Peapack-Gladstone Financial Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing also presents unaudited quarterly results; it is an annual report, not a standalone Q4 filing. The company is a New Jersey-based bank holding company with banking and wealth-management businesses, primarily serving New Jersey and the New York metropolitan area.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total assets, year-end | $6.48 billion | $6.35 billion |
| Total revenue (net interest income plus noninterest income) | $229.7 million | $242.5 million |
| Net interest income | $156.1 million | $176.1 million |
| Net interest margin, fully tax-equivalent | 2.48% | 2.91% |
| Provision for credit losses | $14.1 million | $6.4 million |
| Operating expenses | $148.3 million | $133.8 million |
| Net income | $48.9 million | $74.2 million |
| Diluted earnings per share | $2.71 | $4.00 |
| Cash dividends declared per share | $0.20 | $0.20 |
| Operating cash flow | $70.1 million | $118.9 million |
- Loans and deposits: Loans rose 3% to $5.43 billion; deposits increased 1% to $5.27 billion. Core deposits were 89% of deposits, while noninterest-bearing deposits fell to 18.2% from 23.9%.
- Liquidity and funding: Cash and cash equivalents were $187.7 million, with $550.6 million of available-for-sale securities. The company reported approximately $2.7 billion of same-day external borrowing capacity and 297% coverage of uninsured/unprotected deposits when combined with balance-sheet liquidity. Uninsured/unprotected deposits were approximately $1.18 billion, or 22% of deposits.
- Borrowings and capital: Year-end short-term borrowings were $403.8 million, primarily FHLB overnight advances; subordinated debt, net, was $133.3 million. Company regulatory total capital and CET1 ratios were 14.95% and 11.43%, respectively; management said the company and Bank remained above well-capitalized standards.
- Credit quality: The allowance for credit losses was $65.9 million, or 1.21% of loans. Nonperforming loans increased to $61.3 million (1.13% of loans) from $19.0 million (0.36%); net charge-offs rose to $9.1 million from $1.2 million.
- Wealth management: Assets under management and/or administration increased 10% to $10.9 billion. Wealth-management fees were $55.7 million, about 24% of total revenue.
- Q4 snapshot: Net income was $8.6 million and diluted EPS was $0.48, compared with $20.6 million and $1.12 in Q4 2022. Q4 net interest income was $36.7 million and provision for credit losses was $5.0 million.
Material changes versus 2022
- Net income declined 34% and diluted EPS declined 32%. Management attributed the decrease chiefly to deposit and borrowing costs rising faster than asset yields, higher credit-loss provision, and increased operating expenses.
- Net interest income fell 11% on a fully tax-equivalent basis, and net interest margin contracted 43 basis points. Interest expense increased to $147.9 million from $35.8 million as deposit pricing reset upward and average borrowings increased.
- Credit costs and problem loans rose, including a $23.5 million freight-related credit transferred to nonaccrual status and three multifamily credits totaling $16.6 million. The filing reports a $4.2 million specific reserve for the freight-related credit.
- Operating expenses increased 11%, including higher compensation, insurance and FDIC costs, strategic hiring, New York City expansion expenses, and one-time employee-retirement charges of $2.0 million and branch-closure costs of $565,000.
- Wealth-management assets recovered from $9.9 billion in 2022, but remained below $11.1 billion in 2021. A $69.2 million after-tax unrealized loss on available-for-sale securities remained in equity at year-end, improved from $81.0 million in 2022.
Outlook, risks and unusual items
- Outlook: No specific earnings or margin guidance is provided. Management anticipates higher operating expenses in 2024 and beyond and is pursuing New York City expansion, commercial and industrial lending growth, and organic and acquisition-led wealth-management growth.
- Rate sensitivity: Management describes the balance sheet as liability-sensitive. Its model estimates that an immediate, sustained 100-basis-point rate increase would reduce year-one net interest income about 2.1%, while a 100-basis-point decrease would increase it about 2.2%; model results are estimates and depend on assumptions.
- Credit and concentration risks: Commercial real estate loans were 375% of Bank regulatory capital under the filing’s concentration measure. New York rent-regulated multifamily exposure was approximately $941 million. Management highlights risks from property values, borrower cash flows, interest rates and regional economic conditions.
- Deposit and liquidity risks: Competition for deposits, migration from noninterest-bearing accounts, uninsured balances and reliance on wholesale funding could increase funding costs or pressure liquidity. The Bank had $403.8 million of FHLB overnight borrowings at year-end.
- Market and execution risks: Interest-rate changes can affect margins and securities values; AFS securities had $95.3 million of gross unrealized losses before tax. Other identified risks include cybersecurity, regulation, technology investment, and execution of geographic and strategic expansion.
- Other items: The company repurchased $12.5 million of shares in 2023 and declared $0.20 per share in dividends. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; the allowance for credit losses was identified as a critical audit matter. The filing reports no pending or threatened litigation expected to have a material adverse effect.
Important facts for investors to verify
- Whether deposit mix, deposit pricing and borrowing levels improve enough to stabilize net interest margin.
- Performance and collateral values for the freight-related credit, multifamily nonaccrual loans and other criticized or individually evaluated credits.
- Exposure and sensitivity of the New York rent-regulated multifamily portfolio and broader commercial real estate concentrations.
- Liquidity assumptions behind reported borrowing capacity and uninsured-deposit coverage, including the availability of facilities under stress.
- Whether New York City expansion and other strategic hiring generate revenue sufficient to offset expected higher operating expenses.
- Potential effects of securities losses, rate movements, and changes in credit-loss estimates on earnings, capital and shareholder distributions.