UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

For the Quarter Ended June 30, ~~2022~~2023

☐ 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)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	PGC	The NASDAQ Stock Market, LLC

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

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

Number of shares of Common Stock outstanding as of ~~July 29, 2022: 18,190,009~~

August 2, 2023: 17,887,895

PEAPACK-GLADSTONE FINANCIAL CORPORATION

PART I FINANCIAL INFORMATION


Item 1	Financial Statements (Unaudited)	3
	Consolidated Statements of Condition at June 30, ~~2022~~2023 and December 31, 20212	3
	Consolidated Statements of Income for the three and six months ended June 30, ~~2022~~2023 and 20212	4
	Consolidated Statements of Comprehensive Income/(Loss) for the three and six months ended June 30, ~~2022~~2023 and 20212	5
	Consolidated Statement of Changes in Shareholders’ Equity for the three and six months ended June 30, ~~2022~~2023 and 20212	6
	Consolidated Statements of Cash Flows for the six months ended ~~March 31, 2022~~June 30, 2023 and 20212	8
	Notes to Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4	Controls and Procedures	6970

PART II OTHER INFORMATION


Item 1	Legal Proceedings	6970
Item 1A	Risk Factors	6970
Item 2	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities	7071
Item 3	Defaults Upon Senior Securities	7071
Item 4	Mine Safety Disclosures	7071
Item 5	Other Information	7071
Item 6	Exhibits	7172

Item 1. Financial Statements

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands, except per share data)


	(unaudited)			(audited)			(unaudited)			(audited)
	June 30,			December 31,			June 30,			December 31,
	2022			2021			2023			2022
ASSETS
Cash and due from banks	$	6,203		$	5,929		$	4,859		$	5,937
Federal funds sold		—			—			—			—
Interest-earning deposits		147,222			140,875			166,769			184,138
Total cash and cash equivalents		153,425			146,804			171,628			190,075
Securities available for sale		556,791			796,753			540,519			554,648
Securities held to maturity (fair value $95,642 at June 30, 2022 and $108,460 at December 31, 2021)		105,048			108,680
Equity security, at fair value		13,528			14,685
Securities held to maturity (fair value $95,501 at June 30, 2023 and $87,187 at December 31, 2022)								110,438			102,291
CRA equity security, at fair value								12,985			12,985
FHLB and FRB stock, at cost(A)		13,710			12,950			35,402			30,672
Loans held for sale, at fair value		515			3,040
Loans held for sale, at lower of cost or fair value		14,956			34,051			14,198			15,626
Loans		5,153,873			4,806,721			5,435,016			5,285,246
Less: Allowance for credit losses (1)		59,022			61,697
Less: allowance for credit losses								62,704			60,829
Net loans		5,094,851			4,745,024			5,372,312			5,224,417
Premises and equipment		22,804			23,044			23,814			23,831
Other real estate owned		116			—			—			116
Accrued interest receivable		23,468			21,589			20,865			25,157
Bank owned life insurance		46,944			46,663			47,382			47,147
Goodwill		36,212			36,212			36,212			36,212
Other intangible assets		11,870			12,690			10,412			11,121
Finance lease right-of-use assets		3,209			3,582			2,461			2,835
Operating lease right-of-use assets		14,192			9,775			13,500			12,873
Other assets		39,528			62,451			67,572			63,587
TOTAL ASSETS	$	6,151,167		$	6,077,993		$	6,479,700		$	6,353,593
LIABILITIES
Deposits:
Noninterest-bearing demand deposits	$	1,043,225		$	956,482		$	1,024,105		$	1,246,066
Interest-bearing deposits:
Checking		2,456,988			2,287,894			2,816,913			2,143,611
Savings		168,441			154,914			120,082			157,338
Money market accounts		1,217,516			1,307,051			763,026			1,228,234
Certificates of deposit - retail		375,387			409,608			384,106			318,573
Certificates of deposit - listing service		31,348			31,382			10,822			25,358
Subtotal deposits		5,292,905			5,147,331			5,119,054			5,119,180
Interest-bearing demand - brokered		85,000			85,000			10,000			60,000
Certificates of deposit - brokered		25,963			33,818			69,443			25,984
Total deposits		5,403,868			5,266,149			5,198,497			5,205,164
Short-term borrowings		—			—			485,360			379,530
Finance lease liabilities		5,305			5,820			4,071			4,696
Operating lease liabilities		14,756			10,111			14,308			13,704
Subordinated debt, net		132,844			132,701			133,131			132,987
Deferred tax liabilities, net		21,376			39,322			8,334			15,432
Accrued expenses and other liabilities		52,694			77,502			70,930			69,100
TOTAL LIABILITIES		5,630,843			5,531,605			5,914,631			5,820,613
SHAREHOLDERS’ EQUITY
Preferred stock (0 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 42,000,000 shares; issued shares, 20,952,809 at June 30, 2022 and 20,656,810 at December 31, 2021; outstanding shares, 18,190,009 at June 30, 2022 and 18,393,888 at December 31, 2021)		17,466			17,220
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 42,000,000 shares; issued shares, 21,348,808 at June 30, 2023 and 21,007,350 at December 31, 2022; outstanding shares, 17,887,895 at June 30, 2023 and 17,813,451 at December 31, 2022)								17,797			17,513
Surplus		334,411			332,358			342,137			338,706
Treasury stock at cost, 2,762,800 shares at June 30, 2022 and 2,262,922 shares at December 31, 2021		(82,725	)		(65,104	)
Treasury stock at cost (3,460,913 shares at June 30, 2023 and 3,193,899 shares at December 31, 2022)								(105,393	)		(97,826	)
Retained earnings		309,899			274,288			378,525			348,798
Accumulated other comprehensive loss, net of income tax		(58,727	)		(12,374	)		(67,997	)		(74,211	)
TOTAL SHAREHOLDERS’ EQUITY		520,324			546,388			565,069			532,980
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	6,151,167		$	6,077,993		$	6,479,700		$	6,353,593

~~(1)~~(A)

~~Commencing on January 1, 2022, the allowance calculation is based on the current expected credit loss methodology. Prior to January 1, 2022, the calculation was based on the incurred loss methodology.~~FHLB means "Federal Home Loan Bank" and FRB means "Federal Reserve Bank."

See accompanying notes to consolidated financial ~~statements~~statements.

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2022			2021			2022			2021			2023			2022			2023		2022
INTEREST INCOME
Interest and fees on loans	$	44,641		$	36,497		$	85,113		$	71,881		$	68,490		$	44,641		$	132,962	$	85,113
Interest on investments:
Taxable		3,535			3,020			7,142			5,649			4,900			3,535			9,371		7,142
Tax-exempt		18			36			39			79			9			18			17		39
Interest on loans held for sale		12			36			23			91			2			12			4		23
Interest on interest-earning deposits		314			97			343			225			1,451			314			2,989		343
Total interest income		48,520			39,686			92,660			77,925			74,852			48,520			145,343		92,660
INTEREST EXPENSE
Interest on savings and interest-bearing deposit accounts		2,914			1,689			4,696			3,478			26,117			2,914			47,500		4,696
Interest on certificates of deposit		651			1,027			1,257			2,497			2,462			651			4,191		1,257
Interest on borrowed funds		10			182			74			391			5,384			10			6,680		74
Interest on finance lease liability		64			76			132			155			50			64			103		132
Interest on subordinated debt		1,363			2,147			2,727			4,292			1,597			1,363			3,236		2,727
Subtotal - interest expense		5,002			5,121			8,886			10,813			35,610			5,002			61,710		8,886
Interest on interest-bearing demand - brokered		364			456			737			949			125			364			333		737
Interest on certificates of deposits - brokered		261			264			522			525			196			261			401		522
Total interest expense		5,627			5,841			10,145			12,287			35,931			5,627			62,444		10,145
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES		42,893			33,845			82,515			65,638			38,921			42,893			82,899		82,515
Provision for credit losses ~~(1)~~		1,449			900			3,824			1,125			1,696			1,449			3,209		3,824
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		41,444			32,945			78,691			64,513			37,225			41,444			79,690		78,691
OTHER INCOME
Wealth management fee income		13,891			13,034			28,725			25,165			14,252			13,891			28,014		28,725
Service charges and fees		1,063			896			2,015			1,742			1,320			1,063			2,578		2,015
Bank owned life insurance		310			466			623			1,077			305			310			602		623
Gain on loans held for sale at fair value (mortgage banking)		151			409			398			1,434			15			151			36		398
Gain on loans held for sale at lower of cost or fair value		—			1,125			—			1,407
Fee income related to loan level, back-to-back swaps		—			—			—			—
Gain on sale of SBA loans		2,675			932			5,519			2,381			838			2,675			1,703		5,519
Corporate advisory fee income		33			121			1,594			1,219			15			33			95		1,594
Loss on swap termination		—			(842	)		—			(842	)
Other income		860			1,495			2,114			2,138			2,039			860			3,606		2,114
Loss on securities sale, net		—			—			(6,609	)		—			—			—			—		(6,609	)
Fair value adjustment for CRA equity security		(475	)		42			(1,157	)		(223	)		(209	)		(475	)		—		(1,157	)
Total other income		18,508			17,678			33,222			35,498			18,575			18,508			36,634		33,222
OPERATING EXPENSES
Compensation and employee benefits		21,882			19,910			44,331			41,900			26,354			21,882			50,940		44,331
Premises and equipment		4,640			4,074			9,287			8,187			4,729			4,640			9,103		9,287
FDIC insurance expense		503			529			974			1,114			729			503			1,440		974
Swap valuation allowance		—			—			673			—			—			—			—		673
Other operating expense		5,634			6,171			11,563			11,077			5,880			5,634			11,783		11,563
Total operating expenses		32,659			30,684			66,828			62,278			37,692			32,659			73,266		66,828
INCOME BEFORE INCOME TAX EXPENSE		27,293			19,939			45,085			37,733			18,108			27,293			43,058		45,085
Income tax expense		7,193			5,521			11,544			10,137			4,963			7,193			11,558		11,544
NET INCOME	$	20,100		$	14,418		$	33,541		$	27,596		$	13,145		$	20,100		$	31,500	$	33,541

EARNINGS PER SHARE
Basic	$	1.10		$	0.76		$	1.83		$	1.46		$	0.73		$	1.10		$	1.76	$	1.83
Diluted	$	1.08		$	0.74		$	1.79		$	1.42		$	0.73		$	1.08		$	1.74	$	1.79
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic		18,325,605			18,963,237			18,332,272			18,956,807			17,930,611			18,325,605			17,886,154		18,332,272
Diluted		18,637,340			19,439,439			18,782,559			19,473,150			18,078,848			18,637,340			18,153,267		18,782,559

~~(1)~~

See accompanying notes to consolidated financial ~~statements~~statements.

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(Dollars in thousands)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Net income	$	20,100		$	14,418		$	33,541		$	27,596		$	13,145		$	20,100		$	31,500		$	33,541
Comprehensive income/(loss):
Unrealized gains/(losses) on available for sale securities:
Unrealized holding gains/(losses) arising during the period		(24,475	)		9,105			(71,274	)		(8,513	)		(7,022	)		(24,475	)		1,747			(71,274	)
Reclassification adjustment for amounts included in net income		—			—			6,609			—			—			—			—			6,609

		(24,475	)		9,105			(64,665	)		(8,513	)		(7,022	)		(24,475	)		1,747			(64,665	)

Tax effect		5,856			(2,167	)		15,472			2,036			3,226			5,856			3,178			15,472
Net of tax		(18,619	)		6,938			(49,193	)		(6,477	)		(3,796	)		(18,619	)		4,925			(49,193	)

Unrealized gains/(losses) on cash flow hedges:
Unrealized holding gains arising during the period		1,155			1,121			3,951			2,571
Unrealized holding gains/(losses) arising during the period														4,775			1,155			2,043			3,951
Reclassification adjustment for amounts included in net income		—			842			—			842			(42	)		—			(84	)		—
		1,155			1,963			3,951			3,413			4,733			1,155			1,959			3,951

Tax effect		(325	)		(552	)		(1,111	)		(959	)		(1,489	)		(325	)		(670	)		(1,111	)
Net of tax		830			1,411			2,840			2,454			3,244			830			1,289			2,840


Total other comprehensive income/(loss)		(17,789	)		8,349			(46,353	)		(4,023	)		(552	)		(17,789	)		6,214			(46,353	)

Total comprehensive income/(loss)	$	2,311		$	22,767		$	(12,812	)	$	23,573		$	12,593		$	2,311		$	37,714		$	(12,812	)

See accompanying notes to consolidated financial ~~statements~~statements.

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended June 30, ~~2022~~2023 and June 30, ~~2021~~2022


																																			Accumulated
																																			Other			Total
(In thousands, except share and																					Preferred		Common						Treasury			Retained			Comprehensive			Shareholders'
per share data)																					Stock		Stock			Surplus			Stock			Earnings			Loss			Equity
Balance at April 1, 2023 18,014,757 common shares outstanding																					$	—	$	17,750		$	339,060		$	(100,677	)	$	366,270		$	(67,445	)	$	554,958
Net income																						—		—			—			—			13,145			—			13,145
Comprehensive loss																						—		—			—			—			—			(552	)		(552	)
Restricted stock units issued,77,986 shares																						—		65			3			—			—			—			68
Restricted stock units repurchased on vesting to pay taxes, (31,996) shares																						—		(27	)		(854	)		—			—			—			(881	)
Amortization of restricted stock units																						—		—			3,643			—			—			—			3,643
Cash dividends declared on common stock ($0.05 per share)																						—		—			—			—			(890	)		—			(890	)
Share repurchase, (184,000) shares																						—		—			—			(4,716	)		—			—			(4,716	)
Common stock options exercised, 1,100 net of 60 used to exercise and related taxes benefits, 1,040 shares																						—		1			14			—			—			—			15
Issuance of shares for Employee Stock Purchase Plan, 10,108 shares																						—		8			271			—			—			—			279
Balance at June 30, 2023 17,887,895 common shares outstanding																					$	—	$	17,797		$	342,137		$	(105,393	)	$	378,525		$	(67,997	)	$	565,069

															Accumulated																				Accumulated
															Other			Total																	Other			Total
(In thousands, except share and	Preferred		Common						Treasury			Retained			Comprehensive			Shareholders'			Preferred		Common						Treasury			Retained			Comprehensive			Shareholders'
per share data)	Stock		Stock			Surplus			Stock			Earnings			Loss			Equity			Stock		Stock			Surplus			Stock			Earnings			Loss			Equity
Balance at April 1, 2022 18,370,312 common shares outstanding	$	—	$	17,450		$	332,474		$	(76,278	)	$	290,718		$	(40,938	)	$	523,426		$	—	$	17,450		$	332,474		$	(76,278	)	$	290,718		$	(40,938	)	$	523,426
Net income		—		—			—			—			20,100			—			20,100			—		—			—			—			20,100			—			20,100
Comprehensive loss		—		—			—			—			—			(17,789	)		(17,789	)		—		—			—			—			—			(17,789	)		(17,789	)
Restricted stock units issued 18,923 shares		—		14			(14	)		—			—			—			—			—		14			(14	)		—			—			—			—
Restricted stock units repurchased on vesting to pay taxes, (6,446) shares		—		(5	)		(192	)		—			—			—			(197	)
Restricted stock units repurchased on vesting to pay taxes, (6,446) shares																						—		(5	)		(192	)		—			—			—			(197	)
Amortization of restricted stock units		—		—			1,916			—			—			—			1,916			—		—			1,916			—			—			—			1,916
Cash dividends declared on common stock ($0.05 per share)		—		—			—			—			(919	)		—			(919	)		—		—			—			—			(919	)		—			(919	)
Share repurchase, (200,000) shares		—		—			—			(6,447	)		—			—			(6,447	)
Share repurchase, (200,000) shares																						—		—			—			(6,447	)		—			—			(6,447	)
Common stock options exercised, 100 shares		—		1			1			—			—			—			2			—		1			1			—			—			—			2
Issuance of shares for Employee Stock Purchase Plan, 7,120 shares		—		6			226			—			—			—			232			—		6			226			—			—			—			232
Balance at June 30, 2022 18,190,009 common shares outstanding	$	—	$	17,466		$	334,411		$	(82,725	)	$	309,899		$	(58,727	)	$	520,324		$	—	$	17,466		$	334,411		$	(82,725	)	$	309,899		$	(58,727	)	$	520,324

															Accumulated
															Other			Total
(In thousands, except share and	Preferred		Common						Treasury			Retained			Comprehensive			Shareholders'
per share data)	Stock		Stock			Surplus			Stock			Earnings			Loss			Equity
Balance at April 1, 2021 19,034,870 common shares outstanding	$	—	$	17,140		$	326,251		$	(40,856	)	$	233,670		$	(13,764	)	$	522,441
Net income		—		—			—			—			14,418			—			14,418
Comprehensive loss		—		—			—			—			—			8,349			8,349
Restricted stock units issued 21,200 shares		—		17			(17	)		—			—			—			—
Restricted stock units/awards repurchased on vesting to pay taxes, (7,096) shares		—		(6	)		(223	)		—			—			—			(229	)
Amortization of restricted stock awards/units		—		—			1,807			—			—			—			1,807
Cash dividends declared on common stock ($0.05 per share)		—		—			—			—			(952	)		—			(952	)
Share repurchase, (234,722) shares		—		—			—			(7,605	)		—			—			(7,605	)
Common stock options exercised, 2,000 shares		—		1			23			—			—			—			24
Exercise of warrants, 20,000 net of 12,722 shares used to exercise, 7,278 shares		—		7			(7	)		—			—			—			—
Issuance of shares for Employee Stock Purchase Plan, 6,347 shares		—		5			201			—			—			—			206
Balance at June 30, 2021 18,829,877 common shares outstanding	$	—	$	17,164		$	328,035		$	(48,461	)	$	247,136		$	(5,415	)	$	538,459

Six Months Ended June 30, ~~2022~~2023 and June 30, ~~2021~~2022


															Accumulated
															Other
(In thousands, except share and	Preferred		Common						Treasury			Retained			Comprehensive
per share data)	Stock		Stock			Surplus			Stock			Earnings			Loss			Total
Balance at January 1, 2023 17,813,451 common shares outstanding	$	—	$	17,513		$	338,706		$	(97,826	)	$	348,798		$	(74,211	)	$	532,980
Net income		—		—			—			—			31,500			—			31,500
Comprehensive income		—		—			—			—			—			6,214			6,214
Restricted stock units issued, 430,620 shares		—		359			(291	)		—			—			—			68
Restricted stock units repurchased on vesting to pay taxes, (108,143) shares		—		(90	)		(3,168	)		—			—			—			(3,258	)
Amortization of restricted stock units		—		—			6,309			—			—			—			6,309
Cash dividends declared on common stock ($0.10 per share)		—		—			—			—			(1,773	)		—			(1,773	)
Share repurchase, (267,014) shares		—		—			—			(7,567	)		—			—			(7,567	)
Common stock options exercised, 1,400 net of 60 used to exercise and related taxes benefits, 1,340 shares		—		1			18			—			—			—			19
Issuance of shares for Employee Stock Purchase Plan, 17,641 shares		—		14			563			—			—			—			577
Balance at June 30, 2023 17,887,895 common shares outstanding	$	—	$	17,797		$	342,137		$	(105,393	)	$	378,525		$	(67,997	)	$	565,069

															Accumulated
															Other
(In thousands, except share and	Preferred		Common						Treasury			Retained			Comprehensive
per share data)	Stock		Stock			Surplus			Stock			Earnings			Loss			Total
Balance at January 1, 2022 18,393,888 common shares outstanding	$	—	$	17,220		$	332,358		$	(65,104	)	$	274,288		$	(12,374	)	$	546,388
Cumulative effect adjustment for adoption of ASU 2016-13		—		—			—			—			3,909			—			3,909
Balance at January 1, 2022, adjusted	$	—	$	17,220		$	332,358		$	(65,104	)	$	278,197		$	(12,374	)	$	550,297
Net income		—		—			—			—			33,541			—			33,541
Comprehensive loss		—		—			—			—			—			(46,353	)		(46,353	)
Restricted stock units issued, 325,607 shares		—		270			(270	)		—			—			—			—
Restricted stock units repurchased on vesting to pay taxes, (74,445) shares		—		(62	)		(2,639	)		—			—			—			(2,701	)
Amortization of restricted stock units		—		—			4,391			—			—			—			4,391
Cash dividends declared on common stock ($0.10 per share)		—		—			—			—			(1,839	)		—			(1,839	)
Share repurchase, (499,878) shares		—		—			—			(17,621	)		—			—			(17,621	)
Common stock options exercised, 9,360 shares		—		8			114			—			—			—			122
Exercise of warrants 49,860 net of 28,311 shares used to exercise, 21,549 shares		—		18			(18	)		—			—			—			—
Issuance of shares for Employee Stock Purchase Plan, 13,928 shares		—		12			475			—			—			—			487
Balance at June 30, 2022 18,190,009 common shares outstanding	$	—	$	17,466		$	334,411		$	(82,725	)	$	309,899		$	(58,727	)	$	520,324

Accumulated

Other

(In thousands, except share and

Preferred

Common

Treasury

Retained

Comprehensive

per share data)

Stock

Stock

Surplus

Stock

Earnings

Loss

Total

Balance at January 1, 2022 18,393,888
   common shares outstanding

$
—

$
17,220

$
332,358

$
(65,104
)

$
274,288

$
(12,374
)

$
546,388

Cumulative effect adjustment for adoption of
   ASU 2016-13

—

—

—

—

3,909

—

3,909

Balance at January 1, 2022, adjusted

$
—

$
17,220

$
332,358

$
(65,104
)

$
278,197

$
(12,374
)

$
550,297

Net income

—

—

—

—

33,541

—

33,541

Comprehensive loss

—

—

—

—

—

(46,353
)

(46,353
)
Restricted stock units issued, 325,607 shares

—

270

(270
)

—

—

—

—

Restricted stock units repurchased on
   vesting to pay taxes, (74,445) shares

—

(62
)

(2,639
)

—

—

—

(2,701
)
Amortization of restricted stock units

—

—

4,391

—

—

—

4,391

Cash dividends declared on common stock
   ($0.10 per share)

—

—

—

—

(1,839
)

—

(1,839
)
Share repurchase, (499,878) shares

—

—

—

(17,621
)

—

—

(17,621
)
Common stock options exercised, 9,360 shares

—

8

114

—

—

—

122

Exercise of warrants, 49,860 net of 28,311
   shares used to exercise, 21,549 shares

—

18

(18
)

—

—

—

—

Issuance of shares for Employee Stock
   Purchase Plan, 13,928 shares

—

12

475

—

—

—

487

Balance at June 30, 2022 18,190,009
   common shares outstanding

$
—

$
17,466

$
334,411

$
(82,725
)

$
309,899

$
(58,727
)

$
520,324

Accumulated

Other

(In thousands, except share and

Preferred

Common

Treasury

Retained

Comprehensive

per share data)

Stock

Stock

Surplus

Stock

Earnings

Loss

Total

Balance at January 1, 2021 18,974,703
   common shares outstanding

$
—

$
16,958

$
326,592

$
(36,477
)

$
221,441

$
(1,392
)

$
527,122

Net income

—

—

—

—

27,596

—

27,596

Comprehensive loss

—

—

—

—

—

(4,023
)

(4,023
)
Restricted stock units issued, 288,348 shares

—

240

(240
)

—

—

—

—

Restricted stock units/awards repurchased on
   vesting to pay taxes, (71,749) shares

—

(60
)

(2,171
)

—

—

—

(2,231
)
Amortization of restricted stock awards/units

—

—

3,422

—

—

—

3,422

Cash dividends declared on common stock
   ($0.10 per share)

—

—

—

—

(1,901
)

—

(1,901
)
Share repurchase, (392,755) shares

—

—

—

(11,984
)

—

—

(11,984
)
Common stock options exercised, 2,820 net of
   62 shares used to exercise, 2,758 shares

—

2

32

—

—

—

34

Exercise of warrants 40,000 net of 26,200
   shares used to exercise, 13,800 shares

—

12

(12
)

—

—

—

—

Issuance of shares for Employee Stock
   Purchase Plan, 14,772 shares

—

12

412

—

—

—

424

Balance at June 30, 2021 18,829,877
   common shares outstanding

$
—

$
17,164

$
328,035

$
(48,461
)

$
247,136

$
(5,415
)

$
538,459

See accompanying notes to consolidated financial ~~statements~~statements.

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Six Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2023			2022
OPERATING ACTIVITIES:
Net income	$	33,541		$	27,596		$	31,500		$	33,541
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,697			1,566			1,769			1,697
Amortization of premium and accretion of discount on securities, net		1,459			3,141			328			1,459
Amortization of restricted stock		4,391			3,422			6,309			4,391
Amortization of intangible assets		820			736			709			820
Amortization of subordinated debt costs		143			763			144			143
Provision for credit losses ~~(1)~~		3,824			1,125			3,209			3,824
Swap valuation allowance		673			—			—			673
Deferred tax benefit		(3,582	)		(4,539	)		(4,475	)		(3,582	)
Stock-based compensation and employee stock purchase plan expense		77			56			106			77
Fair value adjustment for equity security		1,157			223			—			1,157
Loss on securities available for sale		6,609			—			—			6,609
Loans originated for sale ~~(2)~~(A)		(49,372	)		(89,775	)		(20,987	)		(49,372	)
Proceeds from sales of loans held for sale ~~(2)~~(A)		71,909			103,605			24,155			71,909
Gain on loans held for sale ~~(2)~~(A)		(5,917	)		(3,815	)		(1,739	)		(5,917	)
Gain on loans held for sale at lower of cost or fair value		—			(1,407	)
Gain on OREO sold		—			(51	)
Gain on life insurance death benefit		—			(455	)
Loss on disposal of fixed assets								6			—
Increase in cash surrender value of life insurance, net		(281	)		(310	)		(235	)		(281	)
Increase in accrued interest receivable		(1,879	)		(622	)
Decrease in other assets		5,292			10,798
(Decrease)/increase in accrued expenses and other liabilities		(358	)		1,883
Decrease/(increase) in accrued interest receivable								4,292			(1,879	)
(Increase)/decrease in other assets								(3,137	)		5,292
Increase/(decrease) in accrued expenses and other liabilities								2,071			(358	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		70,203			53,940			44,025			70,203
INVESTING ACTIVITIES:
Principal repayments, maturities and calls of securities available for sale		201,282			189,926			316,474			201,282
Principal repayments, maturities and calls of securities held to maturity		3,570			808			2,161			3,570
Redemptions of FHLB and FRB stock		24,690			—			51,784			24,690
Proceeds from sales of securities available for sale		118,972			—			—			118,972
Purchase of securities held to maturity								(10,347	)		—
Purchase of securities available for sale		(152,963	)		(402,711	)		(300,887	)		(152,963	)
Purchase of FHLB and FRB stock		(25,450	)		—			(56,514	)		(25,450	)
Proceeds from sales of loans held for sale at lower of cost or fair value		—			54,123
Net increase in loans, net of participations sold		(348,766	)		(247,101	)		(151,104	)		(348,766	)
Proceeds from sales of other real estate		—			101			116			—
Purchase of premises and equipment		(1,084	)		(2,895	)		(1,378	)		(1,084	)
Proceeds from life insurance death benefit		—			816
Disposal of premises and equipment								(6	)		—
NET CASH USED IN INVESTING ACTIVITIES		(179,749	)		(406,933	)		(149,701	)		(179,749	)
FINANCING ACTIVITIES:
Net increase in deposits		137,719			77,291
Net decrease in short-term borrowings		—			(15,000	)
Repayments of Paycheck Protection Program Liquidity Facility		—			(93,500	)
Net (decrease)/increase in deposits								(6,667	)		137,719
Net increase in short-term borrowings								105,830			—
Dividends paid on common stock		(1,839	)		(1,901	)		(1,773	)		(1,839	)
Exercise of stock options, net of stock swaps		122			34			19			122
Restricted stock repurchased on vesting to pay taxes		(2,701	)		(2,231	)		(3,258	)		(2,701	)
Repayments of subordinated debt		—			(50,000	)
Issuance of restricted stock								68			—
Issuance of shares for employee stock purchase plan		487			424			577			487
Shares repurchased		(17,621	)		(11,984	)		(7,567	)		(17,621	)
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES		116,167			(96,867	)
Net increase/(decrease) in cash and cash equivalents		6,621			(449,860	)
NET CASH PROVIDED BY FINANCING ACTIVITIES								87,229			116,167
Net (decrease)/increase in cash and cash equivalents								(18,447	)		6,621
Cash and cash equivalents at beginning of period		146,804			653,322			190,075			146,804
Cash and cash equivalents at end of period	$	153,425		$	203,462		$	171,628		$	153,425
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	9,620		$	12,542		$	58,182		$	9,620
Income tax, net		6,224			4,056			3,323			6,224
Transfer of loans to loans held for sale		—			45,776
Transfer of loans to other real estate owned		116			—			—			116

~~(1)~~

~~(2)~~(A)

Includes mortgage loans originated with the intent to sell which are carried at fair value. In addition, this includes the guaranteed portion of Small Business Administration (“SBA”) loans which are carried at the lower of cost or fair value.

See accompanying notes to consolidated financial ~~statements~~statements.

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 (“GAAP”) 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 audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 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 solely of normal and recurring accruals) necessary to present fairly the financial position as of June 30, ~~2022,~~2023, and the results of operations, comprehensive income/(loss), changes in shareholders’ equity for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 and cash flow statements for the six months ended June 30, ~~2022~~2023 and ~~2021.~~2022. The results of operations for the three and six months ended June 30, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the full year or for any future period.

Principles of Consolidation and Organization: The consolidated financial statements of the Company are prepared on the accrual basis and include the accounts of the Company and its wholly-owned subsidiary, Peapack-Gladstone Bank (the “Bank”). The consolidated financial statements also include the Bank’s wholly-owned subsidiaries:

•

PGB Trust & Investments of Delaware

•

Peapack Capital Corporation (“PCC”)

•

~~Murphy Capital Management (“Murphy Capital”)~~

•

Peapack-Gladstone Mortgage Group, Inc., which owns 99 percent of Peapack Ventures, LLC and 79 percent of Peapack-Gladstone Realty, Inc., a New Jersey real estate investment company

•

PGB Trust & Investments of Delaware, which owns 1one percent of Peapack Ventures, LLC

•

Peapack Ventures, LLC, which owns the remaining 21 percent of Peapack-Gladstone Realty, Inc.

•

PGB Securities, Inc. ~~(formed in the second quarter of 2020)~~

While the following ~~footnotes~~notes to the consolidated financial statements include the consolidated results of the Company, the Bank and their subsidiaries, these ~~footnotes~~notes primarily reflect the Bank’s and its subsidiaries’ activities. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Basis of Financial Statement ~~Presentation~~:Presentation: The consolidated financial statements have been prepared in accordance with GAAP. 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 the periods presented. Actual results could differ from those estimates.

Adoption of New Accounting ~~Standards~~:Standards: On January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan and lease receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). In addition, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities ~~management~~Management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet commitments. Results for reporting periods beginning after January 1, 2022, are presented under ASC 326 while prior period amounts continue to be reported in accordance with the incurred loss model previously applicable under GAAP. The Company recorded a net ~~decrease~~increase to retained earnings of ~~$3.9~~$3.9 million as of January 1, 2022, for the cumulative effect of adopting ASC 326. The transition adjustment includes a ~~$5.5~~$5.5 million reduction to our allowance for credit losses. The lower allowance was in part attributed to

historically low charge-offs combined with the shorter duration of the loan portfolio employed in our CECL

analysis. Further, the incurred loss method required significant qualitative factors, including factors related to COVID-19, and the use of a multiplier for potential losses on criticized and classified loans, neither of which are included within the CECL methodology. The CECL methodology utilizes significantly less qualitative factors as it uses economic factors and historical losses over a full economic cycle and calculates losses based on discounted cash ~~flow~~flows on an individual loan basis. Accordingly, the CECL model quantitatively accounts for some of the qualitative factors utilized in the incurred loss methodology.

The following table illustrates the impact to our financial statements as of January 1, 2022 upon adoption of ASC 326:


	January 1, 2022									January 1, 2022
(In thousands)	Impact to Consolidated Statement of Condition from ASC-326 Adoption			Tax Effect			Impact to Retained Earnings from ASC-326 Adoption			Impact to Consolidated Statement of Condition from ASC-326 Adoption			Tax Effect			Impact to Retained Earnings from ASC-326 Adoption
Allowance for credit losses on loans	$	(5,536	)	$	1,490		$	4,046		$	5,536		$	(1,490	)	$	4,046
Allowance for credit losses on off-balance sheet commitments		188			(51	)		137			(188	)		51			(137	)
Total impact from ASC 326 adoption	$	(5,348	)	$	1,439		$	(3,909	)	$	5,348		$	(1,439	)	$	3,909

Segment ~~Information~~:Information: The Company’s business is conducted through 2two business segments: (1) its banking segment (“Banking”), which involves the delivery of loan and deposit products to customers, and (2) ~~the~~ Peapack Private Wealth Management Division (“("Peapack ~~Private”~~Private"), which includes ~~asset~~investment management services to individuals and institutions. Management uses certain methodologies to allocate income and expense to the business segments.

The Banking segment includes: commercial ~~(includes~~(including commercial and industrial (“C&I”) and equipment financing), commercial real estate, multifamily, residential and consumer lending activities; treasury management services; C&I advisory services; escrow management; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support services.

Peapack Private includes: investment management services for individuals and institutions; personal trust services, including services as executor, trustee, administrator and custodian; and other financial planning and advisory services. This segment also includes the activity from the Delaware subsidiary, PGB Trust & Investments of ~~Delaware, and Murphy Capital.~~Delaware. Wealth management fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management and/or administration (“AUM”) at month-end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed (i.e. trade date).

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 short-term borrowings with original maturities of 90 days or less.

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

~~Securities~~:Securities: Prior to January 1, 2022,, Management evaluated securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warranted. For securities in an unrealized loss position, Management considered the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assessed whether it intended to sell, or it iswas more likely than not that it was 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 iswas met, the entire difference between amortized cost and fair value was recognized as impairment through earnings. For debt securities that did not meet the aforementioned criteria, the amount of impairment was split into two components as follows: (1) other-than-temporary impairment related to credit loss, which ~~would be~~was recognized through the income statement and (2) other-than-temporary impairment related to other factors, which ~~would be~~was recognized in other comprehensive income.

Effective January 1, 2022,, upon the adoption of ASU ~~2016~~-13,2016-13, debt securities available-for-sale are measured at fair value and subject to impairment testing. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for credit losses ("ACL") by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value change. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation reserve would be reduced, but not more than the amount of the current existing reserve for that security.

