Form 10-Q PEAPACK GLADSTONE FINANC For: Jun 30

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August 7, 2015 9:17 AM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended June 30, 2015

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-16197

PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

New Jersey	22-3537895
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

500 Hills Drive, Suite 300
Bedminster, New Jersey 07921-1538
(Address of principal executive offices, including zip code)

(908)234-0700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.

Yes x No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 or Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer (do not check if a smaller reporting company) o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of Common Stock outstanding as of July 31, 2015:

15,591,046

PEAPACK-GLADSTONE FINANCIAL CORPORATION

PART 1 FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited)
	Consolidated Statements of Condition at June 30, 2015 and December 31, 2014	Page 3
	Consolidated Statements of Income for the three months and six months ended June 30, 2015 and 2014	Page 4
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014	Page 5
	Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June 30, 2015	Page 6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014	Page 7
	Notes to Consolidated Financial Statements	Page 8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 39
Item 3	Quantitative and Qualitative Disclosures about Market Risk	Page 60
Item 4	Controls and Procedures	Page 60

PART 2 OTHER INFORMATION

Item 1	Legal Proceedings	Page 61
Item 1A	Risk Factors	Page 61
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	Page 61
Item 3	Defaults Upon Senior Securities	Page 62
Item 4	Mine Safety Disclosures	Page 62
Item 5	Other Information	Page 62
Item 6	Exhibits	Page 62

Index

Item 1. Financial Statements (Unaudited)

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands, except share data)

	(unaudited)			(audited)
	June 30,			December 31,
	2015			2014
ASSETS
Cash and due from banks	$	6,205		$	6,621
Federal funds sold		101			101
Interest-earning deposits		32,382			24,485
Total cash and cash equivalents		38,688			31,207

Securities available for sale		245,897			332,652
FHLB and FRB stock, at cost		15,590			11,593
Loans held for sale, at fair value		745			839
Loans		2,741,938			2,250,267
Less: Allowance for loan losses		22,969			19,480
Net loans		2,718,969			2,230,787

Premises and equipment		31,637			32,258
Other real estate owned		956			1,324
Accrued interest receivable		6,451			5,371
Bank owned life insurance		32,565			32,634
Deferred tax assets, net		12,673			10,491
Other assets		13,999			13,241
TOTAL ASSETS	$	3,118,170		$	2,702,397
LIABILITIES
Deposits:
Noninterest-bearing demand deposits	$	386,588		$	366,371
Interest-bearing deposits:
Interest-bearing deposits checking		667,847			600,889
Savings		120,606			112,878
Money market accounts		717,246			700,069
Certificates of deposit - Retail		384,235			198,819
Subtotal deposits		2,276,522			1,979,026
Interest-bearing demand – Brokered		293,000			188,000
Certificates of deposit - Brokered		94,224			131,667
Total deposits		2,663,746			2,298,693
Overnight borrowings with Federal Home Loan Bank		87,500			54,600
Federal Home Loan Bank advances		83,692			83,692
Capital lease obligation		10,475			10,712
Accrued expenses and other liabilities		14,881			12,433
TOTAL LIABILITIES		2,860,294			2,460,130
SHAREHOLDERS’ EQUITY
Preferred stock (no par value; authorized 500,000 shares;
liquidation preference of $1,000 per share)		—			—
Common stock (no par value; stated value $0.83 per share; authorized
21,000,000 shares; issued shares, 16,000,346 at June 30, 2015 and
15,563,895 at December 31, 2014; outstanding shares, 15,592,168 at
June 30, 2015 and 15,155,717 at December 31, 2014		13,319			12,954
Surplus		202,776			195,829
Treasury stock at cost, 408,178 shares at June 30, 2015 and
December 31, 2014		(8,988	)		(8,988	)
Retained earnings		49,966			41,251
Accumulated other comprehensive income, net of income tax		803			1,221
TOTAL SHAREHOLDERS’ EQUITY		257,876			242,267
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	3,118,170		$	2,702,397

See accompanying notes to consolidated financial statements

Index

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
INTEREST INCOME
Interest and fee on loans	$	22,624	$	17,428	$	43,611	$	33,090
Interest on securities available for sale:
Taxable		1,037		977		2,219		2,038
Tax-exempt		128		189		267		393
Interest on loans held for sale		24		15		34		25
Interest-earning deposits		39		21		82		33
Total interest income		23,852		18,630		46,213		35,579
INTEREST EXPENSE
Interest on savings and interest-bearing deposit
accounts		1,184		504		2,070		943
Interest on certificates of deposit		1,051		369		1,714		724
Interest on borrowed funds		428		382		820		772
Interest on capital lease obligation		126		118		254		237
Subtotal - interest expense		2,789		1,373		4,858		2,676
Interest-bearing demand – brokered		215		70		400		114
Interest on certificates of deposits – brokered		504		264		1,028		295
Total Interest expense		3,508		1,707		6,286		3,085
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES		20,344		16,923		39,927		32,494
Provision for loan losses		2,200		1,150		3,550		2,475
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		18,144		15,773		36,377		30,019
OTHER INCOME
Wealth management fee income		4,532		4,005		8,563		7,759
Service charges and fees		837		708		1,642		1,402
Bank owned life insurance		248		276		785		542
Gain on loans held for sale at fair value (Mortgage banking)		161		112		309		224
Gain on loans held for sale at lower of cost or fair value		—		176		—		176
Other income		545		117		638		188
Securities gains, net		176		79		444		177
Total other income		6,499		5,473		12,381		10,468
OPERATING EXPENSES
Salaries and employee benefits		9,872		9,089		19,297		17,937
Premises and equipment		2,778		2,334		5,394		4,772
Other operating expense		3,616		3,507		7,343		6,560
Total operating expenses		16,266		14,930		32,034		29,269
INCOME BEFORE INCOME TAX EXPENSE		8,377		6,316		16,724		11,218
Income tax expense		3,139		2,533		6,478		4,404
NET INCOME	$	5,238	$	3,783	$	10,246	$	6,814

EARNINGS PER COMMON SHARE
Basic	$	0.34	$	0.32	$	0.68	$	0.58
Diluted	$	0.34	$	0.32	$	0.67	$	0.58
WEIGHTED AVERAGE NUMBER OFCOMMON
SHARES OUTSTANDING
Basic		15,082,516		11,721,256		14,996,596		11,664,410
Diluted		15,233,151		11,846,075		15,189,781		11,814,806

See accompanying notes to consolidated financial statements

Index

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014

Net income	$	5,238		$	3,783		$	10,246		$	6,814
Other comprehensive income:
Unrealized gains/(losses) on available for sale
securities:
Unrealized holding (losses)/gains arising
during the period		(1,135	)		1,367			97			2,449
Less: Reclassification adjustment for net gains
included in net income		176			79			444			177
		(1,311	)		1,288			(347	)		2,272
Tax effect		501			(464	)		142			(865	)
Net of tax		(810	)		824			(205	)		1,407

Unrealized loss on cash flow hedges
Unrealized holding loss		631			—			(361	)		—
Reclassification adjustment for losses included in
net income		—			—			—			—
		631			—			(361	)		—
Tax effect		(257	)		—			148			—
Net of tax		374			—			(213	)		—


Total other comprehensive (loss)/income		(436	)		824			(418	)		1,407

Total comprehensive income	$	4,802		$	4,607		$	9,828		$	8,221

See accompanying notes to consolidated financial statements

Index

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

Six Months Ended June 30, 2015

													Accumulated
													Other
(In thousands, except	Common						Treasury			Retained			Comprehensive
per share data)	Stock			Surplus			Stock			Earnings			Income			Total

Balance at January 1, 2015
15,155,717 common shares
outstanding	$	12,954		$	195,829		$	(8,988	)	$	41,251		$	1,221		$	242,267
Net income											10,246						10,246
Other comprehensive loss														(418	)		(418	)
Issuance of restricted stock, net
of forfeitures 160,764 shares		134			(134	)											—
Vesting of restricted stock, 4,689
shares		(4	)		(50	)											(54	)
Amortization of restricted stock					1,098												1,098
Cash dividends declared on
common stock
($0.10 per share)											(1,531	)					(1,531	)
Common stock option expense					121												121
Common stock options
exercised and related tax
benefits, 14,388 shares		12			169												181
Common stock options
swap and related tax benefits,
7,506 shares		(5	)		(147	)											(152	)
Sales of shares (Dividend
Reinvestment Program),
210,119 shares		175			3,637												3,812
Issuance of shares for
Employee Stock Purchase
Plan,15,459 shares		13			293												306
Issuance of common stock
WMC acquisition, 47,916
shares		40			960												1,000
Issuance of warrants					1,000												1,000
Balance at June 30, 2015
15,592,168 common shares
outstanding	$	13,319		$	202,776		$	(8,988	)	$	49,966		$	803		$	257,876

See accompanying notes to consolidated financial statements

Index

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six Months Ended June 30,
	2015			2014
OPERATING ACTIVITIES:
Net income	$	10,246		$	6,814
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,605			1,448
Amortization of premium and accretion of discount on securities, net		938			720
Amortization of restricted stock		1,098			721
Provision of loan losses		3,550			2,475
Provision for OREO losses		—			400
Provision for deferred taxes		(1,892	)		(536	)
Stock-based compensation, including ESPP		172			106
Gains on securities, available for sale		(444	)		(177	)
Loans originated for sale at fair value		(20,661	)		(17,004	)
Proceeds from sales of loans at fair value		21,064			16,579
Gains on loans held for sale at fair value		(309	)		(224	)
Net gains on loans held for sale at lower of cost or fair value		—			(176	)
Losses/(gains) on sale of other real estate owned		38			(108	)
Gains on disposal of fixed assets		—			(9	)
Gain on death benefit		(88	)		—
Increase in cash surrender value of life insurance, net		(323	)		(376	)
Increase in accrued interest receivable		(1,080	)		(772	)
Decrease in other assets		2,908			4,769
Decrease/(increase) in accrued expenses, capital lease obligations
and other liabilities		1,175			(903	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		17,997			13,747
INVESTING ACTIVITIES:
Maturities of securities available for sale		39,479			52,411
Redemptions for FHLB & FRB stock		32,200			—
Call of securities available for sale		14,880			—
Sales of securities available for sale		36,865			25,167
Purchase of securities available for sale		(5,310	)		(32,586	)
Purchase of FHLB & FRB stock		(36,197	)		—
Proceeds from sales of loans held for sale at lower of cost or fair value		—			68,031
Net increase in loans		(491,732	)		(369,607	)
Sales of other real estate owned		330			982
Purchase of premises and equipment		(984	)		(2,326	)
Disposal of premises and equipment		—			14
Acquisition of a wealth management company		(800	)		—
Proceeds from death benefit		238			—
NET CASH USED IN INVESTING ACTIVITIES		(411,031	)		(257,914	)
FINANCING ACTIVITIES:
Net increase in deposits		365,053			467,918
Net increase/(decrease) in overnight borrowings se in overnight borrowings		32,900			(54,900	)
Net increase in other borrowings		—			9,000
Cash dividends paid on common stock		(1,531	)		(1,191	)
Exercise of Stock Options, net of stock swap		29			92
Restricted stock tax expense		(54	)		—
Sales of shares (DRIP Program)		3,812			3,657
Purchase of shares for Profit Sharing Plan		306			70
NET CASH PROVIDED BY FINANCING ACTIVITIES		400,515			424,646
Net increase in cash and cash equivalents		7,481			180,479
Cash and cash equivalents at beginning of period		31,207			35,147
Cash and cash equivalents at end of period	$	38,688		$	215,626

See accompanying notes to consolidated financial statements

Index

PEAPACK-GLADSTONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Certain information and footnote disclosures normally included in the audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the period ended December 31, 2014 for Peapack-Gladstone Financial Corporation (the “Corporation” or the “Company”). In the opinion of the Management of the Corporation, the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of June 30, 2015 and the results of operations and comprehensive income for the three and six months ended June 30, 2015 and 2014, and shareholders’ equity and cash flow statements for the six months ended June 30, 2015 and 2014.

Principles of Consolidation and Organization: The Corporation considers that all adjustments necessary for a fair presentation of the statement of the financial position and results of operations in accordance with U.S. generally accepted accounting principles for these periods have been made. Results for such interim periods are not necessarily indicative of results for a full year.

The consolidated financial statements of the Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly-owned subsidiary, Peapack-Gladstone Bank (the “Bank”). The consolidated statements also include the Bank’s wholly-owned subsidiary, PGB Trust & Investments of Delaware and Peapack-Gladstone Mortgage Group, Inc. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Securities: All securities are classified as available for sale and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium of discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, Management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) other-than-temporary impairment related to credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

Loans Held for Sale: Mortgage loans originated with the intent to sell in the secondary market are carried at fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged in earnings.

Index

Mortgage loans held for sale are generally sold with servicing rights released; therefore, no servicing rights are recorded. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans originated with the intent to hold and subsequently transferred to loans held for sale are carried at the lower of cost or fair value. These are loans that the Corporation no longer has the intent to hold for the foreseeable future.

Loans: Loans that Management has the intent and ability to hold for the foreseeable future or until maturity are stated at the principal amount outstanding. Interest on loans is recognized based upon the principal amount outstanding. Loans are stated at face value, less purchased premium and discounts and net deferred fees. Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the loan as an adjustment, on a level-yield method, to the loan’s yield. The definition of recorded investment in loans includes accrued interest receivable, however, for the Company’s loan disclosures, accrued interest was excluded as the impact was not material.

Loans are considered past due when they are not paid in accordance with contractual terms. The accrual of income on loans, including impaired loans, is discontinued if, in the opinion of Management, principal or interest is not likely to be paid in accordance with the terms of the loan agreement, or when principal or interest is past due 90 days or more and collateral, if any, is insufficient to cover principal and interest. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Payments received on nonaccrual loans are recorded as principal payments. A nonaccrual loan is returned to accrual status only when interest and principal payments are brought current and future payments are reasonably assured, generally when the Bank receives contractual payments for a minimum of six months. Commercial loans are generally charged off after an analysis is completed which indicates that collectability of the full principal balance is in doubt. Consumer loans are generally charged off after they become 120 days past due. Subsequent payments are credited to income only if collection of principal is not in doubt. If principal and interest payments are brought contractually current and future collectability is reasonably assured, loans are returned to accrual status. Nonaccrual mortgage loans are generally charged off when the value of the underlying collateral does not cover the outstanding principal balance.

The majority of the Company’s loans are secured by real estate in the New Jersey and New York metropolitan area.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when Management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in Management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component of the allowance relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by Management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Index

All loans are individually evaluated for impairment when loans are classified as substandard by Management. If a loan is considered impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral less estimated disposition costs if repayment is expected solely from the collateral. If and when a residential mortgage is placed on nonaccrual status and in the process of collection, such as through a foreclosure action, then they are evaluated for impairment on an individual basis and the loan is reported, net, at the fair value of the collateral less estimated disposition costs.

