PEAPACK GLADSTONE FINANCIAL CORP

Previous wording

demands for loans and deposits in our market areas;

Current wording

demand for loans and deposits in our market areas;

Previous wording

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

Current wording

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 periodically reviewed with the Audit Committee and the Board of Directors.

Previous wording

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

Current wording

On January 1, 2022, the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit. The allowance for credit losses is a valuation allowance for Management’s estimate of expected credit losses in the loan portfolio. The process to determine expected credit losses utilizes analytic tools and Management 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 forecast. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in the Management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include changes in lending policies and procedures, size and composition of the portfolio, experience and depth of Management and the effect of external factors such as competition, legal and regulatory requirements, among others. The allowance is available for any loan that, in Management’s judgment, should be charged off.

Previous wording

For the quarter ended March 31, 2024, the Company recorded total revenue of $53.1 million, pretax income of $12.4 million, net income of $8.6 million and diluted earnings per share of $0.48, compared to revenue of $62.0 million, pretax income of $25.0 million, net income of $18.4 million and diluted earnings per share of $1.01 for the same period last year.

Current wording

For the quarter ended June 30, 2024, the Company recorded total 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, compared to revenue of $57.5 million, pretax income of $18.1 million, net income of $13.1 million and diluted earnings per share of $0.73 for the same period last year.

Previous wording

The decrease in net income for 2024 was principally driven by the Company's decreased net interest income due to net interest margin contraction as a result of higher deposit and borrowings rates experienced when comparing the three months ended March 31, 2024 and 2023. Clients continue to migrate out of noninterest bearing checking products and into higher costing alternatives, which has led to intense competition for deposit balances from other banks and alternative investment opportunities. Cycle to date betas are approximately 52 percent during which time the Target Federal Funds rate increased by 525 basis points. Other income and wealth management fee income continue to be a steady and consistent revenue stream for the Company. Operating expenses increased by $4.5 million principally attributable to the Company's strategy of expansion into New York City along with increased health insurance costs and normal merit increases.

Current wording

The decrease in net income for both the three and six month 2024 periods when compared to the same 2023 periods was principally driven by the Company's decreased net interest income due to net interest margin contraction, as a result of higher deposit and borrowings rates. Clients continue to migrate out of noninterest-bearing checking products and lower-yielding savings accounts and into higher rate products, which has led to intense competition for deposit balances from other banks and alternative investment opportunities. The Company has seen positive momentum in net interest margin as a result of paying down overnight borrowings with core deposit growth at a lower cost. Cycle to date betas are approximately 53 percent during which time the Target Federal Funds rate increased by 525 basis points. Other income and wealth management fee income continue to be a consistent and steady revenue stream for the Company. Operating expenses increased for both 2024 periods when compared to their respected prior periods which was principally attributable to the Company's expansion into New York City and expanding our unique private banking model that offers a single point of contact.

Previous wording

Net interest income, on a fully tax-equivalent basis, declined $9.7 million, or 22 percent, for the first quarter of 2024 to $34.6 million from $44.4 million for the same 2023 period. The net interest margin ("NIM") was 2.20 percent and 2.88 percent for the three months ended March 31, 2024 and 2023, respectively, a decrease of 68 basis points, due to a rapid increase in interest expense mostly driven by higher deposit rates, as well as an increase in the average balance and rates of FHLB advances and other borrowings. The ongoing Federal Reserve monetary policy intended to slow inflation has led to a significant increase in interest rates, particularly rates impacting short term investments and deposits. This has resulted in an inversion of the U.S. Treasury yield curve driving an increase in deposit and borrowing costs at a faster rate than the yields on interest-earning assets.

