News Column

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

August 8, 2014

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, 2013 and the following:



inability to successfully grow our business and implement our strategic plan

including an inability to generate revenues to offset the increased personnel

and other costs related to the strategic plan;

inability to manage our growth;

inability to successfully integrate our expanded employee base;

a continued or unexpected decline in the economy, in particular in our New

Jersey and New York market areas; declines in 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 non-performing loans; declines in our net interest margin caused by the low interest rate environment and highly competitive market; unexpected changes in interest rates;



a continued or unexpected decline in real estate values within our market

areas;

legislative and regulatory actions (including the impact of the Dodd-Frank

Wall Street Reform and Consumer Protection Act, Basel III and related

regulations) subject us to additional regulatory oversight which may result in

increased compliance costs;

successful cyber-attacks against our IT infrastructure or that of our IT

providers;

higher than expected FDIC insurance premiums;

adverse weather conditions;

inability to successfully generate new business in new geographic markets;

inability to execute upon new business initiatives; lack of liquidity to fund our various cash obligations; reduction in our lower-cost funding sources; our inability to adapt to technological changes;



claims and litigation pertaining to fiduciary responsibility, environmental

laws and other matters; and

other unexpected material adverse changes in our operations or earnings.

35 Index The Corporation assumes no responsibility to update such forward-looking statements in the future even if experience shows that the indicated results or events will not be realized. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the 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, 2013, contains a summary of the Corporation's significant accounting policies. 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 requires assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations. This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

The provision for loan losses is based upon Management's evaluation of the adequacy of the allowance, including an assessment of probable incurred losses in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated fair value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although Management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance 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 and New York. 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 or New York experience continuing adverse economic conditions. Future adjustments to the allowance 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. All securities are classified as available for sale and are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. 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. 36 Index

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 whether the Corporation intends to sell or is likely to be required to sell the security before its anticipated recovery. "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. The Corporation recognized no other-than-temporary impairment charges in the three or six months ended June 30, 2014 and 2013.



EXECUTIVE SUMMARY: The following table presents certain key aspects of our performance for the three months ended June 30, 2014 and 2013.

Three Months Ended June 30,



Change

(In thousands, except per share data) 2014 2013

2014 v 2013 Results of Operations: Interest income $ 18,630$ 13,460$ 5,170 Interest expense 1,707 1,012 695 Net interest income 16,923 12,448 4,475 Provision for loan losses 1,150 500 650



Net interest income after provision

for loan losses 15,773 11,948 3,825 Other income 5,473 5,236 237 Other operating expense 14,930 14,079 851 Income before income tax expense 6,316 3,105 3,211 Income tax expense 2,533 1,096 1,437 Net income $ 3,783 $ 2,009$ 1,774 Per Share Data: Basic earnings per common share $ 0.32 $ 0.23$ 0.09 Diluted earnings per common share 0.32 0.22 0.10 Average common shares outstanding 11,721,256 8,909,170 2,812,086 Diluted average common shares outstanding 11,846,075 8,955,384 2,890,691 Average equity to average assets 7.97 % 7.56 % 5.42 % Return on average assets annualized 0.67 0.48 39.58 Return on average equity annualized 8.44 6.41 31.67 37 Index



The following table presents certain key aspects of our performance for the six months ended June 30, 2014 and 2013.

Six Months Ended June 30,



Change

(In thousands, except per share data) 2014 2013

2014 v 2013 Results of Operations: Interest income $ 35,579$ 26,892$ 8,687 Interest expense 3,085 2,017 1,068 Net interest income 32,494 24,875 7,619 Provision for loan losses 2,475 1,350 1,125



Net interest income after provision

for loan losses 30,019 23,525 6,494 Other income 10,468 10,840 (372 ) Other operating expense 29,269 26,372 2,897

Income before income tax expense 11,218 7,993

3,225 Income tax expense 4,404 3,091 1,313 Net income $ 6,814$ 4,902$ 1,912 Per Share Data:

Basic earnings per common share $ 0.58 $ 0.55$ 0.03 Diluted earnings per common share 0.58 0.55



0.03

Average common shares outstanding 11,664,410 8,889,971



2,774,439

Diluted average common shares outstanding 11,814,806 8,942,267

2,872,539 Average equity to average assets 8.17 % 7.55 % 8.21 %

Return on average assets annualized 0.63 0.60

5.00 Return on average equity annualized 7.74 7.89 (1.90 ) The earnings per share calculations for the three months and six months ended June 30, 2014 included all of the 2.47 million shares issued in the December 12, 2013 capital raise.



The three months ended June 30, 2014 included a $176 thousand net gain on sale of residential first mortgage loans sold held at the lower of cost or fair value, as a component of balance sheet management.

The three months ended June 30, 2013 included a $930 thousand provision for loss on an REO property. At June 30, Percent Change 2014 2013 2014 v 2013 Selected Balance Sheet Ratios: Total capital(Tier I + II) to risk-weighted assets 14.30 % 13.09 % 9.24 % Tier I Leverage ratio 8.01 7.39 8.39 Average loans to average deposits 95.64 78.45 21.91



Allowance for loan losses to total

loans 0.92 1.07 (14.02 ) Allowance for loan losses to nonperforming loans 263.22 166.41 58.18

Nonperforming loans to total loans 0.35 0.64 (45.31 )



