Peapack-Gladstone Financial Corporation — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; comparative figures are for FY 2021 unless noted. The company is a New Jersey bank holding company whose businesses include commercial and consumer banking, equipment finance, residential lending and wealth management.
Financial performance and position
| Metric | FY 2022 / year-end | Comparison / context |
|---|---|---|
| Net interest income | $176.1 million GAAP; $177.5 million fully tax-equivalent (FTE) | GAAP increased $38.0 million; FTE increased 28% |
| Net interest margin | 2.91% FTE | 2.38% in 2021 |
| Total noninterest income | $66.4 million | Down from $72.2 million; includes $54.7 million in wealth fees |
| Net income / diluted EPS | $74.2 million / $4.00 | $56.6 million / $2.93 in 2021 |
| Return on average assets / equity | 1.20% / 14.02% | 0.94% / 10.56% in 2021 |
| Operating expenses | $133.8 million | Up 6%, primarily compensation, benefits and growth-related costs |
| Total assets / loans | $6.35 billion / $5.29 billion | Assets up 4.5%; loans up $478.5 million, or 10% |
| Total deposits | $5.21 billion | Down $61.0 million, or 1%; second-half deposit outflows were $142 million |
| Cash flows | Operating +$118.9 million; investing −$356.1 million; financing +$280.4 million | Cash and cash equivalents increased $43.3 million to $190.1 million |
| Borrowings and debt | $379.5 million short-term FHLB borrowings; $133.0 million subordinated debt, net | No short-term borrowings at year-end 2021 |
| Capital and liquidity | Company CET1 11.02%; total capital 14.73%. Bank leverage 10.85%; total capital 14.67% | Both company and bank reported above applicable well-capitalized standards. Additional available secured borrowing capacity: approximately $1.5 billion FHLB and $1.8 billion Federal Reserve |
Material changes and notable items
- Earnings growth was mainly driven by higher loan balances and yields as rates rose, along with margin expansion. Interest income rose $51.8 million, while interest expense rose $13.8 million.
- The company repositioned its balance sheet in Q1: sold about $125 million of lower-yield securities and added multifamily loans. The year included a $6.6 million realized securities-sale loss; management said the repositioning improved future net interest margin by four basis points.
- Higher rates materially reduced securities values. FY 2022 other comprehensive loss was $61.8 million; year-end accumulated other comprehensive loss was $74.2 million. Available-for-sale securities had a $106.4 million gross unrealized loss, and held-to-maturity securities’ fair value was $15.1 million below carrying cost. Management attributed the losses mainly to rates and credit spreads, not credit deterioration.
- Wealth management fees increased 3% to $54.7 million, but assets under management/administration declined 11% to $9.9 billion, principally from market-value declines.
- Asset quality remained low by reported nonperforming-asset ratios, but nonperforming loans increased to $19.0 million from $15.6 million. Troubled debt restructurings rose to $14.3 million from $3.6 million, including an $11.2 million investment commercial real estate loan.
- The allowance for credit losses was $60.8 million, or 1.15% of loans, versus $61.7 million, or 1.28%, at year-end 2021. Adoption of CECL on January 1, 2022 reduced the loan allowance by $5.5 million and increased retained earnings by $3.9 million net of tax.
Outlook, risks and controls
- The filing provides no formal numerical earnings or revenue guidance. Management cited anticipated higher operating expenses in 2023 and beyond and continued focus on commercial banking, wealth management, core deposits, technology and risk management.
- Principal risks include higher deposit costs or further deposit outflows, interest-rate and securities-value volatility, local economic weakness, credit deterioration, and concentrations in commercial real estate. CRE loans were 392% of bank regulatory capital at year-end, above the level that can draw heightened supervisory attention.
- Management reported that severe-adverse and pandemic-overlay capital stress tests left the Bank well capitalized over a two-year period. It also stated that liquidity was adequate. However, the parent company itself reported only $8.5 million of liquid assets, and its primary income source is dividends from the Bank, subject to regulatory and legal limits.
- FY 2022 included $4.8 million of year-end overnight FHLB borrowings at 4.61%. The company also repurchased $32.7 million of shares and declared $0.20 per share in dividends.
- The filing says a material weakness in CECL control design identified in Q1 2022 was remediated by year-end. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2022. Crowe LLP issued an unqualified financial-statement opinion and identified the pooled-loan credit-loss allowance as a critical audit matter.
- The filing reports no pending or threatened litigation believed likely to have a material adverse effect. It discusses regulatory, cybersecurity, competition, inflation, recession and LIBOR-transition risks.
Important facts for investors to verify
- Reconcile the interest-rate-risk discussion: one passage describes the company as slightly liability-sensitive, while a later passage says models indicate it is asset-sensitive. The filing estimates a 100-basis-point increase would reduce year-one net interest income 0.2% and increase year-two income 2.7%; a 200-basis-point increase would increase it 0.4% and 5.7%, respectively.
- Track deposit flows, deposit pricing and reliance on short-term FHLB funding after the $142 million of second-half outflows and the $379.5 million year-end borrowing balance.
- Monitor CRE and multifamily exposure, the $11.2 million restructured loan, nonperforming loans and the adequacy of CECL reserves under weaker economic scenarios. Management’s sensitivity analysis indicated an approximately $12 million higher pooled-loan allowance under a specified adverse forecast.
- Assess whether securities-related accumulated losses affect capital, liquidity or strategic flexibility if assets must be sold, and whether wealth assets and fee income recover from market declines.
- Review 2023 expense trends, the sustainability of rate-driven margin gains, and the amount of capital available for growth, dividends and repurchases.