Pictured Right: Peapack-Gladstone Financial Corporation (PGC), the holding company for Peapack-Gladstone Bank, visited the NASDAQ MarketSite in Times Square
on December 16, 2013. In honor of the occasion, Doug Kennedy, President and CEO rang The NASDAQ Stock Market Closing Bell.
PEAPACK-GLADSTONE FINANCIAL CORPORATION REPORTS ANOTHER SOLID QUARTER OF GROWTH AND ACCOMPLISHMENT
Bedminster, N.J. – July 28, 2014 – Peapack-Gladstone Financial Corporation (NASDAQ Global Select Market:PGC) (the “Corporation” or the “Company”) recorded pretax income of $11.22 million, net income of $6.81 million and diluted earnings per share of $0.58 for the six months ended June 30, 2014. This compared to $7.99 million, $4.90 million and $0.55, respectively for the same six month period last year.
For the quarter ended June 30, 2014, the Corporation recorded pretax income of $6.32 million, net income of $3.78 million and diluted earnings per share of $0.32. This compared to $3.11 million, $2.01 million and $0.22, respectively, for the same quarter last year.
The following table summarizes earnings for the quarters ended:
(Dollars in millions, except EPS)
|Return on average assets||0.67%||0.59%||0.48%|
|Return on average equity||8.44%||7.01%||6.41%|
(1) The June 2014 and March 2014 quarterly earnings per share calculations include all of the 2.47 million shares issued in the December 12, 2013 capital raise.
(2) The June 2014 quarter included a $176 thousand gain on sale of residential first mortgage loans sold, as a component of balance sheet management.
(3) The June 2013 quarter included a $930 thousand provision for loss on an REO property.
Doug Kennedy, President and CEO, said, “We continue to focus on executing our Strategic Plan – “Expanding Our Reach”, which focuses on the client experience and aggressively building and maintaining our private banking platform. Our growth and overall results reflect our continued success.” Q2 2014 highlights follow:
- As reflected in the table above, earnings and performance ratios for the June 2014 quarter reflected improvement when compared to the March 2014 quarter and the June 2013 quarter.
- Total loan balances at June 30, 2014 reached another record level for the Company - $1.87 billion. This level reflected growth when compared to $1.57 billion at December 31, 2013, and $1.25 billion one year ago at June 30, 2013. Year over year growth was 50 percent.
- During the June 2014 quarter, Commercial & Industrial (C&I) loan originations totaled $63 million - a record quarter for the Company.
- Total “customer” deposit balances (defined as deposits excluding brokered deposits) grew to a record $1.83 billion at June 30, 2014, from $1.63 billion at December 31, 2013 and $1.52 billion at June 30, 2013. Year over year growth totaled 21 percent.
- Most notably on the deposit front, noninterest-bearing demand deposits grew to $411 million at the end of June 2014 from $356 million at year end 2013 and from $327 million one year ago at the end of June 2013. Year over year growth was 26 percent.
- The Company’s net interest income for the June 2014 quarter reached another quarterly record level - $16.92 million. This level reflected improvement when compared to $15.57 million for the March 2014 quarter, and when compared to $12.45 million for the same quarter last year.
- At June 30, 2014, the market value of assets under administration at the Private Wealth Management Division of Peapack-Gladstone Bank (“The Bank”) was $2.84 billion, also another record for the Company.
- Fee income from the Private Wealth Management Division totaled $4.01 million for the June 2014 quarter growing from $3.75 million for the March 2014 quarter, and $3.63 million for the June 2013 quarter.
- Total revenue (net interest income plus other income) of $22.40 million for the June 2014 quarter reflected improvement when compared to $20.57 million for the March 2014 quarter, and compared to $17.68 million for the June 2013 quarter.
- Asset quality metrics demonstrated continued improvement at June 30, 2014 when compared to prior periods. For example, nonperforming assets stood at just $7.6 million or 0.32 percent of total assets as of June 30, 2014, compared to $8.6 million or 0.44 percent of total assets of December 31, 2013, and $11.4 million or 0.68 percent of total assets at June 30, 2013. Additionally, the Company’s nonperforming asset ratio compares favorably to the weighted average for all Mid-Atlantic banks of 0.90 percent (as of March 31, 2014).
- The book value per share at June 30, 2014 of $15.48 reflected improvement when compared to $14.79 at December 31, 2013 and $13.93 at June 30, 2013.
- Capital ratios remain strong as of June 30, 2014, even with asset growth over the six month period, as well as migration of lower risk weighted investment security cash flows into loans.
