10-Q

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 September 30, 2016

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 07921-0700
(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 October 31, 2016:

16,947,538

 1

PEAPACK-GLADSTONE FINANCIAL CORPORATION

PART 1 FINANCIAL INFORMATION

Item 1	Financial Statements
	Consolidated Statements of Condition at September 30, 2016 and
	December 31, 2015	Page 3
	Consolidated Statements of Income for the three months and nine months
	ended September 30, 2016 and 2015	Page 4
	Consolidated Statements of Comprehensive Income for
	the three months and nine months ended September 30, 2016 and 2015	Page 5
	Consolidated Statement of Changes in Shareholders’ Equity
	for the nine months ended September 30, 2016	Page 6
	Consolidated Statements of Cash Flows for the nine months
	ended September 30, 2016 and 2015	Page 7
	Notes to Consolidated Financial Statements	Page 9
Item 2	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	Page 45
Item 3	Quantitative and Qualitative Disclosures about Market Risk	Page 68
Item 4	Controls and Procedures	Page 68

PART 2 OTHER INFORMATION

Item 1	Legal Proceedings	Page 68
Item 1A	Risk Factors	Page 68
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	Page 69
Item 3	Defaults Upon Senior Securities	Page 69
Item 4	Mine Safety Disclosures	Page 69
Item 5	Other Information	Page 69
Item 6	Exhibits	Page 69

 2

Item 1. Financial Statements (Unaudited)

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands, except share data)

	(unaudited)			(audited)
	September 30,			December 31,
	2016			2015
ASSETS
Cash and due from banks	$	17,861		$	11,550
Federal funds sold		101			101
Interest-earning deposits		141,593			58,509
Total cash and cash equivalents		159,555			70,160
Securities available for sale		249,616			195,630
FHLB and FRB stock, at cost		14,093			13,984
Residential mortgage loans held for sale, at fair value		3,013			1,558
Multifamily mortgage loans held for sale, at lower of cost or fair value		30,000			82,200
Loans		3,232,887			2,913,242
Less: Allowance for loan losses		30,616			25,856
Net loans		3,202,271			2,887,386
Premises and equipment		30,223			30,246
Other real estate owned		534			563
Accrued interest receivable		6,383			6,820
Bank owned life insurance		43,541			42,885
Deferred tax assets, net		14,765			15,582
Goodwill		1,573			1,573
Other intangible assets		1,615			1,708
Other assets		17,201			14,364
TOTAL ASSETS	$	3,774,383		$	3,364,659
LIABILITIES
Deposits:
Noninterest-bearing demand deposits	$	494,204		$	419,887
Interest-bearing deposits:
Interest-bearing deposits checking		928,941			861,697
Savings		119,650			115,007
Money market accounts		997,572			810,709
Certificates of deposit  - Retail		466,003			434,450
Subtotal deposits		3,006,370			2,641,750
Interest-bearing demand – Brokered		200,000			200,000
Certificates of deposit - Brokered		93,690			93,720
Total deposits		3,300,060			2,935,470
Overnight borrowings with Federal Home Loan Bank		—			40,700
Federal Home Loan Bank advances		71,795			83,692
Capital lease obligation		9,828			10,222
Subordinated debt, net		48,731			—
Accrued expenses and other liabilities		27,934			18,899
Due to brokers, securities settlements		7,003			—
TOTAL LIABILITIES		3,465,351			3,088,983
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, 17,352,916 at September 30, 2016 and
16,476,297 at December 31, 2015; outstanding shares, 16,944,738 at
September 30, 2016 and 16,068,119 at December 31, 2015		14,451			13,717
Surplus		230,506			213,203
Treasury stock at cost, 408,178 shares at September 30, 2016 and
December 31, 2015		(8,988	)		(8,988	)
Retained earnings		74,840			58,123
Accumulated other comprehensive loss, net of income tax		(1,777	)		(379	)
TOTAL SHAREHOLDERS’ EQUITY		309,032			275,676
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	3,774,383		$	3,364,659

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,
	2016		2015		2016		2015
INTEREST INCOME
Interest and fees on loans	$	28,225	$	24,663	$	82,713	$	68,274
Interest on securities available for sale:
Taxable		976		959		2,816		3,178
Tax-exempt		128		128		377		395
Interest on loans held for sale		384		10		577		44
Interest on interest-earning deposits		131		46		294		128
Total interest income		29,844		25,806		86,777		72,019
INTEREST EXPENSE
Interest on savings and interest-bearing deposit
accounts		1,399		919		3,785		2,546
Interest on certificates of deposit		1,615		1,296		4,649		3,010
Interest on borrowed funds		380		399		1,432		1,219
Interest on capital lease obligation		119		125		361		379
Interest on subordinated debt		799		—		938		—
Subtotal - interest expense		4,312		2,739		11,165		7,154
Interest on interest-bearing demand – brokered		762		857		2,263		1,700
Interest on certificates of deposits – brokered		501		504		1,494		1,532
Total Interest expense		5,575		4,100		14,922		10,386
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES		24,269		21,706		71,855		61,633
Provision for loan losses		2,100		1,600		6,000		5,150
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		22,169		20,106		65,855		56,483
OTHER INCOME
Wealth management fee income		4,436		4,169		13,630		12,732
Service charges and fees		812		832		2,437		2,474
Bank owned life insurance		340		260		1,027		1,045
Gains on loans held for sale at fair value (mortgage banking)		383		102		813		411
Gains on multifamily loans held for sale at lower of cost or fair value		256		—		880		—
Fee income related to loan level, back-to-back swaps		670		—		764		373
Gain on sale of SBA loans		243		—		502		—
Other income		395		164		1,074		429
Securities gains, net		—		83		119		527
Total other income		7,535		5,610		21,246		17,991
OPERATING EXPENSES
Salaries and employee benefits		11,515		10,322		33,523		29,619
Premises and equipment		2,736		2,785		8,342		8,179
FDIC insurance expense		814		416		3,954		1,329
Other operating expense		3,101		3,376		10,328		9,806
Total operating expenses		18,166		16,899		56,147		48,933
INCOME BEFORE INCOME TAX EXPENSE		11,538		8,817		30,954		25,541
Income tax expense		4,422		3,434		11,785		9,912
NET INCOME	$	7,116	$	5,383	$	19,169	$	15,629
EARNINGS PER SHARE
Basic	$	0.43	$	0.35	$	1.19	$	1.04
Diluted	$	0.43	$	0.35	$	1.17	$	1.02
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Basic		16,467,654		15,253,009		16,167,153		15,083,006
Diluted		16,673,596		15,435,939		16,347,255		15,293,747

See accompanying notes to consolidated financial statements

 4

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net income	$	7,116		$	5,383		$	19,169		$	15,629
Other comprehensive income:
Unrealized gains/(loss) on available for sale
securities:
Unrealized holding (loss)/gains arising
during the period		(350	)		751			1,081			849
Less: Reclassification adjustment for net gains
included in net income		—			83			119			527
		(350	)		668			962			322
Tax effect		135			(252	)		(361	)		(111	)
Net of tax		(215	)		416			601			211
Unrealized gains/(loss) on cash flow hedges:
Unrealized holding gains/(loss)		1,591			(2,849	)		(3,380	)		(3,210	)
		1,591			(2,849	)		(3,380	)		(3,210	)
Tax effect		(650	)		1,163			1,381			1,311
Net of tax		941			(1,686	)		(1,999	)		(1,899	)
Total other comprehensive income/(loss)		726			(1,270	)		(1,398	)		(1,688	)
Total comprehensive income	$	7,842		$	4,113		$	17,771		$	13,941

See accompanying notes to consolidated financial statements

 5

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

Nine Months Ended September 30, 2016

													Accumulated
													Other
(In thousands, except	Common						Treasury			Retained			Comprehensive
per share data)	Stock			Surplus			Stock			Earnings			Loss			Total
Balance at January 1, 2016
16,068,119 common shares
outstanding	$	13,717		$	213,203		$	(8,988	)	$	58,123		$	(379	)	$	275,676
Net income		—									19,169						19,169
Net change in accumulated
other comprehensive loss		—												(1,398	)		(1,398	)
Issuance of restricted stock, net
of forfeitures, (10,860)  shares		(9	)		9												—
Restricted stock repurchased on
vesting to pay taxes,
(24,093) shares		(20	)		(476	)											(496	)
Amortization of restricted awards/units		—			2,154												2,154
Cash dividends declared on
common stock
($0.15 per share)		—			—						(2,452	)					(2,452	)
Common stock option expense		—			45												45
Common stock options exercised,
19,958 net of 1,317 used to
exercise and related tax benefits,
18,641 shares		16			230												246
Sales of shares (Dividend
Reinvestment Program),
866,018 shares		722			14,810												15,532
Issuance of shares for
Employee Stock Purchase
Plan, 26,913 shares		25			531												556
Balance at September 30, 2016
16,944,738 common shares
outstanding	$	14,451		$	230,506		$	(8,988	)	$	74,840		$	(1,777	)	$	309,032

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,
	2016			2015
OPERATING ACTIVITIES:
Net income	$	19,169		$	15,629
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,280			2,408
Amortization of premium and accretion of discount on securities, net		1,090			1,337
Amortization of restricted stock		2,154			1,734
Amortization of intangible		93			—
Amortization of subordinated debt costs		38			—
Provision of loan losses		6,000			5,150
Provision of OREO losses		—			250
Provision/(benefit) for deferred taxes		1,837			(2,922	)
Stock-based compensation, including ESPP		128			252
Gains on securities, available for sale		(119	)		(527	)
Loans originated for sale at fair value		(53,412	)		(26,495	)
Proceeds from sales of loans at fair value		52,770			27,244
Gains on loans held for sale at fair value		(813	)		(411	)
Net gains on loans held for sale at lower of cost or fair value		(880	)		—
Gain on sale of other real estate owned		(5	)		—
Losses on disposal of fixed assets		—			15
Gain on death benefit		—			(285	)
Increase in cash surrender value of life insurance, net		(656	)		(485	)
Decrease/(increase) in accrued interest receivable		437			(1,468	)
(Increase)/decrease in other assets		(391	)		1,466
Increase in accrued expenses, capital lease obligations
and other liabilities		2,732			2,043
NET CASH PROVIDED BY OPERATING ACTIVITIES		32,452			24,935
INVESTING ACTIVITIES:
Maturities of securities available for sale		43,997			58,098
Redemptions for FHLB & FRB stock		61,155			44,568
Call of securities available for sale		10,035			14,880
Sales of securities available for sale		5,499			46,254
Purchase of securities available for sale		(106,524	)		(6,474	)
Purchase of FHLB & FRB stock		(61,264	)		(44,712	)
Proceeds from sales of loans held for sale at lower of cost or fair value		182,763			—
Net increase in loans		(451,101	)		(632,239	)
Sales of other real estate owned		568			744
Purchase of premises and equipment		(2,257	)		(1,475	)
Acquisition of wealth management company		—			(800	)
Proceeds from death benefit		—			677
NET CASH USED IN INVESTING ACTIVITIES		(317,129	)		(520,479	)
FINANCING ACTIVITIES:
Net increase in deposits		364,590			588,852
Net decrease in overnight borrowings se in overnight borrowings		(40,700	)		(54,600	)
Repayments of Federal Home Loan Bank advances		(11,897	)		—
Cash dividends paid on common stock		(2,452	)		(2,310	)
Exercise of Stock Options, net of stock swap		246			29
Restricted stock tax expense		(496	)		(54	)
Subordinated debt		48,693			—
Sales of shares (DRIP Program)		15,532			8,124
Purchase of shares for Profit Sharing Plan		—			494
Issuance of shares for employee stock purchase plan		556			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		374,072			540,535
Net increase in cash and cash equivalents		89,395			44,991
Cash and cash equivalents at beginning of period		70,160			31,207
Cash and cash equivalents at end of period	$	159,555		$	76,198

 7

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	13,492	$	9,627
Taxes		10,880		10,822
Transfer of loans to loans held for sale		159,804		—
Transfer of loans held for sale to loans		30,121		—
Transfer of loans to other real estate owned		534		—
Security purchases settled in subsequent period		7,003		—

See accompanying notes to consolidated financial statements

 8

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, 2015 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 September 30, 2016 and the results of operations and comprehensive income for the three and nine months ended September 30, 2016 and 2015, and shareholders’ equity and cash flow statements for the nine months ended September 30, 2016 and 2015.

Principles of Consolidation and Organization: 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 subsidiaries, PGB Trust & Investments of Delaware and Peapack-Gladstone Mortgage Group, Inc. and Peapack-Gladstone Mortgage Group’s wholly-owned subsidiary, PG Investment Company of Delaware, Inc. and its wholly-owned subsidiary, Peapack-Gladstone Realty Inc., a New Jersey Real Estate Investment Company. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In preparing the financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statement of condition and revenues and expenses for that period. Actual results could differ from those estimates.

Segment Information: The Company’s business is conducted through its banking subsidiary and involves the delivery of loan and deposit products and wealth management services to customers. Management uses certain methodologies to allocate income and expense to the business segments.

The Banking segment includes commercial, commercial real estate, multifamily, residential and consumer lending activities; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support sales.

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. This segment also includes the activity from the Delaware subsidiary, PGB Trust & Investments of Delaware. Income is recognized as earned.

Cash and Cash Equivalents: For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-earning deposits and federal funds sold. Generally, federal funds are sold for one-day periods. Cash equivalents are of original maturities of 90 days or less. Net cash flows are reported for customer loan and deposit transactions and overnight borrowings.

 9

Interest-Earning Deposits in Other Financial Institutions: Interest-earning deposits in other financial institutions mature within one year and are carried at cost.

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/(loss), net of tax.

Interest income includes amortization of purchase premiums and discounts. 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.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of FHLB stock, based on the level of borrowings and other factors. FHLB stock is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value. Cash dividends are reported as income.

The Bank is also a member of the Federal Reserve Bank and required to own a certain amount of FRB stock. FRB stock is carried at cost and classified as a restricted security. Cash dividends are reported as income.

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.

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, shown as gain on sale of loans on the Statement of Income, 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 Company no longer has the intent to hold for the foreseeable future.

 10

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 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 States of New Jersey and New York.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for expected credit losses that are deemed to be probable. When Management is reasonably certain that a loan balance is not fully collectable an analysis is completed and either a full or partial charge off is recorded against the allowance. 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, 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.

Loans are individually evaluated for impairment when they 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 a residential mortgage is placed on nonaccrual status and is in the process of collection, such as through a foreclosure action, then it is evaluated for impairment on an individual basis and the loan is reported, net, at the fair value of the collateral less estimated disposition costs.

 11

A troubled debt restructuring is a modified loan with concessions made by the lender to a borrower who is experiencing financial difficulty. Troubled debt restructurings are impaired 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 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 than pass-rated loans using a multiple that is calculated annually through a migration analysis. The multiple was 5.0 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 in the Tri-State area (New York, New Jersey and Connecticut), Pennsylvania and Florida. 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; and 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 in the Tri-State area. 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; and 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.

 12

Junior Lien Loan on Residence. The Bank provides junior lien loans (“JLL”) against one to four family properties in the Tri-State area. JLLs 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 JLLs 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; and 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 (non-owner occupied) in the Tri-State area and Pennsylvania. Commercial real estate properties primarily include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Some properties are considered “mixed use” as they are a combination of building types, such as a building with retail space on the ground floor and either residential apartments or office suites on the upper floors. 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 its 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. In addition, these loans often include commercial real estate as collateral to strengthen the Bank’s position and further mitigate risk. 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.

Agricultural Production. These are loans to finance agricultural production and other loans to farmers. The Bank does not actively engage in this type of lending.

Commercial Construction. The Bank has discontinued its commercial construction activity. Dollar amounts within this segment are immaterial.

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.

 13

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, restricted stock units and stock appreciation rights to directors, officers and employees of the Company and its subsidiaries. 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 September 30, 2016 and 2015, the Company recorded total compensation cost for stock options of $11 thousand and $54 thousand respectively, with a recognized tax benefit of $1 thousand and $7 thousand for the quarters ended September 30, 2016 and 2015, respectively. The Company recorded total compensation cost for stock options for the nine months ended September 30, 2016 and 2015, of $45 thousand and $175 thousand, respectively, with a recognized tax benefit of $4 thousand for the nine months ended September 30, 2016 and $19 thousand for the nine months ended September 30, 2015. There was approximately $16 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock incentive plans at September 30, 2016. That cost is expected to be recognized over a weighted average period of 0.43 years.

 14

For the Company’s stock option plans, changes in options outstanding during the nine months ended September 30, 2016 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In thousands)
Balance, January 1, 2016		267,289		$	17.28
Granted during 2016		—			—
Exercised during 2016		(19,958	)		13.55
Expired during 2016		(15,314	)		21.38
Forfeited during 2016		(842	)		13.55
Balance, September 30, 2016		231,175		$	17.35		3.63 years	$	1,171
Vested and expected to vest (1)		230,665		$	17.39		3.63 years	$	1,159
Exercisable at September 30, 2016		222,678		$	17.50		3.54 years	$	1,094

(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 third quarter of 2016 and the exercise price, multiplied by the number of in-the-money options). The Company’s closing stock price on September 30, 2016 was $22.41.

There were no stock options granted in the three and nine months ended September 30, 2016.

The Company has previously granted performance based and service based restricted stock awards. Service based units vest ratably over a one, three or five year period.  There were no restricted stock awards/units granted in the third quarter of 2016.

The performance based awards that were granted in previous periods, are dependent upon the Company meeting certain performance criteria and cliff vest at the end of the performance period.  During the fourth quarter of 2015, the Company concluded that the performance targets would not be met and therefore, reversed approximately $592 thousand of previously recorded expense for the performance awards. Total unrecognized compensation expense for performance based awards is $1.7 million as of September 30, 2016.

Changes in nonvested shares dependent on performance criteria for the nine months ended September 30, 2016 were as follows:

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Balance, January 1, 2016		92,767	$	18.12
Granted during 2016		—		—
Vested during 2016		—		—
Forfeited during 2016		—		—
Balance, September 30, 2016		92,767	$	18.12

 15

Changes in service based restricted stock awards/units for the nine months ended September 30, 2016 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2016		321,421		$	19.44
Granted during 2016		188,397			16.99
Vested during 2016		(99,937	)		18.37
Forfeited during 2016		(20,515	)		18.65
Balance, September 30, 2016		389,366		$	18.57

As of September 30, 2016, there was $5.3 million of total unrecognized compensation cost related to service based awards/units. That cost is expected to be recognized over a weighted average period of 1.52 years. Stock compensation expense recorded for the third quarters of 2016 and 2015 totaled $725 thousand and $636 thousand, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded total compensation cost for stock awards/units of $2.2 million and $1.7 million respectively.

Employee Stock Purchase Plan: On April 22, 2014, the shareholders of the Company approved the 2014 Employee Stock Purchase Plan (“ESPP”). The ESPP provides for the granting of purchase rights of up to 150,000 shares of Peapack-Gladstone Financial Corporation common stock. Subject to certain eligibility requirements and restrictions, the ESPP allows employees to purchase shares during four three-month offering periods (“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. At the end of each Offering Period on the purchase date, 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 Offering Period without penalty. The fair value of each share purchase right is determined using the Black-Scholes option pricing model.

The Company recorded $19 thousand and $26 thousand of expense in salaries and employee benefits expense for the three months ended September 30, 2016 and 2015, respectively related to the ESPP. Total shares issued under the ESPP during the third quarters of 2016 and 2015 were 7,155 and 8,799, respectively.

The Company recorded $83 thousand and $77 thousand of expense in salaries and employee benefits expense for the nine months ended September 30, 2016 and 2015, respectively, related to the ESPP. Total shares issued under the ESPP for the nine months ended September 30, 2016 and 2015 were 26,913 and 24,258, respectively.

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

 16

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2016		2015		2016		2015
Net income to shareholders	$	7,116	$	5,383	$	19,169	$	15,629
Basic weighted-average shares outstanding		16,467,654		15,253,009		16,167,153		15,083,006
Plus: common stock equivalents		205,942		182,930		180,102		210,741
Diluted weighted-average shares outstanding		16,673,596		15,435,939		16,347,255		15,293,747
Net income per share
Basic	$	0.43	$	0.35	$	1.19	$	1.04
Diluted		0.43		0.35		1.17		1.02

Stock options and warrants totaling 218,079 and 85,083 shares were not included in the computation of diluted earnings per share in the third quarters of 2016 and 2015, respectively, because they were considered antidilutive. Stock options and warrants totaling 223,832 and 174,662 shares were not included in the computation of diluted earnings per share in the nine months ended September 30, 2016 and 2015, 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 2013 or by New Jersey tax authorities for years prior to 2012.

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

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonable estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

Comprehensive Income: Comprehensive income consists of net income and the change during the period in the Company’s net unrealized gains or losses on securities available for sale and unrealized gains and losses on cash flow hedge, net of tax, less adjustments for realized gains and losses.

Transfers of Financial Assets:  Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished.  Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

 17

Goodwill and Other Intangible Assets:  Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquired company (if any), over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The Company has selected December 31 as the date to perform the annual impairment test.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill and assembly workforce are the intangible assets with an indefinite life on our balance sheet.

Other intangible assets primarily consist of customer relationship intangible assets arising from acquisition are amortized on an accelerated method over their estimated useful lives, which range up to 15 years.

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 September 30, 2016 and December 31, 2015 follows:

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	11,991	$	2	$	(23	)	$	11,970
Mortgage-backed securities – residential		189,724		1,897		(100	)		191,521
SBA pool securities		7,147		—		(79	)		7,068
State and political subdivisions		31,122		363		(10	)		31,475
Single-issuer trust preferred security		2,999		—		(397	)		2,602
CRA investment		5,000		—		(20	)		4,980
Total	$	247,983	$	2,262	$	(629	)	$	249,616

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Mortgage-backed securities – residential	$	159,747	$	1,293	$	(433	)	$	160,607
SBA pool securities		7,601		—		(81	)		7,520
State and political subdivisions		21,612		417		—			22,029
Single-issuer trust preferred security		2,999		—		(464	)		2,535
CRA investment		3,000		—		(61	)		2,939
Total	$	194,959	$	1,710	$	(1,039	)	$	195,630

 18

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, 2016 and December 31, 2015.

	September 30, 2016
	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 agencies	$	4,972	$	(23	)	$	—	$	—		$	4,972	$	(23	)
Mortgage-backed
securities-residential		40,568		(76	)		4,475		(24	)		45,043		(100	)
SBA pool securities		—		—			7,068		(79	)		7,068		(79	)
State and political
subdivisions		1,917		(10	)		—		—			1,917		(10	)
Single-issuer trust
preferred security		—		—			2,602		(397	)		2,602		(397	)
CRA investment fund		1,992		(8	)		2,988		(12	)		4,980		(20	)
Total	$	49,449	$	(117	)	$	17,133	$	(512	)	$	66,582	$	(629	)

	December 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	$	89,717	$	(345	)	$	8,913	$	(88	)	$	98,630	$	(433	)
SBA pool securities		—		—			7,520		(81	)		7,520		(81	)
Single-issuer trust
Preferred security		—		—			2,535		(464	)		2,535		(464	)
CRA investment fund		—		—			2,939		(61	)		2,939		(61	)
Total	$	89,717	$	(345	)	$	21,907	$	(694	)	$	111,624	$	(1,039	)

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 September 30, 2016, the Company does not intend to sell these securities nor is it likely that it will be required to sell the securities before their anticipated recovery; therefore, none of the securities in unrealized loss position were determined to be other-than-temporarily impaired.

At September 30, 2016, the unrealized loss on the single-issuer trust preferred security of $397 thousand was related to a debt security issued by a large bank holding. 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 September 30, 2016.

 19

3. LOANS

Loans outstanding, excluding those held for sale, by general ledger classification, as of September 30, 2016 and December 31, 2015, consisted of the following:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2016		Loans			2015		Loans
Residential mortgage	$	496,735		15.37	%	$	470,869		16.16	%
Multifamily mortgage		1,507,834		46.64			1,416,775		48.63
Commercial mortgage		497,267		15.38			413,118		14.18
Commercial loans		598,078		18.50			512,886		17.60
Construction loans		430		0.01			1,401		0.05
Home equity lines of credit		69,222		2.14			52,649		1.81
Consumer loans, including fixed
rate home equity loans		62,872		1.94			45,044		1.55
Other loans		449		0.02			500		0.02
Total loans	$	3,232,887		100.00	%	$	2,913,242		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, 2016 and December 31, 2015:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2016		Loans			2015		Loans
Primary residential mortgage	$	527,012		16.31	%	$	483,085		16.59	%
Home equity lines of credit		62,870		1.94			52,804		1.81
Junior lien loan on residence		10,046		0.31			11,503		0.39
Multifamily property		1,507,834		46.67			1,416,775		48.66
Owner-occupied commercial real estate		179,285		5.55			176,276		6.05
Investment commercial real estate		676,468		20.94			568,849		19.54
Commercial and industrial		192,539		5.96			154,295		5.30
Secured by farmland/agricultural
production		172		0.01			179		0.01
Commercial construction loans		523		0.02			151		0.01
Consumer and other loans		74,141		2.29			47,635		1.64
Total loans	$	3,230,890		100.00	%	$	2,911,552		100.00	%
Net deferred costs		1,997					1,690
Total loans including net deferred costs	$	3,232,887				$	2,913,242

 20

The following tables present the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan losses (ALLL) as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	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	$	15,297	$	334	$	511,715	$	2,696	$	527,012	$	3,030
Home equity lines
of credit		54		—		62,816		224		62,870		224
Junior lien loan
on residence		228		—		9,818		18		10,046		18
Multifamily
property		—		—		1,507,834		11,843		1,507,834		11,843
Owner-occupied
commercial
real estate		1,787		—		177,498		1,823		179,285		1,823
Investment
commercial
real estate		11,445		216		665,023		9,638		676,468		9,854
Commercial and
industrial		140		140		192,399		3,428		192,539		3,568
Secured by
farmland and
agricultural
production		—		—		172		2		172		2
Commercial
construction		—		—		523		4		523		4
Consumer and
Other		—		—		74,141		250		74,141		250
Total ALLL	$	28,951	$	690	$	3,201,939	$	29,926	$	3,230,890	$	30,616

	December 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		ALLL
Primary residential
mortgage	$	9,752	$	291	$	473,333	$	2,006	$	483,085	$	2,297
Home equity lines
of credit		254		—		52,550		86		52,804		86
Junior lien loan
on residence		176		—		11,327		66		11,503		66
Multifamily
Property		—		—		1,416,775		11,813		1,416,775		11,813
Owner-occupied
Commercial
real estate		1,272		—		175,004		1,679		176,276		1,679
Investment
commercial
real estate		11,482		61		557,367		7,529		568,849		7,590
Commercial and
Industrial		171		138		154,124		2,071		154,295		2,209
Secured by
farmland and
agricultural production
production		—		—		179		2		179		2
Commercial
construction		—		—		151		2		151		2
Consumer and
Other		—		—		47,635		112		47,635		112
Total ALLL	$	23,107	$	490	$	2,888,445	$	25,366	$	2,911,552	$	25,856

 21

Impaired loans include nonaccrual loans of $10.8 million at September 30, 2016 and $6.7 million at December 31, 2015. Impaired loans also include performing TDR loans of $18.1 million at September 30, 2016 and $16.2 million at December 31, 2015. At September 30, 2016, the allowance allocated to TDR loans totaled $403 thousand, of which $154 thousand was allocated to nonaccrual loans. At December 31, 2015, the allowance allocated to TDR loans totaled $441 thousand of which $162 thousand was allocated to nonaccrual loans. All but one accruing TDR loan was paying in accordance with restructured terms as of September 30, 2016. The Company has not committed to lend additional amounts as of September 30, 2016 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, 2016 and December 31, 2015 (The average impaired loans on the following tables represent year to date impaired loans.):

	September 30, 2016
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	15,415	$	13,548	$	—	$	8,899
Owner-occupied commercial real estate		2,017		1,787		—		1,319
Investment commercial real estate		9,812		9,812		—		9,814
Commercial and industrial		—		—		—		14
Home equity lines of credit		56		54		—		173
Junior lien loan on residence		277		228		—		328
Total loans with no related allowance	$	27,577	$	25,429	$	—	$	20,547
With related allowance recorded:
Primary residential mortgage	$	1,810	$	1,749	$	334	$	1,656
Investment commercial real estate		1,649		1,633		216		1,646
Commercial and industrial		188		140		140		135
Total loans with related allowance	$	3,647	$	3,522	$	690	$	3,437
Total loans individually evaluated for
impairment	$	31,224	$	28,951	$	690	$	23,984

	December 31, 2015
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	8,998	$	7,782	$	—	$	5,683
Owner-occupied commercial real estate		1,460		1,272		—		1,379
Investment commercial real estate		11,099		10,233		—		10,330
Commercial and industrial		63		33		—		112
Home equity lines of credit		258		254		—		229
Junior lien loan on residence		219		176		—		166
Consumer and other		—		—		—		1
Total loans with no related allowance	$	22,097	$	19,750	$	—	$	17,900
With related allowance recorded:
Primary residential mortgage	$	2,090	$	1,970	$	291	$	1,894
Investment commercial real estate		1,249		1,249		61		1,266
Commercial and industrial		179		138		138		144
Total loans with related allowance	$	3,518	$	3,357	$	490	$	3,304
Total loans individually evaluated for
impairment	$	25,615	$	23,107	$	490	$	21,204

Interest income recognized on impaired loans for the three and nine months ended September 30, 2016 and 2015, was not material. The Company did not recognize any income on nonaccruing impaired loans for the three and nine months ended September 30, 2016 and 2015.

 22

Loans held for sale, at lower of cost or fair value at September 30, 2016, represents loans that the Company has the intent to sell. The Company expects sale price to approximate recorded investment. During the three months ending September 30, 2016, proceeds for sale of loans held for sale, at lower of cost or fair value totaled approximately $44 million. During the nine months ending September 30, 2016, proceeds for sale of loans held for sale, at lower of cost or fair value totaled approximately $183 million. The sale included whole loans and participations. The Company recorded gains on sale of whole loans of $256 thousand and $880 thousand for the three and nine months ended September 30, 2016. No loans were sold at a loss during the three and nine months ended September 30, 2016. The sale of these loans were part of the Company’s balance sheet management strategy. Loans transferred from held for sale back into the loan portfolio for the nine months ended September 30, 2016 amounted to $30.1 million. These loans were transferred at their lower of cost or fair value.

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, 2016 and December 31, 2015:

	September 30, 2016
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	8,377	$	—
Home equity lines of credit		31		—
Junior lien loan on residence		106		—
Owner-occupied commercial real estate		1,787		—
Investment commercial real estate		408		—
Commercial and industrial		131		—
Total	$	10,840	$	—

	December 31, 2015
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	4,549	$	—
Home equity lines of credit		229		—
Junior lien loan on residence		118		—
Owner-occupied commercial real estate		1,272		—
Investment commercial real estate		408		—
Commercial and industrial		171		—
Consumer and other		—		—
Total	$	6,747	$	—

 23

The following tables present the aging of the recorded investment in past due loans as of September 30, 2016 and December 31, 2015 by class of loans, excluding nonaccrual loans:

	September 30, 2016
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,127	$	—	$	—	$	1,127
Junior lien loan on residence		—		50		—		50
Investment commercial real estate		6,937		96		—		7,033
Commercial and industrial		—		28		—		28
Total	$	8,064	$	174	$	—	$	8,238

	December 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	$	1,214	$	157	$	—	$	1,371
Investment commercial real estate		772		—		—		772
Total	$	1,986	$	157	$	—	$	2,143

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 and is subsequently re-evaluated annually, as follows:

· By credit underwriters for all loans $1,000,000 and over;

· Through a limited review by credit underwriters with the Chief Credit Officer for loans between $250,000 and $1,000,000;

· By an external independent loan review firm for all new loans over $500,000 and for existing loans of $3,500,000 and over;

· On a proportional basis by an external independent loan review firm for loans from $500,000 up to $3,499,999;

· By an external independent loan review firm for all loans with a risk rating of criticized and classified;

· On a random sampling basis by an external independent loan review firm for loans under $500,000;

· Whenever Management otherwise identifies a positive or negative trend or issue relating to a borrower.

The Company 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.

 24

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 that are considered to be impaired are individually evaluated for potential loss and allowance adequacy. Loans not deemed impaired are collectively evaluated for potential loss and allowance adequacy. As of September 30, 2016, 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	$	510,910	$	667	$	15,435	$	—
Home equity lines of credit		62,816		—		54		—
Junior lien loan on residence		9,818		—		228		—
Multifamily property		1,505,493		1,937		404		—
Owner-occupied commercial real estate		173,698		895		4,692		—
Investment commercial real estate		642,599		5,196		28,673		—
Commercial and industrial		186,554		5,845		140		—
Farmland		172		—		—		—
Commercial construction		425		98		—		—
Consumer and other loans		74,141		—		—		—
Total	$	3,166,626	$	14,638	$	49,626	$	—

As of December 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	$	471,859	$	1,332	$	9,894	$	—
Home equity lines of credit		52,550		—		254		—
Junior lien loan on residence		11,327		—		176		—
Multifamily property		1,407,856		7,718		1,201		—
Owner-occupied commercial real estate		170,420		928		4,928		—
Investment commercial real estate		536,479		6,217		26,153		—
Commercial and industrial		148,940		5,184		171		—
Farmland		179		—		—		—
Agricultural production		—		—		—		—
Commercial construction		—		151		—		—
Consumer and other loans		47,635		—		—		—
Total	$	2,847,245	$	21,530	$	42,777	$	—

 25

At September 30, 2016, $27.7 million of substandard loans were also considered impaired compared to December 31, 2015, when $21.8 million were also impaired.

The activity in the allowance for loan losses for the three months ended September 30, 2016 is summarized below:

	July 1,										September 30,
	2016										2016
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,783	$	(729	)	$	4	$	972		$	3,030
Home equity lines of credit		223		—			3		(2	)		224
Junior lien loan on residence		19		—			2		(3	)		18
Multifamily property		11,639		—			—		204			11,843
Owner-occupied commercial real estate		1,733		—			—		90			1,823
Investment commercial real estate		9,621		—			2		231			9,854
Commercial and industrial		2,951		(4	)		8		613			3,568
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		1		—			—		3			4
Consumer and other loans		247		—			11		(8	)		250
Total ALLL	$	29,219	$	(733	)	$	30	$	2,100		$	30,616

The activity in the allowance for loan losses for the nine months ended September 30, 2016 is summarized below:

	January 1,										September 30,
	2016										2016
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,297	$	(1,027	)	$	25	$	1,735		$	3,030
Home equity lines of credit		86		(91	)		11		218			224
Junior lien loan on residence		66		—			72		(120	)		18
Multifamily property		11,813		—			—		30			11,843
Owner-occupied commercial real estate		1,679		—			—		144			1,823
Investment commercial real estate		7,590		(258	)		8		2,514			9,854
Commercial and industrial		2,209		(7	)		20		1,346			3,568
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		2			4
Consumer and other loans		112		(5	)		12		131			250
Total ALLL	$	25,856	$	(1,388	)	$	148	$	6,000		$	30,616

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

	July 1,										September 30,
	2015										2015
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,409	$	(218	)	$	4	$	239		$	2,434
Home equity lines of credit		113		—			—		44			157
Junior lien loan on residence		73		—			10		(12	)		71
Multifamily property		8,623		—			—		544			9,167
Owner-occupied commercial real estate		2,286		—			—		357			2,643
Investment commercial real estate		7,779		(16	)		4		405			8,172
Commercial and industrial		1,589		—			22		16			1,627
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		—			2
Consumer and other loans		93		(1	)		—		7			99
Total ALLL	$	22,969	$	(235	)	$	40	$	1,600		$	24,374

 26

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

	January 1,										September 30,
	2015										2015
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,923	$	(329	)	$	74	$	(234	)	$	2,434
Home equity lines of credit		156		(110	)		1		110			157
Junior lien loan on residence		109		—			48		(86	)		71
Multifamily property		8,983		—			—		184			9,167
Owner-occupied commercial real estate		1,547		—			11		1,085			2,643
Investment commercial real estate		4,751		(16	)		14		3,423			8,172
Commercial and industrial		880		(7	)		68		686			1,627
Secured by farmland and agricultural production		4		—			—		(2	)		2
Commercial construction		31		—			—		(29	)		2
Consumer and other loans		96		(22	)		12		13			99
Total ALLL	$	19,480	$	(484	)	$	228	$	5,150		$	24,374

Troubled Debt Restructurings:

The Company has allocated $403 thousand and $441 thousand of specific reserves on TDRs to customers whose loan terms have been modified in TDRs as of September 30, 2016 and December 31, 2015, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

During the three and nine month periods ended September 30, 2016, 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 during the three month period ended September 30, 2016:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	1	$	368	$	368
Total	1	$	368	$	368

The following table presents loans by class modified as TDRs during the nine month period ended September 30, 2016:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	7	$	4,924	$	4,924
Junior lien on residence	1		66		66
Investment commercial real estate	1		79		79
Total	9	$	5,069	$	5,069

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

 27

The following table presents loans by class modified as TDRs during the three month period ended September 30, 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	5	$	1,645	$	1,645
Home equity line of credit	1		98		98
Junior lien loan on residence	1		60		60
Total	7	$	1,803	$	1,803

The following table presents loans by class modified as TDRs during the nine month period ended September 30, 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	7	$	1,870	$	1,870
Home equity line of credit	1		98		98
Junior lien loan on residence	1		60		60
Owner-occupied commercial real estate	1		767		767
Total	10	$	2,795	$	2,795

There were no loans that were modified as TDRs for which there was a payment default, within twelve months of modification, during the three and nine months ended September 30, 2016.

