Peapack Gladstone Financial Corp (PGC) Q1 2026 Earnings Call Transcript

Welcome to the PPAC 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 Chalkin, 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 ppacprivate.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 file. The earnings release and presentation also include non-GAAP financial measures, so it is important to review the appropriate reconciliations and the appendices to each document.

And 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 earning 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 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 continue to improve it in our funding mix. In the current quarter, non-interest-bearing deposits comprise 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 subordinate debt, which had become less efficient from a capital standpoint, and replaced the 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, and 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 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 and attractive spreads, along with ongoing improvement in our funding mix, particularly the growth in non-interest-bearing deposits. Incremental spreads of new production remain strong in the quarter at approximately 3.75%, which continues to support revenue growth and margin expansion. Non-interest income remain a consistent contributor with wealth management revenue of $16.5 million dollars in the quarter up seven percent 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 dollars in the quarter, up modestly on a late 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 percent 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 with 7.3 million dollars in the quarter reflecting continued loan growth as well as specific reserves on limited number of relationships. Non-performing assets declined for a third consecutive quarter to 0.77 percent of total assets, reflecting continued progress in resolving criticized and nonincrual exposures. The allowance for credit losses remained stable at approximately 1.04 percent 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, and 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 improves 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 1 to raise your hand. To withdraw your question, press star 1 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.

Good morning, Steve. Good morning, guys. Yourself, Doug? Maybe just starting on, you know, loan growth here. Just kind of curious if you can just think about, like, give us a little color here in terms of loan pricing. I apologize if I missed it. I hopped on a few minutes late. But just kind of curious on loan pricing and also, you know, how you're thinking about uh the strength of growth as the year goes on i mean do we see i mean you had a good first quarter but do we see like that that uh level you saw in the third and fourth quarter continue um in seemingly stronger quarters so uh in terms of demand um i'm sorry in terms of pipelines right now uh they're very strong and so i think you know in terms of visibility going in second and the third quarter.

I think we feel very good about that. In terms of spreads, we have not seen, you know, we've seen some crazy stuff in the market. We've kind of targeted, you know, a minimum if it's up the swap curve, you know, 210 to 225 over, you know, the swap curve and on a fixed basis, you know, 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. And then on the CNI side, it's a 225 to 250 SOFR kind of spread. So 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'll spill into the third.

Okay, great. Appreciate that. And then just maybe on credit here, you know, there was definitely an uptick in like the special mention and 389 days past due from the New York Rent Regulated, just kind of wondering any color around that uptick and just kind of how you're thinking about, you know, resolution and working out of those issues.

Lisa will pick that up.

So it is largely one sponsor group and multiple different loans. They are in that 30 to 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 to 89 bucket, but they did make a payment. You know, 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. And in the meantime, you know, 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. But 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. So, again, we will pursue that aggressively. Okay.

And 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 to 85 percent range, depending on the individual loan. And I will note that the three loans that were paid were the largest loans in the pool.

Okay. Got it.

And then I guess the other thing here, just apologize if I missed this too, but in terms of the margin, you know, good margin expansion here this quarter definitely looks like those trends should continue, given where loan prices and everything else. Just kind of curious on the cadence here, Frank, of margin expansion for the rest of the year.

So, you've seen strong margin growth for the last two consecutive quarters, and I think we 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 and earning assets. So, I think improvement, but at a slower pace would be my answer.

Probably two to three basis points a quarter.

Yeah, it's fair.

Okay, great. I appreciate all that. I'll step back in the queue here.

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

So 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. So it was $70 or $80 million at quarter end. And we're kind of targeting, you know, somewhere between $175 million and $200 million in loan growth and deposit growth, and we think that we have the people and the pipelines to be able to sort of pursue that. And, of course, like anything in life, there'll be a quarter that it's softened the loans, it's going to be heavy on the deposits, and it'll be vice versa. So we think that, you know, in terms of the question of being able to generate 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. So the mix of getting like over the last 12 months of two-thirds 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, you know, looking at that two-thirds 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%.

So we see the 23% starting to creep up, and we'd be able to maintain that, you know, 70%, 30% mix of interest-bearing of non-interest bearing yeah that's helpful um and then maybe just on deposit costs so you know obviously that was a really the driver of the name this quarter um and i was just wondering you know given sort of the flatter rate environment are you seeing any heightened competition um and i guess it sounds like um 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 two to three basis points going up. And, you know, in this quarter, we saw 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. So we have a lot of floating rate assets and they repriced coming into the first quarter. So if you look at, well, 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 back book as well as the new volume of loans that is going to be the end so it's going to go to the asset side of the balance sheet will be driving the nim expansion going forward and so the competition question yes in the latter part of the quarter we really started to see some some uh some crazy things on the on the race side from competition so Doug used the word discipline pricing in his opening comments and that that's just our that will be our mantra as we go forward and 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 to you. 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 one and the pipeline is strong, but I think it's more from our legacy franchise, if you will, at this point.

And on the deposit side, I would say the quarter was, 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, you know, with purpose, you know, we're still calling out the New York franchise because it was a startup and it's really gotten to a critical mass. But I think we are migrating to, and the geography is going to be less important to us. And so I think that, you know, 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 well, that is from where it comes from. So 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. So 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. There are no further questions at this time. I will now turn the call back to Doug for closing remarks.

Well, thanks, everybody. You know, on behalf of the entire team at VPAC, we really appreciate all the support that you've given us. You know, we did make a transformational move, you know, going into new york and you know by any measure you know we got to a break even within 12 months and i think the trajectory of our company uh continues to move in a very positive way um in terms of how we see the business and how we've been modeling et cetera we believe that that strength continues uh for the foreseeable future uh we are very keenly focused on uh the margin uh incremental margin of both loans and deposits so there's discipline on both sides of that and we are managing the company towards the fourth quarter of 27. So, you know, a year ago, we really put the ball out. We made this massive investment. And, you know, we know the returns right now are not destination. But, you know, 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 27. In the meantime, if, you know, if you consider it open stakes, at the end of this year, early next, we believe, that we crossed 1% our way and 10% return on capital, which is opening stakes, we could call that. And we believe that within this calendar year, we'll have a run rate as we close the year out of that. And then from there, nothing but clean air above all of that. So that's the plan that we're working on. And 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.