Net Interest Income/Net Interest Margin
Net interest income was $16.92 million for the second quarter of 2014, reflecting an increase of $1.35 million from the March 2014 quarter and an increase of $4.48 million from the same quarter last year. The net interest margin, on a fully tax-equivalent basis, was 3.14 percent for the June 2014 quarter compared to 3.18 percent for the March 2014 quarter and 3.22 percent for the June 2013 quarter.
Net interest income for the current 2014 quarter benefitted from loan growth during the first half of 2014 as well as the last half of 2013, principally multifamily and commercial mortgages.
Net interest margin for the June 2014 quarter declined slightly when compared to the March 2014 and June 2013 quarters due to the continued effect of low market yields, as well as competitive pressures in attracting new loans and deposits.
Total loan originations were $551 million for the six months ended June 30, 2014. At June 30, 2014, loans totaled $1.87 billion as compared to $1.25 billion one year ago at June 30, 2013, resulting in an increase of $623 million or 50 percent. The multifamily and commercial mortgage loan portfolio more than doubled when comparing the June 2014 balance to the June 2013 balance. The increase was attributable to the addition of seasoned banking professionals over the course of 2013; a more concerted focus on the client service aspect of the lending process; more of a focus on New Jersey markets; and a focus on 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 we have noted previously, our analysis showed that multifamily lending could be grown quickly, had strong credit metrics and that this lending provides solid risk-adjusted returns.” The multifamily and commercial mortgage pipeline continues to be strong as of June 30, 2014.
Mr. Kennedy also noted “As part of our Strategic Plan launched in March 2013, we introduced a comprehensive Commercial & Industrial (C&I) lending program. We closed $105 million of C&I loans in 2013, and an additional $79 million for the six months ended June 30, 2014. Our C&I pipeline also continues to be strong as of June 30, 2014.”
Deposits / Funding / Balance Sheet Management
The asset growth in the June 2014 quarter coupled with the reduction of $79 million of overnight wholesale borrowings was funded by a diversified source of funding alternatives. During the quarter, customer deposits grew $142 million - $60 million of which was noninterest-bearing demand deposits. Mr. Kennedy commented, “We will continue to place intense focus on providing high touch client service and growing our core deposit base. Our full array of treasury management products will help support both our core deposit growth and also our commercial lending opportunities. Our private bankers, commercial bankers, relationship bankers and our treasury management team have robust pipelines of client deposits.”
Investment securities cash flows of $23 million and capital growth of $6.5 million provided additional funding.
Further, during the June quarter, the following was accomplished as part of the Company’s overall balance sheet management strategy:
- $67 million of longer duration, lower coupon residential first mortgage loans were sold, as part of the Company’s strategy to de-emphasize residential first mortgage lending, while benefitting its liquidity and interest rate risk positions. The sales also benefitted current earnings ($176 thousand gain recorded) and will benefit future earnings as the loans sold were / will be replaced by higher coupon, shorter duration loans.
- A $61 million package of multifamily loan participations were executed. The $61 million represented a minority percentage of the principal balance of the package of loans. This benefitted the Company’s liquidity and interest rate risk positions, and also benefitted the diversification of credit risk. In all cases the Company retained the majority ownership of the loan, the client relationship and the servicing of the entire loan Mr. Kennedy said, “Given the Company’s ability to generate high quality multifamily loans, this participation strategy will likely be utilized on an ongoing basis. Such a strategy provides for an avenue to improve risk-adjusted returns through ongoing fees, coupled with risk diversification and mitigation.”
- $80 million of longer term brokered certificates of deposit (“CDs”) were added principally to extend liabilities to benefit the Company’s interest rate risk position.
Excess cash on hand held as of June 30, 2014 resulted from the balance sheet management strategies noted above. This cash will be utilized to fund future growth.
Brokered interest-bearing demand deposits have been utilized in place of wholesale overnight borrowings as a more cost effective alternative. They stood at $138 million as of June 30, 2014, unchanged from the March 31, 2014 level. The Company does ensure ample available collateralized liquidity as a backup to these short term brokered deposits.
Wealth Management Business
In the June 2014 quarter, Peapack-Gladstone Bank’s Wealth Management business generated $4.01 million in fee income compared to $3.55 million for the December 2013 quarter, and compared to $3.63 million for the June 2013 quarter. The market value of the assets under administration (AUA) of the wealth management division was $2.84 billion at June 30, 2014, up from $2.52 billion at June 30, 2013. The growth in fee income and AUA was due to a combination of new business and market value improvement.
John P. Babcock, President of Private Wealth Management, noted, “Our strategy includes incorporating wealth into every conversation we have with all of our Company’s clients, across all business lines. As we noted last quarter, three seasoned wealth advisors joined the Company from larger wealth management companies. And, this past quarter a seasoned two person team – a Portfolio Manager and a Trust Officer - from a larger wealth management company joined our Princeton Private Banking Team. These individuals complement our existing high-caliber team. We look forward to continuing to build-out and grow our Wealth Management team, and expand the products, service, and advice we deliver to our clients.”
