10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2008                            Commission File No. 000-23537

PEAPACK-GLADSTONE FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

New Jersey	22-2491488
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
158 Route 206
Gladstone, New Jersey	07934
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number (908) 234-0700

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Exchange on which Registered
Common Stock, No par value	NASDAQ Global Select Markets

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No ý .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No ý.

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 ý  No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K o.

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

Large accelerated filer o	Accelerated filer ý
Non-accelerated filer o	Smaller reporting company o

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

The aggregate market value of the shares held by unaffiliated stockholders was approximately $171,991,650 on June 30, 2008.

As of February 28, 2009, 8,299,249 shares of no par value Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Corporation’s 2008 Annual Report to shareholders (the “2008 Annual Report”) and Definitive Proxy Statement for the Corporation’s 2009 Annual Meeting of Shareholders (the “2009 Proxy Statement”) are incorporated by reference into Parts II and III.  The Corporation will file the 2009 Proxy Statement within 120 days of December 31, 2008.

FORM 10-K

PEAPACK-GLADSTONE FINANCIAL CORPORATION

For the Year Ended December 31, 2008

Table of Contents

PART I
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
PART II
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	18
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	18
Item 8.	Financial Statements and Supplementary Data	18
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	18
Item 9A.	Controls and Procedures	18
Item 9B.	Other Information	19
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	19
Item 11.	Executive Compensation	19
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	20
Item 13.	Certain Relationships and Related Transactions, and Director Independence	20
Item 14.	Principal Accountant Fees and Services	20
PART IV
Item 15.	Exhibits and Financial Statement Schedules	.21
	Signatures	23

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This Form 10-K contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Corporation.  Such statements are not historical facts and include expressions about the Corporation’s confidence, strategies and expectations about earnings, new and existing programs and products, relationships, opportunities, technology and market conditions.  These statements may be identified by forward-looking terminology such as “expect,” “believe,” or “anticipate,” or expressions of confidence like “strong,” or “on-going,” or similar statements or variations of such terms.  Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities:

· Impairment charges with respect to securities.

· Unanticipated costs in connection with new branch openings.

· Further deterioration of the economy.

· Decline in commercial and residential real estate values.

· Unexpected changes in interest rates.

· Inability to manage growth in commercial loans.

· Unexpected loan prepayment volume.

· Unanticipated exposure to credit risks.

· Insufficient allowance for loan losses.

· Competition from other financial institutions.

· Adverse effects of government regulation or different than anticipated effects from existing regulations.

· Passage by Congress of a law which unilaterally amends the terms of the Treasury’s investment in us in a way that adversely affects us.

· A decline in the levels of loan quality and origination volume.

· A decline in trust assets or deposits.

· Other unexpected events.

The Corporation assumes no responsibility to update such forward-looking statements in the future.

PART I

Item 1. BUSINESS

The Corporation

Peapack-Gladstone Financial Corporation (the “Corporation”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (“Holding Company Act”).  The Corporation was organized under the laws of New Jersey in August 1997, by the Board of Directors of Peapack-Gladstone Bank (the “Bank”), its principal subsidiary, to become a holding company for the Bank.  The Bank is a state chartered commercial bank founded in 1921 under the laws of the State of New Jersey.  Noninterest-bearing deposits have unlimited FDIC insurance through 2009, while interest-bearing deposits of the Bank are insured for up to $250,000 per depositor by the FDIC.  The Bank is a member of the Federal Reserve System.  The Bank offers financial services through 22 full-service banking offices, and one mini-branch.  The Bank maintains ten branches and one auxiliary office in Somerset County, six in Morris County, four in Hunterdon County, one in Middlesex County and one in Union County.

The Bank is primarily dedicated to providing quality, personalized financial, trust and investment services to individuals and small businesses.

Commercial loan customers of the Bank are business people, including merchants, architects, doctors, dentists, attorneys and building contractors as well as various service firms and other local retailers.  Most forms of commercial lending are offered, including working capital lines of credit, term loans for fixed asset acquisitions, commercial mortgages and other forms of asset-based financing.

In addition to commercial lending activities, the Bank offers a wide range of consumer banking services, including:  checking and savings accounts, money market and interest-bearing checking accounts, certificates of deposit, and individual retirement accounts held in certificates of deposit.  The Bank also offers residential and construction mortgages, home equity lines of credit and other second mortgage loans.  For children, the Bank offers a special pony club savings account.  New Jersey Consumer Checking Accounts are offered to low income customers.  In addition, the Bank provides foreign and domestic travelers' checks, cashier's checks and wire transfers.  Automated teller machines are available at 22 locations.  Via the automatic teller machine access card issued by the Bank, customers may pay for commodities at point-

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of-sale merchant locations.  Internet banking is available to customers including an online bill payment option.  The Corporation has no foreign operations.

The Bank has a Trust and Investment Department, PGB Trust and Investments, which offers personal investment management services, personal trust administration services, estate settlement, income tax services, custodial services and other financial planning services.  Since its inception in 1972, market value of trust assets have increased to almost $1.80 billion.

The Corporation makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to such reports, available free of charge on its website at www.pgbank.com.  Also available on the website are the Corporation’s Code of Business Conduct and Ethics, Corporate Governance Principles and charters for the Corporation’s Audit Committee, Compensation Committee and Nominating Committee.

Employees

As of December 31, 2008, the Corporation employed 278 full-time equivalent persons.  Management considers relations with employees to be satisfactory.

Principal Market Areas

The Bank's principal market for its deposit gathering activities includes Somerset, Morris, Hunterdon, Middlesex and Union Counties.  The area is composed of upper-income single-family homes, moderate-income properties, some low-income housing and several large corporate campuses.  There are numerous small retail businesses in each of the towns as well as offices for various professionals, i.e. attorneys, architects, interior decorators, physicians, etc.  A portion of the market area is bisected by Interstate Highways 287 and 78 where numerous corporate offices have relocated over the past 25 years.

The Bank has expanded its service areas from one office in 1968 to the present 22 full-service banking locations and one mini-branch location by steadily opening new branches.  All of the communities that the Bank serves are demographically similar and contiguous to the main office.

Competition

The market for banking and bank-related services is highly competitive.  The Bank competes with other providers of financial services such as other bank holding companies, commercial and savings banks, savings and loan associations, credit unions, money market and mutual funds, mortgage companies, and a growing list of other local, regional and national institutions which offer financial services.  Mergers between financial institutions within New Jersey and in neighboring states have added competitive pressure.  The Bank competes by offering quality products and convenient services at competitive prices.  In order to maintain and enhance its competitive position, the Bank regularly reviews its products, locations and new branching prospects.

Governmental Policies and Legislation

The banking industry is highly regulated.  Statutory and regulatory controls increase a bank holding company’s cost of doing business and limit the options of its management to deploy assets and maximize income.  Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, in state legislatures and before various bank regulatory agencies.  The likelihood of any major changes and the impact such changes might have on the Corporation or the Bank is impossible to predict.  The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on the Bank.  It is intended only to briefly summarize some material provisions.

Capital Requirements

The Federal Reserve Board has adopted risk-based capital guidelines for banks and bank holding companies.  The minimum guideline for the ratio of total capital to risk-weighted assets is 8%.  At least half of the total capital is to be comprised of common stock, retained earnings, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and certain other intangibles ("Tier 1 Capital").  The remainder may consist of other preferred stock, certain other instruments and a portion of the loan loss allowance.  At December 31, 2008, the Corporation’s Tier 1 Capital and Total Capital ratios were 9.11% and 10.05%, respectively.

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In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for banks and bank holding companies.  These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets of 3% for banks that meet certain specified criteria, including having the highest regulatory rating.  All other banks and bank holding companies generally are required to maintain a leverage ratio of at least 3% plus an additional cushion of 100 to 200 basis points.  The Corporation's leverage ratio at December 31, 2008 was 6.15%.

FDICIA

Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each federal banking agency has promulgated regulations, specifying the levels at which a financial institution would be considered “well capitalized," "adequately capitalized," "undercapitalized," “significantly undercapitalized,” and "critically undercapitalized,” and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution.  The regulations implementing these provisions of FDICIA provide that a bank is defined to be “well capitalized” if it maintains a leverage ratio of at least 5%, a risk-adjusted Tier 1 capital ratio of at least 6% and a risk-adjusted total capital ratio of at least 10% and is not otherwise in a "troubled condition" as specified by its appropriate federal regulatory agency.  A bank is defined to be “adequately capitalized” if it meets other minimum capital requirements.  In addition, a depository institution will be considered “undercapitalized” if it fails to meet any minimum required measure, “significantly undercapitalized” if it is significantly below such measure and “critically undercapitalized” if it fails to maintain a level of tangible equity equal to not less than 2% of total assets.  A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.

Insurance Funds Legislation

The Corporation’s wholly-owned subsidiary, the Peapack-Gladstone Bank, is a member of the Deposit Insurance Fund of the FDIC.  The Deposit Insurance Fund was formed in 2006 when the FDIC merged the Bank Insurance Fund (“BIF”) with the Savings Association Insurance Fund (“SAIF”) as a requirement of the Federal Deposit Insurance Reform Act of 2005.

