Peapack-Gladstone Financial Corp. Q2 2026 Earnings Call

Welcome to the PPAC Gladstone Financial Corporation Second 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 everyone. I'm joined today by our President and CEO who will be the President of Wealth Management and Lisa Chalkin, our Chief Credit Officer, are also... 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 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 and the appendices to each document. And with that, it is my pleasure to turn the call over to Doug.

Thanks, Matt, and good morning, everybody, and thank you for joining us today. On behalf of the entire team at PPAC Private, I'm really pleased to report that our strategy continues to deliver solid results. We believe that we're building a durable and valuable franchise that has significant barriers to entry. Our people, our product offering, rounded in wealth, is very rare and extremely difficult to replicate. Revenue and profitability have been positive for seven consecutive quarters, and we expect that trend to continue for the foreseeable future. We continue to be on track to deliver a 1% ROA and 10% ROE by the fourth quarter of this year, possibly slipping into the first quarter of next, which is what we communicated to all of you previously. We have entered the third quarter with a very strong new business pipeline, and we feel very positive about the future. For this past quarter, we reported that income of $15.8 million, consistent with where we had guided. This was an increase of 11% on a linked quarter basis and was 99% year-over-year. Our wealth management business grew 6% year-to-date and 13% year-over-year with positive flows. Our deposits grew $231 million in the quarter, 35% of which was not interest-bearing, and we continue to see relationships in that $2 to $2.5 million average size. Also notable is the fact that 56% of our deposit growth over the last 12 months have been in the form of non-interest-bearing accounts. Our loans are up $236 million, strong growth in C&I, equipment finance, and CRE. Multifamily was down an additional $21 million in the quarter and $58 million a year to date. So where are we in terms of our strategy and where we've been and where we're going? In 2023, as you know, we made some bold strategic moves. We invested heavily in building out our product offering. We lifted teams from First Republic and Signature. And to date, we've hired a total of 20 teams and nearly 200 professionals to cover the metro New York market, which includes Westchester and Long Island. Of course, all of this hiring temporarily impacted earnings, which bottomed out in the third quarter of 2024, but we expected that. And as we modeled through where we are right now, we're a little ahead of where we thought it would be. Profits have rebounded quickly and given the level of investment. And what's really incredible is that we essentially have built a DeNovo Bank in New York and made it profitable in under two years. So where are we headed and where are we going? The momentum that we built continues to grow. On page five of our investor deck, we shared the level of non-interest-bearing DDAs that have been opened in the quarter. When you compare that to what happened a year ago earlier, that activity is up over 20 percent year over year. As stated, our current pipeline remains strong, and the number of positive conversations we're having in the market leads me to believe that the strength that we're seeing will continue, that the competition for deposits in the market has increased markedly in the last quarter and frank will touch on that a little bit more but we do see a little bit headwinds in terms of pricing we're reiterating that the net interest margin you know if going back to the first quarter will grow a total of six to nine basis points through the end of this year which basically says it's going to sort of bounce around where it is it'll have some volatility to it but we're still committed to what we had shared last quarter from a strategic standpoint we have everything that we needs. It's really all now about dedicated, focused execution. So our brand, we've come a long way. We rebanded the company. And I think about that a little bit, you know, as we go forward through the end of next year. I believe that, you know, by then we will have built a very credible private banking institution, offering bespoke credit solutions that cater to affluent individuals and their families. At present, you know, we're offering life insurance premium finance we have jumbo mortgages and helox we have investment lines of credit we have professional lines of credit we have we've done some fine art some collectibles and we recently uh began to launch uh aviation and yacht finance all of this is geared towards meeting the needs of our clientele so how would we present our company externally will increasingly look and feel niche private bank with a focus on commercial and wealth management and the needs of high net worth individuals and their families so with that let me just summarize in saying that it's been a great strategic journey over the last couple years and a strong quarter for us at feedback private we've had lots of momentum and a clear vision and path to execute that we remain confident that we will deliver strong durable results leading to superior shareholder value with that i'll hand the call over to frank who'll provide a detailed overview of the quarter's results. Frank?

