On behalf of the talented and hard-working team of professionals at Peapack-Gladstone Bank, who are continuously focused on helping our clients achieve their financial goals, I am happy to report yet another record year of performance. This is the seventh year that we have delivered record results for our shareholders. For the year, we reported total revenue of $175 million and pre-tax income of $66 million, reflecting a 10% and 15% year-over-year increase respectively. In addition, due to favorable loan growth, our balance sheet grew 12% or $565 million in 2019 to $5.2 billion.
In 2019, Peapack Private, our wealth management division, grew assets under administration/assets under management (AUA/AUM) by 29% or $1.7 billion to a record $7.5 billion. Healthy market action, strong client inflows, and our acquisition of Point View Wealth Management in the third quarter contributed to this success. Our record levels in revenue, earnings, balance sheet size, and wealth management AUA/AUM are noteworthy. As was originally contemplated in our 2013 strategic plan, “Expanding Our Reach,” size, scale and diversified revenue streams have all contributed to these record levels of achievement and attractive returns for our shareholders. Total fee income, including wealth management fees, grew 24% in 2019 and represented 31% of our Company’s total revenue for 2019, up from 28% for the prior year.
Unfortunately, our diluted earnings per share growth was adversely impacted by the New Jersey state tax increases, but still managed to grow 6% to $2.44. Overall changes in our revenue mix, the composition of our balance sheet and the continued solid growth in our wealth management and commercial banking businesses have allowed us to create considerable shareholder value.
Despite the increase in state taxes in 2019, over the past five years we have grown earnings per share at a compounded annual growth rate of 15% and our shares have appreciated 66.5%. This performance exceeds the broader NASDAQ and KBW NASDAQ bank indices.
I am proud of what our team has accomplished and believe our future for creating additional share value remains positive.
Wealth Management and Commercial Banking Provide a Diversified Revenue Mix
Quarter Ended 12/31/2019
Total Non-Interest Income Target 35%-45%
Net Interest Income before Provision
Wealth Management Fee Income
Fees & Other Income1
1Includes SBA Income, Swap Income, Deposit & Loan Fees, Mortgage Banking, and BOLI
2Wealth Management Peers: UVSP – Univest Financial Corp., CATC—Cambridge Bancorp, BMTC—Bryn Mawr Bank Corp, WASH—Washington Trust Bancorp, and TMP—Tompkins Financial Corporation;
3TMP reflects data for the quarter ended September 30, 2019.
Net Interest Margin
Yield Curve Challenges
Source: S&P Global Market Intelligence
Flattening of the Yield Curve has Impacted Net Interest Margin
In 2018, we navigated through four 25 basis point rate increases by the Federal Reserve, and we ended the year expecting two more. In 2019, we saw three 25 basis point reductions instead. We made thoughtful decisions on how to best manage through these rapidly changing market conditions. In the end, we were able to manage our interest rate costs through these reductions and substantially preserve our margin. Over the past two years, we have experienced tighter margins.
We are hopeful that rates have stabilized for 2020 and that gradual improvement can be achieved. As a commercial bank, we have significantly more floating rate loans, which positions us well should rates begin to move up. Over the past two years, of seven rate changes, we have proven our ability to quietly react by emphasizing the exceptional service that we provide. This, combined with sizeable wealth and other fee related revenues, provides a very resilient business model. Going forward, we believe a disciplined approach to pricing, growth, and a heavy focus on fee income will serve us well and deliver continued growth in share price appreciation.
WE RECEIVED A NUMBER OF ACCOLADES IN 2019 THAT WERE NOT FINANCIAL, BUT SPEAK TO THE COMPANY WE HAVE BUILT
Our leadership team and I believe that continued positive financial results are due to a solid strategy and a great team of professionals. Our success resides with our team of talented individuals who are committed to a common vision and business strategy. At the end of 2019, we had approximately 450 full-time team members fully engaged in addressing the needs of our clients. This is our purpose as a company. When we launched our strategy “Expanding Our Reach” in 2013, we defined not only our purpose, but also our five core operating principles—Professionalism, Clients First, Compete to Win, Invested in Our Community, and most important, One Team. As a team, we hold ourselves accountable to these core principles, which are the foundation for everything we do. Our record financial performance is simply an outcome of the work we do every day on behalf of our clients. In 2019, there were several outside acknowledgments that speak to the character and culture of our company.