Troubled Asset Relief Program Capital Purchase Program

In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law. Pursuant to the EESA, the U.S. Treasury was given the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 14, 2008, the Secretary of the U.S. Department of the Treasury announced that the Treasury will purchase equity stakes in a wide variety of banks and thrifts. Under the program, known as the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”), from the $700 billion authorized by the EESA, the Treasury made $250 billion of capital available to U.S. financial institutions in the form of preferred stock. In conjunction with the purchase of preferred stock, the Treasury received, from participating financial institutions, warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions were required to adopt the Treasury’s standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under the TARP Capital Purchase Program.

We decided to enter into a Securities Purchase Agreement with the Treasury that provides for our participation in the TARP Capital Purchase Program.  On January 9, 2009, the Corporation issued and sold to the Treasury 28,685 shares of the Corporation Fixed Rate Cumulative Perpetual Preferred Stock, with a liquidation preference of $1 thousand per share, and a ten-year warrant to purchase up to 143,139 shares of the Corporation’s common stock at an exercise price of $30.06 per share. Under the terms of the TARP program, the Treasury’s consent will be required for any increase in our dividends paid to common stockholders (above a quarterly dividend of $0.16 per common share) or the Corporation’s redemption, purchase or acquisition its common stock until the third anniversary of the Corporation’s senior preferred share issuance to the Treasury unless prior to such third anniversary the senior preferred shares are redeemed in whole or the Treasury has transferred all of these shares to third parties.

Participants in the TARP Capital Purchase Program were required to accept several compensation-related limitations associated with this Program.  Each of our senior executive officers in January 2009 agreed in writing to accept the compensation standards in existence at that time under the program and thereby cap or eliminate some of their contractual or legal rights.  The provisions agreed to were as follows:

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· No golden parachute payments.  “Golden parachute payment” under the TARP Capital Purchase Program means a severance payment resulting from involuntary termination of employment, or from bankruptcy of the employer, that exceeds three times the terminated employee’s average annual base salary over the five years prior to termination.  Our senior executive officers have agreed to forego all golden parachute payments for as long as two conditions remain true: They remain “senior executive officers” (CEO, Chief Financial Officer and the next three highest-paid executive officers), and the Treasury continues to hold our equity or debt securities we issued to it under the TARP Capital Purchase Program (the period during which the Treasury holds those securities is the “TARP Capital Purchase Program Covered Period.”).

· Recovery of EIP Awards and Incentive Compensation if Based on Certain Material Inaccuracies. Our senior executive officers have also agreed to a “clawback provision,” which means that we can recover incentive compensation paid during the TARP Capital Purchase Program Covered Period that is later found to have been based on materially inaccurate financial statements or other materially inaccurate measurements of performance.

· No Compensation Arrangements That Encourage Excessive Risks.  During the TARP Capital Purchase Program Covered Period, we are not allowed to enter into compensation arrangements that encourage senior executive officers to take “unnecessary and excessive risks that threaten the value” of our company.  To make sure this does not happen, the Corporation’s Compensation Committee is required to meet at least once a year with our senior risk officers to review our executive compensation arrangements in the light of our risk management policies and practices.  Our senior executive officers’ written agreements include their obligation to execute whatever documents we may require in order to make any changes in compensation arrangements resulting from the Compensation Committee’s review.

· Limit on Federal Income Tax Deductions.  During the TARP Capital Purchase Program Covered Period, we are not allowed to take federal income tax deductions for compensation paid to senior executive officers in excess of $500,000 per year, with certain exceptions that do not apply to our senior executive officers.  This represents a 50% reduction in the income tax deductibility limit and the elimination of the exemption for performance-based compensation.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (the “Stimulus Act”) into law.  The Stimulus Act modified the compensation-related limitations contained in the TARP Capital Purchase Program, created additional compensation-related limitations and directed the Secretary of the Treasury to establish standards for executive compensation applicable to participants in TARP, regardless of when participation commenced.  Thus, the newly enacted compensation-related limitations are applicable to the Corporation and to the extent the Treasury may implement these restrictions unilaterally the Corporation will apply these provisions.  The provisions may be retroactive.  In their January 2009 agreements our executives did not waive their contract or legal rights with respect to these new and retroactive provisions; other officers now covered by these provisions were not asked and did not agree to waive their contract or legal rights.  The compensation-related limitations applicable to the Corporation which have been added or modified by the Stimulus Act are as follows, which provisions must be included in standards established by the Treasury:

· No severance payments.  Under the Stimulus Act “golden parachutes” were redefined as any severance payment resulting from involuntary termination of employment, or from bankruptcy of the employer, except for payments for services performed or benefits accrued.  Consequently under the Stimulus Act the Corporation is prohibiting from making any severance payment to our “senior executive officers” (defined in the Stimulus Act as the five highest paid senior executive officers) and our next 5 most highly compensated employees during the TARP Capital Purchase Program Covered Period.

· Recovery of Incentive Compensation if Based on Certain Material Inaccuracies. The Stimulus Act also contains the “clawback provision” discussed above but extends its application to any bonus awards and other incentive compensation paid to any of our 5 most highly compensated employees during the TARP Capital Purchase Program Covered Period that is later found to have been based on materially inaccurate financial statements or other materially inaccurate measurements of performance.

· No Compensation Arrangements That Encourage Earnings Manipulation.  Under the Stimulus Act, during the TARP Capital Purchase Program Covered Period, we are not allowed to enter into compensation arrangements that encourage manipulation of the reported earnings of the Corporation to enhance the compensation of any of our employees.

· Limit on Incentive Compensation.  The Stimulus Act contains a provision that prohibits the payment or accrual of any bonus, retention award or incentive compensation to any of our 5 most highly compensated employees during the TARP Capital Purchase Program Covered Period other than awards of long-term restricted stock that (i) do not fully

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vest during the TARP Capital Purchase Program Covered Period, (ii) has a value not greater than one-third of the total annual compensation of the awardee and (iii) is subject to such other restrictions as determined by the Secretary of the Treasury.  We do not know whether the award of incentive stock options is covered by this prohibition.  The prohibition on bonus, incentive compensation and retention awards does not preclude payments required under written employment contracts entered into on or prior to February 11, 2009.

· Compensation Committee Functions.  The Stimulus Act requires that our Compensation Committee be comprised solely of independent directors and that it meet at least semiannually to discuss and evaluate our employee compensation plans in light of an assessment of any risk posed to us from such compensation plans.

· Compliance Certifications.  The Stimulus Act also requires a written certification by our Chief Executive Officer and Chief Financial Officer of our compliance with the provisions of the Stimulus Act.  These certifications must be contained in the Corporation’s Annual Report on Form 10-K.

· Treasury Review Excessive Bonuses Previously Paid.  The Stimulus Act directs the Secretary of the Treasury to review all compensation paid to our 5 most highly compensated employees to determine whether any such payments were inconsistent with the purposes of the Stimulus Act or were otherwise contrary to the public interest.  If the Secretary of the Treasury makes such a finding, the Secretary of the Treasury is directed to negotiate with the TARP Capital Purchase Program recipient and the subject employee for appropriate reimbursements to the federal government with respect to the compensation and bonuses.

· Say on Pay.  Under the Stimulus Act the SEC is required to promulgate rules requiring a non-binding say on pay vote by the shareholders on executive compensation at the annual meeting during the TARP Capital Purchase Program Covered Period.

The Board of Governors of the Federal Reserve System has recently issued a supervisory letter to bank holding companies that contains guidance on when the board of directors of a bank holding company should eliminate or defer or severely limit dividends including, for example, when net income available for shareholders for the past four quarters, net of previously paid dividends paid during that period, is not sufficient to fully fund the dividends.  The letter also contains guidance on the redemption of stock by bank holding companies, which urges bank holding companies to advise the Federal Reserve of any such redemption or repurchase of common stock for cash or other value which results in the net reduction of a bank holding company’s capital at the beginning of the quarter below the capital outstanding at the end of the quarter.

Restrictions on the Payment of Dividends

As described in more detail under the heading “Troubled Asset Relief Capital Purchase Program,” above, as long as there are senior preferred shares outstanding, no dividends may be paid on our common stock unless all dividends on the senior preferred shares have been paid in full.  The dividends declared on our fixed rate preferred shares will reduce the net income available to common shareholders and our earnings per common share.  Additionally, warrants to purchase Peapack-Gladstone common stock issued to the Treasury, in conjunction with the preferred shares, may be dilutive to our earnings per share.  The senior preferred shares will also receive preferential treatment in the event of liquidation, dissolution or winding up of the Corporation.

