Peapack-Gladstone Financial Corporation (PGC) Earnings Call Transcript & Summary

Hello, and welcome to the annual meeting of shareholders of Peapack-Gladstone Financial Corporation. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Duff Meyercord, Chairman of the Board. Mr. Meyercord, the floor is yours.

Thank you operator. Good morning. I'm Duff Meyercord, Chairman of the Board of the Peapack-Gladstone Financial Corporation. We hope that all of you participating today and all of your families are doing well during this difficult time. Due to the public health concerns regarding the coronavirus and the restrictions on in-person gatherings and to support the health and wellbeing of our employees, directors and shareholders, we decided to hold this annual meeting via a live webcast. On behalf of the directors and the officers of the Peapack-Gladstone Financial Corporation and Peapack-Gladstone Bank, let me welcome you and express my appreciation to you for participating in this online meeting. If you need access to our proxy statement and annual report, links to these documents are available online. Also, we intend to follow the rules of conduct for this meeting, a copy of which is located on the annual meeting portal. [Operator Instructions] We will address the questions that relate to the matters conducting at this meeting during the meeting and allow for general questions towards the end of the meeting. The principal business of this annual meeting is to elect 13 directors, vote on nonbinding resolution on the compensation of certain of our executive officers, vote on our 2021 long-term incentive plan and vote to ratify the appointment of the independent auditors for 2021. At this time, I'd like to introduce the Corporate Secretary of Peapack-Gladstone Financial Corporation, Todd Poland. Mr. Poland, has the notice of this meeting been sent to all shareholders entitled to vote at this meeting?

Yes, Mr. Chairman, I have here an affidavit sworn to by myself and duly signed, stating that notice has been mailed to each shareholder as required under the bylaws. In addition, resolutions were adopted by the Board of Directors of Peapack-Gladstone Financial Corporation providing for the meeting to be held at this time and by remote communication and directing that notice be given as provided in the bylaws. The Board also fixed March 10, 2021 as the record date for determining shareholders entitled to notice of and to vote at this annual meeting.

Thank you, Mr. Poland. Please file a copy of the notice and the affidavit as to the mailing of notice with the minutes for this meeting. Kathy Whelply from Computershare, our transfer agent, will be serving as our inspector of election. Mrs. Whelply, will you please present your report of the attendance at this meeting so that we can determine whether a quorum is present?

There were 18,909,140 -- I'm sorry, 18,909,194 shares entitled to vote as of this March 10, 2021 record date. 88.29% of the shares of common stock of the company are represented at this meeting.

Thank you, Mrs. Whelply. Based on the reports of the corporate secretary and the inspector of election, I find that proper notice has been given and that a quorum is present. Accordingly, this meeting has been properly convened. I intend to present all the matters to be voted on at this meeting separately and allow questions to be asked once all the matters have been presented. You may submit the questions online by clicking the messages icon. At the conclusion of the presentation of all items, I will allow time for shareholders to vote online before the voting is closed. Mr. Poland, were there any shareholder nominations or proposals for business for this meeting properly filed with you as corporate secretary?

No, Mr. Chairman.

Since no shareholder nominations or proposals were properly filed with the corporate secretary in advance of this meeting as provided in the bylaws, the business of this meeting is limited to the 4 matters stated in the agenda. The first proposal is the election of 13 directors, each of whom will serve for a 1-year term. All of the nominees are presently directors of the company and the bank. Additional information concerning the principal occupation of the nominees, our service with Peapack-Gladstone Financial and the Bank and other matters that may be of interest are contained in the proxy statement. The second proposal is a nonbinding vote on the compensation of certain of our executive officers as disclosed in the proxy statement. The third proposal is a vote to approve the 2021 long-term incentive plan. The fourth proposal to be considered at this meeting is the ratification of the appointment of Crowe as the independent auditors for the year ending December 31, 2021. A representative of Crowe is available to answer any questions related to their engagement. Are there any questions with respect to the 4 proposals being considered today? Are there any questions that have been recorded, Mr. Poland?

No, Mr. Chairman.

Will the shareholders who wish to vote at this time, please do so by clicking on the link provided online. If you have already voted, there is no need for you to recast your vote. However, if you have not yet voted or wish to change your vote, you may do so by clicking on the link provided online. We will pause for 30 seconds to allow shareholders the opportunity to vote. [Voting]

The online voting is now closed. Mrs. Whelply, would you now present your report on the vote?

Each of the directors nominated by the Board have been duly elected. The resolution on the compensation of the named executives has been approved. The proposal to approve the 2021 long-term incentive plan has been approved. And the appointment of Crowe as the independent auditors has been ratified.

The report of the inspector of election as presented is accepted. Mr. Poland, please safeguard the votes and the oath and certificate and report of the inspector of election and maintain them among the records of the company. I would like to now [ declare ] that the vote has ended, and our President and Chief Executive Officer, Doug Kennedy will make a brief presentation.

