Lakeland Bancorp Earnings 2019-03-31

LBAI 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 lbaiq12019doc.htm 10-Q Document

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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



For the quarterly period ended		March 31, 2019
	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)	(Zip Code)

(973) 697-2000
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

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 [X] 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 [ X ] 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 [X] 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 [X]

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

As of May 1, 2019, there were 50,441,279 outstanding shares of Common Stock, no par value.

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LAKELAND BANCORP, INC.

Form 10-Q Index



		PAGE
	Part I. Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018 (unaudited)	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018(unaudited)	7
	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

	Part II. Other Information

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	46

Signatures		47

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Lakeland Bancorp, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS



	March 31, 2019			December 31, 2018
	(unaudited)
ASSETS	(dollars in thousands)

Cash	$	205,322		$	205,199
Interest-bearing deposits due from banks	21,037			3,400
Total cash and cash equivalents	226,359			208,599
Investment securities available for sale, at fair value	659,238			638,618
Equity securities, at fair value	15,232			15,921
Investment securities held to maturity; fair value of $158,219 at March 31, 2019 and $150,932 at December 31, 2018	159,308			153,646
Federal Home Loan Bank and other membership bank stock, at cost	16,951			13,301
Loans, net of deferred costs (fees)	4,921,391			4,456,733
Less: allowance for loan losses	37,979			37,688
Net loans	4,883,412			4,419,045
Loans held for sale	600			1,113
Premises and equipment, net	51,703			49,175
Operating lease right-of-use assets	19,239			—
Accrued interest receivable	17,515			16,114
Goodwill	154,153			136,433
Other identifiable intangible assets	5,192			1,768
Bank owned life insurance	110,430			110,052
Other assets	45,731			42,308
TOTAL ASSETS	$	6,365,063		$	5,806,093
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing	$	1,071,890		$	950,218
Savings and interest-bearing transaction accounts	3,046,322			2,913,414
Time deposits $250 thousand and under	753,126			589,737
Time deposits over $250 thousand	193,246			167,301
Total deposits	5,064,584			4,620,670
Federal funds purchased and securities sold under agreements to repurchase	261,266			233,905
Other borrowings	175,783			181,118
Subordinated debentures	118,193			105,027
Operating lease liabilities	20,823			—
Other liabilities	43,071			41,634
TOTAL LIABILITIES	5,683,720			5,182,354
STOCKHOLDERS’ EQUITY
Common stock, no par value; authorized shares, 100,000,000 at March 31, 2019 and December 31, 2018; issued shares, 50,435,663 at March 31, 2019 and 47,486,250 at December 31, 2018	558,245			514,703
Retained earnings	126,787			116,874
Accumulated other comprehensive loss	(3,689		)	(7,838		)
TOTAL STOCKHOLDERS’ EQUITY	681,343			623,739
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,365,063		$	5,806,093

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

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Lakeland Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



	For the Three Months Ended March 31,
	2019		2018
	(in thousands, except per share data)
INTEREST INCOME
Loans and fees	$	57,642	$	45,544
Federal funds sold and interest-bearing deposits with banks	254		166
Taxable investment securities and other	4,873		3,992
Tax-exempt investment securities	408		443
TOTAL INTEREST INCOME	63,177		50,145
INTEREST EXPENSE
Deposits	11,497		5,755
Federal funds purchased and securities sold under agreements to repurchase	608		134
Other borrowings	2,466		2,020
TOTAL INTEREST EXPENSE	14,571		7,909
NET INTEREST INCOME	48,606		42,236
Provision for loan losses	508		1,284
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	48,098		40,952
NONINTEREST INCOME
Service charges on deposit accounts	2,573		2,611
Commissions and fees	1,412		1,272
Income on bank owned life insurance	683		719
Gain (loss) on equity securities	353		(18		)
Gains on sales of loans	371		246
Other income	331		504
TOTAL NONINTEREST INCOME	5,723		5,334
NONINTEREST EXPENSE
Salaries and employee benefits	19,231		16,861
Net occupancy expense	2,954		2,738
Furniture and equipment	2,116		2,206
FDIC insurance expense	450		425
Stationery, supplies and postage	447		416
Marketing expense	469		361
Data processing expense	1,327		466
Telecommunications expense	493		421
ATM and debit card expense	602		510
Core deposit intangible amortization	304		157
Other real estate and repossessed asset expense	86		46
Merger related expenses	2,860		—
Other expenses	2,645		2,530
TOTAL NONINTEREST EXPENSE	33,984		27,137
Income before provision for income taxes	19,837		19,149
Provision for income taxes	4,211		3,894
NET INCOME	$	15,626	$	15,255
PER SHARE OF COMMON STOCK
Basic earnings	$	0.31	$	0.32
Diluted earnings	$	0.31	$	0.32
Dividends	$	0.115	$	0.100