Current wording

Net interest income, on a fully tax-equivalent basis, declined $4.0 million, or 10 percent, for the second quarter of 2024 to $35.3 million from $39.3 million for the same 2023 period. The net interest margin ("NIM") was 2.25 percent and 2.49 percent for the three months ended June 30, 2024 and 2023, respectively, a decrease of 24 basis points. For the six months ended June 30, 2024 the Company recorded net interest income, on a fully tax-equivalent basis of $70.0 million compared to $83.7 million for the same 2023 period. The net interest margin ("NIM") was 2.22 percent and 2.68 percent for the six months ended June 30, 2024 and 2023, respectively, a decrease of 46 basis points. The decrease in net interest income, on a fully tax-equivalent basis and NIM was predominately due to a rapid increase in interest expense mostly driven by higher deposit rates, offset by a decrease in the average balance of borrowed funds and an increase in loan yields. The ongoing Federal Reserve monetary policy intended to slow inflation has led to a significant increase in interest rates, particularly rates impacting short term investments and deposits. This has resulted in an inversion of the U.S. Treasury yield curve driving an increase in deposit and borrowing costs at a faster rate than the yields on interest-earning assets.

Previous wording

Interest-earning deposits are an additional part of the Company’s liquidity and interest rate risk management strategies. The average balance of these investments during the three months ended March 31, 2024 was $140.1 million compared to $163.2 million for the quarter ended March 31, 2023.

Current wording

The average balance of interest-earning assets decreased slightly to $6.32 billion during the second quarter of 2024 from $6.35 billion for the same 2023 period. Average interest-earning assets were $6.33 billion for the six months ended June 30, 2024 compared to $6.30 billion in the same 2023 period, representing an increase of $32.4 million. The slight decrease in the second quarter of 2024 compared to the same 2023 period included a decline in the average balance of loans of $81.5 million, partially offset by an increase an interest-earning deposits of $65.3 million. Loan contraction experienced during the second quarter of 2024 was in part due to tighter underwriting standards, reduced loan originations in the higher interest rate environment and the sale $15.1 million of multifamily problem loans. The growth in average interest-earning assets for the six months ended June 30, 2024 and 2023 was driven primarily by an increase in the average balance of loans of $14.3 million and interest-earning deposits of $21.2 million. Interest-earning deposits are an additional part of the Company's liquidity and interest rate risk management strategies and management believes that in the near term having elevated balances represents a strong balance sheet.

Previous wording

For the quarters ended March 31, 2024 and 2023, the average yields earned on interest-earning assets were 5.02 percent and 4.54 percent, respectively, an increase of 48 basis points. The increase in yields on interest-earning assets for the three months ended March 31, 2024, was primarily due to the increase in the target Federal Funds rate of 100 basis points during 2023 (525 basis points since the Federal Reserve commenced raising rates in March 2022). This resulted in increases in the yield on loans of 48 basis points to 5.39 percent, the yield on interest-earning deposits of 58 basis points to 4.35 percent and the yield on investments of 33 basis points to 2.59 percent, when comparing the three months ended March 31, 2024 to the same 2023 period. The increase in yield for the three months ended March 31, 2024 was due to the Company purchasing higher-yielding investments to replace run-off and maintain additional liquidity.

Current wording

For the quarters ended June 30, 2024 and 2023, the average yields earned on interest-earning assets were 5.03 percent and 4.74 percent, respectively, an increase of 29 basis points. For the six months ended June 30, 2024 and 2023, the average yield on interest-earning assets were 5.02 percent and 4.64 percent, respectively, an increase of 38 basis points. The increase in yields on interest-earning assets for the three and six months ended June 30, 2024, was primarily due to the increase in the target Federal Funds rate of 100 basis points during 2023 (525 basis points since the Federal Reserve commenced raising rates in March 2022). This resulted in increases in the yield on loans of 30 basis points to 5.41 percent, the yield on interest-earning deposits of 58 basis points to 4.67 percent and the yield on investments of 15 basis points to 2.58 percent, when comparing the three months ended June 30, 2024 to the same 2023 period. The six months ended June 30, 2024 compared to the same 2023 period resulted in increases in the average yields on loans of 39 basis points to 5.40 percent, interest-earning deposits of 62 basis points to 4.54 percent and investments of 23 basis points to 2.58 percent.

Previous wording

The average yield on total loans was driven by an increase in the yield on commercial loans of 65 basis points to 6.71 percent for the three months ended March 31, 2024, due to an increase in target Federal Funds rate, which had a greater impact on these loans, that are typically floating rates with short repricing periods. The yield on commercial mortgages for the quarter ended March 31, 2024 was 4.48 percent, which reflected an increase of 30 basis points when compared to the same 2023 period. The yield on residential mortgages increased 51 basis points to 3.75 percent for the quarter ended March 31, 2024 when compared to the same 2023 period. The increase for both commercial and residential mortgages were driven by the origination of loans with higher yields in the current higher interest rate environment. As of March 31, 2024, 30 percent of our loans will reprice within one month, 35 percent within three months and 48 percent within one year.

