BEDMINSTER, NJ, United States, via ETELIGIS INC., 10/22/2014 – – Peapack-Gladstone Financial Corporation (NASDAQ: PGC) (the "Corporation" or the "Company") recorded net income of $10.68 million and diluted earnings per share of $0.90 for the nine months ended September 30, 2014. This compared to $6.87 million and $0.76, respectively for the same nine month period last year.
For the quarter ended September 30, 2014, the Corporation recorded net income of $3.86 million and diluted earnings per share of $0.32. This compared to $1.96 million and $0.22, respectively, for the same quarter last year.
The following table summarizes earnings for the quarters ended:
Doug Kennedy, President and CEO, said, "We continue to focus on executing our Strategic Plan — ‘Expanding Our Reach.’ This Plan focuses on the client experience and aggressively building and maintaining our private banking platform. Our growth and overall results reflect our continued success."
Q3 2014 highlights follow:
– As reflected in the table above, earnings and performance ratios for the September 2014 quarter reflected improvement when compared to the same quarter last year. The June 2014 quarter includes the $176 thousand gain on sale of residential first mortgage loans sold ($105 thousand after tax or a penny per share).
– Total loan balances at September 30, 2014 exceeded $2 billion and reached another record level for the Company at $2.04 billion. This level reflected growth when compared to $1.57 billion at December 31, 2013, and $1.40 billion one year ago at September 30, 2013. Year over year loan growth was 46 percent.
– During the September 2014 quarter, Commercial & Industrial (C&I) loan originations totaled $74 million — a record quarter for the Company.
– During the period June through September 2014, three new seasoned commercial bankers joined the Company.
– Total "customer" deposit balances (defined as deposits excluding brokered CDs and brokered "overnight" interest-bearing demand deposits) grew to a record $1.93 billion at September 30, 2014, from $1.63 billion at December 31, 2013 and $1.57 billion at September 30, 2013. Year over year customer deposit growth totaled 23 percent.
– The Company’s net interest income for the September 2014 quarter reached another quarterly record level at $17.05 million. This level reflected improvement when compared to $16.92 million for the June 2014 quarter, and when compared to $13.37 million for the same quarter last year.
– At September 30, 2014, the market value of assets under administration at the Private Wealth Management Division of Peapack-Gladstone Bank ("The Bank") was $2.86 billion, also another record for the Company.
– Fee income from the Private Wealth Management Division totaled $3.66 million for the September 2014 quarter growing from $3.30 million for the same quarter last year. The June 2014 quarter totaled $4.01 million as fee income for the second quarter of each calendar year is benefitted by tax return preparation fee income.
– Asset quality metrics continue to be strong at September 30, 2014. Nonperforming assets at September 30, 2014 were just $9.7 million or 0.39 percent of total assets. The metrics improved in early October when a $1.5 million commercial loan on nonaccrual at September 30, 2014 paid off in full on October 8, 2014.
– The book value per share at September 30, 2014 of $15.80 reflected improvement when compared to $14.79 at December 31, 2013 and $14.12 at September 30, 2013. Year-over-year growth in book value per share totaled 12 percent.
Net Interest Income / Net Interest Margin
Net interest income was $17.05 million for the third quarter of 2014, compared to $16.92 million for the June 2014 quarter and $13.37 million for the same quarter last year, reflecting growth of $3.68 million or 27 percent when compared to the prior year period. Net interest income for the third quarter of 2014 benefitted from significant loan growth during the first nine months of 2014 as well as the last quarter of 2013, principally multifamily and commercial mortgages.
While net interest income for the third quarter of 2014 improved compared to these prior periods, the net interest margin, on a fully tax-equivalent basis, was 2.89 percent for the September 2014 quarter compared to 3.14 percent for the June 2014 quarter and 3.28 percent for the September 2013 quarter. The bulk of the decline in margin for the September 2014 quarter was due to the maintenance of much larger average interest earning deposit/cash balances — $197.7 million average for the September 2014 quarter, compared to $51.2 million for the June 2014 quarter and $35.2 million for the September 2013 quarter. Mr. Kennedy said, "Given our rapid growth, we have decided to maintain greater liquidity on our balance sheet."
