New Jersey-based Provident Financial Services to acquire Lakeland Bancorp

Jersey City, N.J.-based Provident Financial Services Inc., the parent company of Provident Bank, agreed to acquire Oak Ridge, N.J.-based Lakeland Bancorp Inc., the parent company of Lakeland Bank, in an all-stock merger deal valued at approximately $1.3 billion.

Under the terms of the agreement, approved by respective boards of both parties, Lakeland will merge with and into Provident, with Provident as the surviving corporation, and Lakeland Bank will merge with and into Provident Bank, with Provident Bank as the surviving bank.

Following the closing of the transaction, which is expected to occur in the second quarter of 2023, subject to customary closing conditions and regulatory and shareholder approvals of each company, shareholders of Lakeland Bancorp will receive 0.8319 share of Provident common stock for each share of Lakeland common stock they own. Holders of Lakeland common stock will receive cash in lieu of fractional shares. Further, shareholders of Provident will own 58% and shareholders of Lakeland will own 42% of the combined company.

At announcement, S&P Global Market Intelligence calculates the deal value to be 114.51% of common equity, 154.49% of tangible common equity, 14.69% of deposits, 12.03% of assets and 12.43x earnings. The tangible book premium-to-core deposits ratio is 5.18%.

Quick Take from S&P Global Market Intelligence Principal Analyst Nathan Stovall: Provident Financial's plans to purchase Lakeland Bancorp for $1.3 billion marks the second-largest bank deal of 2022 and the first $1 billion-plus bank deal announced since February. Bank M&A activity has chilled in recent months amid lower bank stock valuations, growing fears of a potential recession and higher interest rates that require buyers to record punitive marks on sellers' loan and securities portfolios. The Provident/Lakeland tie-up has many of the same trappings of other large deals in recent years — the transaction offers the buyer scale, a merger of complementary businesses, substantial opportunity to cut costs and a path to earn back tangible book dilution from the deal in 3.6 years, including interest rate marks. Investors have reacted negatively, however, pushing Provident shares down nearly 13% by the midafternoon of Sept. 27, as the prospect of taking risk ahead of a possible downturn likely caused concern and presents challenges to the earnback timeline. - Sept. 27, 2022

Market Intelligence valuations for bank and thrift targets in the mid-Atlantic region between Sept. 27, 2021, and Sept. 27, 2022, averaged 127.65% of book and 138.20% of tangible book and had a median of 20.24x last-12-months earnings, on an aggregate basis, they averaged 120.98% of book and 132.87% of tangible book and had a median of 19.10x LTM earnings, on a per-share basis.

As a result of the merger, the combined company will have more than $25 billion in assets and $20 billion in total deposits and operate under the Provident Financial Services Inc. name. The combined bank will operate under the Provident Bank name. The headquarters of the surviving corporation and the surviving bank will also remain located in Iselin, N.J., following completion.

With the completion of the deal, Provident Financial Services will expand in New Jersey by 69 branches to be ranked seventh with a 4.05% share of approximately $463.19 billion in total market deposits and will expand in New York by one branch to be ranked No. 179 with a 0.01% share of approximately $3.70 trillion in total market deposits, according to Market Intelligence data.

Further, the merged entity will have approximately 4% of all bank deposits in New Jersey, which accounts for the second largest share of New Jersey bank deposits for institutions with less than $100 billion in assets, according to a Sept. 27 news release.

Pursuant to the merger agreement, at the effective time decided upon by the parties, except as otherwise agreed, all Lakeland restricted stock awards and Lakeland restricted stock unit awards under the Lakeland 2018 Omnibus Equity Incentive Plan and the Lakeland 2009 Equity Program outstanding on Sept. 26 will accelerate in full and fully vest, and be converted into the right for the holder to receive shares of Provident common stock as per the exchange ratio. Any applicable performance-based vesting conditions will be deemed achieved at "target" level performance at closing.

Upon closing, Provident and Provident Bank's boards will have 16 directors, out of which nine directors will be from Provident and seven from Lakeland.

Christopher Martin, current executive chairman of Provident, will be executive chairman of the combined company's board of directors. Lakeland President, CEO and Director Thomas Shara Jr. will be executive vice chairman of the combined company's board.

Anthony Labozzetta, current president and CEO of Provident, will have the same role in the combined company. Labozzetta will also be a director of the combined company. Thomas Lyons, Provident's current senior executive vice president and CFO, will retain his role in the combined company. The remainder of the executive team will comprise members of Provident and Lakeland.

A representative of the Provident board will become the independent lead director of the merged entity's board of directors.

Under the agreement, certain termination rights have been provided for both parties, which include a termination fee of $50 million payable by either Provident or Lakeland, as applicable, upon deal termination under certain circumstances.

The combined company will trade under the Provident ticker symbol PFS on the NYSE.

Piper Sandler Cos. is the financial adviser and has rendered a fairness opinion to the board of Provident. Sullivan & Cromwell LLP is the legal counsel to Provident.

Keefe Bruyette & Woods is the financial adviser and has rendered a fairness opinion to the board of Lakeland. Luse Gorman PC is the legal counsel to Lakeland.

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