Thank you, Mr. Chairman. Good morning and welcome to the Peapack-Gladstone Financial Corporation 100th annual meeting. And as you know, 2020 was by any measure a real challenge for both the economy and our company. And as I reflected on the last 100 years, and you think about our company, we've endured wars, depression, natural disasters, a recession -- the Great Recession, and now that we can say that we successfully survived COVID-19. Our response to the pandemic was exceptional. Nearly 25% of our clients requested and received payment deferrals on loans that we had with them. We also proactively reached out to community organizations to offer our financial support. Our wealth clients, understandably nervous by market conditions in late March, were contacted on a regular basis and provided assurances that by staying the course that, that would be the best way to navigate this global event. The economy, we told them, would recover in time as would their portfolios and recover it has. As of March 31, our AUM/AUA reached a record $9.4 billion, that's a 7% increase over the $8.8 billion we had at the end of the year. During the pandemic, we had over $500 million in client inflows. And in the first quarter, we had $287 million of new AUM/AUA brought into our bank, $181 million of which was fully managed business. On a pre-tax, pre-provision basis, our earnings reached $70 million last year, which was the number that we had set for ourselves before COVID was even a consideration. Net income was positive at the end of the year despite the fact that we had put away $30 million for potential write-offs and also took other additional steps in order to safeguard our company. In addition to building reserves, we took steps to significantly build liquidity and capital, steps that also impacted our earnings during the year. We felt that these actions were appropriate given the large degree of market and economic uncertainty that we faced. Our first quarter has seen a reversal, and our business has stabilized and is positioned for growth in the future. Our first quarter operating performance released last week was a record quarter for us, excluding PPP loan sales. And we're quite constructive about the balance of this year. Today, I plan to walk you through some of the highlights of last year and share with you why I believe we're well positioned to create significant shareholder value in the future. For those of you who recently became fellow shareholders, welcome. For those of you who have owned shares for a long time, welcome back. As a 100-year old community bank, we're keenly focused on servicing the needs of our clients and our communities. Peapack-Gladstone Bank is a full-service commercial bank, offering a complete line of deposit and lending services for individuals and businesses. Our Peapack Private division operates as our wealth management arm, which generates 24% of total revenue for our company and provides much-needed unbiased advice for our clientele. As previously stated, this business has grown to a record $9.4 billion at the end of Q1, up 7% from year-end. We have a platform of products and services delivered by a team of dedicated professionals that compete to win against large national mega-banks. COVID has really shined a light on our capabilities. Our current pipeline for new business in the bank and at Peapack Private sits at record levels. In terms of our franchise, our company operates in 3 of the 10 most affluent counties in the United States. Our branch network posts average deposits of $260 million on average. This is considered best-in-class performance and is the highest in our marketplace. For the year, our wealth and other fee-related activities generated 36% of total revenue for our company. This target was considered just a goal 5 years ago, a stretch goal in fact, and fees, because of them not being subject to any kind of credit issues and utilize very little capital, are something that our industry strives for in a very big way. In addition to our 19 traditional branch locations, we operate a number of private banking offices in Bedminster, Morristown, Princeton, Red Bank, New Providence, Summit, and Teaneck. And we also manage $1 billion of our client's money out of our Delaware Trust office and maintain a representative private banking office in Bonita Springs, Florida. One of our company's proudest moments last year was our response to the PPP, Paycheck Protection Program. Last year, we closed on $600 million in much-needed capital to approximately 2,400 small businesses. Most importantly, we saved 50,000 jobs. To date, we've provided a total of $766 million in much-needed capital and saved 55,000 jobs. Over 150 employees across the company rallied to pull this off, working around the clock in 3 shifts, we stood up technology in a week. And in fact, when the second phase of the first round, I was so proud of our team, by the close of business on the first day that the window had reopened, we actually had processed more loans than Bank of America. This is an incredible accomplishment. It speaks to the character of the people that we have, our commitment to our clients and the communities that we serve. As mentioned earlier, as COVID hit, we doubled down on our efforts to support community organizations. Loans to majority, minority, and low-to-moderate income census tracts were made a priority and accounted for 25% to 17% of our residential lending, respectively. We increased our financial support for a number of not-for-profits focused on addressing food insecurity and education. We also donated 100 Chromebooks to Newark Public Schools, Malcolm X Shabazz High School. And despite COVID, our team volunteered 300 hours of their time to help community organizations operate. Again, for the 12th consecutive year, we were recognized by New Jersey Bankers for our community involvement. And finally, something that I'm very proud of, is that for the third consecutive year, we were named Best Banks To Work For by the American Banker. There's -- only 85 banks in the U.S. that are chosen out of 6,500 are selected for this prestigious recognition. And our employees are also given the opportunity to provide comments and invariably, the word that comes up all the time is that we refer to ourselves as family. As a company, our employees -- we have a 97% engagement rate. This level of commitment of caring for ourselves, for each other and for our clients is really something to be very proud of. With business as usual on hold in the middle of last year and our clients growing increasingly comfortable with doing business with us on a remote basis, we made the decision to accelerate our planned 3-year investment in technology and digital, and like it or not, we have to acknowledge that the world has changed. Some of you may have already seen our new website or visited our new ATMs. We will be converting