Peapack-Gladstone Financial Corporation Reports Fourth Quarter Results of Operations

Peapack-Gladstone Financial Corporation (NASDAQ Global Select Market:PGC) (the Corporation) recorded net income of $1.9 million and diluted earnings per share of $0.18 for the quarter ended December 31, 2010. This compared to diluted earnings per share of $0.18 for the quarter ended September 30, 2010, and diluted earnings per share of $0.11 for the quarter ended December 31, 2009.

For the year ended December 31, 2010, the Corporation recorded net income of $7.7 million and diluted earnings per share of $0.68, reflecting an increase when compared to $7.1 million and $0.64 for the 2009 year.

When compared to the quarter ended December 31, 2009, the December 2010 quarter included increased net interest income, increased income from the PGB Trust and Investment business and increased other income.

Frank A. Kissel, Chairman and CEO, stated, "We are pleased to have shown earnings growth for this quarter and for the year. As I have noted in the past, building capital internally to redeem the Treasury’s Capital Purchase Program investment over time continues to be an important business objective of the Corporation.”

The Corporation’s provision for loan losses for the quarter ended December 31, 2010, was $2.9 million, just slightly below the $3.0 million provision recorded in the December 2009 quarter, but above the $2.0 million provision recorded in the September 2010 quarter. Mr. Kissel noted that progress continues in resolving problem assets. During the fourth quarter of 2010, $2.5 million of problem loans were paid off. During January 2011 an additional $2.4 million of problem loans were paid off. Further, there are two properties totaling $4.0 million in other real estate owned and both are under contract for sale.

Net Interest Income and Margin

Net interest income, on a fully tax-equivalent basis, was $12.6 million for the fourth quarter of 2010, up from $12.4 million for the same quarter in 2009.

On a fully tax-equivalent basis, the net interest margin was 3.62 percent for the December 2010 quarter compared to 3.44 percent for the December 2009 quarter. In comparing the December 2010 quarter to the same quarter last year, the growth of lower cost core deposits, the allowed run-off of higher cost certificates of deposit and the maturity of higher cost FHLB advances all contributed to the improved margin. This effect was partially offset by the effect of growth in lower yielding investment securities coupled with declining loan balances.

Mr. Kissel stated, "Given our shorter duration investment portfolio, we believe our balance sheet is positioned well for the future, when we expect loan demand will increase and interest rates will rise.”

Loans

Average loans totaled $942.5 million for the fourth quarter of 2010 as compared to $996.6 million for the same 2009 quarter, reflecting a decrease of $54.1 million or 5.4 percent.

The average residential mortgage loan portfolio declined $32.8 million or 7.1 percent to $428.4 million in the fourth quarter of 2010 from the same quarter of 2009 and is attributable to loan paydowns that have outpaced the originations retained in portfolio. The Corporation sells the majority of its longer-term, fixed-rate loan production as a source of noninterest income and as part of its interest rate risk management strategy in the lower rate environment. Total mortgage loan originations were $57.5 million for the fourth quarter of 2010, of which $29.7 million were sold, as compared to $34.8 for the fourth quarter of 2009, of which $16.1 million were sold. Total mortgage loan originations reflect an increase of $22.7 million or 65.3 percent, in comparing the 2010 quarter to the 2009 quarter.

The average commercial mortgage and commercial loan portfolio increased $5.9 million or 1.5 percent from the fourth quarter of 2009 to $409.2 million for the same quarter in 2010. The average commercial construction loan portfolio declined $29.8 million or 44.8 percent from the fourth quarter of 2009 to the fourth quarter of 2010, as the Bank has significantly decreased its exposure to construction lending. Mr. Kissel commented, "Loan demand from quality borrowers on the commercial front was generally scarce through the first nine months of 2010. However, over the last few months we have seen commercial loan demand from quality borrowers increase. The commercial loan pipeline stands at $42.0 million at December 31, 2010.”

The average home equity line portfolio rose $7.1 million or 18.3 percent to $45.8 million for the fourth quarter of 2010 compared to the same quarter in 2009. The Corporation focused on the origination of these adjustable-rate loans and loan originations outpaced principal paydowns over the year.

Mr. Kissel continued, "We have the liquidity and capital to lend to qualified individuals and businesses; however, in doing so, we will remain committed to our conservative underwriting standards.”

Deposits

Average total deposits (interest-bearing and noninterest-bearing) decreased $18.9 million, or 1.4 percent, from $1.36 billion in the fourth quarter of 2009 to $1.34 billion in the fourth quarter of 2010. Average certificates of deposit declined from $382.0 million in the December 2009 quarter to $234.1 million in the December 2010 quarter, a decline of $147.9 million or 38.7 percent. The Corporation allowed higher cost certificates of deposit to run-off and replaced those funds with lower cost, more stable core deposits.

Average noninterest-bearing checking balances grew $15.8 million or 7.5 percent to $225.2 million in the fourth quarter of 2010 from the fourth quarter of 2009. Average interest-bearing checking balances totaled $283.4 million in the fourth quarter of 2010, rising $56.5 million or 24.9 percent from the same quarter in 2009. Checking growth is attributable to the Corporation’s focus on core deposit growth, particularly checking, coupled with growth in the Ultimate Checking product, which provides customers with a low-cost checking product and a higher yield for larger balances.

