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 stock 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. During the quarter ended June 30, 2019, the Company revised the estimated fair value of the acquired assets as of the acquisition date as the result of additional information obtained. The adjustment related to credit-impaired loans acquired in the acquisition that were recorded at fair value and subsequently accounted for in accordance with Accounting Standards Codification ("ASC") Subtopic 310-30 and resulted in a $1.7 million increase in goodwill. 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 425,005 Premises and equipment 3,253 Goodwill 19,397 Identifiable intangible assets 3,728 Accrued interest receivable and other assets 6,051 Total assets acquired 496,502 Deposits (409,638 ) Other borrowings (27,800 ) Subordinated debt (13,157 ) Other liabilities (2,490 ) Total liabilities assumed (453,085 ) 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 and includes loans added during the second quarter of 2019. (in thousands) Contractually required principal and interest at acquisition $ 22,363 Contractual cash flows not expected to be collected (non-accretable difference) 7,129 Expected cash flows at acquisition $ 15,234 Interest component of expected cash flows (accretable difference) 1,431 Fair value of acquired loans $ 13,803 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 and six months ended June 30, 2019 , the Company incurred $318,000 and $3.2 million of merger and acquisition integration-related expenses, respectively, which have been separately stated in the Company's Consolidated Statements of Income. 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 six months ended June 30, 2019 and as of January 1, 2018 for the six months ended June 30, 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 managements estimate of any revenue-enhancing opportunities nor anticipated cost savings or the impact of conforming certain accounting policies of the acquired companies to the Companys 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 Lakelands branches and lending team making such information impracticable to provide. Pro Forma Six Months Ended (in thousands) June 30, 2019 June 30, 2018 Net interest income $ 97,951 $ 94,903 Provision for loan losses 508 3,095 Noninterest income 12,083 12,732 Noninterest expense 62,573 61,324 Net income 35,511 33,987 Earnings per share: Fully diluted $ 0.70 $ 0.67