10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

For the Quarter Ended September 30, 2012

OR

o 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 requirements for the past 90 days.

Yes ý          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 of 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 ý          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 ý
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 ý.

Number of shares of Common Stock outstanding as of November 1, 2012:

8,880,498

1

PEAPACK-GLADSTONE FINANCIAL CORPORATION

PART 1 FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited) Consolidated Statements of Condition at September 30, 2012 and December 31, 2011	Page 3
	Consolidated Statements of Income for the three and nine months ended September 30, 2012 and 2011	Page 4
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011	Page 5
	Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2012	Page 6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011	Page 7
	Notes to Consolidated Financial Statements	Page 8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 36
Item 3	Quantitative and Qualitative Disclosures about Market Risk	Page 49
Item 4	Controls and Procedures	Page 49

PART 2 OTHER INFORMATION

Item 1A	Risk Factors	Page 50
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	Page 50
Item 6	Exhibits	Page 50

2

Item 1. Financial Statements (Unaudited)

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands)

	(unaudited)			(audited)
	September 30,			December 31,
	2012			2011
ASSETS
Cash and due from banks	$	5,466		$	7,097
Federal funds sold		100			100
Interest-earning deposits		49,354			35,856
Total cash and cash equivalents		54,920			43,053
Investment securities held to maturity (fair
value $82,426 in 2012 and $99,427 in 2011)		76,698			100,719
Securities available for sale		253,489			319,520
FHLB and FRB stock, at cost		4,639			4,569
Loans held for sale, at fair value		8,443			2,841
Loans		1,096,482			1,038,345
Less:  Allowance for loan losses		13,893			13,223
Net loans		1,082,589			1,025,122
Premises and equipment		30,472			31,941
Other real estate owned		3,392			7,137
Accrued interest receivable		4,040			4,078
Bank owned life insurance		30,887			27,296
Deferred tax assets, net		25,861			26,731
Other assets		8,060			7,328
TOTAL ASSETS	$	1,583,490		$	1,600,335
LIABILITIES
Deposits:
Noninterest-bearing demand deposits	$	306,711		$	297,459
Interest-bearing deposits:
Checking		332,786			341,180
Savings		103,572			92,322
Money market accounts		504,863			516,920
Certificates of deposit $100,000 and over		72,168			71,783
Certificates of deposit less than $100,000		112,586			124,228
Total deposits		1,432,686			1,443,892
Federal home loan bank advances		12,335			17,680
Capital lease obligation		9,024			9,178
Accrued expenses and other liabilities		11,967			6,614
TOTAL LIABILITIES		1,466,012			1,477,364
SHAREHOLDERS’ EQUITY
Preferred stock (no par value; authorized 500,000 shares;
issued 14,341 at December 31, 2011;
liquidation preference of $1,000 per share)		—			13,979
Common stock (no par value; $0.83 per share; authorized 21,000,000
shares; issued shares, 9,288,676 at September 30, 2012 and 9,240,889
at December 31, 2011; outstanding shares, 8,880,498 at September 30, 2012
and 8,832,711 at December 31, 2011)		7,724			7,685
Surplus		96,909			96,323
Treasury stock at cost, 408,178 shares at September 30, 2012 and December 31,   2011		(8,988	)		(8,988	)
Retained earnings		20,702			13,868
Accumulated other comprehensive income, net of income tax		1,131			104
TOTAL SHAREHOLDERS’ EQUITY		117,478			122,971
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	1,583,490		$	1,600,335

See accompanying notes to consolidated financial statements.  

3

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except share data)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2012		2011			2012		2011
INTEREST INCOME
Interest and fees on loans	$	11,939	$	11,563		$	35,928	$	34,948
Interest on investment securities held to maturity:
Taxable		564		418			1,375		1,635
Tax-exempt		39		90			151		274
Interest on securities available for sale:
Taxable		1,223		1,344			4,234		4,605
Tax-exempt		156		124			477		364
Interest on loans held for sale		34		12			75		33
Interest-earning deposits		27		43			58		91
Total interest income		13,982		13,594			42,298		41,950
INTEREST EXPENSE
Interest on savings and interest-bearing deposit
accounts		362		758			1,168		2,662
Interest on certificates of deposit over $100,000		229		262			678		815
Interest on other time deposits		321		422			1,031		1,357
Interest on borrowed funds		113		177			453		578
Interest on capital lease obligation		107		80			324		239
Total interest expense		1,132		1,699			3,654		5,651
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES		12,850		11,895			38,644		36,299
Provision for loan losses		750		1,500			3,750		5,500
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		12,100		10,395			34,894		30,799
OTHER INCOME
Trust department income		2,918		2,555			9,353		8,102
Service charges and fees		694		747			2,073		2,205
Bank owned life insurance		266		257			794		769
Securities gains, net		235		248			732		721
Other income		446		166			1,001		669
Total other income		4,559		3,973			13,953		12,466
OPERATING EXPENSES
Salaries and employee benefits		7,029		5,789			19,550		17,579
Premises and equipment		2,290		2,322			7,034		7,058
Other operating expenses (See footnote 8)		2,674		2,462			8,193		8,214
Total operating expenses		11,993		10,573			34,777		32,851
INCOME BEFORE INCOME TAX EXPENSE		4,666		3,795			14,070		10,414
Income tax expense		1,834		(1,537	)		5,432		773
NET INCOME		2,832		5,332			8,638		9,641
Dividends on preferred stock and accretion		—		219			474		1,008
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS	$	2,832	$	5,113		$	8,164	$	8,633
EARNINGS PER COMMON SHARE
Basic	$	0.32	$	0.58		$	0.93	$	0.98
Diluted	$	0.32	$	0.58		$	0.93	$	0.98
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic		8,778,649		8,742,955			8,775,022		8,739,482
Diluted		8,819,431		8,743,065			8,805,859		8,741,102

See accompanying notes to consolidated financial statements.

4

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net income	$	2,832		$	5,332		$	8,638		$	9,641
Other comprehensive income:
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period		1,093			726			2,212			3,417
Less:  Reclassification adjustment for gains
included in net income		151			249			648			721
		942			477			1,564			2,696
Tax effect		(385	)		(198	)		(639	)		(1,141	)
Net of tax		557			279			925			1,555
Unrealized losses on the noncredit, other-than
temporarily impaired held to maturity securities
and on securities transferred from available for
sale to held to maturity		60			71			173			90
Tax effect		(25	)		243			(71	)		235
Net of tax		35			314			102			325
Total comprehensive income	$	3,424		$	5,925		$	9,665		$	11,521

See accompanying notes to consolidated financial statements.  

5

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

Nine Months Ended September 30, 2012
															Accumulated
															Other
(In thousands, except	Preferred			Common					Treasury			Retained			Comprehensive
per share data)	Stock			Stock		Surplus			Stock			Earnings			Income		Total
Balance at January 1, 2012
8,832,711 common shares
outstanding	$	13,979		$	7,685	$	96,323		$	(8,988	)	$	13,868		$	104	$	122,971
Net income													8,638					8,638
Net change in accumulated
other comprehensive income																1,027		1,027
Issuance of restricted stock
36,263 shares					30		(30	)										—
Amortization of restricted stock							332											332
Redemption of preferred stock
14,341 shares		(14,341	)															(14,341	)
Warrant repurchase
150,296 shares							(109	)										(109	)
Accretion of discount on
preferred stock		362											(362	)				—
Cash dividends declared on
common stock
($0.05 per share)													(1,330	)				(1,330	)
Cash dividends declared on
preferred stock													(112	)				(112	)
Common stock option expense							253											253
Common stock options
exercised and related tax
benefits, 2,022 shares					1		20											21
Sales of shares (Dividend
Reinvestment Program),
9,502 shares					8		120											128
Balance at September 30, 2012
8,880,498 common shares
outstanding	$	—		$	7,724	$	96,909		$	(8,988	)	$	20,702		$	1,131	$	117,478

See accompanying notes to consolidated financial statements.

6

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine Months Ended September 30,
OPERATING ACTIVITIES:	2012			2011
Net income:	$	8,638		$	9,641
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,214			2,149
Amortization of premium and accretion of discount on securities, net		1,708			2,332
Amortization of restricted stock		332			191
Provision for loan losses		3,750			5,500
Provision for deferred taxes		—			622
Reversal of valuation allowance-deferred tax assets		—			(2,988	)
Tax benefit on exercise of stock options		2			—
Stock-based compensation		253			273
Gains on security sales, available for sale		(648	)		(721	)
Gain on securities, held to maturity		(84	)		—
Loans originated for sale		(67,503	)		(22,539	)
Proceeds from sales of loans		62,726			22,180
Gains on loans sold		(825	)		(363	)
Loss/(gains) on sale of other real estate owned		62			(47	)
Gain on disposal of fixed assets		(7	)		—
Increase in cash surrender value of life insurance, net		(595	)		(693	)
Decrease in accrued interest receivable		38			452
(Increase)/decrease in other assets		(572	)		1,507
Increase in accrued expenses and other liabilities		1,801			1,842
NET CASH PROVIDED BY OPERATING ACTIVITIES		11,290			19,338
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held to maturity		36,714			28,413
Proceeds from maturities of securities available for sale		61,794			48,996
Proceeds from calls of investment securities held to maturity		136			39,505
Proceeds from calls of securities available for sale		23,598			41,755
Proceeds from sales of securities available for sale		29,358			37,277
Purchase of investment securities held to maturity		(9,546	)		(44,145	)
Purchase of securities available for sale, including FHLB and FRB stock		(47,913	)		(151,556	)
Net increase in loans		(60,046	)		(41,136	)
Proceeds from sales of other real estate owned		2,512			1,238
Purchases of premises and equipment		(738	)		(826	)
Purchase of life insurance		(2,996	)		—
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES		32,873			(40,479	)
FINANCING ACTIVITIES:
Net (decrease)/increase in deposits		(11,206	)		45,464
Repayments of Federal Home Loan Bank advances		(5,345	)		(3,333	)
Redemption of preferred stock		(14,341	)		(7,172	)
Repurchase of warrants		(111	)		—
Cash dividends paid on preferred stock		(112	)		(644	)
Cash dividends paid on common stock		(1,330	)		(1,324	)
Exercise of stock options		21			—
Sales of shares (DRIP Program)		128			122
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES		(32,296	)		33,113
Net increase in cash and cash equivalents		11,867			11,972
Cash and cash equivalents at beginning of period		43,053			62,687
Cash and cash equivalents at end of period	$	54,920		$	74,659

See accompanying notes to consolidated financial statements.  

7

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, 2011 for Peapack-Gladstone Financial Corporation (the “Corporation”). In the opinion of the Management of the Corporation, the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments necessary to present fairly the financial position as of September 30, 2012 and the results of operations for the three and nine months ended September 30, 2012 and 2011 and cash flows for the nine months ended September 30, 2012 and 2011.

Principles of Consolidation: 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 Peapack-Gladstone Financial Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly owned subsidiary, Peapack-Gladstone Bank. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Securities: Debt securities are classified as held to maturity and carried at amortized cost when Management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale 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 or 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 of 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.

8

Loans: 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, usually when the Bank receives contractual payments for six consecutive 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. Mortgage loans are generally charged off when the value of the underlying collateral does not cover the outstanding principal balance. The majority of the Corporation’s loans are secured by real estate in the State of New Jersey.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charges against the allowance when Management believes the uncollectibility 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 Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and are evaluated for impairment. 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.

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. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment while they are performing assets. If and when a residential mortgage is placed on nonaccrual status and in the process of collections, 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.

9

A troubled debt restructuring is a renegotiated loan with concessions made by the lender to a borrower who is experiencing financial difficulty. Troubled debt restructurings are separately identified for impairment and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring 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 troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component of the allowance covers loans collectively evaluated for impairment 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 experienced by the Corporation on a weighted average basis over the previous several 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; levels of and trends in charge-offs and recoveries; trends in volume and terms of 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.

In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on Federal call report codes. The material portfolio segments are discussed below:

Primary Residential Mortgages. The Bank originates one to four family residential mortgage loans within or near its primary geographic market area. When reviewing residential mortgage loan applications, the Bank obtains detailed verifiable information regarding income, assets and indebtedness, a credit report, and an independent appraisal of the property to be mortgaged. The Bank makes residential mortgage loans up to 80% of the appraised value and up to 95% with private mortgage insurance. The Bank uses lower loan to value ratios for large loans and loans on either second (vacation) homes or investment property. The Bank’s underwriting guidelines include (i) minimum credit report scores of 680 and (ii) a maximum debt to income ratio of 40% if the loan to value is 70% or higher and 45% if the loan to value is less than 70%. The Bank may consider an exception to any guideline if the remaining characteristics of the application are sufficiently strong to compensate. The Bank retains in its portfolio residential mortgage loans with maturities of up to 15 years while loans with longer maturities are sold to third party financial institutions. The Bank does not originate, purchase or carry any sub-prime mortgage loans.

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.

Bank management believes that the underwriting guidelines previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic residential mortgage loans.

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. When reviewing residential mortgage loan applications, the Bank obtains detailed verifiable information regarding income, assets and indebtedness, a credit report, and an independent appraisal of the property to be mortgaged. For home equity lines of credit, the Bank utilizes the same underwriting standards as for primary residential mortgages. 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.

10

Bank management believes that the underwriting guidelines previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic home equity lines of credit.

Junior Lien Loan on Residence. The Bank provides junior lien loans (“JLL”) against one to four family properties within or near its primary geographic market area. Junior liens 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. The Bank will require that the mortgage securing the JLL be no more junior than a second lien position The Bank will evaluate these applications in the same manner as it underwrites primary residential mortgages. The combined first mortgage and junior lien loan must be no more than 80% of the appraised value of the property when the combined debt is less than or equal to $800,000. For JLL amounts where the combined debt exceeds $800,000, the maximum LTV ratio is 65%. 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.

Bank management believes that the underwriting guidelines previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic junior lien loans.

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. 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 have also have retail space. In these cases the Bank determines which component provides the majority of the rental income for the property and utilizes that component for the loan classification.

The terms and conditions of all commercial mortgage loans are tailored to the specific attributes of the borrower, the property or project, and any guarantors. In the case of multifamily and investment commercial real estate properties, the Bank reviews, among other things, the nature of and diversity of the underlying tenants and leases, the resources and experience of the sponsor, and the condition and location of the subject property. With an owner occupied property, a detailed credit assessment is also made of the operating business. While the Bank’s policy allows loan to value ratios of up to 80% of an appraised value, the majority of the loans are originated at loan to value ratios of 70% or lower. Commercial mortgage loans are generally made on a fixed rate basis with periodic rate resets every five or seven years over an underlying market index. The Bank requires an independent appraisal, a property conditions assessment from an engineering firm, and appropriate environmental due diligence.

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. To mitigate this risk, the Bank will require a standby assignment of leases, greater direct recourse to the owners, and a risk appropriate interest rate and loan structure. In underwriting a commercial mortgage loan, the Bank evaluates the property’s historical operating income as well as its projected sustainability and generally requires a minimum debt service coverage ratio that provides for an adequate cushion for unexpected or uncertain future events such as the potential impact of changes in interest rates, vacancy levels and lease rates.

11

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 and equipment. When underwriting business loans, among other things, the bank evaluates the historical profitability and debt servicing capacity of the borrowing entity and the financial resources and character of the principal owners and guarantors.

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.

To mitigate the risk characteristics of commercial and industrial loans, the Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance.

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 and for projects that are supported by either a permanent take-out or acceptable executed leases or sales contracts. When evaluating a construction loan request, the Bank will also review the construction plans and drawings, costs estimates from architects, and an independent appraisal. Construction loans typically have a 12-24 month period of interest only and at a maximum 70% LTV ratio. 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.

Stock-Based Compensation: The Corporation has stock option plans that allow the granting of shares of the Corporation’s common stock as incentive stock options, nonqualified stock options, restricted stock awards and stock appreciation rights to directors, officers, employees and independent contractors of the Corporation and its subsidiaries. The options granted under these plans are exercisable at a price equal to the fair market 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.

For the three months ended September 30, 2012 and 2011, the Corporation recorded total compensation cost for stock options of $83 thousand and $61 thousand respectively, with a recognized tax benefit of $15 thousand for the quarter ended September 30, 2012 and $11 thousand for the September 30, 2011 quarter. The Corporation recorded total compensation cost for stock options for the nine months ended September 30, 2012 and 2011, of $253 thousand and $273 thousand, respectively, with a recognized tax benefit of $45 thousand for the nine months ended September 30, 2012 and $46 thousand for the nine months ended September 30, 2011.

12

There was approximately $580 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Corporation’s stock incentive plans at September 30, 2012. That cost is expected to be recognized over a weighted average period of 1.7 years.

For the Corporation’s stock option plans, changes in options outstanding during the nine months ended September 30, 2012 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In Thousands)
Balance, January 1, 2012		577,782		$	23.45
Granted during 2012		62,560			11.01
Exercised during 2012		(2,190	)		11.10
Expired during 2012		(12,338	)		25.51
Forfeited during 2012		(1,018	)		15.02
Balance, September 30, 2012		624,796		$	22.22		4.27 years	$	591
Vested and expected to vest (1)		594,387		$	22.71		4.27 years	$	513
Exercisable at September 30, 2012		455,858		$	25.57		2.80 years	$	80

(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 Corporation’s closing stock price on the last trading day of the third quarter of 2012 and the exercise price, multiplied by the number of in-the-money options). The Corporation’s closing stock price on September 30, 2012 was $16.34.

For the third quarter of 2012, the per share weighted-average fair value of stock options granted was $5.29 as compared to $3.68 for the same quarter of 2011. The per share weighted-average fair value of stock options granted during the first nine months of 2012 and 2011 was $3.91 and $3.88, respectively on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Dividend Yield		1.24	%		2.02	%		1.47	%		1.60	%
Expected volatility		39	%		38	%		39	%		32	%
Expected life		7 years			7 years			7 years			7 years
Risk-free interest rate		1.08	%		2.02	%		1.43	%		2.08	%

In January 2012 and 2011, the Corporation issued 36,263 and 28,732 restricted stock awards, respectively, at a fair value equal to the market price of the Corporation’s common stock on the date of the grant. The awards vest 40 percent after two years and 20 percent each year thereafter until fully vesting on the fifth anniversary of the grant date. The Corporation recorded total compensation cost for restricted stock awards of $111 thousand for the third quarter of 2012 and $67 thousand for the same quarter of 2011. For the nine months ended September 30, 2012 and 2011, the Corporation recorded total compensation cost for restricted stock awards of $332 thousand and $191 thousand, respectively.

As of September 30, 2012, there was approximately $790 thousand of unrecognized compensation cost related to non-vested restricted stock awards granted under the Corporation’s stock incentive plans. That cost is expected to be recognized over a weighted average period of 1.6 years.

13

Changes in non-vested, restricted common shares for 2012 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2012		84,725		$	13.46
Granted during 2012		36,263			10.72
Vested during 2012		(22,393	)		10.75
Balance, September 30, 2012		98,595		$	13.07

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 or restricted stock would vest during the reporting period utilizing the Treasury stock method.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2012		2011		2012		2011
Net income to common shareholders	$	2,832	$	5,113	$	8,164	$	8,633
Basic weighted-average common shares outstanding		8,778,649		8,742,955		8,775,022		8,739,482
Plus:  common stock equivalents		40,782		110		30,837		1,620
Diluted weighted-average common shares outstanding		8,819,431		8,743,065		8,805,859		8,741,102
Net income per common share
Basic	$	0.32	$	0.58	$	0.93	$	0.98
Diluted		0.32		0.58		0.93		0.98

Stock options and restricted stock totaling 569,642 and 600,047 shares were not included in the computation of diluted earnings per share in the third quarters of 2012 and 2011, respectively, because they were considered antidilutive. Stock options and restricted stock totaling 590,867 and 571,993 shares were not included in the computation of diluted earnings per share in the nine months ended September 30, 2012 and 2011, respectively, because they were considered antidilutive.

Income Taxes: The Corporation files a consolidated Federal income tax return and separate state income tax returns for each subsidiary based on current laws and regulations.

The Corporation is no longer subject to examination by the U.S. Federal tax authorities for years prior to 2008 or by New Jersey tax authorities for years prior to 2007.

The Corporation recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other expense. The Corporation did not have any amounts accrued for interest and penalties at September 30, 2012.

Reclassification: Certain reclassifications may have been made in the prior periods’ financial statements in order to conform to the 2012 presentation.

14

2. INVESTMENT SECURITIES HELD TO MATURITY

A summary of amortized cost and estimated fair value of investment securities held to maturity included in the consolidated statements of condition as of September 30, 2012 and December 31, 2011 follows:

	September 30, 2012
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Fair
(In thousands)	Amount		Gains		Losses			Value
Mortgage-backed securities – residential	$	52,179	$	2,034	$	—		$	54,213
State and political subdivisions		16,189		11		—			16,200
Trust preferred pooled securities		8,330		5,840		(2,157	)		12,013
Total	$	76,698	$	7,885	$	(2,157	)	$	82,426

	December 31, 2011
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Fair
(In thousands)	Amount		Gains		Losses			Value
Mortgage-backed securities – residential	$	67,394	$	1,393	$	(1	)	$	68,786
State and political subdivisions		24,608		52		—			24,660
Trust preferred pooled securities		8,717		2,170		(4,906	)		5,981
Total	$	100,719	$	3,615	$	(4,907	)	$	99,427

The following tables present the Corporation’s investment securities held to maturity with continuous unrealized losses and the estimated fair value of these investments as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	Duration of Unrealized Loss
	Less than 12 Months				12 Months or Longer					Total
	Fair		Unrecognized		Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses		Value		Losses			Value		Losses
Trust preferred pooled securities	$	—	$	—	$	4,535	$	(2,157	)	$	4,535	$	(2,157	)
Total	$	—	$	—	$	4,535	$	(2,157	)	$	4,535	$	(2,157	)

	December 31, 2011
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities-
residential	$	3,194	$	(1	)	$	—	$	—		$	3,194	$	(1	)
Trust preferred pooled securities		—		—			2,729		(4,906	)		2,729		(4,906	)
Total	$	3,194	$	(1	)	$	2,729	$	(4,906	)	$	5,923	$	(4,907	)

The trust preferred pooled securities within the Corporation’s held to maturity investment portfolio are collateralized by trust preferred securities issued primarily by individual bank holding companies, but also by insurance companies and real estate investment trusts. There has been little or no active trading in these securities for several years; therefore the Corporation has determined these securities to be illiquid and fair value was calculated by utilizing non-binding broker quotes. As of December 31, 2008, to estimate fair value, and determine whether the securities were other-than-temporarily impaired, the Corporation retained and worked with a third party to review the issuers (the collateral) underlying each of the securities. Among the factors analyzed were the issuers’ profitability, credit quality, asset mix, capital adequacy, leverage and liquidity position, as well as an overall assessment of credit, profitability and capital trends within the portfolio’s issuer universe. These factors provided an assessment of the portion of the collateral of each security which was likely to default in future periods. The cash flows associated with the collateral likely to default, together with the cash flows associated with collateral which had already deferred or defaulted, were then eliminated. In addition, the Corporation assumed constant rates of default in excess of those based upon the historic performance of the underlying collateral. The resulting cash flows were then discounted to the current period to determine fair value for each security. The discount rate utilized was based on a risk-free rate (LIBOR) plus spreads appropriate for the product, which include consideration of liquidity and credit uncertainty.

15

Each quarter since December 2008, to periodically assess the credit assumptions and related input data that could affect the cash flows of each security, Management compared actual deferrals and defaults to the assumed deferrals and defaults included in the valuation model.

As of each year end since December 2008, the Corporation again worked with a third party to model the securities and review its cash flows. The modeling process and related assumptions were similar to the process and related assumptions employed as of December 31, 2008. No additional impairment charges were recorded for the three and nine months ended September 30, 2012.

Further significant downturns in the real estate markets and/or the economy could cause additional issuers to defer paying dividends on these securities and/or ultimately default. Such occurrences, if beyond those assumed in the current valuation, could cause an additional write-down of the portfolio, with a negative impact on earnings; however, the Corporation has already recorded a substantial write-down of its trust preferred pooled securities portfolio. We do not expect that an additional write-down would have a material effect on the cash flows from the securities or on our liquidity position.

3. 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 September 30, 2012 and December 31, 2011 follows:

	September 30, 2012
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	29,645	$	312	$	—			29,957
Mortgage-backed securities – residential		181,538		5,906		(1	)		187,443
State and political subdivisions		29,115		1,511		(1	)		30,625
Other securities		5,998		98		(845	)		5,251
Marketable equity securities		209		4		—			213
Total	$	246,505	$	7,831	$	(847	)	$	253,489

	December 31, 2011
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	46,729	$	149	$	—		$	46,878
Mortgage-backed securities – residential		232,240		4,891		(147	)		236,984
State and political subdivisions		28,539		1,314		(2	)		29,851
Other securities		5,999		40		(832	)		5,207
Marketable equity securities		593		7		—			600
Total	$	314,100	$	6,401	$	(981	)	$	319,520

16

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 September 30, 2012 and December 31, 2011.

	September 30, 2012
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities -
residential	$	—	$	—		$	95	$	(1	)	$	95	$	(1	)
State and political subdivisions		36		(1	)		—		—			36		(1	)
Other securities		—		—			2,153		(845	)		2,153		(845	)
Total	$	36	$	(1	)	$	2,248	$	(846	)	$	2,284	$	(847	)

	December 31, 2011
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities-
residential	$	32,931	$	(120	)	$	317	$	(27	)	$	33,248	$	(147	)
State and political subdivisions		736		(2	)		—		—			736		(2	)
Other securities		—		—			2,167		(832	)		2,167		(832	)
Total	$	33,667	$	(122	)	$	2,484	$	(859	)	$	36,151	$	(981	)

Management believes that the unrealized losses on investment securities available for sale are temporary and due to interest rate fluctuations and/or volatile market conditions rather than the creditworthiness of the issuers. The Corporation does not intend to sell these securities nor is it likely that it will be required to sell the securities before their anticipated recovery; however, Management also closely monitors market conditions and may sell the securities if it determines it would be beneficial to do so.

At September 30, 2012, the unrealized loss on other securities, $845 thousand, is 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, a single-issuer trust preferred 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 September 30, 2012.

4. LOANS

Loans outstanding, by general ledger classification, as of September 30, 2012 and December 31, 2011, consisted of the following:

			% of					% of
	September 30,		Total			December 31,		Total
(In thousands)	2012		Loans			2011		Loans
Residential mortgage	$	504,407		46.00	%	$	498,482		48.01	%
Commercial mortgage		391,976		35.75			330,559		31.84
Commercial loans		115,602		10.54			123,845		11.93
Construction loans		9,639		0.88			13,713		1.32
Home equity lines of credit		51,440		4.69			50,291		4.84
Consumer loans, including fixed
rate home equity loans		21,542		1.97			19,439		1.87
Other loans		1,876		0.17			2,016		0.19
Total loans	$	1,096,482		100.00	%	$	1,038,345		100.00	%

17

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 September 30, 2012 and December 31, 2011:

			% of					% of
	September 30,		Total			December 31,		Total
(In thousands)	2012		Loans			2011		Loans
Primary residential mortgage	$	517,520		47.34	%	$	511,418		49.40	%
Home equity lines of credit		51,441		4.71			50,394		4.87
Junior lien loan on residence		12,587		1.15			13,053		1.26
Multifamily property		127,972		11.71			104,056		10.05
Owner-occupied commercial real estate		103,022		9.43			107,852		10.42
Investment commercial real estate		235,162		21.51			186,998		18.06
Commercial and industrial		20,277		1.85			29,825		2.88
Secured by farmland		209		0.02			—		N/A
Agricultural production loans		15		N/A			18		N/A
Commercial construction loans		9,633		0.88			19,208		1.85
Consumer and other loans		15,328		1.40			12,516		1.21
Total loans	$	1,093,166		100.00	%	$	1,035,338		100.00	%
Net deferred fees		3,316					3,007
Total loans including net deferred costs	$	1,096,482				$	1,038,345

Included in the totals above for September 30, 2012 are $231 thousand of unamortized discount as compared to $691 thousand of unamortized discount for December 31, 2011.

