What Peapack-Gladstone Financial (PGC) Said on Its Q3 Earnings Call

Key Points

• Strong third-quarter performance: Net income available to common shareholders rose 17% sequentially to $18.5 million, or $0.99 per diluted share, while revenue increased 24% year over year to $88 million. The company has now recorded 10 consecutive quarters of revenue growth and six consecutive quarters of earnings growth.
• Loan and deposit growth supported net interest income: Loans grew 17% year over year to $7.1 billion and deposits rose 12% to $7.4 billion, helping net interest income increase 33% year over year to $68 million. Management expects net interest margin to expand by roughly two to three basis points per quarter, although higher funding costs and deposit competition remain challenges.
• Credit quality improved, while management maintained growth targets: Non-performing assets and net charge-offs declined, and the New York rent-regulated multifamily portfolio fell to 11% of total loans as the bank allows it to run off. Management reiterated targets for quarterly loan and deposit growth of $200 million each and expects to approach a 1% return on assets in early 2027.

Peapack-Gladstone Financial NASDAQ: PGC reported higher third-quarter earnings as loan and deposit growth, expanding net interest income and tighter expense control contributed to improved profitability.

Net income available to common shareholders rose 17% from the prior quarter to $18.5 million, or $0.99 per diluted share, compared with $15.8 million, or $0.86 per share, in the second quarter. Total revenue was $88 million, up 2% sequentially and 24% from a year earlier.

President and CEO Doug Kennedy said the quarter extended a broader growth trend following investments in New York City banking teams, wealth-management capabilities and the Peapack Private brand. The company has now posted 10 consecutive quarters of revenue growth and six consecutive quarters of earnings growth, he said.

“Revenue continued to grow significantly faster than expenses, and expenses actually declined from the second quarter,” Kennedy said. Core pre-tax, pre-provision revenue totaled $32.3 million, up 76% year over year.

Interest Income, Margin and Expenses

Net interest income increased $3.6 million from the second quarter to $68 million, representing sequential growth of 6% and year-over-year growth of 33%, Chief Financial Officer Frank Cavallaro said. Net interest margin expanded two basis points sequentially to 3.34%.

Loans originated during the quarter carried yields of about 6.4%, while new deposits were priced in the mid-2% range, Cavallaro said. However, rapid loan growth and competition for deposits led the company to use more borrowings, which limited the margin benefit.

The company expects further upward pressure on deposit costs. Cavallaro said Peapack-Gladstone aims to manage its overall deposit beta in a range of 50% to 60%. Management expects net interest margin to increase by roughly two to three basis points in each quarter heading into 2027, supported by new business volume and repricing of existing loans.

Over the next two years, approximately $1.4 billion of fixed-rate assets, or about 20% of the loan book, are expected to reprice. The assets have a weighted average coupon near 3.9%, and management expects repricing could add 150 to 200 basis points to those yields over time.

Operating expenses were $55 million, down 1% from the second quarter and up 5% year over year. The efficiency ratio improved to 63%, down about 1.7 percentage points from the prior quarter and nearly 16 percentage points from the third quarter of 2024.

Kennedy said the company is emphasizing technology investments, including artificial intelligence initiatives, as it seeks to scale operations. Management expects mid- to upper-single-digit operating expense growth in 2027, including ordinary compensation increases and higher healthcare costs.

Balance Sheet Growth and Funding

Total loans increased $403 million during the quarter to $7.1 billion, up 17% from a year earlier. Growth was diversified, with commercial and industrial lending and commercial real estate contributing strongly. Deposits rose $301 million sequentially to $7.4 billion and increased about $800 million, or 12%, year over year.

Non-interest-bearing demand deposits ended the quarter at approximately $1.6 billion, up 18% year over year. Cavallaro said the company has opened more than 600 non-interest-bearing operating accounts per quarter on average during the past five quarters.

Management reiterated quarterly operating objectives of $200 million in loan growth, $200 million in deposit growth and $2 million in core pre-tax, pre-provision revenue growth. The third quarter exceeded the loan and deposit objectives and produced approximately $2 million of core earnings growth.

Kennedy said the company has “absolute visibility” into meeting those objectives in the fourth quarter, while Cavallaro cautioned that third-quarter growth was likely unusually strong and could moderate closer to the company’s targets in coming quarters.

Credit Trends and Multifamily Exposure

Credit metrics improved during the quarter. Non-performing assets fell $14 million, or 20% sequentially, to $58 million, representing 0.68% of total assets. Loans 30 to 89 days past due declined $9 million, or 18%, to $39 million, or 0.56% of total loans.

The provision for credit losses was $8.5 million, compared with $8.1 million in the second quarter. Of the current-quarter provision, $5 million was related to loan growth. Net charge-offs declined to $4.7 million from $5.9 million in the prior quarter.

The company’s New York rent-regulated multifamily portfolio declined to $775 million, or about 11% of total loans, from 18% of loans two years earlier. The company is not originating new loans in that category and is allowing the portfolio to run off, while encouraging transactional relationships to seek other funding at maturity.

Chief Credit Officer Lisa Chalkan said updated appraisals have shown mixed results, with some properties experiencing softer values and others holding their value or improving. She said the company does not see a systemic decline in collateral values, though individual situations may require additional attention.

Wealth Management and Capital

Assets under management and administration ended the quarter at $13.6 billion, slightly below the second-quarter level. Wealth-management revenue was $17.3 million, up 9% year over year, and totaled $51 million year to date.

John Babcock, president of wealth management, said net flows were roughly flat during the quarter but that the business booked new client relationships in October and entered the fourth quarter with an encouraging pipeline.

Non-interest income totaled $20 million, down 10% sequentially. Cavallaro attributed about half of the decline to a loss on the sale of other real estate owned property and a negative fair-value adjustment on a Community Reinvestment Act equity security. He characterized those items as one-time events. The company also cited the exit from its SBA loan-sale business as a longer-term source of lower fee income.

The quarter’s effective tax rate was 20.5%, down from 28.4% in the second quarter, reflecting a discrete $1.8 million benefit from purchased production tax credits. Cavallaro said the benefit is not expected to recur next quarter.

To support growth, the company issued the remaining $20 million of convertible preferred equity in July. It also launched a voluntary dividend reinvestment program during the fourth quarter, scheduled to close in mid-November. Management said it expects retained earnings to fund a larger portion of capital growth as profitability improves.

Peapack-Gladstone’s longer-term objectives remain a return on assets of more than 1.25% and a return on equity of more than 14%. Management said it expects to approach a 1% return on assets in early 2027 and is targeting progress toward its longer-term return goal by the fourth quarter of 2027.

About Peapack-Gladstone Financial (NASDAQ:PGC)

Peapack-Gladstone Financial Corporation is the holding company for Peapack-Gladstone Bank, a full-service financial institution headquartered in Bedminster, New Jersey. The bank provides commercial, private and personal banking services to businesses, professionals, individuals and families.

Its banking activities include commercial and residential lending, deposits, cash-management services, treasury management, online and mobile banking, and other traditional banking products. Through its wealth-management operations, the company also provides investment management, trust and fiduciary services, financial planning and related advisory solutions.

Founded in 1921, Peapack-Gladstone Bank primarily serves clients in New Jersey and the broader New York metropolitan region, with a focus on privately held businesses, commercial real estate borrowers, high-net-worth individuals and nonprofit organizations.

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