The holders of the Corporation’s common stock are entitled to receive dividends, when, as and if declared by the Board of Directors of the Corporation out of funds legally available.  The only statutory limitation is that such dividends may not be paid when the Corporation is insolvent.  Since the principal source of income for the Corporation will be dividends on Bank common stock paid to the Corporation by the Bank, the Corporation’s ability to pay dividends to its shareholders will depend on whether the Bank pays dividends to it.  As a practical matter, restrictions on the ability of the Bank to pay dividends act as restrictions on the amount of funds available for the payment of dividends by the Corporation.  As a New Jersey chartered commercial bank, the Bank is subject to the restrictions on the payment of dividends contained in the New Jersey Banking Act of 1948, as amended (the “Banking Act”).  Under the Banking Act, the Bank may pay dividends only out of retained earnings, and out of surplus to the extent that surplus exceeds 50% of stated capital.  Under the Financial Institutions Supervisory Act, the FDIC has the authority to prohibit a state-chartered bank from engaging in conduct that, in the FDIC’s opinion, constitutes an unsafe or unsound banking practice.  Under certain circumstances, the FDIC could claim that the payment of a dividend or other distribution by the Bank to the Corporation constitutes an unsafe or unsound practice.  The Corporation is also subject to FRB policies, which may, in certain circumstances, limit its ability to pay dividends.  The FRB policies require, among other things, that a bank holding company maintain a minimum capital base.

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The FRB would most likely seek to prohibit any dividend payment that would reduce a holding company’s capital below these minimum amounts.

Holding Company Supervision

The Corporation is a bank holding company within the meaning of the Holding Company Act.  As a bank holding company, the Corporation is supervised by the FRB and is required to file reports with the FRB and provide such additional information as the FRB may require.

The Holding Company Act prohibits the Corporation, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking “as to be a proper incident thereto.”  The Holding Company Act requires prior approval by the FRB of the acquisition by the Corporation of more than five percent of the voting stock of any additional bank.  Satisfactory capital ratios, Community Reinvestment Act ratings and anti-money laundering policies are generally prerequisites to obtaining federal regulatory approval to make acquisitions.  The policy of the FRB provides that a bank holding company is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support the subsidiary bank in circumstances in which it might not do so absent that policy.  Acquisitions through the Bank require the approval of the FDIC and the New Jersey Department of Banking and Insurance (“NJDOBI”).

Temporary Liquidity Guarantee Program

On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (“TLG Program”). The TLG Program was announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by the Secretary of the U.S. Department of the Treasury (after consultation with the President), as an initiative to counter the system-wide crisis in the nation’s financial sector.  Under the TLG Program the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008, and before June 30, 2009 and (ii) provide full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts, NOW accounts paying less than 0.50% interest per annum and Interest on Lawyers Trust Accounts held at participating FDIC-insured institutions through December 31, 2009.  Coverage under the TLG Program was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt.  The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000.  During the first week of December 2008, we elected to participate in both guarantee programs.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) added new legal requirements for public companies affecting corporate governance, accounting and corporate reporting.

The Sarbanes-Oxley Act provides for, among other things:

· a prohibition on personal loans made or arranged by the issuer to its directors and executive officers (except for loans made by a bank subject to Regulation O);

· independence requirements for audit committee members;

· independence requirements for company auditors;

· certification of financial statements within the Annual Report on Form 10-K and Quarterly Reports on Form 10-Q by the chief executive officer and the chief financial officer;

· the forfeiture by the chief executive officer and the chief financial officer of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by such officers in the twelve month period following initial publication of any financial statements that later require restatement due to corporate misconduct;

· disclosure of off-balance sheet transactions;

· two-business day filing requirements for insiders filing on Form 4;

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· disclosure of a code of ethics for financial officers and filing a Current Report on Form 8-K for a change in or waiver of such code;

· the reporting of securities violations “up the ladder” by both in-house and outside attorneys;

· restrictions on the use of non-GAAP financial measures in press releases and SEC filings’

· the formation of a public accounting oversight board;

· various increased criminal penalties for violations of securities laws;

· an assertion by management with respect to the effectiveness of internal control over financial reporting; and

· a report by the company’s external auditor on management’s assertion and the effectiveness of internal control over financial reporting.

Each of the national stock exchanges, including the NationalAssociation of Securities Dealers Automated Quotations (NASDAQ) Global Select Market where the Corporation’s securities are listed, have implemented corporate governance listing standards, including rules strengthening director independence requirements for boards, and requiring the adoption of charters for the nominating and audit committees.

USA PATRIOT Act

As part of the USA PATRIOT Act, Congress adopted the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the “Anti Money Laundering Act”). The Anti Money Laundering Act authorizes the Secretary of the Treasury, in consultation with the heads of other government agencies, to adopt special measures applicable to financial institutions such as banks, bank holding companies, broker-dealers and insurance companies. Among its other provisions, the Anti Money Laundering Act requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering in United States private banking accounts and correspondent accounts maintained for non-United States persons or their representatives; and (iii) to avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, a foreign shell bank that does not have a physical presence in any country. In addition, the Anti Money Laundering Act expands the circumstances under which funds in a bank account may be forfeited and requires covered financial institutions to respond under certain circumstances to requests for information from federal banking agencies within 120 hours.

Regulations implementing the due diligence requirements, require minimum standards to verify customer identity and maintain accurate records, encourage cooperation among financial institutions, federal banking agencies, and law enforcement authorities regarding possible money laundering or terrorist activities, prohibit the anonymous use of “concentration accounts,” and requires all covered financial institutions to have in place an anti-money laundering compliance program. Federal and state banking agencies have strictly enforced various anti-money laundering and suspicious activity reporting requirements using formal and informal enforcement tools to cause banks to comply with these provisions.

The Anti Money Laundering Act amended the Bank Holding Company Act and the Bank Merger Act to require the federal banking agencies to consider the effectiveness of any financial institution involved in a proposed merger transaction in combating money laundering activities when reviewing an application under these acts.  

Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Financial Modernization Act of 1999 (“Modernization Act”) became effective in early 2000. The Modernization Act:

· allows bank holding companies meeting management, capital and Community Reinvestment Act standards to engage in a substantially broader range of non-banking activities than was previously permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies;

· allows insurers and other financial services companies to acquire banks;

· removes various restrictions that previously applied to bank holding company ownership of securities firms and mutual fund advisory companies; and

· establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations.

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If a bank holding company elects to become a financial holding company, it files a certification, effective in 30 days, and thereafter may engage in certain financial activities without further approvals. The Corporation has not elected to become a financial holding company.

The Modernization Act modified other financial laws, including laws related to financial privacy and community reinvestment.

The information set forth in the 2008 Annual Report under the heading “Segment Information” is incorporated by reference herein.

Item 1A.         RISK FACTORS

The material risks and uncertainties that management believes affect the Corporation are described below.  These risks and uncertainties are not the only ones affecting the Corporation.  Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Corporation’s business operations.  This report is qualified in its entirety by these risk factors.  If any one or more of the following risks actually occur, the Corporation’s financial condition and results of operations could be materially and adversely affected.

Recent negative developments in the financial services industry and U.S. and global credit markets may adversely impact our operations and results.

Negative developments in the latter half of 2007 and the year of 2008 in the capital markets have resulted in uncertainty in the financial markets in general with the expectation of the general economic downturn continuing in 2009. Loan portfolio performances have deteriorated at many institutions resulting from, amongst other factors, a weak economy and a decline in the value of the collateral supporting their loans. The competition for our deposits has increased significantly due to liquidity concerns at many of these same institutions. Stock prices of bank holding companies, like ours, have been negatively affected by the current condition of the financial markets, as has our ability, if needed, to raise capital or borrow in the debt markets compared to recent years.  As a result, there is a potential for new federal or state laws and regulations regarding lending and funding practices and liquidity standards, and financial institution regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement actions.  Negative developments in the financial services industry and the impact of new legislation in response to those developments could negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance.

Substantially all of our business is with customers located within Morris, Somerset, Middlesex, Union and Hunterdon Counties and contiguous counties. Generally, we make loans to small to mid-sized businesses, most of whose success depends on the regional economy. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities.  Adverse economic and business conditions in our market area could reduce our growth rate, affect our borrowers' ability to repay their loans and, consequently, adversely affect our financial condition and performance.  Further, we place substantial reliance on real estate as collateral for our loan portfolio.  A sharp downturn in real estate values in our market area could leave many of our loans under-secured. If we are required to liquidate the collateral to satisfy the debt securing a loan during a period of reduced real estate values, our earnings could be adversely affected.

Continuing declines in the fair value of securities may require classification to other-than-temporary impaired status.

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses and results in a new cost basis being established.  In estimating other-than-temporary losses, 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 the Corporation’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Securities are evaluated on at least a quarterly basis to determine whether a decline in their value 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 are 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 is recognized.

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If our allowance for loan losses were not sufficient to cover actual loan losses, our earnings would decrease.

We maintain an allowance for loan losses based on, among other things, national and regional economic conditions, and historical loss experience and delinquency trends among loan types.  However, we cannot predict loan losses with certainty and we cannot assure you that charge-offs in future periods will not exceed the allowance for loan losses. In addition, regulatory agencies, as an integral part of their examination process, review our allowance for loan losses and may require additions to the allowance based on their judgment about information available to them at the time of their examination.  Factors that require an increase in our allowance for loan losses could reduce our earnings.

Changes in interest rates may adversely affect our earnings and financial condition.

Our net income depends primarily upon our net interest income. Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds.

Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest income. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets.

