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

FORM 10-Q

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2015

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 requirement for the past 90 days.

Yes x No o.

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

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

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

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

Number of shares of Common Stock outstanding as of May 1, 2015:

15,487,057

1

PEAPACK-GLADSTONE FINANCIAL CORPORATION

PART 1 FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited)
	Consolidated Statements of Condition at March 31, 2015 and
	December 31, 2014	Page 3
	Consolidated Statements of Income for the three months ended
	March 31, 2015 and 2014	Page 4
	Consolidated Statements of Comprehensive Income for
	the three months ended March 31, 2015 and 2014	Page 5
	Consolidated Statement of Changes in Shareholders’ Equity
	for the three months ended March 31, 2015	Page 6
	Consolidated Statements of Cash Flows for the three months
	ended March 31, 2015 and 2014	Page 7
	Notes to Consolidated Financial Statements	Page 8
Item 2	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	Page 34
Item 3	Quantitative and Qualitative Disclosures about Market Risk	Page 50
Item 4	Controls and Procedures	Page 51

Item 1	Legal Proceedings	Page 51
Item 1A	Risk Factors	Page 51
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	Page 51
Item 3	Defaults Upon Senior Securities	Page 52
Item 4	Mine Safety Disclosures	Page 52
Item 5	Other Information	Page 52
Item 6	Exhibits	Page 52

2

Item 1. Financial Statements (Unaudited)  

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands, except share data)  

	(unaudited)			(audited)
	March 31,			December 31,
	2015			2014
ASSETS
Cash and due from banks	$	7,439		$	6,621
Federal funds sold		101			101
Interest-earning deposits		65,283			24,485
Total cash and cash equivalents		72,823			31,207
Securities available for sale		276,119			332,652
FHLB and FRB stock, at cost		10,598			11,593
Loans held for sale, at fair value		4,245			839
Loans		2,442,300			2,250,267
Less: Allowance for loan losses		(20,816	)		(19,480	)
Net loans		2,421,484			2,230,787
Premises and equipment		32,068			32,258
Other real estate owned		1,103			1,324
Accrued interest receivable		5,943			5,371
Bank owned life insurance		32,404			32,634
Deferred tax assets, net		10,458			10,491
Other assets		12,212			13,241
TOTAL ASSETS	$	2,879,457		$	2,702,397
LIABILITIES
Deposits:
Noninterest-bearing demand deposits	$	377,399		$	366,371
Interest-bearing deposits:
Interest-bearing deposits checking		634,580			600,889
Savings		115,515			112,878
Money market accounts		714,466			700,069
Certificates of deposit  - Retail		310,678			198,819
Subtotal deposits		2,152,638			1,979,026
Interest-bearing demand – Brokered		263,000			188,000
Certificates of deposit - Brokered		106,694			131,667
Total deposits		2,522,332			2,298,693
Overnight borrowings with Federal Home Loan Bank		—			54,600
Federal Home Loan Bank advances		83,692			83,692
Capital lease obligation		10,594			10,712
Accrued expenses and other liabilities		13,486			12,433
TOTAL LIABILITIES		2,630,104			2,460,130
SHAREHOLDERS’ EQUITY
Preferred stock (no par value; authorized 500,000 shares;
liquidation  preference of $1,000 per share)		—			—
Common stock (no par value; stated value $0.83 per share; authorized
21,000,000 shares; issued shares, 15,848,608 at March 31, 2015 and
15,563,895 at December 31, 2014; outstanding shares, 15,440,430 at
March 31, 2015 and 15,155,717 at December 31, 2014		13,192			12,954
Surplus		198,408			195,829
Treasury stock at cost, 408,178 shares at March 31, 2015 and
December 31, 2014		(8,988	)		(8,988	)
Retained earnings		45,502			41,251
Accumulated other comprehensive income, net of income tax		1,239			1,221
TOTAL SHAREHOLDERS’ EQUITY		249,353			242,267
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	2,879,457		$	2,702,397