A troubled debt restructuring (“TDR”) is a renegotiated loan with concessions made by the lender to a borrower who is experiencing financial difficulty. TDRs are impaired and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral, less estimated disposition costs. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component of the allowance covers non-impaired loans and is based primarily on the Bank’s historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experience by the Company on a weighted average basis over the previous three years. This actual loss experience is adjusted by other qualitative factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures and practices; experience, ability and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. For special mention and substandard loans that are graded as non-impaired, the Company allocates a higher general reserve percentage then pass-rated loans through utilization of a multiple, which is calculated annually through a migration analysis. At June 30, 2015 and December 31, 2014, the multiple was 5 times for non-impaired substandard loans and 2.5 times for non-impaired special mention loans.

In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on Federal call report codes, which are based on collateral. The following portfolio classes have been identified:

Primary Residential Mortgages. The Bank originates one to four family residential mortgage loans within or near its primary geographic market area. Loans are secured by first liens on the primary residence or investment property. Primary risk characteristics associated with residential mortgage loans typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as for major medical issues or catastrophic events; divorce or death. In addition, residential mortgage loans that have adjustable rates could expose the borrower to higher debt service requirements in a rising interest rate environment. Further, real estate value could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential exposure for the Bank.

Home Equity Lines of Credit. The Bank provides revolving lines of credit against one to four family residences within or near its primary geographic market. Primary risk characteristics associated with home equity lines of credit typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as for major medical issues or catastrophic events; divorce or death. In addition, home equity lines of credit typically are made with variable or floating interest rates, such as the Prime Rate, which could expose the borrower to higher debt service requirements in a rising interest rate environment. Further, real estate value could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential exposure for the Bank.

Index

Junior Lien Loan on Residence. The Bank provides junior lien loans against one to four family properties within or near its primary geographic market area. Junior lien loans can be either in the form of an amortizing home equity loan or a revolving home equity line of credit. These loans are subordinate to a first mortgage which may be from another lending institution. Primary risk characteristics associated with junior lien loans typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as for major medical issues or catastrophic events; divorce or death. Further, real estate value could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential exposure for the Bank.

Multifamily and Commercial Real Estate Loans. The Bank provides mortgage loans for multifamily properties (i.e. buildings which have five or more residential units) and other commercial real estate that is either owner occupied or managed as an investment property within or near its market area, including New York City. Commercial real estate properties primarily include office and medical buildings, retail space, and warehouse or flex space. Some properties are considered “mixed use” as they are a combination of building types, such as an apartment building that may also have retail space. Multifamily loans are expected to be repaid from the cash flow of the underlying property so the collective amount of rents must be sufficient to cover all operating expenses, property management and maintenance, taxes and debt service. Increases in vacancy rates, interest rates or other changes in general economic conditions can all have an impact on the borrower and their ability to repay the loan. Commercial real estate loans are generally considered to have a higher degree of credit risk than multifamily loans as they may be dependent on the ongoing success and operating viability of a fewer number of tenants who are occupying the property and who may have a greater degree of exposure to economic conditions.

Commercial and Industrial Loans. The Bank provides lines of credit and term loans to operating companies for business purposes. The loans are generally secured by business assets such as accounts receivable, inventory, business vehicles and equipment. Commercial and industrial loans are typically repaid first by the cash flow generated by the borrower’s business operation. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and resulting positive cash flow. Factors that may influence a business’s profitability include, but are not limited to, demand for its products or services, quality and depth of management, degree of competition, regulatory changes, and general economic conditions. Commercial and industrial loans are generally secured by business assets; however, the ability of the Bank to foreclose and realize sufficient value from the assets is often highly uncertain.

Commercial Construction. The Bank has substantially wound down its commercial construction lending activity given the current economic environment. New construction loans would be considered only to experienced and reputable local builders and developers that have the capital and liquidity to carry a project to completion and stabilization. Construction loans are considered riskier than commercial financing on improved and established commercial real estate. The risk of potential loss increases if the original cost estimates or time to complete are significantly off.

Consumer and Other. These are loans to individuals for household, family and other personal expenditures as well as obligations of states and political subdivisions in the U.S. This also represents all other loans that cannot be categorized in any of the previous mentioned loan segments.

Index

Derivatives: At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

The Company offers Facility Specific/Loan Level Swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution/swap counterparty. The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge account (“standalone derivatives”). The notional amount of the swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual contracts. The fair value of the swaps is recorded as both an asset and a liability, in Other Assets and Other Liabilities, respectively, in equal amounts for these transactions.

Stock-Based Compensation: The Company’s 2006 Long-Term Stock Incentive Plan and 2012 Long-Term Stock Incentive Plan allow the granting of shares of the Company’s common stock as incentive stock options, nonqualified stock options, restricted stock awards and stock appreciation rights to directors, officers and employees of the Company and its subsidiaries. Restricted stock units are also available for grant under the 2012 Long-Term Incentive Plan. The options granted under these plans are, in general, exercisable not earlier than one year after the date of grant, at a price equal to the fair value of common stock on the date of grant, and expire not more than ten years after the date of grant. Stock options may vest during a period of up to five years after the date of grant. Some options granted to officers at or above the senior vice president level were immediately exercisable at the date of grant. The Company has a policy of using new shares to satisfy option exercises.

Index

For the three months ended June 30, 2015 and 2014, the Company recorded total compensation cost for stock options of $56 thousand and $54 thousand respectively, with a recognized tax benefit of $6 thousand and $5 thousand for the quarters ended June 30, 2015 and 2014, respectively. The Company recorded total compensation cost for stock options for the six months ended June 30, 2015 and 2014, of $121 thousand and $106 thousand, respectively, with a recognized tax benefit of $12 thousand for the six months ended June 30, 2015 and $10 thousand for the six months ended June 30, 2014. There was approximately $225 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock incentive plans at June 30, 2015. That cost is expected to be recognized over a weighted average period of 0.76 years.

For the Company’s stock option plans, changes in options outstanding during the six months ended June 30, 2015 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In thousands)
Balance, January 1, 2015		345,189		$	17.38
Granted during 2015		—			—
Exercised during 2015		(14,388	)		12.60
Expired during 2015		(16,539	)		18.24
Forfeited during 2015		(6,378	)		13.99
Balance, June 30, 2015		307,884			17.60		4.80 years	$	1,423
Vested and expected to vest (1)		293,532			17.82		4.80 years	$	1,292
Exercisable at June 30, 2015		254,729			18.42		4.34 years	$	104

(1)

Does not include shares which are not expected to vest as a result of anticipated forfeitures.

The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of 2015 and the exercise price, multiplied by the number of in-the-money options). The Company’s closing stock price on June 30, 2015 was $22.22.

There were no stock options granted in the six months ended June 30, 2015. For the second quarter of 2014, the per share weighted-average fair value of stock options granted was $7.50 using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months			Six Months
	Ended			Ended
	June 30,			June 30,
	2014			2014

Dividend Yield		1.05	%		1.02	%
Expected volatility		40	%		40	%
Expected life		7 years			7 years
Risk-free interest rate		2.26	%		2.18	%

In the second quarter of 2015, the Company issued 13,147 restricted stock awards, at a fair value equal to the market price of the Company’s common stock at the date of grant. The awards may vest fully during a period of up to three or five years after the date of award. The stock awards were service based awards and vest ratably over three or five year periods. There were no performance based awards granted during this period.

Index

As of June 30, 2015, there was $6.8 million of total unrecognized compensation cost related to nonvested shares, which is expected to vest over 4.6 years.

Changes in nonvested shares dependent on performance criteria for the six months ended June 30, 2015 were as follows:

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Balance, January 1, 2015		92,767	$	18.12
Granted during 2015		—		—
Vested during 2015		—		—
Forfeited during 2015		—		—
Balance, June 30, 2015		92,767	$	18.12

Changes in nonvested shares not dependent on performance criteria for the six months ended June 30, 2015 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2015		252,328		$	17.34
Granted during 2015		160,764			20.94
Vested during 2015		(66,827	)		16.35
Forfeited during 2015		(2,124	)		20.24
Balance, June 30, 2015		344,141		$	19.20

For the three months ended June 30, 2015 and 2014, the Company recorded total compensation cost for stock awards of $623 thousand and $440 thousand respectively.

For the six months ended June 30, 2015 and 2014, the Company recorded total compensation cost for stock awards of $1.1 million and $721 thousand respectively.

Employee Stock Purchase Plan: On April 22, 2014, the shareholders of Peapack-Gladstone Financial Corporation approved the Peapack-Gladstone Financial Corporation 2014 Employee Stock Purchase Plan (“ESPP”). The ESPP provides for the granting of purchase rights of up to 150,000 shares of Company common stock. Subject to certain eligibility requirements and restrictions, the ESPP allows employees to purchase shares during four three-month offering periods. Each participant in the offering period is granted an option to purchase a number of shares and may contribute between 1% and 15% of their compensation. Purchases under the ESPP will be made on the last trading day of each offering period, and the number of shares to be purchased by the employee is determined by dividing the employee’s contributions accumulated during the offering period by the applicable purchase price. The purchase price is an amount equal to 85% of the closing market price of a share of Company common stock on the purchase date. Participation in the ESPP is entirely voluntary and employees can cancel their purchases at any time during the period without penalty.

Index

For the three months ended June 30, 2015, the Company recorded $24 thousand of share based compensation expense related to the ESPP. Total shares issued under the ESPP during the second quarter of 2015 were 7,571 shares. For the six months ended June 30, 2015, the Company recorded $51 thousand of share based compensation expense related to the ESPP. Total shares issued under the ESPP for the six months ended June 30, 2015 were 15,459 shares.

Earnings per Common share – Basic and Diluted: The following is a reconciliation of the calculation of basic and diluted earnings per share. Basic net income per common share is calculated by dividing net income available to common shareholders by the weighted average common shares outstanding during the reporting period. Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all common shares underlying potentially dilutive stock options were issued, restricted stock or stock warrants would vest during the reporting period utilizing the Treasury stock method.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except per share data)	2015		2014		2015		2014

Net income to common shareholders	$	5,238	$	3,783	$	10,246	$	6,814

Basic weighted-average common shares outstanding		15,082,516		11,721,256		14,996,596		11,664,410
Plus: common stock equivalents		150,635		124,819		193,185		150,396
Diluted weighted-average common shares outstanding		15,233,151		11,846,075		15,189,781		11,814,806
Net income per common share
Basic	$	0.34	$	0.32	$	0.68	$	0.58
Diluted		0.34		0.32		0.67		0.58

Stock options totaling 114,198 and 132,140 shares were not included in the computation of diluted earnings per share in the second quarters of 2015 and 2014, respectively, because they were considered antidilutive. Stock options and stock warrants totaling 254,767 and 151,674 shares were not included in the computation of diluted earnings per share in the six months ended June 30, 2015 and 2014, respectively, because they were considered antidilutive.

Income Taxes: The Company files a consolidated Federal income tax return. Separate state income tax returns are filed for each subsidiary based on current laws and regulations.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on the enacted tax rates. Such tax assets and liabilities are adjusted for the effect of a change in tax rates in the period of enactment.

The Company recognizes a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company is no longer subject to examination by the U.S. Federal tax authorities for years prior to 2012 or by New Jersey tax authorities for years prior to 2010.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Index

2. INVESTMENT SECURITIES AVAILABLE FOR SALE

A summary of amortized cost and approximate fair value of securities available for sale included in the consolidated statements of condition as of June 30, 2015 and December 31, 2014 follows:

	June 30, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	4,830	$	8	$	(16	)	$	4,822
Mortgage-backed securities – residential		191,885		2,149		(196	)		193,838
Small business administration
pool securities		7,817		—		(59	)		7,758
State and political subdivisions		33,556		445		(1	)		34,000
Single-issuer trust preferred security		2,999		—		(464	)		2,535
CRA investment		3,000		—		(56	)		2,944
Total	$	244,087	$	2,602	$	(792	)	$	245,897

	December 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	35,664	$	55	$	(49	)	$	35,670
Mortgage-backed securities – residential		239,975		2,725		(411	)		242,289
Small business administration
pool securities		8,015		—		(71	)		7,944
State and political subdivisions		40,842		553		(1	)		41,394
Single-issuer trust preferred security		2,999		—		(599	)		2,400
CRA investment		3,000		—		(45	)		2,955
Total	$	330,495	$	3,333	$	(1,176	)	$	332,652

The following tables present the Corporation’s available for sale securities with continuous unrealized losses and the approximate fair value of these investments as of June 30, 2015 and December 31, 2014.

	June 30, 2015
	Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer					Total
	Approximate					Approximate					Approximate
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government
Sponsored entities	$	2,977	$	(16	)	$	—	$	—		$	2,977	$	(16	)
Mortgage-backed
securities-residential		25,020		(86	)		10,452		(110	)		35,472		(196	)
Small business
administration
pool securities		7,758		(59	)		—		—			7,758		(59	)
State and political
subdivisions		498		(1	)		—		—			498		(1	)
Single-issuer trust
preferred security		—		—			2,535		(464	)		2,535		(464	)
CRA investment fund		—		—			2,944		(56	)		2,944		(56	)
Total	$	36,253	$	(162	)	$	15,931	$	(630	)	$	52,184	$	(792	)

Index

	December 31, 2014
	Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer					Total
	Approximate					Approximate					Approximate
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. government
sponsored entities	$	19,119	$	(20	)	$	2,963	$	(29	)	$	22,082	$	(49	)
Mortgage-backed
securities-residential		65,368		(191	)		20,428		(220	)		85,796		(411	)
Small business
administration
pool securities		7,944		(71	)		—		—			7,944		(71	)
State and political
subdivisions		505		(1	)		—		—			505		(1	)
Single-issuer trust
Preferred security		—		—			2,400		(599	)		2,400		(599	)
CRA investment fund		—		—			2,955		(45	)		2,955		(45	)
Total	$	92,936	$	(283	)	$	28,746	$	(893	)	$	121,682	$	(1,176	)

Management believes that the unrealized losses on investment securities available for sale are temporary and are due to interest rate fluctuations and/or volatile market conditions rather than the creditworthiness of the issuers. As of June 30, 2015, the Company does not intend to sell these securities nor is it likely that it will be required to sell the securities before their anticipated recovery; therefore, none of the securities in unrealized loss position were determined to be other-than-temporarily impaired.

At June 30, 2015, the unrealized loss on the single-issuer trust preferred security of $464 thousand was related to a debt security issued by a large bank holding company that has experienced declines in all its securities due to the turmoil in the financial markets and a merger. The security was downgraded to below investment grade by Moody’s and is currently rated Ba1. Management monitors the performance of the issuer on a quarterly basis to determine if there are any credit events that could result in deferral or default of the security. Management believes the depressed valuation is a result of the nature of the security, a trust preferred bond, and the bond’s very low yield. As Management does not intend to sell this security nor is it likely that it will be required to sell the security before its anticipated recovery, the security is not considered other-than-temporarily impaired at June 30, 2015.

