Executive Summary

For the quarter ended March 31, 2025, Peapack-Gladstone Financial Corporation recorded total revenue of $64.4 million, pretax income of $10.4 million, net income of $7.6 million, and diluted earnings per share of $0.43. This compares to revenue of $53.1 million, pretax income of $12.4 million, net income of $8.6 million, and diluted earnings per share of $0.48 for the same period in 2024.

The decrease in net income was primarily driven by increased operating expenses, which were principally attributable to the company’s expansion into New York City, including the hiring of new employees and expenses related to opening new office and retail space. The company also saw higher health insurance costs and annual merit increases.

However, the company has seen positive momentum in its net interest margin, which increased to 2.68% in the first quarter of 2025 compared to 2.20% in the same period in 2024. This was driven by the company’s focus on growing lower-cost core deposit relationships through its single point of contact private banking strategy and New York City expansion. Deposits grew $157.5 million in the first quarter of 2025, including $72.1 million in noninterest bearing demand deposits.

Other income and wealth management fee income continue to be a consistent and steady revenue stream for the company, representing 29% of total revenue in the first quarter of 2025.

Net Interest Income and Net Interest Margin

Net interest income, on a fully tax-equivalent basis, increased 32% year-over-year to $45.7 million for the first quarter of 2025. The net interest margin expanded to 2.68% from 2.20% in the same period in 2024.

The increase was driven by the company’s focus on growing lower-cost core deposit relationships, which were used to purchase investments as well as fund loans. The Federal Reserve’s interest rate decreases in the latter half of 2024 also helped the company lower deposit rates and improve the net interest margin.

The average balance of interest-earning assets increased 9% year-over-year to $6.91 billion, reflecting increases in interest-earning deposits, investments, residential mortgages, installment loans, and commercial loans. This was partially offset by a decline in commercial mortgages.

The average yield on total loans was relatively flat at 5.41% compared to 5.39% in the same 2024 period. The yield on residential mortgages increased 57 basis points to 4.32%, while the yields on commercial mortgages and commercial loans declined.

The average balance of interest-bearing liabilities increased 7% to $5.14 billion, primarily due to a $575.3 million increase in interest-bearing deposits. This was partially offset by a $234.4 million decrease in overnight borrowings. The average cost of interest-bearing liabilities declined 55 basis points to 3.18%, driven by lower deposit and borrowing rates.

Loan Portfolio and Asset Quality

The company saw strong loan growth in the first quarter of 2025, with total loans closed increasing 130% year-over-year to $438.2 million. This was driven by a $35.8 million increase in commercial real estate originations and a $111.5 million increase in commercial and industrial (C&I) loan originations.

At March 31, 2025, the bank had a concentration in commercial real estate (CRE) loans, with multifamily real estate loans at 228% of total regulatory capital and non-owner occupied CRE loans at 127% of total regulatory capital. Management believes it satisfactorily addresses the key elements in the risk management framework for effectively managing CRE concentration risks.

Nonperforming assets increased to $97.2 million, or 1.69% of total loans, at March 31, 2025 compared to $69.8 million, or 1.30%, at March 31, 2024. The increase was primarily due to higher levels of performing modifications, loans past due 30-89 days, and loans subject to special mention. Management attributed this to the persistent high interest rate environment and inflationary pressures impacting certain borrowers.

The allowance for credit losses increased to $75.2 million, or 1.31% of total loans, at March 31, 2025 compared to $66.3 million, or 1.24%, at March 31, 2024. The increased provision for credit losses in the first quarter of 2025 was driven by overall loan growth, increased charge-offs, and deterioration of economic data used in the CECL model.

Wealth Management

The company’s Wealth Management Division generated $15.4 million in fee income in the first quarter of 2025, a 7% increase from the same period in 2024. This was largely due to strong client inflows from new accounts and additions.

The market value of assets under management and/or administration was $11.8 billion at March 31, 2025, a 1% decrease from December 31, 2024 but a 3% increase from March 31, 2024, reflecting market conditions and new client inflows.

Operating expenses for the Wealth Management Division increased slightly to $9.6 million in the first quarter of 2025 compared to $9.4 million in the same 2024 period, in line with the company’s strategic plan to hire key management and revenue-producing personnel.

Capital and Liquidity

The company’s capital ratios remained above the levels required to be considered “well capitalized” as of March 31, 2025. The total capital ratio was 14.19% and the Tier 1 leverage ratio was 8.98%.

Capital increased due to $7.6 million in net income for the first quarter of 2025 and a $8.7 million decline in accumulated other comprehensive loss, net of tax. The company employs quarterly capital stress testing and believes it has sufficient capital to support planned growth.

In terms of liquidity, the company had $231.9 million in cash and cash equivalents and $832.0 million in securities designated as available for sale at March 31, 2025. It also had approximately $3.3 billion in external borrowing capacity available on a same-day basis.

Management believes the company’s liquidity position and sources were adequate at March 31, 2025, providing 283% coverage of uninsured/unprotected deposits. The company has a Board-approved Contingency Funding Plan and conducts regular liquidity stress testing.

Asset/Liability Management and Interest Rate Risk

The company uses various strategies to manage interest rate risk, including:

• Actively marketing adjustable-rate C&I loans and equipment finance leases/loans
• Limiting residential mortgage portfolio originations to adjustable-rate and/or shorter-term loans
• Actively marketing core deposit relationships
• Utilizing medium-to-longer term certificates of deposit and/or wholesale borrowings
• Using interest rate swaps to extend liability duration
• Closely monitoring and managing the investment portfolio

The company’s interest rate sensitivity models indicate it is liability sensitive as of March 31, 2025. In a 100 basis point increase in rates, net interest income would decrease 1.1% in year 1 but increase 1.6% in year 2. In a 100 basis point decrease, net interest income would increase 0.6% in year 1 but decrease 3.4% in year 2.

The company’s economic value of portfolio equity (EVPE) would decrease 2.96% in a 100 basis point rate increase scenario and increase 2.39% in a 100 basis point rate decrease scenario.

Overall, the company appears to be effectively managing its interest rate risk through a variety of balance sheet and hedging strategies. However, it remains susceptible to margin compression in a rising rate environment due to its liability sensitivity.

Conclusion

Peapack-Gladstone Financial Corporation delivered solid financial performance in the first quarter of 2025, with strong loan growth, improved net interest margin, and steady wealth management fee income. However, the company faced higher operating expenses related to its expansion into New York City, which pressured net income.

The company has a well-diversified balance sheet, with a focus on growing lower-cost core deposits and adjustable-rate commercial loans to manage interest rate risk. Its capital and liquidity positions remain strong, providing flexibility to support future growth.

While the company faces some asset quality challenges due to the persistent high interest rate environment, it appears to have the necessary risk management frameworks in place. Overall, Peapack-Gladstone Financial Corporation seems well-positioned to continue executing on its strategic initiatives and delivering value to shareholders.