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
	March 31,
	2015		2014
INTEREST INCOME
Interest and fee on loans	$	20,986	$	15,662
Interest on securities available for sale:
Taxable		1,182		1,061
Tax-exempt		140		204
Interest on loans held for sale		10		10
Interest-earning deposits		43		12
Total interest income		22,361		16,949
INTEREST EXPENSE
Interest on savings and interest-bearing deposit
accounts		886		440
Interest on certificates of deposit		663		355
Interest on borrowed funds		392		390
Interest on capital lease obligation		128		119
Subtotal - interest expense		2,069		1,304
Interest-bearing demand – brokered		185		43
Interest on certificates of deposits – brokered		524		31
Total Interest expense		2,778		1,378
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES		19,583		15,571
Provision for loan losses		1,350		1,325
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		18,233		14,246
OTHER INCOME
Wealth management fee income		4,031		3,754
Service charges and fees		805		694
Bank owned life insurance		537		266
Gain on loans held for sale at fair value (Mortgage banking)		148		112
Other income		93		71
Securities gains, net		268		98
Total other income		5,882		4,995
OPERATING EXPENSES
Salaries and employee benefits		9,425		8,848
Premises and equipment		2,616		2,438
Other operating expense		3,727		3,053
Total operating expenses		15,768		14,339
INCOME BEFORE INCOME TAX EXPENSE		8,347		4,902
Income tax expense		3,339		1,871
NET INCOME	$	5,008	$	3,031
EARNINGS PER COMMON SHARE
Basic	$	0.34	$	0.26
Diluted	$	0.33	$	0.26
WEIGHTED AVERAGE NUMBER OFCOMMON
SHARES OUTSTANDING
Basic		14,909,722		11,606,933
Diluted		15,070,352		11,710,940

See accompanying notes to consolidated financial statements

4

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2015			2014
Net income	$	5,008		$	3,031
Other comprehensive income:
Unrealized gains on available for sale
securities:
Unrealized holding gains arising
during the period		1,232			1,082
Less: Reclassification adjustment for net gains
included in net income		268			98
		964			984
Tax effect		(359	)		(401	)
Net of tax		605			583
Unrealized loss on cash flow hedges
Unrealized holding loss		(992	)		—
Reclassification adjustment for losses included in
net income		—			—
Tax effect		405			—
Net of tax		(587	)		—
Total other comprehensive income		18			583
Total comprehensive income	$	5,026		$	3,614

See accompanying notes to consolidated financial statements

5

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

Three Months Ended March 31, 2015

													Accumulated
													Other
(In thousands, except	Common						Treasury			Retained			Comprehensive
per share data)	Stock			Surplus			Stock			Earnings			Income		Total
Balance at January 1, 2015
15,155,717 common shares
outstanding	$	12,954		$	195,829		$	(8,988	)	$	41,251		$	1,221	$	242,267
Net income											5,008					5,008
Net change in accumulated
other comprehensive
income														18		18
Issuance of restricted stock, net of forfeitures
147,617 shares		123			(123	)										—
Vesting of restricted stock, 1,601 shares		(1	)		(22	)										(23	)
Amortization of restricted stock					476											476
Cash dividends declared on
common stock
($0.05 per share)											(757	)				(757	)
Common stock option expense					65											65
Common stock options
exercised and related tax
benefits, 12,357 shares		10			144											154
Common stock options
swap and related tax benefits,
6,312 shares		(5	)		(122	)										(127	)
Sales of shares (Dividend
Reinvestment Program),
124,764 shares		104			2,017											2,121
Issuance of shares for
Employee Stock Purchase
Plan, 7,888 shares		7			144											151
Balance at March 31, 2015
15,440,430 common shares
outstanding	$	13,192		$	198,408		$	(8,988	)	$	45,502		$	1,239	$	249,353

See accompanying notes to consolidated financial statements

6

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands)

(Unaudited)

