PEAPACK GLADSTONE FINANCIAL CORP - Quarter Report: 2010 September (Form 10-Q)

form10q-111305_pgfc.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-16197

PEAPACK-GLADSTONE FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

New Jersey	22-3537895
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

500 Hills Drive, Suite 300

Bedminster, New Jersey 07921-1538

(Address of principal executive offices, including zip code)

(908) 234-0700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer ___		Accelerated filer X
Non-accelerated filer (do not check if a smaller reporting company)__		Smaller reporting company __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes__ No X.

Number of shares of Common Stock outstanding as of November 1, 2010:

8,788,327

PEAPACK-GLADSTONE FINANCIAL CORPORATION

PART 1 FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited):
	Consolidated Statements of Condition September 30, 2010 and
	December 31, 2009	Page 3
	Consolidated Statements of Income for the three and nine months
	ended September 30, 2010 and 2009	Page 4
	Consolidated Statement of Changes in Shareholders’ Equity
	for the nine months ended September 30, 2010 and 2009	Page 5
	Consolidated Statements of Cash Flows for the nine months
	ended September 30, 2010 and 2009	Page 6
	Notes to Consolidated Financial Statements	Page 7
Item 2	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	Page 23
Item 3	Quantitative and Qualitative Disclosures about Market Risk	Page 37
Item 4	Controls and Procedures	Page 37

PART 2 OTHER INFORMATION

Item 1A	Risk Factors	Page 38
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	Page 39
Item 6	Exhibits	Page 39

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Item 1. Financial Statements (Unaudited)

PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in thousands)

(Unaudited)

	September 30,			December 31,
	2010			2009
ASSETS
Cash and due from banks	$	9,935		$	7,864
Federal funds sold		100			201
Interest-earning deposits		84,566			71,907
Total cash and cash equivalents		94,601			79,972

Investment securities held to maturity (approximate fair
value $101,758 in 2010 and $87,827 in 2009)		102,032			89,459
Securities available for sale		246,334			272,484
FHLB and FRB Stock, at cost		4,623			5,315

Loans		944,391			983,537
Less: Allowance for loan losses		14,025			13,192
Net Loans		930,366			970,345

Premises and equipment		33,901			27,911
Other real estate owned		1,000			360
Accrued interest receivable		4,594			4,444
Cash surrender value of life insurance		26,877			26,292
Deferred tax assets, net		23,903			23,522
Other assets		12,030			12,249
TOTAL ASSETS	$	1,480,261		$	1,512,353

LIABILITIES
Deposits:
Noninterest-bearing demand deposits	$	219,700		$	216,127
Interest-bearing deposits:
Checking		255,665			255,058
Savings		78,819			73,866
Money market accounts		525,264			458,303
Certificates of deposit $100,000 and over		85,703			147,138
Certificates of deposit less than $100,000		155,268			199,177
Total deposits		1,320,419			1,349,669
Federal Home Loan Bank advances		24,234			36,499
Capital lease obligation		6,226			-
Accrued expenses and other liabilities		11,903			6,676
TOTAL LIABILITIES		1,362,782			1,392,844

SHAREHOLDERS’ EQUITY *
Preferred stock (no par value; authorized 500,000 shares; issued 21,513
shares at September 30, 2010 and 28,685 at December 31, 2009;
liquidation preference of $1,000 per share)		20,689			27,359
Common stock (no par value; $0.83 per share; authorized 21,000,000
shares; issued shares, 9,196,505 at September 30, 2010 and 9,131,666
at December 31, 2009; outstanding shares, 8,788,327 at September
30, 2010 and 8,723,488 at December 31, 2009)		7,647			7,593
Surplus		95,416			95,021
Treasury stock at cost, 408,178 shares at September 30, 2010 and
408,178 shares at December 31, 2009		(8,988	)		(8,988	)
Retained earnings		3,581			471
Accumulated other comprehensive loss, net of income tax		(866	)		(1,947	)
TOTAL SHAREHOLDERS’ EQUITY		117,479			119,509
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	1,480,261		$	1,512,353

* Share data reflects the five percent common stock dividend declared on June 18, 2009, and issued August 3, 2009 to shareholders of record on July 9, 2009.

See accompanying notes to consolidated financial statements.

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PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
INTEREST INCOME
Interest and fees on loans	$	12,455		$	13,502		$	38,186		$	41,764
Interest on investment securities:
Taxable		482			421			1,538			933
Tax-exempt		103			237			367			695
Interest on securities available for sale:
Taxable		1,748			2,041			5,607			5,955
Tax-exempt		136			153			415			492
Interest-earning deposits		50			25			102			44
Total interest income		14,974			16,379			46,215			49,883
INTEREST EXPENSE
Interest on savings and interest-bearing deposit
accounts		1,326			1,598			4,446			4,701
Interest on certificates of deposit over $100,000		374			909			1,298			3,423
Interest on other time deposits		612			1,286			2,108			4,500
Interest on borrowed funds		223			336			838			1,035
Interest on capital lease obligation		77			-			128			-
Total interest expense		2,612			4,129			8,818			13,659
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES		12,362			12,250			37,397			36,224
Provision for loan losses		2,000			2,750			7,150			6,750

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		10,362			9,500			30,247			29,474
OTHER INCOME
Trust department income		2,254			2,200			7,303			7,082
Service charges and fees		709			609			2,057			1,812
Bank owned life insurance		228			240			644			668
Securities gains/(losses), net		126			(2	)		128			111
Other-than-temporary impairment charge on equity securities		(360	)		-			(360	)		-
Other income		266			288			709			754
Total other income		3,223			3,335			10,481			10,427
OPERATING EXPENSES
Salaries and employee benefits		5,647			5,622			17,060			16,585
Premises and equipment		2,416			2,185			7,376			6,444
Other expenses		2,823			3,133			7,985			8,629
Total operating expenses		10,886			10,940			32,421			31,658
INCOME BEFORE INCOME TAX EXPENSE		2,699			1,895			8,307			8,243
Income tax expense		793			583			2,520			2,519
NET INCOME		1,906			1,312			5,787			5,724
Dividends on preferred stock and accretion		326			430			1,360			1,063
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS	$	1,580		$	882		$	4,427		$	4,661
EARNINGS PER COMMON SHARE *
Basic	$	0.18		$	0.10		$	0.50		$	0.53
Diluted	$	0.18		$	0.10		$	0.50		$	0.53
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Basic		8,786,782			8,716,346			8,783,083			8,713,931
Diluted		8,866,731			8,774,671			8,857,588			8,774,382

* Share data reflects the five percent common stock dividend declared on June 18, 2009, and issued August 3, 2009 to shareholders of record on July 9, 2009.

See accompanying notes to consolidated financial statements.

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PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

Nine Months Ended September 30, 2010

															Accumulated
															Other
(In Thousands, Except	Common		Preferred						Treasury			Retained			Comprehensive
Per Share Data)	Stock		Stock			Surplus			Stock			Earnings			Income/(Loss)			Total

Balance at January 1, 2010
8,723,488 Common Shares
Outstanding	$	7,593	$	27,359		$	95,021		$	(8,988	)	$	471		$	(1,947	)	$	119,509

Comprehensive Income:
Net Income 2010													5,787						5,787
Unrealized Holding Gains on
Securities Arising During the
Period, Net of Amortization
(Net of Income Tax
Expense of $633)																930
Less: Reclassification
Adjustment for Gain
Included in Net Income (Net
of Income Tax Expense
of $45)																83
Less: Reclassification
Adjustment for Other-Than-
Temporary impairment Charge
Included in Net Income (Net
of Income Tax Benefit
of $126)																(234	)
Net Unrealized Holding
Gains on Securities Arising
During the Period (Net of
Income Tax Expense
of $714)																1,081			1,081
Total Comprehensive Income																			6,868
Issuance of Restricted Stock		47					(47	)											-
Amortization of Restricted Stock							113												113
Redemption of Preferred Stock				(7,172	)														(7,172	)
Accretion of Discount on
Preferred Stock				502									(502	)					-
Cash Dividends Declared on
Common Stock													(1,317	)					(1,317	)
Cash Dividends Declared on
Preferred Stock													(858	)					(858	)
Common Stock Option Expense							228												228
Sales of Shares (Dividend
Reinvestment Program)		7					101												108
Balance at September 30, 2010
8,788,327 Common Shares
Outstanding	$	7,647	$	20,689		$	95,416		$	(8,988	)	$	3,581		$	(866	)	$	117,479

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PEAPACK-GLADSTONE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2010			2009
OPERATING ACTIVITIES:
Net income:	$	5,787		$	5,724
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,420			1,794
Amortization of premium and accretion of discount on securities, net		175			(21	)
Amortization of restricted stock		113			-
Provision for loan losses		7,150			6,750
Provision for other real estate owned losses		-			640
Provision for deferred taxes		(1,106	)		989
Tax benefit on stock option exercises		-			166
Stock-based compensation		228			230
Gains on security sales, available for sale		(128	)		(109	)
Gains on called securities, held to maturity		-			(2	)
Other-than-temporary impairment charge on equity securities		360			-
Loans originated for sale		(43,567	)		(39,008	)
Proceeds from sales of loans		44,046			39,541
Gains on loans sold		(479	)		(533	)
Gains on sale of other real estate owned		(4	)		(16	)
Loss on disposal of fixed assets		-			13
Increase in cash surrender value of life insurance, net		(585	)		(607	)
Increase in accrued interest receivable		(150	)		(1,242	)
Decrease/(increase) in other assets		219			(7,044	)
Increase/(decrease) in accrued expenses and other liabilities		5,358			(1,588	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		19,837			5,677
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities		17,123			7,376
Proceeds from maturities of securities available for sale		29,202			29,282
Proceeds from calls of investment securities		48,158			759
Proceeds from calls of securities available for sale		143,219			900
Proceeds from sales of securities available for sale		10,016			538
Purchase of investment securities		(77,943	)		(43,806	)
Purchase of securities available for sale		(154,109	)		(104,198	)
Net increase/(decrease) in loans		31,829			41,155
Proceeds from sales of other real estate owned		364			262
Purchases of premises and equipment		(2,313	)		(2,884	)
Disposal of premises and equipment		-			2
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES		45,546			(70,614	)
FINANCING ACTIVITIES:
Net (decrease)/increase in deposits		(29,250	)		87,970
Net decrease in other borrowings		-			(15,250	)
Repayments of Federal Home Loan Bank advances		(12,265	)		(2,933	)
Gross proceeds from preferred stock and warrants		-			28,685
Redemption of preferred stock		(7,172	)		-
Issuance costs of preferred stock		-			(112	)
Cash dividends paid on preferred stock		(858	)		(860	)
Cash dividends paid on common stock		(1,317	)		(3,069	)
Exercise of stock options		-			1,108
Sales of shares (DRIP Program)		108			22
Increase in treasury shares associated with common stock options
exercised/purchase of treasury shares		-			(1,094	)
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES		(50,754	)		94,467
Net (decrease)/increase in cash and cash equivalents		14,629			29,530
Cash and cash equivalents at beginning of period		79,972			26,889
Cash and cash equivalents at end of period	$	94,601		$	56,419
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	9,310		$	14,856
Income taxes		4,039			3,993
Transfer of loans to other real estate owned		1,000			355
Acquisition of leased premises		6,097			-
See accompanying notes to consolidated financial statements.