Debt securities are classified as held to maturity and carried at amortized cost when Management has the positive intent and ability to hold them to maturity. ~~Other debt~~Under ASU 2016-13, held-to-maturity securities in a loss position are ~~classified as available for sale and are carried at~~evaluated to determine if the decline in fair value ~~with unrealized holding gains~~has resulted from a credit-related loss or other factors and ~~losses reported~~then, recognize an ACL through a charge to earnings for the decline in ~~other comprehensive income (loss), net of tax.~~fair value. The Company also has an investment in a Community Reinvestment Act (“CRA”) investment fund, which is classified as an equity security.

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, and premiums on callable debt securities, which are amortized to the earliest call date. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

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. Both cash and stock dividends are reported as income.

The Bank is also a member of the Federal Reserve Bank of New York and required to own a certain amount of FRB stock. FRB stock is carried at cost and classified as a restricted security. 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, 0no 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.

SBA loans originated with the intent to sell in the secondary market are carried at the lower of cost or fair value. SBA loans are generally sold with the servicing rights retained. Gains and losses on the sale of SBA loans are based on the difference between the selling price and the carrying value of the related loan sold. Total SBA loans serviced totaled ~~$138.1~~$164.4 million and ~~$97.5~~$152.2 million as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. SBA loans held for sale totaled ~~$15.0~~$15.5 million and ~~$32.5~~$17.2 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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 on a level-yield method over the life of the loan as an adjustment to the loan’s yield. The definition of recorded investment in loans includes accrued interest receivable and deferred fees/costs, however, for the Company’s loan disclosures, accrued interest and deferred fees/costs were excluded as the impact was not material.

Loans are considered past due when they are not paid within 30 days in accordance with contractual terms. The accrual of income on loans, including individually evaluated 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 unless the asset is both well secured and in the process of collection. All interest accrued but not received for loans placed on nonaccrual are 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 consecutive months. Commercial loans are generally charged off, in whole or in part, after an analysis is completed which indicates that collectability of the full principal balance is in doubt. Consumer closed-end loans are generally charged off after they become 120 days past due and open-end loans after 180 days. 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 may be returned to accrual status. Nonaccrual mortgage loans are generally charged off to the extent that 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 New Jersey, New York and Pennsylvania.

Allowance for Credit ~~Losses~~:Losses: On January 1, 2022, the Company adopted ASU 2016-13, Topic ~~326)~~326 which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances.

The allowance for credit losses (“ACL”) on loans held for investment is the combination of the allowance for loan losses and the reserve for unfunded loan commitments. The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "other liabilities" on the Consolidated Statements of Condition. The estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments, including adjustments for current conditions and reasonable and supportable forecasts. Management periodically reviews and updates its assumptions for estimated funding rates. The amortized cost basis of loans does not include accrued interest receivable, which is included in "accrued interest receivable" on the Consolidated Statements of Condition. The "Provision for credit losses" on the Consolidated Statements of Income is a combination of the provision for credit losses and the provision for unfunded loan commitments.

~~Allowance for Loan Losses under incurred methodology prior to CECL Adoption on January 1, 2022~~

The allowance for loan and lease losses is a valuation allowance for credit losses that is Management’s estimate of probable incurred losses in the loan portfolio. Under this accounting method, the process to determine reserves utilizes analytical tools and Management judgment and is reviewed on a quarterly basis. When Management is reasonably certain that a loan balance is not fully collectable, an impairment analysis is completed whereby a specific reserve may be established or 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 size and composition of the portfolio, information about specific borrower situations, estimated collateral values, asset quality information, economic conditions and other factors. Allocations of the allowance may be made for specific loans via a specific reserve, 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 Bank 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 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 may be allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or if repayment is expected solely from the underlying collateral, the loan principal balance is compared to the fair value of collateral less estimated disposition costs to determine the need, if any, for a charge off.

The general component of the allowance covers non-impaired loans and is based primarily on the Company’s historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the 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 qualitative factors include

consideration of the following: levels of and trends in delinquencies, charge-offs 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 staffing and experience; 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. At both December 31, 2021 and 2020, respectively, the multiple was 2.25 times for non-impaired special mention loans and 3.25 times for non-impaired substandard loans.

ACL in accordance with CECL methodology

With respect to pools of similar loans that are collectively evaluated, an appropriate level of general allowance is determined by portfolio segment using a non-linear discounted cash flow (“DCF”) model. The DCF model captures losses over the historical charge-off and prepayment cycle and applies those losses at a loan level over the remaining maturity of the loan. The model then calculates a historical loss rate using the average losses over the reporting period, which is then applied to each segment utilizing a standard reversion rate. This loss rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, including but not limited to unemployment rates, national consumer price and confidence indices. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the ACL are qualitative factors based on the risks present for each portfolio segment. These qualitative factors include 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 staffing and experience; industry conditions; and effects of changes in credit concentrations. It is also possible that these factors could include social, political, economic, and terrorist events or activities. All of these factors are susceptible to change, which may be significant. ~~As a result of this detailed process, the~~The ACL results in two forms of allocations, specific and general. These two components represent the total ACL deemed adequate to cover ~~probable lifetime~~current expected credit losses ~~inherent~~ in the loan portfolio.

When management identifies loans that do not share common risk characteristics (i.e., are not similar to other loans within a pool) they are evaluated on an individual basis. These loans are not included in the collective evaluation. For loans identified as having a likelihood of foreclosure or that the borrower is experiencing financial difficulty, a collateral dependent approach is used. These are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient method to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Several of the steps in the methodology involve judgment and are subjective in nature including, among other things: segmenting the loan portfolio; determining the amount of loss history to consider; selecting predictive econometric regression models that use appropriate macroeconomic variables; determining the methodology to forecast prepayments; selecting the most

appropriate economic forecast scenario; determining the length of the reasonable and supportable forecast and reversion periods; estimating expected utilization rates on unfunded loan commitments; and assessing relevant and appropriate qualitative factors. In addition, the CECL methodology is dependent on economic forecasts, which are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered appropriate, there can be noassurance that it will be sufficient to absorb future losses.

In determining an appropriate amount for the allowance, the Bank segments and ~~aggregated~~aggregates the loan portfolio based on common characteristics. The following segments have been identified:

Primary Residential Mortgages. The Bank originates one to four family residential mortgage loans in the Tri-State area ~~(New~~(which is comprised of 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 values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Junior Lien Loan on Residence (which include home equity lines of credit). The Bank provides junior lien loans (“JLL”) and revolving home equity lines of credit against one to four family properties in the Tri-State area. These loans are subordinate to a first mortgage, which may be from another lending institution. Primary risk characteristics associated with JLLs and 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. ~~Further, real estate values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank.~~ In addition, home equity lines of credit typically are made with variable or floating interest rates, which could expose the borrower to higher debt service requirements in a rising interest rate environment. Further, real estate values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank.

Multifamily. 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 flows 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 have an impact on the borrower and its ability to repay the loan.

Owner-Occupied Commercial Real Estate Loans. The Bank provides mortgage loans for owner-occupied commercial real estate properties 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.~~mixed use. Commercial real estate loans are generally considered to have a higher degree of credit risk 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.

Investment Commercial Real Estate Loans. The Bank provides mortgage loans for properties managed as an investment property (non-owner-occupied) in the Tri-State area and Pennsylvania. Non-owner-occupied 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. Commercial real estate loans are generally considered to have a higher degree of credit risk 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 as well as the stock of a company, if privately held. Commercial and industrial loans are typically repaid first by the cash flows generated by the borrower’s business operations. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable profitability and resulting positive cash flows. Factors that may influence a business’ 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.~~ To mitigate the risk characteristics of commercial and industrial loans, these loans often include commercial real estate as collateral ~~to strengthen the Bank’s position~~ and the Bank will often require more frequent reporting requirements from the

borrower in order to better monitor its business performance. However, the ability of the Bank to foreclose and realize sufficient value from the assets is often highly uncertain.

Leasing Finance. PCC offers a range of finance solutions nationally. PCC provides term loans and leases secured by assets financed for U.S. based mid-size and large companies. Facilities tend to be fully drawn under fixed rate terms. PCC serves a broad range of industries including transportation, manufacturing, heavy construction and utilities.

Asset risk in PCC’s portfolio is generally recognized through changes to loan income, or through changes to lease related income streams due to fluctuations in lease rates. Changes to lease income can occur when the existing lease contract expires, the asset comes off lease or the business seeks to enter a new lease agreement. Asset risk may also change through depreciation, resulting from changes in the residual value of the operating lease asset or through impairment of the asset carrying value, which can occur at any time during the life of the asset.

Credit risk in PCC’s portfolio generally results from the potential default of borrowers or lessees, which may be driven by customer specific or broader industry related conditions. Credit losses can impact multiple parts of the income statement including loss of interest/lease/rental income and/or higher costs and expenses related to the repossession, refurbishment, re-marketing and or re-leasing of assets.

Construction. The Bank provides commercial construction loans for properties located in the Tri-state area. Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements and declines in real estate values. Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates.

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. Consumer loans generally have higher interest rates and shorter terms than residential loans but tend to have higher credit risk due to the type of collateral securing the loan or in some cases the absence of collateral.

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

~~The Coronavirus Aid, Relief, and Economic Security~~On January 1, 2023, the Company adopted Accounting Standards Update ("~~CARES”~~ASU") ~~Act,~~2022-02, which ~~provided entities with optional temporary relief from certain~~replaced the accounting and ~~financial reporting requirements under U.S. GAAP,~~ a~~llowed financial institutions to suspend application~~recognition of ~~certain current TDR~~TDRs. ASU 2022-02 eliminates the accounting guidance ~~under~~on troubled debt restructurings for creditors in ASC 310-40 ~~for loan modifications~~and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. ASU 2022-02 also updates the requirements related to the COVID-19 pandemic made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria were met. This relief could be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that deferred or delayed the payment of principal or interest or changed the interest rate on the loan. The revised CARES Act extended TDR relief to loan modifications through January 1, 2022. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (e.g., six months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40. The Company continues to prudently work with borrowers negatively impacted by the COVID-19 pandemic while managing credit risks and recognizing an appropriate allowanceaccounting for credit losses ~~on its~~under ASC 326 and adds enhanced disclosures for creditors with respect to loan ~~portfolio. The Company approved total loan modifications under the CARES Act of $947.0 million, of which $12.7 million remain outstanding as of June 30, 2022.~~

~~Another key program under the CARES Act is the Paycheck Protection Program (“PPP”) administered by the SBA which provided funding to qualifying businesses~~refinancings and organizations. Under this program, the Company provided fundings of approximately $650 million. In the third quarter of 2020 and second quarter of 2021, the Company sold approximately $355.0 million and $56.5 million, respectively, of such loans, servicing rights released to a third party. The Company also referred approximately $124 million of PPP loans to a third party during the first six months of 2021. The Company has approximately $9.4 million of PPP loans remaining in its portfolio as of June 30, 2022 and believes that substantially all of these loans will be forgiven by the SBA. These loans are fully guaranteed by the SBA and providerestructurings for ~~full forgiveness of the loans during a specified forgiveness period that meet specific guidelines provided by the SBA. Loans that do not meet the forgiveness criteria will enter a repayment period of~~ 2 or 5 ~~years.~~borrowers experiencing financial difficulty.

Leases: At inception, contracts are evaluated to determine whether the contract constitutes a lease agreement. For contracts that are determined to be an operating lease, a corresponding right-of-use (“ROU”) asset and operating lease liability are recorded as separate line items on the statement of condition. AAn ROU asset represents the Company’s right to use an underlying asset during the lease term and a lease liability represents the Company’s commitment to make contractually obligated lease payments. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease and are based on the present value of lease payments over the lease term. The measurement of the operating lease ROU asset includes any lease payments made.

If the rate implicit in the lease is not readily determinable, the incremental collateralized borrowing rate is used to determine the present value of lease payments. This rate gives consideration to the applicable FHLB collateralized borrowing rates and is based on the information available at the commencement date. The Company has elected to apply the short-term lease measurement and recognition exemption to leases with an initial term of 12 months or less; therefore, these leases are not recorded on the Company’s statement of condition, but rather, lease expense is recognized over the lease term on a straight-line basis. The Company’s lease agreements may include options to extend or terminate the lease. The Company’s decision to exercise renewal options is based on an assessment of its current business needs and market factors at the time of the renewal. The Company maintains certain property

and equipment under direct financing and operating leases. Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branches and office space and are classified as operating leases.

The ROU asset is measured at the amount of the lease liability adjusted for lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment

of the ROU asset. Operating lease expense consists ~~of:~~of a single lease cost allocated over the remaining lease term on a straight-line basis, variable lease payments not included in the lease liability, and any impairment of the ROU asset.

There are no terms or conditions related to residual value guarantees and no restrictions or covenants that would impact the Company’s ability to pay dividends or to incur additional financial obligations.

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. 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 cash flow 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. When hedge accounting is discontinued on a fair value hedge that no longer qualifies as an effective hedge, the derivative continues to be reported at fair value in the statement of condition, but the carrying amount of the hedged item is no longer adjusted for future changes in fair value. The adjustment to the carrying amount of the hedged item that existed at the date hedge accounting is discontinued is amortized over the remaining life of the hedged item into earnings.

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~~statement of condition 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 terminated, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

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

The Company also offers facility specific / loan level swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution / swap counterparty (loan level / back-to-back swap program). The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge 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. The Company is exposed to losses if a customer counterparty fails to make its payments under a contract in which the Company is in a net receiving position. At this time, the Company anticipates that its counterparties will be able to fully satisfy their obligations under the agreements. All of the contracts to which the Company is a party settle monthly. Further, the Company has netting agreements with the dealers with which it does business.

Stock-Based Compensation: The Company’s ~~2006 Long-Term Stock Incentive Plan, 2012 Long-Term Stock Incentive Plan and~~ 2021 Long-Term Stock Incentive Plan ~~allow~~allows 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. There are no shares remaining for issuance with respect to the stock option ~~plan~~plans approved in 2002, 2006 and 2012; however, options granted under ~~this plan~~these plans are still included in the amounts below.

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 authorized but unissued shares to satisfy option exercises.

Upon adoption of ASU 2016-09, “Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting,” the Company has elected to account for forfeitures as they occur, rather than estimate expected forfeitures.

~~For the Company’s stock option plans, changes~~Changes in options outstanding during the six months ended June 30, ~~2022,~~2023 were as follows:

Weighted

Weighted

Average

Aggregate

Average

Remaining

Intrinsic

Number of

Exercise

Contractual

Value

Options

Price

Term

(In thousands)

Balance, January 1, 2022

31,340

$
14.59

Exercised during 2022

(9,360
)

13.05

Expired during 2022

—

—

Forfeited during 2022

(580
)

11.49

Balance, June 30, 2022

21,400

$
15.35

0.70 years

$
307

Vested and expected to vest

21,400

$
15.35

0.70 years

$
307

Exercisable at June 30, 2022

21,400

$
15.35

0.70 years

$
307


						Weighted
				Weighted		Average	Aggregate
				Average		Remaining	Intrinsic
	Number of			Exercise		Contractual	Value
	Options			Price		Term	(In thousands)
Balance, January 1, 2023		6,800		$	16.53
Exercised during 2023		(1,400	)		15.03
Expired during 2023		(2,600	)		14.85
Forfeited during 2023		—			—
Balance, June 30, 2023		2,800		$	18.85	0.54 years	$	23
Vested and expected to vest		2,800		$	18.85	0.54 years	$	23
Exercisable at June 30, 2023		2,800		$	18.85	0.54 years	$	23

The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the second quarter of ~~2022~~2023 and the exercise price, multiplied by the number of in-the-money options. The Company’s closing stock price on June 30, ~~2022~~2023 was ~~$29.70.~~$27.08.

There were 0no stock options granted during the three or six months ended June 30, ~~2022.~~2023.

As of June 30, 2023, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company's stock incentive plans.

The Company issued performance-based and service-based restricted stock units in ~~2022~~2023 and ~~2021.~~2022. Service-based units vest ratably over a three- or five-year period. There were ~~1,624~~1,817 service-based restricted stock units granted during the second quarter of ~~2022.~~2023.

The performance-based awards are dependent upon the Company meeting certain performance criteria and, to the extent the performance criteria are met, will cliff vest at the end of the performance period, which is generally three years. There were 03,684 performance-based restricted stock units granted in the second quarter of ~~2022.~~2023.

Changes in non-vested shares dependent on performance criteria for the six months ended June 30, ~~2022~~2023 were as follows:

��

Weighted

Average

Number of

Grant Date

Shares

Fair Value

Balance, January 1, 2022

225,435

$
20.29

Granted during 2022

71,482

35.93

Vested during 2022

(58,077
)

25.77

Forfeited during 2022

(5,284
)

17.92

Balance, June 30, 2022

233,556

$
23.77


				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2023		233,556		$	23.77
Granted during 2023		126,821			26.81
Vested during 2023		(164,438	)		15.88
Forfeited during 2023		—			—
Balance, June 30, 2023		195,939		$	32.36

Changes in service-based restricted stock awards/units for the six months ended June 30, ~~2022~~2023 were as follows:

Weighted

Average

Number of

Grant Date

Shares

Fair Value

Balance, January 1, 2022

701,145

$
21.93

Granted during 2022

235,534

36.86

Vested during 2022

(267,530
)

21.48

Forfeited during 2022

(18,125
)

20.89

Balance, June 30, 2022

651,024

$
27.55


				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Balance, January 1, 2023		621,170		$	27.50
Granted during 2023		271,387			30.94
Vested during 2023		(264,223	)		26.27
Forfeited during 2023		(2,711	)		26.20
Balance, June 30, 2023		625,623		$	29.52

1716

As of June 30, ~~2022,~~2023, there was ~~$19.0~~$19.6 million of total unrecognized compensation cost related to service-based and performance-based units. That cost is expected to be recognized over a weighted average period of ~~1.48~~1.34 years. Stock compensation expense recorded for the second quarters of 2023 and 2022 ~~and 2021~~ totaled ~~$1.8~~$3.6 million and ~~$1.8~~$1.7 million, respectively. Stock compensation expense recorded for the six months ended June 30, 2023 and 2022 ~~and 2021~~ totaled ~~$3.6~~$6.3 million and ~~$3.5~~$3.6 million, respectively.

Employee Stock Purchase Plan (“ESPP”): The ESPP provides for the granting of rights to purchase up to 150,000 shares of Peapack-Gladstone Financial Corporation common stock. In May 2020, shareholders approved an increase of 200,000 shares of Peapack-Gladstone Financial Corporation common stock to be issued under the ESPP.

~~Subject to certain eligibility requirements and restrictions, the ESPP provided for a single Offering Period of~~ ~~twelve months~~ ~~in duration, which commenced on May 16, 2019 and ended on May 15, 2020.~~

The ESPP ~~was revised to allow~~allows for the purchase of shares during four three-month Offering Periods of each calendar year. The Offering Periods end on February 16, May 16, August 16 and November 16 of each calendar year.

Each participant in the Offering Period is granted an option to purchase a number of shares and may contribute between 1one percent and 15 percent of their compensation. At the end of each Offering Period, 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 percent of the closing market price of a share of common stock on the purchase date. Participation in the ESPP is entirely voluntary and employees can cancel their purchases at any time during the period without penalty. The fair value of each share purchase right is determined using the Black-Scholes option pricing model.

The Company recorded ~~$42,000~~$58,000 and ~~$26,000~~$42,000 of expense in salaries and employee benefits expense for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively related to the ESPP. Total shares issued under the ESPP during the second quarter of 2023 and 2022 were 10,108and ~~2021 were~~ 7,120 ~~and 6,347,~~, respectively.

The Company recorded ~~$77,000~~$106,000 and ~~$56,000~~$77,000 of expense in salaries and employee benefits expense for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively related to the ESPP. Total shares issued under the ESPP during the six months ended June 30, 2023 and 2022 were 17,641and ~~2021 were~~ 13,928 ~~and 14,772,~~, 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 utilizing the Treasury Stock Method if all shares underlying potentially dilutive stock options were issued and all shares of restricted stock, stock warrants or restricted stock units were to vest during the reporting period.


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(Dollars in thousands, except per share data)	2022		2021		2022		2021		2023		2022		2023		2022
Net income available to common shareholders	$	20,100	$	14,418	$	33,541	$	27,596	$	13,145	$	20,100	$	31,500	$	33,541

Basic weighted average shares outstanding		18,325,605		18,963,237		18,332,272		18,956,807		17,930,611		18,325,605		17,886,154		18,332,272
Plus: common stock equivalents		311,735		476,202		450,287		516,343		148,237		311,735		267,113		450,287
Diluted weighted average shares outstanding		18,637,340		19,439,439		18,782,559		19,473,150		18,078,848		18,637,340		18,153,267		18,782,559
Net income per share
Basic	$	1.10	$	0.76	$	1.83	$	1.46	$	0.73	$	1.10	$	1.76	$	1.83
Diluted		1.08		0.74		1.79		1.42		0.73		1.08		1.74		1.79

For the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, restricted stock units totaling ~~300,925~~556,743 and ~~13,374~~300,925, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive. For the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, restricted stock units totaling ~~300,925~~420,090 and ~~262,423~~300,925, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive. Anti-dilutive shares are common stock equivalents with weighted average exercise prices in excess of the average market value for the periods presented.

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 ~~2018~~2019 or by New Jersey tax authorities for years prior to ~~2016.~~2017.

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 reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Restrictions on Cash: ~~A large portion of cash~~ Cash on hand or on deposit with the Federal Reserve Bank ~~(“FRB”)~~of New York was required to meet regulatory reserve and clearing requirements. Prior to March 2020, reserves were in the form of cash and balances with the FRB and included in interest-earning deposits in our statement of condition. The FRB suspended cash reserve requirements effective March 26, 2020.

Comprehensive Income/(Loss): Comprehensive income/(loss) 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.

~~Risks and Uncertainties:~~ The Company expects COVID-19 to have an impact on our operations but cannot determine or estimate the full impact at this time. It is possible that estimates made in the Company’s consolidated financial statements could be materially and adversely impacted as a result of the conditions created by COVID-19, including estimates regarding expected provision for credit losses and impairment of goodwill.

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 acquiree (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. Goodwill was primarily attributable to the Bank’s wealth management acquisitions. Management monitors the impact of changes in the financial markets and includes these assessments in our impairment process.

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, which includes assembled workforce has an indefinite life on our statement of financial condition. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill and assembled workforce are the intangible assets with an indefinite life on our balance sheet.

Other intangible assets, which primarily consist of customer relationship intangible assets arising from acquisitions, are amortized on an accelerated basis over their estimated useful lives, which range from 5 to 15 years.

1918

2. INVESTMENT SECURITIES

A summary of amortized cost and approximate fair value of investment securities available for sale and held to maturity included in the Consolidated Statements of Condition as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 follows:

June 30, 2022

Gross

Gross

Amortized

Unrealized

Unrealized

Allowance for

Fair

(In thousands)

Cost

Gains

Losses

Credit Losses

Value

Securities Available for Sale:

   U.S government-sponsored agencies

$
244,765

$
—

$
(38,642
)

$
—

$
206,123

   Mortgage-backed securities–residential

342,272

101

(35,545
)

—

306,828

   SBA pool securities

35,836

7

(3,260
)

—

32,583

   State and political subdivisions

4,017

1

(5
)

—

4,013

   Corporate bond

7,500

—

(256
)

—

7,244

      Total securities available for sale

$
634,390

$
109

$
(77,708
)

$
—

$
556,791

Securities Held to Maturity:

   U.S. government-sponsored agencies

$
40,000

$
—

$
(2,775
)

$
—

$
37,225

   Mortgage-backed securities–residential

65,048

—

(6,631
)

—

58,417

Total

$
105,048

$
—

$
(9,406
)

$
—

$
95,642


	December 31, 2021									June 30, 2023
			Gross		Gross							Gross		Gross			Allowance
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			for		Fair
(In thousands)	Cost		Gains		Losses			Value		Cost		Gains		Losses			Credit Losses		Value
Securities Available for Sale:
U.S government-sponsored agencies	$	280,045	$	—	$	(7,824	)	$	272,221	$	244,784	$	—	$	(51,655	)	$	—	$	193,129
Mortgage-backed securities–residential		481,062		3,849		(7,937	)		476,974		359,347		5		(46,826	)		—		312,526
SBA pool securities		40,649		12		(1,100	)		39,561		29,184		—		(4,306	)		—		24,878
State and political subdivisions		5,431		45		—			5,476		1,854		—		(6	)		—		1,848
Corporate bond		2,500		21		—			2,521		10,000		—		(1,862	)		—		8,138
Total securities available for sale	$	809,687	$	3,927	$	(16,861	)	$	796,753	$	645,169	$	5	$	(104,655	)	$	—	$	540,519
Securities Held to Maturity:
U.S. government-sponsored agencies	$	40,000	$	7	$	(25	)	$	39,982	$	40,000	$	—	$	(4,248	)	$	—	$	35,752
Mortgage-backed securities–residential		68,680		67		(269	)		68,478		70,438		—		(10,689	)		—		59,749
Total	$	108,680	$	74	$	(294	)	$	108,460
Total securities held to maturity										$	110,438	$	—	$	(14,937	)	$	—	$	95,501


	December 31, 2022
			Gross		Gross			Allowance
	Amortized		Unrealized		Unrealized			for		Fair
(In thousands)	Cost		Gains		Losses			Credit Losses		Value
Securities Available for Sale:
U.S government-sponsored agencies	$	244,774	$	—	$	(54,232	)	$	—	$	190,542
Mortgage-backed securities–residential		372,471		27		(46,760	)		—		325,738
SBA pool securities		31,934		1		(4,508	)		—		27,427
State and political subdivisions		1,866		—		(17	)		—		1,849
Corporate bond		10,000		—		(908	)		—		9,092
Total securities available for sale	$	661,045	$	28	$	(106,425	)	$	—	$	554,648
Securities Held to Maturity:
U.S. government-sponsored agencies	$	40,000	$	—	$	(4,563	)	$	—	$	35,437
Mortgage-backed securities–residential		62,291		—		(10,541	)		—		51,750
Total securities held to maturity	$	102,291	$	—	$	(15,104	)	$	—	$	87,187

The following table presents a summary of the gross gains, gross losses and net tax benefit related to proceeds on sales of securities available for sale for the six months ended June 30, 2023 and 2022:

(In thousands)

June 30, 2022

Proceeds from sales

$
118,972

Gross gains

3

Gross losses

(6,612
)
Net tax benefit

1,581

~~There we no sales of securities for the quarter ended June 30, 2022.~~


(In thousands)	June 30, 2023		June 30, 2022
Proceeds from sales	$	—	$	118,972
Gross gains		—		3
Gross losses		—		(6,612	)
Net tax benefit		—		1,581

2019

The following tables present the Company’s available for sale and held to maturity securities with continuous unrealized losses and the approximate fair value of these investments as of June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


	June 30, 2022															June 30, 2023
	Duration of Unrealized Loss															Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer					Total					Less Than 12 Months					12 Months or Longer					Total
	Approximate					Approximate					Approximate					Approximate					Approximate					Approximate
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In thousands)	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
Securities Available for Sale:
U.S. government-sponsored agencies	$	85,618	$	(14,238	)	$	120,505	$	(24,404	)	$	206,123	$	(38,642	)	$	—	$	—		$	193,129	$	(51,655	)	$	193,129	$	(51,655	)
Mortgage-backed securities residential		122,015		(9,063	)		149,883		(26,482	)		271,898		(35,545	)		48,016		(1,473	)		213,300		(45,353	)		261,316		(46,826	)
SBA pool securities		22,194		(1,625	)		8,956		(1,635	)		31,150		(3,260	)		457		(1	)		24,058		(4,305	)		24,515		(4,306	)
State and political subdivisions		2,341		(5	)		0		0			2,341		(5	)		270		(1	)		1,578		(5	)		1,848		(6	)
Corporate bond		7,244		(256	)		0		0			7,244		(256	)		2,040		(459	)		6,098		(1,403	)		8,138		(1,862	)
Total securities available for sale	$	239,412	$	(25,187	)	$	279,344	$	(52,521	)	$	518,756	$	(77,708	)	$	50,783	$	(1,934	)	$	438,163	$	(102,721	)	$	488,946	$	(104,655	)
Securities Held to Maturity:
U.S. government-sponsored agencies	$	37,225	$	(2,775	)	$	—	$	—		$	37,225	$	(2,775	)	$	—	$	—		$	35,752	$	(4,248	)	$	35,752	$	(4,248	)
Mortgage-backed securities residential		58,417		(6,631	)		—		—			58,417		(6,631	)		10,039		(253	)		49,710		(10,436	)		59,749		(10,689	)
Total securities held to maturity	$	95,642	$	(9,406	)	$	—	$	—		$	95,642	$	(9,406	)	$	10,039	$	(253	)	$	85,462	$	(14,684	)	$	95,501	$	(14,937	)
Total securities	$	335,054	$	(34,593	)	$	279,344	$	(52,521	)	$	614,398	$	(87,114	)	$	60,822	$	(2,187	)	$	523,625	$	(117,405	)	$	584,447	$	(119,592	)

December 31, 2021

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

Securities Available for Sale:

   U.S. government-sponsored agencies

$
243,187

$
(6,858
)

$
29,034

$
(966
)

$
272,221

$
(7,824
)
   Mortgage-backed securities residential

265,403

(7,053
)

33,455

(884
)

298,858

(7,937
)
   SBA pool securities

22,057

(567
)

10,562

(533
)

32,619

(1,100
)
Total securities available for sale

$
530,647

$
(14,478
)

$
73,051

$
(2,383
)

$
603,698

$
(16,861
)
Securities Held to Maturity:

   U.S. government-sponsored agencies

$
24,975

$
(25
)

$
0

$
0

$
24,975

$
(25
)
   Mortgage-backed securities residential

48,307

(269
)

0

0

48,307

(269
)
Total securities held to maturity

$
73,282

$
(294
)

$
0

$
0

$
73,282

$
(294
)
Total securities

$
603,929

$
(14,772
)

$
73,051

$
(2,383
)

$
676,980

$
(17,155
)


	December 31, 2022
	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
Securities Available for Sale:
U.S. government-sponsored agencies	$	—	$	—		$	190,542	$	(54,232	)	$	190,542	$	(54,232	)
Mortgage-backed securities residential		82,907		(4,082	)		174,557		(42,678	)		257,464		(46,760	)
SBA pool securities		3,377		(332	)		23,256		(4,176	)		26,633		(4,508	)
State and political subdivisions		1,579		(17	)		—		—			1,579		(17	)
Corporate bond		9,092		(908	)		—		—			9,092		(908	)
Total securities available for sale	$	96,955	$	(5,339	)	$	388,355	$	(101,086	)	$	485,310	$	(106,425	)
Securities Held to Maturity:
U.S. government-sponsored agencies	$	13,174	$	(1,826	)	$	22,263	$	(2,737	)	$	35,437	$	(4,563	)
Mortgage-backed securities residential		15,635		(3,585	)		36,115		(6,956	)		51,750		(10,541	)
Total securities held to maturity	$	28,809	$	(5,411	)	$	58,378	$	(9,693	)	$	87,187	$	(15,104	)
Total securities	$	125,764	$	(10,750	)	$	446,733	$	(110,779	)	$	572,497	$	(121,529	)

Available for sale and held to maturity securities are evaluated to determine if a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. An impairment related to credit factors would be recorded through an allowance for credit losses. The allowance is limited to the amount by which the security’s amortized cost basis exceeds the fair value. An impairment that has not been recorded through an allowance for credit losses shall be recorded through other comprehensive income, net of applicable taxes. Investment securities will be written down to fair value through the Consolidated Statements of Income when management intends to sell, or may be required to sell, the securities before they recover in value. The issuers of securities currently in a continuous loss position continue to make timely principal and interest payments and none of these securities were past due or were placed in nonaccrual status at June 30, ~~2022. Primarily~~2023. Substantially all of the investment securities are backed by loans guaranteed by either U.S. government agencies or U.S government-sponsored entities, and management believes that default is highly unlikely given the lack of historical credit losses and governmental backing. Management believes that the unrealized losses on these securities are a function of changes in market interest rates and credit spreads, not changes in credit quality. Therefore, no allowance for credit losses was recorded at June 30, ~~2022.~~2023.

TheThe Company has an investment in a CRA investment fund with a fair value of ~~$13.5~~$13.0 million at June 30, ~~2022.~~2023. This investment is classified as an equity security in our Consolidated Statements of Condition. This security had a loss of ~~$475,000 and $1.2 million~~$209,000 for the three months ~~and~~ended June 30, 2023 (no gain or loss for the six months ended June 30, ~~2022.~~2023). This amount is included in the fair value adjustment for CRA equity security on the Consolidated Statements of Income.

2120

3. LOANS AND LEASES

Loans outstanding, excluding those held for sale, by general ledger classification, as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, consisted of the following:


			% of					% of					% of					% of
	June 30,		Totals			December 31,		Total			June 30,		Totals			December 31,		Total
(Dollars in thousands)	2022		Loans			2021		Loans			2023		Loans			2022		Loans
Residential mortgage	$	511,826		9.93	%	$	498,300		10.37	%	$	575,238		10.58	%	$	525,756		9.95	%
Multifamily mortgage		1,876,783		36.41			1,595,866		33.20			1,884,369		34.67			1,863,915		35.27
Commercial mortgage		657,812		12.76			662,626		13.78			624,710		11.49			624,625		11.82
Commercial loans (including equipment financing) ~~(1)~~		2,018,045		39.16			1,955,157		40.67			2,254,232		41.48			2,194,094		41.51
Commercial construction		15,473		0.30			20,044		0.42			9,703		0.18			4,042		0.07
Home equity lines of credit		36,023		0.70			40,803		0.85			34,397		0.63			34,496		0.65
Consumer loans, including fixed rate home equity loans		37,675		0.73			33,687		0.70			52,098		0.96			38,014		0.72
Other loans		236		0.01			238		0.01			269		0.01			304		0.01
Total loans	$	5,153,873		100.00	%	$	4,806,721		100.00	%	$	5,435,016		100.00	%	$	5,285,246		100.00	%

~~(1)~~

~~Includes PPP loans of $9.4 million at June 30, 2022 and $13.8 million at December 31, 2021.~~

In determining an appropriate amount for the allowance, the Bank segments and aggregated the loan portfolio based on common characteristics. The following pool segments identified as of June 30, 2023 and December 31, 2022 are based on the CECL methodology:


			% of					% of					% of
	June 30,		Totals			June 30,		Totals			December 31,		Total
(Dollars in thousands)	2022		Loans			2023		Loans			2022		Loans
Primary residential mortgage	$	515,084		10.00	%	$	576,104		10.61	%	$	527,784		9.99	%
Junior lien loan on residence		39,010		0.76			37,780		0.70			38,265		0.73
Multifamily property		1,876,783		36.44			1,884,369		34.69			1,863,915		35.29
Owner-occupied commercial real estate		251,281		4.88			258,909		4.77			272,009		5.15
Investment commercial real estate		1,068,288		20.74			1,041,189		19.17			1,044,125		19.77
Commercial and industrial ~~(1)~~		1,019,875		19.81			1,282,058		23.60			1,194,662		22.62
Lease financing		314,947		6.12			279,518		5.14			288,566		5.46
Construction		20,758		0.40			16,251		0.30			9,936		0.19
Consumer and other		43,774		0.85			55,476		1.02			42,319		0.80
Total loans		5,149,800		100.00	%		5,431,654		100.00	%		5,281,581		100.00	%
Net deferred costs		4,073					3,362					3,665
Total loans including net deferred costs	$	5,153,873				$	5,435,016				$	5,285,246

~~(1) Includes PPP loans of $9.4~~ ~~million at June 30, 2022~~.

