Peapack-Gladstone is a New Jersey private bank that spent three years buying talent out of the regional-bank wreckage and is now collecting the operating leverage that hiring binge was supposed to produce. Revenue rose for a ninth straight quarter while expenses barely moved, and the net interest margin, the spread between what the bank earns on loans and pays on deposits, widened again. The debate is no longer whether the Park Avenue build-out works. The debate is whether a New York multifamily credit slip and a second draw on convertible preferred stock show that growth is still consuming capital faster than earnings can replace it.
Common shareholders earned more than in the year-ago quarter as net interest income did the heavy lifting and wealth fees supplied about a fifth of revenue. Wealth-management fee income was $17 million. Noninterest-bearing deposits, accounts that pay the customer nothing, rose by $80 million and captured a large share of the inflow. That mix is why the margin can expand even as deposit competition in the metro New York market has, in management's own words, increased markedly. The offset is credit: nonperforming assets, loans that have stopped paying as agreed, jumped because of one larger multifamily relationship, and the provision for expected losses rose with it.
The stock already prices a successful harvest. Shares recently changed hands near $45. Tangible book, equity minus goodwill and other intangibles, was $36 per share at mid-year. The trailing earnings multiple sits toward the rich end of the Mid-Atlantic community-bank band. Management is targeting a one percent return on assets and a ten percent return on equity by late this year or early next. Whether that print arrives without another preferred draw, and whether the multifamily file is a one-credit event rather than the start of a New York rent-regulated book problem, is what the next two quarters resolve.