Being recognized by American Banker as a “Best Banks to Work For 2019,” our second year in a row to receive this prestigious honor. The survey, taken by several hundred employees at random, revealed a 92% engagement rate. This is substantially above industry norms and reflects the commitment we have for each other and our clients.
We were recognized by the Commerce and Industry Association of New Jersey (CIANJ) and Commerce Magazine for our approach to creating a great company.
Lassus Wherley, a firm we acquired in 2018, was named a “2019 Best Places to Work for Financial Advisors” by InvestmentNews.
Consistent with our core principle “Invested in Our Community,” we were named a CIANJ “Champion of Good Works” for helping veterans. In addition, we held over 30 volunteer efforts throughout the year, contributing 1,600 hours of volunteer service—a record for our company.
We received an investment grade rating of Baa3 from Moody’s in 2019. An investment grade rating for a bank our size is very rare. We received this rating based on our resilient business model, development, and execution of our transformative strategic plan, and the quality and depth of our leadership team.
Residential loans to low- and moderate-income (LMI) census tracks reached 22%, while total LMI activity within our assessment area reached 35% in 2019. Our commitment to communities in need within our footprint is something we take very seriously and is an important objective.
Finally, I am very proud of the fact that under our Chairman, Duff Meyercord, we were recognized in 2019 by Executive Women of New Jersey (EWNJ) for having three or more women on our Board of Directors.
WEALTH MANAGEMENT GREW SIGNIFICANTLY IN 2019
As mentioned above, assets under management and administration reached $7.5 billion at year-end, up 29% or $1.7 billion from 2018.
In December 2018, the market experienced a severe 15% correction. While we expected a gradual market recovery during 2019, actions taken by the Federal Reserve to aggressively cut rates enabled the economic market, to quickly reverse direction, generating strong stock prices. The healthy markets combined with record client inflows of $750 million during 2019, contributed to the record results by our wealth management business. Finally, our success came as we welcomed Point View Wealth Management to the PGB family in September 2019. Led by David Dietze and Claire Toth, Point View added over $350 million in assets under management, and substantially increased our existing presence in the Summit market. Wealth Management revenues now approach $40 million and comprise 22% of total bank revenue. Our team of over 100 professionals help high-net-worth clients develop customized financial solutions aimed at helping them create, grow, protect, and ultimately transition their wealth to the next generation. Our high-touch approach is not susceptible to disintermediation and has significant barriers to entry.
From a strategic standpoint, we achieved several meaningful milestones during the year in our effort to modernize and integrate our acquired wealth management businesses.
During 2019 we:
Rebranded our wealth management business to Peapack Private Wealth Management.
Integrated all portfolio managers and investing activities under one connected investment organization.
Began the implementation of a new operating, technology and trading platform.
Continued to build out our financial planning capabilities through staff additions and extensive use of leading-edge technology.
Integrated Quadrant Capital Management (effective 01/01/2020) into Peapack Private. James Kearney and Jeffrey Fisher have both taken on expanded roles within our company. Jim has assumed the role of Head of Wealth Management enterprise-wide, and Jeff is Head of Investment Strategy. Both Jim and Jeff are very talented leaders, and I look forward to their continued contribution to expanding our wealth management business organically and through additional acquisitions.
WE CONTINUE TO LOOK FOR COMPLEMENTARY WEALTH MANAGEMENT COMPANIES THAT WILL ADD SCALE, CAPABILITIES, AND GEOGRAPHIC REACH
John Babcock, President of Peapack Private, consistently engages in ongoing discussions with various firms regarding joining forces. To date, we have successfully acquired five firms and look forward to continued acquisitions in the NJ-NY-CT market, and potentially to our south. We remain encouraged that there continues to be several firms that will meet our strategic objectives and that would be compatible with us culturally. We focus tremendously on combinations that together we know can deliver a better client experience. This approach to doing business continues to be attractive for firms seeking a better outcome than going it alone.
