Lakeland Bancorp has announced it will acquire Somerset Hills Bancorp in a deal valued at $12 a share, or $64.4 million — a 31 percent premium over the Monday closing price of Somerset Hills.
And while the increased burden and cost of government regulation is widely expected to drive a new wave of small-bank takeovers, Lakeland CEO Thomas J. Shara said that's not what motivated this deal.
"Somerset Hills is probably one of the best-run community banks in the state, so this was not done out of weakness, it was done out of strength," Shara said. But he noted that Somerset Hills, which has $369 million in assets, "realized it is going to be more difficult going forward, and they wanted to partner with an equally strong New Jersey bank."
The combined bank will have two co-presidents. Stewart E. McClure Jr., CEO of Somerset Hills, will join Lakeland as co-president overseeing consumer and mortgage lending, cash management, and wealth management. Robert Vandenbergh, chief operating officer of Lakeland, will be co-president overseeing commercial lending and retail banking.
The combined bank will have more than 600 employees; Somerset Hills now employs about 50. Shara said there are some redundant positions, but doesn't expect that to be significant: "We have been holding some positions open at Lakeland, knowing this deal was coming, so that some of the displaced people at Somerset Hills will have homes here."
Lakeland, with $2.92 billion in assets, is based in the Oak Ridge section of Jefferson, and has 46 offices in six northwestern New Jersey counties; Somerset Hills, with headquarters in Bernardsville, has six offices in Morris and Somerset counties.
Commercial lending is the largest business at both banks, at about 75 percent, with consumer lending at about 25 percent. For Somerset Hills, the Lakeland takeover means the smaller bank can "do bigger credits on the commercial side. … They will be able to do credits in the $5 million-to-$15 million range; right now they are capped out at about $2 million."
McClure pointed out some other opportunities for both banks. Somerset Hills has a mortgage lending platform that Lakeland will now bring to its customers; Lakeland will extend its geographic reach, and both banks will have the chance to grow their wealth management businesses.
Both banks reported record earnings last year, and Somerset Hills is well capitalized, McClure said: “We have what a lot of people would describe as excess capital, and it’s been hard to deploy that capital in this soft market. Lakeland’s larger size gives us a chance to more productively use that capital more quickly.”
And with increased bank regulation emerging from Washington, “if you can take two strong banks and put them together and make them stronger, through better products and services across both franchises, I think it is easier to tackle both the economic and regulatory challenges,” he said.
Despite a general consensus that businesses are cautious and holding off borrowing, Shara said Lakeland grew commercial loans 4 percent in the last quarter, and Somerset Hills "has been growing their commercial book year after year. There are opportunities in the marketplace for us to take share and become bigger players."
Joining Lakeland's board is attorney Edward B. Deutsch, currently chairman of the Somerset Hills board, and Thomas J. Marino, a director of Somerset Hills and co-chief executive of the accounting and consulting firm CohnReznick.