(A)  Other income for the September 2023 quarter included fee income from equipment finance activity of $2.3 million and a fair value adjustment on a CRA equity security of negative $404,000.  Other income for the September 2022 quarter included a fair value adjustment on a CRA equity security of negative $571,000. 

September 2023 Quarter Compared to Linked Quarter

(A) Other income for the September 2023 quarter included fee income from equipment finance activity of $2.3 million and a fair value adjustment on a CRA equity security of negative $404,000.  Other income for the June 2023 quarter included a fair value adjustment on a CRA equity security of negative $209,000.

(B) The June 2023 quarter included one-time charges of $1.7 million associated with the recent retirement of certain employees.

(C) The three months ended June 30, 2023 included a $318,000 tax benefit for the reversal of the New Jersey surtax, which is set to expire on December 31, 2023.

SUPPLEMENTAL QUARTERLY DETAILS:

Wealth Management

AUM/AUA in the Bank’s Wealth Management Division were $10.4 billion at September 30, 2023.  For the September 2023 quarter, the Wealth Management Team generated $14.0 million in fee income, compared to $14.3 million for the June 30, 2023 quarter and $12.9 million for the September 2022 quarter. The equity market declined slightly during Q3 2023, contributing to the decrease in AUM/AUA on a linked quarter basis.

John Babcock, President of the Bank's Wealth Management Division, noted, “In Q3 2023, total new accounts and client additions amounted to $160 million ($96 million managed). As we look ahead to the fourth quarter of 2023 and beyond, our new business pipeline is healthy and we remain focused on delivering excellent service and advice to our clients. Our highly skilled wealth management professionals, our fiduciary powers and expertise, our financial planning capabilities and our high-touch client service model distinguishes us in our market and continues to drive our growth and success.” 

Loans / Commercial Banking

Total loans grew $193 million or 4% (5% annualized) to $5.5 billion at September 30, 2023 when compared to $5.3 billion at December 31, 2022.

Total C&I loans and leases at September 30, 2023 were $2.3 billion or 42% of the total loan portfolio.

Mr. Kennedy noted, “Given economic uncertainty and rising interest rates, we believe loan demand will be muted somewhat compared to recent prior years.  Given the current environment, we believe we will achieve modest loan growth in 2023.”

Mr. Kennedy also noted, “We are proud to have built a leading middle market commercial banking franchise, as evidenced by our C&I Portfolio, Treasury Management services, Corporate Advisory and SBA businesses. We believe these business lines fit perfectly with our private banking business model.”

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

The Company’s NII of $36.5 million and NIM of 2.28% for Q3 2023 decreased $2.4 million and 21 basis points from NII of $38.9 million and NIM of 2.49% for the linked quarter (Q2 2023) and decreased $9.0 million and 70 basis points from NII of $45.5 million and NIM of 2.98% for the prior year (Q3 2022).  When comparing Q3 2023 to the linked and prior year quarter, the Company has seen a sharp increase in interest expense mostly driven by higher deposit rates during 2023. Cycle to date betas are approximately 44%.  The intense competition for deposit balances from other banks and alternative investment opportunities due to the significant rise in interest rates at such a rapid pace were the primary drivers for increased deposit costs.

Funding / Liquidity / Interest Rate Risk Management

Total deposits increased $54.2 million to $5.3 billion at September 30, 2023 from December 31, 2022.  Deposit inflows were benefitted by net growth in brokered/listing service certificates of deposit of $77.2 million partially offset by a decline in brokered interest-bearing deposits of $50.0 million. The Company saw limited net deposit outflows in 2023 mostly including larger deposit relationships using their funds for normal business purposes such as deployment of excess liquidity into higher yielding treasuries or the equity market, tax payments, or asset acquisitions or investment into their business.  The Company has also seen clients transition money from noninterest-bearing deposit accounts to higher yielding deposit accounts as a result of increases in the Fed Funds rate.

At September 30, 2023, the Company’s balance sheet liquidity (investments available for sale, interest-earning deposits and cash) totaled $756 million, or 12% of assets.

