KBRA Affirms Ratings for Peapack-Gladstone Financial Corporation

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Bedminster, New Jeresey based Peapack-Gladstone Financial Corporation (NASDAQ: PGC) ("Peapack" or "the company"). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Peapack Private Bank & Trust. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

Peapack’s ratings are supported by the successful execution of its strategic transformation over the past several years, particularly the significant enhancement in its funding profile. Through team lift-outs and expansion into metro NYC, the company has meaningfully increased low-cost deposit relationships, notably NIB balances, while reducing reliance on wholesale funding. As it currently stands, the company’s deposit costs have moved more in line with peers, declining to ~2.0% in 1Q26 from levels that were more than 60 bps higher in 2024. Moreover, Peapack has been one of the few banks to meaningfully improve its deposit mix during this period, with NIB deposits increasing to 23% of total deposits from 19% two years ago. Management expects this proportion to continue gradually rising toward 25% over the next several years. The improvement in deposit mix and funding costs is particularly notable given the company’s presence in the highly competitive New York metro market. While the strategy has required substantial upfront investment in personnel, infrastructure, technology, and risk management — which has pressured operating efficiency and profitability metrics in recent years — the benefits are becoming increasingly visible through margin expansion and recent positive operating leverage. We believe PGC remains in the relatively early innings of fully realizing the earnings benefits of this transformation, notably as loans continue to reprice, the company achieves greater economies of scale, and the commercial banking platform matures. Assuming continued execution over the next few years, PGC appears well-positioned to generate profitability metrics toward the upper end of the rating category, including a more diversified revenue stream (noninterest income to total revenues generally tracking around 30%) given its sizable wealth management platform ($13.1 billion of AUM/AUA as of 1Q26), which remains an important area of emphasis, particularly within the newer client base.

Profitability (ROA of ~0.75% in 1Q26; ~0.50% in FY24 & FY25) has also been pressured by elevated credit costs tied primarily to NYC rent-regulated multifamily and isolated equipment finance issues, notably within trucking. To mitigate some of these issues, management has taken a more granular and conservative approach within equipment finance. At the same time, management has repositioned the loan portfolio toward more relationship-oriented C&I lending, while gradually reducing emphasis rent-regulated multifamily. While problem asset trends have improved (NPA ratio of 0.92% as of 1Q26) and several larger credits continue to be worked out, we expect higher credit costs and NCOs to likely persist through the remainder of 2026 and potentially into 2027.

Risk-based capital measures have been pressured in recent years (CET1 ratio of 10.6% as of 1Q26) due to subdued profitability and accelerated commercial loan growth. However, management has been proactive in addressing capital needs, completing a $30 million preferred stock issuance in 1Q26, which includes both a convertibility feature into common equity and an additional $20 million issuance option. While the preferred does not immediately provide support to core capital ratios as common equity, the convertibility feature should enhance flexibility and provide a path toward improving core ratios over time. Although capital ratios could remain somewhat pressured during this period of elevated growth and balance sheet remixing, we would expect capital generation to improve meaningfully as earnings continue to scale and the company progresses into the later stages of its strategic expansion over the next several years.

The liquidity position is considered adequate despite a still comparatively elevated loan-to-deposit ratio (94% as of 1Q26), supported by the demonstrated durability of the deposit base, which remained stable throughout the regional banking turmoil. In addition, the newer commercial deposit teams have utilized reciprocal deposit networks to provide expanded FDIC insurance coverage for clients and reinforce funding stability. While reciprocal deposits now represent a meaningful portion of total deposits (33% as of 1Q26) and inflate reported brokered deposit levels, we continue to view these balances as relationship-oriented core funding rather than traditional rate-sensitive brokered deposits.

Rating Sensitivities

A rating upgrade is not expected over the medium term, but continued strategic execution, improved credit quality, enhanced earnings and capital, while maintaining a solid liquidity/funding profile could result in positive rating momentum over the longer term. Conversely, a downgrade is not expected, but further asset quality issues, meaningful capital erosion, prolonged earnings underperformance, or disruption from new teams could result in negative rating action.

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