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 September 30, 2012 and December 31, 2011:

September 30, 2012
	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	$	8,233	$	326	$	509,287	$	2,593	$	517,520	$	2,919
Home equity lines
of credit		98		—		51,343		253		51,441		253
Junior lien loan
on residence		480		—		12,107		66		12,587		66
Multifamily
property		—		—		127,972		975		127,972		975
Owner-occupied
commercial
real estate		9,195		—		93,827		3,363		103,022		3,363
Investment commercial
real estate		5,852		374		229,310		4,226		235,162		4,600
Commercial and
industrial		726		44		19,551		772		20,277		816
Secured by farmland		—		—		209		3		209		3
Agricultural
production		—		—		15		1		15		1
Commercial
construction		—		—		9,633		291		9,633		291
Consumer and
other		—		—		15,328		78		15,328		78
Unallocated		—		—		—		528		—		528
Total ALLL	$	24,584	$	744	$	1,068,582	$	13,149	$	1,093,166	$	13,893

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December 31, 2011
	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	$	8,878	$	345	$	502,540	$	2,069	$	511,418	$	2,414
Home equity lines
of credit		489		—		49,905		204		50,394		204
Junior lien loan
on residence		680		9		12,373		55		13,053		64
Multifamily
property		550		52		103,506		653		104,056		705
Owner-occupied
commercial
real estate		9,054		322		98,798		2,786		107,852		3,108
Investment commercial
real estate		5,986		509		181,012		3,672		186,998		4,181
Commercial and
industrial		576		51		29,249		1,240		29,825		1,291
Agricultural
production		—		—		18		1		18		1
Commercial
construction		—		—		19,208		669		19,208		669
Consumer and
other		—		—		12,516		78		12,516		78
Unallocated		—		—		—		508		—		508
Total ALLL	$	26,213	$	1,288	$	1,009,125	$	11,935	$	1,035,338	$	13,223

Impaired loans include nonaccrual loans of $17.0 million at September 30, 2012 and $18.9 million at December 31, 2011. Impaired loans also include performing commercial mortgage and commercial troubled debt restructured loans of $6.0 million at September 30, 2012 and $7.3 million at December 31, 2011. There was no allowance allocated to troubled debt restructured loans which are nonaccrual at September 30, 2012 and the allowance allocated to troubled debt restructured loans which are nonaccrual was $280 thousand at December 31, 2011. All accruing troubled debt restructured loans were paying in accordance with restructured terms as of September 30, 2012. The Corporation has not committed to lend additional amounts as of September 30, 2012 to customers with outstanding loans that are classified as loan restructurings.

19

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2012 and December 31, 2011:

September 30, 2012
	Unpaid						Average		Interest
	Principal		Recorded		Specific		Impaired		Income
(In thousands)	Balance		Investment		Reserves		Loans		Recognized
With no related allowance recorded:
Primary residential mortgage	$	8,398	$	6,145	$	—	$	7,347	$	356
Multifamily property		—		—		—		247		21
Owner-occupied commercial real estate		11,094		9,195		—		9,774		593
Investment commercial real estate		1,177		674		—		842		53
Commercial and industrial		504		438		—		642		49
Home equity lines of credit		98		98		—		263		13
Junior lien loan on residence		671		480		—		677		42
Consumer and other		—		—		—		—		—
Total loans with no related allowance	$	21,942	$	17,030	$	—	$	19,792	$	1,127
With related allowance recorded:
Primary residential mortgage	$	2,175	$	2,088	$	326	$	1,877	$	82
Owner-occupied commercial real estate		—		—		—		—		—
Investment commercial real estate		5,185		5,178		374		4,976		249
Commercial and industrial		297		288		44		96		76
Junior lien loan on residence		—		—		—		—		—
Total loans with related allowance	$	7,657	$	7,554	$	744	$	6,949	$	407
Total loans individually evaluated for
impairment	$	29,599	$	24,584	$	744	$	26,741	$	1,534

December 31, 2011
	Unpaid						Average		Interest
	Principal		Recorded		Specific		Impaired		Income
(In thousands)	Balance		Investment		Reserves		Loans		Recognized
With no related allowance recorded:
Primary residential mortgage	$	7,586	$	5,844	$	—	$	4,721	$	87
Multifamily property		312		286		—		243		—
Owner-occupied commercial real estate		10,630		7,049		—		5,575		158
Investment commercial real estate		397		299		—		322		20
Commercial and industrial		475		475		—		433		24
Home equity lines of credit		595		489		—		66		18
Junior lien loan on residence		682		555		—		453		9
Total loans with no related allowance	$	20,677	$	14,997	$	—	$	11,813	$	316
With related allowance recorded:
Primary residential mortgage	$	3,083	$	3,034	$	345	$	1,496	$	99
Multifamily property		264		264		52		71		13
Owner-occupied commercial real estate		2,020		2,005		322		1,254		66
Investment commercial real estate		5,979		5,687		509		2,865		373
Commercial and industrial		101		101		51		495		9
Junior lien loan on residence		138		125		9		128		—
Commercial construction		—		—		—		995		—
Total loans with related allowance	$	11,585	$	11,216	$	1,288	$	7,304	$	560
Total loans individually evaluated for
impairment	$	32,262	$	26,213	$	1,288	$	19,117	$	876

The Corporation did not recognize any income on nonaccruing impaired loans for the three and nine months ended September 30, 2012.

20

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 September 30, 2012 and December 31, 2011:

	September 30, 2012
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	6,642	$	—
Home equity lines of credit		98		—
Junior lien loan on residence		239		—
Owner-occupied commercial real estate		8,788		—
Investment commercial real estate		903		—
Commercial and industrial		288		—
Total	$	16,958	$	—

	December 31, 2011
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	7,468	$	—
Home equity lines of credit		489		—
Junior lien loan on residence		680		—
Multifamily property		550		—
Owner-occupied commercial real estate		8,641		—
Investment commercial real estate		1,037		—
Commercial and industrial		—		345
Total	$	18,865	$	345

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

21

The following tables present the aging of the recorded investment in past due loans as of September 30, 2012 and December 31, 2011 by class of loans, excluding nonaccrual loans:

September 30, 2012
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,678	$	91	$	—	$	1,769
Junior lien loan on residence		168		—		—		168
Owner-occupied commercial real estate		276		—				276
Commercial and industrial		2		22		—		24
Consumer and other		7		—		—		7
Total	$	2,131	$	113	$	—	$	2,244

December 31, 2011
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	4,857	$	898	$	—	$	5,755
Home equity lines of credit		565		19		—		584
Junior lien loan on residence		399		—		—		399
Multifamily property		395		—		—		395
Owner-occupied commercial real estate		3,381		—		—		3,381
Investment commercial real estate		242		—		—		242
Commercial and industrial		368		—		345		713
Commercial construction		500		—		—		500
Consumer and other		8		—		—		8
Total	$	10,715	$	917	$	345	$	11,977

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. The risk rating analysis of loans is performed (i) when the loan is initially underwritten, (ii) annually for loans in excess of $500,000, (iii) on a random quarterly basis from either internal reviews with the Senior Credit Officer or externally through an independent loan review firm, or (iv) whenever Management otherwise identifies a potentially negative trend or issue relating to a borrower. In addition, for all loan types, the Corporation evaluates credit quality based on the aging status of the loan, which was previously presented.

22

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 September 30, 2012, 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	$	507,514	$	2,462	$	7,544	$	—
Home equity lines of credit		51,343		—		98		—
Junior lien loan on residence		12,067		40		480		—
Multifamily property		126,950		639		383		—
Farmland		209		—		—		—
Owner-occupied commercial real estate		81,494		1,280		20,248		—
Investment commercial real estate		205,434		12,788		16,940		—
Agricultural production loans		15		—		—		—
Commercial and industrial		18,809		144		1,324		—
Commercial construction		8,029		1,604		—		—
Consumer and other loans		15,328		—		—		—
Total	$	1,027,192	$	18,957	$	47,017	$	—

As of December 31, 2011, 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	$	496,815	$	5,437	$	9,166	$	—
Home equity lines of credit		49,905		—		489		—
Junior lien loan on residence		12,244		129		680		—
Multifamily property		102,948		163		945		—
Owner-occupied commercial real estate		81,797		9,524		16,531		—
Investment commercial real estate		157,579		9,599		19,820		—
Agricultural production loans		18		—		—		—
Commercial and industrial		28,020		835		970		—
Commercial construction		18,474		234		500		—
Consumer and other loans		12,021		495		—		—
Total	$	959,821	$	26,416	$	49,101	$	—

At September 30, 2012, $24.6 million of the $47.0 million of the substandard loans were also considered impaired as compared to December 31, 2011, when $26.2 million of the $49.1 million of the substandard loans were also impaired.

23

The activity in the allowance for loan losses for the three months ended September 30, 2012 is summarized below:

	July 1,										Sept 30,
	2012										2012
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,602	$	(183	)	$	1	$	499		$	2,919
Home equity lines of credit		208		—			—		45			253
Junior lien loan on residence		55		—			1		10			66
Multifamily property		839		(18	)		—		154			975
Farmland		3		—			—		—			3
Owner-occupied commercial real estate		3,418		(345	)		19		271			3,363
Investment commercial real estate		4,784		(64	)		2		(122	)		4,600
Agricultural production loans		1		—			—		—			1
Commercial and industrial		917		—			51		(152	)		816
Commercial construction		234		—			—		57			291
Consumer and other loans		77		(8	)		1		8			78
Unallocated		548		—			—		(20	)		528
Total ALLL	$	13,686	$	(618	)	$	75	$	750		$	13,893

The activity in the allowance for loan losses for the nine months ended September 30, 2012 is summarized below:

	January 1,										Sept 30,
	2012										2012
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,414	$	(1,171	)	$	2	$	1,674		$	2,919
Home equity lines of credit		204		(91	)		—		140			253
Junior lien loan on residence		64		(57	)		5		54			66
Multifamily property		705		(393	)		—		663			975
Farmland		—		—			—		3			3
Owner-occupied commercial real estate		3,108		(1,261	)		145		1,371			3,363
Investment commercial real estate		4,181		(120	)		11		528			4,600
Agricultural production loans		1		—			—		—			1
Commercial and industrial		1,291		(112	)		55		(418	)		816
Commercial construction		669		(72	)		—		(306	)		291
Consumer and other loans		78		(28	)		7		21			78
Unallocated		508		—			—		20			528
Total ALLL	$	13,223	$	(3,305	)	$	225	$	3,750		$	13,893

24

The activity in the allowance for loan losses for the three months ended September 30, 2011 is summarized below:

	July 1,										Sept 30,
	2011										2011
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	1,663	$	(240	)	$	—	$	191		$	1,614
Home equity lines of credit		185		—			—		9			194
Junior lien loan on residence		208		—			—		(5	)		203
Multifamily property		463		—			—		169			632
Farmland		—		—			—		—			—
Owner-occupied commercial real estate		3,521		(563	)		1		582			3,541
Investment commercial real estate		4,099		(920	)		—		941			4,120
Agricultural production loans		—		—			—		—			—
Commercial and industrial		2,399		(61	)		72		(159	)		2,251
Commercial construction		794		—			—		(243	)		551
Consumer and other loans		99		(2	)		—		7			104
Unallocated		625		—			—		8			633
Total ALLL	$	14,056	$	(1,786	)	$	73	$	1,500		$	13,843

The activity in the allowance for loan losses for the nine months ended September 30, 2011 is summarized below:

	January 1,										Sept 30,
	2011										2011
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	1,502	$	(527	)	$	—	$	639		$	1,614
Home equity lines of credit		160		(60	)		—		94			194
Junior lien loan on residence		228		(13	)		14		(26	)		203
Multifamily property		303		(26	)		8		347			632
Farmland		—		—			—		—			—
Owner-occupied commercial real estate		2,777		(2,118	)		40		2,842			3,541
Investment commercial real estate		4,759		(2,611	)		1		1,971			4,120
Agricultural production loans		—		—			—		—			—
Commercial and industrial		2,719		(157	)		98		(409	)		2,251
Commercial construction		1,246		(586	)		11		(120	)		551
Consumer and other loans		66		(13	)		—		51			104
Unallocated		522		—			—		111			633
Total ALLL	$	14,282	$	(6,111	)	$	172	$	5,500		$	13,843

Troubled Debt Restructurings:

The Corporation has allocated $677 thousand and $707 thousand of specific reserves, on accruing TDR’s, to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012 and December 31, 2011, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the nine month period ending September 30, 2012, 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; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

25

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine month period ending September 30, 2012:

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		4	$	610	$	610
Junior lien on residence		1		249		249
Owner-occupied commercial real estate		1		2,197		2,197
Total		6	$	3,056	$	3,056

There were no loans that were modified as troubled debt restructurings during the third quarter of 2012.

The identification of the troubled debt restructured loans did not have a significant impact on the allowance for loan losses. In addition, there were no charge-offs as a result of the classification of these loans as troubled debt restructuring during the nine months ended September 30, 2012.

The primary residential mortgages were modified by reducing the interest rates or extending the maturity date. The junior lien on residence loan was modified through the deferral of certain scheduled principal payments. The owner-occupied commercial real estate loans were modified with rate reductions and revised amortization schedules; one also had a partial forgiveness of principal which had been previously charged off. The investment commercial real estate loan was modified through rate reduction and deferral of principal amortization.

The following table presents loans by class modified as troubled debt restructurings on accrual as of September 30, 2012:

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded		Specific
(Dollars in thousands)	Contracts		Investment		Investment		Reserves
Primary residential mortgage		4	$	1,592	$	1,592	$	275
Junior lien on residence		1		240		240		—
Owner-occupied commercial real estate		1		406		406		—
Investment commercial real estate		1		4,949		4,949		358
Commercial and industrial		3		439		439		44
Total		10	$	7,626	$	7,626	$	677

There are nine loans totaling $5.7 million that have been categorized as troubled debt restructurings that are also included in loans that are on nonaccrual. Four of these loans consist of owner-occupied commercial real estate and total $4.8 million. Four are residential first mortgages totaling $591 thousand and one is a commercial mortgage totaling $299 thousand on a mixed use investment property.

26

The following table presents loans by class modified as troubled debt restructurings from October 1, 2011 through September 30, 2012 for which there was a payment default during the same period:

	Number of		Recorded
(Dollars in thousands	Contracts		Investment
Owner-occupied commercial real estate		1	$	406
Total		1	$	406

The terms of certain other potential problem loans were modified during the three month period ending September 30, 2012 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment at September 30, 2012 of $2.2 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

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 Corporation’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, and an updated independent appraisal of the 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 troubled debt restructuring. At a minimum, six months of contractual payments would need to be made on a restructured loan before returning a loan to accrual status. Once a loan is classified as a TDR, the loan is reported as a TDR until the loan is paid in full, sold or charged-off. In rare circumstances, a loan may be removed from TDR status, if it meets the requirements of ASC 310-40-50-2. During the three and nine months period ended September 30, 2012, there were no loans removed from TDR status.

5. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Advances from the Federal Home Loan Bank of New York (FHLB) totaled $12.3 million and $17.7 million at September 30, 2012 and December 31, 2011, respectively, with a weighted average interest rate of 3.26 percent and 3.50 percent, respectively. At September 30, 2012 advances totaling $335 thousand with a weighted average interest rate of 3.73 percent were amortizing advances with monthly payments of principal and interest. These advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $54.5 million at September 30, 2012.

Also at September 30, 2012, the Corporation had $12.0 million in variable rate advances, with a weighted average interest rate of 3.01 percent, that are noncallable for one, two or three years and then callable quarterly with final maturities of five, seven or 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 $18.4 million at September 30, 2012.

There were no overnight borrowings at September 30, 2012 and December 31, 2011. Overnight borrowings from the FHLB averaged $13.6 million with a weighted average interest rate of 0.38 percent for the nine months ended September 30, 2012.

27

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

(In thousands)
2012	$	117
2013		218
2014		—
2015		—
2016		—
Over 5 years		12,000
Total	$	12,335

6. BUSINESS SEGMENTS

The Corporation assesses its results among two operating segments, Banking and PGB Trust & Investments. 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 commercial, commercial real estate, residential and consumer lending activities; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support and sales.

PGB Trust & Investments

PGB Trust & Investments 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 table presents the statements of income and total assets for the Corporation’s reportable segments for the three and nine months ended September 30, 2012 and 2011.

	Three Months Ended September 30, 2012
			PGB Trust
(In thousands)	Banking		& Investments		Total
Net interest income	$	12,011	$	839	$	12,850
Noninterest income		1,564		2,995		4,559
Total income		13,575		3,834		17,409
Provision for loan losses		750		—		750
Salaries and benefits		5,696		1,333		7,029
Premises and equipment expense		2,149		141		2,290
Other noninterest expense		1,837		837		2,674
Total noninterest expense		10,432		2,311		12,743
Income before income tax expense		3,143		1,523		4,666
Income tax expense		1,235		599		1,834
Net income	$	1,908	$	924	$	2,832

28

	Three Months Ended September 30, 2011
				PGB Trust
(In thousands)	Banking			& Investments		Total
Net interest income	$	11,028		$	867	$	11,895
Noninterest income		1,354			2,619		3,973
Total income		12,382			3,486		15,868
Provision for loan losses		1,500			—		1,500
Salaries and benefits		4,587			1,202		5,789
Premises and equipment expense		2,169			153		2,322
Other noninterest expense		1,587			875		2,462
Total noninterest expense		9,843			2,230		12,073
Income before income tax expense		2,539			1,256		3,795
Income tax expense		(2,021	)		484		(1,537	)
Net income	$	4,560		$	772	$	5,332

	Nine Months Ended September 30, 2012
			PGB Trust
(In thousands)	Banking		& Investments		Total
Net interest income	$	36,116	$	2,528	$	38,644
Noninterest income		4,390		9,563		13,953
Total income		40,506		12,091		52,597
Provision for loan losses		3,750		—		3,750
Salaries and benefits		15,631		3,919		19,550
Premises and equipment expense		6,604		430		7,034
Other noninterest expense		5,395		2,798		8,193
Total noninterest expense		31,380		7,147		38,527
Income before income tax expense		9,126		4,944		14,070
Income tax expense		3,524		1,908		5,432
Net income	$	5,602	$	3,036	$	8,638
Total assets for period end	$	1,582,127	$	1,363	$	1,583,490

	Nine Months Ended September 30, 2011
				PGB Trust
(In thousands)	Banking			& Investments		Total
Net interest income	$	33,669		$	2,630	$	36,299
Noninterest income		4,166			8,300		12,466
Total income		37,835			10,930		48,765
Provision for loan losses		5,500			—		5,500
Salaries and benefits		13,968			3,611		17,579
Premises and equipment expense		6,561			497		7,058
Other noninterest expense		5,153			3,061		8,214
Total noninterest expense		31,182			7,169		38,351
Income before income tax expense		6,653			3,761		10,414
Income tax expense		(585	)		1,358		773
Net income	$	7,238		$	2,403	$	9,641
Total assets for period end	$	1,574,000		$	1,288	$	1,575,288

29

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 I 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 that 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 Corporation 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, if available (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). The fair values of Level 3 investment securities (Trust Preferred Pooled Securities, held to maturity) are determined by Management based on non-binding broker quotes. Discussions are regularly held with third-party brokers and other third-party experts to validate the estimated fair value for these Level 3 securities.

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).

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.

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 loans 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 September 30, 2012, all collateral dependent impaired loans and other real estate owned valuations were supported by an appraisal less than 12 months old.

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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
	September 30,		Assets		Inputs		Inputs
(In thousands)	2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	29,957	$	—	$	29,957	$	—
Mortgage-backed securities-
residential		187,443		—		187,443		—
State and political subdivisions		30,625		—		30,625		—
Other securities		2,153		—		2,153		—
CRA investment fund		3,098		—		3,098		—
Marketable equity securities		213		213		—		—
Total	$	253,489	$	213	$	253,276	$	—

	December 31,
(In thousands)	2011
Assets:
Available for sale:
U.S. government-sponsored
entities	$	46,878	$	—	$	46,878	$	—
Mortgage-backed securities-
residential		236,984		—		236,984		—
State and political subdivisions		29,851		—		29,851		—
Other securities		2,167		—		2,167		—
CRA investment fund		3,040		—		3,040		—
Marketable equity securities		600		600		—		—
Total	$	319,520	$	600	$	318,920	$	—

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Loans held for sale totaled $8.4 million and $2.8 million as of September 30, 2012 and December 31, 2011, respectively, and were determined to be Level 2.

There were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2012.

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
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(In thousands)	2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Primary residential
mortgage	$	171	$	—	$	—	$	171

	December 31,
(In thousands)	2011
Assets:
Impaired loans:
Primary residential
mortgage	$	1,462	$	—	$	—	$	1,462
Owner-occupied
commercial mortgage		1,303		—		—		1,303
Investment commercial
real estate		228		—		—		228
Multifamily		212		—		—		212
Junior lien on residence		117		—		—		117
OREO		2,135		—		—		2,135

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of $726 thousand, with a valuation allowance of $744 thousand at September 30, 2012. Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of $4.6 million, with a valuation allowance of $1.3 million at December 31, 2011.

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The carrying amounts and estimated fair values of financial instruments at September 30, 2012 are as follows:

			Fair Value Measurements at September 30, 2012 Using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	54,920	$	51,728	$	3,192	$	—	$	54,920
Investment securities, held to maturity		76,698		—		70,413		12,013		82,426
Securities available for sale		253,489		213		253,276		—		253,489
FHLB and FRB stock		4,639		—		—		—		N/A
Loans held for sale		8,443		—		8,443		—		8,443
Loans, net of allowance for loan losses		1,082,589		—		—		1,084,725		1,084,725
Accrued interest receivable		4,040		—		1,007		3,033		4,040
Financial liabilities
Deposits	$	1,432,686	$	1,247,932	$	187,051	$	—	$	1,434,983
Federal home loan bank advances		12,335		—		13,737		—		13,737
Accrued interest payable		331		43		288		—		331

The carrying amounts and estimated fair values of financial instruments at December 31, 2011 are as follows:

	December 31, 2011
	Carrying		Fair
(In thousands)	Amount		Value
Financial assets
Cash and cash equivalents	$	43,053	$	43,053
Investment securities, held to maturity		100,719		99,427
Securities available for sale		319,520		319,520
FHLB and FRB stock		4,569		N/A
Loans held for sale		2,841		2,841
Loans, net of allowance for loan losses		1,025,122		1,034,541
Accrued interest receivable		4,078		4,078
Financial liabilities
Deposits	$	1,443,892	$	1,446,778
Overnight borrowings		—		—
Federal home loan bank advances		17,680		19,100
Accrued interest payable		460		460

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.

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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 days, approximate their fair values resulting in a Level 2 classification.

Federal Home Loan Bank advances: The fair values of the Corporation’s loan-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.

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				Nine Months Ended
	September 30,				September 30,
(In thousands)	2012		2011		2012		2011
FDIC assessment	$	299	$	253	$	941	$	1,254
Trust department expense		276		291		1,130		1,223
Professional and legal fees		369		248		855		821
Loan expense		194		384		699		676
Other operating expenses		1,536		1,286		4,568		4,240
Total other operating expenses	$	2,674	$	2,462	$	8,193	$	8,214

9. PREFERRED STOCK

On January 9, 2009, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Corporation sold 28,685 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and a ten-year warrant to purchase up to 150,296 shares of the Corporation’s common stock, no par value at an exercise price of $28.63 per share, after adjusting for the five percent stock dividend declared on June 18, 2009, for an aggregate purchase price of $28.7 million in cash, allocated $1.6 million to warrants and $27.1 million to preferred stock.

On January 6, 2010 and March 2, 2011, the Corporation redeemed 25 percent of the preferred shares issued under the Treasury’s CPP, each time repaying approximately $7.2 million to the Treasury, including accrued and unpaid dividends of approximately $51 thousand and $17 thousand, respectively. As a result of the repurchase, the accretion related to the preferred stock was accelerated and approximately $330 thousand and $246 thousand was recorded as a reduction to retained earnings in the first quarters of 2010 and 2011, respectively. The Corporation’s redemption of the shares was not subject to additional conditions or stipulations from the Treasury.

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On January 11, 2012, the Corporation redeemed the remaining 50 percent of the preferred shares issued under the Treasury’s CPP, repaying approximately $14.5 million to the Treasury, including accrued and unpaid dividends of approximately $112 thousand. The Corporation’s redemption of the shares was not subject to additional conditions or stipulations from the Treasury. As a result of the repurchase, the accretion related to the preferred stock was accelerated and approximately $362 thousand was recorded as a reduction to retained earnings in the first quarter of 2012.

The 150,296 common share warrant remained outstanding after the redemption; however, the Corporation paid $110 thousand to the U.S. Treasury on April 5, 2012 to repurchase it.

10. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following is a summary of the accumulated other comprehensive income balances, net of tax, for the three months ended September 30, 2012:

	Balance at			Current		Balance at
(In thousands)	June 30, 2012			Quarter Change		September 30, 2012
Unrealized gains on securities
available for sale	$	3,574		$	557	$	4,131
Other-than-temporary impairment on
securities held to maturity and
securities transferred from
available for sale to held to maturity		(3,035	)		35		(3,000	)
Total	$	539		$	592	$	1,131

The following is a summary of the accumulated other comprehensive income balances, net of tax, for the nine months ended September 30, 2012:

	Balance at			Current		Balance at
(In thousands)	December 31, 2011			Year Change		September 30, 2012
Unrealized gains on securities
available for sale	$	3,206		$	925	$	4,131
Other-than-temporary impairment on
securities held to maturity and
securities transferred  from
available for sale to held to maturity		(3,102	)		102		(3,000	)
Total	$	104		$	1,027	$	1,131

11.  SUBSEQUENT EVENTS

On October 29, 2012, Hurricane Sandy struck New Jersey and the Northeast causing damage and business closures throughout our primary New Jersey market area. While the Corporation did experience some minor damage and service disruptions during the storm, it did return to normal operations within a matter of days. The Corporation is in process of fully evaluating the financial effects of this hurricane and has not fully determined the financial impact as of the date of filing of the Form 10Q.

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Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL: The following discussion and analysis 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 Corporation’s Form 10-K for the year ended December 31, 2011 and the following:

· a continued or unexpected decline in the economy, in particular in our New Jersey market area;

· 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 nonperforming loans;

· unexpected changes in interest rates;

· inability to successfully grow our business;

· inability to manage our growth;

· 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 and related regulations) subject us to additional regulatory oversight which may result in increased compliance costs;

· higher than expected FDIC insurance premiums;

· 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;

· adverse effects of Hurricane Sandy on business conditions and property values in New Jersey; and

· other unexpected material adverse changes in our operations or earnings.

The Corporation 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 Corporation cannot guarantee future results, levels of activity, performance, or achievements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES: Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Corporation’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Corporation to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Corporation’s Audited Consolidated Financial Statements for the year ended December 31, 2011, contains a summary of the Corporation’s significant accounting policies.

Management believes that the Corporation’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, assumption 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.

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The provision for loan losses is based upon Management’s evaluation of the adequacy of the allowance, including an assessment of known and inherent risks 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 Corporation’s allowance for loan losses. Such agencies may require the Corporation to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Corporation’s loans are secured by real estate in the State of New Jersey. Accordingly, the collectability of a substantial portion of the carrying value of the Corporation’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 experiences 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 Corporation’s control.

The Corporation accounts for its securities in accordance with “Accounting for Certain Investments in Debt and Equity Securities,” which was codified into ASC 320. Debt securities are classified as held to maturity and carried at amortized cost when Management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity due to changes in interest rates, prepayment, risk, liquidity or other factors. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale 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 Corporation 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-then-temporary, Management utilizes criteria such as the reasons underlying the decline, the magnitude and the duration of the decline and whether the Corporation 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 Corporation recognized no other-than-temporary impairment charges in the three or nine months ended September 30, 2012 and 2011.

RECENT EVENTS:  On October 29, 2012, Hurricane Sandy struck New Jersey and the Northeast, causing damage and business closures throughout our primary New Jersey market area. While the Corporation did experience some minor damage and service disruptions during the storm, it did return to normal operations within a matter of days.

The Corporation completed the first phase of its review of its loan portfolio following the hurricane. Amounts outstanding or committed on residential first and second mortgage loans and commercial mortgage loans secured by properties located in a designated flood zone within New Jersey coastal towns total $15.9 million, or 1.5 percent of the outstanding loan portfolio as of September 30, 2012. The weighted average loan-to-value ratio at origination of such loans was 56 percent, implying property values at loan origination of approximately $28 million. Further, all such properties were required to carry flood insurance, resulting in $8.8 million of potential flood insurance coverage.

The Corporation continues to evaluate the effects of the storm in general, and on its loan portfolio, and, although there can be no assurances, does not believe the overall effect of the storm will materially affect financial performance. For more details regarding risk factors that may affect the Corporation, see Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012.

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EXECUTIVE SUMMARY: For the third quarter of 2012, the Corporation recorded net income of $2.8 million as compared to $5.3 million for same quarter 2011. Diluted earnings per common share, after giving effect for the preferred dividend, were $0.32 and $0.58 for the third quarters of 2012 and 2011, respectively. For the third quarter of 2012, annualized return on average assets was 0.72 percent and annualized return on average common equity was 9.77 percent. The 2012 quarter includes an increase in net interest income, trust fee income and gain on sale of loans, a decline in the provision for loan losses and a decline in the dividends and accretion on preferred stock as a result of the 2012 redemption of the remaining preferred shares issued under the Treasury’s CPP, offset by an increase in operating expenses and tax expense.

