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Consolidation in the banking industry is nothing new. Lakeland Bank Chief Financial Officer Thomas Splaine said that around 5% of banks make deals every year. “Go back 20

years ago, and there were around 18,000 banks in the United States. Now, there are just under 5,000,” he said.

A flurry of mergers in 2021 brought the total to 180 by the end of the year, eclipsing the 119 announced in the year prior. And New Jersey was a hotbed for them. Peapack-Gladstone Bank acquired Princeton Portfolio Strategies in May. Lakeland Bank announced its acquisition of 1st Constitution Bank in July. Investors Bank announced in July that it would be acquired by Citizens Bank, and a month later acquired eight locations of Berkshire Bank. Spencer Savings Bank acquired Mariner’s Bank in November.

What spurred Lakeland’s acquisition of 1st Constitution, Splaine said, was that target was “a good operator, always put out good financial returns” and that its geography didn’t overlap with Lakeland’s existing coverage area. Lakeland started in Passaic and Sussex counties and over the years has migrated to the more densely populated areas east toward Bergen and Union counties. Based in Robbinsville, 1st Constitution has focused its business on the middle of the state.

“This really takes Lakeland’s footprint and extends the geography with what we have and brings our brand to a whole swath of customers,” Splaine said.

Splaine said Lakeland CEO Thomas Shara began having conversations with 1st Constitution CEO Bob Mangano eight years ago, when both banks were about half the size they are now. The acquisition, Splaine said, was a long time coming.

When considering a potential merger or acquisition, Splaine said banks look at four things: Does it make sense financially? Does it expand the acquirer’s geography? Does it expand available lines of business? Do the cultures fit?

Technology is a driver in today’s M&A deals as banks need to be available virtually to consumers while also amping up cost-heavy cybersecurity measures. In discussing changes in consumer behavior, John Babcock, president of Peapack-Gladstone Bank’s fund management arm Peapack Private Wealth Management, said that PBG did approximately $1 million in over-the-counter transactions eight years ago. At the time, the bank had about $1 billion in assets. Today, as a $6 billion bank, PBG does less than half of the over-the-counter business, around $400,000.

“Technology is really driving a lot of the consolidation as banks need to invest more and more in technology, and less and less into the traditional brick-and-mortar locations,” he said.

Peapack Gladstone Bank has had a trust and wealth management business for over 50 years. What’s atypical about it in the community banking space is that the wealth management side is not a sideline business, but a major part of the bank’s overall strategy, contributing about 25% to the banks total revenues.

Now and its 101st year, the bank went its first 90 with only one acquisition. Princeton Portfolio Strategies marks its eighth acquisition in the last six years. All have been non-bank businesses.

“Each of them has brought something to strengthen our business and add to our business whether it’s geography or certain investment expertise. Bringing [financial planning] capabilities and skillsets has been a very important priority for us … We’re in the human business, talking with families about their personal wealth, their goals and objectives, and navigating through tax and children and gifting and estate planning and the like,” Babcock said.

Through the acquisitions, he noted that the bank has grown from locations in Morris and Somerset counties to a presence as far north as Bergen County and as far south as Monmouth County.

Both Babcock and Splaine posited that when considering an acquisition, cultural fit is one of the highest concerns. “There’s no financial transaction that’s going to be successful if it’s not a good cultural fit,” Babcock said.

Legislative Backlash

As often happens in Washington, the wave of mergers prompted a legislative response. U.S. Sen. Elizabeth Warren, D-Mass., and U.S. Rep. Jesús “Chuy” García, D-Ill., re-introduced the Bank Merger Review Modernization Act in September to crack down on bank mergers. “In recent years, our banking sector has become more and more dominated by the largest banks,” Warren said in a statement.

The Federal Reserve didn’t reject any of the 3,819 bank merger applications it received between 2006 and 2017, the lawmakers said in announcing the bill’s introduction.

“Community banks are being gobbled up by larger competitors or forced to shut down because they can’t compete on a level playing field. This results in more concentration, higher costs for consumers, and increased systemic risk to our financial system,” Warren said.

But Splaine said bank mergers aren’t all bad, and the legislation won’t just curtail the abilities of the country’s biggest banks, but larger community banks like his.

“We’re a Main Street bank, but when people start talking about [bank mergers] at a high level, they start painting with a large brush. Not all bank mergers are bad. I understand you want to have competition, and you don’t want people operating in an environment where there’s no control over them, but banking is already a heavily regulated industry. I think what we have works, and works really well. We have regulations, we have exams from our regulators on an annual basis, as well as Community Reinvestment Act.

“For us on the Main Street side, we’re about community banking and dealing with our customers in the markets we live in. We do a really good job as a group giving back to the communities we serve, and the bigger you are, the greater impact you have on your communities. Smaller banks don’t have as much chance to do that,” Splaine said.

Currently, Warren and Garcia’s bill sits in the Committee on Financial Services.[/vc_column_text][/vc_column][/vc_row]