Peapack-Gladstone Financial Corporation — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; filed March 15, 2016. The company is a New Jersey bank holding company operating Peapack-Gladstone Bank, with banking and private wealth management businesses concentrated in New Jersey and the New York City area.
Financial performance and condition
| Metric | 2015 | 2014 |
|---|---|---|
| Interest income | $99.1 million | $75.6 million |
| Net interest income | $84.5 million | $67.9 million |
| Net interest margin | 2.80% | 3.01% |
| Provision for loan losses | $7.1 million | $4.9 million |
| Total other income | $23.7 million | $20.8 million |
| Operating expenses | $68.9 million | $59.5 million |
| Net income | $20.0 million | $14.9 million |
| Diluted earnings per share | $1.29 | $1.22 |
| Return on average assets / common equity | 0.64% / 7.71% | 0.63% / 7.96% |
- Balance sheet: Total assets were $3.36 billion, up from $2.70 billion. Loans were $2.91 billion, up 29%; deposits were $2.94 billion, up 27.7%. Wealth-management assets under administration reached $3.32 billion, up 11%, including an acquisition.
- Loan mix and credit: Multifamily loans were $1.42 billion, or about 49% of loans. Nonperforming assets were $7.3 million, or 0.22% of assets, versus $8.2 million and 0.30% a year earlier. The allowance was $25.9 million, 0.89% of loans; net charge-offs were $724,000.
- Funding and liquidity: Cash and cash equivalents totaled $70.2 million; available-for-sale securities were $195.6 million. Management reported $885.0 million of unused FHLB borrowing capacity, $113.9 million at the Federal Reserve, and $22.0 million in correspondent-bank lines. Average loans to average deposits rose to 98.26% from 92.55%.
- Borrowings: Year-end FHLB advances were $83.7 million, overnight borrowings $40.7 million, and capital-lease obligations $10.2 million. Brokered deposits totaled $710.7 million, about 24.2% of deposits, including $417.0 million of reciprocal deposits.
- Cash flow: Operating cash flow was $30.3 million; investing activities used $625.4 million, primarily reflecting loan growth; financing activities provided $634.1 million, principally from deposit growth. Cash and cash equivalents increased $39.1 million to $70.2 million.
- Capital: Company year-end total risk-based capital was 11.40%, Tier 1/CET1 was 10.42%, and leverage was 8.10%. The Bank remained above regulatory well-capitalized thresholds.
- Shareholder returns: The company declared $0.20 per share in annual dividends. Book value per share increased to $17.61 from $16.36.
Material changes versus 2014
- Net income rose 34%, while diluted EPS increased 6%; growth in weighted-average shares diluted per-share improvement.
- Net interest income increased with loan growth, but net interest margin declined 21 basis points to 2.80%. Higher deposit costs, including brokered funding and hedge costs, contributed to the pressure.
- Operating expenses rose 16%, including strategic hiring, acquisition-related growth, higher FDIC assessments, and $2.5 million of costs related to closing two branches in the fourth quarter.
- Loan-loss provision increased to $7.1 million, reflecting portfolio growth and charge-offs. The allowance-to-loans ratio edged up to 0.89%.
- Available-for-sale securities declined to $195.6 million from $332.7 million. The company reported no other-than-temporary impairment charges in 2015.
Outlook, commentary, risks, and unusual items
- Management expected continued loan growth, but at a much lower rate than in the prior two years, and identified C&I lending as a future growth focus. It anticipated higher operating expenses in 2016, with related revenue and profitability benefits expected to follow expenses by several quarters. No specific earnings or revenue guidance was provided.
- Management anticipated an approximately $950,000 increase in its quarterly FDIC premium in 2016, as stated in the filing, and described additional risk-management infrastructure spending as a near-term cost.
- In January and March 2016, the company and Bank amended regulatory reports for the first three quarters of 2015 after finding multifamily loans had been risk-weighted at 50% when clarified guidance required 100%. The corrected ratios remained above the Bank’s well-capitalized thresholds; the filing says other financial-statement data for those quarters were not amended.
- The loan book is concentrated in multifamily and other real estate lending, largely in New Jersey and New York. Risks include local economic and property-value weakness, loan seasoning, credit losses, interest-rate and margin pressure, and reliance on brokered and reciprocal deposits.
- Interest-rate simulations estimated that an immediate sustained 200-basis-point increase would raise 2016 net interest income 1.9%, while a 100-basis-point decrease would reduce it 3.8%. Management cautioned that modeling assumptions may differ from actual results.
- The May 2015 wealth-management acquisition cost $2.8 million and added $1.0 million of goodwill and $1.8 million of identifiable intangibles. The company also sold about $200 million of performing multifamily loans through participations and classified $82.2 million of performing multifamily loans as held for sale at year-end.
- Auditors gave unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management also reported effective disclosure controls and financial reporting controls at year-end.
- The filing reported no material pending or threatened litigation and no material unresolved staff comments.
Important facts for investors to verify
- Review the amended 2015 regulatory capital reports and confirm the corrected risk weights, ratios, and any subsequent regulatory feedback.
- Track multifamily and commercial real estate concentrations, geographic exposure, loan seasoning, criticized loans, troubled restructurings, and allowance adequacy as the portfolio grows.
- Assess funding quality and liquidity, including the 24.2% brokered-deposit share, reciprocal-deposit treatment, loan-to-deposit trend, and availability of contingent borrowing capacity.
- Monitor net interest margin, deposit pricing, interest-rate swap costs, and actual performance against the filing’s rate-sensitivity assumptions.
- Test whether strategic hiring, branch closures, acquisition integration, and risk-management investments translate into sustainable revenue and expense improvements; compare actual FDIC costs with management’s 2016 estimate.
- Reconcile the reported quarterly fourth-quarter restructuring charges of $2.5 million with expense disclosures and assess the effect on recurring earnings.