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PEAPACK-GLADSTONE FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Certain information and footnote disclosures normally included in the unaudited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the period ended December 31, 2009 for Peapack-Gladstone Financial Corporation (the “Corporation”).

Principles of Consolidation: The Corporation considers that all adjustments necessary for a fair presentation of the statement of the financial position and results of operations in accordance with U.S. generally accepted accounting principles for these periods have been made. Results for such interim periods are not necessarily indicative of results for a full year.

The consolidated financial statements of Peapack-Gladstone Financial Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly owned subsidiary, Peapack-Gladstone Bank. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Securities: Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

For declines in the fair value of securities below their cost that are other-than-temporary, the amount of impairment is split into two components – other-than-temporary impairment related to other factors, which is recognized in other comprehensive income and other-than-temporary impairment related to credit loss, which must be recognized in the income statement. 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. In estimating other-than-temporary losses on a quarterly basis, management considers the length of time and extent that fair value has been less than cost; the financial condition and near-term prospects of the issuer; and whether the Corporation has the intent to sell these securities or it is likely that it will be required to sell the securities before their anticipated recovery.

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Allowance for Loan Losses: The allowance for loan losses is maintained at a level considered adequate to provide for probable incurred loan losses inherent in the Corporation’s loan portfolio. The allowance is based on management’s evaluation of the loan portfolio considering economic conditions, the volume and nature of the loan portfolio, historical loan loss experience and individual credit situations. The allowance is increased by provisions charged to expense and reduced by charge-offs net of recoveries.

Management, considering current information and events regarding the borrowers’ ability to repay their obligations, considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of impairment is measured based on the fair value of the collateral, if collateral dependent, or on the present value of future cash flows. Impairment losses are included in the allowance for loan losses through provisions charged to operations. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

Stock Option Plans: The Corporation has stock option plans that allow the granting of shares of the Corporation’s common stock as incentive stock options, nonqualified stock options, restricted stock awards and stock appreciation rights to directors, officers, employees and independent contractors of the Corporation and its subsidiaries. The options granted under these plans are exercisable at a price equal to the fair market value of common stock on the date of grant and expire not more than ten years after the date of grant. Stock options may vest during a period of up to five years after the date of grant.

For the three months ended September 30, 2010 and 2009, the Corporation recorded total compensation cost for share-based payment arrangements of $76 thousand and $77 thousand respectively, with a recognized tax benefit of $12 thousand for the quarter ended September 30, 2010 and $6 thousand for the September 30, 2009 quarter. For the nine months ended September 30, 2010 and 2009, the Corporation recorded total compensation cost for share-based payment arrangements of $228 thousand and $230 thousand, respectively, with a recognized tax benefit of $37 thousand for the nine months ended September 30, 2010 and $19 thousand for the nine months ended September 30, 2009.

There was approximately $942 thousand of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Corporation’s stock incentive plans at September 30, 2010. That cost is expected to be recognized over a weighted average period of 1.7 years.

For the Corporation’s stock option plans, changes in options outstanding during the nine months ended September 30, 2010 were as follows:

	Number			Exercise		Weighted		Aggregate
	of			Price		Average		Intrinsic
(Dollars in thousands except share data)	Shares			Per Share		Exercise Price		Value
Balance, January 1, 2010		557,882		$	11.91-$31.60	$	24.86
Granted		66,900			10.83-15.49		13.41
Forfeited		(40,460	)		13.43-31.60		23.16
Balance, September 30, 2010		584,322		$	10.83-$31.43	$	23.67	$	-
Vested and Expected to Vest (1)		571,617		$	10.83-$31.43	$	23.80	$	-
Exercisable at September 30, 2010		449,879		$	12.97-$31.43	$	25.13	$	-

(1)

Does not include shares which are not expected to vest as a result of anticipated forfeitures.

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The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of the third quarter of 2010 and the exercise price, multiplied by the number of in-the-money options). The Corporation’s closing stock price on September 30, 2010, was $11.78; therefore, there was almost no intrinsic value in the stock options outstanding at that date.

There were no stock options exercised during the nine months ended September 30, 2010; however, the aggregate intrinsic value of options exercised during the nine months ended September 30, 2009 was $230 thousand.

The per share weighted-average fair value of stock options granted during the first nine months of 2010 and 2009 for all plans was $7.88 and $8.43, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

	2010			2009
Dividend yield		1.30	%		2.35	%
Expected volatility		72	%		51	%
Expected life	7 years			7 years
Risk-free interest rate		2.92	%		2.30	%

Earnings per Common Share – Basic and Diluted: The following is a reconciliation of the calculation of basic and diluted earnings per share. Basic net income per common share is calculated by dividing net income to common shareholders by the weighted average common shares outstanding during the reporting period. Diluted net income per common share is computed similarly to that of basic net income per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally stock options, were issued during the reporting period utilizing the Treasury stock method.

All share and per share amounts have been restated to reflect the five percent stock dividend declared on June 18, 2009. The Corporation recorded the dividend at the fair value of the stock issued. The Corporation did not have sufficient retained earnings to fully record the fair value and charged $346 thousand to surplus.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In Thousands, except per share data)	2010		2009		2010		2009

Net Income to Common Shareholders	$	1,580	$	882	$	4,427	$	4,661

Basic Weighted-Average Common
Shares Outstanding		8,786,782		8,716,346		8,783,083		8,713,931
Plus: Common Stock Equivalents		79,949		58,325		74,505		60,451
Diluted Weighted-Average Common
Shares Outstanding		8,866,731		8,774,671		8,857,588		8,774,382
Net Income Per Common Share
Basic	$	0.18	$	0.10	$	0.50	$	0.53
Diluted		0.18		0.10		0.50		0.53

Stock options and warrants with an exercise price below the Corporation’s market price equal to 754,457 and 642,898 shares were not included in the computation of diluted earnings per share in the third quarters of 2010 and 2009, respectively, because they were antidilutive to the earnings per share calculation. Stock options and warrants with an exercise price below the Corporation’s market price equal to 737,441 and 625,266 shares were not included in the computation of diluted earnings per share in the nine months ended September 30, 2010 and 2009, respectively, because they were antidilutive to the earnings per share calculation.

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Income Taxes: The Corporation files a consolidated Federal income tax return and separate state income tax returns for each subsidiary based on current laws and regulations.

The Corporation is no longer subject to examination by the U.S. Federal tax authorities for years prior to 2007 or by New Jersey tax authorities for years prior to 2005.

The Corporation recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other expense. The Corporation did not have any amounts accrued for interest and penalties at September 30, 2010.

Comprehensive Income: Comprehensive income consists of net income and the change during the period in the Corporation’s net unrealized gains and losses on securities available for sale during the applicable period of time less adjustments for realized gains and losses and net amortization of the unrealized loss on securities transferred to held to maturity from available for sale. Total comprehensive income for the third quarter of 2010 was $2.1 million as compared to total comprehensive income of $3.7 million for the same quarter in 2009. Total comprehensive income for the nine months ended September 30, 2010 was $6.9 million and the total comprehensive income for the same period in 2009 was $8.9 million.

Reclassification: Certain reclassifications have been made in the prior periods’ financial statements in order to conform to the 2010 presentation.

2. LOANS

Loans outstanding as of September 30, 2010 and December 31, 2009 consisted of the following:

			% of					% of
	September 30,		Total			December 31,		Total
(Dollars in thousands)	2010		Loans			2009		Loans
Residential mortgage	$	425,315		45.0	%	$	452,641		46.0	%
Commercial mortgage		280,486		29.7			279,595		28.4
Commercial loans		128,220		13.6			120,554		12.3
Construction loans		39,989		4.2			64,816		6.6
Home equity lines of credit		45,345		4.8			38,728		3.9
Consumer loans, including
fixed rate home equity loans		22,410		2.4			25,638		2.6
Other loans		2,626		0.3			1,565		0.2
Total loans	$	944,391		100.0	%	$	983,537		100.0	%

The following table presents the types of nonperforming loans at September 30, 2010 and December 31, 2009. Nonperforming loans of $17.5 million at September 30, 2010 and $11.3 million at December 31, 2009 are considered and included in impaired loans, for the same respective periods.

	September 30,		Number of		December 31,		Number of
(Dollars in thousands)	2010		Relationships		2009		Relationships
Residential Mortgage	$	4,707		12	$	2,567		9
Commercial Mortgage		2,900		8		2,195		5
Commercial Loans		1,560		8		1,698		4
Construction Loans		8,725		2		5,035		1
Home Equity Lines of Credit		85		1		85		1
Consumer Loans		-		-		172		1
Total	$	17,977		31	$	11,752		21

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The following table presents the types of troubled debt restructured loans at September 30, 2010 and December 31, 2009. The commercial mortgage troubled debt restructured loans of $7.1 million at September 30, 2010 are all considered and included in impaired loans at September 30, 2010. At September 30, 2010 the troubled debt restructured loans had specific reserves of $360 thousand. The commercial mortgage troubled debt restructured loans of $6.9 million at December 31, 2009 are all considered and included in impaired loans at December 31, 2009. All troubled debt restructured loans were paying in accordance with restructured terms as of September 30, 2010 and December 31, 2009.

