Peapack-Gladstone Financial Corporation Reports a Strong Second Quarter and Declares Its Quarterly Cash Dividend

BEDMINSTER, NJ--(Marketwired - Jul 28, 2017) - Peapack-Gladstone Financial Corporation (NASDAQ: PGC) (the "Company") reported record net income of $15.92 million and diluted earnings per share of $0.91 for the six months ended June 30, 2017, compared to $12.05 million and $0.74, respectively, for the same six month period last year, reflecting increases of $3.87 million, or 32 percent, and $0.17 per share, or 23 percent, respectively.

For the quarter ended June 30, 2017, the Company recorded net income of $7.94 million and diluted earnings per share of $0.45, compared to $6.56 million and $0.40 for the same three month period last year, reflecting increases of $1.38 million, or 21 percent, and $0.05 per share, or 13 percent, respectively.

The first quarter of 2017 included a $662 thousand benefit to income tax expense related to the adoption of ASU 2016-09, Compensation - Stock Compensation, improvements to employee share-based payment accounting. This increased net income by $662 thousand and earnings per share by 4 cents. 

The second quarter of 2017, when compared to the second quarter of 2016, reflected increases in net interest income, wealth management fee income, and other non-interest income. Expenses in the 2017 second quarter, when compared to the same 2016 quarter, included increased compensation and benefits expense, partially offset by decreased FDIC insurance expense.

The following table summarizes specified financial measures for the second quarters of 2017 and 2016, respectively.

Douglas L. Kennedy, President and CEO, said, "We had a very strong start to 2017, and that continued right through the second quarter of 2017."

Select highlights follow:

• Growth in diluted EPS for Q2 2017 when compared to Q2 2016 was $0.05 per share, or 13 percent.
• At June 30, 2017, the market value of assets under administration (AUA) at the Private Wealth Management Division of Peapack-Gladstone Bank (the "Bank") increased to $3.9 billion from $3.4 billion one year ago, reflecting growth of 15 percent.
• Fee income from the Private Wealth Management Division totaled $5.1 million for the second quarter of 2017, compared to $4.9 million for the same quarter in 2016, reflecting growth of 4 percent. Wealth management fee income, comprising nearly 15 percent of the Company's total revenue, contributes significantly to the Company's diversified revenue sources.
• Loans at June 30, 2017 totaled $3.67 billion. This reflected net growth of $227 million compared to the prior quarter (7 percent compared to the prior quarter or 26 percent on an annualized basis); and $453 million (14 percent) when compared to $3.21 billion of loans at June 30, 2016.
• Commercial & Industrial (C&I) loans at June 30, 2017 totaled $801 million. This reflected net growth of $113 million compared to the prior quarter (16 percent compared to the prior quarter or 66 percent on an annualized basis), and net growth of $225 million (39 percent) when compared to $576 million in C&I loans at June 30, 2016.
• Total "customer" deposit balances (defined as deposits excluding brokered CDs and brokered "overnight" interest-bearing demand deposits) totaled $3.31 billion at June 30, 2017. This reflected net growth of $156 million compared to the prior quarter (5 percent compared to the prior quarter or 20 percent on an annualized basis), and reflected growth of $497 million (18 percent) when compared to $2.82 billion of total "customer" deposit balances at June 30, 2016.
• Asset quality metrics continued to be strong at June 30, 2017. Nonperforming assets at June 30, 2017, while up somewhat from the March 31, 2017 level, were just $16.0 million, or 0.38 percent of total assets. Total loans past due 30 through 89 days and still accruing were $1.2 million, or 0.03 percent of total loans at June 30, 2017.
• The Company's book value per share at June 30, 2017 of $20.00 reflected improvement when compared to $17.74 at June 30, 2016. Year over year growth in book value per share totaled $2.26 or 13 percent. 

Net Interest Income / Net Interest Margin

Net interest income and net interest margin were $26.97 million and 2.76 percent for the second quarter of 2017, compared to $25.59 million and 2.71 percent for the first quarter of 2017, reflecting growth of $1.38 million or 5 percent and compared to $24.18 million and 2.79 percent for the same quarter last year, reflecting growth in net interest income of $2.79 million or 12 percent when compared to the same prior year period. Net interest income for the second quarter of 2017 benefitted from loan growth during 2016 and into 2017, as well as benefitting slightly from the recent Federal Reserve rate hikes. The June 2017 quarter included approximately $780 thousand of prepayment premiums received on the prepayment of certain loans, reflecting an increase from $515 thousand for the March 2017 quarter and $452 thousand for the June 2016 quarter.

