Peapack-Gladstone Financial Corporation Reports First Quarter Results and Declares Its Quarterly Cash Dividend

BEDMINSTER, N.J., April 26, 2019 (GLOBE NEWSWIRE) -- via NEWMEDIAWIRE -- Peapack-Gladstone Financial Corporation (NASDAQ Global Select Market: PGC) (the “Company”) recorded net income of $11.43 million and diluted earnings per share of $0.58 for the quarter ended March 31, 2019, compared to $10.81 million and $0.57, respectively, for the quarter ended March 31, 2018, reflecting increases of $618,000, or 6%, and $0.01 per share, or 2%, respectively.

The increased net income in the 2019 quarter was driven by increased net interest income, increased wealth management fee income, and a reduced provision for loan losses, partially offset by increased operating expenses and a higher effective tax rate (due to significant changes to NJ State Tax law). Douglas L. Kennedy, President and CEO, said, “Our Strategy continues to drive growth in our wealth management business, both organically and through acquisition. This business generally provides a more stable and predictable revenue stream over time than other sources of income.”

EXECUTIVE SUMMARY:

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

March 2019 Quarter Compared to Prior Year Quarter

March 2019 Quarter Compared to Linked Quarter

Douglas L. Kennedy, President and CEO, said, “I am pleased with our results, especially our revenue growth this quarter which reflected increases of $1.10 million compared to the December 2018 quarter, and $3.13 million compared to the March 2018 quarter. Further, our focus on wealth management and fee income, provides a strong base for future performance.”

Highlights for the quarter included:

• Wealth Management remains integral to our strategy and provides a diversified, predictable, and stable source of revenue over time:
  
  
  • The March 2019 quarter included results from Lassus Wherley, which was acquired on September 1, 2018.  Lassus Wherley, a registered investment advisor, headquartered in New Providence, NJ, added approximately $550 million of assets under management and/or administration (“AUM/AUA”).
    
    
  • At March 31, 2019, the market value of AUM/AUA at the Peapack Private Wealth Management Division of Peapack-Gladstone Bank (the “Bank”) was $6.3 billion reflecting an increase of $697 million from $5.6 billion at March 31, 2018, reflecting growth of 13%.  While new business and the Lassus Wherley acquisition accounted for significant growth, negative market action (particularly in the fourth quarter of 2018) partially offset some of that growth.
    
    
  • Wealth management fee income totaled $9.17 million for the quarter ended March 31, 2019, reflecting an increase of $622,000 or 7% from the December 2018 quarter, and an increase of $807,000, or 10%, from the March 2018 quarter.
    
    
  • Wealth management fee income, which comprised approximately 22% of the Company’s total revenue for the quarter ended March 31, 2019, continues to contribute significantly to the Company’s diversified revenue sources.
    
    
  • In addition to wealth management fee 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):
  
  
  • Total C&I loans (including equipment finance leases and loans of $429 million) at March 31, 2019 were $1.41 billion.  This reflected net growth of $413 million (41%) when compared to $997 million at March 31, 2018.
    
    
  • As of March 31, 2019, total C&I loans (including equipment finance) comprised 36% of the total loan portfolio, as compared to 27% a year earlier.  As of March 31, 2019, total multifamily loans comprised 28% of the total loan portfolio, as compared to 37% a year earlier.
    
    
  • The Bank’s concentration in commercial real estate loans declined to 379% of risk-based capital at March 31, 2019 from 446% at March 31, 2018.
    
    
• Deposits, funding, and interest rate risk continue to be actively managed:
  
  
  • Deposits totaled $3.92 billion at March 31, 2019.  This reflected net growth of $367 million (10%) when compared to $3.55 billion at March 31, 2018.
    
    
  • The Company’s loan-to-deposit ratio improved to 99.5% at March 31, 2019, from 101.0% at December 31, 2018, and 104.5% at March 31, 2018.
    
    
  • The Company continues to have access to $1.3 billion of available secured funding at the Federal Home Loan Bank.
    
    
  • The Company has actively managed its balance sheet to remain generally balanced (not materially asset sensitive or materially liability sensitive), despite rising deposit betas and costs throughout all of 2018.  At March 31, 2019, the Company’s interest rate sensitivity models indicate the Company is slightly asset sensitive, and that net interest income would improve slightly in a rising rate environment.
    
    
• Capital and asset quality continue to be strong:
  
  
  • The Company’s and Bank’s capital ratios at March 31, 2019 generally increased compared to both the December 31, 2018 and the March 31, 2018 levels. And, such ratios remain well above regulatory well capitalized standards.
    