The results for the third quarter of 2011 include the reversal of a previously recorded valuation allowance that was established against deferred state tax assets of $3.0 million, or $0.34 per diluted earnings per common share. The Corporation believes that comparing net income without considering the reversal of the state tax valuation allowance provides a better analysis of net income trends. Excluding the reversal, net income for the third quarter of 2011 was $2.3 million, and when compared to this number, net income for the third quarter of 2012 increased $488 thousand, or 20.8 percent.

Net interest income, on a fully tax-equivalent basis, was $13.0 million for the third quarter of 2012 as compared to $12.1 million for the same quarter of 2011, an increase of $943 thousand or 7.8 percent. For the third quarters of 2012 and 2011, the net interest margin, on a fully tax-equivalent basis, was 3.50 percent and 3.37 percent, respectively.

For the third quarter of 2012, average loans totaled $1.10 billion, increasing $134.5 million, or 13.9 percent, from $964.4 million for the same quarter of 2011. The yield on loans was 4.36 percent for the third quarter of 2012 as compared to 4.81 percent for the same quarter of 2011, a decline of 45 basis points from the 2011 quarter to the 2012 quarter.

Average deposits for the three months ended September 30, 2012, were $1.44 billion as compared to $1.38 billion for the third quarter of 2011, increasing $56.8 million or 4.1 percent. The average cost of interest-bearing deposits for the third quarter of 2012 was 0.32 percent, as compared to 0.51 percent for the same quarter in 2011, a decline of 19 basis points.

The Corporation recorded net income of $8.6 million and $9.6 million for the nine months ended September 30, 2012 and 2011, respectively, a decrease of $1.0 million or 10.4 percent over the 2011 period. Diluted earnings per common share, after giving effect for the preferred dividend, were $0.93 for the nine months ended September 30, 2012 as compared to $0.98 for the same period of 2011. The annualized return on average assets was 0.73 percent and annualized return on average common equity was 9.63 percent for the nine months ended September 30, 2012. The nine-month 2012 period includes an increase in operating and tax expenses, offset by an increase in net interest income, trust fee income and gain on sale of loans, a decline in the provision for loan losses and a decline in the dividends and accretion on preferred stock as a result of the 2012 redemption of the remaining preferred shares issued under the Treasury’s CPP, offset by an increase in operating expenses and tax expense.

For the nine months ended September 30, 2012 and 2011, net interest income, on a fully tax-equivalent basis, was $39.1 million and $36.8 million, respectively, an increase of $2.4 million or 6.4 percent. The net interest margin, on a fully tax-equivalent basis, was 3.52 percent and 3.46 percent for the nine months ended September 30, 2012 and 2011, respectively.

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For the first nine months of 2012, average loans increased $127.7 million or 13.3 percent to $1.08 billion from $956.7 million for the same 2011 period. The yield on loans was 4.43 percent for the nine months ended September 30, 2012 as compared to 4.88 percent for the same 2011 period, a decrease of 45 basis points.

Average deposits totaled $1.42 billion for the nine months ended September 30, 2012, increasing $62.5 million, or 4.6 percent from $1.36 billion for the same months of 2011. The average cost of interest-bearing deposits for the first nine months of 2012 was 0.34 percent, as compared to 0.57 percent for the same period in 2011, a decline of 23 basis points.

CONTRACTUAL OBLIGATIONS: For a discussion of our contractual obligations, see the information set forth in the Corporation’s 2011 Annual Report on Form 10-K under the heading “Management’s Discussion and Analysis – 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 2011 Annual Report on Form 10-K under the heading “Management’s Discussion and Analysis – Off-Balance Sheet Arrangements” which is incorporated herein by reference.

EARNINGS ANALYSIS

NET INTEREST INCOME: For the third quarter of 2012, the Corporation recorded net interest income, on a tax-equivalent basis, of $13.0 million as compared to $12.1 million for the same quarter of 2011, an increase of $943 thousand or 7.8 percent. For the third quarters of 2012 and 2011, the net interest margin was 3.50 percent and 3.37 percent, respectively. During the third quarter of 2012, rates were lower on new loans, compared to the rates on loans that are maturing or paying down; however, the growth in the loan portfolio contributed to the growth in net interest income. Additionally, the Corporation continued to lower average funding costs in core deposits, and, to a lesser extent, certificates of deposits repriced at lower market rates or transferred to other, lower-costing deposit products.

Average investments, federal funds sold and interest-earning deposits totaled $382.6 million for the third quarter of 2012, declining $83.0 million, or 17.8 percent, from the $465.6 million recorded for the same quarter of 2011. The decline in these categories primarily funded loan growth.

Average loans totaled $1.10 billion for the third quarter of 2012 as compared to $964.4 million for the same period in 2011, increasing $134.5 million, or 13.9 percent, when compared to the same quarter in 2011. Much of the growth was in mortgages as the residential mortgage portfolio increased to an average of nearly $521.0 million for the third quarter of 2012, increasing $86.6 million, or 19.9 percent, over the same quarter of 2011. The commercial mortgage portfolio increased $65.8 million, or 20.8 percent, from the year ago period, averaging $382.4 million for the third quarter of 2012. The Corporation has increased its emphasis on multifamily lending, as well as continuing to provide mortgage loans on a variety of commercial and residential properties to creditworthy borrowers. Home equity loans averaged $50.6 million for the third quarter of 2012, rising $778 thousand or 1.6 percent from the same period of 2011. For the third quarters of 2012 and 2011, the commercial construction portfolio averaged $7.7 million and $15.1 million, respectively, declining $7.3 million, or 48.6 percent, from the same period in 2011, due to the conversion of some loans to permanent loans and also due to the resolution of some problem loans. For the third quarter of 2012, the commercial loan portfolio averaged nearly $114.8 million as compared to $127.7 million for the same quarter of 2011, a decline of $12.9 million, or 10.1 percent, from the prior year, while the installment loans portfolio averaged $21.8 million for the third quarter of 2012 as compared to $20.1 million for the same three months in 2011, an increase of $1.7 million, or 8.4 percent.

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For the third quarters of 2012 and 2011, average deposits totaled $1.44 billion and $1.38 billion, respectively, increasing $56.8 million, or 4.1 percent. Interest-bearing checking accounts averaged $335.0 million for the three months ended September 30, 2012, as compared to $321.4 million for the same period in 2011, an increase of $13.6 million, or 4.2 percent. Noninterest-bearing demand deposits increased $58.5 million, or 23.7 percent, over the third quarter of 2011 to an average of $305.2 million for the third quarter of 2012. Checking growth is attributable to the Corporation’s continued focus on business and personal core deposit growth. For the third quarter of 2012, savings accounts averaged $104.3 million, increasing $16.4 million or 18.7 percent from the same quarter of 2011. Money market accounts averaged $503.2 million for the third quarter of 2012, as compared to $519.9 million for the third quarter of 2011, decreasing $16.7 million, or 3.2 percent from the prior year quarter. Overall, the Corporation has seen an increase in savings accounts as customers tend to increase savings in a lower or uncertain interest rate environment, to wait for a higher or a more certain rate environment. Average certificates of deposit totaled $188.6 million and $203.6 million, for the third quarters of 2012 and 2011 respectively, decreasing $15.0 million, or 7.4 percent, over the 2011 quarter. The Corporation has opted not to pay higher rates on maturing certificates of deposit. The Corporation believes it has ample liquidity from core deposits, principal paydowns on loans and maturing or called investments.

Overnight borrowings from the Federal Home Loan Bank of New York averaged $1.7 million for the third quarter of 2012; there was no average balance for the 2011 quarter. For the third quarter of 2012, average other borrowings totaled $13.6 million, declining $7.2 million, or 34.6 percent when compared to the same quarter of 2011, as maturing borrowings were not replaced.

Average yields on interest-earning assets, on a tax-equivalent basis, declined four basis points to 3.81 percent for the third quarter of 2012 from 3.85 percent for the same quarter of 2011. Average yields earned on investments securities were 2.57 percent for the third quarter of 2012, as compared to 2.18 percent for the same period in the prior year, a decline of 39 basis points. For the third quarter of 2012, the average yield on the loan portfolio was 4.36 percent, declining 45 basis points from the 2011 quarter. Yields on loans continue to experience downward pressure as competition for quality loans is intense.

Including the effect of noninterest-earning demand deposits, the cost of funds was 31 basis points for the third quarter of 2012 as compared to 48 basis points for the same 2011 quarter, decreasing 17 basis points. The average cost of interest-bearing checking deposits was 11 basis points in the third quarter of 2012, declining 22 basis points from 33 basis points in the same period in 2011. For the quarters ended September 30, 2012 and 2011, the cost of money market products averaged 21 basis points and 34 basis points, respectively, declining 13 basis points when compared to the same period in 2011. Certificates of deposit costs averaged 1.17 percent in the third quarter of 2012, as compared to 1.34 percent for the same quarter of 2011, declining 17 basis points, from the prior year period.

The Corporation’s repricing of its interest-bearing assets and liabilities and the effect of the sustained low rate environment on market rates contributed to the decline in yields and costs of these assets and liabilities. The growth of the loan portfolio funded by the decline in lower-yielding investments and interest-earning deposits enabled the Corporation to increase the net interest margin to 3.50 percent in the third quarter of 2012 from 3.37 percent for the same period in 2011.

For the nine months ended September 30, 2012 and 2011, the Corporation recorded net interest income, on a tax-equivalent basis, of $39.1 million and $36.8 million, respectively, an increase of $2.4 million or 6.4 percent. The net interest margin was 3.52 percent for the first nine months of 2012 as compared to 3.46 percent for the same 2011 period. Rates on new loans were lower when compared to the rates on loans that were maturing or paying down in the first nine months of 2012; however, the growth in the loan portfolio offset much of this decline and contributed to a slightly increased margin. The Corporation also continued to lower average funding costs in certificates of deposits and core deposits.

Average investments, federal funds sold and interest-earning deposits totaled $395.0 million for the nine months ended September 30, 2012, declining $62.4 million, or 13.6 percent, from the average of $457.4 million for the same 2011 period. The decline in these categories primarily funded loan growth.

40

For the nine months ended September 30, 2012, average loans totaled almost $1.08 billion, increasing $127.7 million or 13.3 percent over the $956.7 million averaged for the same period of 2011. Much of the growth in loans year over year was in the residential mortgage and commercial mortgage portfolios, as the Corporation increased its emphasis on multifamily lending, as well as continued to provide mortgage loans on a variety of commercial and residential properties to creditworthy borrowers. The residential mortgage portfolio averaged $521.1 million for the nine months ended September 30, 2012, as compared to $434.2 million for the same 2011 period, an increase of $86.9 million, or 20.0 percent. The commercial mortgage portfolio increased $58.4 million, or 19.1 percent, to $363.6 million for the first nine months of 2012 when compared to the year ago period. Home equity loans averaged $49.5 million and $48.0 million for the nine months ended September 30, 2012 and 2011, respectively, an increase of $1.5 million or 3.2 percent. The commercial loan portfolio declined $12.2 million, or 9.3 percent, from the nine months ended September 30, 2011 to an average of $118.1 million for the same period in 2012 and the commercial construction portfolio declined $7.6 million, or 41.1 percent from the first nine months of 2011, averaging $10.9 million for the nine months ended September 30, 2012. These declines in average balances were due to the resolution of some problem loans and the conversion of certain construction loans to permanent.

Total deposits averaged $1.42 billion and $1.36 billion for the nine month ended September 30, 2012 and 2011, respectively, increasing $62.5 million, or 4.6 percent from the prior year period to 2012. For the first nine months of 2012, total interest-bearing checking deposits averaged $332.8 million as compared to $309.6 million for the same period in 2011, an increase of $23.2 million, or 7.5 percent. Noninterest-bearing checking deposits averaged $291.0 million for the first nine months of 2012, an increase of $55.3 million, or 23.5 percent over the same year ago period. For the nine months ended September 30, 2012, savings accounts averaged $99.7 million as compared to $85.4 million for the same period in 2011, an increase of $14.3 million, or 16.7 percent. Average money market accounts declined $11.4 million, or 2.2 percent, to $508.3 million for the nine months ended September 30, 2012 as compared to the same year ago period. The Corporation recorded average certificate of deposit balances of $191.6 million and $210.5 million, for the nine months ended September 30, 2012 and 2011, respectively, a decrease of $18.9 million, or 9.0 percent from the 2011 period. The Corporation believes it has ample liquidity from core deposits, principal paydowns on loans and maturing or called investments. Overnight borrowings from the Federal Home Loan Bank of New York averaged $13.6 million for the first nine months of 2012 as compared to $1.2 million for the same nine months of 2011, while other borrowings declined $6.6 million from the year ago period to $16.1 million for the first nine months of 2012.

Average yields on interest-earning assets, on a tax-equivalent basis, declined 15 basis points to 3.85 percent for the first nine months of 2012 from 4.00 percent for the same 2011 period. Investment securities earned average yields of 2.45 percent and 2.39 percent for the nine months ended September 30, 2012 and 2011, respectively, declining six basis points from the prior year period. Average yields on the loan portfolio were 4.43 percent for the first nine months of 2012 as compared to 4.88 percent for the same period of 2011, reflecting a 45 basis point decline.

The Corporation’s cost of funds, including the effect of noninterest-bearing deposits, was 33 basis points for the first nine months of 2012, declining 21 basis points from 54 basis points in the same period of 2011. In the nine months ended September 30, 2012, the average cost of interest-bearing checking deposits was 12 basis points as compared to 37 basis points for the same period of 2011, declining 25 basis points, while the cost of money market products averaged 22 basis points for the same 2012 period as compared to 42 basis points for the same year ago period, declining 20 basis points. Certificates of deposit costs for the first nine months of 2012 and 2011 averaged 1.19 percent and 1.38 percent, respectively, declining 19 basis points, from the 2011 period.

41

The following tables reflect the components of net interest income for the periods indicated:

Average Balance Sheet

Unaudited

Three Months Ended

(Tax-Equivalent Basis, Dollars in Thousands)  

	September 30, 2012									September 30, 2011
	Average			Income/						Average			Income/
	Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earning assets:
Investments:
Taxable (1)	$	284,440		$	1,787			2.51	%	$	350,946		$	1,762			2.01	%
Tax-exempt (1) (2)		44,481			322			2.90			37,238			353			3.79
Loans held for sale		2,829			34			4.77			610			12			8.37
Loans (2) (3)		1,098,857			11,965			4.36			964,400			11,589			4.81
Federal funds sold		100			—			0.10			100			—			0.25
Interest-earning deposits		53,560			27			0.20			77,295			43			0.22
Total interest-earning assets		1,484,267			14,135			3.81	%		1,430,589			13,759			3.85	%
Noninterest-earning assets:
Cash and due from banks		5,611									8,458
Allowance for loan losses		(14,005	)								(14,592	)
Premises and equipment		30,820									32,876
Other assets		77,232									72,428
Total noninterest-earning assets		99,658									99,170
Total assets	$	1,583,925								$	1,529,759
LIABILILIES:
Interest-bearing deposits:
Checking	$	334,982		$	89			0.11	%	$	321,368		$	269			0.33	%
Money markets		503,180			259			0.21			519,918			438			0.34
Savings		104,273			14			0.05			87,863			51			0.23
Certificates of deposit		188,568			550			1.17			203,612			684			1.34
Total interest-bearing deposits		1,131,003			912			0.32			1,132,761			1,442			0.51
Borrowings		15,281			113			2.96			20,831			177			3.40
Capital lease obligation		9,043			107			4.73			6,406			80			4.99
Total interest-bearing liabilities		1,155,327			1,132			0.39			1,159,998			1,699			0.59
Noninterest-bearing liabilities:
Demand deposits		305,192									246,665
Accrued expenses and
other liabilities		7,434									6,287
Total noninterest-bearing
liabilities		312,626									252,952
Shareholders’ equity		115,972									116,809
Total liabilities and
shareholders’ equity	$	1,583,925								$	1,529,759
Net interest income
(tax-equivalent basis)					13,003									12,060
Net interest spread								3.42	%								3.26	%
Net interest margin (4)								3.50	%								3.37	%
Tax equivalent adjustment					(153	)								(165	)
Net interest income				$	12,850								$	11,895

(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.

42

Average Balance Sheet

Unaudited

Nine Months Ended

(Tax-Equivalent Basis, Dollars in Thousands)  

	September 30, 2012									September 30, 2011
	Average			Income/						Average			Income/
	Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earning assets:
Investments:
Taxable (1)	$	315,589		$	5,609			2.37	%	$	369,960		$	6,240			2.25	%
Tax-exempt (1) (2)		46,619			1,036			2.96			36,566			1,053			3.84
Loans held for sale		1,859			75			5.37			617			33			7.22
Loans (2) (3)		1,084,357			36,005			4.43			956,651			35,011			4.88
Federal funds sold		100			—			0.10			100			—			0.26
Interest-earning deposits		32,694			58			0.24			50,736			91			0.24
Total interest-earning assets		1,481,218			42,783			3.85	%		1,414,630			42,428			4.00	%
Noninterest-earning assets:
Cash and due from banks		6,378									8,191
Allowance for loan losses		(13,916	)								(14,869	)
Premises and equipment		31,284									33,300
Other assets		77,323									71,970
Total noninterest-earning assets		101,069									98,592
Total assets	$	1,582,287								$	1,513,222
LIABILILIES:
Interest-bearing deposits:
Checking	$	332,822		$	292			0.12	%	$	309,646		$	865			0.37	%
Money markets		508,337			820			0.22			519,700			1,638			0.42
Savings		99,671			56			0.07			85,415			159			0.25
Certificates of deposit		191,596			1,709			1.19			210,498			2,172			1.38
Total interest-bearing deposits		1,132,426			2,877			0.34			1,125,259			4,834			0.57
Borrowings		29,649			453			2.04			23,890			578			3.23
Capital lease obligation		9,094			324			4.75			6,384			239			4.99
Total interest-bearing liabilities		1,171,169			3,654			0.42			1,155,533			5,651			0.65
Noninterest-bearing liabilities:
Demand deposits		290,988									235,666
Accrued expenses and
other liabilities		6,592									6,552
Total noninterest-bearing
liabilities		297,580									242,218
Shareholders’ equity		113,538									115,471
Total liabilities and
shareholders’ equity	$	1,582,287								$	1,513,222
Net interest income
(tax-equivalent basis)					39,129									36,777
Net interest spread								3.43	%								3.35	%
Net interest margin (4)								3.52	%								3.46	%
Tax equivalent adjustment					(485	)								(478	)
Net interest income				$	38,644								$	36,299

(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.

43

OTHER INCOME: For the third quarter of 2012 and 2011, other income, excluding fee income from PGB Trust & Investments, totaled $1.6 million and $1.4 million, respectively, an increase of $223 thousand or 15.7 percent. Net securities gains of $235 thousand were recorded in the third quarter of 2012 as compared to $248 thousand for the same quarter of 2011. Included in net securities gains of $235 thousand for the 2012 quarter was the recovery of $84 thousand from the maturity of a trust preferred security that had previously recorded other-than-temporary impairment; the remaining $151 thousand was from strategic sales of securities. For the third quarter of 2012, income earned on bank owned life insurance was $266 thousand, as compared to $257 thousand for the same quarter in 2011. Service charges and fees totaled $694 thousand for the third quarter of 2012 as compared to $747 thousand for the same quarter in 2011, declining $53 thousand or 7.1 percent, as customers are more diligent in managing their depository accounts. For the third quarter of 2012, gain on sale of loans was $358 thousand, as compared to $115 thousand for the same quarter of 2011, an increase of $242 thousand due to higher origination levels, as well as a decision to retain less of such loans in portfolio. The third quarter of 2012 also included a $22 thousand net gain on disposition of other real estate owned that was not in the third quarter of 2011.

For the nine months ended September 30, 2012, the Corporation recorded other income, excluding fee income from PGB Trust & Investments, of $4.6 million as compared to $4.4 million for the same period in 2011, an increase of $236 thousand or 5.4 percent. Net securities gains, from strategic sales of securities and excluding the recovery of $84 thousand from the maturity of a trust preferred security noted above, of $648 thousand and $721 thousand were recorded for the nine months ended September 30, 2012 and 2011, respectively. For the first nine months of 2012, service charges and fees decreased $132 thousand, or 6.0 percent, from the same period last year to $2.1 million due principally to customers being more diligent in managing their depository accounts.. Income earned on bank owned life insurance for the first nine months of 2012 was $794 thousand as compared to $769 thousand for the same period of 2011, an increase of $25 thousand or 3.3 percent. For the nine months ended September 30, 2012 and 2011, gains on sale of loans was $825 thousand and $362 thousand, respectively, an increase of $463 thousand due to higher origination levels, as well as a decision to retain less of such loans in portfolio. The nine months ended September 30, 2012 also included a $62 thousand net loss on disposition of other real estate owned as compared to a $47 thousand gain on sale of other real estate owned for the same period of 2011.

OPERATING EXPENSES: The Corporation recorded operating expenses of $12.0 million and $10.6 million for the third quarters of 2012 and 2011, respectively, an increase of $1.4 million or 13.4 percent. Salary and benefit expense was $7.0 million for the third quarter of 2012, as compared to $5.8 million in the same quarter of 2011, an increase of $1.2 million or 21.4 percent, due to increases in outside directors’ retirement plan expense, bonus and profit sharing accruals, costs associated with key additions to staff in PGB Trust & Investments to enhance their ability to grow and service their client base, increased commissions related to increased loan originations and normal salary increases. For the third quarters of 2012 and 2011, professional and legal fees totaled $369 thousand and $248 thousand, respectively, an increase of $121 thousand, or 48.8 percent due in part to expenses related to the search for a new Chief Executive Officer. With the CEO search completed in the fourth quarter of 2012, the Corporation anticipates additional final costs to be recorded in that quarter. Loan expense, which includes costs associated with problem loan expense, decreased by approximately $190 thousand, or 49.5 percent, from the third quarter of 2011 compared to the same quarter of 2012; while the Corporation recorded expense on other real estate owned of $45 thousand and $3 thousand for the third quarters of 2012 and 2011, respectively, as the Corporation continued to work out various problem assets. Other expense for the third quarter of 2012 increased $253 thousand when compared to the same quarter of 2011. The current quarter included increases in outside director fee expense due to fee increases, which had not been increased since 2008; increased bill pay expense due to significant system enhancements; and increased costs associated with debit cards. Expenses for occupancy, advertising and delivery and postage declined, in part, due to cost-saving initiatives.

44

For the first nine months of 2012 and 2011, the Corporation recorded operating expenses of $34.8 million and $32.9 million, respectively, an increase of $1.9 million or 5.9 percent. For the nine months ended September 30, 2012, salary and benefit expense was $19.6 million, as compared to $17.6 million for the same period of 2011, an increase of almost $2.0 million or 11.2 percent, due to increases in outside directors’ retirement plan expense, bonus and profit sharing accruals, costs associated with key additions to staff in PGB Trust & Investments to enhance their ability to grow and service their client base, increased commissions related to increased loan originations and normal salary increases. FDIC expense decreased $313 thousand to $941 thousand for the third quarter of 2012 as compared to $1.3 million for the same period of 2011 due to a regulatory change in the calculation of the assessment in 2011. Professional and legal fees increased approximately $34 thousand or 4.2 percent from $821 thousand for the nine months ended September 30, 2011 to $855 thousand in the same nine month period of 2012. Loan expense, which includes costs associated with problem loan expense, totaled $699 thousand and $676 thousand, for the nine months ended September 30, 2012 and 2011, respectively, increasing by approximately $23 thousand or 3.4 percent. The Corporation also recorded expense on other real estate owned of $272 thousand for the first nine months of 2012 as compared to $77 thousand for the same period of 2011 as the Corporation continued to work out various problem assets. For the first nine months of 2012, other expense increased $542 thousand when compared to the same nine months of 2011. The nine-month period included increases in outside director fee expense due to fee increases, which had not been increased since 2008; increased bill pay expense due to significant system enhancements; and increased costs associated with debit cards. Expenses for occupancy, advertising, stationery and supplies and postage declined, in part, due to cost-saving initiatives.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2012		2011		2012		2011
Salaries and employee benefits	$	7,029	$	5,789	$	19,550	$	17,579
Premises and equipment		2,290		2,322		7,034		7,058
FDIC assessment		299		253		941		1,254
Trust department expense		276		291		1,130		1,223
Professional and legal fees		369		248		855		821
Loan expense		194		384		699		676
Telephone		180		175		483		622
Advertising		109		163		356		575
Stationery and supplies		112		102		281		292
Postage		85		91		249		289
Other real estate owned expense		45		3		272		77
Other expense		1,005		752		2,927		2,385
Total operating expenses	$	11,993	$	10,573	$	34,777	$	32,851

PGB TRUST & INVESTMENTS: PGB Trust & Investments, a division of the Bank, 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 PGB Trust & Investments are available to provide trust and investment services at the Bank’s corporate headquarters in Bedminster, New Jersey, and its Clinton, Morristown and Summit, New Jersey branches as well as at an office located in Bethlehem, Pennsylvania.

The market value of trust assets under administration for PGB Trust & Investments was approximately $2.15 billion at September 30, 2012 as compared to $1.86 billion at September 30, 2011.

PGB Trust & Investments generated fee income of $2.9 million for the third quarter of 2012 as compared to $2.6 million for the same quarter of 2011, an increase of $363 thousand or 14.2 percent. The increase reflects increased relationships, a greater mix of higher margin business, improvement in the market value of assets under management and an increase in fees.

45

While the “Operating Expenses” section above offers an overall discussion of the corporation’s expenses including PGB Trust & Investments, other expenses relative to PGB Trust & Investments totaled $2.3 million and $2.2 million for the third quarters of 2012 and 2011, respectively, an increase of $81 thousand or 3.6 percent. For the third quarter of 2012, salaries and benefits expense increased $131 thousand, or 10.9 percent when compared to the same period in 2011. However, during the same time periods, total operating expenses decreased $50 thousand, or 4.9 percent, due to various operating efficiencies.

For the first nine months of 2012, PGB Trust & Investments generated fee income of $9.4 million, an increase of nearly $1.3 million, or 15.4 percent, when compared to $8.1 million for the same 2011 period. The increase reflects increased relationships, a greater mix of higher margin business, improvement in the market value of assets under management and an increase in fees.

Other expenses relative to PGB Trust & Investments totaled $7.1 million and $7.2 million, for the nine months ended September 30, 2012 and 2011, respectively, a decrease of $22 thousand, or 0.3 percent. Salaries and benefits expense totaled $3.9 million for the first nine months of 2012, increasing $308 thousand, or 8.5 percent when compared to the same period in 2011. Operating expenses decreased $330 thousand, or 9.3 percent, from $3.6 million for the nine months ended September 30, 2011 to $3.2 million for the same period in 2012.

PGB Trust & Investments 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: Other real estate owned (OREO), loans past due in excess of 90 days and still accruing, and nonaccrual loans are considered nonperforming assets. These assets totaled $20.4 million and $26.3 million at September 30, 2012 and December 31, 2011, respectively. The decline from 2011 was due to the sale of the Corporation’s largest commercial OREO property, which was completed during the first quarter of 2012.

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

	September 30,			June 30,			March 31,			December 31,			September 30,
	2012			2012			2012			2011			2011
Loans past due over 90 days
and still accruing	$	—		$	—		$	—		$	345		$	836
Nonaccrual loans		16,958			19,011			18,598			18,865			22,103
Other real estate owned		3,392			3,073			3,391			7,137			3,264
Total nonperforming assets	$	20,350		$	22,084		$	21,989		$	26,347		$	26,203
Accruing TDR’s	$	7,625		$	7,647		$	7,842		$	7.281		$	5,519
Loans past due 30 through 89 days
and still accruing	$	2,536		$	2,836		$	7,619		$	11,632		$	9,706
Classified loans (A)	$	47,017		$	47,102		$	48,546		$	49,101		$	52,031
Impaired loans (A)	$	24,584		$	26,658		$	26,568		$	26,212		$	27,529
Nonperforming loans as a % of
total loans		1.55	%		1.72	%		1.73	%		1.85	%		2.36	%
Nonperforming assets as a % of
total assets		1.29	%		1.40	%		1.39	%		1.65	%		1.66	%
Nonperforming assets as a % of
total loans plus other real
estate owned		1.85	%		1.99	%		2.03	%		2.52	%		2.68	%

(A) Classified loans include all impaired loans. Impaired loans include all nonaccrual loans and all TDRs.

We do not hold, have not made nor invested in subprime loans or “Alt-A” type mortgages.

46

PROVISION FOR LOAN LOSSES: The provision for loan losses was $750 thousand and $1.5 million for the third quarters of 2012 and 2011, respectively. The provision for loan losses was $3.8 million for the first nine months of 2012 as compared to $5.5 million for the same 2011 period. 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 was primarily related to the changes in the specific reserves on impaired loans, net charge-offs and for the impact of the net charge-off trends and environmental factors on the general reserve.

Provision for loan loss of $750 thousand was primarily made to replenish the allowance for loan losses for charge-offs and to provision to loan growth experienced by the non-homogeneous loan categories.