Net interest margin for the second quarter of 2017 increased when compared to the first quarter of 2017, but decreased when compared to the same quarter of 2016. The increase was due to a reduction in our interest earning cash balances during the second quarter of 2017, as well as the effect of the increased market rates on our adjustable rate assets. The decrease when comparing the June 2017 quarter to the June 2016 quarter was due to the issuance of the $50 million in subordinated debt in June 2016, as well as the maintenance of higher liquidity in the 2017 second quarter when compared to the 2016 second quarter, the effect of which was partially offset by increased market rates on our adjustable rate assets.

As noted above, the net interest margin is also affected by the maintenance of liquid assets on the Company's balance sheet. Mr. Kennedy said, "In addition to $409 million of cash, cash equivalents and investment securities on our balance sheet, we also have over $1.1 billion of secured funding available from the Federal Home Loan Bank, of which we only have $146 million drawn as of June 30, 2017."

The Company's interest rate sensitivity models indicate that the Company's net interest income and margin would continue to improve slightly in a rising interest rate environment, but such income and margin would also be impacted by competitive pressures in attracting new loans and deposits.

Wealth Management Business

In the June 2017 quarter, the Bank's wealth management business generated $5.09 million in fee income compared to $4.82 million for the March 2017 quarter, and $4.90 million for the June 2016 quarter. 

While, total fee income for the June 2017 quarter increased by $187 thousand, or approximately 4 percent, from the June 2016 quarter, "recurring type" fee income (tied to asset management fees and custody fees) grew 8 percent. Growth in recurring fee income was due to strong net inflows from new business, a healthy equity market which resulted in positive market action in client portfolios as well as additions to accounts from existing clients, all partially offset by normal levels of disbursements and outflows.

The market value of the AUA of the wealth management division was $3.9 billion at June 30, 2017, an increase of $94 million, or 3 percent (11 percent on an annualized basis), from March 31, 2017 and an increase of $433 million, or 15 percent, from $3.4 billion at June 30, 2016.

John P. Babcock, President of PGB Private Wealth Management, said, "We had a solid second quarter and first six months of the year. Our pipeline continues to be robust and we expect continued growth driven by organic new business, the expansion of existing relationships and potential strategic acquisitions of wealth management firms. On May 26, 2017, we announced our agreement to acquire Gladstone, NJ based Murphy Capital Management, Inc. ('MCM'). MCM will add approximately $850 million of assets under administration to our current $3.9 billion." 

Mr. Babcock also commented, "Our differentiator is our personalized, pro-active advice led approach, and the quality of our people. We combine investment, tax, financial, fiduciary, banking and lending capabilities into one integrated plan that helps our clients achieve their goals and objectives."

Loan Originations / Loans

At June 30, 2017, loans totaled $3.67 billion compared to $3.44 billion at March 31, 2017 and compared to $3.21 billion at June 30, 2016, representing net increases of $227 million compared to the March 2017 quarter (7 percent or 26 percent on an annualized basis), and $453 million (14 percent) compared to a year ago at June 30, 2016. Mr. Kennedy noted, "We continue to believe we have a very high quality loan portfolio, as evidenced by very strong asset quality metrics."

For the quarter ended June 30, 2017, residential mortgage loans grew $40 million to $611 million at June 30, 2017 when compared to the March 2017 quarter. For the twelve months from June 30, 2016 to June 30, 2017, residential mortgage loans grew $127 million, or 26 percent.

For the June 2017 quarter, commercial real estate mortgage loans (not including multifamily loans) grew $36 million to $609 million when compared to the March 2017 quarter (6 percent or 25 percent on an annualized basis). For the twelve months from June 30, 2016 to June 30, 2017 commercial real estate mortgage loans grew $150 million, or 33 percent.

At June 30, 2017, the multifamily loan portfolio totaled $1.50 billion (or 41 percent of total loans), basically flat to $1.47 billion (or 43 percent of total loans) three months ago at March 31, 2017 and $1.56 billion (or 49 percent of total loans) at June 30, 2016. 

Mr. Kennedy said, "As I explained previously, we have been managing our balance sheet such that multifamily loans decline as a percentage of the overall loan portfolio and C&I loans become a larger percentage of the overall loan portfolio. We made progress on this front late in 2015, throughout 2016, and into 2017, but particularly this past quarter. Of course, this balance sheet management will not be linear each quarter, but rather will be apparent over periods of time."

For the quarter ended June 30, 2017, commercial loans grew $113 million to $801 million when compared to the March 2017 quarter. For the twelve months from June 30, 2016 to June 30, 2017 commercial loans grew $225 million, or 39 percent. At June 30, 2017 the commercial loan portfolio comprised 21.8 percent of the overall loan portfolio up from 20.0 percent at March 31, 2017, and up from 17.9 percent one year ago at June 30, 2016.

