		841		62		48		951		331,070
Total	$	7,842,175	$	7,799	$	1,730	$	14,346	$	23,875	$	7,866,050

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The following tables present information on non-accrual loans at June 30, 2023 and December 31, 2022:


June 30, 2023
(in thousands)	Non-accrual		Interest Income Recognized on Non-accrual Loans		Amortized Cost Basis of Loans > 89 days Past due but still accruing		Amortized Cost Basis of Non-accrual Loans without Related Allowance
Non-owner occupied commercial	$	864	$	—	$	—	$	—
Owner occupied commercial	8,076		—		—		7,675
Multifamily	266		—		—		—
Non-owner occupied residential	41		—		—		—
Commercial, industrial and other	1,737		—		—		—
Construction	—		—		—		—
Equipment finance	644		—		—		—
Residential mortgage	1,954		—		—		—
Consumer	2,486		—		—		68
Total	$	16,068	$	—	$	—	$	7,743


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

Non-owner occupied residential	441		—		—		440
Commercial, industrial and other	2,978		—		—		—
Construction	980		—		—		980
Equipment finance	114		—		—		—
Residential mortgage	2,011		—		—		—
Consumer	781		—		—		79
Total	$	17,362	$	—	$	—	$	10,358

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

Purchased Credit Deteriorated ("PCD") Loans

The following summarizes the PCD loans acquired in the 1st Constitution acquisition as of the closing date, January 6, 2022.


(in thousands)	PCD Loans
Gross amortized cost basis	$	140,300
Interest component of expected cash flows (accretable difference)	(3,792)
Allowance for credit losses on PCD loans	(12,077)
Net PCD loans	$	124,431

At June 30, 2023, net PCD loans acquired from 1st Constitution totaled $74.2 million.

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

The Company adopted Accounting Standards Update 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02") as of January 1, 2023. Among other things, ASU 2022-02 eliminates the recognition and measurement guidance of troubled debt restructured loans ("TDRs") so that creditors will apply the same guidance to all modifications when determining whether a modification results in a new receivable or continuation of an existing receivable. ASU 2022-02 requires vintage disclosures of gross charge-offs as shown in the vintage disclosure above. It also replaces the historical disclosure of TDRs with the new disclosure of modifications of receivables to debtors experiencing financial difficulty.

Prior to the adoption of ASU 2022-02, loans were classified as TDRs in cases where borrowers experienced financial difficulties and Lakeland made certain concessionary modifications to contractual terms. Restructured loans typically involved a modification of terms such as a reduction of the stated interest rate, a moratorium of principal payments and/or an extension of the maturity date at a stated interest rate lower than the current market rate of a new loan with similar risk.

During the three and six months ended June 30, 2023, there were no loan modifications that met the definition of a modification to a debtor experiencing financial difficulty. At December 31, 2022, TDRs totaled $2.6 million, all of which were accruing TDRs. There were no loans that were restructured during the three and six months ended June 30, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted during the six months ended June 30, 2023 or 2022, respectively.

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Note 6 - Allowance for Credit Losses

The Company measures expected credit losses for financial assets measured at amortized cost, including loans, investments and certain off-balance-sheet credit exposures in accordance with ASU 2016-13. See Note 1 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a description of the Company's methodology.

Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. At June 30, 2023, loans totaling $8.02 billion were evaluated collectively and the allowance on these balances totaled $70.8 million and loans totaling $84.1 million were evaluated on an individual basis with the specific allocations of the allowance for credit losses totaling $3.2 million. Loans evaluated on an individual basis include $74.6 million in PCD loans, which had a specific allowance for credit losses of $2.5 million. The Company made the election to exclude accrued interest receivable from the estimate of credit losses.

Allowance for Credit Losses - Loans

The allowance for credit losses on loans is summarized in the following table:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Balance at beginning of the period	$	71,403	$	67,112	$	70,264	$	58,047
Initial allowance for credit losses on PCD loans	—		—		—		12,077
Charge-offs on PCD loans	—		—		—		(7,634)
Charge-offs	(148)		(369)		(287)		(539)
Recoveries	288		510		353		672
Net recoveries (charge-offs)	140		141		66		(7,501)
Provision for credit loss - loans	2,422		1,583		3,635		6,213
Balance at end of the period	$	73,965	$	68,836	$	73,965	$	68,836

The provision for credit losses on loans for the second quarter of 2023 included a slight increase in qualitative factors due to uncertainty in the economy compared to the second quarter of 2022, which was partially offset by a decrease in the total of individually evaluated loans, while the provision for the six months ended June 30, 2022 was predominantly due to the provision for the 1st Constitution's acquired non-purchased credit deteriorated loans. Charge-offs in the six months ended June 30, 2022 include $7.6 million in charge-offs on 1st Constitution's acquired PCD loans.

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


(in thousands)	Balance at March 31, 2023		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at June 30, 2023
Non-owner occupied commercial	$	24,281	$	—	$	—	$	(738)	$	23,543
Owner occupied commercial	6,058		—		6		100		6,164
Multifamily	9,010		—		—		27		9,037
Non-owner occupied residential	2,593		—		—		(189)		2,404
Commercial, industrial and other	8,111		(13)		176		605		8,879
Construction	3,105		(13)		—		(360)		2,732
Equipment finance	4,448		(22)		10		2,048		6,484
Residential mortgage	8,944		—		—		661		9,605
Consumer	4,853		(100)		96		268		5,117
Total	$	71,403	$	(148)	$	288	$	2,422	$	73,965

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(in thousands)	Balance at March 31, 2022		Initial allowance for credit losses on PCD loans		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at June 30, 2022
Non owner occupied commercial	$	23,649	$	—	$	—	$	4	$	273	$	23,926
Owner occupied commercial	6,125		—		(4)		341		476		6,938
Multifamily	8,300		—		—		—		141		8,441
Non owner occupied residential	2,908		—		—		—		(15)		2,893
Commercial, industrial and other	11,674		—		(305)		33		(1,313)		10,089
Construction	1,727		—		—		—		1,210		2,937
Equipment finance	2,459		—		(24)		64		(246)		2,253
Residential mortgage	5,686		—		—		—		893		6,579
Consumer	4,584		—		(36)		68		164		4,780
Total	$	67,112	$	—	$	(369)	$	510	$	1,583	$	68,836


(in thousands)	Balance at December 31, 2022		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at June 30, 2023
Non-owner occupied commercial	$	23,462	$	—	$	—	$	81	$	23,543
Owner occupied commercial	6,696		—		6		(538)		6,164
Multifamily	9,425		—		—		(388)		9,037
Non-owner occupied residential	2,643		—		—		(239)		2,404
Commercial, industrial and other	8,836		(13)		211		(155)		8,879
Construction	2,968		(13)		—		(223)		2,732
Equipment finance	3,445		(83)		25		3,097		6,484
Residential mortgage	8,041		—		—		1,564		9,605
Consumer	4,748		(178)		111		436		5,117
Total	$	70,264	$	(287)	$	353	$	3,635	$	73,965


(in thousands)	Balance at December 31, 2021		Initial allowance for credit losses on PCD loans		Charge-offs		Recoveries		Provision (Benefit) for Credit Loss		Balance at June 30, 2022
Non owner occupied commercial	$	20,071	$	1,312	$	(4)	$	4	$	2,543	$	23,926
Owner occupied commercial	3,964		1,137		(38)		351		1,524		6,938
Multifamily	8,309		4		—		—		128		8,441
Non owner occupied residential	2,380		175		—		14		324		2,893
Commercial, industrial and other	9,891		2,413		(1,128)		78		(1,165)		10,089
Construction	838		6,843		(6,807)		3		2,060		2,937
Equipment finance	3,663		—		(121)		79		(1,368)		2,253
Residential mortgage	3,914		179		—		48		2,438		6,579
Consumer	5,017		14		(75)		95		(271)		4,780
Total	$	58,047	$	12,077	$	(8,173)	$	672	$	6,213	$	68,836

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

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June 30, 2023	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Acquired with deteriorated credit quality		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Non-owner occupied commercial	$	—	$	2,962,009	$	29,115	$	2,991,124	$	591	$	22,952	$	23,543
Owner occupied commercial	7,498		1,160,453		33,098		1,201,049		906		5,258		6,164
Multifamily	—		1,308,261		5,994		1,314,255		16		9,021		9,037
Non-owner occupied residential	523		204,260		1,035		205,818		15		2,389		2,404
Commercial, industrial and other	1,531		589,290		3,969		594,790		1,508		7,371		8,879
Construction	—		354,918		—		354,918		—		2,732		2,732
Equipment finance	—		173,469		—		173,469		—		6,484		6,484
Residential mortgage	—		920,903		1,206		922,109		154		9,451		9,605
Consumer	—		343,613		142		343,755		—		5,117		5,117
Total loans	$	9,552	$	8,017,176	$	74,559	$	8,101,287	$	3,190	$	70,775	$	73,965


December 31, 2022	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Acquired with deteriorated credit quality		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Non-owner occupied commercial	$	—	$	2,871,950	$	34,064	2,906,014		$	753	$	22,709	$	23,462
Owner occupied commercial	12,041		1,202,919		31,229		1,246,189		983		5,713		6,696
Multifamily	—		1,254,412		6,402		1,260,814		5		9,420		9,425
Non-owner occupied residential	441		216,516		1,069		218,026		16		2,627		2,643
Commercial, industrial and other	2,806		594,568		9,337		606,711		2,150		6,686		8,836
Construction	980		379,120		—		380,100		—		2,968		2,968
Equipment finance	—		151,574		—		151,574		—		3,445		3,445
Residential mortgage	—		764,340		1,212		765,552		181		7,860		8,041
Consumer	—		330,920		150		331,070		3		4,745		4,748
Total loans	$	16,268	$	7,766,319	$	83,463	$	7,866,050	$	4,091	$	66,173	$	70,264

Allowance for Credit Losses - Securities

At June 30, 2023, the balance of the allowance for credit loss on available for sale and held to maturity securities was $0 and $146,000, respectively. At December 31, 2022, the Company reported an allowance for credit losses on available for sale securities of $310,000 and an allowance for credit losses on held to maturity securities of $107,000.

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

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Available for Sale	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Balance at beginning of the period	$	160	$	1,267	$	310	$	83

Charge-offs	$	—	$	—	(6,640)
Recoveries	$	—	$	—	—
Net charge-offs	$	—	$	—	(6,640)
(Benefit) provision for credit loss expense	(160)		1,535		6,330		2,719
Balance at end of the period	$	—	$	2,802	$	—	$	2,802


Held to Maturity	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Balance at beginning of the period	$	157	$	199	$	107	$	181




(Benefit) provision for credit loss expense	(11)		(9)		39		9
Balance at end of the period	$	146	$	190	$	146	$	190

The provision for credit loss expense for available for sale securities increased from $2.7 million in the first half of 2022 to $6.3 million in the first half of 2023 as a result of a $6.6 million provision and subsequent charge-off of subordinated debt securities of Signature Bank which failed in March 2023.