~~The portfolio classes identified as of December 31, 2021 are based on the incurred loss methodology and are segmented by federal Call Report codes:~~

% of

December 31,

Total

(Dollars in thousands)

2021

Loans

Primary residential mortgage

$
500,243

10.42
%
Home equity lines of credit

40,803

0.85

Junior lien loan on residence

3,191

0.07

Multifamily property

1,595,866

33.23

Owner-occupied commercial real estate

252,603

5.26

Investment commercial real estate

1,003,979

20.90

Commercial and industrial (1)

992,332

20.66

Lease financing

345,868

7.20

Farmland/agricultural production

6,871

0.14

Commercial construction loans

20,174

0.42

Consumer and other loans

40,828

0.85

Total loans

4,802,758

100.00
%
Net deferred costs

3,963

Total loans including net deferred costs

$
4,806,721

~~(1)~~

~~Includes PPP loans of $13.8 million at December 31, 2021.~~

The following tables present the recorded investment in nonaccrual and loans past due 90 days or over still on accrual by class of loans as of June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


	June 30, 2022				June 30, 2023
			Loans Past Due				Loans Past Due
			90 Days or Over				90 Days or Over
			And Still				And Still
(In thousands)	Nonaccrual		Accruing Interest		Nonaccrual		Accruing Interest
Primary residential mortgage	$	1,759	$	0	$	1,001	$	—
Junior lien loan on residence		16		0
Owner-occupied commercial real estate		296		0
Multifamily property						18,868		—
Investment commercial real estate		12,471		0		9,935		—
Commercial and industrial		536		0		3,373		—
Lease financing						1,328		—
Total	$	15,078	$	0	$	34,505	$	—

December 31, 2021

Loans Past Due

90 Days or Over

And Still

(In thousands)

Nonaccrual

Accruing Interest

Primary residential mortgage

$
1,851

$
0

Junior lien loan on residence

18

0

Owner-occupied commercial real estate

458

0

Investment commercial real estate

12,750

0

Commercial and industrial

496

0

Total

$
15,573

$
0


	December 31, 2022
			Loans Past Due
			90 Days or Over
			And Still
(In thousands)	Nonaccrual		Accruing Interest
Primary residential mortgage	$	2,339	$	—
Investment commercial real estate		11,208		—
Commercial and industrial		3,662		—
Lease financing		1,765		—
Total	$	18,974	$	—

The following tables present the aging of the recorded investment in past due loans as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 by class of loans, excluding nonaccrual loans:


	June 30, 2022								June 30, 2023
	30-59		60-89		90 Days or				30-59		60-89		90 Days or
	Days		Days		Greater		Total		Days		Days		Greater		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due		Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	581	$	1,697	$	0	$	2,278	$	1,463	$	—	$	—	$	1,463
Junior lien loan on residence		53		—		—		53
Commercial and industrial		795		—		—		795		3,968		—		—		3,968
Lease financing										7,447		—		—		7,447
Consumer and other										—		3		—		3
Total	$	1,429	$	1,697	$	0	$	3,126	$	12,878	$	3	$	—	$	12,881

December 31, 2021

30-59

60-89

90 Days or

Days

Days

Greater

Total

(In thousands)

Past Due

Past Due

Past Due

Past Due

Primary residential mortgage

$
639

$
—

$
0

$
639

Commercial and industrial

7,825

142

—

7,967

Total

$
8,464

$
142

$
0

$
8,606


	December 31, 2022
	30-59		60-89		90 Days or
	Days		Days		Greater		Total
(In thousands)	Past Due		Past Due		Past Due		Past Due
Primary residential mortgage	$	1,145	$	—	$	—	$	1,145
Multifamily property		882		—		—		882
Commercial and industrial		4,884		681		—		5,565
Total	$	6,911	$	681	$	—	$	7,592

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 then annually based on set criteria in the loan policy.

In addition, the Bank has engaged an independent loan review firm to validate risk ratings and to ensure compliance with our policies and procedures. This review of the following types of loans is performed quarterly:

•

A large sample of relationships or new lending to existing relationships greater than ~~$1,000,000~~$1,000,000 booked since the prior review;

•

All criticized and classified rated borrowers with relationship exposure of more than ~~$500,000;~~$500,000;

•

A large sample of Pass-rated (including Pass Watch) borrowers with total relationships in excess of ~~$1,000,000~~$1,000,000 and a small sample of Pass related relationships less than ~~$1,000,000;~~$1,000,000;

•

All leveraged loans of ~~$1,000,000~~$1,000,000 or greater;

•

At least two borrowing relationships managed by each commercial banker;

•

Any new Federal Reserve Board Regulation ~~“O”~~O loan commitments over ~~$1,000,000;~~$1,000,000; and

•

Any other credits requested by Bank senior management or a member of the Board of Directors and any borrower for which the reviewer determines a review is warranted based upon knowledge of the portfolio, local events, industry stresses, etc.

The review excludes borrowers with commitments of less than ~~$500,000.~~$500,000.

The Company uses the following regulatory definitions for criticized and classified risk ratings:

Special Mention: These loans have a potential weakness that deserves Management’s close attention. If left uncorrected, the 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: These loans 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: These loans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values.

Loans not meeting the criteria above that are analyzed individually as part of the ~~above described~~above-described process are considered to be pass-rated loans.

With the adoption of CECL, loans that are in the process of or expected to be in foreclosure are deemed to be collateral dependent with respect to measuring potential loss and allowance adequacy and are individually evaluated by Management. Loans that do not share common risk characteristics are also evaluated on an individual basis. All other loans are evaluated using a non-linear discounted cashflow methodology for measuring potential loss and allowance adequacy.

The following is a summary of the credit risk profile of loans by internally assigned grade as of June 30, 2023 and December 31, 2022 based on originations for the periods indicated; the years represent the year of origination for non-revolving loans:


	Grade as of June 30, 2022 for Loans Originated During																		Grade as of June 30, 2023 for Loans Originated During
											2017				Revolving-														2018				Revolving-
(In thousands)	2022		2021		2020		2019		2018		and Prior		Revolving		Term		Total		2023		2022		2021		2020		2019		and Prior		Revolving		Term		Total
Primary residential mortgage:
Pass	$	73,700	$	96,485	$	65,468	$	39,389	$	28,912	$	207,278	$	—	$	697	$	511,929	$	69,713	$	116,537	$	82,789	$	60,707	$	36,329	$	207,223	$	—	$	685	$	573,983
Special mention		—		—		—		1,097		80		100		—		—		1,277		—		—		—		—		—		—		—		—		—
Substandard		—		—		462		212		285		919		—		—		1,878		—		—		—		489		981		651		—		—		2,121
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total primary residential mortgages		73,700		96,485		65,930		40,698		29,277		208,297		—		697		515,084		69,713		116,537		82,789		61,196		37,310		207,874		—		685		576,104
Current period gross charge-offs																				—		—		—		—		—		—		—		—		—

Junior lien loan on residence:
Pass		523		199		49		690		384		1,126		35,507		—		38,478		160		1,490		156		35		590		951		34,335		—		37,717
Special mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		16		516		—		532		—		—		—		—		—		—		63		—		63
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total junior lien loan on residence		523		199		49		690		384		1,142		36,023		—		39,010		160		1,490		156		35		590		951		34,398		—		37,780
Current period gross charge-offs																				—		—		—		—		—		—		—		—		—

Multifamily property:
Pass		451,097		686,386		119,517		231,326		43,284		326,173		500		4,154		1,862,437		43,495		481,160		659,346		121,200		213,938		326,509		748		7,037		1,853,433
Special mention		—		—		—		2,873		—		3,542		—		—		6,415		—		—		—		—		—		1,673		—		—		1,673
Substandard		—		—		—		—		—		7,931		—		—		7,931		—		1,572		9,714		—		10,399		7,578		—		—		29,263
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total multifamily property		451,097		686,386		119,517		234,199		43,284		337,646		500		4,154		1,876,783		43,495		482,732		669,060		121,200		224,337		335,760		748		7,037		1,884,369
Current period gross charge-offs																				—		—		—		—		—		—		—		—		—

Owner-occupied commercial real estate:
Pass		4,543		44,515		21,154		12,480		22,902		142,338		716		2,337		250,985
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		296		—		—		296
Doubtful		—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate		4,543		44,515		21,154		12,480		22,902		142,634		716		2,337		251,281

Investment commercial real estate:
Pass		107,815		163,490		64,745		159,319		115,017		325,687		6,992		36,434		979,499
Special mention		—		—		—		34,414		7,797		30,584		—		—		72,795
Substandard		12,471		—		—		3,523		—		—		—		—		15,994
Doubtful		—		—		—		—		—		—		—		—		—
Total investment commercial real estate		120,286		163,490		64,745		197,256		122,814		356,271		6,992		36,434		1,068,288

Commercial and industrial:
Pass		131,764		264,794		128,158		105,890		35,032		6,853		304,093		24,455		1,001,039
Special mention		—		1,881		—		5,277		195		—		4,602		6,345		18,300
Substandard		—		—		—		—		292		208		36		—		536
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial		131,764		266,675		128,158		111,167		35,519		7,061		308,731		30,800		1,019,875

Lease financing:
Pass		48,810		79,608		65,951		62,373		36,682		21,523		—		—		314,947
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total lease financing		48,810		79,608		65,951		62,373		36,682		21,523		—		—		314,947

Construction loans:


	Grade as of June 30, 2023 for Loans Originated During
											2018				Revolving-
(In thousands)	2023		2022		2021		2020		2019		and Prior		Revolving		Term		Total
Owner-occupied commercial real estate:
Pass		1,515		23,878		43,125		20,395		11,996		130,336		305		26,983		258,533
Special mention		—		—		—		—		—		—		376		—		376
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate		1,515		23,878		43,125		20,395		11,996		130,336		681		26,983		258,909
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Investment commercial real estate:
Pass		82,974		175,500		152,000		58,567		153,896		328,176		8,231		42,542		1,001,886
Special mention		—		—		—		—		12,817		13,125		—		—		25,942
Substandard		—		9,935		—		—		3,426		—		—		—		13,361
Doubtful		—		—		—		—		—		—		—		—		—
Total investment commercial real estate		82,974		185,435		152,000		58,567		170,139		341,301		8,231		42,542		1,041,189
Current period gross charge-offs		—		1,199		—		—		—		—		—		—		1,199

Commercial and industrial:
Pass		126,562		303,336		196,525		59,775		59,585		24,167		469,571		27,576		1,267,097
Special mention		—		—		—		825		1,170		191		256		—		2,442
Substandard		—		—		1,698		845		1,003		280		8,693		—		12,519
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial		126,562		303,336		198,223		61,445		61,758		24,638		478,520		27,576		1,282,058
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Lease financing:
Pass		25,805		46,099		66,439		51,345		39,709		25,620		—		—		255,017
Special mention		1,410		18,225		569		—		1,508		1,461		—		—		23,173
Substandard		—		—		—		—		1,328		—		—		—		1,328
Doubtful		—		—		—		—		—		—		—		—		—
Total lease financing		27,215		64,324		67,008		51,345		42,545		27,081		—		—		279,518
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Construction:
Pass		—		—		—		—		1,404		—		—		14,847		16,251
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction loans		—		—		—		—		1,404		—		—		14,847		16,251
Current period gross charge-offs		—		—		—		—		—		—		—		—		—

Consumer and other loans:
Pass		80		—		336		173		—		4,924		31,449		18,514		55,476
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer and other loans		80		—		336		173		—		4,924		31,449		18,514		55,476
Current period gross charge-offs		—		—		—		—		—		—		61		—		61


	Grade as of June 30, 2023 for Loans Originated During
											2018				Revolving-
(In thousands)	2023		2022		2021		2020		2019		and Prior		Revolving		Term		Total
Total:
Pass		350,304		1,148,000		1,200,716		372,197		517,447		1,047,906		544,639		138,184		5,319,393
Special mention		1,410		18,225		569		825		15,495		16,450		632		—		53,606
Substandard		—		11,507		11,412		1,334		17,137		8,509		8,756		—		58,655
Doubtful		—		—		—		—		—		—		—		—		—
Total Loans	$	351,714	$	1,177,732	$	1,212,697	$	374,356	$	550,079	$	1,072,865	$	554,027	$	138,184	$	5,431,654
Total Current Period Gross Charge-offs	$	—	$	1,199	$	—	$	—	$	—	$	—	$	61	$	—	$	1,260

   Pass

—

—

—

1,455

—

5

9,020

10,278

20,758

   Special mention

—

—

—

—

—

—

—

—

—

   Substandard

—

—

—

—

—

—

—

—

—

   Doubtful

—

—

—

—

—

—

—

—

—

Total commercial construction loans

—

—

—

1,455

—

5

9,020

10,278

20,758

Consumer and other loans:

   Pass

—

417

262

17

—

6,187

33,592

3,299

43,774

   Special mention

—

—

—

—

—

—

—

—

—

   Substandard

—

—

—

—

—

—

—

—

—

   Doubtful

—

—

—

—

—

—

—

—

—

Total consumer and other loans

—

417

262

17

—

6,187

33,592

3,299

43,774

Total:

   Pass

818,252

1,335,894

465,304

612,939

282,213

1,037,170

390,420

81,654

5,023,846

   Special mention

—

1,881

—

43,661

8,072

34,226

4,602

6,345

98,787

   Substandard

12,471

—

462

3,735

577

9,370

552

—

27,167

   Doubtful

—

—

—

—

—

—

—

—

—

Total Loans

$
830,723

$
1,337,775

$
465,766

$
660,335

$
290,862

$
1,080,766

$
395,574

$
87,999

$
5,149,800


	Grade as of December 31, 2022 for Loans Originated During
											2017				Revolving-
(In thousands)	2022		2021		2020		2019		2018		and Prior		Revolving		Term		Total
Primary residential mortgage:
Pass	$	118,864	$	87,312	$	62,540	$	37,902	$	27,209	$	190,834	$	—	$	691	$	525,352
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		547		1,044		141		700		—		—		2,432
Doubtful		—		—		—		—		—		—		—		—		—
Total primary residential mortgages		118,864		87,312		63,087		38,946		27,350		191,534		—		691		527,784

Junior lien loan on residence:
Pass		1,631		177		42		639		326		953		33,996		—		37,764
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		501		—		501
Doubtful		—		—		—		—		—		—		—		—		—
Total junior lien loan on residence		1,631		177		42		639		326		953		34,497		—		38,265

Multifamily property:
Pass		488,657		678,507		118,220		224,129		33,884		305,628		1,246		1,425		1,851,696
Special mention		—		—		—		—		—		1,696		—		—		1,696
Substandard		—		—		—		2,846		—		7,677		—		—		10,523
Doubtful		—		—		—		—		—		—		—		—		—
Total multifamily property		488,657		678,507		118,220		226,975		33,884		315,001		1,246		1,425		1,863,915

Owner-occupied commercial real estate:
Pass		25,315		43,916		20,679		12,244		22,422		126,237		608		20,588		272,009
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total owner-occupied commercial real estate		25,315		43,916		20,679		12,244		22,422		126,237		608		20,588		272,009

Investment commercial real estate:
Pass		189,829		154,715		59,444		155,995		93,330		305,219		6,590		23,487		988,609
Special mention		—		—		—		13,015		—		13,309		—		14,507		40,831
Substandard		11,208		—		—		3,477		—		—		—		—		14,685
Doubtful		—		—		—		—		—		—		—		—		—
Total investment commercial real estate		201,037		154,715		59,444		172,487		93,330		318,528		6,590		37,994		1,044,125

Commercial and industrial:
Pass		421,072		217,887		76,307		80,359		26,792		5,559		303,526		29,750		1,161,252
Special mention		14,405		—		826		—		193		—		258		—		15,682
Substandard		1,553		1,892		2,148		3,894		277		71		7,893		—		17,728
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial and industrial		437,030		219,779		79,281		84,253		27,262		5,630		311,677		29,750		1,194,662

Lease financing:
Pass		73,155		71,925		58,262		48,942		24,408		8,125		—		—		284,817
Special mention		1,984		—		—		—		—		—		—		—		1,984
Substandard		—		—		—		1,765		—		—		—		—		1,765
Doubtful		—		—		—		—		—		—		—		—		—
Total lease financing		75,139		71,925		58,262		50,707		24,408		8,125		—		—		288,566

~~As of December 31, 2021, 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

$
494,444

$
557

$
5,242

$
—

Home equity lines of credit

40,274

—

529

—

Junior lien loan on residence

3,173

—

18

—

Multifamily property

1,579,776

7,720

8,370

—

Owner-occupied commercial real estate

251,229

663

711

—

Investment commercial real estate

901,877

87,297

14,805

—

Commercial and industrial

951,127

20,178

21,027

—

Lease financing

345,868

—

—

—

Farmland/agricultural production

6,871

—

—

—

Commercial construction loans

20,099

75

—

—

Consumer and other loans

40,828

—

—

—

Total

$
4,635,566

$
116,490

$
50,702

$
—


	Grade as of December 31, 2022 for Loans Originated During
											2017				Revolving-
(In thousands)	2022		2021		2020		2019		2018		and Prior		Revolving		Term		Total
Construction:
Pass		—		—		—		1,439		—		—		4,064		4,433		9,936
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction loans		—		—		—		1,439		—		—		4,064		4,433		9,936

Consumer and other loans:
Pass		—		381		194		—		—		5,753		31,287		4,704		42,319
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer and other loans		—		381		194		—		—		5,753		31,287		4,704		42,319

Total:
Pass		1,318,523		1,254,820		395,688		561,649		228,371		948,308		381,317		85,078		5,173,754
Special mention		16,389		—		826		13,015		193		15,005		258		14,507		60,193
Substandard		12,761		1,892		2,695		13,026		418		8,448		8,394		—		47,634
Doubtful		—		—		—		—		—		—		—		—		—
Total Loans	$	1,347,673	$	1,256,712	$	399,209	$	587,690	$	228,982	$	971,761	$	389,969	$	99,585	$	5,281,581

At June 30, ~~2022, $13.2~~2023, $33.7 million of substandard loans were also considered individually evaluated, compared to ~~$15.7~~$14.7 million at December 31, ~~2021.~~2022. The increase in individually evaluated substandard loans is primarily due to three multifamily loans with a balance of $18.9 million that were graded as substandard during the first six months of 2023.

Loan Modifications:

On January 1, 2023, the Company adopted Accounting Standards Update 2022-02, which replaced the accounting and recognition of TDRs. The ~~CARES Act allowed financial institutions to suspend application~~Company will provide modifications, which may include other than insignificant delays in payment of amounts due, extension of the terms of the notes or reduction in the interest rates on the notes. In certain ~~current TDR accounting guidance under ASC 310-40 for loan modifications~~instances, the Company may grant more than one type of modification. The following tables provides information related to the ~~COVID-19 pandemic made between March 1, 2020 and~~modifications during the earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria were met. The revised CARES Act extended TDR relief to loan modifications through January 1, 2022. This relief could be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan modifications that deferred or delayed the payment of principal or interest or changed the interest rate on the loan. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (e.g., six ~~months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40.~~

~~As of~~months ended June 30, ~~2022, the Bank had modified 542 loans with a balance~~2023 by pool segment and type of $947.0 million resulting in the deferral of principal and/or interest. The table below summarizes the outstanding deferrals as of June 30, 2022. All of these loans were performing in accordance with their terms prior to modification and are in conformance with the CARES Act. ~~Details with respect to loan modifications are as follows:~~concession granted:


					Interest Only Period Extension
					Six Months Ended June 30, 2023
			Post-Modification				% of Total
			Outstanding		Amortized		Class of
	Number of		Recorded		Cost Basis		Financing
(Dollars in thousands)	Loans		Investment		at Period End		Receivable
Commercial and industrial		4	$	12,656	$	248		0.02	%
Total		4	$	12,656	$	248		0.02	%


	Interest Rate Reduction
	Six Months Ended June 30, 2023
			% of Total
	Amortized		Class of
	Cost Basis		Financing
(Dollars in thousands)	at Period End		Receivable
Commercial and industrial	$	777		0.06	%
Total	$	777		0.06	%

The following table depicts the payment status of the loans that were modified to a borrower experiencing financial difficulties on or after January 1, 2023, the date we adopted ASU 2022-02, through June 30, 2023:


	Payment Status at June 30, 2023
			30-89 Days		90+ Days
(Dollars in thousands)	Current		Past Due		Past Due
Commercial and industrial	$	248	$	—	$	777
Total	$	248	$	—	$	777

The following table presents loans by class modified that failed to comply with the modified terms in the twelve months following modification and resulted in a payment default at June 30, 2023:


	Amortized Cost Basis of Modified Loans
	That Subsequently Defaulted
	Six Months Ended June 30, 2023
	Interest Only		Interest
(Dollars in thousands)	Period Extension		Rate Reduction
Commercial and industrial	$	248	$	—
Total	$	248	$	—

Troubled Debt Restructurings:

Prior to the adoption of ASU 2022-02 on January 1, 2023, the Company classified certain loans as troubled debt restructuring (“TDR”) loans when credit terms to a borrower in financial difficulty were modified, in accordance with ASC 310-40. With the adoption of ASU 2022-02 as of January 1, 2023, the Company has ceased to recognize or measure new TDRs but those existing at December 31, 2022 will remain until settled.

The Company ~~has~~had allocated ~~$2.5~~$2.5 million of specific reserves on TDRs as of June 30, 2022. ~~The Company did 0t allocate specific reserves to customers whose loan terms had been modified in troubled debt restructurings as of December 31, 2021.~~ There were no unfunded commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs.

There were 0no loans modified as TDRs during the three-month period ended June 30, 2022.

~~The following table presents loans by class modified as TDRs during the three-month period ended June 30, 2021:~~

Pre-Modification

Post-Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

(Dollars in thousands)

Loans

Investment

Investment

Primary residential mortgage

1

$
822

$
822

Commercial and industrial

1

2,317

2,317

Total

2

$
3,139

$
3,139

The following table presents loans by class modified as TDRs during the six-month period ended June 30, 2022:


			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
(Dollars in thousands)	Loans		Investment		Investment
Investment commercial real estate		1	$	12,471	$	12,471
Total		1	$	12,471	$	12,471

~~The following table presents loans by class modified as TDRs during the six-month period ended June 30, 2021:~~

The identification of the TDRs did not have a material impact on the allowance for credit losses.

The following table presents loans by class modified as TDRs that failed to comply with the modified terms in the twelve months following modification and resulted in a payment default at June 30, 2022:


	Number of		Recorded
(Dollars in thousands)	Loans		Investment
Primary residential mortgage		2	$	359
Total		2	$	359

~~There were 0 loans that were modified as TDRs for which there was a payment default within twelve months of modification at June 30, 2021.~~

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. The modification of the terms of such loans may include one or more of the following: (1) a reduction of the stated interest rate of the loan to a rate that is lower than the current market rate for new debt with similar risk; (2) an extension of an interest only period for a predetermined period of time; (3) an extension of the maturity date; or (4) an extension of the amortization period over which future payments will be computed. At the time a loan is restructured, the Bank performs a full underwriting analysis, which includes, at a minimum, obtaining current financial statements and tax returns, copies of all leases, and an updated independent appraisal of the property. A loan will continue to accrue interest if it can be reasonably determined that the borrower should be able to perform under the modified terms, that the loan has not been chronically delinquent (both to debt service and real estate taxes) or in nonaccrual status since its inception, and that there have been no charge-offs on the loan. Restructured loans with previous charge-offs would not accrue interest at the time of the TDR. At a minimum, six consecutive months of contractual payments would need to be made on a restructured loan before returning it to accrual status. Once a loan is classified as a TDR, the loan is reported as a TDR until the loan is paid in full, sold or charged-off. In rare circumstances, a loan may be removed from TDR status if it meets the requirements of ASC 310-40-50-2.

4. ALLOWANCE FOR CREDIT LOSSES

On January 1, 2022, the Company adopted ASU 2016-13, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. See Note 1, Summary of Significant Accounting Policies for additional information on Topic 326.

The Company does not estimate expected credit losses on accrued interest receivable (“AIR”) on loans, as AIR is reversed or written off when the full collection of the AIR related to a loan becomes doubtful. AIR on loans totaled ~~$21.4~~$18.1 million at June 30, ~~2022~~2023 and ~~$19.1~~$22.8 million at December 31, ~~2021.~~2022.

The following ~~table presents~~tables present the loan balances by segment, and the corresponding balances in the allowance as of June 30, 2023 and December 31, 2022. ~~For the period ended June 30, 2022, the~~The allowance iswas based on the CECL methodology.


													June 30, 2023
	June 30, 2022														Ending ACL
			Ending ACL				Ending ACL								Attributable				Ending ACL
	Total		Attributable		Total		Attributable						Total		To		Total		Attributable
	Individually		To Individually		Loans		To Loans				Total		Individually		Individually		Loans		To Loans				Total
	Evaluated		Evaluated		Collectively		Collectively		Total		Ending		Evaluated		Evaluated		Collectively		Collectively		Total		Ending
(In thousands)	Loans		Loans		Evaluated		Evaluated		Loans		ACL		Loans		Loans		Evaluated		Evaluated		Loans		ACL
Primary residential mortgage	$	216	$	—	$	514,868	$	2,154	$	515,084	$	2,154	$	363	$	—	$	575,741	$	3,148	$	576,104	$	3,148
Junior lien loan on residence		—		—		39,010		151		39,010		151		—		—		37,780		151		37,780		151
Multifamily property		—		—		1,876,783		15,790		1,876,783		15,790		18,868		1,986		1,865,501		8,551		1,884,369		10,537
Owner-occupied commercial real estate		296		—		250,985		4,660		251,281		4,660		—		—		258,909		4,708		258,909		4,708
Investment commercial real estate		12,471		2,471		1,055,817		8,498		1,068,288		10,969		9,935		—		1,031,254		13,548		1,041,189		13,548
Commercial and industrial		244		—		1,019,631		20,998		1,019,875		20,998		3,373		448		1,278,685		26,985		1,282,058		27,433
Lease financing		—		—		314,947		3,352		314,947		3,352		1,328		—		278,190		2,063		279,518		2,063
Construction loans		—		—		20,758		359		20,758		359
Construction														—		—		16,251		421		16,251		421
Consumer and other loans		—		—		43,774		589		43,774		589		—		—		55,476		695		55,476		695
Total ACL	$	13,227	$	2,471	$	5,136,573	$	56,551	$	5,149,800	$	59,022	$	33,867	$	2,434	$	5,397,787	$	60,270	$	5,431,654	$	62,704


	December 31, 2022
			Ending ACL
			Attributable				Ending ACL
	Total		To		Total		Attributable
	Individually		Individually		Loans		To Loans				Total
	Evaluated		Evaluated		Collectively		Collectively		Total		Ending
(In thousands)	Loans		Loans		Evaluated		Evaluated		Loans		ACL
Primary residential mortgage	$	374	$	—	$	527,410	$	2,894	$	527,784	$	2,894
Junior lien loan on residence		—		—		38,265		154		38,265		154
Multifamily property		—		—		1,863,915		8,849		1,863,915		8,849
Owner-occupied commercial real estate		—		—		272,009		4,835		272,009		4,835
Investment commercial real estate		11,208		1,208		1,032,917		14,272		1,044,125		15,480
Commercial and industrial		3,385		299		1,191,277		25,231		1,194,662		25,530
Lease financing		1,765		—		286,801		2,314		288,566		2,314
Construction		—		—		9,936		236		9,936		236
Consumer and other loans		—		—		42,319		537		42,319		537
Total ACL	$	16,732	$	1,507	$	5,264,849	$	59,322	$	5,281,581	$	60,829

The following table presents the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance as of December 31, 2021. For the year ended December 31, 2021, the allowance was calculated based on the incurred loss methodology:

December 31, 2021

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

$
2,242

$
—

$
498,001

$
1,432

$
500,243

$
1,432

Home equity lines of credit

—

—

40,803

83

40,803

83

Junior lien loan on residence

18

—

3,173

5

3,191

5

Multifamily property

—

—

1,595,866

9,806

1,595,866

9,806

Owner-occupied commercial real estate

458

—

252,145

1,998

252,603

1,998

Investment commercial real estate

12,750

4,234

991,229

22,849

1,003,979

27,083

Commercial and industrial

2,584

—

989,748

17,509

992,332

17,509

Lease financing

—

—

345,868

3,440

345,868

3,440

Farmland/agricultural production

—

—

6,871

84

6,871

84

Commercial construction loans

—

—

20,174

42

20,174

42

Consumer and other loans

—

—

40,828

215

40,828

215

Total ALLL

$
18,052

$
4,234

$
4,784,706

$
57,463

$
4,802,758

$
61,697

Individually evaluatedloans include nonaccrual loans of ~~$13.2~~$33.7 million at June 30, ~~2022~~2023 and ~~$15.6~~$15.8 million at December 31, 2021. This includes one $12.5 million commercial real estate loan that was placed on nonaccrual status in the third quarter of 2021, which resulted in the Company recording a charge-off of $7.4 million during the fourth quarter of 2021.2022. Individually evaluated loans did 0tnot include any performing ~~TDR~~modified loans at June 30, ~~2022 but included $2.5 million~~2023. An allowance of ~~performing TDR loans at December 31, 2021. The allowance~~$233,000 was allocated to ~~TDR~~modified loans ~~totaled $2.5 million~~ at June 30, ~~2022, of which all was allocated to one nonaccrual loan. At December 31, 2021, there was 0 allowance allocated to TDR loans.~~2023. All accruing ~~TDR~~modified loans were paying in accordance with ~~restructured~~their modified terms as of June 30, ~~2022.~~2023. The Company has not committed to lend additional amounts as of June 30, ~~2022~~2023 to customers with outstanding loans that are classified as ~~TDR~~modified loans.

The allowance for credit losses was $62.7 million as of June 30, 2023, compared to $60.8 million at December 31, 2022. The increase in the allowance for credit losses (“ACL”) was primarily due to provision for credit losses of $3.2 million driven by loan growth of $150.1 million for the first six months of 2023. The provision for credit losses was partially offset by the charge-off of a specific reserve of $1.2 million related to a mixed-use commercial real estate loan during the quarter ended June 30, 2023. The allowance for credit losses as a percentage of loans was 1.15 percent at both June 30, 2023 and December 31, 2022.

Under Topic 326, the Company's methodology for determining the ACL on loans is based upon key assumptions, including historic net ~~charge-off factors,~~charge-offs, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation.

The following tables present collateral dependent loans individually evaluated by segment as of June 30, 2023 and December 31, 2022:


									June 30, 2023
	June 30, 2022														Average
	Unpaid						Average		Unpaid						Individually
	Principal		Recorded		Related		Individually Evaluated		Principal		Recorded		Related		Evaluated
(In thousands)	Balance		Investment		Allowance		Loans		Balance		Investment		Allowance		Loans
With no related allowance recorded:
Primary residential mortgage	$	261	$	216	$	—	$	280	$	408	$	363	$	—	$	436
Owner-occupied commercial real estate		329		296		—		324
Investment commercial real estate										12,500		9,935		—		10,967
Multifamily property										9,153		9,153		—		1,526
Commercial and industrial		261		244		—		267		3,775		1,608		—		2,004
Lease financing										1,383		1,328		—		1,529
Total loans with no related allowance	$	851	$	756	$	—	$	871	$	27,219	$	22,387	$	—	$	16,462
With related allowance recorded:
Investment commercial real estate	$	12,500	$	12,471	$	2,471	$	12,573
Multifamily property									$	9,714	$	9,715	$	1,986	$	7,254
Commercial and industrial										1,864		1,765		448		1,099
Total loans with related allowance	$	12,500	$	12,471	$	2,471	$	12,573	$	11,578	$	11,480	$	2,434	$	8,353
Total loans individually evaluated	$	13,351	$	13,227	$	2,471	$	13,444	$	38,797	$	33,867	$	2,434	$	24,815

The following table presents, under previously applicable GAAP, loans individually evaluated for impairment as of December 31, 2021 (the average impaired loans on the following tables represent year to date impaired loans):


									December 31, 2022
	December 31, 2021														Average
	Unpaid						Average		Unpaid						Individually
	Principal		Recorded		Specific		Impaired		Principal		Recorded		Related		Evaluated
(In thousands)	Balance		Investment		Reserves		Loans		Balance		Investment		Allowance		Loans
With no related allowance recorded:
Primary residential mortgage	$	2,453	$	2,242	$	—	$	1,818	$	415	$	374	$	—	$	249
Owner-occupied commercial real estate		492		458		—		540
Junior lien loan on residence		18		18		—		3
Commercial and industrial		4,549		2,584		—		3,153		3,868		1,836		—		539
Lease financing										1,792		1,765		—		444
Total loans with no related allowance	$	7,512	$	5,302	$	—	$	5,514	$	6,075	$	3,975	$	—	$	1,232
With related allowance recorded:
Investment commercial real estate	$	19,887	$	12,750	$	4,234	$	6,034	$	12,500	$	11,208	$	1,208	$	12,402
Commercial and industrial										1,555		1,549		299		174
Total loans with related allowance	$	19,887	$	12,750	$	4,234	$	6,034	$	14,055	$	12,757	$	1,507	$	12,576
Total loans individually evaluated for impairment	$	27,399	$	18,052	$	4,234	$	11,548	$	20,130	$	16,732	$	1,507	$	13,808

Interest income recognized on individually evaluated loans for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 was not material. The Company did not recognize any income on non-accruing impaired loans for the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022.