Other Noninterest Income
The June 2014 quarter included $112 thousand of income from the sale of newly originated residential mortgage loans, down from $391 thousand in the same 2013 quarter.
Mr. Kennedy commented, “As noted in prior quarters, the rise in mortgage rates in the middle of 2013 caused a decrease in residential mortgage loan originations and resultant mortgage banking income. Reduced levels of mortgage banking income was expected and planned for, and reduced levels of mortgage banking income are expected to be ongoing. Fortunately, mortgage banking income is not a significant portion of our revenue. Further, we have reduced our overhead expense associated with mortgage banking; we have improved our loan volume on the commercial front which has and we believe will improve net interest income in the future; and we have introduced treasury management services/products, which we expect will contribute to noninterest income in the future.”
Securities gains were $79 thousand for the June 2014 quarter compared to $238 thousand for the June 2013 quarter. Sales of securities have been generally employed to benefit interest rate risk, prepayment risk, and/or liquidity risk. Given the short duration of the securities portfolio, sales have been employed much less often in recent periods.
Other income of $1.10 million for the June 2014 was $122 thousand higher than the June 2013 quarter. The current quarter included a slight increase in service charges and fees, as well as slight gains from dispositions of several REO properties.
The Company’s total operating expenses were $14.93 million for the quarter ended June 30, 2014 compared to $14.08 million in the same 2013 quarter, reflecting a net increase of $851 thousand. Salary and benefits expense increased $1.15 million, due to strategic hiring in line with the Company’s Strategic Plan, including private bankers, relationship bankers, commercial lenders, wealth advisors, risk management professionals and various support staff. Additionally, normal salary increases and increased bonus/incentive accruals associated with the Company’s growth, contributed to the increase. Also, when comparing the June 2014 expense levels to those in June 2013, 2014 included increased occupancy costs associated with the new Princeton and Teaneck Private Banking offices, as well as various professional and other fees associated with training and consulting, some of which was associated with the Strategic Plan. These increases were partially offset by a $630 thousand decline in the provision for REO losses when comparing the June 2014 quarter to the June 2013 quarter.
Mr. Kennedy noted, “As I have said many times in the past, we expected higher operating expenses as we execute our Strategic Plan and we expect that the trend of higher operating expenses will continue in 2014 as we bring on high caliber revenue producers, and continue to invest in our infrastructure in line with our Strategic Plan. Further, we generally expect revenue and profitability related to new personnel to lag those expenses by several quarters. It is important to note, however, that we have seen an improvement in quarterly revenue since we launched our Plan, particularly in the recent quarters, as our Plan began to gain momentum. I am also pleased to have seen our Efficiency Ratio decline to 66.9 percent in the current quarter.” Mr. Kennedy went on to say, “Operating expenses remain in line with our Strategic Plan.”
Provision for Loan Losses/Asset Quality
For the quarter ended June 2014, the Company’s provision for loan losses was $1.15 million, $175 thousand less than the March 2014 provision, and up $650 thousand when compared to the $500 thousand provision for the June 2013 quarter. Charge-offs, net of recoveries, for the June 2014 quarter were $533 thousand.
At June 30, 2014 the allowance for loan losses was 263 percent of nonperforming loans and 0.92 percent of total loans.
Nonperforming assets totaled $7.6 million or just 0.32 percent of total assets at June 30, 2014 compared to $11.4 million or 0.68 percent of assets at June 30, 2013.
Capital in the June 2014 quarter was benefitted by net income and by nearly $2 million of voluntary share purchases in the Dividend Reinvestment Plan.
During the June 2014 quarter, the Company continued to employ the capital raised in December 2013 by continuing to grow loans. At June 30, 2014, the Company’s leverage ratio, tier 1 and total risk based capital ratios were 8.01 percent, 13.05 percent and 14.30 percent, respectively. The Company’s ratios are all above the levels required to be considered well capitalized under regulatory guidelines applicable to banks.
As previously announced, on July 17, 2014, the Board of Directors declared a regular cash dividend of $0.05 per share payable on August 14, 2014 to shareholders of record on July 31, 2014.
ABOUT THE COMPANY
Peapack-Gladstone Financial Corporation is a New Jersey bank holding company with total assets of $2.40 billion as of June 30, 2014. 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;
- 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 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 cyber attacks against our IT infrastructure and that of our IT providers;
- higher than expected FDIC insurance premiums;
- 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, 2013. 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.
1Q14 Earnings Report