Thanks, Doug, and good morning, everyone. I'll review the quarter in more detail, beginning with earnings, then moving through the balance sheet, credit, and capital. Net income available to common shareholders for the quarter was $15.8 million, or 85 cents per diluted share, compared to $14.2 million, or 80 cents a share, in the first quarter. Core earnings, which is pre-tax income before the provision increased to $30.4 million, up 12% sequentially and 70% from a year ago. Total revenue increased to $86.1 million, up 4% compared to the first quarter, and 23% year-over-year. Net interest income was $63.9 million, an increase of $4 million from the first quarter and $15.6 million from a year ago. This marked another quarter of consistent net interest income growth supported by balance sheet expansion, discipline pricing, and improved earning asset yields. Net interest margin during Q2 increased by six basis points to 3.32%. The improvement this quarter was driven more by asset yields while we largely held our ground on funding costs. We're really pleased with this considering what's happened to Fed futures over the last three months and the increasingly competitive deposit environment we're seeing every day. Average earning asset yields increased for two primary reasons. First, we continue to hold our discipline on low pricing with average yields on new originations in the quarter just north of 6%. And second, we're also seeing some impact from back bulk repriced. Our prior comments on average quarterly margin expansion of two to three basis points remains largely intact when reviewed over a longer period, but the progression will not necessarily be linear. Following the six basis points increase in this quarter, we may give some back over the coming quarters, as Doug mentioned, and report changes below the two to three basis point range individual periods, but remaining consistent with the broader outlook. Non-interest income was $22.1 million, driven by wealth management fee income, which increased to $17.2 million, up 4% sequentially and 8% from a year ago. Operating expenses were $55.7 million, which is up less than 1% from the first quarter. Revenue growth outpaced expense growth 10 to 1, producing another strong quarter of positive operating leverage. The reported efficiency ratio declined to 65 percent, marking the seventh consecutive quarter of improvement. We expect expense growth will continue to normalize as the investments made over the past several years become more productive. turning the balance sheet growth remains strong across the company total loans increased 236 million dollars during the quarter to 6.7 billion dollars up 15 percent year over year growth remain concentrated in our core areas of strength particularly cni and commercial real estate deposits increased 231 million dollars up to 7.1 billion which is up to 11 percent year over year and non-interest-bearing deposits increased approximately $80 million in the quarter and have grown $386 million from a year ago. We opened and funded more than 650 new non-interest-bearing DDA accounts in the quarter, which is consistent with our average volumes over recent quarters. As Doug mentioned, this continued growth in operating accounts is an important indicator of relationship quality and supports a more durable funding profile over time. The loan-to-deposit ratio remained well-managed at about 95%. We continue to maintain substantial on- and off-bound sheet liquidity, no-brokered deposits, and a diversified funding base. Turning to credit, the provision for credit losses was $8.1 million. Net charge-offs were $5.9 million in the quarter and were concentrated in one multifamily loan and one commercial mortgage relationship. The allowance for credit losses remained stable at 1.04% of total loans. Non-performing assets increased to $72.2 million, or 91.91% of total assets, compared to 0.77% in the first quarter. The increase was primarily driven by the migration of a previously disclosed larger multifamily relationship. At the same time, special mention loans declined. performing modifications decreased materially, and early-stage delinquencies were relatively stable. We continue to see no evidence of broad-based deterioration across the portfolio. Capital remains solid and continue to benefit from earnings generation. Tangible book value per share increased 3% during the quarter to $36.26 and is up 9% from a year ago. Holding Company Common Equity Tier 1 Capital was 10.38%, and Tier 1 Capital was 10.83%. Based on this quarter's results and the continued momentum across the company, we elected to draw the remaining $20 million of available convertible preferred equity in July. You may recall that in the first quarter of this year, we announced a $50 million commitment to issue convertible preferred equity with an initial draw of 30 million dollars back in march after assessing current results and projected growth rates going forward we felt that this was the appropriate time to add the remaining 20 million dollars in capital to our balance sheet overall the quarter reflected continued progress across each of our key financial priorities sustained revenue growth positive operating leverage margin expansion disciplined balance sheet growth, and continued tangible book value creation. We remain upbeat on the earnings trajectory of the company and the durability of the underlying relationship activity. With that, we are happy to answer any questions.

We will now begin the question and answer 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. Your first question comes from the line of Emmanuel Navas with Piper Sandler. Manuel, your line is now open. Please go ahead.

Hey, good morning. Can we have an update on the deposit growth pipeline? And you've had some commentary in the past about the mix and just more color there to start with.

Sure. So good morning, Manuel. How are you? I would say that the strength of the pipeline is very consistent with what we've seen so far to date. As you would imagine, money market accounts get funded right away. Non-interest bearing actually take time to sort of make the transfer over to us. So we sort of, the forward look for us is how many accounts are sitting there waiting to get funded. And I will tell you that that inventory of pipeline is as robust as it's ever been. I think that, you know, in terms of guidance, you know, we sort of talked to 200 million each quarter. We still believe that about a third of that would be a non-interest bearing. That could fluctuate from time to time or quarter to quarter, but I would say that as we look through the end of this year, I would say that we feel very comfortable that that's the trajectory that we're on.

