Peapack Gladstone Financial Corp: Form 10-Q for the period ended Jun 30, 2025

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, 2024, 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 impact of anticipated higher operating expenses in 2025 and beyond;
• our ability to successfully integrate wealth management firm and team acquisitions;
• 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, including potential recessionary conditions;
• declines in our net interest margin caused by the interest rate environment and/or our highly competitive market;
• declines in the value in our investment portfolio;
• 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 or charge-offs;
• inflation and changes in interest rates, which may adversely impact our 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;
• the imposition of tariffs or other domestic or international governmental policies and potential retaliatory responses;
• the failure to maintain current technologies and/or to successfully implement future information technology enhancements;
• successful cyberattacks against our IT infrastructure and that of our IT and third-party providers;
• 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, including our expansion into New York City and Long Island;
• 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;
• a decrease in demand for loans and deposits in our market areas;
• adverse changes in securities markets;
• changes in New York City rent regulation law;
• 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/or
• other unexpected material adverse changes in our financial condition, operations or earnings.

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, 2024 contains a summary of the Company’s significant accounting policies.

The Company’s 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 the methodology for determining the allowance for credit losses or in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application are reviewed periodically with the Audit Committee and the Board of Directors.

The allowance for credit losses is a valuation allowance of Management’s estimate of expected credit losses in the loan portfolio calculated in accordance with ASC 326, "Credit Losses". The process to determine expected credit losses utilizes analytic 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 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 economic 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 forecasts. 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, among others, changes in lending policies and procedures, size and composition of the portfolio, experience and depth of Management and the effect of external factors such as competition and legal and regulatory requirements. 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 the boroughs of 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, rent control regulations 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.

EXECUTIVE SUMMARY: The following table presents certain key aspects of our performance for the three and six months ended June 30, 2025 and 2024.

(Dollars in thousands, except per share data)

(Dollars in thousands, except per share data)

52

For the quarter ended June 30, 2025, the Company recorded total revenue of $69.7 million, pretax income of $11.3 million, net income of $7.9 million and diluted earnings per share of $0.45, compared to revenue of $56.6 million, pretax income of $9.6 million, net income of $7.5 million and diluted earnings per share of $0.42 for the same period last year.

The increase in total revenue for the second quarter of 2025 was primarily due to higher net interest income due to improvements in the yield on the average balance of interest-earnings assets and cost on average interest-bearing liabilities. As a result, net interest margin increased to 2.77 percent for the second quarter of 2025 as compared to 2.25 percent for the same period in 2024. Wealth management fee income continues to be a consistent and steady revenue stream for the Company and represented 23 percent of total revenue for the second quarter of 2025.

For the six months ended June 30, 2025, the Company recorded total revenue of $134.1 million, pretax income of $21.7 million, net income of $15.5 million and diluted earnings per share of $0.87, compared to revenue of $109.7 million, pretax income of $22.0 million, net income of $16.2 million and diluted earnings per share of $0.91 for the same period in 2024. Total revenue benefited from strong net interest income growth due to improvements in yield on average interest earning assets and cost on average interest-bearing liabilities. The Company has seen positive momentum in net interest margin, which increased to 2.73 percent for the first six months of 2025 as compared to 2.22 percent for the same period in 2024. The Company's single point of contact private banking strategy and New York City expansion continues to deliver lower-cost core deposit relationships resulting in consistent improvement in both net interest margin and net interest income. During the first six months of 2025, deposits grew $234.1 million, which included $125.1 million in noninterest-bearing demand deposits.

Net income for the six months ended June 30, 2025 was impacted by increased operating expenses, principally attributable to the addition of new employees related to the Company's expansion into New York City and Long Island, increased health insurance costs and annual merit increases. An increase in the provision for credit losses of $6.5 million to $11.1 million also contributed to lower net income for the six months ended June 30, 2025.

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, 2024 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 interest-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 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 summarizes the loans that the Company closed during the periods indicated:

(In thousands)

(In thousands)

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

(B) Includes equipment finance leases and loans.

Residential mortgage, commercial real estate, multifamily and C&I loan originations increased by $31.8 million, $57.3 million, $73.9 million and $209.1 million, respectively, for the six months ended June 30, 2025, as demand for these loan products grew given moderating inflation and lower rates, which have created a more favorable lending environment during the three and six months ended June 30, 2025.