The Company maintains additional liquidity resources of approximately $2.8 billion through secured available funding with the Federal Home Loan Bank and the Federal Reserve Discount Window.  The available funding from the Federal Home Loan Bank and the Federal Reserve are secured by the Company’s loan and investment portfolios. In addition, the Company also has access to the Bank Term Funding Program offered by the Federal Reserve Bank if needed.

The Company's total on and off-balance sheet liquidity totaled $3.6 billion, which is 294% of the total uninsured/uncollateralized deposits on the Company's balance sheet.

Income from Capital Markets Activities

Noninterest income from Capital Markets activities (detailed below) totaled $613,000 for the September 2023 quarter compared to $868,000 for the June 2023 quarter and $784,000 for the September 2022 quarter. The gain on sale of SBA loans was lower in Q3 2023 due to less activity in the higher interest rate environment and tighter margins.

Other Noninterest Income (other than Wealth Management Fee Income and Income from Capital Markets Activities)

Other noninterest income was $4.8 million for Q3 2023 compared to $3.5 million for Q2 2023 and $2.7 million for Q3 2022. Q3 2023 included $2.3 million of income recorded by the Equipment Finance Division related to equipment transfers to lessees upon the termination of leases while Q2 2023 included $221,000 and Q3 2022 included $547,000 respectively. Additionally, Q3 2023 included $794,000 of unused line fees compared to $809,000 for Q2 2023 and $818,000 for Q3 2022.

Operating Expenses

The Company’s total operating expenses were $37.4 million for the third quarter of 2023, compared to $37.7 million for the June 2023 quarter and $33.6 million for the September 2022 quarter. The September 2023 quarter included expenses associated with the previously announced New York City expansion. The June 2023 quarter included one-time charge of $1.7 million associated with the recent retirement of certain employees.

Mr. Kennedy noted, “The Company is committed to be in a position of strength when industry headwinds recede as evidenced by the recent announcement of its decision to expand into New York City and the opening of a retail bank location in mid-town Manhattan. We will manage expenses closely and prudently, but will continue to invest to retain talent. We also plan to grow and expand our core wealth management and commercial banking businesses, including strategic hires and lift-outs if opportunities arise, and invest in digital and other software tools to further enhance the client experience.”

Income Taxes

The effective tax rate for the three months ended September 30, 2023 was 30.5%, as compared to 27.4% for the June 2023 quarter and 27.5% for the quarter ended September 30, 2022.  The higher tax rate for the September 30 quarter was primarily due to the impact of certain non-deductible expenses related to compensation and benefits.

Asset Quality / Provision for Credit Losses

Nonperforming assets (which does not include modified loans that are performing in accordance with their terms) were $70.8 million, or 1.09% of total assets at September 30, 2023, as compared to $34.5 million, or 0.53% of total assets at June 30, 2023. The increase during the third quarter was primarily due to two freight related clients totaling $33.4 million that were transferred to nonaccrual status during the quarter. Management is working diligently to resolve both matters as quickly and efficiently as possible. Loans past due 30 to 89 days and still accruing were $9.8 million, or 0.18% of total loans at September 30, 2023 compared to $14.5 million, or 0.27% of total loans at June 30, 2023.

Criticized and classified loans totaled $148.2 million at September 30, 2023, reflecting an increase from June 30, 2023 and September 30, 2022 levels. The Company currently has no loans or leases on deferral and accruing.  

For the quarter ended September 30, 2023, the Company’s provision for credit losses was $5.9 million compared to $1.7 million for the June 2023 quarter and $665,000 for the September 2022 quarter. The increased provision for credit losses in the September 2023 quarter was primarily driven by specific provisions related to the two freight credits that were transferred to nonaccrual status during the quarter as described above. 

At September 30, 2023, the allowance for credit losses was $68.6 million (1.25% of total loans), compared to $62.7 million (1.15% of loans) at June 30, 2023, and $59.7 million (1.15% of loans) at September 30, 2022.