Noninterest bearing deposits to

total deposits 19.41 21.47 (9.59 ) Time deposits to total deposits 14.28 11.07

29.00 38 Index

The Corporation recorded net income of $3.8 million for the second quarter of 2014 compared to $2.0 million for the same period of 2013. Diluted earnings per common share were $0.32 and $0.22 for the three months ended June 30, 2014 and 2013, respectively. Annualized return on average assets was 0.67 percent and annualized return on average common equity was 8.44 percent for the second quarter of 2014. For the first six months of 2014, the Corporation recorded net income of $6.8 million compared to $4.9 million for the same period of 2013. Diluted earnings per common share were $0.58 and $0.55 for the first six months of 2014 and 2013, respectively. Annualized return on average assets was 0.63 percent and annualized return on average common equity was 7.74 percent for the first six months of 2014. Increased earnings for the three and six months ended June 30, 2014 over the same periods in 2013 were due to increased net interest income, due principally to the Corporation's loan growth, and increased wealth management fee income offset by increased provision for loan losses, lower gains on mortgage loans sold and increased expenses largely due to costs associated with the continued implementation of the Strategic Plan. CONTRACTUAL OBLIGATIONS: For a discussion of our contractual obligations, see the information set forth in the Corporation's 2013 Annual Report on Form 10-K under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" which is incorporated herein by reference. OFF-BALANCE SHEET ARRANGEMENTS: For a discussion of our off-balance sheet arrangements, see the information set forth in the Corporation's 2013 Annual Report on Form 10-K under the heading "Management's Discussion and Analysis - Off-Balance Sheet Arrangements" which is incorporated herein by reference.

EARNINGS ANALYSIS



NET INTEREST INCOME/AVERAGE BALANCE SHEET:

The primary source of the Corporation's operating income is net interest income, which is the difference between interest and dividends earned on earning assets and fees earned on loans, and interest paid on interest-bearing liabilities. Earning assets include loans to individuals and businesses, investment securities, interest-earning deposits and federal funds sold. Interest-bearing liabilities include interest-bearing checking, savings and time deposits, Federal Home Loan Bank advances and other borrowings. Net interest income is determined by the difference between the yields earned on earning assets and the rates paid on interest-bearing liabilities ("Net Interest Spread") and the relative amounts of earning assets and interest-bearing liabilities. The Corporation's net interest spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows and general levels of nonperforming assets. 39 Index



The following table summarizes the Company's net interest income and related spread and margin for the periods indicated:

Three Months Ended June 30, (In thousands) 2014 2013 Net interest income $ 16,923$ 12,448 Interest rate spread 3.06 % 3.15 % Net interest margin 3.14 3.22 Six Months Ended June 30, (In thousands) 2014 2013 Net interest income $ 32,494$ 24,875 Interest rate spread 3.08 % 3.18 % Net interest margin 3.16 3.25



Net interest income for the current 2014 quarter and six months benefitted from loan growth during the first half of 2014 as well as the last half of 2013, principally from multifamily and commercial mortgages.

Net interest margin for the June 2014 quarter and six months declined slightly when compared to the June 2013 periods due to the continued effect of low market yields, as well as competitive pressures in attracting new loans and deposits. The following table summarizes the company's loans closed for the periods indicated: For the Quarters Ended June 30, June 30, 2014 2013



Residential mortgage loans retained $ 17,245$ 37,352 Residential mortgage loans sold

7,344 26,651 Total residential mortgage loans 24,589 64,003 Commercial real estate loans 20,175 17,080 Multifamily properties 149,937 70,645 Commercial loans 62,668 (A) 8,788 Total commercial loans 232,780 96,513 Installment loans 5,184 1,198 Home equity lines of credit 6,709 (A) 2,619 Total loans closed $ 269,262$ 164,333 40 Index For the Six Months Ended June 30, June 30, 2014 2013



Residential mortgage loans retained $ 28,898$ 68,782 Residential mortgage loans sold

14,355 52,053 Total residential mortgage loans 43,253 120,835 Commercial real estate loans 36,016 26,570 Multifamily properties 375,080 98,525 Commercial loans 78,625 (A) 24,746 Total commercial loans 489,721 149,841 Installment loans 7,061 2,426 Home equity lines of credit 11,377 (A) 7,071 Total loans closed $ 551,412$ 280,173



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

41 Index



The following table reflects the components of the average balance sheet and of net interest income for the periods indicated:

Average Balance Sheet Unaudited Three Months Ended June 30, 2014 June 30, 2013 Average Income/ Average Income/ Balance Expense Yield Balance Expense Yield ASSETS: Interest-earning assets: Investments: Taxable (1) $ 189,254$ 977 2.06 % $ 220,954$ 1,085 1.96 % Tax-exempt (1) (2) 57,847 312 2.16 50,479 322 2.55 Loans held for sale 1,026 15 5.89 2,512 50 8.12 Loans (2) (3): Mortgages 496,232 4,203 3.39 535,533 4,714 3.52

Commercial mortgages 1,155,360 11,108



3.85 485,299 5,473 4.51

Commercial 143,988 1,443



4.01 101,790 1,181 4.64

Commercial construction 6,065 65 4.29 9,179 107 4.66 Installment 22,154 233 4.21 20,097 224 4.46 Home equity 47,489 382 3.22 46,745 373 3.19 Other 558 13 9.32 592 15 10.14 Total loans 1,871,846 17,447 3.73 1,199,235 12,087 4.03 Federal funds sold 101 - 0.10 101 - 0.10

Interest-earning deposits 51,177 21 0.17 92,319 66 0.29 Total interest-earning assets 2,171,251 18,772 3.46 % 1,565,600 13,610 3.48 % Noninterest-earning assets: Cash and due from banks 6,990 5,865 Allowance for loan losses (17,310 ) (13,523 ) Premises and equipment 31,161 29,248 Other assets 58,926 71,862 Total noninterest-earning assets 79,767 93,452 Total assets $ 2,251,018$ 1,659,052 LIABILITIES: Interest-bearing deposits: Checking $ 431,656$ 115 0.11 % $ 356,060$ 74 0.08 % Money markets 657,216 374 0.23 551,150 239 0.17 Savings 116,946 15 0.05 114,028 15 0.05