In general, in addition to the maintenance of larger interest bearing deposit/cash balances noted above, net interest margin also continues to be affected by the continued effect of low market yields, as well as competitive pressures in attracting new loans and deposits.
Loan Originations / Loans
Total loan originations were $772 million for the nine months ended September 30, 2014. At September 30, 2014, loans totaled $2.04 billion as compared to $1.40 billion one year ago at September 30, 2013, representing an increase of $644 million or 46 percent. The multifamily and commercial mortgage loan portfolio grew $580 million or 85 percent when comparing the September 2014 balance to the September 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 type of lending provided solid risk-adjusted returns. Originations of this asset class has been a major focus as we build our C&I (Commercial & Industrial) lending capabilities, as part of our Strategic Plan launched in March 2013. Going forward, multifamily lending will remain a focus of the Company, but with the C&I lending program becoming more seasoned, including the addition of three seasoned C&I bankers since June 2014, we anticipate that C&I loan production will continue to improve as we move forward."
The Company closed $105 million of C&I loans in 2013, and an additional $153 million for the nine months ended September 30, 2014. At September 30, 2014, C & I loans totaled $226 million, more than double the $111 million one year ago at September 30, 2013.
Deposits / Funding / Balance Sheet Management
Loan growth of $166 million and investment security growth of $43 million in the September 2014 quarter was funded by a reduction of $96 million in interest earning deposit/cash balances, as well as growth of $101 million in customer deposits. Also, Capital growth of $5.7 million for the September 2014 quarter provided additional funding.
Brokered interest-bearing demand deposits continue to be maintained as an additional source of liquidity. At a cost of less than a 25 basis points, such deposits are a more cost effective alternative than overnight wholesale borrowings, and do not require pledging of collateral. These deposits have been maintained at $138 million thus far throughout 2014 and, as a part of its liquidity management, the Company may maintain higher levels in future periods. The Company does ensure ample available collateralized liquidity as a backup to these short term brokered deposits.
Brokered certificates of deposit have also been utilized throughout 2014. The majority of these deposits have been longer term and have generally been transacted as a part of the Company’s interest rate risk management. These certificates of deposit are also a more cost effective alternative than medium/longer term wholesale borrowings, and also do not require pledging of collateral.
Mr. Kennedy noted that "The June 2014 quarter included sales of $67 million of longer duration, lower coupon residential first mortgage loans, as well as $61 million of multifamily loan participations, as part of the Company’s overall balance sheet management strategy. These transactions contributed to the Company’s increased interest earning deposits/cash held as of the beginning of the September 2014 quarter." Mr. Kennedy went on to say, "The Company will continue to place intense focus on providing high touch client service and growing its core deposit base. Its full array of treasury management products will help support both core deposit growth and commercial lending opportunities. Private bankers, commercial bankers, relationship bankers and the treasury management team have robust pipelines of client deposits."
Wealth Management Business
In the September 2014 quarter, Peapack-Gladstone Bank’s Wealth Management business generated $3.66 million in fee income compared to $3.30 million for the September 2013 quarter. The market value of the assets under administration (AUA) of the wealth management division was $2.86 billion at September 30, 2014, up from $2.58 billion at September 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, "Incorporating wealth into every conversation we have with all of our Company’s clients, across all business lines, is integral to our strategy. As noted last quarter, over the course of 2014, three seasoned wealth advisors joined the Company from larger wealth management companies, and 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 complemented our existing high-caliber team. We will continue 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 September 2014 quarter included $87 thousand of income from the sale of newly originated residential mortgage loans, down from $277 thousand in the same 2013 quarter. As noted in prior quarters, the rise in mortgage rates caused a decrease in residential mortgage loan originations and resultant mortgage banking income. Mr. Kennedy noted, "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."
Securities gains were $39 thousand for the September 2014 quarter compared to $188 thousand for the September 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 $1.27 million for the September 2014 quarter was $250 thousand higher than the September 2013 quarter. Several categories reflected slight improvement in the quarter including, increased income associated with a new set of checking products put in place during the summer months.
The Company’s total operating expenses were $14.69 million for the quarter ended September 30, 2014 compared to $14.17 million in the same 2013 quarter, reflecting a net increase of $528 thousand.
