Nine Months

Nine Months

Ended

Ended

September 30,

September 30,

Increase/

(Dollars in millions, except per share data)

2018 (1)

2017

(Decrease)

Net interest income

$

85.78

$

82.56

$

3.22

4

%

Provision for loan and lease losses

2.05

4.20

(2.15

)

(51

)

Net interest income after provision

83.73

78.36

5.37

7

Wealth management fee income

24.69

15.69

9.00

57

Other income

8.24

8.33

(0.09

)

(1

)

Total other income

32.93

24.02

8.91

37

Operating expenses

72.56

61.36

11.20

18

Pretax income

44.10

41.02

3.08

8

Income tax expense

10.66

(2)

14.89

(4.23

)

(28

)

Net income

$

33.44

$

26.13

$

7.31

28

%

Diluted EPS

$

1.75

$

1.47

$

0.28

19

%

Return on average assets annualized

1.04

%

0.86

%

0.18

Return on average equity annualized

10.43

%

9.94

%

0.49

(1)

The September 2018 nine months included results of operations of the Equipment Finance team hired in April 2017, Murphy Capital Management, acquired effective August 1, 2017, Quadrant Capital Management, acquired effective November 1, 2017, and Lassus Wherley acquired effective September 1, 2018.

(2)

The September 2018 nine months reflected the reduced Federal income tax rate due to the new tax law signed in December 2017.  The September 2018 nine months included a $458,000 reduction in income taxes, while the September nine months 2017 included a $662,000 reduction in income taxes, both associated with the vesting of restricted stock under ASU 2016-09. Also, the nine months ended September 2018 included a higher NJ state corporate income tax rate, as signed into law in July 2018, but effective back to January 1, 2018.

Three Months Ended

Three Months Ended

September 30,

September 30,

Increase/

(Dollars in millions, except per share data)

2018 (1)(2)

2017

(Decrease)

Net interest income

$

28.14

$

29.99

$

(1.85

)

(6

)%

Provision for loan and lease losses

0.50

0.40

0.10

25

Net interest income after provision

27.64

29.59

(1.95

)

(7

)

Wealth management fee income

8.20

5.79

2.41

42

Other income

2.78

3.04

(0.26

)

(9

)

Total other income

10.98

8.83

2.15

24

Operating expenses

24.28

21.96

2.32

11

Pretax income

14.34

16.46

(2.12

)

(13

)

Income tax expense

3.62

(3)

6.25

(2.63

)

(42

)

Net income

$

10.72

$

10.21

$

0.51

5

%

Diluted EPS

$

0.56

$

0.56

$

-

0

%

Return on average assets annualized

0.99

%

0.97

%

0.02

Return on average equity annualized

9.68

%

11.09

%

(1.41

)

(1)

The September 2018 quarter included results of operations of Murphy Capital Management, acquired effective August 1, 2017, Quadrant Capital Management, acquired effective November 1, 2017, and Lassus Wherley acquired effective September 1, 2018.

(2)

The September 2018 quarter included $319,000 of severance expense related to the elimination of select positions; $340,000 of professional fees related to investment banking and other fees associated with the Lassus Wherley acquisition; and $325,000 loss on sale of securities, principally related to a restructure of the investment portfolio, which will benefit future earnings. These three items reduced net income by $736,000 EPS by $0.04, ROAA by 0.07%, and ROAE by 0.66%, for the 2018 quarter.

(3)

The September 2018 quarter reflected the reduced federal income tax rate due to the new tax law signed in December 2017. Also, the September 2018 quarter included a higher NJ state corporate income tax rate, as signed into law in July 2018, but effective back to January 1, 2018.