Certificates of deposit - retail 154,245 369



0.96 166,931 471 1.13

Subtotal interest-bearing deposits 1,360,063 873 0.26 1,188,169 799 0.27

Interest-bearing demand - brokered 138,000 70 0.20 - - -



Certificates of deposit - brokered 100,934 264 1.05

5,000 15 1.20 Total interest-bearing deposits 1,598,997 1,207

0.30 1,193,169 814 0.27 Borrowings 93,152 382 1.64 12,025 92 3.06 Capital lease obligation 9,867 118 4.78 8,884 106 4.77



Total interest-bearing liabilities 1,702,016 1,707 0.40 1,214,078 1,012 0.33 Noninterest-bearing liabilities:

Demand deposits 360,096 311,227 Accrued expenses and other liabilities 9,606 8,298 Total noninterest-bearing liabilities 369,702 319,525 Shareholders' equity 179,300 125,449 Total liabilities and shareholders' equity $ 2,251,018$ 1,659,052 Net interest income (tax-equivalent basis) 17,065 12,598 Net interest spread 3.06 % 3.15 % Net interest margin (4) 3.14 % 3.22 % Tax equivalent adjustment (142 ) (150 ) Net interest income $ 16,923

$ 12,448



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

Interest income is presented on a tax-equivalent basis using a 35 percent (2) federal tax rate. (3) Loans are stated net of unearned income and include nonaccrual loans.



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

42 Index Average Balance Sheet Unaudited Six Months Ended June 30, 2014 June 30, 2013 Average Income/ Average Income/ Balance Expense Yield Balance Expense Yield ASSETS: Interest-earning assets: Investments: Taxable (1) $ 198,401$ 2,038 2.05 % $ 234,721$ 2,362 2.01 % Tax-exempt (1) (2) 59,025 649 2.20 50,116 646 2.58 Loans held for sale 1,174 25 4.29 9,661 246 5.10 Loans (2) (3): Mortgages 514,702 8,756 3.40 528,602 9,454 3.58

Commercial mortgages 1,046,179 20,153



3.85 458,378 10,436 4.55

Commercial 138,300 2,845



4.11 106,614 2,488 4.67

Commercial construction 5,969 132 4.42 9,198 211 4.59 Installment 21,860 461 4.22 20,511 454 4.43 Home equity 47,162 755 3.20 47,388 752 3.17 Other 561 26 9.27 609 30 9.85 Total loans 1,774,733 33,128 3.73 1,171,300 23,825 4.07 Federal funds sold 101 - 0.10 101 - 0.10

Interest-earning deposits 41,468 33



0.16 85,006 114 0.27

Total interest-earning assets 2,074,902 35,873 3.46 % 1,550,905 27,193 3.51 % Noninterest-earning assets: Cash and due from banks 6,694 5,849 Allowance for loan losses (16,653 ) (13,300 ) Premises and equipment 30,956 29,526 Other assets 59,961 73,475 Total noninterest-earning assets 80,958 95,550 Total assets $ 2,155,860$ 1,646,455 LIABILITIES: Interest-bearing deposits: Checking $ 416,568$ 207 0.10 % $ 353,286$ 153 0.09 % Money markets 655,430 707 0.22 552,003 454 0.16 Savings 116,733 30 0.05 112,354 28 0.05

Certificates of deposit - retail 151,864 724



0.95 169,228 956 1.13

Subtotal interest-bearing deposits 1,340,595 1,668 0.25 1,186,871 1,691 0.27

Interest-bearing demand - brokered 106,851 113 0.21

- - - Certificates of deposit - brokered 57,564 295 1.02 5,000 30 1.24 Total interest-bearing deposits 1,505,010 2,076

0.28 1,191,871 1,621 0.27 Borrowings 104,306 772 1.48 12,082 184 3.05 Capital lease obligation 9,907 237 4.78 8,910 212 4.76



Total interest-bearing liabilities 1,619,223 3,085 0.38 1,212,863 2,017 0.33 Noninterest-bearing liabilities:

Demand deposits 350,698 301,087 Accrued expenses and other liabilities 9,800 8,199 Total noninterest-bearing liabilities 360,498 309,286 Shareholders' equity 176,139 124,306 Total liabilities and shareholders' equity $ 2,155,860$ 1,646,455 Net interest income (tax-equivalent basis) 32,788 25,176 Net interest spread 3.08 % 3.18 % Net interest margin (4) 3.16 % 3.25 % Tax equivalent adjustment (294 ) (301 ) Net interest income $ 32,494

$ 24,875



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

Interest income is presented on a tax-equivalent basis using a 35 percent (2) federal tax rate. (3) Loans are stated net of unearned income and include nonaccrual loans.