Current wording

The average yield on total loans for the three and six months ended June 30, 2024 compared to the same 2023 period was driven by an increase in the yield on commercial loan, commercial mortgages and residential mortgages. The yield on commercial loans for the three months ended June 30, 2024 increased 44 basis points to 6.77 percent from 6.33 percent at June 30, 2023. The yield on commercial loans for the six months ended June 30, 2024 increased 54 basis points to 6.74 percent from 6.20 percent at June 30, 2023. Commercial loans yield increased for the three and six months due to an increase in the target Federal Funds rate, which had a greater impact on these loans, that are typically floating rates with short repricing periods. The average yield on commercial mortgages increased 15 basis points to 4.44 percent and 23 basis points to 4.46 percent for the three and six months ended June 30, 2024, respectively, when compared to the same 2023 periods. The average yield on residential mortgages increased 32 basis points to 3.87 percent and 42 basis points to 3.81 percent, for the three and six months ended June 30, 2024, respectively, when compared to the same 2023 periods. The increase for both commercial and residential mortgages for the three and six months periods were driven by the origination of loans with higher yields in the current higher interest rate environment. As of June 30, 2024, 30 percent of our loans will reprice within one month, 35 percent within three months and 48 percent within one year.

Previous wording

The increase in the average balance of interest-bearing deposits was primarily due to an increase in the average balance of interest-bearing checking deposits of $387.3 million and short-term brokered certificate of deposits ("CD") of $102.4 million, partially offset by a decline in money market and savings accounts of $399.1 million combined. The increase in interest-bearing checking deposits was principally attributable to client demand for FDIC insured products. This increase was partially offset by a decline in money market and savings accounts in 2024 due to clients shifting balances into higher-yielding short-term Treasuries and interest-bearing checking accounts. The Company added short-term brokered CDs to provide additional liquidity and replace brokered deposit run off.

Current wording

The increase in the average balance of interest-bearing deposits for the quarters ended June 30, 2024 compared to the 2023 comparable period was primarily due to an increase in the average balance of interest-bearing checking deposits of $260.2 million, average balance of certificate of deposits ("CD") of $119.1 million and short-term brokered CDs of $72.5 million. The increase in the average balance of interest-bearing deposits for the six months ended June 30, 2024 compared to the 2023 comparable period was primarily due to an increase in the average balance of interest-bearing checking deposits of $323.0 million, average balance of certificate of deposits ("CD") of $119.4 million and short-term brokered CDs of $87.4 million, partially offset by a decline in money market and savings accounts of $207.1 million. The increase in interest-bearing checking deposits for the three and six months ended June 30, 2024 was principally attributable to client demand for FDIC insured products. The Company added short-term brokered CDs to provide additional liquidity and replace brokered deposit run-off. The decrease for the savings and money market accounts for the six months ended June 30, 2024 included clients shifting balances into higher-yielding short-term Treasuries and interest-bearing checking accounts. The expansion into New York City is starting to benefit deposit growth and is expected to reduce the Company's reliance on overnight borrowings, brokered deposits and other high cost funding sources and into more low cost, relationship deposits.

Previous wording

The Company is a participant in the Reich & Tang Demand Deposit Marketplace ("DDM") program and the Promontory Program. The Company uses these deposit sweep services to place customer funds into interest-bearing demand (checking) accounts issued by other participating banks. Customer funds are placed at one or more participating banks to increase the level of FDIC insurance available to deposit customers. As a participant, the Company receives reciprocal amounts of deposits from other participating banks. Such reciprocal deposit balances were $1.08 billion and $628.3 million for the quarter ended March 31, 2024 and 2023, respectively.

Current wording

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, 2024 and 2023, were $1.2 billion and $813.2 million, respectively. The additional growth for the three and six months ended June 30, 2024 was directly related to client's desire of the increased level of FDIC insurance offered by these programs.