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 (UNAUDITED)



	For the Three Months Ended March 31,
	2019			2018
	(in thousands)
NET INCOME	$	15,626		$	15,255
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized gains (losses) on securities available for sale	4,363			(5,732		)
Unrealized (losses) gains on derivatives	(214		)	283
Other comprehensive income (loss)	4,149			(5,449		)
TOTAL COMPREHENSIVE INCOME	$	19,775		$	9,806

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

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Lakeland Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three Months Ended March 31, 2019 and 2018



	Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	(in thousands)
At January 1, 2018	$	512,734		$	72,737		$	(2,349	)	$	583,122
Cumulative adjustment for adoption of ASU 2016-01	—			2,043			(2,043		)	—
January 1, 2018, as adjusted	512,734			74,780			(4,392		)	583,122
Net income	—			15,255			—			15,255
Other comprehensive loss, net of tax	—			—			(5,449		)	(5,449		)
Stock based compensation	994			—			—			994
Exercise of stock options	248			—			—			248
Retirement of restricted stock	(744		)	—			—			(744		)
Cash dividends, common stock	—			(4,778		)	—			(4,778		)
At March 31, 2018	$	513,232		$	85,257		$	(9,841	)	$	588,648

At January 1, 2019	$	514,703		$	116,874		$	(7,838	)	$	623,739
Cumulative adjustment for adoption of ASU 842	—			125			—			125
January 1, 2019, as adjusted	514,703			116,999			(7,838		)	623,864
Net income	—			15,626			—			15,626
Other comprehensive income, net of tax	—			—			4,149			4,149
Stock based compensation	696			—			—			696
Issuance of stock for Highlands acquisition	43,417			—			—			43,417
Retirement of restricted stock	(571		)	—			—			(571		)
Cash dividends, common stock	—			(5,838		)	—			(5,838		)
At March 31, 2019	$	558,245		$	126,787		$	(3,689	)	$	681,343

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

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Lakeland Bancorp, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	For the Three Months Ended March 31,
	2019			2018
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	15,626		$	15,255
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums, discounts and deferred loan fees and costs	497			1,250
Depreciation and amortization	2,138			1,323
Amortization of intangible assets	304			157
Amortization of operating lease right-of-use assets	652			—
Provision for loan losses	508			1,284
Loans originated for sale	(8,931		)	(8,473		)
Proceeds from sales of loans held for sale	10,928			9,175
Change in market value of equity securities	(353		)	18
Gains on sales of loans held for sale	(371		)	(246		)
Gains on other real estate and other repossessed assets	(36		)	(25		)
Losses on sales of premises and equipment	85			—
Stock-based compensation	696			994
Excess tax benefits	131			298
Increase in other assets	(2,590		)	(2,388		)
Increase in other liabilities	959			1,262
NET CASH PROVIDED BY OPERATING ACTIVITIES	20,243			19,884
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired in acquisitions	13,454			—
Proceeds from repayments and maturities of available for sale securities	42,074			20,928
Proceeds from repayments and maturities of held to maturity securities	4,153			5,820
Proceeds from sales of equity securities	1,138			—
Purchase of available for sale securities	(36,085		)	(24,589		)
Purchase of held to maturity securities	(8,510		)	(18,461		)
Purchase of equity securities	(95		)	(326		)
Proceeds from redemptions of Federal Home Loan Bank stock	25,792			688
Purchases of Federal Home Loan Bank stock	(27,675		)	—
Net increase in loans	(38,506		)	(73,247		)
Proceeds from sales of other real estate and repossessed assets	253			145
Proceeds from dispositions and sales of premises and equipment	953			—
Purchases of premises and equipment	(1,793		)	(1,354		)
NET CASH USED IN INVESTING ACTIVITIES	(24,847		)	(90,396		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	34,545			79,339
Increase in federal funds purchased and securities sold under agreements to repurchase	27,361			1,549
Repayments of other borrowings	(33,133		)	(15,000		)
Exercise of stock options	—			248
Retirement of restricted stock	(571		)	(744		)
Dividends paid	(5,838		)	(4,778		)
NET CASH PROVIDED BY FINANCING ACTIVITIES	22,364			60,614
Net increase (decrease) in cash and cash equivalents	17,760			(9,898		)
Cash and cash equivalents, beginning of period	$	208,599		142,933
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	226,359		$	133,035