At June 30, 2025, December 31, 2024 and June 30, 2024, the Bank had a concentration in commercial real estate (“CRE”) loans as defined by applicable regulatory guidance as follows:

Total CRE concentration as a percentage of regulatory capital is monitored by Management. Management 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

(Dollars in thousands)

(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.

Average Balance Sheet

Unaudited

Six Months Ended

(Dollars in thousands)

(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 three and six month periods ended June 30, 2025 compared to June 30, 2024 are shown below:

Net interest income, on a fully tax-equivalent basis, increased $13.2 million, or 37 percent, for the second quarter of 2025 to $48.5 million from $35.3 million for the same 2024 period. The net interest margin ("NIM") was 2.77 percent and 2.25 percent for the three months ended June 30, 2025 and 2024, respectively, an increase of 52 basis points. For the six months ended June 30, 2025 the Company recorded net interest income, on a fully tax-equivalent basis of $94.3 million compared to $70.0 million for the same 2024 period. The NIM was 2.73 percent and 2.22 percent for the six months ended June 30, 2025 and 2024, respectively, an increase of 51 basis points. Net interest income, on a fully tax-equivalent basis, and NIM expanded during the three and six months ended June 30, 2025 due to the Bank's focus on growing client deposit relationships, which were used to fund loans, as well as purchase investment securities. Additionally, the Federal Reserve decreased the target Federal Funds rate by 100 basis points during the latter half of 2024, which has helped to improve NIM, primarily driven by lower deposit rates.

The average balance of interest-earning assets increased to $7.02 billion during the second quarter of 2025 from $6.32 billion for the same 2024 period, reflecting an increase of $696.2 million. Average interest-earning assets were $6.97 billion for the six months ended June 30, 2025 compared to $6.33 billion in the same 2024 period, representing an increase of $637.6 million. The increase in average interest-earning assets during the second quarter of 2025 when compared to the same quarter of 2024 included an increase in the average loans of $484.0 million, as well as an increase in the average balance of investments of $235.9 million, which was partially offset by a decrease in interest-earning deposits of $23.7 million. The increase in average interest-earning assets during the six months ended June 30, 2025 when compared to the same period of 2024 included an increase in average loans of $337.2 million, as well as increases in the average balance of investments of $237.2 million and interest-earning deposits of $63.2 million.

The increase in the average balance of outstanding loans for the three and six months ended June 30, 2025 was primarily driven by an increase in commercial loans, residential mortgages and installment loans, partially offset by a decline in commercial construction. The average balance of commercial loans increased by $348.6 million, or 16 percent, to $2.54 billion for the quarter ended June 30, 2025 when compared to $2.19 billion for the same 2024 period. The average balance of residential mortgages increased by $64.0 million, or 11 percent, to $641.0 million for the quarter ended June 30, 2025 while the average balance of installment loans increased by $73.1 million, or 109 percent, to $140.1 million for the same period. There was no average balance of commercial construction for the three months ended June 30, 2025 compared to $21.6 million for the same 2024 period. The average balance of commercial loans increased by $270.9 million, or 12 percent, to $2.49 billion for the six months ended June 30, 2025 when compared to $2.22 billion for the same period in 2024. The average balance of residential mortgages increased by $51.8 million, or 9 percent, to $629.1 million for the six months ended June 30, 2025 when compared to $577.3 million for the same period in 2024. The average balance of installment loans for the six months ended June 30, 2025 increased by $57.7 million, or 87 percent, when compared to the same period in 2024. The increase in the average balance of loans for the three- and six-month periods were mostly a result increasing loan demand from customers due to a lower interest rate environment and improving economic conditions.

The average yields earned on interest-earning assets increased when comparing the three and six months ended June 30, 2025 to the same periods in 2024. For the quarters ended June 30, 2025 and 2024, the average yields earned on interest-earning assets were 5.12 percent and 5.03 percent, respectively, an increase of 9 basis points. For the six months ended June 30, 2025 and 2024, the average yields earned on interest-earning assets were 5.07 percent and 5.02 percent, respectively, an increase of 5 basis points.

The increase in the average yield on total investments for the three and six months ended June 30, 2025 compared to the same 2024 periods was primarily driven by the purchase of securities at higher yields than the yields in the existing portfolio. The yield on investments increased 65 basis points to 3.23 percent for the three months ended June 30, 2025, as compared to 2.58 percent for the same 2024 period. The average yield on investments increased by 62 basis points to 3.20 percent for the six months ended June 30, 2025 as compared to 2.58 percent for the same period in 2024.