I appreciate that. It also sounds like loan pipelines are pretty strong. Could you just comment on what you're seeing out there in the market? Is it going to be at a continued similar mix to this quarter's really impressive growth, just any further color there?

So there was some volume actually kicked into this quarter, so we actually came out of the gate pretty strong. And the pipelines, Lisa, I think they're still very strong.

Yeah, I think we think that the growth number will be about $300 million, which means that that we'll be closing $450 million to $500 million in order to be able to do that.

So stronger than the quarter we just had in the moment.

Is that maybe driving the potential variability in the NIM, that you're just having such strong opportunities on the growth side?

The answer to that is yes, because we'll never get the timing right on poor deposits hitting our balance sheet at the same time that we're funding the loan pipe. So that's part of it. But the other part of it is, is that it's just in general, there's been elevated competition and we're seeing rates with a four handle on it as being very common. So the longer we sit in this sort of, even though it's transitory, higher elevated rate environment, the more pressure we're seeing. And also, you know, the economy is on fire. Other banks are growing their balance sheets. So there is elevated competition for deposits. So I don't know exactly where it lands. As Frank said, you know, we still hold on to the original guidance that we gave in the first quarter um you know in terms of where we'll land by the end of the year uh we had a stronger we had a stronger performance uh this quarter but we may give some of that back this quarter that we're in um and you know but we'll we'll land where we said that we were so um so we still see some improvement in them but we're definitely seeing some headwinds and the timing of you know the loan closings uh ahead of uh the deposits could potentially uh elevate you know costs as well.

I appreciate that. I'll jump back into the queue.

Your next question comes from the line of Steve Moss with Raymond James. Steve, your line is now open. Please go ahead.

Hey, guys. Good morning. This is Chase on for Steve.

Hey, Chase. Hey, Chase.

So I hear you on the elevated deposit competition in the market. I was just curious, what costs were deposits coming on at in the Do you have a coupon?

Do you have a coupon on deposit?

During the quarter, what we added was about two and a half percent.

Appreciate that. And on the multifamily MTA inflow, do you have any indication on, like, resolution timing This is Lisa Chalkin, Chief Credit Officer.

Now, it's hard to predict. I mean, the loans that just moved over, we're still negotiating with the client. We have started the foreclosure process. We are awaiting for a receiver to be appointed. In New York City, the foreclosure process is incredibly protracted post-COVID, and it's not gotten any better. So, in the event that we can come to some sort of an agreement that works for both the borrower and us, then, you know, maybe we'll be able to restructure and get them back paying. But otherwise, we're just going to continue to go through the foreclosure process, and that can take some time. We could choose to sell the note at some point if that makes sense, but I think the plan at the present time is to just move through the foreclosure process to get title.

I appreciate all that color. And just one last one for me. Can you size up the back book repricing opportunity and like the roll off yields there?

Yeah, it's about a billion and a half dollars over the next. That's not all multi. It's sort of a mix. And so the coupon there is just a little bit north of four. Is that right? Four and change? Four and change. Four and change. The current rate today is six and change um and you know there'll be some of the multi um the rent stabilized stuff uh i'm certain that we you know some of those are guts sort of contractual rates that are in the sevens which will negotiate on a client by client basis so i think we've modeled we have modeled in you know some assumptions that i think high fives is what we sort of conservatively took a look at.

We expect to get north of 1%, maybe $125 pickup on the repricing or the billion dollars that's going to reprice over the next six boards.

Got it. Thank you for all that color, guys.

Your next question comes from the line of Christopher Maranac with Breen Capital LLC. Christopher, your line is now open. Please go ahead.

Hey, thanks. Good morning. Can you talk about the criticized loans in terms of what is pass rated within some of the past dues, and just wanted to kind of get back to kind of, I think it's slide 18 in the details you gave us there on the New York multifamily.

So just for multifamily, you want to know what is pass rated within past due versus criticized or classified?

Right, just to get to kind of a bottom number. Yeah, just to get Lisa to a bottom number in terms of what is criticized and what is passed.

Yes. I'm doing the math in my head. There is about $20 million is in special mention, and the balance of the multifamily is in pass. And the pass rate of loans are in the 30-day bucket versus the ones that are special mention are 61 days at the end of the quarter.