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

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		1	$	133
Total		1	$	133

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

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		2	$	530
Total		2	$	530

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 a loan may be considered for return to accrual status.

 28

4. DEPOSITS

Certificates of deposit, excluding brokered certificates of deposit over $250,000 totaled $122.6 million and $115.6 million at September 30, 2016 and December 31, 2015, respectively.

The following table sets forth the details of total deposits as of September 30, 2016 and December 31, 2015:

	September 30,					December 31,
	2016					2015
(In thousands)	$		%			$		%
Noninterest-bearing demand deposits	$	494,204		14.98	%	$	419,887		14.30	%
Interest-bearing checking (1)		928,941		28.15			861,697		29.36
Savings		119,650		3.62			115,007		3.92
Money market		997,572		30.23			810,709		27.62
Certificates of deposit		466,003		14.12			434,450		14.80
Subtotal deposits		3,006,370		91.10			2,641,750		90.00
Interest-bearing demand - Brokered		200,000		6.06			200,000		6.81
Certificates of deposit - Brokered		93,690		2.84			93,720		3.19
Total deposits	$	3,300,060		100.00	%	$	2,935,470		100.00	%

(1) Interest-bearing checking includes $417.0 million at September 30, 2016 and $398.7 million at December 31, 2015 of reciprocal balances in the Reich & Tang Demand Deposit Marketplace program, as described in the Net Interest Income/Average Balance Sheet section of the MD&A.

The scheduled maturities of certificates of deposit, including brokered certificates of deposit, as of September 30, 2016 are as follows:

(In thousands)
2016	$	33,504
2017		138,016
2018		198,500
2019		69,127
2020		34,583
Over 5 Years		85,963
Total	$	559,693

5. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Advances from the Federal Home Loan Bank of New York (“FHLB”) totaled $71.8 million with a weighted average interest rate of 1.89% and $83.7 million with a weighted average interest rate of 1.78 percent at September 30, 2016 and December 31, 2015, respectively.

At September 30, 2016, advances totaling $59.8 million with a weighted average interest rate of 1.67 percent had fixed maturity dates. The fixed maturity date advances at December 31, 2015 totaled $71.7 million with a weighted average interest rate of 1.57 percent. The fixed rate advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $396.2 million and multifamily mortgages totaling $1.0 billion at September 30, 2016, while at December 31, 2015 the fixed rate advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $428.2 million and multifamily mortgages totaling $1.1 billion.

 29

Also at September 30, 2016 and at December 31, 2015, the Company 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 $15.6 million at September 30, 2016.

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

(In thousands)
2016	$	10,000
2017		23,897
2018		34,898
2019		3,000
2020		—
Over 5 years		—
Total	$	71,795

There were no overnight borrowings as of September 30, 2016. Overnight borrowings with the Federal Home Loan Bank totaled $40.7 million with a weighted average rate of 0.52 percent at December 31, 2015.

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.

 30

The following tables present the statements of income and total assets for the Corporation’s reportable segments for the three and nine months ended September 30, 2016 and 2015.

	Three Months Ended September 30, 2016
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	23,194	$	1,075	$	24,269
Noninterest income		2,974		4,561		7,535
Total income		26,168		5,636		31,804
Provision for loan losses		2,100		—		2,100
Salaries and benefits		9,351		2,164		11,515
Premises and equipment expense		2,506		230		2,736
Other noninterest expense		2,738		1,177		3,915
Total noninterest expense		16,695		3,571		20,266
Income before income tax expense		9,473		2,065		11,538
Income tax expense		3,619		803		4,422
Net income	$	5,854	$	1,262	$	7,116

	Three Months Ended September 30, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	20,697	$	1,009	$	21,706
Noninterest income		1,399		4,211		5,610
Total income		22,096		5,220		27,316
Provision for loan losses		1,600		—		1,600
Salaries and benefits		7,935		2,387		10,322
Premises and equipment expense		2,549		236		2,785
Other noninterest expense		2,699		1,093		3,792
Total noninterest expense		14,783		3,716		18,499
Income before income tax expense		7,313		1,504		8,817
Income tax expense		2,849		585		3,434
Net income	$	4,464	$	919	$	5,383

	Nine Months Ended September 30, 2016
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	67,962	$	3,893	$	71,855
Noninterest income		7,286		13,960		21,246
Total income		75,248		17,853		93,101
Provision for loan losses		6,000		—		6,000
Salaries and benefits		27,196		6,327		33,523
Premises and equipment expense		7,650		692		8,342
Other noninterest expense		10,184		4,098		14,282
Total noninterest expense		51,030		11,117		62,147
Income before income tax expense		24,218		6,736		30,954
Income tax expense		9,165		2,620		11,785
Net income	$	15,053	$	4,116	$	19,169
Total assets for period end	$	3,729,004	$	45,379	$	3,774,383

 31

	Nine Months Ended September 30, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	58,618	$	3,015	$	61,633
Noninterest income		5,072		12,919		17,991
Total income		63,690		15,934		79,624
Provision for loan losses		5,150		—		5,150
Salaries and benefits		23,305		6,314		29,619
Premises and equipment expense		7,483		696		8,179
Other noninterest expense		7,654		3,481		11,135
Total noninterest expense		43,592		10,491		54,083
Income before income tax expense		20,098		5,443		25,541
Income tax expense		7,794		2,118		9,912
Net income	$	12,304	$	3,325	$	15,629
Total assets for period end	$	3,233,455	$	35,508	$	3,268,963

7. FAIR VALUE

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

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

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

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

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

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

 32

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 appraisals 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 a 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, 2016, all collateral-dependent impaired loans and other real estate owned valuations were supported by an appraisal less than 12 months old.

 33

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)	2016			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	11,970		$	—	$	11,970		$	—
Mortgage-backed securities-
residential		191,521			—		191,521			—
SBA pool securities		7,068			—		7,068			—
State and political subdivisions		31,475			—		31,475			—
Single-Issuer Trust Preferred		2,602			—		2,602			—
CRA investment fund		4,980			4,980		—			—
Loans held for sale, at fair value		3,013			—		3,013			—
Derivatives:
Loan level swaps		3,656			—		3,656			—
Total	$	256,285		$	4,980	$	251,305		$	—
Liabilities:
Derivatives:
Cash flow hedges	$	(4,710	)	$	—	$	(4,710	)	$	—
Loan level swaps		(3,656	)		—		(3,656	)		—
Total	$	(8,366	)	$	—	$	(8,366	)	$	—

 34

Assets Measured on a Recurring Basis    

				Fair Value Measurements Using
				Quoted
				Prices in
				Active
				Markets		Significant
				For		Other			Significant
				Identical		Observable			Unobservable
	December 31,			Assets		Inputs			Inputs
(In thousands)	2015			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
Mortgage-backed securities-
residential	$	160,607		$	—	$	160,607		$	—
SBA pool securities		7,520			—		7,520			—
State and political subdivisions		22,029			—		22,029			—
Single-Issuer Trust Preferred		2,535			—		2,535			—
CRA investment fund		2,939			2,939		—			—
Loans held for sale, at fair value		1,558			—		1,558			—
Derivatives:
Cash flow hedges		104			—		104			—
Loan level swaps		1,106			—		1,106			—
Total	$	198,398		$	2,939	$	195,459		$	—
Liabilities:
Derivatives:
Cash flow hedges	$	(1,434	)	$	—	$	(1,434	)	$	—
Loan level swaps		(1,106	)		—		(1,106	)		—
Total	$	(2,540	)	$	—	$	(2,540	)	$	—

The Corporation has elected the fair value option for certain loans held for sale. These loans are intended for sale and the Corporation believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Corporation’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of September 30, 2016 and December 31, 2015.

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

(In thousands)	September 30, 2016		December 31, 2015
Residential loans contractual balance	$	2,969	$	1,536
Fair value adjustment		44		22
Total fair value of residential loans held for sale	$	3,013	$	1,558

There were no transfers between Level 1 and Level 2 during the three or nine months ended September 30, 2016.

 35

The following table summarizes, for the periods indicated, assets measured at fair value on a non-recurring basis (Quantitative disclosures for non-recurring Level 3 assets have been omitted due to immateriality):

Assets Measured on a Non-Recurring Basis

			Fair Value Measurements Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant observable
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(In thousands)	2016		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Investment commercial real estate	$	245	$	—	$	—	$	245
	December 31,
(In thousands)	2015
Assets:
Impaired loans:
Primary residential mortgage	$	251	$	—	$	—	$	251
OREO		330		—		—		330

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had a recorded investment of $408 thousand, with a valuation allowance of $163 thousand at September 30, 2016 and $299 thousand, with a valuation allowance of $48 thousand, at December 31, 2015.

At December 31, 2015, OREO at fair value represents one commercial property. The Company did not record a valuation allowance during either of the three months or nine months ended September 30, 2016. The Company recorded a valuation allowance of $250 thousand during the nine months ended September 30, 2015

The carrying amounts and estimated fair values of financial instruments at September 30, 2016 are as follows:

			Fair Value Measurements at September 30, 2016 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	159,555	$	159,555	$	—	$	—	$	159,555
Securities available for sale		249,616		4,980		244,636		—		249,616
FHLB and FRB stock		14,093		—		—		—		N/A
Loans held for sale, at fair value		3,013		—		3,013		—		3,013
Loans held for sale, at lower of cost
or fair value		30,000		—		30,000		—		30,000
Loans, net of allowance for loan losses		3,202,271		—		—		3,205,692		3,205,692
Accrued interest receivable		6,383		—		729		5,654		6,383
Loan level swap derivatives		3,656		—		3,656		—		3,656
Financial liabilities
Deposits	$	3,300,060	$	2,740,367	$	566,740	$	—	$	3,307,107
Federal home loan bank advances		71,795		—		72,667		—		72,667
Subordinated debt		48,731		—		—		48,721		48,721
Accrued interest payable		2,025		151		974		900		2,025
Cash flow hedge derivatives		4,710		—		4,710		—		4,710
Loan level swap derivatives		3,656		—		3,656		—		3,656

 36

The carrying amounts and estimated fair values of financial instruments at December 31, 2015 are as follows:

			Fair Value Measurements at December 31, 2015 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	70,160	$	70,160	$	—	$	—	$	70,160
Securities available for sale		195,630		2,939		192,691		—		195,630
FHLB and FRB stock		13,984		—		—		—		N/A
Loans held for sale, at fair value		1,558		—		1,558		—		1,558
Loans held for sale, at lower of cost
or fair value		82,200		—		82,200		—		82,200
Loans, net of allowance for loan losses		2,887,386		—		—		2,865,601		2,865,601
Accrued interest receivable		6,820		—		562		6,258		6,820
Cash flow Hedges		104		—		104		—		104
Loan level swaps		1,106		—		1,106		—		1,106
Financial liabilities
Deposits	$	2,935,470	$	2,407,300	$	526,226	$	—	$	2,933,526
Overnight borrowings		40,700		—		40,700		—		40,700
Federal home loan bank advances		83,692		—		84,409		—		84,409
Accrued interest payable		957		128		829		—		957
Cash flow hedges		1,434		—		1,434		—		1,434
Loan level swaps		1,106		—		1,106		—		1,106

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. Cash and due from banks is classified as Level 1. Certificates of deposit are classified as Level 2.

FHLB and FRB stock: The fair value of FHLB or FRB stock is their cost basis due to restrictions placed on its transferability.

Loans held for sale, at lower of cost or 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. Loans held for sale are classified as Level 2.

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 approximate fair values and are classified as Level 2.

 37

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

Subordinated debentures: The fair values of the Corporation’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification. Accrued interest on deposits and securities are included in Level 2. Accrued interest on loans is included in Level 3.

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)	2016		2015		2016		2015
Wealth management division
other expense	$	490	$	469	$	1,593	$	1,602
Professional and legal fees		801		678		2,544		2,029
Loan expense		141		90		374		279
Provision for ORE losses		—		250		—		250
Other operating expenses		1,669		1,889		5,817		5,646
Total other operating expenses	$	3,101	$	3,376	$	10,328	$	9,806

9. ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME

The following is a summary of the accumulated other comprehensive (loss)/income balances, net of tax, for the three months ended September 30, 2016 and 2015:

							Amount		Other
							Reclassified		Comprehensive
				Other			From		Income/(Loss)
				Comprehensive			Accumulated		Three Months
	Balance at			Income/(Loss)			Other		Ended			Balance at
	July 1,			Before			Comprehensive		September 30,			September 30,
(In thousands)	2016			Reclassifications			(Income)		2016			2016
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,224		$	(215	)	$	—	$	(215	)	$	1,009
Losses on cash flow hedges		(3,727	)		941			—		941			(2,786	)
Accumulated other
comprehensive (loss)/income,
net of tax	$	(2,503	)	$	726		$	—	$	726		$	(1,777	)

 38

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Three Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	July 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2015			Reclassifications			(Income)			2015			2015
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,116		$	466		$	(50	)	$	416		$	1,532
Losses on cash flow hedges		(313	)		(1,686	)		—			(1,686	)		(1,999	)
Accumulated other
comprehensive income,
net of tax	$	803		$	(1,220	)	$	(50	)	$	(1,270	)	$	(467	)

The following represents the reclassifications out of accumulated other comprehensive income for the three months ended September 30, 2016 and 2015:

	Three Months Ended
	September 30,
(In thousands)	2016		2015			Affected Line Item in Income
Unrealized gains on
securities available for sale:
Realized net gain on securities sales	$	—	$	83		Securities gains, net
Income tax expense		—		(33	)	Income tax expense
Total reclassifications, net of tax	$	—	$	50

The following is a summary of the accumulated other comprehensive (loss)/income balances, net of tax, for the nine months ended September 30, 2016 and 2015:

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Nine Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	January 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2016			Reclassifications			(Income)			2016			2016
Net unrealized holding gain
on securities available for sale,
net of tax	$	408		$	676		$	(75	)	$	601		$	1,009
Losses on cash flow hedges		(787	)		(1,999	)		—			(1,999	)		(2,786	)
Accumulated other
comprehensive income/(loss),
net of tax	$	(379	)	$	(1,323	)	$	(75	)	$	(1,398	)	$	(1,777	)

 39

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Nine Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	January 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2015			Reclassifications			(Income)			2015			2015
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,321		$	523		$	(312	)	$	211		$	1,532
Losses on cash flow hedges		(100	)		(1,899	)		—			(1,899	)		(1,999	)
Accumulated other
comprehensive income,
net of tax	$	1,221		$	(1,376	)	$	(312	)	$	(1,688	)	$	(467	)

The following represents the reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 2016 and 2015:

	Nine Months Ended
	September 30,
(In thousands)	2016			2015			Affected Line Item in Income
Unrealized gains on
securities available for sale:
Realized net gain on securities sales	$	119		$	527		Securities gains, net
Income tax expense		(44	)		(215	)	Income tax expense
Total reclassifications, net of tax	$	75		$	312

10. DERIVATIVES

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

Interest Rate Swaps Designated as Cash Flow Hedges: Interest rate swaps with a notional amount of $180 million as of September 30, 2016 and December 31, 2015, were designated as cash flow hedges of certain interest-bearing demand brokered deposits and were determined to be fully effective during the three and nine months ended September 30, 2016. As such, no amount of ineffectiveness has been included in net income during the three and nine month periods ended September 30, 2016 and 2015. Therefore, the aggregate fair value of the swaps is recorded in other assets/liabilities with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

 40

The following information about the interest rate swaps designated as cash flow hedges as of September 30, 2016 and December 31, 2015 is presented in the following table:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Notional amount	$	180,000		$	180,000
Weighted average pay rate		1.64	%		1.64	%
Weighted average receive rate		0.54	%		0.29	%
Weighted average maturity		3.50	years		4.25	years
Unrealized loss	$	(4,710	)	$	(1,330	)
Number of contracts		9			9

Net interest expense recorded on these swap transactions totaled $494 thousand and $1.5 million for the three and nine months ended September 30, 2016 and is reported as a component of interest expense. Net interest expense recorded on these swap transactions totaled $554 thousand and $997 thousand for the three and nine months ended September 30, 2015 and is reported as a component of interest expense.

Cash Flow Hedges

The following table presents the net gains recorded in accumulated other comprehensive (loss)/income and the consolidated financial statements relating to the cash flow derivative instruments for the three months ended September 30, 2016 (after tax):

					Amount of
	Amount of		Amount of		Gain/(Loss)
	Gain/(Loss)		Gain/(Loss)		Recognized in
	Recognized		Reclassified		Other Non-Interest
	In OCI		From OCI to		Expense
(In thousands)	(Effective Portion)		Interest Expense		(Ineffective Portion)
Interest rate contracts	$	941	$	—	$	—

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

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,686	)	$	—	$	—

 41

The following table presents the net losses recorded in accumulated other comprehensive (loss)/income and the consolidated financial statements relating to the cash flow derivative instruments for the nine months ended September 30, 2016 (after tax):

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,999	)	$	—	$	—

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

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,899	)	$	—	$	—

The following tables reflect the cash flow hedges included in the financial statements as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing
demand brokered deposits	$	180,000	$	(4,710	)
Total included in other assets	$	—	$	—
Total included in other liabilities	$	180,000	$	(4,710	)

	December 31, 2015
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing
demand brokered deposits	$	180,000	$	(1,330	)
Total included in other assets	$	15,000	$	104
Total included in other liabilities	$	165,000	$	(1,434	)

Derivatives Not Designated as Accounting Hedges: Beginning in 2015, the Company offered facility specific/loan level swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution / swap counterparty (loan level / back to back swap program). The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting (“standalone derivatives”). The notional amount of the swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual contracts. The fair value of the swaps is recorded as both an asset and a liability, in other assets and other liabilities, respectively, in equal amounts for these transactions.

 42

Information about these swaps is as follows:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Notional amount	$	70,815		$	27,259
Fair value	$	3,656		$	1,106
Weighted average pay rates		3.44	%		3.06	%
Weighted average receive rates		2.27	%		1.44	%
Weighted average maturity		11.4	years		15.8	years
Number of contracts		6			2

11. SUBORDINATED DEBT

During June 2016, the Company issued $50.0 million in aggregate principal amount of fixed-to-floating subordinated notes (the “Notes”) to certain institutional investors. The Notes are non-callable for five years, have a stated maturity of June 30, 2026, and bear interest at a fixed rate of 6.0% per year until June 30, 2021. From June 30, 2021 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 485 basis points, payable quarterly in arrears. Debt issuance costs incurred totaled $1.3 million and are being amortized to maturity.  Subordinated debt is presented net of issuance cost on the Consolidated Statements of Condition.

Approximately $40.0 million of the net proceeds from the sale of the Notes were used by the Company to contribute capital to the Bank in the second quarter of 2016. Remaining funds will be used for general corporate purposes.

In connection with the issuance of the Notes, the Company obtained ratings from Kroll Bond Rating Agency (“KBRA”). KBRA assigned investment grade rating of BBB- for the Company’s subordinated debt.

12. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (is) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In July 2015, FASB deferred the effective date of the ASU by one year which means ASU 2014-09 will be effective for the Company on January 1, 2018.  In March 2016, FASB issued ASU 2016-08 which amended illustrative examples to clarify how to apply the implementation guidance on principal versus agent considerations. The Company does not expect the guidance will have a material impact on its consolidated financial statements.

In January 2016, the FASB amended existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company is evaluating the impact of these amendments on its consolidated financial statements.

43 

In February 2016, the FASB amended existing guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company is evaluating the impact of these amendments on its consolidated financial statements.

In March 2016, the FASB amended existing guidance to simplify aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2016. The Company is evaluating the impact of these amendments on its consolidated financial statements.

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (the ASU).   This ASU replaces the incurred loss model with an expected loss model, referred to as “current expected credit loss” (CECL) model.  It will significantly change estimates for credit losses related to financial assets measured at amortized cost, including loans receivable, held-to-maturity (HTM) debt securities and certain other contracts.   The largest impact will be on lenders and the allowance for loan and lease losses (ALLL).  This ASU will be effective for public business entities (PBEs) in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company is currently in the process of evaluating the impact of this ASU on its consolidated financial statements.

On August 26, 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments)”. This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This amendment is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There is no material impact on our statement of cash flows as a result of this ASU.

On October 24, 2016, the FASB issued ASU No. 2016-16, “Income Taxes – (Topic 740): Intra-Equity Transfers of Assets other than Inventory”.   These amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. These amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities in the first interim period if an entity issues interim financial statements. The Company is evaluating the impact of these amendments on its consolidated financial statements.

44 

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL: This Quarterly Report on Form 10-Q, both in the following discussion and analysis and elsewhere contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about Management’s view of future interest income and net loans, Management’s confidence and strategies and Management’s expectations about new and existing programs and products, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect”, “look”, “believe”, “anticipate”, “may”, “will”, or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, those risk factors identified in the Company’s Form 10-K for the year ended December 31, 2015, in addition to/which include the following:

· inability to successfully grow our business and implement our strategic plan, including an inability to generate revenues to offset the increased personnel and other costs related to the strategic plan;

· the impact of anticipated higher operating expenses, in particular, higher FDIC insurance premiums, in 2016 and beyond;

· inability to manage our growth;

· inability to successfully integrate our expanded employee base;

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

· declines in our net interest margin caused by the low interest rate environment and highly competitive market;

· 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;

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

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

· successful cyberattacks against our IT infrastructure and that of our IT providers;

· adverse weather conditions;

· inability to successfully generate new business in new geographic markets;

· inability to execute upon new business initiatives;

· lack of liquidity to fund our various cash obligations;

· reduction in our lower-cost funding sources;

· our inability to adapt to technological changes;

· current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values, increases in unemployment rates and potential reductions of economic growth, which may adversely affect our lending and other businesses and our financial results and conditions;

· the effect of a decline in stock market prices on our trust advisory income from our wealth management business;

45 

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES: Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’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 Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2015, contains a summary of the Company’s significant accounting policies.

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

The provision for loan losses is based upon Management’s evaluation of the adequacy of the allowance, including an assessment of 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 Company’s allowance for loan losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in the State of New Jersey and, to a lesser extent, New York City. Accordingly, the collectability of a substantial portion of the carrying value of the Company’s loan portfolio is susceptible to changes in local market conditions and any adverse economic conditions. Future adjustments to the provision for loan losses and allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

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

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. No impairment charges were recognized in the three or nine months ended September 30, 2016 and 2015. For equity securities, the entire amount of impairment is recognized through earnings.

46 

EXECUTIVE SUMMARY: The following table presents certain key aspects of our performance for the three months ended September 30, 2016 and 2015.

	Three Months Ended September 30,						Change
(Dollars in thousands, except per share data)	2016			2015			2016 vs 2015
Results of Operations:
Net interest income	$	24,269		$	21,706		$	2,563
Provision for loan losses		2,100			1,600			500
Net interest income after provision
for loan losses		22,169			20,106			2,063
Wealth management fee income		4,436			4,169			267
Other income		3,099			1,441			1,658
Operating expense		18,166			16,899			1,267
Income before income tax expense		11,538			8,817			2,721
Income tax expense		4,422			3,434			988
Net income	$	7,116		$	5,383		$	1,733
Total revenue (Net interest income
plus other income)	$	31,804		$	27,316		$	4,488
Diluted earnings per share	$	0.43		$	0.35		$	0.08
Diluted average shares outstanding		16,673,596			15,435,939			1,237,657
Return on average assets annualized (ROAA)		0.77	%		0.66	%		0.11	%
Return on average equity
annualized (ROAE)		9.44			8.19			1.25

The following table presents certain key aspects of our performance for the nine months ended September 30, 2016 and 2015.

	Nine Months Ended September 30,						Change
(Dollars in thousands, except per share data)	2016			2015			2016 vs 2015
Results of Operations:
Net interest income	$	71,855		$	61,633		$	10,222
Provision for loan losses		6,000			5,150			850
Net interest income after provision
for loan losses		65,855			56,483			9,372
Wealth management fee income		13,630			12,732			898
Other income		7,616			5,259			2,357
Operating expense		56,147			48,933			7,214
Income before income tax expense		30,954			25,541			5,413
Income tax expense		11,785			9,912			1,873
Net income	$	19,169		$	15,629		$	3,540
Total revenue (Net interest income
plus other income)	$	93,101		$	79,624		$	13,477
Diluted earnings per share	$	1.17		$	1.02		$	0.15
Diluted average shares outstanding		16,347,255			15,293,747			1,053,508
Return on average assets annualized (ROAA)		0.71	%		0.69	%		0.02	%
Return on average equity
annualized (ROAE)		8.79			8.19			0.60

47 

	September 30,			December 31,			Change
	2016			2015			2016 vs 2015
Selected Balance Sheet Ratios:
Total capital (Tier I + II) to risk-weighted assets		13.17	%		11.40	%		1.77	%
Tier I leverage ratio		8.39			8.10			0.29
Loans to deposits		97.96			99.24			(1.28	)
Allowance for loan losses to total
loans		0.95			0.89			0.06
Allowance for loan losses to
nonperforming loans		282.44			383.22			(100.78	)
Nonperforming loans to total loans		0.34			0.23			0.11

For the third quarter of 2016, the Company recorded net income of $7.1 million compared to $5.4 million for the same quarter of 2015. For the three months ended September 30, 2016 and 2015, diluted earnings per share were $0.43 and $0.35, respectively. Annualized return on average assets was 0.77 percent and annualized return on average equity was 9.44 percent for the third quarter of 2016, compared to 0.66 percent and 8.19 percent, respectively, for the same quarter of 2015.

For the nine months ended September 30, 2016, the Company recorded net income of $19.2 million compared to $15.6 million for the same period of 2015. Diluted earnings per common share were $1.17 and $1.02 for the first nine months of 2016 and 2015, respectively. Annualized return on average assets was 0.71 percent and annualized return on average common equity was 8.79 percent for the first nine months of 2016, compared to 0.69 percent and 8.19 percent, respectively, for the nine months ending September 30, 2015.

CONTRACTUAL OBLIGATIONS: For a discussion of our contractual obligations, see the information set forth in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations” which is incorporated herein by reference.

OFF-BALANCE SHEET ARRANGEMENTS: For a discussion of our off-balance sheet arrangements, see the information set forth in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements” which is incorporated herein by reference.

EARNINGS ANALYSIS

NET INTEREST INCOME/AVERAGE BALANCE SHEET:

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

48 

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

	Three Months Ended September 30,
(Dollars in thousands)	2016			2015
Net interest income	$	24,510		$	21,886
Interest rate spread		2.59	%		2.63	%
Net interest margin		2.74			2.75

	Nine Months Ended September 30,
(Dollars in thousands)	2016			2015
Net interest income	$	72,534		$	62,038
Interest rate spread		2.64	%		2.69	%
Net interest margin		2.78			2.81

Net interest income, on a fully tax-equivalent basis, for the three months ended September 30, 2016, grew $2.6 million, or 12 percent, from the three months ended September 30, 2015. Net interest income for the nine months ended September 30, 2016 increased $10.5 million or 17 percent when compared to the same period in 2015. This growth is due to increased earning assets, principally loans. Net interest spread and margin for the three and nine months ending September 30, 2016 declined when compared to the same 2015 periods due to the effect of the subordinated debt issuance in June 2016, as well as the continuing effect of low market yields, as well as competitive pressures in attracting new loans and deposits. Net interest income for the three and nine months ended September 30, 2016 was benefitted by loan growth during the latter part of 2015 and in 2016. The Company expects continued loan growth in this lower market rate and competitive environment.

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

	For the Three Months Ended
	September 30,		September 30,
(In thousands)	2016		2015
Residential mortgage loans originated for portfolio	$	43,284	$	20,623
Residential mortgage loans originated for sale		25,128		6,078
Total residential mortgage loans		68,412		26,701
Commercial real estate loans		56,799		47,450
Multifamily properties		74,450		149,763
Commercial loans (A)		59,698		37,361
SBA		3,025		—
Wealth Lines of Credit (A)		1,200		24,000
Total commercial loans		195,172		258,574
Installment loans		1,591		933
Home equity lines of credit (A)		7,064		3,775
Total loans closed	$	272,239	$	289,983

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

49 

	For the Nine Months Ended
	September 30,		September 30,
(In thousands)	2016		2015
Residential mortgage loans originated for portfolio	$	93,543	$	60,726
Residential mortgage loans originated for sale		53,412		25,994
Total residential mortgage loans		146,955		86,720
Commercial real estate loans		102,692		134,798
Multifamily properties		333,194		565,600
Commercial loans (A)		188,495		214,540
SBA		6,365		—
Wealth Lines of Credit (A)		3,785		40,410
Total commercial loans		634,531		955,348
Installment loans		3,154		2,405
Home equity lines of credit (A)		25,103		10,377
Total loans closed	$	809,743	$	1,054,850

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

As the Company has previously explained, anticipated multifamily loan originations (and growth) would be less in 2016, as the Company managed its balance sheet such that multifamily loans decline as a percentage of the overall loan portfolio and commercial loans become a larger percentage of the overall loan portfolio. The Company anticipates that this balance sheet management, however, may not be linear each quarter, and would rather be apparent over periods of time.

50 

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

Average Balance Sheet

Unaudited

Three Months Ended

	September 30, 2016										September 30, 2015
	Average				Income/						Average			Income/
(Dollars in thousands)	Balance				Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earning assets:
Investments:
Taxable (1)	$	193,902		$		976			2.01	%	$	214,967		$	959			1.78	%
Tax-exempt (1) (2)		27,516				212			3.08			30,682			211			2.76
Loans (2) (3):
Mortgages		486,909				3,983			3.27			466,384			3,806			3.26
Commercial mortgages		2,048,877				17,977			3.51			1,839,606			16,119			3.50
Commercial		573,211				5,826			4.07			454,239			4,132			3.64
Commercial construction		454				5			4.41			1,742			18			4.13
Installment		67,175				443			2.64			31,361			268			3.42
Home equity		62,560				519			3.32			51,012			415			3.25
Other		465				13			11.18			510			12			9.41
Total loans		3,239,651				28,766			3.55			2,844,854			24,770			3.48
Federal funds sold		101				—			0.25			101			—			0.10
Interest-earning deposits		111,204				131			0.47			96,308			46			0.19
Total interest-earning assets		3,572,374				30,085			3.37	%		3,186,912			25,986			3.26	%
Noninterest-earning assets:
Cash and due from banks		17,292										7,434
Allowance for loan losses		(30,022	)									(23,726	)
Premises and equipment		29,460										31,574
Other assets		88,721										68,067
Total noninterest-earning assets		105,451										83,349
Total assets	$	3,677,825									$	3,270,261
LIABILITIES:
Interest-bearing deposits:
Checking	$	924,970			$	645			0.28	%	$	810,106		$	356			0.18	%
Money markets		915,139				737			0.32			757,135			546			0.29
Savings		119,986				17			0.06			118,329			17			0.06
Certificates of deposit - retail		466,967				1,615			1.38			403,593			1,296			1.28
Subtotal interest-bearing deposits		2,427,062				3,014			0.50			2,089,163			2,215			0.42
Interest-bearing demand - brokered		200,000				762			1.52			292,456			857			1.17
Certificates of deposit - brokered		93,674				501			2.14			93,907			504			2.15
Total interest-bearing deposits		2,720,736				4,277			0.63			2,475,526			3,576			0.58
FHLB advances and borrowings		87,258				380			1.74			107,770			399			1.48
Capital lease obligation		9,874				119			4.82			10,394			125			4.81
Subordinated debt		48,711				799			6.56			—			—			N/A
Total interest-bearing liabilities		2,866,579				5,575			0.78	%		2,593,690			4,100			0.63	%
Noninterest-bearing liabilities:
Demand deposits		479,659										398,181
Accrued expenses and
other liabilities		30,070										15,619
Total noninterest-bearing liabilities		509,729										413,800
Shareholders’ equity		301,517										262,771
Total liabilities and
shareholders’ equity	$	3,677,825									$	3,270,261
Net interest income
(tax-equivalent basis)						24,510									21,886
Net interest spread									2.59	%								2.63	%
Net interest margin (4)									2.74	%								2.75	%
Tax equivalent adjustment						(241	)								(180	)
Net interest income					$	24,269								$	21,706

(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.

51 

Average Balance Sheet

Unaudited

Nine Months Ended

	September 30, 2016									September 30, 2015
	Average			Income/						Average			Income/
(Dollars in thousands)	Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earning assets:
Investments:
Taxable (1)	$	198,080		$	2,816			1.90	%	$	244,117		$	3,178			1.74	%
Tax-exempt (1) (2)		26,234			623			3.17			33,059			652			2.63
Loans (2) (3):
Mortgages		475,607			11,728			3.29			466,987			11,424			3.26
Commercial mortgages		2,018,820			52,977			3.50			1,655,600			44,475			3.58
Commercial		550,770			16,319			3.95			377,461			10,376			3.67
Commercial construction		1,045			32			4.08			4,446			141			4.23
Installment		58,445			1,198			2.73			29,454			776			3.51
Home equity		57,938			1,434			3.30			51,129			1,237			3.23
Other		471			35			9.91			522			37			9.45
Total loans		3,163,096			83,723			3.53			2,585,599			68,466			3.53
Federal funds sold		101			—			0.24			101			—			0.10
Interest-earning deposits		89,536			294			0.44			85,932			128			0.20
Total interest-earning assets		3,477,047			87,456			3.35	%		2,948,808			72,424			3.27	%
Noninterest-earning assets:
Cash and due from banks		16,342									6,877
Allowance for loan losses		(28,227	)								(21,772	)
Premises and equipment		29,637									31,935
Other assets		86,960									66,038
Total noninterest-earning assets		104,712									83,078
Total assets	$	3,581,759								$	3,031,886
LIABILITIES:
Interest-bearing deposits:
Checking	$	904,767		$	1,823			0.27	%	$	704,558		$	1,028			0.19	%
Money markets		851,370			1,912			0.30			723,824			1,470			0.27
Savings		118,884			50			0.06			116,410			48			0.05
Certificates of deposit - retail		453,451			4,649			1.37			332,315			3,010			1.21
Subtotal interest-bearing deposits		2,328,472			8,434			0.48			1,877,107			5,556			0.39
Interest-bearing demand - brokered		200,000			2,263			1.51			266,443			1,700			0.85
Certificates of deposit - brokered		93,663			1,494			2.13			106,048			1,532			1.93
Total interest-bearing deposits		2,622,135			12,191			0.62			2,249,598			8,788			0.52
FHLB advances and borrowings		154,819			1,432			1.23			121,277			1,219			1.34
Capital lease obligation		10,007			361			4.81			10,514			379			4.81
Subordinated debt		19,270			938			6.49			—			—			N/A
Total interest-bearing liabilities		2,806,231			14,922			0.71	%		2,381,389			10,386			0.58	%
Noninterest-bearing liabilities:
Demand deposits		459,907									383,161
Accrued expenses and
other liabilities		24,958									12,852
Total noninterest-bearing liabilities		484,865									396,013
Shareholders’ equity		290,663									254,484
Total liabilities and
shareholders’ equity	$	3,581,759								$	3,031,886
Net interest income
(tax-equivalent basis)					72,534									62,038
Net interest spread								2.64	%								2.69	%
Net interest margin (4)								2.78	%								2.81	%
Tax equivalent adjustment					(679	)								(405	)
Net interest income				$	71,855								$	61,633

(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.

52 

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

	Three Months						Three Months Ended
	Ended September 30, 2016						September 30, 2015
	Difference due to						Change In
	Change In:						Income/
(In Thousands):	Volume			Rate			Expense
ASSETS:
Investments	$	(89	)	$	107		$	18
Loans		3,280			716			3,996
Federal funds sold		—			—			—
Interest-earning deposits		8			77			85
Total interest income	$	3,199		$	900		$	4,099
LIABILITIES:
Interest-bearing checking	$	49		$	240		$	289
Money market		140			51			191
Certificates of deposit - retail		221			98			319
Certificates of deposit - brokered		(1	)		(2	)		(3	)
Interest bearing demand brokered		(270	)		175			(95	)
Borrowed funds		(37	)		18			(19	)
Capital lease obligation		(6	)		—			(6	)
Subordinated debt		799			—			799
Total interest expense	$	895		$	580		$	1,475
Net interest income	$	2,304		$	320		$	2,624

	Nine Months						Nine Months Ended
	Ended September 30, 2016						September 30, 2015
	Difference due to						Change In
	Change In:						Income/
(In Thousands):	Volume			Rate			Expense
ASSETS:
Investments	$	(636	)	$	245		$	(391	)
Loans		15,289			(32	)		15,257
Federal funds sold		—			—			—
Interest-earning deposits		5			161			166
Total interest income	$	14,658		$	374		$	15,032
LIABILITIES:
Interest-bearing checking	$	496		$	299		$	795
Money market		336			106			442
Savings		(7	)		9			2
Certificates of deposit - retail		1,202			437			1,639
Certificates of deposit - brokered		(190	)		152			(38	)
Interest bearing demand brokered		(755	)		1,318			563
Borrowed funds		142			71			213
Capital lease obligation		(19	)		1			(18	)
Subordinated debt		938			—			938
Total interest expense	$	2,143		$	2,393		$	4,536
Net interest income	$	12,515		$	(2,020	)	$	10,496

Interest income on earning assets, on a fully tax-equivalent basis, totaled $30.1 million for the third quarter of 2016 compared to $26.0 million for the same quarter of 2015, reflecting an increase of $4.1 million or 16 percent, from the third quarter in 2015. Average earning assets totaled $3.57 billion for the third quarter of 2016, an increase of $385.5 million or 12 percent, from the same period of 2015. The average commercial loan portfolio increased $119.0 million or 26 percent, from the third quarter of 2015, averaging $573.2 million for the third quarter of 2016. The average commercial mortgage portfolio (which includes multifamily mortgage loans) increased $209.3 million to $2.05 billion for the third quarter of 2016 when compared to the same period in 2015. The increase in both portfolios was attributable to the addition of seasoned banking professionals over the course of 2015 and 2016; a more concerted focus on the client service and value added aspects of the lending process; and more of a focus on markets outside of the immediate branch service area, including markets around the Teaneck and Princeton private banking offices, as well as the New York City market. The increase was also due to demand from borrowers looking to refinance multifamily mortgages held by other institutions.