	Three Months Ended March 31,
	2015			2014
OPERATING ACTIVITIES:
Net income	$	5,008		$	3,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		798			727
Amortization of premium and accretion of discount on securities, net		499			379
Amortization of restricted stock		476			281
Provision of loan losses		1,350			1,325
Provision for OREO losses		—			100
Provision for deferred taxes		79			(5	)
Stock-based compensation, including ESPP		92			52
Gains on securities, available for sale		(268	)		(98	)
Loans originated for sale at fair value		(13,183	)		(8,780	)
Proceeds from sales of loans at fair value		9,925			9,124
Gains on loans held for sale at fair value		(148	)		(112	)
Net gains on loans held for sale at lower of cost or fair value		—			—
Gains on sale of other real estate owned		45			—
Loss on disposal of fixed assets		—			(9	)
Increase in cash surrender value of life insurance, net		(162	)		(183	)
Increase in accrued interest receivable		(572	)		(702	)
Decrease in other assets		1,421			5,849
Increase in accrued expenses, capital lease obligations
and other liabilities		(84	)		(1,456	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		5,276			9,523
INVESTING ACTIVITIES:
Maturities of securities available for sale		24,431			11,271
Proceeds from redemptions for FHLB & FRB stock		9,509			12,596
Call of securities available for sale		11,000			—
Sales of securities available for sale		22,386			18,616
Purchase of securities available for sale		(551	)		(8,806	)
Purchase of FHLB & FRB stock		(8,514	)		(15,330	)
Proceeds from sales of loans held for sale at lower of cost or fair value		—			—
Net increase in loans		(192,047	)		(240,715	)
Sales of other real estate owned		176			—
Purchase of premises and equipment		(608	)		(1,592	)
Disposal of premises and equipment		—			9
NET CASH USED IN INVESTING ACTIVITIES		(134,218	)		(223,951	)
FINANCING ACTIVITIES:
Net increase in deposits		223,639			246,046
Net (decrease)/increase in overnight borrowings se in overnight borrowings		(54,600	)		24,500
Net increase in other borrowings		—			9,000
Cash dividends paid on common stock		(757	)		(590	)
Exercise of Stock Options		27			72
Restricted stock tax expense		(23	)		—
Sales of shares (DRIP Program)		2,121			1,716
Purchase of shares for Profit Sharing Plan		151			70
NET CASH PROVIDED BY FINANCING ACTIVITIES		170,558			280,814
Net increase/(decrease) in cash and cash equivalents		41,616			66,386
Cash and cash equivalents at beginning of period		31,207			35,147
Cash and cash equivalents at end of period	$	72,823		$	101,533

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, 2014 for Peapack-Gladstone Financial Corporation (the “Corporation” or the “Company”). In the opinion of the Management of the Corporation, the accompanying unaudited Consolidated Interim Financial Statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of March 31, 2015 and the results of operations, comprehensive income, and cash flows statements for the three months ended March 31, 2015 and 2014, shareholders’ equity statement for the three months ended March 31, 2015.

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

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

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

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

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

8

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

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

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

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

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

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

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

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

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

9

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

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

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

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

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

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

10

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. Primary risk characteristics associated with junior lien loans typically involve major living or lifestyle changes to the borrower, including unemployment or other loss of income; unexpected significant expenses, such as for major medical issues or catastrophic events; divorce or death. Further, real estate value could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential exposure for the Bank.

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

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

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

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

11

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

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

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

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

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

For the three months ended March 31, 2015 and 2014, the Corporation recorded total compensation cost for stock options of $65 thousand and $52 thousand respectively, with a recognized tax benefit of $6 thousand and $5 thousand for the quarters ended March 31, 2015 and 2014, respectively. There was approximately $225 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Corporation’s stock incentive plans at March 31, 2015. That cost is expected to be recognized over a weighted average period of 1.01 years.

12

For the Company’s stock option plans, changes in options outstanding during the three months ended March 31, 2015 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In thousands)
Balance, January 1, 2015		345,189		$	17.38
Granted during 2015		—			—
Exercised during 2015		(12,357	)		12.47
Expired during 2015		(3,088	)		23.57
Forfeited during 2015		(2,050	)		12.91
Balance, March 31, 2015		327,694		$	17.53		5.08 years	$	1,333
Vested and expected to vest (1)		310,984		$	17.77		5.08 years	$	1,191
Exercisable at March 31, 2015		265,804		$	18.37		4.55 years	$	89

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

The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of 2015 and the exercise price, multiplied by the number of in-the-money options). The Company’s closing stock price on March 31, 2015 was $21.60.

