Peapack-Gladstone Financial Corporation — Q3 2023 Form 10-Q
Business context and reporting period. The unaudited filing covers the three and nine months ended September 30, 2023; balance-sheet comparisons are with December 31, 2022. The company operates Banking and Peapack Private wealth-management segments. Unless stated otherwise, dollar amounts below are in millions.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $55.9 | $61.9 | $175.4 | $177.6 |
| Net interest income | $36.5 | $45.5 | $119.4 | $128.0 |
| Provision for credit losses | $5.9 | $0.6 | $9.1 | $4.4 |
| Operating expenses | $37.4 | $33.6 | $110.7 | $100.4 |
| Net income | $8.8 | $20.1 | $40.3 | $53.7 |
| Diluted EPS | $0.49 | $1.09 | $2.23 | $2.88 |
| Net interest margin, tax-equivalent | 2.28% | 2.98% | 2.54% | 2.83% |
- At September 30, total assets were $6.52 billion; loans were $5.49 billion, net loans $5.42 billion, deposits $5.26 billion and shareholders’ equity $559.0 million.
- Nine-month operating cash flow was $68.8 million, versus $105.6 million in 2022. Investing activities used $200.8 million and financing activities provided $129.8 million. Cash and cash equivalents ended at $187.9 million.
- Short-term borrowings were $470.6 million, primarily overnight FHLB advances; subordinated debt, net, was $133.2 million. The loan-to-deposit ratio was 104.32%.
- Company capital ratios included 11.13% CET1, 14.76% total risk-based capital and a 9.05% Tier 1 leverage ratio. The Bank reported 13.22% CET1 and 14.47% total risk-based capital.
Material changes versus prior periods
- Q3 net income fell $11.4 million year over year; nine-month net income declined $13.4 million. Net interest income contracted as funding costs rose faster than asset yields: Q3 interest expense increased $32.5 million, partly offset by $23.5 million higher interest income.
- Q3 NIM declined 70 basis points year over year; nine-month NIM declined 29 basis points. Management cited higher deposit rates and increased borrowing costs amid Federal Reserve tightening.
- Credit metrics weakened: nonaccrual loans increased to $70.8 million from $19.0 million at year-end 2022, and nonperforming loans rose to 1.29% of loans from 0.36%. The allowance for credit losses increased to $68.6 million, or 1.25% of loans, from $60.8 million, or 1.15%.
- Deposits rose $54.2 million from year-end, but mix shifted: noninterest-bearing deposits declined to $947.4 million from $1.25 billion, while interest-bearing checking increased. Short-term borrowings rose $91.0 million.
- Wealth-management fees were $14.0 million in Q3, up 8% year over year, and $42.0 million for nine months, approximately flat. AUM/AUA was $10.4 billion, up 5% from year-end 2022.
- Q3 total revenue fell despite higher wealth fees and other income. For nine months, revenue was nearly flat; the prior-year period included a $6.6 million securities-sale loss, while 2023 included lower SBA-sale and corporate-advisory income.
Outlook, risks and unusual items
- The filing provides no formal quantitative earnings or margin guidance. Management said liquidity was adequate and capital sufficient to support planned near-term growth; results to date are not necessarily indicative of full-year or future results.
- Management attributed the increased credit provision chiefly to $5.5 million of specific reserves for two freight-related credits totaling $33.4 million moved to nonaccrual during Q3, amid a freight-industry downturn. It also cited loan growth. Classified loans totaled $94.9 million, versus $43.0 million at year-end.
- Management reported $756 million of on-balance-sheet liquidity and $2.8 billion of external borrowing capacity, together covering 294% of $1.2 billion in uninsured/unprotected deposits. The filing separately states unused short-term overnight borrowing capacity of $3.3 billion; the figures appear to reflect differing scopes.
- Available-for-sale securities had a $125.3 million pretax unrealized loss at quarter-end; held-to-maturity securities had a $17.7 million fair-value shortfall versus amortized cost. Management attributed losses to interest rates and credit spreads, reported timely payments and recorded no securities credit-loss allowance.
- Operating expenses increased 11% in Q3 and 10% for nine months, reflecting hiring, compensation and insurance costs, FDIC assessments and New York City expansion. Nine-month 2023 expenses included $2.0 million in employee-retirement costs and $175,000 related to three branch closures.
- Interest-rate modeling indicated liability sensitivity: an immediate sustained 100-basis-point rate increase was estimated to reduce year-one net interest income 2.2%; a 100-basis-point decrease was estimated to increase it 2.4%. Management cautioned that these models rely on assumptions and are not precise forecasts.
- Other stated risks include economic weakness in the company’s New Jersey and New York markets, real-estate values, deposit mix and uninsured deposits, margin pressure, credit losses, regulatory costs, cyberattacks and execution of growth and acquisition plans. The company reported no material litigation and no material change to previously disclosed risk factors.
Most important facts for investors to verify
- How the two freight-related exposures and other nonaccrual/classified loans perform, and whether further provisions or charge-offs are needed.
- Deposit retention, deposit pricing and reliance on reciprocal deposits, brokered CDs and FHLB borrowing; reconcile the filing’s $2.8 billion and $3.3 billion borrowing-capacity disclosures.
- Whether NIM stabilizes as deposit costs reprice and how interest-rate changes affect earnings and securities values.
- The recoverability and duration of unrealized securities losses, alongside liquidity needs and the capacity to hold securities through maturity.
- Whether revenue growth, expense levels and New York City expansion meet management’s strategic-plan expectations; the filing does not provide quantified forward guidance.