Accrued interest receivable on securities is reported as a component of accrued interest receivable on the consolidated balance sheets and totaled $9.0 million at June 30, 2023 and $8.7 million at December 31, 2022. The Company made the election to exclude accrued interest receivable from the estimate of credit losses on securities.

Allowance for Credit Losses - Off-Balance-Sheet Exposures

The allowance for credit losses on off-balance sheet exposures is reported in other liabilities in the Consolidated Balance Sheets. The liability represents an estimate of expected credit losses arising from off-balance sheet exposures such as letters of credit, guarantees and unfunded loan commitments. The process for measuring lifetime expected credit losses on these exposures is consistent with that for loans as discussed above, but is subject to an additional estimate reflecting the likelihood that funding will occur. No liability is recognized for off balance sheet credit exposures that are unconditionally cancellable by the Company. Adjustments to the liability are reported as a component of the provision for credit losses.

At June 30, 2023 and December 31, 2022, the balance of the allowance for credit losses for off-balance sheet exposures was $2.8 million and $3.0 million, respectively. For the three months ended June 30, 2023 and three months ended June 30, 2022, the Company recorded a benefit for credit losses on off-balance-sheet exposures of $304,000 and a provision for credit losses on off-balance sheet exposures of $535,000, respectively. For the six months ended June 30, 2023 and six months ended June 30, 2022, the Company recorded a benefit for credit losses on off-balance sheet exposures of $164,000 and a provision for credit losses on off-balance sheet exposures of $975,000, respectively.

Note 7 – Leases

The Company leases certain premises and equipment under operating leases. Portions of certain properties are subleased for terms extending through 2025. At June 30, 2023, the Company had lease liabilities totaling $19.7 million and right-of-use assets totaling $18.5 million related to these leases. At December 31, 2022, the Company had lease liabilities totaling $21.4 million and right-of-use assets totaling $20.1 million. The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. The Company uses its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

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At June 30, 2023, the weighted average remaining lease term for operating leases was 8.08 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.18%. At December 31, 2022, the weighted average remaining lease term for operating leases was 8.23 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.13%.

As the Company elected not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. Lease costs were as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Operating lease cost	$	1,164	$	1,242	$	2,354	$	2,468
Short-term lease cost	—		7		—		18
Variable lease cost	14		17		29		33
Sublease income	$	(33)	$	(32)	(65)		(64)
Net lease cost	$	1,145	$	1,234	$	2,318	$	2,455

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


	Six Months Ended June 30,
(in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,206	$	1,985
Right-of-use assets obtained in exchange for new operating lease liabilities	467		89

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

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


(in thousands)
Within one year	$	4,774
After one year but within three years	7,204
After three years but within five years	4,239
After five years	6,439
Total undiscounted cash flows	22,656
Discount on cash flows	(2,946)
Total operating lease liabilities	$	19,710

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Note 8 - Deposits

The following table sets forth the details of total deposits:


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

Noninterest-bearing demand	$	1,866,252	22.1	%	$	2,113,289	24.7	%
Interest-bearing checking	2,952,280		35.0	%	3,079,249		35.9	%
Money market	1,031,310		12.2	%	1,192,353		13.9	%
Savings	791,594		9.4	%	974,403		11.4	%
Certificates of deposit $250 thousand and under	1,330,090		15.7	%	901,505		10.5	%
Certificates of deposit over $250 thousand	473,155		5.6	%	306,672		3.6	%
Total deposits	$	8,444,681	100.0	%	$	8,567,471	100.0	%

At June 30, 2023 and December 31, 2022, certificates of deposit obtained through brokers totaled $150.0 million and $33.1 million, respectively. Brokered deposits are included in the Consolidated Balance Sheets as certificates of deposit $250,000 and under.

Note 9 – Borrowings

Overnight and Short-Term Borrowings

At June 30, 2023, the Company had $913.0 million overnight and short-term borrowings from the FHLB and $700.0 million at December 31, 2022. At June 30, 2023, Lakeland had overnight and short-term federal funds lines available to borrow up to $250.0 million from correspondent banks. Lakeland had no overnight or short-term borrowings from correspondent banks at June 30, 2023 and December 31, 2022, respectively. Lakeland may also borrow from the discount window or under the Bank Term Funding Program ("BTFP") of the Federal Reserve Bank of New York based on the fair value of collateral pledged. Lakeland had no borrowings with the Federal Reserve Bank of New York as of June 30, 2023 or December 31, 2022.

Also included in the balances at June 30, 2023 and December 31, 2022 were short-term securities sold under agreements to repurchase of $25.7 million and $28.8 million, respectively. The securities sold under agreements to repurchase are overnight sweep arrangement accounts with our customers. As of June 30, 2023, the Company had $22.3 million of mortgage-backed securities and $15.2 million of collateralized mortgage obligations pledged for its securities sold under agreements to repurchase.

At times, the fair values of securities collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires Lakeland to pledge additional collateral to meet that margin call.

FHLB Advances

The Company had one advance from the FHLB, which totaled $25.0 million at both June 30, 2023 and December 31, 2022, with a weighted average interest rate of 0.77% and a maturity date in 2025. The advance was collateralized by first mortgage loans and has prepayment penalties.

Note 10 – Share-Based Compensation

The Company's 2018 Omnibus Equity Incentive Plan (the "Plan") authorizes the granting of incentive stock options, supplemental stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), other stock-based awards and cash-based awards to officers, employees and non-employee directors of, and consultants and advisors to, the Company and its subsidiaries.

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Restricted Stock

The following is a summary of the Company’s restricted stock activity during the six months ended June 30, 2023:


	Number of Shares	Weighted Average Price
Outstanding, January 1, 2023	17,722	$	19.74
Granted	18,520	17.95
Vested	(17,722)	19.74

Outstanding, June 30, 2023	18,520	$	17.95

In the first six months of 2023, the Company granted 18,520 shares of restricted stock to non-employee directors at a grant date fair value of $17.95 per share under the Plan. The restricted stock vests one year from the date it was granted. Compensation expense on this restricted stock is expected to be $332,000 over a one year period. In the first six months of 2022, the Company granted 17,722 shares of restricted stock to non-employee directors at a grant date fair value of $19.74 per share. The restricted stock vested one year from the date it was granted with a compensation expense of $350,000 over such period.

The Company recognized share-based compensation expense on its restricted stock of $83,000 and $88,000 for the second quarter of 2023 and 2022, respectively, and $166,000 and $175,000 for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, there was unrecognized compensation cost of $166,000 related to unvested restricted stock that is expected to be recognized over a weighted average period of approximately 0.55 years.

Restricted Stock Units

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


	Number of Shares	Weighted Average Price
Outstanding, January 1, 2023	589,420	$	17.21
Granted	269,070	19.15
Vested	(228,386)	16.36
Forfeited	(10,252)	18.32
Outstanding, June 30, 2023	619,852	$	18.34

In the first six months of 2023, the Company granted 269,070 RSUs under the Plan at a weighted average grant date fair value of $19.15 per share. These units vest within a range of 2 to 3 years. A portion of these RSUs will vest subject to certain performance conditions in the applicable RSU agreement. There are also certain provisions in the compensation program which state that if a recipient of the RSUs reaches a certain age and years of service, the person has effectively earned a portion of the RSUs at that time. Compensation expense on these RSUs is expected to average approximately $1.7 million per year over a three-year period. In the first six months of 2022, the Company granted 313,754 RSUs under the Plan at a weighted average grant date fair value of $18.00 per share. Compensation expense on these RSUs is expected to average approximately $1.9 million per year over a three-year period.

For both of the second quarters of 2023 and 2022, the Company recognized share-based compensation expense on RSUs of $1.1 million, and $2.8 million and $2.4 million for the six months ended June 30, 2023 and 2022, respectively. Unrecognized compensation expense related to RSUs was approximately $7.4 million as of June 30, 2023, and that cost is expected to be recognized over a period of 1.5 years.

Stock Options

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

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Note 11 – Revenue Recognition

The Company’s primary source of revenue is interest income generated from loans and investment securities. Interest income is recognized according to the terms of the financial instrument agreement over the life of the loan or investment security unless it is determined that the counterparty is unable to continue making interest payments. Interest income also includes prepaid interest fees from commercial customers, which approximates the interest foregone on the balance of the loan prepaid.

The Company’s additional source of income, also referred to as noninterest income, is generated from deposit related fees, interchange fees, loan fees, merchant fees, loan sales, investment services and other miscellaneous income and is largely based on contracts with customers. In these cases, the Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The Company considers a customer to be any party to which the Company will provide goods or services that are an output of the Company’s ordinary activities in exchange for consideration. There is little seasonality with regards to revenue from contracts with customers and all inter-company revenue is eliminated when the Company’s financial statements are consolidated.

Generally, the Company enters into contracts with customers that are short-term in nature where the performance obligations are fulfilled and payment is processed at the same time. Such examples include revenue related to merchant fees, interchange fees and investment services income. In addition, revenue generated from existing customer relationships such as deposit accounts are also considered short-term in nature, because the relationship may be terminated at any time and payment is processed at the time performance obligations are fulfilled. As a result, the Company does not have contract assets, contract liabilities or related receivable accounts for contracts with customers. In cases where collectability is a concern, the Company does not record revenue.

Generally, the pricing of transactions between the Company and each customer is either (i) established within a legally enforceable contract between the two parties, as is the case with loan sales, or (ii) disclosed to the customer at a specific point in time, as is the case when a deposit account is opened or before a new loan is underwritten. Fees are usually fixed at a specific amount or as a percentage of a transaction amount. No judgment or estimates by management are required to record revenue related to these transactions and pricing is clearly identified within these contracts.

The Company primarily operates in one geographic region, Northern and Central New Jersey and contiguous areas. Therefore, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.

We disaggregate our revenue from contracts with customers by contract-type and timing of revenue recognition, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Noninterest income not generated from customers during the Company’s ordinary activities primarily relates to income from bank owned life insurance, gains/losses on the sale of investment securities, gains/losses on the sale of other real estate owned, gains/losses on the sale of property, plant and equipment and mortgage servicing rights.