The overall allowance for loan losses was $13.9 million as of September 30, 2012 as compared to $13.2 million at December 31, 2011. As a percentage of loans, the allowance for loan losses was 1.27 percent as of both September 30, 2012 and December 31, 2011. The specific reserves on impaired loans have decreased to $744 thousand at September 30, 2012 as compared to $1.3 million as of December 31, 2011. Total impaired loans were $24.7 million and $26.2 million as of September 30, 2012 and December 31, 2011, respectively. The general component of the allowance increased from $11.9 million at December 31, 2011 to $13.1 million at September 30, 2012. As a percentage of non-impaired loans, the general reserve was 1.23 percent and 1.18 percent at September 30, 2012 and December 31, 2011, respectively. The increase in the general reserves was caused by an increase in certain loan balances coupled with the methodology employed in calculating its related loss experience. When the Corporation develops its estimated loss factors, it reviews the actual loss factors over a multiyear period which get updated as new data becomes available. In this situation, some of the actual loss factors for the first six months of 2012 were slightly higher than the loss factors from an earlier period which made the updated loss factor higher. Based on its analysis, Management believes that allowance for loan loss is a reasonable estimate for probable incurred losses in the portfolio as of September 30, 2012.

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

	Sept 30,			June 30,			March 31,			Dec 31,			Sept 30,
(In thousands)	2012			2012			2012			2011			2011
Allowance for loan losses:
Beginning of period	$	13,686		$	13,496		$	13,223		$	13,843		$	14,056
Provision for loan losses		750			1,500			1,500			1,750			1,500
Charge-offs, net		(543	)		(1,310	)		(1,227	)		(2,370	)		(1,713	)
End of period	$	13,893		$	13,686		$	13,496		$	13,223		$	13,843
Allowance for loan losses as
a % of total loans		1.27	%		1.24	%		1.25	%		1.27	%		1.42	%
Allowance for loan losses as
a % of nonperforming loans		81.93	%		71.99	%		72.57	%		68.83	%		60.35	%

INCOME TAXES: For the third quarter of 2012 income tax expense as a percentage of pre-tax income was 39 percent. In the third quarter of 2011, the Corporation reversed a previously recorded valuation allowance that was established against the deferred state tax assets of $3.0 million. Income tax expense, without considering the reversal, as a percentage of pre-tax income was 38 percent for the third quarter of 2011. Income tax expense as a percentage of pre-tax income for the first nine months of 2012 was 39 percent. Income tax expense, without considering the reversal, as a percentage of pre-tax income was 36 percent for the nine months ended September 30, 2011.

47

CAPITAL RESOURCES: The Corporation’s total shareholders’ equity at September 30, 2012, was $117.5 million as compared to $123.0 million at December 31, 2011. The primary reason for the decrease is the Corporation’s repayment of the remaining shares of preferred stock issued under the Treasury’s Capital Purchase Program in the first quarter of 2012.

The Corporation, through the Bank, is subject to various regulatory capital requirements administered by the Federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation and the Bank’s consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets and of Tier 1 Capital to average assets. For the third quarter of 2012, the Bank’s capital ratios met or exceeded the minimum to be categorized as well capitalized under the regulatory framework for prompt corrective action. Tier 1 Capital consists of common stock, retained earnings, minority interests in the equity accounts of consolidated subsidiaries non-cumulative preferred stock, and cumulative preferred stock issued to the U.S. Treasury in the Capital Purchase Program, less goodwill and certain other intangibles. The remainder of capital may consist of other preferred stock, certain other instruments and a portion of the allowance for loan loss. At September 30, 2012, the Bank’s Tier 1 Capital and Total Capital ratios to risk-weighted assets were 11.40 percent and 12.65 percent, respectively, both in excess of the well-capitalized standards of 6.0 percent and 10.0 percent, respectively.

In addition, the Federal Reserve Board has established minimum leverage ratio guidelines. At September 30, 2012, the Bank’s leverage ratio was 7.24 percent, in excess of the well-capitalized standard of 5.0 percent.

At September 30, 2012, the Corporation’s Tier 1 Capital and Total Capital ratios to risk-weighted assets were 11.51 percent and 12.76 percent, respectively, while the Corporation’s leverage ratio was 7.31 percent.

In addition, the Corporation’s common equity ratio at September 30, 2012, was 7.42 percent compared to 6.81 percent at December 31, 2011 and 6.78 percent at September 30, 2011.

LIQUIDITY: Liquidity refers to an institution’s ability to meet short-term requirements including loan fundings, deposit withdrawals and maturing obligations. Principal sources of liquidity include cash, temporary investments, securities available for sale, deposit inflows and loan repayments.

Management actively monitors and manages the Corporation’s liquidity position and feels it is sufficient to meet future needs. Cash and cash equivalents, including federal funds sold and interest-earning deposits, totaled $54.9 million at September 30, 2012. In addition, the Corporation has $253.5 million in securities designated as available for sale at September 30, 2012. These securities can be sold in response to liquidity concerns. In addition, the Corporation generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.

Another source of liquidity is borrowing capacity. At September 30, 2012, unused short-term or overnight borrowing commitments totaled $462.5 million from the FHLB and $28.2 million from correspondent banks.

48

RECENT ACCOUNTING PRONOUNCEMENTS:

The FASB has issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU amends the FASB Accounting Standards Codification^TM (Codification) to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The provisions of this update did not have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows; however, new disclosures were added.

The FASB has issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the FASB Accounting Standards Codification^TM (Codification) in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. The provisions of this update did not have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows; however, new disclosures were added.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to information required 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 (September 30, 2012).

ITEM 4. Controls and Procedures

The Corporation’s Chief Executive Officer and Chief Financial Officer, with the assistance of other members of the corporation’s management, 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 Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives. 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.

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 September 30, 2012 that have materially affected, or are reasonable likely materially affect, the Corporation’s internal control over financial reporting.

49

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 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 1A. Risk Factors

There were no material changes in the Corporation’s risk factors during the nine months ended September 30, 2012 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, 2011.

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.

ITEM 6. Exhibits

3	Articles of Incorporation and By-Laws:
	A. Certificate of Incorporation of the Registrant, as amended, incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q filed on November 9, 2009.
	B.  By-Laws of the Registrant, incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on April 23, 2007 (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 *

*    As provided in Rule 406T of Regulation S-T, this information is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933 and is deemed not filed for the purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

50

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:  November 9, 2012	By:  /s/ Douglas L. Kennedy
	Douglas L. Kennedy
	Chief Executive Officer
DATE:  November 9, 2012	By:  /s/ Jeffrey J. Carfora
	Jeffrey J. Carfora
	Executive Vice President and Chief Financial Officer and
	Chief Accounting Officer

51

EXHIBIT INDEX

Number	Description
3	Articles of Incorporation and By-Laws:
	A. Certificate of Incorporation of the Registrant, as amended, incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q filed on November 9, 2009.
	B.  By-Laws of the Registrant, incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on April 23, 2007 (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 *

* As provided in Rule 406T of Regulation S-T, this information is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933 and is deemed not filed for the purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

52

EX-31.1

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

5. 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:  November 9, 2012	By:  /s/ Douglas L. Kennedy
	Name:  Douglas L. Kennedy
	Title:    Chief Executive Officer

53

EX-31.2

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

5. 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:  November 9, 2012	By:  /s/ Jeffrey J. Carfora
	Name:  Jeffrey J. Carfora
	Title:    Executive Vice President and
	Chief Financial Officer and
	Chief Accounting Officer

54

EX-32

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 September 30, 2012 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.

/s/ Douglas L. Kennedy

Name:  Douglas L. Kennedy

Title:    Chief Executive Officer

Date:    November 9, 2012

/s/ Jeffrey J. Carfora

Name:  Jeffrey J. Carfora

Title:     Executive Vice President and

              Chief Financial Officer and

              Chief Accounting Officer

Date:    November 9, 2012

55

XML

LOANS (Details Narrative) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 N	Dec. 31, 2011	Sep. 30, 2012 Owner-Occupied Commercial Real Estate	Dec. 31, 2011 Owner-Occupied Commercial Real Estate	Sep. 30, 2011 Owner-Occupied Commercial Real Estate N	Sep. 30, 2012 Residential first mortgage N	Sep. 30, 2012 Commercial mortgage N
Impaired non-accrual loans	$ 17,000	$ 18,900	$ 8,788	$ 8,641
Impaired non-accrual loans performing troubled debt restructured	6,000	7,300
Allowance allocated to troubled debt restructured non accrual loans	0	280
Income on nonaccruing impaired loans	0
Unamortized discount on loans	231	691
Impaired loans	24,600	26,200
Substandard loans	47,000	49,100
Troubled debt restructurings specific reserves to customers	677	707
Numbers of nonaccrual loans categorized as troubled debt restructurings	9				4	4	1
Total recorded investment troubled debt restructuring	$ 5,700				$ 4,800	$ 591	$ 299

XML

BUSINESS SEGMENTS (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Segment Reporting Information [Line Items]
Net interest income	$ 12,850	$ 11,895	$ 38,644	$ 36,299
Noninterest income	4,559	3,973	13,953	12,466
Provision for loan losses	750	1,500	3,750	5,500
Salaries and benefits	7,029	5,789	19,550	17,579
Premises and equipment expense	2,290	2,322	7,034	7,058
Other noninterest expense	2,674	2,462	8,193	8,214
Income before income tax expense	4,666	3,795	14,070	10,414
Income tax expense	1,834	(1,537)	5,432	773
Net income	2,832	5,332	8,638	9,641
Total assets for period end	1,583,490		1,583,490		1,600,335
Banking
Segment Reporting Information [Line Items]
Net interest income	12,011	11,028	36,116	33,669
Noninterest income	1,564	1,354	4,390	4,166
Total income	13,575	12,382	40,506	37,835
Provision for loan losses	750	1,500	3,750	5,500
Salaries and benefits	5,696	4,587	15,631	13,968
Premises and equipment expense	2,149	2,169	6,604	6,561
Other noninterest expense	1,837	1,587	5,395	5,153
Total noninterest expense	10,432	9,843	31,380	31,182
Income before income tax expense	3,143	2,539	9,126	6,653
Income tax expense	1,235	(2,021)	3,524	(585)
Net income	1,908	4,560	5,602	7,238
Total assets for period end	1,582,127	1,574,000	1,582,127	1,574,000
PGB Trust & Investments
Segment Reporting Information [Line Items]
Net interest income	839	867	2,528	2,630
Noninterest income	2,995	2,619	9,563	8,300
Total income	3,834	3,486	12,091	10,930
Provision for loan losses
Salaries and benefits	1,333	1,202	3,919	3,611
Premises and equipment expense	141	153	430	497
Other noninterest expense	837	875	2,798	3,061
Total noninterest expense	2,311	2,230	7,147	7,169
Income before income tax expense	1,523	1,256	4,944	3,761
Income tax expense	599	484	1,908	1,358
Net income	924	772	3,036	2,403
Total assets for period end	1,363	1,288	1,363	1,288
Total
Segment Reporting Information [Line Items]
Net interest income	12,850	11,895	38,644	36,299
Noninterest income	4,559	3,973	13,953	12,466
Total income	17,409	15,868	52,597	48,765
Provision for loan losses	750	1,500	3,750	5,500
Salaries and benefits	7,029	5,789	19,550	17,579
Premises and equipment expense	2,290	2,322	7,034	7,058
Other noninterest expense	2,674	2,462	8,193	8,214
Total noninterest expense	12,743	12,073	38,527	38,351
Income before income tax expense	4,666	3,795	14,070	10,414
Income tax expense	1,834	(1,537)	5,432	773
Net income	2,832	5,332	8,638	9,641
Total assets for period end	$ 1,583,490	$ 1,575,288	$ 1,583,490	$ 1,575,288

XML

LOANS (Details 8) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 N
Financing Receivable, Modifications [Line Items]
Number of Contracts	6
Pre-Modification Outstanding Recorded Investment	$ 3,056
Post-Modification Outstanding Recorded Investment	3,056
Primary Residential Mortgages
Financing Receivable, Modifications [Line Items]
Number of Contracts	4
Pre-Modification Outstanding Recorded Investment	610
Post-Modification Outstanding Recorded Investment	610
Junior Lien Loan on Residence
Financing Receivable, Modifications [Line Items]
Number of Contracts	1
Pre-Modification Outstanding Recorded Investment	249
Post-Modification Outstanding Recorded Investment	249
Owner-Occupied Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of Contracts	1
Pre-Modification Outstanding Recorded Investment	2,197
Post-Modification Outstanding Recorded Investment	$ 2,197

XML

FAIR VALUE (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Notes to Financial Statements
Loans held for sale	$ 8,400	$ 2,800
Impaired collateral loans recorded investment	726	4,600
Impaired collateral loans valuation allowance	$ 744	$ 1,300

XML

LOANS (Details 6) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 1,093,166	$ 1,035,338
Primary Residential Mortgages
Financing Receivable, Recorded Investment [Line Items]
Total Loans	517,520	511,418
Primary Residential Mortgages | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	507,514	496,815
Primary Residential Mortgages | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	2,462	5,437
Primary Residential Mortgages | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	7,544	9,166
Primary Residential Mortgages | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Home Equity Lines of Credit
Financing Receivable, Recorded Investment [Line Items]
Total Loans	51,441	50,394
Home Equity Lines of Credit | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	51,343	49,905
Home Equity Lines of Credit | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Home Equity Lines of Credit | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	98	489
Home Equity Lines of Credit | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Junior Lien Loan on Residence
Financing Receivable, Recorded Investment [Line Items]
Total Loans	12,587	13,053
Junior Lien Loan on Residence | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	12,067	12,244
Junior Lien Loan on Residence | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	40	129
Junior Lien Loan on Residence | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	480	680
Junior Lien Loan on Residence | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Multifamily Property
Financing Receivable, Recorded Investment [Line Items]
Total Loans	127,972	104,056
Multifamily Property | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	126,950	102,948
Multifamily Property | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	639	163
Multifamily Property | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	383	945
Multifamily Property | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Secured by Farmland | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	209
Secured by Farmland | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Secured by Farmland | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Secured by Farmland | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Owner-Occupied Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total Loans	103,022	107,852
Owner-Occupied Commercial Real Estate | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	81,494	81,797
Owner-Occupied Commercial Real Estate | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,280	9,524
Owner-Occupied Commercial Real Estate | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	20,248	16,531
Owner-Occupied Commercial Real Estate | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Investment Commercial Real Estate
Financing Receivable, Recorded Investment [Line Items]
Total Loans	235,162	186,998
Investment Commercial Real Estate | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	205,434	157,579
Investment Commercial Real Estate | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	12,788	9,599
Investment Commercial Real Estate | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	16,940	19,820
Investment Commercial Real Estate | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Agricultural Production Loans | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	15	18
Agricultural Production Loans | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Agricultural Production Loans | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Agricultural Production Loans | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Commercial and Industrial
Financing Receivable, Recorded Investment [Line Items]
Total Loans	20,277	29,825
Commercial and Industrial | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	18,809	28,020
Commercial and Industrial | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	144	835
Commercial and Industrial | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,324	970
Commercial and Industrial | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Commercial Construction
Financing Receivable, Recorded Investment [Line Items]
Total Loans	9,633	19,208
Commercial Construction | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	8,029	18,474
Commercial Construction | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,604	234
Commercial Construction | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans		500
Commercial Construction | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Consumer and Other
Financing Receivable, Recorded Investment [Line Items]
Total Loans	15,328
Consumer and Other | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	15,328	12,021
Consumer and Other | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans		495
Consumer and Other | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Consumer and Other | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Total loans | Pass
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,027,192	959,821
Total loans | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total Loans	18,957	26,416
Total loans | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total Loans	47,017	49,101
Total loans | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total Loans

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (Restricted stock awards, USD $)	9 Months Ended
	Sep. 30, 2012
Restricted stock awards
Nonvested shares
Balance at Beginning	84,725
Granted during 2012	36,263
Vested during 2012	(22,393)
Balance at end	98,595
Weighted Average Grant Date Fair Value
Balance at Beginning	$ 13.46
Granted during 2012	$ 10.72
Vested during 2012	$ 10.75
Balance at end	$ 13.07

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FAIR VALUE (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Impaired Loans:
OREO	$ 3,392	$ 7,137
Non-Recurring Basis  | Fair value
Impaired Loans:
Primary Residential Mortgage	171	1,462
Owner-Occupied Commercial Mortgage		1,303
Investment Commercial Real Estate		228
Multifamily		212
Junior Lien on Residence		117
OREO		2,135
Non-Recurring Basis  | Quoted Prices in Active Market For Identical Assets (Level 1)
Impaired Loans:
Primary Residential Mortgage
Owner-Occupied Commercial Mortgage
Investment Commercial Real Estate
Multifamily
Junior Lien on Residence
OREO
Non-Recurring Basis  | Significant Other Observable Inputs (Level 2)
Impaired Loans:
Primary Residential Mortgage
Owner-Occupied Commercial Mortgage
Investment Commercial Real Estate
Multifamily
Junior Lien on Residence
OREO
Non-Recurring Basis  | Significant Other Observable Inputs (Level 3)
Impaired Loans:
Primary Residential Mortgage	171	1,462
Owner-Occupied Commercial Mortgage		1,303
Investment Commercial Real Estate		228
Multifamily		212
Junior Lien on Residence		117
OREO		$ 2,135

XML

FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Tables)

9 Months Ended

Sep. 30, 2012

Federal Home Loan Bank Advances And Other Borrowings Tables

Schedule of maturity dates of the advances and other borrowings

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

(In thousands)
2012	$	117
2013		218
2014		—
2015		—
2016		—
Over 5 years		12,000
Total	$	12,335

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LOANS (Details 10) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012 N
Financing Receivable, Modifications [Line Items]
Number of Subsequently Defaulted Contracts	1
Subsequently Defaulted Recorded Investment	$ 406
Owner-Occupied Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of Subsequently Defaulted Contracts	1
Subsequently Defaulted Recorded Investment	$ 406

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LOANS (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment	$ 24,584		$ 26,213
Ending ALLL Attributable to Loans Individually Evaluated for Impairment	744		1,288
Total Loans Collectively Evaluated for Impairment	1,068,582		1,009,125
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	13,149		11,935
Total Loans	1,093,166		1,035,338
Total Ending ALLL	13,893	13,686	13,223	13,843	14,056	14,282
Primary Residential Mortgages
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment	8,233		8,878
Ending ALLL Attributable to Loans Individually Evaluated for Impairment	326		345
Total Loans Collectively Evaluated for Impairment	509,287		502,540
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	2,593		2,069
Total Loans	517,520		511,418
Total Ending ALLL	2,919	2,602	2,414	1,614	1,663	1,502
Home Equity Lines of Credit
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment	98		489
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	51,343		49,905
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	253		204
Total Loans	51,441		50,394
Total Ending ALLL	253	208	204	194	185	160
Junior Lien Loan on Residence
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment	480		680
Ending ALLL Attributable to Loans Individually Evaluated for Impairment			9
Total Loans Collectively Evaluated for Impairment	12,107		12,373
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	66		55
Total Loans	12,587		13,053
Total Ending ALLL	66	55	64	203	208	228
Multifamily Property
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment			550
Ending ALLL Attributable to Loans Individually Evaluated for Impairment			52
Total Loans Collectively Evaluated for Impairment	127,972		103,506
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	975		653
Total Loans	127,972		104,056
Total Ending ALLL	975	839	705	632	463	303
Owner-Occupied Commercial Real Estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment	9,195		9,054
Ending ALLL Attributable to Loans Individually Evaluated for Impairment			322
Total Loans Collectively Evaluated for Impairment	93,827		98,798
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	3,363		2,786
Total Loans	103,022		107,852
Total Ending ALLL	3,363	3,418	3,108	3,541	3,521	2,777
Investment Commercial Real Estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment	5,852		5,986
Ending ALLL Attributable to Loans Individually Evaluated for Impairment	374		509
Total Loans Collectively Evaluated for Impairment	229,310		181,012
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	4,226		3,672
Total Loans	235,162		186,998
Total Ending ALLL	4,600	4,784	4,181	4,120	4,099	4,759
Commercial and Industrial
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment	726		576
Ending ALLL Attributable to Loans Individually Evaluated for Impairment	44		51
Total Loans Collectively Evaluated for Impairment	19,551		29,249
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	772		1,240
Total Loans	20,277		29,825
Total Ending ALLL	816	917	1,291	2,251	2,399	2,719
Secured by Farmland
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Ending ALLL	3	3
Agricultural Production Loans
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Ending ALLL	1	1	1
Commercial Construction
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	9,633		19,208
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	291		669
Total Loans	9,633		19,208
Total Ending ALLL	291	234	669	551	794	1,246
Consumer and Other
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	15,328
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	78
Total Loans	15,328
Total Ending ALLL	78	77	78	104	99	66
Unallocated
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Ending ALLL	528	548	508	633	625	522
Bank segments (Federal call report codes) | Secured by Farmland
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	209
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	3
Total Loans	209
Total Ending ALLL	3
Bank segments (Federal call report codes) | Agricultural Production Loans
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	15		18
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	1		1
Total Loans	15		18
Total Ending ALLL	1		1
Bank segments (Federal call report codes) | Consumer and Other
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment			12,516
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment			78
Total Loans			12,516
Total Ending ALLL			78
Bank segments (Federal call report codes) | Unallocated
Financing Receivable, Allowance for Credit Losses [Line Items]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	528		508
Total Loans
Total Ending ALLL	$ 528		$ 508

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 246,505	$ 314,100
Gross Unrecognised Gains	7,831	6,401
Gross Unrecognised Losses	(847)	(981)
Fair Value	253,489	319,520
U.S. Government-Sponsored Entities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	29,645	46,729
Gross Unrecognised Gains	312	149
Gross Unrecognised Losses
Fair Value	29,957	46,878
Mortgage-Backed Securities -Residential
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	181,538	223,240
Gross Unrecognised Gains	5,906	4,891
Gross Unrecognised Losses	(1)	(147)
Fair Value	187,443	236,984
State and Political Subdivisions
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	29,115	28,539
Gross Unrecognised Gains	1,511	1,314
Gross Unrecognised Losses	(1)	(2)
Fair Value	30,625	29,851
Other Securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,998	5,999
Gross Unrecognised Gains	98	40
Gross Unrecognised Losses	(845)	(832)
Fair Value	5,251	5,207
Marketable Equity Securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	209	593
Gross Unrecognised Gains	4	7
Gross Unrecognised Losses
Fair Value	$ 213	$ 600

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FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Federal Home Loan Bank Advances Maturities Summary
2012	$ 117
2013	218
2014
2015
2016
Over 5 years	12,000
Total	$ 12,335

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Accumulated Other Comprehensive Income Details
Unrealized Gains/(Losses) on Securities Available for Sale, Beginning Balance	$ 3,574		$ 3,206
Change in Unrealized Gains/(Losses) on Securities Available for Sale	557	279	925	1,555
Unrealized Gains/(Losses) on Securities Available for Sale, Ending Balance	4,131		4,131
Other-Than-Temporary Impairment on Securities Held to Maturity and Transfer of securities From Available for Sale to Held to Maturity, Beginning Balance	(3,035)		(3,102)
Other-Than-Temporary Impairment on Securities Held to Maturity and Transfer of securities From Available for Sale to Held to Maturity	35		102
Other-Than-Temporary Impairment on Securities Held to Maturity and Transfer of securities From Available for Sale to Held to Maturity, Ending Balance	(3,000)		(3,000)
Accumulated other comprehensive (loss)/income, net of income tax, Beginning Balance	539		104
Net changes in Accumulated other comprehensive income	592		1,027
Accumulated other comprehensive (loss)/income, net of income tax, Ending Balance	$ 1,131		$ 1,131

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LOANS (Details 7) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Allowance for loan losses
Beginning ALLL	$ 13,686	$ 14,056	$ 13,223	$ 14,282
Charge-Offs	(618)	(1,786)	(3,305)	(6,111)
Recoveries	75	73	225	172
Provision	750	1,500	3,750	5,500
Ending ALLL	13,893	13,843	13,893	13,843
Primary Residential Mortgages
Allowance for loan losses
Beginning ALLL	2,602	1,663	2,414	1,502
Charge-Offs	(183)	(240)	(1,171)	(527)
Recoveries	1		2
Provision	499	191	1,674	639
Ending ALLL	2,919	1,614	2,919	1,614
Home Equity Lines of Credit
Allowance for loan losses
Beginning ALLL	208	185	204	160
Charge-Offs			(91)	(60)
Recoveries
Provision	45	9	140	94
Ending ALLL	253	194	253	194
Junior Lien Loan on Residence
Allowance for loan losses
Beginning ALLL	55	208	64	228
Charge-Offs			(57)	(13)
Recoveries	1		5	14
Provision	10	(5)	54	(26)
Ending ALLL	66	203	66	203
Multifamily Property
Allowance for loan losses
Beginning ALLL	839	463	705	303
Charge-Offs	(18)		(393)	(26)
Recoveries				8
Provision	154	169	663	347
Ending ALLL	975	632	975	632
Secured by Farmland
Allowance for loan losses
Beginning ALLL	3
Charge-Offs
Recoveries
Provision			3
Ending ALLL	3		3
Owner-Occupied Commercial Real Estate
Allowance for loan losses
Beginning ALLL	3,418	3,521	3,108	2,777
Charge-Offs	(345)	(563)	(1,261)	(2,118)
Recoveries	19	1	145	40
Provision	271	582	1,371	2,842
Ending ALLL	3,363	3,541	3,363	3,541
Investment Commercial Real Estate
Allowance for loan losses
Beginning ALLL	4,784	4,099	4,181	4,759
Charge-Offs	(64)	(920)	(120)	(2,611)
Recoveries	2		11	1
Provision	(122)	941	528	1,971
Ending ALLL	4,600	4,120	4,600	4,120
Agricultural Production Loans
Allowance for loan losses
Beginning ALLL	1		1
Charge-Offs
Recoveries
Provision
Ending ALLL	1		1
Commercial and Industrial
Allowance for loan losses
Beginning ALLL	917	2,399	1,291	2,719
Charge-Offs		(61)	(112)	(157)
Recoveries	51	72	55	98
Provision	(152)	(159)	(418)	(409)
Ending ALLL	816	2,251	816	2,251
Commercial Construction
Allowance for loan losses
Beginning ALLL	234	794	669	1,246
Charge-Offs			(72)	(586)
Recoveries				11
Provision	57	(243)	(306)	(120)
Ending ALLL	291	551	291	551
Consumer and Other
Allowance for loan losses
Beginning ALLL	77	99	78	66
Charge-Offs	(8)	(2)	(28)	(13)
Recoveries	1		7
Provision	8	7	21	51
Ending ALLL	78	104	78	104
Unallocated
Allowance for loan losses
Beginning ALLL	548	625	508	522
Charge-Offs
Recoveries
Provision	(20)	8	20	111
Ending ALLL	$ 528	$ 633	$ 528	$ 633

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2012

Summary Of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 2011 for Peapack-Gladstone Financial Corporation (the “Corporation”). In the opinion of the Management of the Corporation, the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments necessary to present fairly the financial position as of September 30, 2012 and the results of operations for the three and nine months ended September 30, 2012 and 2011 and cash flows for the nine months ended September 30, 2012 and 2011.

Principles of Consolidation: 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 Peapack-Gladstone Financial Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly owned subsidiary, Peapack-Gladstone Bank. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Securities: Debt securities are classified as held to maturity and carried at amortized cost when Management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale 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 or 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 of 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: 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, usually when the Bank receives contractual payments for six consecutive 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. Mortgage loans are generally charged off when the value of the underlying collateral does not cover the outstanding principal balance. The majority of the Corporation’s loans are secured by real estate in the State of New Jersey.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charges against the allowance when Management believes the uncollectibility 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 Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and are evaluated for impairment. 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.

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. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment while they are performing assets. If and when a residential mortgage is placed on nonaccrual status and in the process of collections, 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 is a renegotiated loan with concessions made by the lender to a borrower who is experiencing financial difficulty. Troubled debt restructurings are separately identified for impairment and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring 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 troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component of the allowance covers loans collectively evaluated for impairment 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 experienced by the Corporation on a weighted average basis over the previous seven 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; levels of and trends in charge-offs and recoveries; trends in volume and terms of 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.

In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on Federal call report codes. The material portfolio segments are discussed below:

Primary Residential Mortgages. The Bank originates one to four family residential mortgage loans within or near its primary geographic market area. When reviewing residential mortgage loan applications, the Bank obtains detailed verifiable information regarding income, assets and indebtedness, a credit report, and an independent appraisal of the property to be mortgaged. The Bank makes residential mortgage loans up to 80% of the appraised value and up to 95% with private mortgage insurance. The Bank uses lower loan to value ratios for large loans and loans on either second (vacation) homes or investment property. The Bank’s underwriting guidelines include (i) minimum credit report scores of 680 and (ii) a maximum debt to income ratio of 40% if the loan to value is 70% or higher and 45% if the loan to value is less than 70%. The Bank may consider an exception to any guideline if the remaining characteristics of the application are sufficiently strong to compensate. The Bank retains in its portfolio residential mortgage loans with maturities of up to 15 years while loans with longer maturities are sold to third party financial institutions. The Bank does not originate, purchase or carry any sub-prime mortgage loans.

