Peapack-Gladstone Financial Corp 2026 Q3 Earnings Call

Thank you, and good morning, everyone. I am joined today by our President and CEO, Doug Kennedy, and our CFO, Frank Cavallaro, who will provide an overview of our third quarter results. John Babcock, our President of Wealth Management, and Lisa Chalkan, our Chief Credit Officer, are also here to answer any questions. If you have not yet read the earnings release and investor presentation we issued yesterday afternoon, you may access them by going to the investor relations page on our company website at peapackprivate.com. You may also access the investor presentation directly within our webcast today. After the presentation, we will be happy to take questions. Our comments today may contain forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations.

Cautionary statements about reliance on this information are included in the earnings release and investor presentation, as well as our SEC filings and other investor materials. The earnings release and presentation also include non-GAAP financial measures, so it is important to review the appropriate reconciliations in the appendices to each document. With that, it is my pleasure to turn the call over to Doug.

Thanks, Matt. Good morning, everybody, and thank you for joining us on our third quarter call. On behalf of the entire team at Peapack Private, I am pleased to report yet another strong quarter for our company. Before we get into the numbers, I want to frame the quarter. What you are seeing in Q3 is not a one-quarter story. It is the result of a strategy that we have been executing on 2023, and is now showing up consistently in our results. The big takeaway for the quarter is continued growth and profitability. Revenue continued to grow significantly faster than expenses, and expenses actually declined from the second quarter. That combination drove core pre-tax, pre-provision revenue to $32.3 million, up 76% year-over-year, and net income available to common shareholders to $18.5 million. Diluted earnings per share were $0.99, up 15% on a linked-quarter basis.

This forward momentum marks 10 consecutive quarters of revenue and six consecutive quarters of earnings growth. I will add that during the quarter, Moody's affirmed our investment grade rating with a stable outlook. How did we get here? Let me put that in context. In 2023, the banking industry went through a real stress. Three large bank failures and a significant dislocation. We saw that dislocation as an opportunity, and we acted. In May 2023, we hired our first experienced New York City team. By April 2024, we had 13 teams and the leadership in place. In January 2025, we rebranded to Peapack Private. That April, we opened our flagship branch on 300 Park Avenue. Over the past year, we expanded to Long Island and added wealth, commercial real estate, and equipment finance talent.

This past quarter, our annualized pre-tax, pre-provision revenue reached $129 million, which was approximately 2.7 times the trough that we saw in the third quarter of 2024. We made the investment, we built the teams, and repositioned our brand, and now these investments are showing up in higher core earnings. What did we see this quarter? Our net interest margin continued to improve despite funding cost pressure, and our efficiency ratio improved even further. That positive operating leverage is in its simplest form. Revenues are up, our expenses are down, and improved earnings are following. During the quarter, loans grew $403 million, deposits grew $301 million. As we have said before, growth is never going to be linear, and we do not expect that to ever be the fact.

Our quarterly operating objectives remain $200 million of loan growth, $200 million of deposit growth, and $2 million in core earnings growth. Q3 exceeded the loan and deposit objectives and delivered $2 million of core earnings growth. We begin Q4 with a strong loan and deposit pipeline. The quality of that growth has been meaningful. We continue to see growth in non-interest-bearing operating relationships, which have increased 18% year-over-year. On the loan side, commercial and industrial lending grew $409 million year-over-year, up 15%, and we are seeing growth across virtually every asset category. That healthy margin expansion, combined with strong balance sheet growth, as you would expect, are improving our returns. Our return on average tangible equity was 11.4%, up 587 basis points since the third quarter of 2024. Despite all our growth and some isolated headwinds, our capital and credit have remained very solid.

Our capital position continues to provide buffers that give us the capacity to support continued growth, and we are managing that capacity thoughtfully. Our focus is on balancing attractive growth opportunities with capital discipline as earnings improve. Frank is going to cover capital position and the current offering under our voluntary dividend reinvestment program, which will supplement organic capital generation as we support anticipated growth. Credit quality also improved sequentially with lower non-performing assets and early-stage delinquencies declining. As a result, our allowance coverage for non-performing loans improved to 126% in the quarter. Our New York rent-regulated multifamily portfolio is down 12% year-over-year and now represents 11% of total loans versus 18% at September 30, 2024. We expect that this will continue into the future. Wealth management remains a foundational aspect of our company, who we are, and how we act as a private bank.