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The following table sets forth the components of noninterest income for the three and six months ended June 30, 2023 and 2022:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022

Deposit-Related Fees and Charges
Debit card interchange income	$	1,723	$	1,737	$	3,333	$	3,309
Overdraft charges	761		756		1,601		1,525
ATM service charges	197		208		375		379
Demand deposit fees and charges	140		(7)		279		87
Savings service charges	23		17		45		37
Total deposit-related fees and charges	2,844		2,711		5,633		5,337
Commissions and fees
Loan fees	577		781		1,124		1,590
Wire transfer charges	474		525		906		982
Investment services income	282		700		711		1,105
Merchant fees	304		302		595		553
Commissions from sales of checks	91		91		179		175
Safe deposit income	103		99		206		153
Other income	26		50		57		87
Total commissions and fees	1,857		2,548		3,778		4,645
Gains on sales of loans held for sale	229		715		659		2,141
Other income
Gains on customer swap transactions	361		399		417		399
Title insurance income	—		2		19		2
Other income	453		519		586		788
Total other income	814		920		1,022		1,189
Revenue not from contracts with customers	925		169		1,842		531
Total Noninterest Income	$	6,669	$	7,063	$	12,934	$	13,843
Timing of Revenue Recognition:
Products and services transferred at a point in time	5,744		6,894		11,092		13,312

Revenue not from contracts with customers	925		169		1,842		531
Total Noninterest Income	$	6,669	$	7,063	$	12,934	$	13,843

Note 12 - Other Operating Expenses

The following table presents the major components of other operating expenses for the periods indicated:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Consulting and advisory board fees	921		927		1,922		1,981
ATM and debit card expense	737		709		1,461		1,366
Telecommunications expense	630		564		1,287		1,146
Marketing expense	547		760		1,058		1,157
Intangible asset amortization	512		593		1,028		1,189



Other operating expenses	4,190		4,335		8,293		8,430
Total other operating expenses	$	7,537	$	7,888	$	15,049	$	15,269

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Note 13 – Comprehensive Income (Loss)

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


	For the Three Months Ended
	June 30, 2023						June 30, 2022
(in thousands)	Before Tax Amount		Tax Benefit		Net of Tax Amount		Before Tax Amount		Tax Benefit		Net of Tax Amount
Unrealized losses on available for sale securities arising during the period	$	(12,368)	$	3,368	$	(9,000)	$	(26,758)	$	7,070	$	(19,688)



Amortization of gain on debt securities reclassified to held to maturity from available for sale	(174)		47		(127)		(203)		55		(148)


Other comprehensive loss, net	$	(12,542)	$	3,415	$	(9,127)	$	(26,961)	$	7,125	$	(19,836)


	For the Six Months Ended
	June 30, 2023						June 30, 2022
(in thousands)	Before Tax Amount		Tax Benefit		Net of Tax Amount		Before Tax Amount		Tax Benefit		Net of Tax Amount
Unrealized losses on available for sale securities arising during the period	$	(2,070)	$	652	$	(1,418)	$	(68,722)	$	18,069	$	(50,653)



Amortization of gain on debt securities reclassified to held to maturity from available for sale	(346)		93		(253)		(379)		96		(283)


Other comprehensive loss, net	$	(2,416)	$	745	$	(1,671)	$	(69,101)	$	18,165	$	(50,936)

The following tables show the changes in the balances of each of the components of other comprehensive income (loss) for the periods presented, net of tax:


	For the Three Months Ended June 30, 2023
(in thousands)	Unrealized Losses on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Total
Beginning balance	$	(69,147)	$	1,842	$	(67,305)

Net current period other comprehensive loss	(9,000)		(127)		(9,127)


Ending balance	$	(78,147)	$	1,715	$	(76,432)


	For the Three Months Ended June 30, 2022
(in thousands)	Unrealized Losses on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Total
Beginning balance	$	(30,220)	$	2,384	$	(27,836)

Net current period other comprehensive loss	(19,688)		(148)		(19,836)


Ending balance	$	(49,908)	$	2,236	$	(47,672)

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	For the For the Six Months Ended June 30, 2023
(in thousands)	Unrealized Losses on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Total
Beginning balance	$	(76,729)	$	1,968	$	(74,761)

Net current period other comprehensive loss	(1,418)		(253)		(1,671)


Ending balance	$	(78,147)	$	1,715	$	(76,432)


	For the For the Six Months Ended June 30, 2022
(in thousands)	Unrealized Gains (Losses) on Available for Sale Securities		Amortization of Gain on Debt Securities Reclassified to Held to Maturity		Total
Beginning balance	$	745	$	2,519	$	3,264

Net current period other comprehensive loss	(50,653)		(283)		(50,936)


Ending balance	$	(49,908)	$	2,236	$	(47,672)

Note 14 – Derivatives

Lakeland is a party to interest rate derivatives that are not designated as hedging instruments. Lakeland executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Lakeland executes with a third-party financial institution, such that Lakeland minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties. Lakeland had no investment securities available for sale pledged for collateral on its interest rate swaps with financial institutions at June 30, 2023 and December 31, 2022.

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


June 30, 2023	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:
Third Party interest rate swaps	$	999,400	6.8	3.77	%	1 Mo. SOFR + 2.00	$	97,886
Third Party interest rate swaps	3,826		5.7	4.23	%	1 Mo. LIBOR + 1.40	206
Customer interest rate swaps	97,926		6.0	6.04	%	1 Mo. SOFR + 1.99	1,200

Classified in Other Liabilities:
Customer interest rate swaps	$	999,400	6.8	3.77	%	1 Mo. SOFR + 2.00	$	(97,891)
Customer interest rate swaps	3,826		5.7	4.23	%	1 Mo. LIBOR + 1.40	(206)
Third Party interest rate swaps	97,926		6.0	6.04	%	1 Mo. SOFR + 1.99	(1,200)

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December 31, 2022	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
Classified in Other Assets:
Third Party interest rate swaps	$	918,758	7.5	3.70	%	1 Mo. SOFR + 2.00	$	94,800
Third Party interest rate swaps	48,497		1.5	3.40	%	1 Mo. LIBOR + 2.52	1,841
Customer interest rate swaps	51,864		8.5	5.60	%	1 Mo. SOFR + 1.95	1,207

Classified in Other Liabilities:
Customer interest rate swaps	$	918,758	7.5	3.70	%	1 Mo. SOFR + 2.00	(94,800)
Customer interest rate swaps	48,497		1.5	3.40	%	1 Mo. LIBOR + 2.52	(1,841)
Third party interest rate swaps	51,864		8.5	5.60	%	1 Mo. SOFR + 1.95	(1,207)

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Note 15 – Goodwill and Other Intangible Assets

The Company had goodwill of $271.8 million at June 30, 2023 and December 31, 2022. The Company recorded $115.6 million in goodwill from the 1st Constitution merger in January 2022 as further described in Note 2 of the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The Company reviews its goodwill and intangible assets annually, on November 30, or more frequently if conditions warrant, for impairment. In testing goodwill for impairment, the Company compares the estimated fair value of its reporting unit to its carrying amount, including goodwill. The Company has determined that it has one reporting unit. During the three and six months ended June 30, 2023, there were no triggering events that would more likely than not reduce the fair value of our one reporting unit below its carrying amount. There was no impairment of goodwill recognized during the three and six months ended June 30, 2023 and 2022.

The Company had core deposit intangibles of $8.1 million and $9.1 million at June 30, 2023 and December 31, 2022, respectively. The Company recorded core deposit intangible of $9.0 million in connection with the 1st Constitution acquisition. Amortization of core deposit intangible totaled $512,000 and $593,000 for the second quarters of 2023 and 2022, respectively, and $1.0 million and $1.2 million for the six months ended June 30, 2023 and 2022, respectively. The estimated future amortization expense for the remainder of 2023 and for each of the succeeding five years ended December 31 is as follows (in thousands):


For the Year Ended
2023	$	1,001
2024	1,737
2025	1,465
2026	1,193
2027	955
2028	724

Note 16 – Fair Value Measurement and Fair Value of Financial Instruments

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest level priority to unobservable inputs (level 3 measurements). The following describes the three levels of fair value hierarchy:

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities; includes U.S. Treasury Notes, and other U.S. Government Agency securities that actively trade in over-the-counter markets; equity securities and mutual funds that actively trade in over-the-counter markets.

Level 2 – quoted prices for similar assets or liabilities in active markets; or quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability including yield curves, volatilities and prepayment speeds.

Level 3 – unobservable inputs for the asset or liability that reflect the Company’s own assumptions about assumptions that market participants would use in the pricing of the asset or liability and that are consequently not based on market activity but upon particular valuation techniques.

The Company’s assets that are measured at fair value on a recurring basis are its investment securities available for sale, equity securities and its interest rate swaps. The Company obtains fair values on its securities using information from a third-party servicer. If quoted prices for securities are available in an active market, those securities are classified as Level 1 securities. The Company has U.S. Treasury Notes that are classified as Level 1 securities. Level 2 securities were primarily comprised of U.S. Agency bonds, residential mortgage-backed securities, obligations of state and political subdivisions and corporate securities. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids and offers. On a quarterly basis, the Company reviews the pricing information received from the Company’s third-party pricing service. This review includes a comparison to non-binding third-party quotes.

The fair values of derivatives are based on valuation models from a third party using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).

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Recurring Fair Value Measurements

The following table sets forth the Company’s financial assets that were accounted for at fair value on a recurring basis as of the periods presented by level within the fair value hierarchy. During the six months ended June 30, 2023 and during 2022, the Company did not make any transfers between any levels within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


June 30, 2023	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	153,912	$	179,779	$	—	$	333,691
Mortgage-backed securities, residential	—		297,804		—		297,804
Collateralized mortgage obligations, residential	—		144,437		—		144,437
Mortgage-backed securities, multifamily	—		768		—		768
Collateralized mortgage obligations, multifamily	—		45,337		—		45,337
Asset-backed securities	—		47,463		—		47,463
Obligations of states and political subdivisions	—		21,037		—		21,037
Corporate bonds	—		98,436		—		98,436
Total investment securities, available for sale	153,912		835,061		—		988,973
Equity securities	—		17,429		—		17,429
Derivative assets	—		99,292		—		99,292
Total Assets	$	153,912	$	951,782	$	—	$	1,105,694
Liabilities:
Derivative liabilities	$	—	$	99,297	$	—	$	99,297
Total Liabilities	$	—	$	99,297	$	—	$	99,297

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December 31, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
(in thousands)
Assets:
Investment securities, available for sale
U.S. Treasury and government agencies	$	162,438	$	193,201	$	—	$	355,639
Mortgage-backed securities, residential	—		310,613		—		310,613
Collateralized mortgage obligations, residential	—		154,058		—		154,058
Mortgage-backed securities, multifamily	—		785		—		785
Collateralized mortgage obligations, multifamily	—		46,333		—		46,333
Asset-backed securities	—		52,395		—		52,395
Obligations of states and political subdivisions	—		21,122		—		21,122
Corporate bonds	—		113,367		—		113,367
Total investment securities, available for sale	162,438		891,874		—		1,054,312
Equity securities	—		17,283		—		17,283
Derivative assets	—		97,848		—		97,848
Total Assets	$	162,438	$	1,007,005	$	—	$	1,169,443
Liabilities:
Derivative liabilities	$	—	$	97,848	$	—	$	97,848
Total Liabilities	$	—	$	97,848	$	—	$	97,848

Non-Recurring Fair Value Measurements

The Company has a held for sale loan portfolio that consists of residential mortgages that are being sold in the secondary market. The Company records these mortgages at the lower of cost or fair value. Fair value is generally determined by the value of purchase commitments.

Loans that do not have similar risk characteristics to the segments reported must be individually evaluated to determine an appropriate allowance. Management has identified criteria and procedures for identifying whether a loan should be individually evaluated for calculation of expected credit losses. If a loan is identified as meeting any of the criteria, it is deemed to have risk characteristics that are unique and will be separated from a pool. Those loans that are considered to have unique risk characteristics are then subjected to an individual allowance evaluation using either the fair value of the collateral, less estimated costs to sell, if collateral-dependent or the discounted cash flow method.