We may not be able to continue to grow our business, which may adversely impact our results of operations.

Our business strategy calls for continued expansion.  Our ability to continue to grow depends, in part, upon our ability to open new branch locations, successfully attract deposits to existing and new branches, and identify favorable loan and investment opportunities. In the event that we do not continue to grow, our results of operations could be adversely impacted.

We may not be able to manage our growth, which may adversely impact our financial results.

As part of our expansion strategy, we plan to open new branches in our existing and target markets.  However, we may be unable to identify attractive locations on terms favorable to us or to hire qualified management to operate the new branches. In addition, the organizational and overhead costs may be greater than we anticipated or we may not be able to obtain the regulatory approvals necessary to open new branches. New branches may take longer than expected to reach profitability, and we cannot assure that they will become profitable.  The additional costs of starting new branches may adversely impact our financial results.

Our ability to manage growth successfully will depend on whether we can continue to fund this growth while maintaining cost controls and asset quality, as well as on factors beyond our control, such as national and regional economic conditions and interest rate trends.  If we are not able to control costs and maintain asset quality, such growth could adversely impact our earnings and financial condition.

The Corporation is required by Federal regulatory authorities to maintain adequate levels of capital to support its operations.  The Corporation may at some point need to raise additional capital to support continued growth.  The Corporation's ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside the Corporation's control, and on its financial performance.  Accordingly, the Corporation cannot assure you of its ability to raise additional capital if needed or on terms acceptable to the Corporation.  If the Corporation cannot raise additional capital when needed, the ability to further expand its operations could be materially impaired.

Our exposure to credit risk could adversely affect our earnings and financial condition.

There are certain risks inherent in making loans.  These risks include interest rate changes over the time period in which loans may be repaid, risks resulting from changes in the economy, risks inherent in dealing with borrowers and, in the case of a loan backed by collateral, risks resulting from uncertainties about the future value of the collateral.

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Competition from other financial institutions in originating loans and attracting deposits may adversely affect our profitability.

We face substantial competition in originating loans.  This competition comes principally from other banks, savings institutions, mortgage banking companies and other lenders.  Many of our competitors enjoy advantages, including greater financial resources and higher lending limits, a wider geographic presence, and more accessible branch office locations.

In attracting deposits, we face substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds.  Many of our competitors enjoy advantages, including greater financial resources, more aggressive marketing campaigns, better brand recognition and more branch locations.  These competitors may offer higher interest rates than we do, which could decrease the deposits that we attract or require us to increase our rates to retain existing deposits or attract new deposits.  Increased deposit competition could adversely affect our ability to generate the funds necessary for lending operations and increase our cost of funds.

We also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies, insurance companies and governmental organizations, which may offer more favorable terms.  Some of our non-bank competitors are not subject to the same extensive regulations that govern our operations.  As a result, such non-bank competitors may have advantages over us in providing certain products and services.  This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our earnings and financial condition.

Government regulation significantly affects our business.

The banking industry is extensively regulated.  Banking regulations are intended primarily to protect depositors, and the FDIC deposit insurance funds, not the shareholders of the Corporation.  We are subject to regulation and supervision by the New Jersey Department of Banking and Insurance and the Federal Reserve Bank.  Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and growth.  The bank regulatory agencies possess broad authority to prevent or remedy unsafe or unsound practices or violations of law.  We are subject to various regulatory capital requirements, which involve both quantitative measures of our assets and liabilities and qualitative judgments by regulators regarding risks and other factors.  Failure to meet minimum capital requirements or comply with other regulations could result in actions by regulators that could adversely affect our ability to pay dividends or otherwise adversely impact operations.  In addition, changes in laws, regulations and regulatory practices affecting the banking industry may limit the manner in which we conduct our business. Such changes may adversely affect us, including our ability to offer new products and services, obtain financing, attract deposits, make loans and achieve satisfactory spreads and impose additional costs on us.

The Bank is also subject to a number of Federal laws, which, among other things, require it to lend to various sectors of the economy and population, and establish and maintain comprehensive programs relating to anti-money laundering and customer identification.  The Bank's compliance with these laws will be considered by the Federal banking regulators when reviewing bank merger and bank holding company acquisitions or commence new activities or make new investment in reliance on the Gramm-Leach-Bliley Act.  As a public company, we are also subject to the corporate governance standards set forth in the Sarbanes-Oxley Act of 2002, as well as any rules or regulations promulgated by the SEC or the NASDAQ Stock Market.

The price of our common stock may fluctuate.

The price of our common stock on the NASDAQ Global Select Market constantly changes and recently, given the uncertainty in the financial markets, has fluctuated widely. We expect that the market price of our common stock will continue to fluctuate. Holders of our common stock will be subject to the risk of volatility and changes in prices.

Our common stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors include:

· quarterly fluctuations in our operating and financial results;

· operating results that vary from the expectations of management, securities analysts and investors;

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· changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

· events negatively impacting the financial services industry which result in a general decline in the market valuation of our common stock;

· announcements of material developments affecting our operations or our dividend policy;

· future sales of our equity securities;

· new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

· changes in accounting standards, policies, guidance, interpretations or principles; and

· general domestic economic and market conditions.

In addition, recently the stock market generally has experienced extreme price and volume fluctuations, and industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause our stock price to decrease regardless of our operating results.

We are subject to liquidity risk.

Liquidity risk is the potential that we will be unable to meet our obligations as they become due, capitalize on growth opportunities as they arise, or pay regular dividends because of an inability to liquidate assets or obtain adequate funding in a timely basis, at a reasonable cost and within acceptable risk tolerances.

Liquidity is required to fund various obligations, including credit commitments to borrowers, mortgage and other loan originations, withdrawals by depositors, repayment of borrowings, dividends to shareholders, operating expenses and capital expenditures.

Liquidity is derived primarily from retail deposit growth and retention; principal and interest payments on loans; principal and interest payments; sale, maturity and prepayment of investment securities; net cash provided from operations and access to other funding sources.

Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced by banking organizations in the domestic and worldwide credit markets deteriorates.

Our preferred shares impact net income available to our common stockholders and our earnings per share.

As long as there are senior preferred shares outstanding, no dividends may be paid on our common stock unless all dividends on the senior preferred shares have been paid in full.  The dividends declared on our fixed rate preferred shares will reduce the net income available to common shareholders and our earnings per common share.  Additionally, warrants to purchase Peapack-Gladstone common stock issued to the Treasury, in conjunction with the preferred shares, may be dilutive to our earnings per share.  The senior preferred shares will also receive preferential treatment in the event of liquidation, dissolution or winding up of the Corporation.

The holders of the Corporation's common stock are entitled to receive dividends, when, as and if declared by the Board of Directors of the Corporation out of funds legally available. Although we have historically declared cash dividends on our common stock, we are not required to do so and our Board of Directors may reduce or eliminate our common stock dividend in the future.  We are restricted by the terms of the senior preferred stock from increasing our quarterly common stock dividend above $0.16 per share.  This could adversely affect the market price of our common stock.

We are prohibited by statute from paying dividends when the Corporation is insolvent. Since the principal source of income for the Corporation will be dividends on Bank common stock paid to the Corporation by the Bank, the Corporation's ability to pay dividends to its shareholders will depend on  whether the Bank pays dividends to it.  As a practical matter,

13

restrictions on the ability of the Bank to pay dividends act as restrictions on the amount of funds available for the payment of dividends by the Corporation.  As a New Jersey-chartered commercial bank, the Bank is subject to the restrictions on the payment of dividends contained in the New Jersey Banking Act of 1948, as amended.  Under the Banking Act, the Bank may pay dividends only out of retained earnings, and out of surplus to the extent that surplus exceeds 50% of stated capital. The Corporation is also subject to FRB policies, which may, in certain circumstances, limit its ability to pay dividends. The FRB policies require, among other things, that a bank holding company maintain a minimum capital base. The FRB would most likely seek to prohibit any dividend payment that would reduce a holding company's capital below these minimum amounts.

Future offerings of debt or other securities may adversely affect the market price of our stock.

In the future, we may attempt to increase our capital resources or, if our or the Bank’s capital ratios fall below the required minimums, we or the Bank could be forced to raise additional capital by making additional offerings of debt or preferred equity securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred stock.  Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock.  Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both.  Holders of our common stock are not entitled to preemptive rights or other protections against dilution.

We may lose lower-cost funding sources.

Checking, savings, and money market deposit account balances and other forms of customer deposits can decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff.  If customers move money out of bank deposits and into other investments, we could lose a relatively low cost source of funds, increasing our funding costs and reducing our net interest income and net income.

There may be changes in accounting policies or accounting standards.

Our accounting policies are fundamental to understanding our financial results and condition.  Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.  We identified our accounting policies regarding the allowance for loan losses, goodwill and other intangible assets, and income taxes to be critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain.  Under each of these policies, it is possible that materially different amounts would be reported under different conditions, using different assumptions, or as new information becomes available.