Previous wording

At March 31, 2024, uninsured/unprotected deposits were approximately $1.2 billion, or 22 percent of total deposits. This amount was adjusted to exclude $317 million of public fund deposit balances, which are fully-collateralized and protected with securities and an FHLBNY letter of credit.

Current wording

At June 30, 2024, uninsured/unprotected deposits were approximately $1.3 billion, or 23 percent of total deposits. This amount was adjusted to exclude $326 million of public fund deposit balances, which are fully-collateralized and protected with securities and an FHLBNY letter of credit.

Previous wording

For the quarters ended March 31, 2024 and 2023, the cost of interest-bearing liabilities was 3.73 percent and 2.36 percent, respectively, reflecting an increase of 137 basis points. The increases were driven by an increase in the average cost of interest-bearing deposits of 135 basis points to 3.57 percent for the first quarter of 2024. Additionally, the cost of borrowings increased 95 basis points to 5.89 percent for the first quarter of 2024 when compared to the same 2023 period. The increase in deposit and borrowing rates was due to the Federal Reserve raising the target Federal Funds rate by 525 basis points since March 2022 and a change in the composition of the deposit portfolio, as clients continue to migrate out of noninterest bearing checking products into higher yielding alternatives.

Current wording

For the quarters ended June 30, 2024 and 2023, the cost of interest-bearing liabilities was 3.71 percent and 3.04 percent, respectively, reflecting an increase of 67 basis points. The cost of interest-bearing liabilities was 3.72 percent and 2.71 percent for the six months ended June 30, 2024 and 2023, respectively. The increases for both the three and six months ended June 30, 2024 were driven by an increase in the average cost of interest-bearing deposits of 89 basis points to 3.66 percent for the second quarter of 2024 and 113 basis points to 3.62 percent for the six months ended June 30, 2024. Additionally, the cost of borrowings increased 39 basis points to 5.59 percent for the second quarter of 2024 when compared to 5.20 percent for the same 2023 period and 73 basis points to 5.86 percent for the six months ended June 30, 2024 when compared to 5.13 percent for the same 2023 period. The increase in deposit and borrowing rates was due to the Federal Reserve raising the target Federal Funds rate by 525 basis points since March 2022 and a change in the composition of the deposit portfolio, as clients continue to migrate out of noninterest bearing checking products into higher-yielding alternatives.

Previous wording

At March 31, 2024, the Company had investment securities available for sale with a fair value of $550.9 million compared with $550.6 million at December 31, 2023. A net unrealized loss (net of income tax) of $74.8 million and of $69.2 million related to these securities were included in shareholders’ equity at March 31, 2024 and December 31, 2023, respectively.

Current wording

At June 30, 2024, the Company had investment securities available for sale with a fair value of $591.9 million compared with $550.6 million at December 31, 2023. The increase in investment securities available for sale was due to the use of excess funds since deposit growth outpaced loan growth. A net unrealized loss (net of income tax) of $75.2 million and of $69.2 million related to these securities were included in shareholders’ equity at June 30, 2024 and December 31, 2023, respectively.

Previous wording

At March 31, 2024, the Company had investment securities held to maturity with a carrying cost of $106.5 million and an estimated fair value of $92.3 million compared with a carrying cost of $107.8 million and an estimated fair value of $94.4 million at December 31, 2023.

Current wording

At June 30, 2024, the Company had investment securities held to maturity with a carrying cost of $105.0 million and an estimated fair value of $90.9 million compared with a carrying cost of $107.8 million and an estimated fair value of $94.4 million at December 31, 2023.

Previous wording

The Company has one equity security (a CRA investment security) with a fair value of $13.1 million at March 31, 2024 compared with a fair value of $13.2 million at December 31, 2023, with changes in fair value recognized in the Consolidated Statements of Income. The Company recorded an unrealized loss of $111,000 for the three months ended March 31, 2024, as compared to an unrealized gain of $209,000 for the same period in 2023.

Current wording

The Company has one equity security (a CRA investment security) with a fair value of $13.0 million at June 30, 2024 compared with a fair value of $13.2 million at December 31, 2023, with changes in fair value recognized in the Consolidated Statements of Income. The Company recorded an unrealized loss of $84,000 and $195,000 for the three and six months ended June 30, 2024, as compared to an unrealized loss of $209,000 and $0 for the same period in 2023.