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	For the Three Months Ended March 31,
	2019		2018
	(in thousands)
Supplemental schedule of non-cash investing and financing activities:
Cash paid during the period for income taxes	$	230	$	2,046
Cash paid during the period for interest	13,001		6,716
Transfer of loans into other repossessed assets and other real estate owned	102		669
Initial recognition of operating lease right-of-use assets	18,651		—
Initial recognition of operating lease liabilities	20,203		—
Acquisitions:
Non-cash assets acquired:
Federal Home Loan Bank stock	1,767		—
Investment securities available for sale	22,734		—
Loans, including loans held for sale	428,072		—
Goodwill and other intangible assets, net	21,448		—
Other assets	8,602		—
Total non-cash assets acquired	482,623		—
Liabilities assumed:
Deposits	409,638		—
Other borrowings	40,957		—
Other liabilities	2,065		—
Total liabilities assumed	452,660		—
Common stock issued and fair value of stock options converted to Lakeland Bancorp stock options	43,417		—

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

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 the Bank’s wholly owned subsidiaries (collectively, the “Company”). The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and predominant practices within the banking industry. The Company’s unaudited interim financial statements reflect all adjustments, such as normal recurring accruals that are, in the opinion of management, necessary for the fair presentation of the results of the interim periods. The results of operations for the three months ended March 31, 2019 do not necessarily indicate the results that the Company will achieve for all of 2019.

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, 2018. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

NOTE 2 – ACQUISITIONS

On January 4, 2019, the Company completed its acquisition of Highlands Bancorp, Inc. ("Highlands"), a bank holding company headquartered in Vernon, New Jersey. Highlands was the parent of Highlands State Bank, which operated four branches in Sussex, Passaic and Morris Counties in New Jersey. This acquisition enabled the Company to broaden its presence in those counties. Effective as of the close of business on January 4, 2019, Highlands merged into the Company and Highlands State Bank merged into Lakeland. Pursuant to the merger agreement, the shareholders of Highlands received for each outstanding share of Highlands common stock that they owned at the effective time of the merger, 1.015 shares of Lakeland Bancorp, Inc. common stock. The Company issued 2,837,524 shares of its common stock in the merger. Outstanding Highlands options were paid out in cash at the difference between $14.71 and an average strike price of $8.09 for a total cash payment of $797,000.

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. Highlands' assets were recorded at their preliminary estimated fair values as of January 4, 2019 and Highlands' results of operations will be included in the Company's Consolidated Statements of Income from that date forward.

The assets acquired and liabilities assumed in the acquisition were recorded at their estimated fair values based on management's best estimates using information available at the date of the acquisition, including the use of a third-party valuation specialist. The fair values are preliminary estimates and subject to adjustment for up to one year after the closing date of the acquisition.

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The following table summarizes the estimated fair value of the acquired assets and liabilities assumed at the date of acquisition for Highlands.