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.

Bank management believes that the underwriting guideline previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic residential mortgage loans.

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. When reviewing residential mortgage loan applications, the Bank obtains detailed verifiable information regarding income, assets and indebtedness, a credit report, and an independent appraisal of the property to be mortgaged. For home equity lines of credit, the Bank utilizes the same underwriting standards as for primary residential mortgages. 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.

Bank management believes that the underwriting guidelines previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic home equity lines of credit.

Junior Lien Loan on Residence. The Bank provides junior lien loans (“JLL”) against one to four family properties within or near its primary geographic market area. Junior liens 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. The Bank will require that the mortgage securing the JLL be no more junior than a second lien position The Bank will evaluate these applications in the same manner as it underwrites primary residential mortgages. The combined first mortgage and junior lien loan must be no more than 80% of the appraised value of the property when the combined debt is less than or equal to $800,000. For JLL amounts where the combined debt exceeds $800,000, the maximum LTV ratio is 65%. 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.

Bank management believes that the underwriting guideline previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic junior lien loans.

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. 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 have also have retail space. In these cases the Bank determines which component provides the majority of the rental income for the property and utilizes that component for the loan classification.

The terms and conditions of all commercial mortgage loans are tailored to the specific attributes of the borrower, the property or project, and any guarantors. In the case of multifamily and investment commercial real estate properties, the Bank reviews, among other things, the nature of and diversity of the underlying tenants and leases, the resources and experience of the sponsor, and the condition and location of the subject property. With an owner occupied property, a detailed credit assessment is also made of the operating business. While the Bank’s policy allows loan to value ratios of up to 80% of an appraised value, the majority of the loans are originated at loan to value ratios of 70% or lower. Commercial mortgage loans are generally made on a fixed rate basis with periodic rate resets every five or seven years over an underlying market index. The Bank requires an independent appraisal, a property conditions assessment from an engineering firm, and appropriate environmental due diligence.

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. To mitigate this risk, the Bank will require a standby assignment of leases, greater direct recourse to the owners, and a risk appropriate interest rate and loan structure. In underwriting a commercial mortgage loan, the Bank evaluates the property’s historical operating income as well as its projected sustainability and generally requires a minimum debt service coverage ratio that provides for an adequate cushion for unexpected or uncertain future events such as the potential impact of changes in interest rates, vacancy levels and lease rates.

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 and equipment. When underwriting business loans, among other things, the bank evaluates the historical profitability and debt servicing capacity of the borrowing entity and the financial resources and character of the principal owners and guarantors.

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.

To mitigate the risk characteristics of commercial and industrial loans, the Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance.

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 and for projects that are supported by either a permanent take-out or acceptable executed leases or sales contracts. When evaluating a construction loan request, the Bank will also review the construction plans and drawings, costs estimates from architects, and an independent appraisal. Construction loans typically have a 12-24 month period of interest only and at a maximum 70% LTV ratio. 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.

Stock-Based Compensation: The Corporation has stock option plans that allow the granting of shares of the Corporation’s common stock as incentive stock options, nonqualified stock options, restricted stock awards and stock appreciation rights to directors, officers, employees and independent contractors of the Corporation and its subsidiaries. The options granted under these plans are exercisable at a price equal to the fair market 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.

For the three months ended September 30, 2012 and 2011, the Corporation recorded total compensation cost for stock options of $83 thousand and $61 thousand respectively, with a recognized tax benefit of $15 thousand for the quarter ended September 30, 2012 and $11 thousand for the September 30, 2011 quarter. The Corporation recorded total compensation cost for stock options for the nine months ended September 30, 2012 and 2011, of $253 thousand and $273 thousand, respectively, with a recognized tax benefit of $45 thousand for the nine months ended September 30, 2012 and $46 thousand for the nine months ended September 30, 2011.

There was approximately $580 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Corporation’s stock incentive plans at September 30, 2012. That cost is expected to be recognized over a weighted average period of 1.7 years.

For the Corporation’s stock option plans, changes in options outstanding during the nine months ended September 30, 2012 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In Thousands)
Balance, January 1, 2012		577,782		$	23.45
Granted during 2012		62,560			11.01
Exercised during 2012		(2,190	)		11.10
Expired during 2012		(12,338	)		25.51
Forfeited during 2012		(1,018	)		15.02
Balance, September 30, 2012		624,796		$	22.22		4.27 years	$	591
Vested and expected to vest (1)		594,387		$	22.71		4.27 years	$	513
Exercisable at September 30, 2012		455,858		$	25.57		2.80 years	$	80

(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 Corporation’s closing stock price on the last trading day of the third quarter of 2012 and the exercise price, multiplied by the number of in-the-money options). The Corporation’s closing stock price on September 30, 2012 was $16.34.

For the third quarter of 2012, the per share weighted-average fair value of stock options granted was $5.29 as compared to $3.68 for the same quarter of 2011. The per share weighted-average fair value of stock options granted during the first nine months of 2012 and 2011 was $3.91 and $3.88, respectively on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Dividend Yield		1.24	%		2.02	%		1.47	%		1.60	%
Expected volatility		39	%		38	%		39	%		32	%
Expected life		7 years			7 years			7 years			7 years
Risk-free interest rate		1.08	%		2.02	%		1.43	%		2.08	%

In January 2012 and 2011, the Corporation issued 36,263 and 28,732 restricted stock awards, respectively, at a fair value equal to the market price of the Corporation’s common stock on the date of the grant. The awards vest 40 percent after two years and 20 percent each year thereafter until fully vesting on the fifth anniversary of the grant date. The Corporation recorded total compensation cost for restricted stock awards of $111 thousand for the third quarter of 2012 and $67 thousand for the same quarter of 2011. For the nine months ended September 30, 2012 and 2011, the Corporation recorded total compensation cost for restricted stock awards of $332 thousand and $191 thousand, respectively.

As of September 30, 2012, there was approximately $790 thousand of unrecognized compensation cost related to non-vested restricted stock awards granted under the Corporation’s stock incentive plans. That cost is expected to be recognized over a weighted average period of 1.6 years.

Changes in non-vested, restricted common shares for 2012 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2012		84,725		$	13.46
Granted during 2012		36,263			10.72
Vested during 2012		(22,393	)		10.75
Balance, September 30, 2012		98,595		$	13.07

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 or restricted stock would vest during the reporting period utilizing the Treasury stock method.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2012		2011		2012		2011
Net income to common shareholders	$	2,832	$	5,113	$	8,164	$	8,633
Basic weighted-average common shares outstanding		8,778,649		8,742,955		8,775,022		8,739,482
Plus:  common stock equivalents		40,782		110		30,837		1,620
Diluted weighted-average common shares outstanding		8,819,431		8,743,065		8,805,859		8,741,102
Net income per common share
Basic	$	0.32	$	0.58	$	0.93	$	0.98
Diluted		0.32		0.58		0.93		0.98

Stock options and restricted stock totaling 569,642 and 600,047 shares were not included in the computation of diluted earnings per share in the third quarters of 2012 and 2011, respectively, because they were considered antidilutive. Stock options and restricted stock totaling 590,867 and 571,993 shares were not included in the computation of diluted earnings per share in the nine months ended September 30, 2012 and 2011, respectively, because they were considered antidilutive.

Income Taxes: The Corporation files a consolidated Federal income tax return and separate state income tax returns for each subsidiary based on current laws and regulations.

The Corporation is no longer subject to examination by the U.S. Federal tax authorities for years prior to 2008 or by New Jersey tax authorities for years prior to 2007.

The Corporation recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other expense. The Corporation did not have any amounts accrued for interest and penalties at September 30, 2012.

Reclassification: Certain reclassifications may have been made in the prior periods’ financial statements in order to conform to the 2012 presentation.

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LOANS (Details 3) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
No Related Allowance, Unpaid Principal Balance	$ 21,942	$ 20,667
No Related Allowance, Recorded Investment	17,030	14,997
No Related Allowance, Specific Reserves
No Related Allowance, Average Impaired Loans	19,792	11,813
No Related Allowance, Interest Income	1,127	316
Related Allowance, Unpaid Principal Balance	7,657
Related Allowance, Recorded Investment	7,554	11,585
Related Allowance, Specific Reserves	744	11,216
Related Allowance, Average Impaired Loans	6,949	1,288
Related Allowance, Interest Income	407	7,304
Unpaid Principal Balance	29,599	32,262
Recorded Investment	24,600	26,200
Specific Reserves	744	1,288
Average Impaired Loans	26,741	19,117
Interest Income	1,534	876
Primary Residential Mortgages
Financing Receivable, Impaired [Line Items]
No Related Allowance, Unpaid Principal Balance	8,398	7,586
No Related Allowance, Recorded Investment	6,145	5,844
No Related Allowance, Specific Reserves
No Related Allowance, Average Impaired Loans	7,347	4,721
No Related Allowance, Interest Income	356	87
Related Allowance, Unpaid Principal Balance	2,175
Related Allowance, Recorded Investment	2,088	3,083
Related Allowance, Specific Reserves	326	3,034
Related Allowance, Average Impaired Loans	1,877	345
Related Allowance, Interest Income	82	1,496
Multifamily Property
Financing Receivable, Impaired [Line Items]
No Related Allowance, Unpaid Principal Balance		312
No Related Allowance, Recorded Investment		286
No Related Allowance, Specific Reserves
No Related Allowance, Average Impaired Loans	247	243
No Related Allowance, Interest Income	21
Related Allowance, Recorded Investment		264
Related Allowance, Specific Reserves		264
Related Allowance, Average Impaired Loans		52
Related Allowance, Interest Income		71
Owner-Occupied Commercial Real Estate
Financing Receivable, Impaired [Line Items]
No Related Allowance, Unpaid Principal Balance	11,094	10,630
No Related Allowance, Recorded Investment	9,195	7,049
No Related Allowance, Specific Reserves
No Related Allowance, Average Impaired Loans	9,774	5,575
No Related Allowance, Interest Income	593	158
Related Allowance, Unpaid Principal Balance
Related Allowance, Recorded Investment		2,020
Related Allowance, Specific Reserves		2,005
Related Allowance, Average Impaired Loans		322
Related Allowance, Interest Income		1,254
Investment Commercial Real Estate
Financing Receivable, Impaired [Line Items]
No Related Allowance, Unpaid Principal Balance	1,177	397
No Related Allowance, Recorded Investment	674	299
No Related Allowance, Specific Reserves
No Related Allowance, Average Impaired Loans	842	322
No Related Allowance, Interest Income	53	20
Related Allowance, Unpaid Principal Balance	5,185
Related Allowance, Recorded Investment	5,178	5,979
Related Allowance, Specific Reserves	374	5,687
Related Allowance, Average Impaired Loans	4,976	509
Related Allowance, Interest Income	249	2,865
Commercial and Industrial
Financing Receivable, Impaired [Line Items]
No Related Allowance, Unpaid Principal Balance	504	475
No Related Allowance, Recorded Investment	438	475
No Related Allowance, Specific Reserves
No Related Allowance, Average Impaired Loans	642	433
No Related Allowance, Interest Income	49	24
Related Allowance, Unpaid Principal Balance	297
Related Allowance, Recorded Investment	288	101
Related Allowance, Specific Reserves	44	101
Related Allowance, Average Impaired Loans	96	51
Related Allowance, Interest Income	76	495
Home Equity Lines of Credit
Financing Receivable, Impaired [Line Items]
No Related Allowance, Unpaid Principal Balance	98	595
No Related Allowance, Recorded Investment	98	489
No Related Allowance, Specific Reserves
No Related Allowance, Average Impaired Loans	263	66
No Related Allowance, Interest Income	13	18
Junior Lien Loan on Residence
Financing Receivable, Impaired [Line Items]
No Related Allowance, Unpaid Principal Balance	671	682
No Related Allowance, Recorded Investment	480	555
No Related Allowance, Specific Reserves
No Related Allowance, Average Impaired Loans	677	453
No Related Allowance, Interest Income	42	9
Related Allowance, Unpaid Principal Balance
Related Allowance, Recorded Investment		138
Related Allowance, Specific Reserves		125
Related Allowance, Average Impaired Loans		9
Related Allowance, Interest Income		128
Commercial Construction
Financing Receivable, Impaired [Line Items]
Related Allowance, Recorded Investment
Related Allowance, Specific Reserves
Related Allowance, Average Impaired Loans
Related Allowance, Interest Income		$ 995

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

9 Months Ended

Sep. 30, 2012

Accumulated Other Comprehensive Income Tables

Schedule of accumulated other comprehensive income balances, net of tax

The following is a summary of the accumulated other comprehensive income balances, net of tax, for the three months ended September 30, 2012:

	Balance at			Current		Balance at
(In thousands)	June 30, 2012			Quarter Change		September 30, 2012
Unrealized gains on securities
available for sale	$	3,574		$	557	$	4,131
Other-than-temporary impairment on
securities held to maturity and
securities transferred from
available for sale to held to maturity		(3,035	)		35		(3,000	)
Total	$	539		$	592	$	1,131

The following is a summary of the accumulated other comprehensive income balances, net of tax, for the nine months ended September 30, 2012:

	Balance at			Current		Balance at
(In thousands)	December 31, 2011			Year Change		September 30, 2012
Unrealized gains on securities
available for sale	$	3,206		$	925	$	4,131
Other-than-temporary impairment on
securities held to maturity and
securities transferred  from
available for sale to held to maturity		(3,102	)		102		(3,000	)
Total	$	104		$	1,027	$	1,131

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OTHER OPERATING EXPENSES (Tables)

9 Months Ended

Sep. 30, 2012

Other Operating Expenses Tables

Schedule of components of other operating expenses

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2012		2011		2012		2011
FDIC assessment	$	299	$	253	$	941	$	1,254
Trust department expense		276		291		1,130		1,223
Professional and legal fees		369		248		855		821
Loan expense		194		384		699		676
Other operating expenses		1,536		1,286		4,568		4,240
Total other operating expenses	$	2,674	$	2,462	$	8,193	$	8,214

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FAIR VALUE (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Available for Sale:
U.S. Government-Sponsored Entities	$ 29,957	$ 46,878
Mortgage-Backed Securities - Residential	187,443	236,984
State and Political Subdivisions	30,625	29,851
Other Securities	2,153	2,167
CRA Investment Fund	3,098	3,040
Marketable Equity Securities	213	600
Total	253,489	319,520
Recurring Basis  | Quoted Prices in Active Market For Identical Assets (Level 1)
Available for Sale:
U.S. Government-Sponsored Entities
Mortgage-Backed Securities - Residential
State and Political Subdivisions
Other Securities
CRA Investment Fund
Marketable Equity Securities	213	600
Total	213	600
Recurring Basis  | Significant Other Observable Inputs (Level 2)
Available for Sale:
U.S. Government-Sponsored Entities	29,957	46,878
Mortgage-Backed Securities - Residential	187,443	236,984
State and Political Subdivisions	30,625	29,851
Other Securities	2,153	2,167
CRA Investment Fund	3,098	3,040
Marketable Equity Securities
Total	253,276	318,920
Recurring Basis  | Significant Other Observable Inputs (Level 3)
Available for Sale:
U.S. Government-Sponsored Entities
Mortgage-Backed Securities - Residential
State and Political Subdivisions
Other Securities
CRA Investment Fund
Marketable Equity Securities
Total

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LOANS (Details 4) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
Impaired non-accrual loans	$ 17,000	$ 18,900
Loans Past Due Over 90 Days And Still Accruing Interest		345
Primary Residential Mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Impaired non-accrual loans	6,642	7,468
Loans Past Due Over 90 Days And Still Accruing Interest
Home Equity Lines of Credit
Financing Receivable, Recorded Investment, Past Due [Line Items]
Impaired non-accrual loans	98	489
Loans Past Due Over 90 Days And Still Accruing Interest
Junior Lien Loan on Residence
Financing Receivable, Recorded Investment, Past Due [Line Items]
Impaired non-accrual loans	239	680
Loans Past Due Over 90 Days And Still Accruing Interest
Owner-Occupied Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Impaired non-accrual loans	8,788	8,641
Loans Past Due Over 90 Days And Still Accruing Interest
Investment Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Impaired non-accrual loans	903	1,037
Loans Past Due Over 90 Days And Still Accruing Interest
Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Impaired non-accrual loans	288
Loans Past Due Over 90 Days And Still Accruing Interest		345
Multifamily Property
Financing Receivable, Recorded Investment, Past Due [Line Items]
Impaired non-accrual loans		550
Loans Past Due Over 90 Days And Still Accruing Interest

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended		3 Months Ended		9 Months Ended
	Jan. 31, 2012	Jan. 31, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Allowance for Loan Losses:
Mortgage loans up to appraised value (as percentage)			80.00%		80.00%
Mortgage loans up to appraised value with private mortgage insurance (as percentage)			90.00%		90.00%
Minimum credit score			680		680
Maximum debt to income ratio					40.00%
Minimum debt to income ratio					45.00%
Loan to value					70.00%
Residential mortgage loans retained in portfolio - maturities					15 years
Combined mortgage loan and junior lien loan up to appraised value (as percentage)			80.00%		80.00%
Junior lien loan - combined debt			$ 800		$ 800
Loan to value, maximum for junior lien loan			65.00%		65.00%
Total compensation cost			83	61	253	273
Recognized Tax Benefit			15	11	45	46
Unrecognized Compensation Cost			580		580
Recognized over a weighted average period					1 year 6 months
Closing stock price (in dollars per share)			$ 16.34		$ 16.34
Weighted-average fair value of stock options granted (in dollars per share)			$ 5.29	$ 3.68	$ 3.91	$ 3.88
Stock options and restricted stock not included in the computation of diluted EPS (in shares)			569,642	600,047	590,867	571,993
Restricted stock awards
Allowance for Loan Losses:
Total compensation cost			111	667	332	191
Unrecognized Compensation Cost			$ 790		$ 790
Recognized over a weighted average period					1 year 7 months 6 days
Numbers of shares issued (in shares)	36,263	28,732
Description of vesting rights	The awards vest 40 percent after two years and 20 percent each year after until fully vesting on the fifth anniversary of the grant date.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Number of Options
Balance at Beginning	577,782
Granted during 2012	62,360
Exercised during 2012	(2,190)
Expired during 2012	(12,338)
Forfeited during 2012	(1,018)
Balance at End	624,796
Vested and expected to vest	594,387
Exercisable	455,858
Weighted Average Exercise Price
Granted during 2012	$ 11.00
Exercised during 2012	$ 13.53
Expired during 2012	$ 25.54
Forfeited during 2012	$ 15.35
Weighted Average Remaining Contractual Term
Balance at End	4 years 3 months
Vested and Expected to Vest	4 years 3 months	[1]
Exercisable	2 years 8 months
Aggregate Intrinsic Value
Balance at End	$ 591
Vested and expected to vest	513
Exercisable	$ 80

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
OPERATING ACTIVITIES:
Net Income	$ 8,638	$ 9,641
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,214	2,149
Amortization of premium and accretion of discount on securities, net	1,708	2,332
Amortization of restricted stock	332	191
Provision for loan losses	3,750	5,500
Provision for deferred taxes		622
Reversal of valuation allowance-deferred tax assets		(2,988)
Tax benefit on exercise of stock options	2
Stock-based compensation	253	273
Gains on security sales, available for sale	(648)	(721)
Gain on securities, held to maturity	(84)
Loans originated for sale	(67,503)	(22,539)
Proceeds from sales of loans	62,726	22,180
Gains on loans sold	(825)	(363)
Loss/(gains) on sale of other real estate owned	62	(47)
Gain on disposal of fixed assets	(7)
Increase in cash surrender value of life insurance, net	(595)	(693)
Decrease in accrued interest receivable	38	452
(Increase)/decrease in other assets	(572)	1,507
Increase in accrued expenses and other liabilities	1,801	1,842
NET CASH PROVIDED BY OPERATING ACTIVITIES	11,290	19,338
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held to maturity	36,714	28,413
Proceeds from maturities of securities available for sale	61,794	48,996
Proceeds from calls of investment securities held to maturity	136	39,505
Proceeds from calls of securities available for sale	23,598	41,755
Proceeds from sales of securities available for sale	29,358	37,277
Purchase of investment securities held to maturity	(9,546)	(44,145)
Purchase of securities available for sale, including FHLB and FRB stock	(47,913)	(151,556)
Net increase in loans	(60,046)	(41,136)
Proceeds from sales of other real estate owned	2,512	1,238
Purchases of premises and equipment	(738)	(826)
Purchase of life insurance	(2,996)
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES	32,873	(40,479)
FINANCING ACTIVITIES:
Net (decrease)/increase in deposits	(11,206)	45,464
Repayments of Federal Home Loan Bank advances	(5,345)	(3,333)
Redemption of preferred stock	(14,341)	(7,172)
Repurchase of warrants	(111)
Cash dividends paid on preferred stock	(112)	(644)
Cash dividends paid on common stock	(1,330)	(1,324)
Exercise of stock options	21
Sales of shares (DRIP Program)	128	122
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES	(32,296)	33,113
Net increase in cash and cash equivalents	11,867	11,972
Cash and cash equivalents at beginning of period	43,053	62,687
Cash and cash equivalents at end of period	$ 54,920	$ 74,659

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Method used	Black Scholes option-pricing model	Black Scholes option-pricing model	Black Scholes option-pricing model	Black Scholes option-pricing model
Dividend Yield	1.24%	2.02%	1.47%	1.60%
Expected volatility	39.00%	38.00%	39.00%	32.00%
Expected life	7 years	7 years	7 years	7 years
Risk-free interest rate	1.08%	2.02%	1.43%	2.08%

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LOANS (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 1,096,482	$ 1,038,345
Total loans (in percent)	100.00%	100.00%
Residential Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	504,407	498,482
Total loans (in percent)	46.00%	48.01%
Commercial Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	391,976	330,559
Total loans (in percent)	35.75%	31.84%
Commercial Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	115,602	123,845
Total loans (in percent)	10.54%	11.93%
Construction Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	9,639	13,713
Total loans (in percent)	0.88%	1.32%
HomeEquityLinesMember
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	51,440	50,291
Total loans (in percent)	4.71%	4.84%
Consumer Loans, Including Fixed Rate Home Equity Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	21,542	19,439
Total loans (in percent)	1.97%	1.87%
Other loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 1,876	$ 2,016
Total loans (in percent)	0.17%	0.19%

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BUSINESS SEGMENTS (Details Narrative)	9 Months Ended
	Sep. 30, 2012 N
Business Segments Details Narrative
Number of operating segment	2

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CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 5,466	$ 7,097
Federal funds sold	100	100
Interest-earning deposits	49,354	35,856
Total cash and cash equivalents	54,920	43,053
Investment securities held to maturity (fair value $82,426 in 2012 and $99,427 in 2011)	76,698	100,719
Securities available for sale	253,489	319,520
FHLB and FRB Stock, at cost	4,639	4,569
Loans held for sale, at fair value	8,443	2,841
Loans	1,096,482	1,038,345
Less: Allowance for loan losses	13,893	13,223
Net Loans	1,082,589	1,025,122
Premises and equipment	30,472	31,941
Other real estate owned	3,392	7,137
Accrued interest receivable	4,040	4,078
Bank owned life insurance	30,887	27,296
Deferred tax assets, net	25,861	26,731
Other assets	8,060	7,328
TOTAL ASSETS	1,583,490	1,600,335
Deposits:
Noninterest-bearing demand deposits	306,711	297,459
Interest-bearing deposits:
Checking	332,786	341,180
Savings	103,572	92,322
Money market accounts	504,863	516,920
Certificates of deposit $100,000 and over	72,168	71,783
Certificates of deposit less than $100,000	112,586	124,228
Total deposits	1,432,686	1,443,892
Federal home loan bank advances	12,335	17,680
Capital lease obligation	9,024	9,178
Accrued expenses and other liabilities	11,967	6,614
TOTAL LIABILITIES	1,466,012	1,477,364
SHAREHOLDERS' EQUITY
Preferred stock (no par value; authorized 500,000 shares; issued 14,341 at December31,2011; liquidation preference of $1,000 per share)		13,979
Common stock (no par value; $0.83 per share; authorized 21,000,000 shares; issued shares, 9,288,676 at September 30, 2012 and 9,240,889 at December 31, 2011; outstanding shares, 8,880,498 at September 30, 2012 and 8,832,711 at December 31, 2011)	7,724	7,685
Surplus	96,909	96,323
Treasury stock at cost, 408,178 shares at September 30, 2012 and December 31, 2011	(8,988)	(8,988)
Retained earnings	20,702	13,868
Accumulated other comprehensive income, net of income tax	1,131	104
TOTAL SHAREHOLDERS' EQUITY	117,478	122,971
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$ 1,583,490	$ 1,600,335

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LOANS (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 2,131	$ 10,715
60-89 Days Past Due	113	917
Greater Than 90 Days Past Due		345
Total Past Due	2,244	11,977
Primary Residential Mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,678	4,857
60-89 Days Past Due	91	898
Greater Than 90 Days Past Due
Total Past Due	1,769	5,755
Junior Lien Loan on Residence
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	168	399
60-89 Days Past Due
Greater Than 90 Days Past Due
Total Past Due	168	399
Owner-Occupied Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	276	3,381
60-89 Days Past Due
Greater Than 90 Days Past Due
Total Past Due	276	3,381
Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	2	368
60-89 Days Past Due	22
Greater Than 90 Days Past Due		345
Total Past Due	24	713
Consumer and Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	7
60-89 Days Past Due
Greater Than 90 Days Past Due
Total Past Due	7
Home Equity Lines of Credit
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due		565
60-89 Days Past Due		19
Greater Than 90 Days Past Due
Total Past Due		584
Multifamily Property
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due		395
60-89 Days Past Due
Greater Than 90 Days Past Due
Total Past Due		395
Investment Commercial Real Estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due		242
60-89 Days Past Due
Greater Than 90 Days Past Due
Total Past Due		242
Commercial Construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due		500
60-89 Days Past Due
Greater Than 90 Days Past Due
Total Past Due		500
Bank segments (Federal call report codes) | Consumer and Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due		8
60-89 Days Past Due
Greater Than 90 Days Past Due
Total Past Due		$ 8

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) (USD $) In Thousands, except Share data	Preferred Stock	Common Stock	Surplus	Treasury Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Balance, beginning at Dec. 31, 2011	$ 13,979	$ 7,685	$ 96,323	$ (8,988)	$ 13,868	$ 104	$ 122,971
Common stock, shares outstanding at Dec. 31, 2011		8,832,711					8,832,711
Net income					8,638		8,638
Net change in accumulated other comprehensive income						1,027	1,027
Issuance of restricted stock		30	(30)
Amortization of restricted stock			332				332
Redemption of preferred stock	(14,341)						(14,341)
Warrant repurchase			(109)				(109)
Accretion of discount on preferred stock	362				(362)
Cash dividends declared on common stock					(1,330)
Cash dividends declared on preferred stock					(112)
Common stock option expense			253				253
Common stock option exercised and related tax benefits		1	20				21
Sale of shares (Dividend Reinvestment Program)		8	120
Balance, ending at Sep. 30, 2012		$ 7,724	$ 96,909	$ (8,988)	$ 20,702	$ 1,131	$ 117,478
Common stock, shares outstanding at Sep. 30, 2012		8,880,498					8,880,498

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OTHER OPERATING EXPENSES (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Other Operating Expenses Details
FDIC assessment	$ 299	$ 253	$ 941	$ 1,254
Trust department expense	276	291	1,130	1,223
Professional and legal fees	369	248	855	821
Loan expense	194	384	699	676
Other operating expenses	1,536	1,286	4,568	4,240
Total other operating expenses	$ 2,674	$ 2,462	$ 8,193	$ 8,214

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INVESTMENT SECURITIES HELD TO MATURITY (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Held-to-maturity Securities [Line Items]
Carrying Amount	$ 76,698	$ 100,719
Gross Unrecognized Gains	7,885	3,615
Gross Unrecognized Losses	(2,157)	(4,907)
Fair Value	82,426	99,427
Mortgage-Backed Securities -Residential
Schedule of Held-to-maturity Securities [Line Items]
Carrying Amount	52,179	67,394
Gross Unrecognized Gains	2,034	1,393
Gross Unrecognized Losses		(1)
Fair Value	54,213	68,786
State and Political Subdivisions
Schedule of Held-to-maturity Securities [Line Items]
Carrying Amount	16,189	24,608
Gross Unrecognized Gains	11	52
Gross Unrecognized Losses
Fair Value	16,200	24,660
Trust Preferred Pooled Securities
Schedule of Held-to-maturity Securities [Line Items]
Carrying Amount	8,330	8,717
Gross Unrecognized Gains	5,840	2,170
Gross Unrecognized Losses	(2,157)	(4,906)
Fair Value	$ 12,013	$ 5,981