There were no stock options granted in the first quarter of 2015. For the first quarter of 2014, the per share weighted-average fair value of stock options granted was $7.49 using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months
	Ended
	March 31,
	2014
Dividend Yield		1.01%
Expected volatility		40%
Expected life		7 years
Risk-free interest rate		2.15%

In the first quarter of 2015, the Company issued 147,617 restricted stock awards, at a fair value equal to the market price of the Company’s common stock at the date of grant. The awards may vest fully during a period of up to three or five years after the date of award. The stock awards were service based awards and vest ratably over three or five year periods. There were no performance based awards granted during this period. The performance based awards are dependent upon the Company meeting certain performance criteria and cliff vest at the end of the performance period. As of March 31, 2015, the Company has determined that the performance targets will be met and therefore, the performance awards are being expensed over the vesting period.

As of March 31, 2015, there was $7.2 million of total unrecognized compensation cost related to nonvested shares, which is expected to vest over 4.8 years.

13

Changes in nonvested shares dependent on performance criteria for the first quarter ended March 31, 2015 were as follows:

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Balance, January 1, 2015		92,767	$	18.12
Granted during 2015		—		—
Vested during 2015		—		—
Forfeited during 2015		—		—
Balance, March 31, 2015		92,767	$	18.12

Changes in nonvested shares not dependent on performance criteria for the first quarter ended March 31, 2015 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2015		252,328		$	17.34
Granted during 2015		147,617			20.98
Vested during 2015		(62,570	)		16.18
Forfeited during 2015		(500	)		19.47
Balance, March 31, 2015		336,875		$	19.15

For the three months ended March 31, 2015 and 2014, the Company recorded total compensation cost for stock awards of $476 thousand and $281 thousand respectively.

Employee Stock Purchase Plan: On April 22, 2014, the shareholders of Peapack-Gladstone Financial Corporation approved the Peapack-Gladstone Financial Corporation 2014 Employee Stock Purchase Plan (“ESPP”). The ESPP provides for the granting of purchase rights of up to 150,000 shares of Company common stock. Subject to certain eligibility requirements and restrictions, the ESPP allows employees to purchase shares during four three-month offering periods. Each participant in the offering period is granted an option to purchase a number of shares and may contribute between 1% and 15% of their compensation. Purchases under the ESPP will be made on the last trading day of each offering period, and the number of shares to be purchased by the employee is determined by dividing the employee’s contributions accumulated during the offering period by the applicable purchase price. The purchase price is an amount equal to 85% of the closing market price of a share of Company common stock on the purchase date. Participation in the ESPP is entirely voluntary and employees can cancel their purchases at any time during the period without penalty. For the three months ended March 31, 2015, the Company recorded $27 thousand of share based compensation expense related to the ESPP. Total shares issued under the ESPP during the first quarter of 2015 were 7,888 shares.

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

14

	Three Months Ended
	March 31,
(In thousands, except per share data)	2015		2014
Net income to common shareholders	$	5,008	$	3,031
Basic weighted-average common shares outstanding		14,909,722		11,606,933
Plus: common stock equivalents		160,630		104,007
Diluted weighted-average common shares outstanding		15,070,352		11,710,940
Net income per common share
Basic	$	0.34	$	0.26
Diluted		0.33		0.26

Stock options and restricted stock totaling 163,297 and 232,104 shares were not included in the computation of diluted earnings per share in the first quarters of 2015 and 2014, respectively, because they were considered antidilutive.

