Provident Financial Services Inc. in Jersey City announced Monday that it would buy First Morris Bank and Trust in Morris Township, N.J., for $124 million.
The cash and stock deal would significantly raise Provident’s profile in Morris County, where it has two branches and is No. 26 in deposit share. The deal is expected to close early next year and would give Provident 11 branches and the No. 8 market share in the county.
First Morris would be the second New Jersey bank Provident has bought since it converted from a mutual holding company to full stock ownership in January 2003, raising nearly $600 million.
Provident has $5.9 billion of assets and 76 Provident Bank branches in 10 northern New Jersey counties. Paul M. Pantozzi, its chairman and chief executive, said its growth strategy “is to fill in where it makes sense and logically extend from markets we’re in.”
Provident was particularly interested in the $571 million-asset First Morris because its loan-to-deposit ratio is relatively low — 60.2% — meaning that it has a strong funding base that Provident could tap to make larger loans.
“We bring obviously a much larger capital base, so we can expand on any relationships that they have in place. That was one of the compelling reasons and opportunities on this,” Mr. Pantozzi said.
Provident said it would pay half the deal price in cash and the other half in stock. The deal price equals 3.25 times First Morris’ book value and is an 18.7% premium to core deposits.
One Provident investor on a conference call hosted by the company Monday said the company is paying too much for its acquisitions and should spend more on dividends and stock buybacks.
“It’s not something we” agree with, Mr. Pantozzi said of that investor’s view. “We need to effectively deploy our capital. We raised a lot of money back in ’03. We feel this is the best use of our capital.”
The deal pleased at least one First Morris investor.
“I think it was a very full price, looking at it from a deposit premium perspective, so we were very happy,” said Cassandra Toroian, the president and chief investment officer at Blue Rockefeller LLC in Paoli, Pa., which owns Morris stock. “I’m not surprised to see it was a converted thrift willing to pay that high because they have the dollars to do it.”
Though Provident does not plan to close any First Morris branches, it expects that it can cut about 39% of First Morris’ costs, or about $5.5 million, of which about $3.3 million would come from cutting back-office employees, Mr. Pantozzi said on the conference call.
Mathew B. Kelley, an analyst at Stern Agee & Leach Inc. in New York, said the deal “will add value to the Provident story.”
Mr. Kelley agreed that the price was high but said he thinks it is more reasonable when the cost savings are considered. Banks would have to be more focused on cost savings going forward, he said, because of sellers’ asking prices.
“We’ve reached the point in the M&A cycle where acquirers are going to have to strip a lot more out of these transactions to make them work,” he said.
The deal price is equal to $39.75 per share, a 20.9% premium to First Morris stock’s closing price Friday. First Morris’ stock closed at $38.30 Monday, up 16.45%.
Provident’s stock closed at $18.55, down 0.54% from Friday’s close.