The average yield on total loans for the three and six months ended June 30, 2025 compared to the same 2024 period was primarily driven by an increase in the average yields on residential mortgages and, for the three-month period commercial mortgages, partially offset by a decline in the average yield on commercial loans. The yield on residential mortgages increased 58 basis points to 4.45 percent for the three months ended June 30, 2025, as compared to 3.87 percent for the same 2024 period. The increase in the average yield for residential mortgages for the three-month period was driven by the origination of loans with higher yields than the yields on the existing portfolio. The average yield on commercial mortgages for the three months ended June 30, 2025, increased 8 basis points to 4.52 percent as compared to 4.44 percent for the same period in 2024. The average yield on commercial loans for the three months ended June 30, 2025 decreased 15 basis points to 6.62 percent from 6.77 percent at June 30, 2024. For the six months ended June 30, 2025, the average yield on residential mortgages increased 58 basis points to 4.39 percent from 3.81 percent for the same period in 2024. The average yield on commercial loans decreased by 14 basis points to 6.60 percent from 6.74 percent for the six months ended June 30, 2025. The average yield on commercial loans decreased for both the three and six-month periods due to a decrease in the target Federal Funds rate during the second half of 2024, which had a greater impact on these loans, that are typically floating rates with short repricing periods.

For the three months ended June 30, 2025, the average balance of interest-bearing liabilities totaled $5.21 billion representing an increase of $446.5 million from $4.77 billion for the same 2024 period due to an increase in interest-bearing deposits of $465.1 million to $5.07 billion for the three months ended June 30, 2025. This increase was partially offset by a decrease in subordinated debt of $34.5 million to $98.9 million due to the redemption of $35.0 million of such debt in the first quarter of 2025. For the six months ended June 30, 2025, the average balance of interest-bearing liabilities totaled $5.18 billion representing an increase of $389.6 million from $4.79 billion for the same 2024 period due to an increase in interest-bearing deposits of $520.4 million to $5.04 billion for the six months ended June 30, 2025. This increase was partially offset by a decrease in brokered certificates of deposit of $113.5 million and a decrease in short term borrowings of $108.4 million for the six months ended June 30, 2025.

The increase in the average balance of interest-bearing deposits for the three months ended June 30, 2025 compared to the 2024 comparable period was primarily due to an increase in the average balances of interest-bearing checking deposits of $463.7 million and money market accounts of $159.5 million, partially offset by a decline in the average balance of brokered certificates of deposit of $98.6 million and certificates of deposit of $56.9 million. For the six months ended June 30, 2025 when compared to the same period in 2024, the average balance of interest-bearing checking deposits increased by $477.8 million and money market accounts of $191.9 million, partially offset by a decrease in the average balance of brokered certificate of deposits by $113.5 and retail certificates of deposit of $33.3 million. The increase in interest-bearing checking deposits for the three and six months ended June 30, 2025 was principally attributable to our expansion into New York City and client demand for FDIC insured products, which we offer through a reciprocal deposit program. The expansion into New York City allowed us to grow lower cost, relationship deposits, while reducing the Company's reliance on overnight borrowings, brokered deposits and other high-cost funding sources.

The Company is a participant in the Reich & Tang Demand Deposit Marketplace 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 increase the level of FDIC insurance available to deposit customers. As a participant, the Company receives reciprocal amounts of deposits from other participating banks. Average reciprocal deposit balances for the quarters ended June 30, 2025 and 2024 were $1.82 billion and $1.20 billion, respectively. Average reciprocal deposit balances for the six months ended June 30, 2025 and 2024 were $1.81 billion and $1.14 billion, respectively. The growth for the three and six months ended June 30, 2025 was due to clients' desire for the increased level of FDIC insurance offered by these programs.

At June 30, 2025, uninsured/unprotected deposits were approximately $1.7 billion, or 26 percent of total deposits. This amount was adjusted to exclude $311 million of public fund deposit balances, which are fully-collateralized and protected with securities and an FHLBNY letter of credit.

The Company had $44.7 million in average short-term borrowings during the second quarter of 2025 compared to $27.2 million for the same 2024 period. The Company had $22.9 million in average short-term borrowings during the six months ended June 30, 2025 compared to $131.3 million in the same 2024 period. The decrease in borrowings for the six-month period was driven by the growth in client deposits led by the Company’s expansion into New York City, which were used to pay down borrowings.