Three Months Ended

Three Months Ended

September 30,

June 30,

Increase/

(Dollars in millions, except per share data)

2018 (1)(2)

2018

(Decrease)

Net interest income

$

28.14

$

29.24

$

(1.10

)

(4

)%

Provision for loan and lease losses

0.50

0.30

0.20

67

Net interest income after provision

27.64

28.94

(1.30

)

(4

)

Wealth management fee income

8.20

8.13

0.07

1

Other income

2.78

3.61

(0.83

)

(23

)

Total other income

10.98

11.74

(0.76

)

(6

)

Operating expenses

24.28

24.94

(0.66

)

(3

)

Pretax income

14.34

15.74

(1.40

)

(9

)

Income tax expense

3.62

(3)

3.83

(0.21

)

(5

)

Net income

$

10.72

$

11.91

$

(1.19

)

(10

)%

Diluted EPS

$

0.56

$

0.62

$

(0.06

)

(10

)%

Return on average assets annualized

0.99

%

1.11

%

(0.12

)

Return on average equity annualized

9.68

%

11.11

%

(1.43

)

(1)

The September 2018 quarter included results of operations of Lassus Wherley acquired effective September 1, 2018.

(2)

The September 2018 quarter included $319,000 of severance expense related to the elimination of select positions; $340,000 of professional fees related to investment banking and other fees associated with the Lassus Wherley acquisition; and $325,000 loss on sale of securities, principally related to a restructure of the investment portfolio, which will benefit future earnings. These three items reduced net income by $736,000 EPS by $0.04, ROAA by 0.07%, and ROAE by 0.66%, for the 2018 September quarter.

(3)

The September 2018 quarter included a higher NJ state corporate income tax rate, as signed into law in July 2018, but effective back to January 1, 2018.

•

Wealth Management remains integral to the strategy and provides a diversified, predictable, and stable source of revenue:

o

As previously announced, effective September 1, 2018, the Company completed its acquisition of Lassus Wherley, a registered investment advisor, headquartered in New Providence, NJ, which added approximately $550 million of assets under management and/or administration (“AUM/AUA”).

o

At September 30, 2018, the market value of AUM/AUA at the Private Wealth Management Division of Peapack-Gladstone Bank (the “Bank”) increased $1.6 billion to $6.4 billion from $4.8 billion at September 30, 2017, reflecting growth of 33%.   The Quadrant Capital Management and Lassus Wherley acquisitions accounted for approximately $1.0 billion of the growth.

o

Fee income from the Private Wealth Management Division totaled $8.20 million for the quarter ended September 30, 2018, an increase of $2.41 million, or 42%, from $5.79 million for the quarter ended September 30, 2017.  

o

Wealth management fee income, which comprised approximately 21% of the Company’s total revenue for the quarter ended September 30, 2018, contributed significantly to the Company’s diversified revenue sources.

o

In addition to wealth income, also contributing to the Company’s diversified revenue sources is fee income related to loan level, back-to-back swaps, and gain on sale of SBA loans.

•

The loan portfolio continues to shift from lower yielding multifamily to higher yielding commercial and industrial lending (including Equipment Finance):

o

Total commercial and industrial (“C&I”) loans at September 30, 2018 were $1.18 billion.  This reflected net growth of $335 million (40%) when compared to $846 million in C&I loans at September 30, 2017.

o

The Company continued to manage its balance sheet such that lower-yielding, primarily fixed rate multifamily loans decline as a percentage of the overall loan portfolio and higher-yielding, primarily floating rate or short duration C&I loans become a larger percentage of the overall loan portfolio. As of September 30, 2018, total C&I loans comprised 31% of the total loan portfolio, as compared to 23% a year earlier.  As of September 30, 2018, total multifamily loans comprised 34% of the total loan portfolio, as compared to 39% a year earlier.

o

The Bank’s concentration in multifamily and investor commercial real estate loans declined to 416% of risk-based capital at September 30, 2018 from 529% at September 30, 2017.