(in thousands)
Cash and cash equivalents	13,454
Securities, available for sale	22,734
Federal Home Loan Bank stock	1,767
Loans held for sale	1,113
Loans	426,959
Premises and equipment	3,253
Goodwill	17,720
Identifiable intangible assets	3,728
Accrued interest receivable and other assets	5,349
Total assets acquired	496,077

Deposits	(409,638		)
Other borrowings	(27,800		)
Subordinated debt	(13,157		)
Other liabilities	(2,065		)
Total liabilities assumed	(452,660		)
Net assets acquired	$	43,417

Loans acquired in the Highlands acquisition were recorded at fair value and subsequently accounted for in accordance with ASC Topic 310. There was no carryover related allowance for loan losses. The fair values of loans acquired from Highlands were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted for estimated future credit losses and the rate of prepayments. Projected cash flows were then discounted to present value using a risk-adjusted market rate for similar loans.

The following is a summary of the credit impaired loans acquired in the Highlands acquisition as of the closing date.



(in thousands)
Contractually required principal and interest at acquisition	$	20,025
Contractual cash flows not expected to be collected (non-accretable difference)	4,758
Expected cash flows at acquisition	$	15,267
Interest component of expected cash flows (accretable difference)	1,420
Fair value of acquired loans	$	13,847

The core deposit intangible totaled $3.7 million and is being amortized over its estimated useful life of approximately ten years using an accelerated method. The goodwill will be evaluated annually for impairment. The goodwill is not deductible for tax purposes.

The fair values of deposit liabilities with no stated maturities such as checking, money market and savings accounts, were assumed to equal the carrying amounts since these deposits are payable on demand. The fair values of certificates of deposits and IRAs represent the present value of contractual cash flows discounted at market rates for similar certificates of deposit.

Direct costs related to the acquisition were expensed as incurred. During the three months ended March 31, 2019, the Company incurred $2.9 million of merger and acquisition integration-related expenses, which have been separately stated in the Company's Consolidated Statements of Income.

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Supplemental Pro Forma Financial Information

The following table provides unaudited condensed pro forma financial information assuming that the Highlands acquisition had been completed as of January 1, 2019, for the three months ended March 31, 2019 and as of January 1, 2018 for the three months ended March 31, 2018. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings or the impact of conforming certain accounting policies of the acquired companies to the Company’s policies that may have occurred as a result of the integration and consolidation of Highlands' operations. The pro forma information shown reflects adjustments related to certain purchase accounting fair value adjustments; amortization of core deposit and other intangibles; and related income tax effects. The Company has not provided separate information regarding revenue and earnings of Highlands since the acquisition because of the manner in which Highlands' branches and lending team were immediately merged into Lakeland’s branches and lending team making such information impracticable to provide.



	Pro Forma		Pro Forma
(in thousands)	March 31, 2019		March 31, 2018
Net interest income	$	48,753	$	46,787
Provision for loan losses	508		1,382
Noninterest income	5,694		6,198
Noninterest expense	31,205		30,501
Net income	17,784		16,687
Earnings per share:
Fully diluted	$	0.35	$	0.33

NOTE 3 – 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 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 the 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.

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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 mortgage servicing rights, 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 income from bank owned life insurance.

The following table sets forth the components of noninterest income for the three months ended March 31, 2019 and 2018:



	For the Three Months Ended March 31,
(in thousands)	2019		2018

Deposit Related Fees and Charges
Debit card interchange income	$	1,218	$	1,118
Overdraft charges	996		1,109
ATM service charges	184		190
Demand deposit fees and charges	143		158
Savings service charges	32		36
Total	2,573		2,611
Commissions and Fees
Loan fees	348		322
Wire transfer charges	267		248
Investment services income	352		228
Merchant fees	184		216
Commissions from sales of checks	103		108
Safe deposit income	91		84
Other income	61		63
Total	1,406		1,269
Gains on Sale of Loans	371		246
Other Income
Gains on customer swap transactions	199		332
Title insurance income	90		49
Other income	61		97
Total	350		478
Revenue not from contracts with customers	1,023		730
Total Noninterest Income	5,723		5,334
Timing of Revenue Recognition
Products and services transferred at a point in time	4,681		4,585
Products and services transferred over time	19		19
Revenue not from contracts with customers	1,023		730
Total Noninterest Income	$	5,723	$	5,334