Other real estate owned (OREO) and other repossessed assets, representing property acquired through foreclosure or deed in lieu of foreclosure, are carried at fair value less estimated disposal costs of the acquired property. Fair value on other real estate owned is based on the appraised value of the collateral using discount rates or capitalization rates similar to those used in impaired loan valuation. The fair value of other repossessed assets is estimated by inquiry through a recognized valuation resource. At June 30, 2023 and December 31, 2022, the Company had no OREO or other repossessed assets.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Changes in economic conditions, locally or nationally, could impact the value of the estimated amounts of individually evaluated loans, OREO and other repossessed assets.

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The following table summarized the Company’s financial assets that are measured at fair value on a non-recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:


(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total Fair Value
June 30, 2023
Assets:
Individually evaluated loans	$	—	$	—	$	2,017	$	2,017




December 31, 2022
Assets:
Individually evaluated loans	$	—	$	—	$	4,489	$	4,489

Fair Value of Certain Financial Instruments

Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instruments. Management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

The estimation methodologies used, the estimated fair values and recorded book balances at June 30, 2023 and December 31, 2022, are outlined below.

This summary, as well as the table below, excludes financial assets and liabilities for which carrying value approximates fair value. For financial assets, these include cash and cash equivalents. For financial liabilities, these include noninterest-bearing demand deposits, savings and interest-bearing transaction accounts and federal funds purchased and securities sold under agreements to repurchase. The estimated fair value of demand, savings and interest-bearing transaction accounts is the amount payable on demand at the reporting date. Carrying value is used because there is no stated maturity on these accounts, and the customer has the ability to withdraw the funds immediately. Also excluded from this summary and the following table are those financial instruments recorded at fair value on a recurring basis, as previously described.

The fair value of investment securities held to maturity is measured using information from the same third-party servicer used for investment securities available for sale using the same methodologies discussed above.

FHLB stock is an equity interest that can be sold to the issuing FHLB, to other FHLBs, or to other member banks at its par value. Because ownership of these securities is restricted, they do not have a readily determinable fair value. As such, the Company’s FHLB stock is recorded at cost or par value and is evaluated for impairment each reporting period by considering the ultimate recoverability of the investment rather than temporary declines in value. The Company’s evaluation primarily includes an evaluation of liquidity, capitalization, operating performance, commitments, and regulatory or legislative events.

The net loan portfolio has been valued using an exit price approach, which incorporates a buildup discount rate calculation that uses a swap rate adjusted for credit risk, servicing costs, a liquidity premium and a prepayment premium.

For fixed maturity certificates of deposit, fair value is estimated based on the present value of discounted cash flows using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.

The fair value of long-term debt is based upon the discounted value of contractual cash flows. The Company estimates the discount rate using the rates currently offered for similar borrowing arrangements. The fair value of subordinated debentures is based on bid/ask prices from brokers for similar types of instruments.

The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair value of commitments to extend credit and standby letters of credit are deemed immaterial.

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The following table presents the carrying values, fair values and placement in the fair value hierarchy of the Company’s financial instruments not carried at fair value as of June 30, 2023 and December 31, 2022:


June 30, 2023	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Investment securities, held to maturity
U.S. government agencies	$	10,765	$	10,076	$	—	$	10,076	$	—
Mortgage-backed securities, residential	347,134		290,942		—		290,942		—
Collateralized mortgage obligations, residential	12,661		10,075		—		10,075		—
Mortgage-backed securities, multifamily	5,048		4,307		—		4,307		—

Obligations of states and political subdivisions	500,619		413,199		—		413,199		—
Corporate bonds	2,879		2,206		—		2,206		—
Total investment securities, held to maturity	$	879,106	$	730,805	$	—	$	730,805	$	—
Federal Home Loan Bank and other membership bank stocks	53,103		53,103		—		53,103		—
Loans, net	8,027,322		7,666,221		—		—		7,666,221
Financial Liabilities:
Certificates of deposit	1,803,245		1,776,937		—		1,776,937		—
Other borrowings	25,000		23,242		—		23,242		—
Subordinated debentures	194,486		144,569		—		—		144,569

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December 31, 2022	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Financial Assets:
Investment securities, held to maturity
U.S. government agencies	$	11,099	$	10,385	$	—	$	10,385	$	—
Mortgage-backed securities, residential	360,683		302,612		—		302,612		—
Collateralized mortgage obligations, residential	13,026		10,456		—		10,456		—
Mortgage-backed securities, multifamily	5,094		4,347		—		4,347		—

Obligations of states and political subdivisions	530,506		430,108		—		428,635		1,473
Corporate bonds	2,900		2,547		—		2,547		—
Total investment securities, held to maturity	923,308		760,455		—		758,982		1,473
Federal Home Loan Bank and other membership bank stocks	42,483		42,483		—		42,483		—
Loans, net	7,795,786		7,561,997		—		—		7,561,997
Financial Liabilities:
Certificates of deposit	1,208,177		1,174,230		—		1,174,230		—
Other borrowings	25,000		23,001		—		23,001		—
Subordinated debentures	194,264		160,933		—		—		160,933

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

This section should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Note Regarding Forward Looking Statements

The information disclosed in this document includes various forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to credit quality (including delinquency trends and the allowance for credit losses), corporate objectives and other financial and business matters. The words “anticipates,” “projects,” “intends,” “estimates,” “expects,” “believes,” “plans,” “may,” “will,” “should,” “could” and other similar expressions are intended to identify such forward-looking statements. The Company cautions that these forward-looking statements are necessarily speculative and speak only as of the date made, and are subject to numerous assumptions, risks and uncertainties, all of which may change over time. Actual results could differ materially from such forward-looking statements. Accordingly, you should not put undue reliance on forward-looking statements.

In addition to the risk factors disclosed elsewhere in this document and in the Company's most recently filed Annual Report on Form 10-K, as updated by the Company's subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, the following factors, among others, could cause the Company’s actual results to differ materially and adversely from such forward-looking statements: changes in levels of inflation and market interest rates, which may affect demand for our products and the value of our financial instruments; pricing pressures on loan and deposit products; changes in the financial services industry and the U.S. and global capital markets; changes in economic conditions nationally, regionally and in the Company’s markets; the nature and timing of actions of the Federal Reserve Board and other regulators; the nature and timing of legislation affecting the financial services industry; changes in federal and state tax laws; government intervention in the U.S. financial system; credit risks of Lakeland’s lending activities; the effects of the recent turmoil in the banking industry (including the failures of three financial institutions); successful implementation, deployment and upgrades of new and existing technology, systems, services and products; customers’ acceptance of Lakeland’s products and services; and expenses related to our proposed merger with Provident Financial Services, Inc. ("Provident"), unexpected delays related to the merger, inability to obtain regulatory approvals or satisfy other closing conditions required to complete the merger, and failure to realize anticipated efficiencies and synergies from the merger.

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The above-listed risk factors are not exhaustive, particularly as to possible future events, and new risk factors may emerge from time to time. Certain events may occur that could cause the Company’s actual results to be materially different than those described in the Company’s periodic filings with the Securities and Exchange Commission. Any statements made by the Company that are not historical facts should be considered to be forward-looking statements. The Company is not obligated to update and does not undertake to update any of its forward-looking statements made herein.

Critical Accounting Policies, Judgments and Estimates

The accounting and reporting policies of the Company and its subsidiaries conform to U.S. generally accepted accounting principles and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company, Lakeland and its subsidiaries, including Lakeland NJ Investment Corp., Lakeland Investment Corp., Lakeland Equity, Inc., Lakeland Preferred Equity, Inc., 1st Constitution Investment Company of New Jersey, Inc. and 1st Constitution Real Estate Corporation. All intercompany balances and transactions have been eliminated.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. There have been no material changes in the Company’s critical accounting policies, judgments and estimates, including assumptions or estimation techniques utilized, as compared to those disclosed in the Company’s most recent Annual Report on Form 10-K.

Executive Summary

During the first half of 2023, the banking industry experienced volatility with high-profile bank failures and industry-wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding confidence in the banking system. Despite industry concerns, the Company's liquidity position remains strong. The Company took a number of preemptive actions, which included pro-active outreach to clients and actions to maximize its funding sources in response to these recent developments, including increasing brokered time deposits by $116.9 million in the first six months of 2023, and increasing collateralized lines of credit with the FHLB. We also increased our usage of the Insured Cash Sweep ("ICS") product, as a method to increase the level of our customers' deposit insurance. As of June 30, 2023, the Company had $2.1 billion in deposits that were both uninsured and uncollateralized and we have additional borrowing capacity of $2.3 billion compared to March 31, 2023 when the Company had uninsured and uncollateralized deposits of $2.2 billion and additional borrowing capacity of $1.5 billion. Furthermore, the Company's capital ratios remain above levels considered by the regulators to be "well-capitalized" as of June 30, 2023. For more information, see "Liquidity" below.

On September 27, 2022, the Company and Provident announced that they had entered into a definitive merger agreement pursuant to which the companies will combine in an all-stock merger, then valued at approximately $1.3 billion. The merger proposes to combine two complementary banking platforms into a company that will have more than $25 billion in assets, $18 billion in total loans and $20 billion in total deposits. On February 1, 2023, the shareholders of both the Company and Provident approved the transaction. The merger is expected to close in the second half of 2023, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals.

Financial Overview

The Company reported net income of $22.6 million and earnings per diluted share ("EPS") of $0.34 for the three months ended June 30, 2023, compared to net income of $29.1 million and EPS of $0.44 for the three months ended June 30, 2022. For the second quarter of 2023, annualized return on average assets was 0.84%, annualized return on average common equity was 8.03% and annualized return on average tangible common equity was 10.67%, compared to 1.15%, 10.71%, and 14.45%, respectively, for the second quarter of 2022.

For the six months ended June 30, 2023, the Company reported net income of $42.4 million, compared to $45.0 million for the same period in 2022. Diluted earnings per share for the six months ended June 30, 2023 was $0.64 compared to $0.69 for the first six months of 2022. Annualized return on average assets, annualized return on average common equity, and annualized return on average tangible common equity was 0.80%, 7.60% and 10.13%, respectively, compared to 0.89%, 8.31% and 11.16% for the same period in 2022.

Net interest margin for the second quarter of 2023 of 2.83% decreased 55 basis points compared to the second quarter of 2022 and decreased 24 basis points compared to the first quarter of 2023. Net interest margin for the six months ended June 30, 2023 decreased 25 basis points to 2.95% from the same period last year.

Total loans, net of deferred fees, grew $235.2 million, or 3%, to $8.10 billion during the first six months of 2023. Total deposits decreased $122.8 million to $8.44 billion during the first six months of 2023.

