Financial Performance Overview

Peapack-Gladstone Financial Corporation, a regional bank holding company, reported net income of $33.0 million and diluted earnings per share of $1.85 for the year ended December 31, 2024. This represents a decrease of 32% compared to 2023, when the company recorded net income of $48.9 million and diluted earnings per share of $2.71.

The decline in net income was primarily driven by increased operating expenses, which were largely attributable to the company’s expansion of its private banking model into New York City. The company also experienced a decrease in net interest income due to margin compression as deposit and borrowing rates rose. These factors were partially offset by a decrease in provision for credit losses and an increase in wealth management fee income.

Revenue and Profit Trends

Net interest income, the primary source of the company’s operating income, decreased by 5% to $149.0 million in 2024 compared to $156.1 million in 2023. The net interest margin contracted from 2.48% in 2023 to 2.32% in 2024, primarily due to higher deposit and borrowing costs outpacing the increase in yields on interest-earning assets.

The provision for credit losses decreased from $14.1 million in 2023 to $7.5 million in 2024, reflecting lower net charge-offs and certain qualitative adjustments in the company’s CECL (Current Expected Credit Losses) calculation. The allowance for credit losses increased to $73.0 million, or 1.32% of total loans, at the end of 2024 compared to $65.9 million, or 1.21% of total loans, at the end of 2023.

Wealth management fee income, which comprised 27% of total revenue in 2024, increased by 10% to $61.5 million compared to $55.7 million in 2023. This growth was driven by a 9% increase in the market value of assets under management and/or administration, which reached $11.9 billion at the end of 2024.

Total operating expenses increased by 18% to $175.7 million in 2024, primarily due to the company’s expansion into New York City and ongoing investment in its private banking model. This resulted in a decline in the company’s return on average assets from 0.76% in 2023 to 0.50% in 2024, and a decrease in return on average equity from 8.77% to 5.61% over the same period.

Strengths and Weaknesses

One of the company’s key strengths is its focus on wealth management, which has been a growing and profitable segment. The 9% increase in assets under management and the 10% growth in wealth management fee income demonstrate the success of this strategy. Additionally, the company’s expansion into the New York City market has resulted in approximately $950 million in new customer relationship deposits, diversifying its funding sources.

However, the company’s reliance on net interest income as the primary source of revenue has been a weakness, as the rising interest rate environment has compressed the net interest margin. The increase in operating expenses, particularly related to the New York City expansion and private banking model, has also weighed on profitability.

The company’s loan portfolio is concentrated in commercial real estate, with multifamily loans comprising 33% of the total loan portfolio and non-owner occupied commercial real estate loans accounting for 22% as of December 31, 2024. While the company believes it has adequately addressed the key elements of the risk management framework for commercial real estate concentration, this sector remains an area of potential vulnerability.

Outlook and Future Considerations

The company’s strategic plan calls for continued expansion of its wealth management business, both organically and through acquisitions, as well as growth in its commercial and industrial lending platform. The success of these initiatives will be critical in offsetting the pressure on net interest income and margins.

The company’s ability to effectively integrate its New York City expansion and manage the associated costs will also be a key factor in its future performance. The company’s focus on core deposit growth, particularly noninterest-bearing demand deposits, should help mitigate the impact of rising interest rates on funding costs.

Additionally, the company’s exposure to the New York City rental market, particularly in the rent-regulated multifamily segment, remains a concern. The company will need to closely monitor the performance of these loans and be prepared to make appropriate adjustments to its underwriting and risk management practices.

Overall, Peapack-Gladstone Financial Corporation faces a challenging operating environment, with pressure on net interest margins and the need to effectively manage the costs of its strategic initiatives. The company’s success in growing its wealth management business and navigating the commercial real estate market will be crucial in determining its future performance.