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

43 Index



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

Three Months Compared With Ended June 30, 2014 June 30, 2013 Difference due to Change In Change In: Income/ (In Thousands): Volume Rate Expense ASSETS: Investments $ (85 )$ (33 ) $ (118 ) Loans 6,634 (1,274 ) 5,360 Loans held for sale (21 ) (14 ) (35 ) Federal funds sold - - - Interest-earning deposits (23 ) (22 ) (45 ) Total interest income $ 6,505$ (1,343 ) $ 5,162 LIABILITIES: Checking $ 111 $ - $ 111 Money market 59 76 135 Savings - - - Certificates of deposit 218 (71 ) 147 Borrowed funds 343 (53 ) 290 Capital lease obligation 11 1 12 Total interest expense $ 742$ (47 ) $ 695 Net interest income $ 5,763$ (1,296 ) $ 4,467 Six Months Compared With Ended June 30, 2014 June 30, 2013 Difference due to Change In Change In: Income/ (In Thousands): Volume Rate Expense ASSETS: Investments $ (195 )$ (126 ) $ (321 ) Loans 11,933 (2,630 ) 9,303 Loans held for sale (182 ) (39 ) (221 ) Federal funds sold - - - Interest-earning deposits (45 ) (36 ) (81 ) Total interest income $ 11,511$ (2,831 ) $ 8,680 LIABILITIES: Checking $ 163$ 4 $ 167 Money market 110 143 253 Savings 2 - 2 Certificates of deposit 178 (145 ) 33 Borrowed funds 695 (107 ) 588 Capital lease obligation 22 3 25 Total interest expense $ 1,170$ (102 ) $ 1,068 Net interest income $ 10,341$ (2,729 ) $ 7,612 44 Index

On a fully tax-equivalent basis, interest income on earning assets totaled $18.8 million and $13.6 million for the second quarters of 2014 and 2013, respectively, reflecting an increase of $5.2 million or 37.9 percent from the second quarter in 2013. Average earning assets totaled $2.17 billion for the second quarter of 2014, an increase of $605.7 million or 38.7 percent from the same period of 2013. The commercial mortgage portfolio increased $670.1 million from the second quarter of 2013, averaging $1.16 billion for the second quarter of 2014. The increase was attributable to the addition of seasoned banking professionals over the course of 2013; a more concerted focus on the client service aspect of the lending process; more of a focus on New Jersey markets; and a focus on New York City multifamily markets beginning in mid-2013. The increase was also due to demand from borrowers looking to refinance multifamily and other commercial mortgages held by other institutions. The average rates earned on earning assets was 3.46 percent for the quarter ended June 30, 2014, compared to 3.48 percent for the same period in 2013, a decrease of two basis points. The decline in the average rates on earning assets was due to the continued effect of low market yields, as well as competitive pressures in attracting new loans and deposits, partially offset by a shift in mix from lower yielding securities and interest earning deposits into higher yielding loans. Total deposits for the second quarter of 2014 averaged $1.96 billion, increasing $454.7 million or 30.2 percent from the average balance for the same period of 2013. Growth in customer deposits (non-brokered deposits) has come from the addition of seasoned banking professionals over the course of 2013, including relationship bankers and private bankers; an intense focus on providing high-touch client service; and a new full array of treasury management products that support core deposit growth. Brokered certificates of deposit have been used in the Company's interim funding and interest rate risk management practices, while brokered interest-bearing demand deposits have also been utilized as interim funding vehicles in place of wholesale overnight borrowings as a more cost-effective alternative. The Company does ensure ample available collateralized liquidity as a backup to these short-term brokered deposits. Average rates paid on interest-bearing deposits were 30 basis points and 27 basis points for the second quarters of 2014 and 2013, respectively. For the second quarter of 2014, overnight borrowings from the Federal Home Loan Bank of New York averaged $9.5 million compared to zero for the same quarter of 2013. For the second quarters of 2014 and 2013, average other borrowings totaled $83.7 million and $12.0 million, respectively, increasing $71.7 million when compared to the same period of 2013. The Company has utilized medium/longer term Federal Home Loan Bank advances in its interest rate risk management. The Corporation recorded net interest income, on a fully tax-equivalent basis, of $32.5 million for the first six months of 2014 compared to $24.9 million for the same period of 2013, an increase of $7.6 million or 30.6 percent. The net interest margin was 3.16 percent for the six months ended June 30, 2014, compared to 3.25 percent for the same period last year. For the first six months of 2014 and 2013, interest income on earning assets, on a fully tax-equivalent basis, totaled $35.9 million and $27.2 million, respectively, reflecting an increase of $8.7 million or 31.9 percent from the first half of 2013. Average earning assets for the first half of 2014 totaled $2.07 billion, an increase of $524.0 million or 33.8 percent over the $1.55 billion over the same period of 2013. The commercial mortgage portfolio more than doubled, from the year ago period, to an average $1.05 billion for the first two quarters of 2014. The increase was attributable to the addition of seasoned banking professionals over the course of 2013; a more concerted focus on the client service aspect of the lending process; more of a focus on New Jersey markets; and a focus on New York City multifamily markets beginning in mid-2013. The increase was also due to demand from high quality borrowers looking to refinance multifamily and other commercial mortgages held by other institutions. 45 Index The average rates earned on earning assets was 3.46 percent and 3.51 percent for the first six months of 2014 and 2013, respectively, a decline of five basis points. The decline in the average rates on earning assets was due to the continued effect of low market yields, as well as competitive pressures in attracting new loans and deposits, partially offset by a shift in mix from lower yielding securities and interest earning deposits into higher yielding loans. For the first six months of 2014, total deposits averaged $1.86 billion, increasing $362.8 million or 24.3 percent from the average balance for the same period of 2013. Growth in customer deposits (non-brokered deposits) has come from the addition of seasoned banking professionals over the course of 2013, including relationship bankers and private bankers; an intense focus on providing high touch client service; and a new full array of treasury management products that support core deposit growth. For the first six months of 2014 and 2013, average rates paid on interest-bearing deposits were 28 basis points and 27 basis points, respectively. Overnight borrowings from the Federal Home Loan Bank of New York averaged $21.9 million for the first half of 2014 compared to zero for the same period of 2013. For the first half of 2014 and 2013, average other borrowings totaled $82.4 million and $12.1 million, respectively, increasing $70.3 million when compared to the same period of 2013. The Company has utilized medium/longer term Federal Home Loan Bank advances in its interest rate risk management. OTHER INCOME:The following table presents the major components of other income: Three Months Ended June 30, Change (In thousands) 2014 2013 2014 v 2013 Service charges and fees $ 708 $ 688 $ 20 Gain on sale of loans (mortgage banking) 112 391 (279 ) Gain on sale of loans 176 - 176 Bank owned life insurance 276 276 - Securities gains 79 238 (159 ) Other income 117 15 102 Total other income $ 1,468$ 1,608$ (140 ) Six Months Ended June 30, Change (In thousands) 2014 2013 2014 v 2013 Service charges and fees $ 1,402$ 1,364 $ 38

