Fed approves $1.3 billion merger of two New Jersey banks

Federal Reserve
The Federal Reserve Thursday approved a merger between Provident Financial Services and Lakeland Bancorp, both based in New Jersey, despite concerns from community groups about past instances of lending discrimination. The Fed found that the existing consent order with the Department of Justice has addressed those concerns. The combined bank will have more than $25 billion of assets and be the seventh largest bank in New Jersey.
Bloomberg News

Federal regulators signed off on the $1.3 billion merger of two New Jersey-based banks on Thursday.

The Federal Reserve Board approved Jersey City-based Provident Financial Services' all-stock acquisition of Oak Ridge-based Lakeland Bancorp. The deal was first struck in September 2022 and submitted for regulatory approval that November.

Both banks are supervised by the Federal Deposit Insurance Corp. Because they both have bank holding companies, they are also supervised by the Fed.

The merger was approved despite fair lending concerns raised from public commenters about Lakeland. Shortly after the merger was announced, the bank acknowledged that it was being investigated by the U.S. Department of Justice over redlining practices in and around Newark between 2015 and 2021. 

As part of a consent order with the DOJ, the bank agreed to make significant financial contributions and investments in Essex, Morris, Somerset, Sussex, and Union counties in New Jersey. These include $12 million of mortgage subsidies to borrowers from minority-majority census tracts over a five year period, $400,000 toward community development projects and $150,000 per year for five years toward community outreach and education.

The Fed received two letters flagging the bank's discriminatory lending practice, one of which objected to the merger outright while the other said it should be conditioned on Lakeland's adherence to the DOJ consent order.

During its evaluation, the Fed determined that the consent order was binding on its own. It also noted Lakeland had made progress toward satisfying its obligations under the consent order and that Provident had the proper controls in place to see those commitments through.

The two banks have several overlapping business lines, including consumer and commercial banking, insurance, wealth management and mortgage products and services. The acquisition brings with it Lakeland's asset-based lending, equipment lease financing and mortgage warehouse lending services.

Once finalized, Provident will hold more than $25 billion of total assets, making it the 83rd largest bank in the country, according to the Fed's approval order. It will also have just shy of $19 billion of deposits, or less than 1% of total deposits in the country — well shy of the 10% cap. 

The firm is also poised to become the seventh largest bank in New Jersey, with $18.2 billion of deposits, a little more than 4% of the total deposits in the state. New Jersey prohibits mergers in which a combined bank would control more than 30% of deposits in the state.

Based on the Herfindahl-Hirschman Index, or HHI, a mechanism for measuring concentration, the combination would not have a material impact on the markets in which the banks are active. Specifically, the New York City and Philadelphia metropolitan areas in which the banks operate, would remain "moderately" concentrated under the index.

Once the combination is finished, Provident will have more than 160 branches throughout New Jersey, New York and Pennsylvania.

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