Average money market accounts also rose, from $469.6 million in the fourth quarter of 2009 to $520.0 million for the same quarter of 2010, an increase of $50.4 million or 10.7 percent. The Corporation’s reduction in certificate of deposit balances and its focus on core deposit growth, as well as certain customers tending to "park” funds in money market accounts in lower interest rate environments, accounted for this growth.

Mr. Kissel commented, "Our reduced reliance on higher cost certificates of deposit, coupled with our growth in core deposits has reduced our cost of funds, and enhanced our franchise value.”

PGB Trust and Investments

PGB Trust and Investments generated $2.6 million in fee income in the fourth quarter of 2010, compared to $2.3 million in the same quarter of 2009. The market value of the assets under administration of the Trust Division increased from $1.86 billion at December 31, 2009 to $1.94 billion at December 31, 2010.

Craig C. Spengeman, President of PGB Trust & Investments commented, "We are pleased with the recovery and performance of our assets under administration. We continue to see increases in our managed asset business and related recurring fee income. We also continue to add new clients, as individuals continue to seek our professional advice. Our performance reflects the sound financial management of our trust and investment professionals.”

Other Income

Other income totaled $1.6 million in the December 2010 quarter compared to $1.1 million in the December 2009 quarter. Fee income earned on the sale of mortgage loans at origination increased, as there were greater mortgage originations in the December 2010 quarter and mortgages were sold at greater targeted premiums than in the December 2009 quarter.

During the fourth quarter of 2010, the Corporation recorded $396 thousand (net of tax) of impairment charges related to several of its pooled trust preferred securities. This writedown was due to a decline in the expected future cash flows, based on discounted cash flow modeling specific to each security.

Operating Expenses

The Corporation’s total operating expenses were $10.7 million in the December 2010 quarter compared to $10.6 million in the December 2009 quarter. The 2010 quarter included increased expenses associated with a new corporate headquarters occupied in June 2010 and increased problem loan expenses, partially offset by decreased FDIC insurance expense.

ASSET QUALITY

At December 31, 2010, nonperforming loans increased slightly to $18.8 million or 2.01 percent of total loans as compared to $18.0 million or 1.90 percent of total loans at September 30, 2010. Other real estate owned totaled $4.0 million as of December 31, 2010 compared to $1.0 million as of September 30, 2010. As noted earlier, during January 2011 $2.4 million of problem loans were paid off. Further, there are two properties totaling $4.0 million in other real estate owned and both are under contract for sale.

The allowance for loan losses was $14.3 million or 1.53 percent of total loans at December 31, 2010 as compared to $14.0 million or 1.49 percent of total loans at September 30, 2010 and $13.2 million or 1.34 percent of total loans at December 31, 2009.

CAPITAL

At December 31, 2010, the Corporation’s leverage ratio, tier 1 and total risk based capital ratios were 7.96 percent, 12.91 percent and 14.16 percent, respectively. All ratios reflect the $7.2 million reduction in regulatory capital due to the partial redemption in January 2010 of the preferred shares previously issued under the Treasury’s Capital Purchase Program. The Corporation’s ratios are all above the levels necessary to be considered well capitalized under applicable regulatory guidelines. Additionally, the Corporation’s common equity ratio (common equity to total assets) at December 31, 2010 is 6.44 percent compared to 6.09 percent at December 31, 2009.

As previously announced, on January 20, 2011, the Board of Directors declared a regular cash dividend of $0.05 per share payable on February 17, 2011 to shareholders of record on February 3, 2011.

ABOUT THE CORPORATION

Peapack-Gladstone Financial Corporation is a bank holding company with total assets of $1.51 billion as of December 31, 2010. Peapack-Gladstone Bank, its wholly owned community bank, was established in 1921, and has 23 branches in Somerset, Hunterdon, Morris, Middlesex and Union Counties. The Bank’s Trust Division, PGB Trust and Investments, operates at the Bank’s new corporate offices located at 500 Hills Drive in Bedminster and at four other locations in Clinton, Morristown and Summit, New Jersey and Bethlehem, Pennsylvania. To learn more about Peapack-Gladstone Financial Corporation and its services please visit our web site at www.pgbank.com or call 908-234-0700.

The foregoing 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 confidence and strategies and management’s expectations about new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as "expect”, "look”, "believe”, "anticipate”, "may”, or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to

• a continued or unexpected decline in the economy, in particular in our New Jersey market area;
• 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;
• inability to successfully grow our business;
• inability to manage our growth;
• 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 and related regulations) subject us to additional regulatory oversight which may result in increased compliance costs;
• higher than expected FDIC insurance premiums;
• lack of liquidity to fund our various cash obligations;
• repurchase of our preferred shares issued under the Treasury’s Capital Purchase Program which will impact net income available to our common shareholders and our earnings per share;
• reduction in our lower-cost funding sources;
• our inability to adapt to technological changes;
• claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters; and
• other unexpected material adverse changes in our operations or earnings.

A discussion of these and other factors that could affect our results is included in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2009 and our subsequent Quarterly Reports on Form 10-Q. We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Corporation’s expectations.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.