For the quarters ended June 30, 2025 and 2024, the cost of interest-bearing liabilities was 3.17 percent and 3.71 percent, respectively, reflecting a decrease of 54 basis points. The cost of interest-bearing liabilities was 3.17 percent and 3.72 percent for the six months ended June 30, 2025 and 2024, respectively, reflecting a decrease of 55 basis points. The decreases for the three and six months ended June 30, 2025 was driven by a decrease in the average cost of interest-bearing deposits of 51 basis points to 3.15 percent for the second quarter of 2025 and 47 basis points to 3.15 for the six months ended June 30, 2025. The Company also benefited from lower short-term borrowing costs in the second quarter of 2025 of 4.52 percent compared to an average cost of 5.59 percent for the same 2024 period. The cost of short-term borrowing for the six months ended June 30, 2025 decreased by 136 basis points to 4.50 percent when compared to 5.86 for the same period in 2024. The decrease in deposit and borrowing rates was due to the Federal Reserve lowering the target Federal Funds rate by 100 basis points during the latter half of 2024 and a change in the composition of the deposit portfolio with a greater concentration of lower-cost core relationship deposits.

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 noninterest income as incurred.

At June 30, 2025, the Company had investment securities available for sale with a fair value of $767.5 million compared with $784.5 million at December 31, 2024. A net unrealized loss (net of income tax) of $58.2 million and $72.1 million related to these securities were included in shareholders’ equity at June 30, 2025 and December 31, 2024, respectively.

At June 30, 2025, the Company had investment securities held to maturity with a carrying cost of $98.6 million and an estimated fair value of $88.1 million compared with a carrying cost of $101.6 million and an estimated fair value of $88.7 million at December 31, 2024.

The Company had one equity security (a CRA investment security) with a fair value of $13.3 million and $13.0 million at June 30, 2025 and December 31, 2024, respectively, with changes in fair value recognized in the Consolidated Statements of Income. The

Company recorded unrealized gains of $42,000 and $237,000 for the three and six months ended June 30, 2025, respectively, as compared to unrealized losses of $84,000 and $195,000 for the three and six months ended June 30, 2024.

The carrying value of investment securities available for sale and held to maturity as of June 30, 2025 and December 31, 2024 are shown below:

(In thousands)

The following table presents the contractual maturities and yields of debt securities available for sale and held to maturity as of June 30, 2025. The weighted average yield is a computation of income within each maturity range based on the amortized cost of securities:

(A) Shown using stated final maturity.

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

(In thousands)

(In thousands)

The Company recorded total other income, excluding wealth management fee income, of $5.5 million for the second quarter of 2025 compared to $5.1 million for the same 2024 period, reflecting an increase of $372,000. The increase was primarily due to income related to loan level, back-to-back swaps as well as an increase in the fair value adjustment for the CRA equity security. The Company recorded $8.9 million of total other income, excluding wealth management fee income, for the six months ended June 30, 2025 compared to $9.4 million for the same 2024 period, reflecting a decrease of $503,000. The decrease was primarily due to lower corporate advisory fee income and service charges and fees, which was partially offset by an increase in the fair value adjustment for the CRA equity security and increased income related to loan level, back-to-back swaps.

The Company provides loans that are partially guaranteed by the SBA to provide working capital and/or finance the purchase of equipment, inventory or commercial real estate that could be used for start-up 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 Company recorded a gain on the sale of SBA loans of $521,000 and $449,000 for the quarters ended June 30, 2025 and 2024, respectively. For the six months ended June 30, 2025 and 2024, the Company recorded a gain on the sale of SBA loans of $823,000 and $849,000, respectively. The Company continues to see pressure from market volatility resulting in lower sale premiums and origination volumes associated with SBA loans.

The Company recorded corporate advisory fee income for the second quarter of 2025 of $30,000 compared to $103,000 for the same period ended June 30, 2024. The six months ended June 30, 2025 included corporate advisory fee income of $120,000 compared to $921,000 for the same 2024 period. The higher amount for the six months ended June 30, 2024 was related to a corporate advisory/investment banking acquisition transaction completed in the first quarter of 2024.

Income from the SBA programs, and corporate advisory fee income are dependent on volume, and thus are typically not consistent from quarter to quarter.

For the quarter ended June 30, 2025, income from the sale of newly originated residential mortgage loans was $27,000 compared to $34,000 for the same period in 2024. The Company recorded income of $90,000 from the sale of newly originated residential mortgage loans for both the six months ended June 30, 2025 and 2024, respectively.

