PGC

Welcome to the Peapack-Gladstone Financial Corporation first quarter 2026 earnings call. Please be advised that today's conference is being recorded. I will now hand the conference over to Matthew Remo, Treasurer and Head of Corporate Finance. Please go ahead.

Thank you, and good morning, everybody. I would like to thank you all for participating in our inaugural public earnings call. Joining me today is our President and CEO, Doug Kennedy, and our CFO, Frank Cavallaro, who will both provide an overview of our first quarter results. John Babcock, our President of Wealth Management, and Lisa Chalkan, our Chief Credit Officer, are also here to answer any questions you may have. 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 the webcast today. After the presentation, we will be happy to take questions. Our comments today may contain forward-looking statements which are subject to risk 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. Hello, everybody. I'm really pleased to report our first quarter earnings results, which again reflected solid performance and continued positive momentum, building out our differentiated banking brand throughout the metro New York region. Core earnings increased for the sixth consecutive quarter, with net income reaching up to $14.2 million, up 16% on a linked-quarter basis and 86% year-over-year. Despite $225 million in payoffs in Q1, loans grew $184 million to $6.4 billion, up 12% year-over-year, while deposits increased $238 million to $6.8 billion, up 9% year-over-year. In Q1, we welcomed an additional 150 new commercial relationships, bringing our New York expansion results to more than 1,300 relationships with over $2.1 billion in client deposits and over $1.6 billion in credit commitments. Importantly, our expansion strategy has transformed our balance sheet and translated into higher quality earnings.

We continue to see strong revenue growth in the quarter, now up 28% year-over-year, while expenses increased at a more muted pace. All of this driving positive operating leverage and improved profitability. We expect that continued new business flows and our ongoing investment in technology and AI should continue to deliver solid, positive operating leverage for the foreseeable future. Net interest margin expanded an additional 18 basis points in the quarter to 3.26%, continuing the meaningful upward trend that we've seen over the past six months. This momentum reflects discipline in our low pricing and continued improvement in our funding mix. In the current quarter, non-interest-bearing deposits comprised 49% of the overall deposit growth, increasing by $116 million. Over the past 12 months, over two-thirds of our deposit growth has been non-interest-bearing. Our liquidity profile remains strong.

Our loan deposit ratio stood at 94%, and we continue to maintain a well-balanced funding base with a high level of operating deposits, limited borrowings, and no brokered fundings. During the quarter, we also used our strong liquidity profile to reposition a portion of our securities portfolio, exiting lower-yielding, long-duration bonds without impacting earnings and redeploying proceeds into higher-yielding securities. This action should provide a modest tailwind to our margin going forward. From a capital perspective, we redeemed $100 million of subordinate debt, which had become less efficient from a capital standpoint, and replaced a portion with preferred equity. This capital action enhanced the quality of our capital base while maintaining an attractive overall cost and improved financial flexibility as we continue to execute our growth strategy. In the quarter, asset quality continued to improve, with non-performing assets declining for the third consecutive quarter to 77 basis points.

While we did see some increase in early-stage delinquencies, we remain confident in the direction of overall credit quality metrics. Our wealth management business delivered another quarter of solid performance, with revenue increasing to $16.5 million or 7% year-over-year, and assets under management and administration remaining stable at approximately $13 billion, even amid volatility late in the quarter. In the current period, we reported gross inflows of $227 million, with New York beginning to ramp up quite nicely. Finally, notwithstanding our optimism, we remain mindful of the broader macroeconomic and geopolitical environment. We've been focused on the potential for a more challenging backdrop, including an increased risk of stagflation. In that context, we feel very good about how our balance sheet is positioned with strong liquidity, high-quality capital, disciplined underwriting, and a diversified loan portfolio.

At this point, I'll hand things over to Frank, who will provide you with a more detailed overview of our results.