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INVESTMENT SECURITIES HELD TO MATURITY (Tables)

9 Months Ended

Sep. 30, 2012

Investment Securities Held To Maturity Tables

Schedule of amortized cost and estimated fair value of investment securities held to maturity

A summary of amortized cost and estimated fair value of investment securities held to maturity included in the consolidated statements of condition as of September 30, 2012 and December 31, 2011 follows:

	September 30, 2012
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Fair
(In thousands)	Amount		Gains		Losses			Value
Mortgage-backed securities – residential	$	52,179	$	2,034	$	—		$	54,213
State and political subdivisions		16,189		11		—			16,200
Trust preferred pooled securities		8,330		5,840		(2,157	)		12,013
Total	$	76,698	$	7,885	$	(2,157	)	$	82,426

	December 31, 2011
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Fair
(In thousands)	Amount		Gains		Losses			Value
Mortgage-backed securities – residential	$	67,394	$	1,393	$	(1	)	$	68,786
State and political subdivisions		24,608		52		—			24,660
Trust preferred pooled securities		8,717		2,170		(4,906	)		5,981
Total	$	100,719	$	3,615	$	(4,907	)	$	99,427

Schedule of continuous unrealized losses and the estimated fair value

The following tables present the Corporation’s investment securities held to maturity with continuous unrealized losses and the estimated fair value of these investments as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	Duration of Unrealized Loss
	Less than 12 Months				12 Months or Longer					Total
	Fair		Unrecognized		Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses		Value		Losses			Value		Losses
Trust preferred pooled securities	$	—	$	—	$	4,535	$	(2,157	)	$	4,535	$	(2,157	)
Total	$	—	$	—	$	4,535	$	(2,157	)	$	4,535	$	(2,157	)

	December 31, 2011
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities-
residential	$	3,194	$	(1	)	$	—	$	—		$	3,194	$	(1	)
Trust preferred pooled securities		—		—			2,729		(4,906	)		2,729		(4,906	)
Total	$	3,194	$	(1	)	$	2,729	$	(4,906	)	$	5,923	$	(4,907	)

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INVESTMENT SECURITIES HELD TO MATURITY (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Held-to-maturity Securities [Line Items]
Fair Value Less Than 12 Months		$ 3,194
Unrecognized Loss Less Than 12 Months		(1)
Fair Value Less Than 12 Months or Longer	4,535	2,729
Unrecognized Loss Less Than 12 Months or Longer	(2,157)	(4,906)
Total Fair Value	4,535	5,923
Total Unrecognized Losses	(2,157)	(4,907)
Trust Preferred Pooled Securities
Schedule of Held-to-maturity Securities [Line Items]
Fair Value Less Than 12 Months
Unrecognized Loss Less Than 12 Months
Fair Value Less Than 12 Months or Longer	4,535	2,729
Unrecognized Loss Less Than 12 Months or Longer	(2,157)	(4,906)
Total Fair Value	4,535	2,729
Total Unrecognized Losses	(2,157)	(4,906)
Mortgage-Backed Securities -Residential
Schedule of Held-to-maturity Securities [Line Items]
Fair Value Less Than 12 Months		3,194
Unrecognized Loss Less Than 12 Months		(1)
Fair Value Less Than 12 Months or Longer
Unrecognized Loss Less Than 12 Months or Longer
Total Fair Value		3,194
Total Unrecognized Losses		$ (1)

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LOANS (Tables)

9 Months Ended

Sep. 30, 2012

Loans Tables

Schedule of loans outstanding, by general ledger classification

Loans outstanding, by general ledger classification, as of September 30, 2012 and December 31, 2011, consisted of the following:

			% of					% of
	September 30,		Total			December 31,		Total
(In thousands)	2012		Loans			2011		Loans
Residential mortgage	$	504,407		46.00	%	$	498,482		48.01	%
Commercial mortgage		391,976		35.75			330,559		31.84
Commercial loans		115,602		10.54			123,845		11.93
Construction loans		9,639		0.88			13,713		1.32
Home equity lines of credit		51,440		4.69			50,291		4.84
Consumer loans, including fixed
rate home equity loans		21,542		1.97			19,439		1.87
Other loans		1,876		0.17			2,016		0.19
Total loans	$	1,096,482		100.00	%	$	1,038,345		100.00	%

Schedule of loans outstanding, classification by (Bank Segment) Federal call report codes

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 September 30, 2012 and December 31, 2011:

			% of					% of
	September 30,		Total			December 31,		Total
(In thousands)	2012		Loans			2011		Loans
Primary residential mortgage	$	517,520		47.34	%	$	511,418		49.40	%
Home equity lines of credit		51,441		4.71			50,394		4.87
Junior lien loan on residence		12,587		1.15			13,053		1.26
Multifamily property		127,972		11.71			104,056		10.05
Owner-occupied commercial real estate		103,022		9.43			107,852		10.42
Investment commercial real estate		235,162		21.51			186,998		18.06
Commercial and industrial		20,277		1.85			29,825		2.88
Secured by farmland		209		0.02			—		N/A
Agricultural production loans		15		N/A			18		N/A
Commercial construction loans		9,633		0.88			19,208		1.85
Consumer and other loans		15,328		1.40			12,516		1.21
Total loans	$	1,093,166		100.00	%	$	1,035,338		100.00	%
Net deferred fees		3,316					3,007
Total loans including net deferred costs	$	1,096,482				$	1,038,345

Schedule of loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan losses

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 September 30, 2012 and December 31, 2011:

September 30, 2012
	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	$	8,233	$	326	$	509,287	$	2,593	$	517,520	$	2,919
Home equity lines
of credit		98		—		51,343		253		51,441		253
Junior lien loan
on residence		480		—		12,107		66		12,587		66
Multifamily
property		—		—		127,972		975		127,972		975
Owner-occupied
commercial
real estate		9,195		—		93,827		3,363		103,022		3,363
Investment commercial
real estate		5,852		374		229,310		4,226		235,162		4,600
Commercial and
industrial		726		44		19,551		772		20,277		816
Secured by farmland		—		—		209		3		209		3
Agricultural
production		—		—		15		1		15		1
Commercial
construction		—		—		9,633		291		9,633		291
Consumer and
other		—		—		15,328		78		15,328		78
Unallocated		—		—		—		528		—		528
Total ALLL	$	24,584	$	744	$	1,068,582	$	13,149	$	1,093,166	$	13,893

December 31, 2011
	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	$	8,878	$	345	$	502,540	$	2,069	$	511,418	$	2,414
Home equity lines
of credit		489		—		49,905		204		50,394		204
Junior lien loan
on residence		680		9		12,373		55		13,053		64
Multifamily
property		550		52		103,506		653		104,056		705
Owner-occupied
commercial
real estate		9,054		322		98,798		2,786		107,852		3,108
Investment commercial
real estate		5,986		509		181,012		3,672		186,998		4,181
Commercial and
industrial		576		51		29,249		1,240		29,825		1,291
Agricultural
production		—		—		18		1		18		1
Commercial
construction		—		—		19,208		669		19,208		669
Consumer and
other		—		—		12,516		78		12,516		78
Unallocated		—		—		—		508		—		508
Total ALLL	$	26,213	$	1,288	$	1,009,125	$	11,935	$	1,035,338	$	13,223

Schedule of loans individually evaluated for impairment

The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2012 and December 31, 2011:

September 30, 2012
	Unpaid						Average		Interest
	Principal		Recorded		Specific		Impaired		Income
(In thousands)	Balance		Investment		Reserves		Loans		Recognized
With no related allowance recorded:
Primary residential mortgage	$	8,398	$	6,145	$	—	$	7,347	$	356
Multifamily property		—		—		—		247		21
Owner-occupied commercial real estate		11,094		9,195		—		9,774		593
Investment commercial real estate		1,177		674		—		842		53
Commercial and industrial		504		438		—		642		49
Home equity lines of credit		98		98		—		263		13
Junior lien loan on residence		671		480		—		677		42
Consumer and other		—		—		—		—		—
Total loans with no related allowance	$	21,942	$	17,030	$	—	$	19,792	$	1,127
With related allowance recorded:
Primary residential mortgage	$	2,175	$	2,088	$	326	$	1,877	$	82
Owner-occupied commercial real estate		—		—		—		—		—
Investment commercial real estate		5,185		5,178		374		4,976		249
Commercial and industrial		297		288		44		96		76
Junior lien loan on residence		—		—		—		—		—
Total loans with related allowance	$	7,657	$	7,554	$	744	$	6,949	$	407
Total loans individually evaluated for
impairment	$	29,599	$	24,584	$	744	$	26,741	$	1,534

December 31, 2011
	Unpaid						Average		Interest
	Principal		Recorded		Specific		Impaired		Income
(In thousands)	Balance		Investment		Reserves		Loans		Recognized
With no related allowance recorded:
Primary residential mortgage	$	7,586	$	5,844	$	—	$	4,721	$	87
Multifamily property		312		286		—		243		—
Owner-occupied commercial real estate		10,630		7,049		—		5,575		158
Investment commercial real estate		397		299		—		322		20
Commercial and industrial		475		475		—		433		24
Home equity lines of credit		595		489		—		66		18
Junior lien loan on residence		682		555		—		453		9
Total loans with no related allowance	$	20,677	$	14,997	$	—	$	11,813	$	316
With related allowance recorded:
Primary residential mortgage	$	3,083	$	3,034	$	345	$	1,496	$	99
Multifamily property		264		264		52		71		13
Owner-occupied commercial real estate		2,020		2,005		322		1,254		66
Investment commercial real estate		5,979		5,687		509		2,865		373
Commercial and industrial		101		101		51		495		9
Junior lien loan on residence		138		125		9		128		—
Commercial construction		—		—		—		995		—
Total loans with related allowance	$	11,585	$	11,216	$	1,288	$	7,304	$	560
Total loans individually evaluated for
impairment	$	32,262	$	26,213	$	1,288	$	19,117	$	876

Schedule of recorded investment in nonaccrual and loans past due over 90 days still on accrual

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 September 30, 2012 and December 31, 2011:

	September 30, 2012
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	6,642	$	—
Home equity lines of credit		98		—
Junior lien loan on residence		239		—
Owner-occupied commercial real estate		8,788		—
Investment commercial real estate		903		—
Commercial and industrial		288		—
Total	$	16,958	$	—

	December 31, 2011
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	7,468	$	—
Home equity lines of credit		489		—
Junior lien loan on residence		680		—
Multifamily property		550		—
Owner-occupied commercial real estate		8,641		—
Investment commercial real estate		1,037		—
Commercial and industrial		—		345
Total	$	18,865	$	345

Schedule of aging of the recorded investment in past due loans

The following tables present the aging of the recorded investment in past due loans as of September 30, 2012 and December 31, 2011 by class of loans, excluding nonaccrual loans:

September 30, 2012
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,678	$	91	$	—	$	1,769
Junior lien loan on residence		168		—		—		168
Owner-occupied commercial real estate		276		—				276
Commercial and industrial		2		22		—		24
Consumer and other		7		—		—		7
Total	$	2,131	$	113	$	—	$	2,244

December 31, 2011
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	4,857	$	898	$	—	$	5,755
Home equity lines of credit		565		19		—		584
Junior lien loan on residence		399		—		—		399
Multifamily property		395		—		—		395
Owner-occupied commercial real estate		3,381		—		—		3,381
Investment commercial real estate		242		—		—		242
Commercial and industrial		368		—		345		713
Commercial construction		500		—		—		500
Consumer and other		8		—		—		8
Total	$	10,715	$	917	$	345	$	11,977

Schedule of the risk category of loans by class of loans

As of September 30, 2012, 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	$	507,514	$	2,462	$	7,544	$	—
Home equity lines of credit		51,343		—		98		—
Junior lien loan on residence		12,067		40		480		—
Multifamily property		126,950		639		383		—
Farmland		209		—		—		—
Owner-occupied commercial real estate		81,494		1,280		20,248		—
Investment commercial real estate		205,434		12,788		16,940		—
Agricultural production loans		15		—		—		—
Commercial and industrial		18,809		144		1,324		—
Commercial construction		8,029		1,604		—		—
Consumer and other loans		15,328		—		—		—
Total	$	1,027,192	$	18,957	$	47,017	$	—

As of December 31, 2011, 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	$	496,815	$	5,437	$	9,166	$	—
Home equity lines of credit		49,905		—		489		—
Junior lien loan on residence		12,244		129		680		—
Multifamily property		102,948		163		945		—
Owner-occupied commercial real estate		81,797		9,524		16,531		—
Investment commercial real estate		157,579		9,599		19,820		—
Agricultural production loans		18		—		—		—
Commercial and industrial		28,020		835		970		—
Commercial construction		18,474		234		500		—
Consumer and other loans		12,021		495		—		—
Total	$	959,821	$	26,416	$	49,101	$	—

Schedule of activity in the allowance for loan losses

The activity in the allowance for loan losses for the three months ended September 30, 2012 is summarized below:

	July 1,										Sept 30,
	2012										2012
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,602	$	(183	)	$	1	$	499		$	2,919
Home equity lines of credit		208		—			—		45			253
Junior lien loan on residence		55		—			1		10			66
Multifamily property		839		(18	)		—		154			975
Farmland		3		—			—		—			3
Owner-occupied commercial real estate		3,418		(345	)		19		271			3,363
Investment commercial real estate		4,784		(64	)		2		(122	)		4,600
Agricultural production loans		1		—			—		—			1
Commercial and industrial		917		—			51		(152	)		816
Commercial construction		234		—			—		57			291
Consumer and other loans		77		(8	)		1		8			78
Unallocated		548		—			—		(20	)		528
Total ALLL	$	13,686	$	(618	)	$	75	$	750		$	13,893

The activity in the allowance for loan losses for the nine months ended September 30, 2012 is summarized below:

	January 1,										Sept 30,
	2012										2012
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,414	$	(1,171	)	$	2	$	1,674		$	2,919
Home equity lines of credit		204		(91	)		—		140			253
Junior lien loan on residence		64		(57	)		5		54			66
Multifamily property		705		(393	)		—		663			975
Farmland		—		—			—		3			3
Owner-occupied commercial real estate		3,108		(1,261	)		145		1,371			3,363
Investment commercial real estate		4,181		(120	)		11		528			4,600
Agricultural production loans		1		—			—		—			1
Commercial and industrial		1,291		(112	)		55		(418	)		816
Commercial construction		669		(72	)		—		(306	)		291
Consumer and other loans		78		(28	)		7		21			78
Unallocated		508		—			—		20			528
Total ALLL	$	13,223	$	(3,305	)	$	225	$	3,750		$	13,893

The activity in the allowance for loan losses for the three months ended September 30, 2011 is summarized below:

	July 1,										Sept 30,
	2011										2011
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	1,663	$	(240	)	$	—	$	191		$	1,614
Home equity lines of credit		185		—			—		9			194
Junior lien loan on residence		208		—			—		(5	)		203
Multifamily property		463		—			—		169			632
Farmland		—		—			—		—			—
Owner-occupied commercial real estate		3,521		(563	)		1		582			3,541
Investment commercial real estate		4,099		(920	)		—		941			4,120
Agricultural production loans		—		—			—		—			—
Commercial and industrial		2,399		(61	)		72		(159	)		2,251
Commercial construction		794		—			—		(243	)		551
Consumer and other loans		99		(2	)		—		7			104
Unallocated		625		—			—		8			633
Total ALLL	$	14,056	$	(1,786	)	$	73	$	1,500		$	13,843

The activity in the allowance for loan losses for the nine months ended September 30, 2011 is summarized below:

	January 1,										Sept 30,
	2011										2011
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	1,502	$	(527	)	$	—	$	639		$	1,614
Home equity lines of credit		160		(60	)		—		94			194
Junior lien loan on residence		228		(13	)		14		(26	)		203
Multifamily property		303		(26	)		8		347			632
Farmland		—		—			—		—			—
Owner-occupied commercial real estate		2,777		(2,118	)		40		2,842			3,541
Investment commercial real estate		4,759		(2,611	)		1		1,971			4,120
Agricultural production loans		—		—			—		—			—
Commercial and industrial		2,719		(157	)		98		(409	)		2,251
Commercial construction		1,246		(586	)		11		(120	)		551
Consumer and other loans		66		(13	)		—		51			104
Unallocated		522		—			—		111			633
Total ALLL	$	14,282	$	(6,111	)	$	172	$	5,500		$	13,843

Schedule of modified as troubled debt restructurings

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine month period ending September 30, 2012:

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		4	$	610	$	610
Junior lien on residence		1		249		249
Owner-occupied commercial real estate		1		2,197		2,197
Total		6	$	3,056	$	3,056

Schedule of loans by class modified as troubled debt restructurings on accrual

The following table presents loans by class modified as troubled debt restructurings on accrual as of September 30, 2012:

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded		Specific
(Dollars in thousands)	Contracts		Investment		Investment		Reserves
Primary residential mortgage		4	$	1,592	$	1,592	$	275
Junior lien on residence		1		240		240		—
Owner-occupied commercial real estate		1		406		406		—
Investment commercial real estate		1		4,949		4,949		358
Commercial and industrial		3		439		439		44
Total		10	$	7,626	$	7,626	$	677

Schedule of modified as troubled debt restructurings subsequently defaulted

The following table presents loans by class modified as troubled debt restructurings from October 1, 2011 through September 30, 2012 for which there was a payment default during the same period:

	Number of		Recorded
(Dollars in thousands	Contracts		Investment
Owner-occupied commercial real estate		1	$	406
Total		1	$	406

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) (USD $)	9 Months Ended
	Sep. 30, 2012
Statement of Stockholders' Equity [Abstract]
Restricted stock, shares	36,263
Redemption of preferred stock, shares	14,341
Warrant repurchase, shares	150,296
Cash dividends declared on common stock, per share	$ 0.05
Common stock option exercised and related tax benefits, shares	2,022
Dividend Reinvestment Program, shares	9,502

XML

CONSOLIDATED STATEMENTS OF CONDITION (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Investment securities held to maturity (approximate market value)	$ 82,426	$ 99,427
Preferred stock, shares authorized	500,000	500,000
Preferred stock, shares issued		14,341
Preferred stock, liquidation preference	$ 1,000	$ 1,000
Common stock, stated value	$ 0.83	$ 0.83
Common stock, shares authorized	21,000,000	21,000,000
Common stock, shares issued	9,288,676	9,240,889
Common stock, shares outstanding	8,880,498	8,832,711
Treasury stock, shares	408,178	408,178

XML

PREFERRED STOCK

9 Months Ended

Sep. 30, 2012

PreferredStockAbstract

PREFERRED STOCK

9. PREFERRED STOCK

On January 9, 2009, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Corporation sold 28,685 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and a ten-year warrant to purchase up to 150,296 shares of the Corporation’s common stock, no par value at an exercise price of $28.63 per share, after adjusting for the five percent stock dividend declared on June 18, 2009, for an aggregate purchase price of $28.7 million in cash, allocated $1.6 million to warrants and $27.1 million to preferred stock.

On January 6, 2010 and March 2, 2011, the Corporation redeemed 25 percent of the preferred shares issued under the Treasury’s CPP, each time repaying approximately $7.2 million to the Treasury, including accrued and unpaid dividends of approximately $51 thousand and $17 thousand, respectively. As a result of the repurchase, the accretion related to the preferred stock was accelerated and approximately $330 thousand and $246 thousand was recorded as a reduction to retained earnings in the first quarters of 2010 and 2011, respectively. The Corporation’s redemption of the shares was not subject to additional conditions or stipulations from the Treasury.

On January 11, 2012, the Corporation redeemed the remaining 50 percent of the preferred shares issued under the Treasury’s CPP, repaying approximately $14.5 million to the Treasury, including accrued and unpaid dividends of approximately $112 thousand. The Corporation’s redemption of the shares was not subject to additional conditions or stipulations from the Treasury. As a result of the repurchase, the accretion related to the preferred stock was accelerated and approximately $362 thousand was recorded as a reduction to retained earnings in the first quarter of 2012.

The 150,296 common share warrant remained outstanding after the redemption; however, the Corporation paid $110 thousand to the U.S. Treasury on April 5, 2012 to repurchase it.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 01, 2012
Document And Entity Information
Entity Registrant Name	PEAPACK GLADSTONE FINANCIAL CORP
Entity Central Index Key	0001050743
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		8,880,498
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME

9 Months Ended

Sep. 30, 2012

Other comprehensive income:

ACCUMULATED OTHER COMPREHENSIVE INCOME

10. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following is a summary of the accumulated other comprehensive income balances, net of tax, for the three months ended September 30, 2012:

	Balance at			Current		Balance at
(In thousands)	June 30, 2012			Quarter Change		September 30, 2012
Unrealized gains on securities
available for sale	$	3,574		$	557	$	4,131
Other-than-temporary impairment on
securities held to maturity and
securities transferred from
available for sale to held to maturity		(3,035	)		35		(3,000	)
Total	$	539		$	592	$	1,131

The following is a summary of the accumulated other comprehensive income balances, net of tax, for the nine months ended September 30, 2012:

	Balance at			Current		Balance at
(In thousands)	December 31, 2011			Year Change		September 30, 2012
Unrealized gains on securities
available for sale	$	3,206		$	925	$	4,131
Other-than-temporary impairment on
securities held to maturity and
securities transferred  from
available for sale to held to maturity		(3,102	)		102		(3,000	)
Total	$	104		$	1,027	$	1,131

XML

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Statement [Abstract]
Interest and fees on loans	$ 11,939	$ 11,563	$ 35,928	$ 34,948
Taxable	564	418	1,375	1,635
Tax-exempt	39	90	151	274
Taxable	1,223	1,344	4,234	4,605
Tax-exempt	156	124	477	364
Interest on loans held for sale	34	12	75	33
Interest-earning deposits	27	43	58	91
Total interest income	13,982	13,594	42,298	41,950
Interest on savings and interest-bearing deposit accounts	362	758	1,168	2,662
Interest on certificates of deposit over $100,000	229	262	678	815
Interest on other time deposits	321	422	1,031	1,357
Interest on borrowed funds	113	177	453	578
Interest on capital lease obligation	107	80	324	239
Total interest expense	1,132	1,699	3,654	5,651
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES	12,850	11,895	38,644	36,299
Provision for loan losses	750	1,500	3,750	5,500
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	12,100	10,395	34,894	30,799
Trust department income	2,918	2,555	9,353	8,102
Service charges and fees	694	747	2,073	2,205
Bank owned life insurance	266	257	794	769
Securities gains, net	235	248	732	721
Other income	446	166	1,001	669
Total other income	4,559	3,973	13,953	12,466
Salaries and employee benefits	7,029	5,789	19,550	17,579
Premises and equipment	2,290	2,322	7,034	7,058
Other operating expenses (See footnote 8)	2,674	2,462	8,193	8,214
Total operating expenses	11,993	10,573	34,777	32,851
INCOME BEFORE INCOME TAX EXPENSE	4,666	3,795	14,070	10,414
Income tax expense	1,834	(1,537)	5,432	773
NET INCOME	2,832	5,332	8,638	9,641
Dividends on preferred stock and accretion		219	474	1,008
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$ 2,832	$ 5,113	$ 8,164	$ 8,633
Basic	$ 0.32	$ 0.58	$ 0.93	$ 0.98
Diluted	$ 0.32	$ 0.58	$ 0.93	$ 0.98
Basic	8,778,649	8,742,955	8,775,022	8,739,482
Diluted	8,819,431	8,743,065	8,805,859	8,741,102

XML

LOANS

9 Months Ended

Sep. 30, 2012

LoansAbstract

LOANS

4. LOANS

Loans outstanding, by general ledger classification, as of September 30, 2012 and December 31, 2011, consisted of the following:

			% of					% of
	September 30,		Total			December 31,		Total
(In thousands)	2012		Loans			2011		Loans
Residential mortgage	$	504,407		46.00	%	$	498,482		48.01	%
Commercial mortgage		391,976		35.75			330,559		31.84
Commercial loans		115,602		10.54			123,845		11.93
Construction loans		9,639		0.88			13,713		1.32
Home equity lines of credit		51,440		4.69			50,291		4.84
Consumer loans, including fixed
rate home equity loans		21,542		1.97			19,439		1.87
Other loans		1,876		0.17			2,016		0.19
Total loans	$	1,096,482		100.00	%	$	1,038,345		100.00	%

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 September 30, 2012 and December 31, 2011:

			% of					% of
	September 30,		Total			December 31,		Total
(In thousands)	2012		Loans			2011		Loans
Primary residential mortgage	$	517,520		47.34	%	$	511,418		49.40	%
Home equity lines of credit		51,441		4.71			50,394		4.87
Junior lien loan on residence		12,587		1.15			13,053		1.26
Multifamily property		127,972		11.71			104,056		10.05
Owner-occupied commercial real estate		103,022		9.43			107,852		10.42
Investment commercial real estate		235,162		21.51			186,998		18.06
Commercial and industrial		20,277		1.85			29,825		2.88
Secured by farmland		209		0.02			—		N/A
Agricultural production loans		15		N/A			18		N/A
Commercial construction loans		9,633		0.88			19,208		1.85
Consumer and other loans		15,328		1.40			12,516		1.21
Total loans	$	1,093,166		100.00	%	$	1,035,338		100.00	%
Net deferred fees		3,316					3,007
Total loans including net deferred costs	$	1,096,482				$	1,038,345

Included in the totals above for September 30, 2012 are $231 thousand of unamortized discount as compared to $691 thousand of unamortized discount for December 31, 2011.

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 September 30, 2012 and December 31, 2011:

September 30, 2012
	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	$	8,233	$	326	$	509,287	$	2,593	$	517,520	$	2,919
Home equity lines
of credit		98		—		51,343		253		51,441		253
Junior lien loan
on residence		480		—		12,107		66		12,587		66
Multifamily
property		—		—		127,972		975		127,972		975
Owner-occupied
commercial
real estate		9,195		—		93,827		3,363		103,022		3,363
Investment commercial
real estate		5,852		374		229,310		4,226		235,162		4,600
Commercial and
industrial		726		44		19,551		772		20,277		816
Secured by farmland		—		—		209		3		209		3
Agricultural
production		—		—		15		1		15		1
Commercial
construction		—		—		9,633		291		9,633		291
Consumer and
other		—		—		15,328		78		15,328		78
Unallocated		—		—		—		528		—		528
Total ALLL	$	24,584	$	744	$	1,068,582	$	13,149	$	1,093,166	$	13,893

December 31, 2011
	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	$	8,878	$	345	$	502,540	$	2,069	$	511,418	$	2,414
Home equity lines
of credit		489		—		49,905		204		50,394		204
Junior lien loan
on residence		680		9		12,373		55		13,053		64
Multifamily
property		550		52		103,506		653		104,056		705
Owner-occupied
commercial
real estate		9,054		322		98,798		2,786		107,852		3,108
Investment commercial
real estate		5,986		509		181,012		3,672		186,998		4,181
Commercial and
industrial		576		51		29,249		1,240		29,825		1,291
Agricultural
production		—		—		18		1		18		1
Commercial
construction		—		—		19,208		669		19,208		669
Consumer and
other		—		—		12,516		78		12,516		78
Unallocated		—		—		—		508		—		508
Total ALLL	$	26,213	$	1,288	$	1,009,125	$	11,935	$	1,035,338	$	13,223

Impaired loans include nonaccrual loans of $17.0 million at September 30, 2012 and $18.9 million at December 31, 2011. Impaired loans also include performing commercial mortgage and commercial troubled debt restructured loans of $6.0 million at September 30, 2012 and $7.3 million at December 31, 2011. There was no allowance allocated to troubled debt restructured loans which are nonaccrual at September 30, 2012 and the allowance allocated to troubled debt restructured loans which are nonaccrual was $280 thousand at December 31, 2011. All accruing troubled debt restructured loans were paying in accordance with restructured terms as of September 30, 2012. The Corporation has not committed to lend additional amounts as of September 30, 2012 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 September 30, 2012 and December 31, 2011:

September 30, 2012
	Unpaid						Average		Interest
	Principal		Recorded		Specific		Impaired		Income
(In thousands)	Balance		Investment		Reserves		Loans		Recognized
With no related allowance recorded:
Primary residential mortgage	$	8,398	$	6,145	$	—	$	7,347	$	356
Multifamily property		—		—		—		247		21
Owner-occupied commercial real estate		11,094		9,195		—		9,774		593
Investment commercial real estate		1,177		674		—		842		53
Commercial and industrial		504		438		—		642		49
Home equity lines of credit		98		98		—		263		13
Junior lien loan on residence		671		480		—		677		42
Consumer and other		—		—		—		—		—
Total loans with no related allowance	$	21,942	$	17,030	$	—	$	19,792	$	1,127
With related allowance recorded:
Primary residential mortgage	$	2,175	$	2,088	$	326	$	1,877	$	82
Owner-occupied commercial real estate		—		—		—		—		—
Investment commercial real estate		5,185		5,178		374		4,976		249
Commercial and industrial		297		288		44		96		76
Junior lien loan on residence		—		—		—		—		—
Total loans with related allowance	$	7,657	$	7,554	$	744	$	6,949	$	407
Total loans individually evaluated for
impairment	$	29,599	$	24,584	$	744	$	26,741	$	1,534

December 31, 2011
	Unpaid						Average		Interest
	Principal		Recorded		Specific		Impaired		Income
(In thousands)	Balance		Investment		Reserves		Loans		Recognized
With no related allowance recorded:
Primary residential mortgage	$	7,586	$	5,844	$	—	$	4,721	$	87
Multifamily property		312		286		—		243		—
Owner-occupied commercial real estate		10,630		7,049		—		5,575		158
Investment commercial real estate		397		299		—		322		20
Commercial and industrial		475		475		—		433		24
Home equity lines of credit		595		489		—		66		18
Junior lien loan on residence		682		555		—		453		9
Total loans with no related allowance	$	20,677	$	14,997	$	—	$	11,813	$	316
With related allowance recorded:
Primary residential mortgage	$	3,083	$	3,034	$	345	$	1,496	$	99
Multifamily property		264		264		52		71		13
Owner-occupied commercial real estate		2,020		2,005		322		1,254		66
Investment commercial real estate		5,979		5,687		509		2,865		373
Commercial and industrial		101		101		51		495		9
Junior lien loan on residence		138		125		9		128		—
Commercial construction		—		—		—		995		—
Total loans with related allowance	$	11,585	$	11,216	$	1,288	$	7,304	$	560
Total loans individually evaluated for
impairment	$	32,262	$	26,213	$	1,288	$	19,117	$	876

The Corporation did not recognize any income on nonaccruing impaired loans for the three and nine months ended September 30, 2012.