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NOTE 4 – EARNINGS PER SHARE

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



	For the Three Months Ended March 31,
(in thousands, except per share data)	2019		2018

Net income available to common shareholders	$	15,626	$	15,255
Less: earnings allocated to participating securities	141		141
Net income allocated to common shareholders	$	15,485	$	15,114
Weighted average number of common shares outstanding - basic	50,275		47,503
Share-based plans	167		233
Weighted average number of common shares outstanding - diluted	50,442		47,736
Basic earnings per share	$	0.31	$	0.32
Diluted earnings per share	$	0.31	$	0.32

There were no antidilutive options to purchase common stock excluded from the computation for the three months ended March 31, 2019 and 2018.

NOTE 5 – INVESTMENT SECURITIES

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



	March 31, 2019									December 31, 2018
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

AVAILABLE FOR SALE
U.S. Treasury and U.S. government agencies	$	141,088	$	94	$	(1,601	)	$	139,581	$	143,495	$	—	$	(2,568	)	$	140,927
Mortgage-backed securities, residential	442,358		1,473		(5,204		)	438,627		434,208		779		(8,843		)	426,144
Mortgage-backed securities, multifamily	30,956		135		(82		)	31,009		21,087		67		(204		)	20,950
Obligations of states and political subdivisions	44,850		362		(195		)	45,017		45,951		140		(586		)	45,505
Debt securities	5,000		4		—			5,004		5,000		92		—			5,092
	$	664,252	$	2,068	$	(7,082	)	$	659,238	$	649,741	$	1,078	$	(12,201	)	$	638,618



	March 31, 2019									December 31, 2018
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

HELD TO MATURITY
U.S. government agencies	$	32,461	$	—	$	(360	)	$	32,101	$	33,025	$	—	$	(677	)	$	32,348
Mortgage-backed securities, residential	82,070		246		(1,033		)	81,283		75,859		169		(1,838		)	74,190
Mortgage-backed securities, multifamily	1,827		—		(19		)	1,808		1,853		—		(35		)	1,818
Obligations of states and political subdivisions	36,450		274		(127		)	36,597		37,909		113		(328		)	37,694
Debt securities	6,500		—		(70		)	6,430		5,000		—		(118		)	4,882
	$	159,308	$	520	$	(1,609	)	$	158,219	$	153,646	$	282	$	(2,996	)	$	150,932

Table of Contents

The following table lists contractual maturities of investment securities classified as available for sale and held to maturity as of March 31, 2019. 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
March 31, 2019
Due in one year or less	$	24,755	$	24,636	$	5,924	$	5,929
Due after one year through five years	116,056		115,089		42,423		42,361
Due after five years through ten years	32,550		32,602		24,379		24,144
Due after ten years	17,577		17,275		2,685		2,694
	190,938		189,602		75,411		75,128
Mortgage-backed securities	473,314		469,636		83,897		83,091
Total securities	$	664,252	$	659,238	$	159,308	$	158,219

There were no sales of available for sale or held to maturity securities during the three months ended March 31, 2019 and 2018.

Securities with a carrying value of approximately $511.3 million and $476.3 million at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits and for other purposes required by applicable laws and regulations.

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



	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
March 31, 2019
AVAILABLE FOR SALE
U.S. Treasury and U.S. government agencies	$	12,112	$	78	$	116,126	$	1,523	25	$	128,238	$	1,601
Mortgage-backed securities, residential	719		1		289,307		5,203		126	290,026		5,204
Mortgage-backed securities, multifamily	4,979		9		12,993		73		4	17,972		82
Obligations of states and political subdivisions	—		—		16,088		195		30	16,088		195
	$	17,810	$	88	$	434,514	$	6,994	185	$	452,324	$	7,082
HELD TO MATURITY
U.S. government agencies	$	—	$	—	$	32,101	$	360	6	$	32,101	$	360
Mortgage-backed securities, residential	9,012		27		47,210		1,006		31	56,222		1,033
Mortgage-backed securities, multifamily	—		—		1,808		19		2	1,808		19
Obligations of states and political subdivisions	—		—		8,222		127		7	8,222		127
Debt securities	3,930		70		—		—		1	3,930		70
	$	12,942	$	97	$	89,341	$	1,512	47	$	102,283	$	1,609