COMMERCIAL PRIVATE BANKING CONTINUED ITS POSITIVE MOMENTUM
Within Commercial Private Banking, we have three divisions: Commercial Real Estate, Commercial and Industrial Lending, and Equipment Finance. Two years ago, our Commercial Real Estate business began holding real estate outstandings fairly flat, while focusing on new sources of fee income. In 2019, fee income beyond wealth management, grew by an impressive 49% or $2.9 million. This growth was primarily driven by our loan level back-to-back swap program. The increased volume we experienced was directly correlated to the aforementioned decline in interest rates as borrowers sought to lock in on lower borrowing rates. Through this offering, we can book a floating rate loan at a constant spread, while the borrower pays a fixed rate over the life of the loan. This approach reduces our interest rate risk should rates begin to rise. In addition to interest rate swaps, our Small Business Administration (SBA) business generated a record $2.1 million in fees in 2019, reflecting an increase of 31% over 2018’s level. We are placing additional emphasis on SBA lending given the impact it has on small businesses within the communities we serve.
In March 2019, we successfully recruited Gregory Smith from a top-10 commercial bank competitor to head our Commercial Private Banking business. Eric Waser, who previously led this business, now heads our Investment Banking division, which was formally launched in March 2019. In a short period of time, Greg has made a strong impact and is focused on adding talent and gaining additional momentum. During the year, commercial lending (exclusive of the Equipment Finance business) grew by 12% or $119 million to $1.11 billion. The team also generated deposits of $102 million, which funded the majority of loan growth. We finished 2019 with a very solid pipeline of new business opportunities.
Peapack Capital, our Equipment Finance business, closed and funded $315 million of new business and finished the year with approximately $659 million in loans/leases outstanding. Our Equipment Finance and Leasing business gives us broad diversification in both collateral and geography and has become an important solution for our clients. In fact, lease finance has rapidly become a lead offering for the Bank and resulted in several new commercial banking clients.
Overall, the performance we had in commercial banking, including the increased fees associated with this business, exceeded expectations in 2019. During the year, we achieved a diversified loan mix, which should provide consistent earnings through future economic cycles.
IN 2019, WE ALSO CREATED A CHIEF RETAIL AND DEPOSIT SOLUTIONS OFFICER POSITION
In 2018, as rates began to rise in response to increased economic activity, the competitive landscape for retail, commercial, and municipal deposits increased considerably. In response, we created a senior-level leadership role to focus exclusively on deposits, specifically looking at product innovation, channel management, and pricing for retail, wealth, and commercial clients. After an extensive search, we successfully hired Rick DeBel, an accomplished and well-known leader in the NJ market. Rick is directly responsible for our retail distribution, Community Private Banking, and our Platinum Service, Treasury Management, and Escrow Service teams. His leadership has already helped us successfully manage through three rate decreases in 2019. As we move forward, Rick and his team will focus on driving core deposit growth, which will contribute significantly to expanding our margin and creating additional shareholder value.
OUR PLATINUM SERVICE TEAM CONTINUES TO EXCEED CLIENT EXPECTATIONS
Three years ago, we established a stand-alone deposit support team dedicated to providing exceptional “high-touch” client service. Our Platinum Service team has grown to over $850 million in deposits. The team consistently goes above and beyond expectations for our clients. In addition to onboarding new business, the Platinum Service team has proven an effective platform to develop our next generation of bankers. To date, six bankers have rotated, or are scheduled to rotate, through this group by the end of 2020. This real-life on-the-job experience of providing an unparalleled client experience will help us develop future bankers.
