(A) Capital markets activity includes fee income from loan level back-to-back swaps, the SBA lending and sale program, corporate advisory and mortgage banking activities.

(B)  Other income for the June 2023 and 2022 quarters included a fair value adjustment on a CRA equity security of negative $209,000 and negative $475,000, respectively. 

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

(D) Income tax expense for quarter 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.

(E) Total revenue equals the sum of net interest income plus total other income.

(A) Capital markets activity includes fee income from loan level back-to-back swaps, the SBA lending and sale program, corporate advisory and mortgage banking activities.

(B) The June 2023 quarter included one-time charges of $1.7 million associated with the recent retirement of certain employees while the March 2023 quarter included $300,000 of expense related to accelerated vesting of restricted stock related to one executive and $175,000 of expense associated with three retail branch closures.

(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.

(D) Total revenue equals the sum of net interest income plus total other income.

SUPPLEMENTAL QUARTERLY DETAILS:

Peapack Private Wealth Management

AUM/AUA in the Bank’s Peapack Private Wealth Management (“PPWM”) Division increased to $10.7 billion at June 30, 2023.  For the June 2023 quarter, PPWM generated $14.3 million in fee income, compared to $13.8 million for the March 31, 2023 quarter and $13.9 million for the June 2022 quarter. The equity market generally improved during Q2 2023, contributing to the growth in AUM/AUA.

John Babcock, President of Peapack Private Wealth Management noted, “In Q2 2023, total new accounts and client additions amounted to $274 million ($214 million managed), and net flows were positive. As we look ahead in 2023, 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 PPWM in our market and continues to drive our growth and success.” 

Loans / Commercial Banking

Total loans grew $148 million or 3% (6% annualized) to $5.4 billion at June 30, 2023 when compared to $5.3 billion at December 31, 2022.

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

Mr. Kennedy noted, “Our loan growth has historically been strong, however, given economic uncertainty and rising interest rates, we believe loan demand will subside somewhat compared to recent prior years. We began tightening our underwriting in anticipation of a potential economic downturn in early 2022 and have continued this practice in 2023. 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, and Corporate Advisory and SBA businesses. Additionally, we are encouraged by the expansion into the Life Insurance Premium Finance business and believe it will prove to be a safe and profitable business line that aligns with the Company's overall strategy.”

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

The Company’s NII of $38.9 million and NIM of 2.49% for Q2 2023 decreased $5.1 million and 39 basis points from NII of $44.0 million and NIM of 2.88%, for the linked quarter (Q1 2023) and decreased $4.0 million and 34 basis points from NII of $42.9 million and NIM of 2.83% for the prior year quarter (Q2 2022).  When comparing Q2 2023 to the linked and prior year quarter the Company has seen a rapid increase in interest expense mostly driven by higher deposit rates during 2023. Cycle to date betas are approximately 41%, which is consistent with results across the financial services industry.  The intense competition for deposit balances was the primary driver for increased costs.

Funding / Liquidity / Interest Rate Risk Management

Total deposits decreased $6.7 million to $5.2 billion at June 30, 2023.  The Company saw limited net deposit outflows during first half of 2023 with most outflow activity related to larger deposit relationships utilizing their funds for normal business purposes such as deployment of excess liquidity into the equity or treasury markets, asset acquisitions or further investments into their businesses, and tax payments. The Company has also seen clients transitioning money into interest-bearing deposit accounts from noninterest-bearing deposit accounts as a result of the rapid increases in the Fed Funds rate.

Mr. Kennedy noted, "Although we did see minimal outflows associated with clients concerned about deposit insurance, our team actively engaged with many of our deposit customers during the first half of 2023 to discuss any concerns and provide assurance regarding the safety and soundness of our institution.  Additionally, we migrated $344 million of uninsured deposits this year into fully-insured FDIC products for those customers that desired that type of protection." 

Mr. Kennedy also noted, “91% of our deposits are demand, savings, or money market accounts, and our noninterest bearing deposits comprise 20% of our total deposits. 85% of deposits are held by clients with relationships greater than three years old and 66% of deposits are held by clients with relationships greater than five years old. These metrics reflect the core nature of the majority of our deposit base.”

At June 30, 2023, the Company’s balance sheet liquidity (investments available for sale, interest-earning deposits and cash) totaled $761 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 secured funding from 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 283% of the total uninsured deposits on the Company's balance sheet.

Income from Capital Markets Activities

Noninterest income from Capital Markets activities (detailed below) totaled $868,000 for the June 2023 quarter compared to $966,000 for the March 2023 quarter and $2.9 million for the June 2022 quarter.