Okay, great. Thank you for that. And are you at a point now where the downgrades can slow maybe even possibly switch, or what would be the timeline for that?

I guess if I had a crystal ball, but it's hard to say. I do think that they have slowed. I mean, I do think that the downward migration in risk grading has slowed. I think this quarter we saw five of the loans that were in the relationship that we've been talking about for a while moved to non-performing, but there was nothing else that moved to non-performing. So I think from a risk rating perspective i think that we've seen improvement um and even on the past dues if i look at the the past dues once i net out the three loans that are part of that relationship the the balance of the 10-ish million dollars in multi-family that is past due that's seven different relationships but yet with the wave of of repricings and maturities that are coming up it could be downgrade i can't predict it it's it's relationship by relationship and that's kind of how the conversations are going. Correct. I mean, every single loan we're dealing with individually, but I'm not seeing a pervasive every quarter. The past dues in multifamily are down this quarter compared to last.

I guess we're not seeing anything systemic. There's nothing that is, you know, that's bothersome. There's this one relationship that skewed the numbers. We sort of disclose if you bake that out. I mean, it's very, very sanguine. Having said that, there's, as we go through repricing, part of the negotiation may be that a client that has been servicing, never been delinquent, could stop paying us in order to negotiate. So there's going to be things that we think that we're going to have a rocky road as we go client by client, loan by loan, through this repricing cycle over the next six quarters that ultimately could create some noise inside delinquencies, inside of non-reformers, et cetera. But in the end, there's nothing that we see systemic. If it does show up, it's a negotiation is really what's going on, which is, by the way, is what's going on. Thank you for that.

That's exactly what we're saying.

The craziest thing that's never happened in my career, and I've only been doing this for a few decades, I've never had a loan that actually has the capacity to pay, has more than one-to-one debt coverage, has an appraisal that shows that there's equity in it, and the borrower says I'm not making any payments. And we've commenced foreclosure. And we've started foreclosure. I've never seen that in my entire career. It's negotiating is what they're doing.

Understood.

Thank you for sharing all that. and then just last related question does the reserve already anticipate some downgrades so that if you some of those happen on a case-by-case basis that the reserve may have already covered a portion of it as the reserve increase in the reserve already covered some of the potential downgrades it's a mix it's there's some yes it's a mix i mean we um we would get an updated appraisal and sort out the specific reserve when something hits substandard and so um you know of the ones that we just downgraded to non-performing for them the appraisals are pending at this point but one of the appraisals that we did get in the reserve that we had to put against it was only like 80 000 or something it was it was minimal but every quarter anything that's in non-performing every single quarter we're looking at the value of the collateral in order to make a determination and the specific reserve is adjusted at that point in time?

We had sort of communicated at the end of last year, third quarter, fourth quarter last year, that we thought we would have an elevated provision in the first half of this year. We've aggressively attacked a lot of the stuff that's there. Having said that, we believe that, at least through the end of this year, that it's going to remain sort of at that $7.5 million level.

And it's a consequence of not something that we're seeing right now, but it's something that would arise because of what i just started in a negotiation so there's some hard conversations that are going to take place that has the potential of keeping it sort of at that seven and a half million dollar quarter uh would be sort of our best guess well i'm going to say low growth and the economic conditions have had um an impact about half-ish of the reserve that we've put up this quarter is due either to the loan growth or because of weakening economic conditions which the model factors in thanks again very uh very much for all the detail on this topic at this time we would

like to re-prompt so if you would like to ask a question please press star one again that is star one we shall hold for any additional questions there are no further questions at this time i will now turn the call back to doug for closing remarks well thank you all for joining q2 was

clearly a validation of the strategy that we laid out during the disruption in our industry in 2023 we've invested where a lot of the other institutions that we compete against in this market pulled back but i i want to really the message to deliver uh this quarter is that that investment is clearly behind us and what you're seeing now is a platform that's producing uh the ninth consecutive quarter of revenue growth our seventh consecutive quarter of efficiency improvement and we've also got an accelerated earnings and profitability path and so in some ways you know a lot of the risk of us going into new york is behind us and we do see a lot of momentum turning into the third quarter and continuing out right to the end of the year so with that i want to thank you all and we look forward to sharing our progress uh continuing as we pull up in October. And of course, you know, our door is open for anyone that wants to give us a shout. We're an open door here and we'd love to be able to address any questions that you may have regarding our company. Thanks for your investment and thank you for your loyalty and a lot of great stuff happening at Feedback Private.

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