From time to time the Financial Accounting Standards Board and the Securities and Exchange Commission change the financial accounting and reporting standards that govern the form and content of our external financial statements.  In addition, accounting standard setters and those who interpret the accounting standards (such as the FASB, SEC, banking regulators and our independent auditors) may change or even reverse their previous interpretations or positions on how these standards should be applied.  Changes in financial accounting and reporting standards and changes in current interpretations may be beyond our control, can be hard to predict and could materially impact how we report our financial results and condition.  In certain cases, we could be required to apply a new or revised standard retroactively or apply an existing standard differently (also retroactively) which may result in our restating prior period financial statements in material amounts.

We encounter continuous technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.  The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.  Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.  Many of our competitors have substantially greater resources to invest in technological improvements.  We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.  Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

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We are subject to operational risk.

We face the risk that the design of our controls and procedures, including those to mitigate the risk of fraud by employees or outsiders, may prove to be inadequate or are circumvented, thereby causing delays in detection of errors or inaccuracies in data and information.  Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures.  Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.  Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

We may also be subject to disruptions of our systems arising from events that are wholly or partially beyond our control (including, for example, computer viruses or electrical or telecommunications outages), which may give rise to losses in service to customers and to financial loss or liability.  We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) and to the risk that our (or our vendors’) business continuity and data security systems prove to be inadequate.

Our performance is largely dependent on the talents and efforts of highly skilled individuals.  There is intense competition in the financial services industry for qualified employees.  In addition, we face increasing competition with businesses outside the financial services industry for the most highly skilled individuals.  Our business operations could be adversely affected if we were unable to attract new employees and retain and motivate our existing employees.

There may be claims and litigation pertaining to fiduciary responsibility.

From time to time as part of the Corporation’s normal course of business, customers make claims and take legal action against the Corporation based on its actions or inactions.  If such claims and legal actions are not resolved in a manner favorable to the Corporation, they may result in financial liability and/or adversely affect the market perception of the Corporation and its products and services.  This may also impact customer demand for the Corporation’s products and services.  Any financial liability or reputation damage could have a material adverse effect on the Corporation’s business, which, in turn, could have a material adverse effect on its financial condition and results of operations.

Item 1B.             UNRESOLVED STAFF COMMENTS

None.

Item 2.                PROPERTIES

The Corporation owns ten branches and leases 12 branches.  The Corporation also owns one property adjacent to the Main Office in Peapack-Gladstone.  The Corporation leases an administrative and operations office building in Peapack-Gladstone and a data center in Bedminster Township.  The information set forth in the 2008 Annual Report under the heading “Offices” is incorporated by reference herein.

Item 3.                LEGAL PROCEEDINGS

In the normal course of its business, lawsuits and claims may be brought against the Corporation and its subsidiaries.  There is no currently pending or threatened litigation or proceedings against the Corporation or its subsidiaries, which assert claims that if adversely decided, would have a material adverse effect on the Corporation.

Item 4.                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

15

PART II

Item 5.                MARKET FOR REGISTRANT'S COMMON EQUITY RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Common Stock of Peapack-Gladstone Financial Corporation is traded on the NASDAQ Global Select Market under the symbol of PGC.  The following table sets forth, for the periods indicated, the reported high and low sale prices on known trades and cash dividends declared per share by the Corporation.

					DIVIDEND
2008	HIGH		LOW		PER SHARE
1st QUARTER	$	27.25	$	20.98	$	0.16
2nd QUARTER		29.79		21.97		0.16
3rd QUARTER		37.93		21.16		0.16
4th QUARTER		34.00		22.85		0.16
					DIVIDEND
2007	HIGH		LOW		PER SHARE
1st QUARTER	$	31.03	$	25.62	$	0.15
2nd QUARTER		32.47		26.78		0.15
3rd QUARTER		27.80		24.80		0.16
4th QUARTER		26.35		24.45		0.16

 Future dividends payable by the Corporation will be determined by the Board of Directors after consideration of earnings and financial condition of the Corporation, need for capital and such other matters as the Board of Directors deems appropriate.  The payment of dividends is subject to certain restrictions, see Part I, Item 1, “Description of Business - Restrictions on the Payment of Dividends.”

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Performance Graph

The following graph compares the cumulative total return on a hypothetical $100 investment made on December 31, 2003 in (a) the Corporation’s common stock; (b) the Russell 3000 Stock Index, and (c) the Keefe, Bruyette & Woods KBW 50 Index (top 50 U.S. banks).  The graph is calculated assuming that all dividends are reinvested during the relevant periods.  The graph shows how a $100 investment would increase or decrease in value over time, based on dividends (stock or cash) and increases or decreases in the market price of the stock.

	Period Ending
Index	12/31/03	12/31/04	12/31/05	12/31/06	12/31/07	12/31/08
Peapack-Gladstone Financial Corporation	100.00	113.44	102.14	105.20	93.51	104.05
Russell 3000	100.00	111.95	118.80	137.47	144.54	90.61
KBW 50	100.00	110.09	109.76	128.44	100.43	52.67

On December 31, 2008, the last reported sale price of the Common Stock was $24.57.  Also, on February 28, 2009, there were approximately 809 shareholders of record.

17

Issuer Purchases of Equity Securities

On April 15, 2005, the Board of Directors of Peapack-Gladstone Financial Corporation announced the authorization of a stock repurchase plan.  The Board authorized the purchase of up to 150,000 shares of outstanding common stock, to be made from time to time, in the open market or in privately negotiated transactions, at prices not exceeding prevailing market prices.  On July 21, 2008, the Board of Directors authorized another extension of the stock buyback program for an additional twelve months to April 15, 2009.

During the fourth quarter of 2008, the Corporation did not repurchase any of its common shares under its stock buy back program.  Due to the Corporation’s participation in the TARP program, the Corporation is not permitted to repurchase its common stock until the earlier of three years following the closing of the sale of the senior preferred stock and the transfer by the Treasury of all the senior preferred stock or the redemption of the senior preferred stock by the Corporation.  In addition, the Corporation may not repurchase any common stock if it is delinquent on any dividend payment on the senior preferred stock.

Item 6.                 SELECTED FINANCIAL DATA

The information set forth in the 2008 Annual Report under the heading “Selected Consolidated Financial Data” is incorporated herein by reference.

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

The information set forth in the 2008 Annual Report under the heading “Management's Discussion and Analysis” is incorporated herein by reference.

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The information set forth in the 2008 Annual Report under the heading “Asset/Liability Management” is incorporated herein by reference.

Item 8.                 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements set forth in the 2008 Annual Report, together with the reports thereon by Crowe Horwath LLP and KPMG LLP and the Notes to the Consolidated Financial Statements, are incorporated herein by reference.

Item 9.                 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.              CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

The Corporation maintains “disclosure controls and procedures” which, consistent with Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, is defined to mean controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Corporation files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to the Corporation’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Corporation’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures.  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 as of the end of the period covered by this Annual Report on Form 10-K.

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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 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting during the fourth quarter of 2008.

The Corporation’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error 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 and 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.

Changes in Internal Control over Financial Reporting

There have been no changes in the Corporation’s internal control over financial reporting during the quarter ended December 31, 2008, that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting is included in the 2008 Annual Report and is incorporated herein by reference.

Item 9B.             OTHER INFORMATION

None.

PART III

Item 10.              DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information set forth under the captions “Director Information,” “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2009 Proxy Statement is incorporated herein by reference.

Executive Officer	Age	Date Became an Executive Officer	Current Position and Business Experience
Frank A. Kissel	58	December 11, 1997	Chairman and Chief Executive Officer
Arthur F. Birmingham	57	December 11, 1997	Chief Financial Officer
Garrett P. Bromley	64	December 11, 1997	Chief Lending Officer
Robert M. Rogers	50	December 11, 1997	President and Chief Operating Officer
Finn M.W. Caspersen, Jr.	39	January 1, 2008	General Counsel
Craig C. Spengeman	53	December 11, 1997	President and Chief Investment Officer

All executive officers named above have been in their current positions for the past five years, with the exception of Finn M.W. Caspersen, Jr. who was Senior Vice President and Chief Risk Officer prior to 2008.

Item 11.              EXECUTIVE COMPENSATION

The information set forth under the captions “Executive Compensation,” “Director Compensation” and “Compensation Committee Interlocks and Insider Participation” in the 2009 Proxy Statement is incorporated herein by reference.

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Item 12.               SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table shows information at December 31, 2008 for all equity compensation plans under which shares of our common stock may be issued:

			NUMBER OF SECURITIES
			REMAINING AVAILABLE
			FOR FUTURE ISSUANCE
	NUMBER OF SECURITIES		UNDER EQUITY
	TO BE ISSUED UPON	WEIGHTED-AVERAGE	COMPENSATION PLANS
	EXERCISE OF	EXERCISE PRICE OF	(EXCLUDING SECURITIES
PLAN CATEGORY	OUTSTANDING OPTIONS (a)	OUTSTANDING OPTIONS (b)	REFLECTED IN COLUMN (a) (c)
EQUITY
COMPENSATION
PLANS APPROVED
BY SECURITY
HOLDERS	599,611	$25.41	366,405
EQUITY
COMPENSATION
PLANS NOT
APPROVED BY
SECURITY HOLDERS	N/A	N/A	N/A
TOTAL	599,611	$25.41	366,405

The information set forth under the captions “Beneficial Ownership of Common Stock” and “Stock Ownership of Directors and Executive Officers” in the 2009 Proxy Statement is incorporated herein by reference.