3. LOANS

Loans outstanding, by general ledger classification, as of June 30, 2015 and December 31, 2014, consisted of the following:

			% of					% of
	June 30,		Totals			December 31,		Total
(In thousands)	2015		Loans			2014		Loans
Residential mortgage	$	470,863		17.17	%	$	466,760		20.74	%
Multifamily mortgage		1,371,139		50.01			1,080,256		48.00
Commercial mortgage		375,440		13.69			308,491		13.71
Commercial loans		438,461		15.99			308,743		13.72
Construction loans		1,417		0.05			5,998		0.27
Home equity lines of credit		51,675		1.89			50,141		2.23
Consumer loans, including fixed
rate home equity loans		29,996		1.09			28,040		1.25
Other loans		2,947		0.11			1,838		0.08
Total loans	$	2,741,938		100.00	%	$	2,250,267		100.00	%

Index

In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on federal call report codes. The following portfolio classes have been identified as of June 30, 2015 and December 31, 2014:

			% of					% of
	June 30,		Totals			December 31,		Total
(In thousands)	2015		Loans			2014		Loans
Primary residential mortgage	$	482,765		17.62	%	$	480,149		21.37	%
Home equity lines of credit		51,832		1.89			50,302		2.24
Junior lien loan on residence		11,049		0.40			11,808		0.52
Multifamily property		1,371,139		50.05			1,080,256		48.07
Owner-occupied commercial real estate		126,926		4.63			105,446		4.69
Investment commercial real estate		534,870		19.53			405,771		18.06
Commercial and industrial		128,475		4.69			81,362		3.62
Secured by farmland/agricultural
production		183		0.01			364		0.02
Commercial construction loans		150		0.01			4,715		0.21
Consumer and other loans		32,058		1.17			27,084		1.20
Total loans	$	2,739,447		100.00	%	$	2,247,257		100.00	%
Net deferred fees		2,491					3,010
Total loans including net deferred costs	$	2,741,938				$	2,250,267

The following tables present the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan losses as of June 30, 2015 and December 31, 2014:

	June 30, 2015
	Total		Ending ALLL		Total		Ending ALLL
	Loans		Attributable		Loans		Attributable
	Individually		To Loans		Collectively		To Loans
	Evaluated		Individually		Evaluated		Collectively				Total
	For		Evaluated for		For		Evaluated for		Total		Ending
(In thousands)	Impairment		Impairment		Impairment		Impairment		Loans		ALL
Primary residential
mortgage	$	7,256	$	255	$	475,509	$	2,154	$	482,765	$	2,409
Home equity lines
of credit		207		—		51,625		113		51,832		113
Junior lien loan
on residence		142		—		10,907		73		11,049		73
Multifamily
property		—		—		1,371,139		8,623		1,371,139		8,623
Owner-occupied
commercial
real estate		1,319		—		125,607		2,286		126,926		2,286
Investment
commercial
real estate		11,637		677		523,233		7,102		534,870		7,779
Commercial and
industrial		245		145		128,230		1,444		128,475		1,589
Secured by
farmland and
agricultural
production		—		—		183		2		183		2
Commercial
construction		—		—		150		2		150		2
Consumer and
other		—		—		32,058		93		32,058		93
Total ALLL	$	20,806	$	1,077	$	2,718,641	$	21,892	$	2,739,447	$	22,969

Index

	December 31, 2014
	Total		Ending ALLL		Total		Ending ALLL
	Loans		Attributable		Loans		Attributable
	Individually		To Loans		Collectively		To Loans
	Evaluated		Individually		Evaluated		Collectively				Total
	For		Evaluated for		For		Evaluated for		Total		Ending
(In thousands)	Impairment		Impairment		Impairment		Impairment		Loans		ALLL
Primary residential
mortgage	$	6,500	$	317	$	473,649	$	2,606	$	480,149	$	2,923
Home equity lines
of credit		210		—		50,092		156		50,302		156
Junior lien loan
on residence		164		—		11,644		109		11,808		109
Multifamily
Property		—		—		1,080,256		8,983		1,080,256		8,983
Owner-occupied
Commercial
real estate		1,674		—		103,772		1,547		105,446		1,547
Investment
commercial
real estate		11,653		489		394,118		4,262		405,771		4,751
Commercial and
Industrial		248		149		81,114		731		81,362		880
Secured by
farmland and
agricultural production
production		—		—		364		4		364		4
Commercial
construction		—		—		4,715		31		4,715		31
Consumer and
Other		2		2		27,082		94		27,084		96
Total ALLL	$	20,451	$	957	$	2,226,806	$	18,523	$	2,247,257	$	19,480

Impaired loans include nonaccrual loans of $7.1 million at June 30, 2015 and $6.9 million at December 31, 2014. Impaired loans also include performing TDR loans of $13.7 million at June 30, 2015 and $13.6 million at December 31, 2014. At June 30, 2015, the allowance allocated to TDR loans totaled $1.0 million of which $159 thousand was allocated to nonaccrual loans. At December 31, 2014, the allowance allocated to TDR loans totaled $892 thousand of which $204 thousand was allocated to nonaccrual loans. All accruing TDR loans were paying in accordance with restructured terms as of June 30, 2015. The Company has not committed to lend additional amounts as of June 30, 2015 to customers with outstanding loans that are classified as loan restructurings.

The following tables present loans individually evaluated for impairment by class of loans as of June 30, 2015 and December 31, 2014:

The average impaired loans on the following tables represent year to date impaired loans.

	June 30, 2015
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	6,782	$	5,580	$	—	$	4,691
Owner-occupied commercial real estate		1,497		1,319		—		1,455
Investment commercial real estate		5,734		5,423		—		5,413
Commercial and industrial		178		99		—		148
Home equity lines of credit		209		207		—		193
Junior lien loan on residence		528		142		—		144
Consumer and other		—		—		—		1
Total loans with no related allowance	$	14,928	$	12,770	$	—	$	12,045
With related allowance recorded:
Primary residential mortgage	$	1,781	$	1,676	$	255	$	1,688
Investment commercial real estate		6,222		6,214		677		6,223
Commercial and industrial		179		146		145		147
Total loans with related allowance	$	8,182	$	8,036	$	1,077	$	8,058
Total loans individually evaluated for
impairment	$	23,110	$	20,806	$	1,077	$	20,103

Index

	December 31, 2014
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	5,264	$	4,635	$	—	$	3,543
Owner-occupied commercial real estate		1,809		1,674		—		2,626
Investment commercial real estate		5,423		5,423		—		5,512
Commercial and industrial		99		99		—		155
Home equity lines of credit		210		210		—		111
Junior lien loan on residence		293		164		—		224
Consumer and other		—		—		—		14
Total loans with no related allowance	$	13,098	$	12,205	$	—	$	12,185
With related allowance recorded:
Primary residential mortgage	$	2,138	$	1,865	$	317	$	1,361
Investment commercial real estate		6,230		6,230		489		5,927
Commercial and industrial		179		149		149		249
Consumer and other		2		2		2		—
Total loans with related allowance	$	8,549	$	8,246	$	957	$	7,537
Total loans individually evaluated for
impairment	$	21,647	$	20,451	$	957	$	19,722

Interest income recognized on impaired loans for the second quarter and six months ended June 30, 2015 and 2014, was not material. The Company did not recognize any income on nonaccruing impaired loans for the three and six months ended June 30, 2015 and 2014.

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2015 and December 31, 2014:

	June 30, 2015
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	4,773	$	—
Home equity lines of credit		207		—
Junior lien loan on residence		142		—
Owner-occupied commercial real estate		1,319		—
Investment commercial real estate		425		—
Commercial and industrial		245		—
Total	$	7,111	$	—

Index

	December 31, 2014
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	4,128	$	—
Home equity lines of credit		210		—
Junior lien loan on residence		164		—
Owner-occupied commercial real estate		1,674		—
Investment commercial real estate		424		—
Commercial and industrial		248		—
Consumer and other		2		—
Total	$	6,850	$	—

The following tables present the aging of the recorded investment in past due loans as of June 30, 2015 and December 31, 2014 by class of loans, excluding nonaccrual loans:

	June 30, 2015
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,405	$	89	$	—	$	1,494
Owner-occupied commercial real estate		230		—		—		230
Commercial and industrial		20		—		—		20
Total	$	1,655	$	89	$	—	$	1,744

	December 31, 2014
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,102	$	403	$	—	$	1,505
Home equity lines of credit		99		—		—		99
Owner-occupied commercial real estate		150		—		—		150
Investment commercial real estate		1		—		—		1
Total	$	1,352	$	403	$	—	$	1,755

Credit Quality Indicators:

The Company places all commercial loans into various credit risk rating categories based on an assessment of the expected ability of the borrowers to properly service their debt. The assessment considers numerous factors including, but not limited to, current financial information on the borrower, historical payment experience, strength of any guarantor, nature of and value of any collateral, acceptability of the loan structure and documentation, relevant public information and current economic trends. This credit risk rating analysis is performed when the loan is initially underwritten. The credit risk rating is re-evaluated annually by credit underwriters for all loans $500,000 and over; annually through a limited review by Portfolio Managers with the Chief Credit Officer for loans in an amount of $250,000 up to $500,000; annually by an external independent loan review firm for all loans $3,500,000 and over, on a proportional basis by the review firm for loans from $500,000 up to $3,499,999, and on a random sampling basis by the review firm for loans under $500,000; or whenever Management otherwise identifies a positive or negative trend or issue relating to a borrower.

Index

The Corporation uses the following definitions for risk ratings:

Special Mention: Loans subject to special mention have a potential weakness that deserves Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loans or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weakness inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. As of June 30, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
(In thousands)	Pass		Mention		Substandard		Doubtful
Primary residential mortgage	$	473,756	$	1,352	$	7,657	$	—
Home equity lines of credit		51,626		—		206		—
Junior lien loan on residence		10,907		—		142		—
Multifamily property		1,369,856		480		803		—
Owner-occupied commercial real estate		121,508		334		5,084		—
Investment commercial real estate		500,674		9,657		24,539		—
Commercial and industrial		119,878		8,352		245		—
Farmland		183		—		—		—
Commercial construction		—		150		—		—
Consumer and other loans		32,058		—		—		—
Total	$	2,680,446	$	20,325	$	38,676	$	—

As of December 31, 2014, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
(In thousands)	Pass		Mention		Substandard		Doubtful
Primary residential mortgage	$	471,219	$	1,366	$	7,564	$	—
Home equity lines of credit		50,092		—		210		—
Junior lien loan on residence		11,644		—		164		—
Multifamily property		1,078,944		490		822		—
Owner-occupied commercial real estate		99,432		473		5,541		—
Investment commercial real estate		372,865		11,648		21,258		—
Commercial and industrial		81,093		21		248		—
Farmland		189		—		—		—
Agricultural production		175		—		—		—
Commercial construction		4,565		150		—		—
Consumer and other loans		27,082		—		2		—
Total	$	2,197,300	$	14,148	$	35,809	$	—

Index

At June 30, 2015, $20.8 million of substandard and special mention loans were also considered impaired as compared to December 31, 2014, when $20.5 million were also impaired.

The activity in the allowance for loan losses for the three months ended June 30, 2015 is summarized below:

	April 1,										June 30,
	2015										2015
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,314	$	(68	)	$	4	$	159		$	2,409
Home equity lines of credit		97		(10	)		1		25			113
Junior lien loan on residence		71		—			10		(8	)		73
Multifamily property		8,738		—			—		(115	)		8,623
Owner-occupied commercial real estate		2,347		—			—		(61	)		2,286
Investment commercial real estate		6,135		—			4		1,640			7,779
Commercial and industrial		1,011		(7	)		21		564			1,589
Secured by farmland and agricultural production		3		—			—		(1	)		2
Commercial construction		23		—			—		(21	)		2
Consumer and other loans		77		(4	)		2		18			93
Total ALLL	$	20,816	$	(89	)	$	42	$	2,200		$	22,969

The activity in the allowance for loan losses for the six months ended June 30, 2015 is summarized below:

	January 1,										June 30,
	2015										2015
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,923	$	(111	)	$	70	$	(473	)	$	2,409
Home equity lines of credit		156		(110	)		1		66			113
Junior lien loan on residence		109		—			38		(74	)		73
Multifamily property		8,983		—			—		(360	)		8,623
Owner-occupied commercial real estate		1,547		—			11		728			2,286
Investment commercial real estate		4,751		—			10		3,018			7,779
Commercial and industrial		880		(7	)		46		670			1,589
Secured by farmland and agricultural production		4		—			—		(2	)		2
Commercial construction		31		—			—		(29	)		2
Consumer and other loans		96		(21	)		12		6			93
Total ALLL	$	19,480	$	(249	)	$	188	$	3,550		$	22,969

The activity in the allowance for loan losses for the three months ended June 30, 2014 is summarized below:

	April 1,										June 30,
	2014										2014
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,462	$	(25	)	$	—	$	565		$	3,002
Home equity lines of credit		153		(24	)		—		47			176
Junior lien loan on residence		139		—			21		(12	)		148
Multifamily property		5,630		—			—		658			6,288
Owner-occupied commercial real estate		2,468		(572	)		80		(137	)		1,839
Investment commercial real estate		4,679		—			6		(88	)		4,597
Agricultural production loans		2		—			—		—			2
Commercial and industrial		938		(38	)		18		123			1,041
Secured by farmland		3		—			—		(1	)		2
Commercial construction		44		—			—		(11	)		33
Consumer and other loans		69		(1	)		2		6			76
Total ALLL	$	16,587	$	(660	)	$	127	$	1,150		$	17,204

Index

The activity in the allowance for loan losses for the six months ended June 30, 2014 is summarized below:

	January 1,										June 30,
	2014										2014
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,361	$	(45	)	$	—	$	686		$	3,002
Home equity lines of credit		181		(24	)		—		19			176
Junior lien loan on residence		156		(1	)		44		(51	)		148
Multifamily property		4,003		—			—		2,285			6,288
Owner-occupied commercial real estate		2,563		(644	)		80		(160	)		1,839
Investment commercial real estate		5,083		—			8		(494	)		4,597
Agricultural productions loans		—		—			—		2			2
Commercial and industrial		825		(96	)		32		280			1,041
Secured by farmland		3		—			—		(1	)		2
Commercial construction		120		—			—		(87	)		33
Consumer and other loans		78		(3	)		5		(4	)		76
Total ALLL	$	15,373	$	(813	)	$	169	$	2,475		$	17,204

Troubled Debt Restructurings:

The Company has allocated $870 thousand and $688 thousand of specific reserves on accruing TDRs to customers whose loan terms have been modified in TDRs as of June 30, 2015 and December 31, 2014, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the six month period ended June 30, 2015, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; a deferral of scheduled payments with an extension of the maturity date; or some other modification or extension which would not be readily available in the market.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three and six month period ended June 30, 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	2	$	225	$	225
Owner-occupied commercial real estate	1		767		767
Total	3	$	992	$	992

The identification of the troubled debt restructure loans did not have a significant impact on the allowance for loan losses.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three month period ended June 30, 2014:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	1	$	414	$	414
Investment commercial real estate	1		1,580		1,580
Total	2	$	1,994	$	1,994

Index

The following table presents loans by class modified as troubled debt restructurings that occurred during the six month period ended June 30, 2014:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	2	$	607	$	607
Investment commercial real estate	2		2,884		2,884
Total	4	$	3,491	$	3,491

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default, within twelve months of modification, during the three and six month period ended June 30, 2015:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		2	$	532
Total		2	$	532

There were no loans that were modified as troubled debt restructurings for which there was a payment default, within twelve months of modification, during the three months ended June 30, 2014.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default, within twelve months of modification, during the six month period ended June 30, 2014:

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		1	$	55
Total		1	$	55

The above loan defaults did not have a material impact on the allowance for loan losses for the periods ended as of June 30, 2015 and 2014.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy. At the time a loan is restructured, the Bank performs a full re-underwriting analysis, which includes, at a minimum, obtaining current financial statements and tax returns, copies of all leases, if applicable, and an updated independent appraisal of any property. A loan will continue to accrue interest if it can be reasonably determined that the borrower should be able to perform under the modified terms, that the loan has not been chronically delinquent (both to debt service and real estate taxes) or in nonaccrual status since its inception, and that there have been no charge-offs on the loan. Restructured loans with previous charge-offs would not accrue interest at the time of the TDR. At a minimum, six months of contractual payments would need to be made on a restructured loan before returning a loan to accrual status.

