New Jersey lender bets big on financing life insurance premiums

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

Greg Smith, the $6.2 billion-asset Peapack-Gladstone’s president of commercial banking, said he believes the fledgling unit will emerge as one of the company’s top business lines in four to six years, and that its impact on the balance sheet should start showing up in 2023.

Life insurance premium finance involves lending money which the borrower then uses to pay for life insurance. It’s most common among executives and high-net-worth individuals who carry large policies and prefer to leverage the high cost of the premiums rather than pay out of pocket.

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

LoScalzo and Raymond Kim, who will lead the division as senior managing director and president, have made loans into the millions of dollars at Wintrust Financial in Rosemont, Illinois, where both executives worked before Peapack-Gladstone recruited them. Wintrust, an industry leader, reported $8 billion of life insurance premium finance loans on Sept. 30.

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

How big can Peapack-Gladstone’s venture get? Primis Financial Corp. in McLean, Virginia, announced its entry into life insurance premium finance in October 2021. Nearly a year later, at the end of the third quarter on Sept. 30, the $3.3 billion-asset Primis had built a $129 million portfolio of life insurance premium finance loans. Peapack-Gladstone anticipates production on a similar or larger scale, according to Smith. 

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

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

Though currently there aren’t a lot of banks involved in this field, it is growing increasingly crowded as institutions recognize the potential benefits, according to Kim. 

Truist’s September 6 deal for BankDirect Capital Finance, the premium finance arm of Texas Capital Bancshares in Dallas, was driven in no small part by the Charlotte, North Carolina-based giant’s desire to expand into life insurance premium finance. 

For Peapack-Gladstone, life insurance premium finance’s appeal lies in the relatively high rates its loans command, currently about 6% according to Smith, as well as the low level of risk involved. 

“I’m not going to say ‘next-to-nothing,’ because I’ll jinx myself, but I think our reserve is eight basis points,” Smith said. “Most of these deals are secured by cash-value-surrender life insurance and some form of stock-marketable securities. We’re effectively close to 100% secured.”

On a strategic level, booking a significant amount of life insurance premium loans, as Peapack expects to begin doing next year, will go a long way toward diluting the company’s perennially high concentration of commercial real estate loans, Smith added. On June 30, multifamily and CRE loans accounted for 49% of the company’s $5.15 billion-asset loan portfolio.

Premium finance appears to fit snugly with Peapack-Gladstone’s existing business model. Under CEO Douglas Kennedy, the company has earned a reputation as a high-touch, high-performing boutique bank specializing in lending to small and medium-size businesses, as well as wealth management. Peapack-Gladstone had $9.5 billion of assets under management on June 30. 

It’s “a line of business that has natural synergies and cross-sell opportunities to the bank’s wealth management, high-net-worth and CRE client base,” Hovde’s Bishop wrote in his research note. 

Life insurance premium finance is “a natural cross-sell” for Peapack-Gladstone’s long roster of real estate owners possessing significant holdings but comparatively little liquidity, Smith said. “It’s also a nice estate-planning tool for our wealth subsidiary,” Peapack Private Wealth Management.

A product aimed almost exclusively at  senior executives and wealthy entrepreneurs, premium finance requires the type of white-glove service Peapack-Gladstone has a reputation for providing, Kim said. 

“These are ultra-high-net-worth individuals,” Kim said. “They are highly sophisticated clients who deserve high-touch service Peapack-Gladstone is known for.”

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