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

Other noninterest income was $3.5 million for Q2 2023 compared to $3.3 million for Q1 2023 and $1.8 million for Q2 2022. Q2 2023 included $809,000 of unused line fees compared to $852,000 for Q1 2023 and $529,000 for Q2 2022. Additionally, Q2 2023 included $221,000 of income recorded by the Equipment Finance Division related to equipment transfers to lessees while Q1 2023 included $145,000. The gain on sale of SBA loans for the first and second quarters of 2023 have been impacted by market volatility resulting in lower sale premiums and origination volumes.

Operating Expenses

The Company’s total operating expenses were $37.7 million for the second quarter of 2023, compared to $35.6 million for the March 2023 quarter and $32.7 million for the June 2022 quarter. The June 2023 quarter included $1.7 million of expense associated with the recent retirement of certain employees. The March 2023 quarter included $300,000 of restricted stock expense associated with an executive retiring and $175,000 of expense associated with the closure of three retail branch locations.  The June 2023 quarter also included increases associated with compensation related to the addition of full-time equivalent employees, which grew to 520 at June 30, 2023 compared to 512 at March 31, 2023 and 472 at June 30, 2022, as well as normal annual merit increases.

Mr. Kennedy noted, “The Company is committed to be in a position of strength when industry headwinds recede as evident by the recent announcement of its intention 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 will also 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 enhancements to further enhance the client experience.”

Income Taxes

The effective tax rate for the three months ended June 30, 2023 was 27.4%, as compared to 26.4% for the March 2023 quarter and 26.4% for the quarter ended June 30, 2022.  The June 30, 2023 quarter benefitted from a $318,000 reversal of a previously recorded New Jersey surtax. The March 31, 2023 quarter benefitted from the vesting of restricted stock at prices higher than grant prices.

Asset Quality / Provision for Credit Losses

Nonperforming assets (which does not include modified loans that are performing in accordance with their terms) were $34.5 million, or 0.53% of total assets at June 30, 2023, as compared to $28.8 million, or 0.44% of total assets at March 31, 2023. The increase during the second quarter was primarily due to one multifamily relationship totaling $7.6 million that transferred to a nonaccrual status during the quarter.  Loans past due 30 to 89 days and still accruing were $14.5 million, or 0.27% of total loans.

Criticized and classified loans totaled $112.3 million at June 30, 2023, reflecting an increase from March 31, 2023 and a decline from June 30, 2022 levels. The Company currently has no loans or leases on deferral and accruing.  

For the quarter ended June 30, 2023, the Company’s provision for credit losses was $1.7 million compared to $1.5 million for the March 2023 quarter and $646,000 for the June 2022 quarter. The provision for credit losses in the June 2023 quarter was driven by loan growth, in addition to Allowance for Credit Losses ("ACL") to individually evaluated loans related to one loan totaling $7.6 million that was transferred to nonaccrual status. 

At June 30, 2023, the allowance for credit losses was $62.7 million (1.15% of total loans), compared to $62.3 million (1.16% of loans) at March 31, 2023, and $59.0 million (1.14% of loans) at June 30, 2022.

Capital

The Company’s capital position during the June 2023 quarter increased as a result of net income of $13.1 million, which was partially offset by the repurchase of 184,000 shares of common stock through the Company’s stock repurchase program at a total cost of $4.7 million and the quarterly cash dividend of $890,000. Additionally, during the second quarter of 2023 the Company recorded a net loss in accumulated other comprehensive income of $522,000 ($3.8 million loss related to the available for sale portfolio partially offset by a $3.2 million gain on cash flow hedges) increasing the total accumulated other comprehensive loss amount to $68.0 million as of June 30, 2023 ($76.0 million loss related to the available for sale portfolio partially offset by a $8.0 million gain on the cash flow hedges). 

Tangible book value per share improved during Q2 2023 to $28.98 at June 30, 2023 from $28.20 at March 31, 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 June 30, 2023 remain strong, and generally reflect increases from March 31, 2023 and June 30, 2022 levels. Where applicable, such ratios remain well above regulatory well capitalized standards.

The Company employs quarterly capital stress testing modelling an adverse case and severely adverse case. In the most recently completed stress test (as of March 31, 2023), under the severely adverse case, and no growth scenario, the Bank remains well capitalized over a two-year stress period. With an additional stress overlay impacting the industries most affected by the Pandemic more severely, the Bank still remains well capitalized over the two-year stress period.

On June 22, 2023, the Company declared a cash dividend of $0.05 per share payable on August 24, 2023 to shareholders of record on August 10, 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 $10.7 billion as of June 30, 2023.  Founded in 1921, Peapack-Gladstone Bank is a commercial bank that provides innovative 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 manage our growth;

·       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;

·       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

·       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)