	September 30,		Number of		December 31,		Number of
(Dollars in thousands)	2010		Relationships		2009		Relationships
Residential Mortgage	$	3,499		15	$	4,186		17
Commercial Mortgage		7,140		3		6,937		2
Total	$	10,639		18	$	11,123		19

The following table presents the types of impaired loans at September 30, 2010 and December 31, 2009. Impaired loans include non-performing loans of $17.5 million at September 30, 2010 and $11.3 million at December 31, 2009. Impaired loans also include commercial mortgage troubled debt restructured loans of $7.1 million at September 30, 2010 and $6.9 million at December 31, 2009.

	September 30,		Number of			December 31,		Number of
(Dollars in thousands)	2010		Relationships			2009		Relationships
Residential Mortgage	$	4,707		12		$	2,479		8
Commercial Mortgage		18,998		15			21,382		10
Commercial Loans		4,014		8			5,426		12
Construction Loans		8,725		2			17,437		2
Home Equity Lines of Credit		85		1			85		1
Total	$	36,529		38	(1)	$	46,809		33
Specific Reserves, Included
in the Allowance for Loan
Losses	$	2,119				$	2,064

(1)

There are a total of 35 impaired relationships; however, several borrowers have multiple types of loans.

As of September 30, 2010, impaired loans totaling $26.5 million have no specific reserves, while impaired loans totaling $10.0 have specific reserves of $2.1 million. At December 31, 2009, impaired loans totaling $35.7 million have no specific reserves, while impaired loans totaling $11.1 million have specific reserves of $2.1 million.

All troubled debt restructured loans and impaired loans are valued under Accounting by Creditors for Impairment of a Loan, codified as ASC 310.

The majority of problem loans are secured by real estate which has declined in value.

The Corporation has not made nor invested in subprime loans or “Alt-A” type mortgages.

For additional information on non-performing loans and information on the allowance for loan losses, see Management’s Discussion and Analysis, “Non-Performing Assets” and “Provision for Loan Losses.”

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3. INVESTMENT SECURITIES HELD TO MATURITY

A summary of amortized cost and approximate fair value of investment securities held to maturity included in the consolidated statements of condition as of September 30, 2010 and December 31, 2009 follows:

	September 30, 2010
			Gross		Gross			Approximate
	Carrying		Unrecognized		Unrecognized			Fair
(In Thousands)	Amount		Gains		Losses			Value
U.S. Government-Sponsored Agencies	$	13,825	$	31	$	-		$	13,856
Mortgage-Backed Securities -
Residential		60,805		1,175		(66	)		61,914
State and Political Subdivisions		17,553		276		(15	)		17,814
Trust Preferred Pooled Securities		9,849		-		(1,675	)		8,174
Total	$	102,032	$	1,482	$	(1,756	)	$	101,758

	December 31, 2009
			Gross		Gross			Approximate
	Carrying		Unrecognized		Unrecognized			Fair
(In Thousands)	Amount		Gains		Losses			Value
U.S. Government-Sponsored Agencies	$	16,200	$	13	$	(117	)	$	16,096
Mortgage-Backed Securities -
Residential		42,538		325		(18	)		42,845
State and Political Subdivisions		20,646		361		-			21,007
Trust Preferred Pooled Securities		10,075		-		(2,196	)		7,879
Total	$	89,459	$	699	$	(2,331	)	$	87,827

The following tables present the Corporation’s investment securities held to maturity with continuous unrealized losses and the approximate fair value of these investments as of September 30, 2010 and December 31, 2009.

	September 30, 2010
						Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer					Total
	Approximate					Approximate					Approximate
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-Backed
Securities -
Residential	$	14,236	$	(66	)	$	-	$	-		$	14,236	$	(66	)
State & Political
Subdivisions		7,384		(15	)		-		-			7,384		(15	)
Trust Preferred
Pooled Securities		-		-			1,764		(1,675	)		1,764		(1,675	)
Total	$	21,620	$	(81	)	$	1,764	$	(1,675	)	$	23,384	$	(1,756	)

	December 31, 2009
						Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer					Total
	Approximate					Approximate					Approximate
	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Government-
Sponsored
Agencies	$	11,084	$	(117	)	$	-	$	-		$	11,084	$	(117	)
Mortgage-Backed
Securities -
Residential		9,633		(16	)		19		(2	)		9,652		(18	)
Trust Preferred
Pooled Securities		1,258		(2,196	)		-		-			1,258		(2,196	)
Total	$	21,975	$	(2,329	)	$	19	$	(2	)	$	21,994	$	(2,331	)

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The trust preferred pooled securities within the Corporation’s held to maturity investment portfolio are collateralized by trust preferred securities issued primarily by individual bank holding companies, but also by insurance companies and real estate investment trusts. There has been little or no active trading in these securities for a period of time; therefore the Corporation believes in most cases it is more appropriate to determine fair value using discounted cash flow analysis. As of December 31, 2008, to determine fair value, and determine whether the securities were other-than-temporarily impaired, the Corporation retained and worked with a third party to review the issuers (the collateral) underlying each of the securities. Among the factors analyzed were the issuers’ profitability, credit quality, asset mix, capital adequacy, leverage and liquidity position, as well as an overall assessment of credit, profitability and capital trends within the portfolio’s issuer universe. These factors provided an assessment of the portion of the collateral of each security which was likely to default in future periods. The cash flows associated with the collateral likely to default, together with the cash flows associated with collateral which had already deferred or defaulted, were then eliminated. In addition, the Corporation assumed constant rates of default in excess of those based upon the historic performance of the underlying collateral. The resulting cash flows were then discounted to the current period to determine fair value for each security. The discount rate utilized was based on a risk-free rate (LIBOR) plus spreads appropriate for the product, which include consideration of liquidity and credit uncertainty.

During 2009, to periodically assess the credit assumptions and related input data that could affect the fair value of each security, each quarter management compared actual deferrals and defaults to the assumed deferrals and defaults included in the valuation model. Throughout 2009, actual deferrals and defaults were in line with assumptions.

In periods prior to the fourth quarter of 2008, the Corporation used a constant rate of default derived from the historic performance of the underlying collateral to assess other-than-temporary impairment. Based on information available as of November 7, 2008, when the September 30, 2008 Form 10-Q was filed, management expected the securities to return 100 percent of their principal and interest. At that time, over 91 percent of the Corporation’s trust preferred pooled securities still carried investment grade ratings. As noted in a December 30, 2008 Press Release and Form 8-K, it was not until November 12, 2008 that Moody’s downgraded 180 tranches of 44 trust preferred pooled securities including many of the securities held by the Corporation. Additionally, Moody’s placed most of the Corporation’s remaining investment grade trust preferred pooled securities on credit watch for possible future downgrade. The market value of these securities continued to sharply decline during the quarter as the liquidity in the debt markets dropped to unprecedented levels. At that time, the Corporation did not believe the market values would recover within the foreseeable future. The number of notices of deferral and default by the underlying institutions accelerated during this period. As a result, in the fourth quarter of 2008 the Corporation chose to employ the valuation methodology set forth in the preceding paragraphs to assess fair value and other-than-temporary impairment with respect to the pooled trust preferred securities. Other-than-temporary impairment charges of $56.1 million were recognized for the fourth quarter of 2008.

As of December 31, 2009, the Corporation again worked with a third party to model each security and review its valuation. The modeling process and related assumptions were similar to the process and related assumptions employed as of December 31, 2008. As a result of this process no additional impairment charges were recorded for the year ended December 31, 2009.

During 2010, to periodically assess the credit assumptions and related input data that could affect the fair value of each security, each quarter management compared actual deferrals and defaults to the assumed deferrals and defaults included in the valuation model. Throughout the first nine months of 2010, actual deferrals and defaults were in line with assumptions.

Further significant downturns in the real estate markets and/or the economy could cause additional issuers to defer paying dividends on these securities and/or ultimately default; however, the Corporation has already recorded a substantial write-down of its trust preferred pooled securities portfolio. Such occurrences, if beyond those assumed in the current valuation, could cause an additional write-down of the portfolio, with a negative impact on earnings. We do not expect that an additional write-down would have a material effect on the cash flows from the securities or on our liquidity position.

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Management has determined that any unrecognized losses on the mortgage-backed securities and state or municipal securities held to maturity at September 30, 2010, are temporary and due to interest rate fluctuations and/or volatile market conditions, rather than the creditworthiness of the issuers. The Corporation monitors creditworthiness of issuers periodically, including issuers of trust preferred securities on a quarterly basis. The Corporation does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.

4. INVESTMENT SECURITIES AVAILABLE FOR SALE

A summary of amortized cost and approximate fair value of securities available for sale included in the consolidated statements of condition as of September 30, 2010 and December 31, 2009 follows:

	September 30, 2010

			Gross		Gross			Approximate
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
U.S. Government-Sponsored
Agencies	$	67,965	$	364	$	-		$	68,329
Mortgage-Backed Securities -
Residential		151,104		4,970		(464	)		155,610
State and Political Subdivisions		17,689		626		(10	)		18,305
Other Securities		3,998		-		(1,019	)		2,979
Marketable Equity Securities		1,113		4		(6	)		1,111
Total	$	241,869	$	5,964	$	(1,499	)	$	246,334

	December 31, 2009

			Gross		Gross			Approximate
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
U.S. Government Sponsored
Agencies	$	129,748	$	353	$	(117	)	$	129,984
Mortgage-Backed Securities -
Residential		113,926		4,114		(576	)		117,464
State and Political Subdivisions		18,830		304		(61	)		19,073
Other Securities		3,998		-		(952	)		3,046
Marketable Equity Securities		3,296		80		(459	)		2,917
Total	$	269,798	$	4,851	$	(2,165	)	$	272,484

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The following tables present the Corporation’s available for sale securities with continuous unrealized losses and the approximate fair value of these investments as of September 30, 2010 and December 31, 2009.

