Fresh off deal closing, Provident in New Jersey to shutter branches

Provident Financial Services in Iselin, New Jersey, is moving aggressively to meet cost-saving goals tied to its acquisition of in-state peer Lakeland Bancorp in Oak Ridge.

Provident, which bought Lakeland in May after lengthy delays, is moving quickly to make up time. The $24.5 billion-asset company said it would shutter more than 20 overlapping branches in August — nearly 15% of its physical footprint.

"A careful and thorough review of our combined branch network was undertaken, and we have decided to close either a Provident branch or a Lakeland branch in cases where a single location can serve all of our customers," Provident said on its website.

Provident would still have about 140 branches in New Jersey, New York and Pennsylvania. 

The all-stock deal, valued at $1.3 billion when it was announced in September 2022, combined Provident's fee-based insurance and wealth management operations and Lakeland's asset-based lending and equipment lease financing units. Both banks' traditional commercial and retail operations gained needed heft to compete with larger competitors and to invest in rapidly evolving technology, executives said in a May release after closing the transaction.

"Our employees will benefit from greater opportunities and resources that a bank with nearly $25 billion in assets possesses," and "customers will benefit by having access to a wider array of products and services driven by enhanced technology," said Provident President and CEO Anthony Labozzetta.

Executives also targeted cost savings of about 35% of Lakeland's expense base when they struck the deal. Provident projected the combined company would generate earnings-per-share accretion of 24% in the first full year following closing.

As is common in bank M&A, savings from branch closures play a prominent role in reaching those targets, given that lenders are already actively pruning their physical operations and driving customer activity through more efficient digital channels.

Banks often acquire neighboring competitors in part to carve out overlapping staff, services and facilities, consultant Ken Thomas, CEO of Community Development Fund Advisors, said in a recent interview. The savings fall to the bottom line and are key to making M&A profitable, he added.

In 2009, the last year that physical locations increased, there were nearly 100,000 branches across the U.S. There are fewer than 80,000 today, according to S&P Global Market Intelligence data.

For Provident, size and efficiency could help the bank to navigate future economic headwinds, Labozzetta said when the deal was announced in the wake of the pandemic and amid the Federal Reserve increasing interest rates that pushed up banks' deposit costs.

"The savings we get and the scale will allow us to weather any storm much better than we could as individual organizations," Labozzetta said at the time. "We're better together than we are separately, both in good times and in bad times."

Getting the Lakeland transaction over the finish line, however, proved a major challenge. The deal was initially slated to close in the second quarter of 2023.

The same day the deal with Provident was announced, Lakeland disclosed it was the subject of a Fair Housing investigation by the Justice Department. Lakeland denied any wrongdoing, but it agreed in 2022 to provide $12 million in loan subsidies for residents in Black and Hispanic neighborhoods in the Newark, New Jersey, region to settle the probe. This attracted added supervisory attention to the deal.

This also came at a time when regulatory scrutiny of bank M&A was intensifying. President Biden in 2021 ordered regulators to ramp up scrutiny of deals, and over the course of the past two years, M&A activity broadly slowed across the industry. Several deals were delayed and some were called off altogether following drawn-out and costly reviews.

A burst of regional bank failures early in 2023 — Silicon Valley Bank, Signature Bank and First Republic Bank all folded — as well as fallout from high rates conjured additional uncertainty and helped to keep some buyers on the sidelines.

There were only about 100 deals inked in 2023, according to S&P Global. That was nearly 40% lower than the prior year and half the level of 2021. There were about 50 deals announced through May of this year.