We ended the quarter with $13.6 billion in assets under management and administration, down slightly from the second quarter. Gross inflows remained solid. Wealth revenue was $17.3 million, up 9% year-over-year, and $51 million year-to-date. This is a scaled, long-established franchise. It deepens relationships across generations. It gives us real scarcity value through fiduciary expertise, specialist investment talent, sell-side advisory for business owners. It is the cornerstone of what it is that we do. Client trust in this space is very hard to replicate. It takes decades of performance and the highest level of professionalism to build. Wealth management, as you would expect, anchors the entire strategy of customized banking, bespoke credit, and treasury delivered through one coordinated team providing a high level of customer service. A single point of contact solving the complex needs of affluent families and business owners one client at a time.

To summarize, our differentiated model is driving growth and improved profitability. Momentum is strong, and we are very constructive about our company's future. We have an established platform and are building an enviable differentiated franchise across metro N.Y. Experienced teams, specialist capabilities, scaled infrastructure, and an integrated client relationship, wealth and fiduciary advice, private and commercial banking, credit treasury solutions, all coordinated and made easy through a single point of contact. Our long-term objectives remain unchanged. A 1.25%-plus return on assets and a 14%-plus return on equity or better. We are not there yet, but we are moving forward, achieving both benchmarks incrementally in a very thoughtful manner. With that, I want to thank you again for your confidence and support. At this point, I am going to turn it over to Frank, who will give you a detailed overview of the quarter.

Thanks, Doug, and good morning, everyone. I will begin with earnings and then take you through the balance sheet, credit quality, and wrap up with a few comments on capital. Net income available to common shareholders increased 17% sequentially to $18.5 million or $0.99 per diluted share, compared with $15.8 million or $0.86 in the second quarter. Total revenue was $88 million, up 2% sequentially and 24% year-over-year. That growth was primarily driven by net interest income, which increased to $68 million, up $3.6 million, which is 6% growth sequentially and 33% year-over-year. Net interest margin was 3.34%, an increase of two basis points from the second quarter. This change is consistent with our expectations and aligns with our prior guidance. Pricing on new business remained attractive. Loans originated during the quarter carried yields of approximately 6.4%, while new deposits came in in the mid-2% range.

However, rapid loan growth and increased competition for deposits required us to use more borrowings than in recent quarters, tempering the margin benefit of that growth. Non-interest income totaled $20 million, down $2.1 million, or approximately 10% sequentially. A loss on the sale of an OREO property, in addition to a fair value mark on a CRA equity security, were responsible for approximately half of the linked quarter decline. As revenue continues to grow, expense growth is moderating. We supported substantial new business during the third quarter using the infrastructure we have built while holding expenses essentially flat. Operating expenses totaled $55 million, down 1% sequentially and up 5% year-over-year. Combined with a 24% year-over-year increase in revenue, this is producing strong positive operating leverage and contributing to earnings growth.

Core earnings or pre-provision net revenue totaled $32.3 million, up approximately $2 million or 6% on a linked-quarter basis. Our efficiency ratio improved to 63%, which is down approximately 1.7 percentage points sequentially and nearly 16 full percentage points lower than the third quarter of 2024. The effective tax rate in the quarter was approximately 20.5% compared to 28.4% in the second quarter. The third quarter rate includes a discrete benefit of approximately $1.8 million related to the purchase of production tax credits, resulting in a lower tax provision. We consider this a one-time item and do not expect that benefit to recur next quarter. Turning to the balance sheet, growth was strong across the company during the third quarter. Total loans increased $403 million sequentially to $7.1 billion, up 17% year-over-year. Growth was diversified across the franchise, with C&I and commercial real estate showing particularly strong results.

At the same time, our New York rent-regulated multifamily portfolio continued to run off and become a smaller portion of the overall balance sheet. Deposits increased $301 million or 4% quarter-to-quarter to $7.4 billion. Deposits increased approximately $800 million or 12% year-over-year. Deposit growth continued to come from across the franchise with a focus on delivering core relationships with significant operating account balance. Over the past 5 quarters, we have opened an average of more than 600 non-interest-bearing operating accounts per quarter. We also monitor how those accounts fund and develop over time to assess the depth and the economics of each relationship. Non-interest-bearing demand deposits ended the third quarter at approximately $1.6 billion, which reflects 18% growth year-over-year. We remain confident in our comprehensive relationship strategy as it continues to deliver fully banked relationships, supporting growth, and managing our funding mix over time.