Gain on sale of loans (mortgage banking) 224

861 (637 ) Gain on sale of loans 176 522 (346 ) Bank owned life insurance 542 548 (6 ) Securities gains 176 527 (351 ) Other income 189 22 167 Total other income $ 2,709$ 3,844$ (1,135 ) During the second quarter and first half of 2014, the Company experienced the continued low levels of mortgage banking income, as expected and planned for, and caused by an increase in mortgage rates beginning in the middle of 2013. This rate environment resulted in a decrease in residential mortgage loan originations. During the second quarter of 2014, $67 million of longer duration, lower coupon residential first mortgage loans were sold, as part of the Company's strategy to de-emphasize residential first mortgage lending, while benefitting its liquidity and interest rate risk positions. The sales also benefitted current earnings as a net $176 thousand gain was recorded. A gain of $522 thousand was recognized in the first half of 2013 on the sale of classified loans which were held for

sale as of December 31, 2012. 46 Index Securities gains were $79 thousand and $238 thousand for the three months ended June 30, 2014 and 2013, respectively. The Company recorded securities gains of $176 thousand for the first half of 2014 as compared to $527 thousand for the same 2013 period. Sales of securities have been generally employed to benefit interest rate risk, prepayment risk, and/or liquidity risk. Given the short duration of the securities portfolio, sales have been employed less often in recent periods.



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

Three Months Ended June 30, Change (In thousands) 2014 2013 2014 v 2013

Salaries and employee benefits $ 9,089$ 7,935 $

1,154 Premises and equipment 2,334 2,338 (4 ) Other Operating Expenses: FDIC assessment 303 280 23 Wealth management division other expense 453 408 45 Professional and legal fees 519 430 89 Loan expense 124 165 (41 ) Telephone 236 185 51 Advertising 138 157 (19 ) Postage 93 99 (6 ) Provision for ORE losses 300 930 (630 ) Other operating expenses 1,341 1,152 189 Total operating expenses $ 14,930$ 14,079 $ 851 Six Months Ended June 30, Change (In thousands) 2014 2013 2014 v 2013

Salaries and employee benefits $ 17,937$ 15,014 $

2,923 Premises and equipment 4,772 4,642 130 Other Operating Expenses: FDIC assessment 579 560 19 Wealth management division other expense 999 901 98 Professional and legal fees 970 930 40 Loan expense 224 363 (139 ) Telephone 463 358 105 Advertising 206 263 (57 ) Postage 195 203 (8 ) Provision for ORE losses 400 930 (530 ) Other operating expenses 2,524 2,208 316 Total operating expenses $ 29,269$ 26,372$ 2,897 The Corporation recorded operating expenses of $14.9 million and $14.1 million, for the second quarters of 2014 and 2013, respectively, an increase of $851 thousand or 6.0 percent. For the second quarter of 2014, salary and benefit expense was $9.1 million as compared to $7.9 million in the same quarter of 2013, an increase of $1.2 million or 14.5 percent. The increase is largely due to strategic hiring in line with the Company's Strategic Plan, including private bankers, relationship bankers, commercial lenders, wealth advisors, risk management professionals and various support staff. Additionally, normal salary increases and increased bonus/incentive accruals associated with the Company's growth, contributed to the increase. Loan expense for the second quarters of 2014 and 2013 was $124 thousand and $165 thousand, respectively, a decrease of $41 thousand, and is attributed to a decline in problem loan expense. Professional and legal fee expense was $519 thousand for the second quarter of 2014, an increase of $89 thousand, when compared to $430 thousand recorded for the second quarter of 2013 and was due to additional expenses for the proxy, stock plans and the annual meeting. The provision for ORE losses was $300 thousand for the second quarter of 2014 compared to $930 thousand in the same quarter of 2013, a decrease of $630 thousand. In 2013, the Company recorded a large write down of one of its ORE properties and an additional smaller write down on the same property in the second quarter of 2014. 47 Index For the first six months of 2014 and 2013, the Corporation recorded operating expenses of $29.3 million and $26.4 million, respectively, an increase of $2.9 million or 11.0 percent over the year ago period. Salary and benefit expense was $17.9 million for the first six months of 2014, compared to $15.0 million in the same quarter of 2013, an increase of $2.9 million or 19.5 percent. As noted above, the increase is largely due to strategic hiring, normal salary increases and increased bonus and incentive accruals. For the first half of 2014, premises and equipment expense increased $130 thousand to $4.8 million when compared to the same quarter in 2013 due to increased occupancy costs associated with the new Princeton and Teaneck Private Banking offices. Loan expense declined $139 thousand or 38.3 percent from the first six months of 2013 to $224 thousand for the six months ended June 30, 2014 and is attributed to a decline in problem loan expense. As noted above, the Company recorded a $930 thousand write down in the first half of 2013 on one of its ORE properties and an additional $400 thousand during the first half of 2014. The Corporation strives to operate in an efficient manner and control costs. However, the Company expected higher operating expenses as it executed its' Strategic Plan and expects that the trend of higher operating expenses will continue in 2014 as it further invests in high caliber revenue producers, and continues to invest in infrastructure in line with its' Strategic Plan. Further the Company generally expects revenue and profitability related to new personnel to lag those expenses by several quarters. It is important to note, however, that the Company has seen an improvement in quarterly revenue since launching its' Plan, particularly in the recent quarters, as the Plan began to gain momentum. Operating expenses generally remain in line with the Company's Strategic Plan. PRIVATE WEALTH MANAGEMENT DIVISION: This division has served in the roles of executor and trustee while providing investment management, custodial, tax, retirement and financial services to its growing client base. Officers from the Private Wealth Management Division are available to provide trust and investment services at the Bank's corporate headquarters in Bedminster, at private banking locations in Bedminster, Morristown, Princeton and Teaneck, New Jersey and at the Bank's subsidiary, PGB Trust & Investments of Delaware in Greenville, Delaware. The following table presents certain key aspects of the Bank's Private Wealth Management Division performance for the quarters ended June 30, 2014 and 2013. Three Months Ended June 30, Change (In thousands) 2014 2013 2014 v 2013 Total fee income $ 4,005$ 3,628 $ 377