•

Deposits, funding, and interest rate risk continue to be actively managed:

o

Deposits totaled $3.66 billion at both September 30, 2018 and September 30, 2017.  Deposit growth of $136 million in the third quarter of 2018 and $36 million in the fourth quarter of 2017, was principally offset by $175 million of net decreases the first half of 2018 (as described fully last quarter, and as summarized below).  

o

The Bank is a significant provider of depository services to its wealth and commercial clients.  During the first half of 2018, many of those clients reallocated funds to pay income taxes and to invest in other opportunities, both inside and outside of the Company.

o

Other decreases in the first half of 2018 were part of a program to manage the deposit base to achieve better economics. $125 million of listing service and brokered certificates of deposits matured during 2018. As the Company has noted previously, the Company has chosen to not participate in these programs at this time due to the higher current cost, and lack of a core customer. Additionally, the Company chose to exit certain large deposit relationships totaling approximately $90 million that it considered to be too volatile or that exposed the Company to increased operational risk.

o

The Company has actively managed its balance sheet to remain balanced (slightly asset sensitive to slightly liability sensitive), despite rising deposit betas and costs, which had been noted by the Company over the last several quarters, and as discussed later in this release.  

o

The Company continues to have access to over $1 billion of available secured funding at the Federal Home Loan Bank.

•

Capital and asset quality continue to be strong.

o

Asset quality metrics continued to be strong at September 30, 2018.  Nonperforming assets at September 30, 2018 were $10.8 million, or 0.24% of total assets.  Total loans past due 30 through 89 days and still accruing were $2.5 million, or 0.07% of total loans at September 30, 2018.

o

The Company’s and Bank’s capital ratios at September 30, 2018 all increased significantly compared to the December 31, 2017 and September 30, 2017 levels. These capital positions were benefitted by net income, as well as capital generated through optional cash purchases in the Company’s Dividend Reinvestment Plan.  

Nine Months Ended

Nine Months Ended

September 30, 2018

September 30, 2017

NII

NIM

NII

NIM

NII/NIM excluding the below

$

83,949

2.70%

$

78,752

2.68%

Prepayment premiums received on multifamily loan paydowns

1,508

0.04%

2,568

0.09%

Fees recognized on full paydowns of select C&I loans

321

0.01%

1,235

0.04%

NII/NIM as reported

$

85,778

2.75%

$

82,555

2.81%

Three Months Ended

Three Months Ended

Three Months Ended

September 30, 2018

June 30, 2018

September 30, 2017

NII

NIM

NII

NIM

NII

NIM

NII/NIM excluding the below

$

27,804

2.66%

$

28,186

2.72%

$

27,483

2.70%

Prepayment premiums received on multifamily loan paydowns

338

0.03%

736

0.07%

1,274

0.13%

Fees recognized on full paydowns of select C&I loans

0

0.00%

321

0.03%

1,235

0.12%

NII/NIM as reported

$

28,142

2.69%

$

29,243

2.82%

$

29,992

2.95%

•

inability to successfully grow our business and implement our strategic plan, including an inability to generate revenues to offset the increased personnel and other costs related to the strategic plan;

•

the impact of anticipated higher operating expenses in 2018 and beyond;

•

inability to manage our growth;

•

inability to successfully integrate our expanded employee base;

•

an unexpected decline in the economy, in particular in our New Jersey and New York market areas;

•

declines in our net interest margin caused by the interest rate environment and/or our highly competitive market;

•

declines in the value in our investment portfolio;

•

higher than expected increases in our allowance for loan and lease losses;

•

higher than expected increases in loan and lease losses or in the level of nonperforming loans;

•

changes in interest rates;

•

decline in real estate values within our market areas;

•

legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III and related regulations) that may result in increased compliance costs;

•

successful cyberattacks against our IT infrastructure and that of our IT providers;

•

higher than expected FDIC insurance premiums;

•

adverse weather conditions;

•

inability to successfully generate new business in new geographic markets;

•

inability to execute upon new business initiatives;

•

lack of liquidity to fund our various cash obligations;

•

reduction in our lower-cost funding sources;

•

our inability to adapt to technological changes;

•

claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters; and

•

other unexpected material adverse changes in our operations or earnings.