Item 13.               CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information set forth under the captions “Transactions with Related Persons, Promoters and Certain Control Persons” and “Corporate Governance” in the 2009 Proxy Statement is incorporated herein by reference.

Item 14.               PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forth under the captions “Independent Registered Public Accounting Firm” and “Audit Committee Pre-approval Procedures” in the 2009 Proxy Statement is incorporated herein by reference.

20

PART IV

Item 15.               EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements and Schedules:

Those portions of the 2008 Annual Report attached hereto as Exhibit 13 contain the financial statements incorporated herein by reference.

All financial statement schedules are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto contained in the 2008 Annual Report.

(10) Exhibits

(3) Articles of Incorporation and By-Laws:

A. Restated Certificate of Incorporation as in effect on the date of this filing is filed herewith.

B. Amended By-Laws of the Registrant as in effect on the date of this filing are incorporated herein by reference to the Registrant’s Form 8-K Current Report filed on April 27, 2007.

(4)          Warrant, dated January 9, 2009, to purchase up to 143,139 shares of the Corporation’s Common Stock, incorporated herein by reference to the Registrant’s Form 8-K Current Report filed on January 12, 2009.

(10) Material Contracts:

A. “Change in Control Agreements” dated as of December 20, 2007 by and among the Corporation, the Bank and Frank A. Kissel, Craig C. Spengeman, Robert M. Rogers, Arthur F. Birmingham, Garrett P. Bromley and Finn M. W. Caspersen, Jr. are incorporated by reference. +

B. “Split Dollar Plan for Senior Management” dated as of September 7, 2001 for Frank A. Kissel, Robert M. Rogers, Craig C. Spengeman, Arthur F. Birmingham and Garrett P. Bromley is incorporated by reference to Exhibit 10 (I) of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2003. +

C. “Directors’ Retirement Plan” dated as of March 31, 2001 is incorporated by reference to Exhibit 10 (J) of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2003.

D. “Directors’ Deferral Plan” dated as of March 31, 2001 is incorporated by reference to Exhibit 10 (K) of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2003.

E. “Employment Agreements” dated as of January 1, 2008 by and among the Corporation, the Bank and Frank A. Kissel, Craig C. Spengeman, Robert M. Rogers, Arthur F. Birmingham, Garrett P. Bromley and Finn M. W. Caspersen, Jr. are incorporated by reference. +

F. Peapack-Gladstone Financial Corporation Amended and Restated 1998 Stock Option Plan and Peapack-Gladstone Financial Corporation Amended and Restated 2002 Stock Option Plan are incorporated by reference to Exhibit 10.1 and Exhibit 10.2 of the Registrant’s Form 8-K Current Report filed on January 13, 2006.

G. Peapack-Gladstone Financial Corporation 2006 Long-Term Stock Incentive Plan is incorporated by reference to Exhibit 10 of the Registrant’s Form 10-Q Quarterly Report filed on May 10, 2006.

H. Letter Agreement, dated January 9, 2009, including Securities Purchase Agreement – Standard Terms incorporated by reference therein, between the Corporation and the Treasury, incorporated herein by reference to the Registrant’s Form 8-K Current Report filed on January 12, 2009.

21

I. Form of Waiver, executed by each of Messrs. Frank A. Kissel, Robert M. Rogers, Arthur F. Birmingham, Finn M.W. Caspersen, Jr., Craig C. Spengeman and Garrett P. Bromley, incorporated herein by reference to the Registrant’s Form 8-K Current Report filed on January 12, 2009.

J. Form of Senior Executive Officer Agreement, executed by each of Messrs. Frank A. Kissel, Robert M. Rogers, Arthur F. Birmingham, Finn M.W. Caspersen, Jr., Craig C. Spengeman and Garrett P. Bromley, incorporated herein by reference to the Registrant’s Form 8-K Current Report filed on January 12, 2009.

(12) Consolidated Ratios of Earnings to Fixed Charges.

	Years ended December 31,
	2008		2007			2006			2005			2004
Excluding interest on deposits		-19.7x		14.8	x		3.6	x		7.3	x		15.2	x
Including interest on deposits		-0.4x		1.5	x		1.4	x		1.9	x		2.9	x

Note: The ratio of earnings to fixed charges is calculated by adding income before income taxes plus fixed charges and dividing that sum by fixed charges.

(13) Annual Report to Shareholders

 + Managementcontract and compensatory plan or arrangement.

(21) List of Subsidiaries:

                              (a) Subsidiaries of the Corporation:

Name	Jurisdiction of Incorporation	Percentage of Voting Securities Owned by the Parent
Peapack-Gladstone Bank	New Jersey	100%

(b) Subsidiaries of the Bank:

Name
Peapack-Gladstone Investment Company, Inc.	New Jersey	100%
Peapack-Gladstone Financial Services, Inc. (Inactive)	New Jersey	100%

(c) Subsidiaries of Peapack-Gladstone Investment Company, Inc.:

Name
Peapack-Gladstone Mortgage Group, Inc.	New Jersey	100%

(23) Consents of Experts:

(23.1) Consent of Crowe Horwath LLP

(23.2) Consent of KPMG LLP

(24) Power of Attorney

(31.1) Certification of Frank A. Kissel, Chief Executive Officer of Peapack-Gladstone, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31.2) Certification of Arthur F. Birmingham, Chief Financial Officer of Peapack-Gladstone, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32) Certification of Frank A. Kissel, Chief Executive Officer of Peapack-Gladstone and Arthur F. Birmingham, Chief Financial Officer of Peapack-Gladstone pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

22

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) 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
By:	/s/ Frank A. Kissel
	Frank A. Kissel Chairman of the Board
	and Chief Executive Officer

By:	/s/ Arthur F. Birmingham
	Arthur F. Birmingham
	Executive Vice President and Chief Financial Officer

Dated:    March 13, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.

Signature	Title	Date
/s/ Frank A. Kissel	Chairman of the Board, Chief Executive Officer and Director	March 13, 2009
Frank A. Kissel
/s/ Arthur F. Birmingham	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March 13, 2009
Arthur F. Birmingham
/s/ Anthony J. Consi II	Director	March 13, 2009
Anthony J. Consi II
/s/ Pamela Hill	Director	March 13, 2009
Pamela Hill
/s/ John D. Kissel	Director	March 13, 2009
John D. Kissel
/s/ James R. Lamb	Director	March 13, 2009
James R. Lamb
/s/ Edward A. Merton	Director	March 13, 2009
Edward A. Merton
/s/ F. Duffield Meyercord	Director	March 13, 2009
F. Duffield Meyercord
/s/ John R. Mulcahy	Director	March 13, 2009
John R. Mulcahy
/s/ Robert M. Rogers	Director, President and Chief Operating Officer	March 13, 2009
Robert M. Rogers
/s/ Philip W. Smith III	Director	March 13, 2009
Philip W. Smith III
/s/ Craig C. Spengeman	Director, President of PGB Trust and Investments	March 13, 2009
Craig C. Spengeman

23

EX-3.1

Exhibit 3.1

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

PEAPACK-GLADSTONE FINANCIAL CORPORATION

Peapack-Gladstone Financial Corporation, a New Jersey corporation, to amend its Certificate of Incorporation pursuant to N.J.S.A. 14A:9-2(4), hereby certifies:

1.           The name of the corporation is Peapack-Gladstone Financial Corporation (the “Corporation”).

2.           The Corporation is hereby amending its Certificate of Incorporation by amending Article III in its entirety so that Article III shall be and read as follows:

“ARTICLE III

CAPITAL STOCK

(A) The total authorized capital stock of the corporation shall be 20,500,000 shares, consisting of 20,000,000 shares of common stock and 500,000 shares of preferred stock which may be issued in one or more classes or series. The shares of common stock shall constitute a single class and shall be without nominal or par value. The shares of preferred stock of each class or series shall be without nominal or par value, except that the amendment authorizing the initial issuance of any class or series, adopted by the Board of Directors as provided herein, may provide that shares of any class or series shall have a specified par value per share, in which event all of the shares of such class or series shall have the par value per share so specified.