	September 30, 2010
						Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer					Total
	Approximate					Approximate					Approximate
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Mortgage-Backed
Securities -
Residential	$	38,536	$	(208	)	$	2,937	$	(256	)	$	41,473	$	(464	)
State and Political
Subdivisions		-		-			470		(10	)		470		(10	)
Other Securities		-		-			2,979		(1,019	)		2,979		(1,019	)
Marketable Equity
Securities		-		-			883		(6	)		883		(6	)
Total	$	38,536	$	(208	)	$	7,269	$	(1,291	)	$	45,805	$	(1,499	)

	December 31, 2009
						Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer					Total
	Approximate					Approximate					Approximate
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Government-
Sponsored Agencies	$	34,170	$	(117	)	$	-	$	-		$	34,170	$	(117	)
Mortgage-Backed
Securities -
Residential		5,388		(69	)		7,118		(507	)		12,506		(576	)
State and Political
Subdivisions		980		(6	)		720		(55	)		1,700		(61	)
Other Securities		-		-			2,046		(952	)		2,046		(952	)
Marketable Equity
Securities		-		-			1,508		(459	)		1,508		(459	)
Total	$	40,538	$	(192	)	$	11,392	$	(1,973	)	$	51,930	$	(2,165	)

Management believes that the unrealized losses on the mortgage-backed securities, securities of state and political subdivisions and other securities available for sale are temporary and due to interest rate fluctuations and/or volatile market conditions rather than the creditworthiness of the issuers. The Corporation does not intend to sell these securities nor is it likely it will be required to sell the securities before their anticipated recovery. At September 30, 2010, the unrealized loss on the other securities is related to two trust preferred securities. One, which was issued by a large bank holding company, has been affected by the turmoil in the financial markets and a merger that resulted in sharp declines in all of its securities. The security continues to be rated investment grade by Moody’s. Additionally, at September 30, 2010, the fair value of this security has improved from the fair value at December 31, 2009. The other security is a single issuer trust preferred that has not been rated by a rating agency; however, Management has reviewed recent financial information for the company and based on such information Management believes the company is financially stable and well capitalized. Neither security is currently considered other-than-temporarily impaired.

At September 30, 2010, Management reviewed the unrealized losses on its marketable equity securities and determined it was necessary to record an other-than-temporary, noncash impairment charge of $360 thousand on seven equities that had a book value in excess of fair value for an extended period of time.

5. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Advances from the Federal Home Loan Bank of New York (FHLB) totaled $24.2 million and $36.5 million at September 30, 2010 and December 31, 2009, respectively, with a weighted average interest rate of 3.50 percent and 3.59 percent, respectively. Advances totaling $4.0 million at September 30, 2010, have fixed maturity dates, while advances totaling $1.2 million were amortizing advances with monthly payments of principal and interest. These advances are secured by blanket pledges of certain 1-4 family residential mortgages totaling $100.8 million at September 30, 2010.

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At September 30, 2010, the Corporation had $19.0 million in fixed rate advances that were initially noncallable for one, two or three years and then callable quarterly within final maturities of three to ten years. These advances are secured by pledges of investment securities totaling $23.6 million at September 30, 2010.

There were no overnight borrowings at September 30, 2010 or at December 31, 2009. There were no average overnight borrowings from the FHLB for the nine months ended September 30, 2010, while overnight borrowings averaged $692 thousand with a weighted average interest rate of 0.48 percent for the nine months ended September 30, 2009.

The final maturity dates of the advances and other borrowings are scheduled as follows:

(In thousands)
2010		-
2011		3,000
2012		5,000
2013		1,234
2014		-
Over 5 years		15,000
Total	$	24,234

6. BUSINESS SEGMENTS

The Corporation assesses its results among two operating segments, Banking and PGB Trust and Investments. Management uses certain methodologies to allocate income and expense to the business segments. A funds transfer pricing methodology is used to assign interest income and interest expense. Certain indirect expenses are allocated to segments. These include support unit expenses such as technology and operations and other support functions. Taxes are allocated to each segment based on the effective rate for the period shown.

Banking

The Banking segment includes commercial, commercial real estate, residential and consumer lending activities; deposit generation; operation of ATMs; telephone and internet banking services; merchant credit card services and customer support and sales.

PGB Trust & Investments

PGB Trust & Investments includes asset management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; corporate trust services including services as trustee for pension and profit sharing plans; and other financial planning and advisory services.

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The following table presents the statements of income and total assets for the Corporation’s reportable segments for the three months ended September 30, 2010 and 2009.

	Three Months Ended September 30, 2010
(in thousands)			PGB Trust
	Banking		& Investments		Total
Net interest income	$	11,582	$	780	$	12,362
Noninterest income		938		2,285		3,223
Total income		12,520		3,065		15,585

Provision for loan losses		2,000		-		2,000
Salaries and benefits		4,669		978		5,647
Premises and equipment expense		2,234		182		2,416
Other noninterest expense		1,986		837		2,823
Total noninterest expense		10,889		1,997		12,886
Income before income tax expense		1,631		1,068		2,699
Income tax expense		545		248		793
Net income	$	1,086	$	820	$	1,906

	Three Months Ended September 30, 2009
(in thousands)			PGB Trust
	Banking		& Investments		Total
Net interest income	$	11,514	$	736	$	12,250
Noninterest income		1,088		2,247		3,335
Total income		12,602		2,983		15,585

Provision for loan losses		2,750		-		2,750
Salaries and benefits		4,509		1,113		5,622
Premises and equipment expense		1,999		186		2,185
Other noninterest expense		2,357		776		3,133
Total noninterest expense		11,615		2,075		13,690
Income before income tax expense		987		908		1,895
Income tax expense		303		280		583
Net income	$	684	$	628	$	1,312

The following table presents the statements of income and total assets for the Corporation’s reportable segments for the nine months ended September 30, 2010 and 2009.

	Nine Months Ended September 30, 2010
(in thousands)			PGB Trust
	Banking		& Investments		Total
Net interest income	$	35,176	$	2,221	$	37,397
Noninterest income		3,073		7,408		10,481
Total income		38,249		9,629		47,878

Provision for loan losses		7,150		-		7,150
Salaries and benefits		13,403		3,657		17,060
Premises and equipment expense		6,797		579		7,376
Other noninterest expense		5,594		2,391		7,985
Total noninterest expense		32,944		6,627		39,571
Income before income tax expense		5,305		3,002		8,307
Income tax expense		1,676		844		2,520
Net income	$	3,629	$	2,158	$	5,787

Total assets at period end	$	1,478,813	$	1,448	$	1,480,261

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	Nine Months Ended September 30, 2009
(in thousands)			PGB Trust
	Banking		& Investments		Total
Net interest income	$	33,943	$	2,281	$	36,224
Noninterest income		3,215		7,212		10,427
Total income		37,158		9,493		46,651

Provision for loan losses		6,750		-		6,750
Salaries and benefits		13,182		3,403		16,585
Premises and equipment expense		5,884		560		6,444
Other noninterest expense		6,534		2,095		8,629
Total noninterest expense		32,350		6,058		38,408
Income before income tax expense		4,808		3,435		8,243
Income tax expense		1,469		1,050		2,519
Net income	$	3,339	$	2,385	$	5,724

Total assets at period end	$	1,485,978	$	1,701	$	1,487,679

7. FAIR VALUE

The following methods and assumptions were used to estimate the fair value of significant financial instruments:

The carrying amount of cash, cash equivalents, interest-bearing deposits, Federal Home Loan Bank and Federal Reserve Bank stock and overnight borrowings is considered to be fair value. The carrying amount of deposits with no stated maturity, such as demand deposits, checking accounts, savings and money market accounts, is equal to fair value.

The fair value of securities is based upon market prices or dealer quotes. If no such information is available, fair value is based on the rate and term of the security and information about the issuer.

The fair value of loans is based on the estimated future cash flows discounted at market replacement rates for similar terms.

The fair value of certificates of deposit is based on the contractual future cash flows discounted at the current Federal Home Loan Bank advance rates for similar terms.

The fair value of FHLB Advances is based on the contractual future cash flows discounted at the current FHLB market rates for similar term advances.

The following table summarizes carrying amounts and fair values for financial instruments for the periods indicated:

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	September 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
(In Thousands)	Amount		Value		Amount		Value
Financial Assets:
Cash and Cash Equivalents	$	94,601	$	94,601	$	79,972	$	79,972
Investment Securities, Held to Maturity		102,032		101,758		89,459		87,827
Securities Available for Sale		246,334		246,334		272,484		272,484
Loans, Net of Allowance for
Loan Losses		930,366		934,166		970,345		974,143
Accrued Interest Receivable		4,594		4,594		4,444		4,444
Financial Liabilities:
Deposits		1,320,419		1,323,751		1,349,669		1,351,549
Capital Lease Obligation		6,226		6,226		-		-
Federal Home Loan Bank Advances		24,234		26,003		36,499		37,729
Accrued Interest Payable		827		827		1,447		1,447

Accounting guidance under ASC Section 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:

Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:

Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

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Assets Measured on a Recurring Basis

			Fair Value Measurements Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)
	September 30,
	2010
Assets:
Available for Sale:
U.S. Government-Sponsored
Agencies	$	68,329	$	-	$	68,329	$	-
Mortgage-Backed Securities -
Residential		155,610		-		155,610		-
State and Political Subdivisions		18,305		-		18,305		-
Other Securities		2,979		-		2,979		-
Marketable Equity Securities		1,111		1,111		-		-
Total	$	246,334	$	1,111	$	245,223	$	-

	December 31,
	2009
Assets:
Available for Sale:
U.S. Government-Sponsored
Agencies	$	129,984	$	-	$	129,984	$	-
Mortgage-Backed Securities -
Residential		117,464		-		117,464		-
State and Political Subdivisions		19,073		-		19,073		-
Other Securities		3,046		-		3,046		-
Marketable Equity Securities		2,917		2,917		-		-
Total	$	272,484	$	2,917	$	269,567	$	-

Assets Measured on a Non-Recurring Basis

			Fair Value Measurements Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
			(Level 1)		(Level 2)		(Level 3)
	September 30,
	2010
Assets:
Impaired Loans	$	7,860	$	-	$	-	$	7,860

	December 31,
	2009
Assets:

Impaired Loans	$	9,001	$	-	$	-	$	9,001

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The impaired loan balances were compared to current appraisals of the underlying collateral to determine the current fair value. Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $36.5 million, with a valuation allowance of $2.1 million at September 30, 2010. At December 31, 2009, impaired loans had a carrying amount of $46.8 million, with a valuation allowance of $2.1 million.

PREFERRED STOCK

On January 9, 2009, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”), the Corporation sold 28,685 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and a ten-year warrant to purchase up to 150,295 shares of the Corporation’s common stock, no par value at an exercise price of $28.63 per share, after adjusting for the five percent stock dividend declared on June 18, 2009, for an aggregate purchase price of $28.7 million in cash. The aggregate purchase price was allocated $1.6 million to warrants and $27.1 million to preferred stock.