For the Three Months Ended

Sept 30,

June 30,

March 31,

Dec 31,

Sept 30,

2018

2018

2018

2017

2017

Income Statement Data:

Interest income

$

40,163

$

39,674

$

37,068

$

36,439

$

37,491

Interest expense

12,021

10,431

8,675

7,853

7,499

Net interest income

28,142

29,243

28,393

28,586

29,992

Provision for loan and lease losses

500

300

1,250

1,650

400

Net interest income after provision for loan and

   lease losses

27,642

28,943

27,143

26,936

29,592

Wealth management fee income

8,200

8,126

8,367

7,489

5,790

Service charges and fees

860

873

831

837

816

Bank owned life insurance

349

345

336

341

343

Gain on loans held for sale at fair value

   (Mortgage banking)

87

79

94

122

141

Gain on loans held for sale at lower of cost or

   fair value

—

—

—

378

34

Fee income related to loan level, back-to-back

   swaps

854

900

252

179

888

Gain on sale of SBA loans

514

814

31

774

493

Other income

444

639

382

486

326

Securities losses, net

(325

)

(36

)

(78

)

—

—

Total other income

10,983

11,740

10,215

10,606

8,831

Salaries and employee benefits

16,025

15,826

14,579

15,296

13,996

Premises and equipment

3,399

3,406

3,270

3,194

2,945

FDIC insurance expense

593

625

580

495

583

Other expenses

4,267

5,084

4,908

5,266

4,437

Total operating expenses

24,284

24,941

23,337

24,251

21,961

Income before income taxes

14,341

15,742

14,021

13,291

16,462

Income tax expense

3,617

3,832

3,214

2,922

6,256

Net income

$

10,724

$

11,910

$

10,807

$

10,369

$

10,206

Total revenue (A)

$

39,125

$

40,983

$

38,608

$

39,192

$

38,823

Per Common Share Data:

Earnings per share (basic)

$

0.56

$

0.63

$

0.58

$

0.57

$

0.57

Earnings per share (diluted)

0.56

0.62

0.57

0.56

0.56

Weighted average number of common

   shares outstanding:

Basic

19,053,849

18,930,893

18,608,309

18,197,708

17,800,153

Diluted

19,240,098

19,098,838

18,908,692

18,527,829

18,123,268

Performance Ratios:

Return on average assets annualized (ROAA)

0.99

%

1.11

%

1.01

%

0.98

%

0.97

%

Return on average equity annualized (ROAE)

9.68

%

11.11

%

10.54

%

10.61

%

11.09

%

Net interest margin (tax- equivalent basis)

2.69

%

2.82

%

2.76

%

2.78

%

2.95

%

GAAP efficiency ratio (B)

62.07

%

60.86

%

60.45

%

61.88

%

56.57

%

Operating expenses / average assets annualized

2.24

%

2.32

%

2.19

%

2.28

%

2.10

%

(A)

Total revenue includes net interest income plus total other income.

(B)

Calculated as total operating expenses as a percentage of total revenue.  For Non-GAAP efficiency ratio, see Non-GAAP financial measures reconciliation included in these tables beginning on page 19.

For the Nine Months Ended

Sept 30,

Change

2018

2017

$

%

Income Statement Data:

Interest income

$

116,905

$

102,288

$

14,617

14

%

Interest expense

31,127

19,733

11,394

58

%

Net interest income

85,778

82,555

3,223

4

%

Provision for loan and lease losses

2,050

4,200

(2,150

)

-51

%

Net interest income after provision for loan and

   lease losses

83,728

78,355

5,373

7

%

Wealth management fee income

24,693

15,694

8,999

57

%

Service charges and fees

2,564

2,402

162

7

%

Bank owned life insurance

1,030

1,015

15

1

%

Gain on loans held for sale at fair value (Mortgage banking)

260

279

(19

)

-7

%

Gain on loans held for sale at lower of cost or fair value

—

34

(34

)

-100

%

Fee income related to loan level, back-to-back swaps

2,006

2,635

(629

)

-24

%

Gain on sale of SBA loans

1,359

790

569

72

%

Other income

1,465

1,172

293

25

%

Securities losses, net

(439

)

—

(439

)

N/A

Total other income

32,938

24,021

8,917

37

%

Salaries and employee benefits

46,430

38,660

7,770

20

%

Premises and equipment

10,075

8,794

1,281

15

%

FDIC insurance expense

1,798

1,871

(73

)