Salary and benefits expense increased due to strategic hiring in line with the Company’s Strategic Plan, including private bankers, relationship bankers, commercial bankers, wealth advisors, risk management professionals and various support staff, including support staff associated with the commercial lending process. Additionally, normal salary increases and increased bonus/incentive accruals associated with the Company’s growth, contributed to the increase. The September 2013 quarter included approximately $933 thousand of compensation expense accruals related to the retirement of two senior officers.
Also, when comparing the September 2014 expense levels to those in September 2013, the September 2014 quarter included increased occupancy costs associated with the new Princeton and Teaneck Private Banking offices.
Mr. Kennedy noted, "Expense increases that were contemplated with our strategy, Expanding Our Reach, are tracking consistent with projections. We expect that the trend of higher operating expenses will continue as we close out 2014 and go into 2015, 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. This revenue growth, which has outpaced expense growth considerably, has caused our Efficiency Ratio to decline to just below 67 percent for the current quarter."
Provision for Loan Losses / Asset Quality
For the quarter ended September 2014, the Company’s provision for loan losses was $1.15 million, the same as the June 2014 provision, and up $400 thousand when compared to the $750 thousand provision for the September 2013 quarter. Charge-offs, net of recoveries, for the September 2014 quarter were only $55 thousand.
At September 30, 2014 the allowance for loan losses was 208 percent of nonperforming loans and 0.90 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.
Nonperforming assets totaled $9.7 million or 0.39 percent of total assets at September 30, 2014. Mr. Kennedy noted, "Those metrics improved in early October when a $1.5 million commercial loan on nonaccrual at September 30, 2014 paid off in full on October 8, 2014."
Capital / Dividends
Capital in the September 2014 quarter was benefitted by net income and by just over $2 million of voluntary share purchases in the Dividend Reinvestment Plan.
During the September 2014 quarter, the Company continued to employ the capital raised in December 2013 by continuing to grow loans. At September 30, 2014, the Company’s leverage ratio, tier 1 and total risk based capital ratios were 7.57 percent, 12.16 percent and 13.36 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 October 15, 2014 the Board of Directors declared a regular cash dividend of $0.05 per share payable on November 14, 2014 to shareholders of record on October 30, 2014.
ABOUT THE COMPANY
Peapack-Gladstone Financial Corporation is a New Jersey bank holding company with total assets of $2.51 billion as of September 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.
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.
(Tables to follow)
PEAPACK-GLADSTONE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES RECONCILIATION
Tangible book value per share and tangible equity as a percentage of tangible assets at period end are non-GAAP financial measures derived from GAAP-based amounts. We calculate tangible equity and tangible assets by excluding the balance of intangible assets from shareholders’ equity and total assets, respectively. We calculate tangible book value per share by dividing tangible equity by period end common shares outstanding less restricted shares not yet vested, as compared to book value per common share, which we calculate by dividing shareholders’ equity by period end common shares outstanding less restricted shares not yet vested. We calculate tangible equity as a percentage of tangible assets at period end by dividing tangible equity by tangible assets at period end. We believe that this is consistent with the treatment by bank regulatory agencies, which exclude intangible assets from the calculation of risk-based capital ratios.
The efficiency ratio is a non-GAAP measure of expense control relative to recurring revenue. We calculate the efficiency ratio by dividing total noninterest expenses as determined under GAAP, by net interest income and total noninterest income as determined under GAAP, but excluding net gains/(losses) on loans held for sale at lower of cost or fair value and excluding net gains on securities from this calculation, which we refer to below as recurring revenue. We believe that this provides one reasonable measure of core expenses relative to core revenue.
We believe that these non-GAAP financial measures provide information that is important to investors and that is useful in understanding our financial position, results and ratios. Our management internally assesses our performance based, in part, on these measures. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these measures, this presentation may not be comparable to other similarly titled measures reported by other companies. A reconciliation of the non-GAAP measures of tangible common equity, tangible book value per share and efficiency ratio to the underlying GAAP numbers is set forth below.
Jeffrey J. Carfora
SEVP and CFO
Peapack-Gladstone Financial Corporation
SOURCE: Peapack-Gladstone Financial Corporation