53 

For the quarters ended September 30, 2016 and 2015, the average rates earned on earning assets was 3.37 percent and 3.26 percent, respectively, an increase of 11 basis points. The increased overall yield was due to growth in commercial loans at higher rates, as well as certain cash flows from the investment portfolio being invested in higher yielding loans.

For the third quarter of 2016, total interest-bearing deposits averaged $2.72 billion, increasing $245.2 million or 10 percent from the average balance for the same period of 2015. The growth in customer deposits (excluding brokered CDs and brokered interest-bearing demand, but including reciprocal funds discussed below) has come from the addition of seasoned banking professionals over the course of 2015 and into 2016; an intense focus on providing high-touch client service; and a full array of treasury management products that support core deposit growth.  

Average rates paid on total interest-bearing deposits were 63 basis points and 58 basis points for the third quarters of 2016 and 2015, respectively, an increase of 5 basis points. The increase in the average rate paid on deposits was principally due to growth in higher costing certificates of deposit in part to help manage the Company’s interest rate risk position, as well as to address competitive pressures in attracting new deposits in volumes sufficient to appropriately fund asset growth.

For the third quarters of 2016 and 2015, average borrowings totaled $87.3 million and $107.8 million, respectively, decreasing $20.5 million in the third quarter of 2016 when compared to the same period of 2015. The decrease was principally due to scheduled maturities of FHLB advances.

The Company is a participant in the Reich & Tang Demand Deposit Marketplace (“DDM”) program. The Company uses these deposit sweep services to place customer funds into interest-bearing demand (checking) accounts issued by other participating banks. Customer funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance. As a program participant, the Company receives reciprocal amounts of deposits from other participating banks. The DDM program is considered to be a source of brokered deposits for bank regulatory purposes. However, the Company considers these reciprocal deposit balances to be in-market customer deposits as distinguished from traditional out-of-market brokered deposits. Such reciprocal deposit balances are included in the Company’s interest-bearing checking balances. Reciprocal balances averaged $411.9 million for the September 30, 2016 quarter and $366.5 million for the September 30, 2015 quarter.

In June 2016, the Company issued $50.0 million of subordinated debt ($48.7 million net of issuance costs) bearing interest at an annual rate of 6 percent for the first five years, and thereafter at an adjustable rate and until maturity in June 2026 or earlier redemption. For the third quarter of 2016, the subordinated debt balance averaged $48.7 million.

Interest income on earning assets, on a fully tax-equivalent basis increased by $15.0 million or 21 percent for the first nine months of 2016 compared to the same period in 2015. For the nine months ended September 30, 2016 average earning assets increased $528.2 million from $2.95 billion for the same period in 2015. For the nine months ended September 30, 2016 the average commercial portfolio increased $173.3 million, or 46 percent, from the same period in 2015. For the nine months ended September 30, 2016 the average commercial mortgage portfolio (which includes multifamily mortgage loans) increased $363.2 million from $1.66 billion in the same period in 2015. The increase in both portfolios was attributable to the addition of seasoned banking professionals over the course of 2015 and 2016; a more concerted focus on the client service and value added aspects of the lending process; more of a focus on markets outside of the immediate branch service area, including markets around the Teaneck and Princeton private banking offices, as well as the New York City market. The increase was also due to demand from borrowers looking to refinance multifamily mortgages held by other institutions.

54 

For the nine months ended September 30, 2016 and 2015, the average rates earned on earning assets was 3.35 percent and 3.27 percent, respectively, an increase of 8 basis points. The increased overall yield on earning assets was due to growth in commercial loans which produce a higher yield, as well as certain cash flows from the investment portfolio being invested in higher yielding loans.

For the nine months ended September 30, 2016 total interest-bearing deposits averaged $2.62 billion, increasing $372.5 million or 17 percent from the average balance for the same 2015 period. The increase in customer deposits (excluding brokered CDs and brokered interest-bearing demand deposits, but including reciprocal funds) of $451.4 million in the first nine months of 2016 when compared to the same period in 2015 has come from the addition of seasoned banking professionals over the course of 2015 and continuing into the first nine months of 2016; an intense focus on providing high-touch client service; and a new full array of treasury management products that support core deposit growth.  

Average rates paid on interest-bearing deposits for the nine months ended September 30, 2016 were 62 basis points compared to 52 basis points for the same period in 2015, reflecting an increase of 10 basis points. The increase in the average rate paid on deposits was principally due to growth in higher costing certificates of deposit partially to help manage the Company’s interest rate risk position, as well as to address competitive pressures in attracting new deposits in volumes sufficient to appropriately fund asset growth.

Average borrowings increased by $33.5 million to $154.8 million for the nine months ended September 30, 2016 when compared to the same 2015 period. The increase was due to periodic increased short-term borrowings to fund loan growth ahead of deposit growth.

Average subordinated debt increased by $19.3 million for the nine months ended September 30, 2016. The Company issued $50.0 million in aggregate principal amount of fixed-to-floating subordinated notes in the second quarter of 2016.

INVESTMENT SECURITIES AVAILABLE FOR SALE: Investment securities available for sale are purchased, sold and/or maintained as a part of the Company’s overall balance sheet management including liquidity and interest rate risk management strategies, and in response to changes in interest rates, liquidity needs, prepayment speeds and/or other factors. These securities are carried at estimated fair value, and unrealized changes in fair value are recognized as a separate component of shareholders’ equity, net of income taxes. Realized gains and losses are recognized in income at the time the securities are sold.

At September 30, 2016, the Company had investment securities available for sale with a fair value of $249.6 million compared with $195.6 million at December 31, 2015. Net unrealized gains (net of income tax) of $1.0 million and $408 thousand were included in shareholders’ equity at September 30, 2016 and December 31, 2015, respectively.

55 

The carrying value of investment securities available for sale as of September 30, 2016 and December 31, 2015 are shown below:

	September 30,		December 31,
(In thousands)	2016		2015
U.S. treasury and U.S. government-
Sponsored entity bonds	$	11,970	$	—
Mortgage-backed securities-residential
(principally U.S. government-sponsored
entities)		191,521		160,607
SBA pool securities		7,068		7,520
State and political subdivision		31,475		22,029
Single-issuer trust preferred security		2,602		2,535
CRA investment fund		4,980		2,939
Total	$	249,616	$	195,630

The following table presents the contractual maturities and yields of debt securities available for sale, stated at fair value, as of September 30, 2016:

				After 1			After 5
				But			But			After
	Within			Within			Within			10
(Dollars in thousands)	1 Year			5 Years			10 Years			Years			Total
U.S. treasury and U.S. government-	$	—		$	—		$	11,970		$	—		$	11,970
Sponsored entity bonds		—	%		—	%		1.81	%		—	%		1.81	%
Mortgage-backed securities-	$	16		$	15,423		$	38,408		$	137,674		$	191,521
residential (1)		4.42	%		2.68	%		1.66	%		1.68	%		1.76	%
SBA pool securities	$	—		$	—		$	—		$	7,068		$	7,068
		—	%		—	%		—	%		0.73	%		0.73	%
State and political subdivisions (2)	$	9,891		$	10,923		$	5,702		$	4,959		$	31,475
		1.39	%		3.35	%		2.93	%		3.02	%		2.60	%
Single-issuer trust preferred security (1)	$	—		$	—		$	—		$	2,602		$	2,602
		—	%		—	%		—	%		1.56	%		1.56	%
Total	$	9,907		$	26,346		$	56,080		$	152,303		$	244,636
		1.40	%		2.96	%		1.82	%		1.68	%		1.84	%

(1) Shown using stated final maturity.

(2) Yields presented on a fully tax-equivalent basis.

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

	Three Months Ended September 30,				Change
(In thousands)	2016		2015		2016 vs 2015
Service charges and fees	$	812	$	832	$	(20	)
Gain on sale of loans (mortgage banking)		383		102		281
Gain on sale of loans, at lower of
cost or fair value (Multifamily Loans)		256		—		256
Bank owned life insurance		340		260		80
Fee income related to loan level,
Back-to-back swaps		670		—		670
Gain on sale of SBA loans		243		—		243
Securities gains		—		83		(83	)
Other income		395		164		231
Total other income	$	3,099	$	1,441	$	1,658

56 

	Nine Months Ended September 30,				Change
(In thousands)	2016		2015		2016 vs 2015
Service charges and fees	$	2,437	$	2,474	$	(37	)
Gain on sale of loans (mortgage banking)		813		411		402
Gain on sale of loans, at lower of
cost or fair value (Multifamily Loans)		880		—		880
Bank owned life insurance		1,027		1,045		(18	)
Fee income related to loan level,
Back-to-back swaps		764		373		391
Gain on sale of SBA loans		502		—		502
Securities gains		119		527		(408	)
Other income		1,074		429		645
Total other income	$	7,616	$	5,259	$	2,357

Service charges and fees for the three and nine months ended September 30, 2016 were generally flat compared to the same periods last year. Increases in income from debit card usage, as well as account analysis fees, were offset by declines in overdraft/NSF fees.

For the three months ended September 30, 2016, income from the sale of newly originated residential mortgage loans was $383 thousand compared to $102 thousand for the same prior year period. For the nine months ended September 30, 2016 compared to the same period in 2015, income from the sale of newly originated residential mortgages loans increased from $411 thousand to $813 thousand. The increases were a result of a higher volume of loans originated for sale in the 2016 periods when compared to the same periods in 2015.

For the three and nine months ended September 30, 2016, the Company recorded $340 thousand and $1.0 million, respectively, of bank owned life insurance (BOLI) income as compared to $260 thousand and $1.0 million for the same periods in 2015. The nine months ended September 30, 2015 included $285 thousand additional income related to a net life insurance death benefit under the Company’s BOLI policies. BOLI income in the nine months ended September 30, 2016 benefitted from the increase of the BOLI policy by $10 million which occurred in the fourth quarter of 2015.

There were no securities gains for the September 2016 quarter compared to $83 thousand for the same 2015 quarter. For the nine months ended September 30, 2016 securities gains were $119 thousand compared to $527 thousand for the same 2015 period. Sales of securities have been generally employed to benefit interest rate risk, prepayment risk, and/or liquidity risk. Given the shorter duration of our investment portfolio and the interest rate environment, such sales will continue to be a very small component of the Company’s operations.

Gains on the sale of multifamily loans held for sale at the lower of cost or fair value was $256 thousand for the quarter ending September 30, 2016 and $880 thousand for the nine months ending September 30, 2016. During the first quarter of 2016, the Company began selling whole multifamily loans in addition to multifamily loan participations. The Company intends to continue to employ loan sales and loan participations to manage the Company’s balance sheet. As the Company explained over the last several quarters, the Company anticipated multifamily loan originations (and growth) would be less than past quarters, as it manages its balance sheet such that multifamily loans decline as a percentage of the overall loan portfolio and commercial loans become a larger percentage of the overall loan portfolio. The Company anticipates that this balance sheet management, however, will likely not be linear each quarter, but will rather be apparent over periods of time.

57 

The third quarter of 2016 included $243 thousand of income related to the Company’s SBA lending and sale program. The SBA program was fully implemented in the March 2016 quarter. For the nine months ended September 30, 2016, there was $502 thousand of income related to the Company’s SBA lending and sale program.

The third quarter of 2016 included $670 thousand of loan level, back-to-back swap income. For the nine months ended September 30, 2016, there was $764 thousand of loan level, back-to-back swap income compared to $373 thousand in the nine months ended September 30, 2015. The program utilizes mirror interest rate swaps, one directly with the commercial loan customer and one directly with a well-established counterparty. This enables a commercial loan customer to benefit from a fixed rate loan, while the Company records a floating rate loan. The program provides enhanced interest rate risk management, as well as the potential for fee income for the Company. While the Company cannot predict the amount of fee income that may be recognized each period, this program is a part of ongoing operations.

Other income was $395 thousand for the September 2016 quarter compared to $164 thousand for the September 2015 quarter. Other income was $1.1 million for the nine months ending September 30, 2016 compared to $429 thousand for the same period in 2015. Increases were seen in loan servicing fees due to continued multifamily loan participations and higher unused line of credit fees associated with the Commercial lending business.

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

	Three Months Ended September 30,				Change
(In thousands)	2016		2015		2016 vs 2015
Salaries and employee benefits	$	11,515	$	10,322	$	1,193
Premises and equipment		2,736		2,785		(49	)
FDIC assessment		814		416		398
Other Operating Expenses:
Wealth management division
other expense		490		469		21
Professional and legal fees		801		678		123
Loan expense		141		90		51
Telephone		231		228		3
Advertising		141		154		(13	)
Postage		77		94		(17	)
Other		1,220		1,663		(443	)
Total operating expenses	$	18,166	$	16,899	$	1,267

	Nine Months Ended September 30,				Change
(In thousands)	2016		2015		2016 vs 2015
Salaries and employee benefits	$	33,523	$	29,619	$	3,904
Premises and equipment		8,342		8,179		163
FDIC assessment		3,954		1,329		2,625
Other Operating Expenses:
Wealth management division
other expense		1,593		1,602		(9	)
Professional and legal fees		2,544		2,029		515
Loan expense		374		279		95
Telephone		704		682		22
Advertising		511		618		(107	)
Postage		246		286		(40	)
Other		4,356		4,310		46
Total operating expenses	$	56,147	$	48,933	$	7,214

58 

The Company’s total operating expenses were $18.2 million for the quarter ended September 30, 2016 compared to $16.9 million in the same 2015 quarter, reflecting a net increase of $1.3 million or 7 percent. Total operating expenses grew by $7.2 million to $56.1 million for the nine months ending September 30, 2016 when compared to the same period in 2015, reflecting an increase of 15 percent.

Salary and benefits expenses increased to $11.5 million in the third quarter of 2016 from $10.3 million in the same period in 2015, an increase of $1.2 million or 12 percent. Strategic hiring that was in line with the Company’s Plan, including staff associated with credit and risk management, normal salary increases and increased bonus/incentive accruals associated with the Company’s growth, all contributed to the increase from the September 2015 quarter to the September 2016 quarter. The nine months ended September 30, 2016 had salary and benefits expenses increasing to $33.5 million from $29.6 million for the same period in 2015. This increase is due to the same reasons noted previously, as well as the acquisition of Wealth Management Consultants in May 2015.

Premises and equipment expenses totaled $2.7 million for the quarter ended September 30, 2016, which was relatively flat to the same 2015 period. Premises and equipment expenses for the nine months ended September 30, 2016 increased by $163 thousand to $8.3 million when compared to the nine months ended September 30, 2015. The increases were consistent with the Company’s continued growth, as well as certain investment in risk management related analytics and practices.

The Company expected and previously disclosed that FDIC assessment expense for 2016 would be significantly higher than 2015. For the nine months ended September 30, 2016 the FDIC assessment totaled $4.0 million compared to $1.3 million for the same nine month period in 2015.For the three months ended September 30, 2016, FDIC insurance expense was $814 thousand compared to $416 thousand for the three months ended September 30, 2015, increasing $398 thousand. However, the third quarter of 2016 FDIC premium declined $767 thousand from the second quarter of 2016. Beginning July 1, 2016 the FDIC assessment system was revised. Revisions for “small institutions” (under $10 billion in assets) resulted in, among other things, the elimination of risk categories and utilization of a financial ratios method to determine assessment rates. The changes reduced the Company’s assessment rate by nearly 50%, when compared to the second quarter 2016 assessment rate.

The Company also expected and previously disclosed that other operating expenses, including professional fees, would be higher in 2016. Professional fees increased $123 thousand for the three months ended September 30, 2016 and $515 thousand for the nine months ended September 30, 2016, as compared to the same periods of 2015. Given the Company’s significant growth and high concentration in multifamily lending, the Company accelerated costs over 2016 to ensure it adhered to best in class risk management practices. The Company had originally planned for such expenditures over a two to three year period, but felt it prudent to push them forward into 2016.

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

59 

The following table presents certain key aspects of the Bank’s Private Wealth Management Division performance for the nine months ended September 30, 2016 and 2015.

	At or For
	Nine Months Ended September 30,				Change
(In thousands)	2016 (1)		2015		2016 v 2015
Total fee income	$	13,630	$	12,732	$	898
Assets under administration
(market value)	$	3,495,206	$	3,250,835	$	244,371

(1) 2016 results include the income and expenses of the Wealth Management Consultants Division, which was acquired in May 2015.

In the September 2016 quarter, the Private Wealth Management Division generated $4.4 million in fee income compared to $4.2 million for the September 2015 quarter, reflecting a 6 percent increase. For the nine months ended September 30, 2016, the Private Wealth Management Division generated $13.6 million in fee income compared to $12.7 million for the same period in 2015, reflecting a 7 percent increase. The market value of the assets under administration (“AUA”) of the wealth management division was $3.50 billion at September 30, 2016, reflecting an increase of 8 percent from $3.25 billion at September 30, 2015. The growth in fee income was due to several factors, including continued healthy new business results, somewhat offset by normal levels of disbursements and outflows. The net positive contribution to revenue from fee income was partially offset by the broader market declines in the latter part of 2015, as well as the first quarter of 2016, which negatively impacted AUA and the correlated investment fee revenue at the outset of 2016. 

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

While the “Operating Expenses” section above offers an overall discussion of the Corporation’s expenses, including the Private Wealth Management Division, operating expenses relative to the Private Wealth Management Division totaled $3.6 million and $3.7 million for the third quarters of 2016 and 2015, respectively, a decrease of $145 thousand, or 4 percent. Operating expenses relative to the Private Wealth Management Division totaled $11.1 million and $10.5 million for the nine months ended September 30, 2016 and 2015, respectively, an increase of $626 thousand, or 6 percent. Increased expenses in 2016 include the expenses of the Wealth Management Consultants Division, which was acquired in May 2015. Remaining expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel. Revenue and profitability related to the new personnel will generally lag expenses by several quarters.

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

60 

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

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

	As of
	September 30,			June 30,			March 31,			December 31,			September 30,
	2016			2016			2016			2015			2015
Loans past due over 90 days
and still accruing	$	—		$	—		$	—		$	—		$	—
Nonaccrual loans		10,840			8,049			7,278			6,747			7,615
Other real estate owned		534			767			861			563			330
Total nonperforming assets	$	11,374		$	8,816		$	8,139		$	7,310		$	7,945
Performing TDRs	$	18,078		$	18,570		$	16,033		$	16,231		$	14,609
Loans past due 30 through 89
days and still accruing	$	8,238		$	6,576		$	1,393		$	2,143		$	2,748
Classified loans	$	49,627		$	51,084		$	48,817		$	42,777		$	41,985
Impaired loans	$	28,951		$	26,643		$	23,335		$	23,107		$	22,224
Nonperforming loans (1) as a % of
total loans		0.34	%		0.26	%		0.24	%		0.23	%		0.27	%
Nonperforming assets (1) as a % of
total assets		0.30	%		0.24	%		0.23	%		0.22	%		0.24	%
Nonperforming assets (1) as a % of
total loans plus other real
estate owned		0.35	%		0.28	%		0.27	%		0.25	%		0.28	%

(1) Nonperforming loans/assets do not include performing TDRs.

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

PROVISION FOR LOAN LOSSES: The provision for loan losses was $2.1 million for the third quarter of 2016 and $1.6 million for the same quarter of 2015. For the nine months ended September 30, 2016 and 2015 the provision for loan losses was $6.0 million and $5.2 million, respectively. The amount of the loan loss provision and the level of the allowance for loan losses are based upon a number of factors including Management’s evaluation of probable losses inherent in the portfolio, after consideration of appraised collateral values, financial condition and past credit history of the borrowers, as well as prevailing economic conditions. Commercial credits generally carry a higher risk profile compared to some of the other credits, which is reflected in Management’s determination of the proper level of the allowance for loan losses.

The provision for loan losses of $2.1 million in the third quarter of 2016 was primarily related to loan growth experienced by the Company, as well as greater qualitative factor allocations of the allowance to commercial loans and commercial real estate loans. Originations of commercial loans and commercial real estate loans have increased, and these loans have historically carried a higher general reserve allocation than multifamily loans. In the third quarter of 2016, Management reevaluated the qualitative factors for these loan types and as a result of the evaluation, increased the allocations. In addition, the multifamily portfolio is more seasoned and the Company continues to reduce concentration risk through multifamily loan participations and whole loan sales.

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The overall allowance for loan losses was $30.6 million as of September 30, 2016 compared to $25.9 million at December 31, 2015. As a percentage of loans, the allowance for loan losses was 0.95 percent as of September 30, 2016 and 0.89 percent as of December 31, 2015. The specific reserves on impaired loans have increased to $690 thousand at September 30, 2016 compared to $490 thousand as of December 31, 2015. Total impaired loans were $29.0 million and $23.1 million as of September 30, 2016 and December 31, 2015, respectively. The general component of the allowance increased from $25.4 million at December 31, 2015 to $29.9 million at September 30, 2016, due principally to the loan growth and the greater qualitative factor allocations referenced previously.

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

	September 30,			June 30,			March 31,			December 31,			September 30,
(In thousands)	2016			2016			2016			2015			2015
Allowance for loan losses:
Beginning of period	$	29,219		$	27,321		$	25,856		$	24,374		$	22,969
Provision for loan losses		2,100			2,200			1,700			1,950			1,600
Charge-offs, net		(703	)		(302	)		(235	)		(468	)		(195	)
End of period	$	30,616		$	29,219		$	27,321		$	25,856		$	24,374
Allowance for loan losses as
a % of total loans		0.95	%		0.93	%		0.90	%		0.89	%		0.85	%
Allowance for loan losses as
a % of nonperforming loans		282.44	%		363.01	%		375.39	%		383.22	%		320.08	%

INCOME TAXES: For the third quarter of 2016 and 2015 income tax expense as a percentage of pre-tax income was 38.3 percent and 39.0 percent, respectively. For the nine months ending September 30, 2016 and 2015 income tax expense as a percentage of pre-tax income was 38.1 percent and 38.8 percent, respectively.

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CAPITAL RESOURCES: A solid capital base provides the Company with the ability to support future growth and financial strength and is essential to executing the Company’s Strategic Plan – “Expanding Our Reach.” The Company’s capital strategy is intended to provide stability to expand its businesses, even in stressed environments. Quarterly stress testing is integral to the Company’s capital management process.

The Company strives to maintain capital levels in excess of internal “triggers” and in excess of those considered to be well capitalized under regulatory guidelines applicable to banks. Maintaining an adequate capital position supports the Company’s goal of providing shareholders an attractive and stable long-term return on investment.

Capital for the quarter ended September 30, 2016 was benefitted by net income of $7.1 million and by $5.4 million of voluntary share purchases by our shareholders under the Dividend Reinvestment Plan.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total, Common Equity Tier 1 and Tier 1 capital (each as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). At September 30, 2016 and December 31, 2015, all of the Bank’s capital ratios remain above the levels required to be considered “well capitalized” and the Company’s capital ratios remain above regulatory requirements.

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

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

						To Be Well										For Capital
						Capitalized Under					For Capital					Adequacy Purposes
						Prompt Corrective					Adequacy					Including Capital
	Actual					Action Provisions					Purposes					Conservation Buffer (A)
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2016:
Total capital
(to risk-weighted assets)	$	376,220		12.78	%	$	294,305		10.00	%	$	235,444		8.00	%	$	253,838		8.625	%
Tier I capital
(to risk-weighted assets)		345,604		11.74			235,444		8.00			176,583		6.00			194,977		6.625
Common equity tier I
(to risk-weighted assets)		345,601		11.74			191,299		6.50			132,437		4.50			150,832		5.125
Tier I capital
(to average assets)		345,604		9.41			183,730		5.00			146,984		4.00			146,984		4.00
As of December 31, 2015:
Total capital
(to risk-weighted assets)	$	297,497		11.32	%	$	262,719		10.00	%	$	210,176		8.00	%		N/A		N/A
Tier I capital
(to risk-weighted assets)		271,641		10.34			210,176		8.00			157,632		6.00			N/A		N/A
Common equity tier I
(to risk-weighted assets)		271,641		10.34			170,768		6.50			118,224		4.50			N/A		N/A
Tier I capital
(to average assets)		271,641		8.04			169,027		5.00			135,221		4.00			N/A		N/A

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

						To Be Well										For Capital
						Capitalized Under					For Capital					Adequacy Purposes
						Prompt Corrective					Adequacy					Including Capital
	Actual					Action Provisions					Purposes					Conservation Buffer (A)
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2016:
Total capital
(to risk-weighted assets)	$	387,597		13.17	%	$	N/A		N/A	%	$	235,519		8.00	%	$	253,919		8.625	%
Tier I capital
(to risk-weighted assets)		308,250		10.47			N/A		N/A			176,639		6.00			195,039		6.625
Common equity tier I
(to risk-weighted assets)		308,247		10.47			N/A		N/A			132,479		4.50			150,879		5.125
Tier I capital
(to average assets)		308,250		8.39			N/A		N/A			147,011		4.00			147,011		4.00
As of December 31, 2015:
Total capital
(to risk-weighted assets)	$	299,593		11.40	%	$	N/A		N/A	%	$	210,209		8.00	%		N/A		N/A
Tier I capital
(to risk-weighted assets)		273,738		10.42			N/A		N/A			157,657		6.00			N/A		N/A
Common equity tier I
(to risk-weighted assets)		273,738		10.42			N/A		N/A			118,242		4.50			N/A		N/A
Tier I capital
(to average assets)		273,738		8.10			N/A		N/A			135,237		4.00			N/A		N/A

(A) When fully phased in on January 1, 2019, the Basel Rules will require the Company and the Bank to maintain a 2.5% “capital conservation buffer” on top of the minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of (i) CET1 to risk-weighted assets, (ii) Tier 1 capital to risk-weighted assets or (iii) total capital to risk-weighted assets above the respective minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers based on the amount of the shortfall. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.  

The Company’s regulatory total risk based capital ratio beginning June 30, 2016 was benefitted by the $49 million (net) subordinated debt issuance that closed in June 2016. The Company down-streamed approximately $40 million of those proceeds to the Bank as capital, benefitting all the Bank’s regulatory capital ratios at that time.

The Dividend Reinvestment Plan of Peapack-Gladstone Financial Corporation, or the “Reinvestment Plan,” allows shareholders of the Company to purchase additional shares of common stock using cash dividends without payment of any brokerage commissions or other charges. Shareholders may also make voluntary cash payments of up to $200 thousand per quarter to purchase additional shares of common stock. The Reinvestment Plan provided $5.4 million of capital to the Company in the third quarter of 2016 and provides a continuing source of capital.

As previously announced, on October 27, 2016, the Board of Directors declared a regular cash dividend of $0.05 per share payable on November 25, 2016 to shareholders of record on November 10, 2016.

Management believes the Company’s capital position and capital ratios are adequate. Further, Management believes the Company has sufficient common equity to support its planned growth and expansion for the immediate future. The Company continually assesses other potential sources of capital, other than common equity to support future growth.

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

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Management actively monitors and manages the Company’s liquidity position and believes it is sufficient to meet future needs. Cash and cash equivalents, including federal funds sold and interest-earning deposits, totaled $159.6 million at September 30, 2016. In addition, the Company had $249.6 million in securities designated as available for sale at September 30, 2016. These securities can be sold, or used as collateral for borrowings, in response to liquidity concerns. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.

A further source of liquidity is borrowing capacity. At September 30, 2016, unused borrowing commitments totaled $1.0 billion from the FHLB, $231.6 million from the Federal Reserve Bank and $15.0 million from correspondent banks.

During the September 2016 quarter, customer deposit growth of $191.0 million (principally noninterest-bearing and money market) and increased capital of $13.5 million, basically funded net asset growth of $169.7 million, and reduced other borrowings of $42 million.

Brokered interest-bearing demand (“overnight”) deposits stayed flat at $200 million at September 30, 2016. The interest rate paid on these deposits allows the Bank to fund at attractive rates and engage in interest rate swaps to hedge its asset-liability interest rate risk. The Company ensures ample available collateralized liquidity as a backup to these short term brokered deposits.

From a liquidity/funding perspective, such brokered deposits, at a cost of approximately 50 to 60 basis points (excluding cost of hedging), are generally a more cost effective alternative than other borrowings and do not require use of pledged collateral, as secured wholesale borrowings do. From a balance sheet management perspective, the rate paid on these short term brokered deposits is used as the basis to transact longer term interest rate swaps, basically extending repricing generally to five years for asset matching / interest rate risk management purposes. As of September 30, 2016, the Company has transacted pay fixed, receive floating interest rate swaps totaling $180.0 million notional amount.

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

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

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

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

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

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

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

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

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

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

· Utilize interest rate swaps to extend liability duration;

· Utilize a loan level / back to back interest rate swap program, which converts a borrower’s fixed rate loan to adjustable rate for the Company;

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

· Maintain adequate levels of capital; and

· Utilize loan sales and/or loan participations.

The swap program is administered by ALCO and follows procedures and documentation in accordance with regulatory guidance and standards as set forth in ASC 815 for cash flow hedges. The program incorporates pre-purchase analysis, liability designation, sensitivity analysis, correlation analysis, daily mark-to-market analysis and collateral posting as required. The Board is advised of all swap activity. In all of these swaps, the Company is receiving floating and paying fixed interest rates.

In addition, during the second quarter of 2015, the Company initiated a loan level / back-to-back swap program in support of its commercial lending business. Pursuant to this program, the Company extends a floating rate loan and executes a floating to fixed swap with the borrower. At the same time, the Company executes with a third party swap, the terms of which fully offset the fixed exposure and result in a final floating rate exposure for the Company. As of September 30, 2016, $70.8 million of notional value in swaps were executed and outstanding with borrowers under this program.

As noted above, ALCO uses simulation modeling to analyze the Company’s net interest income sensitivity, as well as the Company’s economic value of portfolio equity under various interest rate scenarios. The model is based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities. The model incorporates certain prepayment and interest rate assumptions, which management believes to be reasonable as of September 30, 2016. The model assumes changes in interest rates without any proactive change in the balance sheet by management. In the model, the forecasted shape of the yield curve remains static as of September 30, 2016.

In an immediate and sustained 200 basis point increase in market rates at September 30, 2016, net interest income for year 1 would increase approximately 6.2 percent, when compared to a flat interest rate scenario. In year 2 this sensitivity improves to an increase of 9.6 percent, when compared to a flat interest rate scenario.

In an immediate and sustained 100 basis point decrease in market rates at September 30, 2016, net interest income would decline approximately 4.4 percent for year 1 and 6.3 percent for year 2, compared to a flat interest rate scenario.

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The table below shows the estimated changes in the Company’s economic value of portfolio equity (“EVPE”) that would result from an immediate parallel change in the market interest rates at September 30, 2016.

	Estimated Increase/								EVPE as a Percentage of
(Dollars in thousands)	Decrease in EVPE								Present Value of Assets (2)
Change In
Interest
Rates	Estimated								EVPE			Increase/(Decrease)
(Basis Points)	EVPE (1)		Amount			Percent			Ratio (3)			(basis points)
+200	$	407,560	$	9,611			2.4	%		11.32	%		77
+100		410,159		12,210			3.1			11.12			57
Flat interest rates		397,949		—			—			10.55			—
-100		366,598		(31,351	)		(7.9	)		9.57			(98	)

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

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

Model simulation results indicate the Company is slightly asset sensitive, which indicates the Company’s net interest income should improve slightly in a rising rate environment. Management believes the Company’s interest rate risk position is reasonable.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to information regarding quantitative and qualitative disclosures about market risk from the end of the preceding fiscal year to the date of the most recent interim financial statements (September 30, 2016).

ITEM 4. Controls and Procedures

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

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, 2016 that have materially affected, or are reasonable likely to materially affect, the Corporation’s internal control over financial reporting.

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

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

There were no material changes in the Corporation’s risk factors during the nine months ended September 30, 2016 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, 2015.

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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 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

3	Articles of Incorporation and By-Laws:
	A.	Certificate of Incorporation of the Registrant, as amended, incorporated herein by reference to Exhibit 3 of the Registrant’s Quarterly Report on Form 10-Q filed on November 9, 2009 (File No. 001-16197).
	B.	By-Laws of the Registrant, incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on January 26, 2015 (File No. 001-16197).
10	Peapack-Gladstone Financial Corporation 2012 Long-Term Stock Incentive Plan, as amended and restated (filed herewith).
31.1	Certification of Douglas L. Kennedy, Chief Executive Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).
31.2	Certification of Jeffrey J. Carfora, Chief Financial Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Douglas L. Kennedy, Chief Executive Officer of the Corporation and Jeffrey J. Carfora, Chief Financial Officer of the Corporation.
101	Interactive Data File

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SIGNATURES

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

	PEAPACK-GLADSTONE FINANCIAL CORPORATION
	(Registrant)
DATE:  November 7, 2016	By:  /s/ Douglas L. Kennedy
	Douglas L. Kennedy
	President and Chief Executive Officer
DATE:  November 7, 2016	By:  /s/ Jeffrey J. Carfora
	Jeffrey J. Carfora
	Senior Executive Vice President, Chief Financial Officer
	(Principal Financial Officer)
DATE:  November 7, 2016	By:  /s/ Francesco S. Rossi
	Francesco S. Rossi, Chief Accounting Officer
	(Principal Accounting Officer)

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EX-10

Exhibit 10

PEAPACK-GLADSTONE FINANCIAL CORPORATION

2012 LONG-TERM STOCK INCENTIVE PLAN

(Adopted by Directors January 19, 2012)

(Approved by Shareholders April 24, 2012)

(Amended by Directors March 21, 2013, Approved by Shareholders April 23, 2013)

(Amended by Directors March 20, 2014, Approved by Shareholders April 22, 2014)

(Amended by Directors March 26, 2015)

(Amended by Directors March 16, 2016, Approved by Shareholders April __, 2016)

1.       Purpose. The purpose of the Plan is to provide additional incentive to those officers and key employees of the Company and its Subsidiaries, and certain members of the Board of Directors of the Company whose substantial contributions are essential to the continued growth and success of the Company’s business in order to strengthen their commitment to the Company and its Subsidiaries, to motivate such officers, employees and Directors to faithfully and diligently perform their assigned responsibilities and to attract and retain competent and dedicated individuals whose efforts will result in the long-term growth and profitability of the Company. To accomplish such purposes, the Plan provides that the Company may grant Incentive Stock Options, Nonqualified Stock Options, Restricted Stock Awards, Restricted Stock Units, Stock Appreciation Rights and Cash-Based Awards.

2.       Definitions. For purposes of this Plan:

(a)       “Agreement” means the written agreement between the Company and a Grantee evidencing the grant of an Option or Award and setting forth the terms and conditions thereof.

(b)       “Award” means a grant of Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, or a Cash-Based Award or any combination of the foregoing.

(c)       “Bank” means Peapack-Gladstone Bank, a Subsidiary.

(d)       “Board” means the Board of Directors of the Company.

(e)       “Cash-Based Award” means any right granted under Section 10.

(f)       “Cause” means an intentional failure to perform stated duties, breach of a fiduciary duty involving personal dishonesty, or willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order. Notwithstanding anything else herein to the contrary, in the event that an employee or Director is terminated or removed for Cause, or resigns at a time when Cause exists, or if, following termination, resignation or removal it is determined that Cause existed at the time of such termination, resignation or removal, then any and all Options and Awards will automatically be terminated and void as of the date that Cause arose, and no notice to that effect is required in order to effect that result.

(g)       “Change in Capitalization” means any increase, reduction, change or exchange of Shares for a different number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, extraordinary cash dividend, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise.

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(h)       “Change in Control” means an event of a nature that: (1) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) who is not now presently but becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the Company’s outstanding securities except for any securities purchased by any tax-qualified employee benefit plan of the Company; or (2) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (2), considered as though he were a member of the Incumbent Board; or (3) consummation of regulatory approval to implement a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Company or similar transaction in which the Company is not the resulting entity or such plan, merger, consolidation, sale or similar transaction occurs; or (4) a proxy statement soliciting proxies from shareholders of the Company shall be distributed by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations, and, following such distribution, the outstanding shares of the class of securities then subject to the plan or transaction are exchanged for or converted into cash or property or securities not issued by the Company; or (5) a tender offer is made for 25% or more of the voting securities of the Company.

(i)       “Code” means the Internal Revenue Code of 1986, as amended.

(j)       “Committee” means a committee consisting solely of two (2) or more directors who are Non-Employee Directors (as defined in Rule 16b-3 of the Exchange Act as it may be amended from time to time) of the Company and outside directors as defined pursuant to Section 162(m) of the Code (as it may be amended from time to time) appointed by the Board to administer the Plan and to perform the functions set forth herein. Directors appointed by the Board to the Committee shall have the authority to act notwithstanding the failure to be so qualified.

(k)       “Company” means Peapack-Gladstone Financial Corporation, a New Jersey corporation.

(l)       “Director” means a member of the Board who is not also serving as an employee of the Company.

(m)       “Disability” means the permanent and total inability by reason of mental or physical infirmity, or both, of an employee or Director to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board must advise the Committee that it is either not possible to determine when such Disability will terminate or that it appears probable that such Disability will be permanent during the remainder of the individual’s lifetime.

(n)       “Eligible Employee” means any officer or other key employee of the Company or a Subsidiary designated by the Committee as eligible to receive Options or Awards subject to the conditions set forth herein.

(o)       “Escrow Agent” means the escrow agent under the Escrow Agreement, designated by the Committee. The Bank may be appointed as the Escrow Agent.