Previous wording

The Company recorded total other income, excluding wealth management fee income, for both the first quarters of 2024 and 2023 of $4.3 million.

Current wording

The Company recorded total other income, excluding wealth management fee income, of $5.1 million for the second quarter of 2024 compared to $4.3 million for the same 2023 period, reflecting an increase of $813,000. The Company recorded $9.4 million of total other income, excluding wealth management fee income for the six months ended June 30, 2024 compared to $8.6 million for the same 2023 period, reflecting an increase of $810,000. The increases were primarily due to income related to equipment transfers upon the termination of leases of $1.6 million and $1.7 million for the three and six months ended June 30, 2024, respectively.

Previous wording

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 $400,000 and $865,000 for the quarters ended March 31, 2024 and 2023, respectively. The Company continues to see pressures from market volatility and the higher interest rate environment resulting in lower sale premiums and origination volumes.

Current wording

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 $449,000 and $838,000 for the quarters ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the Company recorded a gain on the sale of SBA loans of $849,000 and $1.7 million, respectively. The Company continues to see pressures from market volatility and the higher interest rate environment resulting in lower sale premiums and origination volumes.

Previous wording

The Company recorded corporate advisory fee income for the first quarter of 2024 of $818,000 compared to $80,000 for the same period ended March 31, 2023. The higher amount in the current period was related to a major corporate advisory/investment banking acquisition transaction.

Current wording

The Company recorded corporate advisory fee income for the second quarter of 2024 of $103,000 compared to $15,000 for the same period ended June 30, 2023. The six months ended June 30, 2024 included $921,000 of corporate advisory fee income compared to $95,000 for the same 2023 period. The higher amount in the six months ended June 30, 2024 was related to a major corporate advisory/investment banking acquisition transaction.

Previous wording

For the three months ended March 31, 2024, income from the sale of newly originated residential mortgage loans was $56,000 compared to $21,000 for the same period in 2023. Although fee income increased as a result of slightly increased volume, the Company is still impacted by industry wide slowdown in refinancing and home purchase activity in the higher interest rate environment.

Current wording

For the quarter ended June 30, 2024, income from the sale of newly originated residential mortgage loans was $34,000 compared to $15,000 for the same period in 2023. The Company recorded income from the sale of newly originated residential mortgage loans for the six months ended June 30, 2024 and 2023 of $90,000 and $36,000, respectively. Although fee income increased as a result of slightly increased volume, the Company is still impacted by the industry wide slowdown in refinancing and home purchase activity in the higher interest rate environment.

Previous wording

Other income included $827,000 and $852,000 of unused commercial lines fees for the three months ended March 31, 2024 and 2023, respectively. Additionally, for the quarters ended March 31, 2024 and 2023, the Company recorded income by the Equipment Finance Division related to equipment transfers to lessees of $141,000 and $145,000, respectively. For the quarter ended March 31, 2024, the Company recorded $181,000 of additional income from life insurance proceeds.

Current wording

Other income included $1.6 million of income by the Equipment Finance Division related to equipment transfers to lessees upon the termination of leases, for the second quarter of 2024 compared to $221,000 for the same 2023 period. The six months ended June 30, 2024 and 2023 included $1.7 million and $367,000, respectively, of income related to equipment transfers to lessees upon the termination of leases. Additionally, the Company recorded $786,000 of unused commercial line fees for the quarter ended June 30, 2024 compared to $809,000 for the same 2023 period. The six months ended June 30, 2024 included $1.6 million of unused commercial line fees compared to $1.7 million for the same 2023 period. The six months ended June 30, 2024 included $229,000 of additional income from life insurance proceeds.

Previous wording

The Company recorded a $111,000 negative fair value adjustment for CRA equity securities in the first quarter of 2024 compared to a positive fair value adjustment of $209,000 for the same 2023 period. The decrease in 2024 was due to the underlying assets being tied to medium-term investments which increased slightly in 2024.