    
  • Asset quality metrics continued to be strong as of March 31, 2019 and were improved from December 31, 2018 and March 31, 2018 levels.  Nonperforming assets at March 31, 2019 were $24.9 million, or 0.53% of total assets.  Total loans past due 30 through 89 days and still accruing were $2.5 million, or 0.06% of total loans at March 31, 2019.

SUPPLEMENTAL QUARTERLY DETAILS:

Wealth Management Business

In the March 2019 quarter, the Bank’s wealth management business generated $9.17 million in fee income compared to $8.55 million for the December 2018 quarter, and $8.37 million for the March 2018 quarter. 

When compared to the March 2018 quarter, the March 2019 quarter included 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, “Despite challenging market conditions in the December 2018 quarter that impacted our recurring fee revenues in the March 2019 quarter, I am pleased with our first quarter results.  We had solid new business production in the first quarter of 2019 and have a strong pipeline as we look ahead over the next two quarters.  We are making significant forward progress on integrating the systems, processes and people from our 2017 and 2018 acquisitions and continue to selectively look for additional acquisitions that can add talent and expertise to our wealth management organization.”

Loans / Commercial Banking

For the quarter ended March 31, 2019, total net loans declined by $32 million (1% for the quarter 3% annualized). Loan/line origination levels ($216 million for the March 31, 2019 quarter) were more than offset by paydown activity.

Total commercial and industrial loans (including Equipment Finance) grew $12 million (1% for the quarter, or 3% annualized) to $1.41 billion at the end of the first quarter, compared to $1.40 billion at the end of the fourth quarter of 2018. New loan growth was funded by managed reductions in lower yielding multifamily loans and deposit growth. There were several larger loan payoffs late in the March 31, 2019 quarter.

Mr. Kennedy said, “Commercial loan pipelines are very strong at the end of the quarter. However, 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.”

Mr. Kennedy also said, “We recently announced our strategic decision to expand our Corporate Advisory and Structured Finance businesses under a new Investment Banking Division, led by Eric Waser, our former head of commercial banking. Eric and his Corporate Advisory team 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 peers.”

Kennedy went on to say, “We also recently announced that Greg Smith joined us as head of commercial banking. Greg is a seasoned commercial banking professional, whom I have known for many years. Greg joined us from Capital One Bank.”

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 March 31, 2019, the Company utilized its increased capital, deposit growth, and reductions in its multifamily loan portfolio, to fund its commercial loan (including Equipment Finance) growth and increase its on balance sheet liquidity (interest earning deposits and investment securities). 

In addition to approximately $629 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 $105 million was drawn as of March 31, 2019.

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.”

Mr. Kennedy also noted, “We announced earlier this week that Rick DeBel will be joining us from Wells Fargo as EVP, Deposit Solutions, a newly created position. Rick’s responsibilities will include strengthening and expanding our retail and commercial deposit efforts. Rick will oversee our retail, platinum, treasury, and escrow services teams.” 

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

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

Mr. Kennedy said, “As the Company signaled last quarter, the Company’s margin (excluding prepayment premiums and the effect of maintaining higher liquidity) improved slightly in Q1 2019, when compared to Q4 2018." 

Mr. Kennedy also noted, “Last quarter we said that our forecasting models indicated a net interest margin in the 3.00% range by the end of 2020. While we still believe our margin will improve over that same timeframe, the 3.00% target may be difficult to attain if the shape of the current yield curve remains for an extended period.”

Other Noninterest Income

The first quarter of 2019 included $419,000 of income related to the Company’s SBA lending and sale program, compared to $277,000 generated in the December 2018 quarter, and $31,000 in the March 2018 quarter.

The first quarter of 2019 included $270,000 of loan level, back-to-back swap income compared to $1.8 million in the December 2018 quarter and $252,000 in the March 2018 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 principal of Murphy Capital Management.

Operating Expenses

The Company’s total operating expenses were $25.72 million for the quarter ended March 31, 2019, compared to $25.52 million for the December 2018 quarter and $23.34 million for the March 2018 quarter.  The March 2019 and the December 2018 quarters each included: 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 March 2019 quarter. FDIC insurance expense for the March 2019 quarter decreased by over 50% when compared to each of the linked (December 2018) and prior year (March 2018) quarters.