(p)       “Escrow Agreement” means an agreement between the Company, the Escrow Agent and a Grantee, in the form specified by the Committee, under which shares of Restricted Stock awarded pursuant hereto shall be held by the Escrow Agent until either (a) the restrictions relating to such shares expire and the shares are delivered to the Grantee or (b) the Company reacquires the shares pursuant hereto and the shares are delivered to the Company.

(q)       “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(r)       “Fair Market Value” means the fair market value of the Shares as determined by the Committee in its sole discretion using a method that complies with Section 409A of the Code; provided, however, that (A) if the Shares are listed on NASDAQ, the New York Stock Exchange or other national securities exchange, Fair Market Value on any date shall be the last sale price reported for the Shares on such exchange on such date or on the last date preceding such date on which a sale was reported, or (B) if the Shares are then traded in an over-the-counter market, Fair Market Value on any date shall be the mean of the high bid and low asked prices for the Shares in such over-the-counter market for such date or on the last date preceding such date on which high bid and low asked prices exist.

(s)       “Grantee” means a person to whom an Option or Award has been granted under the Plan.

(t)       “Incentive Stock Option” means an Option within the meaning of Section 422 of the Code.

(u)       “Nonqualified Stock Option” means an Option which is not an Incentive Stock Option.

(v)       “Option” means an Incentive Stock Option, a Nonqualified Stock Option, or either or both of them.

(w)       “Parent” means any corporation in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock of one of the other corporations in such chain.

(x)       “Plan” means the Peapack-Gladstone Financial Corporation 2012 Long-Term Stock Incentive Plan as set forth in this instrument and as it may be amended from time to time.

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(y)       “Restricted Stock” means Shares issued or transferred to an Eligible Employee or Director which may be subject to restrictions as provided in Section 8 hereof.

(z)       “Restricted Stock Unit” means a right to receive one Share upon the satisfaction of terms and conditions as provided in Section 9 hereof, including without limitation the satisfaction of specified performance or other criteria. Restricted Stock Units represent an unfunded and unsecured obligation of the Company, except as otherwise provided by the Committee.

(aa)       “Retirement” means the retirement from active employment of an employee or officer, but only if such person meets all of the following requirements: (i) he has a minimum combined total of years of service to the Company or any Subsidiary (excluding service to any acquired company) and age equal to eighty (80), (ii) he is age sixty-two (62) or older, and (iii) he provides six (6) months prior written notice to the Company of the retirement. For Directors, the term “Retirement” shall mean the date on which the Director ceases to be a member of the Board after both attaining age sixty (60) and completing at least ten (10) years of service on the Board.

(bb)       “Shares” means the common stock, no par value, of the Company (including any new, additional or different stock or securities resulting from a Change in Capitalization).

(cc)       “Stock Appreciation Right” means a right to receive all or some portion of the increase in the value of shares of Common Stock as provided in Section 7 hereof.

(dd)       “Subsidiary” means any corporation in an unbroken chain of corporations, beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

(ee)       “Ten-Percent Shareholder” means an Eligible Employee, who, at the time an Incentive Stock Option is to be granted to him, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, a Parent or a Subsidiary within the meaning of Section 422(b)(6) of the Code.

3.       Administration.

(a)       The Plan shall be administered by the Committee which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A majority of the Committee shall constitute a quorum and a majority of a quorum may authorize any action. Each member of the Committee shall be a Non-Employee Director (as defined in Rule 16b-3 of the Exchange Act as it may be amended from time to time) and an outside director as defined pursuant to Section 162(m) of the Code as it may be amended from time to time. No failure to be so qualified shall invalidate any Option or Award or any action or inaction under the Plan. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, the Options or the Awards, and all members of the Committee shall be fully indemnified by the Company with respect to any such action, determination or interpretation.

Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time:

(1)       to determine those Eligible Employees to whom Options shall be granted under the Plan and the number of Incentive Stock Options and/or Nonqualified Options to be granted to each Eligible Employee and to prescribe the terms and conditions (which need not be identical) of each Option, including the purchase price per share of each Option;

(2)       to select those Eligible Employees to whom Awards shall be granted under the Plan and to determine the number of shares of Restricted Stock, Restricted Stock Units and/or Stock Appreciation Rights to be granted pursuant to each Award and the amount or value of Cash-Based Awards, the terms and conditions of each Award, including the restrictions or performance criteria relating to such shares, units or rights, the purchase price per share, if any, of Restricted Stock or Restricted Stock Units and whether Stock Appreciation Rights will be granted alone or in conjunction with an Option;

(3)       to construe and interpret the Plan and the Options and Awards granted thereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable to make the Plan fully effective, and all decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company or a Subsidiary and Grantees;

(4)       to determine the duration and purposes for leaves of absence which may be granted to a Grantee without constituting a termination of employment or service for purposes of the Plan; and

(5)       generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan.

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Subject to the terms and conditions set forth herein, the Committee may, from time to time, recommend the grant of Options and Awards to the Directors in such numbers and upon such terms as it deems appropriate, but all such grants must be approved by the Company’s Board of Directors.

4.       Stock Subject to Plan; Individual Award Limits.

(a)       The maximum number of Shares that may be issued or transferred pursuant to all Options and Awards under this Plan is 1,200,000, of which not more than 200,000 Shares may be issued or transferred pursuant to Options, Restricted Stock Awards, Restricted Stock Unit Awards and/or Stock Appreciation Rights to any one Eligible Employee during any one calendar year. Not more than 10,000 Shares may be issued or transferred pursuant to Options and/or Awards to any Director during any one calendar year. The maximum number of Shares that may be issued or transferred pursuant to Incentive Stock Options shall be 200,000. Upon a Change in Capitalization after the adoption of this Plan by the Board, the Shares shall be adjusted to the number and kind of Shares of stock or other securities existing after such Change in Capitalization. The maximum aggregate amount of any Cash-Based Awards that may be paid to any one Grantee in any one calendar year shall be $2 million dollars.

(b)       Whenever any outstanding Option or portion thereof expires, is cancelled or is otherwise terminated (other than by exercise of the Option or any related Stock Appreciation Right), the shares of Common Stock allocable to the unexercised portion of such Option may again be the subject of Options and Awards hereunder.

(c)       Whenever any Shares subject to an Award or Option are (i) resold to the Company, (ii) retained by the Company upon exercise of an Award or Option in order to satisfy the exercise price for such Award or Option or any withholding or other taxes due with respect to such Option or Award, or (iii) forfeited for any reason pursuant to the terms of the Plan, such Shares may again be the subject of Options and Awards hereunder.

5.       Eligibility. Subject to the provisions of the Plan, the Committee (or, with respect to Directors, the Board) shall have full and final authority to select those Eligible Employees who will receive Options and/or Awards, but no person shall receive any Options or Awards unless he or she is an employee of the Company or a Subsidiary, or a Director, at the time the Option or Award is granted.

6.       Stock Options. The Committee (or, with respect to Directors, the Board) may grant Options in accordance with the Plan, the terms and conditions of which shall be set forth in an Agreement. Each Option and Option Agreement shall be subject to the following conditions:

(a)       Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Option shall be set forth in the Agreement, provided that the purchase price per Share under each Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share at the time the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder) and under each Nonqualified Stock Option shall not be less than 100% of the Fair Market Value of a Share at the time the Option is granted. Incentive Stock Options cannot be granted to Directors.

(b)       Duration. Options granted hereunder shall be for such term as the Committee shall determine, provided that (i) no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder) and (ii) no Nonqualified Stock Option shall be exercisable after the expiration of ten (10) years and one (1) day from the date it is granted.

(c)       Non-Transferability. No Option granted hereunder shall be transferable by the Grantee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Grantee only by the Grantee or his guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of the Grantee.

(d)       Stock Options; Vesting. Each Option shall be exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee or the Board as set forth in the Option Agreement. Unless otherwise provided in the Agreement, to the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. Upon the death, Disability or Retirement of a Grantee, all Options shall become immediately exercisable, provided, however, that the Committee shall have the authority to grant Options that do not become immediately exercisable in the event of the death, Disability or Retirement of a Grantee by including such provision in the Option Agreement evidencing such Option. Notwithstanding the foregoing, the Committee (or, with respect to Directors, the Board) may accelerate the exercisability of any Option or portion thereof at any time.

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(e)       Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail (including electronic mail) to the Secretary of the Company at the Company’s principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor, as well as for any required tax withholding, and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option and required tax withholding shall be paid in full upon such exercise in cash, by check, or, at the discretion of the Committee and upon such terms and conditions as the Committee shall approve, by transferring Shares to the Company or by having Shares that would otherwise have been delivered to the Grantee upon exercise of an Option withheld by the Company. Any Shares transferred to or withheld by the Company as payment of the purchase price or tax withholding under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Grantee shall deliver the Agreement evidencing the Option and the Agreement evidencing any related Stock Appreciation Right to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Grantee.

(f)       Rights of Grantees. No Grantee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the Shares to the Grantee, and (iii) the Grantee’s name shall have been entered as a shareholder of record on the books of the Company. Thereupon, the Grantee shall have full voting, dividend and other ownership rights with respect to such Shares.

(g)       Termination of Employment. In the event that a Grantee who is not a Director ceases to be employed by the Company or any Subsidiary, any outstanding Options held by such Grantee shall, unless the Option Agreement evidencing such Option provides otherwise, terminate as follows:

(1)       If the Grantee’s termination of employment is due to his death or Disability, the Options shall become fully vested and shall be exercisable for a period of three years following such termination of employment, and shall thereafter terminate;

(2)       If the Grantee’s termination of employment is by the Grantee (other than due to the Grantee’s Retirement), the Option shall terminate on the date of the termination of employment;

(3)       If the termination of employment is due to the Grantee’s Retirement, the Option shall become fully vested and shall be exercisable for 90 days (three years for an Option designated initially as a Nonqualified Stock Option); and

(4)       If the Grantee’s termination of employment is for any other reason, the Option (to the extent exercisable at the time of the Grantee’s termination of employment) shall be exercisable for a period of ninety (90) days following such termination of employment, and shall thereafter terminate.

Notwithstanding the foregoing, the Committee may provide, either at the time an Option is granted or thereafter, that the Option may be exercised after the periods provided for in this Section 6(g), but in no event beyond the term of the Option. Notwithstanding anything to the contrary in this Section 6(g), no Option shall be exercisable beyond the term of the Option.

(h)       Termination of Service for Directors. Unless otherwise provided in the Option Agreement, upon the termination of a Director’s service as a member of the Board for any reason other than Retirement, Disability, Change in Control or death, the Director’s Options shall be exercisable only as to those Shares which were immediately exercisable by the Director at the date of termination. Unless otherwise provided in the Option Agreement, in the event of the death, Retirement or Disability of a Director, all Options held by the Director shall become immediately exercisable; and upon termination of the Director’s service due to or within 12 months after a Change in Control, all Options held by the Director shall become immediately exercisable. Options granted to a Director shall expire and no longer be exercisable upon the earlier of (i) one hundred twenty (120) months following the date of grant, or (ii) three (3) years following the date on which the Director ceases to serve as a Director (for any reason other than Cause).

7.       Stock Appreciation Rights. The Committee may, in its discretion, either alone or in connection with the grant of an Option, grant Stock Appreciation Rights in accordance with the Plan, the terms and conditions of which shall be set forth in an Agreement. If granted in connection with an Option, a Stock Appreciation Right shall cover the same shares covered by the Option (or such lesser number of shares as the Committee may determine) and shall, except as provided in this Section 7, be subject to the same terms and conditions as the related Option.

(a)       Time of Grant. A Stock Appreciation Right may be granted:

(i)       at any time if unrelated to an Option; or

(ii)       if related to an Option, at the time of grant of the Option.

(b)       Stock Appreciation Rights Related to an Option.

(1)       Payment. A Stock Appreciation Right granted in connection with an Option shall entitle the holder thereof, upon exercise of the Stock Appreciation Right or any portion thereof, to receive payment of an amount computed pursuant to Section 7(b)(3).

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(2)       Exercise. A Stock Appreciation Right granted in connection with an Option shall be exercisable at such time or times and only to the extent that the related Option is exercisable, and will not be transferable except to the extent the related Option may be transferable. A Stock Appreciation Right granted in connection with an Incentive Stock Option shall be exercisable only if the Fair Market Value of a Share on the date of exercise exceeds the purchase price specified in the related Incentive Stock Option.

(3)       Amount Payable. Upon the exercise of a Stock Appreciation Right related to an Option, the Grantee shall be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a Share on the date of exercise of such Stock Appreciation Right over the per Share purchase price under the related Option, by (B) the number of Shares as to which such Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the Agreement evidencing the Stock Appreciation Right at the time it is granted.

(4)       Treatment of Related Options and Stock Appreciation Rights Upon Exercise. Except as provided in Section 7(b)(5), (A) upon the exercise of a Stock Appreciation Right granted in connection with an Option, the Option shall be cancelled to the extent of the number of Shares as to which the Stock Appreciation Right is exercised and (B) upon the exercise of an Option granted in connection with a Stock Appreciation Right, the Stock Appreciation Right shall be cancelled to the extent of the number of Shares as to which the Option is exercised.

(5)       Simultaneous Exercise of Stock Appreciation Right and Option. The Committee may provide, either at the time a Stock Appreciation Right is granted in connection with a Nonqualified Stock Option or thereafter during the term of the Stock Appreciation Right, that upon exercise of such Option, the Stock Appreciation Right shall automatically be deemed to be exercised to the extent of the number of Shares as to which the Option is exercised. In such event, the Grantee shall be entitled to receive the amount described in Section 7(b)(3) (or some percentage of such amount if so provided in the Agreement evidencing the Stock Appreciation Right), in addition to the Shares acquired pursuant to the exercise of the Option. The inclusion in an Agreement evidencing a Stock Appreciation Right of a provision described in this Section 7(b)(5) may be in addition to and not in lieu of the right to exercise the Stock Appreciation Right as otherwise provided herein and in the Agreement.

(c)       Stock Appreciation Rights Unrelated to an Option. The Committee may grant to Eligible Employees (and the Board may grant to Directors) Stock Appreciation Rights unrelated to Options. Stock Appreciation Rights unrelated to Options shall contain such terms and conditions as to exercisability, vesting and duration as the Committee or the Board shall determine, but in no event shall they have a term of greater than ten (10) years. Upon the death, Disability or Retirement of a Grantee, all Stock Appreciation Rights shall become immediately exercisable provided, however, that the Committee or Board shall have the authority to grant Stock Appreciation Rights that do not become immediately exercisable in the event of the death, Disability or Retirement of a Grantee by including such provision in the Agreement evidencing such Stock Appreciation Right. Unless otherwise provided in the Agreement, upon the death or Disability of a Grantee, the exercisable portion of Stock Appreciation Rights held by that Grantee shall be exercisable for a period of one (1) year following such termination of employment or service, and shall thereafter terminate; and upon the Retirement of a Grantee, the exercisable portion of Stock Appreciation Rights held by that Grantee shall be exercisable for a period of ninety (90) days following such Retirement, and shall thereafter terminate. The amount payable upon exercise of such Stock Appreciation Rights shall be determined in accordance with Section 7(b)(3), except that “Fair Market Value of a Share on the date of the grant of the Stock Appreciation Right” shall be substituted for “purchase price under the related Option.”

(d)       Method of Exercise. Stock Appreciation Rights shall be exercised by a Grantee only by a written notice delivered in person or by mail to the Secretary of the Company at the Company’s principal executive office, specifying the number of Shares with respect to which the Stock Appreciation Right is being exercised. If requested by the Committee, the Grantee shall deliver the Agreement evidencing the Stock Appreciation Right being exercised and the Agreement evidencing any related Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreements to the Grantee.

(e)       Form of Payment. Payment of the amount determined under Sections 7(b)(3) or 7(c), may be made solely in whole shares of Common Stock in a number determined at their Fair Market Value on the date of exercise of the Stock Appreciation Right or, alternatively, at the sole discretion of the Committee, solely in cash, or in a combination of cash and Shares as the Committee deems advisable. If the Committee decides to make full payment in Shares, and the amount payable results in a fractional Share, payment for the fractional Share will be made in cash.

8.       Restricted Stock. The Committee (or, with respect to Directors, the Board) may grant Awards of Restricted Stock which shall be evidenced by an Agreement between the Company and the Grantee. Each Agreement shall contain such restrictions, terms and conditions as the Committee or Board may require and (without limiting the generality of the foregoing) such Agreements may require that an appropriate legend be placed on Share certificates. Awards of Restricted Stock shall be subject to the following terms and provisions:

(a)       Rights of Grantee. Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted and the purchase price, if any, is paid by the Grantee; provided, that the Grantee has executed an Agreement evidencing the Award, an Escrow Agreement, appropriate blank stock powers and any other documents which the Committee, in its absolute discretion, may require as a condition to the issuance of such Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted Stock Award, an Escrow Agreement or appropriate blank stock powers or shall fail to pay the purchase price, if any, for the Restricted Stock, the Award shall be null and void. Shares issued in connection with a Restricted Stock Award, together with the stock powers, shall be deposited with the Escrow Agent. Except as restricted by the terms of the Agreement, upon the delivery of the Shares to the Escrow Agent, the Grantee shall have all of the rights of a shareholder with respect to such Shares, including the right to vote the shares and to receive, subject to Section 8(d), all dividends or other distributions paid or made with respect to the Shares.

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(b)       Non-Transferability. Until any restrictions upon the Shares of Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth in Section 8(c), such Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated, nor shall they be delivered to the Grantee. Upon the termination of employment of the Grantee, all of such Shares with respect to which restrictions have not lapsed shall be resold by the Grantee to the Company at the same price paid by the Grantee for such Shares or shall be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company if no purchase price had been paid for such Shares. The Committee may also impose such other restrictions and conditions on the Shares as it deems appropriate.

(c)       Lapse of Restrictions.

(1)       Restrictions, if any, upon Shares of Restricted Stock awarded hereunder shall lapse at such time or times and on such terms, conditions and satisfaction of performance criteria as the Committee (or, when applicable, the Board) may determine; provided, however, that the restrictions upon such Shares shall lapse only if the Grantee on the date of such lapse is then and has continuously been an employee of the Company or a Subsidiary (or a member of the Board) from the date the Award was granted, or unless the Committee sets a later date for the lapse of such restrictions.

(2)       In the event of termination of employment (or termination of service as a Director) as a result of death, Disability or Retirement of a Grantee, all restrictions upon Shares of Restricted Stock awarded to such Grantee shall thereupon immediately lapse, provided, however, that the Committee or Board shall have the authority to grant Awards the restrictions on which do not lapse in the event of the termination of employment or service as a result of the death, Disability or Retirement of a Grantee by including such provision in the Agreement evidencing such Award.

(3)       The Committee or Board may also decide at any time in its absolute discretion and on such terms and conditions as it deems appropriate, to remove or modify the restrictions upon Shares of Restricted Stock awarded hereunder.

(d)       Treatment of Cash Dividends. At the time of an Award of Shares of Restricted Stock, the Committee may, in its discretion, determine that the payment to the Grantee of cash dividends, or a specified portion thereof, declared or paid on Shares of Restricted Stock by the Company, shall be deferred until the earlier to occur of (i) the lapsing of the restrictions, if any, imposed upon such Shares, in which case such cash dividends shall be paid over to the Grantee, or (ii) the forfeiture of such Shares under Section 8(b) hereof, in which case such cash dividends shall be forfeited to the Company, and such dividends shall be held by the Company for the account of the Grantee until such time. In the event of such deferral, interest may be credited on the amount of any such cash dividends held by the Company for the account of the Grantee from time to time at such rate per annum as the Committee, in its discretion, may determine. Payment of deferred cash dividends, together with any interest accrued thereon as aforesaid, shall be made upon the earlier to occur of the events specified in (i) and (ii) of the immediately preceding sentence, in the manner specified therein.

(e)       Delivery of Shares. When any restrictions imposed hereunder and in the Plan expire or have been cancelled with respect to one or more shares of Restricted Stock, the Company shall notify the Grantee and the Escrow Agent of same. The Escrow Agent shall then return the certificate covering the Shares of Restricted Stock to the Company and upon receipt of such certificate the Company shall deliver to the Grantee (or such Grantee’s legal representative, beneficiary or heir) a certificate for a number of shares of Common Stock, without any legend or restrictions (except those required by any federal or state securities laws), equivalent to the number of Shares of Restricted Stock for which restrictions have been cancelled or have expired (or alternatively, an applicable book entry shall be made for uncertificated Shares). If applicable, a new certificate covering Shares of Restricted Stock previously awarded to the Grantee which remain restricted shall be issued to the Grantee and held by the Escrow Agent and the Agreement, as it relates to such shares, shall remain in effect. Notwithstanding the foregoing, if requested by the Grantee, the Committee or the Board, in its discretion, has the right to cancel Shares of Restricted Stock to be delivered to the Grantee having a Fair Market Value, on the day preceding the date of vesting of the Restricted Stock, equal to the aggregate required tax withholding in connection with such vesting, and to apply the value of such Shares of Restricted Stock as payment for the Grantee’s aggregate required tax withholding for the vesting of any Shares of Restricted Stock.

(f)       Unrestricted Shares. Notwithstanding anything to the contrary in this Plan, the Committee shall have the right to grant Awards of Restricted Stock to employees of the Company that are not evidenced by an Agreement, which are fully vested as of the grant date of the Award and which do not contain a restrictive legend. The amount of any aggregate Awards under this Section 8(f) shall not exceed 10,000 shares and any individual Award under this Section 8(f) shall not exceed 5 shares.

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9.       Restricted Stock Units. The Committee (or, with respect to Directors, the Board) may grant Awards of Restricted Stock Units which shall be evidenced by an Agreement between the Company and the Grantee. Each Agreement shall contain such restrictions, terms and conditions as the Committee or Board may require. Awards of Restricted Stock Units shall be subject to the following terms and provisions:

(a)       Rights of Grantee. Restricted Stock Units granted pursuant to an Award hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted and the purchase price, if any, is paid by the Grantee, provided that the Grantee has executed an Agreement evidencing the Award and any other documents which the Committee, in its absolute discretion, may require as a condition to the issuance of such Restricted Stock Units. If a Grantee shall fail to execute the Agreement evidencing a Restricted Stock Unit Award or shall fail to pay the purchase price, if any, for the Restricted Stock Units, the Award shall be null and void. The Grantee shall not have any of the rights of a shareholder with respect to Restricted Stock Units, subject to Section 9(d).

(b)       Non-Transferability. Until any restrictions upon the Restricted Stock Units awarded to a Grantee shall have lapsed in the manner set forth in Section 9(c), such Restricted Stock Units shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated. Upon the termination of employment of the Grantee, all of such Restricted Stock Units with respect to which restrictions have not lapsed shall be forfeited at no cost to the Company if no purchase price had been paid for such Restricted Stock Units. The Committee may also impose such other restrictions and conditions on the Restricted Stock Units as it deems appropriate.

(c)       Lapse of Restrictions.

(1)       Restrictions upon Restricted Stock Units awarded hereunder shall lapse at such time or times and on such terms, conditions and satisfaction of performance criteria as the Committee (or, when applicable, the Board) may determine; provided, however, that the restrictions upon such Restricted Stock Units shall lapse only if the Grantee on the date of such lapse is then and has continuously been an employee of the Company or a Subsidiary (or a member of the Board) from the date the Award was granted, or unless the Committee sets a later date for the lapse of such restrictions.

(2)       In the event of termination of employment (or termination of service as a Director) as a result of death, Disability or Retirement of a Grantee, all restrictions upon Restricted Stock Units awarded to such Grantee shall thereupon immediately lapse, provided, however, that the Committee or Board shall have the authority to grant Awards of Restricted Stock Units the restrictions on which do not lapse in the event of the termination of employment or service as a result of the death, Disability or Retirement of a Grantee by including such provision in the Agreement evidencing such Award.

(3)The Committee or Board may also decide at any time in its absolute discretion and on such terms and conditions as it deems appropriate, to remove or modify the restrictions upon Restricted Stock Units awarded hereunder.

(d)       Treatment of Cash Dividends. At the time of an Award of Restricted Stock Units, the Committee may, in its discretion, determine to provide the Grantee with the right to receive cash Dividend Equivalents with respect to the Restricted Stock Units subject to the Award, or a specified portion thereof. A “Dividend Equivalent” is an amount equal to the cash dividend payable per Share, if any, multiplied by the number of Shares then underlying the Award with respect to any cash dividends declared or paid by the Company while the Award is outstanding. Any such Dividend Equivalents shall be credited to the Grantee at the time the Company pays any cash dividend on its Shares. Until such time as the Dividend Equivalents vest or are forfeited, interest may be credited on the amount of such Dividend Equivalents held by the Company for the account of the Grantee from time to time at such rate per annum as the Committee, in its discretion, may determine. Any Dividend Equivalents credited to the Grantee shall vest at the same time as the underlying Restricted Stock Units, and payment of credited Dividend Equivalents, together with any interest accrued thereon, shall be made at the time when the underlying Restricted Stock Units convert to Shares. In the event any Restricted Stock Units are forfeited under Section 9(c) hereof, any Dividend Equivalents credited to Grantee with respect to such forfeited Restricted Stock Units and any interest accrued thereon shall be forfeited to the Company, and the Grantee shall have no rights and the Company shall have no liability as to such Dividend Equivalents or interest.

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(e)       Delivery of Shares. When the restrictions imposed hereunder and in the Plan expire or have been cancelled with respect to one or more of the Restricted Stock Units granted under the Plan, the Company shall notify the Grantee of same. The Company shall then deliver to the Grantee (or such Grantee’s legal representative, beneficiary or heir) a certificate for a number of Shares, without any legend or restrictions (except those required by any federal or state securities laws), equivalent to the number of Restricted Stock Units for which restrictions have been cancelled or have expired (or alternatively, an applicable book entry shall be made for uncertificated Shares). Notwithstanding the foregoing, if requested by the Grantee, the Committee or the Board, in its discretion, has the right to cancel Shares to be delivered to the Grantee having a Fair Market Value, on the day preceding the date of vesting of the Restricted Stock Units, equal to the aggregate required tax withholding in connection with such vesting, and to apply the value of such Shares as payment for the Grantee’s aggregate required tax withholding for the vesting of any Restricted Stock Units.

(f)       Compliance with Section 409A of the Code. Restricted Stock Units are intended to comply with Section 409A of the Code and provisions of the Plan and Awards shall be interpreted in a manner intended to be consistent with Section 409A.

10.       Cash-Based Awards. The Committee is hereby authorized to grant Cash-Based Awards to Grantees denominated in cash in such amounts and subject to such terms and conditions as the Committee may determine. Each such Cash-Based Award shall specify a payment amount, payment range or a value determined with respect to the Fair Market Value of the Shares, as determined by the Committee. The Committee may designate Cash-Based Awards as “performance-based compensation” under Code Section 162(m) by conditioning the Award or the lapse of restrictions on the achievement of performance goals in accordance with Section 11(a) and by administering the Award to otherwise comply with the requirements of Section 11 and Code Section 162(m). The Committee is authorized at any time during or after a Performance Period to exercise negative discretion to reduce or eliminate a Cash-Based Award of any Grantee for any reason in its discretion, including, without limitation, changes in the position or duties of any Grantee with the Company or any Subsidiary during or after a Performance Period, whether due to any termination of employment (including death, disability, retirement, voluntary termination or termination with or without cause) or otherwise.

11.       Performance Goals

(a)       If, at the time of grant, the Committee intends a Restricted Stock Award, Restricted Stock Unit Award or Cash-Based Award to qualify as “other performance based compensation” within the meaning of Code Section 162(m), the Committee must establish performance goals for the applicable Performance Period no later than 90 days after the Performance Period begins (or by such other date as may be required under Code Section 162(m)). Such performance goals must be based on one or more of the criteria described in Section 11(b). “Performance Period” means the period selected by the Committee during which performance is measured for purpose of determining the extent to which an award of Restricted Stock, Restricted Stock Units or a Cash-Based Award has been earned.

(b)       A performance goal described in Section 11(a) shall be based on one or more of the following criteria: earnings, earnings growth, earnings per share, stock price (including growth measures and total shareholder return), improvement of financial ratings, internal rate of return, market share, cash flow, operating income, operating margin, net profit after tax, earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis, gross profit, operating profit, cash generation, revenues, asset quality, return on equity, return on assets, return on operating assets, cost saving levels, efficiency ratio, net income, marketing-spending efficiency, core non-interest income, change in working capital, return on capital, book value or tangible book value, or shareholder return. The performance goals may be described in terms of objectives that are related to the individual Grantee or objectives that are Company-wide or related to a Subsidiary, division, department, region, branch, function or business unit and may, but need not be, measured on an absolute or cumulative basis or on the basis of percentage of improvement over time, measured in terms of Company performance (or performance of the applicable Subsidiary, division, department, region, branch, function or business unit) or measured relative to selected peer companies or a market index. Any performance goals that are financial metrics, may be determined in accordance with Generally Accepted Accounting Principles (“GAAP”), or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP. For any Award not intended to meet the requirements of Code Section 162(m), the Committee may establish performance goals based on any other performance criteria it deems appropriate. These performance goals are subject to approval by shareholders at the Company’s 2016 annual meeting, and once approved, should be submitted for re-approval by the Company’s shareholders no later than the 2021 annual shareholder meeting, and thereafter, once every five years.

79 

(c)       When the Committee determines whether a performance goal has been satisfied for any period, the Committee may include or exclude unusual, infrequently occurring or non-recurring charges, asset write downs, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisitions, acquisition or disposition expenses, including expenses related to goodwill and other intangible assets, stock offerings, stock repurchases and loan loss provisions; provided that in the case of an Award intended to qualify for the exemption from the limitation on deductibility imposed by Code Section 162(m), such inclusion or exclusion shall be made in compliance with Code Section 162(m).

(d)       If the Committee determines that a performance goal has been satisfied and the satisfaction of such goal was intended to meet the requirements of Code Section 162(m), the Committee shall certify that the goal has been satisfied in accordance with the requirements set forth under Code Section 162(m).

12.       Effect of a Change in Control. Notwithstanding anything herein to the contrary (with the exception of Sec. 6(h)), the provisions of this Section 12 shall apply in the case of a Change in Control of the Company, unless otherwise provided by the Committee in the Agreement and as supplemented by Section 14.

(a)       Awards Assumed or Substituted by Surviving Entity. With respect to Options and Awards assumed by the surviving entity or otherwise equitably converted or substituted in connection with a Change in Control: if within two years after the effective date of the Change in Control, a Grantee’s employment is terminated without Cause or the Grantee resigns for Good Reason, then (i) all of the Grantee’s outstanding Options and Stock Appreciation Rights shall become fully vested and exercisable and shall remain exercisable for three years following such termination, provided no Option or Stock Appreciation Right shall be exercisable beyond the term of the Option or Stock Appreciation Right, (ii) all time-based vesting restrictions on his or her outstanding Awards shall lapse, and (iii) unless otherwise provided in the Agreement, the payout level under all of the Grantee’s performance-based that were outstanding immediately prior to effective time of the Change in Control shall be determined and deemed to have been earned as of the date of termination based upon an assumed achievement of all relevant performance goals at the target level, or at a level in excess of target in the Committee’s discretion, and there shall be a pro rata payout to such Grantee within sixty (60) days following the date of termination of employment based upon the length of time within the performance period that has elapsed prior to the date of termination of employment. With regard to each Award or Option, a Grantee shall not be considered to have resigned for Good Reason unless either (i) the Agreement provides for a Good Reason termination or (ii) the Grantee is party to an employment, severance or similar agreement with the Company or a Subsidiary that includes provisions in which the Grantee is permitted to resign for Good Reason. To the extent that this provision causes Incentive Stock Options to no longer satisfy the requirements of Code Section 422, the affected Options shall be deemed to be Nonqualified Stock Options.

(b)       Awards not Assumed or Substituted by Surviving Entity. Upon the occurrence of a Change in Control, and except with respect to any Options or Awards assumed by the surviving entity or otherwise equitably converted or substituted in connection with the Change in Control: (i) outstanding Options and Stock Appreciation Rights shall become fully vested and exercisable, (ii) time-based vesting restrictions on outstanding Awards shall lapse, and (iii) unless otherwise provided in the Agreement, the target payout opportunities attainable under outstanding performance-based Awards shall be deemed to have been earned as of the effective date of the Change in Control based upon an assumed achievement of all relevant performance goals at the target level, or at a level in excess of target in the Committee’s discretion, and there shall be a pro rata payout to Grantees within sixty (60) days following the Change in Control based upon the length of time within the performance period that has elapsed prior to the Change in Control. To the extent that this provision causes Incentive Stock Options to no longer satisfy the requirements of Code Section 422, the affected Options shall be deemed to be Nonqualified Stock Options.

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(c)       Definitions.

(1)       A surviving entity will be deemed to have “assumed by the surviving entity or otherwise equitably converted or substituted” an Award or Option under this Plan if the surviving entity substitutes an Award or Option under this Plan or an award or stock option under a plan of the surviving entity having equivalent value to and terms and conditions no less favorable than the original Award or Option, or otherwise assumes the obligations under and/or equitably adjusts such original Award or Option. The Committee or the Board shall have sole authority to determine whether the proposed assumption of an Award or Option by a surviving entity meets the requirements listed in this Section 12(c)(1).

(2)       “Good Reason” (or a similar term denoting constructive termination) has the meaning, if any, assigned such term in the employment, severance or similar agreement, if any, between a Grantee and the Company or a Subsidiary; provided, however, if there is no such employment, severance or similar agreement in which such term is defined, “Good Reason” shall have the meaning, if any, given such term in the applicable Agreement. If not defined in either such document, the term “Good Reason” as used herein shall not apply to a particular Award.

13.       Adjustment Upon Changes in Capitalization.

(a)       In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the maximum number and class of shares of stock with respect to which Options or Awards may be granted under the Plan, the number and class of shares as to which Options or Awards have been granted under the Plan, and the purchase price therefor, if applicable.

(b)       Any such adjustment in the Shares or other securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code.

(c)       If, by reason of a Change in Capitalization, a Grantee of an Award shall be entitled to new, additional or different shares of stock or securities, such new additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares or units pursuant to the Award prior to such Change in Capitalization.

14.       Effect of Certain Transactions. Upon the occurrence or in anticipation of any corporate event or transaction involving the Company (including, without limitation, any merger, consolidation, reorganization, recapitalization, combination or exchange of shares, liquidation or dissolution, sale or disposition of all or substantially all of the Company’s assets, or any Change in Capitalization), the Committee may, in its sole discretion, notwithstanding Section 12 hereunder, provide (i) that Options or Awards will be settled in cash rather than stock or in unrestricted shares of stock of the surviving entity, (ii) that Options or Awards will become immediately vested and non-forfeitable and exercisable (in whole or in part) and will be cancelled after a designated period of time to the extent not then exercised, (iii) that Options or Awards will be assumed by another party to a transaction or otherwise be equitably converted or substituted in connection with such transaction, (iv) that outstanding Options or Awards may be settled by payment in cash or cash equivalents equal to the excess of the fair market value of the underlying stock, as of a specified date associated with the transaction (or the per share transaction price), over the exercise or base price of the Option or Award and those Options or Awards not eligible for payment shall be cancelled, (v) that performance targets and performance periods for performance-based Awards and Options will be modified, consistent with Code Section 162(m) where applicable, or (vi) any combination of the foregoing. The Committee’s determination need not be uniform and may be different for different Grantees whether or not such Grantees are similarly situated.

15.       Termination and Amendment of the Plan. The Plan shall terminate on the day preceding the tenth anniversary of its effective date and no Option or Award may be granted thereafter. The Board may sooner terminate or amend the Plan at any time, and from time to time; provided, however, that, except as provided in Sections 13 and 14 hereof, no amendment shall be effective unless approved by the shareholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve months before or after the date of adoption of such amendment, where approval of such amendment is required under applicable laws, policies or regulations or applicable listing or other requirements of the national securities exchange upon which the Shares are then listed, including amendments that will:

(a)       increase the number of Shares as to which Options or Awards may be granted under the Plan;

(b)       change the class of persons eligible to participate in the Plan; or

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(c)       materially extend the term of the Plan.

Except as otherwise provided herein, rights and obligations under any Option or Award granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the Grantee.

16.       Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.

17.       Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to:

(a)       give any person any right to be granted an Option or Award other than at the sole discretion of the Committee or the Board;

(b)       give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan;

(c)       limit in any way the right of the Company to terminate the employment or service of any person at any time; or

(d)       be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person in any particular position at any particular rate of compensation or for any particular period of time.

18.       Regulations and Other Approvals; Governing Law.

(a)       This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of New Jersey without giving effect to the choice of law principles thereof, except to the extent that such law is preempted by federal law.

(b)       The obligation of the Company to sell or deliver Shares with respect to Options and Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee.

(c)       The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and Section 162(m) of the Code (each as amended from time to time) and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith to the extent necessary. Any provisions inconsistent with such Rule or Section shall be inoperative but shall not affect the validity of the Plan or any grants thereunder.

(d)       Except as otherwise provided in Section 15, the Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder.

(e)       Each Option and Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or Award or the issuance of Shares, no Options or Awards shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions unacceptable to the Committee.

(f)       In the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, or regulations thereunder, and the Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares (including upon exercise of an Option), to represent to the Company in writing that the Shares acquired by such individual are acquired for investment only and not with a view to distribution.

19.       Miscellaneous.

(a)       Multiple Agreements. The terms of each Option or Award may differ from other Options or Awards granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option or Award to a given Eligible Employee during the term of the Plan, either in addition to, or in substitution for, one or more Options or Awards previously granted to that Eligible Employee. The grant of multiple Options and/or Awards may be evidenced by a single Agreement or multiple Agreements, as determined by the Committee.