Cumulative dividends on the Preferred Shares will accrue on the liquidation preference at a rate of 5 percent per annum for the first five years, and at a rate of 9 percent per annum thereafter. Subject to the approval of the Board of Governors of the Federal Reserve System, the Preferred Shares are redeemable at the option of the Corporation at 100 percent of their liquidation preference. If the Corporation redeems the Preferred Stock and the Treasury still owns the warrant, the Corporation could repurchase the Warrant from the Treasury for its fair market value. Unless both the holder and the Corporation agree otherwise, the exercise of the Warrant will be a net exercise (i.e., the holder does not pay cash but gives up shares with a market value at the time of exercise equal to the exercise price, resulting in a net settlement with significantly fewer than the 150,295 shares of Common Stock being issued).

The Securities Purchase Agreement, pursuant to which the Preferred Shares and the Warrant were sold, contains limitations on the payment of dividends on the Common Stock, including with respect to the payment of cash dividends in excess of $0.16 per share, which was the amount of the last regular dividend declared by the Corporation prior to October 14, 2008 and on the Corporation’s ability to repurchase its Common Stock. The Corporation is also subject to certain executive compensation limitations included in the Emergency Economic Stabilization Act of 2008 (the “EESA”).

On January 6, 2010, the Corporation redeemed 25 percent of the preferred shares issued under the Treasury’s CPP, repaying approximately $7.2 million to the Treasury, including accrued and unpaid dividends of approximately $51 thousand. The Corporation’s redemption of the shares was not subject to additional conditions or stipulations from the Treasury. As a result of the repurchase, the accretion related to the preferred stock was accelerated and approximately $330 thousand was recorded as a reduction to retained earnings in the first quarter of 2010.

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Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL: The following discussion and analysis 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 Corporation’s Form 10-K for the year ended December 31, 2009 and our subsequent Quarterly Reports on Form 10-Q and the following:

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.

The Corporation assumes no responsibility to update such forward-looking statements in the future. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the Corporation 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 Corporation’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 Corporation to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 to the Corporation’s Audited Consolidated Financial Statements for the year ended December 31, 2009, contains a summary of the Corporation’s significant accounting policies.

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Management believes that the Corporation’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, assumption 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 internal part of their examination process, periodically review the Corporation’s provision for loan losses. Such agencies may require the Corporation to make additional provisions for loan losses based upon information available to them at the time of their examination. Furthermore, the majority of the Corporation’s loans are secured by real estate in the State of New Jersey. Accordingly, the collectability of a substantial portion of the carrying value of the Corporation’s loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values continue to decline or New Jersey experiences continuing adverse economic conditions. Future adjustments to the provision for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Corporation’s control.

The Corporation accounts for its securities in accordance with “Accounting for Certain Investments in Debt and Equity Securities,” which was codified into ASC 320. Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity due to changes in interest rates, prepayment, risk, liquidity or other factors. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Securities are evaluated on at least a quarterly basis to determine whether a decline in their values is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and the duration of the decline and the intent and ability of the Corporation to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in the fair value. “Other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings or comprehensive income is recognized. The Corporation recognized other-than-temporary impairment charges of $360 thousand on several marketable equity securities in the three and nine months ended September 30, 2010 and no impairment charges in the same periods of 2009.

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EXECUTIVE SUMMARY: The Corporation recorded net income of $1.9 million for the third quarter of 2010 as compared to $1.3 million for the same quarter of 2009, an increase of $594 thousand, or 45.3 percent. Diluted earnings per common share, after giving effect for the preferred dividend, were $0.18 in the third quarter of 2010 as compared to $0.10 per diluted share for the same quarter of 2009. The increase in 2010 earnings per share was primarily due to increased net interest income and a decrease in the provision for loan losses, which was offset by an other-than-temporary impairment charge on a portfolio of equity securities. Annualized return on average assets for the quarter was 0.52 percent and annualized return on average common equity was 6.55 percent for the three months ended September 30, 2010.

Net interest income, on a fully tax-equivalent basis, was $12.5 million for both the third quarters of 2010 and 2009. The net interest margin, on a fully tax-equivalent basis, was 3.64 percent and 3.61 percent, for the three months ended September 30, 2010 and 2009, respectively.

For the third quarter of 2010, average loans equaled $949.3 million, declining $60.0 million or 5.9 percent from $1.01 billion for the third quarter of 2009. The yield on loans was 5.26 percent and 5.36 percent for the three months ended September 30, 2010 and 2009, respectively, reflecting a decline of ten basis points from the 2009 quarter to the 2010 quarter.

Average deposits rose $8.6 million or 0.7 percent over the levels of the third quarter of 2009 to $1.32 billion for the third quarter of 2010. Average costs of interest-bearing deposits were 0.84 percent and 1.37 percent in the three months ended September 30, 2010 and 2009, respectively, reflecting a decline of 53 basis points from the 2009 quarter to the 2010 quarter.

For the nine months ended September 30, 2010, the Corporation recorded net income of $5.8 million, an increase of $63 thousand or 1.1 percent when compared to net income of $5.7 million recorded for the same period 2009. Diluted earnings per common share, after giving effect for the preferred dividend, were $0.50 for the first nine months of 2010 as compared to $0.53 per diluted share for the same period of 2009. The 2010 nine-month period included increased net interest income, service charges and fees and income from the PGB Trust and Investment business. These increases were partially offset by an increase in the provision for loan losses, higher operating expenses and an increase in dividends on preferred stock and accretion due to the repayment of $7.2 million of preferred shares previously issued under the Treasury’s CPP. Annualized return on average assets was 0.52 percent and annualized return on average common equity was 6.24 percent for the nine months ended September 30, 2010.

For the nine months ended September 30, 2010, net interest income, on a fully tax-equivalent basis, was $37.9 million, an increase of $930 thousand or 2.5 percent, from the same period in 2009. The net interest margin, on a fully tax-equivalent basis, was 3.65 percent and 3.64 percent for the nine months ended September 30, 2010 and 2009, respectively.

Total loans averaged $963.8 million for the nine months ended September 30, 2010, declining $66.0 million or 6.4 percent from $1.03 billion for the same period of 2009. The yield on loans was 5.29 percent and 5.42 percent for the nine months ended September 30, 2010 and 2009, respectively, declining 13 basis points when comparing the 2009 year-to-date period to the 2010 year-to-date period.

Average deposits totaled $1.32 billion for the nine months ended September 30, 2010 as compared to $1.28 billion for the same period of 2009, rising $46.5 million or 3.6 percent from the 2009 period. Average costs of interest-bearing deposits were 0.94 percent and 1.56 percent in the nine months ended September 30, 2010 and 2009, respectively, reflecting a decline of 62 basis points from the 2009 period to the 2010 period.

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CONTRACTUAL OBLIGATIONS: For a discussion of our contractual obligations, see the information set forth in the Corporation’s 2009 Annual Report under the heading “Management’s Discussion and Analysis – Contractual Obligations” which is incorporated herein by reference.

OFF-BALANCE SHEET ARRANGEMENTS: For a discussion of our contractual obligations, see the information set forth in the Corporation’s 2009 Annual Report under the heading “Management’s Discussion and Analysis – Off-Balance Sheet Arrangements” which is incorporated herein by reference.

EARNINGS ANALYSIS

NET INTEREST INCOME: For the three months ended September 30, 2010 and 2009, the Corporation recorded net interest income, on a tax-equivalent basis, of $12.5 million. The net interest margin was 3.64 percent and 3.61 percent, for the third quarters of 2010 and 2009, respectively, reflecting an increase of three basis points. The Corporation continues to lower funding costs as certificates of deposits reprice at lower market rates or are transferred to other, lower-costing deposit products. At the same time, rates are lower on new investments and loans, compared to the rates of investments and loans that are maturing or paying down.

For the third quarter of 2010, average investments, federal funds sold and interest-earning deposits increased to $425.4 million from $377.0 million from the same period in 2009, reflecting an increase of $48.4 million or 12.8 percent. The growth in these categories is primarily the result of loan and mortgage-backed security principal pay downs which exceeded loan demand and, to a lesser extent, deposit inflows.

When compared to the third quarter of 2009, average loans declined $60.0 million, or 5.9 percent, averaging $949.3 million for the third quarter of 2010. Although the Corporation continues to originate mortgages to maintain in its portfolio, loan payments have outpaced originations, resulting in a decline in the average residential mortgage loan portfolio of $44.5 million or 9.4 percent when comparing the third quarters of 2010 and 2009. The commercial mortgage loan portfolio averaged $278.3 million and $273.0 million for the third quarters of 2010 and 2009, respectively, an increase of $5.3 million or 1.9 percent. For the third quarter of 2010, the commercial loan portfolios averaged $176.1 million, declining $24.4 million, or 12.2 percent compared to $200.5 million for the same quarter of 2009. The average home equity portfolio totaled $42.2 million and $36.2 million for the three months ended September 30, 2010 and 2009, respectively, an increase of $6.0 million or 16.7 percent. The Corporation has focused on the origination of these higher-yielding, shorter-maturity loans during the past year. The Corporation seeks to lend to quality borrowers in all loan categories; however, in the past year, loan demand from quality borrowers has been scarce and loan pay downs have outpaced originations in almost all categories.

Total deposits averaged $1.32 billion for the third quarter of 2010, increasing $8.6 million when compared to $1.31 billion for the same period in 2009. For the third quarters of 2010 and 2009, interest-bearing checking accounts averaged $259.8 million and $216.6 million, respectively, an increase of $43.2 million or 19.9 percent. Much of this growth in checking is due to the Ultimate Checking product, which provides customers with a low-cost checking product and a higher yield for larger balances. Non-interest bearing demand deposits averaged $211.4 million for the third quarter of 2010, an increase of $12.6 million, or 6.3 percent, when compared to the same quarter of 2009. Money market accounts increased $69.9 million to an average of $515.7 million for the third quarter of 2010 as compared to an average of $445.8 million for the same quarter in 2009. In a lower or uncertain interest rate environment, certain customers tend to deposit funds in money market accounts to wait for higher or a more certain rate environment, resulting in increases to the money market balances. Average savings accounts totaled $78.1 million for the three months ended September 30, 2010, rising $5.9 million or 8.2 percent since the same period of 2009. The Corporation continues to focus on core deposit growth. Certificates of deposit averaged $251.5 million and $374.5 million for the third quarters of 2010 and 2009, respectively, declining $123.0 million or 32.8 percent. The Corporation has opted not to pay higher rates on maturing certificates of deposit, resulting in the decline in this type of deposit.