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

Net Income

Net income was $22.6 million or $0.34 per diluted share, for the second quarter of 2023 compared to net income of $29.1 million or $0.44 per diluted share, for the second quarter of 2022. The decrease in net income compared to the second quarter of 2022 was due primarily to a decrease of $8.8 million in net interest income and an increase in noninterest expense of $1.9 million. These were offset by a decrease in the provision for credit losses of $1.7 million from the second quarter of 2022 to $1.9 million for the second quarter of 2023.

Net Interest Income

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

Net interest income on a tax equivalent basis for the second quarter of 2023 was $72.0 million, compared to $80.7 million for the second quarter of 2022. The net interest margin decreased 55 basis points to 2.83% in the second quarter of 2023 from 3.38% in the second quarter of 2022. The decrease in net interest income compared to the second quarter of 2022 was due primarily to the increase in the cost of interest-bearing liabilities, which increased from 0.40% to 2.59%. The components of net interest income are discussed in greater detail below.

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The following table reflects the components of the Company’s net interest income, setting forth for the periods presented, (1) average assets, liabilities and stockholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) the Company’s net interest spread (i.e., the average yield on interest-earning assets less the average cost of interest-bearing liabilities) and (5) the Company’s net interest margin. Rates for the three months ended June 30, 2023 and June 30, 2022 are computed on a tax equivalent basis using a tax rate of 21%.


	For the Three Months Ended June 30, 2023						For the Three Months Ended June 30, 2022
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid

Assets
Interest-earning assets:
Loans (1)	$	7,999,285	$	105,261	5.22	%	$	7,229,175	$	76,973	4.22	%
Taxable investment securities and other	1,740,404		11,939		2.74	%	1,827,450		8,284		1.81	%
Tax-exempt securities	327,669		2,009		2.45	%	360,749		1,825		2.02	%
Federal funds sold (2)	146,784		1,981		5.41	%	171,022		235		0.55	%
Total interest-earning assets	10,214,142		121,190		4.71	%	9,588,396		87,317		3.61	%
Noninterest-earning assets:
Allowance for credit losses	(72,593)						(68,199)
Other assets	666,712						671,943
Total Assets	$	10,808,261					$	10,192,140

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Savings accounts	$	830,836	$	537	0.26	%	$	1,153,591	$	507	0.18	%
Interest-bearing transaction accounts	4,007,867		21,616		2.16	%	4,369,067		3,542		0.33	%
Time deposits	1,722,935		14,551		3.39	%	803,421		780		0.39	%
Federal funds purchased	785,033		10,237		5.16	%	27,451		125		1.81	%
Securities sold under agreements to repurchase	28,438		128		1.77	%	102,791		25		0.10	%
Long-term borrowings	219,425		2,157		3.89	%	218,958		1,654		2.99	%
Total interest-bearing liabilities	7,594,534		49,226		2.59	%	6,675,279		6,633		0.40	%
Noninterest-bearing liabilities:
Demand deposits	1,935,776						2,310,702
Other liabilities	147,388						115,546
Stockholders' equity	1,130,563						1,090,613
Total Liabilities and Stockholders’ Equity	$	10,808,261					$	10,192,140
Net interest income/spread			71,964		2.12	%			80,684		3.22	%
Tax equivalent basis adjustment			422						382
Net Interest Income			$	71,542					$	80,302
Net interest margin (3)					2.83	%					3.38	%

(1)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.

(2)Includes interest-bearing cash accounts.

(3)Net interest income divided by interest-earning assets.

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Interest income on a tax equivalent basis increased $33.9 million to $121.2 million in the second quarter of 2023 from $87.3 million in the second quarter of 2022. Average loans increased $770.1 million to $8.00 billion in the second quarter of 2023 compared to $7.23 billion in the second quarter of 2022, due primarily to growth in commercial and residential lending. The yield earned on loans increased by 100 basis points to 5.22% in the second quarter of 2023 from the second quarter of 2022 due primarily to the increase in market rates. Total average taxable investment securities decreased $87.0 million to $1.74 billion for the second quarter of 2023 from the second quarter of 2022, while average tax-exempt securities decreased $33.1 million to $327.7 million for the same periods, due to pay downs and maturities in the investment portfolio. The yield on average taxable investment securities increased 93 basis points from the second quarter of 2022 to 2.74% for the second quarter of 2023, and the yield on average tax-exempt investment securities increased 43 basis points to 2.45% due to increases in market rates from the second quarter of 2022 to the same period in 2023. Average federal funds sold in the second quarter of 2023 decreased $24.2 million compared to the second quarter of 2022, while the yield increased 486 basis points to 5.41% for the second quarter of 2023 as short-term market rates have risen in 2022 and 2023.

Total interest expense of $49.2 million in the second quarter of 2023 increased by $42.6 million from the $6.6 million reported for the same period in 2022. The cost of average interest-bearing liabilities increased from 0.40% in the second quarter of 2022 to 2.59% in the second quarter of 2023, largely driven by increases in interest-bearing deposit costs as well as increased borrowing costs resulting from an increase both in volume and rate of overnight borrowings. Total interest-bearing deposits increased by $235.6 million from the second quarter of 2022 to $6.56 billion, while the cost of interest-bearing deposits increased 194 basis points. For the second quarter of 2023, savings and interest-bearing transaction account average balances decreased $322.8 million and $361.2 million, respectively, when compared to the same period in 2022, and average time deposits increased $919.5 million reflecting a change in customer deposit preferences driven by the market interest rate increase. In addition, federal funds purchased increased $757.6 million from second quarter of 2022 to the same period in 2023 while the cost of federal funds purchased increased 335 basis points within the same time period. The increase in federal funds purchased results from funding loan growth and keeping more on balance sheet liquidity in response to industry-wide concerns over liquidity.

Provision for Credit Losses

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

In the second quarter of 2023, a $1.9 million provision for credit losses was recorded, compared to a $3.6 million provision for credit losses for the same period last year. The provision for second quarter of 2023 was comprised of a provision for credit losses on loans of $2.4 million, a benefit for credit losses on securities of $171,000 and a benefit on off-balance-sheet exposures of $304,000. In the second quarter of 2022, the provision was comprised of a provision for credit losses on loans of $1.5 million, a provision for credit losses on securities of $1.5 million and a provision on off-balance-sheet exposures of $535,000.The increase in the provision for credit losses on loans was primarily due to growth in the loan portfolio. The Company recorded loan charge-offs of $148,000 and recoveries on loans of $288,000 in the second quarter of 2023 compared to loan charge-offs of $369,000 and loan recoveries of $510,000 in the second quarter of 2022. For more information, see Note 6 in Notes to the Consolidated Statements in this Form 10-Q.

Noninterest Income

Noninterest income decreased $394,000 to $6.7 million for the second quarter of 2023 compared to $7.1 million during the same period in 2022. Income on bank owned life insurance increased $201,000 from the second quarter of 2022 due primarily to death benefits received during the second quarter of 2023. Commissions and fees decreased $692,000 from the second quarter of 2022 due primarily to a decrease in investment services income. Service charges on deposit accounts increased $133,000 compared to the second quarter of 2022 due primarily to increases in monthly maintenance charges. Losses on equity securities totaled $135,000 for the three months ended June 30, 2023 compared to losses of $364,000 in the same period of 2022. Other income increased from $227,000 for the second quarter of 2022 to $486,000 for the same period in 2023 due to a $315,000 impairment loss on property held for sale booked in the second quarter of 2022.

Noninterest Expense

Noninterest expense for the second quarter of 2023 of $47.0 million increased $1.9 million compared to the second quarter of 2022. FDIC insurance expense increased $955,000 due to an increase in the 2023 assessment rate related to Lakeland's asset size exceeding $10 billion. Other operating expenses in the second quarter of 2023 decreased $351,000 compared to the same period in 2022 due primarily to decreased marketing expense.

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The Company’s efficiency ratio, a non-GAAP financial measure, was 58.82% in the second quarter of 2023, compared to 50.69% for the same period last year, primarily as a result of decreased revenue due to the increased cost of funds in the rising interest rate environment. The Company uses this ratio because it believes that the ratio provides a good comparison of period-to-period performance and because the ratio is widely accepted in the banking industry. The following table shows the calculation of the efficiency ratio for the periods presented:


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

Total noninterest expense	$	47,008		$	45,068
Less:
Amortization of core deposit intangibles	512			593
Merger-related expenses	242			—


Noninterest expense, as adjusted	$	46,254		$	44,475

Net interest income	$	71,542		$	80,302
Noninterest income	6,669			7,063
Total revenue	78,211			87,365
Tax-equivalent adjustment on municipal securities	422			382


Total revenue, as adjusted	$	78,633		$	87,747
Efficiency ratio	58.82		%	50.69		%

Income Tax Expense

The effective tax rate in the second quarter of 2023 was 22.7% compared to 24.7% during the same period in 2022 primarily as a result of tax advantaged items increasing as a percentage of pretax income.

Comparison of Operating Results for the Six Months Ended June 30, 2023 and 2022

Net Income

Net income was $42.4 million, or $0.64 per diluted share, for the first six months of 2023 compared to net income of $45.0 million, or $0.69 per diluted share, for the first six months of 2022. Net income decreased primarily as a result of a decrease in net interest income of $3.2 million compared to the first half of 2022 because of an increase in the market interest rate environment.

Net interest income on a tax equivalent basis for the first six months of 2023 was $148.3 million, compared to $151.4 million for the first six months of 2022. The decrease in net interest income was due primarily to an increase in the cost of interest-bearing liabilities partially offset by an increase in the yield on interest earning assets. The net interest margin of 2.95% in the first six months of 2023 decreased from 3.20% for the same period in 2022, primarily due to the increase in the cost of interest-bearing deposits partially offset by an increase in the yield in interest-earning assets. The components of net interest income are discussed in greater detail below.

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The following table reflects the components of the Company’s net interest income, setting forth for the periods presented, (1) average assets, liabilities and stockholders’ equity, (2) interest income earned on interest-earning assets and interest expense paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) the Company’s net interest spread (i.e., the average yield on interest-earning assets less the average cost of interest-bearing liabilities) and (5) the Company’s net interest margin. Rates for the six months ended June 30, 2023 and June 30, 2022 are computed on a tax equivalent basis using a tax rate of 21%.


