Peapack-Gladstone Financial Corporation Reports Fourth Quarter and Full Year Results and Declares Its Quarterly Cash Dividend

BEDMINSTER, N.J., Jan. 25, 2019 (GLOBE NEWSWIRE) -- Peapack-Gladstone Financial Corporation (NASDAQ Global Select Market: PGC) (the “Company”) recorded net income of $44.17 million and diluted earnings per share of $2.31 for the year ended December 31, 2018, compared to $36.50 million and $2.03, respectively, for the year ended December 31, 2017, reflecting increases of $7.67 million, or 21%, and $0.28 per share, or 14%, respectively.

The Company’s total revenue increased $13.59 million when comparing the 2018 year to the 2017 year. Of the total revenue increase, $10.07 million (or 74%) was provided by increased wealth management fee income.  Douglas L. Kennedy, President and CEO, said “Our Strategy has driven continued growth in our wealth management business, both organically and through acquisition. Our wealth management focus provides a more stable and predictable revenue stream over time than other sources of income.”

For the quarter ended December 31, 2018, the Company recorded net income of $10.73 million and diluted earnings per share of $0.55, compared to $10.37 million and $0.56 for the same three-month period last year. The 2018 quarter included a $4.39 million loss on sale of multifamily loans and a $405,000 write down of intangible assets (non-taxable), partially offset by $3.00 million of life insurance proceeds related to the December 31, 2018 passing of the founder and managing principle of Murphy Capital Management (also non-taxable). These three items reduced net income by $655,000 and reduced earnings per share by $0.04 for the December 2018 quarter.

EXECUTIVE SUMMARY:

The following tables summarize specified financial measures for the periods shown.

December 2018 Quarter Compared to Prior Year Quarter

December 2018 Quarter Compared to Linked Quarter

Douglas L. Kennedy, President and CEO, said, “I am pleased with our results, especially given this challenging environment. Our strategy and business model, which includes a focus on wealth management and fee income, provides a strong base for future performance.” Mr. Kennedy went on to say, “We believe that during these challenging times we will likely have opportunities to attract additional talent, given our client centric strategy and business model.”

Highlights for the quarter included:

• Wealth Management remains integral to the strategy and provides a diversified, predictable, and stable source of revenue over time:

• As previously announced, effective September 1, 2018, the Company completed its acquisition of Lassus Wherley, a registered investment advisor, headquartered in New Providence, NJ, which added approximately $550 million of assets under management and/or administration (“AUM/AUA”).
  
  
• At December 31, 2018, the market value of AUM/AUA at the Private Wealth Management Division of Peapack-Gladstone Bank (the “Bank”) increased $319 million to $5.8 billion from $5.5 billion at December 31, 2017, reflecting growth of 5%. While new business and the Lassus Wherley acquisition accounted for significant growth, negative market action (particularly in the fourth quarter of 2018) offset much of that growth.
  
  
• Wealth management fee income totaled $8.55 million for the quarter ended December 31, 2018, an increase of $1.06 million, or 14%, from $7.49 million for the quarter ended December 31, 2017. 
  
  
• Wealth management fee income, which comprised approximately 21% of the Company’s total revenue for the quarter ended December 31, 2018, contributed significantly to the Company’s diversified revenue sources.
  
  
• In addition to wealth income, also contributing to the Company’s diversified revenue sources is fee income related to loan level, back-to-back swaps, and gain on sale of SBA loans.

• The loan portfolio continues to shift from lower yielding multifamily to higher yielding commercial and industrial (C&I) lending (including equipment finance). Significant progress was made on this front in the fourth quarter of 2018:

• During the fourth quarter of 2018, the Company sold $131 million of fixed rate multifamily loans with an average coupon of 3.28%. Such proceeds were reinvested in floating rate and short duration loans with an average coupon of 4.78%, principally C&I (including equipment finance) loans. This strategy will benefit future earnings. The Company believes the $4.39 million loss incurred on the sale of the multifamily loans will be fully offset by increased earnings from this strategy in approximately two years. 
  
  
• Total C&I (including equipment finance) loans at December 31, 2018 were $1.40 billion.  This reflected net growth of $440 million (46%) when compared to $958 million at December 31, 2017.
  