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The Corporation believes it has ample liquidity from core deposits, principal pay downs on loans and maturing or called investments. Average borrowings at the Federal Home Loan Bank decreased $11.4 million to $25.5 million for the third quarter of 2010 as compared to the same period a year ago, as borrowings continue to mature and are not replaced.

Average yields on interest-earning assets, on a tax-equivalent basis, declined 40 basis points to 4.40 percent for the third quarter of 2010, from 4.80 percent for the same quarter of 2009. For the third quarter of 2010, average yields earned on investment securities declined 76 basis points to 3.02 percent as compared to the same quarter in the prior year. For the third quarters of 2010 and 2009, average yields on the loan portfolio were 5.26 percent and 5.36 percent, respectively, reflecting a 10 basis point decline.

The cost of funds, including the effect of noninterest-bearing demand deposits, was 0.78 percent and 1.23 percent for the third quarters of 2010 and 2009, respectively, decreasing 45 basis points. The average cost of interest-bearing deposits was 0.84 percent for the three months ended September 30, 2010, declining 53 basis points from the same period in 2009. The cost of money market products averaged 0.65 percent for the three months ended September 30, 2010, declining 34 basis points, while certificates of deposit costs averaged 1.57 percent, declining 77 basis points, each as compared to the same quarter of 2009.

The Corporation recorded net interest income, on a tax-equivalent basis, of $37.9 million for the nine months ended September 30, 2010, as compared to $37.0 million for the same period in 2009, an increase of $930 thousand or 2.5 percent. The net interest margin, on a fully tax-equivalent basis, was 3.65 percent and 3.64 percent, for the nine months ended September 30, 2010 and 2009, respectively, an increase of one basis point. The increase in net interest income is primarily the result of lower funding costs, including the run-off of higher-costing certificates of deposit partially offset by lower yields on assets and the run-off of higher yielding loan balances.

Average investments, federal funds sold and interest-earning deposits totaled $420.0 million for the nine months ended September 30, 2010, increasing $93.7 million or 28.7 percent. The growth in these categories is the result of deposit inflows and loan and mortgage-backed security principal pay downs which exceeded loan demand.

For the nine months ended September 30, 2010, loans averaged $963.8 million as compared to $1.03 billion for the same period of 2009, a decline of $66.0 million, or 6.4 percent. The average residential mortgage loan portfolio declined $50.0 million or 10.3 percent to $437.8 million, as the Corporation had opted to sell its longer-term, fixed-rate production as an interest rate risk management strategy in the lower rate environment and loan payments have outpaced originations put into the portfolio. The commercial mortgage loan portfolio averaged $280.0 million for the nine months ended September 30, 2010 as compared to $274.1 million for the same period of 2009, an increase of $5.9 million or 2.2 percent. For the nine months ended September 30, 2010 and 2009, the commercial loan portfolios averaged $180.2 million and $205.2 million, respectively, declining $25.0 million, or 12.2 percent. The average home equity portfolio totaled $40.7 million for the nine months ended September 30, 2010, an increase of $6.5 million or 19.0 percent, over the same period of 2009. As noted above, the Corporation has focused on the origination of these higher-yielding, shorter-maturity loans during the past year and loan demand has been scarce as loan pay downs have outpaced origination in almost all categories of loans.

For the nine months ended September 30, 2010, average deposits totaled $1.32 billion as compared to $1.28 billion for the same period in 2009, an increase of $46.5 million, or 3.6 percent. As the Corporation continues to focus on core deposit growth, average interest-bearing checking accounts, particularly the Ultimate Checking product, increased $58.0 million, or 30.1 percent from the nine months ended September 30, 2009, to $250.8 million for the same period of 2010. Average non-interest bearing demand deposits totaled $211.2 million for the nine months ended September 30, 2010, as compared to $196.2 million for the same period of 2009, an increase of $15.0 million or 7.7 percent. Average money market accounts grew $93.0 million, or 22.5 percent, to $507.1 million for the nine months ended September 30, 2010 as compared to the same period of 2009. Savings accounts averaged $76.5 million and $70.4 million for the nine months ended September 30, 2010 and 2009, respectively, increasing $6.1 million or 8.7 percent since the 2009 period. Certificates of deposit declined $125.6 million, or 31.2 percent, when compared to the nine months ended September 2009, to an average of $276.9 million for the same nine months of 2010. Higher costing certificates of deposit have declined since the Corporation has opted not to pay higher rates on maturing certificates of deposit, as the Corporation believes it has ample liquidity from core deposits and principal pay downs on loans. For the nine months ended September 30, 2010, average borrowings at the Federal Home Loan Bank totaled $31.4 million, a decline of $7.1 million, or 18.4 percent, as borrowings continue to mature.

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On a tax-equivalent basis, average yields on interest-earning assets declined 48 basis points to 4.50 percent for the nine months ended September 30, 2010, from 4.98 percent for the same period of 2009. For the nine months ended September 30, 2010, average yields earned on investment securities declined 105 basis points to 3.15 percent as compared to the same prior year period. Average yields on the loan portfolio were 5.29 percent for the first nine months of 2010 as compared to 5.42 percent for the same period of 2009, reflecting a 13 basis point decline.

The cost of funds, including the effect of noninterest-bearing demand deposits, was 0.87 percent and 1.38 percent for the nine months ended September 30, 2010 and 2009, respectively, decreasing 51 basis points. The average cost of interest-bearing deposits was 0.94 percent for the nine months ended September 30, 2010, declining 62 basis points from the same 2009 period. When compared to the 2009 year to date period, the cost of money market products declined 32 basis points to 0.78 percent for the nine months ended September 30, 2010, and certificates of deposit costs declined 98 basis points to 1.64 percent.

The effect of the declining rate environment on market rates and the Corporation’s repricing of its assets and liabilities contributed to the decline in yields and costs of the Corporation’s interest-bearing assets and liabilities.

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The following tables reflect the components of net interest income for the periods indicated:

Average Balance Sheet

Unaudited

Three Months Ended

(Tax-Equivalent Basis, Dollars in Thousands)

	September 30, 2010									September 30, 2009
	Average			Income/						Average			Income/
	Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earnings assets:
Investments:
Taxable (1)	$	314,213		$	2,230			2.84	%	$	275,325		$	2,462			3.58	%
Tax-exempt (1) (2)		32,545			384			4.72			51,853			626			4.84
Loans (2) (3)		949,301			12,473			5.26			1,009,348			13,521			5.36
Federal funds sold		193			-			0.22			201			-			0.20
Interest-earning deposits		78,501			50			0.26			49,639			25			0.20
Total interest-earning assets		1,374,753		$	15,137			4.40	%		1,386,366		$	16,634			4.80	%
Noninterest -earning assets:
Cash and due from banks		8,314									8,301
Allowance for loan losses		(14,180	)								(11,140	)
Premises and equipment		34,589									27,705
Other assets		70,056									58,157
Total noninterest-earning assets		98,779									83,023
Total assets	$	1,473,532								$	1,469,389

LIABILITIES:
Interest-bearing deposits:
Checking	$	259,816		$	409			0.63	%	$	216,646		$	405			0.75	%
Money markets		515,734			839			0.65			445,839			1,108			0.99
Savings		78,058			78			0.40			72,126			85			0.47
Certificates of deposit		251,511			986			1.57			374,548			2,195			2.34
Total interest-bearing deposits		1,105,119			2,312			0.84			1,109,159			3,793			1.37
Borrowings		25,532			223			3.49			36,923			336			3.64
Capital lease obligation		6,177			77			4.98			-			-			-
Total interest-bearing liabilities		1,136,828			2,612			0.92			1,146,082			4,129			1.44
Noninterest bearing liabilities
Demand deposits		211,390									198,800
Accrued expenses and
other liabilities		8,216									6,579
Total noninterest-bearing
liabilities		219,606									205,379
Shareholders’ equity		117,098									117,928
Total liabilities and
shareholders’ equity	$	1,473,532								$	1,469,389
Net Interest income
(tax-equivalent basis)					12,525									12,505
Net interest spread								3.48	%								3.36	%
Net interest margin (4)								3.64	%								3.61	%
Tax equivalent adjustment					(163	)								(255	)
Net interest income				$	12,362								$	12,250

(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.

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Average Balance Sheet

Unaudited

Nine Months Ended

(Tax-Equivalent Basis, Dollars in Thousands)

	September 30, 2010									September 30, 2009
	Average			Income/						Average			Income/
	Balance			Expense			Yield			Balance			Expense			Yield
ASSETS:
Interest-earnings assets:
Investments:
Taxable (1)	$	320,452		$	7,145			2.97	%	$	228,359		$	6,887			4.02	%
Tax-exempt (1) (2)		35,133			1,253			4.76			50,293			1,898			5.03
Loans (2) (3)		963,840			38,242			5.29			1,029,833			41,825			5.42
Federal funds sold		198			-			0.21			200			-			0.20
Interest-earning deposits		64,237			102			0.21			47,479			43			0.12
Total interest-earning assets		1,383,860		$	46,742			4.50	%		1,356,164		$	50,653			4.98	%
Noninterest -earning assets:
Cash and due from banks		8,375									7,441
Allowance for loan losses		(14,011	)								(10,207	)
Premises and equipment		31,110									27,153
Other assets		69,234									56,173
Total noninterest-earning assets		94,708									80,560
Total assets	$	1,478,568								$	1,436,724

LIABILITIES:
Interest-bearing deposits:
Checking	$	250,785		$	1,234			0.66	%	$	192,822		$	1,050			0.73	%
Money markets		507,075			2,977			0.78			414,054			3,407			1.10
Savings		76,456			235			0.41			70,353			244			0.46
Certificates of deposit		276,937			3,406			1.64			402,500			7,923			2.62
Total interest-bearing deposits		1,111,253			7,852			0.94			1,079,729			12,624			1.56
Borrowings		31,369			838			3.56			39,147			1,035			3.52
Capital lease obligation		2,754			128			6.18			-			-			-
Total interest-bearing liabilities		1,145,376			8,818			1.03			1,118,876			13,659			1.63
Noninterest bearing liabilities
Demand deposits		211,223									196,201
Accrued expenses and
other liabilities		6,665									6,310
Total noninterest-bearing
liabilities		217,888									202,511
Shareholders’ equity		115,304									115,337
Total liabilities and
shareholders’ equity	$	1,478,568								$	1,436,724
Net Interest income
(tax-equivalent basis)					37,924									36,994
Net interest spread								3.47	%								3.35	%
Net interest margin (4)								3.65	%								3.64	%
Tax equivalent adjustment					(527	)								(770	)
Net interest income				$	37,397								$	36,224

(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 non-accrual loans.