Index

4. DEPOSITS

Certificates of deposit, excluding brokered, over $250,000 totaled $82.2 million and $18.2 million at June 30, 2015 and 2014, respectively.

The following table sets forth the details of total deposits as of June 30, 2015 and December 31, 2014

	2015					2014
(In thousands)	$		%			$		%
Noninterest-bearing demand deposits	$	386,588		14.51	%	$	366,371		15.94	%
Interest-bearing checking		667,847		25.07			600,889		26.14
Savings		120,606		4.53			112,878		4.91
Money market		717,246		26.93			700,069		30.46
Certificates of deposit		384,235		14.42			198,819		8.65
		2,276,522		85.46			1,979,026		86.09
Interest-bearing demand - Brokered		293,000		11.00			188,000		8.18
Certificates of deposit - Brokered		94,224		3.54			131,667		5.73
Total deposits	$	2,663,746		100.00	%	$	2,298,693		100.00	%

The scheduled maturities of certificates of deposit, including brokered, as of June 30, 2015 are as follows:

(In thousands)
2015	$	49,950
2016		53,746
2017		84,338
2018		147,266
2019		56,524
Over 5 Years		86,635
Total	$	478,459

5. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Advances from the Federal Home Loan Bank of New York (“FHLB”) totaled $83.7 million at June 30, 2015 and December 31, 2014, with a weighted average interest rate of 1.78 percent.

At June 30, 2015 advances totaling $71.7 million with a weighted average rate of 1.57 percent have fixed maturity dates. The fixed rate advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $396.2 million and multifamily mortgages totaling $1.01 billion at June 30, 2015.

Also at June 30, 2015, the Corporation had $12.0 million in variable rate advances, with a weighted average interest rate of 3.01 percent, that are noncallable for two or three years and then callable quarterly with final maturities of ten years from the original date of the advance. All of these advances are beyond their initial noncallable periods. These advances are secured by pledges of investment securities totaling $14.9 million at June 30, 2015.

Index

The final maturity dates of the FHLB advances and other borrowings are scheduled as follows:

(In thousands)
2015	$	—
2016		21,897
2017		23,897
2018		34,898
2019		3,000
Over 5 years		—
Total	$	83,692

At June 30, 2015 and December 31, 2014 there were overnight borrowings with the Federal Home Loan Bank of $87.5 million and $54.6 million, respectively.

6. BUSINESS SEGMENTS

The Corporation assesses its results among two operating segments, Banking and Peapack-Gladstone Bank’s Private Wealth Management Division. Management uses certain methodologies to allocate income and expense to the business segments. A funds transfer pricing methodology is used to assign interest income and interest expense. Certain indirect expenses are allocated to segments. These include support unit expenses such as technology and operations and other support functions. Taxes are allocated to each segment based on the effective rate for the period shown.

Banking

The Banking segment includes lending and depository products and services, as well as various electronic banking services.

Private Wealth Management Division

Peapack-Gladstone Bank’s Private Wealth Management Division includes asset management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; corporate trust services including services as trustee for pension and profit sharing plans; and other financial planning and advisory services.

The following tables present the statements of income and total assets for the Corporation’s reportable segments for the three and six months ended June 30, 2015 and 2014.

	Three Months Ended June 30, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	19,351	$	993	$	20,344
Noninterest income		1,896		4,603		6,499
Total income		21,247		5,596		26,843

Provision for loan losses		2,200		—		2,200
Salaries and benefits		7,830		2,042		9,872
Premises and equipment expense		2,549		229		2,778
Other noninterest expense		2,461		1,155		3,616
Total noninterest expense		15,040		3,426		18,466
Income before income tax expense		6,207		2,170		8,377
Income tax expense		2,294		845		3,139
Net income	$	3,913	$	1,325	$	5,238

Index


	Three Months Ended June 30, 2014
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	15,938	$	985	$	16,923
Noninterest income		1,408		4,065		5,473
Total income		17,346		5,050		22,396

Provision for loan losses		1,150		—		1,150
Salaries and benefits		7,801		1,288		9,089
Premises and equipment expense		2,166		168		2,334
Other noninterest expense		2,383		1,124		3,507
Total noninterest expense		13,500		2,580		16,080
Income before income tax expense		3,846		2,470		6,316
Income tax expense		1,590		943		2,533
Net income	$	2,256	$	1,527	$	3,783

	Six Months Ended June 30, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	37,921	$	2,006	$	39,927
Noninterest income		3,673		8,708		12,381
Total income		41,594		10,714		52,308

Provision for loan losses		3,550		—		3,550
Salaries and benefits		15,370		3,927		19,297
Premises and equipment expense		4,934		460		5,394
Other noninterest expense		4,956		2,387		7,343
Total noninterest expense		28,810		6,774		35,584
Income before income tax expense		12,784		3,940		16,724
Income tax expense		4,945		1,533		6,478
Net income	$	7,839	$	2,407	$	10,246


Total assets for period end	$	3,084,507	$	33,663	$	3,118,170

	Six Months Ended June 30, 2014
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	30,526	$	1,968	$	32,494
Noninterest income		2,598		7,870		10,468
Total income		33,124		9,838		42,962

Provision for loan losses		2,475		—		2,475
Salaries and benefits		14,816		3,121		17,937
Premises and equipment expense		4,435		337		4,772
Other noninterest expense		4,236		2,324		6,560
Total noninterest expense		25,962		5,782		31,744
Income before income tax expense		7,162		4,056		11,218
Income tax expense		2,856		1,548		4,404
Net income	$	4,306	$	2,508	$	6,814


Total assets for period end	$	2,387,925	$	13,046	$	2,400,971

Index

7. FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1:	Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:	Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:	Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing as asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value:

Investment Securities: The fair values for investment securities are determined by quoted market prices (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Loans Held for Sale, at Fair Value: The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Other Real Estate Owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Index

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by Management. Once received, a member of the Credit Department reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals on collateral dependent impaired loans and other real estate owned (consistent for all loan types) are obtained on an annual basis, unless a significant change in the market or other factors warrants a more frequent appraisal. On an annual basis, Management compares the actual selling price of any collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value for other properties. The most recent analysis performed indicated that a discount up to 15 percent should be applied to appraisals on properties. The discount is determined based on the nature of the underlying properties, aging of appraisal and other factors. For each collateral-dependent impaired loan we consider other factors, such as certain indices or other market information, as well as property specific circumstances to determine if an adjustment to the appraised value is needed. In situations where there is evidence of change in value, the Bank will determine if there is need for an adjustment to the specific reserve on the collateral dependent impaired loans. When the Bank applies an interim adjustment, it generally shows the adjustment as an incremental specific reserve against the loan until it has received the full updated appraisal. As of June 30, 2015, all collateral-dependent impaired loans and other real estate owned valuations were supported by an appraisal less than 12 months old.

The following table summarizes, for the periods indicated, assets measured at fair value on a recurring basis, including financial assets for which the Corporation has elected the fair value option:

Assets Measured on a Recurring Basis

				Fair Value Measurements Using
				Quoted
				Prices in
				Active
				Markets		Significant
				For		Other			Significant
				Identical		Observable			Unobservable
	June 30,			Assets		Inputs			Inputs
(In thousands)	2015			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	4,822		$	—	$	4,822		$	—
Mortgage-backed securities-
residential		193,838			—		193,838			—
SBA pool securities		7,758			—		7,758			—
State and political subdivisions		34,000			—		34,000			—
Single-Issuer Trust Preferred		2,535			—		2,535			—
CRA investment fund		2,944		$	2,944		—			—
Loans held for sale, at fair value		745			—		745			—
Derivatives:
Cash flow hedges		144			—		144			—
Loan level swaps		480			—		480			—
Total	$	247,266		$	2,944	$	244,322		$	—

Liabilities:
Derivatives:
Cash flow hedges	$	(674	)	$	—	$	(674	)	$	—
Loan level swaps		(480	)		—		(480	)		—
Total	$	(1,154	)	$	—	$	(1,154	)	$	—

Index

				Fair Value Measurements Using
				Quoted
				Prices in
				Active
				Markets		Significant
				For		Other			Significant
				Identical		Observable			Unobservable
	December 31, 31,			Assets		Inputs			Inputs
(In thousands)	2014			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	35,670		$	—	$	35,670		$	—
Mortgage-backed securities-
residential		242,289			—		242,289			—
SBA pool securities		7,944			—		7,944			—
State and political subdivisions		41,394			—		41,394			—
Single-Issuer Trust Preferred		2,400			—		2,400			—
CRA investment fund		2,955			2,955		—			—
Loans held for sale, at fair value		839			—		839			—
Total	$	333,491		$	2,955	$	330,536		$	—

Liabilities:
Derivatives	$	(169	)	$	—	$	(169	)	$	—

The Corporation has elected the fair value option for certain loans held for sale. These loans are intended for sale and the Corporation believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Corporation’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of June 30, 2015 and December 31, 2014.

The following tables present residential loans held for sale, at fair value for the periods indicated:

(In thousands)	June 30, 2015		December 31, 2014
Residential loans contractual balance	$	733	$	826
Fair value adjustment		12		13
Total fair value of residential loans held for sale	$	745	$	839

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2015.

Index

The following table summarizes, for the periods indicated, assets measured at fair value on a non-recurring basis:

Assets Measured on a Non-Recurring Basis

			Fair Value Measurements Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant observable
			Identical		Observable		Unobservable
	June 30,		Assets		Inputs		Inputs
(In thousands)	2015		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Primary residential mortgage	$	251	$	—	$	—	$	251
OREO		580		—		—		580

	December 31,
(In thousands)	2014
Assets:
Impaired loans:
Primary residential mortgage	$	543	$	—	$	—	$	543
OREO		580		—		—		580

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had a recorded investment of $299 thousand, with a valuation allowance of $48 thousand at June 30, 2015 and $648 thousand, with a valuation allowance of $105 thousand at December 31, 2014.

At both June 30, 2015 and December 31, 2014, OREO at fair value represents one commercial property. The Company did not record a valuation allowance during the six months ended June 30, 2015 and recorded a valuation allowance of $400 thousand during the six months ended June 30, 2014.

The carrying amounts and estimated fair values of financial instruments at June 30, 2015 are as follows:

			Fair Value Measurements at June 30, 2015 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	38,688	$	38,188	$	500	$	—	$	38,688
Securities available for sale		245,897		2,944		242,953		—		245,897
FHLB and FRB stock		15,590		—		—		—		N/A
Loans held for sale, at fair value		745		—		745		—		745
Loans, net of allowance for loan losses		2,718,969		—		—		2,692,867		2,692,867
Accrued interest receivable		6,451		—		686		5,765		6,451
Cash flow hedge derivatives		144		—		144		—		144
Loan level swap derivatives		480		—		480		—		480
Financial liabilities
Deposits	$	2,663,746	$	2,185,287	$	477,504	$	—	$	2,662,791
Overnight borrowings		87,500		—		87,500		—		87,500
Federal home loan bank advances		83,692		—		84,908		—		84,908
Accrued interest payable		806		99		707		—		806
Cash flow hedge derivatives		674		—		674		—		674
Loan level swap derivatives		480		—		480		—		480

Index

The carrying amounts and estimated fair values of financial instruments at December 31, 2014 are as follows:

			Fair Value Measurements at December 31, 2014 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	31,207	$	30,707	$	500	$	—	$	31,207
Securities available for sale		332,652		2,955		329,697		—		332,652
FHLB and FRB stock		11,593		—		—		—		N/A
Loans held for sale, at fair value		839		—		839		—		839
Loans, net of allowance for loan losses		2,230,787		—		—		2,213,604		2,213,604
Accrued interest receivable		5,371		—		924		4,447		5,371
Financial liabilities
Deposits	$	2,298,693	$	1,968,207	$	329,579	$	—	$	2,297,786
Overnight borrowings		54,600		—		54,600		—		54,600
Federal home loan bank advances		83,692		—		84,677		—		84,677
Financial liabilities derivatives		—		—		—		—		—
Accrued interest payable		496		103		393		—		496
Derivatives		169		—		169		—		169

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and cash equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified as either Level 1 or Level 2.

FHLB and FRB stock: It is not practicable to determine the fair value of FHLB or FRB stock due to restrictions placed on its transferability.

Loans: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Deposits: The fair values disclosed for demand deposits (e.g., interest and noninterest checking, savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date, (i.e., the carrying amount) resulting in a Level 1 classification. The carrying amounts of certificates of deposit approximate the fair values at the reporting date resulting in Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Overnight borrowings: The carrying amounts of overnight borrowings, generally maturing within ninety (90) days, approximate their fair values resulting in a Level 2 classification.

Federal Home Loan Bank advances: The fair values of the Corporation’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Index

Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification.