  
• As of December 31, 2018, total C&I loans (including equipment finance) comprised 36% of the total loan portfolio, as compared to 26% a year earlier.  As of December 31, 2018, total multifamily loans comprised 29% of the total loan portfolio, as compared to 37% a year earlier.
  
  
• The Bank’s concentration in commercial real estate loans declined to 394% of risk-based capital at December 31, 2018 from 466% at December 31, 2017.

• Deposits, funding, and interest rate risk continue to be actively managed:

• Deposits totaled $3.90 billion at December 31, 2018.  This reflected net growth of $197 million (5%) when compared to $3.70 billion at December 31, 2017.
  
  
• The Company’s loan-to-deposit ratio improved to 101% at December 31, 2018, from 104% at September 30, 2018.   
  
  
• The Company continues to have access to over $1 billion of available secured funding at the Federal Home Loan Bank.
  
  
• The Company has actively managed its balance sheet to remain balanced (not materially asset sensitive or materially liability sensitive), despite rising deposit betas and costs. At December 31, 2018, the Company’s interest rate sensitivity models indicate the Company is asset sensitive, and that net interest income would improve in a rising rate environment.  

• Capital and asset quality continue to be strong.

• The Company’s and Bank’s capital ratios at December 31, 2018 all increased significantly compared to the December 31, 2017 levels. And, such ratios remain well above regulatory well capitalized standards.
  
  
• Asset quality metrics continued to be strong at December 31, 2018.  Nonperforming assets at December 31, 2018 were $25.7 million, or 0.56% of total assets.  Total loans past due 30 through 89 days and still accruing were $3.48 million, or 0.09% of total loans at December 31, 2018. The increase in nonperforming assets in the December 2018 quarter was due to one $15 million healthcare real estate secured loan which continues to pay as agreed, and which the Company believes to be well secured.

SUPPLEMENTAL QUARTERLY DETAILS:

Wealth Management Business

In the December 2018 quarter, the Bank’s wealth management business generated $8.55 million in fee income compared to $8.20 million for the September 2018 quarter, and $7.49 million for the December 2017 quarter. 

When compared to the December 2017 quarter, the December 2018 quarter included three months of income related to Quadrant Capital (compared to two months for the December 2017 quarter), which was acquired effective November 1, 2017, and three months of income related to Lassus Wherley (approximately $1 million), which was acquired effective September 1, 2018, as well as increased earnings from organic growth in assets under management. These positive effects on fee income, were partially offset by negative market action, particularly in the fourth quarter of 2018.  

John P. Babcock, President of the newly-branded “Peapack Private Wealth Management Division”, said “We continue to grow our wealth management business organically, and selectively seek to identify potential acquisitions that can add talent and expertise to our growing organization.”

Loans / Commercial Banking

For the quarter ended December 31, 2018, total net loan growth was $130 million (3% for the quarter, or 14% annualized). Total commercial and industrial loans (including Equipment Finance) grew $217 million (18% for the quarter, or 74% annualized) to $1.40 billion at the end of the fourth quarter, compared to $1.18 billion at the end of the third quarter of 2018. New loan growth was funded by managed reductions in lower yielding multifamily loans (net reduction of $151 million for the quarter) and deposit growth (net increase of $236 million for the quarter).

Mr. Kennedy said, “With the launch of our Corporate Advisory Team in January 2018, we now have the capability to engage in high level strategic debt, capital and valuation analysis coupled with succession, estate and wealth planning strategies, enabling us to provide a unique boutique level of service, giving us a competitive advantage over much of our competition.”

Mr. Kennedy also said, “The loan market continues to be extremely competitive from a structure/credit and a pricing perspective. As I have noted before, we will continue to be disciplined and not compromise our credit standards, but we will compete on price, as long as returns remain reasonable as measured by our proprietary loan pricing model.”

Funding / Liquidity / Interest Rate Risk Management

As noted in prior quarters, the Company has actively managed its deposit base to reduce reliance on wholesale sourced deposits and/or reduce volatility or operational risk.