Mr. Kennedy said, "We have seen, and believe we will continue to see, our C&I client base and corresponding loan portfolio grow. Additionally, as announced on April 25, 2017, we were recently successful in bringing on a team of very experienced bankers to focus on equipment financing, and $24 million of volume, in that loan category, was funded in June 2017. While this team has begun producing faster than previously assumed, we still generally expect that revenue and profitability related to this new group will lag related expenses by several quarters."

Mr. Kennedy went on to say, "Our private banking business model of addressing the sophisticated needs and expectations of successful business owners and entrepreneurs is being well received. The ability to engage in high level strategic debt, capital and valuation analysis coupled with succession, estate and wealth planning strategies, enables us to provide a unique boutique level of service to business owners and middle market clients."

Eric H. Waser, Head of Commercial Banking noted, "We are extremely pleased with how our 'Advice Led' approach is capturing the attention of the business community."

Deposits / Funding / Balance Sheet Management

As noted previously, in June 2016, the Company issued $50 million of subordinated debt ($48.7 million net of underwriting fees and expenses) bearing interest at an annual rate of 6 percent for the first five years, and thereafter at an adjustable rate until maturity in June 2026 or earlier redemption.

During the June 2017 quarter, the increase in loans of $227 million was primarily funded by customer deposit growth of $156 million, net (principally interest-bearing checking), increased capital of $16 million, decreased cash/cash equivalents of $25 million, and increased other borrowings of $52 million.

Brokered interest-bearing demand ("overnight") deposits totaled $180 million at June 30, 2017, flat to the March 31, 2017 balance and down $20 million from $200 million at June 30, 2016. The interest rate paid on these deposits allowed the Bank to fund at attractive rates and engage in interest rate swaps as part of its asset-liability interest rate risk management. As of June 30, 2017, the Company had transacted pay fixed, receive floating interest rate swaps totaling $180 million notional amount. The Company ensures ample available collateralized liquidity as a backup to these short term brokered deposits.

Mr. Kennedy noted, "The Company will continue to place an intense focus on providing high touch client service and growing its personal and commercial core deposit base. We expect that our full array of treasury management capabilities, including our new Treasury Management platform and our soon-to-be added escrow management product software, as well as added treasury management sales professionals and private bankers, will help us grow commercial deposits."

Other Noninterest Income

The Company's total noninterest income for the June 2017 quarter totaled $8.17 million, or 23 percent of total revenue.

The June 2017 quarter included $91 thousand of income from the sale of newly originated residential mortgage loans (mortgage banking), compared to $47 thousand for the March 2017 quarter, and $309 thousand for the June 2016 quarter. Originations of residential mortgage loans for sale were lower in the June 2017 quarter, compared to the prior year period.

The Company did not sell any multifamily loans during the June or March 2017 quarters, as such sales were not necessary for effective balance sheet management. The gain on sales of multifamily loans held for sale during the June 2016 quarter was $500 thousand. The Company may employ loan sale strategies later in 2017, and beyond, if and as needed for efficient balance sheet management.

The second quarter of 2017 included $142 thousand of income related to the Company's SBA lending and sale program, compared to $155 thousand generated in the March 2017 quarter, and $212 thousand in the June 2016 quarter. The SBA program was fully implemented in the March 2016 quarter and is part of the Company's normal ongoing operations.

The June 2017 quarter included $1.3 million of loan level, back-to-back swap income compared to $456 thousand in the March 2017 quarter and none in the June 2016 quarter. This program, which helps manage the Company's interest rate risk while contributing to income, remains part of the Company's normal ongoing operations. 

Other income for the June 2017 quarter totaled $396 thousand, compared to $450 thousand for the March 2017 quarter and to $347 thousand for the June 2016 quarter. Letter of credit fees and unused line of credit fees make up a large portion of this line item. 

Operating Expenses

The Company's total operating expenses were $20.10 million for the quarter ended June 30, 2017, compared to $19.30 million for the March 2017 quarter and $18.78 million for the June 2016 quarter.

While the second quarter 2017 FDIC premium was relatively flat to the first quarter of 2017, it was down significantly from the June 2016 quarter. Beginning July 1, 2016 the FDIC assessment system was revised. Revisions for "small institutions" (under $10 billion in assets) resulted in, among other things, the elimination of risk categories and the utilization of a financial ratios method to determine assessment rates. The changes reduced the Company's assessment rate by nearly 50 percent, when compared to the second quarter 2016 assessment rate.

Compensation and employee benefits expense for the June 2017 quarter was $12.75 million compared to $11.91 million for the March 2017 quarter, and $11.10 million for the June 2016 quarter. Strategic hiring that was in line with the Company's Plan, normal salary increases and increased bonus/incentive accruals associated with the Company's growth, all contributed to the increases from the June 2016 and March 2017 quarters. In addition, the six person Equipment Finance Team joined the Company the end of April 2017, further increasing compensation expense.