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

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

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

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

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

2. INVESTMENT SECURITIES AVAILABLE FOR SALE

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

	March 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	10,950	$	48	$	—		$	10,998
Mortgage-backed securities – residential		217,723		3,256		(129	)		220,850
Small Business Administration
pool securities		7,916		—		(71	)		7,845
State and political subdivisions		30,410		558		—			30,968
Single-issuer trust preferred security		2,999		—		(524	)		2,475
CRA investment		3,000		—		(17	)		2,983
Total	$	272,998	$	3,862	$	(741	)	$	276,119

15

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

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

	March 31, 2015
	Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer					Total
	Approximate					Approximate					Approximate
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-backed
securities-residential	$	10,251	$	(24	)	$	11,374	$	(105	)	$	21,625	$	(129	)
Small business
administration
pool securities		7,845		(71	)		—		—			7,845		(71	)
Single-issuer trust
Preferred security		—		—			2,475		(524	)		2,475		(524	)
CRA investment fund		—		—			2,983		(17	)		2,983		(17	)
Total	$	18,096	$	(95	)	$	16,832	$	(646	)	$	34,928	$	(741	)

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

Management believes that the unrealized losses on investment securities available for sale are temporary and are due to interest rate fluctuations and/or volatile market conditions rather than the creditworthiness of the issuers. As of March 31, 2015, the Company does not intend to sell these securities nor is it likely that it will be required to sell the securities before their anticipated recovery; therefore, none of the securities in unrealized loss position were determined to be other-than-temporarily impaired.

16

At March 31, 2015, the unrealized loss on the single-issuer trust preferred security of $524 thousand was related to a debt security issued by a large bank holding company that has experienced declines in all its securities due to the turmoil in the financial markets and a merger. The security was downgraded to below investment grade by Moody’s and is currently rated Ba1. Management monitors the performance of the issuer on a quarterly basis to determine if there are any credit events that could result in deferral or default of the security. Management believes the depressed valuation is a result of the nature of the security, a trust preferred bond, and the bond’s very low yield. As Management does not intend to sell this security nor is it likely that it will be required to sell the security before its anticipated recovery, the security is not considered other-than-temporarily impaired at March 31, 2015.

3. LOANS

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

			% of					% of
	March 31,		Totals			December 31,		Total
(In thousands)	2015		Loans			2014		Loans
Residential mortgage	$	466,333		19.09	%	$	466,760		20.74	%
Multifamily mortgage		1,214,714		49.74			1,080,256		48.00
Commercial mortgage		339,037		13.88			308,491		13.71
Commercial loans		336,079		13.76			308,743		13.72
Construction loans		5,777		0.24			5,998		0.27
Home equity lines of credit		50,399		2.07			50,141		2.23
Consumer loans, including fixed
rate home equity loans		28,206		1.15			28,040		1.25
Other loans		1,755		0.07			1,838		0.08
Total loans	$	2,442,300		100.00	%	$	2,250,267		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 March 31, 2015 and December 31, 2014:

			% of					% of
	March 31,		Totals			December 31,		Total
(In thousands)	2015		Loans			2014		Loans
Primary residential mortgage	$	479,181		19.64	%	$	480,149		21.37	%
Home equity lines of credit		50,558		2.07			50,302		2.24
Junior lien loan on residence		11,165		0.46			11,808		0.52
Multifamily property		1,214,714		49.80			1,080,256		48.07
Owner-occupied commercial real estate		112,046		4.59			105,446		4.69
Investment commercial real estate		436,541		17.90			405,771		18.06
Commercial and industrial		99,700		4.09			81,362		3.62
Secured by farmland/agricultural
production		361		0.01			364		0.02
Commercial construction loans		4,502		0.18			4,715		0.21
Consumer and other loans		30,630		1.26			27,084		1.20
Total loans	$	2,439,398		100.00	%	$	2,247,257		100.00	%
Net deferred fees		2,902					3,010
Total loans including net deferred costs	$	2,442,300				$	2,250,267

17

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 March 31, 2015 and December 31, 2014:

	March 31, 2015
	Total		Ending ALLL		Total		Ending ALLL
	Loans		Attributable		Loans		Attributable
	Individually		To Loans		Collectively		To Loans
	Evaluated		Individually		Evaluated		Collectively				Total
	For		Evaluated for		For		Evaluated for		Total		Ending
(In thousands)	Impairment		Impairment		Impairment		Impairment		Loans		ALL
Primary residential
mortgage	$	6,336	$	258	$	472,845	$	2,056	$	479,181	$	2,314
Home equity lines
of credit		208		—		50,350		97		50,558		97
Junior lien loan
on residence		136		—		11,029		71		11,165		71
Multifamily
property		—		—		1,214,714		8,738		1,214,714		8,738
Owner-occupied
commercial
real estate		1,346		—		110,700		2,347		112,046		2,347
Investment
commercial
real estate		11,625		688		424,916		5,447		436,541		6,135
Commercial and
industrial		245		147		99,455		864		99,700		1,011
Secured by
farmland and
agricultural
production		—		—		361		3		361		3
Commercial
construction		—		—		4,502		23		4,502		23
Consumer and
other		—		—		30,630		77		30,630		77
Total ALLL	$	19,896	$	1,093	$	2,419,502	$	19,723	$	2,439,398	$	20,816

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

18

Impaired loans include nonaccrual loans of $6.3 million at March 31, 2015 and $6.9 million at December 31, 2014. Impaired loans also include performing TDR loans of $13.6 million at both March 31, 2015 and December 31, 2014. At March 31, 2015, the allowance allocated TDR loans totaled $1.0 million of which $159 thousand was allocated to nonaccrual loans. At December 31, 2014, the allowance allocated to TDR totaled $892 thousand of which $204 thousand was allocated to nonaccrual loans. All accruing TDR loans were paying in accordance with restructured terms as of March 31, 2015. The Company has not committed to lend additional amounts as of March 31, 2015 to customers with outstanding loans that are classified as loan restructurings.

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

	March 31, 2015
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	5,704	$	4,648	$	—	$	4,483
Owned-occupied commercial real estate		1,497		1,346		—		1,577
Investment commercial real estate		5,734		5,403		—		6,687
Commercial and industrial		178		99		—		198
Home equity lines of credit		209		208		—		175
Junior lien loan on residence		515		136		—		155
Consumer and other		—		—		—		1
Total loans with no related allowance	$	13,837	$	11,840	$	—	$	13,276
With related allowance recorded:
Primary residential mortgage	$	1,781	$	1,688	$	258	$	1,693
Investment commercial real estate		6,222		6,222		688		4,950
Commercial and industrial		179		146		147		148
Total loans with related allowance	$	8,182	$	8,056	$	1,093	$	6,791
Total loans individually evaluated for
impairment	$	22,019	$	19,896	$	1,093	$	20,067

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

Interest income recognized on impaired loans for the quarters ended March 31, 2015 and 2014, was not material. The Company did not recognize any income on nonaccruing impaired loans for the three months ended March 31, 2015 and 2014.

19

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 March 31, 2015 and December 31, 2014:

	March 31, 2015
			Loans Past Due
			Over 90 Days
			And Still
			Accruing
(In thousands)	Nonaccrual		Interest
Primary residential mortgage	$	3,975	$	—
Home equity lines of credit		208		—
Junior lien loan on residence		136		—
Owned-occupied commercial real estate		1,346		—
Investment commercial real estate		424		—
Commercial and industrial		246		—
Total	$	6,335	$	—

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

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

	March 31, 2015
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	2,120	$	—	$	—	$	2,120
Home equity lines of credit		10		117		—		127
Commercial and industrial		205		—		—		205
Consumer and other		29		—		—		29
Total	$	2,364	$	117	$	—	$	2,481

20

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

Credit Quality Indicators:

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

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.

21

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 March 31, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

			Special
(In thousands)	Pass		Mention		Substandard		Doubtful
Primary residential mortgage	$	470,588	$	1,359	$	7,234	$	—
Home equity lines of credit		50,350		—		208		—
Junior lien loan on residence		11,029		—		136		—
Multifamily property		1,213,417		485		812		—
Owned-occupied commercial real estate		106,448		435		5,163		—
Investment commercial real estate		400,359		11,531		24,651		—
Commercial and industrial		99,434		20		246		—
Farmland		186		—		—		—
Agricultural production loans		175		—		—		—
Commercial construction		4,352		150		—		—
Consumer and other loans		30,630		—		—		—
Total	$	2,386,968	$	13,980	$	38,450	$	—

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

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

At March 31, 2015, $19.9 million of substandard and special mention loans were also considered impaired as compared to December 31, 2014, when $20.5 million were also impaired.