	For the Six Months Ended June 30, 2023						For the Six Months Ended June 30, 2022
(dollars in thousands)	Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid		Average Balance		Interest Income/ Expense		Average Rates Earned/ Paid

ASSETS
Interest-earning assets:
Loans (1)	$	7,950,129	$	205,742	5.16	%	$	7,125,893	$	144,782	4.05	%
Taxable investment securities and other	1,755,898		23,493		2.66	%	1,751,429		14,994		1.71	%
Tax-exempt securities	336,541		4,087		2.42	%	352,926		3,473		1.97	%
Federal funds sold (2)	110,513		2,709		4.94	%	316,327		417		0.27	%
Total interest-earning assets	10,153,081		236,031		4.63	%	9,546,575		163,666		3.42	%
Noninterest-earning assets:
Allowance for credit losses	(71,946)						(69,111)
Other assets	672,700						687,973
TOTAL ASSETS	$	10,753,835					$	10,165,437

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings accounts	$	879,545	$	1,189	0.27	%	$	1,142,536	$	990	0.17	%
Interest-bearing transaction accounts	4,115,349		40,875		2.00	%	4,384,215		6,208		0.28	%
Time deposits	1,555,230		23,798		3.09	%	841,214		1,670		0.40	%
Federal funds purchased	687,586		17,338		5.02	%	13,801		125		1.81	%
Securities sold under agreements to repurchase	28,496		249		1.74	%	103,707		45		0.09	%
Long-term borrowings	219,366		4,257		3.86	%	218,474		3,209		2.00	%
Total interest-bearing liabilities	7,485,572		87,706		2.35	%	6,703,947		12,247		0.37	%
Noninterest-bearing liabilities:
Demand deposits	1,987,635						2,252,693
Other liabilities	155,140						115,549
Stockholders' equity	1,125,488						1,093,248
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,753,835					$	10,165,437
Net interest income/spread			148,325		2.28	%			151,419		3.05	%
Tax equivalent basis adjustment			858						729
NET INTEREST INCOME			$	147,467					$	150,690
Net interest margin (3)					2.95	%					3.20	%

(1)Includes non-accrual loans, the effect of which is to reduce the yield earned on loans, and deferred loan fees.

(2)Includes interest-bearing cash accounts.

(3)Net interest income divided by interest-earning assets.

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On a tax equivalent basis, interest income increased $72.4 million, or 44%, from $163.7 million in the six months ended June 30, 2022, to $236.0 million in the same period of 2023. The increase in interest income was primarily due to an increase in the yields of interest-earning assets resulting from the increased interest rate environment. Average loans increased $824.2 million, or 12%, compared to the first six months of 2022 which also contributed to the increase in interest income. The yield on average loans of 5.16% in the six months ended June 30, 2023, was 111 basis points higher than the same period in 2022 due to the rising interest rate environment. Average tax-exempt securities decreased $16.4 million for the first six months of 2023 compared to the same period in 2022 due to maturities of securities. The yield on average taxable investment securities increased 95 basis points, while the yield on average tax-exempt investment securities increased 45 basis points. Average federal funds sold decreased $205.8 million in the first six months of 2023 compared to the same period in 2022, while the yield on federal funds sold increased 468 basis points. Average federal funds sold decreased from the same period last year to help fund the increase in loans discussed above.

Total interest expense of $87.7 million in the first six months of 2023 was $75.5 million greater than the interest expense reported for the same period in 2022. Total average interest-bearing liabilities increased $781.6 million, while the cost of average interest-bearing liabilities increased from 0.37% in the six months ended June 30, 2022 to 2.35% in the first six months of 2023. Rates paid increased in all categories of interest-bearing deposits due to the rising interest rate environment. The cost of borrowings and time deposits increased by 264 basis points and 269 basis points, respectively. Additionally, higher costing average borrowings and time deposits balances increased $599.5 million and $714.0 million, respectively. Average time deposits as a percent of interest-bearing liabilities increased from 13% in the six months ended June 30, 2022 to 21% in the six months ended June 30, 2023. Federal funds purchased, which includes overnight borrowings from the Federal Home Loan Bank of New York, averaged $687.6 million, or 9%, of total interest-bearing liabilities during the six months ended June 30, 2023, compared to $13.8 million, or less than 1%, of interest-bearing liabilities in the six months ended June 30, 2022. Time deposits and borrowings typically have a higher rate than savings and interest-bearing transaction accounts.

Provision for Credit Losses

In the six months ended June 30, 2023, the Company recorded a $9.8 million provision for credit losses compared to a $9.9 million provision for the same period last year. As of June 30, 2023, the provision was comprised of a provision for credit losses on loans of $3.6 million, a provision for credit losses on securities of $6.4 million and a benefit for off-balance-sheet exposures of $164,000. The provision for credit losses on loans in the six months ended June 30, 2022 was comprised of a provision for credit losses on loans of $6.2 million, a provision for credit losses on securities of $2.7 million and a provision for off-balance-sheet exposures of $975,000. The decrease in the provision recorded for loans and off-balance-sheet exposures in the first half of 2023 was due primarily to the increased provision in the first quarter of 2022 recorded for non-PCD loans acquired in the 1st Constitution merger. The provision for credit losses on securities during the first six months of 2023 was primarily due to a $6.6 million provision and subsequent charge-off of subordinated debt securities of Signature Bank which failed in March 2023. Charge-offs totaled $6.9 million (including $6.6 million in the aforementioned investment security) and recoveries totaled $353,000 in the first six months of 2023 compared to $8.2 million in charge-offs and $672,000 in recoveries in the first six months of 2022. Charge-offs taken during the first six months of 2022 included $7.6 million in charge-offs of 1st Constitution purchased credit deteriorated loans. For more information regarding the determination of the provision, see “Risk Elements” below.

Noninterest Income

For the six months ended June 30, 2023, noninterest income totaled $12.9 million, a decrease of $909,000 as compared to the six months ended June 30, 2022. Gains on sales of loans decreased $1.5 million compared to the six months ended June 30, 2022 due primarily to lower sale volume. Commissions and fees decreased $873,000 driven primarily by a decrease in loan fees and investment services income. Partially offsetting these unfavorable variances were gains on equity securities which totaled $13,000 in the six months ended June 30, 2023 compared to losses of $849,000 in the six months ended June 30, 2022. Service charges on deposit accounts increased $296,000 from the six months ended June 30, 2022. Other income increased from $504,000 for the six months of 2022 to $627,000 for the first six months of 2023 resulting from the same reasons discussed in the quarterly comparison.

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Noninterest Expense

Noninterest expense for the six months ended June 30, 2023 of $95.6 million increased $586,000 compared to the six months ended June 30, 2022. The increase in noninterest expense was primarily due to increases in compensation and employee benefits which increased $3.0 million resulting primarily from increased commissions, bonus expense, share based compensation expense and normal merit increases. FDIC expense increased from the first half of 2022 to the first half of 2023 for the same reasons referred to above in the quarterly comparison. Offsetting these increases was a decrease in merger-related expenses which totaled $537,000 in the six months ended June 30, 2023 compared to $4.6 million during the six months ended June 20, 2022. Merger-related expense during the current year was a result of the anticipated merger with Provident Financial, while merger-related expense for the first half of 2022 was due to the acquisition of 1st Constitution Bancorp. The Company’s efficiency ratio, a non-GAAP financial measure, was 58.32% in the first six months of 2023, compared to 54.01% for the same period in 2022. The Company uses this ratio because it believes that the ratio provides a good comparison of period-to-period performance and because the ratio is widely accepted in the banking industry.

The following table shows the calculation of the efficiency ratio for the periods presented:


	Six Months Ended June 30,
(dollars in thousands)	2023			2022

Total noninterest expense	$	95,613		$	95,027
Less:
Amortization of core deposit intangibles	1,028			1,189
Merger-related expenses	537			4,585


Noninterest expense, as adjusted	$	94,048		$	89,253

Net interest income	$	147,467		$	150,690
Noninterest income	12,934			13,843
Total revenue	160,401			164,533
Tax-equivalent adjustment on municipal securities	858			729
Less:
Gains on sales of investment securities	—			—
Total revenue, as adjusted	$	161,259		$	165,262
Efficiency ratio	58.32		%	54.01		%

Income Tax Expense

The effective tax rate in the first six months of 2023 was 22.8% compared to 24.4% during the same period last year due primarily to tax-advantaged items increasing as a percentage of pretax income.

Financial Condition

The Company’s total assets increased $114.1 million from December 31, 2022, to $10.90 billion at June 30, 2023. Total loans, net of deferred fees, were $8.10 billion, an increase of $235.2 million, or 3% from $7.87 billion at December 31, 2022. Total deposits were $8.44 billion, a decrease of $122.8 million from December 31, 2022, while total borrowings increased $210.1 million to $1.16 billion at June 30, 2023.

Loans

Lakeland primarily serves New Jersey, the Hudson Valley region in New York and the surrounding areas. Its equipment finance division serves a broader market with a primary focus on the Northeast United States. Total loans, net of deferred fees, totaled $8.10 billion at June 30, 2023, an increase of $235.2 million as compared to December 31, 2022. Loan balances increased from December 31, 2022 in residential mortgages by $156.6 million, or 20%, commercial loans by $44.1 million or 1%, and equipment financing by $21.9 million or 14%. For more information on the loan portfolio, see Note 5 in Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Risk Elements

Commercial loans are placed on a non-accrual status with all accrued interest and unpaid interest reversed if (a) because of the deterioration in the financial position of the borrower, they are maintained on a cash basis (which means payments are applied when and as received rather than on a regularly scheduled basis), (b) payment of all contractual principal

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and interest is not expected, or (c) principal and interest have been in default for a period of 90 days or more unless the obligation is both well-secured and in process of collection. Residential mortgage loans and closed-end consumer loans are placed on non-accrual status at the time principal and interest have been in default for a period of 90 days or more, except where there exists sufficient collateral to cover the defaulted principal and interest payments, and the loans are well-secured and in the process of collection. Open-end consumer loans secured by real estate are generally placed on non-accrual status and reviewed for charge-off when principal and interest payments are four months in arrears unless the obligations are well-secured and in the process of collection. Interest thereafter on such charged-off consumer loans is taken into income when received only after full recovery of principal. As a general rule, a non-accrual asset may be restored to accrual status when none of its principal or interest is due and unpaid and satisfactory payments have been received for a sustained period (usually six months), or when it otherwise becomes well-secured and in the process of collection.

Non-performing assets, including non-accrual PCD loans, decreased $1.3 million from $17.4 million at December 31, 2022 to $16.1 million at June 30, 2023. Owner occupied commercial non-accrual loans and commercial, industrial and other and construction loans decreased $1.4 million, $1.2 million, and $980,000, respectively, due to principal paydowns. The impact of these principal paydowns was partially offset by the increase in consumer non-accruals of $1.7 million. Non-accrual loans at June 30, 2023 included three loan relationships with a balance of $1 million or greater, totaling $9.0 million and one loan relationship between $500,000 and $1.0 million, totaling $828,000. At June 30, 2023 and December 31, 2022 there were no loans that were past due more than 89 days and still accruing.

During the six months ended June 30, 2022 , the Company adopted Accounting Standards Update 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02"). Among other things, ASU 2022-02 eliminates the recognition and measurement guidance of TDRs so that creditors will apply the same guidance to all modifications when determining whether a modification results in a new receivable or continuation of an existing receivable. ASU 2022-02 requires vintage disclosures of gross charge-offs as shown in the vintage disclosure contained in Note 5 in the Notes to the Financial Statements contained in this Quarterly Report on Form 10-Q. It also replaces the disclosure of TDRs with the disclosure of modifications of receivables to debtors experiencing financial difficulty.

During the six months ended June 30, 2022, there were no loan modifications that met the definition of a modification to a debtor experiencing financial difficulty. At December 31, 2022, TDRs totaled $2.6 million, all of which were accruing. There were no loans that were restructured during the three and six months ended June 30, 2022, that met the definition of a TDR. There were no restructured loans that subsequently defaulted in the six months ended June 30, 2023 and 2022.

