PEAPACK GLADSTONE FINANCIAL CORP (PGC)

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS: This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about Management’s confidence and strategies and Management’s expectations about operations, growth, financial results, asset quality, new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect”, “look”, “believe”, “anticipate”, “may”, or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause results to differ materially from those contemplated by such forward-looking statements include, among others, those risk factors identified in the Company’s Form 10-K for the year ended December 31, 2025, which include the following:

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

•
the impact of anticipated higher operating expenses in 2026 and beyond;

•
our ability to successfully integrate our expanded employee base;

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

•
declines in our net interest margin caused by the interest rate environment and/or our highly competitive market;

•
declines in the value of our investment portfolio;

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

•
higher than expected increases in our allowance for credit losses;

•
changes in the methodology and assumptions used to calculate the allowance for credit losses;

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

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

•
declines in real estate values within our market areas;

•
legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III and related regulations) that may result in increased compliance costs;

•
the imposition of tariffs or other domestic or international governmental policies, trade restrictions and retaliatory measures impacting our borrowers and the broader economy;

•
the impact of any federal government shutdown, debt ceiling impasses or fiscal uncertainty;

•
the failure to maintain current technologies and/or to successfully implement future information technology enhancements and the operational risks associated with the adoption of artificial intelligence and other emerging technologies;

•
risks associated with cybersecurity threats, data breaches, ransomware attacks, or other failures in our operational or security systems and infrastructure, including the risks arising from our dependence on third-party service providers and vendors;

•
higher than expected FDIC insurance premiums;

•
adverse weather conditions;

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

•
our inability to successfully generate new business in new geographic markets, including our expansion into New York City and Long Island;

•
a reduction in our lower-cost funding sources;

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

•
our inability to adapt to technological changes;

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

•
our inability to attract and retain key employees;

•
demand for loans and deposits in our market areas;

•
adverse changes in securities markets;

•
changes in New York City rent regulation and real estate tax laws;

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

•
changes in accounting policies and practices; and/or

•
other unexpected material adverse changes in our financial condition, operations or earnings.

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Except as may be required by applicable law or regulation, the Company undertakes no duty to update any forward-looking statements to conform the statement to actual results or change in the Company’s expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES: Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2025 contains a summary of the Company’s significant accounting policies.

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

The allowance for credit losses is a valuation allowance of Management’s estimate of expected credit losses in the loan portfolio calculated in accordance with ASC 326, "Credit Losses". The process to determine expected credit losses utilizes analytic tools and Management judgment and is reviewed on a quarterly basis. When Management is reasonably certain that a loan balance is not fully collectable, an analysis is completed whereby a specific reserve may be established or a full or partial charge-off is recorded against the allowance. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance via a quantitative analysis, which considers available information from internal and external sources related to past loan loss and prepayment experience and current economic conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors, including available published economic information, in arriving at its forecasts. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in the Management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include, among others, changes in lending policies and procedures, size and composition of the portfolio, experience and depth of Management and the effect of external factors such as competition and legal and regulatory requirements. The allowance is available for any loan that, in Management’s judgment, should be charged off.

Although Management uses the best information available, the level of the allowance for credit losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to make additional provisions for credit losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in New Jersey and the boroughs of New York City. Accordingly, the collectability of a substantial portion of the carrying value of the Company’s loan portfolio is susceptible to changes in local market conditions, rent control regulations and any adverse economic conditions. Future adjustments to the provision for credit losses and allowance for credit losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

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EXECUTIVE SUMMARY: The following tables present certain key aspects of our performance for the three and six months ended June 30, 2026 and 2025.

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS: This Annual Report on Form 10-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about Management’s confidence, strategies and expectations about new and existing programs and products, investments, relationships, financial results and operations, 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 actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to:

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

•
the impact of anticipated higher operating expenses in 2026 and beyond;

•
our ability to successfully integrate wealth management firm and team acquisitions;

•
our ability to successfully integrate our expanded employee base;

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•
a decline in the economy, in particular in our New Jersey and New York market areas, including potential recessionary conditions;

•
declines in our net interest margin caused by the interest rate environment and/or our highly competitive market;

•
declines in the value in our investment portfolio;

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

•
increases in our allowance for credit losses;

•
changes in the methodology and assumptions used to calculate the allowance for credit losses;

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

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

•
decline in real estate values within our market areas;

•
legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III and related regulations) that may result in increased compliance costs;

•
the imposition of tariffs or other domestic or international governmental policies and retaliatory responses;

•
the impact of any federal government shutdown;

•
the failure to maintain current technologies and/or to successfully implement future information technology enhancements;

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

•
increased FDIC insurance premiums;

•
adverse weather conditions;

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

•
our inability to successfully generate new business and brand recognition in new geographic markets, including our expansion into New York City and Long Island;

•
a reduction in our lower-cost funding sources;

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

•
our inability to adapt to technological changes;

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

•
our inability to retain key employees;

•
demand for loans and deposits in our market areas;

•
adverse changes in securities markets;

•
changes in new York City rent regulation law;

•
changes in governmental regulation, including, but not limited to, changes in the monetary and fiscal policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;

•
changes in accounting policies and practices; and/or

•
other unexpected material adverse changes in our operations or earnings.