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 September 30, 2012 and December 31, 2011:

	September 30, 2012
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	6,642	$	—
Home equity lines of credit		98		—
Junior lien loan on residence		239		—
Owner-occupied commercial real estate		8,788		—
Investment commercial real estate		903		—
Commercial and industrial		288		—
Total	$	16,958	$	—

	December 31, 2011
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	7,468	$	—
Home equity lines of credit		489		—
Junior lien loan on residence		680		—
Multifamily property		550		—
Owner-occupied commercial real estate		8,641		—
Investment commercial real estate		1,037		—
Commercial and industrial		—		345
Total	$	18,865	$	345

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following tables present the aging of the recorded investment in past due loans as of September 30, 2012 and December 31, 2011 by class of loans, excluding nonaccrual loans:

September 30, 2012
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,678	$	91	$	—	$	1,769
Junior lien loan on residence		168		—		—		168
Owner-occupied commercial real estate		276		—				276
Commercial and industrial		2		22		—		24
Consumer and other		7		—		—		7
Total	$	2,131	$	113	$	—	$	2,244

December 31, 2011
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	4,857	$	898	$	—	$	5,755
Home equity lines of credit		565		19		—		584
Junior lien loan on residence		399		—		—		399
Multifamily property		395		—		—		395
Owner-occupied commercial real estate		3,381		—		—		3,381
Investment commercial real estate		242		—		—		242
Commercial and industrial		368		—		345		713
Commercial construction		500		—		—		500
Consumer and other		8		—		—		8
Total	$	10,715	$	917	$	345	$	11,977

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. The risk rating analysis of loans is performed (i) when the loan is initially underwritten, (ii) annually for loans in excess of $500,000, (iii) on a random quarterly basis from either internal reviews with the Senior Credit Officer or externally through an independent loan review firm, or (iv) whenever Management otherwise identifies a potentially negative trend or issue relating to a borrower. In addition, for all loan types, the Corporation evaluates credit quality based on the aging status of the loan, which was previously presented.

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 September 30, 2012, 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	$	507,514	$	2,462	$	7,544	$	—
Home equity lines of credit		51,343		—		98		—
Junior lien loan on residence		12,067		40		480		—
Multifamily property		126,950		639		383		—
Farmland		209		—		—		—
Owner-occupied commercial real estate		81,494		1,280		20,248		—
Investment commercial real estate		205,434		12,788		16,940		—
Agricultural production loans		15		—		—		—
Commercial and industrial		18,809		144		1,324		—
Commercial construction		8,029		1,604		—		—
Consumer and other loans		15,328		—		—		—
Total	$	1,027,192	$	18,957	$	47,017	$	—

As of December 31, 2011, 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	$	496,815	$	5,437	$	9,166	$	—
Home equity lines of credit		49,905		—		489		—
Junior lien loan on residence		12,244		129		680		—
Multifamily property		102,948		163		945		—
Owner-occupied commercial real estate		81,797		9,524		16,531		—
Investment commercial real estate		157,579		9,599		19,820		—
Agricultural production loans		18		—		—		—
Commercial and industrial		28,020		835		970		—
Commercial construction		18,474		234		500		—
Consumer and other loans		12,021		495		—		—
Total	$	959,821	$	26,416	$	49,101	$	—

At September 30, 2012, $24.6 million of the $47.0 million of the substandard loans were also considered impaired as compared to December 31, 2011, when $26.2 million of the $49.1 million of the substandard loans were also impaired.

The activity in the allowance for loan losses for the three months ended September 30, 2012 is summarized below:

	July 1,										Sept 30,
	2012										2012
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,602	$	(183	)	$	1	$	499		$	2,919
Home equity lines of credit		208		—			—		45			253
Junior lien loan on residence		55		—			1		10			66
Multifamily property		839		(18	)		—		154			975
Farmland		3		—			—		—			3
Owner-occupied commercial real estate		3,418		(345	)		19		271			3,363
Investment commercial real estate		4,784		(64	)		2		(122	)		4,600
Agricultural production loans		1		—			—		—			1
Commercial and industrial		917		—			51		(152	)		816
Commercial construction		234		—			—		57			291
Consumer and other loans		77		(8	)		1		8			78
Unallocated		548		—			—		(20	)		528
Total ALLL	$	13,686	$	(618	)	$	75	$	750		$	13,893

The activity in the allowance for loan losses for the nine months ended September 30, 2012 is summarized below:

	January 1,										Sept 30,
	2012										2012
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	2,414	$	(1,171	)	$	2	$	1,674		$	2,919
Home equity lines of credit		204		(91	)		—		140			253
Junior lien loan on residence		64		(57	)		5		54			66
Multifamily property		705		(393	)		—		663			975
Farmland		—		—			—		3			3
Owner-occupied commercial real estate		3,108		(1,261	)		145		1,371			3,363
Investment commercial real estate		4,181		(120	)		11		528			4,600
Agricultural production loans		1		—			—		—			1
Commercial and industrial		1,291		(112	)		55		(418	)		816
Commercial construction		669		(72	)		—		(306	)		291
Consumer and other loans		78		(28	)		7		21			78
Unallocated		508		—			—		20			528
Total ALLL	$	13,223	$	(3,305	)	$	225	$	3,750		$	13,893

The activity in the allowance for loan losses for the three months ended September 30, 2011 is summarized below:

	July 1,										Sept 30,
	2011										2011
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	1,663	$	(240	)	$	—	$	191		$	1,614
Home equity lines of credit		185		—			—		9			194
Junior lien loan on residence		208		—			—		(5	)		203
Multifamily property		463		—			—		169			632
Farmland		—		—			—		—			—
Owner-occupied commercial real estate		3,521		(563	)		1		582			3,541
Investment commercial real estate		4,099		(920	)		—		941			4,120
Agricultural production loans		—		—			—		—			—
Commercial and industrial		2,399		(61	)		72		(159	)		2,251
Commercial construction		794		—			—		(243	)		551
Consumer and other loans		99		(2	)		—		7			104
Unallocated		625		—			—		8			633
Total ALLL	$	14,056	$	(1,786	)	$	73	$	1,500		$	13,843

The activity in the allowance for loan losses for the nine months ended September 30, 2011 is summarized below:

	January 1,										Sept 30,
	2011										2011
	Beginning										Ending
(In thousands)	ALLL		Charge-Offs			Recoveries		Provision			ALLL
Primary residential mortgage	$	1,502	$	(527	)	$	—	$	639		$	1,614
Home equity lines of credit		160		(60	)		—		94			194
Junior lien loan on residence		228		(13	)		14		(26	)		203
Multifamily property		303		(26	)		8		347			632
Farmland		—		—			—		—			—
Owner-occupied commercial real estate		2,777		(2,118	)		40		2,842			3,541
Investment commercial real estate		4,759		(2,611	)		1		1,971			4,120
Agricultural production loans		—		—			—		—			—
Commercial and industrial		2,719		(157	)		98		(409	)		2,251
Commercial construction		1,246		(586	)		11		(120	)		551
Consumer and other loans		66		(13	)		—		51			104
Unallocated		522		—			—		111			633
Total ALLL	$	14,282	$	(6,111	)	$	172	$	5,500		$	13,843

Troubled Debt Restructurings:

The Corporation has allocated $677 thousand and $707 thousand of specific reserves, on accruing TDR’s, to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012 and December 31, 2011, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings.

During the nine month period ending September 30, 2012, 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; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine month period ending September 30, 2012:

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Contracts		Investment		Investment
Primary residential mortgage		4	$	610	$	610
Junior lien on residence		1		249		249
Owner-occupied commercial real estate		1		2,197		2,197
Total		6	$	3,056	$	3,056

There were no loans that were modified as troubled debt restructurings during the third quarter of 2012.

The identification of the troubled debt restructured loans did not have a significant impact on the allowance for loan losses. In addition, there were no charge-offs as a result of the classification of these loans as troubled debt restructuring during the nine months ended September 30, 2012.

The primary residential mortgages were modified by reducing the interest rates or extending the maturity date. The junior lien on residence loan was modified through the deferral of certain scheduled principal payments. The owner-occupied commercial real estate loans were modified with rate reductions and revised amortization schedules; one also had a partial forgiveness of principal which had been previously charged off. The investment commercial real estate loan was modified through rate reduction and deferral of principal amortization.

The following table presents loans by class modified as troubled debt restructurings on accrual as of September 30, 2012:

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded		Specific
(Dollars in thousands)	Contracts		Investment		Investment		Reserves
Primary residential mortgage		4	$	1,592	$	1,592	$	275
Junior lien on residence		1		240		240		—
Owner-occupied commercial real estate		1		406		406		—
Investment commercial real estate		1		4,949		4,949		358
Commercial and industrial		3		439		439		44
Total		10	$	7,626	$	7,626	$	677

There are nine loans totaling $5.7 million that have been categorized as troubled debt restructurings that are also included in loans that are on nonaccrual. Four of these loans consist of owner-occupied commercial real estate and total $4.8 million. Four are residential first mortgages totaling $591 thousand and one is a commercial mortgage totaling $299 thousand on a mixed use investment property.

The following table presents loans by class modified as troubled debt restructurings from October 1, 2011 through September 30, 2012 for which there was a payment default during the same period:

	Number of		Recorded
(Dollars in thousands	Contracts		Investment
Owner-occupied commercial real estate		1	$	406
Total		1	$	406

The terms of certain other potential problem loans were modified during the three month period ending September 30, 2012 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment at September 30, 2012 of $2.2 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

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 Corporation’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, and an updated independent appraisal of the 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 troubled debt restructuring. At a minimum, six months of contractual payments would need to be made on a restructured loan before returning a loan to accrual status. Once a loan is classified as a TDR, the loan is reported as a TDR until the loan is paid in full, sold or charged-off. In rare circumstances, a loan may be removed from TDR status, if it meets the requirements of ASC 310-40-50-2. During the three and nine months period ended September 30, 2012, there were no loans removed from TDR status.

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INVESTMENT SECURITIES AVAILABLE FOR SALE

9 Months Ended

Sep. 30, 2012

Investment Securities Available For Sale

INVESTMENT SECURITIES AVAILABLE FOR SALE

3. 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 September 30, 2012 and December 31, 2011 follows:

	September 30, 2012
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	29,645	$	312	$	—			29,957
Mortgage-backed securities – residential		181,538		5,906		(1	)		187,443
State and political subdivisions		29,115		1,511		(1	)		30,625
Other securities		5,998		98		(845	)		5,251
Marketable equity securities		209		4		—			213
Total	$	246,505	$	7,831	$	(847	)	$	253,489

	December 31, 2011
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	46,729	$	149	$	—		$	46,878
Mortgage-backed securities – residential		232,240		4,891		(147	)		236,984
State and political subdivisions		28,539		1,314		(2	)		29,851
Other securities		5,999		40		(832	)		5,207
Marketable equity securities		593		7		—			600
Total	$	314,100	$	6,401	$	(981	)	$	319,520

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 September 30, 2012 and December 31, 2011.

	September 30, 2012
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities -
residential	$	—	$	—		$	95	$	(1	)	$	95	$	(1	)
State and political subdivisions		36		(1	)		—		—			36		(1	)
Other securities		—		—			2,153		(845	)		2,153		(845	)
Total	$	36	$	(1	)	$	2,248	$	(846	)	$	2,284	$	(847	)

	December 31, 2011
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities-
residential	$	32,931	$	(120	)	$	317	$	(27	)	$	33,248	$	(147	)
State and political subdivisions		736		(2	)		—		—			736		(2	)
Other securities		—		—			2,167		(832	)		2,167		(832	)
Total	$	33,667	$	(122	)	$	2,484	$	(859	)	$	36,151	$	(981	)

Management believes that the unrealized losses on investment securities available for sale are temporary and due to interest rate fluctuations and/or volatile market conditions rather than the creditworthiness of the issuers. The Corporation does not intend to sell these securities nor is it likely that it will be required to sell the securities before their anticipated recovery; however, Management also closely monitors market conditions and may sell the securities if it determines it would be beneficial to do so.

At September 30, 2012, the unrealized loss on other securities, $845 thousand, is 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, a single-issuer trust preferred 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 September 30, 2012.

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Tables)

9 Months Ended

Sep. 30, 2012

Investment Securities Available For Sale Tables

Schedule of amortized cost and approximate fair value of 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 September 30, 2012 and December 31, 2011 follows:

	September 30, 2012
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	29,645	$	312	$	—			29,957
Mortgage-backed securities – residential		181,538		5,906		(1	)		187,443
State and political subdivisions		29,115		1,511		(1	)		30,625
Other securities		5,998		98		(845	)		5,251
Marketable equity securities		209		4		—			213
Total	$	246,505	$	7,831	$	(847	)	$	253,489

	December 31, 2011
			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	46,729	$	149	$	—		$	46,878
Mortgage-backed securities – residential		232,240		4,891		(147	)		236,984
State and political subdivisions		28,539		1,314		(2	)		29,851
Other securities		5,999		40		(832	)		5,207
Marketable equity securities		593		7		—			600
Total	$	314,100	$	6,401	$	(981	)	$	319,520

Schedule of continuous unrealized losses and the approximate fair value of these investments

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 September 30, 2012 and December 31, 2011.

	September 30, 2012
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities -
residential	$	—	$	—		$	95	$	(1	)	$	95	$	(1	)
State and political subdivisions		36		(1	)		—		—			36		(1	)
Other securities		—		—			2,153		(845	)		2,153		(845	)
Total	$	36	$	(1	)	$	2,248	$	(846	)	$	2,284	$	(847	)

	December 31, 2011
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities-
residential	$	32,931	$	(120	)	$	317	$	(27	)	$	33,248	$	(147	)
State and political subdivisions		736		(2	)		—		—			736		(2	)
Other securities		—		—			2,167		(832	)		2,167		(832	)
Total	$	33,667	$	(122	)	$	2,484	$	(859	)	$	36,151	$	(981	)

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2012

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

11.  SUBSEQUENT EVENTS

On October 29, 2012, Hurricane Sandy struck New Jersey and the Northeast causing damage and business closures throughout our primary New Jersey market area. While the Corporation did experience some minor damage and service disruptions during the storm, it did return to normal operations within a matter of days. The Corporation is in process of fully evaluating the financial effects of this hurricane and has not fully determined the financial impact as of the date of filing of the Form 10Q.

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FAIR VALUE

9 Months Ended

Sep. 30, 2012

Fair Value

FAIR VALUE

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 I 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 that 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 Corporation 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, if available (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). The fair values of Level 3 investment securities (Trust Preferred Pooled Securities, held to maturity) are determined by Management based on non-binding broker quotes. Discussions are regularly held with third-party brokers and other third-party experts to validate the estimated fair value for these Level 3 securities.

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).

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.

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 loans 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 September 30, 2012, 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
	September 30,		Assets		Inputs		Inputs
(In thousands)	2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	29,957	$	—	$	29,957	$	—
Mortgage-backed securities-
residential		187,443		—		187,443		—
State and political subdivisions		30,625		—		30,625		—
Other securities		2,153		—		2,153		—
CRA investment fund		3,098		—		3,098		—
Marketable equity securities		213		213		—		—
Total	$	253,489	$	213	$	253,276	$	—

	December 31,
(In thousands)	2011
Assets:
Available for sale:
U.S. government-sponsored
entities	$	46,878	$	—	$	46,878	$	—
Mortgage-backed securities-
residential		236,984		—		236,984		—
State and political subdivisions		29,851		—		29,851		—
Other securities		2,167		—		2,167		—
CRA investment fund		3,040		—		3,040		—
Marketable equity securities		600		600		—		—
Total	$	319,520	$	600	$	318,920	$	—

Loans held for sale totaled $8.4 million and $2.8 million as of September 30, 2012 and December 31, 2011, respectively, and were determined to be Level 2.

There were no transfers between Level 1 and Level 2 during the three and nine months ended September 30, 2012.

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
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(In thousands)	2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Primary residential
mortgage	$	171	$	—	$	—	$	171

	December 31,
(In thousands)	2011
Assets:
Impaired loans:
Primary residential
mortgage	$	1,462	$	—	$	—	$	1,462
Owner-occupied
commercial mortgage		1,303		—		—		1,303
Investment commercial
real estate		228		—		—		228
Multifamily		212		—		—		212
Junior lien on residence		117		—		—		117
OREO		2,135		—		—		2,135

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of $726 thousand, with a valuation allowance of $744 thousand at September 30, 2012. Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of $4.6 million, with a valuation allowance of $1.3 million at December 31, 2011.

The carrying amounts and estimated fair values of financial instruments at September 30, 2012 are as follows:

			Fair Value Measurements at September 30, 2012 Using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	54,920	$	51,728	$	3,192	$	—	$	54,920
Investment securities, held to maturity		76,698		—		70,413		12,013		82,426
Securities available for sale		253,489		213		253,276		—		253,489
FHLB and FRB stock		4,639		—		—		—		N/A
Loans held for sale		8,443		—		8,443		—		8,443
Loans, net of allowance for loan losses		1,082,589		—		—		1,084,725		1,084,725
Accrued interest receivable		4,040		—		1,007		3,033		4,040
Financial liabilities
Deposits	$	1,432,686	$	1,247,932	$	187,051	$	—	$	1,434,983
Federal home loan bank advances		12,335		—		13,737		—		13,737
Accrued interest payable		331		43		288		—		331

The carrying amounts and estimated fair values of financial instruments at December 31, 2011 are as follows:

	December 31, 2011
	Carrying		Fair
(In thousands)	Amount		Value
Financial assets
Cash and cash equivalents	$	43,053	$	43,053
Investment securities, held to maturity		100,719		99,427
Securities available for sale		319,520		319,520
FHLB and FRB stock		4,569		N/A
Loans held for sale		2,841		2,841
Loans, net of allowance for loan losses		1,025,122		1,034,541
Accrued interest receivable		4,078		4,078
Financial liabilities
Deposits	$	1,443,892	$	1,446,778
Overnight borrowings		—		—
Federal home loan bank advances		17,680		19,100
Accrued interest payable		460		460

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 days, approximate their fair values resulting in a Level 2 classification.

Federal Home Loan Bank advances: The fair values of the Corporation’s loan-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.

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.

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PREFERRED STOCK (Details Narrative) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended				0 Months Ended				0 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Jan. 09, 2009	Jan. 11, 2012 Fixed Rate Cumulative Perpetual Preferred Stock, Series A	Mar. 02, 2011 Fixed Rate Cumulative Perpetual Preferred Stock, Series A	Jan. 09, 2009 Fixed Rate Cumulative Perpetual Preferred Stock, Series A	Jan. 06, 2010 Fixed Rate Cumulative Perpetual Preferred Stock, Series A	Apr. 05, 2012 Common Stock	Jan. 09, 2009 Common Stock
Class of Stock [Line Items]
Number of preferred stock issued (in shares)			14,341				28,685
Liquidation preference (in dollars per share)	$ 1,000		$ 1,000				$ 1,000
Warrant term period										10 years
Numbers of warrants to purchase (in shares)										150,296
Exercise price (in dollars per share)										28.63
Adjustment to purchase price percentage of stock dividend declared on June 18, 2009							5.00%
Aggregate purchase price				$ 28,700
Aggregate purchase price warrants										1,600
Aggregate purchase price of preferred stock							27,100
Percentage of redemption on the preferred shares issued under the Treasury's CPP (in percent)					50.00%	25.00%		25.00%
Redemption of preferred stock	(14,341)	(7,172)			14,500	7,200	7,200		110
Accrued and unpaid dividends					112	17		51
Accelerated preferred stock					$ 362	$ 246		$ 330
Number of common stock warrants redeemed									150,296

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FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

9 Months Ended

Sep. 30, 2012

Federal Home Loan Bank Advances And Other Borrowings

FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

5. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Advances from the Federal Home Loan Bank of New York (FHLB) totaled $12.3 million and $17.7 million at September 30, 2012 and December 31, 2011, respectively, with a weighted average interest rate of 3.26 percent and 3.50 percent, respectively. At September 30, 2012 advances totaling $335 thousand with a weighted average interest rate of 3.73 percent were amortizing advances with monthly payments of principal and interest. These advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $54.5 million at September 30, 2012.

Also at September 30, 2012, the Corporation had $12.0 million in variable rate advances, with a weighted average interest rate of 3.01 percent, that are noncallable for one, two or three years and then callable quarterly with final maturities of five, seven or 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 $18.4 million at September 30, 2012.

There were no overnight borrowings at September 30, 2012 and December 31, 2011. Overnight borrowings from the FHLB averaged $13.6 million with a weighted average interest rate of 0.38 percent for the nine months ended September 30, 2012.

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

(In thousands)
2012	$	117
2013		218
2014		—
2015		—
2016		—
Over 5 years		12,000
Total	$	12,335

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BUSINESS SEGMENTS

9 Months Ended

Sep. 30, 2012

Business Segments

BUSINESS SEGMENTS

6. BUSINESS SEGMENTS

The Corporation assesses its results among two operating segments, Banking and PGB Trust & Investments. 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 commercial, commercial real estate, residential and consumer lending activities; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support and sales.

PGB Trust & Investments

PGB Trust & Investments 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 table presents the statements of income and total assets for the Corporation’s reportable segments for the three and nine months ended September 30, 2012 and 2011.

	Three Months Ended September 30, 2012
			PGB Trust
(In thousands)	Banking		& Investments		Total
Net interest income	$	12,011	$	839	$	12,850
Noninterest income		1,564		2,995		4,559
Total income		13,575		3,834		17,409
Provision for loan losses		750		—		750
Salaries and benefits		5,696		1,333		7,029
Premises and equipment expense		2,149		141		2,290
Other noninterest expense		1,837		837		2,674
Total noninterest expense		10,432		2,311		12,743
Income before income tax expense		3,143		1,523		4,666
Income tax expense		1,235		599		1,834
Net income	$	1,908	$	924	$	2,832

	Three Months Ended September 30, 2011
				PGB Trust
(In thousands)	Banking			& Investments		Total
Net interest income	$	11,028		$	867	$	11,895
Noninterest income		1,354			2,619		3,973
Total income		12,382			3,486		15,868
Provision for loan losses		1,500			—		1,500
Salaries and benefits		4,587			1,202		5,789
Premises and equipment expense		2,169			153		2,322
Other noninterest expense		1,587			875		2,462
Total noninterest expense		9,843			2,230		12,073
Income before income tax expense		2,539			1,256		3,795
Income tax expense		(2,021	)		484		(1,537	)
Net income	$	4,560		$	772	$	5,332

	Nine Months Ended September 30, 2012
			PGB Trust
(In thousands)	Banking		& Investments		Total
Net interest income	$	36,116	$	2,528	$	38,644
Noninterest income		4,390		9,563		13,953
Total income		40,506		12,091		52,597
Provision for loan losses		3,750		—		3,750
Salaries and benefits		15,631		3,919		19,550
Premises and equipment expense		6,604		430		7,034
Other noninterest expense		5,395		2,798		8,193
Total noninterest expense		31,380		7,147		38,527
Income before income tax expense		9,126		4,944		14,070
Income tax expense		3,524		1,908		5,432
Net income	$	5,602	$	3,036	$	8,638
Total assets for period end	$	1,582,127	$	1,363	$	1,583,490

	Nine Months Ended September 30, 2011
				PGB Trust
(In thousands)	Banking			& Investments		Total
Net interest income	$	33,669		$	2,630	$	36,299
Noninterest income		4,166			8,300		12,466
Total income		37,835			10,930		48,765
Provision for loan losses		5,500			—		5,500
Salaries and benefits		13,968			3,611		17,579
Premises and equipment expense		6,561			497		7,058
Other noninterest expense		5,153			3,061		8,214
Total noninterest expense		31,182			7,169		38,351
Income before income tax expense		6,653			3,761		10,414
Income tax expense		(585	)		1,358		773
Net income	$	7,238		$	2,403	$	9,641
Total assets for period end	$	1,574,000		$	1,288	$	1,575,288

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OTHER OPERATING EXPENSES

9 Months Ended

Sep. 30, 2012

Other Operating Expenses

OTHER OPERATING EXPENSES

8. OTHER OPERATING EXPENSES

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2012		2011		2012		2011
FDIC assessment	$	299	$	253	$	941	$	1,254
Trust department expense		276		291		1,130		1,223
Professional and legal fees		369		248		855		821
Loan expense		194		384		699		676
Other operating expenses		1,536		1,286		4,568		4,240
Total other operating expenses	$	2,674	$	2,462	$	8,193	$	8,214

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Summary Of Significant Accounting Policies Details 3
Net Income to Common Shareholders	$ 2,832	$ 5,113	$ 8,164	$ 8,633
Basic Weighted-Average Common Shares Outstanding (in shares)	8,778,649	8,742,955	8,775,022	8,739,482
Plus: Common Stock Equivalents (in shares)	40,782	110	30,837	1,620
Diluted Weighted-Average Common Shares Outstanding (in shares)	8,819,431	8,743,065	8,805,859	8,741,102
Net Income Per Common Share
Basic (in dollars per share)	$ 0.32	$ 0.58	$ 0.93	$ 0.98
Diluted (in dollars per share)	$ 0.32	$ 0.58	$ 0.93	$ 0.98

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FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Details Narrative) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Federal Home Loans Banks Abstract
Federal Home Loan Bank advances	$ 12,300	$ 17,700
Federal Home Loan Bank advances, weighted average interest rate (in percent)	3.26%	3.50%
Amortizing advances	335
Amortizing advances, weighted average interest rate (in percent)	3.73%
Secured by blanket pledges of certain 1-4 family residential mortgages	54,500
Callable variable rate advances	12,000
Weighted average interest rate on variable advances (in percent)	3.01%
Investment pledges against advances	18,400
Overnight borrowings of debt
Averaged Overnight borrowings from the FHLB	$ 13,600
Weighted average interest rate on overnight borrowing (in percent)	0.38%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2012

Summary Of Significant Accounting Policies Tables

Schedule of stock option plans, changes in options outstanding

For the Corporation’s stock option plans, changes in options outstanding during the nine months ended September 30, 2012 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In Thousands)
Balance, January 1, 2012		577,782		$	23.45
Granted during 2012		62,560			11.01
Exercised during 2012		(2,190	)		11.10
Expired during 2012		(12,338	)		25.51
Forfeited during 2012		(1,018	)		15.02
Balance, September 30, 2012		624,796		$	22.22		4.27 years	$	591
Vested and expected to vest (1)		594,387		$	22.71		4.27 years	$	513
Exercisable at September 30, 2012		455,858		$	25.57		2.80 years	$	80

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

Schedule of weighted average assumption

For the third quarter of 2012, the per share weighted-average fair value of stock options granted was $5.29 as compared to $3.68 for the same quarter of 2011. The per share weighted-average fair value of stock options granted during the first nine months of 2012 and 2011 was $3.91 and $3.88, respectively on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Dividend Yield		1.24	%		2.02	%		1.47	%		1.60	%
Expected volatility		39	%		38	%		39	%		32	%
Expected life		7 years			7 years			7 years			7 years
Risk-free interest rate		1.08	%		2.02	%		1.43	%		2.08	%

Schedule of Changes in nonvested shares

Changes in non-vested, restricted common shares for 2012 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2012		84,725		$	13.46
Granted during 2012		36,263			10.72
Vested during 2012		(22,393	)		10.75
Balance, September 30, 2012		98,595		$	13.07

Schedule of reconciliation of the calculation of basic and diluted earnings per share

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 or restricted stock would vest during the reporting period utilizing the Treasury stock method.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2012		2011		2012		2011
Net income to common shareholders	$	2,832	$	5,113	$	8,164	$	8,633
Basic weighted-average common shares outstanding		8,778,649		8,742,955		8,775,022		8,739,482
Plus:  common stock equivalents		40,782		110		30,837		1,620
Diluted weighted-average common shares outstanding		8,819,431		8,743,065		8,805,859		8,741,102
Net income per common share
Basic	$	0.32	$	0.58	$	0.93	$	0.98
Diluted		0.32		0.58		0.93		0.98

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BUSINESS SEGMENTS (Tables)

9 Months Ended

Sep. 30, 2012

Business Segments Tables

Schedule of income and total assets

The following table presents the statements of income and total assets for the Corporation’s reportable segments for the three and nine months ended September 30, 2012 and 2011.