Salaries and benefits (included in

Operating Expenses section above) 1,288 1,236 52



Other operating expense (included in

Operating Expenses section above) 1,292 1,205 87 48 Index The following table presents certain key aspects of the Bank's Private Wealth Management Division performance for the six months ended June 30, 2014 and 2013. Six Months Ended June 30, Change (In thousands) 2014 2013 2014 v 2013 Total fee income $ 7,759$ 6,996 $ 763



Salaries and benefits (included in

Operating Expenses section above) 3,121 2,525



596

Other operating expense (included in

Operating Expenses section above) 2,661 2,590 71 Assets under administration (market value) $ 2,843,310$ 2,520,424$ 322,886



The market value of assets under administration for the Private Wealth Management Division was approximately $2.84 billion at June 30, 2014 compared to $2.52 billion at June 30, 2013, reflecting an increase of 12.8 percent.

The Private Wealth Management Division generated fee income of $4.0 million for the second quarter of 2014 compared to $3.6 million for the same quarter of 2013, an increase of $377 thousand or 10.4 percent. For the first six months of 2014, the Private Wealth Management Division generated fee income of $7.8 million, an increase of $763 thousand, or 10.9 percent, when compared to $7.0 million for the same 2013 period. The increase reflects increased relationships, a greater mix of higher margin business and an improvement in the market value of assets under management. While the "Operating Expenses" section above offers an overall discussion of the Corporation's expenses including the Private Wealth Management Division, operating expenses relative to the Private Wealth Management Division totaled $2.6 million and $2.4 million for the second quarters of 2014 and 2013, respectively, an increase of $139 thousand or 5.7 percent. Increased expenses are in line with the Company's Strategic Plan. For the six months ended June 30, 2014, other expenses for the Private Wealth Management Division totaled $5.8 million compared to $5.1 million for the same period in 2013, an increase of $667 thousand, or 13.0 percent. The Private Wealth Management Division currently generates adequate revenue to support the salaries, benefits and other expenses of the Division; however, Management believes that the Bank generates adequate liquidity to support the expenses of the Division should it be necessary. NONPERFORMING ASSETS: Other real estate owned (OREO), loans past due in excess of 90 days and still accruing, and nonaccrual loans are considered nonperforming assets. These assets totaled $7.6 million and $8.6 million at June 30, 2014 and December 31, 2013, respectively. 49 Index The following table sets forth asset quality data on the dates indicated (in thousands): As of June 30, March 31, Dec 31, Sept 30, June 30, 2014 2014 2013 2013 2013 Loans past due over 90 days and still accruing $ - $ - $ - $ - $ - Nonaccrual loans 6,536 7,473 6,630 6,891 8,075 Other real estate owned 1,036 2,062 1,941 2,759 3,347 Total nonperforming assets $ 7,572$ 9,535$ 8,571$ 9,650$ 11,422 Accruing TDR's $ 12,730$ 12,340$ 11,114$ 6,133$ 6,131



Loans past due 30 through 89

days and still accruing $ 1,536$ 5,027$ 2,953$ 2,039$ 1,544

Classified loans (A) $ 34,929$ 35,075$ 33,827



$ 32,430$ 32,123

Impaired loans (A) $ 19,813$ 19,814$ 17,744



$ 16,794$ 17,977

Nonperforming loans as a % of

total loans 0.35 % 0.42 % 0.42 % 0.49 % 0.64 % Nonperforming assets as a % of total assets 0.32 % 0.42 % 0.44 % 0.54 % 0.68 % Nonperforming assets as a % of



total loans plus other real

estate owned 0.40 % 0.54 % 0.54 % 0.69 % 0.91 %



(A) Classified loans include impaired loans.

We do not hold and have not made or invested in subprime loans or "Alt-A" type mortgages.

PROVISION FOR LOAN LOSSES: The provision for loan losses was $1.2 million for the second quarter of 2014 and $500 thousand for the same quarter of 2013. For the six months ended June 30, 2014 and 2013 the provision for loan losses was $2.5 million and $1.4 million, respectively. The amount of the loan loss provision and the level of the allowance for loan losses are based upon a number of factors including Management's evaluation of probable losses inherent in the portfolio, after consideration of appraised collateral values, financial condition and past credit history of the borrowers as well as prevailing economic conditions. Commercial credits carry a higher risk profile, which is reflected in Management's determination of the proper level of the allowance for loan losses.