Current wording

The Company recorded an $84,000 and $209,000 negative fair value adjustment for CRA equity securities in the second quarter of 2024 and 2023, respectively. The six months ended June 30, 2024 included a $195,000 negative fair value adjustment for CRA equity securities. The decrease in 2024 was due to the underlying assets being tied to medium-term investments, which increased slightly in 2024.

Previous wording

The market value of the assets under management and/or administration (“AUM/AUA”) of Peapack Private was $11.5 billion at March 31, 2024, reflecting a 6 percent increase from $10.9 billion at December 31, 2023 and an increase of 11 percent from $10.4 billion at March 31, 2023. The equity market improved during the first three months of 2024 and coupled with gross business inflows of $236 million, contributed to the increase in AUM/AUA.

Current wording

The market value of the assets under management and/or administration (“AUM/AUA”) of Peapack Private was $11.5 billion at June 30, 2024, reflecting a 6 percent increase from $10.9 billion at December 31, 2023 and an increase of 7 percent from $10.7 billion at June 30, 2023. The equity market improved during the first six months of 2024 and coupled with gross business inflows of $171 million, contributed to the increase in AUM/AUA.

Previous wording

In the March 2024 quarter, Peapack Private generated $14.4 million in fee income compared to $13.8 million for the March 2023 quarter, reflecting an 5 percent increase.

Current wording

In the June 2024 quarter, Peapack Private generated $16.4 million in fee income compared to $14.3 million for the June 2023 quarter, reflecting an 15 percent increase. For the six months ended June 30, 2024, Peapack Private generated $30.8 million in fee income compared to $28.0 million in fee income for the same period in 2023, reflecting a 10 percent increase. The increase in fee income for the three and six months ended June 30, 2024 was largely due to the improved equity and bond markets during the first half of 2024 and new business inflows.

Previous wording

Operating expenses relative to Peapack Private, for the first quarter of 2024, declined slightly to $9.4 million as compared to $9.8 million for the first quarter of 2023. Expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel.

Current wording

Operating expenses relative to Peapack Private, for the three months ended June 30, 2024, declined slightly to $10.7 million as compared to $11.1 million for the second quarter of 2023. Operating expenses relative to Peapack Private, for the six months ended June 30, 2024, declined to $20.1 million as compared to $20.9 million for the six months ended June 30, 2023. Expenses are in line with the Company’s Strategic Plan, particularly the hiring of key management and revenue-producing personnel.

Previous wording

Excludes modifications included in nonaccrual loans of $3.2 million at March 31, 2024, $3.0 million at December 31, 2023, $3.1 million at September 30, 2023 and $777,000 at June 30, 2023.

Current wording

Excludes modifications included in nonaccrual loans of $3.2 million at June 30, 2024, $3.2 million at March 31, 2024, $3.0 million at December 31, 2023, $3.1 million at September 30, 2023 and $777,000 at June 30, 2023.

Previous wording

The Company had increases in nonperforming assets, loans past due 30 through 89 days and still accruing, classified loans and individually evaluated loans during the first quarter of 2024 compared to the December 31, 2023 quarter. Certain delinquent loans have since returned to current status and other delinquent loans may be downgraded in subsequent quarters. 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 quarter of 2024 was primarily driven by higher multifamily nonperforming loans when compared to the December 31, 2023 quarter. The increase in loans past due 30 through 89 days and still accruing at March 31, 2024 when compared to December 31, 2023 was primarily due to an increase of $17.1 million of multifamily loans, an increase of $14.7 million of C&I loans and an increase of $8.0 million of lease financing credits. The increase in individually evaluated substandard loans was primarily due to two multifamily loans with a balance of $8.0 million that were downgraded to substandard during the first quarter of 2024.

Current wording

The Company had increases in nonperforming assets, performing modifications, loans subject to special mention, classified loans and individually evaluated loans at June 30, 2024 compared to December 31, 2023. 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 was primarily driven by higher multifamily nonperforming loans. The increase in special mention loans was primarily due to an increase in multifamily loans of $43.6 million, investment commercial real estate loans of $16.7 million and commercial loans of $19.8 million. The increase in classified loans was primarily driven by an increase in multifamily loans of $16.8 million and commercial loans of $24.7 million when compared to December 31, 2023. The increase in the balance of individually evaluated substandard loans was primarily due to six multifamily relationships totaling $32.0 million that transferred to nonaccrual status during the first six months of 2024 which was partially offset by the sale of two multifamily individually evaluated loans totaling $15.1 million.