Off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

8. OTHER OPERATING EXPENSES

The following table presents the major components of other operating expenses for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2015		2014		2015		2014
FDIC assessment	$	431	$	303	$	913	$	579
Wealth management division
other expense		512		453		1,133		999
Professional and legal fees		583		519		1,351		970
Loan expense		76		124		189		224
Provision for ORE losses		—		300		—		400
Other operating expenses		2,014		1,808		3,757		3,388
Total other operating expenses	$	3,616	$	3,507	$	7,343	$	6,560

9. OTHER COMPREHENSIVE INCOME

The following is a summary of the accumulated other comprehensive income balances, net of tax, for the three months ended June 30, 2015 and 2014:

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Three Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	April 1,			Before			Comprehensive			June 30,			June 30,
(In thousands)	2015			Reclassifications			(Income)			2015			2015

Net unrealized holding gain
on securities available for sale,
net of tax	$	1,926		$	(706	)	$	(104	)	$	(810	)	$	1,116

Losses on cash flow hedges		(687	)		374			—			374			(313	)

Accumulated other
comprehensive income,
net of tax	$	1,239		$	(332	)	$	(104	)	$	(436	)	$	803

					Amount			Other
					Reclassified			Comprehensive
			Other		From			Income
			Comprehensive		Accumulated			Three Months
	Balance at		Income		Other			Ended		Balance at
	April 1,		Before		Comprehensive			June 30,		June 30,
(In thousands)	2014		Reclassifications		(Income)			2014		2014

Net unrealized holding gain
on securities available for sale,
net of tax	$	606	$	875	$	(51	)	$	824	$	1,430
Accumulated other
comprehensive income,
net of tax	$	606	$	875	$	(51	)	$	824	$	1,430

Index

The following represents the reclassifications out of accumulated other comprehensive income for the three months ended June 30, 2015 and 2014:

	Three Months Ended
	June 30,
(In thousands)	2015			2014			Affected Line Item in Income
Unrealized gains on
securities available for sale:
Realized net gain on securities sales	$	176		$	79		Securities gains, net
Income tax expense		(72	)		(28	)	Income tax expense
Total reclassifications, net of tax	$	104		$	51

The following is a summary of the accumulated other comprehensive income balances, net of tax, for the six months ended June 30, 2015 and 2014:

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Six Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	January 1,			Before			Comprehensive			June 30,			June 30,
(In thousands)	2015			Reclassifications			(Income)			2015			2015

Net unrealized holding gain
on securities available for sale,
net of tax	$	1,321		$	57		$	(262	)	$	(205	)	$	1,116

Losses on cash flow hedges		(100	)		(213	)		—			(213	)		(313	)

Accumulated other
comprehensive income,
net of tax	$	1,221		$	(156	)	$	(262	)	$	(418	)	$	803

					Amount			Other
					Reclassified			Comprehensive
			Other		From			Income
			Comprehensive		Accumulated			Six Months
	Balance at		Income		Other			Ended		Balance at
	January 1,		Before		Comprehensive			June 30,		June 30,
(In thousands)	2014		Reclassifications		(Income)			2014		2014

Net unrealized holding gain
on securities available for sale,
net of tax	$	23	$	1,522	$	(115	)	$	1,407	$	1,430
Accumulated other
comprehensive income,
net of tax	$	23	$	1,522	$	(115	)	$	1,407	$	1,430

Index

The following represents the reclassifications out of accumulated other comprehensive income for the six months ended June 30, 2015 and 2014:

	Six Months Ended
	June 30,
(In thousands)	2015			2014			Affected Line Item in Income
Unrealized gains on
securities available for sale:
Realized net gain on securities sales	$	444		$	177		Securities gains, net
Income tax expense		(182	)		(62	)	Income tax expense
Total reclassifications, net of tax	$	262		$	115

10. DERIVATIVES

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Interest Rate Swaps Designated as Cash Flow Hedges: During the past three quarters, the Company entered into interest rate swaps. Interest rate swaps with a notional amount of $150.0 million as of June 30, 2015 and $25.0 million as of December 31, 2014, were designated as cash flow hedges of certain interest-bearing demand brokered deposits and were determined to be fully effective during the quarter ended June 30, 2015. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets/liabilities with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

The following information about the interest rate swaps designated as cash flow hedges as of June 30, 2015 and December 31, 2014 is presented in the following table:

(In thousands)	June 30, 2015			December 31, 2014
Notional amount	$	150,000		$	25,000
Weighted average pay rate		1.66	%		1.81	%
Weighted average receive rate		0.28	%		0.21	%
Weighted average maturity		4.6	years		5.0	years
Unrealized loss	$	(530)		$	(169)

Number of contracts		7			1

Interest expense recorded on these swap transactions totaled $376 thousand and $471 thousand for the three and six months ended June 30, 2015, respectively and is reported as a component of interest expense.

Index

Cash Flow Hedges

The following table presents the net gains/(losses) recorded in accumulated other comprehensive income and the consolidated financial statements relating to the cash flow derivative instruments for the three months ended June 30, 2015 (after tax):

Amount of

Gain/(Loss)

Recognized in

Recognized

Reclassified

Other Non-Interest

In OCI

From OCI to

Expense

(In thousands)

(Effective Portion)

Interest Expense

(Ineffective Portion)

Interest rate contracts

374

—

Amount of

Gain/(Loss)

Recognized in

Recognized

Reclassified

Other Non-Interest

In OCI

From OCI to

Expense

(In thousands)

(Effective Portion)

Interest Expense

(Ineffective Portion)

Interest rate contracts

(213

)

—

The following tables reflect the cash flow hedges included in the financial statements as of June 30, 2015 and December 31, 2014:

	June 30, 2015
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing
demand brokered deposits	$	150,000	$	(530	)
Total included in other liabilities	$	110,000	$	(674	)
Total included in other assets	$	40,000	$	144

	December 31, 2014
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing
demand brokered deposits	$	25,000	$	(169	)
Total included in other liabilities	$	25,000	$	(169	)

Index

Derivatives Not Designated as Accounting Hedges: Beginning in the quarter ended June 30, 2015, the Company offers Facility Specific/Loan Level Swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution / swap counterparty (Loan Level / Back to Back Swap Program). The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge account (“standalone derivatives”). The notional amount of the swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual contracts. The fair value of the swaps is recorded as both an asset and a liability, in other assets and other liabilities, respectively, in equal amounts for these transactions.

Information about these swaps is as follows:

(In thousands)	June 30, 2015
Notional amount	$	27,320
Fair value	$	480
Weighted average pay rates		3.06	%
Weighted average receive rates		1.42	%
Weighted average maturity		16.3	years

11. ACQUISITION

Effective May 1, 2015 the Company closed the previously announced acquisition of a wealth management company. The acquisition is consistent with the Company’s strategy to grow its wealth management business with a focus on high net worth clients. The purchase price included cash, common stock and common stock warrants. The warrants are exercisable and have a term of seven years. The Company is still in the process of evaluating the final purchase accounting allocation. Any adjustment resulting from the evaluation is not expected to be material. In accordance with FASB ASC 805-10 (Subtopic 25-15), the Company has up to one year from date of acquisition to complete this assessment.

Index

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL: This Quarterly Report on Form 10-Q, both in the following discussion and analysis and elsewhere contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about Management’s view of future interest income and net loans, Management’s confidence and strategies and Management’s expectations about new and existing programs and products, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect”, “look”, “believe”, “anticipate”, “may”, “will”, or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, those risk factors identified in the Company’s Form 10-K for the year ended December 31, 2014, in addition to/which include the following:

inability to successfully grow our business in line with our strategic plan;

inability to grow deposits to fund loan growth;

inability to generate revenues to offset the increased personnel and other costs related to the strategic plan;

inability to realize expected revenue synergies from the acquisition of a wealth management company in the amounts or the timeframe anticipated;

inability to retain clients and employees of WMC;

inability to manage our growth;

inability to successfully integrate our expanded employee base;

a further or unexpected decline in the economy, in particular in our New Jersey and New York market areas;

declines in value in our investment portfolio;

higher than expected increases in our allowance for loan losses;

higher than expected increases in loan losses or in the level of non-performing loans;

unexpected changes in interest rates;

a continued or unexpected decline in real estate values within our market areas;

legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III and related regulations) subject us to additional regulatory oversight which may result in increased compliance costs;

successful cyber-attacks against our IT infrastructure or that of our IT providers;

higher than expected FDIC premiums;

Index

adverse weather conditions;

inability to successfully generate new business in new geographic areas;

inability to execute upon new business initiatives;

lack of liquidity to fund our various cash obligations;

reduction in our lower-cost funding sources;

our inability to adapt to technological changes;

claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters; and

other unexpected material adverse changes in our operations or earnings.

The Company assumes no responsibility to update such forward-looking statements in the future even if experience shows that the indicated results or events will not be realized. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES: This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon Peapack-Gladstone Financial Corporation’s (the “Company”) consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2014, contains a summary of the Company’s significant accounting policies.

Management believes that the Company’s policy with respect to the methodology for the determination of the allowance for loan losses involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often requires assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

The provision for loan losses is based upon Management’s evaluation of the adequacy of the allowance, including an assessment of probable incurred losses in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated fair value of any underlying collateral and guarantees securing the loans, and current economic and market conditions.

Although Management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in the State of New Jersey and the New York metropolitan area. Accordingly, the collectability of a substantial portion of the carrying value of the Company’s loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values continue to decline or New Jersey or New York experience continuing adverse economic conditions. Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

Index

The Company accounts for its securities in accordance with “Accounting for Certain Investments in Debt and Equity Securities,” which was codified into Accounting Standards Codification (“ASC”) 320. All securities are classified as available for sale and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

For declines in the fair value of securities below their cost that are other-than-temporary, the amount of impairment is split into two components – other-than-temporary impairment related to other factors, which is recognized in other comprehensive income and other-than-temporary impairment related to credit loss, which must be recognized in the income statement. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. In estimating other-than-temporary losses on a quarterly basis, Management considers the length of time and extent that fair value has been less than cost; the financial condition and near-term prospects of the issuer; and whether the Company has the intent to sell these securities or it is likely that it will be required to sell the securities before their anticipated recovery.

Securities are evaluated on at least a quarterly basis to determine whether a decline in their values is other-than-temporary. To determine whether a loss in value is other-than-temporary, Management utilizes criteria such as the reasons underlying the decline, the magnitude and the duration of the decline and whether the Company intends to sell or is likely to be required to sell the security before its anticipated recovery. “Other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. The Company recognized no other-than-temporary impairment charges in the three or six months ended June 30, 2015 and 2014.

EXECUTIVE SUMMARY: The following table presents certain key aspects of our performance for the three months ended June 30, 2015 and 2014.

	Three Months Ended June 30,				Change
(In thousands, except per share data)	2015		2014		2015 vs 2014
Results of Operations:
Net interest income	$	20,344	$	16,923	$	3,421
Provision for loan losses		2,200		1,150		1,050
Net interest income after provision
for loan losses		18,144		15,773		2,371
Other income		6,499		5,473		1,026
Operating expense		16,266		14,930		1,336
Income before income tax expense		8,377		6,316		2,061
Income tax expense		3,139		2,533		606
Net income	$	5,238	$	3,783	$	1,455

Total revenue	$	26,843		22,396	$	4,447


Diluted earnings per common share	$	0.34	$	0.32	$	0.02


Diluted average common shares outstanding		15,233,151		11,846,075		3,387,076



Return on average assets annualized		0.70%		0.67%		0.03
Return on average equity
annualized		8.24		8.44		(0.20	)

The following table presents certain key aspects of our performance for the six months ended June 30, 2015 and 2014.

Index

	Six Months Ended June 30,				Change
(In thousands, except per share data)	2015		2014		2015 vs 2014
Results of Operations:
Net interest income	$	39,927	$	32,494	$	7,433
Provision for loan losses		3,550		2,475		1,075
Net interest income after provision
for loan losses		36,377		30,019		6,358
Other income		12,381		10,468		1,913
Operating expense		32,034		29,269		2,765
Income before income tax expense		16,724		11,218		5,506
Income tax expense		6,478		4,404		2,074
Net income	$	10,246	$	6,814	$	3,432

Total revenue	$	52,308		42,962	$	9,346



Diluted earnings per common share	$	0.67	$	0.58	$	0.09


Diluted average common shares outstanding		15,189,781		11,814,806		3,374,975



Return on average assets annualized		0.70%		0.63%		0.07
Return on average equity
annualized		8.19		7.74		0.45

The earnings per share calculations for the three months and six months ended June 30, 2015 included all of the 2.78 million shares issued in the Company’s at-the-market equity offering in the fourth quarter of 2014.

The three and six months ended June 30, 2015 included $373 thousand of fee income related to the Bank’s loan level / back-to-back swap program, included in other income. Additionally, the 2015 periods included a provision for loan losses more than $1 million higher than the respective 2014 periods.

The three and six months ended June 30, 2014 included a $176 thousand net gain on sale of residential first mortgage loans sold held at the lower of cost or fair value, as a component of balance sheet management.

	At June 30,				Change
	2015		2014		2015 vs 2014
Selected Balance Sheet Ratios:
Total capital (Tier I + II) to risk-weighted assets		13.58%		14.30%		(0.72	)
Tier I Leverage ratio		8.48		8.01		0.47
Average loans to average deposits year-to-date		97.69		95.64		2.05
Allowance for loan losses to total
loans		0.84		0.92		(0.08	)
Allowance for loan losses to
nonperforming loans		323.01		263.22		59.79
Nonperforming loans to total loans		0.26		0.35		(0.09	)

Index

For the second quarter of 2015, the Company recorded net income of $5.2 million compared to $3.8 million for the same quarter of 2014. For the three months ended June 30, 2015 and 2014, diluted earnings per common share were $0.34 and $0.32, respectively. Annualized return on average assets was 0.70 percent and annualized return on average common equity was 8.24 percent for the second quarter of 2015, compared to 0.67 percent and 8.44 percent, respectively, for the second quarter of 2014.

For the six months ended June 30, 2015, the Company recorded net income of $10.2 million compared to $6.8 million for the same period of 2014. Diluted earnings per common share were $0.67 and $0.58 for the first six months of 2015 and 2014, respectively. Annualized return on average assets was 0.70 percent and annualized return on average common equity was 8.19 percent for the first six months of 2015, compared to 0.63 percent and 7.74 percent, respectively, for the same six months of 2014.

For the three and six months ended June 30, 2015 earnings increased compared to the same 2014 periods. Increases were due to: increased net interest income, due principally to the Company’s significant loan growth and increased wealth management fee income, due principally to the Company’s growth in assets under administration. Additionally the March quarter of 2015 included a $280 thousand net life insurance death benefit under the Company’s Bank Owned Life Insurance (BOLI) policies; and the June quarter of 2015 included $373 thousand of fee income related to the Company’s loan level / back-to-back swap program. The June quarter of 2014 included income of $176 thousand from a gain on sale of residential loans held for sale at the lower of cost or fair value, as a component of balance sheet management. These positive effects on earnings were partially offset by a greater provision for loan losses, as well as higher operating expenses, principally due to the Company’s growth under its Strategic Plan.

CONTRACTUAL OBLIGATIONS: For a discussion of our contractual obligations, see the information set forth in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations” which is incorporated herein by reference.

OFF-BALANCE SHEET ARRANGEMENTS: For a discussion of our off-balance sheet arrangements, see the information set forth in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements” which is incorporated herein by reference.

EARNINGS ANALYSIS

NET INTEREST INCOME/AVERAGE BALANCE SHEET:

The primary source of the Company’s operating income is net interest income, which is the difference between interest and dividends earned on earning assets and fees earned on loans, and interest paid on interest-bearing liabilities. Earning assets include loans to individuals and businesses, investment securities, interest-earning deposits and federal funds sold. Interest-bearing liabilities include interest-bearing checking, savings and time deposits, Federal Home Loan Bank advances and other borrowings. Net interest income is determined by the difference between the yields earned on earning assets and the rates paid on interest-bearing liabilities (“Net Interest Spread”) and the relative amounts of earning assets and interest-bearing liabilities. The Company’s Net Interest Spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows and general levels of nonperforming assets.

