Wealth Management Consultants NJBiz Profile 2015 Edition
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Banking on a Brand - as seen in NJBiz, August 2014
PEAPACK-GLADSTONE FINANCIAL CORPORATION REPORTS ANOTHER STRONG QUARTER
Bedminster, N.J. – July 28, 2015 – Peapack-Gladstone Financial Corporation (NASDAQ Global Select Market:PGC) (the “Corporation” or the “Company”) recorded net income of $10.25 million and diluted earnings per share of $0.67 for the six months ended June 30, 2015, compared to $6.81 million and $0.58, respectively, for the same six month period last year, reflecting increases of 50 percent and 16 percent, respectively.
For the quarter ended June 30, 2015, the Corporation recorded net income of $5.24 million and diluted earnings per share of $0.34, compared to $3.78 million and diluted earnings per share of $0.32 for the same three month period last year, reflecting increases of 39 percent and 6 percent, respectively.
The following table summarizes earnings for the quarters ended:
(Dollars in millions, except EPS)
|Pretax income||$8.38||$6.32||$2.06 33%|
|Net income||$5.24||$3.78||$1.46 39%|
|Total Revenue||$26.84||$22.40||$4.44 20%|
|Return on average assets||0.70%||0.67%||0.03|
|Return on average equity||8.24%||8.44%||(0.20)|
* June 2015 marks the eighth consecutive quarter of improved efficiency ratio.
(a) The quarter ended June 2015 included a $2.20 million provision for loan losses. The 2015 quarter also included $373 thousand of fee income related to its loan level / “back-to-back” swap program, and is included in other income. There were 15,233,151 weighted average common shares outstanding for calculating diluted EPS for the 2015 quarter.
(b) The quarter ended June 2014 included a $1.15 million provision for loan losses. The 2014 quarter also included income of $176 thousand from a gain from sale of loans held for sale at lower of cost or fair value. There were 11,846,075 weighted average common shares outstanding for calculating diluted EPS for the 2014 quarter.
Doug Kennedy, President and CEO, said, “We continued to successfully execute on our Growth Strategy – Expanding Our Reach, generating strong results and demonstrating that our strategy is delivering positive operating leverage.”
Q2 2015 highlights follow:
- The Company continued to leverage the capital raised in the fourth quarter of 2014. The Company believes it has ample capital to support its continued growth and expansion for the immediate future.
- Earnings and performance ratios for the second quarter of 2015 reflected improvement when compared to the second quarter of 2014’s results (as reflected just above). Year over year growth in EPS was 6.3 percent, despite 2.776 million common shares issued in the December 2014 capital raise.
- Loans at June 30, 2015 totaled $2.74 billion. This reflected growth of $867 million when compared to $1.87 billion at June 30, 2014. Year over year loan growth was 46 percent.
- Asset quality metrics continued to be strong at June 30, 2015. Nonperforming assets at June 30, 2015 were $8.1 million or 0.26 percent of total assets. Total loans past due 30 through 89 days and still accruing were $1.7 million at June 30, 2015.
- Commercial & Industrial (C&I) loans at June 30, 2015 totaled $438 million. This reflected growth of $280 million when compared to $158 million at June 30, 2014. Year over year C&I loan growth was 177 percent.
- Total “customer” deposit balances (defined as deposits excluding brokered CDs and brokered “overnight” interest-bearing demand deposits) grew to $2.28 billion at June 30, 2015 from $1.83 billion at June 30, 2014. Year over year customer deposit growth totaled 24 percent.
- The Company’s net interest income for the second quarter of 2015 was $20.34 million. This reflected improvement when compared to $16.92 million for the second quarter of 2014. Year over year growth in net interest income was 20 percent.
- At June 30, 2015, the market value of assets under administration at the Private Wealth Management Division of Peapack-Gladstone Bank (“the Bank”) was nearly $3.5 billion, including the acquisition of Wealth Management Consultants, which occurred in the second quarter of 2015.
- Fee income from the Private Wealth Management Division totaled $4.53 million for the second quarter of 2015, growing from $4.01 million for the second quarter of 2014. Year over year growth in wealth management fee income was 13 percent.
- The book value per share at June 30, 2015 of $17.02 reflected improvement when compared to $15.48 at June 30, 2014. Year over year growth in book value per share totaled 10 percent.