WE RE-VALIDATED OUR BUSINESS MODEL IN 2019
In early 2019, I attended a conference that focused heavily on the emergence of digital technologies and advancements in our industry. “Digital” is a broad term that includes how clients interact with us, how we manage the key areas of our business, how we interface with our team, and how we capture and leverage data to make sound decisions in relation to doing what’s best for our clients. During the year, there were a few large bank mergers that were principally driven to solve for the digital world of banking. Given how quickly our industry is migrating to more advanced digital solutions, we analyzed what this really meant to us. The biggest question was whether our clients would continue to appreciate our “high-touch” business model or would they opt for digital-centric solutions. Our work revealed that when it comes to managing substantial amounts of wealth, clients still prefer interaction with skilled bankers and advisors. Individuals and middle market companies show a strong preference to maintain a relationship with their bankers and advisors. Technology cannot replace human relationships. For now, both businesses appear insulated from disintermediation brought about through digital. Based on our research, we believe that digital is not about "transformation," but rather it’s about giving our people the tools they need to better serve our clients, through the channels and methods they desire. We are convinced, more than ever, that our private banking model is durable and will stand up to change. We are now focused on enabling client interaction in a more meaningful and flexible manner.
Over the next 18 months, we plan to roll out several new tools to support and enhance how we serve our clients.
HUMAN CAPITAL IS OUR MOST VALUABLE ASSET
Over my career, I have discovered that people and culture are more important than anything else in driving a successful and thriving business. When we began our journey seven years ago, the idea of focusing on areas that were underserved by large mega banks has proven itself correct. As we grew larger and more geographically diverse, the risk that emerged was how to effectively retain and nurture our culture. Our Chief Human Resources Officer, Brydget Falk-Drigan, leads the charge in this regard. She and her team have done a great job, not only reinforcing our culture through training initiatives and the onboarding of new team members, but by also creating and supporting programs that enable our team members to help shape the culture of our company through a “culture committee” formed in 2019. Our culture is driven by active and open communication, which is done with regularity and transparency. Our Human Capital team has also developed company-wide succession plans and has implemented a talent management program to cultivate our next generation of leaders.
WE ARE FOCUSED ON THE FUTURE
The current yield curve has become quite flat, and actually inverted at many points, and has put considerable pressure on margins in our industry. Despite this challenge, we are investing in digital solutions to enhance the client experience. Phase two will create back-office efficiencies and build actionable insights through robust data analytics. This forward-looking focus will enable us to compete in the future. I look forward to sharing more about our digital progress in the years to come. As we all know, technology is constantly evolving, and as such, we expect that this will be a multi-year journey.
We are now in the longest expansion ever in the United States. The stock market has continued to march on, and we expect low single-digit growth in 2020. Despite a highly volatile interest rate environment, 2019 was another year of growth and record profitability.
We believe that our business is sound and that the future looks prosperous.
In closing, I would like to thank our Chairman, Duff Meyercord, and our entire Board for their dedication and hard work. The Board’s guidance has been invaluable to me and the entire team.
Once again, thank you for your continued support.
Dear Valued Shareholder,
On behalf of Peapack-Gladstone Financial Corporation and all of its wholly owned divisions and subsidiaries, I hope you and your families are safe and healthy.
These are certainly unprecedented times for everyone, but it is during times like these that I find comfort and security in knowing that I am not alone. It is my hope that you feel the same, and that you know Peapack-Gladstone Bank and its team of hard-working employees are here for you.
For nearly 100 years, we have put our clients and our communities first. These are two of our most important core principles, which we stand by each and every day. These statements truly define who we are and exemplify our commitment to doing the right thing, providing a trusted relationship for clients, even during extremely difficult times.
The theme of our 2019 Annual Report is “Focused on the Client.” The decision to follow this theme throughout the Report was made well before the Coronavirus entered our lives, but I feel strongly that it rings even more true today than ever before. Although much has changed during the last few months, our commitment to our clients, and our focus on our clients, will never waiver. Whether it is through support of our community organizations in need with funds or volunteers, or through loan or financing relief for our commercial and consumer clients, or specifically through offering Paycheck Protection Program assistance for our small businesses, we will always provide a steady hand.
I am proud of our 2019 accomplishments and that we were able to deliver a seventh year of record results for our shareholders. The enclosed report tells our story, which I hope you will also take pride in.
As we look ahead to our new normal, we will continue to keep our shareholders, our clients, our communities and our employees at the forefront. This will drive our success.
Douglas L. Kennedy
President & CEO