Index

The following table summarizes the Company’s net interest income and related spread and margin, on a fully tax-equivalent basis, for the periods indicated:

	Three Months Ended June 30,
(In thousands)	2015			2014
Net interest income	$	20,344		$	16,923
Interest rate spread		2.68	%		3.06	%
Net interest margin		2.80			3.14

	Six Months Ended June 30,
(In thousands)	2015			2014
Net interest income	$	39,927		$	32,494
Interest rate spread		2.73	%		3.08	%
Net interest margin		2.84			3.16

Loan growth, principally from multifamily and commercial mortgages, over the past 15 months was the primary reason net interest income grew for the three and six months ended June 30, 2015. Additionally, net interest income in the March 2015 quarter was benefitted by the $444 thousand of prepayment premiums received on the early prepayment of certain multifamily loans. Net interest margin for the three and six months ended June 30, 2015 declined when compared to the same 2014 periods partially due to the maintenance of larger average interest earning deposit/cash balances, as well as larger balances of liquid investment securities, as the Company has decided to maintain greater liquidity on its balance sheet, in light of its growth. Margin also continues to be impacted by the effect of low market yields as well as competitive pressures in attracting new loans and deposits. The Company expects continued high liquidity levels and also expects continued loan growth in this lower market rate and competitive environment.

The following table summarizes the Company’s loans closed for the periods indicated:

	For the Three Months Ended
	June 30,		June 30,
(In thousands)	2015		2014
Residential mortgage loans retained	$	23,117	$	17,245
Residential mortgage loans sold		10,978		7,344
Total residential mortgage loans		34,095		24,589

Commercial real estate loans		29,561		20,175
Multifamily properties		206,803		149,937
Commercial loans (A)		136,483		62,668
Wealth Lines of Credit (A)		6,150		—
Total commercial loans		378,997		232,780

Installment loans		1,128		5,184

Home equity lines of credit (A)		3,225		6,709

Total loans closed	$	417,445	$	269,262

(A)	Includes lines of credit that closed in the period, but not necessarily funded.

Index

	For the Six Months Ended
	June 30,		June 30,
(In thousands)	2015		2014
Residential mortgage loans retained	$	40,103	$	28,898
Residential mortgage loans sold		19,916		14,355
Total residential mortgage loans		60,019		43,253

Commercial real estate loans		87,348		36,016
Multifamily properties		415,837		375,080
Commercial loans (A)		177,179		78,625
Wealth Lines of Credit (A)		16,410		—
Total commercial loans		696,774		489,721

Installment loans		1,472		7,061

Home equity lines of credit (A)		6,602		11,377

Total loans closed	$	764,867	$	551,412


(A)	Includes lines of credit that closed in the period, but not necessarily funded.

Index

The following table reflects the components of the average balance sheet and of net interest income for the periods indicated:

Average Balance Sheet

Unaudited

Three Months Ended

	June 30, 2015									June 30, 2014
	Average			Income/						Average			Income/
(Dollars in thousands)	Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earning assets:
Investments:
Taxable (1)	$	244,087		$	1,037			1.70	%	$	189,254		$	977			2.06	%
Tax-exempt (1) (2)		30,941			210			2.71			57,847			312			2.16
Loans held for sale		2,049			24			4.64			1,026			15			5.89
Loans (2) (3):
Mortgages		466,033			3,800			3.26			496,232			4,203			3.39
Commercial mortgages		1,663,150			14,767			3.55			1,155,360			11,108			3.85
Commercial		360,517			3,347			3.71			143,988			1,443			4.01
Commercial construction		5,713			61			4.27			6,065			65			4.29
Installment		29,169			256			3.51			22,154			233			4.21
Home equity		51,710			417			3.23			47,489			382			3.22
Other		527			12			9.11			558			13			9.32
Total loans		2,576,819			22,660			3.52			1,871,846			17,447			3.73
Federal funds sold		101			—			0.10			101			—			0.10
Interest-earning deposits		69,780			39			0.22			51,177			21			0.17
Total interest-earning assets		2,923,777			23,970			3.28	%		2,171,251			18,772			3.46	%
Noninterest-earning assets:
Cash and due from banks		6,385									6,990
Allowance for loan losses		(21,493	)								(17,310	)
Premises and equipment		31,983									31,161
Other assets		66,131									58,926
Total noninterest-earning assets		83,006									79,767
Total assets	$	3,006,783								$	2,251,018
LIABILITIES:
Interest-bearing deposits:
Checking	$	670,473		$	707			0.42	%	$	431,656		$	115			0.11	%
Money markets		703,236			461			0.26			657,216			374			0.23
Savings		117,411			16			0.05			116,946			15			0.05
Certificates of deposit - retail		343,781			1,051			1.22			154,245			369			0.96
Subtotal interest-bearing deposits		1,834,901			2,235			0.49			1,360,063			873			0.26
Interest-bearing demand - brokered		265,802			215			0.32			138,000			70			0.20
Certificates of deposit - brokered		98,191			504			2.05			100,934			264			1.05
Total interest-bearing deposits		2,198,894			2,954			0.54			1,598,997			1,207			0.30
Borrowings		146,441			428			1.17			93,152			382			1.64
Capital lease obligation		10,515			126			4.79			9,867			118			4.78
Total interest-bearing liabilities		2,355,850			3,508			0.60	%		1,702,016			1,707			0.40	%
Noninterest-bearing liabilities:
Demand deposits		384,604									360,096
Accrued expenses and
other liabilities		12,133									9,606
Total noninterest-bearing liabilities		396,737									369,702
Shareholders’ equity		254,196									179,300
Total liabilities and
shareholders’ equity	$	3,006,783								$	2,251,018
Net interest income
(tax-equivalent basis)					20,462									17,065
Net interest spread								2.68	%								3.06	%
Net interest margin (4)								2.80	%								3.14	%
Tax equivalent adjustment					(118	)								(142	)
Net interest income				$	20,344								$	16,923

(1)	Average balances for available for sale securities are based on amortized cost.
(2)	Interest income is presented on a tax-equivalent basis using a 35 percent federal tax rate.
(3)	Loans are stated net of unearned income and include nonaccrual loans.
(4)	Net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.

Index

Average Balance Sheet

Unaudited

Six Months Ended

	June 30, 2015									June 30, 2014
	Average			Income/						Average			Income/
(Dollars in thousands)	Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earning assets:
Investments:
Taxable (1)	$	258,934		$	2,219			1.71	%	$	198,401		$	2,038			2.05	%
Tax-exempt (1) (2)		34,268			441			2.57			59,025			649			2.20
Loans held for sale		1,415			34			4.75			1,174			25			4.29
Loans (2) (3):
Mortgages		465,878			7,585			3.26			514,702			8,756			3.40
Commercial mortgages		1,562,073			28,356			3.63			1,046,179			20,153			3.85
Commercial		338,435			6,244			3.69			138,300			2,845			4.11
Commercial construction		5,821			123			4.23			5,969			132			4.42
Installment		28,484			508			3.57			21,860			461			4.22
Home equity		51,188			822			3.21			47,162			755			3.20
Other		528			25			9.47			561			26			9.27
Total loans		2,452,407			43,663			3.56			1,774,733			33,128			3.73
Federal funds sold		101			—			0.10			101			—			0.10
Interest-earning deposits		80,658			82			0.20			41,468			33			0.16
Total interest-earning assets		2,827,783			46,439			3.28	%		2,074,902			35,873			3.46	%
Noninterest-earning assets:
Cash and due from banks		6,594									6,694
Allowance for loan losses		(20,778	)								(16,653	)
Premises and equipment		32,118									30,956
Other assets		65,006									59,961
Total noninterest-earning assets		82,940									80,958
Total assets	$	2,910,723								$	2,155,860
LIABILITIES:
Interest-bearing deposits:
Checking	$	650,909		$	1,116			0.34	%	$	416,568		$	207			0.10	%
Money markets		706,893			924			0.26			655,430			707			0.22
Savings		115,434			30			0.05			116,733			30			0.05
Certificates of deposit - retail		296,085			1,714			1.16			151,864			724			0.95
Subtotal interest-bearing deposits		1,769,321			3,784			0.43			1,340,595			1,668			0.25
Interest-bearing demand - brokered		253,221			400			0.32			106,851			113			0.21
Certificates of deposit - brokered		112,219			1,028			1.83			57,564			295			1.02
Total interest-bearing deposits		2,134,761			5,212			0.49			1,505,010			2,076			0.28
Borrowings		128,142			820			1.28			104,306			772			1.48
Capital lease obligation		10,575			254			4.80			9,907			237			4.78
Total interest-bearing liabilities		2,273,478			6,286			0.55	%		1,619,223			3,085			0.38	%
Noninterest-bearing liabilities:
Demand deposits		375,527									350,698
Accrued expenses and
other liabilities		11,446									9,800
Total noninterest-bearing liabilities		386,973									360,498
Shareholders’ equity		250,272									176,139
Total liabilities and
shareholders’ equity	$	2,910,723								$	2,155,860
Net interest income
(tax-equivalent basis)					40,153									32,788
Net interest spread								2.73	%								3.08	%
Net interest margin (4)								2.84	%								3.16	%
Tax equivalent adjustment					(226	)								(294	)
Net interest income				$	39,927								$	32,494

(1)	Average balances for available for sale securities are based on amortized cost.
(2)	Interest income is presented on a tax-equivalent basis using a 35 percent federal tax rate.
(3)	Loans are stated net of unearned income and include nonaccrual loans.
(4)	Net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.

Index

The effect of volume and rate changes on net interest income (on a tax-equivalent basis) for the periods indicated are shown below:


	Three months						Three months ended
	ended June 30, 2015						June 30, 2014
	Difference due to						Change In
	Change In:						Income/
(In Thousands):	Volume			Rate			Expense
ASSETS:
Investments	$	84		$	(126	)	$	(42	)
Loans		6,448			(1,235	)		5,213
Loans held for sale		12			(3	)		9
Federal funds sold		—			—			—
Interest-earning deposits		10			8			18
Total interest income	$	6,554		$	(1,356	)	$	5,198
LIABILITIES:
Interest-bearing checking	$	159		$	433		$	592
Money market		55			32			87
Savings		1			—			1
Certificates of deposit - retail		560			122			682
Certificates of deposit - brokered		(7	)		247			240
Interest bearing demand brokered		64			81			145
Borrowed funds		47			(1	)		46
Capital lease obligation		8			—			8
Total interest expense	$	886		$	915		$	1,801
Net interest income	$	5,668		$	(2,271	)	$	3,397


	Six Months					Six months ended
	Ended June 30, 2015					June 30, 2014
	Difference due to					Change In
	Change In:					Income/
(In Thousands):	Volume		Rate			Expense
ASSETS:
Investments	$	240	$	(267	)	$	(27	)
Loans		12,500		(1,965	)		10,535
Loans held for sale		6		3			9
Federal funds sold		—		—			—
Interest-earning deposits		39		10			49
Total interest income	$	12,785	$	(2,219	)	$	10,566
LIABILITIES:
Interest-bearing checking	$	423	$	487		$	910
Money market		121		96			217
Savings		—		—			—
Certificates of deposit - retail		803		187			990
Certificates of deposit - brokered		398		335			733
Interest bearing demand brokered		227		59			286
Borrowed funds		51		(3	)		48
Capital lease obligation		15		2			17
Total interest expense	$	2,038	$	1,163		$	3,201
Net interest income	$	10,747	$	(3,382	)	$	7,365

Interest income on earning assets, on a fully tax-equivalent basis, totaled $24.0 million for the second quarter of 2015 compared to $18.8 million for the same quarter of 2014, reflecting an increase of $5.2 million or 27.7 percent from the second quarter in 2014. Average earning assets totaled $2.92 billion for the second quarter of 2015, an increase of $752.5 million or 34.7 percent from the same period of 2014. The average commercial loan portfolio increased $216.5 million or 150.4 percent from the second quarter of 2014, averaging $360.5 million for the second quarter of 2015. This increase was due to the addition in 2014 and the first half of 2015 of highly regarded bankers with industry and capital markets expertise. The average commercial mortgage portfolio (which includes multifamily mortgage loans) increased $507.8 million to $1.66 billion for the second quarter of 2015 when compared to the same period in 2014. The increase was attributable to the addition of seasoned banking professionals over the course of 2014; a more concerted focus on the client service aspect of the lending process; more of a focus on New Jersey markets; and a focus on New York City multifamily markets continuing through 2014 and into the first half of 2015. The increase was also due to demand from borrowers looking to refinance multifamily and other commercial mortgages held by other institutions. Going forward, multifamily lending and related participations will remain a focus of the Company, however it is anticipated that volumes will be less robust than in recent quarters.

Index

For the quarters ended June 30, 2015 and 2014, the average rates earned on earning assets was 3.28 percent and 3.45 percent, respectively, a decrease of 17 basis points. The decline in the average rates on earning assets was partially due to the maintenance of larger average interest earning deposit/cash balances as well as larger balances of liquid investment securities, as the Company has decided to maintain greater liquidity on its balance sheet, in light of its growth. The decline in the average rate was also affected by the continued effect of low market yields, as well as competitive pressures in attracting new loans.

For the second quarter of 2015, total non-brokered deposits averaged $2.20 billion, increasing $599.9 million or 37.5 percent from the average balance for the same period of 2014. The growth in customer deposits (excluding brokered CDs and brokered interest-bearing demand, but including reciprocal funds discussed below) of $474.8 million for the second quarter of 2015 when compared to the same period in 2014 has come from the addition of seasoned banking professionals over the course of 2014 and the first six months of 2015; an intense focus on providing high-touch client service; and a new full array of treasury management products that support core deposit growth.

Average rates paid on interest-bearing deposits were 54 basis points and 30 basis points for the second quarters of 2015 and 2014, respectively. The increase in the average rate paid on deposits was principally due to competitive pressures in attracting new deposits in volumes sufficient to appropriately fund asset growth.

For the second quarters of 2015 and 2014, average borrowings totaled $146.4 million and $93.2 million, respectively, increasing $53.3 million when compared to the same period of 2014. The increase was due to periodic increased short-term borrowings to fund loan growth ahead of deposit growth.

Interest income on earning assets, on a fully tax-equivalent basis increased by $10.6 million or 29.5 percent for the first six months of 2015 compared to the same period in 2014. For the six months ended June 30, 2015 average earning assets increased $752.9 million from $2.07 billion for the same period in 2014. For the six months ended June 30, 2015 the average commercial portfolio increased $200.1 million or 144.7 percent from the same period in 2014. This increase was due to the addition in 2014 and the first half of 2015 of highly regarded bankers with industry and capital markets expertise. For the six months ended June 30, 2015 the average commercial mortgage portfolio (which includes multifamily mortgage loans) increased $515.9 million from $1.05 billion in the same period in 2014. The increase was attributable to the addition of seasoned banking professionals over the course of 2014; a more concerted focus on the client service aspect of the lending process; more of a focus on New Jersey markets; and a focus on New York City multifamily markets continuing through 2014 and into the first half of 2015. The increase was also due to demand from borrowers looking to refinance multifamily and other commercial mortgages held by other institutions.

For the six months ended June 30, 2015 and 2014, the average rates earned on earning assets was 3.28 percent and 3.46 percent, respectively, a decrease of 18 basis points. The decline in the average rates on earning assets was partially due to the maintenance of much larger average interest earning deposit/cash balances as well as larger balances of liquid investment securities, as the Company has decided to maintain greater liquidity on its balance sheet, in light of its growth. The decline in the average rate was also affected by the continued effect of low market yields, as well as competitive pressures in attracting new loans and deposits.