The activity in the allowance for loan losses for the three months ended March 31, 2015 is summarized below:

	January 1,										March 31,
	2015							Provision			2015
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,923	$	(43	)	$	66	$	(632	)	$	2,314
Home equity lines of credit		156		(100	)		—		41			97
Junior lien loan on residence		109		—			28		(66	)		71
Multifamily property		8,983		—			—		(245	)		8,738
Owned-occupied commercial real estate		1,547		—			11		789			2,347
Investment commercial real estate		4,751		—			6		1,378			6,135
Commercial and industrial		880		—			25		106			1,011
Secured by farmland and agricultural production		4		—			—		(1	)		3
Commercial construction		31		—			—		(8	)		23
Consumer and other loans		96		(17	)		10		(12	)		77
Total ALLL	$	19,480	$	(160	)	$	146	$	1,350		$	20,816

22

The activity in the allowance for loan losses for the three months ended March 31, 2014 is summarized below:

	January 1,										March 31,
	2014							Provision			2014
	Beginning							(Credit)			Ending
(In thousands)	ALLL		Charge-offs			Recoveries					ALLL
Primary residential mortgage	$	2,361	$	(20	)	$	—	$	121		$	2,462
Home equity lines of credit		181		—			—		(28	)		153
Junior lien loan on residence		156		(1	)		23		(39	)		139
Multifamily property		4,003		—			—		1,627			5,630
Owned-occupied commercial real estate		2,563		(72	)		—		(23	)		2,468
Investment commercial real estate		5,083		—			2		(406	)		4,679
Agricultural production loans		—		—			—		2			2
Commercial and industrial		825		(58	)		14		157			938
Secured by farmland		3		—			—		—			3
Commercial construction		120		—			—		(76	)		44
Consumer and other loans		78		(2	)		3		(10	)		69
Total ALLL	$	15,373	$	(153	)	$	42	$	1,325		$	16,587

Troubled Debt Restructurings:

The Company has allocated $886 thousand and $688 thousand of specific reserves on accruing TDRs to customers whose loan terms have been modified in TDRs as of March 31, 2015 and December 31, 2014, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

There were no new TDRs that occurred during the three month period ending March 31, 2015. During the three month period ending March 31, 2014, the terms of certain loans were modified as TDRs. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; a deferral of scheduled payments with an extension of the maturity date; ; or some other modification or extension which would not be readily available in the market.

The following table presents loans by class modified as TDRs that occurred during the three month period ending March 31, 2014:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
	Contracts	Investment		Investment
Primary residential mortgage	1	$	193	$	193
Investment commercial real estate	1		1,304		1,304
Total	2	$	1,497	$	1,497

There were no loans that were modified as TDRs for which there was a payment default, within twelve months of modification, during the three months ended March 31, 2015 and 2014. The above loan modifications did not have a material impact on the allowance for loan losses as of March 31, 2014.

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

23

4. DEPOSITS

Certificates of deposit, excluding brokered, over $250,000 totaled $47.4 million and $14.7 million at March 31, 2015 and 2014, respectively.

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

	2015					2014
(In thousands)	$		%			$		%
Noninterest-bearing demand deposits	$	377,399		14.96	%	$	366,371		15.94	%
Interest-bearing checking		634,580		25.16			600,889		26.14
Savings		115,515		4.58			112,878		4.91
Money market		714,466		28.32			700,069		30.46
Certificates of deposit		310,678		12.32			198,819		8.65
		2,152,638		85.34			1,979,026		86.09
Interest-bearing demand - Brokered		263,000		10.43			188,000		8.18
Certificates of deposit - Brokered		106,694		4.23			131,667		5.73
Total deposits	$	2,522,332		100.00	%	$	2,298,693		100.00	%

The scheduled maturities of certificates of deposit as of March 31, 2015 are as follows:

(In thousands)
2015	$	81,172
2016		44,994
2017		79,869
2018		92,300
2019		46,159
Over 5 Years		72,878
Total	$	417,372

5. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

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

At March 31, 2015 advances totaling $71.7 million with a weighted average rate of 1.57 percent have fixed maturity dates. The fixed rate advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $398.0 million and multifamily totaling $1.01 billion at March 31, 2015.