Other income included a gain of $875,000 in the second quarter of 2025 for the termination of a lease agreement for a branch location that was no longer in use. Also included in other income were gains of $482,000 and $1.6 million recorded by the Equipment Finance Division related to equipment transfers to lessees upon the termination of leases for the second quarter of 2025 and 2024. The six months ended June 30, 2025 and 2024 included income of $67,000 and $1.7 million, respectively. Additionally, the Company recorded $869,000 of unused commercial line fees for the quarter ended June 30, 2025 compared to $786,000 for the same 2024 period. The six months ended June 30, 2025 included $1.8 million of unused commercial line fees compared to $1.6 million for the same 2024 period.

The Company recorded a $42,000 positive fair value adjustment and an $84,000 negative fair value adjustment for CRA equity securities in the second quarters of 2025 and 2024, respectively. The Company recorded a $237,000 positive fair value adjustment and a $195,000 negative fair value adjustment for CRA equity securities for the six months ended June 30, 2025 and 2024, respectively. The increase in 2025 was due to a decline in medium-term rates during the six months of 2025.

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

(In thousands)

(In thousands)

Operating expenses for the quarter ended June 30, 2025 and 2024 totaled $51.9 million and $43.1 million, respectively, reflecting an increase of $8.8 million, or 20 percent. Operating expenses for the six months ended June 30, 2025 increased $18.2 million or 22 percent, to $101.3 million from $83.2 million for the same 2024 period. Increased operating expenses for the three and six months ended June 30, 2025 were principally attributable to the Company's ongoing expansion into New York City, increased health insurance costs, and annual merit increases. The addition of production teams in Long Island during the second quarter of 2025 also contributed to the growth in operating expenses. The increase in loan expense for both the three- and six-month periods ended June 30, 2025 was primarily due to expenses of $441,000 and $506,000, respectively, related to the workout of several equipment finance problem loans.

WEALTH MANAGEMENT DIVISION: 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 the wealth management division are available to provide wealth management, trust and investment services at the Bank’s headquarters in Bedminster, New Jersey, at private banking locations in Morristown, Princeton, Red Bank, Summit and Teaneck, New Jersey, in New York City and at the Bank’s subsidiary, PGB Trust & Investments of Delaware, in Greenville, Delaware.

The market value of the assets under management and/or administration (“AUM/AUA”) was $12.3 billion at June 30, 2025, reflecting a 3 percent increase from $11.9 billion at December 31, 2024 and an increase of 7 percent from $11.5 billion at June 30, 2024 due primarily to improved market conditions and new client inflows.

In the June 2025 quarter, the Wealth Management Division generated $15.9 million in fee income compared to $16.4 million for the June 2024 quarter, reflecting a 3 percent decrease. The decrease in fee income during the second quarter of 2025 was due to a large estate termination fee of $1.1 million, recognized in the second quarter of 2024. For the six months ended June 30, 2025, the Wealth Management Division generated $31.4 million in fee income compared to $30.8 million in fee income for the same period in 2024, reflecting a 2 percent increase. The increase in fee income for the six months ended June 30, 2025 was due to strong client inflows driven by new accounts and client additions and solid equity market performance.

Operating expenses relative to the Wealth Management Division, for the three months ended June 30, 2025, decreased to $10.5 million as compared to $10.7 million for the second quarter of 2024. Operating expenses relative to the Wealth Management Division were relatively flat at $20.2 million and $20.1 million, for the six months ended June 30, 2025 and June 30, 2024. Expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel.

The Wealth Management Division 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 the Wealth Management Division should it be necessary.

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

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

(Dollars in thousands)

(A) Amounts reflect modifications that are paying according to modified terms.

(B) Excludes modifications included in nonaccrual loans of $38.1 million at June 30, 2025, $3.9 million at March 31, 2025, $3.6 million at December 31, 2024, $3.7 million at September 30, 2024 and $3.2 million at June 30, 2024.

(C) Nonperforming loans/assets do not include performing modifications.