The activity in the allowance for credit losses for the three months ended June 30, 2023 and June 30, 2022 is summarized below:


	April 1,										June 30,
	2023										2023
	Beginning							Provision			Ending
(In thousands)	ACL		Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	2,959	$	—		$	—	$	189		$	3,148
Junior lien loan on residence		146		—			—		5			151
Multifamily property		9,823		—			—		714			10,537
Owner-occupied commercial real estate		4,952		—			—		(244	)		4,708
Investment commercial real estate		14,538		(1,199	)		—		209			13,548
Commercial and industrial		26,869		—			—		564			27,433
Lease financing		1,989		—			—		74			2,063
Construction		313		—			—		108			421
Consumer and other loans		661		(15	)		2		47			695
Total ACL	$	62,250	$	(1,214	)	$	2	$	1,666		$	62,704

April 1,

June 30,

2022

2022

Beginning

Provision

Ending

(In thousands)

ACL

Charge-offs

Recoveries

(Credit) (1)

ACL

Primary residential mortgage

$
2,291

$
—

$
—

$
(137
)

$
2,154

Junior lien loan on residence

161

(3
)

—

(7
)

151

Multifamily property

15,017

—

—

773

15,790

Owner-occupied commercial real estate

4,774

—

—

(114
)

4,660

Investment commercial real estate

10,504

—

—

465

10,969

Commercial and industrial

21,192

—

—

(194
)

20,998

Lease financing

3,354

—

—

(2
)

3,352

Construction loans

468

—

—

(109
)

359

Consumer and other loans

625

(7
)

—

(29
)

589

Total ACL

$
58,386

$
(10
)

$
—

$
646

$
59,022

~~(1)~~ (A)

Provision to roll forward the ACL excludes a provision of ~~$803,000~~$30,000 for off-balance sheet commitments.


	April 1,										June 30,
	2022										2022
	Beginning							Provision			Ending
(In thousands)	ACL		Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	2,291	$	—		$	—	$	(137	)	$	2,154
Junior lien loan on residence		161		(3	)		—		(7	)		151
Multifamily property		15,017		—			—		773			15,790
Owner-occupied commercial real estate		4,774		—			—		(114	)		4,660
Investment commercial real estate		10,504		—			—		465			10,969
Commercial and industrial		21,192		—			—		(194	)		20,998
Lease financing		3,354		—			—		(2	)		3,352
Construction		468		—			—		(109	)		359
Consumer and other loans		625		(7	)		—		(29	)		589
Total ACL	$	58,386	$	(10	)	$	—	$	646		$	59,022

(A)

Provision to roll forward the ACL excludes a provision of $803,000 for off-balance sheet commitments.

The activity in the allowance for credit losses for the six months ended June 30, 2023 and 2022 is summarized below:


	December 31,													June 30,		January 1,										June 30,
	2021													2022		2023										2023
	Prior to adoption		Impact of								Provision			Ending		Beginning							Provision			Ending
(In thousands)	of Topic 326		adopting Topic 326			Charge-offs			Recoveries		(Credit) (1)			ACL		ACL		Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	1,510	$	717		$	—		$	—	$	(73	)	$	2,154	$	2,894	$	—		$	—	$	254		$	3,148
Junior lien loan on residence		88		83			(3	)		—		(17	)		151		154		—			—		(3	)		151
Multifamily property		9,806		4,072			—			—		1,912			15,790		8,849		—			—		1,688			10,537
Owner-occupied commercial real estate		1,998		2,902			—			—		(240	)		4,660		4,835		—			—		(127	)		4,708
Investment commercial real estate		27,083		(13,589	)		(250	)		—		(2,275	)		10,969		15,480		(1,199	)		—		(733	)		13,548
Commercial and industrial		17,509		(657	)		—			4		4,142			20,998		25,530		—			—		1,903			27,433
Lease financing		3,440		156			—			—		(244	)		3,352		2,314		—			—		(251	)		2,063
Construction loans		48		361			—			—		(50	)		359
Construction																	236		—			—		185			421
Consumer and other loans		215		419			(27	)		2		(20	)		589		537		(61	)		5		214			695
Total ACL	$	61,697	$	(5,536	)	$	(280	)	$	6	$	3,135		$	59,022	$	60,829	$	(1,260	)	$	5	$	3,130		$	62,704

~~(1)~~

(A)

Provision to roll forward the ACL excludes a provision of ~~$689,000~~$79,000 for off-balance sheet commitments.

For the accounting policy on the allowance for loan losses that was in effect prior to the adoption of Topic 326, refer to Note 1, Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year-ended December 31, 2021. The activity in the allowance for loan and lease losses for the three months and six months ended June 30, 2021 is summarized below:

April 1,

June 30,

2021

2021

Beginning

Provision

Ending

(In thousands)

ALLL

Charge-offs

Recoveries

(Credit)

ALLL

Primary residential mortgage

$
2,776

$
(12
)

$
—

$
(597
)

$
2,167

Home equity lines of credit

198

—

76

(151
)

123

Junior lien loan on residence

16

—

—

(8
)

8

Multifamily property

10,427

—

—

188

10,615

Owner-occupied commercial real estate

2,864

—

—

(417
)

2,447

Investment commercial real estate

26,693

—

—

1,193

27,886

Commercial and industrial

20,125

(5,000
)

3

1,437

16,565

Lease financing

3,967

—

—

(692
)

3,275

Farmland/agricultural production

47

—

—

(4
)

43

Commercial construction loans

161

—

—

(2
)

159

Consumer and other loans

262

(5
)

7

(47
)

217

Total ALLL

$
67,536

$
(5,017
)

$
86

$
900

$
63,505

January 1,

June 30,

2021

2021

Beginning

Provision

Ending

(In thousands)

ALLL

Charge-offs

Recoveries

(Credit)

ALLL

Primary residential mortgage

$
2,905

$
(12
)

$
—

$
(726
)

$
2,167

Home equity lines of credit

218

—

85

(180
)

123

Junior lien loan on residence

15

—

—

(7
)

8

Multifamily property

9,945

—

—

670

10,615

Owner-occupied commercial real estate

3,050

—

—

(603
)

2,447

Investment commercial real estate

27,713

—

—

173

27,886

Commercial and industrial

19,047

(5,000
)

10

2,508

16,565

Lease financing

3,936

—

—

(661
)

3,275

Farmland/agricultural production

43

—

—

—

43

Commercial construction loans

158

—

—

1

159

Consumer and other loans

279

(20
)

8

(50
)

217

Total ALLL

$
67,309

$
(5,032
)

$
103

$
1,125

$
63,505


	December 31,
	2021
	Prior to													June 30,
	Adoption		Impact of											2022
	of		Adopting								Provision			Ending
(In thousands)	Topic 326		Topic 326			Charge-offs			Recoveries		(Credit) (A)			ACL
Primary residential mortgage	$	1,510	$	717		$	—		$	—	$	(73	)	$	2,154
Junior lien loan on residence		88		83			(3	)		—		(17	)		151
Multifamily property		9,806		4,072			—			—		1,912			15,790
Owner-occupied commercial real estate		1,998		2,902			—			—		(240	)		4,660
Investment commercial real estate		27,083		(13,589	)		(250	)		—		(2,275	)		10,969
Commercial and industrial		17,509		(657	)		—			4		4,142			20,998
Lease financing		3,440		156			—			—		(244	)		3,352
Construction		48		361			—			—		(50	)		359
Consumer and other loans		215		419			(27	)		2		(20	)		589
Total ACL	$	61,697	$	(5,536	)	$	(280	)	$	6	$	3,135		$	59,022

(A)

Provision to roll forward the ACL excludes a provision of $689,000 for off-balance sheet commitments.

Allowance for Credit Losses on ~~Off Balance~~Off-Balance Sheet Commitments

The following ~~table presets~~tables present the activity in the ACL for ~~off balance~~off-balance sheet commitments for the six months ended June 30, 2023 and 2022:

December 31,

2021

Prior to adoption

Impact of

Provision

June 30, 2022

(In thousands)

of Topic 326

adopting Topic 326

(Credit)

Ending ACL

Off balance sheet commitments

$
—

$
302

$
689

$
991

Total ACL

$
—

$
302

$
689

$
991


	January 1,
	2023				June 30,
	Beginning		Provision		2023
(In thousands)	ACL		(Credit)		Ending ACL
Off balance sheet commitments	$	752	$	79	$	831
Total ACL	$	752	$	79	$	831


	December 31,
	2021						June 30,
	Prior to adoption		Impact of		Provision		2022
(In thousands)	of Topic 326		adopting Topic 326		(Credit)		Ending ACL
Off balance sheet commitments	$	—	$	302	$	689	$	991
Total ACL	$	—	$	302	$	689	$	991

5. DEPOSITS

Certificates of deposit that met or exceeded $250,000 totaled ~~$122.4~~$87.9 million and ~~$140.4~~$91.1 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. These totals ~~excluded~~exclude brokered certificates of deposit.

The following table sets forth the details of total deposits as of June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

June 30,

December 31,

2022

2021

(Dollars in thousands)

Noninterest-bearing demand deposits

$
1,043,225

19.30
%

$
956,482

18.16
%
Interest-bearing checking (1)

2,456,988

45.47

2,287,894

43.45

Savings

168,441

3.12

154,914

2.94

Money market

1,217,516

22.53

1,307,051

24.82

Certificates of deposit - retail

375,387

6.95

409,608

7.78

Certificates of deposit - listing service

31,348

0.58

31,382

0.60

Subtotal deposits

5,292,905

97.95

5,147,331

97.75

Interest-bearing demand - Brokered

85,000

1.57

85,000

1.61

Certificates of deposit - Brokered

25,963

0.48

33,818

0.64

Total deposits

$
5,403,868

100.00
%

$
5,266,149

100.00
%


	June 30,				December 31,
	2023				2022
(Dollars in thousands)
Noninterest-bearing demand deposits	$	1,024,105	19.70	%	$	1,246,066	23.94	%
Interest-bearing checking (A)		2,816,913	54.19			2,143,611	41.18
Savings		120,082	2.31			157,338	3.02
Money market		763,026	14.68			1,228,234	23.60
Certificates of deposit - retail		384,106	7.39			318,573	6.12
Certificates of deposit - listing service		10,822	0.21			25,358	0.49
Subtotal deposits		5,119,054	98.48			5,119,180	98.35
Interest-bearing demand - Brokered		10,000	0.19			60,000	1.15
Certificates of deposit - Brokered		69,443	1.33			25,984	0.50
Total deposits	$	5,198,497	100.00	%	$	5,205,164	100.00	%

~~(1)~~(A)

Interest-bearing checking includes ~~$627.1~~$895.3 million at June 30, ~~2022~~2023 and ~~$647.8~~$620.1 million at December 31, ~~2021~~2022 of reciprocal balances in the Reich & Tang or Promontory Demand Deposit Marketplace program.

The scheduled maturities of certificates of deposit, including brokered certificates of deposit, as of June 30, ~~2022,~~2023, are as follows:


(In thousands)
2022	$	176,932
2023		159,720	$	178,462
2024		45,382		240,065
2025		39,175		38,917
2026		10,778		4,240
2027 and later		711
2027				2,564
2028 and later				123
Total	$	432,698	$	464,371

6. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

At June 30, ~~2022 and December 31, 2021,~~2023, the Company had noovernight borrowings with the FHLB of $485.4 million at a rate of 5.31 percent compared to $379.5 million of overnight borrowings at the ~~FHLB.~~FHLB at a rate of 4.61 percent at December 31, 2022. At June 30, ~~2022,~~2023, unused short-term overnight borrowing commitments totaled ~~$1.9~~$3.2 billion from the FHLB, ~~$22.0 million from~~ correspondent banks and ~~$1.6 billion~~ at the Federal Reserve Bank of New York.

7. BUSINESS SEGMENTS

The Company assesses its results among 2two operating segments, Banking and Peapack Private. Management uses certain methodologies to allocate income and expense to the business segments. A funds transfer pricing methodology is used to assign interest income and interest expense. Certain indirect expenses are allocated to segments. These include support unit expenses such as technology and operations and other support functions. Taxes are allocated to each segment based on the effective rate for the period shown.

Banking

The Banking segment includes: commercial (includes C&I and equipment finance), commercial real estate, multifamily, residential and consumer lending activities; treasury management services; C&I advisory services; escrow management; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support and sales.

Peapack Private

Peapack Private which includes the operations of PGB Trust & Investments of Delaware, ~~and Murphy Capital,~~ consists of: investment management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; and other financial planning, tax preparation and advisory services.

The following tables present the statements of income and total assets for the Company’s reportable segments for the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022.


	Three Months Ended June 30, 2022						Three Months Ended June 30, 2023
			Peapack						Peapack
(In thousands)	Banking		Private		Total		Banking		Private		Total
Net interest income	$	41,078	$	1,815	$	42,893	$	38,103	$	818	$	38,921
Noninterest income		4,119		14,389		18,508		4,072		14,503		18,575
Total income		45,197		16,204		61,401		42,175		15,321		57,496

Provision for credit losses		1,449		—		1,449		1,696		—		1,696
Compensation and benefits		15,476		6,406		21,882		17,949		8,405		26,354
Premises and equipment expense		3,835		805		4,640		4,023		706		4,729
FDIC expense		503		—		503		729		—		729
Other operating expense		3,212		2,422		5,634		3,855		2,025		5,880
Total operating expense		24,475		9,633		34,108		28,252		11,136		39,388
Income before income tax expense		20,722		6,571		27,293		13,923		4,185		18,108
Income tax expense		5,624		1,569		7,193		3,816		1,147		4,963
Net income	$	15,098	$	5,002	$	20,100	$	10,107	$	3,038	$	13,145


	Three Months Ended June 30, 2021						Three Months Ended June 30, 2022
			Peapack						Peapack
(In thousands)	Banking		Private		Total		Banking		Private		Total
Net interest income	$	32,399	$	1,446	$	33,845	$	41,078	$	1,815	$	42,893
Noninterest income		4,194		13,484		17,678		4,119		14,389		18,508
Total income		36,593		14,930		51,523		45,197		16,204		61,401

Provision for loan and lease losses		900		—		900		1,449		—		1,449
Compensation and employee benefits		14,369		5,541		19,910		15,476		6,406		21,882
Premises and equipment expense		3,519		555		4,074		3,835		805		4,640
FDIC insurance expense		529		—		529		503		—		503
Other operating expense		3,817		2,354		6,171		3,212		2,422		5,634
Total operating expense		23,134		8,450		31,584		24,475		9,633		34,108
Income before income tax expense		13,459		6,480		19,939		20,722		6,571		27,293
Income tax expense		3,721		1,800		5,521		5,624		1,569		7,193
Net income	$	9,738	$	4,680	$	14,418	$	15,098	$	5,002	$	20,100


	Six Months Ended June 30, 2022						Six Months Ended June 30, 2023
			Peapack						Peapack
(In thousands)	Banking		Private		Total		Banking		Private		Total
Net interest income	$	79,077	$	3,438	$	82,515	$	80,193	$	2,706	$	82,899
Noninterest income		3,690		29,532		33,222		7,907		28,727		36,634
Total income		82,767		32,970		115,737		88,100		31,433		119,533

Provision for credit losses		3,824		—		3,824		3,209		—		3,209
Compensation and employee benefits		31,879		12,452		44,331		36,118		14,822		50,940
Premises and equipment expense		7,766		1,521		9,287		7,636		1,467		9,103
FDIC insurance expense		974		—		974		1,440		—		1,440
Other operating expense		7,378		4,858		12,236		7,129		4,654		11,783
Total operating expense		51,821		18,831		70,652		55,532		20,943		76,475
Income before income tax expense		30,946		14,139		45,085		32,568		10,490		43,058
Income tax expense		7,924		3,620		11,544		8,746		2,812		11,558
Net income	$	23,022	$	10,519	$	33,541	$	23,822	$	7,678	$	31,500

Total assets at period end	$	6,046,082	$	105,085	$	6,151,167	$	6,363,409	$	116,291	$	6,479,700


	Six Months Ended June 30, 2021						Six Months Ended June 30, 2022
			Peapack						Peapack
(In thousands)	Banking		Private		Total		Banking		Private		Total
Net interest income	$	62,625	$	3,013	$	65,638	$	79,077	$	3,438	$	82,515
Noninterest income		9,334		26,164		35,498		3,690		29,532		33,222
Total income		71,959		29,177		101,136		82,767		32,970		115,737

Provision for loan and lease losses		1,125		—		1,125		3,824		—		3,824
Compensation and employee benefits		30,797		11,103		41,900		31,879		12,452		44,331
Premises and equipment expense		7,089		1,098		8,187		7,766		1,521		9,287
FDIC insurance expense		1,114		—		1,114		974		—		974
Other operating expense		6,208		4,869		11,077		7,378		4,858		12,236
Total operating expense		46,333		17,070		63,403		51,821		18,831		70,652
Income before income tax expense		25,626		12,107		37,733		30,946		14,139		45,085
Income tax expense		6,880		3,257		10,137		7,924		3,620		11,544
Net income	$	18,746	$	8,850	$	27,596	$	23,022	$	10,519	$	33,541

Total assets at period end	$	5,700,105	$	91,583	$	5,791,688	$	6,046,082	$	105,085	$	6,151,167

8. 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 an 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.

Individually Evaluated Loans: The fair value of collateral dependent loans with specific allocations of the allowance for credit 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. Individually evaluated loans may, in some cases, also be measured by the discounted cash flow methodology where payments are anticipated. 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 estimated 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 third party conducts a review of the appraisal for compliance with the Uniform Standards of Professional Appraisal Practice and appropriate analysis methods for the type of property. Subsequently, 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. All collateral-dependent impaired loans and other real estate owned valuations were supported by an appraisal less than 12 months old or in the process of obtaining an appraisal as of June 30, ~~2022.~~2023.

The following tables ~~summarizes,~~summarize, at the dates 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								Fair Value Measurements Using
			Quoted								Quoted
			Prices in								Prices in
			Active		Significant						Active		Significant
			Markets For		Other		Significant				Markets For		Other		Significant
			Identical		Observable		Unobservable				Identical		Observable		Unobservable
	June 30,		Assets		Inputs		Inputs		June 30,		Assets		Inputs		Inputs
(In thousands)	2022		(Level 1)		(Level 2)		(Level 3)		2023		(Level 1)		(Level 2)		(Level 3)
Assets:
Available for sale:
U.S. government-sponsored agencies	$	206,123	$	—	$	206,123	$	—	$	193,129	$	—	$	193,129	$	—
Mortgage-backed securities-residential		306,828		—		306,828		—		312,526		—		312,526		—
SBA pool securities		32,583		—		32,583		—		24,878		—		24,878		—
State and political subdivisions		4,013		—		4,013		—		1,848		—		1,848		—
Corporate bond		7,244		—		7,244		—		8,138		—		8,138		—
CRA investment fund		13,528		13,528		—		—		12,985		12,985		—		—
Loans held for sale, at fair value		515		—		515		—
Derivatives:
Cash flow hedges		1,041		—		1,041		—		11,248		—		11,248		—
Loan level swaps		19,366		—		19,366		—		36,331		—		36,331		—
Total	$	591,241	$	13,528	$	577,713	$	—	$	601,083	$	12,985	$	588,098	$	—

Liabilities:
Derivatives:
Cash flow hedges	$	569	$	—	$	569	$	—
Loan level swaps		19,366		—		19,366		—		36,331		—		36,331		—
Total	$	19,935	$	—	$	19,935	$	—	$	36,331	$	—	$	36,331	$	—

Assets Measured on a Recurring Basis


			Fair Value Measurements Using								Fair Value Measurements Using
			Quoted								Quoted
			Prices in								Prices in
			Active		Significant						Active		Significant
			Markets For		Other		Significant				Markets For		Other		Significant
			Identical		Observable		Unobservable				Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs		December 31,		Assets		Inputs		Inputs
(In thousands)	2021		(Level 1)		(Level 2)		(Level 3)		2022		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities available for sale:
U.S. government-sponsored agencies	$	272,221	$	—	$	272,221	$	—	$	190,542	$	—	$	190,542	$	—
Mortgage-backed securities-residential		476,974		—		476,974		—		325,738		—		325,738		—
SBA pool securities		39,561		—		39,561		—		27,427		—		27,427		—
State and political subdivisions		5,476		—		5,476		—		1,849		—		1,849		—
Corporate bond		2,521		—		2,521		—		9,092		—		9,092		—
CRA investment fund		14,685		14,685		—		—		12,985		12,985		—		—
Loans held for sale, at fair value		3,040		—		3,040		—
Derivatives:
Cash flow hedges										9,289		—		9,289		—
Loan level swaps		32,326		—		32,326		—		38,265		—		38,265		—
Total	$	846,804	$	14,685	$	832,119	$	—	$	615,187	$	12,985	$	602,202	$	—

Liabilities:
Derivatives:
Cash flow hedges	$	3,479	$	—	$	3,479	$	—
Loan level swaps		34,569		—		34,569		—	$	38,265	$	—	$	38,265	$	—
Total	$	38,048	$	—	$	38,048	$	—	$	38,265	$	—	$	38,265	$	—

The Company has elected the fair value option for certain loans held for sale. These loans are intended for sale and the Company 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 Company’s policy on loans held for investment. None of these loans are 90 days or more past due ~~nor~~or on nonaccrual as of June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

~~The following tables present residential loans held for sale, at fair value at the dates indicated:~~37

(In thousands)

June 30, 2022

December 31, 2021

Residential loans contractual balance

$
510

$
2,992

Fair value adjustment

5

48

Total fair value of residential loans held for sale

$
515

$
3,040

There were 0no transfers between Level 1 and Level 2 during the six months ended June 30, ~~2022.~~2023.

The following tables summarize, at the dates indicated, assets measured at fair value on a non-recurring basis:

Fair Value Measurements Using

Quoted

Prices in

Active

Significant

Active

Significant

Markets For

Other

Significant

Markets For

Other

Significant

Identical

Observable

Unobservable

Identical

Observable

Unobservable

June 30,

Assets

Inputs

June 30,

Assets

Inputs

(In thousands)

2022

(Level 1)

(Level 2)

(Level 3)

2023

(Level 1)

(Level 2)

(Level 3)

Assets:

Individually evaluated loans:

Investment commercial real estate

10,000

Multifamily property

7,728

—

7,728

Commercial and industrial

1,317

—

1,317

Fair Value Measurements Using

Quoted

Prices in

Active

Significant

Active

Significant

Markets For

Other

Significant

Markets For

Other

Significant

Identical

Observable

Unobservable

Identical

Observable

Unobservable

December 31,

Assets

Inputs

December 31,

Assets

Inputs

(In thousands)

2021

(Level 1)

(Level 2)

(Level 3)

2022

(Level 1)

(Level 2)

(Level 3)

Assets:

Impaired loans:

Individually evaluated loans:

Investment commercial real estate

8,516

—

8,516

10,000

—

10,000

Commercial and industrial

743

—

743

The carrying amounts and estimated fair values of financial instruments at June 30, ~~2022~~2023 are as follows:

Fair Value Measurements at June 30, 2022 using

Carrying

(In thousands)

Amount

Level 1

Level 2

Level 3

Total

Financial assets

Cash and cash equivalents

$
153,425

$
153,425

$
—

$
—

$
153,425

Securities available for sale

556,791

—

556,791

—

556,791

Securities held to maturity

105,048

—

95,642

—

95,642

CRA investment fund

13,528

13,528

—

—

13,528

FHLB and FRB stock

13,710

—

—

—

N/A

Loans held for sale, at fair value

515

—

515

—

515

Loans held for sale, at lower of cost or fair value

14,956

—

16,631

—

16,631

Loans, net of allowance for credit losses

5,094,851

—

—

4,961,672

4,961,672

Accrued interest receivable

23,468

—

2,088

21,380

23,468

Accrued interest receivable loan level swaps (1)

2,853

—

2,853

—

2,853

Cash flow hedges

1,041

—

1,041

—

1,041

Loan level swaps

19,366

—

19,366

—

19,366

Financial liabilities

Deposits

$
5,403,868

$
4,971,170

$
424,140

$
—

$
5,395,310

Subordinated debt

132,844

—

—

130,196

130,196

Accrued interest payable

1,030

581

374

75

1,030

Accrued interest payable loan level swaps (2)

2,853

—

2,853

—

2,853

Cash flow hedges

569

—

569

—

569

Loan level swap

19,366

—

19,366

—

19,366


			Fair Value Measurements at June 30, 2023 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	171,628	$	171,628	$	—	$	—	$	171,628
Securities available for sale		540,519		—		540,519		—		540,519
Securities held to maturity		110,438		—		95,501		—		95,501
CRA investment fund		12,985		12,985		—		—		12,985
FHLB and FRB stock		35,402		—		—		—	N/A
Loans held for sale, at lower of cost or fair value		14,198		—		15,493		—		15,493
Loans, net of allowance for credit losses		5,372,312		—		—		5,224,990		5,224,990
Accrued interest receivable		20,865		—		2,763		18,102		20,865
Accrued interest receivable loan level swaps (A)		368		—		368		—		368
Cash flow hedges		11,248		—		11,248		—		11,248
Loan level swaps		36,331		—		36,331		—		36,331
Financial liabilities
Deposits	$	5,198,497	$	4,734,126	$	455,274	$	—	$	5,189,400
Short-term borrowings		485,360		—		485,360		—		485,360
Subordinated debt		133,131		—		—		114,185		114,185
Accrued interest payable		4,767		4,070		570		127		4,767
Accrued interest payable loan level swaps (B)		368		—		368		—		368
Loan level swap		36,331		—		36,331		—		36,331

~~(1)~~(A)

Included in other assets in the Consolidated Statement of Condition.

~~(2)~~(B)

Included in accrued expenses and other liabilities in the Consolidated Statement of Condition.

The carrying amounts and estimated fair values of financial instruments at December 31, ~~2021~~2022 are as follows:

Fair Value Measurements at December 31, 2021 using

Carrying

(In thousands)

Amount

Level 1

Level 2

Level 3

Total

Financial assets

Cash and cash equivalents

$
146,804

$
146,804

$
—

$
—

$
146,804

Securities available for sale

796,753

—

796,753

—

796,753

Securities held to maturity

108,680

—

108,460

—

108,460

CRA investment fund

14,685

14,685

—

—

14,685

FHLB and FRB stock

12,950

—

—

—

N/A

Loans held for sale, at fair value

3,040

—

3,040

—

3,040

Loans held for sale, at lower of cost or fair value

34,051

—

37,538

—

37,538

Loans, net of allowance for loan and lease losses

4,745,024

—

—

4,767,293

4,767,293

Accrued interest receivable

21,589

—

2,443

19,146

21,589

Accrued interest receivable loan level swaps (1)

4,842

—

4,842

—

4,842

Loan level swaps

32,326

—

32,326

—

32,326

Financial liabilities

Deposits

$
5,266,149

$
4,791,341

$
476,659

$
—

$
5,268,000

Subordinated debt

132,701

—

—

140,556

140,556

Accrued interest payable

651

130

446

75

651

Accrued interest payable loan level swaps (2)

4,842

—

4,842

—

4,842

Cash flow hedges

3,479

—

3,479

—

3,479

Loan level swaps

34,569

—

34,569

—

34,569


			Fair Value Measurements at December 31, 2022 using
	Carrying
(In thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	190,075	$	190,075	$	—	$	—	$	190,075
Securities available for sale		554,648		—		554,648		—		554,648
Securities held to maturity		102,291		—		87,187		—		87,187
CRA investment fund		12,985		12,985		—		—		12,985
FHLB and FRB stock		30,672		—		—		—	N/A
Loans held for sale, at lower of cost or fair value		15,626		—		17,176		—		17,176
Loans, net of allowance for loan and lease losses		5,224,417		—		—		5,141,201		5,141,201
Accrued interest receivable		25,157		—		2,393		22,764		25,157
Accrued interest receivable loan level swaps (A)		1,092		—		1,092		—		1,092
Cash flow hedges		9,289		—		9,289		—		9,289
Loan level swaps		38,265		—		38,265		—		38,265
Financial liabilities
Deposits	$	5,205,164	$	4,835,249	$	356,975	$	—	$	5,192,224
Short-term borrowings		379,530		—		379,530		—		379,530
Subordinated debt		132,987		—		—		119,865		119,865
Accrued interest payable		2,997		2,509		413		75		2,997
Accrued interest payable loan level swaps (B)		1,092		—		1,092		—		1,092
Loan level swaps		38,265		—		38,265		—		38,265

~~(1)~~(A)

Included in other assets in the Consolidated Statement of Condition.

~~(2)~~(B)

Included in accrued expenses and other liabilities in the Consolidated Statement of Condition.

9. REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within noninterest income.

The following tables present the sources of noninterest income for the periods indicated:


		For the Three Months Ended June 30,					For the Three Months Ended June 30,
(In thousands)		2022		2021			2023		2022
Service charges on deposits
Overdraft fees		$	118	$	87		$	130	$	118
Interchange income			379		370			309		379
Other			566		439			881		566
Wealth management fees ~~(1)~~(A)			13,891		13,034			14,252		13,891
Corporate advisory fee income			33		121			15		33
Gains/(losses) on sales of OREO			0		51
Other (2)			3,521		3,576
Other (B)								2,988		3,521
Total noninterest other income	Total noninterest other income	$	18,508	$	17,678	Total noninterest other income	$	18,575	$	18,508

For the Six Months Ended June 30,

(In thousands)

2022

2021

Service charges on deposits

Overdraft fees

$
231

$
180

Interchange income

721

687

Other

1,063

875

Wealth management fees (1)

28,725

25,165

Corporate advisory fee income

1,594

1,219

Gains/(losses) on sales of OREO

0

51

Other (2)

888

7,321

Total noninterest other income
$
33,222

$
35,498


	For the Six Months Ended June 30,
(In thousands)	2023		2022
Service charges on deposits
Overdraft fees	$	263	$	231
Interchange income		620		721
Other		1,695		1,063
Wealth management fees (A)		28,014		28,725
Corporate advisory fee income		95		1,594
Other (B)		5,947		888
Total noninterest other income	$	36,634	$	33,222

~~(1)~~(A)

Includes investment brokerage fees.

~~(2)~~(B)

All of the other category is outside the scope of ASC ~~606~~.606.

The following table presents the sources of noninterest income by operating segment for the periods indicated:


	For the Three Months Ended June 30,						For the Three Months Ended June 30,						For the Three Months Ended June 30,						For the Three Months Ended June 30,
	2022						2021						2023						2022
(In thousands)			Wealth						Wealth						Wealth						Wealth
Revenue by Operating Segment	Banking		Management		Total		Banking		Management		Total		Banking		Management		Total		Banking		Management		Total
Service charges on deposits
Overdraft fees	$	118	$	0	$	118	$	87	$	0	$	87	$	130	$	—	$	130	$	118	$	—	$	118
Interchange income		379		0		379		370		0		370		309		—		309		379		—		379
Other		566		0		566		439		0		439		881		—		881		566		—		566
Wealth management fees ~~(1)~~(A)		0		13,891		13,891		0		13,034		13,034		—		14,252		14,252		—		13,891		13,891
Corporate advisory fee income		33		0		33		121		0		121		15		—		15		33		—		33
Gains/(losses) on sales of OREO		0		0		0		51		0		51
Other (2)		3,023		498		3,521		3,126		450		3,576
Other (B)														2,737		251		2,988		3,023		498		3,521
Total noninterest income	$	4,119	$	14,389	$	18,508	$	4,194	$	13,484	$	17,678	$	4,072	$	14,503	$	18,575	$	4,119	$	14,389	$	18,508


	For the Six Months Ended June 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,						For the Six Months Ended June 30,
(In thousands)	2022						2021						2023						2022
Revenue by Operating			Wealth						Wealth						Wealth						Wealth
Segment	Banking		Management		Total		Banking		Management		Total		Banking		Management		Total		Banking		Management		Total
Service charges on deposits
Overdraft fees	$	231	$	0	$	231	$	180	$	0	$	180	$	263	$	—	$	263	$	231	$	—	$	231
Interchange income		721		0		721		687		0		687		620		—		620		721		—		721
Other		1,063		0		1,063		875		0		875		1,695		—		1,695		1,063		—		1,063
Wealth management fees ~~(1)~~(A)		0		28,725		28,725		0		25,165		25,165		—		28,014		28,014		—		28,725		28,725
Corporate advisory fee income		1,594		0		1,594		1,219		0		1,219		95		—		95		1,594		—		1,594
Gains/(losses) on sales of OREO		0		0		0		51		0		51
Other (2)		81		807		888		6,322		999		7,321
Other (B)														5,234		713		5,947		81		807		888
Total noninterest income	$	3,690	$	29,532	$	33,222	$	9,334	$	26,164	$	35,498	$	7,907	$	28,727	$	36,634	$	3,690	$	29,532	$	33,222

~~(1)~~(A)

Includes investment brokerage fees.

~~(2)~~(B)

All of the other category is outside the scope of ASC 606.

A description of the Company’s revenue streams accounted for under ASC 606 follows:

Service charges on deposit accounts: The Company earns fees from its deposit customers for certain transaction account maintenance, and overdraft fees. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

Interchange income: The Company earns interchange fees from debit cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange income is presented gross of cardholder rewards. Cardholder rewards are included in other expenses in the statement of income. Cardholder rewards reduced interchange income for the second quarter of ~~2022~~2023 by ~~$34,000 compared to $32,000~~$2,000 and $34,000 for the same quarter in ~~2021.~~2022. Cardholder rewards reduced interchange income by ~~$64,000~~$4,000 and ~~$61,000~~$64,000 for the six months ended June 30, 2023 and 2022, ~~and 2021,~~ respectively.

Wealth management fees (gross): The Company earns wealth management fees from its contracts with wealth management clients to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company charges its clients on a monthly or quarterly basis in accordance with its investment advisory agreements. Fees are generally assessed based on a tiered scale of the market value of AUM at month end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed (i.e. trade date).

Investment brokerage fees (net): The Company earns fees from investment brokerage services provided to its customers by a third-party service provider. The Company receives commissions from the third-party service provider twice a month based upon customer activity for the month. The fees are recognized monthly, and a receivable is recorded until commissions are generally paid by the 15th of the following month. Because the Company (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers, investment brokerage fees are presented net of related costs.

Corporate advisory fee income: The Company provides our clients with financial advisory and underwriting services. Investment banking revenues, which includes mergers and acquisition advisory fees and private placement fees, are recorded when the performance obligation for the transaction is satisfied under the terms of each engagement. Reimbursed expenses are reported in other revenue on the statement of operations. Expenses related to investment banking are recognized as non-compensation expenses on the statement of operations. Amounts received and unearned are included on the statement of financial condition. Expenses related to investment banking deals not completed are recognized in non-compensation expenses on the statement of operations.

