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LBAI 2019-09-30

Part I. Financial Information Print

Item 1. Financial Statements Print

Note 1 - Significant Accounting Policies Print

Note 2 - Acquisitions Print

Note 3 - Revenue Recognition Print

Note 4 - Earnings per Share Print

Note 5 - Investment Securities Print

Note 6 - Loans and Other Real Estate Print

Note 7 - Leases Print

Note 8 - Derivatives Print

Note 9 - Goodwill and Intangible Assets Print

Note 10 - Borrowings Print

Note 11 - Share-Based Compensation Print

Note 12 - Comprehensive Income Print

Note 13 - Estimated Fair Value of Financial Instruments and Fair Value Measurement Print

Note 14 - Recent Accounting Pronouncements Print

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk Print

Item 4. Controls and Procedures Print

Part II. Other Information Print

Item 1. Legal Proceedings Print

Item 1A. Risk Factors Print

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not Applicable Print

Item 3. Defaults Upon Senior Securities Not Applicable Print

Item 4. Mine Safety Disclosures Not Applicable Print

Item 5. Other Information Not Applicable Print

Item 6. Exhibits Print

EX-31.1	lbaiq32019ex3111.htm
EX-31.2	lbaiq32019ex3121.htm
EX-32.1	lbaiq32019ex3211.htm

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PART I. FINANCIAL INFORMATION

Item 1.        Financial Statements

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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 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 nine months ended September 30, 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 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.

As a result of new information obtained during the quarter ended September 30, 2019, about facts and circumstances that existed as of the acquisition date, the Company revised the estimated fair value on two Highlands branches acquired. The adjustment resulted in an increase in goodwill of $447,000.

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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.

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(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	2,613
Goodwill	19,844
Identifiable intangible assets	3,728
Accrued interest receivable and other assets	6,244
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.

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(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 nine months ended September 30, 2019, the Company incurred $