Net Interest Income/Net Interest Margin
Net interest income was $20.34 million for the second quarter of 2015, compared to $16.92 million for the same quarter last year, reflecting growth of $3.42 million or 20 percent when compared to the prior year period. Net interest income for the second quarter of 2015 benefitted from significant loan growth during 2014, as well as during the first six months of 2015.
While net interest income for the second quarter of 2015 improved compared to prior periods, the net interest margin, on a fully tax-equivalent basis, was 2.80 percent for the June 2015 quarter compared to 3.14 percent for the June 2014 quarter. A portion of the decline in net interest margin for the June 2015 quarter was due to the maintenance of larger average interest earning deposit/cash balances ($70 million average for the June 2015 quarter, compared to $51 million for the June 2014 quarter), as well as larger balances of liquid investment securities ($275 million average for the June 2015 quarter, compared to $247 million for the June 2014 quarter). Mr. Kennedy said, “As I have said in previous quarters, given our rapid growth, we had decided to maintain greater liquidity on our balance sheet.”
In addition to the maintenance of larger liquid balances for much of the quarter, net interest margin also continued to be impacted by the effect of low market yields, as well as competitive pressures in attracting new loans and deposits, as evidenced by a decline in the average yield on loans and an increase in the average cost of deposits. The Company expects continued high liquidity levels and also expects continued loan and deposit growth in this competitive environment.
Total loan originations were $417 million for the second quarter ended June 30, 2015, compared to $347 million for the March 2015 quarter and $269 million for the June 2014 quarter. At June 30, 2015, loans totaled $2.74 billion compared to $2.44 billion three months ago at March 31, 2015 and compared to $1.87 billion one year ago at June 30, 2014, representing increases of $300 million or 12 percent sequentially and $867 million or 46 percent, year over year.
The multifamily mortgage loan portfolio grew $526 million or 62 percent when comparing the June 30, 2015 balance to the June 30, 2014 balance. The increase was net of participations sold over the year, including $48 million of participations sold in the current June 2015 quarter. The June 2015 quarter and the March 2015 quarter both included multifamily loan participations. These participations were part of the Company’s balance sheet management strategy and will likely continue in 2015.
The commercial mortgage loan portfolio grew $54 million or 17 percent when comparing the June 30, 2015 balance to the June 30, 2014 balance. The net increases in both the multifamily and commercial mortgage portfolios were attributable to: the addition of seasoned banking professionals over the course of 2014; 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 explained in past earnings releases, analysis have shown that multifamily lending could be grown quickly and had strong credit metrics and provided solid risk-adjusted returns. Loan originations in this asset class have been robust as we built our C&I (Commercial & Industrial) lending capabilities as part of our Strategic Plan. Going forward, multifamily lending and related participations will remain a focus of the Company, however we anticipate volumes will be less robust than the past several quarters.” Mr. Kennedy went on to say, “As a result of our investment in and commitment to C&I banking, including the addition in 2014 and the first half of 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 at an increased trajectory. We believe our private banking business model of addressing the sophisticated needs and expectations of successful business owners and entrepreneurs is being well received.”
For the six months ended June 30, 2015 the Company closed $177 million of commercial loans. When comparing June 30, 2015 to June 30, 2014, commercial loans grew $280 million or 177 percent, to $438 million at June 30, 2015 from $158 million one year ago at June 30, 2014.
Deposits / Funding / Balance Sheet Management
Loan growth of $300 million in the June 2015 quarter was funded by customer deposit growth of $124 million, investment securities principal reductions and sales of $30 million, capital growth of $9 million, and various other borrowings. Mr. Kennedy noted, “Customer deposit growth for the June quarter was less than loan growth for the quarter; the deposit pipeline as of June 30, 2015 was very robust, and we have seen much of that pipeline fund throughout July, significantly reducing our June 30th overnight borrowing position.”
Brokered interest-bearing demand (“overnight”) deposits continue to be maintained as an additional source of liquidity. The interest rate paid on these deposits allows the Bank to engage in interest rate swaps to hedge the asset-liability rate risk. These deposits increased to $293 million at June 30, 2015. 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 cost of approximately 25 to 30 basis points, are generally a more cost effective alternative than other borrowings and do not require use of pledged collateral, as secured wholesale borrowings do. From a balance sheet management perspective, the rate paid on these short term brokered deposits is used as the basis to transact longer term interest rate swaps, basically extending repricing generally to five years for asset matching / interest rate risk management purposes. As of June 30, 2015, the Company has transacted pay fixed, receive floating interest rate swaps totaling $150 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.