For the quarter ended December 31, 2018, the Company utilized its increased capital, deposit growth, and reductions in its lower yielding multifamily loan portfolio to fund C&I loan growth (including Equipment Finance), eliminate its overnight borrowing position with the FHLB, and increase on balance sheet liquidity (interest earning deposits and investment securities). 

The Company also added $35 million of medium term FHLB advances during the December 2018 quarter as part of its interest rate risk management.

In addition to approximately $543 million of cash, cash equivalents and investment securities on its balance sheet, the Company also had approximately $1.4 billion of secured funding available from the Federal Home Loan Bank, of which only $108 million was drawn as of December 31, 2018.

Mr. Kennedy noted, “The northeast market continues to be extremely competitive for deposits. The Company is focused on providing high touch client service, a key element in growing its personal and commercial core deposit base.  The Company is focused on multiple retail channels, as well as commercial channels, including its enhanced Treasury Management and Escrow offerings. Further, all our Private Bankers remain keenly focused on deposit gathering, including our new Professional Services Group, led by a seasoned commercial banker who joined us recently.”

Net Interest Income (NII)/Net Interest Margin (NIM)

Net interest income and net interest margin comparisons are shown above.

High deposit betas throughout 2018 negatively impacted net interest margin. The issuance of $35 million of subordinated debt in mid-December 2017 also negatively impacted margin in 2018. New loan originations during the fourth quarter of 2018 at an average coupon of 4.78% positively impacted margin for the three months ended December 31, 2018.

The Company’s interest rate sensitivity models indicate that the Company is asset sensitive, and that net interest income would improve in a rising interest rate environment. These models assume the Company’s higher deposit betas experienced during the last half of 2018 will continue. The Company believes that such betas could continue for some period of time, but then level off and decline. Accordingly, the Company believes its net interest margin may continue to remain fairly flat to current levels, but then begin to rise as betas decline, as the Company continues replacing its lower yielding multifamily portfolio with higher yielding, adjustable rate and short duration loans, and as the Company’s deposit gathering efforts noted previously have more of an effect on core deposit generation. The Company’s forecasting models indicate a net interest margin in the 3.00% range by the end of 2020, but that could certainly be adversely affected by further changes in deposit betas and/or by competitive forces and market interest rates and economic conditions. 

Other Noninterest Income

The fourth quarter of 2018 included $277,000 of income related to the Company’s SBA lending and sale program, compared to $514,000 generated in the September 2018 quarter, and $774,000 in the December 2017 quarter. Due to the Federal government shutdown, the Company has been unable to conduct SBA loan sales in 2019 and is uncertain as to when such sales would resume.  

The fourth quarter of 2018 also included $1.84 million of loan level, back-to-back swap income compared to $854,000 in the September 2018 quarter and $179,000 in the December 2017 quarter.  This program provides a borrower with a degree of interest rate protection on a variable rate loan, while still providing an adjustable rate to the Company, thus helping to manage the Company’s interest rate risk, while contributing to income. The Company noted that income from both of these programs are not linear each quarter, as some quarters will be higher than others. The December 2018 quarter reflected higher swap income due to the Company’s higher level of loan activity coupled with borrowers’ desire to protect themselves from rates rising beyond current levels. 

The December 2018 quarter included a $4.39 million loss on the sale of loans. As noted previously, $131 million of fixed rate, multifamily loans were sold as part of the Bank’s balance sheet management strategy.

Other income for the December 2018 quarter included $3.00 million of life insurance proceeds related to the December 31, 2018 passing of the founder and managing principle of Murphy Capital Management.   

Operating Expenses

The Company’s total operating expenses were $25.52 million for the quarter ended December 31, 2018, compared to $24.28 million for the September 2018 quarter and $24.25 million for the December 2017 quarter.

Compensation and employee benefits expense for the December 2018 quarter was $16.37 million compared to $15.30 million for the December 2017 quarter.  When compared to the 2017 quarter, the December 2018 quarter included: three months of expense (compared to two months in the 2017 quarter) related to Quadrant Capital (which closed in November 2017) and three months of expense related to Lassus Wherley (which closed in September 2018). Strategic hiring and normal salary increases also contributed to the increase for the December 2018 quarter as compared to the December 2017 quarter.