	Three Months Ended September 30, 2012
			PGB Trust
(In thousands)	Banking		& Investments		Total
Net interest income	$	12,011	$	839	$	12,850
Noninterest income		1,564		2,995		4,559
Total income		13,575		3,834		17,409
Provision for loan losses		750		—		750
Salaries and benefits		5,696		1,333		7,029
Premises and equipment expense		2,149		141		2,290
Other noninterest expense		1,837		837		2,674
Total noninterest expense		10,432		2,311		12,743
Income before income tax expense		3,143		1,523		4,666
Income tax expense		1,235		599		1,834
Net income	$	1,908	$	924	$	2,832

	Three Months Ended September 30, 2011
				PGB Trust
(In thousands)	Banking			& Investments		Total
Net interest income	$	11,028		$	867	$	11,895
Noninterest income		1,354			2,619		3,973
Total income		12,382			3,486		15,868
Provision for loan losses		1,500			—		1,500
Salaries and benefits		4,587			1,202		5,789
Premises and equipment expense		2,169			153		2,322
Other noninterest expense		1,587			875		2,462
Total noninterest expense		9,843			2,230		12,073
Income before income tax expense		2,539			1,256		3,795
Income tax expense		(2,021	)		484		(1,537	)
Net income	$	4,560		$	772	$	5,332

	Nine Months Ended September 30, 2012
			PGB Trust
(In thousands)	Banking		& Investments		Total
Net interest income	$	36,116	$	2,528	$	38,644
Noninterest income		4,390		9,563		13,953
Total income		40,506		12,091		52,597
Provision for loan losses		3,750		—		3,750
Salaries and benefits		15,631		3,919		19,550
Premises and equipment expense		6,604		430		7,034
Other noninterest expense		5,395		2,798		8,193
Total noninterest expense		31,380		7,147		38,527
Income before income tax expense		9,126		4,944		14,070
Income tax expense		3,524		1,908		5,432
Net income	$	5,602	$	3,036	$	8,638
Total assets for period end	$	1,582,127	$	1,363	$	1,583,490

	Nine Months Ended September 30, 2011
				PGB Trust
(In thousands)	Banking			& Investments		Total
Net interest income	$	33,669		$	2,630	$	36,299
Noninterest income		4,166			8,300		12,466
Total income		37,835			10,930		48,765
Provision for loan losses		5,500			—		5,500
Salaries and benefits		13,968			3,611		17,579
Premises and equipment expense		6,561			497		7,058
Other noninterest expense		5,153			3,061		8,214
Total noninterest expense		31,182			7,169		38,351
Income before income tax expense		6,653			3,761		10,414
Income tax expense		(585	)		1,358		773
Net income	$	7,238		$	2,403	$	9,641
Total assets for period end	$	1,574,000		$	1,288	$	1,575,288

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LOANS (Details 9) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 N	Dec. 31, 2011
Financing Receivable, Modifications [Line Items]
Number of Accrual TDR Contracts	10
Pre-Modification Outstanding Accrual Recorded Investment	$ 7,626
Post-Modification Outstanding Accrual Recorded Investment	7,626
Specific Reserves	677	707
Primary Residential Mortgages
Financing Receivable, Modifications [Line Items]
Number of Accrual TDR Contracts	4
Pre-Modification Outstanding Accrual Recorded Investment	1,592
Post-Modification Outstanding Accrual Recorded Investment	1,592
Specific Reserves	275
Junior Lien Loan on Residence
Financing Receivable, Modifications [Line Items]
Number of Accrual TDR Contracts	1
Pre-Modification Outstanding Accrual Recorded Investment	240
Post-Modification Outstanding Accrual Recorded Investment	240
Specific Reserves
Owner-Occupied Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of Accrual TDR Contracts	1
Pre-Modification Outstanding Accrual Recorded Investment	406
Post-Modification Outstanding Accrual Recorded Investment	406
Specific Reserves
Investment Commercial Real Estate
Financing Receivable, Modifications [Line Items]
Number of Accrual TDR Contracts	1
Pre-Modification Outstanding Accrual Recorded Investment	4,949
Post-Modification Outstanding Accrual Recorded Investment	4,949
Specific Reserves	358
Commercial and Industrial
Financing Receivable, Modifications [Line Items]
Number of Accrual TDR Contracts	3
Pre-Modification Outstanding Accrual Recorded Investment	439
Post-Modification Outstanding Accrual Recorded Investment	439
Specific Reserves	$ 44

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LOANS (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 1,093,166	$ 1,035,338
Net deferred fees	3,316	3,007
Total loans including net deferred costs	1,096,482	1,038,345
Total loans (in percent)	100.00%	100.00%
Primary Residential Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	517,520	511,418
Total loans (in percent)	47.34%	49.40%
Home Equity Lines of Credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	51,441	50,394
Total loans (in percent)	4.71%	4.87%
Junior Lien Loan on Residence
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	12,587	13,053
Total loans (in percent)	1.15%	1.26%
Multifamily Property
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	127,972	104,056
Total loans (in percent)	11.71%	10.05%
Owner-Occupied Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	103,022	107,852
Total loans (in percent)	9.43%	10.42%
Investment Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	235,162	186,998
Total loans (in percent)	21.51%	18.06%
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	20,277	29,825
Total loans (in percent)	1.85%	2.88%
Commercial Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	9,633	19,208
Total loans (in percent)	0.88%	1.85%
Consumer and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	15,328
Total loans (in percent)	1.40%
Bank segments (Federal call report codes) | Secured by Farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	209
Total loans (in percent)	0.02%
Bank segments (Federal call report codes) | Agricultural Production Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	15	18
Total loans (in percent)
Bank segments (Federal call report codes) | Consumer and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans		$ 12,516
Total loans (in percent)		1.21%

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Statement [Abstract]
Net income	$ 2,832	$ 5,332	$ 8,638	$ 9,641
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period	1,093	726	2,212	3,417
Less: Reclassification adjustment for gains included in net income	151	249	648	721
[OtherComprehensiveIncomeLossAvailableForSaleSecuritiesAdjustmentBeforeTax]	942	477	1,564	2,696
Tax effect	(385)	(198)	(639)	(1,141)
Net of tax	557	279	925	1,555
Unrealized losses on the noncredit, other-than-temporarily impaired held to maturity securities and on securities transferred from available for sale to held to maturity	60	71	173	90
Tax effect	(25)	243	(71)	235
Net of tax	35	314	102	325
Total comprehensive income	$ 3,424	$ 5,925	$ 9,665	$ 11,521

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INVESTMENT SECURITIES HELD TO MATURITY

9 Months Ended

Sep. 30, 2012

Investment Securities Held To Maturity

INVESTMENT SECURITIES HELD TO MATURITY

2. INVESTMENT SECURITIES HELD TO MATURITY

A summary of amortized cost and estimated fair value of investment securities held to maturity included in the consolidated statements of condition as of September 30, 2012 and December 31, 2011 follows:

	September 30, 2012
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Fair
(In thousands)	Amount		Gains		Losses			Value
Mortgage-backed securities – residential	$	52,179	$	2,034	$	—		$	54,213
State and political subdivisions		16,189		11		—			16,200
Trust preferred pooled securities		8,330		5,840		(2,157	)		12,013
Total	$	76,698	$	7,885	$	(2,157	)	$	82,426

	December 31, 2011
			Gross		Gross
	Carrying		Unrecognized		Unrecognized			Fair
(In thousands)	Amount		Gains		Losses			Value
Mortgage-backed securities – residential	$	67,394	$	1,393	$	(1	)	$	68,786
State and political subdivisions		24,608		52		—			24,660
Trust preferred pooled securities		8,717		2,170		(4,906	)		5,981
Total	$	100,719	$	3,615	$	(4,907	)	$	99,427

The following tables present the Corporation’s investment securities held to maturity with continuous unrealized losses and the estimated fair value of these investments as of September 30, 2012 and December 31, 2011.

	September 30, 2012
	Duration of Unrealized Loss
	Less than 12 Months				12 Months or Longer					Total
	Fair		Unrecognized		Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses		Value		Losses			Value		Losses
Trust preferred pooled securities	$	—	$	—	$	4,535	$	(2,157	)	$	4,535	$	(2,157	)
Total	$	—	$	—	$	4,535	$	(2,157	)	$	4,535	$	(2,157	)

	December 31, 2011
	Duration of Unrealized Loss
	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed securities-
residential	$	3,194	$	(1	)	$	—	$	—		$	3,194	$	(1	)
Trust preferred pooled securities		—		—			2,729		(4,906	)		2,729		(4,906	)
Total	$	3,194	$	(1	)	$	2,729	$	(4,906	)	$	5,923	$	(4,907	)

The trust preferred pooled securities within the Corporation’s held to maturity investment portfolio are collateralized by trust preferred securities issued primarily by individual bank holding companies, but also by insurance companies and real estate investment trusts. There has been little or no active trading in these securities for several years; therefore the Corporation has determined these securities to be illiquid and fair value was calculated by utilizing non-binding broker quotes. As of December 31, 2008, to estimate fair value, and determine whether the securities were other-than-temporarily impaired, the Corporation retained and worked with a third party to review the issuers (the collateral) underlying each of the securities. Among the factors analyzed were the issuers’ profitability, credit quality, asset mix, capital adequacy, leverage and liquidity position, as well as an overall assessment of credit, profitability and capital trends within the portfolio’s issuer universe. These factors provided an assessment of the portion of the collateral of each security which was likely to default in future periods. The cash flows associated with the collateral likely to default, together with the cash flows associated with collateral which had already deferred or defaulted, were then eliminated. In addition, the Corporation assumed constant rates of default in excess of those based upon the historic performance of the underlying collateral. The resulting cash flows were then discounted to the current period to determine fair value for each security. The discount rate utilized was based on a risk-free rate (LIBOR) plus spreads appropriate for the product, which include consideration of liquidity and credit uncertainty.

Each quarter since December 2008, to periodically assess the credit assumptions and related input data that could affect the cash flows of each security, Management compared actual deferrals and defaults to the assumed deferrals and defaults included in the valuation model.

As of each year end since December 2008, the Corporation again worked with a third party to model the securities and review its cash flows. The modeling process and related assumptions were similar to the process and related assumptions employed as of December 31, 2008. No additional impairment charges were recorded for the three and nine months ended September 30, 2012.

Further significant downturns in the real estate markets and/or the economy could cause additional issuers to defer paying dividends on these securities and/or ultimately default. Such occurrences, if beyond those assumed in the current valuation, could cause an additional write-down of the portfolio, with a negative impact on earnings; however, the Corporation has already recorded a substantial write-down of its trust preferred pooled securities portfolio. We do not expect that an additional write-down would have a material effect on the cash flows from the securities or on our liquidity position.

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FAIR VALUE (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financial Assets
Investment Securities, Held To Maturity	$ 82,426	$ 99,427
Securities Available for Sale	253,489	319,520
Loans Held for Sale	8,400	2,800
Accrued Interest Receivable	4,040	4,078
Financial Liabilities:
Federal Home Loan Bank Advances	12,300	17,700
Carrying Value
Financial Assets
Cash and Cash Equivalents	54,920	43,053
Investment Securities, Held To Maturity	76,698	100,719
Securities Available for Sale	253,489	319,520
FHLB and FRB Stock	4,639	4,569
Loans Held for Sale	8,443	2,841
Loans, Net of Allowance for Loan Losses	1,082,589	1,025,122
Accrued Interest Receivable	4,040	4,078
Financial Liabilities:
Deposits	1,432,686	1,443,892
Overnight Borrowings	12,335
Federal Home Loan Bank Advances	331	17,680
Accrued Interest Payable		460
Quoted Prices in Active Market For Identical Assets (Level 1)
Financial Assets
Cash and Cash Equivalents	51,728
Investment Securities, Held To Maturity
Securities Available for Sale	213
FHLB and FRB Stock
Loans Held for Sale
Loans, Net of Allowance for Loan Losses
Accrued Interest Receivable
Financial Liabilities:
Deposits	1,247,932
Overnight Borrowings
Federal Home Loan Bank Advances	43
Significant Other Observable Inputs (Level 2)
Financial Assets
Cash and Cash Equivalents	3,192
Investment Securities, Held To Maturity	70,413
Securities Available for Sale	253,276
FHLB and FRB Stock
Loans Held for Sale	8,443
Loans, Net of Allowance for Loan Losses
Accrued Interest Receivable	1,007
Financial Liabilities:
Deposits	187,051
Overnight Borrowings	13,737
Federal Home Loan Bank Advances	288
Significant Other Observable Inputs (Level 3)
Financial Assets
Cash and Cash Equivalents
Investment Securities, Held To Maturity	12,013
Securities Available for Sale
FHLB and FRB Stock
Loans Held for Sale
Loans, Net of Allowance for Loan Losses	1,084,725
Accrued Interest Receivable	3,033
Financial Liabilities:
Deposits
Overnight Borrowings
Federal Home Loan Bank Advances
Fair value
Financial Assets
Cash and Cash Equivalents	54,920	43,053
Investment Securities, Held To Maturity	82,426	99,427
Securities Available for Sale	253,489	319,520
FHLB and FRB Stock
Loans Held for Sale	8,443	2,841
Loans, Net of Allowance for Loan Losses	1,084,725	1,034,541
Accrued Interest Receivable	4,040	4,078
Financial Liabilities:
Deposits	1,434,983	1,446,778
Overnight Borrowings	13,737
Federal Home Loan Bank Advances	331	19,100
Accrued Interest Payable		$ 460

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Tables

Schedule of measured at fair value on a recurring basis

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
	September 30,		Assets		Inputs		Inputs
(In thousands)	2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	29,957	$	—	$	29,957	$	—
Mortgage-backed securities-
residential		187,443		—		187,443		—
State and political subdivisions		30,625		—		30,625		—
Other securities		2,153		—		2,153		—
CRA investment fund		3,098		—		3,098		—
Marketable equity securities		213		213		—		—
Total	$	253,489	$	213	$	253,276	$	—

	December 31,
(In thousands)	2011
Assets:
Available for sale:
U.S. government-sponsored
entities	$	46,878	$	—	$	46,878	$	—
Mortgage-backed securities-
residential		236,984		—		236,984		—
State and political subdivisions		29,851		—		29,851		—
Other securities		2,167		—		2,167		—
CRA investment fund		3,040		—		3,040		—
Marketable equity securities		600		600		—		—
Total	$	319,520	$	600	$	318,920	$	—

Schedule of measured at fair value on a non- recurring basis

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
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(In thousands)	2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Primary residential
mortgage	$	171	$	—	$	—	$	171

	December 31,
(In thousands)	2011
Assets:
Impaired loans:
Primary residential
mortgage	$	1,462	$	—	$	—	$	1,462
Owner-occupied
commercial mortgage		1,303		—		—		1,303
Investment commercial
real estate		228		—		—		228
Multifamily		212		—		—		212
Junior lien on residence		117		—		—		117
OREO		2,135		—		—		2,135

Schedule of carrying amounts and estimated fair values of financial instruments

The carrying amounts and estimated fair values of financial instruments at September 30, 2012 are as follows:

			Fair Value Measurements at September 30, 2012 Using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	54,920	$	51,728	$	3,192	$	—	$	54,920
Investment securities, held to maturity		76,698		—		70,413		12,013		82,426
Securities available for sale		253,489		213		253,276		—		253,489
FHLB and FRB stock		4,639		—		—		—		N/A
Loans held for sale		8,443		—		8,443		—		8,443
Loans, net of allowance for loan losses		1,082,589		—		—		1,084,725		1,084,725
Accrued interest receivable		4,040		—		1,007		3,033		4,040
Financial liabilities
Deposits	$	1,432,686	$	1,247,932	$	187,051	$	—	$	1,434,983
Federal home loan bank advances		12,335		—		13,737		—		13,737
Accrued interest payable		331		43		288		—		331

The carrying amounts and estimated fair values of financial instruments at December 31, 2011 are as follows:

	December 31, 2011
	Carrying		Fair
(In thousands)	Amount		Value
Financial assets
Cash and cash equivalents	$	43,053	$	43,053
Investment securities, held to maturity		100,719		99,427
Securities available for sale		319,520		319,520
FHLB and FRB stock		4,569		N/A
Loans held for sale		2,841		2,841
Loans, net of allowance for loan losses		1,025,122		1,034,541
Accrued interest receivable		4,078		4,078
Financial liabilities
Deposits	$	1,443,892	$	1,446,778
Overnight borrowings		—		—
Federal home loan bank advances		17,680		19,100
Accrued interest payable		460		460

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Details 1) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Fair Value Less Than 12 Months	$ 36	$ 33,667
Unrealized Loss Less Than 12 Months	(1)	(122)
Fair Value Less Than 12 Months or Longer	2,248	2,484
Unrealized Loss Less Than 12 Months or Longer	(846)	(859)
Total Fair Value	2,248	36,151
Total Unrealized Losses	(847)	(981)
Mortgage-Backed Securities -Residential
Schedule of Available-for-sale Securities [Line Items]
Fair Value Less Than 12 Months		32,931
Unrealized Loss Less Than 12 Months		(120)
Fair Value Less Than 12 Months or Longer	95	317
Unrealized Loss Less Than 12 Months or Longer	(1)	(27)
Total Fair Value	95	33,248
Total Unrealized Losses	(1)	(147)
State and Political Subdivisions
Schedule of Available-for-sale Securities [Line Items]
Fair Value Less Than 12 Months	36	736
Unrealized Loss Less Than 12 Months	(1)	(2)
Fair Value Less Than 12 Months or Longer
Unrealized Loss Less Than 12 Months or Longer
Total Fair Value	36	736
Total Unrealized Losses	(1)	(2)
Other Securities
Schedule of Available-for-sale Securities [Line Items]
Fair Value Less Than 12 Months
Unrealized Loss Less Than 12 Months
Fair Value Less Than 12 Months or Longer	2,153	2,167
Unrealized Loss Less Than 12 Months or Longer	(845)	(832)
Total Fair Value	2,153	2,167
Total Unrealized Losses	$ (845)	$ (832)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2012

Summary Of Significant Accounting Policies Policies

Principles of Consolidation

Principles of Consolidation: 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 Peapack-Gladstone Financial Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly owned subsidiary, Peapack-Gladstone Bank. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Securities

Securities: Debt securities are classified as held to maturity and carried at amortized cost when Management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale 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 or 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 of 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

Loans: 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, usually when the Bank receives contractual payments for six consecutive 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. Mortgage loans are generally charged off when the value of the underlying collateral does not cover the outstanding principal balance. The majority of the Corporation’s loans are secured by real estate in the State of New Jersey.

Allowance for Loan Losses

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charges against the allowance when Management believes the uncollectibility 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 Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and are evaluated for impairment. 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.

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. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment while they are performing assets. If and when a residential mortgage is placed on nonaccrual status and in the process of collections, 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 is a renegotiated loan with concessions made by the lender to a borrower who is experiencing financial difficulty. Troubled debt restructurings are separately identified for impairment and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring 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 troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component of the allowance covers loans collectively evaluated for impairment 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 experienced by the Corporation on a weighted average basis over the previous seven 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; levels of and trends in charge-offs and recoveries; trends in volume and terms of 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.

In determining an appropriate amount for the allowance, the Bank segments and evaluates the loan portfolio based on Federal call report codes. The material portfolio segments are discussed below:

Primary Residential Mortgages. The Bank originates one to four family residential mortgage loans within or near its primary geographic market area. When reviewing residential mortgage loan applications, the Bank obtains detailed verifiable information regarding income, assets and indebtedness, a credit report, and an independent appraisal of the property to be mortgaged. The Bank makes residential mortgage loans up to 80% of the appraised value and up to 95% with private mortgage insurance. The Bank uses lower loan to value ratios for large loans and loans on either second (vacation) homes or investment property. The Bank’s underwriting guidelines include (i) minimum credit report scores of 680 and (ii) a maximum debt to income ratio of 40% if the loan to value is 70% or higher and 45% if the loan to value is less than 70%. The Bank may consider an exception to any guideline if the remaining characteristics of the application are sufficiently strong to compensate. The Bank retains in its portfolio residential mortgage loans with maturities of up to 15 years while loans with longer maturities are sold to third party financial institutions. The Bank does not originate, purchase or carry any sub-prime mortgage loans.

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.

Bank management believes that the underwriting guidelines previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic residential mortgage loans.

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. When reviewing residential mortgage loan applications, the Bank obtains detailed verifiable information regarding income, assets and indebtedness, a credit report, and an independent appraisal of the property to be mortgaged. For home equity lines of credit, the Bank utilizes the same underwriting standards as for primary residential mortgages. 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.

Bank management believes that the underwriting guideline previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic home equity lines of credit.

Junior Lien Loan on Residence. The Bank provides junior lien loans (“JLL”) against one to four family properties within or near its primary geographic market area. Junior liens 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. The Bank will require that the mortgage securing the JLL be no more junior than a second lien position The Bank will evaluate these applications in the same manner as it underwrites primary residential mortgages. The combined first mortgage and junior lien loan must be no more than 80% of the appraised value of the property when the combined debt is less than or equal to $800,000. For JLL amounts where the combined debt exceeds $800,000, the maximum LTV ratio is 65%. 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.

Bank management believes that the underwriting guidelines previously described address the primary risk characteristics. Further, the Bank has dedicated staff and system resources to monitor and collect on any potentially problematic junior lien loans.

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. 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 have also have retail space. In these cases the Bank determines which component provides the majority of the rental income for the property and utilizes that component for the loan classification.

The terms and conditions of all commercial mortgage loans are tailored to the specific attributes of the borrower, the property or project, and any guarantors. In the case of multifamily and investment commercial real estate properties, the Bank reviews, among other things, the nature of and diversity of the underlying tenants and leases, the resources and experience of the sponsor, and the condition and location of the subject property. With an owner occupied property, a detailed credit assessment is also made of the operating business. While the Bank’s policy allows loan to value ratios of up to 80% of an appraised value, the majority of the loans are originated at loan to value ratios of 70% or lower. Commercial mortgage loans are generally made on a fixed rate basis with periodic rate resets every five or seven years over an underlying market index. The Bank requires an independent appraisal, a property conditions assessment from an engineering firm, and appropriate environmental due diligence.

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. To mitigate this risk, the Bank will require a standby assignment of leases, greater direct recourse to the owners, and a risk appropriate interest rate and loan structure. In underwriting a commercial mortgage loan, the Bank evaluates the property’s historical operating income as well as its projected sustainability and generally requires a minimum debt service coverage ratio that provides for an adequate cushion for unexpected or uncertain future events such as the potential impact of changes in interest rates, vacancy levels and lease rates.

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 and equipment. When underwriting business loans, among other things, the bank evaluates the historical profitability and debt servicing capacity of the borrowing entity and the financial resources and character of the principal owners and guarantors.

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.

To mitigate the risk characteristics of commercial and industrial loans, the Bank will often require more frequent reporting requirements from the borrower in order to better monitor its business performance.

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 and for projects that are supported by either a permanent take-out or acceptable executed leases or sales contracts. When evaluating a construction loan request, the Bank will also review the construction plans and drawings, costs estimates from architects, and an independent appraisal. Construction loans typically have a 12-24 month period of interest only and at a maximum 70% LTV ratio. 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.

Stock-Based Compensation

Stock-Based Compensation: The Corporation has stock option plans that allow the granting of shares of the Corporation’s common stock as incentive stock options, nonqualified stock options, restricted stock awards and stock appreciation rights to directors, officers, employees and independent contractors of the Corporation and its subsidiaries. The options granted under these plans are exercisable at a price equal to the fair market 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.

For the three months ended September 30, 2012 and 2011, the Corporation recorded total compensation cost for stock options of $83 thousand and $61 thousand respectively, with a recognized tax benefit of $15 thousand for the quarter ended September 30, 2012 and $11 thousand for the September 30, 2011 quarter. The Corporation recorded total compensation cost for stock options for the nine months ended September 30, 2012 and 2011, of $253 thousand and $273 thousand, respectively, with a recognized tax benefit of $45 thousand for the nine months ended September 30, 2012 and $46 thousand for the nine months ended September 30, 2011.

There was approximately $580 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Corporation’s stock incentive plans at September 30, 2012. That cost is expected to be recognized over a weighted average period of 1.7 years.

For the Corporation’s stock option plans, changes in options outstanding during the nine months ended September 30, 2012 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In Thousands)
Balance, January 1, 2012		577,782		$	23.45
Granted during 2012		62,560			11.01
Exercised during 2012		(2,190	)		11.10
Expired during 2012		(12,338	)		25.51
Forfeited during 2012		(1,018	)		15.02
Balance, September 30, 2012		624,796		$	22.22		4.27 years	$	591
Vested and expected to vest (1)		594,387		$	22.71		4.27 years	$	513
Exercisable at September 30, 2012		455,858		$	25.57		2.80 years	$	80

(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 Corporation’s closing stock price on the last trading day of the third quarter of 2012 and the exercise price, multiplied by the number of in-the-money options). The Corporation’s closing stock price on September 30, 2012 was $16.34.

For the third quarter of 2012, the per share weighted-average fair value of stock options granted was $5.29 as compared to $3.68 for the same quarter of 2011. The per share weighted-average fair value of stock options granted during the first nine months of 2012 and 2011 was $3.91 and $3.88, respectively on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Dividend Yield		1.24	%		2.02	%		1.47	%		1.60	%
Expected volatility		39	%		38	%		39	%		32	%
Expected life		7 years			7 years			7 years			7 years
Risk-free interest rate		1.08	%		2.02	%		1.43	%		2.08	%

In January 2012 and 2011, the Corporation issued 36,263 and 28,732 restricted stock awards, respectively, at a fair value equal to the market price of the Corporation’s common stock on the date of the grant. The awards vest 40 percent after two years and 20 percent each year thereafter until fully vesting on the fifth anniversary of the grant date. The Corporation recorded total compensation cost for restricted stock awards of $111 thousand for the third quarter of 2012 and $67 thousand for the same quarter of 2011. For the nine months ended September 30, 2012 and 2011, the Corporation recorded total compensation cost for restricted stock awards of $332 thousand and $191 thousand, respectively.

As of September 30, 2012, there was approximately $790 thousand of unrecognized compensation cost related to non-vested restricted stock awards granted under the Corporation’s stock incentive plans. That cost is expected to be recognized over a weighted average period of 1.6 years.

Changes in non-vested, restricted common shares for 2012 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2012		84,725		$	13.46
Granted during 2012		36,263			10.72
Vested during 2012		(22,393	)		10.75
Balance, September 30, 2012		98,595		$	13.07

Earnings per Common share

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 or restricted stock would vest during the reporting period utilizing the Treasury stock method.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2012		2011		2012		2011
Net income to common shareholders	$	2,832	$	5,113	$	8,164	$	8,633
Basic weighted-average common shares outstanding		8,778,649		8,742,955		8,775,022		8,739,482
Plus:  common stock equivalents		40,782		110		30,837		1,620
Diluted weighted-average common shares outstanding		8,819,431		8,743,065		8,805,859		8,741,102
Net income per common share
Basic	$	0.32	$	0.58	$	0.93	$	0.98
Diluted		0.32		0.58		0.93		0.98

Stock options and restricted stock totaling 569,642 and 600,047 shares were not included in the computation of diluted earnings per share in the third quarters of 2012 and 2011, respectively, because they were considered antidilutive. Stock options and restricted stock totaling 590,867 and 571,993 shares were not included in the computation of diluted earnings per share in the nine months ended September 30, 2012 and 2011, respectively, because they were considered antidilutive.

Income Taxes

Income Taxes: The Corporation files a consolidated Federal income tax return and separate state income tax returns for each subsidiary based on current laws and regulations.

The Corporation is no longer subject to examination by the U.S. Federal tax authorities for years prior to 2008 or by New Jersey tax authorities for years prior to 2007.

The Corporation recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other expense. The Corporation did not have any amounts accrued for interest and penalties at September 30, 2012.

Reclassification

Reclassification: Certain reclassifications may have been made in the prior periods’ financial statements in order to conform to the 2012 presentation.