By Steve Gelsi
Provident Financial Services Inc. said Tuesday it inked a $1.3 billion, all-stock deal to combine with Lakeland Bancorp Inc. in a tie-up of two New Jersey banks bulking up ahead of an expected economic downturn.
Lakeland Bancorp /zigman2/quotes/202436956/composite LBAI +0.70% shares jumped 9.7% in premarket trading after Iselin-based Provident /zigman2/quotes/207499634/composite PFS +0.63% said it would pay the equivalent of $19.27 a share in stock for Oak Ridge, N.J.-based Lakeland.
Keefe, Bruyette & Woods analyst Michael Perito said the two banks appear to be “better together” with combined assets of $25 billion and $20 billion in deposits.
“The operating environment remains uncertain, although both banks have fairly conservative histories and strong deposit franchises which should help them navigate a variety of environments together,” Perito said in a research note.
Provident shareholders will own 58% and Lakeland shareholders will own 42% of the combined company in a deal that creates “New Jersey’s preeminent super-community bank,” the banks said.
Provident’s all-stock price of $19.27 a share for Lakeland amounts to a premium of 18.3% over Lakeland’s closing price of $16.29 a share on Monday.
Shares of Provident Financial fell 2.4% in premarket trading Tuesday.
Under terms of the deal, Lakeland shareholders will receive 0.8319 shares of Provident common stock for each share of Lakeland common stock they own.
The combined company will operate under the Provident Financial Services name and the combined bank will operate under the Provident Bank name, with a branch presence in both Northern and Central New Jersey.
“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,” said Provident Chief Executive Anthony Labozzetta. He will also be CEO of the combined company.
The banks expect to close the deal by the end of the second quarter of 2023.
The tie-up of the two regional banks comes as economic storm clouds, a drop in mortgage activity and worries over a pending recession have weighed on bank stocks, as well as the broad equities market.
While higher interest rates have allowed banks to charge more interest in their loans, they’re also raising prospects of a recession, which would reduce economic activity and bruise the financial sector.
Shares of Provident are down 4.4% in 2022, compared with a drop of 26.6% by the KBW Nasdaq Bank Index /zigman2/quotes/210598427/realtime BKX -0.99% and a 23.3% loss by the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.12% . Lakeland shares have fallen 14.2% in 2022.