(B) The Board of Directors of the corporation is expressly authorized from time to time to adopt and to cause to be executed and filed without further approval of the shareholders amendments to this Certificate of Incorporation authorizing the issuance of one or more classes or series of preferred stock for such consideration as the Board of Directors may fix. In an amendment authorizing any class or series of preferred stock, the Board of Directors is expressly authorized to determine:

(a) The distinctive designation of the class or series and the number of shares which will constitute the class or series, which number may be increased or decreased (but not below the number of shares then outstanding in that class or above the total shares authorized herein) from time to time by action of the Board of Directors;

(b) The dividend rate on the shares of the class or series, whether dividends will be cumulative, and, if so, from what date or dates;

(c) The price or prices at which, and the terms and conditions on which, the shares of the class or series may be redeemed at the option of the corporation;

(d) Whether or not the shares of the class or series will be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of such

shares and, if so entitled, the amount of such fund and the terms and provisions relative to the operation thereof;

(e) Whether or not the shares of the class or series will be convertible into, or exchangeable for, any other shares of stock of the corporation or other securities, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and any adjustments thereof, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange;

(f) The rights of the shares of the class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation;

(g) Whether or not the shares of the class or series will have priority over, parity with, or be junior to the shares of any other class or series in any respect, whether or not the shares of the class or series will be entitled to the benefit of limitations restricting the issuance of shares of any other class or series having priority over or on parity with the shares of such class or series and whether or not the shares of the class or series are entitled to restrictions on the payment of dividends on, the making of other distributions in respect of, and the purchase or redemption of shares of any other class or series of preferred stock or common stock ranking junior to the shares of the class or series;

(h) Whether the class or series will have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; and

(i) Any other preferences, qualifications, privileges, options and other relative or special rights and limitations of that class or series.”

3.           The foregoing amendment to the Certificate of Incorporation was adopted by the shareholders of the Corporation on January 6, 2009.

4.           The number of shares of common stock entitled to vote for the amendment is 8,288,634.  The number of shares voted for and against the amendment is as follows:

Number of	Number of
Shares Voted	Shares Voted
For Amendment	Against Amendment
5,521,957	467,528

5.           This Certificate of Amendment shall become effective upon filing.

IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed on this 7th day of January, 2009.

/s/ Arthur F. Birmingham

Arthur F. Birmingham

Executive Vice President and

Chief Financial Officer

EX-13

Exhibit 13

FINANCIAL HIGHLIGHTS

(In Thousands, Except Per Share Data)

Selected Year-End Data:	2008			2007			2006
Net (Loss)/Income	$	(22,060	)	$	11,862		$	10,226
Total Assets		1,385,425			1,346,976			1,288,376
Total Deposits		1,237,888			1,180,267			1,144,736
Total Securities		225,274			282,083			338,043
Total Loans		1,052,982			981,180			870,153
Shareholders’ Equity		83,894			107,429			103,763
Trust Department Assets
(Market Value)		1,804,629			2,028,232			1,924,954
Per Share:
(Loss)/Earnings-Basic	$	(2.66	)	$	1.43		$	1.24
(Loss)/Earnings-Diluted		(2.66	)		1.42			1.22
Book Value		10.12			12.94			12.55
Financial Ratios:
Return on Average Assets		(1.62	) %		0.90	%		0.79	%
Return on Average Equity		(20.74	)		11.12			10.10
Capital Leverage Ratio		6.15			8.59			8.20
Risk Based Capital:
Tier 1		9.11			14.92			15.33
Total		10.05			15.91			16.31

Total Assets
(In Billions)
2004	$	1.07
2005	$	1.26
2006	$	1.29
2007	$	1.35
2008	$	1.39
Deposits
(In Millions)
2004	$	936
2005	$	1,042
2006	$	1,145
2007	$	1,180
2008	$	1,238
Equity Capital
(In Millions)
2004	$	94.7
2005	$	99.2
2006	$	103.8
2007	$	107.4
2008	$	83.9

1

·MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Peapack-Gladstone Financial Corporation (the “Corporation”), formed in 1997, is the parent holding company for Peapack-Gladstone Bank (the “Bank”), formed in 1921, a commercial bank operating 23 branches in Somerset, Hunterdon, Morris, Middlesex and Union counties.

The Corporation experienced increasing margins as a result of the decline in interest rates on deposits and borrowings.  The Federal Reserve decreased the federal funds target rate during 2008 to zero to 0.25 percent.  Loan growth was strong, increasing more than $99.5 million, while deposits increased $17.5 million and securities declined $54.5 million.  Net interest income on a tax-equivalent basis rose $10.6 million during the year, which is attributable in large part to declines in rates paid on interest-bearing liabilities offset by lower rates on interest-earning assets and slightly higher volumes on both sides of the balance sheet.  Yields on interest-earning assets decreased 21 basis points, while yields on interest-bearing liabilities declined 118 basis points.  The net interest margin increased 73 basis points or 25 percent over 2007 levels.  As discussed in this Management’s Discussion and Analysis section, some of the highlights include:

· Total average loans increased $71.8 million or 7 percent from 2007, as average commercial loans increased $93.5 million or 26 percent.

· Net interest margin was 3.68 percent in 2008, an increase of 73 basis points as compared to 2007.

· The Bank opened two new branches in 2008, both full-service facilities, in Whitehouse and Piscataway.  Also, a beautiful, new branch was opened in Green Village, which replaced the branches in New Vernon and Shunpike.

· Revenues from trust income increased 10 percent from 2007 levels.

The Corporation also recorded other-than-temporary impairment charges on its investment securities totaling $56.1 million, $36.5 million after taxes or $4.40 per diluted share.  Much of this impairment charge was for the Corporation’s trust preferred pooled securities.  The investments in trust preferred pooled securities primarily represent an investment in community banks around the country.  Many of these banks are involved in real estate lending in areas hard hit by the real estate downturn and many have come under considerable pressure as a result of significant defaults within their real estate loan portfolios.  The impairment charge taken was the result of an extensive analysis of each of the trust preferred pooled securities.

Late in 2008, the Corporation was approved to sell $28.7 million of preferred stock to the U.S. Treasury in the Capital Purchase Program.  This transaction was completed on January 9, 2009.

2

Peapack-Gladstone Financial Corporation’s common stock trades on the National Association of Securities Dealers Automated Quotations (NASDAQ) Global Select Market under the symbol “PGC”.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:Management’s Discussion and Analysis of Financial Condition and Results of Operation 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, 2008, 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 require assumptions or estimates about highly uncertain matters.  Changes in these judgments, assumptions or estimates could materially impact results of operations.  This critical policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

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 collectibility may not be assured, the existence and estimated net realizable 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 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 collectibility 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 experience 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 Statement of Financial Accounting Standards Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (Statement No. 115).  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

3

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.

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses and results in a new cost basis being established.  In estimating other-than-temporary losses, 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 the Corporation’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Securities are evaluated on at least a quarterly basis to determine whether a decline in their value 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 is recognized.  Impairment charges totaling $56.1 million have been recognized in 2008.

EARNINGS SUMMARY:  The Corporation recorded a net loss of $22.1 million for the year ended December 31, 2008 as compared to net income of $11.9 million for the year ended December 31, 2007.  The loss per diluted share was $2.66 for 2008 while earnings per diluted share $1.42 for 2007.

In 2008, these results produced a negative return on average assets of 1.62 percent as compared to a positive return on average assets of 0.90 percent in 2007 and a negative return on average shareholders’ equity of 20.74 percent as compared to a positive return 11.12 percent in 2007.

The results for 2008 include other-than-temporary impairment charges on investment securities totaling $56.1 million, $36.5 million after taxes or $4.35 per diluted share.  Excluding the impairment charges, net income for year ended December 31, 2008 was $14.4 million, an increase of $2.6 million or 22 percent from the year ended December 31, 2007.  The Corporation believes that comparing net income without considering the impairment charges provides a better analysis of net income trends.

NET INTEREST INCOME:  Net interest income is the primary source of the Corporation’s operating income.  Net interest income 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

Net Interest Income
(In Millions)
2004	$	35.1
2005	$	35.3
2006	$	32.8
2007	$	35.9
2008	$	46.3

4

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 non-performing assets.  Loan delinquencies rose during the year but remain at relatively low levels.

Net interest income, on a fully tax-equivalent basis, rose to $47.4 million from $36.8 million in 2007.  Average earning assets for the year ended December 31, 2008 increased $41.8 million or 3 percent from the average balances in 2007 and rates earned on earning assets declined 21 basis points in 2008.  Interest expense declined 30 percent from the levels recorded in 2007 on average balances of interest-bearing liabilities that increased $42.1 million.  Rates paid in 2008 on interest-bearing liabilities declined 118 basis points from those paid in 2007.  The Federal Reserve Board reduced the fed funds target rate during 2008 to an unprecedented zero to 0.25 percent.  The Corporation’s net interest margin rose to 3.68 percent from 2.95 percent in 2007.

On a fully tax-equivalent basis, interest income on earning assets remained relatively constant as compared to 2007 at $73.0 million.  Despite the growth in the Corporation’s earning assets, interest income did not increase due to the lower rates earned on earning assets.  Rates declined 32 basis points on loans due in part to the decline in the Federal funds target rate.  Rates earned on securities remained relatively constant at 5.19 percent for 2008 and 5.15 percent for 2007.

Interest expense declined $10.9 million due to lower rates paid on interest-bearing deposits.  Interest expense on borrowings rose due to volume, but was offset by decreases in interest expense due to lower interest rates paid.  The overall rate paid on interest-bearing deposits declined 120 basis points to 2.40 percent in 2008 as compared to 3.60 percent in 2007.  Rates paid on borrowings declined 95 basis points to 2.97 percent as overall interest rates on borrowings declined.

