Peapack Gladstone Finl (NASDAQ:PGC) reported second-quarter financial results on Tuesday. The transcript from the company's second-quarter earnings call has been provided below.
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The full earnings call is available at https://events.q4inc.com/attendee/134224446
Summary
Peapack Gladstone Finl reported net income of $15.8 million for Q2 2026, marking an 11% increase from the previous quarter and a 99% increase year over year.
The company achieved strong growth in its wealth management business, with 13% year-over-year increases, and significant deposit growth with $231 million added in the quarter, 35% of which was non-interest-bearing.
The company continues to execute its strategic expansion in the New York metro market, hiring nearly 200 professionals and building a new banking presence, which is now profitable.
Net interest income increased to $63.9 million, with a net interest margin of 3.32%, reflecting disciplined pricing and asset yield improvements despite competitive deposit environments.
Non-interest income largely driven by wealth management fees reached $22.1 million, while operating expenses saw minimal growth, leading to improved operating leverage and a decline in the efficiency ratio.
Loan and deposit growth remained robust, with loan portfolios increasing by $236 million in Q2, focusing on C&I and commercial real estate.
The company anticipates continued positive momentum and aims for a 1% ROA and 10% ROE by late 2026 or early 2027, despite headwinds from deposit competition and pricing pressures.
Management emphasized the strategic focus on delivering bespoke financial solutions to high-net-worth individuals and the successful integration of new teams into the company's operations.
Full Transcript
OPERATOR
Welcome to the Peapack Gladstone Finl 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.
Matthew Remo, Treasurer & Head of Corporate Finance
Thank you and good morning everyone. I'm joined today by our President and CEO Doug Kennedy and our CFO Frank Cavallaro, who will be providing an overview of our second quarter results. John Babcock, our President of Wealth Management, and Lisa Chalkin, 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 ppakprivate.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 in the appendices to each document. And with that, it is my pleasure to turn the call over to Doug.
Doug Kennedy, President and CEO
Thanks, Matt, and good morning everybody, and thank you for joining us today. On behalf of the entire team at Peapack Gladstone Finl, 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 grounded 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 net 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 non-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 has 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 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 we would be. Profits have rebounded quickly given the level of investment. And what's really incredible is that we essentially have built a de novo 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 earlier, that activity is up over 20% 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.
I should also note 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 of headwinds in terms of pricing. We're reiterating that the net interest margin, going back to the first quarter, will grow a total of 6 to 9 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 shared last quarter.
From a strategic standpoint, we have everything that we need. It's really all now about dedicated, focused execution. So our brand—we've come a long way. We rebranded the company, and I think about that a little bit as we go forward. Through the end of next year, I believe that 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 we're offering life insurance premium finance, we have jumbo mortgages and HELOCs, we have investment lines of credit, we have professional lines of credit, we've done some fine art, some collectibles, and we recently began to launch aviation and yacht finance. All of this is geared towards meeting the needs of our clientele. So how 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 of years and a strong quarter for us at Peapack Gladstone Finl.
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 will provide a detailed overview of the quarter's results.
Frank Cavallaro, CFO
Thanks, Doug, and good morning everyone. I will 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 $0.85 per diluted share, compared to $14.2 million, or $0.80 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, disciplined pricing, and improved earning asset yields. Net interest margin during Q2 increased by 6 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 funds futures over the last three months and the increasingly competitive deposit environment we are seeing every day. Average earning asset yields increased for two primary reasons. First, we continue to hold our discipline on loan pricing with average yields on new originations in the quarter just north of 6%.
And second, we're also seeing some impact from back book repricing. Our prior comments on average quarterly margin expansion of 2 to 3 basis points remains largely intact when reviewed over a longer period, but the progression will not necessarily be linear. Following the 6 basis points increase in this quarter, we may give some back over the coming quarters, as Doug mentioned, and report changes below the 2 to 3 basis point range in 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 was 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%, 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 to the balance sheet, growth remains strong across the company. Total loans increased $236 million during the quarter to $6.7 billion, up 15% year over year. Growth remained concentrated in our core areas of strength, particularly C&I and commercial real estate. Deposits increased $231 million up to $7.1 billion, which is up 11% 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-balance-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 loan relationship. The allowance for credit losses remained stable at 1.04% of total loans. Nonperforming assets increased to $72.2 million, or 0.91% 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 continued 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 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 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 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.
OPERATOR
We will now begin the question-and-answer session. 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 Manuel Navas with Piper Sandler. Manuel, your line is now open. Please go ahead.
Manuel Navas, Analyst at Piper Sandler
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.
Doug Kennedy, President and CEO
Sure. So good morning, Noel, how are you? I would say that the strength of the pipeline is very consistent with what we've seen so far today. 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 the sort of 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 in terms of guidance we sort of talked to 200 million each quarter. We still believe that about a third of that would be 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.
Manuel Navas, Analyst at Piper Sandler
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?
Doug Kennedy, President and CEO
So there was some volume actually kicked into this quarter, so we actually came out of the gate pretty strong. And the pipelines, Lisa Chalkens here. Lisa, I think they're still very strong.
Lisa Chalken, Chief Credit Officer
Yes. I think we think that the growth number will be about $300 million, which means that we'll be closing 450 to 500 million in order to be able to do that.
Manuel Navas, Analyst at Piper Sandler
So stronger than the quarter we just had — is that maybe driving the potential variability in the NIM that you're just having such strong opportunities on the growth side?
Doug Kennedy, President and CEO
The answer to that is yes, because we'll never get the timing right on core deposits hitting our balance sheet at the same time that we're funding the loan type. So that's part of it. The other part of it is that 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, given its transitory, higher elevated rate environment, the more pressure we're seeing.