Income Taxes

The effective tax rate for the March 2019 quarter was 28.2%, compared to 21.2% for the December 2018 quarter, and 22.9% for the March 2018 quarter. The March 2019 quarter included higher NJ State Income Tax. The December 2018 quarter was benefitted by $3 million of life insurance proceeds that were not taxable. The March 2018 quarter included a tax benefit resulting from the vesting of restricted stock under ASU 2016-09.

Asset Quality / Provision for Loan and Lease Losses

Nonperforming assets at March 31, 2019 (which does not include troubled debt restructured loans that are performing in accordance with their terms) were $24.9 million, or 0.53% of total assets, compared to $25.7 million, or 0.56% of total assets, at December 31, 2018 and $15.4 million, or 0.36% of total assets, at March 31, 2018.  Total loans past due 30 through 89 days and still accruing were $2.5 million at March 31, 2019, compared to $3.5 million at December 31, 2018 and $674,000 at March 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 still believes to be well secured.

For the quarter ended March 31, 2019, the Company’s provision for loan and lease losses was $100,000 compared to $1.5 million for the December 2018 quarter and $1.25 million for the March 2018 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. The reduced provision for the March 2019 quarter resulted from a reduced loan portfolio due to paydown activity in excess of origination activity, as well as net recoveries in the quarter.

At March 31, 2019, the allowance for loan and lease losses of $38.65 million (155% of nonperforming loans and 0.99% of total loans), compared to $38.50 million at December 31, 2018 (150% of nonperforming loans and 0.98% of total loans), and $37.70 million (283% of nonperforming loans and 1.02% of total loans) at March 31, 2018. 

Capital / Dividends

The Company’s capital position in the March 2019 quarter was benefitted by net income of $11.43 million. 

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 – none of the shares purchased during the March 2019 quarter were from authorized but unissued shares, while 126,442 shares were purchased in the open market.

The Company’s and Bank’s capital ratios at March 31, 2019 all increased significantly compared to the March 31, 2018 levels. And, such ratios remain well above regulatory well capitalized standards.

On April 25, 2019, the Company’s Board of Directors declared a cash dividend of $0.05 per share payable on May 23, 2019 to shareholders of record on May 9, 2019.

ABOUT THE COMPANY

Peapack-Gladstone Financial Corporation is a New Jersey bank holding company with total assets of $4.66 billion and wealth management assets under management and/or administration (AUM/AUA) of $6.3 billion as of March 31, 2019.  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:

• our 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 2019 and beyond;
• our inability to successfully integrate wealth management firm acquisitions;
• our inability to manage our growth;
• our 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 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 and third party providers;
• higher than expected FDIC insurance premiums;
• adverse weather conditions;
• our inability to successfully generate new business in new geographic markets;
• our inability to execute upon new business initiatives;
• our 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;
• our ability to retain key employees;
• demands for loans and deposits in our market areas;
• adverse changes in securities markets;
• changes in accounting policies and practices;
• 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, 2018.  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.

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NON-GAAP FINANCIAL MEASURES RECONCILIATION

Tangible book value per share and tangible equity as a percentage of tangible assets at period end are non-GAAP financial measures derived from GAAP-based amounts.  We calculate tangible equity and tangible assets by excluding the balance of intangible assets from shareholders’ equity and total assets, respectively.  We calculate tangible book value per share by dividing tangible equity by period end common shares outstanding, as compared to book value per common share, which we calculate by dividing shareholders’ equity by period end common shares outstanding.  We calculate tangible equity as a percentage of tangible assets at period end by dividing tangible equity by tangible assets at period end.  We believe that this is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of risk-based capital ratios.

The efficiency ratio is a non-GAAP measure of expense control relative to recurring revenue.  We calculate the efficiency ratio by dividing total noninterest expenses, excluding ORE provision, as determined under GAAP, by net interest income and total noninterest income as determined under GAAP, but excluding net gains/(losses) on loans held for sale at lower of cost or fair value and excluding net gains on securities from this calculation, which we refer to below as recurring revenue.  We believe that this provides one reasonable measure of core expenses relative to core revenue.

We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our financial position, results and ratios.  Our management internally assesses our performance based, in part, on these measures.  However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures.  As other companies may use different calculations for these measures, this presentation may not be comparable to other similarly titles measures reported by other companies.  A reconciliation of the non-GAAP measures of tangible common equity, tangible book value per share and efficiency ratio to the underlying GAAP numbers is set forth below.

Non-GAAP Financial Reconciliation

(Dollars in thousands, except share data)