Peapack-Gladstone Financial Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports unaudited quarterly results, including fourth-quarter 2021 net income of $14.9 million and diluted EPS of $0.78. The Company is a New Jersey bank holding company operating Peapack-Gladstone Bank and a wealth management business, primarily serving New Jersey and the New York metropolitan area.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest income | $138.1 million | $127.6 million |
| Noninterest income | $72.2 million | $61.8 million |
| Net income | $56.6 million | $26.2 million |
| Diluted EPS | $2.93 | $1.37 |
| Net interest margin | 2.38% | 2.31% |
| Return on average assets / equity | 0.94% / 10.56% | 0.45% / 5.11% |
| Operating expenses | $126.2 million | $125.0 million |
- Net income more than doubled, up 116%, with improved net interest income, wealth fees and lower loan-loss provision as key drivers. Provision for loan losses was $6.5 million versus $32.4 million in 2020; income tax expense was $21.0 million versus $5.8 million, with 2020 benefiting from a CARES Act NOL carryback tax benefit.
- Wealth management fees rose 30% to $53.0 million. Assets under management and/or administration increased 26% to $11.1 billion, reflecting market gains, new business and acquisitions, including Princeton Portfolio Strategies Group (PPSG), acquired July 1, 2021.
- Total assets were $6.08 billion, up from $5.89 billion. Loans grew 10% to $4.81 billion; deposits grew 9% to $5.27 billion. Multifamily loans increased 42% to $1.60 billion, while PPP loans declined to $13.8 million from $195.6 million.
- Allowance for loan losses was $61.7 million, or 1.28% of loans, compared with $67.3 million, or 1.54%, in 2020. Nonperforming assets were $15.6 million, 0.26% of assets, versus $11.5 million, 0.19%.
- Operating cash flow was $75.5 million; investing cash outflow was $753.8 million, largely reflecting loan growth and securities purchases; financing cash inflow was $171.8 million. Cash and cash equivalents declined to $146.8 million from $653.3 million.
- At year-end, shareholders’ equity was $546.4 million and total subordinated debt, net, was $132.7 million, versus $181.8 million in 2020. The Company had no PPPLF or short-term borrowings outstanding. It reported $3.0 billion in available secured borrowing capacity from the FHLB and Federal Reserve.
- Company regulatory ratios were 10.62% CET1, 10.62% Tier 1 risk-based capital, 14.64% total risk-based capital and 8.29% leverage. Bank ratios were 12.80%, 12.80%, 14.05% and 9.99%, respectively; both were above applicable well-capitalized thresholds.
Material changes and unusual items
- Reported net interest income increased $10.5 million as interest expense fell $16.1 million, partly offsetting lower interest income. The average cost of interest-bearing liabilities declined to 0.50% from 0.88%.
- Provision expense fell substantially from the pandemic-affected 2020 level, which management attributed principally to improving unemployment and fewer COVID-related loan deferrals. Net charge-offs nevertheless rose to $12.1 million from $8.8 million.
- A $12.8 million commercial real estate loan with a large retail component became nonaccrual; the Company charged off $7.1 million on the loan and recorded a related swap valuation provision. Total nonaccrual loans rose to $15.6 million from $11.4 million.
- 2021 expenses included a $2.2 million swap valuation allowance, $648,000 write-off of subordinated debt issuance costs, and $1.5 million in severance expense. 2020 included a $4.8 million FHLB prepayment penalty and a $4.4 million valuation allowance on loans held for sale.
- The Company repurchased 894,744 shares for $28.6 million during 2021. In January 2022, the Board approved a new authorization for up to 920,000 shares through March 31, 2023.
- Available-for-sale securities increased to $796.8 million. Their net unrealized loss in shareholders’ equity was $9.9 million after tax at year-end 2021, compared with a $5.5 million net unrealized gain a year earlier.
Outlook, risks and contingencies
- Management’s strategy remains focused on commercial banking and wealth management growth, including organic expansion and potential wealth acquisitions. The filing flags anticipated higher operating expenses in 2022 and beyond but gives no numerical earnings or revenue guidance.
- Management described the Company as asset-sensitive: its models estimate net interest income would rise in an increasing-rate scenario and fall in a declining-rate scenario. These are model estimates, not forecasts; the filing cautions that actual results may differ.
- Key risks include COVID-19 and economic uncertainty, local-market and real estate exposure, commercial real estate and C&I credit risk, interest-rate and securities-value changes, deposit competition and concentration, cyber and vendor risks, regulation, and the LIBOR transition.
- Commercial real estate exposure is notable: multifamily loans equaled 237% of Bank regulatory capital and total CRE concentration was 386% at year-end. The portfolio is geographically concentrated, including multifamily exposure in New York and New Jersey.
- Six COVID-related loan deferrals totaling $25.6 million remained outstanding at year-end; the Company noted future performance after the deferral period was uncertain. Loan commitments and letters of credit are additional potential exposures.
- The Company adopted CECL on January 1, 2022. It expected a one-time cumulative adjustment to the allowance and retained earnings, but the filing does not provide a final adoption amount; model validation and implementation work remained in progress.
- No pending or threatened litigation was identified as likely to have a material adverse effect. The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Track subsequent performance, collateral valuation and recoveries for the $12.8 million nonaccrual retail-related CRE loan, related charge-offs and swap exposure.
- Review CECL adoption disclosures and the resulting allowance, retained-earnings adjustment and credit-loss assumptions.
- Assess multifamily and broader CRE concentrations, geographic exposures, criticized loans and the adequacy of reserves as loan growth continues.
- Monitor deposit mix, uninsured balances, funding costs and liquidity following the substantial decline in cash and cash equivalents.
- Evaluate whether wealth-fee growth and PPSG integration persist, and how higher planned expenses affect profitability and returns.
- Confirm the execution and capital impact of the 2022 share-repurchase authorization and monitor unrealized securities losses and interest-rate sensitivity.