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.

Good morning. I'm Duff Meyercord, Chairman of the Board of the Peapack-Gladstone Financial Corporation. We hope that all of you participate today and all of your families are doing well. On behalf of the directors and officers of Peapack-Gladstone Financial Corporation and Peapack-Gladstone Bank, let me welcome you and express my appreciation to you for participating in this online meeting today. If you need access to our proxy statement and annual report, lengths of 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 conducted 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 14 directors; vote on a nonbinding basis, the compensation of certain named executives; approve the Peapack-Gladstone Financial 2024 employee stock purchase plan; and vote to ratify the appointment of independent auditors for 2024. At this time, I'd like to introduce the Corporate Secretary of Peapack-Gladstone Financial Corporation, Kenneth Geiger. Mr. Geiger, has the notice of this meeting been sent to all shareholders entitled to vote at this meeting?

Yes, 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, 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 6, 2024, as the record date for determining shareholders entitled to notice of and to vote at this annual meeting.

Thank you, Mr. Geiger. Please file a copy of the notice and the affidavit as to the mailing of notice with the minutes of this meeting. Alisa Zagare from Computershare , our transfer agent, will be serving as our Inspector of Election. Ms. Zagare, will you please present your report of the attendance at this meeting so we can determine whether a quorum is present.

There are 17,652,341 shares entitled to vote as of the March 6, 2024, record date. 88% of the shares of common stock of the company are represented at this meeting.

Thank you, Ms. Zagare. 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 of the matters to be voted on at this meeting separately and allow questions to be asked once all the matters have been presented. [Operator Instructions] At the conclusion of the presentation of all items, I will [ allow ] for shareholders to vote online before the voting is closed. Mr. Geiger, were there any shareholder nominations or proposals for business for this meeting properly filed with you as Corporate Secretary?

No.

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. First proposal is the election of 14 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. Second proposal is a nonbinding advisory vote to approve the compensation of the company's named executive officers as disclosed in the proxy statement. The third proposal is to approve the Peapack-Gladstone Financial Corporation 2024 employee stock purchase plan as disclosed in the proxy statement. And the fourth proposal to be considered at this meeting is the ratification of the appointment of Crowe LLP as the independent auditors for the year ending December 31, 2024. 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?

Mr. Chairman, there are no questions.

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. [Voting]

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

Each of the directors nominated by the Board have been duly elected. The nonbinding advisory vote on the compensation of the named executive officers have been approved. The resolution on the Peapack-Gladstone Financial Corporation 2024 employee stock purchase plan has been approved, and the appointment of Crowe as the independent auditor for the year ending December 31, 2024, has been ratified.

The report of the inspector of elections as presented is accepted. Mr. Geiger, please safeguard the votes and the oath and certificate and report of the Inspector of Elections and maintain them among the records of the company. I now would like our President and Chief Executive Officer, Doug Kennedy, to make a brief presentation.

