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PEAPACK-GLADSTONE FINANCIAL CORPORATION REPORTS ANOTHER QUARTER OF STRONG RESULTS
Bedminster, N.J. – October 28, 2015 – Peapack-Gladstone Financial Corporation (NASDAQ Global Select Market:PGC) (the “Corporation” or the “Company”) recorded net income of $15.63 million and diluted earnings per share of $1.02 for the nine months ended September 30, 2015, compared to $10.68 million and $0.90, respectively, for the same nine month period last year, reflecting growth of 46 percent and 13 percent, respectively. The Company’s provision for loan losses for the nine months of 2015 of $5.15 million reflected an increase of $1.53 million from the $3.63 million for the same 2014 period.
For the quarter ended September 30, 2015, the Corporation recorded net income of $5.38 million and diluted earnings per share of $0.35, compared to $3.86 million and diluted earnings per share of $0.32 for the same three month period last year, reflecting in of 39 percent and 9 percent, respectively. The Company’s provision for loan losses for the third quarter of 2015 of $1.60 million reflected an increase of $450 thousand from the $1.15 million for the third quarter of 2014:
|(Dollars in millions, except EPS)||September 2015||September 2014||
|Net interest income||$21.71||$17.05||$4.66 27%|
|Provision for loan losses||$1.60||$1.15||$0.45 39%|
|Pretax income||$8.82||$6.26||$2.56 41%|
|Net income||$5.38||$3.86||$1.52 39%|
|Diluted EPS||$0.35||$0.32||$0.03 9%|
|Total Revenue||$27.32||$22.10||$5.22 24%|
|Return on average assets||0.66%||0.63%||0.03|
|Return on average equity||8.19%||8.35%||(0.16)|
|Efficiency Ratio (A)||61.14%||66.58%||5.44|
|(A) See Non-GAAP financial measures reconciliation table on page 26.|
Doug Kennedy, President and CEO, said, “We continue to generate strong results and drive operating efficiencies, as we continue to successfully execute on our Growth Strategy – Expanding Our Reach.”
Q3 2015 highlights follow:
- Earnings and performance ratios for the third quarter of 2015 reflected improvement when compared to the third quarter of 2014’s results (as reflected just above). Year over year growth in EPS was 9 percent, despite 2.776 million common shares issued in the December 2014 capital raise.
- Loans at September 30, 2015 totaled $2.86 billion. This reflected growth of $814 million when compared to $2.04 billion at September 30, 2014. Year over year loan growth was 40 percent.
- Multifamily loan participations sold in the third quarter of 2015 totaled $40 million. Additionally, as of September 30, 2015, $27 million of multifamily loans were classified as loans held for sale representing a participation transaction that is anticipated to close during Q4 2015.
- Asset quality metrics continued to be strong at September 30, 2015. Nonperforming assets at September 30, 2015 were $7.9 million or 0.24 percent of total assets. Total loans past due 30 through 89 days and still accruing were $2.7 million at September 30, 2015.
- Commercial & Industrial (C&I) loans at September 30, 2015 totaled $457 million. This reflected growth of $231 million when compared to the $226 million at September 30, 2014. Year over year C&I loan growth was 102 percent. (Not included in totals above are $20 million of C&I loans which closed in early October.)
- Total “customer” deposit balances (defined as deposits excluding brokered CDs and brokered “overnight” interest-bearing demand deposits) grew to $2.55 billion at September 30, 2015 from $1.93 billion at September 30, 2014. Year over year customer deposit growth totaled 32 percent.
- The Company’s net interest income for the third quarter of 2015 was $21.71 million. This reflected improvement when compared to $17.05 million for the third quarter of 2014. Year over year growth in net interest income was 27 percent.
- At September 30, 2015, the market value of assets under administration at the Private Wealth Management Division of Peapack-Gladstone Bank (“the Bank”) was nearly $3.3 billion, including the acquisition of Wealth Management Consultants, which occurred in May 2015.
- Fee income from the Private Wealth Management Division totaled $4.17 million for the third quarter of 2015, growing from $3.66 million for the third quarter of 2014. Year over year growth in wealth management fee income was 14 percent.
- The Company continued to leverage the capital raised in the fourth quarter of 2014. The Company believes it has sufficient capital to support its continued growth and expansion for the immediate future.
- The book value per share at September 30, 2015 of $17.33 reflected improvement when compared to $15.80 at September 30, 2014. Year over year growth in book value per share totaled 10 percent.