Table of Contents



	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
December 31, 2018
AVAILABLE FOR SALE
U.S. Treasury and U.S. government agencies	$	20,588	$	216	$	120,338	$	2,352	27	$	140,926	$	2,568
Mortgage-backed securities, residential	10,119		58		316,851		8,785		139	326,970		8,843
Mortgage-backed securities, multifamily	1,977		2		12,911		202		4	14,888		204
Obligations of states and political subdivisions	1,289		2		26,522		584		50	27,811		586
	$	33,973	$	278	$	476,622	$	11,923	220	$	510,595	$	12,201
HELD TO MATURITY
U.S. government agencies	$	—	$	—	$	32,348	$	677	6	$	32,348	$	677
Mortgage-backed securities, residential	8,325		59		53,761		1,779		36	62,086		1,838
Mortgage-backed securities, multifamily	—		—		1,818		35		2	1,818		35
Obligations of states and political subdivisions	1,764		8		15,580		320		27	17,344		328
Debt securities	3,882		118		—		—		1	3,882		118
	$	13,971	$	185	$	103,507	$	2,811	72	$	117,478	$	2,996

Management has evaluated the securities in the above table and has concluded that none of the securities with unrealized losses has impairments that are other-than-temporary. Fair value below cost is solely due to interest rate movements and is deemed temporary.

Investment securities, including the mortgage-backed securities and corporate securities, are evaluated on a periodic basis to determine if factors are identified that would require further analysis. In evaluating the Company’s securities, management considers the following items:


•	The Company’s ability and intent to hold the securities, including an evaluation of the need to sell the security to meet certain liquidity measures, or whether the Company has sufficient levels of cash to hold the identified security in order to recover the entire amortized cost of the security;


•	The financial condition of the underlying issuer;


•	The credit ratings of the underlying issuer and if any changes in the credit rating have occurred;


•	The length of time the security’s fair value has been less than amortized cost; and


•	Adverse conditions related to the security or its issuer if the issuer has failed to make scheduled payments or other factors.

If the above factors indicate that an additional analysis is required, management will perform a discounted cash flow analysis evaluating the security.

Equity securities at fair value

The Company has an equity securities portfolio which consists of investments in other financial institutions for market appreciation purposes and investments in Community Reinvestment funds. The market value of these investments was $15.2 million and $15.9 million at March 31, 2019 and December 31, 2018, respectively. Upon implementation of Accounting Standards Update 2016-01 - Financial Instruments ("ASU 2016-01"), the Company made a cumulative adjustment of $2.0 million from other comprehensive income to retained earnings as of January 1, 2018. In the first three months of 2019, the Company recorded proceeds from sales of equity securities of $1.1 million while recording no sales in the first three months of 2018. The Company also recorded $353,000 in market value gain on equity securities in noninterest income for the first quarter of 2019 and $18,000 in market value loss in the same period of 2018.

As of March 31, 2019, the equity investments in other financial institutions and Community Reinvestment funds had a market value of $1.9 million and $13.4 million, respectively. The Community Reinvestment funds include $3.5 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 market value between accounting periods. These funds can be redeemed with 60 days notice at the net asset value less unpaid management fees with the approval of the fund manager. As of March 31, 2019, the net amortized cost equaled the market value of the investment. There are no unfunded commitments related to these investments.

Table of Contents

The Community Reinvestment funds include $9.8 million that are primarily invested in government guaranteed loans, mortgage-backed securities, small business loans and other instruments supporting affordable housing and economic development. The Company may redeem these funds at the net asset value calculated at the end of the current business day less any unpaid management fees. There are no restrictions on redemptions for the holdings in these investments other than the notice required by the fund manager. There are no unfunded commitments related to these investments.