At June 30, 2023 and December 31, 2022, the Company had $93.9 million and $63.5 million, respectively, of loans that were rated substandard that were not classified as non-performing. There was one loan relationship totalling $21.1 million that was downgraded to substandard in the second quarter of 2023 that was not classified as non-performing. There were no loans at June 30, 2023, other than those designated non-performing or substandard, where the Company was aware of any credit conditions of any borrowers or obligors that would indicate a strong possibility of the borrowers not complying with present terms and conditions of repayment and which may result in such loans being included as non-accrual, past due or renegotiated at a future date.

Allowance for Credit Losses on Loans

The Company accounts for the allowance for credit losses using ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires the measurement of expected credit losses for financial assets measured at amortized cost, including loans and certain off-balance-sheet credit exposures. Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation.

The overall balance of the allowance for credit losses on loans of $74.0 million at June 30, 2023 increased $3.7 million from December 31, 2022, an increase of 5%.

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	As of and for the Six Months Ended June 30,						As of and for the Year Ended
(dollars in thousands)	2023			2022			December 31, 2022

Allowance for credit losses on loans to total loans outstanding	0.91		%	0.93		%	0.89		%
Allowance for credit losses on loans	$	73,965		$	68,836		$	70,264
Total loans outstanding	8,101,287			7,408,540			7,866,050

Non-accrual loans to total loans outstanding	0.20		%	0.30		%	0.22		%
Non-accrual loans	$	16,068		$	22,161		$	17,362
Total loans outstanding	8,101,287			7,408,540			7,866,050

Allowance for credit losses on loans to non-accrual loans	460.32		%	310.62		%	404.70		%
Allowance for credit losses on loans	$	73,965		$	68,836		$	70,264
Non-accrual loans	16,068			22,161			17,362

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	As of and for the Six Months Ended June 30,						As of and for the Year Ended
(dollars in thousands)	2023			2022			December 31, 2022
Net charge-offs (recoveries) during the period to average loans outstanding:
Non-owner occupied commercial	—		%	—		%	—		%
Net charge-offs during the period	$	—		$	—		$	—
Average amount outstanding	2,935,517			2,712,198			2,798,805

Owner occupied commercial	—		%	(0.06)		%	(0.03)		%
Net recoveries during the period	$	(6)		$	(313)		$	(313)
Average amount outstanding	1,218,142			1,073,824			1,120,776

Multifamily	—		%	—		%	—		%
Net charge-offs during the period	$	—		$	—		$	—
Average amount outstanding	1,285,115			1,078,635			1,138,937

Non owner occupied residential	—		%	(0.01)		%	(0.01)		%
Net recoveries during the period	$	—		$	(14)		$	(14)
Average amount outstanding	211,260			212,046			215,342

Commercial, industrial and other	(0.07)		%	0.32		%	0.15		%
Net charge-offs (recoveries) during the period	$	(198)		$	1,050		$	977
Average amount outstanding	565,695			661,502			644,329

Construction	0.01		%	3.36		%	1.74		%
Net charge-offs during the period	$	13		$	6,804		$	6,804
Average amount outstanding	388,337			404,977			391,253

Equipment finance	0.07		%	0.07		%	0.05		%
Net charge-offs during the period	$	58		$	42		$	70
Average amount outstanding	161,134			125,730			132,384

Residential mortgage	—		%	(0.02)		%	(0.01)		%
Net recoveries during the period	$	—		$	(48)		$	(48)
Average amount outstanding	851,370			557,759			624,492

Consumer	0.04		%	(0.01)		%	0.02		%
Net charge-offs (recoveries) during the period	$	67		$	(20)		$	72
Average amount outstanding	332,834			295,708			308,368

Total loans	—		%	0.21		%	0.10		%
Net (recoveries) charge-offs during the period	$	(66)		$	7,501		$	7,548
Average amount outstanding	7,949,404			7,122,379			7,374,686

Non-accrual loans of $16.1 million at June 30, 2023 decreased $1.3 million from December 31, 2022. The allowance for credit losses as a percent of total loans was 0.91% at June 30, 2023 compared to 0.89% at December 31, 2022. Net charge-offs as a percentage of average loans outstanding was 0.00% and 0.21% for the six months ended June 30, 2023 and 2022, respectively, with the change predominately related to 1st Constitution PCD loans charged off in the first quarter of 2022.

Management believes, based on appraisals and estimated selling costs, that the majority of the Company's non-performing loans are adequately secured and that reserves on its non-performing loans are adequate. Based upon the process employed and giving recognition to all accompanying factors related to the loan portfolio, management considers the allowance for credit losses to be adequate at June 30, 2023.

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Investment Securities

Investment securities decreased $109.5 million in the six months ended June 30, 2023 to $1.87 billion at June 30, 2023 compared to $1.98 billion at December 31, 2022. For detailed information on the composition and maturity distribution of the Company’s investment securities portfolio, see Note 4 in Notes to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Deposits

Total deposits decreased from $8.57 billion at December 31, 2022 to $8.44 billion at June 30, 2023, a decrease of $122.8 million. Savings and interest-bearing transaction accounts decreased $470.8 million, or 9%, while total time deposits increased $595.1 million, or 49% as depositors moved funds to higher yielding non-core products. Included in the time deposit increase was an increase in brokered deposits of $116.9 million that was used to fund deposit outflow and loan growth. Noninterest-bearing deposits also decreased $247.0 million, during the six months ended June 30, 2023 to $1.9 billion. The Company tracks its uninsured deposits (i.e., deposit relationships that exceeded the $250,000 FDIC insurance limit) and deposits that are not collateralized by loans or investment securities. As of June 30 2023, the Bank had on-balance sheet liquidity and funding capacity that represented 127% of adjusted uninsured deposits.

Liquidity

“Liquidity” measures whether an entity has sufficient cash flow to meet its financial obligations and commitments on a timely basis. The Company is liquid when its subsidiary bank has the cash available to meet the borrowing and cash withdrawal requirements of customers and the Company can pay for current and planned expenditures and satisfy its debt obligations.

Lakeland funds loan demand and operation expenses from several sources:

•Net income. Cash provided by operating activities was $64.0 million for the first six months of 2023 compared to $67.3 million for the same period in 2022.

•Deposits. Lakeland can offer new products or change its rate structure in order to increase deposits.

•Sales of investment securities. At June 30, 2023 the Company had $989.0 million in securities designated “available for sale.” Of these securities, $900.8 million were pledged to secure public deposits, and for other purposes required by applicable laws and regulations.

•Principal repayments on loans.

•Credit lines. As a member of the FHLB, Lakeland has the ability to borrow overnight based on the fair value of collateral pledged. Lakeland had $913.0 million of overnight borrowings from the FHLB on June 30, 2023. Lakeland had remaining availability of $1.75 billion for borrowing at the FHLB on June 30, 2023. Lakeland also has overnight federal funds lines available for it to borrow up to $250.0 million, none of which was outstanding at June 30, 2023. Lakeland may also borrow from the discount window of the Federal Reserve Bank of New York or through the Bank Term Funding Program (the "BTFP"). In the first quarter of 2023, the BTFP was created to make additional funding available for eligible depository institutions to help assure that banks have the ability to meet the needs of their depositors. Lakeland has the ability to borrow from the Federal Reserve both from the discount window and through the BTFP program up to the value of collateral pledged. As of June 30, 2023, Lakeland had availability to borrow up to $262.0 million from the Federal Reserve, although it has no present intention to do so. Lakeland had no borrowings with the Federal Reserve Bank of New York as of June 30, 2023.

•Other borrowings. Lakeland can also generate funds by utilizing long-term debt or securities sold under agreements to repurchase that would be collateralized by security or mortgage collateral. At times, the fair value of securities collateralizing our securities sold under agreements to repurchase may decline due to changes in interest rates and may necessitate our lenders to issue a “margin call” which requires Lakeland to pledge additional collateral to meet that margin call.

Management and the Board monitor the Company’s liquidity through the Asset/Liability Committee, which monitors the Company’s compliance with certain regulatory ratios and other various liquidity guidelines. Management is closely monitoring changes in liquidity needs. The Company has increased collateral pledged and expanded access to additional borrowings should it be necessary in order to meet liquidity needs. While we are unable to predict actual fluctuations in deposit or cash balances, management continues to monitor liquidity and believes that its current level of liquidity is sufficient to meet its current and future operational needs.

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The cash flow statements for the periods presented provide an indication of the Company’s sources and uses of cash, as well as an indication of the ability of the Company to maintain an adequate level of liquidity. A discussion of the cash flow statement for the six months ended June 30, 2023 follows.

Cash and cash equivalents totaling $219.5 million on June 30, 2023 decreased $16.4 million from December 31, 2022. Operating activities provided $64.0 million in net cash. Investing activities used $147.1 million in net cash, primarily due to loan funding of $232.5 million, partially offset by proceeds from repayments and maturities of investments securities of $100.6 million. Financing activities provided $66.7 million in net cash primarily due to increases of $209.9 million in federal funds purchased and securities sold under agreements to repurchase, partially offset by a $122.7 million decrease in deposits and dividends paid of $19.0 million. The Company anticipates that it will have sufficient funds available to meet its current loan commitments and deposit maturities.

The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of June 30, 2023. Interest on subordinated debentures and long-term borrowed funds is calculated based on current contractual interest rates.


(in thousands)	Total		Within One Year		After One But Within Three Years		After Three But Within Five Years		After Five Years

Minimum annual rentals on noncancellable operating leases	$	22,656	$	4,774	$	7,204	$	4,239	$	6,439
Benefit plan commitments	3,964		326		745		745		2,148
Remaining contractual maturities of time deposits	1,803,245		1,478,520		319,443		5,280		2
Subordinated debentures	194,486		—		—		—		194,486
Loan commitments	1,582,303		1,113,084		162,296		88,495		218,428
Other borrowings	25,000		—		25,000		—		—
Interest on other borrowings (1)	80,654		8,334		16,361		16,260		39,699
Standby letters of credit	30,948		28,890		703		1,355		—
Total	$	3,743,256	$	2,633,928	$	531,752	$	116,374	$	461,202

(1) Includes interest on other borrowings and subordinated debentures at a weighted rate of 3.79%.

Capital Resources

Total stockholders’ equity increased to $1.13 billion on June 30, 2023 from $1.11 billion on December 31, 2022, an increase of $23.1 million. Book value per common share increased to $17.40 on June 30, 2023 from $17.09 on December 31, 2022. Tangible book value per share increased from $12.76 per share on December 31, 2022 to $13.10 per share on June 30, 2023. Please see “Non-GAAP Financial Measures” below. The increase in stockholders’ equity from December 31, 2022 to June 30, 2023 was due in part to $42.4 million of net income partially offset by other comprehensive loss of $1.7 million and by the payment of cash dividends on common stock of $19.0 million.