Index

For the six months ended June 30, 2015 total average non-brokered deposits grew by $629.8 million from $1.51 billion for the same 2014 period. The growth in customer deposits (excluding brokered CDs and brokered interest-bearing demand, but including reciprocal funds discussed on the next page) of $428. 8 million for the first half of 2015 when compared to the same period in 2014 has come from the addition of seasoned banking professionals over the course of 2014 and the first six months of 2015; an intense focus on providing high-touch client service; and a new full array of treasury management products that support core deposit growth.

Average rates paid on interest-bearing deposits for the six months ended June 30, 2015 were 49 basis points compared to 28 basis points for the same period in 2014. The increase in the average rate paid on deposits was principally due to competitive pressures in attracting new deposits in volumes sufficient to appropriately fund asset growth.

Average borrowings increased by $23.8 million to $128.1 million for the six months ended June 30, 2015 when compared to the same 2014 period. The increase was due to periodic increased short-term borrowings to fund loan growth ahead of deposit growth.

The Company is a participant in the Reich & Tang Demand Deposit Marketplace (“DDM”) program. The Company uses these deposit sweep services to place customer funds into interest-bearing demand (checking) accounts issued by other participating banks. Customer funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance. As a program participant, the Company receives reciprocal amounts of deposits from other participating banks. The DDM program is considered to be a source of brokered deposits for bank regulatory purposes. However, the Company considers these reciprocal deposit balances to be in-market customer deposits as distinguished from traditional out-of-market brokered deposits. Such reciprocal deposit balances are included in the Company’s interest-bearing checking balances. Reciprocal balances totaled $224.7 million at June 30, 2015, $192.1 million at December 31, 2014 and $91.7 million at June 30, 2014.

Index

OTHER INCOME: The following table presents the major components of other income, excluding income from wealth management, which is summarized and discussed subsequently:

	Three Months Ended June 30,				Change
(In thousands)	2015		2014		2015 vs 2014

Service charges and fees	$	837	$	708	$	129
Gain on sale of loans (mortgage banking)		161		112		49
Gain on sale of loans		—		176		(176	)
Bank owned life insurance		248		276		(28	)
Securities gains		176		79		97
Other income		545		117		428
Total other income	$	1,967	$	1,468	$	499

	Six Months Ended June 30,				Change
(In thousands)	2015		2014		2015 vs 2014

Service charges and fees	$	1,642	$	1,402	$	240
Gain on sale of loans (mortgage banking)		309		224		85
Gain on sale of loans		—		176		(176	)
Bank owned life insurance		785		542		243
Securities gains		444		176		268
Other income		638		189		449
Total other income	$	3,818	$	2,709	$	1,109

Service charges and fees for the three and six months ended June 30, 2015 reflected improvement compared to the same periods last year, partially due to increased income associated with a new set of checking products put in place in the middle of 2014.

For the three and six months ended June 30, 2015, income from the sale of newly originated residential mortgage loans reflected improvement when compared to the same prior year periods. The volume of loans originated for sale were greater in the 2015 periods compared to the 2014 period.

For the three months ended June 30, 2015, the Company recorded $248 thousand of Bank owned life insurance (BOLI) income as compared to $276 thousand for the same three months in 2014. BOLI income of $785 thousand for the six months ended June 30, 2015 was $243 thousand higher when compared to the $542 thousand for the same period last year. The six months ended June 30, 2015 included $280 thousand additional income related to a net life insurance death benefit under its BOLI policies.

Securities gains were $176 thousand for the June 2015 quarter compared to $79 thousand for the June 2014 quarter. Securities gains were $444 thousand for the six months ended June 30, 2015 compared to $176 thousand for the same 2014 period. Sales of securities have been generally employed to benefit interest rate risk, prepayment risk, and/or liquidity risk.

Other income of $545 thousand for the June 2015 quarter was $428 thousand higher than the June 2014 quarter. For the six months ended June 30, 2015, other income of $638 thousand was $449 thousand higher than the same six months in 2014. The June 2015 quarter included $373 thousand of fee income related to the Company’s loan level / back-to-back swap program, which was implemented during the June 2015 quarter. The program utilizes mirror interest rate swaps, one directly with the commercial loan customer and one directly with a well-established counterparty. This enables a commercial loan customer to benefit from a fixed rate loan, while the Company records a floating rate loan. The program provides enhanced interest rate risk management, as well as the potential for fee income for the Company. While the Company cannot predict the amount of fee income that may be recognized each period, this program will be a part of ongoing operations.

Index

OPERATING EXPENSES: The following table presents the components of operating expenses for the periods indicated:

	Three Months Ended June 30,				Change
(In thousands)	2015		2014		2015 vs 2014
Salaries and employee benefits	$	9,872	$	9,089	$	783
Premises and equipment		2,778		2,334		444
Other Operating Expenses:
FDIC assessment		431		303		128
Wealth management division
other expense		512		453		59
Professional and legal fees		583		519		64
Loan expense		76		124		(48	)
Telephone		231		236		(5	)
Advertising		316		138		178
Postage		88		93		(5	)
Provision for ORE losses		—		300		(300	)
Amortization of intangibles		21		—		21
Other operating expenses		1,358		1,341		17
Total operating expenses	$	16,266	$	14,930	$	1,336

	Six Months Ended June 30,				Change
(In thousands)	2015		2014		2015 vs 2014
Salaries and employee benefits	$	19,297	$	17,937	$	1,360
Premises and equipment		5,394		4,772		622
Other Operating Expenses:
FDIC assessment		913		579		334
Wealth management division
other expense		1,133		999		134
Professional and legal fees		1,351		970		381
Loan expense		189		224		(35	)
Telephone		454		463		(9	)
Advertising		464		206		258
Postage		192		195		(3	)
Provision for ORE losses		—		400		(400	)
Amortization of intangibles		21		—		21
Other operating expenses		2,626		2,524		102
Total operating expenses	$	32,034	$	29,269	$	2,765

The Company’s total operating expenses were $16.3 million for the quarter ended June 30, 2015 compared to $14.9 million in the same 2014 quarter, reflecting a net increase of $1.3 million or 9 percent. The Company’s total operating expenses were $32.0 million for the six months ended June 30, 2015 compared to $29.3 million in the same 2014 period, reflecting a net increase of $2.8 million or 9 percent. Salary and benefits expense increased in the 2015 periods compared to the same periods in 2014. In addition to normal salary increases and increased bonus/incentive accrual, the increase is largely due to the Company’s growth and its strategic hiring in line with the Company’s Strategic Plan, including private bankers, commercial bankers, wealth advisors, risk management professionals and various support staff. Also contributing to the increase is the acquisition of a wealth management company, which occurred in the second quarter of 2015.

Premises and equipment expense increased in the 2015 periods when compared to the same periods last year. The increases were consistent with the Company’s continued growth.

Other expenses for the June 2015 periods increased when compared to the same 2014 periods. The current 2015 periods included: increased FDIC insurance expense due to the Company’s growth, and increased wealth management division expenses due to growth in that business coupled with the acquisition of a wealth management company. Also, 2015 advertising/marketing expenses increased when compared to 2014 largely due to the roll out of our brand awareness campaign. Professional fees also increased in 2015 associated with the Company’s growth and the acquisition of a wealth management company.

Index

Expense increases were generally planned and expected, and continue to track to the Strategic Plan. It is expected that the trend of higher operating expenses will continue into 2015, as the Company brings on additional revenue producers, and continues to invest in infrastructure, in line with the Plan. Further, it is generally expected that revenue and profitability related to new revenue producers will lag those expenses by several quarters. It is important to note, however, that revenue growth has outpaced expense growth considerably.

PRIVATE WEALTH MANAGEMENT DIVISION: This division has served in the roles of executor and trustee while providing investment management, custodial, tax, retirement and financial services to its growing client base. Officers from the Private Wealth Management Division are available to provide trust and investment services at the Bank’s corporate headquarters in Bedminster, at private banking locations in Bedminster, Morristown, Princeton and Teaneck, New Jersey and at the Bank’s subsidiary, PGB Trust & Investments of Delaware, in Greenville, Delaware.

The following table presents certain key aspects of the Bank’s Private Wealth Management Division performance for the quarters ended June 30, 2015 and 2014.

	Three Months Ended June 30,				Change
(In thousands)	2015		2014		2015 v 2014

Total fee income	$	4,532	$	4,005	$	527
Salaries and benefits (1)		2,042		1,288		754

Other operating expense (1)		1,384		1,292		92

(1)

Expenses are included in the Operating Expenses discussion above.

The following table presents certain key aspects of the Bank’s Private Wealth Management Division performance for the six months ended June 30, 2015 and 2014.

	Six Months Ended June 30,				Change
(In thousands)	2015		2014		2015 v 2014

Total fee income	$	8,563	$	7,759	$	804
Salaries and benefits (1)		3,927		3,121		806

Other operating expense (1)		2,847		2,661		186

Assets under administration
(market value)	$	3,445,939	$	2,843,310	$	602,629

(1)

Expenses are included in the Operating Expenses discussion above.

Index

In the June 2015 quarter, the Private Wealth Management Division generated $4.53 million in fee income compared to $4.01 million for the June 2014 quarter, reflecting a 13 percent increase. For the six months ended June 30, 2015, the Private Wealth Management Division generated $8.56 million in fee income compared to $7.76 million for the same period in 2014, reflecting a 10 percent increase. The market value of the assets under administration (AUA) of the wealth management division was $3.45 billion at June 30, 2015, up approximately 21 percent from $2.84 billion at June 30, 2014. The growth in fee income and AUA was due to the combination of the acquisition of a wealth management company in early May 2015, as well as new business and market appreciation.

The Company continues to incorporate wealth into every conversation it has with all of the Company’s clients, across all business lines. The Company has expanded its wealth management team and will continue to grow its team and expand its products, services, and advice delivered to clients.

While the “Operating Expenses” section above offers an overall discussion of the Corporation’s expenses including the Private Wealth Management Division, operating expenses relative to the Private Wealth Management Division totaled $3.3 million and $2.6 million for the second quarters of 2015 and 2014, respectively, an increase of $768 thousand, or 30 percent. Operating expenses relative to the Private Wealth Management Division totaled $6.8 million and $5.8 million for the six months ended June 30, 2015 and 2014, respectively, an increase of $992 thousand, or 17 percent. Increased expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel. Revenue and profitability related to the new personnel will generally lag expenses by several quarters.

The Private Wealth Management Division currently generates adequate revenue to support the salaries, benefits and other expenses of the Division; however, Management believes that the Bank generates adequate liquidity to support the expenses of the Division should it be necessary.

NONPERFORMING ASSETS: OREO, loans past due in excess of 90 days and still accruing, and nonaccrual loans are considered nonperforming assets.

The following table sets forth asset quality data on the dates indicated (in thousands):

	As of
	June 30,			March 31,			Dec 31,			Sept. 30,			June 30,
	2015			2015			2014			2014			2014
Loans past due over 90 days
and still accruing	$	—		$	—		$	—		$	—		$	—
Nonaccrual loans		7,111			6,335			6,850			8,790			6,536
Other real estate owned		956			1,103			1,324			949			1,036
Total nonperforming assets	$	8,067		$	7,438		$	8,174		$	9,739		$	7,572

Accruing TDR’s	$	13,695		$	13,561		$	13,601		$	13,045		$	12,730

Loans past due 30 through 89
days and still accruing	$	1,744		$	2,481		$	1,755		$	2,278		$	1,536

Classified loans	$	38,676		$	38,450		$	35,809		$	34,752		$	34,929

Impaired loans	$	20,806		$	19,896		$	20,451		$	21,834		$	19,813

Nonperforming loans as a % of
total loans		0.26	%		0.26	%		0.30	%		0.43	%		0.35	%
Nonperforming assets as a % of
total assets		0.26	%		0.26	%		0.30	%		0.39	%		0.32	%
Nonperforming assets as a % of
total loans plus other real
estate owned		0.29	%		0.30	%		0.36	%		0.48	%		0.40	%

The Company does not hold and has not made or invested in subprime loans or “Alt-A” type mortgages.

Index

PROVISION FOR LOAN LOSSES: The provision for loan losses was $2.2 million for the second quarter of 2015 and $1.2 million for the same quarter of 2014. For the six months ended June 30, 2015 and 2014 the provision for loan losses was $3.6 million and $2.5 million, respectively. The amount of the loan loss provision and the level of the allowance for loan losses are based upon a number of factors including Management’s evaluation of probable losses inherent in the portfolio, after consideration of appraised collateral values, financial condition and past credit history of the borrowers as well as prevailing economic conditions. Commercial credits carry a higher risk profile, which is reflected in Management’s determination of the proper level of the allowance for loan losses.

The provision for loan losses of $2.2 million in the second quarter of 2015 was primarily related to loan growth experienced by the Company, as well as greater qualitative factor allocations of the allowance to commercial and commercial real estate loans. Originations of commercial and commercial real estate loans have increased and are expected to become a greater percentage of our balance sheet in the future. In the second quarter of 2015, Management reevaluated the qualitative factors for these loan types and as a result of the evaluation, increased the allocations. In addition, the multifamily portfolio is more seasoned and the Company has reduced concentration risk by participating out more multifamily loans. Management reduced the qualitative factor allocations of the allowance for multifamily loans in the second quarter of 2015.

The overall allowance for loan losses was $23.0 million as of June 30, 2015 compared to $19.5 million at December 31, 2014. As a percentage of loans, the allowance for loan losses was 0.84 percent as of June 30, 2015 and 0.87 percent as of December 31, 2014. The specific reserves on impaired loans have increased to $1.1 million at June 30, 2015 compared to $957 thousand as of December 31, 2014. Total impaired loans were $20.8 million and $20.5 million as of June 30, 2015 and December 31, 2014, respectively. The general component of the allowance increased from $18.5 million at December 31, 2014 to $21.9 million at June 30, 2015. As a percentage of non-impaired loans, the general reserve declined three basis points to 0.80 percent at June 30, 2015 from 0.83 percent at December 31, 2014. Although the Company has experienced loan growth, growth in less risky loans, such as commercial mortgage loans secured by multifamily properties, has been greater than other loans that carry higher general reserves.

A summary of the allowance for loan losses for the quarterly periods indicated follows:

	June 30,			March 31,			December 31,			September 30,			June 30,
(In thousands)	2015			2015			2014			2014			2014
Allowance for loan losses:
Beginning of period	$	20,816		$	19,480		$	18,299		$	17,204		$	16,587
Provision for loan losses		2,200			1,350			1,250			1,150			1,150
Charge-offs, net		(47	)		(14	)		(69	)		(55	)		(533	)
End of period	$	22,969		$	20,816		$	19,480		$	18,299		$	17,204

Allowance for loan losses as
a % of total loans		0.84	%		0.85	%		0.87	%		0.90	%		0.92	%
Allowance for loan losses as
a % of nonperforming loans		323.01	%		328.59	%		284.38	%		208.18	%		263.22	%

INCOME TAXES: For the second quarters of 2015 and 2014, income tax expense as a percentage of pre-tax income was 37 and 40 percent respectively. For the six months ended June 30, 2015 and 2014, income tax expense as a percentage of pre-tax income was 39 percent for both periods.