Good morning, all, and allow me to also welcome you to Peapack-Gladstone Financial Corporation's 102nd Annual Meeting. On behalf of all the hardworking team members at PGB, I'm pleased to report that in 2023, we successfully navigated a number of challenges that were largely driven by the historic rise in interest rates. In 2023, our interest margin contracted by 27% or 83 basis points as the rate that we pay for deposits increased in this higher inflationary environment. As a consequence, our earnings contracted 34% to $48.9 million. For the year, fee income remained stable at $74 million and accounted for 32% of our total revenue. Peapack Private, our wealth management division, experienced strong new flows totaling $950 million during the year and generated $56 million in fee income. Despite these headwinds on earnings, we managed to grow the book value of our shares by 11%. Notwithstanding any of these challenges, we also continue to invest in our people and technology with an eye towards further refining our private banking business model which in turn, we believe, will drive long-term value creation. Since my arrival in 2012, we've been focused on transforming our company from a traditional local community bank to a robust commercial bank with a fully-integrated wealth management business, delivering best-in-class private banking level service. In 2023, we launched a number of activities that I view as the last mile in our journey. For example, we fortified our client service model, invested in technology. We launched a Net Promoter Score to create a continuous feedback loop with clients. We also focused on known client friction points, such as onboarding new clients, residential lending and our mobile application. In July, we took the bold step to recruit 2 teams to launch our entry into New York City. Last month, we announced adding 10 teams to expand our presence even further. Peapack has been well received by the New York market, and we're quickly establishing the bank as an option to large mega bank institutions. Now New York is not a market that we've been quietly ignoring. We've actually been building it out for some time. Today, our deposits in the state totaled $600 million. Our loans totaled $1.5 billion and we manage approximately $750 million of wealth. With our team of approximately 100 professionals, we expect New York to become an even larger part of our overall business in time. We're currently building out a branch on the ground floor of 300 Park Avenue, which will anchor our presence in this lucrative market. This opportunistic move is bold, but the economics have been thoroughly structured and based on a conservative set of assumptions. Our unique style of providing a single point of contact has been well received in a short period of time, and we're currently building a very attractive pipeline of new clients. I look forward to sharing the progress that we're making as time goes by and the quarters to come. Our expansion in New York City was driven by the failure of Signature Bank and First Republic. Our style of interacting with our clients is very similar to both these institutions. Both banks had a very strong client-centric business model like ours, but both banks had gaps in the way that they manage liquidity and interest rate risk. Our team has always been -- had a tremendous focus on managing risk, and both these risks are on top of mind for us as we build out our franchise in New York. As you can see, we successfully managed through this market disruption and have now positioned our company to fill the void created by the loss of these 2 institutions. I should also note that Moody's reaffirmed our investment-grade rating with a stable outlook on 12/1/2023, and in 2023, Kroll also affirmed our investment-grade rating. Our wealth management division, Peapack Private had a record year, generating $56 million of fee income at a healthy 32% margin. Peapack Private has delivered a 16% compounded annual growth rate over the last 6 years. And as stated earlier, in 2023, we had roughly $950 million in gross flows. At the end of Q1, our AUM/AUA reached $11.5 billion, comparing our wealth business against other U.S. banks with total assets of $5 billion to $200 billion, we are ranked #2 as a percentage of total fiduciary income. Commercial banking has also grown at a healthy 16% compounded annual growth rate. This portfolio is quite diversified, covering over 300 different industries located in multiple geographies and is collateralized by a variety of different array of collateral. With the run-up inflation, we've had been consistent contact with our clients. And with the exception of 2 trucking companies, most have a -- very quite adept at managing their cost, meeting high levels of demand and maintaining their profitability. Multifamily lending, especially New York rent regulated, is facing some headwinds due to restrictions limiting the amount of landlords can increase their rents, higher operating costs and the higher rate environment. Fortunately, there's no shortage of demand for these units. There is no risk of obsolescence, and we've been conservatively underwriting this portfolio with an LTV of 62% and a debt service of 1.5x. But the inflation rate as well as the higher rates is undoubtedly going to create some stress in the portfolio. As stated, there's no risk of obsolescence or lack of demand for these properties. Through the end of 2025, we have a manageable number of loans that are either repriced or mature, and our team is carefully monitoring the portfolio. Of less concern to us, as many of you have heard, is our exposure to office, which is largely suburban and is less than 2% of our total loans. In addition, retail exposure is less than 4% of loans and is largely anchored by grocery and pharmacy. Across all 3 loan types, our average loan size, our loan to value, our debt service at the time of underwriting was fairly conservative. And I believe that ultimately, this care that we took in underwriting loans will serve us well as we navigate to this elevated rate environment. The third line of business that we operate in is personal banking. As you know, we operate in 3 of the most -- 15 most affluent counties in the U.S. We've computed successfully against a wide range of regional and national banks. Our people, our solutions, our personalized single point of contact service model combined to a powerful weapon against these larger institutions. As you can see, we've been able to organically grow our business faster than these other large banks over the last decade. You just simply can't scale personal relationships delivered by empowered teams. This is our competitive advantage. In New York City, we expect to successfully compete against the same set of competitors. And at this point, what I'd like to do is hand it over to our CFO, Frank Cavallaro, to speak about our first quarter results.

Thanks, Doug. Just last week, we reported our financial results for the first quarter. Net income for the quarter was about $8.6 million or $0.48 a share. We saw wealth management fees grow to over $14 billion. We also had a corporate advisory event that generated fee income during the quarter. Our total fee income was 35% of total revenue in the quarter, which continues to be a strong foundation for our P&L. Our net interest margin did decline to 2.2%. That's about 9 basis points lower than it was in the previous quarter. Our cycle-to-date deposit betas are about 52%. Our operating expenses did tick up in Q1. We continue to invest in our private banking team and our New York City buildout. Our loan loss provision was about $600,000 for the quarter. The results there, primarily driven by the CECL model calculation that we've got. The overall net allowance for loan losses, as a total percentage of loans, was 1.24%. We were pleased with the balance sheet profile in the quarter. Our liquidity profile strengthened. We grew deposits more than $200 million in the quarter which was our strongest single quarter of growth since 2021. The growth in deposits enabled us to reduce borrowings in the quarter. We shrunk deposits by more than $280 million. And outstanding borrowings at the end of the quarter of $120 million are the lowest level we've seen since the middle of 2022. Loans did contract in Q1 by about $74 million. But as we look forward in the pipelines, we see that contraction slowing and a return to growth in the quarters ahead. Our balance sheet remains neutral and well positioned for this uncertain rate environment. And we continue to manage capital cautiously. Our capital ratios did improve during the quarter. We repurchased about 100,000 shares in Q1 as we saw an opportunity to buy back shares at an opportune price. At that point, I'll end the comments on Q1 and turn it back to Doug.

So let me just -- let me wrap up the final, which is a compelling investment considerations. But despite the current environment, I still continue to believe that our company has several unique and compelling attributes that over time will deliver increased shareholder value. Our current franchise and expansion in New York City will deliver growth, improved operating leverage, greater liquidity and positive earnings momentum. Our $11.5 billion wealth management business is a compelling differentiator for us and has significant barriers to entry and scarcity value. Our C&I business is significantly more mature than -- like institutions that are similar size, and we've built it with a fair amount of diversification and is delivering great risk-adjusted returns. Our personal banking division operates an extremely desirable market and has a very mature and stable deposit base. In its entirety, our company has continued to deliver and service the underserved segment of our communities through lending, grants and volunteer efforts. So at this point, I'd like to sort of open it up to any questions any of you might have. [Operator Instructions] Are there any general questions?

Mr. Kennedy, there are no questions.

We want to thank you for attending our annual meeting, and the Board would like to thank our management teams, our employees for their continued dedication and support in helping the bank move forward and continue to be watchful on the ever-changing landscape in the banking world. Thank you very much, and we'll see you next year.

This concludes the meeting. You may now disconnect.