The Company had increases in nonperforming assets, performing modifications, loans past due 30 through 89 days and still accruing, loans subject to special mention and individually evaluated loans at June 30, 2025 compared to December 31, 2024. The persistent nature of the elevated interest rate environment combined with inflationary pressures have presented challenges for certain borrowers, which is reflected in the trend of asset quality data in recent quarters. The increase in nonperforming assets during the first six months of 2025 was driven by the addition of two commercial and industrial relationships totaling $14.5 million and one multifamily loan totaling $4.8 million. Multifamily loans represented approximately 49 percent of nonperforming assets as of June 30, 2025. The increase in performing modifications was primarily related to multifamily loans of $80.8 million and C&I loans of $3.0 million during the six month period ended June 30, 2025. This was partially offset by $12.1 million in C&I loans that are no longer classified as loan modifications. The increase in loans past due 30 through 89 days and still accruing compared to December 31, 2024 was primarily due to $11.9 million of multifamily loans that were past due as of June 30, 2025. The increase in special mention loans was primarily due to increases of $22.3 million in investment commercial real estate, $21.0 million in multifamily and $6.9 million in C&I loans during the six months ended June 30, 2025. The increase in individually evaluated substandard loans was primarily due to increases of $4.8 million consisting of one multifamily loan and increases of $14.5 million consisting of two C&I loans during the first six months of 2025, which resulted in an additional $1.1 million of specific reserves.

PROVISION FOR CREDIT LOSSES: The provision for credit losses was $6.6 million and $3.9 million for the second quarters of 2025 and 2024, respectively. For the six months ended June 30, 2025 and 2024, the provision for loan losses was $11.1 million and $4.5 million, respectively. The allowance for credit losses (“ACL”) was $81.8 million as of June 30, 2025, compared to $73.0 million at December 31, 2024. The increased provision for credit losses for the three and six months ended June 30, 2025 was driven by overall loan growth, in addition to deterioration of key economic data points used in the CECL model. The provision for the second quarter of 2025 also included a specific reserve related for one equipment financing relationship for $5.8 million. Charge-offs totaled $20,000 during the second quarter of 2025 compared to charge-offs of $5.4 million during the second quarter of 2024. The higher charge-off level in 2024 was due to the sale of two problem loans which were approaching foreclosure and transferred to other real estate owned. The allowance for credit losses as a percentage of loans was 1.41 percent at June 30, 2025 compared to 1.32 percent at December 31, 2024. The increase in the ratio was primarily due to increases in specific reserves of $5.2 million and $1.9 million related to C&I and multifamily loans as expected recoveries from operations and collateral values have worsened during the six months ended June 30, 2025. The ACL recorded on individually evaluated loans was $20.2 million at June 30, 2025 compared to $12.7 million as of December 31, 2024. Total individually evaluated loans were $115.0 million and $99.8 million as of June 30, 2025 and December 31, 2024, respectively. The general component of the allowance increased from $60.3 million at December 31, 2024 to $61.6 million at June 30, 2025. The increase in the general reserve was primarily due to growth in the consumer and lease financing portfolios of $62.6 million and $50.5 million, respectively.

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

(Dollars in thousands)

(A) Excludes a of provision of $9,000 at June 30, 2025, a credit of $23,000 at March 31, 2025, a credit of $15,000 at December 31, 2024, a credit of $3,000 at September 30, 2024 and a provision of $10,000 at June 30, 2024 related to off-balance sheet commitments.

The decrease in the allowance for credit losses as a percentage of nonperforming loans was primarily due to an increase in nonperforming loans of $14.8 million to $115.0 million at June 30, 2025, as compared to nonperforming loans of $100.2 million at December 31, 2024. This was partially offset by an increase in the ACL to $81.8 million at June 30, 2025 as compared to $73.0 million at December 31, 2024.

INCOME TAXES: Income tax expense for the quarter ended June 30, 2025 was $3.3 million as compared to $2.0 million for the same period in 2024. Income tax expense for the six months ended June 30, 2025 was $6.2 million as compared to $5.8 million for the same period in 2024.

The effective tax rate for the three months ended June 30, 2025 was 29.49 percent compared to 21.23 percent for the same quarter in 2024. The effective tax rate for the six months ended June 30, 2025 was 28.44 percent compared to 26.43 percent for the same period in 2024. Both the three and six months ended June 30, 2024 included a benefit related to the Company's deferred tax asset associated with a surtax imposed by the State of New Jersey. This benefit was partially offset by adjustments related to the vesting of restricted stock at prices lower than original grant prices in 2024.