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(b)       Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to any Grantee an amount equal to the federal, state and local income taxes and other amounts required by law to be withheld with respect to any Option or Award. Notwithstanding anything to the contrary contained herein, if a Grantee is entitled to receive Shares upon exercise of an Option or pursuant to an Award, the Company shall have the right to require such Grantee, prior to the delivery of such Shares, to pay to the Company the amount of any federal, state or local income taxes and other amounts which the Company is required by law to withhold. A Grantee who is an Eligible Employee may be permitted, in the Committee’s discretion, to satisfy any amounts required to be withheld by the Company under applicable federal, state and local tax laws in effect from time to time, by electing to have the Company withhold a portion of the Shares to be delivered for the payment of such taxes. The Agreement evidencing any Incentive Stock Options granted under this Plan shall provide that if the Grantee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him or her pursuant to his or her exercise of the Incentive Stock Option within the two-year period commencing on the day after the date of grant of such Option or within the one-year period commencing on the day after the date of transfer of the Share or Shares to the Grantee pursuant to the exercise of such Option, he or she shall, within ten (10) days of such disposition, notify the Company thereof.

(c)       Designation of Beneficiary. Each Grantee may, with the consent of the Committee, designate a person or persons to receive in the event of his/her death, any Option or Award or any amount payable pursuant thereto, to which he/she would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If a Grantee fails effectively to designate a beneficiary, then his/her estate will be deemed to be the beneficiary.

(d)       Section 409A Compliance. The Plan is intended to be administered and interpreted in a manner consistent with the requirements, where applicable, of Section 409A of the Code. Where reasonably possible and practicable, the Plan shall be administered in a manner to avoid the imposition on Grantees in the Plan of immediate tax recognition and additional taxes pursuant to Section 409A. Notwithstanding the foregoing, neither the Company, the Board nor the Committee shall have any liability to any person in the event Section 409A applies to any such Award or Option in a manner that results in adverse tax consequences for the Grantee or any of his/her beneficiaries or transferees.

(e)       Recoupment. To the extent required by applicable law (including, without limitation, Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of any securities exchange or inter-dealer quotation service on which the Shares are listed or quoted, or if so required pursuant to a written policy adopted by the Company, Options and Awards shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements.

20.       Effective Date. The effective date of the Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative vote of a majority of the votes cast at a meeting of shareholders at which a quorum is present to be held within twelve (12) months of such adoption. No Options or Awards shall vest hereunder unless such shareholder approval is obtained.

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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 7, 2016	By:  /s/ Douglas L. Kennedy
	Name:  Douglas L. Kennedy
	Title:     President and Chief Executive Officer

84 

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 7, 2016	By:  /s/ Jeffrey J. Carfora
	Name:  Jeffrey J. Carfora
	Title:    Senior Executive Vice President,
	Chief Financial Officer

85 

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, 2016 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 of the Corporation, 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:     President and Chief Executive Officer

Date:    November 7, 2016

/s/ Jeffrey J. Carfora

Name:  Jeffrey J. Carfora

Title:     Senior Executive Vice President

            Chief Financial Officer

Date:    November 7, 2016

86 

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 31, 2016
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, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		16,947,538
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016
Trading Symbol	PGC

XML

CONSOLIDATED STATEMENTS OF CONDITION - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Cash and due from banks	$ 17,861	$ 11,550
Federal funds sold	101	101
Interest-earning deposits	141,593	58,509
Total cash and cash equivalents	159,555	70,160
Securities available for sale	249,616	195,630
FHLB and FRB stock, at cost	14,093	13,984
Residential mortgage loans held for sale, at fair value	3,013	1,558
Multifamily mortgage loans held for sale, at lower of cost or fair value	30,000	82,200
Loans	3,232,887	2,913,242
Less: Allowance for loan losses	30,616	25,856
Net loans	3,202,271	2,887,386
Premises and equipment	30,223	30,246
Other real estate owned	534	563
Accrued interest receivable	6,383	6,820
Bank owned life insurance	43,541	42,885
Deferred tax assets, net	14,765	15,582
Goodwill	1,573	1,573
Other intangible assets	1,615	1,708
Other assets	17,201	14,364
TOTAL ASSETS	3,774,383	3,364,659
Deposits:
Noninterest-bearing demand deposits	494,204	419,887
Interest-bearing deposits:
Interest-bearing deposits checking	928,941	861,697
Savings	119,650	115,007
Money market accounts	997,572	810,709
Certificates of deposit - Retail	466,003	434,450
Subtotal deposits	3,006,370	2,641,750
Interest-bearing demand - Brokered	200,000	200,000
Certificates of deposit - Brokered	93,690	93,720
Total deposits	3,300,060	2,935,470
Overnight borrowings with Federal Home Loan Bank		40,700
Federal Home Loan Bank advances	71,795	83,692
Capital lease obligation	9,828	10,222
Subordinated debt, net	48,731
Accrued expenses and other liabilities	27,934	18,899
Due to brokers, securities settlements	7,003
TOTAL LIABILITIES	3,465,351	3,088,983
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, 17,352,916 at September 30, 2016 and 16,476,297 at December 31, 2015; outstanding shares, 16,944,738 at September 30, 2016 and 16,068,119 at December 31, 2015	14,451	13,717
Surplus	230,506	213,203
Treasury stock at cost, 408,178 shares at September 30, 2016 and December 31, 2015	(8,988)	(8,988)
Retained earnings	74,840	58,123
Accumulated other comprehensive loss, net of income tax	(1,777)	(379)
TOTAL SHAREHOLDERS' EQUITY	309,032	275,676
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$ 3,774,383	$ 3,364,659

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CONSOLIDATED STATEMENTS OF CONDITION (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Preferred stock, par value
Preferred stock, shares authorized	500,000	500,000
Preferred stock, liquidation preference per share	$ 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	17,352,916	16,476,297
Common stock, shares outstanding	16,944,738	16,068,119
Treasury stock, shares	408,178	408,178

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CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
INTEREST INCOME
Interest and fees on loans	$ 28,225	$ 24,663	$ 82,713	$ 68,274
Interest on securities available for sale:
Taxable	976	959	2,816	3,178
Tax-exempt	128	128	377	395
Interest on loans held for sale	384	10	577	44
Interest on interest-earning deposits	131	46	294	128
Total interest income	29,844	25,806	86,777	72,019
INTEREST EXPENSE
Interest on savings and interest-bearing deposit accounts	1,399	919	3,785	2,546
Interest on certificates of deposit	1,615	1,296	4,649	3,010
Interest on borrowed funds	380	399	1,432	1,219
Interest on capital lease obligation	119	125	361	379
Interest on subordinated debt	799		938
Subtotal - interest expense	4,312	2,739	11,165	7,154
Interest on interest-bearing demand - brokered	762	857	2,263	1,700
Interest on certificates of deposits - brokered	501	504	1,494	1,532
Total Interest expense	5,575	4,100	14,922	10,386
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES	24,269	21,706	71,855	61,633
Provision for loan losses	2,100	1,600	6,000	5,150
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	22,169	20,106	65,855	56,483
OTHER INCOME
Wealth management fee income	4,436	4,169	13,630	12,732
Service charges and fees	812	832	2,437	2,474
Bank owned life insurance	340	260	1,027	1,045
Gains on loans held for sale at fair value (mortgage banking)	383	102	813	411
Gains on multifamily loans held for sale at lower of cost or fair value	256		880
Fee income related to loan level, back-to-back swaps	670		764	373
Gain on sale of SBA loans	243		502
Other income	395	164	1,074	429
Securities gains, net		83	119	527
Total other income	7,535	5,610	21,246	17,991
OPERATING EXPENSES
Salaries and employee benefits	11,515	10,322	33,523	29,619
Premises and equipment	2,736	2,785	8,342	8,179
FDIC insurance expense	814	416	3,954	1,329
Other operating expense	3,101	3,376	10,328	9,806
Total operating expenses	18,166	16,899	56,147	48,933
INCOME BEFORE INCOME TAX EXPENSE	11,538	8,817	30,954	25,541
Income tax expense	4,422	3,434	11,785	9,912
NET INCOME	$ 7,116	$ 5,383	$ 19,169	$ 15,629
EARNINGS PER SHARE
Basic (in dollars per share)	$ 0.43	$ 0.35	$ 1.19	$ 1.04
Diluted (in dollars per share)	$ 0.43	$ 0.35	$ 1.17	$ 1.02
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic (in shares)	16,467,654	15,253,009	16,167,153	15,083,006
Diluted (in shares)	16,673,596	15,435,939	16,347,255	15,293,747

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 7,116	$ 5,383	$ 19,169	$ 15,629
Unrealized gains/(loss) on available for sale securities:
Unrealized holding (loss)/gains arising during the period	(350)	751	1,081	849
Less: Reclassification adjustment for net gains included in net income		83	119	527
Before tax	(350)	668	962	322
Tax effect	135	(252)	(361)	(111)
Net of tax	(215)	416	601	211
Unrealized gains/(loss) on cash flow hedges:
Unrealized holding gains/(loss)	1,591	(2,849)	(3,380)	(3,210)
Before tax	1,591	(2,849)	(3,380)	(3,210)
Tax effect	(650)	1,163	1,381	1,311
Net of tax	941	(1,686)	(1,999)	(1,899)
Total other comprehensive income/(loss)	726	(1,270)	(1,398)	(1,688)
Total comprehensive income	$ 7,842	$ 4,113	$ 17,771	$ 13,941

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock [Member]	Surplus [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income/(Loss), Net of Tax [Member]	Total
Balance at Dec. 31, 2014					$ 1,221
Net income						$ 15,629
Other comprehensive income (loss)					(1,688)	(1,688)
Balance at Sep. 30, 2015					(467)
Balance at Jun. 30, 2015					803
Net income						5,383
Other comprehensive income (loss)					(1,270)	(1,270)
Balance at Sep. 30, 2015					(467)
Balance at Dec. 31, 2015	$ 13,717	$ 213,203	$ (8,988)	$ 58,123	(379)	$ 275,676
Shares outstanding at Dec. 31, 2015	16,068,119					16,068,119
Net income				19,169		$ 19,169
Other comprehensive income (loss)					(1,398)	(1,398)
Issuance of restricted stock, net of forfeitures	$ (9)	9
Issuance of restricted stock, net of forfeitures, shares	10,860
Restricted stock repurchased on vesting to pay taxes	$ (20)	(476)				(496)
Restricted stock repurchased on vesting to pay taxes, shares	24,093
Amortization of restricted awards/units		2,154				2,154
Cash dividends declared on common stock				(2,452)		(2,452)
Common stock option expense		45				45
Common stock options exercised and related tax benefits	$ 16	230				246
Common stock options exercised and related tax benefits, shares	18,641
Common stock options, related tax benefits, shares	1,317
Sales of shares (Dividend Reinvestment Program)	$ 722	14,810				15,532
Sales of shares (Dividend Reinvestment Program), shares	866,018
Issuance of shares for Employee Stock Purchase Plan	$ 25	531				556
Issuance of shares for Employee Stock Purchase Plan, shares	26,913
Balance at Sep. 30, 2016	$ 14,451	230,506	(8,988)	74,840	(1,777)	$ 309,032
Shares outstanding at Sep. 30, 2016	16,944,738					16,944,738
Balance at Jun. 30, 2016					(2,503)
Net income						$ 7,116
Other comprehensive income (loss)					726	726
Balance at Sep. 30, 2016	$ 14,451	$ 230,506	$ (8,988)	$ 74,840	$ (1,777)	$ 309,032
Shares outstanding at Sep. 30, 2016	16,944,738					16,944,738

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical)	9 Months Ended
	Sep. 30, 2016 $ / shares
Statement of Stockholders' Equity [Abstract]
Cash dividends declared on common stock, per share	$ 0.15

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
OPERATING ACTIVITIES:
Net income	$ 19,169	$ 15,629
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	2,280	2,408
Amortization of premium and accretion of discount on securities, net	1,090	1,337
Amortization of restricted stock	2,154	1,734
Amortization of intangible	93
Amortization of subordinated debt costs	38
Provision of loan losses	6,000	5,150
Provision for OREO losses		250
Provision/(benefit) for deferred taxes	1,837	(2,922)
Stock-based compensation, including ESPP	128	252
Gains on securities, available for sale	(119)	(527)
Loans originated for sale at fair value	(53,412)	(26,495)
Proceeds from sales of loans at fair value	52,770	27,244
Gains on loans held for sale at fair value	(813)	(411)
Net gains on loans held for sale at lower of cost or fair value	(880)
Gain on sale of other real estate owned	(5)
Losses on disposal of fixed assets		15
Gain on death benefit		(285)
Increase in cash surrender value of life insurance, net	(656)	(485)
Decrease/(increase) in accrued interest receivable	437	(1,468)
(Increase)/decrease in other assets	(391)	1,466
Increase in accrued expenses, capital lease obligations and other liabilities	2,732	2,043
NET CASH PROVIDED BY OPERATING ACTIVITIES	32,452	24,935
INVESTING ACTIVITIES:
Maturities of securities available for sale	43,997	58,098
Redemptions for FHLB & FRB stock	61,155	44,568
Call of securities available for sale	10,035	14,880
Sales of securities available for sale	5,499	46,254
Purchase of securities available for sale	(106,524)	(6,474)
Purchase of FHLB & FRB stock	(61,264)	(44,712)
Proceeds from sales of loans held for sale at lower of cost or fair value	182,763
Net increase in loans	(451,101)	(632,239)
Sales of other real estate owned	568	744
Purchase of premises and equipment	(2,257)	(1,475)
Acquisition of a wealth management company		(800)
Proceeds from death benefit		677
NET CASH USED IN INVESTING ACTIVITIES	(317,129)	(520,479)
FINANCING ACTIVITIES:
Net increase in deposits	364,590	588,852
Net decrease in overnight borrowings	(40,700)	(54,600)
Repayments of Federal Home Loan Bank advances	(11,897)
Cash dividends paid on common stock	(2,452)	(2,310)
Exercise of Stock Options, net of stock swap	246	29
Restricted stock tax expense	(496)	(54)
Subordinated debt	48,693
Sales of shares (DRIP Program)	15,532	8,124
Purchase of shares for Profit Sharing Plan		494
Issuance of shares for employee stock purchase plan	556
NET CASH PROVIDED BY FINANCING ACTIVITIES	374,072	540,535
Net increase in cash and cash equivalents	89,395	44,991
Cash and cash equivalents at beginning of period	70,160	31,207
Cash and cash equivalents at end of period	159,555	76,198
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest	13,492	5,722
Taxes	10,880	4,198
Transfer of loans to loans held for sale	159,804
Transfer of loans held for sale to loans	30,121
Transfer of loans to other real estate owned	534
Security purchases settled in subsequent period	$ 7,003

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

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, 2015 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 September 30, 2016 and the results of operations and comprehensive income for the three and nine months ended September 30, 2016 and 2015, and shareholders’ equity and cash flow statements for the nine months ended September 30, 2016 and 2015.

Principles of Consolidation and Organization: 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 subsidiaries, PGB Trust & Investments of Delaware and Peapack-Gladstone Mortgage Group, Inc. and Peapack-Gladstone Mortgage Group’s wholly-owned subsidiary, PG Investment Company of Delaware, Inc. and its wholly-owned subsidiary, Peapack-Gladstone Realty Inc., a New Jersey Real Estate Investment Company. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In preparing the financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statement of condition and revenues and expenses for that period. Actual results could differ from those estimates.

Segment Information: The Company’s business is conducted through its banking subsidiary and involves the delivery of loan and deposit products and wealth management services to customers. Management uses certain methodologies to allocate income and expense to the business segments.

The Banking segment includes commercial, commercial real estate, multifamily, residential and consumer lending activities; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support sales.

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. This segment also includes the activity from the Delaware subsidiary, PGB Trust & Investments of Delaware. Income is recognized as earned.

Cash and Cash Equivalents: For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-earning deposits and federal funds sold. Generally, federal funds are sold for one-day periods. Cash equivalents are of original maturities of 90 days or less. Net cash flows are reported for customer loan and deposit transactions and overnight borrowings.

Interest-Earning Deposits in Other Financial Institutions: Interest-earning deposits in other financial institutions mature within one year and are carried at cost.

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/(loss), net of tax.

Interest income includes amortization of purchase premiums and discounts. 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.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of FHLB stock, based on the level of borrowings and other factors. FHLB stock is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value. Cash dividends are reported as income.

The Bank is also a member of the Federal Reserve Bank and required to own a certain amount of FRB stock. FRB stock is carried at cost and classified as a restricted security. Cash dividends are reported as income.

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.

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, shown as gain on sale of loans on the Statement of Income, 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 Company 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 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 States of New Jersey and New York.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for expected credit losses that are deemed to be probable. When Management is reasonably certain that a loan balance is not fully collectable an analysis is completed and either a full or partial charge off is recorded against the allowance. 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, 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.

Loans are individually evaluated for impairment when they 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 a residential mortgage is placed on nonaccrual status and is in the process of collection, such as through a foreclosure action, then it is 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 modified loan with concessions made by the lender to a borrower who is experiencing financial difficulty. Troubled debt restructurings are impaired 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 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 than pass-rated loans using a multiple that is calculated annually through a migration analysis. The multiple was 5.0 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 in the Tri-State area (New York, New Jersey and Connecticut), Pennsylvania and Florida. 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; and 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 in the Tri-State area. 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; and 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.

Junior Lien Loan on Residence. The Bank provides junior lien loans (“JLL”) against one to four family properties in the Tri-State area. JLLs 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 JLLs 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; and 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 (non-owner occupied) in the Tri-State area and Pennsylvania. Commercial real estate properties primarily include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Some properties are considered “mixed use” as they are a combination of building types, such as a building with retail space on the ground floor and either residential apartments or office suites on the upper floors. 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 its 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. In addition, these loans often include commercial real estate as collateral to strengthen the Bank’s position and further mitigate risk. 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.

Agricultural Production. These are loans to finance agricultural production and other loans to farmers. The Bank does not actively engage in this type of lending.

Commercial Construction. The Bank has discontinued its commercial construction activity. Dollar amounts within this segment are immaterial.

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.

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, restricted stock units and stock appreciation rights to directors, officers and employees of the Company and its subsidiaries. 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 September 30, 2016 and 2015, the Company recorded total compensation cost for stock options of $11 thousand and $54 thousand respectively, with a recognized tax benefit of $1 thousand and $7 thousand for the quarters ended September 30, 2016 and 2015, respectively. The Company recorded total compensation cost for stock options for the nine months ended September 30, 2016 and 2015, of $45 thousand and $175 thousand, respectively, with a recognized tax benefit of $4 thousand for the nine months ended September 30, 2016 and $19 thousand for the nine months ended September 30, 2015. There was approximately $16 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock incentive plans at September 30, 2016. That cost is expected to be recognized over a weighted average period of 0.43 years.

For the Company’s stock option plans, changes in options outstanding during the nine months ended September 30, 2016 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In thousands)
Balance, January 1, 2016		267,289		$	17.28
Granted during 2016		—			—
Exercised during 2016		(19,958	)		13.55
Expired during 2016		(15,314	)		21.38
Forfeited during 2016		(842	)		13.55
Balance, September 30, 2016		231,175		$	17.35		3.63 years	$	1,171
Vested and expected to vest (1)		230,665		$	17.39		3.63 years	$	1,159
Exercisable at September 30, 2016		222,678		$	17.50		3.54 years	$	1,094

(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 third quarter of 2016 and the exercise price, multiplied by the number of in-the-money options). The Company’s closing stock price on September 30, 2016 was $22.41.

There were no stock options granted in the three and nine months ended September 30, 2016.

The Company has previously granted performance based and service based restricted stock awards. Service based units vest ratably over a one, three or five year period.  There were no restricted stock awards/units granted in the third quarter of 2016.

The performance based awards that were granted in previous periods, are dependent upon the Company meeting certain performance criteria and cliff vest at the end of the performance period.  During the fourth quarter of 2015, the Company concluded that the performance targets would not be met and therefore, reversed approximately $592 thousand of previously recorded expense for the performance awards. Total unrecognized compensation expense for performance based awards is $1.7 million as of September 30, 2016.

Changes in nonvested shares dependent on performance criteria for the nine months ended September 30, 2016 were as follows:

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Balance, January 1, 2016		92,767	$	18.12
Granted during 2016		—		—
Vested during 2016		—		—
Forfeited during 2016		—		—
Balance, September 30, 2016		92,767	$	18.12

Changes in service based restricted stock awards/units for the nine months ended September 30, 2016 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2016		321,421		$	19.44
Granted during 2016		188,397			16.99
Vested during 2016		(99,937	)		18.37
Forfeited during 2016		(20,515	)		18.65
Balance, September 30, 2016		389,366		$	18.57

As of September 30, 2016, there was $5.3 million of total unrecognized compensation cost related to service based awards/units. That cost is expected to be recognized over a weighted average period of 1.52 years. Stock compensation expense recorded for the third quarters of 2016 and 2015 totaled $725 thousand and $636 thousand, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded total compensation cost for stock awards/units of $2.2 million and $1.7 million respectively.

Employee Stock Purchase Plan: On April 22, 2014, the shareholders of the Company approved the 2014 Employee Stock Purchase Plan (“ESPP”). The ESPP provides for the granting of purchase rights of up to 150,000 shares of Peapack-Gladstone Financial Corporation common stock. Subject to certain eligibility requirements and restrictions, the ESPP allows employees to purchase shares during four three-month offering periods (“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. At the end of each Offering Period on the purchase date, 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 Offering Period without penalty. The fair value of each share purchase right is determined using the Black-Scholes option pricing model.

The Company recorded $19 thousand and $26 thousand of expense in salaries and employee benefits expense for the three months ended September 30, 2016 and 2015, respectively related to the ESPP. Total shares issued under the ESPP during the third quarters of 2016 and 2015 were 7,155 and 8,799, respectively.

The Company recorded $83 thousand and $77 thousand of expense in salaries and employee benefits expense for the nine months ended September 30, 2016 and 2015, respectively, related to the ESPP. Total shares issued under the ESPP for the nine months ended September 30, 2016 and 2015 were 26,913 and 24,258, respectively.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2016		2015		2016		2015
Net income to shareholders	$	7,116	$	5,383	$	19,169	$	15,629
Basic weighted-average shares outstanding		16,467,654		15,253,009		16,167,153		15,083,006
Plus: common stock equivalents		205,942		182,930		180,102		210,741
Diluted weighted-average shares outstanding		16,673,596		15,435,939		16,347,255		15,293,747
Net income per share
Basic	$	0.43	$	0.35	$	1.19	$	1.04
Diluted		0.43		0.35		1.17		1.02

Stock options and warrants totaling 218,079 and 85,083 shares were not included in the computation of diluted earnings per share in the third quarters of 2016 and 2015, respectively, because they were considered antidilutive. Stock options and warrants totaling 223,832 and 174,662 shares were not included in the computation of diluted earnings per share in the nine months ended September 30, 2016 and 2015, 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 2013 or by New Jersey tax authorities for years prior to 2012.

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

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonable estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

Comprehensive Income: Comprehensive income consists of net income and the change during the period in the Company’s net unrealized gains or losses on securities available for sale and unrealized gains and losses on cash flow hedge, net of tax, less adjustments for realized gains and losses.

Transfers of Financial Assets:  Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished.  Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Goodwill and Other Intangible Assets:  Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquired company (if any), over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The Company has selected December 31 as the date to perform the annual impairment test.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill and assembly workforce are the intangible assets with an indefinite life on our balance sheet.

Other intangible assets primarily consist of customer relationship intangible assets arising from acquisition are amortized on an accelerated method over their estimated useful lives, which range up to 15 years.

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INVESTMENT SECURITIES AVAILABLE FOR SALE

9 Months Ended

Sep. 30, 2016

INVESTMENT SECURITIES AVAILABLE FOR SALE [Abstract]

INVESTMENT SECURITIES AVAILABLE FOR SALE

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 September 30, 2016 and December 31, 2015 follows:

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	11,991	$	2	$	(23	)	$	11,970
Mortgage-backed securities – residential		189,724		1,897		(100	)		191,521
SBA pool securities		7,147		—		(79	)		7,068
State and political subdivisions		31,122		363		(10	)		31,475
Single-issuer trust preferred security		2,999		—		(397	)		2,602
CRA investment		5,000		—		(20	)		4,980
Total	$	247,983	$	2,262	$	(629	)	$	249,616

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Mortgage-backed securities – residential	$	159,747	$	1,293	$	(433	)	$	160,607
SBA pool securities		7,601		—		(81	)		7,520
State and political subdivisions		21,612		417		—			22,029
Single-issuer trust preferred security		2,999		—		(464	)		2,535
CRA investment		3,000		—		(61	)		2,939
Total	$	194,959	$	1,710	$	(1,039	)	$	195,630

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, 2016 and December 31, 2015.

	September 30, 2016
	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 agencies	$	4,972	$	(23	)	$	—	$	—		$	4,972	$	(23	)
Mortgage-backed
securities-residential		40,568		(76	)		4,475		(24	)		45,043		(100	)
SBA pool securities		—		—			7,068		(79	)		7,068		(79	)
State and political
subdivisions		1,917		(10	)		—		—			1,917		(10	)
Single-issuer trust
preferred security		—		—			2,602		(397	)		2,602		(397	)
CRA investment fund		1,992		(8	)		2,988		(12	)		4,980		(20	)
Total	$	49,449	$	(117	)	$	17,133	$	(512	)	$	66,582	$	(629	)

	December 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	$	89,717	$	(345	)	$	8,913	$	(88	)	$	98,630	$	(433	)
SBA pool securities		—		—			7,520		(81	)		7,520		(81	)
Single-issuer trust
Preferred security		—		—			2,535		(464	)		2,535		(464	)
CRA investment fund		—		—			2,939		(61	)		2,939		(61	)
Total	$	89,717	$	(345	)	$	21,907	$	(694	)	$	111,624	$	(1,039	)

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 September 30, 2016, the Company does not intend to sell these securities nor is it likely that it will be required to sell the securities before their anticipated recovery; therefore, none of the securities in unrealized loss position were determined to be other-than-temporarily impaired.

At September 30, 2016, the unrealized loss on the single-issuer trust preferred security of $397 thousand was related to a debt security issued by a large bank holding. 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 September 30, 2016.

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LOANS

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

LOANS

3. LOANS

Loans outstanding, excluding those held for sale, by general ledger classification, as of September 30, 2016 and December 31, 2015, consisted of the following:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2016		Loans			2015		Loans
Residential mortgage	$	496,735		15.37	%	$	470,869		16.16	%
Multifamily mortgage		1,507,834		46.64			1,416,775		48.63
Commercial mortgage		497,267		15.38			413,118		14.18
Commercial loans		598,078		18.50			512,886		17.60
Construction loans		430		0.01			1,401		0.05
Home equity lines of credit		69,222		2.14			52,649		1.81
Consumer loans, including fixed
rate home equity loans		62,872		1.94			45,044		1.55
Other loans		449		0.02			500		0.02
Total loans	$	3,232,887		100.00	%	$	2,913,242		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, 2016 and December 31, 2015:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2016		Loans			2015		Loans
Primary residential mortgage	$	527,012		16.31	%	$	483,085		16.59	%
Home equity lines of credit		62,870		1.94			52,804		1.81
Junior lien loan on residence		10,046		0.31			11,503		0.39
Multifamily property		1,507,834		46.67			1,416,775		48.66
Owner-occupied commercial real estate		179,285		5.55			176,276		6.05
Investment commercial real estate		676,468		20.94			568,849		19.54
Commercial and industrial		192,539		5.96			154,295		5.30
Secured by farmland/agricultural
production		172		0.01			179		0.01
Commercial construction loans		523		0.02			151		0.01
Consumer and other loans		74,141		2.29			47,635		1.64
Total loans	$	3,230,890		100.00	%	$	2,911,552		100.00	%
Net deferred costs		1,997					1,690
Total loans including net deferred costs	$	3,232,887				$	2,913,242

The following tables present the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance for loan losses (ALLL) as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	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	$	15,297	$	334	$	511,715	$	2,696	$	527,012	$	3,030
Home equity lines
of credit		54		—		62,816		224		62,870		224
Junior lien loan
on residence		228		—		9,818		18		10,046		18
Multifamily
property		—		—		1,507,834		11,843		1,507,834		11,843
Owner-occupied
commercial
real estate		1,787		—		177,498		1,823		179,285		1,823
Investment
commercial
real estate		11,445		216		665,023		9,638		676,468		9,854
Commercial and
industrial		140		140		192,399		3,428		192,539		3,568
Secured by
farmland and
agricultural
production		—		—		172		2		172		2
Commercial
construction		—		—		523		4		523		4
Consumer and
Other		—		—		74,141		250		74,141		250
Total ALLL	$	28,951	$	690	$	3,201,939	$	29,926	$	3,230,890	$	30,616

	December 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		ALLL
Primary residential
mortgage	$	9,752	$	291	$	473,333	$	2,006	$	483,085	$	2,297
Home equity lines
of credit		254		—		52,550		86		52,804		86
Junior lien loan
on residence		176		—		11,327		66		11,503		66
Multifamily
Property		—		—		1,416,775		11,813		1,416,775		11,813
Owner-occupied
Commercial
real estate		1,272		—		175,004		1,679		176,276		1,679
Investment
commercial
real estate		11,482		61		557,367		7,529		568,849		7,590
Commercial and
Industrial		171		138		154,124		2,071		154,295		2,209
Secured by
farmland and
agricultural production
production		—		—		179		2		179		2
Commercial
construction		—		—		151		2		151		2
Consumer and
Other		—		—		47,635		112		47,635		112
Total ALLL	$	23,107	$	490	$	2,888,445	$	25,366	$	2,911,552	$	25,856

Impaired loans include nonaccrual loans of $10.8 million at September 30, 2016 and $6.7 million at December 31, 2015. Impaired loans also include performing TDR loans of $18.1 million at September 30, 2016 and $16.2 million at December 31, 2015. At September 30, 2016, the allowance allocated to TDR loans totaled $403 thousand, of which $154 thousand was allocated to nonaccrual loans. At December 31, 2015, the allowance allocated to TDR loans totaled $441 thousand of which $162 thousand was allocated to nonaccrual loans. All but one accruing TDR loan was paying in accordance with restructured terms as of September 30, 2016. The Company has not committed to lend additional amounts as of September 30, 2016 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, 2016 and December 31, 2015 (The average impaired loans on the following tables represent year to date impaired loans.):

	September 30, 2016
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	15,415	$	13,548	$	—	$	8,899
Owner-occupied commercial real estate		2,017		1,787		—		1,319
Investment commercial real estate		9,812		9,812		—		9,814
Commercial and industrial		—		—		—		14
Home equity lines of credit		56		54		—		173
Junior lien loan on residence		277		228		—		328
Total loans with no related allowance	$	27,577	$	25,429	$	—	$	20,547
With related allowance recorded:
Primary residential mortgage	$	1,810	$	1,749	$	334	$	1,656
Investment commercial real estate		1,649		1,633		216		1,646
Commercial and industrial		188		140		140		135
Total loans with related allowance	$	3,647	$	3,522	$	690	$	3,437
Total loans individually evaluated for
impairment	$	31,224	$	28,951	$	690	$	23,984

	December 31, 2015
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	8,998	$	7,782	$	—	$	5,683
Owner-occupied commercial real estate		1,460		1,272		—		1,379
Investment commercial real estate		11,099		10,233		—		10,330
Commercial and industrial		63		33		—		112
Home equity lines of credit		258		254		—		229
Junior lien loan on residence		219		176		—		166
Consumer and other		—		—		—		1
Total loans with no related allowance	$	22,097	$	19,750	$	—	$	17,900
With related allowance recorded:
Primary residential mortgage	$	2,090	$	1,970	$	291	$	1,894
Investment commercial real estate		1,249		1,249		61		1,266
Commercial and industrial		179		138		138		144
Total loans with related allowance	$	3,518	$	3,357	$	490	$	3,304
Total loans individually evaluated for
impairment	$	25,615	$	23,107	$	490	$	21,204

Interest income recognized on impaired loans for the three and nine months ended September 30, 2016 and 2015, was not material. The Company did not recognize any income on nonaccruing impaired loans for the three and nine months ended September 30, 2016 and 2015.

Loans held for sale, at lower of cost or fair value at September 30, 2016, represents loans that the Company has the intent to sell. The Company expects sale price to approximate recorded investment. During the three months ending September 30, 2016, proceeds for sale of loans held for sale, at lower of cost or fair value totaled approximately $44 million. During the nine months ending September 30, 2016, proceeds for sale of loans held for sale, at lower of cost or fair value totaled approximately $183 million. The sale included whole loans and participations. The Company recorded gains on sale of whole loans of $256 thousand and $880 thousand for the three and nine months ended September 30, 2016. No loans were sold at a loss during the three and nine months ended September 30, 2016. The sale of these loans were part of the Company’s balance sheet management strategy. Loans transferred from held for sale back into the loan portfolio for the nine months ended September 30, 2016 amounted to $30.1 million. These loans were transferred at their lower of cost or fair value.

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, 2016 and December 31, 2015:

	September 30, 2016
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	8,377	$	—
Home equity lines of credit		31		—
Junior lien loan on residence		106		—
Owner-occupied commercial real estate		1,787		—
Investment commercial real estate		408		—
Commercial and industrial		131		—
Total	$	10,840	$	—

	December 31, 2015
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	4,549	$	—
Home equity lines of credit		229		—
Junior lien loan on residence		118		—
Owner-occupied commercial real estate		1,272		—
Investment commercial real estate		408		—
Commercial and industrial		171		—
Consumer and other		—		—
Total	$	6,747	$	—

The following tables present the aging of the recorded investment in past due loans as of September 30, 2016 and December 31, 2015 by class of loans, excluding nonaccrual loans:

	September 30, 2016
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,127	$	—	$	—	$	1,127
Junior lien loan on residence		—		50		—		50
Investment commercial real estate		6,937		96		—		7,033
Commercial and industrial		—		28		—		28
Total	$	8,064	$	174	$	—	$	8,238

	December 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	$	1,214	$	157	$	—	$	1,371
Investment commercial real estate		772		—		—		772
Total	$	1,986	$	157	$	—	$	2,143

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 and is subsequently re-evaluated annually, as follows:

· By credit underwriters for all loans $1,000,000 and over;

· Through a limited review by credit underwriters with the Chief Credit Officer for loans between $250,000 and $1,000,000;

· By an external independent loan review firm for all new loans over $500,000 and for existing loans of $3,500,000 and over;

· On a proportional basis by an external independent loan review firm for loans from $500,000 up to $3,499,999;

· By an external independent loan review firm for all loans with a risk rating of criticized and classified;

· On a random sampling basis by an external independent loan review firm for loans under $500,000;

· Whenever Management otherwise identifies a positive or negative trend or issue relating to a borrower.

The Company 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 that are considered to be impaired are individually evaluated for potential loss and allowance adequacy. Loans not deemed impaired are collectively evaluated for potential loss and allowance adequacy. As of September 30, 2016, 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	$	510,910	$	667	$	15,435	$	—
Home equity lines of credit		62,816		—		54		—
Junior lien loan on residence		9,818		—		228		—
Multifamily property		1,505,493		1,937		404		—
Owner-occupied commercial real estate		173,698		895		4,692		—
Investment commercial real estate		642,599		5,196		28,673		—
Commercial and industrial		186,554		5,845		140		—
Farmland		172		—		—		—
Commercial construction		425		98		—		—
Consumer and other loans		74,141		—		—		—
Total	$	3,166,626	$	14,638	$	49,626	$	—

As of December 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	$	471,859	$	1,332	$	9,894	$	—
Home equity lines of credit		52,550		—		254		—
Junior lien loan on residence		11,327		—		176		—
Multifamily property		1,407,856		7,718		1,201		—
Owner-occupied commercial real estate		170,420		928		4,928		—
Investment commercial real estate		536,479		6,217		26,153		—
Commercial and industrial		148,940		5,184		171		—
Farmland		179		—		—		—
Agricultural production		—		—		—		—
Commercial construction		—		151		—		—
Consumer and other loans		47,635		—		—		—
Total	$	2,847,245	$	21,530	$	42,777	$	—

At September 30, 2016, $27.7 million of substandard loans were also considered impaired compared to December 31, 2015, when $21.8 million were also impaired.