Net Interest Income/Net Interest Margin
Net interest income was $21.71 million for the third quarter of 2015, compared to $17.05 million for the same quarter last year, reflecting growth of $4.66 million or 27 percent when compared to the prior year period. Net interest income for the third quarter of 2015 benefitted from significant loan growth during the fourth quarter of 2014, as well as during the first nine months of 2015.
While net interest income for the third quarter of 2015 improved compared to prior periods, the net interest margin, on a fully tax-equivalent basis, was 2.75 percent for the September 2015 quarter compared to 2.89 percent for the September 2014 quarter. Net interest margin continued to be impacted by the effect of low market yields, as well as competitive pressures in attracting new loans and deposits. The Company expects continued loan and deposit growth in this competitive environment.
Net interest margin is also affected by the maintenance of larger average interest earning deposit/cash balances, as well as larger balances of liquid investment securities. During 2014, the Company began maintaining greater liquidity on its balance sheet to support its expansive loan program. Mr. Kennedy said, “As I have said before, given our rapid growth, we had decided to maintain and will continue to maintain higher liquidity on our balance sheet than typically needed for operations.” Mr. Kennedy went on to note, “In addition to liquidity from cash equivalents and investment securities on our balance sheet, we also have close to $900 million of net secured funding available from the Federal Home Loan Bank.”
Total loan originations were $1.05 billion for the nine months ended September 30, 2015 compared to $772 million for the same nine month period in 2014.
For the third quarter ended September 30, 2015 loan originations were $290 million, down from $417 million for the June 2015 quarter, but up from $221 million for the September 2014 quarter. At September 30, 2015, loans totaled $2.86 billion compared to $2.74 billion three months ago at June 30, 2015 and compared to $2.04 billion one year ago at September 30, 2014, representing net increases of $113 million or 4 percent sequentially and $814 million or 40 percent, year over year.
At September 30, 2015, the multifamily loan portfolio loans totaled $1.44 billion compared to $1.37 billion three months ago at June 30, 2015 and compared to $928 million one year ago at September 30, 2014, representing net increases of $73 million or 5 percent sequentially and $516 million or 56 percent, year over year. The increases were net of participations sold, including $40 million of participations sold in the current September 2015 quarter, and $139 million for the nine months ended September 30, 2015. These participations were part of the Company’s balance sheet management strategy and will likely continue in 2015 and beyond.
The commercial mortgage loan portfolio grew by $24 million from June 30, 2015 to September 30, 2015, reflecting linked quarter growth of 6 percent, and grew by $67 million from September 30, 2014 to September 30, 2015, reflecting year over year growth of 20 percent.
The net increases in both the multifamily and commercial mortgage portfolios were attributable to: the addition of seasoned banking professionals; continued attention to the client service aspect of the lending process; an expansion of New Jersey-based real estate marketing activities; and a focus on the Boroughs of New York City multifamily markets beginning in mid-2013. The increase was also due to demand from borrowers looking to refinance multifamily and other commercial mortgages held by other institutions.
Mr. Kennedy said, “As I explained last quarter, we anticipated multifamily loan growth would be less than past quarters, as we manage our balance sheet such that the C&I loan portfolio becomes a larger percentage of our overall loan portfolio. Our C&I pipeline remains robust and we believe we will continue to deliver strong growth.”
For the quarter and nine months ended September 30, 2015 the Company closed $37 million and $215 million of commercial loans, respectively. Additionally, not included in these amounts are $20 million of C&I loans which closed in early October. When comparing September 30, 2015 to September 30, 2014, commercial loans grew $231 million or 102 percent, to $457 million at September 30, 2015 from $226 million one year ago at September 30, 2014. At September 30, 2015 the commercial loan portfolio comprised 16 percent of the overall loan portfolio, up from 11 percent one year ago at September 30, 2014.
Mr. Kennedy said, “As a result of our investment in and commitment to C&I banking, including the addition in 2014 and 2015 of highly regarded bankers with industry and capital markets expertise, and the addition of Eric H. Waser, Head of Commercial Banking in February 2015, we have seen, and believe will continue to see, our C&I client base and corresponding loan portfolio grow and consume a larger percentage of our overall loan portfolio. However, due to the nature of this business, this growth will likely not be linear each quarter, but rather will be apparent over longer periods of time.”
Mr. Kennedy went on to say, “We believe 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.”
Deposits / Funding / Balance Sheet Management
Net asset growth of $151 million and paydowns of overnight borrowings of $88 million and brokered (overnight) interest-bearing deposits of $50 million in the September 2015 quarter were principally funded by customer deposit growth of $274 million. Mr. Kennedy said, “As I noted in last quarter’s release, we saw much of our June 30 deposit pipeline fund throughout July, eliminating our June 30th overnight borrowing position.” Mr. Kennedy went on to say, “Customer deposit growth throughout the September quarter was very strong. A portion of this growth was due to a New York City based family office which opened a multiple account core deposit relationship.”