Index

CAPITAL RESOURCES: A solid capital base provides the Company with the ability to support future growth and financial strength and is essential to executing the Company’s Strategic Plan – “Expanding Our Reach.” The Company’s capital strategy is intended to provide stability to expand its businesses, even in stressed environments. The Company strives to maintain capital levels in excess of those considered to be well capitalized under regulatory guidelines applicable to banks. Maintaining an adequate capital position supports the Company’s goal of providing shareholders an attractive and stable long-term return on investment.

Capital for the quarter ended June 30, 2015 was benefitted by net income of $5.2 million and by $1.7 million of voluntary share purchases in the Dividend Reinvestment Plan. Capital for the six months ended June 30, 2015 was benefitted by net income of $10.2 million and by $3.9 million of voluntary share purchases in the Dividend Reinvestment Plan.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total, Common Equity Tier 1 and Tier 1 capital (each as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). At June 30, 2015 and 2014, the Bank maintained capital levels which met or exceeded the levels required to be considered well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, common equity Tier I and Tier I leverage ratios as set forth in the table.

The Bank’s actual capital amounts and ratios are presented in the following table:

						To Be Well
						Capitalized Under					For Capital
						Prompt Corrective					Adequacy
	Actual					Action Provisions					Purposes
(In thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2015:
Total capital (to risk-weighted assets)	$	265,780		13.00	%	$	204,483		10.00	%	$	163,587		8.00	%

Tier I capital (to risk-weighted assets)		242,811		11.87			163,587		8.00			122,690		6.00

Common equity tier I (to risk-weighted assets)		242,811		11.87			132,914		6.50			92,017		4.50

Tier I capital (to average assets)		242,811		8.08			150,212		5.00			120,169		4.00

As of December 31, 2014:
Total capital (to risk-weighted assets)	$	250,112		14.96	%	$	167,160		10.00	%	$	133,728		8.00	%

Tier I capital (to risk-weighted assets)		230,632		13.80			100,296		6.00			66,864		4.00

Common equity tier I (to risk-weighted assets)		N/A		N/A			N/A		N/A			N/A		N/A

Tier I capital (to average assets)		230,632		8.74			131,895		5.00			105,516		4.00

Index

The Company’s actual capital amounts and ratios are presented in the following table:

						To Be Well
						Capitalized Under					For Capital
						Prompt Corrective					Adequacy
	Actual					Action Provisions					Purposes
(In thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2015:
Total capital (to risk-weighted assets)	$	277,706		13.58	%	$	N/A		N/A	%	$	163,612		8.00	%

Tier I capital (to risk-weighted assets)		254,737		12.46			N/A		N/A			122,709		6.00

Common equity tier I (to risk-weighted assets)		254,737		12.46			N/A		N/A			92,032		4.50

Tier I capital (to average assets)		254,737		8.48			N/A		N/A			120,180		4.00

As of December 31, 2014:
Total capital (to risk-weighted assets)	$	259,918		15.55	%	$	N/A		N/A	%	$	133,745		8.00	%

Tier I capital (to risk-weighted assets)		240,439		14.38			N/A		N/A			66,873		4.00

Common equity tier I (to risk-weighted assets)		N/A		N/A			N/A		N/A			N/A		N/A

Tier I capital (to average assets)		240,439		9.11			N/A		N/A			105,544		4.00

In December 2014, the Company successfully completed the sale of 2,776,215 common shares under its “at-the-market” equity offering program announced on October 23, 2014. The common shares in the offering were sold at a weighted average price of $18.01 per share, representing gross proceeds to the Company of $50 million, $48.2 million after sales agent commissions and offering expenses. The Board of Directors authorized the Company to contribute $48.2 million of the proceeds received from the equity offering to the Bank as equity. The cash was transferred from the Company to the Bank before year end 2014.

The Dividend Reinvestment Plan of Peapack-Gladstone Financial Corporation, or the “Reinvestment Plan,” allows shareholders of the Company to purchase additional shares of common stock using cash dividends without payment of any brokerage commissions or other charges. Beginning with the August 19, 2015 dividend payment, shareholders may also make voluntary cash payments of up to $200 thousand per quarter to purchase additional shares of common stock. The Reinvestment Plan provided $1.7 million of capital to the Company in the second quarter 2015. The Plan is a continuing source of future capital.

As previously announced, on July 22, 2015, the Board of Directors declared a regular cash dividend of $0.05 per share payable on August 19, 2015 to shareholders of record on August 5, 2015.

Management believes the Company’s capital position and capital ratios are adequate.

LIQUIDITY: Liquidity refers to an institution’s ability to meet short-term requirements including funding of loans, deposit withdrawals and maturing obligations, as well as long-term obligations, including potential capital expenditures. The Company’s liquidity risk management is intended to ensure the Company has adequate funding and liquidity to support its assets across a range of market environments and conditions, including stressed conditions. Principal sources of liquidity include cash, temporary investments, securities available for sale, customer deposit inflows, brokered deposits, loan repayments and secured borrowings. Other liquidity sources include loan sales and loan participations.

Management actively monitors and manages the Company’s liquidity position and believes it is sufficient to meet future needs. Cash and cash equivalents, including federal funds sold and interest-earning deposits, totaled $38.7 million at June 30, 2015. In addition, the Company had $245.9 million in securities designated as available for sale at June 30, 2015. These securities can be sold, or used as collateral for borrowings, in response to liquidity concerns. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.

Index

A further source of liquidity is borrowing capacity. At June 30, 2015, unused borrowing commitments totaled $764.3 million from the FHLB, $117.6 million from the Federal Reserve Bank and $22.0 million from correspondent banks.

Loan growth of $491.7 million in the first six months of 2015 was funded by customer deposit growth of $297.5 million, investment securities principal reductions and sales of $91.2 million, capital growth of $16 million, and various other deposits and borrowings. Customer deposit growth for the period was less than loan growth for the period; however, the deposit pipeline as of June 30, 2015 was very robust, and much of that pipeline funded throughout July, significantly reducing the June 30^th overnight borrowing position.

Brokered interest-bearing demand (“overnight”) deposits continue to be maintained as an additional source of liquidity. The interest rate paid on these deposits allows the Bank to engage in interest rate swaps to hedge the asset-liability rate risk. These deposits increased to $293.0 million at June 30, 2015. The Company ensures ample available collateralized liquidity as a backup to these short term brokered deposits.

From a liquidity/funding perspective, such brokered deposits, at a cost of approximately 25 to 30 basis points, are generally a more cost effective alternative than other borrowings and do not require use of pledged collateral, as secured wholesale borrowings do. From a balance sheet management perspective, the rate paid on these short term brokered deposits is used as the basis to transact longer term interest rate swaps, basically extending repricing generally to five years for asset matching / interest rate risk management purposes. As of June 30, 2015, the Company has transacted pay fixed, receive floating interest rate swaps totaling $150.0 million notional amount.

Certificates of deposit have also been utilized more extensively in 2015 compared to prior periods. The majority of these deposits have been longer term and have generally been transacted as part of the Company’s interest rate risk management. These certificates of deposit are also a more cost effective alternative than other borrowings.

The Company has a Board-approved Contingency Funding Plan in place. This plan provides a framework for managing adverse liquidity stress and contingent sources of liquidity. The Company conducts liquidity stress testing on a regular basis to ensure sufficient liquidity in a stressed environment.

Management believes the Company’s liquidity position and sources are adequate.

ASSET/LIABILITY MANAGEMENT: The Company’s Asset/Liability Committee (ALCO) is responsible for developing, implementing and monitoring asset/liability management strategies and reports and advising the Board of Directors on such, as well as the related level of interest rate risk. In this regard, interest rate risk simulation models are prepared on a quarterly basis. These models have the ability to demonstrate balance sheet gaps, and predict changes to net interest income and economic/market value of portfolio equity under various interest rate scenarios. In addition, these models, as well as ALCO processes and reporting, are subject to annual independent third-party review.

ALCO is generally authorized to manage interest rate risk through management of capital and management of cash flows and duration of assets and liabilities, including sales and purchases of assets, as well as additions of wholesale borrowings, brokered deposits and other sources of medium/longer term funding. ALCO is authorized to engage in interest rate swaps as a means of extending duration of shorter term liabilities.

Index

The following strategies are among those used to manage interest rate risk:

Actively market commercial and industrial (C&I) loan originations, which tend to have adjustable rate features, and which generate customer relationships that can result in higher core deposit accounts;

Actively market commercial mortgage loan originations, which tend to have shorter terms and higher interest rates than residential mortgage loans, and which generate customer relationships that can result in higher core deposit accounts;

Manage growth in the residential mortgage portfolio to adjustable-rate and/or shorter-term and/or “relationship” loans that result in core deposit relationships;

Actively market core deposit relationships, which are generally longer duration liabilities;

Utilize medium to longer term certificates of deposit, wholesale borrowings and/or brokered deposits to extend liability duration;

Utilize interest rate swaps to extend liability duration;

Utilize a Loan Level / Back to Back Interest Rate Swap program, which converts a borrower’s fixed rate loan to adjustable rate for the Company;

Closely monitor and actively manage the investment portfolio, including management of duration, prepayment and interest rate risk;

Maintain adequate levels of capital; and

Utilize loan sales and/or loan participations.

During the second quarter of 2015, the Company transacted an additional $50 million in notional value of interest rate swaps, bringing the total notional value to $150 million as of June 30, 2015. The swap program is administered by ALCO and follows procedures and documentation in accordance with regulatory guidance and standards as set forth in ASC 815 for cash flow hedges. The program incorporates pre-purchase analysis, liability designation, sensitivity analysis and correlation analysis, daily mark-to-market and collateral posting as required. The Board is advised of all swap activity. As of June 30, 2015, the Company had executed receiving floating and paying fixed swaps with a notional value of $150 million.

In addition, during the second quarter of 2015, the Company initiated a loan level / back-to-back swap program in support of its commercial lending business. Pursuant to this program, the Company extends a floating rate loan and executes a floating to fixed swap with the borrower. At the same time, the Company executes with a third party a swap, the terms of which fully offset the fixed exposure and result in a final floating rate exposure for the Company. As of June 30, 2015, $27.3 million of notional value in swaps were executed and outstanding with borrowers.

As noted above, ALCO uses simulation modeling to analyze the Company’s net interest income sensitivity, as well as the Company’s economic value of portfolio equity under various interest rate scenarios. The model is based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities. The model incorporates certain prepayment and interest rate assumptions, which management believes to be reasonable as of June 30, 2015. The model assumes changes in interest rates without any proactive change in the balance sheet by management. In the model, the forecasted shape of the yield curve remains static as of June 30, 2015.

Index

In an immediate and sustained 200 basis point increase in market rates at June 30, 2015, net interest income for year 1 would decline approximately 5.5 percent, when compared to a flat interest rate scenario. In year 2 this sensitivity improves to an increase of 1.1 percent, when compared to a flat interest rate scenario. The sensitivity is positive for year 2 and beyond.

In an immediate and sustained 100 basis point decrease in market rates at June 30, 2015, net interest income would decline approximately 3.8 percent for year 1 and 6.9 percent for year 2, compared to a flat interest rate scenario.

Growth in medium and longer term CDs and transacting additional pay fixed/receive floating interest rate swaps, has benefitted the Company’s interest rate risk position in 2015.

The table below shows the estimated changes in the Company’s economic value of portfolio equity (“EVPE”) that would result from an immediate parallel change in the market interest rates at June 30, 2015.

	Estimated Increase/								EVPE as a Percentage of
(Dollars in thousands)	Decrease in EVPE								Present Value of Assets (2)
Change In
Interest
Rates	Estimated								EVPE			Increase/(Decrease)
(Basis Points)	EVPE (1)		Amount			Percent			Ratio (3)			(basis points)
+200	$	292,599	$	(41,819	)		(12.50	)%		10.07	%		(76.1	)
+100		318,362		(16,056	)		(4.80	)		10.62			(21.1	)
Flat interest rates		334,418		—			—			10.83			—
-100		340,704		6,286			1.88			10.77			(6.2	)

(1)	EVPE is the discounted present value of expected cash flows from assets and liabilities.
(2)	Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(3)	EVPE ratio represents EVPE divided by the present value of assets.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk. Simulation modeling requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the modeling assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the information provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Management believes the Company’s interest rate risk position is reasonable.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to information regarding quantitative and qualitative disclosures about market risk from the end of the preceding fiscal year to the date of the most recent interim financial statements (June 30, 2015).

ITEM 4. Controls and Procedures

The Corporation’s Management, with the participation of its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

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The Corporation’s Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in the Corporation’s internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonable likely to materially affect, the Corporation’s internal control over financial reporting.

The Corporation’s Management, including the CEO and CFO, does not expect that our disclosure controls and procedures of our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource constraints; the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by Management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions; over time, control may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In the normal course of its business, lawsuits and claims may be brought against the Company and its subsidiaries. There is no currently pending or threatened litigation or proceedings against the Company or its subsidiaries, which asset claims that if adversely decided, we believe would have a material adverse effect on the Company.

ITEM 1A. Risk Factors

There were no material changes in the Corporation’s risk factors during the six months ended June 30, 2015 from the risk factors disclosed in Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no repurchases or unregistered sales of the Corporation’s stock during the quarter.

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ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

3	Articles of Incorporation and By-Laws:
	A. Certificate of Incorporation of the Registrant, as amended, incorporated herein by reference to Exhibit 3 of the Registrant’s Quarterly Report on Form 10-Q filed on November 9, 2009 (File No. 001-16197).
	B. By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on January 26, 2015 (File No. 001-16197).

31.1	Certification of Douglas L. Kennedy, Chief Executive Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).

31.2	Certification of Jeffrey J. Carfora, Chief Financial Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).

32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Douglas L. Kennedy, Chief Executive Officer of the Corporation, and Jeffrey J. Carfora, Chief Financial Officer of the Corporation.

101	Interactive Data File *

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PEAPACK-GLADSTONE FINANCIAL CORPORATION
	(Registrant)


DATE: August 7, 2015	By: /s/ Douglas L. Kennedy
	Douglas L. Kennedy
	President and Chief Executive Officer


DATE: August 7, 2015	By: /s/ Jeffrey J. Carfora
	Jeffrey J. Carfora
	Senior Executive Vice President, Chief Financial Officer
	and Chief Accounting Officer

Exhibit 31.1

CERTIFICATION

I, Douglas L. Kennedy, certify that:

	1.	I have reviewed this Quarterly Report on Form 10-Q of Peapack-Gladstone Financial Corporation;

	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)	Any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2015

By: /s/ Douglas L. Kennedy

Name: Douglas L. Kennedy

Title: President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Jeffrey J. Carfora, certify that:

	1.	I have reviewed this Quarterly Report on Form 10-Q of Peapack-Gladstone Financial Corporation;

	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves Management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2015	By: /s/ Jeffrey J. Carfora
	Name: Jeffrey J. Carfora
	Title: Senior Executive Vice President,
	Chief Financial Officer and
	Chief Accounting Officer

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Peapack-Gladstone Financial Corporation (the “Corporation”), for the quarterly period ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Douglas L. Kennedy, as Chief Executive Officer of the Corporation, and Jeffrey J. Carfora, as Chief Financial Officer, each hereby certify, pursuant to 18 U.S.C. (section) 1350, as adopted pursuant to (section) 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

	(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.