Provident, Lakeland banks clinch $1.3B merger agreement (updated)

Provident Financial Services Inc. and Lakeland Bancorp Inc., the parent companies to Provident Bank and Lakeland Bank, said Sept. 27 they signed a deal to combine the companies in an all-stock merger valued at approximately $1.3 billion.

The combined entity will have more than $25 billion in assets and $20 billion in total deposits.

Both boards unanimously approved the transaction, which is expected to close in the second quarter of 2023, subject to customary conditions. On Feb. 1, both entities said the proposed merger received stockholder and shareholder approvals.

“We are excited to announce this transformational combination of two amazing organizations,” Provident CEO and President Anthony Labozzetta said in a statement. “The scale and profitability of the combined organization will enable us to invest in the future, better compete for market share, and better serve our customers and communities. We bring together a diverse group of employees who are committed to delivering exceptional service to our customers and the communities we serve.”

“As two of New Jersey’s most respected banks that nearly mirror each other in our shared cultures and missions to support and deliver to our customers, communities and shareholders, we are thrilled that we’re combining our talented teams,” said Lakeland President and CEO Thomas Shara. “The combination of our companies will allow us to achieve substantially more for our clients, associates, communities, and shareholders than we could alone.”

The banks highlighted three strategic benefits for the merger:

Enhancing scale and building on strengths – The partners say the deal fortifies their position in the Tri-State commercial real estate market and provides opportunities for Provident’s two ancillary fee-based business lines in insurance and wealth management and Lakeland’s growing asset-based lending and equipment lease financing business.

Establishing an institution with a significant N.J. banking presence – The partners say the combined bank will have approximately 4% of all bank deposits in the state –representing the second-largest share of New Jersey bank deposits for organizations with less than $100 billion in assets; an enhanced footprint will allow the bank to better serve small- to mid-sized businesses in North and Central Jersey; and it will strengthen its commercial lending skillset.

Financially compelling – Pro forma calculations with respect to the combined company indicate 2024 GAAP earnings per share accretion of approximately 24% or 9% with and without purchase accounting interest rate marks, respectively. The transaction is approximately 17% (3.6 year earnback) or 4% (1.7 year earnback) dilutive to tangible book value with and without purchase accounting interest rate marks, respectively. Management believes that conservative and achievable cost savings, projected to be approximately 35% of Lakeland’s expense base, will drive strong financial metrics, material capital generation and tangible book value per share growth. The transaction results in an internal rate of return of approximately 20%.

Leadership

Labozzetta will continue to serve in his current positions at the combined company. Christopher Martin, Provident’s current executive chairman, will continue in that role for the combined board of directors and Shara will become executive vice chairman for the body. The board will have 16 directors: nine from Provident and seven from Lakeland. A Provident board representative will serve as independent lead director.

Current Senior Executive Vice President and Chief Financial Officer Thomas Lyons will continue in that role. The rest of the executive leadership team, according to the announcement, will come from both banks.

“It is particularly gratifying to embark on this journey with our colleagues on the Lakeland team and Tom Shara, whom we have held in high regard for many years,” Labozzetta said.

Added Shara: “I have tremendous respect for Tony Labozzetta, Chris Martin, Provident’s management team and associates. We will continue to build upon and leverage our combined strengths as we focus on the future together.”

Lakeland will merge with and into Provident with Provident as the surviving corporation and bank. The institution will have its headquarters in Iselin and will trade under the PFS ticker symbol on the New York Stock Exchange. Following the transaction, Lakeland shareholders will receive 0.8319 shares of Provident common stock for each share of Lakeland stock they own. Upon shareholder approval from Provident and Lakeland, Provident shareholders will own 58% and Lakeland shareholders will own 42% of the combined company.

Piper Sandler Cos. is acting as financial advisor, and has rendered a fairness opinion to the board of directors of Provident. Sullivan & Cromwell LLP is serving as legal counsel to Provident. Keefe, Bruyette & Woods, a Stifel Company, is acting as financial advisor, and has rendered a fairness opinion to the board of directors of Lakeland. Luse Gorman PC counseled Lakeland.

Editor’s note: This story was updated at 2 p.m. ET Feb. 2 to note the proposed merger received stockholder and shareholder approvals.