Although brokered interest-bearing demand (“overnight”) deposits decreased $50 million to $243 million at September 30, 2015, these deposits continue to be maintained as an additional source of liquidity. The interest rate paid on these deposits allows the Bank to fund at attractive rates and engage in interest rate swaps to hedge its asset-liability interest rate risk. The Company ensures ample available collateralized liquidity as a backup to these short term brokered deposits.
From a liquidity/funding perspective, such brokered deposits, at a direct cost of approximately 25 basis points (excluding costs of hedging), are generally a more cost effective alternative than borrowings which require pledged collateral when drawn, as secured wholesale borrowings do. From a balance sheet management perspective, the rate paid on these short term brokered deposits enables their use in swap transactions for an efficient hedging/interest rate risk management program. As of September 30, 2015, the Company had transacted pay fixed, receive floating interest rate swaps totaling $180 million notional amount.
Certificates of deposit have also been utilized more extensively in 2015 compared to prior periods. The majority of these deposits have been longer term and have generally been transacted as part of the Company’s interest rate risk management. These certificates of deposit are also a more cost effective alternative than other borrowings of similar duration.
Mr. Kennedy noted, “The Company will continue to place an intense focus on providing high touch client service and growing its core deposit base. Our full array of treasury management products will help support both core deposit growth and commercial lending opportunities.”
Wealth Management Business
In the September 2015 quarter, Peapack-Gladstone Bank’s wealth management business generated $4.17 million in fee income compared to $4.53 million for the June 2015 quarter. The June quarter included $399 thousand of fees related to tax return preparation which is seasonal to that quarter. John P. Babcock, President of Private Wealth Management, noted, “Excluding the effect of the tax return preparation fees, wealth management fees for the September 2015 quarter were generally flat to the fee income in the June 2015 quarter, notwithstanding an approximate 8 percent decline in the S&P index during the September 2015 quarter. The effect of the associated market value declines were positively offset by continued strong new business and new client acquisitions.”
The September 2015 quarter’s wealth management fees reflected an increase of $508 thousand or 14 percent when compared to fees for the same 2014 quarter. The growth in fee income was due to a combination of our acquisition of Wealth Management Consultants, LLC (WMC) which closed in May 2015, as well as new business.
The market value of the assets under administration (AUA) of the wealth management division was $3.25 billion at September 30, 2015, down approximately 6 percent from $3.45 billion at June 30, 2015 due to investment value depreciation due to market conditions, but up 14 percent from $2.86 billion at September 30, 2014 due to the WMC acquisition as well as new business.
Mr. Babcock said, “We continue to incorporate wealth into every conversation we have with all of the Company’s clients, across all business lines. We have expanded our wealth management team and will continue to grow our team and expand the products, services, and advice we deliver to our clients. Despite the headwinds from Q3 market action going into the fourth quarter, we continue to remain optimistic and see continued strong growth in this business segment.”
Other Noninterest Income
Service charges and fees for the September 2015 quarter were $832 thousand, compared to $829 thousand for the September 2014 quarter. Several categories reflected improvement in the quarter, including income from debit card usage as well as account analysis fees. These increases were offset by reduced overdraft/NSF fees.
The September 2015 quarter included $102 thousand of income from the sale of newly originated residential mortgage loans (mortgage banking), up from $87 thousand in the same 2014 quarter. The volume of residential loans originated for sale was slightly greater in the 2015 period compared to the 2014 period.
Securities gains were $83 thousand for the September 2015 quarter compared to $39 thousand for the September 2014 quarter. Sales of securities have been generally employed to benefit interest rate risk, prepayment risk, and/or liquidity risk. Given the duration of our investment portfolio and the interest rate environment, as well as the future outlook, we anticipate such sales will continue to be a very small component of the Company’s operations.
Other income of $164 thousand for the September 2015 quarter was generally flat to the September 2014 quarter, but down $381 thousand from the June 2015 quarter. The June 2015 quarter included $373 thousand of fee income related to the Company’s loan level / back-to-back swap program, while the September quarter did not include any fee income from this program. The program utilizes mirror interest rate swaps, one directly with the loan customer and one directly with a well-established counterparty. This enables a loan customer to benefit from a fixed rate loan, while the Company records a floating rate loan. The program provides enhanced interest rate risk management, as well as the potential for fee income for the Company. While the Company cannot predict the amount of fee income that may be recognized each period, this program is a part of ongoing operations.