The provision for loan losses of $1.2 million in the second quarter of 2014 was primarily related to the changes in the specific reserves on impaired loans and for loan growth experienced by the Corporation. The overall allowance for loan losses was $17.2 million as of June 30, 2014 compared to $15.4 million at December 31, 2013. As a percentage of loans, the allowance for loan losses was 0.92 percent as of June 30, 2014 and 0.98 percent as of December 31, 2013. The specific reserves on impaired loans have decreased to $1.0 million at June 30, 2014 compared to $1.7 million as of December 31, 2013. Total impaired loans were $19.8 million and $17.7 million as of June 30, 2014 and December 31, 2013, respectively. The general component of the allowance increased from $13.7 million at December 31, 2013 to $16.2 million at June 30, 2014. As a percentage of non-impaired loans, the general reserve remained relatively stable and was 0.88 percent at both June 30, 2014 and December 31, 2013. Although the Corporation has experienced loan growth, there has been a shift in the loan portfolio to less risky loans, such as commercial mortgage loans secured by multifamily properties, from the riskier loans that carry

higher general reserves. 50 Index A summary of the allowance for loan losses for the quarterly periods indicated follows: June 30, March 31, December 31, September 30, June 30, (In thousands) 2014 2014 2013 2013 2013



Allowance for loan losses:

Beginning of period $ 16,587$ 15,373$ 14,056

$ 13,438$ 13,279

Provision for loan losses 1,150 1,325 1,325 750 500 Charge-offs, net (533 ) (111 ) (8 ) (132 ) (341 ) End of period $ 17,204$ 16,587$ 15,373$ 14,056$ 13,438



Allowance for loan losses as

a % of total loans 0.92 % 0.94 % 0.98 % 1.01 % 1.07 %



Allowance for loan losses as

a % of nonperforming loans 263.22 % 221.96 % 231.87 % 203.98 % 166.41 %

INCOME TAXES: For the second quarters of 2014 and 2013, income tax expense as a percentage of pre-tax income was 40 percent and 35 percent, respectively. For the six months ended June 30, 2014 and 2013, income tax expense as a percentage of pre-tax income was 39 percent for both periods. CAPITAL RESOURCES: The Corporation's total shareholders' equity at June 30, 2014 was $182.3 million as compared to $170.7 million at December 31, 2013. Capital in the June 2014 six month period was benefitted by net income and by nearly $3.7 million of discretionary share purchases by participants in the Dividend Reinvestment Plan.



During the June 2014 quarter, the Company continued to employ the capital raised in December 2013 by continuing to grow loans.

A solid capital base provides the Corporation with the ability to support future growth and financial strength, and is essential to executing the Corporation's Strategic Plan - "Expanding Our Reach." As the Company continues to grow, it may raise additional capital in the future. The Corporation's capital strategy is intended to provide stability to expand its businesses, even in stressed environments. The Corporation strives to maintain capital levels in excess of those considered to be well capitalized under regulatory guidelines applicable to banks. Maintaining an adequate capital position supports the Corporation's goal of providing shareholders with an attractive and stable long-term return on investment. In addition, the Corporation, through the Bank, is subject to various regulatory capital requirements administered by the Federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation and the Bank's consolidated financial statements. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets and of Tier 1 Capital to average assets. For the second quarter of 2014, the Bank's capital ratios met or exceeded the minimum to be categorized as well capitalized under the regulatory framework for prompt corrective action. 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 June 30, 2014, the Bank's Tier 1 Capital and Total Capital ratios to risk-weighted assets were 12.53 percent and 13.78 percent, respectively, both in excess of the well-capitalized standards of 6.0 percent and 10.0 percent, respectively. The Federal Reserve Board ("FRB") has also established minimum leverage ratio guidelines. At June 30, 2014, the Bank's leverage ratio was 7.69 percent, in excess of the well-capitalized standard of 5.0 percent. 51 Index

As previously announced, on July 17, 2014, the Board of Directors declared a regular cash dividend of $0.05 per share payable on August 14, 2014 to shareholders of record on July 31, 2014. In addition, the Dividend Reinvestment Plan of Peapack-Gladstone Financial Corporation, or the Plan, allows shareholders of the Corporation to purchase additional shares of common stock using cash dividends without payment of any brokerage commissions or other charges. Shareholders may also make discretionary cash payments of up to $50,000 per quarter to purchase additional shares of common stock. The Plan is a continuing source of future capital. On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks. The rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.50 percent and a common equity Tier 1 capital conservation buffer of 2.50 percent of risk weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.00 percent to 6.00 percent and require a minimum leverage ratio of 4.00 percent. The final rules also implement strict eligibility criteria for regulatory capital instruments. The phase-in period for the final rules will begin for the Corporation on January 1, 2015, with full compliance with all of the final rule's requirements phased in over a multi-year schedule. Management expects that the Bank's capital levels will meet or exceed the levels required to be considered well-capitalized under the new capital requirements.



Management believes the Corporation's capital position and capital ratios are adequate.

LIQUIDITY: Liquidity refers to an institution's ability to meet short-term requirements including loan fundings, deposit withdrawals and maturing obligations, as well as long-term obligations, including potential capital expenditures. The Corporation's liquidity risk management is intended to ensure the Corporation has adequate funding and liquidity to support its assets across a range of market environments and conditions, including stressed conditions. Principal sources of liquidity include cash, temporary investments, brokered deposits, securities available for sale, deposit inflows, loan repayments and secured borrowings. Other liquidity sources include loan sales and loan participations. Management actively monitors and manages the Corporation's liquidity position and feels it is sufficient to meet future needs. Cash and cash equivalents, including federal funds sold and interest-earning deposits, totaled $215.6 million at June 30, 2014. In addition, the Corporation has $225.3 million in securities designated as available for sale at June 30, 2014, of which $171.2 million is unencumbered. These securities can be sold in response to liquidity concerns. In addition, the Corporation generates significant liquidity from scheduled and unscheduled principal repayments of loans and mortgage-backed securities. Another source of liquidity is borrowing capacity. As of June 30, 2014, unused borrowing capacity totaled $636.4 million from the FHLB and $28.8 million from correspondent banks. Asset growth in the first half of 2014 was funded by a diversified source of funding alternatives, including customer deposits, brokered CDs, investment securities cash flows and FHLB advances. Short-term brokered interest-bearing demand deposit balances provided additional funding in 2014. Brokered interest-bearing demand deposits have been utilized in place of wholesale overnight borrowings as a more cost effective alternative. The Company does ensure ample available collateralized liquidity as a backup to these short

term brokered deposits.