NOTE 6 – LOANS AND OTHER REAL ESTATE

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



(in thousands)	March 31, 2019			December 31, 2018

Commercial, secured by real estate	$	3,436,550		$	3,057,779
Commercial, industrial and other	389,230			336,735
Equipment finance	90,791			87,925
Real estate - residential mortgage	335,290			329,854
Real estate - construction	332,995			319,545
Home equity and consumer	339,815			328,609
Total loans	4,924,671			4,460,447
Less: deferred fees	(3,280		)	(3,714		)
Loans, net of deferred fees	$	4,921,391		$	4,456,733

At March 31, 2019 and December 31, 2018, home equity and consumer loans included overdraft deposit balances of $368,000 and $452,000, respectively. At March 31, 2019 and December 31, 2018, the Company had $1.32 billion and $1.16 billion, respectively, in loans pledged for actual and potential borrowings at the Federal Home Loan Bank of New York (“FHLB”).

Purchased Credit Impaired Loans

The carrying value of loans acquired in the Highlands merger and accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” was $13.7 million which was substantially the same as the balance at acquisition on January 4, 2019. The carrying value of the purchased credit impaired ("PCI") loans acquired in the Pascack Community Bank ("Pascack") acquisition was $145,000 at March 31, 2019 compared to $157,000 at December 31, 2018. The carrying value of PCI loans acquired in the Harmony Bank ("Harmony") acquisition was $485,000 at March 31, 2019 compared to $495,000 at December 31, 2018.

The following table presents changes in the accretable yield for PCI loans:



	For the Three Months Ended
(in thousands)	March 31, 2019			March 31, 2018

Balance, beginning of period	$	81		$	129
Acquisitions	1,420			—
Accretion	(193		)	(44		)
Net reclassification non-accretable difference	30			28
Balance, end of period	$	1,338		$	113

Table of Contents

Non-Performing Assets and Past Due Loans

The following schedule sets forth certain information regarding the Company’s non-performing assets and its accruing troubled debt restructurings, excluding PCI loans:



(in thousands)	March 31, 2019		December 31, 2018

Commercial, secured by real estate	$	9,817	$	7,192
Commercial, industrial and other	2,202		1,019
Equipment finance	383		501
Real estate - residential mortgage	1,740		1,986
Home equity and consumer	1,581		1,432
Total non-accrual loans	$	15,723	$	12,130
Other real estate and other repossessed assets	715		830
TOTAL NON-PERFORMING ASSETS	$	16,438	$	12,960
Troubled debt restructurings, still accruing	$	6,352	$	9,293

Non-accrual loans included $2.8 million and $3.6 million of troubled debt restructurings for the periods ended March 31, 2019 and December 31, 2018, respectively. At March 31, 2019 and December 31, 2018, the Company had $1.2 million and $1.5 million, respectively, in residential mortgages and consumer home equity loans that were in the process of foreclosure which are included in non-accrual loans in the above table.

An age analysis of past due loans, segregated by class of loans as of March 31, 2019 and December 31, 2018, is as follows:



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment Greater than 89 Days and Still Accruing
March 31, 2019
Commercial, secured by real estate	$	14,944	$	3,060	$	3,913	$	21,917	$	3,414,633	$	3,436,550	$	—
Commercial, industrial and other	1,084		220		377		1,681		387,549		389,230		—
Equipment finance	358		210		383		951		89,840		90,791		—
Real estate - residential mortgage	2,406		—		1,146		3,552		331,738		335,290		—
Real estate - construction	—		—		3,423		3,423		329,572		332,995		—
Home equity and consumer	1,845		365		1,297		3,507		336,308		339,815		78
	$	20,637	$	3,855	$	10,539	$	35,031	$	4,889,640	$	4,924,671	$	78
December 31, 2018
Commercial, secured by real estate	$	1,477	$	639	$	2,237	$	4,353	$	3,053,426	$	3,057,779	$	—
Commercial, industrial and other	173		243		750		1,166		335,569		336,735		—
Equipment finance	533		13		501		1,047		86,878		87,925		—
Real estate - residential mortgage	743		111		1,776		2,630		327,224		329,854		—
Real estate - construction	—		—		—		—		319,545		319,545		—
Home equity and consumer	1,917		216		850		2,983		325,626		328,609		—
	$	4,843	$	1,222	$	6,114	$	12,179	$	4,448,268	$	4,460,447	$	—