The Company’s total operating expenses were $16.90 million for the quarter ended September 30, 2015 compared to $14.69 million in the same 2014 quarter, reflecting a net increase of $2.21 million. The increase in total operating expenses is in line with our Strategic Plan.
Salary and benefits expense increased in the September 2015 quarter when compared to the same quarter last year due to strategic hiring in line with the Company’s Plan. Also contributing to the increase was the acquisition of WMC. Additionally, normal salary increases and increased bonus/incentive accruals associated with the Company’s growth contributed to the increase.
Premises and equipment expense and FDIC insurance expense for the quarter ended September 30, 2015 increased when compared to the same quarter last year. The increases were consistent with the Company’s continued growth.
Other expenses for the September 2015 quarter increased when compared to the September 2014 quarter. The current 2015 period included: a $250 thousand provision for losses on REO, increased wealth management division expenses due to growth in the business as well as the WMC acquisition, and increased professional fee expenses associated with the Company’s growth, as well as various project work.
Mr. Kennedy noted, “Expense increases continue to track to our Plan. We expect that the trend of higher operating expenses will continue, as we continue to bring on high caliber revenue producers and invest in our infrastructure, in line with our Plan. Further, we generally expect revenue and profitability related to new revenue producers to lag those expenses by several quarters. It is important to note, however, that our plan has delivered positive operating leverage as evidenced by revenue growth outpacing expense growth, which has caused our Efficiency Ratio to improve. Our Efficiency Ratio was 61 percent for the September 2015 quarter, reflecting an improvement from 67 percent for the September 2014 quarter. Additionally, total expenses as a percentage of average assets has improved to 2.07 percent for the September 2015 quarter from 2.39 percent for the September 2014.”
Mr. Kennedy also said, “After completing a comprehensive analysis of our branch locations, we have decided to close two of our branch offices. Our analysis included review of transaction volume; deposit source, mix and balances; deposit growth opportunities; market share; and profitability. Our branches located at 1038 Stelton Road in Piscataway (“Piscataway”) and at 54 Morris and Essex Turnpike on the Short Hills/Summit border (“Short Hills”) will be closed in December 2015. However, we plan on repositioning our Short Hills office as a non-branch financial services office. Due to the nature of the deposits in both locations, as well as the close proximity of our other Summit branch to the Short Hills location, we anticipate that we will retain the majority of deposits. While we anticipate an approximate $2.4 million to $3.0 million pretax charge (approximately $1.5 million to $1.8 million after tax) in Q4 2015 related to these closures, we expect expense saves that will recoup that charge in three years or less.”
Provision for Loan Losses/Asset Quality
For the quarter ended September 30, 2015, the Company’s provision for loan losses was $1.60 million, compared to $1.15 million for the September 2014 quarter. Charge-offs, net of recoveries, for the third quarter of 2015 year were only $195 thousand. The larger provision in 2015 was due to loan growth, as well as greater qualitative factor allocations of the allowance to C&I and Commercial Real Estate loans.
At September 30, 2015 the allowance for loan losses was $24.37 million, 320 percent of nonperforming loans and 0.85 percent of total loans, compared to $18.30 million, 208 percent of nonperforming loans and 0.90 percent of total loans one year prior, at September 30, 2014.
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 September 30, 2015 were just $7.9 million or 0.24 percent of total assets. Total loans past due 30 through 89 days and still accruing were only $2.7 million at September 30, 2015.
The Company’s capital position in the September 2015 quarter was benefitted by net income of $5.4 million and also by $4.3 million of voluntary share purchases in the Dividend Reinvestment Plan, which continue to be a source of capital for the company.
At September 30, 2015, the Company’s leverage, common equity tier 1, tier 1 and total risk based capital ratios were 8.10 percent, 12.44 percent, 12.44 percent and 13.59 percent, respectively. The Company’s ratios are all above the respective 5 percent, 6.5 percent, 8 percent, and 10 percent levels required to be considered well capitalized under regulatory guidelines applicable to banks.
As previously announced on October 22, 2015, the Board of Directors declared a regular cash dividend of $0.05 per share payable on November 20, 2015 to shareholders of record on November 5, 2015.
ABOUT THE COMPANY
Peapack-Gladstone Financial Corporation is a New Jersey bank holding company with total assets of $3.27 billion as of September 30, 2015. 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.
Jeffery J. Carfora
Peapack-Gladstone Financial Corporation
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;
- inability to manage our growth;
- inability to successfully integrate our expanded employee base;
- a continued or 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;
- a continued or 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, 2014. We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Corporation’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.