Premises and equipment expense for the June 2017 quarter was $3.03 million compared to $2.82 million for the March 2017 quarter and $2.74 million for the June 2016 quarter. The current quarter included approximately $150 thousand of accelerated depreciation related to upgrades at the Corporate Headquarters.

Income Taxes

For the June 2017 quarter, the effective income tax rate was 38.2 percent compared to 31.8 percent for the March 2017 quarter and 38.4 percent for the June 2016 quarter. In the March 2017 quarter, the Company adopted ASU 2016-9, "Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting". As a result of this adoption, the Company recorded an income tax benefit of $662 thousand in the first quarter of 2017. 

Provision for Loan Losses / Asset Quality

For the quarter ended June 30, 2017, the Company's provision for loan losses was $2.20 million, which was higher than the March 2017 quarter provision of $1.60 million and in line with the June 2016 provision of $2.20 million. The Company had $59 thousand of net charge-offs in the June 2017 quarter, compared to $198 thousand of net charge-offs in the March 2017 quarter and $302 thousand of net charge-offs in the June 2016 quarter. 

At June 30, 2017, the allowance for loan losses was $35.75 million, which was 229 percent of nonperforming loans and 0.98 percent of total loans, compared to $33.61 million at March 31, 2017, which was 292 percent of nonperforming loans and 0.98 percent of total loans, and $29.22 million at June 30, 2016, which was 363 percent of nonperforming loans and 0.93 percent of total loans.

The Company's provision for loan losses and its allowance for loan losses continue to track consistently with the Company's net loan growth and asset quality metrics.

Nonperforming assets at June 30, 2017 (which does not include troubled debt restructured loans that are performing in accordance with their terms) were $16.0 million, or 0.38 percent of total assets, compared to $12.2 million, or 0.31 percent of total assets, at March 31, 2017 and $8.8 million, or 0.24 percent of total assets, at June 30, 2016. Total loans past due 30 through 89 days and still accruing were $1.2 million at June 30, 2017, compared to $622 thousand at March 31, 2017 and $6.6 million at June 30, 2016.

Capital / Dividends

The Company's capital position in the June 2017 quarter was benefitted by net income of $7.94 million and $7.63 million of voluntary share purchases under the Dividend Reinvestment Plan, which continues to be a source of capital for the Company.

At June 30, 2017, the Company's GAAP capital as a percent of total assets was 8.57 percent. The Company's regulatory leverage, common equity tier 1, tier 1 and total risk based capital ratios were 8.82 percent, 10.69 percent, 10.69 percent and 13.24 percent, respectively. The Bank's regulatory leverage, common equity tier 1, tier 1 and total risk based capital ratios were 9.76 percent, 11.83 percent, 11.83 percent and 12.91 percent, respectively. The Bank's regulatory capital ratios are all above the ratios to be considered well capitalized under regulatory guidance.

On July 26, 2017, the Company's Board of Directors declared a regular cash dividend of $0.05 per share payable on August 23, 2017 to shareholders of record on August 9, 2017.

ABOUT THE COMPANY

Peapack-Gladstone Financial Corporation is a New Jersey bank holding company with total assets of $4.17 billion as of June 30, 2017. Founded in 1921, Peapack-Gladstone Bank is a commercial bank that provides innovative private banking services to businesses, non-profits and consumers, which help them to establish, maintain and expand their legacy. Through its private banking locations in Bedminster, Morristown, Princeton and Teaneck, its wealth management division, and its branch network and online platforms, Peapack-Gladstone Bank offers an unparalleled commitment to client service.

The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as "expect", "look", "believe", "anticipate", "may", or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to

• inability to successfully grow our business and implement our strategic plan, including an inability to generate revenues to offset the increased personnel and other costs related to the strategic plan;
• the impact of anticipated higher operating expenses in 2017 and beyond;
• inability to manage our growth;
• inability to successfully integrate our expanded employee base;
• unexpected decline in the economy, in particular in our New Jersey and New York market areas;
• declines in our net interest margin caused by the low interest rate environment and highly competitive market;
• declines in value in our investment portfolio;
• higher than expected increases in our allowance for loan losses;
• higher than expected increases in loan losses or in the level of nonperforming loans;
• unexpected changes in interest rates;
• unexpected decline in real estate values within our market areas;
• legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III and related regulations) subject us to additional regulatory oversight which may result in increased compliance costs;
• successful cyberattacks against our IT infrastructure and that of our IT providers;
• higher than expected FDIC insurance premiums;
• adverse weather conditions;
• inability to successfully generate new business in new geographic markets;
• inability to execute upon new business initiatives;
• lack of liquidity to fund our various cash obligations;
• reduction in our lower-cost funding sources;
• our inability to adapt to technological changes;
• claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters; and
• other unexpected material adverse changes in our operations or earnings.

A discussion of these and other factors that could affect our results is included in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2016. We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.