Previous wording

PROVISION FOR CREDIT LOSSES: The provision for credit losses was $627,000 and $1.5 million for the first quarters of 2024 and 2023, respectively. The decreased provision for credit losses for the three months ended March 31, 2024, when compared to the three months ended March 31, 2023 was primarily due to a decline in loans of $72.9 million during the first quarter of 2024. The allowance for credit losses (“ACL”) was $66.3 million as of March 31, 2024, compared to $65.9 million at December 31, 2023. The increase in the ACL was primarily related to an increase in the ACL related to multifamily loans which was driven by the increase in individually evaluated loans of $8.0 million and certain qualitative adjustments in the CECL calculation made during the first quarter of 2024. The allowance for credit losses as a percentage of loans was 1.24 percent at March 31, 2024 compared to 1.21 percent at December 31, 2023. The ACL recorded on individually evaluated loans was $4.7 million at March 31,

Current wording

PROVISION FOR CREDIT LOSSES: The provision for credit losses was $3.9 million and $1.7 million for the second quarters of 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the provision for loan losses was $4.5 million and $3.2 million, respectively. The increased provision for credit losses for the three months ended June 30, 2024, when compared to the three months ended June 30, 2023 was primarily due to charge-offs totaling $5.4 million related to the sale of two problem loans, which were approaching foreclosure and transfer to other real estate owned. The allowance for credit losses (“ACL”) was $68.0 million as of June 30, 2024, compared to $65.9 million at December 31, 2023. The increase in the ACL was primarily related to an increase in the ACL related to multifamily loans, which was driven by the increase in individually evaluated loans of $16.9 million and certain qualitative adjustments in the CECL calculation made during the first six months of 2024. The allowance for credit losses as a percentage of loans was 1.29 percent at June 30, 2024 compared to 1.21 percent at December 31, 2023. The ACL recorded on individually evaluated loans was $7.9 million at June 30, 2024 compared to $4.5 million as of December 31, 2023. Total individually evaluated loans were $81.8 million and $60.7 million as of June 30, 2024 and December 31, 2023, respectively. The increase in the balance of individually evaluated loans was primarily due to six multifamily relationships totaling $32.0 million that transferred to nonaccrual status during the first six months of 2024, which was offset by the sale of two multifamily individually evaluated loans totaling $15.1 million. The general component of the allowance increased from $61.4 million at December 31, 2023 to $60.1 million at June 30, 2024.

Previous wording

On January 1, 2022, the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit. The allowance for credit losses is a valuation allowance for Management’s estimate of expected credit losses in the loan portfolio. The process to determine expected credit losses utilizes analytic tools and Management 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 conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors including available published economic information in arriving at its forecast. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in the Management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include changes in lending policies and procedures, size and composition of the portfolio, experience and depth of management and the effect of external factors such as competition, legal and regulatory requirements, amount others. The allowance is available for any loan that, in Management’s judgment, should be charged off.

Current wording

On January 1, 2022, the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit. The allowance for credit losses is a valuation allowance of Management’s estimate of expected credit losses in the loan portfolio. 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 forecast. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in the Management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include changes in lending policies and procedures, size and composition of the portfolio, experience and depth of management and the effect of external factors such as competition, legal and regulatory requirements, amount others. The allowance is available for any loan that, in Management’s judgment, should be charged off.

Previous wording

Excludes a provision of $12,000 at March 31, 2024, a credit of $55,000 at December 31, 2023, a credit of $88,000 at September 30, 2023, a provision of $30,000 at June 30, 2023 and a provision of $49,000 at March 31, 2023 related to off-balance sheet commitments.

Current wording

Excludes a provision of $10,000 at June 30, 2024, a provision of $12,000 at March 31, 2024, a credit of $55,000 at December 31, 2023, a credit of $88,000 at September 30, 2023 and a provision of $30,000 at June 30, 2023 related to off-balance sheet commitments.

