Peapack-Gladstone Financial Corp (NASDAQ:PGC)

Peapack-Gladstone Financial Corporation is a company that provides financial services through its wholly owned subsidiary, Peapack-Gladstone Bank, a community bank founded in 1921, and its Trust division, PGB Trust and Investments. Peapack-Gladstone Bank bank provides a range of banking services to individual and corporate customers through its 22 branches operating in central New Jersey.

The banks financial performance in fiscal 2006 has been sluggish, with its net interest income falling by 7% on the back of higher provisioning on account of bad loans. Net income of the bank went down by 22% due to losses in its investment portfolio and was a consequence of rising yields.

The banks advances portfolio mainly comprises of residential mortgages which offers modest yields. The rising rate environment where the U.S federal bank increased the rates for 17 consecutive times by 25 bps each time has catapulted the bench mark rates from 1% to 5.25%. This development has hurt financial services companies and Peapack is no different. The recent sub prime meltdown has also reduced investor confidence to invest in banks whose balance sheet is loaded with mortgage asset. This is also because the downswing in U.S housing market has eroded substantial collateral value raising the risk attached to the assets.

The banks asset quality is decent. However recent hike in loss provisioning is of some concern. The bank has nothing unique in its business model. Thus if the macro environment again becomes positive for financial assets this bank would do well. But because if U.S economy experiences sharp downturn then banks such as these would be facing troubled times.

The valuation of the company is reasonable. However looking at the risk of hard landing of U.S economy coupled with a slump in the U.S housing market, this might not be a stock investors would want to have in its portfolio.