Also at March 31, 2015, the Corporation had $12.0 million in variable rate advances, with a weighted average interest rate of 3.01 percent, that are noncallable for two or three years and then callable quarterly with final maturities of ten years from the original date of the advance. All of these advances are beyond their initial noncallable periods. These advances are secured by pledges of investment securities totaling $13.1 million at March 31, 2015.

24

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

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

At March 31, 2015 there were no overnight borrowings with the FHLB. At December 31, 2014 there were overnight borrowings with the FHLB of $54.6 million.

6. BUSINESS SEGMENTS

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

Banking

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

Private Wealth Management Division

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

The following table presents the statements of income and total assets for the Corporation’s reportable segments for the three months ended March 31, 2015 and 2014.

	Three Months Ended March 31, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	18,570	$	1,013	$	19,583
Noninterest income		1,777		4,105		5,882
Total income		20,347		5,118		25,465
Provision for loan losses		1,350		—		1,350
Salaries and benefits		7,540		1,885		9,425
Premises and equipment expense		2,385		231		2,616
Other noninterest expense		2,495		1,232		3,727
Total noninterest expense		13,770		3,348		17,118
Income before income tax expense		6,577		1,770		8,347
Income tax expense		2,651		688		3,339
Net income	$	3,926	$	1,082	$	5,008
Total assets for period end	$	2,853,133	$	26,324	$	2,879,457

25

	Three Months Ended March 31, 2014
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	14,588	$	983	$	15,571
Noninterest income		1,190		3,805		4,995
Total income		15,778		4,788		20,566
Provision for loan losses		1,325		—		1,325
Salaries and benefits		7,015		1,833		8,848
Premises and equipment expense		2,269		169		2,438
Other noninterest expense		1,853		1,200		3,053
Total noninterest expense		12,462		3,202		15,664
Income before income tax expense		3,316		1,586		4,902
Income tax expense		1,266		605		1,871
Net income	$	2,050	$	981	$	3,031
Total assets for period end	$	2,240,297	$	11,188	$	2,251,485

7. FAIR VALUE

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

Level 1:	Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2:	Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3:	Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing as asset or liability.

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

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

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

26

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

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

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

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by Management. Once received, a member of the Credit Department reviews the assumptions and approaches utilized in the appraisal, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals on collateral dependent impaired loans and other real estate owned (consistent for all loan types) are obtained on an annual basis, unless a significant change in the market or other factors warrants a more frequent appraisal. On an annual basis, Management compares the actual selling price of any collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value for other properties. The most recent analysis performed indicated that a discount up to 15 percent should be applied to appraisals on properties. The discount is determined based on the nature of the underlying properties, aging of appraisal and other factors. For each collateral-dependent impaired loan we consider other factors, such as certain indices or other market information, as well as property specific circumstances to determine if an adjustment to the appraised value is needed. In situations where there is evidence of change in value, the Bank will determine if there is need for an adjustment to the specific reserve on the collateral dependent impaired loans. When the Bank applies an interim adjustment, it generally shows the adjustment as an incremental specific reserve against the loan until it has received the full updated appraisal. As of March 31, 2015, all collateral-dependent impaired loans and other real estate owned valuations were supported by an appraisal less than 12 months old.

27

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
	March 31,			Assets		Inputs			Inputs
(In thousands)	2015			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	10,998		$	—	$	10,998		$	—
Mortgage-backed securities-
residential		220,850			—		220,850			—
SBA pool securities		7,845			—		7,845
State and political subdivisions		30,968			—		30,968			—
Single-Issuer Trust Preferred		2,475			—		2,475			—
CRA investment fund		2,983			2,983		—			—
Loans held for sale, at fair value		4,245			—		4,245			—
Total	$	280,364		$	2,983	$	277,381		$	—
Liabilities:
Derivatives	$	(1,161	)	$	—	$	(1,161	)	$	—

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