CAPITAL RESOURCES: A solid capital base provides the Company with financial strength and the ability to support future growth and is essential to executing the Company’s current Strategic Plan. The Company’s capital strategy is intended to provide stability to expand its business, 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 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 increased as a result of net income of $15.5 million for the six months ended June 30, 2025. Capital also improved as a result of a decline in accumulated other comprehensive loss of $10.8 million, net of tax. Total accumulated other comprehensive loss decreased to $55.6 million as of June 30, 2025 ($58.2 million loss related to the available for sale securities portfolio partially offset by a $2.6 million gain on the cash flow hedges), as compared to $66.4 million at December 31, 2024. This was partially offset by share repurchases of $2.8 million during the first six months of 2025.

The Company employs quarterly capital stress testing by modeling adverse case and severely adverse case scenarios. In the most recent completed stress test based on March 31, 2025 financial information, under the severely adverse case, and no growth scenarios, the Bank remains well capitalized over a 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, 2025 and December 31, 2024, 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 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 CBLR at 9 percent.

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

(Dollars in thousands)

(A) See footnote on following table.

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

(Dollars in thousands)

(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, stock 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. 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, 2025 were purchased in the open market.

On June 26, 2025, the Board of Directors declared a regular cash dividend of $0.05 per share payable on August 21, 2025 to shareholders of record on August 7, 2025.

Management believes the Company’s capital position and capital ratios were adequate at June 30, 2025. 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, securities available for sale, customer deposit inflows, loan repayments and secured borrowings. Other liquidity sources include loan and security 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 $315.6 million at June 30, 2025. In addition, the Company had $767.5 million in securities designated as available for sale at June 30, 2025. 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 $573.1 million and $96.6 million as of June 30, 2025, respectively, were pledged to secure public funds and for other purposes required or permitted by law. However, only $46.6 million of pledged securities are encumbered. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.

As of June 30, 2025, the Company had approximately $3.5 billion of external borrowing capacity available on a same day basis (subject to any practical constraints affecting the FHLB or FRB), which when combined with balance sheet liquidity provided the Company with 277 percent coverage of our uninsured/unprotected deposits.

The Company has a Board-approved Contingency Funding Plan. 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.

Management believes the Company’s liquidity position and sources were adequate at June 30, 2025.

ASSET/LIABILITY MANAGEMENT: The Company’s management Asset/Liability Committee (“ALCO”) is responsible for developing, implementing and monitoring asset/liability 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 the 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 generally 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 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 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 ALCO and follows procedures and documentation in accordance with regulatory guidance and standards as set forth in ASC 815 for cash flow hedges. The program incorporates pre-purchase analysis, liability designation, sensitivity analysis, correlation analysis, daily mark-to-market analysis and collateral posting as required. The Board is advised of all swap activity. In these swaps, the Company is receiving floating and paying fixed interest rates with total notional value of $305.0 million as of June 30, 2025.

In addition, the Company initiated a loan level/back-to-back swap program in support of its commercial lending business. Pursuant to this program, the Company extends a floating rate loan and 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, 2025, $436.7 million of notional value in swaps were executed and outstanding with borrowers under this program.

As noted above, ALCO uses simulation modeling to analyze the Company’s net interest income sensitivity, as well as the Company’s economic value of portfolio equity under various interest rate scenarios. The 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 believed to be reasonable as of June 30, 2025. 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, 2025.

In an immediate and sustained 100 basis point increase in market rates at June 30, 2025, net interest income would decrease by 1.0 percent in year 1 and increase by 2.2 percent in year 2, compared to a flat interest rate scenario. In an immediate and sustained 100 basis point decrease in market rates at June 30, 2025, net interest income would increase approximately 0.5 percent for year 1 and decrease 3.2 percent for year 2, compared to a flat interest rate scenario.

In an immediate and sustained 200 basis point increase in market rates at June 30, 2025, net interest income would decrease approximately 2.0 percent in year 1 and increase by 4.4 percent in year 2, compared to a flat interest rate scenario. In an immediate and sustained 200 basis point decrease in market rates at June 30, 2025, net interest income for year 1 would increase approximately 0.3 percent, when compared to a flat interest rate scenario. In year 2, net interest income would decrease 8.5 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, 2025 and that net interest income would decline in a rising rate environment, but improve in a falling 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, 2025.

(Dollars in thousands)

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

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

(C) EVPE ratio represents EVPE divided by the present value of assets.

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

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 Exchange Act) 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.

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource constraints. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. These inherent limitations include that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Further, controls can be circumvented. 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 may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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, 2024.