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

PART I FINANCIAL INFORMATION This section presents the unaudited financial statements and management's discussion of the company's financial condition and market risks Item 1. Financial Statements (Unaudited) Unaudited Q1 2024 financial statements show decreased assets, net income, and compressed net interest income due to higher interest expense Consolidated Statements of Condition Total assets decreased to $6.41 billion, driven by lower net loans, while deposits increased and borrowings decreased Consolidated Balance Sheet Highlights (unaudited) | Account | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Total Assets | $6,408,553 | $6,476,857 | | Net Loans | $5,290,134 | $5,363,437 | | Total Deposits | $5,476,712 | $5,274,114 | | Short-term borrowings | $119,490 | $403,814 | | Total Liabilities | $5,826,174 | $5,893,176 | | Total Shareholders' Equity | $582,379 | $583,681 | Consolidated Statements of Income Net income for Q1 2024 significantly decreased to $8.6 million due to a sharp rise in interest expense Consolidated Income Statement Summary (unaudited) | Metric | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Total Interest Income | $79,194 | $70,491 | | Total Interest Expense | $44,819 | $26,513 | | Net Interest Income | $34,375 | $43,978 | | Provision for credit losses | $627 | $1,513 | | Total Other Income | $18,701 | $18,059 | | Total Operating Expenses | $40,041 | $35,574 | | Net Income | $8,631 | $18,355 | Earnings Per Share (unaudited) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Basic EPS | $0.49 | $1.03 | | Diluted EPS | $0.48 | $1.01 | Consolidated Statements of Comprehensive Income Total comprehensive income for Q1 2024 significantly decreased to $5.7 million due to lower net income and an other comprehensive loss Comprehensive Income Summary (unaudited) | Metric | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Net Income | $8,631 | $18,355 | | Total Other Comprehensive Income/(Loss) | $(2,882) | $6,766 | | Total Comprehensive Income | $5,749 | $25,121 | Consolidated Statement of Changes in Shareholders' Equity Shareholders' equity slightly decreased in Q1 2024 due to comprehensive loss, dividends, and share repurchases, partially offset by net income - Key activities impacting shareholders' equity in Q1 2024 included net income of $8.6 million, a comprehensive loss of $2.9 million, cash dividends of $0.05 per share totaling $887,000, and the repurchase of 100,000 shares for $2.4 million18 Consolidated Statements of Cash Flows Cash and cash equivalents increased by $7.2 million in Q1 2024, driven by operating and investing activities, offset by financing outflows Cash Flow Summary (unaudited) | Activity | Three Months Ended March 31, 2024 ($ thousands) | Three Months Ended March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $19,109 | $38,997 | | Net Cash Provided by/(Used in) Investing Activities | $78,684 | $(74,918) | | Net Cash (Used in)/Provided by Financing Activities | $(90,626) | $97,139 | | Net Increase in Cash and Cash Equivalents | $7,167 | $61,218 | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies, loan portfolio, investment securities, credit quality, and fair value measurements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2024 net income decline to net interest margin compression and increased operating expenses from strategic expansion Q1 2024 vs Q1 2023 Performance Summary | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $8.6M | $18.4M | ($9.7M) | | Diluted EPS | $0.48 | $1.01 | ($0.53) | | ROAA (annualized) | 0.54% | 1.16% | (0.62)% | | ROAE (annualized) | 5.94% | 13.50% | (7.56)% | - The decrease in net income was principally driven by decreased net interest income due to margin contraction from higher deposit and borrowing rates220 - Operating expenses increased by $4.5 million, primarily due to the company's strategic expansion into New York City, along with increased health insurance costs and normal merit increases220 Net Interest Income and Margin Net interest income and margin compressed significantly in Q1 2024 due to higher interest-bearing liability costs outpacing asset yield growth Net Interest Margin Analysis | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net Interest Income (tax-equivalent) | $34,644 thousand | $44,379 thousand | | Net Interest Spread | 1.29% | 2.18% | | Net Interest Margin | 2.20% | 2.88% | - The cost of interest-bearing liabilities increased by 137 basis points to 3.73% in Q1 2024, while the yield on interest-earning assets increased by only 48 basis points to 5.02%, leading to margin compression225231239 - As of March 31, 2024, 35% of the company's loans are scheduled to reprice within three months, and 48% within one year, indicating interest rate sensitivity233 Other Income Total other income remained flat in Q1 2024, with increased corporate advisory fees offset by lower SBA loan sale gains Other Income Components (excluding wealth management) | Component | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Service charges and fees | $1,322 | $1,258 | | Gain on sale of SBA loans | $400 | $865 | | Corporate advisory fee income | $818 | $80 | | Fair value adjustment for