Peapack-Gladstone Financial Q2 Earnings Call Highlights

Key Points

• Strong quarterly performance: Second-quarter net income available to common shareholders rose 11% sequentially and 99% year over year to $15.8 million, while revenue increased 23% year over year to $86.1 million. Management said it remains on track to reach a 1% return on assets and 10% return on equity by late this year or early next year.
• Balance-sheet and operating momentum: Net interest income rose to $63.9 million, net interest margin expanded to 3.32%, deposits grew to $7.1 billion and loans reached $6.7 billion. Wealth-management fees increased, expenses remained nearly flat, and the efficiency ratio improved to 65% for the seventh consecutive quarter.
• Credit risks remain concentrated: Nonperforming assets rose to $72.2 million, primarily due to a multifamily relationship now in foreclosure proceedings, while net charge-offs totaled $5.9 million. Management said it saw no broad-based portfolio deterioration but expects quarterly provisions of about $7.5 million through year-end.

Peapack-Gladstone Financial NASDAQ: PGC reported second-quarter net income available to common shareholders of $15.8 million, or $0.85 per diluted share, as higher net interest income, wealth-management fees and loan growth supported results.

The quarter’s net income increased 11% from $14.2 million, or $0.80 per share, in the first quarter and was 99% higher than a year earlier, President and CEO Doug Kennedy said during the company’s earnings call. Total revenue rose 4% sequentially and 23% year over year to $86.1 million.

Kennedy said the company’s revenue and profitability have improved for seven consecutive quarters and that management remains on track to reach a 1% return on assets and 10% return on equity by the fourth quarter, potentially extending into the first quarter of next year.

Net Interest Income and Operating Leverage

Net interest income totaled $63.9 million, rising $4 million from the prior quarter and $15.6 million from the year-ago period. Chief Financial Officer Frank Cavallaro said the increase reflected balance-sheet expansion, loan-pricing discipline and improving earning-asset yields.

Net interest margin increased 6 basis points during the quarter to 3.32%. Cavallaro said new loan originations carried average yields “just north of 6%,” while repricing of existing loans also contributed to higher asset yields.

Management reiterated its expectation that net interest margin will expand by a total of 6 to 9 basis points through the end of the year compared with the first quarter. However, executives cautioned that margin performance may not advance steadily each quarter amid a more competitive deposit market and timing differences between deposit inflows and loan fundings.

“We may give some back over the coming quarters,” Cavallaro said, while maintaining that the company’s longer-term outlook for quarterly margin expansion remained intact.

Non-interest income was $22.1 million, including $17.2 million in wealth-management fee income. Wealth-management fees rose 4% sequentially and 8% from a year earlier. Kennedy said the wealth-management business grew 6% year to date and 13% year over year, with positive client flows.

Operating expenses were $55.7 million, up less than 1% from the first quarter. Cavallaro said revenue growth outpaced expense growth by roughly 10 to one, helping drive positive operating leverage. The reported efficiency ratio declined to 65%, marking the seventh consecutive quarter of improvement.

Deposit and Loan Growth

Total deposits increased $231 million during the quarter to $7.1 billion, up 11% from a year ago. About $80 million of quarterly deposit growth was in non-interest-bearing accounts, and management said 35% of the quarter’s total deposit growth came from non-interest-bearing deposits.

Over the past year, non-interest-bearing deposits grew $386 million, accounting for 56% of deposit growth, Kennedy said. The company opened and funded more than 650 new non-interest-bearing demand deposit accounts during the quarter.

Kennedy said the deposit pipeline remained robust, with management continuing to target approximately $200 million in quarterly deposit growth, about one-third of which is expected to be non-interest-bearing. Deposits added during the quarter carried an average cost of about 2.5%, executives said.

Total loans increased $236 million to $6.7 billion, representing 15% year-over-year growth. Growth was concentrated in commercial and industrial lending and commercial real estate, while multifamily loans declined by $21 million during the quarter and $58 million year to date.

Chief Credit Officer Lisa Chalkan said management expects loan growth of about $300 million, which would require closing approximately $450 million to $500 million of loan volume. The loan-to-deposit ratio was approximately 95% at quarter-end.

Multifamily Credit and Reserves

The provision for credit losses was $8.1 million, while net charge-offs totaled $5.9 million and were concentrated in one multifamily loan and one commercial mortgage relationship. Nonperforming assets increased to $72.2 million from 0.77% of total assets in the first quarter, primarily due to the migration of a previously disclosed larger multifamily relationship.

Chalkan said the company has begun foreclosure proceedings on the multifamily relationship and is seeking appointment of a receiver. She noted that foreclosure proceedings in New York City can be prolonged and that the company could consider selling the note if appropriate.

Management said special-mention loans declined, performing modifications decreased materially and early-stage delinquencies remained relatively stable. Executives said they did not see evidence of broad-based deterioration across the portfolio, though repricing and maturity activity over the next six quarters could create volatility as the company negotiates with borrowers individually.

The allowance for credit losses remained at 1.04% of total loans. Management said it expects provisions to remain around $7.5 million per quarter through year-end, partly reflecting loan growth and economic conditions incorporated into its reserve model.

Capital and Private Banking Strategy

Tangible book value per share rose 3% during the quarter to $36.26 and was up 9% from a year earlier. Holding-company common equity Tier 1 capital stood at 10.38%.

In July, the company drew the remaining $20 million under a previously announced $50 million convertible preferred equity commitment. Peapack-Gladstone had initially drawn $30 million in March.

Kennedy said the company has hired 20 teams and nearly 200 professionals since 2023 to serve the metro New York market, including Westchester and Long Island. He said those investments temporarily affected earnings but that the business has since become profitable.

The company is expanding private-banking offerings for affluent clients, including life-insurance premium finance, jumbo mortgages, home-equity lines, investment and professional lines of credit, and financing for fine art, collectibles, aviation and yachts.

“The investment is clearly behind us,” Kennedy said, adding that management sees continued momentum entering the third quarter and through the remainder of the year.

About Peapack-Gladstone Financial (NASDAQ:PGC)

Peapack-Gladstone Financial Corporation is the parent company of Peapack-Gladstone Bank, a New Jersey-chartered commercial bank headquartered in Bedminster, New Jersey, that trades on the NASDAQ under the symbol PGC. Through Peapack-Gladstone Bank, the company offers a broad range of deposit and lending solutions, including checking and savings accounts, residential and commercial real estate loans, lines of credit and treasury management services. Clients benefit from both in-branch relationship banking and an expanding suite of digital banking tools designed to support personal and business financial needs.

Complementing its core banking operations, Peapack-Gladstone Financial provides wealth management, trust and financial planning services through its subsidiary, Peapack-Gladstone Wealth Management.

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