to new online and mobile banking platform in the next few weeks. We also stood up a fully automated underwriting platform, tools to enhance our wealth management business, and scheduled to launch Zelle, a P2P payment platform, as well as onboarding a bunch of robotics across our back office to make them more efficient. All of these investments are going to help us better serve our clients so that they can do business with us when, where and with whom they want, and we can do so in a very cost efficient manner. As we begin to anticipate a recovery in the late Q4, we focused on making the pivot from playing defense to offense. Our success with PPP brought several hundred new client opportunities, which we followed up and onboarded. We also learned that we could do things that we thought were never possible. For example, like standing up a technology program -- platform within a week. We also welcomed Noyes and Lucas, who joined us through acquisitions on the wealth side. We put extra resources and efforts on our residential lending, our SBA activities, our investment banking, all of them, all of these areas saw increases in new business and delivered record fees in the first quarter. Given the current economic backdrop, we believe this momentum should continue. We also expect on the loan side that we'll see high single-digit, low double-digit loan growth will occur as the economy recovers and based on evidence in our pipeline, as we speak. Yesterday, we had our annual review meeting with one of our fixed income analysts that cover us. In this meeting, he shared that when we set our 5-year target of 35% to 45% of fee income, and at the time we were just around 20%. He thought that there was very little chance that, that would ever be achieved. And his comment to us after reporting first quarter and us falling in at 36%, he really was very complimentary of that achievement. The analyst, like many other folks that cover our industry, really like high levels of fee income because it diversifies earnings without bringing with it credit risk. So needless to say, he was quite complimentary and is someone that I think is going to have a pretty good write-up on us on the back end. Peapack Private is an incredible business and a significant differentiator for us. John Babcock and his team of 100 professionals provide excellent client care. Our brand and stellar reputation are delivering very strong acquisition metrics and positive flows to our business. In fact, we've experienced positive inflows for the past 6 years, including 2020, where we saw in excess of $500 million of new business come to us in the middle of COVID. To date, we've retained 99% of the companies that we've acquired through acquisitions and most important, we welcomed and retained many talented individuals that we acquired through acquisitions to our team. We continue to look for sensible firms to combine with and expect to complete at least one additional acquisition this year. We believe our wealth revenue was on track to exceed $50 million this year, and that we're on track for AUM/AUA to exceed $10 billion. Moving to our lending activities, our loan portfolio is very well diversified with C&I lending now approaching 40% of total loans. We like multi-family lending and believe that workforce housing, which is where we've historically focused, is a strong and stable asset class. During the COVID period, we saw a softening, but it has recovered quite nicely coming into the first quarter. Ultimately, diversification and sound decisioning combined to deliver a strong asset quality outcome. As you can see, asset quality is very strong despite the challenges that we faced last year. Our overall allowance against substandard loans places us at #2 of 15 banks in New Jersey, peer banks in New Jersey and #3 of 17 proxy peers. Our allowance for non-performing loans, and those are the ones that are most problematic with a higher certainty of loss, put us at #1, the best in class in the state of New Jersey and #1 against our 17 proxy peers. As for capital, our ratios rank #3 against the New Jersey peers and #1 against proxy peers. As a bank, we're subject to cyclical swings in the economy and events like COVID, but we're proud of how well our company has performed over this past year and how well our balance sheet is positioned for the future. Another view towards our conservative approach lies with our liquidity. If you look at our balance sheet at year-end or at the end of the first quarter, we had $1.4 billion in cash and marketable securities. We also currently have $3 billion in available funding that we can get immediately with a phone call from the Federal Home Loan Bank and from the Federal Reserve Bank to fund any temporary short-term funding needs. So to wrap things up before opening to questions, allow me to cover what we're focused on. The big 3 are, number one, we are focused very heavily on deploying all of our excess liquidity and capital to put it to work to get a better return for our shareholders. Our pipeline of new business opportunities at this moment is very robust and it puts us in the right direction to be able to achieve that goal. We are also focused on growing our wealth management, both organically and through additional acquisitions. As I shared with you, the inflows that we saw in Q1 and current pipelines on an organic basis are very strong. We also believe that we will be able to complete an acquisition between now and year-end. And finally, I will share with you that we're very focused on improving our net interest margin, the difference between what we charge on our loans and what we pay for deposits, controlling our expenses, and most important is delivering a consistent exceptional client experience, which is the whole foundation of our business. So thank you again for your confidence in our company. I'll now open the meeting to questions. [Operator Instructions] So at this point, are there any general questions that we can answer?

Mr. Kennedy, there are no questions.

The Board wants to take this opportunity to thank the management, employees for an exceptional performance in 2020. With COVID-19, PPP and working from home, the Board feels fortunate to have our employees who were in constant flux, having to evaluate the best way to operate the bank. They're adapting to change and having new ways to communicate with our customers, the Board wants to express our sincere appreciation to all of the employees. The shareholders should be proud of the performance and results the management and employees have accomplished. I want to thank all of you for participating in today's meeting and for the interest you have shown in the affairs of your company. We hope that everyone remains well and we look forward to holding this meeting in person next year. This meeting is adjourned.

This concludes the meeting. You may now disconnect.