(4)

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

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OTHER INCOME: Other income, excluding fee income from PGB Trust and Investments, totaled $969 thousand for the third quarter of 2010 as compared to $1.1 million for the same quarter in 2009. In the third quarter of 2010, the Corporation recorded an other-than-temporary, non-cash impairment charge on its equity portfolio totaling $360 thousand, since the fair value for certain securities had been below book value for an extended period of time. Net securities gains for the third quarter of 2010 totaled $126 thousand as compared to net securities losses for the same quarter of 2009 of $2 thousand. The third quarter of 2010 included increased fee income from the sale of mortgage loans at origination, as well as increased income from overdraft and NSF charges, when compared to the same quarter of 2009. Income earned on bank owned life insurance for the third quarters of 2010 and 2009 was $228 thousand and $240 thousand, respectively, a decline of $12 thousand or 5.0 percent. Other income also included a net loss on sale of other real estate owned of $11 thousand for the third quarter of 2010.

The Corporation recorded other income, excluding fee income from PGB Trust and Investments, of $3.2 million for the nine months ended September 30, 2010 as compared to $3.3 million for the same period in 2009, a decline of $167 thousand or 5.0 percent. Included in the 2010 other income was the $360 thousand other-than-temporary impairment charge and net securities gains of $128 thousand. Service charges, including overdraft and NSF charges, totaled $2.1 million and $1.8 million for the first nine months of 2010 and 2009, respectively, an increase of $245 thousand or 13.5 percent from the 2009 period.

OPERATING EXPENSES: For each of the third quarters of 2010 and 2009, the Corporation recorded operating expenses of $10.9 million. Salary and benefit expense recorded in each of the third quarters of 2010 and 2009 was $5.6 million. Premises and equipment expenses totaled $2.4 million and $2.2 million for the third quarters of 2010 and 2009, respectively, increasing $231 thousand or 10.6 percent, due to the addition of a new corporate headquarters with higher operating expenses than the previous administration building. Other operating expenses totaled $2.8 million for the third quarter of 2010, a decline of $310 thousand, or 9.9 percent, from the same quarter in 2009. Declines in advertising, professional fees and FDIC assessment were offset by increases in trust department and loan expenses when comparing the third quarter of 2010 to the same quarter of 2009. Additionally, there was no provision for other real estate owned in the third quarter of 2010, while the Corporation recorded $375 thousand of provision for other real estate owned in the third quarter of 2009.

Operating expenses totaled $32.4 million for the nine months ended September 30, 2010 as compared to $31.7 million for the same 2009 period, an increase of $763 thousand or 2.4 percent. For the nine months ended September 30, 2010 and 2009, salaries and benefits expense totaled $17.1 million and $16.6 million, respectively, an increase of $475 thousand or 2.9 percent. Premises and equipment expense totaled $7.4 million for the first nine months of 2010, an increase of $932 thousand or 14.5 percent over the $6.4 million recorded in the same period in 2009. In addition to the new corporate headquarters noted above, the Corporation has occupied two new offices in the past year, increasing occupancy expenses. The expenses of PGB Trust and Investments increased from $559 thousand for the nine months ended September 30, 2009, to $913 thousand for the same year-to-date period in 2010 as the costs of a new software system were recorded. The new system is expected to increase efficiencies in maintaining client information as well as increase capacity for additional services. These increases were offset by a decrease in FDIC insurance expense as 2009 year to date expense included the industry-wide special FDIC insurance premium assessed in the second quarter of 2009. Also, there has been no provision for other real estate owned recorded for the first nine months of 2010, while the Corporation recorded $640 thousand of provision for other real estate owned in the nine months ended September 30, 2009.

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The following table presents the components of other expense for the periods indicated:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2010		2009		2010		2009
Salaries and employee benefits	$	5,647	$	5,622	$	17,060	$	16,585
Premises and equipment		2,416		2,185		7,376		6,444
FDIC assessment		586		724		1,724		2,475
Professional and legal fees		317		368		1,018		1,062
Trust department expense		350		197		913		559
Advertising		143		221		531		632
Telephone		279		143		580		394
Stationery and supplies		118		127		323		357
Postage		84		84		276		281
Loan Expense		232		84		385		101
Provision for OREO losses		-		375		-		640
Other expense		714		810		2,235		2,128
Total other expense	$	10,886	$	10,940	$	32,421	$	31,658

PGB TRUST AND INVESTMENTS: PGB Trust and Investments, a division of the Bank, 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 PGB Trust and Investments are available to provide trust and investment services at the Bank’s new corporate headquarters in Bedminster, New Jersey, and its Clinton, Morristown and Summit, New Jersey branches as well as at an office located in Bethlehem, Pennsylvania.

The market value of trust assets under administration for PGB Trust and Investments was approximately $1.93 billion at September 30, 2010.

PGB Trust and Investments generated fee income of $2.3 million for the third quarter of 2010 as compared to $2.2 million for the same quarter of 2009, an increase of $54 thousand or 2.5 percent. For the nine months ended September 30, 2010, PGB Trust and Investments generated fee income of $7.3 million as compared to $7.1 million for the same period of 2009, an increase of $221 thousand, or 3.1 percent. The increase reflects increased fees due to increased business, as well as an increase in market value on assets under management, on which the investment management fees are based, partially offset by a reduction of certain fees earned on placement of funds in money market instruments, due to the reduced interest rate environment.

While the “Operating Expenses” section above offers an overall discussion of the Corporation’s expenses including the Trust Division, other expenses relative to PGB Trust and Investments were $2.0 million and $2.1 million for the third quarters of 2010 and 2009, respectively, a decline of $78 thousand or 3.8 percent. For the third quarter of 2010, salaries and benefits expense declined $135 thousand, or 12.1 percent when compared to the same period in 2009. Also, during these same time periods, other expenses rose $57 thousand, or 5.9 percent.

For the nine months ended September 30, 2010, other expenses for PGB Trust and Investments were $6.6 million as compared to $6.1 million for the same period of 2009, an increase of $569 thousand, or 9.4 percent. Salaries and benefits expense was $3.7 million for the first nine months of 2010 as compared to $3.4 million for the same period of 2009, an increase of $254 thousand, or 7.5 percent. Other expenses totaled $3.0 million and $2.7 for the nine months ended September 30, 2010 and 2009, respectively, an increase of $315 thousand, or 11.9 percent. A portion of the increased expenses for both time periods related to the opening of the new trust office in Bethlehem, Pennsylvania in June 2009, as well as expenses related to a new operating system, which the division began using in May 2010.

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The Trust 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 Division should it be necessary.

NON-PERFORMING ASSETS: Other real estate owned (OREO), loans past due in excess of 90 days and still accruing, and non-accrual loans are considered non-performing assets. These assets totaled $19.0 million and $12.1 million at September 30, 2010 and December 31, 2009 respectively. Non-performing loans have declined during the third quarter of 2010 due to a note sale of one nonaccrual commercial loan and one deed-in-lieu of foreclosure on another commercial loan, as well as some additional charge-offs. In addition, one of the larger past due loans, over 90 days and still accruing, was brought current.

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

	September 30,			June 30,			March 31,			December 31,			September 30,
	2010			2010			2010			2009			2009

Loans past due over 90 days
and still accruing	$	442		$	736		$	638		$	496		$	1,118
Non-accrual loans		17,535			20,361			12,200			11,256			13,082
Other real estate owned		1,000			210			40			360			680
Total non-performing assets	$	18,977		$	21,307		$	12,878		$	12,112		$	14,880

Troubled debt restructured loans	$	10,639		$	10,613		$	11,817		$	11,123		$	18,671

Loans past due 30 through 89 days
and still accruing	$	9,487		$	9,444		$	10,056		$	6,015		$	7,362

Non-performing loans as a % of
total loans		1.90	%		2.20	%		1.32	%		1.19	%		1.41	%
Non-performing assets as a % of
total assets		1.28	%		1.44	%		0.87	%		0.80	%		1.00	%
Non-performing assets as a % of
total loans plus other real
estate owned		2.01	%		2.22	%		1.33	%		1.23	%		1.48	%
Allowance for loan losses as a %
of total loans		1.49	%		1.44	%		1.41	%		1.34	%		1.28	%
Allowance for loan losses as a %
of non-performing loans		78.02	%		65.68	%		106.87	%		112.25	%		91.18	%

We do not hold, have not made nor invested in subprime loans or “Alt-A” type mortgages.

PROVISION FOR LOAN LOSSES: The provision for loan losses was $2.0 million for the third quarter of 2010 as compared to $2.8 million for the same period of 2009 and $7.2 million for the first nine months of 2010 and $6.8 million for the same period of 2009. 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. The higher year-to-date provision reflects the increased percentage of commercial credits in relation to the entire loan portfolio as well as increases in loan delinquencies. Commercial credits carry a higher risk profile, which is reflected in Management’s determination of the proper level of the allowance for loan losses. In addition, Management has recorded a lower provision in the third quarter of 2010 compared to the first two quarters of 2010 and to the third quarter of 2009 because of the several positive resolutions in nonperforming loans this quarter.

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A summary of the allowance for loan losses for the nine month periods ended September 30, 2010 and 2009 follows:

(In thousands)	2010			2009
Balance, January 1,	$	13,192		$	9,688
Provision charged to expense		7,150			6,750
Charge-offs		(6,391	)		(3,550	)
Recoveries		74			59
Balance, September 30,	$	14,025		$	12,947

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

	September 30,			June 30,			March 31,			December 31,			September 30,
	2010			2010			2010			2009			2009

Allowance for loan losses:
Beginning of period	$	13,856		$	13,720		$	13,192		$	12,947		$	11,054
Provision for loan losses		2,000			2,750			2,400			2,950			2,750
Charge-offs, net		(1,831	)		(2,614	)		(1,872	)		(2,705	)		(857	)
End of period	$	14,025		$	13,856		$	13,720		$	13,192		$	12,947

INCOME TAXES: For the third quarter of 2010, income tax expense as a percentage of pre-tax income was 29 percent as compared to 31 percent for the third quarter of 2009. Pre-tax income increased from $1.9 million for the third quarter of 2009 to $2.7 million for the same period in 2010. For the nine months ended September 30, 2010, income tax expense as a percentage of pre-tax income was 30 percent as compared to 31 percent for the same nine month period of 2009.