The activity in the allowance for loan losses for the three months ended September 30, 2016 is summarized below:

	July 1,										September 30,
	2016										2016
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,783	$	(729	)	$	4	$	972		$	3,030
Home equity lines of credit		223		—			3		(2	)		224
Junior lien loan on residence		19		—			2		(3	)		18
Multifamily property		11,639		—			—		204			11,843
Owner-occupied commercial real estate		1,733		—			—		90			1,823
Investment commercial real estate		9,621		—			2		231			9,854
Commercial and industrial		2,951		(4	)		8		613			3,568
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		1		—			—		3			4
Consumer and other loans		247		—			11		(8	)		250
Total ALLL	$	29,219	$	(733	)	$	30	$	2,100		$	30,616

The activity in the allowance for loan losses for the nine months ended September 30, 2016 is summarized below:

	January 1,										September 30,
	2016										2016
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,297	$	(1,027	)	$	25	$	1,735		$	3,030
Home equity lines of credit		86		(91	)		11		218			224
Junior lien loan on residence		66		—			72		(120	)		18
Multifamily property		11,813		—			—		30			11,843
Owner-occupied commercial real estate		1,679		—			—		144			1,823
Investment commercial real estate		7,590		(258	)		8		2,514			9,854
Commercial and industrial		2,209		(7	)		20		1,346			3,568
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		2			4
Consumer and other loans		112		(5	)		12		131			250
Total ALLL	$	25,856	$	(1,388	)	$	148	$	6,000		$	30,616

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

	July 1,										September 30,
	2015										2015
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,409	$	(218	)	$	4	$	239		$	2,434
Home equity lines of credit		113		—			—		44			157
Junior lien loan on residence		73		—			10		(12	)		71
Multifamily property		8,623		—			—		544			9,167
Owner-occupied commercial real estate		2,286		—			—		357			2,643
Investment commercial real estate		7,779		(16	)		4		405			8,172
Commercial and industrial		1,589		—			22		16			1,627
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		—			2
Consumer and other loans		93		(1	)		—		7			99
Total ALLL	$	22,969	$	(235	)	$	40	$	1,600		$	24,374

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

	January 1,										September 30,
	2015										2015
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,923	$	(329	)	$	74	$	(234	)	$	2,434
Home equity lines of credit		156		(110	)		1		110			157
Junior lien loan on residence		109		—			48		(86	)		71
Multifamily property		8,983		—			—		184			9,167
Owner-occupied commercial real estate		1,547		—			11		1,085			2,643
Investment commercial real estate		4,751		(16	)		14		3,423			8,172
Commercial and industrial		880		(7	)		68		686			1,627
Secured by farmland and agricultural production		4		—			—		(2	)		2
Commercial construction		31		—			—		(29	)		2
Consumer and other loans		96		(22	)		12		13			99
Total ALLL	$	19,480	$	(484	)	$	228	$	5,150		$	24,374

Troubled Debt Restructurings:

The Company has allocated $403 thousand and $441 thousand of specific reserves on TDRs to customers whose loan terms have been modified in TDRs as of September 30, 2016 and December 31, 2015, respectively. There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

During the three and nine month periods ended September 30, 2016, 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 during the three month period ended September 30, 2016:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	1	$	368	$	368
Total	1	$	368	$	368

The following table presents loans by class modified as TDRs during the nine month period ended September 30, 2016:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	7	$	4,924	$	4,924
Junior lien on residence	1		66		66
Investment commercial real estate	1		79		79
Total	9	$	5,069	$	5,069

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

The following table presents loans by class modified as TDRs during the three month period ended September 30, 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	5	$	1,645	$	1,645
Home equity line of credit	1		98		98
Junior lien loan on residence	1		60		60
Total	7	$	1,803	$	1,803

The following table presents loans by class modified as TDRs during the nine month period ended September 30, 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	7	$	1,870	$	1,870
Home equity line of credit	1		98		98
Junior lien loan on residence	1		60		60
Owner-occupied commercial real estate	1		767		767
Total	10	$	2,795	$	2,795

There were no loans that were modified as TDRs for which there was a payment default, within twelve months of modification, during the three and nine months ended September 30, 2016.

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

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		1	$	133
Total		1	$	133

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

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		2	$	530
Total		2	$	530

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 a loan may be considered for return to accrual status.

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DEPOSITS

9 Months Ended

Sep. 30, 2016

Deposits [Abstract]

DEPOSITS

4. DEPOSITS

Certificates of deposit, excluding brokered certificates of deposit over $250,000 totaled $122.6 million and $115.6 million at September 30, 2016 and December 31, 2015, respectively.

The following table sets forth the details of total deposits as of September 30, 2016 and December 31, 2015:

	September 30,					December 31,
	2016					2015
(In thousands)	$		%			$		%
Noninterest-bearing demand deposits	$	494,204		14.98	%	$	419,887		14.30	%
Interest-bearing checking (1)		928,941		28.15			861,697		29.36
Savings		119,650		3.62			115,007		3.92
Money market		997,572		30.23			810,709		27.62
Certificates of deposit		466,003		14.12			434,450		14.80
Subtotal deposits		3,006,370		91.10			2,641,750		90.00
Interest-bearing demand - Brokered		200,000		6.06			200,000		6.81
Certificates of deposit - Brokered		93,690		2.84			93,720		3.19
Total deposits	$	3,300,060		100.00	%	$	2,935,470		100.00	%

(1) Interest-bearing checking includes $417.0 million at September 30, 2016 and $398.7 million at December 31, 2015 of reciprocal balances in the Reich & Tang Demand Deposit Marketplace program, as described in the Net Interest Income/Average Balance Sheet section of the MD&A.

The scheduled maturities of certificates of deposit, including brokered certificates of deposit, as of September 30, 2016 are as follows:

(In thousands)
2016	$	33,504
2017		138,016
2018		198,500
2019		69,127
2020		34,583
Over 5 Years		85,963
Total	$	559,693

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FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

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 $71.8 million with a weighted average interest rate of 1.89% and $83.7 million with a weighted average interest rate of 1.78 percent at September 30, 2016 and December 31, 2015, respectively.

At September 30, 2016, advances totaling $59.8 million with a weighted average interest rate of 1.67 percent had fixed maturity dates. The fixed maturity date advances at December 31, 2015 totaled $71.7 million with a weighted average interest rate of 1.57 percent. The fixed rate advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $396.2 million and multifamily mortgages totaling $1.0 billion at September 30, 2016, while at December 31, 2015 the fixed rate advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $428.2 million and multifamily mortgages totaling $1.1 billion.

Also at September 30, 2016 and at December 31, 2015, the Company 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 $15.6 million at September 30, 2016.

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

(In thousands)
2016	$	10,000
2017		23,897
2018		34,898
2019		3,000
2020		—
Over 5 years		—
Total	$	71,795

There were no overnight borrowings as of September 30, 2016. Overnight borrowings with the Federal Home Loan Bank totaled $40.7 million with a weighted average rate of 0.52 percent at December 31, 2015.

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BUSINESS SEGMENTS

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

BUSINESS SEGMENTS

6. BUSINESS SEGMENTS

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

Banking

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

Private Wealth Management Division

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

The following tables present the statements of income and total assets for the Corporation’s reportable segments for the three and nine months ended September 30, 2016 and 2015.

	Three Months Ended September 30, 2016
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	23,194	$	1,075	$	24,269
Noninterest income		2,974		4,561		7,535
Total income		26,168		5,636		31,804
Provision for loan losses		2,100		—		2,100
Salaries and benefits		9,351		2,164		11,515
Premises and equipment expense		2,506		230		2,736
Other noninterest expense		2,738		1,177		3,915
Total noninterest expense		16,695		3,571		20,266
Income before income tax expense		9,473		2,065		11,538
Income tax expense		3,619		803		4,422
Net income	$	5,854	$	1,262	$	7,116

	Three Months Ended September 30, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	20,697	$	1,009	$	21,706
Noninterest income		1,399		4,211		5,610
Total income		22,096		5,220		27,316
Provision for loan losses		1,600		—		1,600
Salaries and benefits		7,935		2,387		10,322
Premises and equipment expense		2,549		236		2,785
Other noninterest expense		2,699		1,093		3,792
Total noninterest expense		14,783		3,716		18,499
Income before income tax expense		7,313		1,504		8,817
Income tax expense		2,849		585		3,434
Net income	$	4,464	$	919	$	5,383

	Nine Months Ended September 30, 2016
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	67,962	$	3,893	$	71,855
Noninterest income		7,286		13,960		21,246
Total income		75,248		17,853		93,101
Provision for loan losses		6,000		—		6,000
Salaries and benefits		27,196		6,327		33,523
Premises and equipment expense		7,650		692		8,342
Other noninterest expense		10,184		4,098		14,282
Total noninterest expense		51,030		11,117		62,147
Income before income tax expense		24,218		6,736		30,954
Income tax expense		9,165		2,620		11,785
Net income	$	15,053	$	4,116	$	19,169
Total assets for period end	$	3,729,004	$	45,379	$	3,774,383

	Nine Months Ended September 30, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	58,618	$	3,015	$	61,633
Noninterest income		5,072		12,919		17,991
Total income		63,690		15,934		79,624
Provision for loan losses		5,150		—		5,150
Salaries and benefits		23,305		6,314		29,619
Premises and equipment expense		7,483		696		8,179
Other noninterest expense		7,654		3,481		11,135
Total noninterest expense		43,592		10,491		54,083
Income before income tax expense		20,098		5,443		25,541
Income tax expense		7,794		2,118		9,912
Net income	$	12,304	$	3,325	$	15,629
Total assets for period end	$	3,233,455	$	35,508	$	3,268,963

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FAIR VALUE

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

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 in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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

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

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

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

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

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

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

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 appraisals 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 a 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, 2016, 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)	2016			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	11,970		$	—	$	11,970		$	—
Mortgage-backed securities-
residential		191,521			—		191,521			—
SBA pool securities		7,068			—		7,068			—
State and political subdivisions		31,475			—		31,475			—
Single-Issuer Trust Preferred		2,602			—		2,602			—
CRA investment fund		4,980			4,980		—			—
Loans held for sale, at fair value		3,013			—		3,013			—
Derivatives:
Loan level swaps		3,656			—		3,656			—
Total	$	256,285		$	4,980	$	251,305		$	—
Liabilities:
Derivatives:
Cash flow hedges	$	(4,710	)	$	—	$	(4,710	)	$	—
Loan level swaps		(3,656	)		—		(3,656	)		—
Total	$	(8,366	)	$	—	$	(8,366	)	$	—

Assets Measured on a Recurring Basis    

				Fair Value Measurements Using
				Quoted
				Prices in
				Active
				Markets		Significant
				For		Other			Significant
				Identical		Observable			Unobservable
	December 31,			Assets		Inputs			Inputs
(In thousands)	2015			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
Mortgage-backed securities-
residential	$	160,607		$	—	$	160,607		$	—
SBA pool securities		7,520			—		7,520			—
State and political subdivisions		22,029			—		22,029			—
Single-Issuer Trust Preferred		2,535			—		2,535			—
CRA investment fund		2,939			2,939		—			—
Loans held for sale, at fair value		1,558			—		1,558			—
Derivatives:
Cash flow hedges		104			—		104			—
Loan level swaps		1,106			—		1,106			—
Total	$	198,398		$	2,939	$	195,459		$	—
Liabilities:
Derivatives:
Cash flow hedges	$	(1,434	)	$	—	$	(1,434	)	$	—
Loan level swaps		(1,106	)		—		(1,106	)		—
Total	$	(2,540	)	$	—	$	(2,540	)	$	—

The Corporation has elected the fair value option for certain loans held for sale. These loans are intended for sale and the Corporation believes that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the loan and in accordance with the Corporation’s policy on loans held for investment. None of these loans are 90 days or more past due nor on nonaccrual as of September 30, 2016 and December 31, 2015.

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

(In thousands)	September 30, 2016		December 31, 2015
Residential loans contractual balance	$	2,969	$	1,536
Fair value adjustment		44		22
Total fair value of residential loans held for sale	$	3,013	$	1,558

There were no transfers between Level 1 and Level 2 during the three or nine months ended September 30, 2016.

The following table summarizes, for the periods indicated, assets measured at fair value on a non-recurring basis (Quantitative disclosures for non-recurring Level 3 assets have been omitted due to immateriality):

Assets Measured on a Non-Recurring Basis

			Fair Value Measurements Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant observable
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(In thousands)	2016		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Investment commercial real estate	$	245	$	—	$	—	$	245
	December 31,
(In thousands)	2015
Assets:
Impaired loans:
Primary residential mortgage	$	251	$	—	$	—	$	251
OREO		330		—		—		330

Impaired loans that are measured for impairment using the fair value of the collateral for collateral dependent loans had a recorded investment of $408 thousand, with a valuation allowance of $163 thousand at September 30, 2016 and $299 thousand, with a valuation allowance of $48 thousand, at December 31, 2015.

At December 31, 2015, OREO at fair value represents one commercial property. The Company did not record a valuation allowance during either of the three months or nine months ended September 30, 2016. The Company recorded a valuation allowance of $250 thousand during the nine months ended September 30, 2015

The carrying amounts and estimated fair values of financial instruments at September 30, 2016 are as follows:

			Fair Value Measurements at September 30, 2016 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	159,555	$	159,555	$	—	$	—	$	159,555
Securities available for sale		249,616		4,980		244,636		—		249,616
FHLB and FRB stock		14,093		—		—		—		N/A
Loans held for sale, at fair value		3,013		—		3,013		—		3,013
Loans held for sale, at lower of cost
or fair value		30,000		—		30,000		—		30,000
Loans, net of allowance for loan losses		3,202,271		—		—		3,205,692		3,205,692
Accrued interest receivable		6,383		—		729		5,654		6,383
Loan level swap derivatives		3,656		—		3,656		—		3,656
Financial liabilities
Deposits	$	3,300,060	$	2,740,367	$	566,740	$	—	$	3,307,107
Federal home loan bank advances		71,795		—		72,667		—		72,667
Subordinated debt		48,731		—		—		48,721		48,721
Accrued interest payable		2,025		151		974		900		2,025
Cash flow hedge derivatives		4,710		—		4,710		—		4,710
Loan level swap derivatives		3,656		—		3,656		—		3,656

The carrying amounts and estimated fair values of financial instruments at December 31, 2015 are as follows:

			Fair Value Measurements at December 31, 2015 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	70,160	$	70,160	$	—	$	—	$	70,160
Securities available for sale		195,630		2,939		192,691		—		195,630
FHLB and FRB stock		13,984		—		—		—		N/A
Loans held for sale, at fair value		1,558		—		1,558		—		1,558
Loans held for sale, at lower of cost
or fair value		82,200		—		82,200		—		82,200
Loans, net of allowance for loan losses		2,887,386		—		—		2,865,601		2,865,601
Accrued interest receivable		6,820		—		562		6,258		6,820
Cash flow Hedges		104		—		104		—		104
Loan level swaps		1,106		—		1,106		—		1,106
Financial liabilities
Deposits	$	2,935,470	$	2,407,300	$	526,226	$	—	$	2,933,526
Overnight borrowings		40,700		—		40,700		—		40,700
Federal home loan bank advances		83,692		—		84,409		—		84,409
Accrued interest payable		957		128		829		—		957
Cash flow hedges		1,434		—		1,434		—		1,434
Loan level swaps		1,106		—		1,106		—		1,106

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. Cash and due from banks is classified as Level 1. Certificates of deposit are classified as Level 2.

FHLB and FRB stock: The fair value of FHLB or FRB stock is their cost basis due to restrictions placed on its transferability.

Loans held for sale, at lower of cost or 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. Loans held for sale are classified as Level 2.

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 approximate fair values and are classified as Level 2.

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

Subordinated debentures: The fair values of the Corporation’s subordinated debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.

Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification. Accrued interest on deposits and securities are included in Level 2. Accrued interest on loans is included in Level 3.

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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OTHER OPERATING EXPENSES

9 Months Ended

Sep. 30, 2016

Other Income and Expenses [Abstract]

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)	2016		2015		2016		2015
Wealth management division
other expense	$	490	$	469	$	1,593	$	1,602
Professional and legal fees		801		678		2,544		2,029
Loan expense		141		90		374		279
Provision for ORE losses		—		250		—		250
Other operating expenses		1,669		1,889		5,817		5,646
Total other operating expenses	$	3,101	$	3,376	$	10,328	$	9,806

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ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME

9 Months Ended

Sep. 30, 2016

Stockholders' Equity Note [Abstract]

ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME

9. ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME

The following is a summary of the accumulated other comprehensive (loss)/income balances, net of tax, for the three months ended September 30, 2016 and 2015:

							Amount		Other
							Reclassified		Comprehensive
				Other			From		Income/(Loss)
				Comprehensive			Accumulated		Three Months
	Balance at			Income/(Loss)			Other		Ended			Balance at
	July 1,			Before			Comprehensive		September 30,			September 30,
(In thousands)	2016			Reclassifications			(Income)		2016			2016
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,224		$	(215	)	$	—	$	(215	)	$	1,009
Losses on cash flow hedges		(3,727	)		941			—		941			(2,786	)
Accumulated other
comprehensive (loss)/income,
net of tax	$	(2,503	)	$	726		$	—	$	726		$	(1,777	)

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Three Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	July 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2015			Reclassifications			(Income)			2015			2015
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,116		$	466		$	(50	)	$	416		$	1,532
Losses on cash flow hedges		(313	)		(1,686	)		—			(1,686	)		(1,999	)
Accumulated other
comprehensive income,
net of tax	$	803		$	(1,220	)	$	(50	)	$	(1,270	)	$	(467	)

The following represents the reclassifications out of accumulated other comprehensive income for the three months ended September 30, 2016 and 2015:

	Three Months Ended
	September 30,
(In thousands)	2016		2015			Affected Line Item in Income
Unrealized gains on
securities available for sale:
Realized net gain on securities sales	$	—	$	83		Securities gains, net
Income tax expense		—		(33	)	Income tax expense
Total reclassifications, net of tax	$	—	$	50

The following is a summary of the accumulated other comprehensive (loss)/income balances, net of tax, for the nine months ended September 30, 2016 and 2015:

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Nine Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	January 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2016			Reclassifications			(Income)			2016			2016
Net unrealized holding gain
on securities available for sale,
net of tax	$	408		$	676		$	(75	)	$	601		$	1,009
Losses on cash flow hedges		(787	)		(1,999	)		—			(1,999	)		(2,786	)
Accumulated other
comprehensive income/(loss),
net of tax	$	(379	)	$	(1,323	)	$	(75	)	$	(1,398	)	$	(1,777	)

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Nine Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	January 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2015			Reclassifications			(Income)			2015			2015
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,321		$	523		$	(312	)	$	211		$	1,532
Losses on cash flow hedges		(100	)		(1,899	)		—			(1,899	)		(1,999	)
Accumulated other
comprehensive income,
net of tax	$	1,221		$	(1,376	)	$	(312	)	$	(1,688	)	$	(467	)

The following represents the reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 2016 and 2015:

	Nine Months Ended
	September 30,
(In thousands)	2016			2015			Affected Line Item in Income
Unrealized gains on
securities available for sale:
Realized net gain on securities sales	$	119		$	527		Securities gains, net
Income tax expense		(44	)		(215	)	Income tax expense
Total reclassifications, net of tax	$	75		$	312

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DERIVATIVES

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

10. DERIVATIVES

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

Interest Rate Swaps Designated as Cash Flow Hedges: Interest rate swaps with a notional amount of $180 million as of September 30, 2016 and December 31, 2015, were designated as cash flow hedges of certain interest-bearing demand brokered deposits and were determined to be fully effective during the three and nine months ended September 30, 2016. As such, no amount of ineffectiveness has been included in net income during the three and nine month periods ended September 30, 2016 and 2015. Therefore, the aggregate fair value of the swaps is recorded in other assets/liabilities with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

The following information about the interest rate swaps designated as cash flow hedges as of September 30, 2016 and December 31, 2015 is presented in the following table:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Notional amount	$	180,000		$	180,000
Weighted average pay rate		1.64	%		1.64	%
Weighted average receive rate		0.54	%		0.29	%
Weighted average maturity		3.50	years		4.25	years
Unrealized loss	$	(4,710	)	$	(1,330	)
Number of contracts		9			9

Net interest expense recorded on these swap transactions totaled $494 thousand and $1.5 million for the three and nine months ended September 30, 2016 and is reported as a component of interest expense. Net interest expense recorded on these swap transactions totaled $554 thousand and $997 thousand for the three and nine months ended September 30, 2015 and is reported as a component of interest expense.

Cash Flow Hedges

The following table presents the net gains recorded in accumulated other comprehensive (loss)/income and the consolidated financial statements relating to the cash flow derivative instruments for the three months ended September 30, 2016 (after tax):

					Amount of
	Amount of		Amount of		Gain/(Loss)
	Gain/(Loss)		Gain/(Loss)		Recognized in
	Recognized		Reclassified		Other Non-Interest
	In OCI		From OCI to		Expense
(In thousands)	(Effective Portion)		Interest Expense		(Ineffective Portion)
Interest rate contracts	$	941	$	—	$	—

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

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,686	)	$	—	$	—

The following table presents the net losses recorded in accumulated other comprehensive (loss)/income and the consolidated financial statements relating to the cash flow derivative instruments for the nine months ended September 30, 2016 (after tax):

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,999	)	$	—	$	—

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

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,899	)	$	—	$	—

The following tables reflect the cash flow hedges included in the financial statements as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing
demand brokered deposits	$	180,000	$	(4,710	)
Total included in other assets	$	—	$	—
Total included in other liabilities	$	180,000	$	(4,710	)

	December 31, 2015
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing
demand brokered deposits	$	180,000	$	(1,330	)
Total included in other assets	$	15,000	$	104
Total included in other liabilities	$	165,000	$	(1,434	)

Derivatives Not Designated as Accounting Hedges: Beginning in 2015, the Company offered facility specific/loan level swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution / swap counterparty (loan level / back to back swap program). The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting (“standalone derivatives”). The notional amount of the swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual contracts. The fair value of the swaps is recorded as both an asset and a liability, in other assets and other liabilities, respectively, in equal amounts for these transactions.

Information about these swaps is as follows:

(Dollars in thousands)	September 30, 2016			December 31, 2015
Notional amount	$	70,815		$	27,259
Fair value	$	3,656		$	1,106
Weighted average pay rates		3.44	%		3.06	%
Weighted average receive rates		2.27	%		1.44	%
Weighted average maturity		11.4	years		15.8	years
Number of contracts		6			2

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SUBORDINATED DEBT

9 Months Ended

Sep. 30, 2016

Subordinated Debt [Abstract]

SUBORDINATED DEBT

11. SUBORDINATED DEBT

During June 2016, the Company issued $50.0 million in aggregate principal amount of fixed-to-floating subordinated notes (the “Notes”) to certain institutional investors. The Notes are non-callable for five years, have a stated maturity of June 30, 2026, and bear interest at a fixed rate of 6.0% per year until June 30, 2021. From June 30, 2021 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month LIBOR rate plus 485 basis points, payable quarterly in arrears. Debt issuance costs incurred totaled $1.3 million and are being amortized to maturity.  Subordinated debt is presented net of issuance cost on the Consolidated Statements of Condition.

Approximately $40.0 million of the net proceeds from the sale of the Notes were used by the Company to contribute capital to the Bank in the second quarter of 2016. Remaining funds will be used for general corporate purposes.

In connection with the issuance of the Notes, the Company obtained ratings from Kroll Bond Rating Agency (“KBRA”). KBRA assigned investment grade rating of BBB- for the Company’s subordinated debt.

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RECENT ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Sep. 30, 2016

Accounting Changes and Error Corrections [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

12. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (is) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In July 2015, FASB deferred the effective date of the ASU by one year which means ASU 2014-09 will be effective for the Company on January 1, 2018.  In March 2016, FASB issued ASU 2016-08 which amended illustrative examples to clarify how to apply the implementation guidance on principal versus agent considerations. The Company does not expect the guidance will have a material impact on its consolidated financial statements.

In January 2016, the FASB amended existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company is evaluating the impact of these amendments on its consolidated financial statements.

In February 2016, the FASB amended existing guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company is evaluating the impact of these amendments on its consolidated financial statements.

In March 2016, the FASB amended existing guidance to simplify aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. These amendments are effective for public business entities for annual periods and interim periods within those annual periods beginning after December 15, 2016. The Company is evaluating the impact of these amendments on its consolidated financial statements.

On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (the ASU).   This ASU replaces the incurred loss model with an expected loss model, referred to as “current expected credit loss” (CECL) model.  It will significantly change estimates for credit losses related to financial assets measured at amortized cost, including loans receivable, held-to-maturity (HTM) debt securities and certain other contracts.   The largest impact will be on lenders and the allowance for loan and lease losses (ALLL).  This ASU will be effective for public business entities (PBEs) in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  The Company is currently in the process of evaluating the impact of this ASU on its consolidated financial statements.

On August 26, 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments)”. This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This amendment is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There is no material impact on our statement of cash flows as a result of this ASU.

On October 24, 2016, the FASB issued ASU No. 2016-16, “Income Taxes – (Topic 740): Intra-Equity Transfers of Assets other than Inventory”.   These amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. These amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted for all entities in the first interim period if an entity issues interim financial statements. The Company is evaluating the impact of these amendments on its consolidated financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Principles of Consolidation and Organization

Principles of Consolidation and Organization: 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 subsidiaries, PGB Trust & Investments of Delaware and Peapack-Gladstone Mortgage Group, Inc. and Peapack-Gladstone Mortgage Group’s wholly-owned subsidiary, PG Investment Company of Delaware, Inc. and its wholly-owned subsidiary, Peapack-Gladstone Realty Inc., a New Jersey Real Estate Investment Company. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Basis of Financial Presentation

Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. In preparing the financial statements, Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statement of condition and revenues and expenses for that period. Actual results could differ from those estimates.

Segment Information

Segment Information: The Company’s business is conducted through its banking subsidiary and involves the delivery of loan and deposit products and wealth management services to customers. Management uses certain methodologies to allocate income and expense to the business segments.

The Banking segment includes commercial, commercial real estate, multifamily, residential and consumer lending activities; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support sales.

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. This segment also includes the activity from the Delaware subsidiary, PGB Trust & Investments of Delaware. Income is recognized as earned.

Cash and Cash Equivalents

Cash and Cash Equivalents: For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-earning deposits and federal funds sold. Generally, federal funds are sold for one-day periods. Cash equivalents are of original maturities of 90 days or less. Net cash flows are reported for customer loan and deposit transactions and overnight borrowings.

Interest-Earning Deposits in Other Financial Institutions

Interest-Earning Deposits in Other Financial Institutions: Interest-earning deposits in other financial institutions mature within one year and are carried at cost.

Securities

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/(loss), net of tax.

Interest income includes amortization of purchase premiums and discounts. 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.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of FHLB stock, based on the level of borrowings and other factors. FHLB stock is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value. Cash dividends are reported as income.

The Bank is also a member of the Federal Reserve Bank and required to own a certain amount of FRB stock. FRB stock is carried at cost and classified as a restricted security. Cash dividends are reported as income.

Loans Held for Sale

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.

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, shown as gain on sale of loans on the Statement of Income, 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 Company no longer has the intent to hold for the foreseeable future.

Loans

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 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 States of New Jersey and New York.

Allowance for Loan Losses

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for expected credit losses that are deemed to be probable. When Management is reasonably certain that a loan balance is not fully collectable an analysis is completed and either a full or partial charge off is recorded against the allowance. 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, 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.

Loans are individually evaluated for impairment when they 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 a residential mortgage is placed on nonaccrual status and is in the process of collection, such as through a foreclosure action, then it is 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 modified loan with concessions made by the lender to a borrower who is experiencing financial difficulty. Troubled debt restructurings are impaired 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 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 than pass-rated loans using a multiple that is calculated annually through a migration analysis. The multiple was 5.0 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 in the Tri-State area (New York, New Jersey and Connecticut), Pennsylvania and Florida. 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; and 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 in the Tri-State area. 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; and 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.

Junior Lien Loan on Residence. The Bank provides junior lien loans (“JLL”) against one to four family properties in the Tri-State area. JLLs 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 JLLs 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; and 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 (non-owner occupied) in the Tri-State area and Pennsylvania. Commercial real estate properties primarily include retail buildings/shopping centers, hotels, office/medical buildings and industrial/warehouse space. Some properties are considered “mixed use” as they are a combination of building types, such as a building with retail space on the ground floor and either residential apartments or office suites on the upper floors. 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 its 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. In addition, these loans often include commercial real estate as collateral to strengthen the Bank’s position and further mitigate risk. 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.

Agricultural Production. These are loans to finance agricultural production and other loans to farmers. The Bank does not actively engage in this type of lending.

Commercial Construction. The Bank has discontinued its commercial construction activity. Dollar amounts within this segment are immaterial.

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.

Derivatives

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

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, restricted stock units and stock appreciation rights to directors, officers and employees of the Company and its subsidiaries. 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 September 30, 2016 and 2015, the Company recorded total compensation cost for stock options of $11 thousand and $54 thousand respectively, with a recognized tax benefit of $1 thousand and $7 thousand for the quarters ended September 30, 2016 and 2015, respectively. The Company recorded total compensation cost for stock options for the nine months ended September 30, 2016 and 2015, of $45 thousand and $175 thousand, respectively, with a recognized tax benefit of $4 thousand for the nine months ended September 30, 2016 and $19 thousand for the nine months ended September 30, 2015. There was approximately $16 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock incentive plans at September 30, 2016. That cost is expected to be recognized over a weighted average period of 0.43 years.

For the Company’s stock option plans, changes in options outstanding during the nine months ended September 30, 2016 were as follows:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In thousands)
Balance, January 1, 2016		267,289		$	17.28
Granted during 2016		—			—
Exercised during 2016		(19,958	)		13.55
Expired during 2016		(15,314	)		21.38
Forfeited during 2016		(842	)		13.55
Balance, September 30, 2016		231,175		$	17.35		3.63 years	$	1,171
Vested and expected to vest (1)		230,665		$	17.39		3.63 years	$	1,159
Exercisable at September 30, 2016		222,678		$	17.50		3.54 years	$	1,094

(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 third quarter of 2016 and the exercise price, multiplied by the number of in-the-money options). The Company’s closing stock price on September 30, 2016 was $22.41.

There were no stock options granted in the three and nine months ended September 30, 2016.

The Company has previously granted performance based and service based restricted stock awards. Service based units vest ratably over a one, three or five year period.  There were no restricted stock awards/units granted in the third quarter of 2016.

The performance based awards that were granted in previous periods, are dependent upon the Company meeting certain performance criteria and cliff vest at the end of the performance period.  During the fourth quarter of 2015, the Company concluded that the performance targets would not be met and therefore, reversed approximately $592 thousand of previously recorded expense for the performance awards. Total unrecognized compensation expense for performance based awards is $1.7 million as of September 30, 2016.

Changes in nonvested shares dependent on performance criteria for the nine months ended September 30, 2016 were as follows:

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Balance, January 1, 2016		92,767	$	18.12
Granted during 2016		—		—
Vested during 2016		—		—
Forfeited during 2016		—		—
Balance, September 30, 2016		92,767	$	18.12

Changes in service based restricted stock awards/units for the nine months ended September 30, 2016 were as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2016		321,421		$	19.44
Granted during 2016		188,397			16.99
Vested during 2016		(99,937	)		18.37
Forfeited during 2016		(20,515	)		18.65
Balance, September 30, 2016		389,366		$	18.57

As of September 30, 2016, there was $5.3 million of total unrecognized compensation cost related to service based awards/units. That cost is expected to be recognized over a weighted average period of 1.52 years. Stock compensation expense recorded for the third quarters of 2016 and 2015 totaled $725 thousand and $636 thousand, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded total compensation cost for stock awards/units of $2.2 million and $1.7 million respectively.

Employee Stock Purchase Plan

Employee Stock Purchase Plan: On April 22, 2014, the shareholders of the Company approved the 2014 Employee Stock Purchase Plan (“ESPP”). The ESPP provides for the granting of purchase rights of up to 150,000 shares of Peapack-Gladstone Financial Corporation common stock. Subject to certain eligibility requirements and restrictions, the ESPP allows employees to purchase shares during four three-month offering periods (“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. At the end of each Offering Period on the purchase date, 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 Offering Period without penalty. The fair value of each share purchase right is determined using the Black-Scholes option pricing model.

The Company recorded $19 thousand and $26 thousand of expense in salaries and employee benefits expense for the three months ended September 30, 2016 and 2015, respectively related to the ESPP. Total shares issued under the ESPP during the third quarters of 2016 and 2015 were 7,155 and 8,799, respectively.

The Company recorded $83 thousand and $77 thousand of expense in salaries and employee benefits expense for the nine months ended September 30, 2016 and 2015, respectively, related to the ESPP. Total shares issued under the ESPP for the nine months ended September 30, 2016 and 2015 were 26,913 and 24,258, respectively.

Earnings per share - Basic and Diluted

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2016		2015		2016		2015
Net income to shareholders	$	7,116	$	5,383	$	19,169	$	15,629
Basic weighted-average shares outstanding		16,467,654		15,253,009		16,167,153		15,083,006
Plus: common stock equivalents		205,942		182,930		180,102		210,741
Diluted weighted-average shares outstanding		16,673,596		15,435,939		16,347,255		15,293,747
Net income per share
Basic	$	0.43	$	0.35	$	1.19	$	1.04
Diluted		0.43		0.35		1.17		1.02

Stock options and warrants totaling 218,079 and 85,083 shares were not included in the computation of diluted earnings per share in the third quarters of 2016 and 2015, respectively, because they were considered antidilutive. Stock options and warrants totaling 223,832 and 174,662 shares were not included in the computation of diluted earnings per share in the nine months ended September 30, 2016 and 2015, respectively, because they were considered antidilutive.

Income Taxes

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 2013 or by New Jersey tax authorities for years prior to 2012.

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

Loss Contingencies

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonable estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Restrictions on cash

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

Comprehensive Income

Comprehensive Income: Comprehensive income consists of net income and the change during the period in the Company’s net unrealized gains or losses on securities available for sale and unrealized gains and losses on cash flow hedge, net of tax, less adjustments for realized gains and losses.

Transfers of Financial Assets

Transfers of Financial Assets:  Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished.  Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets:  Goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquired company (if any), over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The Company has selected December 31 as the date to perform the annual impairment test.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill and assembly workforce are the intangible assets with an indefinite life on our balance sheet.