CRA equity security | $(111) | $209 | | Total Other Income | $4,294 | $4,297 | Operating Expenses Operating expenses increased by 13% in Q1 2024, primarily due to higher compensation and premises costs from New York City expansion Operating Expense Components | Component | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Compensation and employee benefits | $28,476 | $24,586 | | Premises and equipment | $5,081 | $4,374 | | FDIC assessment | $945 | $711 | | Total operating expenses | $40,041 | $35,574 | Peapack Private The Peapack Private wealth management division saw AUM/AUA grow 11% to $11.5 billion, with a 5% increase in fee income - Assets under management and/or administration (AUM/AUA) increased to $11.5 billion at March 31, 2024, up 11% from $10.4 billion a year prior, driven by market appreciation and gross business inflows of $236 million256 - The division generated $14.4 million in fee income in Q1 2024, a 5% increase from $13.8 million in Q1 2023257 Nonperforming Assets Nonperforming assets increased to $69.8 million, or 1.09% of total assets, driven by higher nonaccrual loans in multifamily and C&I portfolios Nonperforming Assets Trend | Metric | March 31, 2024 ($ thousands) | March 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Nonaccrual loans | $69,811 | $28,659 | | Total nonperforming assets | $69,846 | $28,775 | | Nonperforming assets as a % of total assets | 1.09% | 0.44% | - The increase in nonperforming assets compared to Q1 2023 was primarily driven by a $15.6 million increase in multifamily nonperforming loans and a $26.3 million increase in C&I nonperforming loans261 Provision for Credit Losses Provision for credit losses decreased in Q1 2024 due to lower total loans, while ACL as a percentage of total loans slightly increased Allowance for Credit Losses (ACL) Summary | Metric | March 31, 2024 | Dec 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Provision for Credit Losses | $627 thousand | $5.1 million | $1.5 million | | ACL as a % of total loans | 1.24% | 1.21% | 1.16% | Capital Resources The company maintains strong capital ratios exceeding regulatory requirements, despite share repurchases and comprehensive loss in Q1 2024 - The company repurchased 100,000 shares at an average price of $24.23 for a total cost of $2.4 million during Q1 2024273 Bank Regulatory Capital Ratios | Ratio | March 31, 2024 | Well Capitalized Minimum | | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 15.11% | 10.00% | | Tier I capital (to risk-weighted assets) | 13.86% | 8.00% | | Common equity tier I (to risk-weighted assets) | 13.86% | 6.50% | | Tier I capital (to average assets) | 11.02% | 5.00% | Liquidity The company maintains sufficient liquidity with substantial cash, available-for-sale securities, and external borrowing capacity - As of March 31, 2024, the company had approximately $2.9 billion of external borrowing capacity, providing 303% coverage of its uninsured/unprotected deposits288 - The company increased its total brokered certificates of deposits by $25.0 million to $145.5 million during Q1 2024 to enhance short-term liquidity290 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through ALCO, using strategies like swaps, and is projected to be liability-sensitive in rate changes - The company's interest rate sensitivity models indicate it is liability sensitive, with a 100 basis point increase in rates projected to decrease net interest income by approximately 1.8% in year one298 - The company utilizes interest rate swaps to manage risk, with $310.0 million in notional value of cash flow hedges and $520.2 million in notional value of loan level/back-to-back swaps as of March 31, 2024295296 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective as of the end of the period covered by this report307 - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, these controls309 PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings The company reports no pending or threatened legal proceedings that would have a material adverse effect on its operations - There are no currently pending or threatened litigation or proceedings against the Company or its subsidiaries which would have a material adverse effect on the Company310 Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for 2023 have occurred - No material changes in risk factors have occurred since those disclosed in the Form 10-K for the year ended December 31, 2023311 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 100,000 shares in Q1 2024 under its program, with 377,673 shares remaining available for repurchase Share Repurchase Activity (Q1 2024) | Month | Shares Purchased (Program) | Average Price Paid | | :--- | :--- | :--- | | January 2024 | 0 | N/A | | February 2024 | 100,000 | $23.99 | | March 2024 | 0 | N/A | | Total | 100,000 | $23.99 | - The share repurchase plan, approved in January 2023, authorizes the repurchase of up to 890,000 shares through December 31, 2024, with 377,673 shares remaining available313314 Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during Q1 2024 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the three months ended March 31, 2024317 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL documents