Peapack-Gladstone Financial Corporation — Q1 2023 Form 10-Q
Business context and reporting period. The unaudited filing covers the three months ended March 31, 2023, with results compared with Q1 2022 and balance-sheet figures generally compared with December 31, 2022. The company operates Banking and Peapack Private wealth management businesses.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Total revenue | $62.0 million | Up $7.7 million (14%) from Q1 2022 |
| Net interest income | $44.0 million | Up $4.4 million (11%) year over year |
| Net interest margin | 2.88% tax-equivalent | 2.69% in Q1 2022; net interest spread was 2.18%, versus 2.55% |
| Net income / diluted EPS | $18.4 million / $1.01 | $13.4 million / $0.71 in Q1 2022 |
| Operating expenses | $35.6 million | Up $1.4 million (4%) year over year |
| Cash flows | $39.0 million operating; $(74.9) million investing; $97.1 million financing | Cash and cash equivalents increased $61.2 million to $251.3 million |
| Total assets / loans | $6.48 billion / $5.37 billion | Assets up $126.4 million and loans up $80.5 million from year-end |
| Total deposits | $5.31 billion | Up $103.7 million (2%) from year-end |
| Borrowings and subordinated debt | $378.8 million short-term borrowings; $133.1 million subordinated debt, net | Short-term borrowings were $379.5 million at year-end |
| Capital and liquidity | Company total capital ratio 15.15%; Bank CET1 13.93%; on-balance-sheet liquidity $851 million | Management reported capital above well-capitalized levels |
Wealth management fees were $13.8 million, down 7% year over year; assets under management and administration were $10.4 billion, up 5% from year-end but down 3% from March 2022. The allowance for credit losses was $62.3 million, or 1.16% of loans. Nonperforming loans were 0.53% of loans, up from 0.36% at year-end; nonaccrual loans rose to $28.7 million from $19.0 million.
Material changes versus comparable periods
- Higher loan yields and loan growth lifted net interest income. Average earning-asset yield rose to 4.54% from 2.95%; the average cost of interest-bearing liabilities rose to 2.36% from 0.40%, reflecting rate increases and deposit competition.
- Net income benefited from the absence of the $6.6 million securities-sale loss recorded in Q1 2022. That quarter also had a $1.5 million severance expense; Q1 2023 included $300,000 for accelerated restricted-stock vesting and $175,000 related to three branch closures.
- Other fee and capital-markets income was weaker: SBA loan-sale gains fell to $0.9 million from $2.8 million, corporate advisory fees to $0.1 million from $1.6 million, and mortgage banking gains to $21,000 from $247,000.
- Nonaccrual loans and individually evaluated loans increased, primarily after a $9.7 million multifamily relationship moved to nonaccrual status. The company recorded specific reserves related to that relationship.
- Unrealized securities losses improved: accumulated other comprehensive loss narrowed to $67.4 million from $74.2 million at year-end. Available-for-sale securities had a $97.7 million gross unrealized loss at March 31; management attributed losses to interest rates and spreads, and recorded no securities credit-loss allowance.
Outlook, commentary, risks, and unusual items
- The filing provides no specific earnings or financial guidance. Management said liquidity and capital were adequate and that the company remained above regulatory well-capitalized thresholds.
- Following industry bank failures and market volatility, the company reported $851 million of on-balance-sheet liquidity and approximately $3.3 billion of secured contingent funding capacity: $1.5 billion from the FHLB and $1.8 billion from the Federal Reserve Discount Window. It also reported access to the Bank Term Funding Program if needed.
- Uninsured deposits were approximately $1.6 billion, or 30% of deposits, after excluding $296 million of fully collateralized public funds. Loans-to-deposits were 101.07%.
- Management identifies risks including deposit competition and outflows, funding costs, interest-rate and securities-value changes, recession and real-estate weakness, credit losses, CRE concentration, higher FDIC costs, regulation, cybersecurity, and execution of growth and acquisition plans. Multifamily loans were 245% of Bank regulatory capital; total CRE concentration was 378%.
- Interest-rate simulations indicate asset sensitivity: a sustained 100-basis-point increase was modeled to raise net interest income 0.1% in year one and 3.2% in year two; a 100-basis-point decrease was modeled to reduce it 0.9% and 4.1%, respectively. These are model estimates, not guidance, and the filing cautions that actual results may differ.
- The company repurchased 83,014 shares for $2.9 million in Q1 and declared a regular $0.05-per-share dividend in April. Management reported no pending or threatened litigation expected to have a material adverse effect, and disclosure controls were considered effective.
Most important facts for investors to verify
- Deposit stability, uninsured-deposit trends, and the availability and collateral requirements of contingent funding.
- Whether deposit pricing continues to outpace loan-yield gains and pressure net interest margin.
- Developments in nonaccrual, criticized, classified, and individually evaluated loans, particularly multifamily and other CRE exposures.
- The size and persistence of unrealized securities losses and their implications for liquidity and capital if securities must be sold.
- Whether wealth-management fees and capital-markets income recover, and whether planned hiring and other expense growth produce expected revenue.