Other intangible assets primarily consist of customer relationship intangible assets arising from acquisition are amortized on an accelerated method over their estimated useful lives, which range up to 15 years.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Schedule of stock option plans, changes in options outstanding

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
	Number of			Exercise		Contractual		Value
	Options			Price		Term		(In thousands)
Balance, January 1, 2016		267,289		$	17.28
Granted during 2016		—			—
Exercised during 2016		(19,958	)		13.55
Expired during 2016		(15,314	)		21.38
Forfeited during 2016		(842	)		13.55
Balance, September 30, 2016		231,175		$	17.35		3.63 years	$	1,171
Vested and expected to vest (1)		230,665		$	17.39		3.63 years	$	1,159
Exercisable at September 30, 2016		222,678		$	17.50		3.54 years	$	1,094

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

Schedule of changes in nonvested performance-based shares

			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Balance, January 1, 2016		92,767	$	18.12
Granted during 2016		—		—
Vested during 2016		—		—
Forfeited during 2016		—		—
Balance, September 30, 2016		92,767	$	18.12

Schedule of changes in nonvested shares

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2016		321,421		$	19.44
Granted during 2016		188,397			16.99
Vested during 2016		(99,937	)		18.37
Forfeited during 2016		(20,515	)		18.65
Balance, September 30, 2016		389,366		$	18.57

Schedule of calculation of basic and diluted earnings per share

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2016		2015		2016		2015
Net income to shareholders	$	7,116	$	5,383	$	19,169	$	15,629
Basic weighted-average shares outstanding		16,467,654		15,253,009		16,167,153		15,083,006
Plus: common stock equivalents		205,942		182,930		180,102		210,741
Diluted weighted-average shares outstanding		16,673,596		15,435,939		16,347,255		15,293,747
Net income per share
Basic	$	0.43	$	0.35	$	1.19	$	1.04
Diluted		0.43		0.35		1.17		1.02

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Tables)

9 Months Ended

Sep. 30, 2016

INVESTMENT SECURITIES AVAILABLE FOR SALE [Abstract]

Schedule of Amortized Cost and Approximate Fair Value of Securities Available for Sale

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	11,991	$	2	$	(23	)	$	11,970
Mortgage-backed securities – residential		189,724		1,897		(100	)		191,521
SBA pool securities		7,147		—		(79	)		7,068
State and political subdivisions		31,122		363		(10	)		31,475
Single-issuer trust preferred security		2,999		—		(397	)		2,602
CRA investment		5,000		—		(20	)		4,980
Total	$	247,983	$	2,262	$	(629	)	$	249,616

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Mortgage-backed securities – residential	$	159,747	$	1,293	$	(433	)	$	160,607
SBA pool securities		7,601		—		(81	)		7,520
State and political subdivisions		21,612		417		—			22,029
Single-issuer trust preferred security		2,999		—		(464	)		2,535
CRA investment		3,000		—		(61	)		2,939
Total	$	194,959	$	1,710	$	(1,039	)	$	195,630

Schedule of Continuous Unrealized Losses and the Approximate Fair Value of these Investments

	September 30, 2016
	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 agencies	$	4,972	$	(23	)	$	—	$	—		$	4,972	$	(23	)
Mortgage-backed
securities-residential		40,568		(76	)		4,475		(24	)		45,043		(100	)
SBA pool securities		—		—			7,068		(79	)		7,068		(79	)
State and political
subdivisions		1,917		(10	)		—		—			1,917		(10	)
Single-issuer trust
preferred security		—		—			2,602		(397	)		2,602		(397	)
CRA investment fund		1,992		(8	)		2,988		(12	)		4,980		(20	)
Total	$	49,449	$	(117	)	$	17,133	$	(512	)	$	66,582	$	(629	)

	December 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	$	89,717	$	(345	)	$	8,913	$	(88	)	$	98,630	$	(433	)
SBA pool securities		—		—			7,520		(81	)		7,520		(81	)
Single-issuer trust
Preferred security		—		—			2,535		(464	)		2,535		(464	)
CRA investment fund		—		—			2,939		(61	)		2,939		(61	)
Total	$	89,717	$	(345	)	$	21,907	$	(694	)	$	111,624	$	(1,039	)

XML

LOANS (Tables)

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Schedule of composition of loans categorized by the type of loan

Loans outstanding, excluding those held for sale, by general ledger classification, as of September 30, 2016 and December 31, 2015, consisted of the following:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2016		Loans			2015		Loans
Residential mortgage	$	496,735		15.37	%	$	470,869		16.16	%
Multifamily mortgage		1,507,834		46.64			1,416,775		48.63
Commercial mortgage		497,267		15.38			413,118		14.18
Commercial loans		598,078		18.50			512,886		17.60
Construction loans		430		0.01			1,401		0.05
Home equity lines of credit		69,222		2.14			52,649		1.81
Consumer loans, including fixed
rate home equity loans		62,872		1.94			45,044		1.55
Other loans		449		0.02			500		0.02
Total loans	$	3,232,887		100.00	%	$	2,913,242		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, 2016 and December 31, 2015:

			% of					% of
	September 30,		Totals			December 31,		Total
(In thousands)	2016		Loans			2015		Loans
Primary residential mortgage	$	527,012		16.31	%	$	483,085		16.59	%
Home equity lines of credit		62,870		1.94			52,804		1.81
Junior lien loan on residence		10,046		0.31			11,503		0.39
Multifamily property		1,507,834		46.67			1,416,775		48.66
Owner-occupied commercial real estate		179,285		5.55			176,276		6.05
Investment commercial real estate		676,468		20.94			568,849		19.54
Commercial and industrial		192,539		5.96			154,295		5.30
Secured by farmland/agricultural
production		172		0.01			179		0.01
Commercial construction loans		523		0.02			151		0.01
Consumer and other loans		74,141		2.29			47,635		1.64
Total loans	$	3,230,890		100.00	%	$	2,911,552		100.00	%
Net deferred costs		1,997					1,690
Total loans including net deferred costs	$	3,232,887				$	2,913,242

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

	September 30, 2016
	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	$	15,297	$	334	$	511,715	$	2,696	$	527,012	$	3,030
Home equity lines
of credit		54		—		62,816		224		62,870		224
Junior lien loan
on residence		228		—		9,818		18		10,046		18
Multifamily
property		—		—		1,507,834		11,843		1,507,834		11,843
Owner-occupied
commercial
real estate		1,787		—		177,498		1,823		179,285		1,823
Investment
commercial
real estate		11,445		216		665,023		9,638		676,468		9,854
Commercial and
industrial		140		140		192,399		3,428		192,539		3,568
Secured by
farmland and
agricultural
production		—		—		172		2		172		2
Commercial
construction		—		—		523		4		523		4
Consumer and
Other		—		—		74,141		250		74,141		250
Total ALLL	$	28,951	$	690	$	3,201,939	$	29,926	$	3,230,890	$	30,616

	December 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		ALLL
Primary residential
mortgage	$	9,752	$	291	$	473,333	$	2,006	$	483,085	$	2,297
Home equity lines
of credit		254		—		52,550		86		52,804		86
Junior lien loan
on residence		176		—		11,327		66		11,503		66
Multifamily
Property		—		—		1,416,775		11,813		1,416,775		11,813
Owner-occupied
Commercial
real estate		1,272		—		175,004		1,679		176,276		1,679
Investment
commercial
real estate		11,482		61		557,367		7,529		568,849		7,590
Commercial and
Industrial		171		138		154,124		2,071		154,295		2,209
Secured by
farmland and
agricultural production
production		—		—		179		2		179		2
Commercial
construction		—		—		151		2		151		2
Consumer and
Other		—		—		47,635		112		47,635		112
Total ALLL	$	23,107	$	490	$	2,888,445	$	25,366	$	2,911,552	$	25,856

	July 1,										September 30,
	2016										2016
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,783	$	(729	)	$	4	$	972		$	3,030
Home equity lines of credit		223		—			3		(2	)		224
Junior lien loan on residence		19		—			2		(3	)		18
Multifamily property		11,639		—			—		204			11,843
Owner-occupied commercial real estate		1,733		—			—		90			1,823
Investment commercial real estate		9,621		—			2		231			9,854
Commercial and industrial		2,951		(4	)		8		613			3,568
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		1		—			—		3			4
Consumer and other loans		247		—			11		(8	)		250
Total ALLL	$	29,219	$	(733	)	$	30	$	2,100		$	30,616

The activity in the allowance for loan losses for the nine months ended September 30, 2016 is summarized below:

	January 1,										September 30,
	2016										2016
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,297	$	(1,027	)	$	25	$	1,735		$	3,030
Home equity lines of credit		86		(91	)		11		218			224
Junior lien loan on residence		66		—			72		(120	)		18
Multifamily property		11,813		—			—		30			11,843
Owner-occupied commercial real estate		1,679		—			—		144			1,823
Investment commercial real estate		7,590		(258	)		8		2,514			9,854
Commercial and industrial		2,209		(7	)		20		1,346			3,568
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		2			4
Consumer and other loans		112		(5	)		12		131			250
Total ALLL	$	25,856	$	(1,388	)	$	148	$	6,000		$	30,616

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

	July 1,										September 30,
	2015										2015
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,409	$	(218	)	$	4	$	239		$	2,434
Home equity lines of credit		113		—			—		44			157
Junior lien loan on residence		73		—			10		(12	)		71
Multifamily property		8,623		—			—		544			9,167
Owner-occupied commercial real estate		2,286		—			—		357			2,643
Investment commercial real estate		7,779		(16	)		4		405			8,172
Commercial and industrial		1,589		—			22		16			1,627
Secured by farmland and agricultural production		2		—			—		—			2
Commercial construction		2		—			—		—			2
Consumer and other loans		93		(1	)		—		7			99
Total ALLL	$	22,969	$	(235	)	$	40	$	1,600		$	24,374

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

	January 1,										September 30,
	2015										2015
	Beginning							Provision			Ending
(In thousands)	ALLL		Charge-offs			Recoveries		(Credit)			ALLL
Primary residential mortgage	$	2,923	$	(329	)	$	74	$	(234	)	$	2,434
Home equity lines of credit		156		(110	)		1		110			157
Junior lien loan on residence		109		—			48		(86	)		71
Multifamily property		8,983		—			—		184			9,167
Owner-occupied commercial real estate		1,547		—			11		1,085			2,643
Investment commercial real estate		4,751		(16	)		14		3,423			8,172
Commercial and industrial		880		(7	)		68		686			1,627
Secured by farmland and agricultural production		4		—			—		(2	)		2
Commercial construction		31		—			—		(29	)		2
Consumer and other loans		96		(22	)		12		13			99
Total ALLL	$	19,480	$	(484	)	$	228	$	5,150		$	24,374

Schedule of loans individually evaluated for impairment

	September 30, 2016
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	15,415	$	13,548	$	—	$	8,899
Owner-occupied commercial real estate		2,017		1,787		—		1,319
Investment commercial real estate		9,812		9,812		—		9,814
Commercial and industrial		—		—		—		14
Home equity lines of credit		56		54		—		173
Junior lien loan on residence		277		228		—		328
Total loans with no related allowance	$	27,577	$	25,429	$	—	$	20,547
With related allowance recorded:
Primary residential mortgage	$	1,810	$	1,749	$	334	$	1,656
Investment commercial real estate		1,649		1,633		216		1,646
Commercial and industrial		188		140		140		135
Total loans with related allowance	$	3,647	$	3,522	$	690	$	3,437
Total loans individually evaluated for
impairment	$	31,224	$	28,951	$	690	$	23,984

	December 31, 2015
	Unpaid						Average
	Principal		Recorded		Specific		Impaired
(In thousands)	Balance		Investment		Reserves		Loans
With no related allowance recorded:
Primary residential mortgage	$	8,998	$	7,782	$	—	$	5,683
Owner-occupied commercial real estate		1,460		1,272		—		1,379
Investment commercial real estate		11,099		10,233		—		10,330
Commercial and industrial		63		33		—		112
Home equity lines of credit		258		254		—		229
Junior lien loan on residence		219		176		—		166
Consumer and other		—		—		—		1
Total loans with no related allowance	$	22,097	$	19,750	$	—	$	17,900
With related allowance recorded:
Primary residential mortgage	$	2,090	$	1,970	$	291	$	1,894
Investment commercial real estate		1,249		1,249		61		1,266
Commercial and industrial		179		138		138		144
Total loans with related allowance	$	3,518	$	3,357	$	490	$	3,304
Total loans individually evaluated for
impairment	$	25,615	$	23,107	$	490	$	21,204

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

	September 30, 2016
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	8,377	$	—
Home equity lines of credit		31		—
Junior lien loan on residence		106		—
Owner-occupied commercial real estate		1,787		—
Investment commercial real estate		408		—
Commercial and industrial		131		—
Total	$	10,840	$	—

	December 31, 2015
			Loans Past Due
			Over 90 Days
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	4,549	$	—
Home equity lines of credit		229		—
Junior lien loan on residence		118		—
Owner-occupied commercial real estate		1,272		—
Investment commercial real estate		408		—
Commercial and industrial		171		—
Consumer and other		—		—
Total	$	6,747	$	—

Schedule of aging of past due loans

	September 30, 2016
	30-59		60-89		Greater Than
	Days		Days		90 Days		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,127	$	—	$	—	$	1,127
Junior lien loan on residence		—		50		—		50
Investment commercial real estate		6,937		96		—		7,033
Commercial and industrial		—		28		—		28
Total	$	8,064	$	174	$	—	$	8,238

	December 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	$	1,214	$	157	$	—	$	1,371
Investment commercial real estate		772		—		—		772
Total	$	1,986	$	157	$	—	$	2,143

Schedule of the risk category of loans by class of loans

			Special
(In thousands)	Pass		Mention		Substandard		Doubtful
Primary residential mortgage	$	510,910	$	667	$	15,435	$	—
Home equity lines of credit		62,816		—		54		—
Junior lien loan on residence		9,818		—		228		—
Multifamily property		1,505,493		1,937		404		—
Owner-occupied commercial real estate		173,698		895		4,692		—
Investment commercial real estate		642,599		5,196		28,673		—
Commercial and industrial		186,554		5,845		140		—
Farmland		172		—		—		—
Commercial construction		425		98		—		—
Consumer and other loans		74,141		—		—		—
Total	$	3,166,626	$	14,638	$	49,626	$	—

As of December 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	$	471,859	$	1,332	$	9,894	$	—
Home equity lines of credit		52,550		—		254		—
Junior lien loan on residence		11,327		—		176		—
Multifamily property		1,407,856		7,718		1,201		—
Owner-occupied commercial real estate		170,420		928		4,928		—
Investment commercial real estate		536,479		6,217		26,153		—
Commercial and industrial		148,940		5,184		171		—
Farmland		179		—		—		—
Agricultural production		—		—		—		—
Commercial construction		—		151		—		—
Consumer and other loans		47,635		—		—		—
Total	$	2,847,245	$	21,530	$	42,777	$	—

Schedule of loans modified as troubled debt restructurings

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	1	$	368	$	368
Total	1	$	368	$	368

The following table presents loans by class modified as TDRs during the nine month period ended September 30, 2016:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	7	$	4,924	$	4,924
Junior lien on residence	1		66		66
Investment commercial real estate	1		79		79
Total	9	$	5,069	$	5,069

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

The following table presents loans by class modified as TDRs during the three month period ended September 30, 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	5	$	1,645	$	1,645
Home equity line of credit	1		98		98
Junior lien loan on residence	1		60		60
Total	7	$	1,803	$	1,803

The following table presents loans by class modified as TDRs during the nine month period ended September 30, 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
(Dollars in thousands)	Contracts	Investment		Investment
Primary residential mortgage	7	$	1,870	$	1,870
Home equity line of credit	1		98		98
Junior lien loan on residence	1		60		60
Owner-occupied commercial real estate	1		767		767
Total	10	$	2,795	$	2,795

There were no loans that were modified as TDRs for which there was a payment default, within twelve months of modification, during the three and nine months ended September 30, 2016.

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

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		1	$	133
Total		1	$	133

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

	Number of		Recorded
(Dollars in thousands)	Contracts		Investment
Primary residential mortgage		2	$	530
Total		2	$	530

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DEPOSITS (Tables)

9 Months Ended

Sep. 30, 2016

Deposits [Abstract]

Schedule of deposit liabilities

	September 30,					December 31,
	2016					2015
(In thousands)	$		%			$		%
Noninterest-bearing demand deposits	$	494,204		14.98	%	$	419,887		14.30	%
Interest-bearing checking (1)		928,941		28.15			861,697		29.36
Savings		119,650		3.62			115,007		3.92
Money market		997,572		30.23			810,709		27.62
Certificates of deposit		466,003		14.12			434,450		14.80
Subtotal deposits		3,006,370		91.10			2,641,750		90.00
Interest-bearing demand - Brokered		200,000		6.06			200,000		6.81
Certificates of deposit - Brokered		93,690		2.84			93,720		3.19
Total deposits	$	3,300,060		100.00	%	$	2,935,470		100.00	%

(1) Interest-bearing checking includes $417.0 million at September 30, 2016 and $398.7 million at December 31, 2015 of reciprocal balances in the Reich & Tang Demand Deposit Marketplace program, as described in the Net Interest Income/Average Balance Sheet section of the MD&A.

Schedule of maturities of time deposits

(In thousands)
2016	$	33,504
2017		138,016
2018		198,500
2019		69,127
2020		34,583
Over 5 Years		85,963
Total	$	559,693

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FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Schedule of maturity dates of the advances and other borrowings

(In thousands)
2016	$	10,000
2017		23,897
2018		34,898
2019		3,000
2020		—
Over 5 years		—
Total	$	71,795

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BUSINESS SEGMENTS (Tables)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Schedule of income and total assets for reportable segments

	Three Months Ended September 30, 2016
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	23,194	$	1,075	$	24,269
Noninterest income		2,974		4,561		7,535
Total income		26,168		5,636		31,804
Provision for loan losses		2,100		—		2,100
Salaries and benefits		9,351		2,164		11,515
Premises and equipment expense		2,506		230		2,736
Other noninterest expense		2,738		1,177		3,915
Total noninterest expense		16,695		3,571		20,266
Income before income tax expense		9,473		2,065		11,538
Income tax expense		3,619		803		4,422
Net income	$	5,854	$	1,262	$	7,116

	Three Months Ended September 30, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	20,697	$	1,009	$	21,706
Noninterest income		1,399		4,211		5,610
Total income		22,096		5,220		27,316
Provision for loan losses		1,600		—		1,600
Salaries and benefits		7,935		2,387		10,322
Premises and equipment expense		2,549		236		2,785
Other noninterest expense		2,699		1,093		3,792
Total noninterest expense		14,783		3,716		18,499
Income before income tax expense		7,313		1,504		8,817
Income tax expense		2,849		585		3,434
Net income	$	4,464	$	919	$	5,383

	Nine Months Ended September 30, 2016
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	67,962	$	3,893	$	71,855
Noninterest income		7,286		13,960		21,246
Total income		75,248		17,853		93,101
Provision for loan losses		6,000		—		6,000
Salaries and benefits		27,196		6,327		33,523
Premises and equipment expense		7,650		692		8,342
Other noninterest expense		10,184		4,098		14,282
Total noninterest expense		51,030		11,117		62,147
Income before income tax expense		24,218		6,736		30,954
Income tax expense		9,165		2,620		11,785
Net income	$	15,053	$	4,116	$	19,169
Total assets for period end	$	3,729,004	$	45,379	$	3,774,383

	Nine Months Ended September 30, 2015
			Wealth
			Management
(In thousands)	Banking		Division		Total
Net interest income	$	58,618	$	3,015	$	61,633
Noninterest income		5,072		12,919		17,991
Total income		63,690		15,934		79,624
Provision for loan losses		5,150		—		5,150
Salaries and benefits		23,305		6,314		29,619
Premises and equipment expense		7,483		696		8,179
Other noninterest expense		7,654		3,481		11,135
Total noninterest expense		43,592		10,491		54,083
Income before income tax expense		20,098		5,443		25,541
Income tax expense		7,794		2,118		9,912
Net income	$	12,304	$	3,325	$	15,629
Total assets for period end	$	3,233,455	$	35,508	$	3,268,963

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of assets measured at fair value on a recurring basis

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)	2016			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
U.S. government-sponsored
entities	$	11,970		$	—	$	11,970		$	—
Mortgage-backed securities-
residential		191,521			—		191,521			—
SBA pool securities		7,068			—		7,068			—
State and political subdivisions		31,475			—		31,475			—
Single-Issuer Trust Preferred		2,602			—		2,602			—
CRA investment fund		4,980			4,980		—			—
Loans held for sale, at fair value		3,013			—		3,013			—
Derivatives:
Loan level swaps		3,656			—		3,656			—
Total	$	256,285		$	4,980	$	251,305		$	—
Liabilities:
Derivatives:
Cash flow hedges	$	(4,710	)	$	—	$	(4,710	)	$	—
Loan level swaps		(3,656	)		—		(3,656	)		—
Total	$	(8,366	)	$	—	$	(8,366	)	$	—

Assets Measured on a Recurring Basis    

				Fair Value Measurements Using
				Quoted
				Prices in
				Active
				Markets		Significant
				For		Other			Significant
				Identical		Observable			Unobservable
	December 31,			Assets		Inputs			Inputs
(In thousands)	2015			(Level 1)		(Level 2)			(Level 3)
Assets:
Available for sale:
Mortgage-backed securities-
residential	$	160,607		$	—	$	160,607		$	—
SBA pool securities		7,520			—		7,520			—
State and political subdivisions		22,029			—		22,029			—
Single-Issuer Trust Preferred		2,535			—		2,535			—
CRA investment fund		2,939			2,939		—			—
Loans held for sale, at fair value		1,558			—		1,558			—
Derivatives:
Cash flow hedges		104			—		104			—
Loan level swaps		1,106			—		1,106			—
Total	$	198,398		$	2,939	$	195,459		$	—
Liabilities:
Derivatives:
Cash flow hedges	$	(1,434	)	$	—	$	(1,434	)	$	—
Loan level swaps		(1,106	)		—		(1,106	)		—
Total	$	(2,540	)	$	—	$	(2,540	)	$	—

Schedule of residential loans held for sale

(In thousands)	September 30, 2016		December 31, 2015
Residential loans contractual balance	$	2,969	$	1,536
Fair value adjustment		44		22
Total fair value of residential loans held for sale	$	3,013	$	1,558

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

Assets Measured on a Non-Recurring Basis

			Fair Value Measurements Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant observable
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
(In thousands)	2016		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans:
Investment commercial real estate	$	245	$	—	$	—	$	245
	December 31,
(In thousands)	2015
Assets:
Impaired loans:
Primary residential mortgage	$	251	$	—	$	—	$	251
OREO		330		—		—		330

Schedule of carrying amounts and estimated fair values of financial instruments

The carrying amounts and estimated fair values of financial instruments at September 30, 2016 are as follows:

			Fair Value Measurements at September 30, 2016 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	159,555	$	159,555	$	—	$	—	$	159,555
Securities available for sale		249,616		4,980		244,636		—		249,616
FHLB and FRB stock		14,093		—		—		—		N/A
Loans held for sale, at fair value		3,013		—		3,013		—		3,013
Loans held for sale, at lower of cost
or fair value		30,000		—		30,000		—		30,000
Loans, net of allowance for loan losses		3,202,271		—		—		3,205,692		3,205,692
Accrued interest receivable		6,383		—		729		5,654		6,383
Loan level swap derivatives		3,656		—		3,656		—		3,656
Financial liabilities
Deposits	$	3,300,060	$	2,740,367	$	566,740	$	—	$	3,307,107
Federal home loan bank advances		71,795		—		72,667		—		72,667
Subordinated debt		48,731		—		—		48,721		48,721
Accrued interest payable		2,025		151		974		900		2,025
Cash flow hedge derivatives		4,710		—		4,710		—		4,710
Loan level swap derivatives		3,656		—		3,656		—		3,656

The carrying amounts and estimated fair values of financial instruments at December 31, 2015 are as follows:

			Fair Value Measurements at December 31, 2015 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	70,160	$	70,160	$	—	$	—	$	70,160
Securities available for sale		195,630		2,939		192,691		—		195,630
FHLB and FRB stock		13,984		—		—		—		N/A
Loans held for sale, at fair value		1,558		—		1,558		—		1,558
Loans held for sale, at lower of cost
or fair value		82,200		—		82,200		—		82,200
Loans, net of allowance for loan losses		2,887,386		—		—		2,865,601		2,865,601
Accrued interest receivable		6,820		—		562		6,258		6,820
Cash flow Hedges		104		—		104		—		104
Loan level swaps		1,106		—		1,106		—		1,106
Financial liabilities
Deposits	$	2,935,470	$	2,407,300	$	526,226	$	—	$	2,933,526
Overnight borrowings		40,700		—		40,700		—		40,700
Federal home loan bank advances		83,692		—		84,409		—		84,409
Accrued interest payable		957		128		829		—		957
Cash flow hedges		1,434		—		1,434		—		1,434
Loan level swaps		1,106		—		1,106		—		1,106

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OTHER OPERATING EXPENSES (Tables)

9 Months Ended

Sep. 30, 2016

Other Income and Expenses [Abstract]

Schedule of components of other operating expenses

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2016		2015		2016		2015
Wealth management division
other expense	$	490	$	469	$	1,593	$	1,602
Professional and legal fees		801		678		2,544		2,029
Loan expense		141		90		374		279
Provision for ORE losses		—		250		—		250
Other operating expenses		1,669		1,889		5,817		5,646
Total other operating expenses	$	3,101	$	3,376	$	10,328	$	9,806

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ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME (Tables)

9 Months Ended

Sep. 30, 2016

Stockholders' Equity Note [Abstract]

Schedule of accumulated other comprehensive income balances, net of tax

							Amount		Other
							Reclassified		Comprehensive
				Other			From		Income/(Loss)
				Comprehensive			Accumulated		Three Months
	Balance at			Income/(Loss)			Other		Ended			Balance at
	July 1,			Before			Comprehensive		September 30,			September 30,
(In thousands)	2016			Reclassifications			(Income)		2016			2016
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,224		$	(215	)	$	—	$	(215	)	$	1,009
Losses on cash flow hedges		(3,727	)		941			—		941			(2,786	)
Accumulated other
comprehensive (loss)/income,
net of tax	$	(2,503	)	$	726		$	—	$	726		$	(1,777	)

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Three Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	July 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2015			Reclassifications			(Income)			2015			2015
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,116		$	466		$	(50	)	$	416		$	1,532
Losses on cash flow hedges		(313	)		(1,686	)		—			(1,686	)		(1,999	)
Accumulated other
comprehensive income,
net of tax	$	803		$	(1,220	)	$	(50	)	$	(1,270	)	$	(467	)

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Nine Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	January 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2016			Reclassifications			(Income)			2016			2016
Net unrealized holding gain
on securities available for sale,
net of tax	$	408		$	676		$	(75	)	$	601		$	1,009
Losses on cash flow hedges		(787	)		(1,999	)		—			(1,999	)		(2,786	)
Accumulated other
comprehensive income/(loss),
net of tax	$	(379	)	$	(1,323	)	$	(75	)	$	(1,398	)	$	(1,777	)

							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Nine Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	January 1,			Before			Comprehensive			September 30,			September 30,
(In thousands)	2015			Reclassifications			(Income)			2015			2015
Net unrealized holding gain
on securities available for sale,
net of tax	$	1,321		$	523		$	(312	)	$	211		$	1,532
Losses on cash flow hedges		(100	)		(1,899	)		—			(1,899	)		(1,999	)
Accumulated other
comprehensive income,
net of tax	$	1,221		$	(1,376	)	$	(312	)	$	(1,688	)	$	(467	)

Schedule of the reclassifications out of accumulated other comprehensive income

	Three Months Ended
	September 30,
(In thousands)	2016		2015			Affected Line Item in Income
Unrealized gains on
securities available for sale:
Realized net gain on securities sales	$	—	$	83		Securities gains, net
Income tax expense		—		(33	)	Income tax expense
Total reclassifications, net of tax	$	—	$	50

	Nine Months Ended
	September 30,
(In thousands)	2016			2015			Affected Line Item in Income
Unrealized gains on
securities available for sale:
Realized net gain on securities sales	$	119		$	527		Securities gains, net
Income tax expense		(44	)		(215	)	Income tax expense
Total reclassifications, net of tax	$	75		$	312

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DERIVATIVES (Tables)

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Information about Derivatives

(Dollars in thousands)	September 30, 2016			December 31, 2015
Notional amount	$	180,000		$	180,000
Weighted average pay rate		1.64	%		1.64	%
Weighted average receive rate		0.54	%		0.29	%
Weighted average maturity		3.50	years		4.25	years
Unrealized loss	$	(4,710	)	$	(1,330	)
Number of contracts		9			9

(Dollars in thousands)	September 30, 2016			December 31, 2015
Notional amount	$	70,815		$	27,259
Fair value	$	3,656		$	1,106
Weighted average pay rates		3.44	%		3.06	%
Weighted average receive rates		2.27	%		1.44	%
Weighted average maturity		11.4	years		15.8	years
Number of contracts		6			2

Schedule of Net Gains/(Losses)

The following table presents the net gains recorded in accumulated other comprehensive (loss)/income and the consolidated financial statements relating to the cash flow derivative instruments for the three months ended September 30, 2016 (after tax):

					Amount of
	Amount of		Amount of		Gain/(Loss)
	Gain/(Loss)		Gain/(Loss)		Recognized in
	Recognized		Reclassified		Other Non-Interest
	In OCI		From OCI to		Expense
(In thousands)	(Effective Portion)		Interest Expense		(Ineffective Portion)
Interest rate contracts	$	941	$	—	$	—

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

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,686	)	$	—	$	—

The following table presents the net losses recorded in accumulated other comprehensive (loss)/income and the consolidated financial statements relating to the cash flow derivative instruments for the nine months ended September 30, 2016 (after tax):

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,999	)	$	—	$	—

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

						Amount of
	Amount of			Amount of		Gain/(Loss)
	Gain/(Loss)			Gain/(Loss)		Recognized in
	Recognized			Reclassified		Other Non-Interest
	In OCI			From OCI to		Expense
(In thousands)	(Effective Portion)			Interest Expense		(Ineffective Portion)
Interest rate contracts	$	(1,899	)	$	—	$	—

Schedule of Notional Amount and Fair Value

	September 30, 2016
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing
demand brokered deposits	$	180,000	$	(4,710	)
Total included in other assets	$	—	$	—
Total included in other liabilities	$	180,000	$	(4,710	)

	December 31, 2015
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing
demand brokered deposits	$	180,000	$	(1,330	)
Total included in other assets	$	15,000	$	104
Total included in other liabilities	$	165,000	$	(1,434	)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative - Other) (Details) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) shares	Sep. 30, 2015 USD ($) shares	Sep. 30, 2016 USD ($) $ / shares shares	Sep. 30, 2015 USD ($) shares
Threshold for determining nonaccrual status			90 days
Antidilutive securities	218,079	85,083	223,832	174,662
Cash dividends declared on common stock, per share | $ / shares			$ 0.15
Finite-Lived Intangible Asset, Useful Life			15 years
Consumer and Other [Member]
Threshold for determining nonaccrual status			120 days
Substandard [Member]
Loan reserve multiple	5.0		5.0
Special Mention [Member]
Loan reserve multiple	2.5		2.5
Employee Stock [Member]
Number of share purchase rights authorized	150,000		150,000
Percentage of closing market price on purchase date			85.00%
Compensation cost | $	$ 19	$ 26	$ 83	$ 77
Issuance of shares for Employee Stock Purchase Plan, shares	7,155	8,799	26,913	24,258
Employee Stock [Member] | Minimum [Member]
Percentage of compensation contributable			1.00%
Employee Stock [Member] | Maximum [Member]
Percentage of compensation contributable			15.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Stock-Based Compensation Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Closing stock price of common stock	$ 22.41			$ 22.41
Employee Stock Option [Member]
Option term				10 years
Vesting term				5 years
Unrecognized compensation cost	$ 16			$ 16
Weighted average period, unrecognized compensation expected to be recognized (in years)				5 months 5 days
Total compensation cost	11		$ 54	$ 45	$ 175
Recognized tax benefit	1		7	4	19
Restricted stock [Member]
Unrecognized compensation cost	5,300			$ 5,300
Weighted average period, unrecognized compensation expected to be recognized (in years)				1 year 6 months 7 days
Total compensation cost	725		$ 636	$ 2,200	$ 1,700
Restricted stock [Member] | Share-based Compensation Award, Tranche Three [Member]
Vesting term				5 years
Restricted stock [Member] | Share-based Compensation Award, Tranche Two [Member]
Vesting term				3 years
Restricted stock [Member] | Share-based Compensation Award, Tranche One [Member]
Vesting term				1 year
Performance Shares [Member]
Unrecognized compensation cost	$ 1,700			$ 1,700
Reversal of previously recorded amounts		$ 592

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Changes in Options Outstanding) (Details) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares
Number of Options
Balance | shares	267,289
Granted | shares
Exercised | shares	(19,958)
Expired | shares	(15,314)
Forfeited | shares	(842)
Balance | shares	231,175
Vested and expected to vest | shares	230,665
Exercisable | shares	222,678
Weighted Average Exercise Price
Balance | $ / shares	$ 17.28
Granted | $ / shares
Exercised | $ / shares	13.55
Expired | $ / shares	21.38
Forfeited | $ / shares	13.55
Balance | $ / shares	17.35
Vested and expected to vest | $ / shares	17.39
Exercisable | $ / shares	$ 17.50
Weighted Average Remaining Contractual Term
Balance	3 years 7 months 17 days
Vested and Expected to Vest	3 years 7 months 17 days
Exercisable	3 years 6 months 15 days
Aggregate Intrinsic Value
Balance | $	$ 1,171
Vested and expected to vest | $	1,159
Exercisable | $	$ 1,094

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Changes in Restricted Common Shares) (Details)	9 Months Ended
	Sep. 30, 2016 $ / shares shares
Performance Shares [Member]
Number of Shares
Balance at Beginning | shares	92,767
Granted | shares
Vested | shares
Forfeited | shares
Balance at end | shares	92,767
Weighted Average Grant Date Fair Value
Balance at Beginning | $ / shares	$ 18.12
Granted | $ / shares
Vested | $ / shares
Forfeited | $ / shares
Balance at end | $ / shares	$ 18.12
Restricted stock [Member]
Number of Shares
Balance at Beginning | shares	321,421
Granted | shares	188,397
Vested | shares	(99,937)
Forfeited | shares	(20,515)
Balance at end | shares	389,366
Weighted Average Grant Date Fair Value
Balance at Beginning | $ / shares	$ 19.44
Granted | $ / shares	16.99
Vested | $ / shares	18.37
Forfeited | $ / shares	18.65
Balance at end | $ / shares	$ 18.57

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Earnings per Common Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accounting Policies [Abstract]
Net income to shareholders	$ 7,116	$ 5,383	$ 19,169	$ 15,629
Basic weighted average common shares outstanding (in shares)	16,467,654	15,253,009	16,167,153	15,083,006
Plus: common stock equivalents	205,942	182,930	180,102	210,741
Diluted weighted-average common shares outstanding	16,673,596	15,435,939	16,347,255	15,293,747
Net Income Per Common Share
Basic	$ 0.43	$ 0.35	$ 1.19	$ 1.04
Diluted	$ 0.43	$ 0.35	$ 1.17	$ 1.02

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INVESTMENT SECURITIES AVAILABLE FOR SALE (Schedule of Amortized Cost and Approximate Fair Value) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Amortized Cost	$ 247,983	$ 194,959
Gross Unrealized Gains	2,262	1,710
Gross Unrealized Losses	(629)	(1,039)
Fair Value	249,616	195,630
U.S. Government-Sponsored Entities [Member]
Amortized Cost	11,991
Gross Unrealized Gains	2
Gross Unrealized Losses	(23)
Fair Value	11,970
Mortgage-Backed Securities-Residential [Member]
Amortized Cost	189,724	159,747
Gross Unrealized Gains	1,897	1,293
Gross Unrealized Losses	(100)	(433)
Fair Value	191,521	160,607
SBA Pool Securities [Member]
Amortized Cost	7,147	7,601
Gross Unrealized Gains
Gross Unrealized Losses	(79)	(81)
Fair Value	7,068	7,520
State and Political Subdivisions [Member]
Amortized Cost	31,122	21,612
Gross Unrealized Gains	363	417
Gross Unrealized Losses	(10)
Fair Value	31,475	22,029
Single-Issuer Trust Preferred Security [Member]
Amortized Cost	2,999	2,999
Gross Unrealized Gains
Gross Unrealized Losses	(397)	(464)
Fair Value	2,602	2,535
CRA Investment Fund [Member]
Amortized Cost	5,000	3,000
Gross Unrealized Gains
Gross Unrealized Losses	(20)	(61)
Fair Value	$ 4,980	$ 2,939

XML

INVESTMENT SECURITIES AVAILABLE FOR SALE (Schedule of Securities with Continuous Unrealized Losses) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Approximate Fair Value
Less Than 12 Months	$ 49,449	$ 89,717
12 Months or Longer	17,133	21,907
Total	66,582	111,624
Unrealized Losses
Less Than 12 Months	(117)	(345)
12 Months or Longer	(512)	(694)
Total	(629)	(1,039)
U.S. Government-Sponsored Entities [Member]
Approximate Fair Value
Less Than 12 Months	4,972
12 Months or Longer
Total	4,972
Unrealized Losses
Less Than 12 Months	(23)
12 Months or Longer
Total	(23)
Mortgage-Backed Securities-Residential [Member]
Approximate Fair Value
Less Than 12 Months	40,568	89,717
12 Months or Longer	4,475	8,913
Total	45,043	98,630
Unrealized Losses
Less Than 12 Months	(76)	(345)
12 Months or Longer	(24)	(88)
Total	(100)	(433)
SBA Pool Securities [Member]
Approximate Fair Value
Less Than 12 Months
12 Months or Longer	7,068	7,520
Total	7,068	7,520
Unrealized Losses
Less Than 12 Months
12 Months or Longer	(79)	(81)
Total	(79)	(81)
State and Political Subdivisions [Member]
Approximate Fair Value
Less Than 12 Months	1,917
12 Months or Longer
Total	1,917
Unrealized Losses
Less Than 12 Months	(10)
12 Months or Longer
Total	(10)
Single-Issuer Trust Preferred Security [Member]
Approximate Fair Value
Less Than 12 Months
12 Months or Longer	2,602	2,535
Total	2,602	2,535
Unrealized Losses
Less Than 12 Months
12 Months or Longer	(397)	(464)
Total	(397)	(464)
CRA Investment Fund [Member]
Approximate Fair Value
Less Than 12 Months	1,992
12 Months or Longer	2,988	2,939
Total	4,980	2,939
Unrealized Losses
Less Than 12 Months	(8)
12 Months or Longer	(12)	(61)
Total	$ (20)	$ (61)

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LOANS (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Receivables [Abstract]
Impaired non-accrual loans	$ 10,840		$ 10,840		$ 6,747
Impaired non-accrual loans performing troubled debt restructured	18,100		18,100		16,200
Allowance allocated to troubled debt restructured loans	417		417		160
Allowance allocated to non accrual loans	154		154		162
Impaired loans	28,951		28,951		23,107
Troubled debt restructurings specific reserves to customers	403		403		$ 441
Gain on loans held for sale at lower of cost or fair value	256		880
Proceeds from sales of loans held for sale at lower of cost or fair value	$ 44,000		182,763
Transfer of loans held for sale to loans			$ 30,121

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LOANS (Schedule of Loans Outstanding, by Classification) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 31, 2015	Sep. 30, 2016
Total loans	$ 2,913,242	$ 3,232,887
Unallocated Financing Receivables [Member]
Total loans	500	449
Residential Mortgage [Member] | Residential Portfolio Segment [Member]
Total loans	470,869	496,735
Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total loans	1,416,775	1,507,834
Commercial Mortgage [Member] | Commercial Real Estate Portfolio Segment [Member]
Total loans	413,118	497,267
Commercial Loans [Member] | Commercial Portfolio Segment [Member]
Total loans	512,886	598,078
Construction Loans [Member]
Total loans	1,401	430
Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total loans	52,649	69,222
Consumer Loans, Including Home Equity Loans [Member] | Consumer and Other [Member]
Total loans	$ 45,044	$ 62,872
Loans and Finance Receivables [Member]
Total loans (in percent)	100.00%	100.00%
Loans and Finance Receivables [Member] | Unallocated Financing Receivables [Member]
Total loans (in percent)	0.02%	0.02%
Loans and Finance Receivables [Member] | Residential Mortgage [Member] | Residential Portfolio Segment [Member]
Total loans (in percent)	16.16%	15.37%
Loans and Finance Receivables [Member] | Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total loans (in percent)	48.63%	46.64%
Loans and Finance Receivables [Member] | Commercial Mortgage [Member] | Commercial Real Estate Portfolio Segment [Member]
Total loans (in percent)	14.18%	15.38%
Loans and Finance Receivables [Member] | Commercial Loans [Member] | Commercial Portfolio Segment [Member]
Total loans (in percent)	17.60%	18.50%
Loans and Finance Receivables [Member] | Construction Loans [Member]
Total loans (in percent)	0.05%	0.01%
Loans and Finance Receivables [Member] | Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total loans (in percent)	1.81%	2.14%
Loans and Finance Receivables [Member] | Consumer Loans, Including Home Equity Loans [Member] | Consumer and Other [Member]
Total loans (in percent)	1.55%	1.94%

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LOANS (Schedule of Loan Balances by Portfolio Class) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Dec. 31, 2015	Sep. 30, 2016
Total loans	$ 2,911,552	$ 3,230,890
Net deferred fees	1,690	1,997
Total loans including net deferred costs	2,913,242	3,232,887
Residential Portfolio Segment [Member] | Junior Lien [Member]
Total loans	11,503	10,046
Consumer and Other [Member]
Total loans	47,635	74,141
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total loans	483,085	527,012
Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total loans	52,804	62,870
Total loans including net deferred costs	52,649	69,222
Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total loans	1,416,775	1,507,834
Total loans including net deferred costs	1,416,775	1,507,834
Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total loans	176,276	179,285
Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total loans	568,849	676,468
Construction Loans [Member]
Total loans including net deferred costs	1,401	430
Construction Loans [Member] | Commercial Portfolio Segment [Member]
Total loans	151	523
Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total loans	154,295	192,539
Agricultural Sector [Member]
Total loans	$ 179	$ 172
Loans and Finance Receivables, Gross [Member]
Total loans (in percent)	100.00%	100.00%
Loans and Finance Receivables, Gross [Member] | Residential Portfolio Segment [Member] | Junior Lien [Member]
Total loans (in percent)	0.39%	0.31%
Loans and Finance Receivables, Gross [Member] | Consumer and Other [Member]
Total loans (in percent)	1.64%	2.29%
Loans and Finance Receivables, Gross [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total loans (in percent)	16.59%	16.31%
Loans and Finance Receivables, Gross [Member] | Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total loans (in percent)	1.81%	1.94%
Loans and Finance Receivables, Gross [Member] | Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total loans (in percent)	48.66%	46.67%
Loans and Finance Receivables, Gross [Member] | Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total loans (in percent)	6.05%	5.55%
Loans and Finance Receivables, Gross [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total loans (in percent)	19.54%	20.94%
Loans and Finance Receivables, Gross [Member] | Construction Loans [Member] | Commercial Portfolio Segment [Member]
Total loans (in percent)	0.01%	0.02%
Loans and Finance Receivables, Gross [Member] | Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total loans (in percent)	5.30%	5.96%
Loans and Finance Receivables, Gross [Member] | Agricultural Sector [Member]
Total loans (in percent)	0.01%	0.01%