The Company’s mergers and acquisition advisory fees generally consist of a nonrefundable up-front fee and success fee. The nonrefundable fee is recorded as deferred revenue upon receipt and recognized at a point in time when the performance obligation is satisfied, or when the transaction is deemed by management to be terminated. Management’s judgement is required in determining when a transaction is considered to be terminated.

~~Gains/(losses) on sales of OREO~~: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform its obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain/(loss) on sale if a significant financing component is present. The company recorded a gain on the sale of OREO of $51,000 for the three and six months ended June 30, 2021.

Other: All of the other income items are outside the scope of ASC 606.

10. OTHER OPERATING EXPENSES

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


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(In thousands)	2022		2021		2022		2021		2023		2022		2023		2022
Professional and legal fees	$	1,312	$	1,186	$	2,450	$	2,442	$	1,179	$	1,312	$	2,524	$	2,450
Telephone		348		312		682		646		362		348		731		682
Advertising		681		404		971		618		706		681		1,102		971
Amortization of intangible assets		389		368		820		736		355		389		709		820
Branch restructure		—		228		372		228
Write-off of subordinated debt costs		—		648		—		648
Branch/office restructure										—		—		175		372
Other operating expenses		2,904		3,025		6,268		5,759		3,278		2,904		6,542		6,268
Total other operating expenses	$	5,634	$	6,171	$	11,563	$	11,077	$	5,880	$	5,634	$	11,783	$	11,563

11. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The following is a summary of the accumulated other comprehensive income/(loss) balances, net of tax, for the three months ended June 30, ~~2022~~2023 and ~~2021:~~2022:


							Amount			Other
							Reclassified			Comprehensive
				Other			From			Income/(Loss)
				Comprehensive			Accumulated			Three Months
	Balance at			Income/(Loss)			Other			Ended			Balance at
	April 1			Before			Comprehensive			June 30,			June 30,
(In thousands)	2023			Reclassifications			Income/(Loss)			2023			2023
Net unrealized holding gain/(loss) on securities available for sale, net of tax	$	(72,251	)	$	(3,796	)	$	—		$	(3,796	)	$	(76,047	)

Gain/(loss) on cash flow hedges		4,806			3,274			(30	)		3,244			8,050

Accumulated other comprehensive gain/(loss), net of tax	$	(67,445	)	$	(522	)	$	(30	)	$	(552	)	$	(67,997	)


							Amount		Other
							Reclassified		Comprehensive
				Other			From		Income/(Loss)
				Comprehensive			Accumulated		Three Months
	Balance at			Income/(Loss)			Other		Ended			Balance at
	April 1			Before			Comprehensive		June 30,			June 30,
(In thousands)	2022			Reclassifications			Income/(Loss)		2022			2022
Net unrealized holding gain/(loss) on securities available for sale, net of tax	$	(40,447	)	$	(18,619	)	$	—	$	(18,619	)	$	(59,066	)

Gain/(loss) on cash flow hedges		(491	)		830			—		830			339

Accumulated other comprehensive gain/(loss), net of tax	$	(40,938	)	$	(17,789	)	$	—	$	(17,789	)	$	(58,727	)

Amount

Other

Reclassified

Comprehensive

Other

From

Income/(Loss)

Comprehensive

Accumulated

Three Months

Balance at

Income/(Loss)

Other

Ended

Balance at

April 1,

Before

Comprehensive

June 30,

June 30,

(In thousands)

2022

Reclassifications

Income/(Loss)

2022

2022

Net unrealized holding gain/(loss) on
securities available for sale, net of tax

$
(40,447
)

$
(18,619
)

$
—

$
(18,619
)

$
(59,066
)

Gain/(loss) on cash flow hedges

(491
)

830

—

830

339

Accumulated other comprehensive gain/(loss),
net of tax

$
(40,938
)

$
(17,789
)

$
—

$
(17,789
)

$
(58,727
)

Amount

Other

Reclassified

Comprehensive

Other

From

Income/(Loss)

Comprehensive

Accumulated

Three Months

Balance at

Income/(Loss)

Other

Ended

Balance at

April 1,

Before

Comprehensive

June 30,

June 30,

(In thousands)

2021

Reclassifications

Income/(Loss)

2021

2021

Net unrealized holding gain/(loss) on
securities available for sale, net of tax

$
(7,894
)

$
6,938

$
—

$
6,938

$
(956
)

Gain/(loss) on cash flow hedges

(5,870
)

805

606

1,411

(4,459
)

Accumulated other comprehensive gain/(loss),
net of tax

$
(13,764
)

$
7,743

$
606

$
8,349

$
(5,415
)

The following represents the reclassifications out of accumulated other comprehensive income/(loss) for the three months ended June 30, ~~2022~~2023 and ~~2021:~~2022:

Three Months Ended

June 30,

(In thousands)

2022

2021

Affected Line Item in Income Statement
Unrealized gains/(losses) on securities
available for sale:

Reclassification adjustment for losses on termination
of swaps included in net income

$
—

$
842

Other income
Tax effect

—

(236
)

Income tax expense
Total reclassifications, net of tax

$
—

$
606


	Three Months Ended
	June 30,
(In thousands)	2023			2022		Affected Line Item in Income Statement
Unrealized gains/(losses) on cash flow hedge derivatives:
Reclassification adjustment for amounts included in net income	$	(42	)	$	—	Interest Expense
Tax effect		12			—	Income tax expense
Total reclassifications, net of tax	$	(30	)	$	—

The following is a summary of the accumulated other comprehensive income/(loss) balances, net of tax, for the six months ended June 30, ~~2022~~2023 and ~~2021:~~2022:


						Amount			Other
						Reclassified			Comprehensive
				Other		From			Income/(Loss)
				Comprehensive		Accumulated			Six Months
	Balance at			Income/(Loss)		Other			Ended		Balance at
	January 1,			Before		Comprehensive			June 30,		June 30,
(In thousands)	2023			Reclassifications		Income/(Loss)			2023		2023
Net unrealized holding gain/(loss) on securities available for sale, net of tax	$	(80,972	)	$	4,925	$	—		$	4,925	$	(76,047	)

Gain/(loss) on cash flow hedges		6,761			1,349		(60	)		1,289		8,050

Accumulated other comprehensive gain/(loss), net of tax	$	(74,211	)	$	6,274	$	(60	)	$	6,214	$	(67,997	)


							Amount		Other
							Reclassified		Comprehensive
				Other			From		Income/(Loss)
				Comprehensive			Accumulated		Six Months
	Balance at			Income/(Loss)			Other		Ended			Balance at
	January 1,			Before			Comprehensive		June 30,			June 30,
(In thousands)	2022			Reclassifications			Income/(Loss)		2022			2022
Net unrealized holding gain/(loss) on securities available for sale, net of tax	$	(9,873	)	$	(54,221	)	$	5,028	$	(49,193	)	$	(59,066	)

Gain/(loss) on cash flow hedges		(2,501	)		2,840			—		2,840			339

Accumulated other comprehensive gain/(loss), net of tax	$	(12,374	)	$	(51,381	)	$	5,028	$	(46,353	)	$	(58,727	)

Amount

Other

Reclassified

Comprehensive

Other

From

Income/(Loss)

Comprehensive

Accumulated

Six Months

Balance at

Income/(Loss)

Other

Ended

Balance at

January 1,

Before

Comprehensive

June 30,

June 30,

(In thousands)

2021

Reclassifications

Income/(Loss)

2021

2021

Net unrealized holding gain/(loss) on
securities available for sale, net of tax

$
5,521

$
(6,477
)

$
—

$
(6,477
)

$
(956
)

Gain/(loss) on cash flow hedges

(6,913
)

1,848

606

2,454

(4,459
)

Accumulated other comprehensive
gain/(loss), net of tax

$
(1,392
)

$
(4,629
)

$
606

$
(4,023
)

$
(5,415
)

The following represents the reclassifications out of accumulated other comprehensive income/(loss) for the six months ended

June 30, ~~2022~~2023 and ~~2021:~~2022:


	Six Months Ended							Six Months Ended
	June 30,							June 30,
(In thousands)	2022			2021			Affected Line Item in Income	2023			2022			Affected Line Item in Income
Unrealized gains/(losses) on securities available for sale:
Reclassification adjustment for amounts included in net income								$	—		$	6,609		Securities losses, net
Tax effect									—			(1,581	)	Income tax expense
Total reclassifications, net of tax								$	—		$	5,028

Unrealized gains/(losses) on cash flow hedge derivatives:
Reclassification adjustment for amounts included in net income	$	6,609		$	—		Securities losses, net	$	(84	)	$	—		Interest Expense
Reclassification adjustment for losses on termination of swaps included in net income		—			842		Other income
Tax effect		(1,581	)		(236	)	Income tax expense		24			—		Income tax expense
Total reclassifications, net of tax	$	5,028		$	606			$	(60	)	$	—

12. 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 ~~$240.0~~$310.0 millionas of June 30, ~~2022~~2023 and ~~$230.0~~$290.0 million as of December 31, ~~2021~~2022 were designated as cash flow hedges of certain interest-bearing deposits. On a quarterly basis, the Company performs a qualitative hedge effectiveness assessment. This assessment takes into consideration any adverse developments related to the counterparty’s risk of default and any negative events or circumstances that affect the factors that originally enabled the Company to assess that it could reasonably support, qualitatively, an expectation that the hedging relationship was and will continue to be highly effective. As of June 30, ~~2022,~~2023, there were no events or market conditions that would result in hedge ~~ineffectiveness, with the exception of 2 interest rate swaps with a notional amount of $50.0 million that were deemed ineffective as of June 30, 2022.~~ineffectiveness. 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.

In March 2022, the Company entered into 4 forward starting interest rate swaps with a total notional amount of $100.0 million. These swaps will effectively extend the interest rate protection of four existing swaps that are maturing in ~~2023~~ ~~for an additional~~ ~~five years~~. As such, they are designated as cash flow hedges of certain interest-bearing deposits. The Company will receive variable amounts and pay fixed amounts. The weighted-average fixed pay rate on these forward swaps was 2.25% as of June 30, 2022. As of June 30, 2022, an unrealized gain of $35,000 was recorded in accumulated other comprehensive income related to these forward starting swaps. The tables below do not include the impact of these forward swaps.

The following table presents information about the interest rate swaps designated as cash flow hedges as of June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


(Dollars in thousands)	June 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
Notional amount	$	240,000		$	230,000		$	310,000		$	290,000
Weighted average pay rate		1.99	%		1.99	%		2.15	%		1.71	%
Weighted average receive rate		0.81	%		0.20	%		3.78	%		2.78	%
Weighted average maturity	1.55 years			1.04 years			3.49 years			2.01 years
Unrealized gain/(loss), net	$	437		$	(3,479	)	$	11,248		$	3,290

Number of contracts		10			13			12			12


	June 30, 2022					June 30, 2023
	Notional		Fair			Notional		Fair
(In thousands)	Amount		Value			Amount		Value
Interest rate swaps related to interest-bearing deposits	$	240,000	$	437		$	310,000	$	11,248
Total included in other assets		180,000		1,006		$	310,000	$	11,248
Total included in other liabilities		60,000		(569	)


	December 31, 2021					December 31, 2022
	Notional		Fair			Notional		Fair
(In thousands)	Amount		Value			Amount		Value
Interest rate swaps related to interest-bearing deposits	$	230,000	$	(3,479	)	$	290,000	$	3,290
Total included in other assets		—		—			290,000		3,290
Total included in other liabilities		230,000		(3,479	)		—		—

Cash Flow Hedges

The following table presents the net ~~gain/(loss)~~gains/(losses) recorded in accumulated other comprehensive income/(loss) and the consolidated financial statements relating to the cash flow derivative instruments for the three month and six months ended June 30, ~~2022~~2023 and ~~2021:~~2022:


	For the Three Months Ended June 30,					For the Six Months Ended June 30,					For the Three Months Ended June 30,					For the Six Months Ended June 30,
(In thousands)	2022		2021			2022		2021			2023			2022		2023			2022
Interest rate contracts
Gain/(loss) recognized in other comprehensive income (effective portion)	$	1,155	$	1,121		$	3,951	$	2,571		$	4,775		$	1,155	$	2,043		$	3,951
Gain/(loss) reclassified from other comprehensive income to interest expense		—		—			—		—			—			—		—			—
Gain/(loss) recognized in other noninterest income		—		(842	)		—		(842	)	$	(42	)		—		(84	)		—

During the third quarter of 2022, the Company recognized an unrealized after-tax gain of $167,000 in accumulated other comprehensive income/(loss) related to the termination of two interest rate swaps designated as cash flow hedges that were deemed ineffective. The gain is being amortized into earnings over the remaining life of the terminated swaps.

Net interest ~~expense~~income recorded on these swap transactions totaled ~~$679,000~~$1.1 million and ~~$1.7~~$2.0 million for the three and six months ended June 30, ~~2022, respectively.~~2023. Net interest expense recorded on these swap transactions totaled ~~$1.1 million~~$679,000 and ~~$2.3~~$1.7 million for the three and six months ended June 30, ~~2021, respectively.~~2022. Net income/expense for these swap transactions is reported as a component of interest expense.

Derivatives Not Designated as Accounting Hedges

The Company offers facility specific/loan level swaps to its customers and offsets its exposure from such contracts by entering 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.

The accrued interest receivable and payable related to these swaps of ~~$2.9 million~~$368,000 and ~~$4.8~~$1.1 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, is recorded in other assets and other liabilities. At December 31, 2021, the Company recorded a total swap valuation provision of $2.1 million related to a commercial real estate loan placed on nonaccrual status during the third quarter of 2021. This swap was terminated during the first quarter of 2022.

Information about these swaps is as follows:


(Dollars in thousands)	June 30, 2022			December 31, 2021			June 30, 2023			December 31, 2022
Notional amount	$	642,110		$	702,210		$	585,234		$	612,211
Fair value	$	19,366		$	32,326		$	(36,355	)	$	(37,173	)
Weighted average pay rates		3.96	%		4.00	%		3.99	%		3.99	%
Weighted average receive rates		3.50	%		1.83	%		6.87	%		6.14	%
Weighted average maturity	5.05 years			5.5 years			4.06 years			4.68 years

Number of contracts		82			86			76			78

13. SUBORDINATED DEBT

In December 2017, the Company issued ~~$35.0~~$35.0 million in aggregate principal amount of fixed-to-floating subordinated notes (the “2017 Notes”) to certain institutional investors. The 2017 Notes are non-callable for five years, have a stated maturity of December

15, 2027, and ~~bear interest at~~had a fixed interest rate of 4.75 percent until December 15, 2022. From December 16, 2022 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month London Interbank Offered Rate (“LIBOR”) rate plus 254 basis points, payable quarterly in arrears. Debt issuance costs incurred totaled ~~$875,000~~$875,000 and are being amortized to maturity.

In December 2020, the Company issued ~~$100.0~~$100.0 million in aggregate principal amount of ~~fixed to floating subordinates~~fixed-to-floating subordinated notes (the “2020 Notes”) to certain institutional investors. The 2020 Notes are non-callable for five years, have a stated maturity of December 22, 2030, and bear interest at a fixed rate of 3.50 percent until December 22, 2025. From December 23, 2025 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month Secured Overnight Financing Rate (“SOFR”) plus 326 basis points, payable quarterly in arrears. Debt issuance costs incurred totaled ~~$1.9~~$1.9 million and are being amortized to maturity.

The Company ~~may use~~used the proceeds from the issuance of the 2020 Notes to refinance then-outstanding debt, for stock repurchases, acquisitions of wealth management firms, as well as other general corporate purposes.

Subordinated debt is presented net of issuance costs on the Consolidated Statements of Condition. The subordinated debt issuances are included in the Company’s regulatory total capital amount and ratio.

In connection with the issuance of the 2020 Notes, the Company obtained ratings from Kroll Bond Rating Agency (“KBRA”) and Moody’s Investors Services (“Moody’s). KBRA assigned an investment grade rating of BBB- and Moody’s assigned an investment grade rating of Baa3 for the 2020 Notes at the time of issuance.

14. LEASES

The Company maintains certain property and equipment under direct financing and operating leases. As of June 30, 2023, the Company's operating lease ROU asset and operating lease liability totaled $13.5 million and $14.3 million, respectively. As of December 31, 2022, the Company's operating lease ROU asset and operating lease liability totaled ~~$14.2~~$12.9 million and ~~$14.8 million, respectively. As of December 31, 2021, the Company's operating lease ROU asset and operating lease liability totaled $9.8 million and $10.1~~$13.7 million, respectively. A weighted average discount rate of ~~2.64~~2.70 percent and ~~2.78~~2.63 percent was used in the measurement of the ROU asset and lease liability as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The Company's leases have remaining lease terms between ~~five~~14 months to 1514 years, with a weighted average lease term of 6.96 years at June 30, 2023. The Company's leases had remaining lease terms between three months to 14 years, with a weighted average lease term of ~~7.56~~ ~~years at June 30, 2022. The Company's leases had remaining lease terms between~~ ~~four months~~ to 15 ~~years, with a weighted average lease term of~~ ~~6.09~~7.48 years at December 31, ~~2021.~~2022. The Company’s lease agreements may include options to extend or terminate the

lease. The Company’s decision to exercise renewal options is based on an assessment of its current business needs and market factors at the time of the renewal.

Total operating lease costs were ~~$867,000~~$822,000 and ~~$691,000~~$867,000 for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The variable lease costs were ~~$76,000~~$70,000 and ~~$83,000~~$76,000 for the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Total operating lease costs were ~~$1.7~~$1.6 million and ~~$1.4~~$1.7 million for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The variable lease costs were ~~$153,000~~$142,000 and ~~$167,000~~$153,000 for the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

The following is a schedule of the Company's operating lease liabilities by contractual maturity as of June 30, ~~2022:~~2023:

(In thousands)

2022

$
1,458

2023

2,968

2024

2,299

2025

2,048

2026

1,487

Thereafter

6,194

Total lease payments

16,454

Less: imputed interest

1,698

Total present value of lease payments

$
14,756


(In thousands)
2023	$	1,613
2024		3,131
2025		2,434
2026		1,807
2027		1,451
Thereafter		5,368
Total lease payments		15,804
Less: imputed interest		1,496
Total present value of lease payments	$	14,308

The following table shows the supplemental cash flow information related to the Company’s direct finance and operating leases for the periods indicated:

For the Six Months Ended June 30,

(In thousands)

2022

2021

Right-of-use asset obtained in exchange for lease obligation

$
5,683

$
1,412

Operating cash flows from operating leases

1,334

1,226

Operating cash flows from direct finance leases

132

156

Financing cash flows from direct finance leases

374

374


	For the Six Months Ended June 30,
(In thousands)	2023		2022
Right-of-use asset obtained in exchange for lease obligation	$	1,926	$	5,683
Operating cash flows from operating leases		1,471		1,334
Operating cash flows from direct finance leases		103		132
Financing cash flows from direct finance leases		374		374

15. ACCOUNTING PRONOUNCEMENTS

In March ~~2020,~~2023, the FASB issued ASU ~~2020-04, Reference Rate Reform~~2023-01, Leases (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.842), Common Control Arrangements. The amendments in this ~~ASU can be adopted immediately and~~update clarify the accounting for leasehold improvements associated with common control leases. This update has been issued in order to address current diversity in practice associated with the accounting for leasehold improvements associated with a lease between entities under common control. The amendments in this update apply to all lessees that are a party to a lease between entities under common control in which there are leasehold improvements. The amendments in this update are effective ~~through~~for interim and annual periods beginning after December ~~31, 2022.~~15, 2023. The Company is currently evaluating ~~alternative reference rates including SOFR in preparation for a rate index replacement and~~the provisions of this update but does not anticipate the adoption ~~of ASU 2020-04.~~

In March 2022, FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) (“ASU 2022-01”) which clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible and renamed that method the “portfolio layer” method. ASU 2022-01 is effective January 1, 2023 and is not expected towill have a material impact on ~~our consolidated financial statements.~~

~~In March 2022, FASB issued ASU 2022-02,~~ ~~Financial Instruments–Credit Losses (Topic 326); Troubled Debt Restructurings and Vintage Disclosures~~ ~~(“ASU 2022-02”). ASU 2022-02 eliminates~~ the accounting guidance on troubled debt restructurings for creditors in ASC 310-40 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. ASU 2022-02 also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. The amendments in this update will be effective for fiscal years beginning after December 15, 2022 for entities that have adopted the amendments in ASU 2016-13, ~~Financial Instruments–Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The Company is evaluating the additional disclosure requirements and does not expect them to have a material effect on the~~Company’s consolidated financial statements.

16. SUBSEQUENT EVENTS

The Company had an equipment financing lease with a principal balance of $9.2 million as of June 30, 2023, which was downgraded to nonaccrual status as a result of a bankruptcy filing by the lessee subsequent to June 30, 2023. This lease was classified as special mention as of June 30, 2023 and subsequently downgraded to substandard during the third quarter of 2023. The Company presently believes that the fair value of the collateral will be sufficient to repay the outstanding principal balance but will continue to closely monitor the bankruptcy proceedings to evaluate changes as they occur. No additional allowance for credit losses was applied to this loan as of June 30, 2023.

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS: This Quarterly Report on Form 10-Q may contain 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 confidence and strategies and Management’s expectations about operations, growth, financial results, new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect”, “look”, “believe”, “anticipate”, “may”, or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause 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, ~~2021,~~2022, in addition to/which include the following:

•

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

•

the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, including the COVID-19 pandemic and variants thereof, and the significant and continuing impact that such pandemics may have on our growth, operations, earnings and asset quality;

•

~~the~~ impact of anticipated higher operating expenses in ~~2022~~2023 and beyond;

•

~~our ability to successfully integrate wealth management firm acquisitions;~~

•

our ability to manage our growth;

•

our ability to successfully integrate our expanded employee base;

•

an unexpected decline in the economy, in particular in our New Jersey and New York market ~~areas;~~areas, including potential recessionary conditions;

•

declines in our net interest margin ~~and/or our ability to originate loans~~ caused by the interest rate environment and/or our highly competitive market;

•

declines in the value in our investment portfolio;

•

impact from a pandemic event on our business, operations, customers, allowance for credit losses and capital levels;

•

higher than expected increases in our allowance for credit losses;

•

higher than expected increases in credit losses or in the level of delinquent, nonperforming, classified and criticized loans;

•

inflation and changes in interest rates, which may adversely impact orour margins and yields, reduce the fair value of our financial instruments, reduce our loan originations and lead to higher operating costs;

•

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) that may result in increased compliance costs;

•

successful cyberattacks against our IT infrastructure and that of our IT and third-party providers;

•

higher than expected FDIC insurance premiums;

•

adverse weather conditions;

•

the current or anticipated impact of military conflict, terrorism or other geopolitical events;

•

our inability to successfully generate new business in new geographic ~~markets;~~markets, including our expansion into New York City;

•

a reduction in our lower-cost funding sources;

•

changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio;

•

our inability to adapt to technological changes;

•

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

•

our inability to retain key employees;

•

demands for loans and deposits in our market areas;

•

adverse changes in securities markets;

•

changes in governmental regulation, including, but not limited to, any increase in FDIC insurance premiums and changes in the monetary policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;

•

changes in accounting policies and practices; and

•

other unexpected material adverse changes in our operations or earnings.

Moreover, our operations depend on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the pandemic could hinder our ability to operate our business or execute our business strategy.

Except as may be required by applicable law or regulation, the Company undertakes no duty to update any forward-looking statements to conform the statement to actual results or change in the Company’s expectations. 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 GAAP. 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, ~~2021~~2022 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 credit 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.

On January 1, 2022, the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit. The allowance for credit losses is a valuation allowance for Management’s estimate of expected credit losses in the loan portfolio. The process to determine expected credit losses utilizes analytic tools and Management judgement and is reviewed on a quarterly basis. When Management is reasonably certain that a loan balance is not fully collectable, an ~~individually evaluated~~ analysis is completed whereby a specific reserve may be established or 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 via a quantitative analysis which considers available information from internal and external sources related to past loan loss and prepayment experience and current conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors including available published economic information in arriving at its forecast. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in the Management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include changes in lending policies and procedures, ~~nature~~size and ~~volume~~composition of the portfolio, experience and depth of Management and the effect of external factors such as competition, legal and regulatory requirements, among others. The allowance is available for any loan that, in Management’s judgment, should be charged off.

Although Management uses the best information available, the level of the allowance for credit 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 credit losses. Such agencies may require the Company to make additional provisions for credit 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 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 credit losses and allowance for credit losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

The Company accounts for its debt securities in accordance with ASC 320, “Investments - Debt Securities” and its equity security in accordance with ASC 321, “Investments – Equity 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, with the exception of the~~tax. Securities classified as held to maturity are carried at amortized cost. The Company’s investment in a CRA investment fund ~~which~~ is classified as an equity security. In accordance with ASU 2016-01, “Financial Instruments” unrealized holding gains and losses for equity securities are marked to market through the income statement.

EXECUTIVE SUMMARY: The following table presents certain key aspects of our performance for the three months ended June 30, ~~2022~~2023 and ~~2021.~~2022.


	For the Three Months Ended June 30,						Change
(Dollars in thousands, except per share data)	2023			2022			2023 vs 2022
Results of Operations:
Interest income	$	74,852		$	48,520		$	26,332
Interest expense		35,931			5,627			30,304
Net interest income		38,921			42,893			(3,972	)
Provision for credit losses		1,696			1,449			247
Net interest income after provision for credit losses		37,225			41,444			(4,219	)
Wealth management fee income		14,252			13,891			361
Other income (A)		4,323			4,617			(294	)
Operating expense (B)		37,692			32,659			5,033
Income before income tax expense		18,108			27,293			(9,185	)
Income tax expense (C)		4,963			7,193			(2,230	)
Net income	$	13,145		$	20,100		$	(6,955	)

Total revenue (D)	$	57,496		$	61,401		$	(3,905	)

Diluted average shares outstanding		18,078,848			18,637,340			(558,492	)

Diluted earnings per share	$	0.73		$	1.08		$	(0.35	)

Return on average assets annualized ("ROAA")		0.82	%		1.30	%		(0.48	)%
Return on average equity annualized ("ROAE")		9.43			15.43			(6.00	)

For the Three Months Ended June 30,

Change

(Dollars in thousands, except per share data)

2022

2021

2022 vs 2021

Results of Operations:

Net interest income

$
42,893

$
33,845

$
9,048

Provision for credit losses (1)

1,449

900

549

Net interest income after provision for credit losses

41,444

32,945

8,499

Wealth management fee income (2)

13,891

13,034

857

Other income (3)

4,617

4,644

(27
)
Operating expense (2) (4)

32,659

30,684

1,975

Income before income tax expense

27,293

19,939

7,354

Income tax expense

7,193

5,521

1,672

Net income

$
20,100

$
14,418

$
5,682

Total revenue (5)

$
61,401

$
51,523

$
9,878

Diluted average shares outstanding

18,637,340

19,439,439

(802,099
)

Diluted earnings per share

$
1.08

$
0.74

$
0.34

Return on average assets annualized ("ROAA")

1.30
%

0.97
%

0.33
%
Return on average equity annualized ("ROAE")

15.43

10.86

4.57

~~(1)~~

~~(2)~~

~~The June 2022 quarter included a full quarter of wealth management fee income and expense related to the July 2021 acquisition of Princeton Portfolio Strategies Group (“PPSG”).~~

~~(3)~~(A)

The quarter ended June 30, ~~2021~~2023 and 2022 included a ~~cost~~fair value adjustment on a CRA equity security of ~~$842,000 related to~~negative $209,000 and negative $475,000, respectively.

(B)

The quarter ended June 30, 2023 included $1.7 million of expense associated with the ~~termination~~recent retirement of certain interest rate swaps; a $1.1 million gain on sale of PPP loans; $722,000 of income related to referral of PPP loans to a third party; and $153,000 of additional bank-owned life insurance ("BOLI") income related to the receipt of life insurance proceeds.employees.

~~(4)~~(C)

~~The~~Income tax expense for the quarter ended June ~~2021 quarter~~30, 2023 included ~~$648,000~~a $318,000 tax benefit for the reversal of ~~expense related~~the New Jersey surtax, which is set to ~~the redemption of subordinated debt.~~expire on December 31, 2023.

~~(5)~~(D)

Total revenue equals net interest income plus wealth management fee income and other income.

The following table presents certain key aspects of our performance for the six months ended June 30, ~~2022~~2023 and ~~2021.~~2022.

For the Six Months Ended
June 30,

Change

(Dollars in thousands, except per share data)

2022

2021

2022 vs 2021

Results of Operations:

Net interest income

$
82,515

$
65,638

$
16,877

Provision for loan and lease losses (1)

3,824

1,125

2,699

Net interest income after provision for loan and lease losses

78,691

64,513

14,178

Wealth management fee income (2)

28,725

25,165

3,560

Other income (3)

4,497

10,333

(5,836
)
Operating expense (2) (4)

66,828

62,278

4,550

Income before income tax expense

45,085

37,733

7,352

Income tax expense

11,544

10,137

1,407

Net income

$
33,541

$
27,596

$
5,945

Total revenue (5)

$
115,737

$
101,136

$
14,601

Diluted average shares outstanding

18,782,559

19,473,150

(690,591
)

Diluted earnings per share

$
1.79

$
1.42

$
0.37

Return on average assets annualized (ROAA)

1.09
%

0.93
%

0.16
%
Return on average equity annualized (ROAE)

12.59

10.45

2.14


	For the Six Months Ended June 30,						Change
(Dollars in thousands, except per share data)	2023			2022			2023 vs 2022
Results of Operations:
Interest income	$	145,343		$	92,660		$	52,683
Interest expense		62,444			10,145			52,299
Net interest income		82,899			82,515			384
Provision for loan and lease losses		3,209			3,824			(615	)
Net interest income after provision for loan and lease losses		79,690			78,691			999
Wealth management fee income		28,014			28,725			(711	)
Other income (A)		8,620			4,497			4,123
Operating expense (B)		73,266			66,828			6,438
Income before income tax expense		43,058			45,085			(2,027	)
Income tax expense (C)		11,558			11,544			14
Net income	$	31,500		$	33,541		$	(2,041	)

Total revenue (D)	$	119,533		$	115,737		$	3,796

Diluted average shares outstanding		18,153,267			18,782,559			(629,292	)

Diluted earnings per share	$	1.74		$	1.79		$	(0.05	)

Return on average assets annualized (ROAA)		0.99	%		1.09	%		(0.10	)%
Return on average equity annualized (ROAE)		11.44			12.59			(1.15	)

~~(1)~~(A)

~~Commencing on January 1, 2022,~~Other income for the ~~allowance calculation is based on the current expected credit loss methodology. Prior to January 1, 2022, the calculation was based on the incurred loss methodology.~~

~~(2)~~

~~The six months ended June 30, 2022 included six months of wealth management fee income and expense related to the July 2021 acquisition of Princeton Portfolio Strategies Group (“PPSG”).~~

~~(3)~~

~~The~~ six months ended June 30, 2022 included a $6.6 million loss on sale of securities ~~associated with~~and a ~~balance sheet reposition executed in the first quarter~~fair value adjustment on a CRA equity security of ~~2022.~~ negative $1.2 million.

(B)

The six months ended June 30, ~~2021~~2023 included ~~a cost~~one-time charges of ~~$842,000~~$2.0 million related to the ~~termination~~recent retirement of certain ~~interest rate swaps; a $1.4 million gain on sale~~employees and $175,000 of loans held at lower of cost or fair value; $722,000 of income related to referral of PPP loans to a third party; and $455,000 of additional bank-owned life insurance ("BOLI") income related to the receipt of life insurance proceeds.

~~(4)~~

~~Each of the~~expense associated with three retail branch closures. The six months ended June 30, 2022 ~~and 2021~~ included $1.5 million of severance expense related to certain staff ~~reorganizations with several areas of~~reorganization.

(C)

Income tax expense for the ~~bank. The~~ six months ended June 30, ~~2021~~2023 included ~~$648,000~~a $318,000 tax benefit for the reversal of ~~expense related~~the New Jersey surtax, which is set to ~~the redemption of subordinated debt.~~expire on December 31, 2023.

~~(5)~~(D)

Total revenue equals net interest income plus wealth management fee income and other income.


	June 30,			December 31,			Change
	2023			2022			2023 vs 2022
Selected Balance Sheet Ratios:
Total capital (Tier I + II) to risk-weighted assets		15.20	%		14.73	%		0.47	%
Tier I leverage ratio		9.06			8.90			0.16
Loans to deposits		104.55			101.54			3.01
Allowance for credit losses to total loans		1.15			1.15			-
Allowance for credit losses to nonperforming loans		181.72			320.59			(138.87	)
Nonperforming loans to total loans		0.63			0.36			0.27

June 30,

December 31,

Change

2022

2021

2022 vs 2021

Selected Balance Sheet Ratios:

Total capital (Tier I + II) to risk-weighted assets

14.60
%

14.64
%

(0.04
)%
Tier I leverage ratio

8.51

8.29

0.22

Loans to deposits

95.37

91.28

4.09

Allowance for credit losses to total loans

1.15

1.28

(0.13
)
Allowance for credit losses to nonperforming loans

391.44

396.18

(4.74
)
Nonperforming loans to total loans

0.29

0.32

(0.03
)

For the ~~three months~~quarter ended June 30, ~~2022,~~2023, the Company recorded total revenue of $57.50 million, pretax income of $18.11 million, net income of $13.15 million and diluted earnings per share of $0.73, compared to revenue of $61.40 million, pretax income of $27.29 million, net income of $20.10 million and diluted earnings per share of $1.08 ~~compared to~~for the same period last year.

For the six months ended June 30, 2023, the Company recorded total revenue of ~~$51.52~~$119.53 million, pretax income of ~~$19.94~~$43.06 million, net income of ~~$14.42~~$31.50 million and diluted earnings per share of ~~$0.74~~$1.74, compared to revenue of $115.74 million, pretax income of $45.09 million, net income of $33.54 million and diluted earnings per share of $1.79 for the same period last year.