Premises and equipment and other operating expense for the December 2018 quarter, when compared to the September 2018 and December 2017 quarters, included increased expenses due to normal operating expenses of the wealth companies acquired as noted just above, as well as a $405,000 write-down of intangible assets related to Murphy Capital Management. 

Income Taxes

2018 included a reduced Federal income tax rate due to the new tax law signed in December 2017, but included a higher NJ state corporate income tax rate, as signed into law in July 2018, but effective back to January 1, 2018. The effective tax rate for the December 2018 quarter was 21.2%, compared to 25.2% for the September 2018 quarter, and 22.0% for the December 2017 quarter. The December 2018 effective tax rate was impacted by $3.00 million of life insurance proceeds related to the December 31, 2018 passing of the founder and managing principle of Murphy Capital Management that are not taxable.

Asset Quality / Provision for Loan and Lease Losses

Nonperforming assets at December 31, 2018 (which does not include troubled debt restructured loans that are performing in accordance with their terms) were $25.7 million, or 0.56% of total assets, compared to $10.8 million, or 0.24% of total assets, at September 30, 2018 and $15.6 million, or 0.37% of total assets, at December 31, 2017.  Total loans past due 30 through 89 days and still accruing were $3.5 million at December 31, 2018, compared to $2.5 million at September 30, 2018 and $246,000 at December 31, 2017. The increase in nonperforming assets in the December 2018 quarter was due to one $15 million healthcare real estate secured loan which continues to pay as agreed, and which the Company believes to be well secured.

For the quarter ended December 31, 2018, the Company’s provision for loan and lease losses was $1.50 million compared to $500,000 for the September 2018 quarter and $1.65 million for the December 2017 quarter. The Company’s provision for loan and lease losses (and its allowance for loan and lease losses) reflect, among other things, the Company’s asset quality metrics, net loan growth, net charge-offs, and the composition of the loan portfolio.

At December 31, 2018, the allowance for loan and lease losses of $38.50 million (150% of nonperforming loans and 0.98% of total loans), compared to $37.29 million at September 30, 2018 (348% of nonperforming loans and 0.98% of total loans), and $36.44 million (269% of nonperforming loans and 0.98% of total loans) at December 31, 2017. 

Capital / Dividends

The Company’s capital positions in the December 2018 quarter were benefitted by net income of $10.73 million and $2.02 million of voluntary share purchases under the Dividend Reinvestment Plan. Voluntary share purchases in the Dividend Reinvestment Plan can be filled from the Company’s authorized but unissued shares and/or in the open market, at the discretion of the Company – 75,000 of the shares purchased during the December 2018 quarter were from authorized but unissued shares, while 263,117 shares were purchased in the open market.

The Company’s and Bank’s capital ratios at December 31, 2018 all increased significantly compared to the December 31, 2017 levels. And, such ratios remain well above regulatory well capitalized standards.

On January 24, 2019, the Company’s Board of Directors declared a cash dividend of $0.05 per share payable on February 22, 2019 to shareholders of record on February 7, 2019.

ABOUT THE COMPANY

Peapack-Gladstone Financial Corporation is a New Jersey bank holding company with total assets of $4.62 billion and wealth management assets under management and/or administration (AUM/AUA) of $5.8 billion as of December 31, 2018.  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 Private Wealth Management Division, and its branch network and online platforms, Peapack-Gladstone Bank offers an unparalleled commitment to client service.

The foregoing may contain 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 2018 and beyond;
  
  
• inability to manage our growth;
  
  
• inability to successfully integrate our expanded employee base;
  
  
• an 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 interest rate environment and/or our highly competitive market;
  
  
• declines in the value in our investment portfolio;
  
  
• higher than expected increases in our allowance for loan and lease losses;
  
  
• higher than expected increases in loan and lease losses or in the level of nonperforming loans;
  
  
• changes in interest rates;
  
  
• 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) that 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;
  
  
• effects related to a prolonged shutdown of the federal government which could impact SBA and other government lending programs: 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, 2017.  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.