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 June 2015 quarter, Peapack-Gladstone Bank’s wealth management business generated $4.53 million in fee income compared to $4.01 million for the June 2014 quarter, reflecting a 13 percent increase.
The market value of the assets under administration (AUA) of the wealth management division was $3.45 billion at June 30, 2015, up approximately 21 percent from $2.84 billion at June 30, 2014. The growth in fee income and AUA was due to a combination of our acquisition of Wealth Management Consultants (NJ), LLC, new business and market value improvement.
John P. Babcock, President of Private Wealth Management, noted, “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.”
Mr. Babcock further noted, “We are excited to join forces with Tom Ross and Wealth Management Consultants. The acquisition is consistent with building our advice led wealth business and Tom and his team will add depth to our already high-caliber wealth management team.”
Other Noninterest Income
Service charges and fees for the June 2015 quarter were $837 thousand, compared to $708 thousand for the June 2014 quarter. Several categories reflected improvement in the quarter, including increased income associated with a new set of checking products put in place during the summer months of 2014.
The June 2015 quarter included $161 thousand of income from the sale of newly originated residential mortgage loans, up from $112 thousand in the same 2014 quarter. The volume of residential loans originated for sale were greater in the 2015 period compared to the 2014 period.
Securities gains were $176 thousand for the June 2015 quarter compared to $79 thousand for the June 2014 quarter. Sales of securities have been generally employed to benefit interest rate risk, prepayment risk, and/or liquidity risk. Given the interest rate environment, as well as the future outlook, we do not anticipate such sales to be employed as often in the immediate future.
Other income of $545 thousand for the June 2015 quarter was $428 thousand higher than the June 2014 quarter. The June 2015 quarter included $373 thousand of fee income related to the Company’s loan level / back-to-back swap program, which was implemented during the June 2015 quarter after review and approval by the Board. Mr. Kennedy noted, “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 we cannot predict the amount of fee income that may be recognized each period, this program will be a part of ongoing operations.”
The Company’s total operating expenses were $16.27 million for the quarter ended June 30, 2015 compared to $14.93 million in the same 2014 quarter, reflecting a net increase of $1.34 million or 9 percent.
Salary and benefits expense increased in the June 2015 quarter when compared to the same quarter last year due to strategic hiring in line with the Company’s Strategic Plan. Also contributing to the increase is the acquisition of Wealth Management Consultants, which occurred in the June 2015 quarter. 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 June 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 June 2015 quarter increased when compared to the June 2014 quarter. The current 2015 period included: increased wealth management division expenses due to growth in the business, increased advertising/marketing expenses, including a brand awareness campaign, 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 bring on high caliber revenue producers, and continue to 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 revenue growth has outpaced expense growth considerably, which has caused our Efficiency Ratio to improve for the eighth consecutive quarter, to 61 percent for the current quarter.”
Provision for Loan Losses/Asset Quality
For the quarter ended June 30, 2015, the Company’s provision for loan losses was $2.20 million, compared to $1.15 million for the June 2014 quarter. Charge-offs, net of recoveries, for the second quarter of 2015 year were only $47 thousand. The larger provision in 2015 was due to loan growth in the quarter, as well as greater qualitative factor allocations of the allowance to C&I loans and Commercial Real Estate loans.
At June 30, 2015 the allowance for loan losses was 323 percent of nonperforming loans and 0.84 percent of total loans.
The Company’s provision for loan losses and net increase in its allowance for loan losses continue to track well with the Company’s net loan growth and asset quality metrics.
Nonperforming assets at June 30, 2015 were just $8.1 million or 0.26 percent of total assets. Total loans past due 30 through 89 days and still accruing were only $1.7 million at June 30, 2015.
Capital in the June 2015 quarter was benefitted by net income of $5.2 million and by $1.7 million of voluntary share purchases in the Dividend Reinvestment Plan.
At June 30, 2015, the Company’s leverage, common equity tier 1, tier 1 and total risk based capital ratios were 8.48 percent, 12.46 percent, 12.46 percent and 13.58 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 July 22, 2015, the Board of Directors declared a regular cash dividend of $0.05 per share payable on August 19, 2015 to shareholders of record on August 5, 2015.
ABOUT THE COMPANY
Peapack-Gladstone Financial Corporation is a New Jersey bank holding company with total assets of $3.12 billion as of June 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.
1Q15 Earnings Report