Thanks, Doug, and good morning, everyone. I'll walk through the quarter in a bit more detail, starting with earnings, and then I'll move through the balance sheet, credit, and capital. Overall, we were very pleased with the continued momentum in the business. Net income for the quarter was $14.2 million. This marks our sixth consecutive quarter of core earnings growth, reflecting the strength of the franchise and the consistency of execution across the platform. Net interest income increased to approximately $60 million in the quarter, up 6% sequentially and 32% year-over-year, continuing the strong upward trend trajectory that we've seen over the past several quarters. The continued improvement in revenue has been driven by our disciplined loan pricing, strong loan growth at attractive spreads, along with ongoing improvement in our funding mix, particularly the growth in non-interest-bearing deposits.

Incremental spreads on new production remained strong in the quarter at approximately 3.75%, which continues to support revenue growth and margin expansion. Non-interest income remained a consistent contributor, with wealth management revenue of $16.5 million in the quarter, up 7% year-over-year. We continue to see solid activity in the wealth business, which supports both fee income growth and broader relationship development across the platform. On the expense side, total operating expenses were $55.4 million in the quarter, up modestly on a linked-quarter basis. Importantly, revenue growth continued to outpace expense growth, resulting in another quarter of positive operating leverage. The efficiency ratio improved to approximately 67%, marking the sixth consecutive quarter of improvement. As we look ahead, we remain focused on disciplined expense management while continuing to support growth initiatives across the franchise.

The provision for credit losses was $7.3 million in the quarter, reflecting continued loan growth as well as specific reserves on a limited number of relationships. Non-performing assets declined for a third consecutive quarter to 0.77% of total assets, reflecting continued progress in resolving criticized and non-accrual exposures. The allowance for credit losses remained stable at approximately 1.04% of total loans, providing solid coverage against residual risk. Turning to the balance sheet, we continue to see strong growth and improved composition. Doug highlighted the growth in both loans and deposits, which we believe to be sustainable as we review pipelines for the coming months. Loan growth has been driven by continued strength in our core lending businesses. On the deposit side, nearly half of the growth in the first quarter came from an increase in non-interest-bearing deposit balances.

We also continue to see strong underlying client activity with 683 new non-interest-bearing DDA accounts opened and funded during the quarter, reflecting the granularity and consistency of our relationship-driven growth model. The continued mix improvement remains a key driver of margin expansion and overall balance sheet strength. Liquidity remains strong, with a loan deposit ratio of 94% and over $5 billion of available liquidity, including off-balance-sheet sources. From a capital perspective, we view this as both an important and proactive quarter. In his remarks, Doug mentioned a private placement offering of convertible preferred stock, while we also redeemed $100 million in sub-debt. The preferred issuance was $30 million, with the option to draw an additional $20 million through the end of 2027 if needed, which provides flexibility and aligns well with our strategic direction.

This action enhanced the quality of our capital base by increasing Tier 1 capital and improving overall capital efficiency. As a result, Tier 1 capital increased above 11%, which supports continued growth. At the same time, the CET1 ratio also improved sequentially through organic capital generation and disciplined balance sheet management. Taken together, these actions position us well to support loan growth and attractive returns while maintaining a strong capital profile. Overall, we feel very good about the trajectory of the business, continued earnings momentum, improving margins, strong balance sheet growth, and a well-positioned capital base. With that, we are happy to answer any questions.

We will now begin the Q&A session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. If you are muted, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from Steve Moss with Raymond James. Your line is open.

Hi, good morning.

Morning, Steve. How are you?

Good morning, guys. Good. Yourself, Doug?

Good. Very good.

Maybe just starting on loan growth here. Just kind of curious if you could just give us a little color here in terms of loan pricing. I apologize if I missed it. I hopped on a few minutes late. Just kind of curious on loan pricing and also how you're thinking about the strength of growth as the year goes on. You had a good first quarter, but do we see that what we saw in the third and fourth quarter continue in seemingly stronger quarters?

In terms of pipelines right now, they're very strong. I think, in terms of visibility going in second and the third quarter, I think we feel very good about that.