The Company and Lakeland are subject to various regulatory capital requirements that are monitored by federal banking agencies. Failure to meet minimum capital requirements can lead to certain supervisory actions by regulators; any supervisory action could have a direct material adverse effect on the Company or Lakeland or their financial statements. The Company and Lakeland Bank include in their Common Tier 1 Capital ("CET1") common stock and related surplus, and retained earnings net of treasury stock. In connection with the adoption of the Basel III Capital Rules, we elected to opt out of the requirement to include components of accumulated other comprehensive income/loss in CET1. As of June 30, 2023, the Company and Lakeland met all capital adequacy requirements to which they are subject.

As of June 30, 2023, the Company’s capital levels remained characterized as “well-capitalized.”

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The capital ratios for the Company and Lakeland Bank for the periods presented are as follows:


	Tier 1 Capital to Total Average Assets Ratio				Common Equity Tier 1 to Risk-Weighted Assets Ratio				Tier 1 Capital to Risk- Weighted Assets Ratio				Total Capital to Risk- Weighted Assets Ratio
	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
The Company	9.17	%	9.16	%	10.90	%	10.71	%	11.43	%	11.24	%	14.03	%	13.83	%
Lakeland Bank	10.01	%	10.03	%	12.47	%	12.31	%	12.47	%	12.31	%	13.34	%	13.15	%
Required capital ratios including conservation buffer	4.00	%	4.00	%	7.00	%	7.00	%	8.50	%	8.50	%	10.50	%	10.50	%
“Well capitalized” institution under FDIC Regulations	5.00	%	5.00%		6.50	%	6.50%		8.00	%	8.00%		10.00	%	10.00%

Non-GAAP Financial Measures

Reported amounts are presented in accordance with U.S. GAAP. The Company’s management uses certain supplemental non-GAAP information in its analysis of the Company’s financial results. Specifically, the Company provides measurements and ratios based on tangible equity and tangible assets. These measures are utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors.

The Company also provides measures based on what it believes are its operating earnings on a consistent basis, and excludes material non-routine operating items which affect the GAAP reporting of results of operations. The Company’s management believes that providing this information to analysts and investors allows them to better understand and evaluate the Company’s core financial results for the periods in question.

These disclosures should not be viewed as a substitute for financial results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.


(dollars in thousands, except share and per share amounts)	June 30, 2023			December 31, 2022
Calculation of Tangible Book Value per Common Share
Total common stockholders’ equity at end of period - GAAP	$	1,131,702		$	1,108,587
Less:
Goodwill	271,829			271,829
Other identifiable intangible assets, net	8,060			9,088
Total tangible common stockholders’ equity at end of period - Non-GAAP	$	851,813		$	827,670
Shares outstanding at end of period	65,028			64,872
Book value per share - GAAP	$	17.40		$	17.09
Tangible book value per share - Non-GAAP	$	13.10		$	12.76
Calculation of Tangible Common Equity to Tangible Assets
Total tangible common stockholders’ equity at end of period - Non-GAAP	$	851,813		$	827,670

Total assets at end of period	$	10,897,966		$	10,783,840
Less:
Goodwill	271,829			271,829
Other identifiable intangible assets, net	8,060			9,088
Total tangible assets at end of period - Non-GAAP	$	10,618,077		$	10,502,923
Common equity to assets - GAAP	10.38		%	10.28		%
Tangible common equity to tangible assets - Non-GAAP	8.02		%	7.88		%

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	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(dollars in thousands)	2023			2022			2023			2022
Calculation of Return on Average Tangible Common Equity
Net income - GAAP	$	22,628		$	29,117		$	42,433		$	45,046
Total average common stockholders’ equity	$	1,130,563		$	1,090,613		$	1,125,488		$	1,093,249
Less:
Average goodwill	271,829			271,829			271,829			268,637
Average other identifiable intangible assets, net	8,353			10,569			8,627			10,709
Total average tangible common stockholders’ equity - Non-GAAP	$	850,381		$	808,215		$	845,032		$	813,903
Return on average common stockholders’ equity - GAAP	8.03		%	10.71		%	7.60		%	8.31		%
Return on average tangible common stockholders’ equity - Non-GAAP	10.67		%	14.45		%	10.13		%	11.16		%

Recent Accounting Pronouncements

In June 2022, the Financial Accounting Standards Board ("FASB") issued Update 2022-03, "Fair Value Measurement (Topic 820)" ("ASU 2022-03"). The guidance clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibits the sale of an equity security, amends a related illustrative example, and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. This ASU will be effective for financial statements issued by public business entities for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company does not expect ASU 2022-03 to have a material impact on the Company's financial statements.

In March 2022, FASB issued Update 2022-02, "Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures" ("ASU 2022-02"). The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. The Company adopted ASU 2022-02 in the first quarter of 2023. The adoption of this standard has not had a material impact on the consolidated financial statements. For more information, see Note 5 to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

In October 2021, FASB issued Update 2021-08, an update to Topic 805, Business Combinations. The update provides guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment provides specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments in this ASU apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations - Overall. This ASU will be effective for financial statements issued by public business entities for fiscal years and interim periods beginning after December 15, 2022. The adoption of this ASU did not have a material impact on the Company's financial statements.

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In March 2020, FASB issued Update 2020-04, an update to Topic 848, Reference Rate Reform. The update provides guidance to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The update provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met and only applies to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In addition, the update provides optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification for contracts that are modified because of reference rate reform and contemporaneous modifications of other contract terms related to the replacement of the reference rate. In December 2022, FASB issued Update 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which allows companies to apply the standard as of the beginning of the interim period that includes March 12, 2020 or any date thereafter until December 31, 2024. During 2023, the Company continued to convert LIBOR-based loans to SOFR and does not expect the impact to its financial statements to be material.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company manages interest rate risk and market risk by identifying and quantifying interest rate risk exposures using simulation analysis and economic value at risk models. Net interest income simulation considers the relative sensitivities of the balance sheet including the effects of interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the probability of interest rate changes and the behavioral response of the balance sheet to those changes. Market Value of Portfolio Equity represents the fair value of the net present value of assets, liabilities and off-balance-sheet items. Changes in estimates and assumptions made for interest rate sensitivity modeling could have a significant impact on projected results and conclusions. These assumptions could include prepayment rates, sensitivity of non-maturity deposits and other similar assumptions. Therefore, if our assumptions should change, this technique may not accurately reflect the impact of general interest rate movements on the Company’s net interest income or net portfolio value.

The starting point (or “base case”) for the following table is an estimate of the following year’s net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at period-end levels. The net interest income estimated for this purpose for the next twelve months (the base case) is $282.3 million. The information provided for net interest income assumes that changes in interest rates change gradually in equal increments (“rate ramp”) over the twelve month period.


	Changes in Interest Rates
Rate Ramp	+200 bp		-200 bp
Asset/Liability Policy limit	(5.0)	%	(5.0)	%
June 30, 2023	(3.6)	%	2.9	%
December 31, 2022	(2.0)	%	1.1	%

The Company’s review of interest rate risk includes policy limits for net interest income changes in various “rate shock” scenarios. Rate shocks assume that current interest rates change immediately. The information provided for net interest income assumes fluctuations or “rate shocks” for changes in interest rates as shown in the table below.


	Changes in Interest Rates
Rate Shock	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp		-300 bp		-400 bp
Asset/Liability Policy limit	(25.0)	%	(20.0)	%	(15.0)	%	(10.0)	%	(10.0)	%	(15.0)	%	(20.0)	%	(25.0)	%
June 30, 2023	(14.0)	%	(10.8)	%	(7.6)	%	(3.6)	%	2.7	%	4.7	%	5.7	%	6.6	%
December 31, 2022	(7.1)	%	(5.4)	%	(3.8)	%	(1.6)	%	0.7	%	0.4	%	(1.0)	%	(1.7)	%

The base case for the following table is an estimate of the Company’s net portfolio value for the periods presented using current discount rates, and assuming the Company’s interest-sensitive assets and liabilities remain at period-end levels. The net portfolio value at June 30, 2023 (the base case) was $1.74 billion. The information provided for the net portfolio value assumes fluctuations or “rate shocks” for changes in interest rates as shown in the table below. Rate shocks assume that current interest rates change immediately.

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	Changes in Interest Rates
Rate Shock	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp		-300 bp		-400 bp
Asset/Liability Policy limit	(35.0)	%	(25.0)	%	(20.0)	%	(10.0)	%	(10.0)	%	(20.0)	%	(25.0)	%	(35.0)	%
June 30, 2023	(15.5)	%	(11.6)	%	(7.6)	%	(3.5)	%	2.5	%	3.5	%	2.5	%	(2.3)	%
December 31, 2022	(13.8)	%	(10.3)	%	(6.6)	%	(2.9)	%	1.9	%	1.9	%	(0.5)	%	(6.0)	%

The information set forth in the above tables and the net interest income estimate set forth above are based on significant estimates and assumptions, and constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. For more information regarding the Company’s market risk and assumptions used in the Company’s simulation models, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity. Moreover, the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.

Item 4. Controls and Procedures

(a)Disclosure controls and procedures. As of the end of the Company’s most recently completed fiscal quarter covered by this report, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and are operating in an effective manner and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in internal controls over financial reporting. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Table of Contents

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.


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

The following table presents information regarding shares of our common stock repurchased during the second quarter of 2023.


Period	Total Number of Shares (or Units) Purchased (1)	Weighted Average Price Paid per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

Number of shares at December 31, 2022				2,393,423
April 1 to April 30, 2023	—	$—	—	2,393,423
May 1 to May 31, 2023	—	—	—	2,393,423
June 1 to June 30, 2023	—	—	—	2,393,423

(1)On October 24, 2019, the Company announced that its Board of Directors authorized a new share repurchase program. Under the repurchase program, the Company may repurchase up to 2,524,458 shares of its common stock, or approximately 5% of its outstanding shares of common stock at September 30, 2019. Repurchases may be made from time to time through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of the Company and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and the Company's financial performance. The share repurchase program has no expiration date.


Item 3. Defaults Upon Senior Securities			Not Applicable


Item 4. Mine Safety Disclosures			Not Applicable


Item 5. Other Information

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

Item 6. Exhibits


2.1			Agreement and Plan of Merger, dated September 26, 2022, by and among Provident Financial Services, Inc., NL 239 Corp. and Lakeland Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed with the SEC on September 27, 2022)
3.1			Lakeland Bancorp, Inc. Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018)
3.2			Lakeland Bancorp, Inc. Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K, filed with the SEC on April 9, 2020)
4.1			Indenture, dated September 15, 2021, between Lakeland Bancorp, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 15, 2021)
4.2			First Supplemental Indenture, dated September 15, 2021, between Lakeland Bancorp, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K, filed with the SEC on September 15, 2021)
4.3			Form of 2.875% Fixed-to-Floating Rate Subordinated Notes due 2031 (included in Exhibit 4.2)
31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document)
101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Lakeland Bancorp, Inc.
(Registrant)

/s/ Thomas J. Shara
Thomas J. Shara
President and Chief Executive Officer
(Principal Executive Officer)

/s/ Thomas F. Splaine
Thomas F. Splaine
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Date: August 8, 2023