Except as may be required by applicable law or regulation, the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements.

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

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

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The allowance for credit losses is a valuation allowance, which represents Management’s estimate of expected credit losses in the loan portfolio calculated in accordance with ASC 326, "Credit Losses". The process to determine expected credit losses utilizes analytic tools and Management judgment and is reviewed on a quarterly basis. When Management is reasonably certain that a loan balance is not fully collectable, an analysis is completed whereby a specific reserve may be established or a full or partial charge-off is recorded against the allowance. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance via a quantitative analysis, which considers available information from internal and external sources related to past loan loss and prepayment experience and current economic conditions, as well as the incorporation of reasonable and supportable economic forecasts. Management evaluates a variety of factors, including available published economic information, in arriving at its forecasts. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in the Management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include, among others, changes in lending policies and procedures, size and composition of the portfolio, experience and depth of Management and the effect of external factors such as competition and legal and regulatory requirements. The allowance is available for any loan that, in Management’s judgment, should be charged off.

Although Management uses the best information available, the level of the allowance for credit losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to make additional provisions for credit losses based upon information available to them at the time of their examination. Furthermore, the majority of the Company’s loans are secured by real estate in New Jersey and the boroughs of New York City. Accordingly, the collectability of a substantial portion of the Company’s loan portfolio is susceptible to changes in local market conditions, rent control regulations and any adverse economic conditions. Future adjustments to the provision for credit losses and the allowance for credit losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

The Company’s quantitative component of its allowance for credit losses for collectively evaluated loans is calculated with an economic forecast sourced from Moody’s. Management performed a hypothetical sensitivity analysis to understand the impact of changes in the economic forecast as a key input in our calculation of the allowance for credit losses for collectively evaluated loans. Within the various economic scenarios considered for this hypothetical sensitivity analysis, as of December 31, 2025, the quantitative estimate of the allowance for credit loss for collectively evaluated loans would increase by approximately $23 million under sole consideration of an adverse Moody’s economic forecast, which when stressed, resulted in the national unemployment rate increasing to 8.3 percent and negative growth for national GDP of approximately 2.6 percent. The hypothetical sensitivity calculation reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data but lacks other qualitative overlays and other qualitative adjustments that are part of the quarterly allowance calculation process. As such, this does not necessarily reflect the nature and extent of future changes in the allowance for reasons including increases or decreases in qualitative adjustments, changes in the risk profile, size and composition of the loan portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.

OVERVIEW: The following discussion and analysis is intended to provide information about the financial condition and results of operations of the Company and its subsidiaries on a consolidated basis and should be read in conjunction with the consolidated financial statements and the related notes and supplemental financial information appearing elsewhere in this report.

For the year ended December 31, 2025, the Company recorded net income of $37.3 million, and diluted earnings per share of $2.10, compared to $33.0 million and $1.85, respectively, for 2024, reflecting increases of $4.3 million, or 13 percent, and $0.25 per share, or 14 percent, respectively. During 2025, the Company continued to focus on its expansion into the metro New York region. During 2025, the Company added six new production teams in Long Island. The Company's metro New York initiative has resulted in approximately $1.9 billion in new core relationship deposits, 31 percent of which is in noninterest-bearing accounts. The Company also grew the wealth management team through the addition of experienced advisers to help serve the expanded geography throughout the metro NY market.

The following are selected highlights from 2025:

•
At December 31, 2025, the market value of assets under management in our Wealth Management Division grew by $1.2 billion to $13.1 billion, reflecting an increase of 10 percent from $11.9 billion at December 31, 2024.

•
Wealth Management fee income was $63.2 million in 2025, which comprised 22 percent of the Company's total revenue for the year.

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•
Total loans increased by $741 million, or 13 percent, to $6.3 billion at December 31, 2025 compared to $5.5 billion at December 31, 2024.

•
At December 31, 2025, total C&I loans (including equipment finance loans) comprised 44 percent of the total loan portfolio.

•
Total deposits increased by $460 million, or 8 percent, to $6.6 billion at December 31, 2025 compared to $6.1 billion at December 31, 2024.

•
Noninterest-bearing demand deposits inc

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