In terms of spreads, we've seen some crazy stuff in the market. We've kind of targeted, a minimum, if it's off the swap curve, 210-225 over the swap curve. On a fixed basis, a coupon of starting with the number six in front of it. There's been some occasions where it wasn't, but we had significant non-interest-bearing DDA as an offset. On the C&I side, it's a 225-250 SOFR kind of spread. I think we have been very disciplined in terms of margin, credit underwriting and we do see a very strong pipeline going into this quarter. That will spill into the third.

Okay. Okay, great. Appreciate that. Just maybe on credit here, there was definitely an uptick in the special mention and 30-89days past due from the New York rent-regulated. Just kind of wondering any color around that uptick and just how you're thinking about resolution and working out of those issues?

Go ahead, Lisa. Lisa will pick that up.

Yep. It is largely one sponsor group, and multiple different loans. They are in that 30-89 day category and moved to special mention. I will note that three of the eight loans did make a payment after the end of the quarter. They would obviously still be in that 30-89 bucket, but they did make a payment. We continue to actively speak with the client in order to get the loans paid. Should they reach 90 days past due, we will aggressively pursue collection. In the meantime, we are watching them closely. We do believe, based on financial information that was submitted, that the financial condition of these buildings is not compromised, that there is positive cash flow that should be available to pay the loans.

I will note that this happens to be the borrower of the fund, and so there is a concern on whether or not fund expenses are taking the place of bank loan payments. Again, we will pursue that aggressively.

Okay. Kind of just curious, do you have an updated appraisal or what the LTV may be on those properties?

We have appraisals that are a year old, and all of them were in the 70%-85% range, depending on the individual loan. I will note that the three loans that were paid were the largest loans in the pool.

Okay. Got you. I guess the other thing here, just to apologize if I missed this too, but in terms of the margin, good margin expansion here this quarter. Definitely looks like those trends should continue given where loan pricing is and everything else. Just kind of curious on the cadence here, Frank, of margin expansion for the rest of the year?

You've seen strong margin growth for the last two consecutive quarters. I think we've communicated previously that we continue to expect that going forward, but not at the same pace, maybe at a slower pace as we look ahead. The rate cuts from last year have really helped us lower the cost of funds and maintain yield on earning assets. I think improvement but at a slower pace would be my answer.

Probably 2-3 basis points a quarter.

Okay. Yeah. That's fair.

Okay, great. I appreciate all the color there, and I'll step back in the queue here. Thanks, guys.

Thanks. See you.

As a reminder, if you would like to ask a question, please press star one to raise your hand. Our next question comes from Mark Shutley with KBW. Your line is open. Please go ahead.

Hey, good morning. Deposit growth is really strong and has been for some time, particularly non-interest-bearing. I was just wondering what you're expecting for non-interest-bearing growth for the remainder of the year, and if overall deposit growth can outpace loan growth this year.

The answer is if you sort of dig into the footnotes, there was some money that we left off balance sheet through the sweep, the insured sweep. It was $70 million or $80 million at quarter end. We're kind of targeting somewhere between $175 million-$200 million in loan growth and deposit growth. We think that we have the people and the pipelines to be able to sort of pursue that. Of course, like anything in life, there'll be a quarter that it's soft on the loans, it's going to be heavy on the deposits, and it'll be vice versa. We think that, in terms of the question of being able to generate a funding through deposits, the answer is yes, we believe that.

In terms of the mix on the margin and the new accounts that are coming in, we've been consistently tracking at about a 30% mix of non-interest-bearing. How it's showing up on our balance sheet is that we've been trading higher priced money markets, et cetera, off balance sheet as we brought in these new core relationships. The mix of getting over the last 12 months of 2/3 non-interest-bearing, the way that it makes its way to our P&L is that there was a lot of money market interest-bearing stuff at higher coupons that we've exited, and we've then brought in some lower costing funds. I think that in terms of the retrading of the portfolio, say looking at that 2/3 number, we don't see that consistently happening in the future.