The ~~2022 quarter included increased~~Company experienced a decline in net interest income ~~wealth management~~during the three months ended June 30, 2023 due to net interest margin contraction as a result of higher deposit rates during 2023. Net interest income ~~and~~increased by $384,000 to $82.9 million for the six months ended June 30, 2023 which included an increase in interest expense of $52.3 million for that same period. Cycle to date

betas are approximately 41 percent during which time the Target Federal Funds rate increased by 500 basis points. Additionally, the decrease in income from capital markets activities (which includes mortgage banking income, back-to-back swap income, SBA loan income, and corporate advisory fee income), ~~partially offset by increased~~and higher operating ~~expenses. Fee income generated by capital markets activities totaled $2.86 million for~~expenses contributed to the ~~second quarter of 2022, an increase of $1.40 million from $1.46 million for the same period~~decline in 2021. The second quarter of 2022 included $2.68 million of gains on sales of SBA loans, an increase of $1.75 million as compared to $932,000 for the same period in 2021. Income from these programs are not linear each quarter, as some quarters will be higher than others. Othernet income for the quarter ended June 30, 2021 included a cost of $842,000 related to the termination of certain interest rate swaps; a $1.13 million gain on sale of PPP loans; $722,000 of income related to referral of PPP loans to a third party; and $153,000 of additional BOLI income related to the receipt of life insurance proceeds. Operating expense for the second quarter of 2021 included $648,000 of expense related to the redemption of subordinated debt.

For the six months ended June 30, 2022, the Company recorded total revenue of $115.74 million, pretax income of $45.09 million, net income of $33.54 million and diluted earnings per share of $1.79, compared to revenue of $101.14 million, pretax income of $37.73 million, net income of $27.60 million and diluted earnings per share of $1.42 for the same period last year. The six months ended June 30, 2022 included increased net interest income, wealth management income and income from capital markets activities (which includes mortgage banking income, back-to-back swap income, SBA loan income, and corporate advisory fee income), offset by increased operating expenses. Fee income generated by capital markets activities totaled $7.51 million for the six months ended June 30, 2022, an increase of $2.48 million from $5.03 million for the same period in 2021, of which $5.52 million was attributable to gains on sales of SBA loans. The three and six months ended June 30, 2022, benefitted from the addition of an SBA team hired by the Company in the fourth quarter of 2021. Income from these programs are not linear each quarter, as some quarters will be higher than others. 2023.

The six months ended June 30, 2022 included a $6.6 million loss on sale of securities as a result of the Company's balance sheet repositioning completed in ~~other income~~March 2022 and ~~$1.5~~a $1.2 million ~~of severance expense in other expense related to certain staff reorganizations. Other income~~negative fair value adjustment on an equity security held for CRA investment purposes.

Operating expenses for the three and six months ended June 30, ~~2021~~2023 compared to their respective prior periods increased primarily due to increased corporate and health insurance costs; hiring in line with the Company’s strategic plan, which included ~~a cost of $842,000 related~~an increase in full time equivalent employees from 472 at June 30, 2022 to 520 at June 30, 2023; normal salary increases, and increased FDIC insurance expense. Additionally, both the ~~termination of certain interest rate swaps; a $1.41 million gain on sale of loans held at lower of cost or fair value; $722,000 of income related to referral of PPP loans to a third party;~~three and ~~$455,000 of additional BOLI income related to the receipt of life insurance proceeds. Other expense for the~~ six months ended June 30, ~~2021~~2023 included operating expenses of $1.7 million associated with the recent retirement of certain employees. The six months ended June 30, 2023 included operating expenses of $300,000 associated with the acceleration of restricted stock related to one executive retiring, $175,000 of expense associated with three retail branch closures and $409,000 of increased restricted stock expense associated with additional shares being granted to executives due to performance measures vesting above target. Operating expenses for the first six months of 2022 included $1.5 million of severance expense related to ~~certain~~ staff reorganizations within several areas of the Bank.

RECENT DEVELOPMENTS: During the first six months of 2023, the banking industry experienced volatility with several high-profile regional bank failures and ~~$648,000 of expense~~industry- wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the ~~redemption~~banking system. Despite these negative industry developments, the Company's liquidity position and balance sheet remain strong. On-balance sheet liquidity (investments available for sale, interest-earning deposits and cash) was $761 million as of ~~subordinated debt.~~June 30, 2023.

The Company also had $2.8 billion of external borrowing capacity available as of June 30, 2023, which when combined with balance sheet liquidity provided us with 283 percent coverage of our uninsured deposits. Uninsured/unprotected deposits totaled $1.3 billion at June 30, 2023. External borrowing capacity includes secured available funding with the Federal Home Loan Bank and from the Federal Reserve Discount Window. The available funding from the Federal Home Loan Bank and the Federal Reserve are secured by the Company’s loan and investment portfolios. In addition, the Company also has access to the Bank Term Funding Program offered by the Federal Reserve Bank, which offers an advance term of up to twelve months.

The Company's capital at June 30, 2023 remains above well capitalized levels with common equity tier 1 capital ("CET1") and total risk-based capital ratios of 11.47 percent and 15.20 percent, respectively, for the Company and 13.69 percent and 14.93 percent for the Bank, respectively.

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, ~~2021~~2022 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.”

EARNINGS ANALYSIS

NET INTEREST INCOME (“NII”) / NET INTEREST MARGIN (“NIM”) / 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, 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 average yields earned on earning assets and the average cost of interest-bearing liabilities (“net interest spread”) and the relative amounts of earning assets and interest-bearing liabilities. Net interest margin is ~~calculated as~~ net interest income as a percent of total interest earning assets on an annualized basis. The Company’s net interest income, spread and margin are affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows and general levels of nonperforming assets.

~~The following table summarize the Company’s net interest income and margin for the periods indicated:~~

Three Months Ended

Three Months Ended

June 30, 2022

June 30, 2021

(Dollars in thousands)
NII

NIM

NII

NIM

NII/NIM excluding the below
$
42,526

2.83
%

$
32,446

2.56
%
Prepayment premiums received on loan paydowns

255

0.02
%

501

0.04
%
Effect of maintaining excess interest earning cash

112

-0.02
%

(115
)

-0.15
%
Effect of PPP loans

—

0.00
%

1,013

-0.07
%
NII/NIM as reported
$
42,893

2.83
%

$
33,845

2.38
%

Six Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

NII

NIM

NII

NIM

NII/NIM excluding the below
$
81,804

2.76
%

$
63,001

2.51
%
Prepayment premiums received on loan paydowns

606

0.02
%

1,205

0.05
%
Effect of maintaining excess interest earning cash

105

-0.02
%

(300
)

-0.18
%
Effect of PPP loans

—

0.00
%

1,732

-0.06
%
NII/NIM as reported
$
82,515

2.76
%

$
65,638

2.32
%

NII, on a fully tax-equivalent basis, increased $9.2 million for the second quarter of 2022 to $43.2 million as compared to $34.0 million for the same quarter in 2021. The net interest margin for the second quarter of 2022 was 2.83 percent which increased 45 basis points from 2.38 percent for the same 2021 period. The Company recorded net interest income, on a fully tax-equivalent basis, of $83.2 million for the six months ended June 30, 2022 which increased $17.1 million from $66.1 million for the same 2021 period. The net interest margin increased 44 basis points to 2.76 percent for the six months ended June 30, 2022 from 2.32 percent for the same 2021 period. The increase in NIM for the three and six months ended June 30, 2022, when compared to the same period in 2021 was due to the Bank lowering its cost of interest-bearing liabilities and the increase in yield on the average balance of interest-earning assets due to the current interest rate environment.

NIM also improved, as the Company executed a balance sheet reposition in the first quarter of 2022, whereby the Company added $250.0 million of multifamily loans, funded by the sale of $125.0 million of lower-yielding, like duration securities and deposit growth. To manage a neutral overall duration effect on the balance sheet, thereby protecting the balance sheet against the impact of rising rates, we executed an additional $100.0 million of forward starting five-year pay fixed swaps. The repositioning resulted in an attractive earn-back period on the loss on sale of securities, with future net interest margin improving by four basis points, with no impact to tangible capital or tangible book value per share.

The following table summarizes the loans that the Company closed during the periods indicated:

For the Three Months Ended

June 30,

June 30,

(In thousands)

2022

2021

Residential mortgage loans originated for portfolio

$
35,172

$
37,083

Residential mortgage loans originated for sale

9,886

25,432

Total residential mortgage loans

45,058

62,515

Commercial real estate loans

13,960

12,243

Multifamily

74,564

255,820

C&I loans (A) (B)

332,801

141,285

Small business administration

10,534

15,976

Wealth lines of credit (A)

12,575

3,200

Total commercial loans

444,434

428,524

Installment loans

100

25

Home equity lines of credit (A)

3,897

4,140

Total loans closed

$
493,489

$
495,204


	For the Six Months Ended				For the Three Months Ended
	June 30,		June 30,		June 30,		June 30,
(In thousands)	2022		2021		2023		2022
Residential mortgage loans originated for portfolio	$	76,719	$	52,897	$	39,358	$	35,172
Residential mortgage loans originated for sale		25,555		71,305		1,072		9,886
Total residential mortgage loans		102,274		124,202		40,430		45,058

Commercial real estate loans		39,535		50,606		43,235		13,960
Multifamily		340,214		340,829		26,662		74,564
C&I loans (A) (B)		475,830		270,426		158,972		332,801
Small business administration ~~(C)~~		36,627		74,706		13,713		10,534
Wealth lines of credit (A)		21,975		5,675		3,950		12,575
Total commercial loans		914,181		742,242		246,532		444,434

Installment loans		231		88		4,587		100
Home equity lines of credit (A)		5,238		6,039		6,107		3,897
Total loans closed	$	1,021,924	$	872,571	$	297,656	$	493,489


	For the Six Months Ended
	June 30,		June 30,
(In thousands)	2023		2022
Residential mortgage loans originated for portfolio	$	69,661	$	76,719
Residential mortgage loans originated for sale		2,549		25,555
Total residential mortgage loans		72,210		102,274

Commercial real estate loans		62,225		39,535
Multifamily		56,812		340,214
C&I loans (A) (B)		366,786		475,830
Small business administration (C)		23,663		36,627
Wealth lines of credit (A)		27,175		21,975
Total commercial loans		536,661		914,181

Installment loans		16,673		231
Home equity lines of credit (A)		9,028		5,238
Total loans closed	$	634,572	$	1,021,924

(a)

Includes loans and lines of credit that closed in the period but were not necessarily funded.

(b)

Includes equipment finance leases and loans.

~~(c)~~

~~Includes PPP loans of $56 million for the six months ended June 30, 2021.~~

At June 30, ~~2022,~~2023, December 31, ~~2021~~2022 and June 30, ~~2021,~~2022, the Bank had a concentration in commercial real estate (“CRE”) loans as defined by applicable regulatory guidance as follows:

June 30,

December 31,

June 30,

2022

2021

2021

Multifamily real estate loans as a percent of
   total regulatory capital of the Bank

265
%

237
%

223
%

Non-owner occupied commercial real estate
   loans as a percent of total regulatory capital
   of the Bank

151

149

158

Total CRE concentration

416
%

386
%

381
%


	June 30,			December 31,			June 30,
	2023			2022			2022
Multifamily real estate loans as a percent of total regulatory capital of the Bank		248	%		251	%		265	%

Non-owner occupied commercial real estate loans as a percent of total regulatory capital of the Bank		137			141			151

Total CRE concentration		385	%		392	%		416	%

The Bank believes it satisfactorily addresses the key elements in the risk management framework laid out by its regulators for the effective management of CRE concentration risks.

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

Average Balance Sheet

Unaudited

Three Months Ended


		June 30, 2022										June 30, 2021										June 30, 2023									June 30, 2022
		Average				Income/			Annualized			Average			Income/			Annualized				Average			Income/			Annualized			Average			Income/			Annualized
(Dollars in thousands)		Balance				Expense			Yield			Balance			Expense			Yield				Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earning assets:
Investments:
Taxable ~~(1)~~(A)		$	774,145			$	3,535			1.83	%	$	884,374		$	3,020			1.37	%		$	806,447		$	4,900			2.43	%	$	774,145		$	3,535			1.83	%
Tax-exempt (1) (2)			4,193				40			3.82			6,891			81			4.70
Loans (2) (3):
Tax-exempt (A) (B)																							1,858			20			4.31			4,193			40			3.82
Loans (B) (C):
Residential mortgages			513,666				3,630			2.83			498,594			3,826			3.07				557,575			4,942			3.55			513,666			3,630			2.83
Commercial mortgages			2,552,128				21,185			3.32			1,941,330			15,056			3.10				2,504,268			26,839			4.29			2,552,128			21,185			3.32
Commercial			2,024,457				19,348			3.82			1,942,802			16,984			3.50				2,241,817			35,457			6.33			2,024,457			19,348			3.82
Commercial construction			16,186				162			4.00			20,952			180			3.44				6,977			165			9.46			16,186			162			4.00
Installment			37,235				297			3.19			34,319			255			2.97				51,269			841			6.56			37,235			297			3.19
Home equity			38,061				331			3.48			45,042			377			3.35				33,650			633			7.52			38,061			331			3.48
Other			258				6			9.30			219			5			9.13				271			7			10.33			258			6			9.30
Total loans			5,181,991				44,959			3.47			4,483,258			36,683			3.27				5,395,827			68,884			5.11			5,181,991			44,959			3.47
Federal funds sold			—				—			—			91			—			0.06				—			—			—			—			—			—
Interest-earning deposits			164,066				314			0.77			428,464			97			0.09				141,968			1,451			4.09			164,066			314			0.77
Total interest-earning assets			6,124,395				48,848			3.19	%		5,803,078			39,881			2.75	%			6,346,100			75,255			4.74	%		6,124,395			48,848			3.19	%
Noninterest-earning assets:					��
Cash and due from banks			9,715										10,360										7,800									9,715
Allowance for credit losses			(59,629	)									(67,593	)									(63,045	)								(59,629	)
Premises and equipment			22,952										23,307										23,745									22,952
Other assets			96,232										182,421										85,969									96,232
Total noninterest-earning assets			69,270										148,495										54,469									69,270
Total assets		$	6,193,665									$	5,951,573									$	6,400,569								$	6,193,665
LIABILITIES:
Interest-bearing deposits:
Checking		$	2,493,668			$	2,330			0.37	%	$	1,980,688		$	944			0.19	%		$	2,834,140		$	22,219			3.14	%	$	2,493,668		$	2,330			0.37	%
Money markets			1,234,564				579			0.19			1,235,464			727			0.24				788,745			3,853			1.95			1,234,564			579			0.19
Savings			163,062				5			0.01			144,044			18			0.05				125,555			45			0.14			163,062			5			0.01
Certificates of deposit - retail			411,202				651			0.63			488,148			1,027			0.84				385,211			2,462			2.56			411,202			651			0.63
Subtotal interest-bearing deposits			4,302,496				3,565			0.33			3,848,344			2,716			0.28				4,133,651			28,579			2.77			4,302,496			3,565			0.33
Interest-bearing demand - brokered			85,000				364			1.71			105,604			456			1.73				10,000			125			5.00			85,000			364			1.71
Certificates of deposit - brokered			33,470				261			3.12			33,783			264			3.13				26,165			196			3.00			33,470			261			3.12
Total interest-bearing deposits			4,420,966				4,190			0.38			3,987,731			3,436			0.34				4,169,816			28,900			2.77			4,420,966			4,190			0.38
FHLB advances and borrowings			3,873				10			1.03			166,343			182			0.44				413,961			5,384			5.20			3,873			10			1.03
Finance lease liabilities			5,406				64			4.74			6,380			76			4.76				4,187			50			4.78			5,406			64			4.74
Subordinated debt			132,803				1,363			4.11			181,317			2,147			4.74				133,090			1,597			4.80			132,803			1,363			4.11
Total interest-bearing liabilities			4,563,048				5,627			0.49	%		4,341,771			5,841			0.54	%			4,721,054			35,931			3.04	%		4,563,048			5,627			0.49	%
Noninterest-bearing liabilities:
Demand deposits			1,029,538										948,851										1,033,176									1,029,538
Accrued expenses and other liabilities			79,882										129,980										88,911									79,882
Total noninterest-bearing liabilities			1,109,420										1,078,831										1,122,087									1,109,420
Shareholders’ equity			521,197										530,971										557,428									521,197
Total liabilities and shareholders’ equity		$	6,193,665									$	5,951,573									$	6,400,569								$	6,193,665
Net interest income (tax-equivalent basis)						$	43,221								$	34,040									$	39,324								$	43,221
Net interest spread										2.70	%								2.21	%									1.70	%								2.70	%
Net interest margin ~~(4)~~(D)										2.83	%								2.38	%									2.49	%								2.83	%
Tax equivalent adjustment						$	(328	)							$	(195	)								$	(403	)							$	(328	)
Net interest income	Net interest income					$	42,893								$	33,845					Net interest income				$	38,921								$	42,893

~~(1)~~(A)

Average balances for available for sale securities are based on amortized cost.

~~(2)~~(B)

Interest income is presented on a tax-equivalent basis using a 21 percent federal tax rate.

~~(3)~~(C)

Loans are stated net of unearned income and include nonaccrual loans.

~~(4)~~(D)

Net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.

Average Balance Sheet

Unaudited

Six Months Ended


		June 30, 2022									June 30, 2021											June 30, 2023									June 30, 2022
		Average			Income/			Annualized			Average				Income/			Annualized				Average			Income/			Annualized			Average			Income/			Annualized
(Dollars in thousands)		Balance			Expense			Yield			Balance				Expense			Yield				Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earning assets:
Investments:
Taxable ~~(1)~~(A)		$	851,059		$	7,142			1.68	%	$	823,120			$	5,649			1.37	%		$	798,828		$	9,371			2.35	%	$	851,059		$	7,142			1.68	%
Tax-exempt (1) (2)			4,446			88			3.96			7,433				179			4.82
Loans (2) (3):
Tax-exempt (A) (B)																							1,861			38			4.08			4,446			88			3.96
Loans (B) (C):
Residential mortgages			511,051			7,286			2.85			500,084				7,780			3.11				543,650			9,225			3.39			511,051			7,286			2.85
Commercial mortgages			2,453,130			39,360			3.21			1,891,125				29,476			3.12				2,491,527			52,756			4.23			2,453,130			39,360			3.21
Commercial			2,016,504			37,550			3.72			1,937,776				33,439			3.45				2,221,921			68,827			6.20			2,016,504			37,550			3.72
Commercial construction			17,131			322			3.76			18,294				319			3.49				5,644			253			8.97			17,131			322			3.76
Installment			35,863			552			3.08			35,997				531			2.95				45,638			1,450			6.35			35,863			552			3.08
Home equity			39,147			655			3.35			46,937				776			3.31				33,744			1,223			7.25			39,147			655			3.35
Other			271			11			8.12			233				10			8.58				273			14			10.26			271			11			8.12
Total loans			5,073,097			85,736			3.38			4,430,446				72,331			3.27				5,342,397			133,748			5.01			5,073,097			85,736			3.38
Federal funds sold			—			—			—			96				—			0.11				—			—			—			—			—			—
Interest-earning deposits			145,696			343			0.47			491,547				225			0.09				152,538			2,989			3.92			145,696			343			0.47
Total interest-earning assets			6,074,298			93,309			3.07	%		5,752,642				78,384			2.73	%			6,295,624			146,146			4.64	%		6,074,298			93,309			3.07	%
Noninterest-earning assets:
Cash and due from banks			8,591									10,743											9,117									8,591
Allowance for loan and lease losses			(60,311	)								(69,367	)										(62,310	)								(60,311	)
Premises and equipment			22,987									22,972											23,835									22,987
Other assets			132,266									204,390											86,288									132,266
Total noninterest-earning assets			103,533									168,738											56,930									103,533
Total assets		$	6,177,831								$	5,921,380										$	6,352,554								$	6,177,831
LIABILITIES:
Interest-bearing deposits:
Checking		$	2,412,456		$	3,568			0.30	%	$	1,944,734			$	1,922			0.20	%		$	2,701,519		$	38,700			2.87	%	$	2,412,456		$	3,568			0.30	%
Money markets			1,264,167			1,118			0.18			1,247,464				1,521			0.24				955,470			8,726			1.83			1,264,167			1,118			0.18
Savings			159,826			10			0.01			139,648				35			0.05				133,377			74			0.11			159,826			10			0.01
Certificates of deposit - retail			418,642			1,257			0.60			510,693				2,497			0.98				371,657			4,191			2.26			418,642			1,257			0.60
Subtotal interest-bearing deposits			4,255,091			5,953			0.28			3,842,539				5,975			0.31				4,162,023			51,691			2.48			4,255,091			5,953			0.28
Interest-bearing demand - brokered			85,000			737			1.73			107,790				949			1.76				18,011			333			3.70			85,000			737			1.73
Certificates of deposit - brokered			33,646			522			3.10			33,776				525			3.11				26,064			401			3.08			33,646			522			3.10
Total interest-bearing deposits			4,373,737			7,212			0.33			3,984,105		��		7,449			0.37				4,206,098			52,425			2.49			4,373,737			7,212			0.33
FHLB advances and borrowings			29,550			74			0.50			176,120				391			0.44				260,292			6,680			5.13			29,550			74			0.50
Finance lease liabilities			5,533			132			4.77			6,493				155			4.77				4,339			103			4.75			5,533			132			4.77
Subordinated debt			132,767			2,727			4.11			181,555				4,292			4.73				133,053			3,236			4.86			132,767			2,727			4.11
Total interest-bearing liabilities			4,541,587			10,145			0.45	%		4,348,273				12,287			0.57	%			4,603,782			62,444			2.71	%		4,541,587			10,145			0.45	%
Noninterest-bearing liabilities:
Demand deposits			1,004,055									898,866											1,104,440									1,004,055
Accrued expenses and other liabilities			99,565									145,919											93,650									99,565
Total noninterest-bearing liabilities			1,103,620									1,044,785											1,198,090									1,103,620
Shareholders’ equity			532,624									528,322											550,682									532,624
Total liabilities and shareholders’ equity		$	6,177,831								$	5,921,380										$	6,352,554								$	6,177,831
Net interest income (tax-equivalent basis)					$	83,164									$	66,097									$	83,702								$	83,164
Net interest spread									2.62	%									2.16	%									1.93	%								2.62	%
Net interest margin ~~(4)~~(D)									2.76	%									2.32	%									2.68	%								2.76	%
Tax equivalent adjustment					$	(649	)								$	(459	)								$	(803	)							$	(649	)
Net interest income	Net interest income				$	82,515									$	65,638					Net interest income				$	82,899								$	82,515

(A)

Average balances for available for sale securities are based on amortized cost.

(B)

Interest income is presented on a tax-equivalent basis using a 21 percent federal tax rate.

(C)

Loans are stated net of unearned income and include nonaccrual loans.

(D)

Net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.

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

For the Three Months Ended June 30, 2022

Difference due to

Change In

Change In:

Income/

(In Thousands):

Volume

Rate

Expense

ASSETS:

Investments

$
(406
)

$
880

$
474

Loans

5,730

2,546

8,276

Interest-earning deposits

(93
)

310

217

Total interest income

$
5,231

$
3,736

$
8,967

LIABILITIES:

Interest-bearing checking

$
430

$
956

$
1,386

Money market

29

(177
)

(148
)
Savings

1

(14
)

(13
)
Certificates of deposit - retail

(142
)

(234
)

(376
)
Certificates of deposit - brokered

(2
)

(1
)

(3
)
Interest bearing demand brokered

(87
)

(5
)

(92
)
Borrowed funds

(440
)

268

(172
)
Capital lease obligation

(12
)

—

(12
)
Subordinated debt

(498
)

(286
)

(784
)
Total interest expense

$
(721
)

$
507

$
(214
)
Net interest income

$
5,952

$
3,229

$
9,181


	For the Six Months Ended June 30, 2022									For the Three Months Ended June 30, 2023
	Difference due to						Change In			Difference due to						Change In
	Change In:						Income/			Change In:						Income/
(In Thousands):	Volume			Rate			Expense			Volume			Rate			Expense
ASSETS:
Investments	$	242		$	1,160		$	1,402		$	286		$	1,059		$	1,345
Loans		10,420			2,985			13,405			2,447			21,478			23,925
Interest-earning deposits		(250	)		368			118			(49	)		1,186			1,137
Total interest income	$	10,412		$	4,513		$	14,925		$	2,684		$	23,723		$	26,407
LIABILITIES:
Interest-bearing checking	$	755		$	891		$	1,646		$	27		$	19,862		$	19,889
Money market		33			(436	)		(403	)		(326	)		3,600			3,274
Savings		3			(28	)		(25	)		(13	)		53			40
Certificates of deposit - retail		(394	)		(846	)		(1,240	)		(43	)		1,854			1,811
Certificates of deposit - brokered		(2	)		(1	)		(3	)		(55	)		(10	)		(65	)
Interest bearing demand brokered		(196	)		(16	)		(212	)		(940	)		701			(239	)
Borrowed funds		(439	)		122			(317	)		1,383			3,991			5,374
Capital lease obligation		(23	)		—			(23	)		(13	)		(1	)		(14	)
Subordinated debt		(1,002	)		(563	)		(1,565	)		5			229			234
Total interest expense	$	(1,265	)	$	(877	)	$	(2,142	)	$	25		$	30,279		$	30,304
Net interest income	$	11,677		$	5,390		$	17,067		$	2,659		$	(6,556	)	$	(3,897	)


	For the Six Months Ended June 30, 2023
	Difference due to						Change In
	Change In:						Income/
(In Thousands):	Volume			Rate			Expense
ASSETS:
Investments	$	(299	)	$	2,478		$	2,179
Loans		5,901			42,111			48,012
Interest-earning deposits		17			2,629			2,646
Total interest income	$	5,619		$	47,218		$	52,837
LIABILITIES:
Interest-bearing checking	$	376		$	34,756		$	35,132
Money market		(253	)		7,861			7,608
Savings		(5	)		69			64
Certificates of deposit - retail		(157	)		3,091			2,934
Certificates of deposit - brokered		(116	)		(5	)		(121	)
Interest bearing demand brokered		(851	)		447			(404	)
Borrowed funds		1,553			5,053			6,606
Capital lease obligation		(28	)		(1	)		(29	)
Subordinated debt		11			498			509
Total interest expense	$	530		$	51,769		$	52,299
Net interest income	$	5,089		$	(4,551	)	$	538

~~Interest~~Net interest income, ~~on interest-earning assets,~~ on a fully tax-equivalent basis, ~~totaled $48.8~~declined $3.9 million, or 9 percent, for the second quarter of ~~2022 compared~~2023 to ~~$39.9~~$39.3 million ~~for~~from $43.2 million in the same ~~period of 2021, reflecting an increase of $9.0 million, or 22 percent. This increase reflected increases in the average balance~~2022 period. The net interest margin ("NIM") was 2.49 percent and ~~yield of interest-earning assets.~~

~~The average balance of interest-earning assets totaled $6.12 billion for the second quarter of 2022, an increase of $321.3 million, or 6~~2.83 percent from the same period of 2021. The average balance of interest-earning assets totaled $6.07 billion for the six months ended June 30, 2022, an increase of $321.7 million, or 6 percent, from the same period of 2021.

~~The increase in interest-earning assets~~ for the three months ended June 30, 2023 and 2022, ~~reflected growth in the average balance~~respectively, a decrease of ~~loans of $698.7 million or 16 percent to $5.18 billion for the~~34 basis points quarter ended June 30, 2022, from $4.48 billion for the same 2021 period. The increase in interest-earning assets for the six months ended June 30, 2022 reflected growth in the average balance of loans of $642.7 million or 15 percent to $5.07 billion for the six months ended June 30, 2022, from $4.43 billion for the same 2021 period. The decline in the average balance of investments for the quarter ended June 30, 2022 was $112.9 million or 13 percent to $778.3 million from $891.3 million for the same 2021over quarter. The ~~six months ended June 30, 2022 also included an increase in the average balance~~

Company recorded net interest income, on a fully tax-equivalent basis, of ~~investments of $25.0 million to $855.5~~$83.7 million for the six months ended June 30, 2023, reflected an increase of $538,000 from $83.2 million from the same 2022 ~~from $830.6 million~~period. The net interest margin ("NIM") was 2.68 percent and 2.76 percent for the ~~same 2021 period. The increase in average interest-earnings assets for~~six months ended June 30, 2023 and 2022, respectively, a decrease of 8 basis points year over year. For the three and six months ended June 30, 2023, when compared to 2022 ~~were partially offset~~net interest margin has been impacted by ~~declines~~a rapid increase in interest expense mostly driven by higher deposit rates during 2023. The ongoing Federal Reserve monetary policy tightening intended to slow inflation has led to a significant increase in interest rates, particularly rates impacting short term investments and deposits. This has resulted in an inversion of the ~~average balance of interest-earning deposits of $264.4 million to $164.1 million for~~U.S. Treasury yield curve driving an increase in deposit costs at a faster rate than the ~~three months ended June 30, 2022 and $345.9 million to $145.7 million for the six months ended June 30, 2022.~~yields on interest earning assets.

The growth in loans for both the three months and six months ended June 30, 2022 was driven by growth in commercial mortgages as part of the Company’s balance sheet repositioning executed in the first quarter of 2022. Commercial mortgages grew by $610.8 million, or 31 percent, to $2.55 billion from $1.94 billion and commercial loans increased by $81.7 million or 4 percent to $2.02 billion from $1.94 billion for the three months ended June 30, 2022. Commercial mortgages increased by $562.0 million or 30 percent to $2.45 billion for the six months ended June 30, 2022 from $1.89 billion for the same period in 2021 coupled with growth in commercial loans of $78.7 million or 4 percent to $2.02 billion.

~~The average balance of investments decreased $112.9 million or 13 percent for the quarter ended June 30, 2022, to $778.3 million from $891.3 million for the same three-month period in 2021.~~ During the first quarter of 2022, the Company executed a balance sheet ~~repositioning~~reposition to benefit future NIM, in which ~~included~~$250.0 million of multifamily loans were purchased, funded by the sale of ~~$125~~$125.0 million of ~~investments at lower yields~~lower-yielding, like-duration securities, and deposit growth. To manage a neutral overall duration effect on the balance sheet, thereby protecting the balance sheet against the impact of rising rates, we executed $100.0 million of forward starting five-year pay fixed swaps. The repositioning resulted in an earn-back period of less than three years on the loss on sale of securities, with future net interest margin improving by four basis points, and no impact to ~~partially fund like duration, higher yielding multifamily loans.~~ tangible capital or tangible book value per share.

The increase in the average balance of interest-earning assets when comparing the second quarter of 2023 and 2022 was due to growth of $213.8 million in loans to $5.40 billion from $5.18 billion and growth in investments of $30.0 million, partially offset by a decrease in interest-earning deposits of $22.1 million. For the six months ended June 30, 2023 the average balance of interest-earning assets grew when compared to the same 2022 period primarily due to growth in loans of $269.3 million to $5.34 billion, which was partially offset by a decline of investments of $54.8 million as part of the Company's balance sheet repositioning strategy explained above.

The growth in the average balance of loans for both the three and six months ended June 30, 2023 was driven by growth in commercial loans and residential mortgages. Commercial loans grew by $217.4 million, or 11 percent, to $2.24 billion from $2.02 billion for the quarter ended June 30, 2022. Additionally, residential mortgages grew $43.9 million, or 9 percent, to $557.6 million for the quarter ended June 30, 2023 from $513.7 million for the same 2022 period. These increases were partially offset by a decline in commercial mortgages of $47.9 million to $2.50 billion for the quarter ended June 30, 2023 as compared to $2.55 billion for the quarter ended June 30, 2022. For the six months ended June 30, 2023 commercial loans grew $205.4 million, or 10 percent, to $2.22 billion from $2.02 billion for the same period in 2022. Residential mortgages increased ~~slightly~~by $32.6 million to $543.7 million and commercial mortgages grew $38.4 million to $2.49 billion for the six months ended June 30, ~~2022~~2023 from $2.45 billion for the six months ended June 30, 2022. The growth in commercial mortgages was in part due to ~~$855.5~~the Company's balance sheet reposition strategy described above.

The average balance of investments increased $30.0 million ~~from $830.6~~to $808.3 million for the quarter ended June 30, 2023 as compared to $778.3 million for the same ~~2021 period, which~~2022 period. During the six months ended June 30, 2023, the average balance of investments decreased $54.8 million to $800.7 million from $855.5 million for the same 2022 period. The decrease for the six months ended June 30, 2023 was primarily a result of the ~~Company purchasing securities to utilize excess liquidity during the second half of 2021.~~balance sheet repositioning strategy described above.

For the ~~second quarters of~~quarter ended June 30, 2023 and 2022 ~~and 2021,~~periods, the average yields earned on interest-earning assets were ~~3.19~~4.74 percent and ~~2.75~~3.19 percent, respectively, an increase of 44155 basis points. The six months ended June 30, 2023 and 2022 periods included average yields earned on interest-earning assets of 4.64 percent and 3.07 percent, respectively, an increase of 157 basis points. The increase in yields on interest-earning assets for the three and six months ended June 30, 2023, was primarily due to the increase in the target Federal Funds rate of 500 basis points. This ~~was due to an increase~~resulted in increases in the yield on loans of 20164 basis points ~~in total average loans~~ to ~~3.47~~5.11 percent, ~~for~~ the quarter ended June 30, 2022, compared to 3.27 percent for the same period of 2021 coupled with an increase in the average balance of loans by $698.7 million when comparing the 2022 period to the same 2021 period. The yield on interest-earning deposits ~~increased 68~~of 155 basis points to 774.09 percent and the yield on investments of 59 basis points ~~for~~to 2.43 percent, when comparing the ~~quarter~~three months ended June 30, ~~2022 when compared~~2023 to the same period in 2021. However, the balance of interest-bearing deposits significantly decreased, which helped to improve the average yield on interest-earning assets. With the transformation to a commercial bank balance sheet and business model, the Company’s interest rate sensitivity models indicate the Company is asset sensitive as of June 30, 2022 ~~and that net interest income would improve in a rising rate environment but decline in a falling rate environment.~~

period. For the six months ended June 30, ~~2022 and 2021,~~2023 the ~~average yields earned~~yield on loans increased 163 basis points to 5.01 percent, yield on interest-earning ~~assets were 3.07~~deposits increased 345 basis points to 3.92 percent, and ~~2.73 percent, respectively, an increase of 34 basis points. This was due to an increase of 11~~yield on investments increased 66 basis points into 2.35 percent.

