Peapack-Gladstone Financial (PGC) - 2024 Q1 - Quarterly Results

Q1 2024 Financial Performance Summary Peapack-Gladstone Financial Corporation reported a significant year-over-year decline in profitability for the first quarter of 2024 Q1 2024 Key Highlights Q1 2024 saw significant profit decline due to lower revenue and compressed net interest margin, despite deposit growth Q1 2024 Financial Performance vs. Q1 2023 | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $53.1 million | $62.0 million | -14.4% | | Net Income | $8.6 million | $18.4 million | -53.3% | | Diluted EPS | $0.48 | $1.01 | -52.5% | | Return on Average Assets | 0.54% | 1.16% | -0.62 p.p. | | Return on Average Equity | 5.94% | 13.50% | -7.56 p.p. | - The Net Interest Margin (NIM) declined to 2.20% in Q1 2024, down from 2.29% in Q4 2023 and 2.88% in Q1 2023[4] - In Q1 2024, deposits grew by $202.6 million to $5.48 billion, while loans decreased by $73.7 million, allowing for a $284.3 million reduction in overnight borrowings[5] - The company's liquidity position remains stable, with on-balance sheet liquidity increasing to 12.1% of total assets, and total liquidity providing 303% coverage of uninsured deposits[5] CEO's Remarks and Strategic Outlook CEO noted margin and credit concerns, while advancing New York City expansion for long-term profitability - The CEO identified margin compression and credit quality as the primary areas of concern for the organization[6] - Fee revenue from Wealth Management and other noninterest income constituted a significant 35% of total revenue in Q1 2024, providing a consistent income stream in a difficult rate environment[6] - The company is advancing its strategic expansion into New York City, recently hiring over 10 new commercial private banking teams to be led by Andrew Corrado[6] Segment and Balance Sheet Performance This section details the performance of key business segments and the company's balance sheet management strategies Wealth Management Wealth Management grew AUM/AUA by 6% to $11.5 billion, contributing $14.4 million in fee income and new business Wealth Management Performance | Metric | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | AUM/AUA | $11.5 billion | $10.9 billion | +6% | | Fee Income | $14.4 million | $13.8 million | +4.3% | - Gross new business inflows for Q1 2024 totaled $236 million, of which $138 million was managed[8] - Wealth Management fee income represented 27% of the company's total revenue for Q1 2024[8] Commercial Banking and Balance Sheet Management Q1 2024 balance sheet management increased deposits, reduced borrowings, and compressed net interest margin Balance Sheet Changes (Q1 2024 vs Q4 2023) | Item | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | Total Deposits | $5.48 billion | $5.27 billion | +$202.6 million | | Total Loans | $5.36 billion | $5.44 billion | -$73.7 million | | Borrowings | $119.5 million | $403.8 million | -$284.3 million | - Commercial and industrial (C&I) loans and leases constituted 42% of the total loan portfolio at March 31, 2024[11][19] - Core deposits, including demand, savings, and money market accounts, represented 88% of total deposits[11] - The company has tightened underwriting guidelines and experienced slower loan originations due to economic uncertainty and the interest rate environment[20] Capital Management The company maintains strong capital, exceeding regulatory standards, with stable tangible book value and share repurchases - Tangible book value per share was $30.21 at March 31, 2024, a slight decrease from $30.31 at December 31, 2023[11][34] - The company repurchased 100,000 shares of its stock at a cost of $2.4 million during the first quarter of 2024[11][33] Regulatory Capital Ratios (Company) - March 31, 2024 | Ratio | Value | | :--- | :--- | | Tier 1 Leverage Ratio | 9.36% | | Common Equity Tier 1 Ratio | 11.76% | - A cash dividend of $0.05 per share was declared on March 28, 2024[35] Detailed Financial Analysis This section provides an in-depth analysis of the company's income statement, net interest income, noninterest income, operating expenses, and asset quality Income Statement Analysis Income statement shows significant year-over-year pressure with net income down 53%, while sequential results remained flat Comparison vs. Prior Year Quarter (Q1 2023) Q1 2023 comparison: total revenue down 14%, net interest income down 22%, leading to a 53% net income drop Income Statement YoY Comparison (Q1 2024 vs. Q1 2023) | (in millions) | Q1 2024 | Q1 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $34.38 | $43.98 | (22)% | | Total Other Income | $18.70 | $18.06 | 4% | | Total Revenue | $53.08 | $62.04 | (14)% | | Operating Expenses | $40.04 | $35.57 | 13% | | Provision for Credit Losses | $0.63 | $1.51 | (58)% | | Net Income | $8.63 | $18.36 | (53)% | | Diluted EPS | $0.48 | $1.01 | (52)% | Comparison vs. Linked Quarter (Q4 2023) Sequentially, net income and diluted EPS remained flat, as reduced credit loss provision offset lower net interest income Income Statement QoQ Comparison (Q1 2024 vs. Q4 2023) | (in millions) | Q1 2024 | Q4 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $34.38 | $36.68 | (6)% | | Total Other Income | $18.70 | $17.59 | 6% | | Total Revenue | $53.08 | $54.27 | (2)% | | Operating Expenses | $40.04 | $37.62 | 6% | | Provision for Credit Losses | $0.63 | $5.03 | (87)% | | Net Income | $8.63 | $8.60 | 0% | | Diluted EPS | $0.48 | $0.48 | 0% | Net Interest Income (NII) and Net Interest Margin (NIM) Q1 2024 NII and NIM declined due to increased interest expense from higher deposit rates and customer migration - NII decreased by $2.3 million and NIM by 9 basis points compared to Q4 2023[21] - NII decreased by $9.6 million and NIM by 68 basis points compared to Q1 2023[21] - The primary drivers for the NII/NIM decline were higher deposit rates, intense competition for deposits, and customer migration out of noninterest-bearing products, with a cycle-to-date deposit beta of approximately 52%[21] Noninterest Income Analysis Total noninterest income reached $18.7 million in Q1 2024, driven by Wealth Management fees and Capital Markets activities Capital Markets Activities (in thousands) | Activity | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Gain on sale of SBA loans | $400 | $239 | $865 | | Corporate advisory fee income | $818 | $39 | $80 | | Total Capital Markets Activity | $1,274 | $296 | $966 | - Other noninterest income was $3.0 million in Q1 2024, which included $827,000 of unused line fees[26] Operating Expenses Operating expenses rose to $40.0 million in Q1 2024, reflecting strategic investments for New York City expansion and new hires - Total operating expenses increased to $40.0 million in Q1 2024, up from $37.6 million in Q4 2023 and $35.6 million in Q1 2023[27] - The increase in expenses is linked to investments for the New York City expansion, including significant hiring in Q1 2024[27][28] Asset Quality and Provision for Credit Losses Asset quality deteriorated in Q1 2024, with nonperforming assets and past due loans increasing, leading to a $615,000 provision Asset Quality Metrics | Metric | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Nonperforming Assets | $69.8M (1.09% of assets) | $61.3M (0.95% of assets) | | Loans Past Due 30-89 Days | $73.7M (1.37% of loans) | $34.6M (0.64% of loans) | | Criticized & Classified Loans | $177.3M | Increased from Q4 2023 | | Allowance for Credit Losses (ACL) | $66.3M (1.24% of loans) | $65.9M (1.21% of loans) | - The provision for credit losses was $615,000 for Q1 2024, a sharp decrease from $5.0 million in Q4 2023 and $1.5 million in Q1 2023[31] - The increase in loans past due 30-89 days included significant balances related to governmental entities ($25.2 million), a single equipment finance customer ($15.0 million), and two multifamily sponsors ($28.9 million)[29] Consolidated Financial Statements and Other Data This section provides comprehensive consolidated financial statements and supplementary data for detailed analysis Selected Consolidated Financial Data This section provides detailed five-quarter consolidated financial data, including income statements and balance sheets - Detailed five-quarter income statement data is available, showing trends in interest income/expense, noninterest income/expense, and profitability ratios[43] - Consolidated balance sheets for the last five quarters are provided, detailing assets, liabilities, and shareholders' equity[46][48] Selected Balance Sheet Data (Asset Quality & Capital) This section details asset quality and capital adequacy, presenting five-quarter trends and regulatory capital ratios - Provides a five-quarter breakdown of asset quality metrics, including nonperforming loans, classified loans, and the allowance for credit losses (ACL) roll-forward[50] - Detailed regulatory capital ratios for the Holding Company and the Bank are presented, showing levels well above the 'well capitalized' standards[59] Loans Closed This section provides a five-quarter breakdown of loan originations, with Q1 2024 total loans closed at $190.5 million Total Loans Closed (in millions) | Period | Total Loans Closed | | :--- | :--- | | Q1 2024 | $190.5 | | Q4 2023 | $194.6 | | Q1 2023 | $336.9 | Average Balance Sheet and Net Interest Margin Analysis This section presents detailed average balance sheets and net interest margin analysis, breaking down net interest income components - Provides a detailed analysis of the average balances, yields, and costs for assets and liabilities, which are used to calculate the net interest spread and net interest margin[65][68] Non-GAAP Financial Measures Reconciliation This section provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures Non-GAAP Reconciliations This section reconciles non-GAAP financial measures to GAAP, offering management's view on core performance - The company provides reconciliations for key non-GAAP measures including tangible book value per share, tangible equity to tangible assets, return on average tangible equity, and the efficiency ratio[71][72][73] - Management uses these non-GAAP measures to internally assess performance, believing they offer a clearer view of core operations by excluding items like intangible assets or certain non-recurring revenues and expenses[73]