Capital

The Company’s capital position declined by $6.1 million during the September 2023 quarter as the Company repurchased 100,000 shares of common stock through the Company’s stock repurchase program at a cost of $2.8 million and paid a quarterly cash dividend of $893,000. Additionally, during the third quarter of 2023, the Company recorded a net loss in accumulated other comprehensive income of $13.7 million, net of tax. This amount was driven by a $15.0 million decline in the value of the available for sale securities portfolio partially offset by a $1.3 million gain on cash flow hedges. The total accumulated other comprehensive loss grew to $81.7 million as of September 30, 2023, ($91.0 million loss related to the available for sale securities portfolio partially offset by a $9.3 million gain on the cash flow hedges). These were partially offset by net income of $8.8 million.

Tangible book value per share declined during Q3 2023 to $28.77 at September 30, 2023 from $28.98 at June 30, 2023. Tangible book value per share is a non-GAAP financial measure.  See the reconciliation tables included in this release. The Company’s and Bank’s regulatory capital ratios as of September 30, 2023 remain strong, and generally reflect increases from September 30, 2022 levels. Where applicable, such ratios remain well above regulatory well capitalized standards.

The Company employs quarterly capital stress testing modeling of an adverse case and severely adverse case. In the most recently completed stress test (as of June 30, 2023), under the severely adverse case, and no growth scenario, the Bank remains well capitalized over a two-year stress period.

On September 27, 2023, the Company declared a cash dividend of $0.05 per share payable on November 27, 2023 to shareholders of record on November 9, 2023.

ABOUT THE COMPANY

Peapack-Gladstone Financial Corporation is a New Jersey bank holding company with total assets of $6.5 billion and assets under management/administration of $10.4 billion as of September 30, 2023.  Founded in 1921, Peapack-Gladstone Bank is a commercial bank that provides Private Banking customized solutions through its wealth management, commercial and retail solutions, including residential lending and online platforms, to businesses and consumers.  Peapack Private, the bank’s wealth management division, offers comprehensive financial, tax, fiduciary and investment advice and solutions to individuals, families, privately-held businesses, family offices and not-for-profit organizations, which help them to establish, maintain and expand their legacy.  Together, Peapack-Gladstone Bank and Peapack Private offer an unparalleled commitment to client service.  Visit www.pgbank.com and www.peapackprivate.com for more information.

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 ability to successfully grow our business and implement our strategic plan, including our ability to generate revenues to offset the increased personnel and other costs related to the strategic plan;

·       the impact of anticipated higher operating expenses in 2023 and beyond;

·       our ability to successfully integrate wealth management firm acquisitions;

·       our ability to successfully integrate our expanded employee base;

·       an unexpected decline in the economy, in particular in our New Jersey and New York market areas, including potential recessionary conditions;

·       declines in our net interest margin caused by the interest rate environment and/or our highly competitive market;

·       declines in the value in our investment portfolio;

·       impact from a pandemic event on our business, operations, customers, allowance for credit losses and capital levels;

·       the continuing impact of the COVID-19 pandemic on our business and results of operation;

·       higher than expected increases in our allowance for credit losses;

·       higher than expected increases in credit losses or in the level of delinquent, nonperforming, classified and criticized loans;

·       inflation and changes in interest rates, which may adversely impact our margins and yields, reduce the fair value of our financial instruments, reduce our loan originations and lead to higher operating costs;

·       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;

·       a potential government shutdown;

·       successful cyberattacks against our IT infrastructure and that of our IT and third-party providers;

·       higher than expected FDIC insurance premiums;

·       adverse weather conditions;

·       the current or anticipated impact of military conflict, terrorism or other geopolitical events;

·       our inability to successfully generate new business in new geographic markets, including our expansion into New York City;

·       a reduction in our lower-cost funding sources;

·       changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;

·       our inability to adapt to technological changes;

·       claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters;

·       our inability to retain key employees;

·       demands for loans and deposits in our market areas;

·       adverse changes in securities markets;

·       changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums and changes in the monetary policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;

·       changes in accounting policies and practices; and/or

·       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, 2022.  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.

Contact:

Frank A. Cavallaro, SEVP and CFO

Peapack-Gladstone Financial Corporation

T: 908-306-8933

 (Tables to follow)

PEAPACK-GLADSTONE FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, except per share data)
(Unaudited)