The average yield on total loans increased 164 basis points to 5.11 percent for quarter ended June 30, 2023 when compared to 3.47 percent for the same 2022 period. The average yield on total loans increased 163 basis points to ~~3.38~~5.01 percent for the six months ended June 30, ~~2022,~~2023 when compared to ~~3.27~~3.38 percent for the same ~~period of 2021 coupled with~~2022 period. The increase for both the three and six months ended June 30, 2023 when compared to the prior periods were driven by an increase in the ~~average balance of~~yield on commercial loans of ~~$642.7 million when comparing the 2022 period to the same 2021 period. The yield on interest-earning deposits increased 38~~251 basis points to 476.33 percent for the three months ended June 30, 2023 and 248 basis points to 6.20 percent for the six months ended June 30, ~~2022 when compared~~2023, due to the same period in 2021. However, the average balance of interest-bearing deposits significantly decreased, which helped to improve the average yield on interest-earning assets. With the transformation to a commercial bank balance sheet and business model, the Company’s interest rate sensitivity models indicate the Company is asset sensitive as of June 30, 2022, and that net interest income would improve in a rising rate environment but decline in a falling rate environment.

~~The increase in the average yield on total loans of 20 basis points to 3.47 percent for the quarter ended June 30, 2022 when compared to 3.27 percent for the prior period was driven by~~ an increase in ~~yield on commercial loans~~target Federal Funds rate of 32500 basis points to 3.82 percent when compared to 3.50 percent for the same quarter of 2021. This was supplemented by growth in the average balance of commercial loans of $81.7 million. The commercial loan yield improvement was due to the increase in target Fed Funds of 175 basis points during the first half of 2022since rates started increasing given these loans are typically floating rates with short repricing periods. The ~~increase was also driven by an increase in~~ yield on commercial mortgages ~~which increased by 22 basis points to 3.32 percent~~ for the quarter ended June 30, ~~2022 when compared to 3.10~~2023 was 4.29 percent, ~~for the quarter ended June 30, 2021 and~~which reflected an increase ~~in the average balance~~ of $610.8 million to $2.55 billion for the quarter ended June 30, 2022. The increase was due to the originations of loans with higher yields during the second quarter of 2022 than our current portfolio. In addition, 25 percent of our loan portfolio reprices within one month; 37 percent within three months and 47 percent within one year. The increases in the average balances of commercial loans and commercial mortgages were partially funded by the balance sheet repositioning completed in the first quarter of 2022 and the use of the Company’s liquidity, as seen by the decline in interest-earning deposits of $264.4 million during the second quarter of 2022.

~~The average yield earned on total loans increased by 11~~97 basis points ~~to 3.38 percent~~ when compared to the same ~~six month~~2022 period, ~~of 2021. This increase was primarily due to higher yields on commercial loans which was 3.72 percent for~~while the ~~six months ended when compared to 3.45 percent for the same 2021 period and growth in the average balance of commercial loans of $78.7 million to $2.02 billion. The commercial loan~~ yield improvement was due to the increase in target Fed Funds throughout 2022 given these loans are typically floating rates with short repricing periods. The increase was also driven by an increase in yield on commercial mortgages which increased by nine basis points to 3.21 percent for the six months ended June 30, ~~2022~~2023 was 4.23 percent, which reflected an increase of 102 basis points when compared to ~~3.12 percent for~~ the same ~~period~~2022 period. The increases for both of ~~2021 while~~these periods were primarily driven by the ~~average balance also increased by $562.0 million. The increase in the average yields~~

~~is due to the originations~~origination of loans with higher yields ~~than our~~in the current ~~portfolio.~~higher interest rate environment. In addition, 25at June 30, 2023, 21 percent of our ~~loan portfolio reprices~~loans repriced within one month; 3736 percent within three months and 4748 percent within one year. The increases in the average balances of commercial loans and commercial mortgages were partially funded by the balance sheet repositioning completed in the first quarter and the use of the Company’s liquidity, as seen by the decline in interest-earning deposits of $345.9 million during the six months ended June 30, 2022.

During the second quarter ~~ended June 30,~~of 2023 and 2022, ~~and 2021,~~ the Company recorded a yield on investments of 2.43 percent and 1.84 percent, ~~and 1.39 percent,~~respectively, an increase of 59 basis points, respectively.

~~For~~ During the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recorded a yield on investments of 2.35 percent and 1.69 percent, ~~and 1.40 percent,~~respectively, an increase of 66 basis points, respectively. The increase in yield for the three and six months ended June 30, ~~2022,~~2023 was due to the Company ~~strategically~~ purchasing ~~higher yielding~~higher-yielding investments during ~~2021 to maintain~~ the ~~size~~latter half of 2022 and the ~~portfolio in anticipation~~first half of ~~maturities and to utilize excess liquidity.~~2023.

For the quarter ended June 30, 2023, the average balance of interest-bearing liabilities totaled $4.72 billion representing an increase of $158.0 million, or 3 percent, from $4.56 billion for the same 2022 period. The increase for the second quarter of 2023 when compared to same period of 2022 was driven by an increase in borrowings of $410.1 million to $414.0 million at June 30, 2023, partially offset by a decrease of interest-bearing deposits of $251.2 million to $4.17 billion at June 30, 2023. The average balance of interest-bearing liabilities ~~totaled $4.56~~increased $62.2 million to $4.60 billion for the second quarter of 2022, an increase of $221.3 million, or 5 percent, from the same period of 2021. The increase in interest-bearing liabilities reflected growth of interest-bearing deposits of $433.2 million or 11 percent to $4.42 billion for the quarter ended June 30, 2022 from $3.99 billion for the same period of 2021, offset by decreases in the average balance of borrowings of $162.5 million, or 98 percent to $3.9 million for the threesix months ended June 30, ~~2022~~2023 from ~~$166.3 million for the same period of 2021, and a decrease in average subordinated debt of $48.5 million or 27 percent to $132.8 million at June 30, 2022 from $181.3 million for the same 2021 period.~~

~~The average balance of interest-bearing liabilities totaled~~ $4.54 billion for the six months ended June 30, ~~2022, an increase of $193.3 million, or 4 percent, from the same period of 2021.~~2022. The increase ~~of interest-bearing liabilities reflected growth of interest-bearing deposits of $389.6 million or 10 percent, to $4.37 billion~~ for the six months ended June 30, ~~2022 from $3.98 billion for the~~2023 when compared to same period of ~~2021, offset~~2022 was driven by ~~decreases~~an increase in ~~the average balance of~~ borrowings of ~~$146.6~~$230.7 million ~~or 83 percent~~ to ~~$29.6 million for the six months ended June 30, 2022 from $176.1 million for the same period of 2021, and a decrease in average subordinated debt of $48.8 million or 27 percent to $132.8~~$260.3 million at June 30, ~~2022 from $181.6~~2023, partially offset by a decrease of interest-bearing deposits of $167.6 million ~~for the same 2021 period.~~to $4.21 billion at June 30, 2023.

The ~~increase~~decrease in the average balance of interest-bearing deposits was primarily due to the growth in customer deposits (excluding brokered CDs and brokered interest-bearing demand deposits, but including reciprocal funds discussed below) of $531.1 million to $3.89 billion for the quarter ended June 30, 2022 when compared to $3.36 billion for the same period of 2021. The increase was due to an increase in retail deposits from our branch network; an increase in interest-bearing checking deposits as maturing CDs shifted into these accounts; a focus on providing high-touch client service; new deposit relationships related to PPP; and a full array of treasury management products that support core deposit growth. This growth was partially offset by a decline ~~of $20.9 million~~ in the average balance of brokered deposits ~~and $76.9~~of $82.3 million ~~in the average balance of retail CDs~~to $36.2 million for the ~~three months ended June 30, 2022,~~second quarter of 2023 when compared to the ~~same 2021 period.~~

~~The average balance~~second quarter of interest-bearing deposits was due to the growth in customer deposits (excluding brokered CDs and brokered interest-bearing demand deposits, but including reciprocal funds discussed below) of $504.6 million to $3.84 billion for the2022. The six months ended June 30, 2022 when compared to $3.33 billion for the same period of 2021. The increase was due to an increase in retail deposits from our branch network; an increase in interest-bearing checking deposits as maturing CDs shifted into these accounts;2023 had a focus on providing high-touch client service; new deposit relationships related to PPP; and a full array of treasury management products that support core deposit growth. This growth was partially offset by a decline of $22.9 milliondecrease in the average balance of brokered deposits of $74.6 million to $44.1 million when compared to the same period of 2022. The Company added a short-term brokered CD for $50.0 million in June 2023 to provide additional liquidity and ~~$92.1 million~~replace deposit run off. Additionally, interest-bearing deposits were affected by a decline in the average balance of ~~retail CDs~~money market deposits for the three and six months ended June 30, ~~2022,~~2023 when compared to the same ~~2021 period.~~2022 periods of $445.8 million and $308.7 million, respectively. Money market accounts declined in the first half of 2023 due to clients shifting balances into higher-yielding short-term Treasuries and interest-bearing checking accounts, and the paydown of higher rate borrowings. The decline in money market and brokered deposits was partially offset by an increase in the average balance of interest-bearing checking accounts of $340.5 million to $2.83 billion during the second quarter of 2023 and $289.1 million to $2.70 billion for first six months of 2023 when compared to the same periods in 2022. The increase in interest-bearing checking was partially due to maturing CDS that shifted into these accounts, demand for FDIC insured products, and stronger consumer demand for higher-yielding accounts.

The Company is a participant in the Reich & Tang Demand Deposit Marketplace ~~(“DDM”~~("DDM") program and the Promontory 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~~increase the ~~full amount~~level of FDIC ~~insurance.~~insurance available to deposit customers. As a ~~program~~ participant, the Company receives reciprocal amounts of deposits from other participating banks. Such reciprocal deposit balances ~~are included in the Company’s interest-bearing checking balances. The average balance of reciprocal deposits was~~were $813.2 million and $660.0 million ~~and $750.9 million~~ for ~~the three months~~quarter ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The average balance of reciprocal deposits was $721.2 million and $686.7 million ~~and $732.3 million~~ for ~~the~~ six months ended June 30, 2023 and 2022, ~~and 2021,~~ respectively.

The ~~decrease in borrowings~~additional growth for the three and six months ended June 30, ~~2022 when~~2023 was directly related to client's desire of the increased level of FDIC insurance offered by these programs.

At June 30, 2023, uninsured deposits were approximately $1.3 billion, or 24 percent of total deposits. This amount was adjusted to exclude $283 million of public fund deposit balances, which are fully-collateralized and protected with securities and an FHLBNY letter of credit.

There was an increase in the average balance of borrowings to $410.1 million for the quarter ended June 30, 2023 to $414.0 million for the quarter ended June 30, 2022. The average balance of borrowings for the six months ended June 30, 2023 increased to $260.3 million compared to the ~~2021 periods~~same 2023 period. The increase in borrowings for the three and six months was principally due to the ~~Company’s participation~~decline in ~~the Paycheck Protection Program Loan Facility in 2021~~demand deposits as customers continue to ~~fund PPP loan originations, which decreased due~~seek higher rates or move to ~~PPP loan forgiveness that occurred during the latter part of 2021, offset by a slight increase in overnight borrowings.~~alternative investments.

~~In June 2021, the Company redeemed $50.0 million of subordinated debt bearing interest at an annual rate of 6.0 percent issued in June 2016 that was set to re-price to approximately 5.0 percent.~~ In December 2020, the Company issued $100.0 million of subordinated debt ($98.2 million net of issuance costs) bearing interest at an annual rate of 3.50 percent for the first five years, and thereafter at an adjustable rate until maturity in December ~~2025~~2030 or earlier redemption. In December 2017, the Company issued $35.0 million of subordinated debt ($34.1 million net of issuance costs) bearing interest at an annual rate of 4.75 percent for the first five years, and thereafter at an adjustable rate until maturity in December 2027 or earlier redemption. The December 2017 issuance has re-priced to 7.41 percent commencing in March 2023 through June 2023.

For the quarters ended June 30, ~~2022~~2023 and ~~2021,~~2022, the cost of interest-bearing liabilities was ~~49 basis points~~3.04 percent and ~~54 basis points,~~0.49 percent, respectively, reflecting ~~a decrease~~an increase of 5255 basis points. The ~~decrease was driven by a decline in the~~ cost of ~~subordinated debt of 63 basis points to 4.11~~interest-bearing liabilities was 2.71 percent ~~along with a decline in the average balance of subordinated debt of $48.5 million to $132.8 million~~and 0.45 percent for the ~~quarter~~six months ended June 30, 2023 and 2022, respectively reflecting an increase of 226 basis points. The increase for both the three and six months ended June 30, 2023 and 2022 when compared to the ~~quarter ended June 30, 2021. This decrease~~2022 periods was ~~partially offset~~driven by ~~a slight~~an increase in the average cost of interest-bearing deposits of 4239 basis points ~~due~~to 2.77 percent for the second quarter of 2023 and 216 basis points to 2.49 percent for the six months ended June 30, 2023. Additionally, the cost of borrowings increased 417 basis points to 5.20 percent for the second quarter of 2023 when compared to the current interest rate environment. Although the Federal Reserve raised the Target Federal Funds rate 175 basis points, the Company has been able to maintain lower deposit rates as our high touch client service has provided a competitive advantage in the pricingsecond quarter of ~~our deposit accounts.~~

2022. For the six months ended June 30, ~~2022 and 2021,~~2023 the cost of ~~interest-bearing liabilities was 45 basis points and 57 basis points, respectively, reflecting a decrease of 12 basis points. The cost of total interest-bearing deposits declined by 4~~borrowings increased 463 basis points to ~~33 basis points for the six months ended June 30, 2022~~5.13 percent when compared to the same ~~period of 2021, driven by repricing our~~2022 period. The increase in deposit ~~base~~and borrowing rates is due to ~~align with~~ the ~~previous~~ Federal Reserve raising the target Federal Funds rate ~~decreases while the average balance increased $389.6 million. The decrease in the average cost of interest-bearing liabilities was also driven~~ by ~~a decline in the cost of subordinated debt of 62~~500 basis points ~~to 4.11 percent coupled with a decline in the average balance of subordinated debt of $48.8 million to $132.8 million for the six months ended June 30,~~since March 2022.

INVESTMENT SECURITIES: Investment securities available for sale are purchased, sold and/or maintained as a part of the Company’s overall balance sheet, 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. Investment securities held to maturity are those securities that the Company has both the ability and intent to hold to maturity. These securities are carried at amortized cost. Equity securities are carried at fair value with unrealized gains and losses recorded in ~~non-interest~~noninterest income.

At June 30, ~~2022,~~2023, the Company had investment securities available for sale with a fair value of ~~$556.8~~$540.5 million compared with ~~$796.8~~$554.6 million at December 31, 2021. The decrease was due to the sale of residential mortgage-backed securities and U.S. government-sponsored agencies of $121.2 million associated with a balance sheet repositioning executed in first quarter of 2022. The decrease was also due to an increase in the unrealized loss due to the rising interest rate environment experienced during the first six months of 2022. A net unrealized loss (net of income tax) of ~~$59.1~~$76.0 million and of ~~$9.9~~$81.0 million were included in shareholders’ equity at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

At June 30, ~~2022,~~2023, the Company had investment securities held to maturity with a carrying cost of ~~$105.0~~$110.4 million and an estimated fair value of ~~$95.6~~$95.5 million compared with a carrying cost of ~~$108.7~~$102.3 million and an estimated fair value of ~~$108.5~~$87.2 million at December 31, ~~2021.~~2022.

The Company has one equity security (a CRA investment security) with a fair value of ~~$13.5~~$13.0 million at both June 30, ~~2022 compared with a fair value of $14.7 million at~~2023 and December 31, ~~2021,~~2022, respectively, with changes in fair value recognized in the Consolidated Statements of Income. The Company recorded ~~a $475,000 and $1.2 million~~an unrealized loss ~~on the Consolidated Statements~~ of ~~Income~~$0 and $209,000 for the three and six months ended June 30, ~~2022,~~2023, respectively, as compared to an unrealized ~~gain of $42,000 and an unrealized~~ loss of ~~$223,000~~$475,000 and $1.2 million for the ~~three and six months ended June 30, 2021, respectively.~~same periods in 2022.

The carrying value of investment securities available for sale and held to maturity as of June 30, ~~2022~~2023 and December 31, ~~2021~~2022 are shown below:

June 30, 2022

December 31, 2021

Estimated

Estimated

Amortized

Fair

Amortized

Fair

(In thousands)

Cost

Value

Cost

Value

Investment securities - available for sale:

   U.S. government-sponsored agencies

$
244,765

$
206,123

$
280,045

$
272,221

   Mortgage-backed securities-residential (principally
      U.S. government-sponsored entities)

342,272

306,828

481,062

476,974

   SBA pool securities

35,836

32,583

40,649

39,561

   State and political subdivisions

4,017

4,013

5,431

5,476

   Corporate bond

7,500

7,244

2,500

2,521

Total investment securities - available for sale

$
634,390

$
556,791

$
809,687

$
796,753

Investment securities - held to maturity:

   U.S. government-sponsored agencies

40,000

37,225

40,000

39,982

   Mortgage-backed securities-residential (principally
      U.S. government-sponsored entities)

65,048

58,417

68,680

68,478

Total investment securities - held to maturity

$
105,048

$
95,642

$
108,680

$
108,460

Total

$
739,438

$
652,433

$
918,367

$
905,213


	June 30, 2023				December 31, 2022
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Investment securities available for sale:
U.S. government-sponsored agencies	$	244,784	$	193,129	$	244,774	$	190,542
Mortgage-backed securities-residential (principally U.S. government-sponsored entities)		359,347		312,526		372,471		325,738
SBA pool securities		29,184		24,878		31,934		27,427
State and political subdivisions		1,854		1,848		1,866		1,849
Corporate bond		10,000		8,138		10,000		9,092
Total investment securities available for sale	$	645,169	$	540,519	$	661,045	$	554,648
Investment securities held to maturity:
U.S. government-sponsored agencies		40,000		35,752		40,000		35,437
Mortgage-backed securities-residential (principally U.S. government-sponsored entities)		70,438		59,749		62,291		51,750
Total investment securities held to maturity	$	110,438	$	95,501	$	102,291	$	87,187
Total	$	755,607	$	636,020	$	763,336	$	641,835

The following table presents the contractual maturities and yields of debt securities available for sale and held to maturity as of June 30, ~~2022.~~2023. The weighted average yield is a computation of income within each maturity range based on the amortized cost of securities:

After 1

After 5

But

But

After

Within

Within

Within

10

(Dollars in thousands)

1 Year

5 Years

10 Years

Years

Total

Investment securities - available for sale:

   U.S. government-sponsored agencies

$
—

$
—

$
121,230

$
84,893

$
206,123

—

—

1.39
%

1.79
%

1.56
%
   Mortgage-backed securities-residential (1)

24,710

17,879

23,217

241,022

306,828

1.93
%

3.08
%

1.57
%

1.86
%

1.91
%
   SBA pool securities

—

—

4,324

28,259

32,583

—

—

2.23
%

1.27
%

1.39
%
   State and political subdivisions (2)

2,139

1,874

—

—

4,013

1.76
%

2.23
%

—

—

1.98
%
   Corporate bond

—

—

7,244

—

7,244

—

—

4.33
%

—

4.33
%
Total investments - available for sale

$
26,849

$
19,753

$
156,015

$
354,174

$
556,791

1.92
%

3.00
%

1.56
%

1.80
%

1.77
%
Investment securities - held to maturity:

   U.S. government-sponsored agencies

—

15,000

25,000

—

40,000

—

1.35
%

1.64
%

—

1.53
%
   Mortgage-backed securities-residential (1)

—

—

—

65,048

65,048

—

—

—

1.77
%

1.77
%
Total investments - held to maturity

$
—

$
15,000

$
25,000

$
65,048

105,048

—

1.35
%

1.64
%

1.77
%

1.68
%
Total

$
26,849

$
34,753

$
181,015

$
419,222

$
661,839

1.92
%

2.29
%

1.57
%

1.79
%

1.76
%


				After 1			After 5
				But			But			After
	Within			Within			Within			10
(Dollars in thousands)	1 Year			5 Years			10 Years			Years			Total
Investment securities available for sale:
U.S. government-sponsored agencies	$	—		$	—		$	114,104		$	79,025		$	193,129
		—			—			1.39	%		1.79	%		1.56	%
Mortgage-backed securities-residential (A)		50,183			8,543			18,739			235,061			312,526
		5.88	%		2.86	%		1.92	%		2.51	%		2.95	%
SBA pool securities		—			—			9,739			15,139			24,878
		—			—			1.93	%		1.41	%		1.61	%
State and political subdivisions (B)		1,848			—			—			—			1,848
		2.19	%		—			—			—			2.19	%
Corporate bond		—			—			8,138			—			8,138
		—			—			4.81	%		—			4.81	%
Total investments available for sale	$	52,031		$	8,543		$	150,720		$	329,225		$	540,519
		5.75	%		2.86	%		1.67	%		2.27	%		2.39	%
Investment securities held to maturity:
U.S. government-sponsored agencies		—			30,000			10,000			—			40,000
		—			1.47	%		1.74	%		—			1.54	%
Mortgage-backed securities-residential (A)		—			—			—			70,438			70,438
		—			—			—			2.25	%		2.25	%
Total investments held to maturity	$	—		$	30,000		$	10,000		$	70,438			110,438
		—			1.47	%		1.74	%		2.25	%		1.99	%
Total	$	52,031		$	38,543		$	160,720		$	399,663		$	650,957
		5.75	%		1.78	%		1.68	%		2.27	%		2.32	%

~~(1)~~(A)

Shown using stated final maturity.

~~(2)~~(B)

Yields presented on a fully tax-equivalent ~~basis.~~basis using a 21 percent federal tax rate.

Federal funds sold and interest-earning deposits are an additional part of the Company’s liquidity and interest rate risk management strategies. The combined average balance of these investments during the three months ended June 30, ~~2022~~2023 was ~~$164.1~~$142.0 million compared to ~~$428.5~~$164.1 million for the quarter ended June 30, ~~2021.~~2022.

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

For the Three Months Ended June 30,

Change

(In thousands)

2022

2021

2022 vs 2021

Service charges and fees

$
1,063

$
896

$
167

Bank owned life insurance

310

466

(156
)
Gain on sale of loans (mortgage banking)

151

409

(258
)
Gain on loans held for sale at lower of cost or fair value

—

1,125

(1,125
)
Fee income related to loan level, back-to-back swaps

—

—

—

Gain on sale of SBA loans

2,675

932

1,743

Corporate advisory fee income

33

121

(88
)
Loss on swap termination

—

(842
)

842

Other income

860

1,495

(635
)
Loss on securities sale, net

—

—

—

Fair value adjustment for CRA equity security

(475
)

42

(517
)
Total other income (excluding wealth management income)

$
4,617

$
4,644

$
(27
)


	For the Six Months Ended June 30,						Change			For the Three Months Ended June 30,						Change
(In thousands)	2022			2021			2022 vs 2021			2023			2022			2023 vs 2022
Service charges and fees	$	2,015		$	1,742		$	273		$	1,320		$	1,063		$	257
Bank owned life insurance		623			1,077			(454	)		305			310			(5	)
Gain on sale of loans (mortgage banking)		398			1,434			(1,036	)		15			151			(136	)
Gain/(loss) on loans held for sale at lower of cost or fair value		—			1,407			(1,407	)
Fee income related to loan level, back-to-back swaps		—			—			—
Gain on sale of SBA loans		5,519			2,381			3,138			838			2,675			(1,837	)
Corporate advisory fee income		1,594			1,219			375			15			33			(18	)
Loss on swap termination		—			(842	)		842
Other income		2,114			2,138			(24	)		2,039			860			1,179
Loss on securities sale, net		(6,609	)		—			(6,609	)
Fair value adjustment for CRA equity security		(1,157	)		(223	)		(934	)		(209	)		(475	)		266
Total other income (excluding wealth management income)	$	4,497		$	10,333		$	(5,836	)	$	4,323		$	4,617		$	(294	)


	For the Six Months Ended June 30,					Change
(In thousands)	2023		2022			2023 vs 2022
Service charges and fees	$	2,578	$	2,015		$	563
Bank owned life insurance		602		623			(21	)
Gain on sale of loans (mortgage banking)		36		398			(362	)
Gain on sale of SBA loans		1,703		5,519			(3,816	)
Corporate advisory fee income		95		1,594			(1,499	)
Other income		3,606		2,114			1,492
Loss on securities sale, net		—		(6,609	)		6,609
Fair value adjustment for CRA equity security		—		(1,157	)		1,157
Total other income (excluding wealth management income)	$	8,620	$	4,497		$	4,123

The Company recorded total other income, excluding wealth management fee income, of ~~$4.6~~$4.3 million for the second quarter of ~~each~~2023 compared to $4.6 million for the same quarter of 2022 ~~and 2021.~~reflecting a decrease of $294,000. The Company recorded total other income, excluding wealth management fee income, of ~~$4.5~~$8.6 million for the six months ended June 30, ~~2022~~2023 compared to ~~$10.3~~$11.1 million for the same ~~2021 period.~~period of 2022 (when excluding the $6.6 million loss on sale of securities executed in the six months ended June 30, 2022), reflecting a decrease of $2.5 million.

The Company provides loans that are partially guaranteed by the SBA, to provide working capital and/or ~~financing~~finance the purchase of equipment, inventory or commercial real estate that could be used for start-up ~~business.~~businesses. All SBA loans are underwritten and documented as prescribed by the SBA. The Company generally sells the guaranteed portion of the SBA loans in the secondary market, with the non-guaranteed portion of SBA loans held in the loan portfolio. The ~~second~~June quarter of ~~2022~~2023 included ~~$2.7 million~~$838,000 of gains on sales of SBA loans, which represents ~~an increase~~a decrease of ~~$1.7~~$1.8 million, or ~~187~~69 percent, compared to ~~$932,000~~$2.7 million for the same quarter in ~~2021. The~~2022. For the six months ended June 30, ~~2022 increased $3.1 million or 132 percent to $5.5 million of gains~~2023 the Company recorded a decrease in gain on sales of SBA loans ~~from $2.4~~of $3.8 million to $1.7 million as compared to $5.5 million for the same ~~2021 period.~~period in 2022. The ~~2022~~2023 periods ~~benefitted from~~have been impacted by both market volatility and the ~~addition of an SBA team hired by the Company~~higher interest rate environment resulting in ~~the fourth quarter of 2021.~~lower sale premiums and origination volumes.

The Company recorded corporate advisory fee income for the second quarter of ~~2022~~2023 of ~~$33,000~~$15,000 compared to ~~$121,000~~$33,000 for the same ~~three-month~~ period ended June 30, ~~2021.~~2022. The six months ended June 30, ~~2022~~2023 included ~~$1.6 million~~$95,000 of ~~corporate~~Corporate advisory fee income compared to ~~$1.2~~$1.6 million for the ~~same 2021 period.~~six months ended June 30, 2022. The higher amount in the prior year was related to one major corporate advisory/investment banking acquisition transaction closed during the first quarter of 2022.

Income from the back-to-back swap, SBA programs, and corporate advisory fee income are dependent on volume, and thus are not ~~linear~~consistent from quarter to ~~quarter, as some quarters will be higher than others.~~quarter.

For the ~~three months ended June 30, 2022,~~second quarter of 2023, income from the sale of newly originated residential mortgage loans was ~~$151,000~~$15,000 compared to ~~$409,000~~$151,000 for the same quarter in ~~2021. Income~~2022. The six months ended June 30, 2023 included, income from the sale of newly originated residential ~~mortgage~~mortgages loans ~~decreased $1.0 million from $1.4 million for the six months ended June 30, 2021~~of $36,000 compared to $398,000 for the same 2022 period. ~~This~~The decrease for the three and six months ended June 30, ~~2022,~~2023, was the result of the ~~decreased~~lower volume of residential mortgage loans originated for sale due to a slowdown in refinancing and home purchase activity in the higher interest rate environment.

Other income for the quarter ended June 30, 2023 and 2022 included unused commercial line fees of $809,000 and $529,000, respectively. Additionally, the Company recorded income by the Equipment Finance Division related to equipment transfers to lessees of $221,000 for the second quarter of 2023 compared to none for the prior period. The six months ended June 30, 2023 and 2022, other income included $1.7 million and $650,000 of unused commercial lines fees, respectively. The Company recorded income by the Equipment Finance Division related to equipment transfers to lessees of $367,000 and $426,000 for the six months ended June 30, 2023 and 2022, respectively.

The Company recorded a $209,000 loss on the fair value adjustment for CRA equity securities in the second quarter of 2023 compared to a loss of $475,000 for the same 2022 period. During the six months ended June 30, 2022 the Company recorded a $1.2 million loss of the fair value adjustment for CRA equity securities.

Other income for the six months ended June 30, 2022, included a $6.6 million loss on securities due to the Company’s balance sheet repositioning, by selling ~~lower yielding~~lower-yielding securities and replacing them with ~~higher yielding~~higher-yielding like duration multifamily ~~loans, executed~~loans.

~~during the first quarter. The Company believes that the repositioning has improved NIM with no impact to tangible capital or tangible book value per share.~~

~~The three and six months ended June 30, 2021 included $153,000 and $455,000, respectively, of additional income related to a net life insurance death benefit under the Company’s BOLI policies.~~

~~During the three and six months ended June 30, 2021 the Company recorded a gain on sale of $1.1 million for the sale of $57 million of PPP loans to a third party.~~

~~Other income included $722,000 of income related to the referral of PPP loans for the three and six months ended June 30, 2021.~~

During the three and six months ended June 30, 2021 the Company recognized a loss on the termination of $842,000 for two interest rate swaps that had a notional value of $40 million with a weighted average cost of 1.50 percent.

~~The three and six months ended June 30, 2021 included a gain on sale of an OREO property of $51,000.~~

The remainder of the increase for the three and six months ended June 30, 2022, when compared to the same 2021 periods were primarily due to an increase in commercial lending fees primarily unused credit line fees, loan servicing income, and letter of credit fees.

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

For the Three Months Ended June 30,

Change

(In thousands)

2022

2021

2022 vs 2021

Compensation and employee benefits

$
21,882

$
19,910

$
1,972

Premises and equipment

4,640

4,074

566

FDIC assessment

503

529

(26
)
Other Operating Expenses:

   Professional and legal fees

1,312

1,186

126

   Telephone

348

312

36

   Advertising

681

404

277

   Amortization of intangible assets

389

368

21

   Branch restructure

—

228

(228
)
   Write-off of subordinated debt costs

—

648

(648
)
   Swap valuation allowance

—

—

—

   Other

2,904

3,025

(121
)
Total operating expenses

$
32,659

$
30,684

$
1,975


	For the Six Months Ended June 30,				Change			For the Three Months Ended June 30,				Change
(In thousands)	2022		2021		2022 vs 2021			2023		2022		2023 vs 2022
Compensation and employee benefits	$	44,331	$	41,900	$	2,431		$	26,354	$	21,882	$	4,472
Premises and equipment		9,287		8,187		1,100			4,729		4,640		89
FDIC assessment		974		1,114		(140	)		729		503		226
Other Operating Expenses:
Professional and legal fees		2,450		2,442		8			1,179		1,312		(133	)
Telephone		682		646		36			362		348		14
Advertising		971		618		353			706		681		25
Amortization of intangible assets		820		736		84			355		389		(34	)
Branch restructure		372		228		144
Write-off of subordinated debt costs		—		648		(648	)
Swap valuation allowance		673		—		673
Other		6,268		5,759		509			3,278		2,904		374
Total operating expenses	$	66,828	$	62,278	$	4,550		$	37,692	$	32,659	$	5,033


	For the Six Months Ended June 30,				Change
(In thousands)	2023		2022		2023 vs 2022
Compensation and employee benefits	$	50,940	$	44,331	$	6,609
Premises and equipment		9,103		9,287		(184	)
FDIC assessment		1,440		974		466
Other Operating Expenses:
Professional and legal fees		2,524		2,450		74
Telephone		731		682		49
Advertising		1,102		971		131
Amortization of intangible assets		709		820		(111	)
Branch restructure		175		372		(197	)
Swap valuation allowance		—		673		(673	)
Other		6,542		6,268		274
Total operating expenses	$	73,266	$	66,828	$	6,438

Operating expenses totaled ~~$32.7~~$37.7 million for the three months ended June 30, ~~2022,~~2023, compared to ~~$30.7~~$32.7 million for the same ~~2021~~2022 period, reflecting an increase of ~~$2.0~~$5.0 million, or 615 percent. ~~The~~Operating expenses for the six months ended June 30, ~~2022~~2023 increased ~~$4.6~~$6.4 million or 710 percent to ~~$66.8~~$73.3 million ~~compared to $62.3~~from $66.8 million for the same ~~2021 period.~~period in 2022. The increased operating expenses for the three and six months ended June 30, ~~2022~~2023 were principally attributable to: ~~expenses associated with the acquisition of PPSG completed in July 2021;~~ increased corporate and health insurance costs; hiring in line with the Company’s strategic ~~plan;~~plan, which included an increase in full-time equivalent employees from 472 at June 30, 2022 to 520 at June 30, 2023; normal annual merit increases, and ~~normal salary increases, which were partially offset by decreased~~increased FDIC assessment expense. ~~Additionally, the~~The three months and six months ended June 30, ~~2022~~2023 also included ~~a swap valuation allowance~~$1.7 million and $2.0 million, respectively, of ~~$673,000 as well as~~expense associated with the recent retirement of certain employees. The six months ended June 30, 2023 included $175,000 of expenses associated with the closure of three retail branch locations compared to $372,000 inof expenses associated with the consolidation of private banking ~~offices. Both~~offices in the same period of 2022. The six

months ended June 30 ~~2021 and~~2023 included $409,000 of restricted stock expense associated with additional shares being granted to executives due to performance measures exceeding peers. The six months ended June 30, 2022 included $1.5 million of severance expense related to certain staff reorganizations within several areas of the ~~Bank. The three~~Bank and ~~six months ended June 30, 2021 included accelerated~~$673,000 of expense ~~related~~attributable to ~~the redemption of subordinated debt.~~a swap valuation allowance.

PEAPACK PRIVATE: This division includes: investment management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; and other financial planning, tax preparation and advisory services. Officers from Peapack Private ~~provides~~are available to provide wealth management, trust and investment services at the Bank’s headquarters in Bedminster, New Jersey, and at private banking locations in Morristown, ~~New Providence,~~ Princeton, Red Bank, Summit and Teaneck, New Jersey and at the Bank’s ~~subsidiaries,~~subsidiary, PGB Trust & Investments of Delaware, in Greenville, ~~Delaware and Murphy Capital, in Bedminster, New Jersey.~~Delaware.