Table of Contents

Impaired Loans

The Company defines impaired loans as all non-accrual loans with recorded investments of $500,000 or greater. Impaired loans also include all loans that have been modified in troubled debt restructurings, but excludes PCI loans. Impaired loans as of March 31, 2019 and December 31, 2018 are as follows:



(in thousands)	Recorded Investment in Impaired Loans		Contractual Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
March 31, 2019
Loans without specific allowance:
Commercial, secured by real estate	$	12,188	$	12,883	$	—	$	8,878	$	52
Commercial, industrial and other	2,309		2,633		—		1,142		4
Equipment finance	301		597		—		301		—
Real estate - residential mortgage	—		—		—		—		—
Real estate - construction	—		—		—		—		—
Home equity and consumer	—		—		—		—		—
Loans with specific allowance:
Commercial, secured by real estate	3,797		4,070		229		6,642		72
Commercial, industrial and other	200		199		8		199		3
Equipment finance	26		26		12		26		—
Real estate - residential mortgage	715		875		4		718		5
Real estate - construction	—		—		—		—		—
Home equity and consumer	700		741		6		697		8
Total:
Commercial, secured by real estate	$	15,985	$	16,953	$	229	$	15,520	$	124
Commercial, industrial and other	2,509		2,832		8		1,341		7
Equipment finance	327		623		12		327		—
Real estate - residential mortgage	715		875		4		718		5
Real estate - construction	—		—		—		—		—
Home equity and consumer	700		741		6		697		8
	$	20,236	$	22,024	$	259	$	18,603	$	144

Table of Contents



(in thousands)	Recorded Investment in Impaired Loans		Contractual Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
December 31, 2018
Loans without specific allowance:
Commercial, secured by real estate	$	9,284	$	9,829	—		$	7,369	$	188
Commercial, industrial and other	1,151		1,449		—		1,834		19
Equipment finance	301		597		—		376		—
Real estate - residential mortgage	—		—		—		242		4
Real estate - construction	—		—		—		726		—
Home equity and consumer	—		—		—		—		—
Loans with specific allowance:
Commercial, secured by real estate	7,270		7,597		307		7,594		317
Commercial, industrial and other	209		209		7		209		12
Equipment finance	30		30		14		19		—
Real estate - residential mortgage	730		884		4		745		20
Real estate - construction	—		—		—		—		—
Home equity and consumer	727		765		6		898		32
Total:
Commercial, secured by real estate	$	16,554	$	17,426	$	307

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$16.62	50	$838

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-05-15	Shareholder Vote
8-K	2019-04-29	Earnings, Other Events, Exhibits
8-K	2019-01-28	Earnings, Other Events, Exhibits
8-K	2019-01-28	Earnings, Other Events, Exhibits
8-K	2019-01-04	Other Events, Exhibits
8-K	2018-12-13	Other Events, Exhibits
8-K	2018-11-26	Other Events, Exhibits
8-K	2018-10-25	Earnings, Other Events, Exhibits
8-K	2018-08-23	Enter Agreement, Regulation FD, Other Events, Exhibits
8-K	2018-07-26	Earnings, Other Events, Exhibits
8-K	2018-06-20	Officers, Exhibits
8-K	2018-05-09	Shareholder Rights, Officers, Amend Bylaw, Shareholder Vote, Exhibits
8-K	2018-04-25	Earnings, Other Events, Exhibits
8-K	2018-01-26	Earnings, Other Events, Exhibits

DPZ	Domino's Pizza	11,600
RPM	RPM International	7,760
ENIC	Enel Chile	6,170
NPO	Enpro Industries	1,360
ALAC	Alberton Acquisition	147
AUTO	Autoweb	44
EFOI	Energy Focus	7
ESIO	Electro Scientific Industries	0
RCCC	RC-1	0
ETEK	Eco Tek 360	0

EX-10.1	paulhosingloycicmarch12019.htm
EX-10.2	amendmenttochangeincontrol.htm
EX-31.1	lbaiq12019ex311.htm
EX-31.2	lbaiq12019ex312.htm
EX-32.1	lbaiq12019ex321.htm