And also 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, we still hold on to the original guidance that we gave in the first quarter in terms of where we'll land by the end of the year. We had a stronger. We had a stronger performance this quarter, but we may give some of that back this quarter that we're in. But we'll land.
But we said that we were. So we still see some improvement in NIM, but we're definitely seeing some headwinds. And the timing of the loan closings ahead of the deposits could potentially elevate costs as well.
Manuel Navas, Analyst at Piper Sandler
I appreciate that. I'll jump back into the queue.
OPERATOR
Your next question comes from the line of Steve Moss with Raymond James. Steve, your line is now open. Please go ahead.
Chase, Analyst at Raymond James
Hey guys, good morning. This is Chase on for Steve. So I hear you on the elevated deposit competition in the market. So I was curious, like, what cost were deposits coming on at in the quarter?
Frank Cavallaro, CFO
You want the coupon on deposit? Yeah. During the quarter, what we added was about 2.5%.
Chase, Analyst at Raymond James
Got it. Appreciate that. And on the multifamily MTA inflow, do you have any indication on, like, resolution timing there?
Lisa Chalken, Chief Credit Officer
This is Lisa Chalken, chief credit officer. Now, it's hard to predict. I mean the loans that just moved over, we have, 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 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.
Chase, Analyst at Raymond James
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?
Frank Cavallaro, CFO
Yeah, it's about a billion and a half dollars over the next six quarters. That's not all multi. It's sort of a mix. And the coupon there is just a little bit north of 4. Is that right? 4 and change. 4 and change. The current rate today is 6 and change. And, you know, there'll be some of the multi, the rent-stabilized stuff. I'm certain that we, you know, some of those are sort of contractual rates that are in the sevens which we'll 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 up on the repricing for the billion dollars it's going to reprice over the next, you know, the next six quarters.
Chase, Analyst at Raymond James
Got it. Thank you for all the color, guys.
OPERATOR
Your next question comes from the line of Christopher Marinac with Breen Capital LLC. Christopher, your line is now open. Please go ahead.
Christopher Marinac, Analyst at Breen Capital LLC
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 and the details you gave us there on the New York multifamily.
Lisa Chalken, Chief Credit Officer
So just for multifamily, you want to know what is pass rated within past due versus criticized or classified.
Christopher Marinac, Analyst at Breen Capital LLC
Right. Just to get to a kind of a bottom number. Just to get at least a bottom number in terms of what is criticized and what is pass.
Lisa Chalken, Chief Credit Officer
Yeah, I'm doing the math in my head. There is about $20 million in special mention and the balance of the multifamily is in pass. And the pass-rated loans are in the 30-day bucket versus the ones that are special mention are 61 days at the end of the quarter.
Christopher Marinac, Analyst at Breen Capital LLC
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?
Lisa Chalken, Chief Credit Officer
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 rating has slowed down. I think this quarter we saw five of the loans that were in the relationship that we've been talking about for a while move to nonperforming, but there was nothing else that moved to nonperforming. So I think from a risk rating perspective, I think that we've seen improvement. And even on the past dues, if I look at the past dues, once I net out the three loans that are part of that relationship, the balance of the 10-ish million dollars in multifamily that is past due, that's seven different relationships.
Christopher Marinac, Analyst at Breen Capital LLC
But yet with the wave of repricings and maturities that are coming up, there
Lisa Chalken, Chief Credit Officer
could be downgrades, there could be, I can't predict it.
Christopher Marinac, Analyst at Breen Capital LLC
It's relationship by relationship. And that's kind of how the conversations are going.
Lisa Chalken, Chief Credit Officer
Correct? I mean every single loan, you know, we're dealing with individually, but I'm not seeing on a per-quarter basis that the past dues in multifamily are down this quarter compared to last.
Doug Kennedy, President and CEO
I guess really 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 disclosed. If you net that out, I mean, it's very, very sanguine. Having said that, 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 nonperformers, etc. 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, what's going on.
Christopher Marinac, Analyst at Breen Capital LLC
Thank you for that.
Lisa Chalken, Chief Credit Officer
That's exactly what — 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 started foreclosure. I've never seen that in my entire career. It's negotiating is what they're doing.
Christopher Marinac, Analyst at Breen Capital LLC
Understood, thank you for sharing all that. And then just last related question, does the reserve already anticipate some downgrades so that if some of those happen on a case-by-case basis that the reserve may have already covered a portion of it?
Lisa Chalken, Chief Credit Officer
Has the reserve increase in the reserve already covered some of the potential downgrades? It's a mix. There's some, yes, it's a mix. I mean we would get an updated appraisal and sort out the specific reserve when something hit substandard. And so, you know, of the ones that we just downgraded to nonperforming — for them, the appraisals are pending at this point. But one of the appraisals that we did get in, the reserves that we had to put against it was only like $80,000 or something.
It was minimal. But every quarter, anything that's in nonperforming, 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.
Doug Kennedy, President and CEO
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 — 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 $7.5 million a quarter would be sort of our best guess.
Frank Cavallaro, CFO
Well, I was going to say loan growth and the economic conditions have had 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.
Christopher Marinac, Analyst at Breen Capital LLC
Great. Thanks again very much for all the detail on this topic.
OPERATOR
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.
Doug Kennedy, President and CEO
Well, thank you all for joining us today. 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 really the message that we delivered this quarter is that that investment is clearly behind us. And what you're seeing now is a platform that's producing 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 through the end of the year. So with that, I want to thank you all and we look forward to sharing our progress continuing as we pull up in October. And of course 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 Peapack Gladstone Finl.
OPERATOR
This concludes today's call. Thank you for attending. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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