The market value of the assets under management and/or administration (“AUM/AUA”) of Peapack Private was $10.7 billion at June 30, 2023, reflecting an 8 percent increase from $9.9 billion at December 31, 2022 and an increase of 12 percent from $9.5 billion at June 30, ~~2022, reflecting a 14 percent decrease from $11.1 billion at December 31, 2021 and a decrease~~2022. The equity market has generally improved during the second quarter of ~~1 percent from $9.8 billion at June 30, 2021. Continued market declines~~2023, contributing to the growth in 2022 further impacted the results in the June 2022 quarter, as the S&P was down another 16 percent in Q2 2022 (and down 21 percent for the six months ended June 30, 2022). Effective December 18, 2020, the Bank completed the hires of the teams from Lucas, based in Red Bank, New Jersey, and from Noyes, based in New Vernon, New Jersey, which collectively contributed approximately $400 million of AUM/AUA at the time of acquisition. Effective July 1, 2021, the Bank closed on the acquisition of Princeton Portfolio Strategies Group (“PPSG”), a registered investment advisor headquartered in Princeton, New Jersey, which contributed approximately $520 million of AUM/AUA at the time of acquisition.AUA.

In the June ~~2022~~2023 quarter, Peapack Private generated ~~$13.9~~$14.3 million in fee income compared to ~~$13.0~~$13.9 million for the June ~~2021~~2022 quarter, reflecting a 73 percent increase. For the six months ended June 30, ~~2022,~~2023, Peapack Private generated ~~$28.7~~$28.0 million in fee income compared to ~~$25.2~~$28.7 million in fee income for the same period in ~~2021,~~2022, reflecting a 142 percent ~~increase.~~decrease. The ~~growth~~decrease in fee

income for the six months ended June 30, 2023 was largely due to ~~several factors, including~~ the ~~acquisitions noted above, new business, partially offset by normal levels~~equity and bond markets decline during the second half of ~~disbursements and outflows and negative market performance.~~2022.

Operating expenses relative to Peapack Private reflected increases due to overall growth in the business and new hires ~~and acquisitions~~ when comparing the three and six months ended June 30, ~~2022,~~2023 to the same periods for ~~2021.~~2022. Expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel.

Peapack Private currently generates adequate revenue to support the salaries, benefits and other expenses of the wealth division and Management believes it will continue to do so as the Company grows organically and/or by acquisition. Management believes that the Bank generates adequate liquidity to support the expenses of Peapack Private should it be necessary.

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

The following table sets forth asset quality data as of the dates indicated:

As of

June 30,

March 31,

December 31,

September 30,

June 30,

(Dollars in thousands)

2022

2022

2021

2021

2021

Loans past due 90 days or more and still accruing

$
—

$
—

$
—

$
—

$
—

Nonaccrual loans (1)

15,078

15,884

15,573

25,925

5,962

Other real estate owned

116

—

—

—

—

Total nonperforming assets

$
15,194

$
15,884

$
15,573

$
25,925

$
5,962

Performing TDRs (2)(3)

$
2,272

$
2,375

$
2,479

$
416

$
190

Loans past due 30 through 89 days and still accruing (4)

$
3,126

$
606

$
8,606

$
1,193

$
1,678

Loans subject to special mention

$
98,787

$
110,252

$
116,490

$
115,935

$
148,601

Classified loans (1)

$
27,167

$
47,386

$
50,702

$
51,937

$
11,178

Individually evaluated loans (1)

$
13,227

$
16,147

$
18,052

$
26,341

$
6,498

Nonperforming loans as a % of total loans (5)

0.29
%

0.31
%

0.32
%

0.56
%

0.13
%
Nonperforming assets as a % of total assets (5)

0.25
%

0.25
%

0.26
%

0.42
%

0.10
%
Nonperforming assets as a % of total loans
plus other real estate owned (5)

0.29
%

0.31
%

0.32
%

0.57
%

0.13
%


	As of
	June 30,			March 31,			December 31,			September 30,			June 30,
(Dollars in thousands)	2023			2023			2022			2022			2022
Loans past due 90 days or more and still accruing	$	—		$	—		$	—		$	—		$	—
Nonaccrual loans		34,505			28,659			18,974			15,724			15,078
Other real estate owned		—			116			116			116			116
Total nonperforming assets	$	34,505		$	28,775		$	19,090		$	15,840		$	15,194

Performing modifications (A)(B)	$	248		$	248		$	—		$	—		$	—

Performing TDRs (C)(D)	$	—		$	—		$	965		$	2,761		$	2,272

Loans past due 30 through 89 days and still accruing	$	12,881		$	2,762		$	7,592		$	7,248		$	3,126

Loans subject to special mention (E)	$	53,606		$	46,566		$	64,842		$	82,107		$	98,787

Classified loans	$	58,655		$	58,010		$	42,985		$	27,507		$	27,167

Individually evaluated loans	$	33,867		$	27,736		$	16,732		$	13,047		$	13,227

Nonperforming loans as a % of total loans (F)		0.63	%		0.53	%		0.36	%		0.30	%		0.29	%
Nonperforming assets as a % of total assets (F)		0.53	%		0.44	%		0.30	%		0.26	%		0.25	%
Nonperforming assets as a % of total loans plus other real estate owned (F)		0.63	%		0.54	%		0.36	%		0.31	%		0.29	%

~~(1)~~(A)

Amounts reflect modifications that are paying according to modified terms.

(B)

Excludes ~~one commercial loan held for sale~~modifications included in nonaccrual loans of ~~$5.0 million~~$777,000 at ~~December 31, 2021. Excludes one commercial loan held for sale of $5.6 million at September 30, 2021 and~~ June 30, ~~2021. Includes one impaired commercial real estate loan with a balance of $19.9 million at September 30, 2021.~~2023.

~~(2)~~(C)

Amounts reflect TDRs that are paying according to restructured terms. On January 1, 2023, the Company adopted Accounting Standards Update 2022-02, which replaced the accounting and recognition of TDRs.

~~(3)~~(D)

Amount excludes $13.4 million at December 31, 2022, $12.9 million at September 30, 2022 and $13.5 million at June 30, 2022 ~~$13.6 million at March 31, 2022, $1.1 million at December 31, 2021, $4.0 million at September 30, 2021 and $3.9 million at June 30, 2021~~ of TDRs included in nonaccrual loans.

~~(4)~~(E)

~~Includes $6.9~~The Company had an equipment financing lease with a principal balance of $9.2 million as of June 30, 2023 which was downgraded to nonaccrual status as a result of a bankruptcy filing by the lessee subsequent to June 30, 2023. This lease was classified as special mention as of June 30, 2023 and subsequently downgraded to substandard during the third quarter of 2023. The Company presently believes that the fair value of the collateral will be sufficient to repay the outstanding principal balance but will continue to closely monitor the bankruptcy proceedings to evaluate changes as they occur. No additional allowance for ~~one equipment lease principally due~~credit losses was applied to ~~administrative issues with the servicer and the lessee/borrower at December 31, 2021. Payment was received in January 2022.~~this loan as of June 30, 2023.

~~(5)~~(F)

Nonperforming loans/assets do not include performing ~~TDRs.~~TDRs or modifications.

PROVISION FOR CREDIT ~~LOSSES~~:LOSSES: The provision for credit losses was ~~$1.4~~$1.7 million and ~~$900,000~~$1.4 million for the second quarters of ~~2022~~2023 and ~~2021,~~2022, respectively. For the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the provision for loan losses was ~~$3.8~~$3.2 million and ~~$1.1~~$3.8 million, respectively. The ~~increased~~decreased provision for credit losses for the ~~three and~~six months ended June 30, 2023, when compared to the six months ended June 30, 2022, ~~when compared to the three and six months ended June 30, 2021,~~ was due principally to weaker loan growth in 2023.

~~of $329.9 million and an increase in unused lines of credit which require a reserve under CECL.~~

The allowance for credit losses was ~~$59.0~~$62.7 million as of June 30, ~~2022,~~2023, compared to ~~$61.7~~$60.8 million at December 31, ~~2021. As a percentage of loans,~~2022. The increase in the allowance for credit losses (“ACL”) was due to the provision for credit losses of $3.1 million offset by net charge-offs of $1.3 million. The allowance for credit losses as a percentage of loans was 1.15 percent ~~and 1.28 percent~~ at both June 30, ~~2022~~2023 and December 31, ~~2021, respectively.~~2022. The ~~specific reserves~~ACL recorded on individually evaluated loans ~~were $2.5~~was $2.4 million at June 30, ~~2022~~2023 compared to ~~$4.2~~$1.5 million as of December 31, ~~2021.~~2022. Total individually evaluated loans were ~~$13.2~~$33.9 million and ~~$18.1~~$16.7 million as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The increase in the balance of individually evaluated loans was primarily due to three multifamily relationships totaling $18.9 million that transferred to nonaccrual status during the first six months of 2023. The general component of the allowance ~~decreased~~increased from ~~$57.5~~$59.3 million at December 31, ~~2021~~2022 to~~$56.6~~ $60.3 million at June 30, ~~2022.~~2023.

The adoption of CECL resulted in a day 1 reduction of $5.5 million. The lower allowance was in part attributed to historically low charge-offs combined with the shorter duration of the loan portfolio employed in our CECL analysis. Further, the incurred loss method required significant qualitative factors, including factors related to Covid, and the use of a multiplier for potential losses on criticized and classified loans, neither of which are included within the CECL methodology. The CECL methodology utilizes significantly less qualitative factors as it uses economic factors and historical losses over a full economic cycle and calculates losses based on DCF on an individual loan basis. Accordingly, the CECL model quantitatively accounts for some of the qualitative factors utilized in the incurred loss methodology.

Management estimates the allowance balance via a quantitative analysis which considers available information from internal and external sources related to past loan loss and prepayment experience and current conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors including available published economic information in arriving at its forecast. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in the Management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include changes in lending policies and procedures, ~~nature~~size and ~~volume~~composition of the portfolio, experience and depth of management and the effect of external factors such as competition, legal and regulatory requirements, amount others. The allowance is available for any loan that, in Management’s judgment, should be charged off.

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

June 30,

March 31,

December 31,

September 30,

June 30,

(Dollars in thousands)

2022

2022

2021

2021

2021

Allowance for credit losses:

Beginning of period

$
58,386

$
61,697

$
65,133

$
63,505

$
67,536

Day one CECL adjustment

—

(5,536
)

—

—

—

Provision for credit losses (1)

646

2,489

3,750

1,600

900

(Charge-offs)/recoveries, net

(10
)

(264
)

(7,186
)

28

(4,931
)
End of period

$
59,022

$
58,386

$
61,697

$
65,133

$
63,505

Allowance for credit losses as a % of
   total loans (2)

1.15
%

1.14
%

1.28
%

1.42
%

1.39
%

General allowance for credit losses as
   a % of total loans (2)

1.10
%

1.09
%

1.20
%

1.27
%

1.39
%

Allowance for credit losses as a % of
   non-performing loans

391.44
%

367.58
%

396.18
%

251.24
%

1065.16
%


	June 30,			March 31,			December 31,			September 30,			June 30,
(Dollars in thousands)	2023			2023			2022			2022			2022
Allowance for credit losses:
Beginning of period	$	62,250		$	60,829		$	59,683		$	59,022		$	58,386
Provision for credit losses (A)		1,666			1,464			2,103			665			646
(Charge-offs)/recoveries, net		(1,212	)		(43	)		(957	)		(4	)		(10	)
End of period	$	62,704		$	62,250		$	60,829		$	59,683		$	59,022

Allowance for credit losses as a % of total loans		1.15	%		1.16	%		1.15	%		1.15	%		1.14	%

General allowance for credit losses as a % of total loans		1.11	%		1.11	%		1.12	%		1.10	%		1.10	%

Allowance for credit losses as a % of non-performing loans		181.72	%		217.21	%		320.59	%		379.57	%		391.44	%

~~(1)~~(A)

Commencing on January 1, 2022, the allowance calculation is based on the ~~current expected credit loss~~CECL methodology. ~~Prior to January 1, 2022, the allowance calculation was based on the incurred loss methodology. Provision~~The provision to rollforward the ACL excludes a provision of $30,000 for the three months ended June 30, 2023, a provision of $49,000 for the three months ended March 31, 2023, a credit of $173,000 for the three months ended December 31, 2022, a credit of $66,000 for the three months ended September 30, 2022 and a provision of $803,000 for the three months ended June 30, 2022 ~~and a credit of $114,000 for the three months ended March 31, 2022~~ related to ~~the~~ off-balance sheet commitments.

~~(2)~~

The June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022 allowance coverage ratios include PPP loans of $83.8 million, $48.7 million, $13.8 million, $9.6 million and $9.4 million, respectively, in total loans. PPP loans are fully guaranteed by the SBA and as such do not have an associated reserve for those same periods.

INCOME TAXES: Income tax expense for the quarter ended June 30, ~~2022~~2023 was ~~$7.2~~$5.0 million as compared to ~~$5.5~~$7.2 million for the same period in ~~2021.~~2022. During the six months ended June 30, ~~2022,~~2023, the Company recorded income tax expense of ~~$11.5~~$11.6 million compared to ~~$10.1~~$11.5 million for the same period in ~~2021.~~2022.

The effective tax rate for the three months ended June 30, ~~2022~~2023 was ~~26.35~~27.41 percent compared to ~~27.69~~26.35 percent for the same quarter in ~~2021.~~2022. The effective tax rate for the six months ended June 30, ~~2022~~2023 was ~~25.60~~26.84 percent compared to ~~26.87~~25.60 percent for the same ~~2021~~2022 period.

The six months ended June 30, ~~2022~~2023 and ~~2021~~2022 both benefitted from the vesting of restricted stock at prices higher than grant prices. The six months ended June 30, ~~2021 quarter also benefitted from life insurance proceeds~~2023 included additional expense associated with recent legislation that ~~were not taxable.~~changed the nexus standard for New York City business tax.

CAPITAL RESOURCES: A solid capital base provides the Company with financial strength and 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 ~~business,~~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.~~banks and bank holding companies. Maintaining an adequate capital position supports the Company’s goal of providing shareholders an attractive and stable long-term return on investment.

Capital ~~was benefitted by~~increased as a result of net income of ~~$33.5~~$31.5 million for the six months ended June 30, ~~2022,~~2023 and a net gain in accumulated other comprehensive income of $6.2 million ($4.9 million gain related to the available for sale portfolio and a $1.3 million gain on cash flow hedges), which was partially offset by the purchase of shares through the Company’s stock repurchase ~~program and a change in the unrealized loss on securities, net of tax of $49.2 million.~~program. The Company repurchased ~~499,878~~267,014 shares, at an average price of ~~$35.25,~~$28.34, for a total cost of ~~$17.6~~$7.6 million during the six months ended June 30, ~~2022.~~2023.

The Company employs quarterly capital stress testing –by modelling adverse case and severely adverse ~~case.~~case scenarios. In the most recent completed stress test based on March 31, ~~2022~~2023 financial information, under the severely adverse case, and no growth scenarios, the Bank remains well capitalized over a two-year stress ~~period~~.period. With a pandemic stress overlay, the Bank still remains well capitalized over the two-year stress period.

Quantitative measures established by regulation to ensure capital adequacy require the Company and 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 1 capital (as defined) to average assets (as defined). At June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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.~~table below.

As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” ("CBLR") (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies set the minimum capital for the ~~Community Bank Leverage Ratio (“CBLR”)~~CBLR at 9 ~~percent, effective January 1, 2020. Under the CARES Act, the Community Bank Leverage Ratio was temporarily lowered to 8~~ percent. The Bank did not opt into the CBLR and will continue to comply with the requirements under Basel III. The Bank’s leverage ratio was ~~10.42~~10.80 percent at June 30, ~~2022.~~2023.

The Bank’s regulatory 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 June 30, 2022:

Total capital
(to risk-weighted assets)

$
706,897

14.31
%

$
493,948

10.00
%

$
395,158

8.00
%

$
518,645

10.50
%

Tier I capital
(to risk-weighted assets)

646,884

13.10

395,158

8.00

296,369

6.00

419,856

8.50

Common equity tier I
(to risk-weighted assets)

646,860

13.10

321,066

6.50

222,277

4.50

345,764

7.00

Tier I capital
(to average assets)

646,884

10.42

310,426

5.00

248,341

4.00

248,341

4.00

As of December 31, 2021:

Total capital
(to risk-weighted assets)

$
672,614

14.05
%

$
478,628

10.00
%

$
382,902

8.00
%

$
502,559

10.50
%

Tier I capital
(to risk-weighted assets)

612,762

12.80

382,902

8.00

287,177

6.00

406,834

8.50

Common equity tier I
(to risk-weighted assets)

612,738

12.80

311,108

6.50

215,382

4.50

335,039

7.00

Tier I capital
(to average assets)

612,762

9.99

306,538

5.00

245,231

4.00

245,231

4.00


						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 June 30, 2023:
Total capital (to risk-weighted assets)	$	759,935		14.93	%	$	508,872		10.00	%	$	407,097		8.00	%	$	534,315		10.50	%

Tier I capital (to risk-weighted assets)		696,399		13.69			407,097		8.00			305,323		6.00			432,541		8.50

Common equity tier I (to risk-weighted assets)		696,381		13.68			330,767		6.50			228,992		4.50			356,210		7.00

Tier I capital (to average assets)		696,399		10.80			322,380		5.00			257,904		4.00			257,904		4.00

As of December 31, 2022:
Total capital (to risk-weighted assets)	$	741,719		14.67	%	$	505,760		10.00	%	$	404,608		8.00	%	$	531,048		10.50	%

Tier I capital (to risk-weighted assets)		680,137		13.45			404,608		8.00			303,456		6.00			429,896		8.50

Common equity tier I (to risk-weighted assets)		680,119		13.45			328,744		6.50			227,592		4.50			354,032		7.00

Tier I capital (to average assets)		680,137		10.85			313,328		5.00			250,662		4.00			250,662		4.00

(A)

See footnote on following ~~table~~table.

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


						To Be Well							For Capital										To Be Well							For Capital
						Capitalized Under		For Capital					Adequacy Purposes										Capitalized Under		For Capital					Adequacy Purposes
						Prompt Corrective		Adequacy					Including Capital										Prompt Corrective		Adequacy					Including Capital
	Actual					Action Provisions		Purposes					Conservation Buffer (A)					Actual					Action Provisions		Purposes					Conservation Buffer (A)
(Dollars in thousands)	Amount		Ratio			Amount	Ratio	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount	Ratio	Amount		Ratio			Amount		Ratio
As of June 30, 2022:
Total capital (to risk-weighted assets)	$	721,503		14.60	%	N/A	N/A	$	395,325		8.00	%	$	518,864		10.50	%	$	773,808		15.20	%	N/A	N/A	$	407,400		8.00	%	$	534,712		10.50	%

Tier I capital (to risk-weighted assets)		528,646		10.70		N/A	N/A		296,493		6.00			420,032		8.50			584,140		11.47		N/A	N/A		305,550		6.00			432,862		8.50

Common equity tier I (to risk-weighted assets)		528,622		10.70		N/A	N/A		222,370		4.50			345,909		7.00			584,122		11.47		N/A	N/A		229,162		4.50			356,475		7.00

Tier I capital (to average assets)		528,646		8.51		N/A	N/A		248,389		4.00			248,389		4.00			584,140		9.06		N/A	N/A		258,019		4.00			258,019		4.00

As of December 31, 2021:
As of December 31, 2022:
Total capital (to risk-weighted assets)	$	700,790		14.64	%	N/A	N/A	$	382,944		8.00	%	$	502,614		10.50	%	$	754,197		14.73	%	N/A	N/A	$	404,830		8.00	%	$	531,340		10.50	%

Tier I capital (to risk-weighted assets)		508,231		10.62		N/A	N/A		287,208		6.00			406,878		8.50			557,627		11.02		N/A	N/A		303,623		6.00			430,132		8.50

Common equity tier I (to risk-weighted assets)		508,207		10.62		N/A	N/A		215,406		4.50			335,076		7.00			557,609		11.02		N/A	N/A		227,717		4.50			354,227		7.00

Tier I capital (to average assets)		508,231		8.29		N/A	N/A		245,242		4.00			245,242		4.00			557,627		8.90		N/A	N/A		250,746		4.00			250,746		4.00

(A)

The Basel Rules 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) Common Equity Tier 1 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 face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers based on the amount of the shortfall.

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 $200,000 per quarter to purchase additional shares of common ~~stock, which up to January 30, 2019 were purchased at a three percent discount to market for plan participants. On January 30, 2019, the Company eliminated the three percent discount feature.~~stock. Voluntary share purchases in the “Reinvestment Plan” can be filled from the Company’s authorized but unissued shares and/or in the open market, at the discretion of the Company. All shares purchased during the quarter ended June 30, ~~2022~~2023 were purchased in the open market.

On ~~July 28, 2022,~~June 22, 2023, the Board of Directors declared a regular cash dividend of $0.05 per share payable on August ~~25, 2022~~24, 2023 to shareholders of record on August ~~11, 2022.~~10, 2023.

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 for the immediate future. The Company continually assesses other potential sources of capital 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.~~sales and loan participations.

Management actively monitors and manages the Company’s liquidity position and believes it is sufficient to meet future needs. Cash and cash equivalents, including interest-earning deposits, totaled ~~$153.4~~$171.6 million at June 30, ~~2022.~~2023. In addition, the Company had ~~$556.8~~$540.5 million in securities designated as available for sale at June 30, ~~2022.~~2023. These securities can be sold, or used as collateral for borrowings, in response to liquidity concerns. Available for sale and held to maturity securities with a carrying value of ~~$521.6~~$441.3 million and ~~$105.0~~$100.1 million as of June 30, ~~2022,~~2023, respectively, were pledged to secure public funds and for other purposes required or permitted by law. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.

As of June 30, ~~2022,~~2023, the Company had approximately ~~$1.9~~$2.8 billion of ~~secured funding~~external borrowing capacity available, ~~from the Federal Home Loan Bank. Additionally,~~which hen combined with balance sheet liquidity provided the Company ~~had $1.6 billion~~with 283 percent coverage of ~~secured funding available from the Federal Reserve Discount Window, none of which was drawn.~~our uninsured deposits.

Brokered interest-bearing demand (“overnight”) deposits were ~~$85.0~~$10.0 million at June 30, ~~2022. The interest rate paid on these deposits allows the Bank to fund asset growth at attractive rates and engage in interest rate swaps to hedge its asset-liability interest rate risk.~~2023. The Company ensures ample available collateralized liquidity as a backup to these short-term brokered deposits. As of June 30, ~~2022,~~2023, the Company had transacted pay fixed, receive floating interest rate swaps totaling ~~$340.0~~$310.0 million in notional ~~amount, which includes $100.0 million of forward-starting swaps.~~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. The Company believes it has sufficient liquidity given the current ~~environment created by the COVID-19 pandemic.~~environment.

Management believes the Company’s liquidity position and sources ~~are adequate.~~were adequate at June 30, 2023.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

ASSET/LIABILITY ~~MANAGEMENT~~: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 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~~manages interest rate risk through the management of capital, cash flows and the 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~~engages in interest rate swaps as a means of extending the duration of shorter-term liabilities.

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

•

Actively market C&I loans, which tend to have adjustable-rate features, and which generate customer relationships that can result in higher core deposit accounts;

•

Actively market equipment finance leases and loans, which tend to have shorter terms and higher interest rates than real estate loans;

•

Limit residential mortgage portfolio originations to adjustable-rate and/or shorter-term and/or “relationship” loans that result in core deposit and/or wealth management relationships;

•

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

•

Utilize ~~medium to longer~~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.

The interest rate swap program is administered by ~~the~~ 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. ~~The~~In these swaps, the Company is receiving floating and paying fixed interest rates with total notional value of ~~$240.0~~$310.0 million as of June 30, ~~2022. The Company’s interest rate swaps include $100.0 million of forward starting swaps that extend swaps set to mature in 2023 for an additional five years.~~2023.

In addition, the Company initiated a loan ~~level /~~ 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~~executed a floating to fixed swap with the borrower. At the same time, the Company executes 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 June 30, ~~2022, $642.1~~2023, $585.2 million of notional value in swaps were executed and outstanding with borrowers under this program.

As noted above, ~~the~~ 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 models are based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities. The models incorporate certain prepayment and interest rate assumptions, which management believes to be reasonable as of June 30, ~~2022.~~2023. The models assume changes in interest rates without any proactive change in the balance sheet by management. In the models, the forecasted shape of the yield curve remained static as of June 30, ~~2022.~~2023.

In an immediate and sustained 100 basis point increase in market rates at June 30, ~~2022,~~2023, net interest income would ~~increase~~decrease approximately ~~1.4~~2.8 percent for year 1 and ~~4.1~~0.5 percent for year 2, compared to a flat interest rate scenario. ~~The Company’s interest rate sensitivity models indicate the Company is asset sensitive as of~~In an immediate and sustained 100 basis point decrease in market rates at June 30, ~~2022 and that~~2023, net interest income would ~~improve in~~increase approximately 2.0 percent for year 1 and decrease 0.5 percent for year 2, compared to a ~~rising~~flat interest rate ~~environment but decline in a falling rate environment.~~scenario.

In an immediate and sustained 200 basis point increase in market rates at June 30, ~~2022,~~2023, net interest income for year 1 would ~~increase~~decrease approximately ~~3.3~~4.6 percent, when compared to a flat interest rate scenario. In year 2 net interest income would ~~increase 8.1~~decrease 0.4 percent, when compared to a flat interest rate scenario.

In an immediate and sustained 200 basis point decrease in market rates at June 30, 2023, net interest income for year 1 would increase approximately 3.0 percent, when compared to a flat interest rate scenario. In year 2 net interest income would decrease 2.4 percent, when compared to a flat interest rate scenario.

The Company's interest rate sensitivity models indicate the Company is liability sensitive as of June 30, 2023 and that net interest income would improve in a falling rate environment, but decline in a rising rate environment.

The table below shows the estimated changes in the Company’s economic value of portfolio equity (“EVPE”) that would result from an immediate parallel change in the market interest rates at June 30, ~~2022.~~2023.

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

$
804,606

$
(45,496
)

(5.35
)%

13.96
%

(8
)
+100

826,805

(23,297
)

(2.74
)

14.00

(4
)
Flat interest rates

850,102

—

—

14.04

—

-100

883,649

33,547

3.95

14.20

16


	Estimated Increase/								EVPE as a Percentage of
(Dollars in thousands)	Decrease in EVPE								Present Value of Assets (B)
Change In
Interest
Rates	Estimated								EVPE			Increase/(Decrease)
(Basis Points)	EVPE (A)		Amount			Percent			Ratio (C)			(basis points)
+200	$	628,353	$	(86,051	)		(12.05	)%		10.59	%		(90	)
+100		668,067		(46,337	)		(6.49	)		11.01			(48	)
Flat interest rates		714,404		—			—			11.49			—
-100		786,260		71,856			10.06			12.29			80
-200		796,459		82,055			11.49			12.22			73

~~(1)~~

(A) EVPE is the discounted present value of expected cash flows from assets and liabilities.

~~(2)~~

(B) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

~~(3)~~

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.

6869

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the forms and rules of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’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 Company’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.

~~In connection with the preparation of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, our management,~~The Company’s Management, including the Chief Executive Officer and ~~the~~ Chief Financial Officer, ~~evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and the Chief Financial Officer concluded~~does not expect that our disclosure controls and procedures ~~were~~or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, provides reasonable, not ~~effective at~~absolute, assurance that the ~~reasonable~~objectives of the control system are met. The design of a control system reflects resource constraints. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance ~~level as~~that all control issues and instances of ~~March 31, 2022~~fraud, if any, within the Company 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 ~~a material weakness in our internal control over financial reporting relating to~~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, controls ~~over accounting for credit losses~~may become inadequate because of changes in ~~accordance~~conditions or deterioration in the degree of compliance with the ~~CECL accounting standard, ASC 2016-13, Financial Instruments – Credit Losses including the timing~~policies or procedures. Because of the ~~operation of these controls.~~inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We have taken certain measures to remediate the material weakness related to the design of the controls related to application of the CECL accounting standard, including designing and implementing formal procedures and controls related to the timing of the operation of such controls.

Changes in Internal Control Over Financial Reporting

~~Other than described above, during the most recent fiscal quarter, there has~~There have been no ~~change~~changes in ~~our~~the Company’s internal ~~controls~~control over financial reporting ~~as defined in Rules 13a-15(f) and 15d-15(f) under~~during the ~~Exchange Act,~~quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal ~~controls~~control over financial reporting.

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 if adversely decided, we believe would have a material adverse effect on the Company.

ITEM 1A. Risk Factors

There have been no material changes in risk factors applicable to the Company from those disclosed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

6970

ITEM 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchaes of Equity Securities

Total
Number of Shares
Purchased
As Part of
Publicly Announced
Plans or Programs

Total
Number of Shares
Withheld (1)

Average Price Paid
Per Share

Maximum Number of
Shares That May
Yet Be Purchased
Under the Plans
Or Programs (2)

April 1, 2022 -

April 30, 2022

—

—

$
—

949,042

May 1, 2022 -

May 31, 2022

49,957

1,754

31.27

899,085

June 1, 2022 -

June 30, 2022

150,043

4,599

31.54

749,042

Total

200,000

6,353

$
31.47


	Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs		Total Number of Shares Withheld (A)		Average Price Paid Per Share		Maximum Number of Shares That May Yet Be Purchased Under the Plans Or Programs (B)
April 1, 2023 -
April 30, 2023		—		—	$	—		850,000
May 1, 2023 -
May 31, 2023		184,000		1,913		26.44		666,000
June 1, 2023 -
June 30, 2023		—		30,083		27.54		666,000
Total		184,000		31,996	$	26.99

~~(1)~~

(A) Represents shares withheld to satisfy tax withholding obligations upon the exercise of stock options and/or the vesting of restricted stock awards/units.

Such shares are repurchased pursuant to the applicable plan and are not under the Company's share repurchase program.

~~(2)~~

(B) On January 27, 2022, the ~~Company’s~~Company's Board of Directors approved a plan to repurchase up to 920,000 shares, which was approximately 5 percent of the outstanding shares as of that date, through March 31, 2023. On January 26, 2023, the Company’s Board of Directors approved a plan to repurchase up to 890,000 shares, which was approximately 5 percent of the outstanding shares as of that date, through December 31, 2024. The timing and amount of shares repurchased will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements and alternative uses of capital.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

~~None.~~During the three months ended June 30, 2023, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company's securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement" (as such term is defined in Item 408 of SEC Regulation S-K).

7071

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 3.2 of the Registrant’s Current Report on Form 8-K filed on ~~December 20, 2017~~March 23, 2023 (File No. 001-16197).

10.1	Retirement Transition Agreement for Robert Plante (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 28, 2023 (File No. 001-16197).

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

31.2	Certification of ~~Jeffrey J. Carfora,~~Frank A. Cavallaro, 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,~~Frank A. Cavallaro, Chief Financial Officer of the Corporation.

101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because iXBRL tags are embedded within the Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema Document.

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

7172

SIGNATURES

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


	PEAPACK-GLADSTONE FINANCIAL CORPORATION
	(Registrant)

DATE: August ~~9, 2022~~8, 2023	By:	/s/ Douglas L. Kennedy
		Douglas L. Kennedy
		President and Chief Executive Officer
		(Principal Executive Officer)

DATE: August ~~9, 2022~~8, 2023	By:	/s/ ~~Jeffrey J. Carfora~~Frank A. Cavallaro
		~~Jeffrey J. Carfora~~Frank A. Cavallaro
		Senior Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

DATE: August ~~9, 2022~~8, 2023	By:	/s/ Francesco S. Rossi
		Francesco S. Rossi
		Chief Accounting Officer
		(Principal Accounting Officer)

7273


Pass		—		—		—		1,455		—		5		9,020		10,278		20,758
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total commercial construction loans		—		—		—		1,455		—		5		9,020		10,278		20,758

Consumer and other loans:
Pass		—		417		262		17		—		6,187		33,592		3,299		43,774
Special mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total consumer and other loans		—		417		262		17		—		6,187		33,592		3,299		43,774

Total:
Pass		818,252		1,335,894		465,304		612,939		282,213		1,037,170		390,420		81,654		5,023,846
Special mention		—		1,881		—		43,661		8,072		34,226		4,602		6,345		98,787
Substandard		12,471		—		462		3,735		577		9,370		552		—		27,167
Doubtful		—		—		—		—		—		—		—		—		—
Total Loans	$	830,723	$	1,337,775	$	465,766	$	660,335	$	290,862	$	1,080,766	$	395,574	$	87,999	$	5,149,800


			Special
(In thousands)	Pass		Mention		Substandard		Doubtful
Primary residential mortgage	$	494,444	$	557	$	5,242	$	—
Home equity lines of credit		40,274		—		529		—
Junior lien loan on residence		3,173		—		18		—
Multifamily property		1,579,776		7,720		8,370		—
Owner-occupied commercial real estate		251,229		663		711		—
Investment commercial real estate		901,877		87,297		14,805		—
Commercial and industrial		951,127		20,178		21,027		—
Lease financing		345,868		—		—		—
Farmland/agricultural production		6,871		—		—		—
Commercial construction loans		20,099		75		—		—
Consumer and other loans		40,828		—		—		—
Total	$	4,635,566	$	116,490	$	50,702	$	—


	December 31, 2021
	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	$	2,242	$	—	$	498,001	$	1,432	$	500,243	$	1,432
Home equity lines of credit		—		—		40,803		83		40,803		83
Junior lien loan on residence		18		—		3,173		5		3,191		5
Multifamily property		—		—		1,595,866		9,806		1,595,866		9,806
Owner-occupied commercial real estate		458		—		252,145		1,998		252,603		1,998
Investment commercial real estate		12,750		4,234		991,229		22,849		1,003,979		27,083
Commercial and industrial		2,584		—		989,748		17,509		992,332		17,509
Lease financing		—		—		345,868		3,440		345,868		3,440
Farmland/agricultural production		—		—		6,871		84		6,871		84
Commercial construction loans		—		—		20,174		42		20,174		42
Consumer and other loans		—		—		40,828		215		40,828		215
Total ALLL	$	18,052	$	4,234	$	4,784,706	$	57,463	$	4,802,758	$	61,697


(In thousands)
2022	$	1,458
2023		2,968
2024		2,299
2025		2,048
2026		1,487
Thereafter		6,194
Total lease payments		16,454
Less: imputed interest		1,698
Total present value of lease payments	$	14,756


	Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs		Total Number of Shares Withheld (1)		Average Price Paid Per Share		Maximum Number of Shares That May Yet Be Purchased Under the Plans Or Programs (2)
April 1, 2022 -
April 30, 2022		—		—	$	—		949,042
May 1, 2022 -
May 31, 2022		49,957		1,754		31.27		899,085
June 1, 2022 -
June 30, 2022		150,043		4,599		31.54		749,042
Total		200,000		6,353	$	31.47