-4

%

Other expenses

14,259

12,035

2,224

18

%

Total operating expenses

72,562

61,360

11,202

18

%

Income before income taxes

44,104

41,016

3,088

8

%

Income tax expense

10,663

14,888

(4,225

)

-28

%

Net income

$

33,441

$

26,128

$

7,313

28

%

Total revenue (A)

$

118,716

$

106,576

$

12,140

11

%

Per Common Share Data:

Earnings per share (basic)

$

1.77

$

1.49

$

0.28

19

%

Earnings per share (diluted)

1.75

1.47

0.28

19

%

Weighted average number of common shares outstanding:

Basic

18,865,982

17,478,293

1,387,689

8

%

Diluted

19,066,986

17,753,731

1,313,255

7

%

Performance Ratios:

Return on average assets annualized (ROAA)

1.04

%

0.86

%

0.18

%

20

%

Return on average equity annualized (ROAE)

10.43

%

9.94

%

0.49

%

5

%

Net interest margin (tax- equivalent basis)

2.75

%

2.81

%

(0.06

)%

-2

%

GAAP efficiency ratio (B)

61.12

%

57.59

%

3.53

%

6

%

Operating expenses / average assets annualized

2.25

%

2.02

%

0.23

%

11

%

(A)

Total revenue includes net interest income plus total other income.

(B)

Calculated as total operating expenses as a percentage of total revenue.  For Non-GAAP efficiency ratio, see Non-GAAP financial measures reconciliation included in these tables beginning on page 19.

As of

Sept 30,

June 30,

March 31,

Dec 31,

Sept 30,

2018

2018

2018

2017

2017

ASSETS

Cash and due from banks

$

4,792

$

4,458

$

4,223

$

4,415

$

4,446

Federal funds sold

101

101

101

101

101

Interest-earning deposits

118,111

62,231

149,192

108,931

88,793

Total cash and cash equivalents

123,004

66,790

153,516

113,447

93,340

Securities available for sale

368,554

346,790

342,553

327,633

315,112

Equity security (A)

4,673

4,710

4,746

—

—

FHLB and FRB stock, at cost

21,561

21,533

23,703

13,378

13,589

Residential mortgage (B)

562,930

567,459

567,885

577,340

605,015

Multifamily mortgage

1,289,458

1,320,251

1,366,712

1,388,958

1,441,851

Commercial mortgage

644,900

637,705

643,761

626,656

625,467

Commercial loans (B)

1,180,774

1,069,526

996,788

958,481

845,831

Consumer loans

64,478

76,509

71,580

86,277

81,671

Home equity lines of credit

59,930

55,020

64,570

67,497

68,787

Other loans

432

431

420

402

815

Total loans

3,802,902

3,726,901

3,711,716

3,705,611

3,669,437

Less: Allowances for loan and lease losses

37,293

38,066

37,696

36,440

35,915

Net loans

3,765,609

3,688,835

3,674,020

3,669,171

3,633,522

Premises and equipment

27,874

28,404

28,923

29,476

29,832

Other real estate owned

96

1,608

2,090

2,090

137

Accrued interest receivable

10,849

7,202

7,306

9,452

6,803

Bank owned life insurance

45,181

44,980

44,779

44,586

44,380

Goodwill and other intangible assets (C)

34,297

23,477

23,656

23,836

15,064

Other assets

34,011

30,845

31,202

27,478

24,553

TOTAL ASSETS

$

4,435,709

$

4,265,174

$

4,336,494

$

4,260,547

$

4,176,332

LIABILITIES

Deposits:

Noninterest-bearing demand deposits

$

503,388

$

527,453

$

536,054

$

539,304

$

557,117

Interest-bearing demand deposits

1,148,660

1,053,004

1,089,980

1,152,483

1,144,714

Savings

116,391

120,986

126,026

119,556

121,830

Money market accounts

1,097,630

1,051,893

1,006,540

1,091,385

1,046,997

Certificates of deposit – Retail

466,791

431,679

408,621

344,652

299,493

Certificates of deposit – Listing Service

85,241

96,644