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LOANS (Schedule of Balances by Portfolio Class, Based on Impairment Method) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Total Loans Individually Evaluated for Impairment	$ 28,951		$ 23,107
Ending ALLL Attributable to Loans Individually Evaluated for Impairment	690		490
Total Loans Collectively Evaluated for Impairment	3,201,939		2,888,445
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	29,926		25,366
Total Loans	3,230,890		2,911,552
Total Ending ALLL	30,616	$ 29,219	25,856	$ 24,374	$ 22,969	$ 19,480
Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Loans Individually Evaluated for Impairment	228		176
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	9,818		11,327
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	18		66
Total Loans	10,046		11,503
Total Ending ALLL	18	19	66	71	73	109
Consumer and Other [Member]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	74,141		47,635
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	250		112
Total Loans	74,141		47,635
Total Ending ALLL	250	247	112	99	93	96
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total Loans Individually Evaluated for Impairment	15,297		9,752
Ending ALLL Attributable to Loans Individually Evaluated for Impairment	334		291
Total Loans Collectively Evaluated for Impairment	511,715		473,333
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	2,696		2,006
Total Loans	527,012		483,085
Total Ending ALLL	3,030	2,783	2,297	2,434	2,409	2,923
Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total Loans Individually Evaluated for Impairment	54		254
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	62,816		52,550
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	224		86
Total Loans	62,870		52,804
Total Ending ALLL	224	223	86	157	113	156
Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	1,507,834		1,416,775
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	11,843		11,813
Total Loans	1,507,834		1,416,775
Total Ending ALLL	11,843	11,639	11,813	9,167	8,623	8,983
Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans Individually Evaluated for Impairment	1,787		1,272
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	177,498		175,004
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	1,823		1,679
Total Loans	179,285		176,276
Total Ending ALLL	1,823	1,733	1,679	2,643	2,286	1,547
Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans Individually Evaluated for Impairment	11,445		11,482
Ending ALLL Attributable to Loans Individually Evaluated for Impairment	216		61
Total Loans Collectively Evaluated for Impairment	665,023		557,367
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	9,638		7,529
Total Loans	676,468		568,849
Total Ending ALLL	9,854	9,621	7,590	8,172	7,779	4,751
Construction Loans [Member] | Commercial Portfolio Segment [Member]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	523		151
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	4		2
Total Loans	523		151
Total Ending ALLL	4	1	2	2	2	31
Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total Loans Individually Evaluated for Impairment	140		171
Ending ALLL Attributable to Loans Individually Evaluated for Impairment	140		138
Total Loans Collectively Evaluated for Impairment	192,399		154,124
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	3,428		2,071
Total Loans	192,539		154,295
Total Ending ALLL	3,568	2,951	2,209	1,627	1,589	880
Agricultural Sector [Member]
Total Loans Individually Evaluated for Impairment
Ending ALLL Attributable to Loans Individually Evaluated for Impairment
Total Loans Collectively Evaluated for Impairment	172		179
Ending ALLL Attributable to Loans Collectively Evaluated for Impairment	2		2
Total Loans	172		179
Total Ending ALLL	$ 2	$ 2	$ 2	$ 2	$ 2	$ 4

XML

LOANS (Schedule of Schedule of Loans Individually Evaluated for Impairment) (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Unpaid Principal Balance
With no related allowance recorded	$ 27,577	$ 22,097
With related allowance recorded	3,647	3,518
Total loans individually evaluated impairment	31,224	25,615
Recorded Investment
With no related allowance recorded	25,429	19,750
With related allowance recorded	3,522	3,357
Total loans individually evaluated impairment	28,951	23,107
Specific Reserves	690	490
Average Impaired Loans
With no related allowance recorded	20,547	17,900
With related allowance recorded	3,437	3,304
Total loans individually evaluated impairment	23,984	21,204
Residential Portfolio Segment [Member] | Junior Lien [Member]
Unpaid Principal Balance
With no related allowance recorded	277	219
Recorded Investment
With no related allowance recorded	228	176
Average Impaired Loans
With no related allowance recorded	328	166
Consumer and Other [Member]
Unpaid Principal Balance
With no related allowance recorded
Recorded Investment
With no related allowance recorded
Average Impaired Loans
With no related allowance recorded		1
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Unpaid Principal Balance
With no related allowance recorded	15,415	8,998
With related allowance recorded	1,810	2,090
Recorded Investment
With no related allowance recorded	13,548	7,782
With related allowance recorded	1,749	1,970
Specific Reserves	334	291
Average Impaired Loans
With no related allowance recorded	8,899	5,683
With related allowance recorded	1,656	1,894
Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Unpaid Principal Balance
With no related allowance recorded	2,017	1,460
Recorded Investment
With no related allowance recorded	1,787	1,272
Average Impaired Loans
With no related allowance recorded	1,319	1,379
Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Unpaid Principal Balance
With no related allowance recorded	9,812	11,099
With related allowance recorded	1,649	1,249
Recorded Investment
With no related allowance recorded	9,812	10,233
With related allowance recorded	1,633	1,249
Specific Reserves	216	61
Average Impaired Loans
With no related allowance recorded	9,814	10,330
With related allowance recorded	1,646	1,266
Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Unpaid Principal Balance
With no related allowance recorded	56	258
Recorded Investment
With no related allowance recorded	54	254
Average Impaired Loans
With no related allowance recorded	173	229
Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Unpaid Principal Balance
With no related allowance recorded		63
With related allowance recorded	188	179
Recorded Investment
With no related allowance recorded		33
With related allowance recorded	140	138
Specific Reserves	140	138
Average Impaired Loans
With no related allowance recorded	14	112
With related allowance recorded	$ 135	$ 144

XML

LOANS (Schedule of Investment in Nonaccrual and Loans Past Due Over 90 Days) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Impaired non-accrual loans	$ 10,840	$ 6,747
Loans Past Due Over 90 Days And Still Accruing Interest
Residential Portfolio Segment [Member] | Junior Lien [Member]
Impaired non-accrual loans	106	118
Loans Past Due Over 90 Days And Still Accruing Interest
Consumer and Other [Member]
Impaired non-accrual loans
Loans Past Due Over 90 Days And Still Accruing Interest
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Impaired non-accrual loans	8,377	4,549
Loans Past Due Over 90 Days And Still Accruing Interest
Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Impaired non-accrual loans	31	229
Loans Past Due Over 90 Days And Still Accruing Interest
Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Impaired non-accrual loans	1,787	1,272
Loans Past Due Over 90 Days And Still Accruing Interest
Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Impaired non-accrual loans	408	408
Loans Past Due Over 90 Days And Still Accruing Interest
Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Impaired non-accrual loans	131	171
Loans Past Due Over 90 Days And Still Accruing Interest

XML

LOANS (Schedule of Schedule of Aging of Past Due Loans) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Total Past Due	$ 8,238	$ 2,143
Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Past Due	50
30 to 59 Days Past Due [Member]
Total Past Due	8,064	1,986
30 to 59 Days Past Due [Member] | Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Past Due
60 to 89 Days Past Due [Member]
Total Past Due	174	157
60 to 89 Days Past Due [Member] | Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Past Due	50
Greater Than 90 Days Past Due [Member]
Total Past Due
Greater Than 90 Days Past Due [Member] | Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Past Due
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total Past Due	1,127	1,371
Primary Residential Mortgages [Member] | 30 to 59 Days Past Due [Member] | Residential Portfolio Segment [Member]
Total Past Due	1,127	1,214
Primary Residential Mortgages [Member] | 60 to 89 Days Past Due [Member] | Residential Portfolio Segment [Member]
Total Past Due		157
Primary Residential Mortgages [Member] | Greater Than 90 Days Past Due [Member] | Residential Portfolio Segment [Member]
Total Past Due
Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Past Due	7,033	772
Investment Property [Member] | 30 to 59 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Past Due	6,937	772
Investment Property [Member] | 60 to 89 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Past Due	96
Investment Property [Member] | Greater Than 90 Days Past Due [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Past Due
Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total Past Due	28
Commercial and Industrial Sector [Member] | 30 to 59 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Total Past Due
Commercial and Industrial Sector [Member] | 60 to 89 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Total Past Due	28
Commercial and Industrial Sector [Member] | Greater Than 90 Days Past Due [Member] | Commercial Portfolio Segment [Member]
Total Past Due

XML

LOANS (Schedule of Schedule of Risk Category of Loans by Class of Loans) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Total Loans	$ 3,230,890	$ 2,911,552
Impaired loans	31,224	25,615
Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Loans	10,046	11,503
Consumer and Other [Member]
Total Loans	74,141	47,635
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total Loans	527,012	483,085
Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total Loans	62,870	52,804
Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total Loans	1,507,834	1,416,775
Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans	179,285	176,276
Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans	676,468	568,849
Construction Loans [Member] | Commercial Portfolio Segment [Member]
Total Loans	523	151
Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total Loans	192,539	154,295
Agricultural Sector [Member]
Total Loans	172	179
Pass [Member]
Total Loans	3,166,626	2,847,245
Pass [Member] | Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Loans	9,818	11,327
Pass [Member] | Consumer and Other [Member]
Total Loans	74,141	47,635
Pass [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total Loans	510,910	471,859
Pass [Member] | Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total Loans	62,816	52,550
Pass [Member] | Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total Loans	1,505,493	1,407,856
Pass [Member] | Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans	173,698	170,420
Pass [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans	642,599	536,479
Pass [Member] | Construction Loans [Member] | Commercial Portfolio Segment [Member]
Total Loans	425
Pass [Member] | Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total Loans	186,554	148,940
Pass [Member] | Agricultural Sector [Member]
Total Loans	172	179
Special Mention [Member]
Total Loans	14,638	21,530
Special Mention [Member] | Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Loans
Special Mention [Member] | Consumer and Other [Member]
Total Loans
Special Mention [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total Loans	667	1,332
Special Mention [Member] | Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total Loans
Special Mention [Member] | Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total Loans	1,937	7,718
Special Mention [Member] | Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans	895	928
Special Mention [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans	5,196	6,217
Special Mention [Member] | Construction Loans [Member] | Commercial Portfolio Segment [Member]
Total Loans	98	151
Special Mention [Member] | Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total Loans	5,845	5,184
Special Mention [Member] | Agricultural Sector [Member]
Total Loans
Substandard [Member]
Total Loans	49,626	42,777
Impaired loans	27,700	21,800
Substandard [Member] | Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Loans	228	176
Substandard [Member] | Consumer and Other [Member]
Total Loans
Substandard [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total Loans	15,435	9,894
Substandard [Member] | Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total Loans	54	254
Substandard [Member] | Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total Loans	404	1,201
Substandard [Member] | Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans	4,692	4,928
Substandard [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans	28,673	26,153
Substandard [Member] | Construction Loans [Member] | Commercial Portfolio Segment [Member]
Total Loans
Substandard [Member] | Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total Loans	140	171
Substandard [Member] | Agricultural Sector [Member]
Total Loans
Doubtful [Member]
Total Loans
Doubtful [Member] | Residential Portfolio Segment [Member] | Junior Lien [Member]
Total Loans
Doubtful [Member] | Consumer and Other [Member]
Total Loans
Doubtful [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Total Loans
Doubtful [Member] | Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Total Loans
Doubtful [Member] | Multifamily Property [Member] | Residential Portfolio Segment [Member]
Total Loans
Doubtful [Member] | Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans
Doubtful [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Total Loans
Doubtful [Member] | Construction Loans [Member] | Commercial Portfolio Segment [Member]
Total Loans
Doubtful [Member] | Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Total Loans
Doubtful [Member] | Agricultural Sector [Member]
Total Loans

XML

LOANS (Schedule of Activity in Allowance for Loan Losses) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Allowance for loan losses
Beginning ALLL	$ 29,219	$ 22,969	$ 25,856	$ 19,480
Charge-Offs	(733)	(235)	(1,388)	(484)
Recoveries	30	40	148	228
Provision (Credit)	2,100	1,600	6,000	5,150
Ending ALLL	30,616	24,374	30,616	24,374
Residential Portfolio Segment [Member] | Junior Lien [Member]
Allowance for loan losses
Beginning ALLL	19	73	66	109
Charge-Offs
Recoveries	2	10	72	48
Provision (Credit)	(3)	(12)	(120)	(86)
Ending ALLL	18	71	18	71
Consumer and Other [Member]
Allowance for loan losses
Beginning ALLL	247	93	112	96
Charge-Offs		(1)	(5)	(22)
Recoveries	11		12	12
Provision (Credit)	(8)	7	131	13
Ending ALLL	250	99	250	99
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Allowance for loan losses
Beginning ALLL	2,783	2,409	2,297	2,923
Charge-Offs	(729)	(218)	(1,027)	(329)
Recoveries	4	4	25	74
Provision (Credit)	972	239	1,735	(234)
Ending ALLL	3,030	2,434	3,030	2,434
Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Allowance for loan losses
Beginning ALLL	223	113	86	156
Charge-Offs			(91)	(110)
Recoveries	3		11	1
Provision (Credit)	(2)	44	218	110
Ending ALLL	224	157	224	157
Multifamily Property [Member] | Residential Portfolio Segment [Member]
Allowance for loan losses
Beginning ALLL	11,639	8,623	11,813	8,983
Charge-Offs
Recoveries
Provision (Credit)	204	544	30	184
Ending ALLL	11,843	9,167	11,843	9,167
Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Allowance for loan losses
Beginning ALLL	1,733	2,286	1,679	1,547
Charge-Offs
Recoveries				11
Provision (Credit)	90	357	144	1,085
Ending ALLL	1,823	2,643	1,823	2,643
Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Allowance for loan losses
Beginning ALLL	9,621	7,779	7,590	4,751
Charge-Offs		(16)	(258)	(16)
Recoveries	2	4	8	14
Provision (Credit)	231	405	2,514	3,423
Ending ALLL	9,854	8,172	9,854	8,172
Construction Loans [Member] | Commercial Portfolio Segment [Member]
Allowance for loan losses
Beginning ALLL	1	2	2	31
Charge-Offs
Recoveries
Provision (Credit)	3		2	(29)
Ending ALLL	4	2	4	2
Commercial and Industrial Sector [Member] | Commercial Portfolio Segment [Member]
Allowance for loan losses
Beginning ALLL	2,951	1,589	2,209	880
Charge-Offs	(4)		(7)	(7)
Recoveries	8	22	20	68
Provision (Credit)	613	16	1,346	686
Ending ALLL	3,568	1,627	3,568	1,627
Agricultural Sector [Member]
Allowance for loan losses
Beginning ALLL	2	2	2	4
Charge-Offs
Recoveries
Provision (Credit)				(2)
Ending ALLL	$ 2	$ 2	$ 2	$ 2

XML

LOANS (Schedule of Loans Modified as Troubled Debt Restructurings) (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) N	Sep. 30, 2015 USD ($) N	Sep. 30, 2016 USD ($) N	Sep. 30, 2015 USD ($) N
Number of Contracts | N	1	7	9	10
Pre-Modification Outstanding Recorded Investment	$ 368	$ 1,803	$ 5,069	$ 2,795
Post-Modification Outstanding Recorded Investment	$ 368	$ 1,803	$ 5,069	$ 2,795
Residential Portfolio Segment [Member] | Junior Lien [Member]
Number of Contracts | N		1	1	1
Pre-Modification Outstanding Recorded Investment		$ 60	$ 66	$ 60
Post-Modification Outstanding Recorded Investment		$ 60	$ 66	$ 60
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Number of Contracts | N	1	5	7	7
Pre-Modification Outstanding Recorded Investment	$ 368	$ 1,645	$ 4,924	$ 1,870
Post-Modification Outstanding Recorded Investment	$ 368	$ 1,645	$ 4,924	$ 1,870
Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Number of Contracts | N			1
Pre-Modification Outstanding Recorded Investment			$ 79
Post-Modification Outstanding Recorded Investment			$ 79
Home Equity Lines of Credit [Member] | Residential Portfolio Segment [Member]
Number of Contracts | N		1		1
Pre-Modification Outstanding Recorded Investment		$ 98		$ 98
Post-Modification Outstanding Recorded Investment		$ 98		$ 98
Owner Occupied Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Number of Contracts | N				1
Pre-Modification Outstanding Recorded Investment				$ 767
Post-Modification Outstanding Recorded Investment				$ 767

XML

LOANS (Schedule of Modified as Troubled Debt Restructurings Subsequently Defaulted) (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2015 USD ($) N	Sep. 30, 2015 USD ($) N
Number of Subsequently Defaulted Contracts | N	1	2
Subsequently Defaulted Recorded Investment | $	$ 133	$ 530
Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Number of Subsequently Defaulted Contracts | N	1	2
Subsequently Defaulted Recorded Investment | $	$ 133	$ 530

XML

DEPOSITS (Details of Total Deposits) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015
Deposits [Abstract]
Time deposits over $250,000	$ 122,600		$ 115,600
Deposits:
Noninterest-bearing demand deposits	494,204	$ 419,887
Interest-bearing deposits checking	928,941	861,697
Savings	119,650	115,007
Money market	997,572	810,709
Certificates of deposit - Retail	466,003	434,450
Sub-total	3,006,370	2,641,750
Interest-bearing demand - Brokered	200,000	200,000
Certificates of deposit - Brokered	93,690	93,720
Total deposits	3,300,060	2,935,470
Reciprocal balances	$ 417,000	$ 398,700
%
Noninterest-bearing demand deposits	14.98%	14.30%
Interest-bearing checking	28.15%	29.36%
Savings	3.62%	3.92%
Money market	30.23%	27.62%
Certificates of deposit	14.12%	14.80%
Sub-total	91.10%	90.00%
Interest-bearing demand - Brokered	6.06%	6.81%
Certificates of deposit - Brokered	2.84%	3.19%
Total deposits	100.00%	100.00%

XML

DEPOSITS (Scheduled Maturities of Time Deposits) (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Scheduled maturities of time deposits
2016	$ 33,504
2017	138,016
2018	198,500
2019	69,127
2020	34,583
Over 5 Years	85,963
Total	$ 559,693

XML

FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2015	Sep. 30, 2016
Debt Disclosure [Abstract]
Advances from Federal Home Loan Banks	$ 83,700	$ 71,795
FHLB interest rate	1.78%	1.89%
Advances with fixed maturity dates	$ 71,700	$ 59,800
Weighted average interest rate on fixed maturity advances	1.57%	1.67%
Residential mortgages pledged as collateral for advances	$ 428,200	$ 396,200
Multifamily mortgage loans pledged as collateral for advances	1,100,000	1,000,000
Callable variable rate advances		$ 12,000
Weighted average interest rate on variable advances (in percent)		3.01%
Investment pledges against advances		$ 15,600
Overnight borrowings of debt	$ 40,700
Average interest rate of FHLB advances	0.52%

XML

FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Schedule of Maturities) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Federal Home Loan Bank Advances Maturities Summary
2016	$ 10,000
2017	23,897
2018	34,898
2019	3,000
2020
Over 5 years
Total	$ 71,795	$ 83,700

XML

BUSINESS SEGMENTS (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) segments	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Number of Operating Segments | segments			2
Net interest income	$ 24,269	$ 21,706	$ 71,855	$ 61,633
Noninterest income	7,535	5,610	21,246	17,991
Total income	31,804	27,316	93,101	79,624
Provision for loan losses	2,100	1,600	6,000	5,150
Salaries and benefits	11,515	10,322	33,523	29,619
Premises and equipment	2,736	2,785	8,342	8,179
Other noninterest expense	3,101	3,376	10,328	9,806
Total noninterest expense	20,266	18,499	62,147	54,083
INCOME BEFORE INCOME TAX EXPENSE	11,538	8,817	30,954	25,541
Income tax expense	4,422	3,434	11,785	9,912
NET INCOME	7,116	5,383	19,169	15,629
Total assets at period end	3,774,383	3,268,963	3,774,383	3,268,963	$ 3,364,659
Banking [Member]
Net interest income	23,194	20,697	67,962	58,618
Noninterest income	2,974	1,399	7,286	5,072
Total income	26,168	22,096	75,248	63,690
Provision for loan losses	2,100	1,600	6,000	5,150
Salaries and benefits	9,351	7,935	27,196	23,305
Premises and equipment	2,506	2,549	7,650	7,483
Other noninterest expense	2,738	2,699	10,184	7,654
Total noninterest expense	16,695	14,783	51,030	43,592
INCOME BEFORE INCOME TAX EXPENSE	9,473	7,313	24,218	20,098
Income tax expense	3,619	2,849	9,165	7,794
NET INCOME	5,854	4,464	15,053	12,304
Total assets at period end	3,729,004	3,233,455	3,729,004	3,233,455
Wealth Management Division [Member]
Net interest income	1,075	1,009	3,893	3,015
Noninterest income	4,561	4,211	13,960	12,919
Total income	5,636	5,220	17,853	15,934
Provision for loan losses
Salaries and benefits	2,164	2,387	6,327	6,314
Premises and equipment	230	236	692	696
Other noninterest expense	1,177	1,093	4,098	3,481
Total noninterest expense	3,571	3,716	11,117	10,491
INCOME BEFORE INCOME TAX EXPENSE	2,065	1,504	6,736	5,443
Income tax expense	803	585	2,620	2,118
NET INCOME	1,262	919	4,116	3,325
Total assets at period end	$ 45,379	$ 35,508	$ 45,379	$ 35,508

XML

FAIR VALUE (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Fair Value Disclosures [Abstract]
Loans held for sale, at fair value	$ 3,013		$ 3,013		$ 1,558
Impaired collateral loans recorded investment	408		408		299
Impaired collateral loans valuation allowance	163		163		$ 48
Provision for ORE losses		$ 250		$ 250
Loans Receivable [Member] | Property A [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate			15.00%
Age of appraisal			12 months

XML

FAIR VALUE (Schedule of Assets Measured on a Recurring Basis) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Securities available for sale	$ 249,616	$ 195,630
Loans held for sale, at fair value	3,013	1,558
U.S. Government-Sponsored Entities [Member]
Securities available for sale	11,970
Mortgage-Backed Securities-Residential [Member]
Securities available for sale	191,521	160,607
State and Political Subdivisions [Member]
Securities available for sale	31,475	22,029
Single-Issuer Trust Preferred Security [Member]
Securities available for sale	2,602	2,535
CRA Investment Fund [Member]
Securities available for sale	4,980	2,939
SBA Pool Securities [Member]
Securities available for sale	7,068	7,520
Recurring Basis [Member]
Loans held for sale, at fair value	3,013	1,558
Total	256,285	198,398
Derivatives	(8,366)	(2,540)
Recurring Basis [Member] | U.S. Government-Sponsored Entities [Member]
Securities available for sale	11,970
Recurring Basis [Member] | Mortgage-Backed Securities-Residential [Member]
Securities available for sale	191,521	160,607
Recurring Basis [Member] | State and Political Subdivisions [Member]
Securities available for sale	31,475	22,029
Recurring Basis [Member] | Single-Issuer Trust Preferred Security [Member]
Securities available for sale	2,602	2,535
Recurring Basis [Member] | CRA Investment Fund [Member]
Securities available for sale	4,980	2,939
Recurring Basis [Member] | SBA Pool Securities [Member]
Securities available for sale	7,068	7,520
Recurring Basis [Member] | Designated as Hedging Instrument [Member]
Derivatives		104
Derivatives	(4,710)	(1,434)
Recurring Basis [Member] | Not Designated as Hedging Instrument [Member]
Derivatives	3,656	1,106
Derivatives	(3,656)	(1,106)
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member]
Loans held for sale, at fair value	3,013	1,558
Total	251,305	195,459
Derivatives	(8,366)	(2,540)
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member] | U.S. Government-Sponsored Entities [Member]
Securities available for sale	11,970
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member] | Mortgage-Backed Securities-Residential [Member]
Securities available for sale	191,521	160,607
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member] | State and Political Subdivisions [Member]
Securities available for sale	31,475	22,029
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member] | Single-Issuer Trust Preferred Security [Member]
Securities available for sale	2,602	2,535
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member] | CRA Investment Fund [Member]
Securities available for sale
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member] | SBA Pool Securities [Member]
Securities available for sale	7,068	7,520
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member] | Designated as Hedging Instrument [Member]
Derivatives		104
Derivatives	(4,710)	(1,434)
Significant Other Observable Inputs (Level 2) [Member] | Recurring Basis [Member] | Not Designated as Hedging Instrument [Member]
Derivatives	3,656	1,106
Derivatives	(3,656)	(1,106)
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member]
Loans held for sale, at fair value
Total	4,980	2,939
Derivatives
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member] | U.S. Government-Sponsored Entities [Member]
Securities available for sale
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member] | Mortgage-Backed Securities-Residential [Member]
Securities available for sale
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member] | State and Political Subdivisions [Member]
Securities available for sale
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member] | Single-Issuer Trust Preferred Security [Member]
Securities available for sale
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member] | CRA Investment Fund [Member]
Securities available for sale	4,980	2,939
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member] | SBA Pool Securities [Member]
Securities available for sale
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member] | Designated as Hedging Instrument [Member]
Derivatives
Derivatives
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Recurring Basis [Member] | Not Designated as Hedging Instrument [Member]
Derivatives
Derivatives
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member]
Loans held for sale, at fair value
Total
Derivatives
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member] | U.S. Government-Sponsored Entities [Member]
Securities available for sale
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member] | Mortgage-Backed Securities-Residential [Member]
Securities available for sale
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member] | State and Political Subdivisions [Member]
Securities available for sale
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member] | Single-Issuer Trust Preferred Security [Member]
Securities available for sale
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member] | CRA Investment Fund [Member]
Securities available for sale
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member] | SBA Pool Securities [Member]
Securities available for sale
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member] | Designated as Hedging Instrument [Member]
Derivatives
Derivatives
Significant Unobservable Inputs (Level 3) [Member] | Recurring Basis [Member] | Not Designated as Hedging Instrument [Member]
Derivatives
Derivatives

XML

FAIR VALUE (Schedule of Residential Loans Held for Sale, at Fair Value) (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Fair Value Disclosures [Abstract]
Residential loans contractual balance	$ 2,969	$ 1,536
Fair value adjustment	44	22
Total fair value of residential loans held for sale	$ 3,013	$ 1,558

XML

FAIR VALUE (Schedule of Assets Measured on a Non-Recurring Basis) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
OREO	$ 534	$ 563
Non-Recurring Basis [Member]
OREO		330
Non-Recurring Basis [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Impaired loans		251
Non-Recurring Basis [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Impaired loans	245
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Non-Recurring Basis [Member]
OREO
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Non-Recurring Basis [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Impaired loans
OREO
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Non-Recurring Basis [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Impaired loans
Significant Other Observable Inputs (Level 2) [Member] | Non-Recurring Basis [Member]
OREO
Significant Other Observable Inputs (Level 2) [Member] | Non-Recurring Basis [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Impaired loans
Significant Other Observable Inputs (Level 2) [Member] | Non-Recurring Basis [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Impaired loans
Significant Unobservable Inputs (Level 3) [Member] | Non-Recurring Basis [Member]
OREO		330
Significant Unobservable Inputs (Level 3) [Member] | Non-Recurring Basis [Member] | Primary Residential Mortgages [Member] | Residential Portfolio Segment [Member]
Impaired loans		$ 251
Significant Unobservable Inputs (Level 3) [Member] | Non-Recurring Basis [Member] | Investment Property [Member] | Commercial Real Estate Portfolio Segment [Member]
Impaired loans	$ 245

XML

FAIR VALUE (Schedule of Financial Instruments) (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financial Assets:
Securities available for sale	$ 249,616	$ 195,630
FHLB and FRB Stock	14,093	13,984
Loans held for sale, at fair value	3,013	1,558
Multifamily mortgage loans held for sale, at lower of cost or fair value	30,000	82,200
Accrued interest receivable	6,383	6,820
Financial Liabilities:
Federal home loan bank advances	71,795	83,700
Fair value [Member]
Financial Assets:
Cash and cash equivalents	159,555	70,160
Securities available for sale	249,616	195,630
FHLB and FRB Stock
Loans held for sale, at fair value	3,013	1,558
Multifamily mortgage loans held for sale, at lower of cost or fair value	30,000	82,200
Loans, net of allowance for loan losses	3,205,692	2,865,601
Accrued interest receivable	6,383	6,820
Financial Liabilities:
Deposits	3,307,107	2,933,526
Overnight borrowings		40,700
Federal home loan bank advances	72,667	84,409
Subordinated debt	48,721
Accrued interest payable	2,025	957
Fair value [Member] | Not Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives	3,656	1,106
Financial Liabilities:
Derivatives	3,656	1,106
Fair value [Member] | Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives		104
Financial Liabilities:
Derivatives	4,710	1,434
Carrying Value [Member]
Financial Assets:
Cash and cash equivalents	159,555	70,160
Securities available for sale	249,616	195,630
FHLB and FRB Stock	14,093	13,984
Loans held for sale, at fair value	3,013	1,558
Multifamily mortgage loans held for sale, at lower of cost or fair value	30,000	82,200
Loans, net of allowance for loan losses	3,202,271	2,887,386
Accrued interest receivable	6,383	6,820
Financial Liabilities:
Deposits	3,300,060	2,935,470
Overnight borrowings		40,700
Federal home loan bank advances	71,795	83,692
Subordinated debt	48,731
Accrued interest payable	2,025	957
Carrying Value [Member] | Not Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives	3,656	1,106
Financial Liabilities:
Derivatives	3,656	1,106
Carrying Value [Member] | Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives		104
Financial Liabilities:
Derivatives	4,710	1,434
Significant Unobservable Inputs (Level 3) [Member] | Fair value [Member]
Financial Assets:
Cash and cash equivalents
Securities available for sale
FHLB and FRB Stock
Loans held for sale, at fair value
Multifamily mortgage loans held for sale, at lower of cost or fair value
Loans, net of allowance for loan losses	3,205,692	2,865,601
Accrued interest receivable	5,654	6,258
Financial Liabilities:
Deposits
Overnight borrowings
Federal home loan bank advances
Subordinated debt	48,721
Accrued interest payable	900
Significant Unobservable Inputs (Level 3) [Member] | Fair value [Member] | Not Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives
Financial Liabilities:
Derivatives
Significant Unobservable Inputs (Level 3) [Member] | Fair value [Member] | Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives
Financial Liabilities:
Derivatives
Significant Other Observable Inputs (Level 2) [Member] | Fair value [Member]
Financial Assets:
Cash and cash equivalents
Securities available for sale	244,636	192,691
FHLB and FRB Stock
Loans held for sale, at fair value	3,013	1,558
Multifamily mortgage loans held for sale, at lower of cost or fair value	30,000	82,200
Loans, net of allowance for loan losses
Accrued interest receivable	729	562
Financial Liabilities:
Deposits	566,740	526,226
Overnight borrowings		40,700
Federal home loan bank advances	72,667	84,409
Subordinated debt
Accrued interest payable	974	829
Significant Other Observable Inputs (Level 2) [Member] | Fair value [Member] | Not Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives	3,656	1,106
Financial Liabilities:
Derivatives	3,656	1,106
Significant Other Observable Inputs (Level 2) [Member] | Fair value [Member] | Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives		104
Financial Liabilities:
Derivatives	4,710	1,434
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Fair value [Member]
Financial Assets:
Cash and cash equivalents	159,555	70,160
Securities available for sale	4,980	2,939
FHLB and FRB Stock
Loans held for sale, at fair value
Multifamily mortgage loans held for sale, at lower of cost or fair value
Loans, net of allowance for loan losses
Accrued interest receivable
Financial Liabilities:
Deposits	2,740,367	2,407,300
Overnight borrowings
Federal home loan bank advances
Subordinated debt
Accrued interest payable	151	128
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Fair value [Member] | Not Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives
Financial Liabilities:
Derivatives
Quoted Prices in Active Market For Identical Assets (Level 1) [Member] | Fair value [Member] | Designated as Hedging Instrument [Member]
Financial Assets:
Derivatives
Financial Liabilities:
Derivatives

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OTHER OPERATING EXPENSES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Other operating expenses
Wealth management division other expense	$ 490	$ 469	$ 1,593	$ 1,602
Professional and legal fees	801	678	2,544	2,029
Loan expense	141	90	374	279
Provision for ORE losses		250		250
Other operating expenses	1,669	1,889	5,817	5,646
Total other operating expenses	$ 3,101	$ 3,376	$ 10,328	$ 9,806

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ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME (Schedule of Accumulated Other Comprehensive Income Balances, Net of Tax) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance			$ 275,676
Total other comprehensive income/(loss)	$ 726	$ (1,270)	(1,398)	$ (1,688)
Balance	309,032		309,032
Net Unrealized Holding Gain/(Loss) on Securities Available for Sale, Net of Tax [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	1,224	1,116	408	1,321
Other Comprehensive Income/(Loss) Before Reclassifications	(215)	466	676	523
Amount Reclassified From Accumulated Other Comprehensive (Income)		(50)	(75)	(312)
Total other comprehensive income/(loss)	(215)	416	601	211
Balance	1,009	1,532	1,009	1,532
Losses on Cash Flow Hedge [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	(3,727)	(313)	(787)	(100)
Other Comprehensive Income/(Loss) Before Reclassifications	941	(1,686)	(1,999)	(1,899)
Amount Reclassified From Accumulated Other Comprehensive (Income)
Total other comprehensive income/(loss)	941	(1,686)	(1,999)	(1,899)
Balance	(2,786)	(1,999)	(2,786)	(1,999)
Accumulated Other Comprehensive Income/(Loss), Net of Tax [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	(2,503)	803	(379)	1,221
Other Comprehensive Income/(Loss) Before Reclassifications	726	(1,220)	(1,323)	(1,376)
Amount Reclassified From Accumulated Other Comprehensive (Income)		(50)	(75)	(312)
Total other comprehensive income/(loss)	726	(1,270)	(1,398)	(1,688)
Balance	$ (1,777)	$ (467)	$ (1,777)	$ (467)

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ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME (Schedule of Reclassifications out of AOCI) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Securities gains, net		$ 83	$ 119	$ 527
Income tax expense	(4,422)	(3,434)	(11,785)	(9,912)
Net income	7,116	5,383	19,169	15,629
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense		(33)	(44)	(215)
Net income		50	75	312
Reclassification out of Accumulated Other Comprehensive Income [Member] | Net Unrealized Holding Gain/(Loss) on Securities Available for Sale, Net of Tax [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Securities gains, net		$ 83	$ 119	$ 527

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DERIVATIVES (Details) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($) N	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) N	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) N
Derivative [Line Items]
Interest expense	$ 5,575	$ 4,100	$ 14,922	$ 10,386
Interest Rate Swap [Member] | Designated as Hedging Instrument [Member]
Derivative [Line Items]
Notional Amount	$ 180,000		$ 180,000		$ 180,000
Weighted average pay rate	1.64%		1.64%		1.64%
Weighted average receive rate	0.54%		0.54%		0.29%
Weighted average maturity			3 years 6 months		4 years 3 months
Unrealized loss			$ (4,710)		$ (1,330)
Number of contracts | N	9		9		9
Interest expense	$ 494	554	$ 1,500	997
Amount of Gain/(Loss) Recognized In OCI (Effective Portion)	941	(1,686)	(1,999)	(1,899)
Amount of Gain/(Loss) Reclassified From OCI to Interest Expense
Amount of Gain/(Loss) Recognized in Other Non-Interest Expense (Ineffective Portion)
Fair Value	(4,710)		(4,710)		$ (1,330)
Loan Level Swaps [Member] | Not Designated as Hedging Instrument [Member]
Derivative [Line Items]
Notional Amount	$ 70,815		$ 70,815		$ 27,259
Weighted average pay rate	3.44%		3.44%		3.06%
Weighted average receive rate	2.27%		2.27%		1.44%
Weighted average maturity			11 years 4 months 24 days		15 years 9 months 18 days
Number of contracts | N	6		6		3
Fair Value	$ 3,656		$ 3,656		$ 1,106
Other Liabilities [Member] | Interest Rate Swap [Member] | Designated as Hedging Instrument [Member]
Derivative [Line Items]
Notional Amount	180,000		180,000		165,000
Fair Value	(4,710)		(4,710)		(1,434)
Other Assets [Member] | Interest Rate Swap [Member] | Designated as Hedging Instrument [Member]
Derivative [Line Items]
Notional Amount					15,000
Fair Value					$ 104

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SUBORDINATED DEBT (Details) $ in Millions	9 Months Ended
	Sep. 30, 2016 USD ($)
Subordinated Debt [Member]
Debt Instrument [Line Items]
Principal amount	$ 50.0
Non-callable term	5 years
Notes maturity date	Jun. 30, 2026
Fixed interest rate	6.00%
LIBOR spread	4.85%
Debt issuance costs	$ 1.3
Parent Company [Member]
Debt Instrument [Line Items]
Net proceeds used to contribute to the Bank	$ 40.0