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

Management believes the Corporation's liquidity position and sources are adequate.

52 Index ASSET/LIABILITY MANAGEMENT: The Corporation's Asset/Liability Committee (ALCO) is responsible for developing, implementing and monitoring asset/liability management strategies and reports and advising the Board of Directors on such, as well as the related level of interest rate risk. In this regard, interest rate risk simulation models are prepared on a quarterly basis. These models have the ability to demonstrate balance sheet gaps, and predict changes to net interest income and economic/market value of portfolio equity under various interest rate scenarios. In addition, these models, as well as ALCO processes and reporting, are subject to annual independent third-party review. ALCO is generally authorized to manage interest rate risk through management of capital and management of cash flows and duration of assets and liabilities, including sales and purchases of assets, as well as additions of wholesale borrowings, brokered deposits, and other sources of medium/longer term funding. ALCO has also recently been authorized to engage in interest rate swaps as a means of extending the duration of shorter term liabilities. The following strategies are among those used to manage interest rate risk:



Actively market commercial and industrial loans, which tend to have adjustable

rate features, and which generate customer relationships that can result in

higher core deposit accounts;

Actively market commercial mortgage loans, which tend to have shorter terms and

higher interest rates than residential mortgage loans, and which generate

customer relationships that can result in higher core deposit accounts;

Manage growth in the residential mortgage portfolio to adjustable-rate and/or

shorter-term and/or "relationship: loans that result in core deposit

relationships;

Actively market core deposit relationships, which are generally longer duration

liabilities;

Utilize medium to longer term wholesale borrowings and/or brokered deposits to

extend liability duration;

Closely monitor and actively manage the investment portfolio, including

management of duration, prepayment and interest rate risk;

Maintain adequate levels of capital; and

Utilize loan sales and/or loan participations.

At this time, the Corporation is not engaged in hedging through the use of interest rate swaps, nor does it use interest rate caps and floors. However, as noted above, ALCO has been authorized to engage in interest rate swaps as a means of extending the duration of shorter term liabilities.

During the June quarter, the following was accomplished as part of the Company's overall balance sheet management strategy:

Approximately $67 million of unpaid principal balance (net of costs and fees)

of longer duration, lower coupon residential first mortgage loans were sold, as

part of the Company's strategy to de-emphasize residential first mortgage

lending, while benefitting its liquidity and interest rate risk positions.

A $61 million package of multifamily loan participations was executed. The $61

million represented a minority percentage of the principal balance of the

package of loans. This benefitted the Company's liquidity and interest rate

risk positions, and also benefitted the diversification of credit risk. In all

cases the Company retained the majority ownership of the loan, the client

relationship and the servicing of the entire loan. Given the Company's ability

to generate high quality multifamily loans, this participation strategy will

likely be utilized on an ongoing basis. Such a strategy provides for an avenue

to improve risk-adjusted returns through ongoing fees, coupled with risk

diversification and mitigation."

$80 million of longer term brokered certificates of deposit ("CDs") were added

principally to extend liabilities to benefit the Company's interest rate risk

position. 53 Index Excess cash on hand held as of June 30, 2014 resulted from the balance sheet management strategies noted above. This cash will be utilized to fund future growth. As noted above, ALCO uses simulation modeling to analyze the Corporation's net interest income sensitivity, as well as the Corporation's economic value of portfolio equity under various interest rate scenarios. The model is based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities. The model incorporates certain prepayment and interest rate assumptions, which Management believes to be reasonable as of June 30, 2014. The model assumes changes in interest rates without any proactive change in the balance sheet by Management. In the model, the forecasted shape of the yield curve remains static as of June 30, 2014. In an immediate and sustained 200 basis point increase in market rates at June 30, 2014, net interest income for year one would decline approximately six percent but improve approximately one-half of one percent for year two, compared to a flat interest rate scenario. In an immediate and sustained 100 basis point decrease in market rates at June 30, 2014, net interest income would decline approximately three percent in year one and six percent for year two, compared to a flat interest rate scenario. The table below shows the estimated changes in the Corporation's economic value of portfolio equity ("EVPE") that would result from an immediate parallel change in the market interest rates at June 30, 2014. Estimated Increase/ EVPE as a Percentage of (Dollars in thousands) Decrease in EVPE Present Value of Assets (2) Change in Interest Rates Estimated EVPE Increase/(Decrease) (Basis Points) EVPE (1) Amount Percent Ratio (3) (basis points) +200 $ 215,515$ (42,567 ) (16.49 )% 9.70 % (117.1 ) +100 240,638 (17,444 ) (6.76 ) 10.47 (40.2 ) Flat interest rates 258,082 - - 10.87 - -100 264,206 6,124 2.37 10.86 (1.0 )



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

liabilities.

(2) Present value of assets represents the discounted present value of incoming

cash flows on interest-earning assets.

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

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



Management believes the Corporation's interest rate risk position is reasonable.

54



Index


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