# Peapack Gladstone Financial Corp: Form 10-Q for the period ended Sep 30, 2016

- Company: [Peapack Gladstone Financial Corp](/companies/pgc.md) (CIK 1050743)
- Form: 10-Q
- Filed: 2016-11-07
- Accepted by EDGAR: Nov 7, 2016, 15:35 ET
- Period: 2016-09-30
- Accession: 0001174947-16-003365
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1050743/000117494716003365/form10q-16660_pgfc.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1050743/000117494716003365/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-07-01 to 2016-09-30 | $31.8m | us-gaap:Revenues |
| Revenue | 9 months, 2016-01-01 to 2016-09-30 | $93.1m | us-gaap:Revenues |
| Interest expense | 3 months, 2016-07-01 to 2016-09-30 | $5.6m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2016-01-01 to 2016-09-30 | $14.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-07-01 to 2016-09-30 | $4.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2016-01-01 to 2016-09-30 | $11.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-07-01 to 2016-09-30 | $7.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2016-01-01 to 2016-09-30 | $19.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-07-01 to 2016-09-30 | $0.43 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2016-01-01 to 2016-09-30 | $1.17 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-07-01 to 2016-09-30 | $0.43 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2016-01-01 to 2016-09-30 | $1.19 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-07-01 to 2016-09-30 | 16,673,596 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2016-01-01 to 2016-09-30 | 16,347,255 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 9 months, 2016-01-01 to 2016-09-30 | $2.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2016-01-01 to 2016-09-30 | $2.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Total assets | at 2016-09-30 | $3.77bn | us-gaap:Assets |
| Total liabilities | at 2016-09-30 | $3.47bn | us-gaap:Liabilities |
| Shareholders' equity | at 2016-09-30 | $309.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 74,858 characters.

### MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

### AND RESULTS OF OPERATIONS

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

- inability to successfully grow our business and implement our strategic plan, including an inability to generate revenues to offset the increased personnel and other costs related to the strategic plan;
- the impact of anticipated higher operating expenses, in particular, higher FDIC insurance premiums, in 2016 and beyond;
- inability to manage our growth;
- inability to successfully integrate our expanded employee base;
- a continued or unexpected decline in the economy, in particular in our New Jersey and New York market areas;
- declines in our net interest margin caused by the low interest rate environment and highly competitive market;
- declines in value in our investment portfolio;
- higher than expected increases in our allowance for loan losses;
- higher than expected increases in loan losses or in the level of nonperforming loans;
- unexpected changes in interest rates;
- a continued or unexpected decline in real estate values within our market areas;
- legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III and related regulations) subject us to additional regulatory oversight which may result in increased compliance costs;
- successful cyberattacks against our IT infrastructure and that of our IT providers;
- adverse weather conditions;
- inability to successfully generate new business in new geographic markets;
- inability to execute upon new business initiatives;
- lack of liquidity to fund our various cash obligations;
- reduction in our lower-cost funding sources;
- our inability to adapt to technological changes;
- current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values, increases in unemployment rates and potential reductions of economic growth, which may adversely affect our lending and other businesses and our financial results and conditions;
- the effect of a decline in stock market prices on our trust advisory income from our wealth management business;
- claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters; and
- other unexpected material adverse changes in our operations or earnings.

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

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES:** Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2015, contains a summary of the Company’s significant accounting policies.

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

The provision for loan losses is based upon Management’s evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated fair value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although Management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in the State of New Jersey and, to a lesser extent, New York City. Accordingly, the collectability of a substantial portion of the carrying value of the Company’s loan portfolio is susceptible to changes in local market conditions and any adverse economic conditions. Future adjustments to the provision for loan losses and allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

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

Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, Management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) other-than-temporary impairment related to credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. No impairment charges were recognized in the three or nine months ended September 30, 2016 and 2015. For equity securities, the entire amount of impairment is recognized through earnings.

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

*(Dollars in thousands, except per share data)*

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

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

*(Dollars in thousands, except per share data)*

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

47

#### Index

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

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

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

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

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

### EARNINGS ANALYSIS

### NET INTEREST INCOME/AVERAGE BALANCE SHEET:

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

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

*(Dollars in thousands)*

|  | Three Months Ended September 30, 2016 | 2015 |
| --- | ---: | ---: |
| Net interest income | $24,510 | $21,886 |
| Interest rate spread | 2.59% | 2.63% |
| Net interest margin | 2.74 | 2.75 |

*(Dollars in thousands)*

|  | Nine Months Ended September 30, 2016 | 2015 |
| --- | ---: | ---: |
| Net interest income | $72,534 | $62,038 |
| Interest rate spread | 2.64% | 2.69% |
| Net interest margin | 2.78 | 2.81 |

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

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

*(In thousands)*

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

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

#### Index

*(In thousands)*

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

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

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

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)*

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

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

(2) Interest income is presented on a tax-equivalent basis using a 35 percent federal tax rate.

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

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

51

### Average Balance Sheet

Unaudited

Nine Months Ended

*(Dollars in thousands)*

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

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

(2) Interest income is presented on a tax-equivalent basis using a 35 percent federal tax rate.

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

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

52

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

*(In thousands)*

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

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

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

(1) Shown using stated final maturity.

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

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

*(In thousands)*

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

56

#### Index

*(In thousands)*

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

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

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

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

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

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

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

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

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

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

*(In thousands)*

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

*(In thousands)*

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

58

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

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

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

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

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

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

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

*(In thousands)*

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

*(In thousands)*

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

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

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

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

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

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

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

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

*(Dollars in thousands)*

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

63

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

*(Dollars in thousands)*

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- Actively market commercial and industrial (C&I) loan originations, which tend to have adjustable rate features, and which generate customer relationships that can result in higher core deposit accounts;
- Actively market commercial mortgage loan originations, which tend to have shorter terms and higher interest rates than residential mortgage loans, and which generate customer relationships that can result in higher core deposit accounts;
- Manage growth in the residential mortgage portfolio to adjustable-rate and/or shorter-term and/or “relationship” loans that result in core deposit relationships;
- Actively market core deposit relationships, which are generally longer duration liabilities;
- Utilize medium to longer term certificates of deposit and/or wholesale borrowings to extend liability duration;
- Utilize interest rate swaps to extend liability duration;
- Utilize a loan level / back to back interest rate swap program, which converts a borrower’s fixed rate loan to adjustable rate for the Company;
- Closely monitor and actively manage the investment portfolio, including management of duration, prepayment and interest rate risk;
- Maintain adequate levels of capital; and
- Utilize loan sales and/or loan participations.

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

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

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

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

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

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

*(Dollars in thousands)*

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

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

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

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

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

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

## Market risk

As filed, 243 characters.

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

## Controls and procedures

As filed, 2,541 characters.

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

The Corporation’s Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in the Corporation’s internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonable likely to materially affect, the Corporation’s internal control over financial reporting.

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

## Risk factors

As filed, 249 characters.

There were no material changes in the Corporation’s risk factors during the nine months ended September 30, 2016 from the risk factors disclosed in Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015.

Filed Nov 7, 2016.
Source: SEC EDGAR, the filing index for accession 0001174947-16-003365. Last ingested by Listed: Nov 6, 2026, 13:09 ET. No prices; not investment advice.