Previous wording

The decrease in the allowance for credit losses as a percentage of nonperforming loans was primarily due to the increase in nonperforming loans when comparing March 31, 2024 and March 31, 2023.

Current wording

The decrease in the allowance for credit losses as a percentage of nonperforming loans was primarily due to the increase in nonperforming loans of $47.6 million to $82.1 million at June 30, 2024 from $34.5 million at June 30, 2023.

Previous wording

INCOME TAXES: Income tax expense for the quarter ended March 31, 2024 was $3.8 million as compared to $6.6 million for the same period in 2023.

Current wording

INCOME TAXES: Income tax expense for the quarter ended June 30, 2024 was $2.0 million as compared to $5.0 million for the same period in 2023. During the six months ended June 30, 2024, the Company recorded income tax expense of $5.8 million compared to $11.6 million for the same period in 2023.

Previous wording

The effective tax rate for the three months ended March 31, 2024 was 30.44 percent compared to 26.43 percent for the same quarter in 2023. The higher tax rate for the 2024 quarter was primarily due to adjustments related to the vesting of restricted stock at prices lower than original grant prices in 2024, while 2023 benefited from the vesting of restricted stock at prices higher than original grant prices.

Current wording

Both the three and six months ended June 30, 2024 periods 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, while 2023 benefitted from the vesting of restricted stock at prices higher than original grant prices.

Previous wording

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 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.

Current wording

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 Strategic Plan – “Expanding Our Reach.” 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.

Previous wording

Capital declined due to the repurchase of 100,000 shares, at an average price of $24.23 through the Company's stock repurchase program at a total cost of $2.4 million and payment of a quarterly dividend of $887,000. Additionally, during the first quarter of 2024, the Company recorded an increase in accumulated other comprehensive losses of $2.9 million, net of tax. This amount was driven by a $5.0 million decrease in the value of the available for sale securities portfolio partially offset by a $2.1 million gain on cash flow hedges. The total accumulated other comprehensive loss declined to $67.8 million as of March 31, 2024, ($74.8 million loss related to the available for sale securities portfolio partially offset by a $7.0 million gain on the cash flow hedges). These changes were partially offset by net income of $8.6 million.

Current wording

Capital increased as a result of net income of $16.2 million for the six months ended June 30, 2024. This was partially offset by the repurchase of 200,000 shares, at an average price of $22.99 through the Company's stock repurchase program at a total cost of $4.6 million and payment of dividends of $1.8 million. Additionally, during the first half of 2024, the Company recorded an increase in accumulated other comprehensive loss of $3.5 million, net of tax. The total accumulated other comprehensive loss declined to $68.3 million as of June 30, 2024, ($75.2 million loss related to the available for sale securities portfolio partially offset by a $6.8 million gain on the cash flow hedges).

Previous wording

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 March 31, 2024 and December 31, 2023, 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.

Current wording

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, 2024 and December 31, 2023, 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.

Previous wording

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 did not opt into the CBLR and will continue to comply with the requirements under Basel III. The Bank’s leverage ratio was 11.02 percent at March 31, 2024.

Current wording

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 did not opt into the CBLR and will continue to comply with the requirements under Basel III. The Bank’s leverage ratio was 11.14 percent at June 30, 2024.

Previous wording

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.

Current wording

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, loan participations and brokered CDs.

Previous wording

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 $194.8 million at March 31, 2024. In addition, the Company had $550.9 million in securities designated as available for sale at March 31, 2024. 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 $423.6 million and $96.8 million as of March 31, 2024, respectively, were pledged to secure public funds and for other purposes required or permitted by law. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.

Current wording

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 $315.7 million at June 30, 2024. The Company's elevated liquidity position was due to deposit growth of $382.1 million and loan contraction. In addition, the Company had $591.9 million in securities designated as available for sale at June 30, 2024. 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 $417.4 million and $95.9 million as of June 30, 2024, respectively, were pledged to secure public funds and for other purposes required or permitted by law. In addition, the Company generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities.

Previous wording

As of March 31, 2024, the Company had approximately $2.9 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 303 percent coverage of our uninsured/unprotected deposits.

Current wording

As of June 30, 2024, the Company had approximately $2.9 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 304 percent coverage of our uninsured/unprotected deposits.