New Jersey lender bets big on funding life insurance premiums

Peapack-Gladstone Financial Corp. in Bedminster, New Jersey, has high hopes for the life insurance premium financing division it launched this month.

Greg Smith, president of commercial banking at Peapack-Gladstone, with $6.2 billion in assets, said he believes the fledgling unit will become one of the company’s main business lines. company in four to six years, and that its impact on the balance sheet should begin to appear. in 2023.

Financing life insurance premiums involves lending money which the borrower then uses to pay for the life insurance. It is more common among executives and wealthy individuals who take out large policies and prefer to take advantage of high premium costs rather than pay out of pocket.

Anthony LoScalzo, who will serve as senior managing director and chief operating officer of the new division, said his minimum loan size would be $100,000 to $200,000, with the average expected to be between $500,000. $ and $800,000.

LoScalzo and Raymond Kim, who will lead the division as senior managing director and president, made multimillion-dollar loans to Wintrust Financial in Rosemont, Ill., where the two executives worked before Peapack-Gladstone took them out. recruits. Wintrust, an industry leader, reported $8 billion in life insurance premium finance loans on Sept. 30.

Raymond Kim (left) and Anthony LoScalzo have joined Peapack-Gladstone from Wintrust Financial to launch its life insurance premium finance business.

How big can Peapack-Gladstone’s business grow? Primis Financial Corp. in McLean, Va., announced it will enter life insurance premium financing in October 2021. Nearly a year later, at the end of the third quarter on September 30, assets of $3.3 billion Primis had built a portfolio of $129 million. life insurance premium financing loans. Peapack-Gladstone is planning production on a similar or larger scale, according to Smith.

“We’re going to slow down in the fourth quarter [but] it’s definitely going to grow exponentially next year,” Smith said of the life insurance premium finance division.

Once operational, Peapack-Gladstone’s life insurance premium finance division will operate nationwide “and [management] has the integrated back-office infrastructure in place to support this effort,” wrote David Bishop, who covers Peapack-Gladstone for Hovde, in a research note.

Although there are currently not many banks involved in this area, it is becoming increasingly crowded as institutions recognize the potential benefits, according to Kim.

Truist September 6 agreement for BankDirect Capital FinanceTexas Capital Bancshares’ premium finance arm in Dallas, was driven in large part by the Charlotte, North Carolina-based giant’s desire to expand into life insurance premium finance.

For Peapack-Gladstone, the appeal of life insurance premium financing is its relatively high lending rates, currently around 6% according to Smith, as well as the low level of risk involved.

“I’m not going to say ‘almost nothing,’ because I’m going to hurt myself, but I think our reserve is eight basis points,” Smith said. “Most of these deals are secured by cash-value life insurance and some form of exchange-traded securities. We are effectively almost 100% secured.”

Strategically, booking a significant amount of life insurance premium loans, as Peapack plans to start doing next year, will go a long way to diluting the company’s still high concentration of commercial real estate loans. , Smith added. As of June 30, multifamily and CRE loans made up 49% of the company’s $5.15 billion asset loan portfolio.

Premium funding seems to fit perfectly with Peapack-Gladstone’s existing business model. Under the leadership of Douglas Kennedy, CEO, the firm has established a reputation as a high-performing boutique bank, specializing in small and medium business lending, as well as wealth management. Peapack-Gladstone had $9.5 billion in assets under management as of June 30.

It’s “a line of business that presents natural synergies and cross-selling opportunities with the bank’s wealth management, high net worth and CRE clientele,” Hovde’s Bishop wrote in its research note.

Funding life insurance premiums is “a natural cross-sell” for Peapack-Gladstone’s long list of homeowners with large assets but relatively little cash, Smith said. “It is also a great tool for estate planning for our wealth subsidiary”, Peapack Private Wealth Management.

A product aimed almost exclusively at senior executives and wealthy entrepreneurs, premium financing requires the kind of high-end service that Peapack-Gladstone has a reputation for providing, Kim said.

“They are very wealthy individuals,” Kim said. “These are very sophisticated customers who deserve the quality service that Peapack-Gladstone is known for.”

LoScalzo described life insurance premium funding as “a very relationship-based business. … You have to be able to hold hands a bit. You have to make people feel good, make people feel love. It’s something I’ve always strongly believed in.”

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