CAPITAL RESOURCES: At September 30, 2010, total shareholders’ equity was $117.5 million as compared to $119.5 million at December 31, 2009. The primary reason for the decrease is the Corporation’s partial redemption of preferred stock previously issued under the U.S. Treasury’s Capital Purchase Plan in January 2010, described fully in Note 8 to the Consolidated Financial Statements.

The Federal Reserve Board has adopted risk-based capital guidelines for banks and bank holding companies. Tier 1 Capital consists of common stock, retained earnings, minority interests in the equity accounts of consolidated subsidiaries non-cumulative preferred stock, and cumulative preferred stock issued to the U.S. Treasury in the Capital Purchase Program, less goodwill and certain other intangibles. The remainder of capital may consist of other preferred stock, certain other instruments and a portion of the allowance for loan loss. At September 30, 2010, the Corporation’s Tier 1 Capital and Total Capital ratios to risk-weighted assets were 12.62 percent and 13.88 percent, respectively, both in excess of the well-capitalized standards of 6.0 percent and 10.0 percent, respectively.

In addition, the Federal Reserve Board has established minimum leverage ratio guidelines. The Corporation’s leverage ratio at September 30, 2010, was 8.00 percent, in excess of the well-capitalized standard of 5.0 percent.

LIQUIDITY: Liquidity refers to an institution’s ability to meet short-term requirements in the form of loan requests, deposit withdrawals and maturing obligations. Principal sources of liquidity include cash, temporary investments and securities available for sale.

Management believes that the Corporation’s liquidity position is sufficient to meet future needs. Cash and cash equivalents, interest earning deposits and federal funds sold totaled $94.6 million at September 30, 2010. In addition, the Corporation has $246.3 million in securities designated as available for sale. These securities can be sold in response to liquidity concerns or pledged as collateral for borrowings as discussed below. Carrying value as of September 30, 2010, of investment securities and securities available for sale maturing within one year totals $11.7 million.

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The primary source of funds available to meet liquidity needs is the Corporation’s core deposit base, which excludes certificates of deposit greater than $100 thousand. As of September 30, 2010, core deposits equaled $1.23 billion.

Another source of liquidity is borrowing capacity. The Corporation has a variety of sources of short-term liquidity available, including federal funds purchased from correspondent banks, short-term and long-term borrowings from the Federal Home Loan Bank of New York, access to the Federal Reserve Bank discount window and loan participations of sales of loans. The Corporation also generates liquidity from the regular principal payments made on its mortgage-backed securities and loan portfolios.

RECENT ACCOUNTING PRONOUNCEMENTS:

Adoption of New Accounting Guidance:

Accounting for Transfers of Financial Assets amends Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. It also eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional disclosures about all continuing involvements with transferred financial information about gains and losses (resulting from transfers) during the period. This was effective January 1, 2010 and did not have a significant impact on the Corporation’s financial statements.

In January 2010, the Financial Accounting Standards Board (“FASB”) amended existing guidance to improve disclosure requirements related to fair value measurements. New disclosures are required for significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers. In addition, the FASB clarified guidance related to disclosures for each class of assets and liabilities as well as disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. The impact of adoption on January 1, 2010 was not material as it required only disclosures which are included in the Fair Value footnote.

In June 2009, the FASB amended existing guidance to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This amended guidance addresses (1) practices that are not consistent with the intent and key requirements of the original guidance and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. The impact of adoption on January 1, 2010 was not material.

In June 2009, the FASB amended guidance for consolidation of variable interest entities by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity. The new approach focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about an enterprise’s involvement in variable interest entities are also required. The impact of adoption on January 1, 2010 was not material.

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In December 2007, the FASB enhanced existing guidance for the use of the acquisition method of accounting (formerly the purchase method) for all business combinations, for an acquirer to be identified for each business combination and for intangible assets to be identified and recognized separately from goodwill. An entity in a business combination is required to recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. Additionally, there were changes in requirements for recognizing assets acquired and liabilities assumed arising from contingencies and recognizing and measuring contingent consideration. Disclosure requirements for business combinations were also enhanced. The impact of adoption on January 1, 2009 was not material. In April 2009, the FASB issued amended clarifying guidance to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The impact of adoption on January 1, 2009 was not material. In January 2010, the FASB issued amended clarifying guidance addressing implementation issues related to the changes in ownership provisions. The impact of adoption on January 1, 2010 was not material.

In June 2010, the FASB amended existing guidance to clarify the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements, and address the subordination of one financial instrument to another. Under the amended guidance, the cash flows associated with a typical collateralized debt obligation that are allocated first to senior tranches, and subsequently to subordinated tranches as available, would result in an embedded credit derivative as the cash flows to the lower tranches are subordinated to the more senior tranches. Entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. In initially adopting the amended guidance, an entity may elect the fair value option for any investment in a beneficial interest in a securitized financial asset. The election must be made on an instrument-by-instrument basis at the beginning of the fiscal quarter of initial adoption. However, an entity must perform an impairment analysis of the investment before the initial adoption of the amendments. This amended guidance is effective at the beginning of an entity’s first fiscal quarter beginning after June 15, 2010. The Corporation ultimately decided not to elect the fair value option.

Newly Issued But Not Yet Effective Accounting Guidance:

In January 2010, the FASB amended existing guidance related to fair value measurements requiring new disclosures for activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The impact of adoption is expected to be immaterial.

In July 2010, the FASB issued an Accounting Standards Update (“ASU”), “Receivables: Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The objective of this ASU is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. An entity should provide disclosures on a disaggregated basis on two defined levels: (1) portfolio segment; and (2) class of financing receivable. The ASU makes changes to existing disclosure requirements and includes additional disclosure requirements about financing receivables, including credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables, the aging of past due financing receivables at the end of the reporting period by class of financing receivables, and the nature and extent of troubled debt restructurings that occurred during the period by class of financing receivables and their effect on the allowance for credit losses. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Corporation expects the adoption to be disclosure related only and have no impact on the results of operations.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to information required 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, 2010).

ITEM 4. Controls and Procedures

The Corporation’s Chief Executive Officer and Chief Financial Officer, with the assistance of other members of the Corporation’s management, 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 Exchange Act) 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.

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, 2010 that have materially affected, or are reasonably 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 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.

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PART II. OTHER INFORMATION

ITEM 1A. Risk Factors

There were no material changes in the Corporation’s risk factors during the nine months ended September 30, 2010 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, 2009 other than the following:

The Dodd-Frank Wall Street Reform and Consumer Protection Act may affect our business activities, financial position and profitability by increasing our regulatory compliance burden and associated costs, placing restrictions on certain products and services, and limiting our future capital raising strategies.

On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), which implements significant changes in the financial regulatory landscape and will impact all financial institutions, including the Corporation and the Bank. The Act is likely to increase our regulatory compliance burden. However, it is too early for us to fully assess the full impact of the Act on our business, financial condition or results of operations in part because many of the Act’s provisions require subsequent regulatory rulemaking.

Among the Act’s significant regulatory changes, it creates a new financial consumer protection agency, known as the Bureau of Consumer Financial Protection (the “Bureau”), that is empowered to promulgate new consumer protection regulations and revise existing regulations in many areas of consumer protection. The Bureau has exclusive authority to issue regulations, orders and guidance to administer and implement the objectives of federal consumer protection laws. Moreover, the Act permits states to adopt stricter consumer protection laws and state attorney generals may enforce consumer protection rules issued by the Bureau. The Act also changes the scope of federal deposit insurance coverage, and increases the FDIC assessment payable by the Bank. We expect the Bureau and these other changes will increase our regulatory compliance burden and costs and may restrict the financial products and services we offer to our customers.

The Act also imposes more stringent capital requirements on bank holding companies by, among other things, imposing leverage ratios on bank holding companies and prohibiting new trust preferred issuances from counting as Tier I capital. These restrictions may limit our future capital strategies. The Act also increases regulation of derivatives and hedging transactions, which could limit our ability to enter into, or increase the costs associated with, interest rate and other hedging transactions.

Although certain provisions of the Act, such as direct supervision by the Bureau, will not apply to banking organizations with less than $10.0 billion of assets, such as the Corporation and the Bank, the changes resulting from the legislation will impact our business. These changes will require us to invest significant management attention and resources to evaluate and make necessary changes.

Regulatory changes may reduce our fee income.

On July 6, 2010 final rules implemented by the Federal Reserve took effect which impose overdraft and interchange fee restrictions and may reduce our non-interest income. The new rules prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one time debit card transactions, unless a consumer consents to the overdraft service for those types of transactions. While these changes may reduce our non-interest income, we cannot quantify the impact of this regulatory change until our customers determine whether to “opt in” to our standard overdraft practice.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no purchases or sales of the Corporation’s stock during the quarter.

ITEM 6. Exhibits

3		Articles of Incorporation and By-Laws:
		A. Certificate of Incorporation of the Registrant, as amended.
		B. By-Laws of the Registrant, incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on April 23, 2007.

31.1		Certification of Frank A. Kissel, Chief Executive Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).

31.2		Certification of Jeffrey J. Carfora, Chief Financial Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).

32		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002, signed by Frank A. Kissel, Chief Executive Officer of the Corporation, and Jeffrey J. Carfora, Chief Financial Officer of the Corporation.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PEAPACK-GLADSTONE FINANCIAL CORPORATION
	(Registrant)


DATE: November 9, 2010	By: /s/ Frank A. Kissel
	Frank A. Kissel
	Chairman of the Board and Chief Executive Officer


DATE: November 9, 2010	By: /s/ Jeffrey J. Carfora
	Jeffrey J. Carfora
	Executive Vice President and Chief Financial Officer and
	Chief Accounting Officer

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EXHIBIT INDEX

Number		Description

3		Articles of Incorporation and By-Laws:
		A. Certificate of Incorporation of the Registrant, as amended, incorporated herein by reference to the Registrant’s Quarterly Report on Form 10Q as filed on November 9, 2009.
		B. By-Laws of the Registrant, incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on April 23, 2007.

31.1		Certification of Frank A. Kissel, Chief Executive Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).

31.2		Certification of Jeffrey J. Carfora, Chief Financial Officer of the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).

32		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002, signed by Frank A. Kissel, Chief Executive Officer of the Corporation, and Jeffrey J. Carfora, Chief Financial Officer of the Corporation.