Our balance sheet right now is about 23%-24%, and on the margin, we are still coming in at 30%. We see the 23% starting to creep up and we'd be able to maintain that 70/30 mix of interest-bearing to non-interest-bearing.

Got it. That's helpful. Maybe just on deposit costs. Obviously, that was really the driver of the NIM this quarter. I was just wondering, given sort of the flatter rate environment, are you seeing any heightened competition? I guess it sounds like that deposit costs will continue to come down a little bit but maybe at just like a more moderated pace.

Yeah. I think that in terms of the NIM, as we said, it's 2-3 basis points going up. In this quarter, if you look at the yield on loans, because our C&I portfolio is 43% of the balance sheet, about a third of that 43% or a third of our total loan book is floating. We have a lot of floating-rate assets, and they repriced coming into the first quarter. If you look at while the spread improved, it was mostly on the deposit side versus lending. If we stay in a steady rate environment right now, the combination of repricing of the back book as well as the new volume of loans, that is going to be the input. It's going to go to the asset side of the balance sheet will be driving the NIM expansion going forward.

To the competition question.

Yeah.

Yes. In the latter part of the quarter, we really started to see some crazy things on the rate side from competition. Doug used the word disciplined pricing in his opening comments, and that will be our mantra as we go forward.

We are walking away from opportunities.

Got it. That's it for me. Thanks for taking my questions.

Our next question comes from Manuel Navas with Piper Sandler. Your line is open. Please go ahead.

Hey, guys. Good morning. This is Grant on for Manuel. I was just wondering if you could speak to what geography is driving some of the wealth management inflows and the deposit inflows. Is that coming from Manhattan growth or other areas?

This is John Babcock. I can speak on the wealth management side. It's not the largest driver. I think we're still kind of in the early innings in New York. There has been some good new business won, and the pipeline is strong, but I think it's more from our legacy franchise, if you will, at this point.

On the deposit side, I would say the quarter it was actually about 50/50 between New Jersey and New York.

All right. Thank you, guys. Yeah, that's it for me.

I would say just a comment on that. I would say is that with purpose, we're still calling out the New York franchise because it was a startup, and it's really gotten to a critical mass. I think we are migrating to a singular story about us being a regional institution, and the geography is going to be less important to us. I think that as we continue to report going forward about our loan activity, wealth, et cetera, the geography will vary from quarter to quarter, but it's intrinsically just becoming us. It's not just entirely a New York story. Although, having said that, New York could actually be the size of New Jersey in a short period of time.

I would just add on to the wealth. That is from where it comes from. I'm talking about where that new business came from, not where the clients are physically located. We've always had clients in New York, continue to have new clients in New York, but some of that are driven by advisors who are here in New Jersey. Just a footnote to my earlier comment.

Understood. Thank you.

As a reminder, if you would like to ask a question, please press star one to raise your hand.

I guess there's one more question. No.

There are no further questions at this time. I will now turn the call back to Doug for closing remarks.

Well, thanks, everybody. On behalf of the entire team at Peapack, we really appreciate all the support that you've given us. We did make a transformational move going into New York, and by any measure, we got to a break even within 12 months, and I think the trajectory of our company continues to move in a very positive way. In terms of how we see the business and how we've been modeling it, et cetera, we believe that that strength continues, for the foreseeable future. We are very keenly focused on the margin, incremental margin of both loans and deposits. There's discipline on both sides of that. We are managing the company towards the fourth quarter of 2027. A year ago, we really put the ball out. We made this massive investment. We know the returns right now are not destination.

At the end of the day, we believe that we have a pathway to get to best-in-class returns by the time we close out at the end of 2027. In the meantime, if you consider it open stakes at the end of this year, early next, we believe that we crossed 1% ROA and 10% return on capital, which is open stakes, we could call that. We believe that within this calendar year, we'll have a run rate as we close the year out of that. Then from there, nothing but clean air above all of that. That's the plan that we're working on. Again, thanks very much for all your support, and I look forward to talking to you at the end of next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.