On average, our High Yield money market account increased $24.9 million; offsetting the discontinued Fed Tracker money market accounts, which declined by $17.9 million.  Average interest-bearing checking accounts rose $10.5 million or 8 percent over the comparable period in 2007.  The Corporation introduced a new checking product during 2008, Ultimate Checking, which contributed to the increase.  Average noninterest-bearing demand deposits increased $6.7 million or 4 percent during 2008 as compared to 2007.

Average overnight borrowings increased $9.9 million during 2008 to $15.3 million.  The Corporation increased Federal Home Loan Bank advances during 2008 resulting in average balances of $39.9 million, an increase of $13.8 million or 53 percent.

5

The following table compares the average balance sheets, net interest spreads and net interest margins for the years ended December 31, 2008, 2007 and 2006 (fully tax-equivalent-FTE):

YEAR ENDED DECEMBER 31, 2008

				Income/
	Average			Expense		Yield
(Dollars In Thousands Except Yield Information)	Balance			(FTE)		(FTE)
ASSETS:
Interest-Earning Assets:
Investments:
Taxable (1)	$	217,432		$	11,061		5.09	%
Tax-Exempt (1) (2)		50,928			2,860		5.62
Loans (2) (3)		1,010,007			58,867		5.83
Federal Funds Sold		3,752			116		3.09
Interest-Earning Deposits		6,310			136		2.14
Total Interest-Earning Assets		1,288,429		$	73,040		5.67	%
Noninterest-Earning Assets:
Cash and Due From Banks		20,823
Allowance for Loan Losses		(8,164	)
Premises and Equipment		26,579
Other Assets		33,708
Total Noninterest-Earning Assets		72,946
TOTAL ASSETS	$	1,361,375
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Interest-Bearing Deposits:
Checking	$	144,070		$	1,096		0.76	%
Money Markets		392,795			8,104		2.06
Savings		66,071			400		0.61
Certificates of Deposit		392,589			14,326		3.65
Total Interest-Bearing Deposits		995,525			23,926		2.40
Borrowed Funds		56,214			1,671		2.97
Total Interest-Bearing Liabilities		1,051,739			25,597		2.43	%
Noninterest-Bearing Liabilities:
Demand Deposits		192,578
Accrued Expenses and Other Liabilities		10,674
Total Noninterest-Bearing Liabilities		203,252
Shareholders’ Equity		106,384
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,361,375
NET INTEREST INCOME				$	47,443
Net Interest Spread							3.24	%
Net Interest Margin (4)							3.68	%

6

YEAR ENDED DECEMBER 31, 2007

				Income/
	Average			Expense		Yield
(Dollars In Thousands)	Balance			(FTE)		(FTE)
ASSETS:
Interest-Earning Assets:
Investments:
Taxable (1)	$	266,977		$	13,707		5.13	%
Tax-Exempt (1) (2)		55,845			2,930		5.25
Loans (2) (3)		910,485			55,970		6.15
Federal Funds Sold		12,506			656		5.24
Interest-Earning Deposits		804			39		4.91
Total Interest-Earning Assets		1,246,617		$	73,302		5.88	%
Noninterest-Earning Assets:
Cash and Due From Banks		22,135
Allowance for Loan Losses		(6,945	)
Premises and Equipment		25,321
Other Assets		26,519
Total Noninterest-Earning Assets		67,030
TOTAL ASSETS	$	1,313,647
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Interest-Bearing Deposits:
Checking	$	133,574		$	1,076		0.81	%
Money Markets		383,279			14,700		3.84
Savings		69,247			466		0.67
Certificates of Deposit		391,922			19,004		4.85
Total Interest-Bearing Deposits		978,022			35,246		3.60
Borrowed Funds		31,568			1,237		3.92
Total Interest-Bearing Liabilities		1,009,590			36,483		3.61	%
Noninterest-Bearing Liabilities:
Demand Deposits		185,909
Accrued Expenses and Other Liabilities		11,485
Total Noninterest-Bearing Liabilities		197,394
Shareholders’ Equity		106,663
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,313,647
NET INTEREST INCOME				$	36,819
Net Interest Spread							2.27	%
Net Interest Margin (4)							2.95	%

7

YEAR ENDED DECEMBER 31, 2006

				Income/
	Average			Expense		Yield
(Dollars In Thousands)	Balance			(FTE)		(FTE)
ASSETS:
Interest-Earning Assets:
Investments:
Taxable (1)	$	345,190		$	15,857		4.59	%
Tax-Exempt (1) (2)		52,040			2,793		5.37
Loans (2) (3)		828,337			49,555		5.98
Federal Funds Sold		2,939			146		4.96
Interest-Earning Deposits		1,284			61		4.72
Total Interest-Earning Assets		1,229,790		$	68,412		5.56	%
Noninterest-Earning Assets:
Cash and Due From Banks		22,475
Allowance for Loan Losses		(6,516	)
Premises and Equipment		23,038
Other Assets		22,564
Total Noninterest-Earning Assets		61,561
TOTAL ASSETS	$	1,291,351
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Interest-Bearing Deposits:
Checking	$	138,045		$	1,044		0.76	%
Money Markets		317,524			11,955		3.77
Savings		82,016			567		0.69
Certificates of Deposit		352,114			15,505		4.40
Total Interest-Bearing Deposits		889,699			29,071		3.27
Borrowed Funds		115,181			5,373		4.66
Total Interest-Bearing Liabilities		1,004,880			34,444		3.43	%
Noninterest-Bearing Liabilities:
Demand Deposits		179,597
Accrued Expenses and Other Liabilities		5,659
Total Noninterest-Bearing Liabilities		185,256
Shareholders’ Equity		101,215
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,291,351
NET INTEREST INCOME				$	33,968
Net Interest Spread							2.13	%
Net Interest Margin (4)							2.76	%

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.

8

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

	Year Ended 2008 Compared with 2007									Year Ended 2007 Compared with 2006
							Net									Net
	Difference Due To						Change In			Difference Due To						Change In
	Change In:						Income/			Change In:						Income/
(In Thousands):	Volume			Rate			Expense			Volume			Rate			Expense
ASSETS:
Investments	$	(2,631	)	$	(85	)	$	(2,716	)	$	(2,886	)	$	873		$	(2,013	)
Loans		6,716			(3,819	)		2,897			5,947			468			6,415
Federal Funds Sold		(340	)		(200	)		(540	)		502			8			510
Interest-Earning Deposits		130			(33	)		97			(24	)		2			(22	)
Total Interest Income	$	3,875		$	(4,137	)	$	(262	)	$	3,539		$	1,351		$	4,890
LIABILITIES:
Checking	$	279		$	(259	)	$	20		$	(41	)	$	73		$	32
Money Market		404			(7,000	)		(6,596	)		2,481			264			2,745
Savings		(22	)		(44	)		(66	)		(85	)		(16	)		(101	)
Certificates of Deposit		32			(4,710	)		(4,678	)		1,837			1,662			3,499
Borrowed Funds		756			(322	)		434			(4,145	)		9			(4,136	)
Total Interest Expense	$	1,449		$	(12,335	)	$	(10,886	)	$	47		$	1,992		$	2,039
Net Interest Income	$	2,426		$	8,198		$	10,624		$	3,492		$	(641	)	$	2,851

LOANS:  The loan portfolio represents the largest portion of the Corporation’s earning assets and is an important source of interest and fee income.  Loans are primarily originated in the State of New Jersey.

Total loans at December 31, 2008, were $1.05 billion as compared to $981.2 million at December 31, 2007, an increase of $71.8 million or 7 percent.  The growth in the portfolios is primarily the result of new business initiatives and our entry into new market areas.  Construction loans totaled $66.8 million, an increase of $6.2 million, or 10 percent.  In 2008, commercial mortgage loans rose $37.3 million or 16 percent to $274.6 million, while commercial loans also grew by $13.4 million or 10 percent during 2008.  Other loans increased $14.2 million or 74 percent and consumer loans declined $7.5 million or 20 percent due to an increased demand for floating-rate home equity lines and decreased demand for fixed-rate home equity loans, respectively.  The Corporation’s long-term strategy calls for an increased emphasis on construction and commercial lending, which yields higher returns and less emphasis on residential real estate loans.

The yield on total loans decreased 32 basis points to 5.83 percent for 2008 from the 6.15 percent average yield earned in 2007.  The average yield on the mortgage portfolio rose in 2008 to 5.30 percent from 5.23 percent in 2007.  The average yield on commercial mortgage loans remained relatively constant, increasing only four basis points to 6.57 percent.  In 2008, the average yield on commercial loans was 6.31 percent, decreasing 171 basis points and the average yield on commercial construction loans was 6.07 percent decreasing 259 basis points.  The average yield on home equity lines declined to 4.70 percent in 2008 from 7.95 percent in 2007 due to the decline in the prime rate.  Rates declined during the year due to competitive pressure and lower market rates experienced during the latter half of 2008.

9

The following table presents an analysis of outstanding loans as of December 31,

(In Thousands)	2008		2007		2006		2005		2004
Residential Mortgage	$	505,150	$	497,016	$	498,079	$	453,635	$	315,711
Commercial Mortgage		274,640		237,316		165,652		157,672		129,922
Commercial Loans		143,188		129,747		107,357		100,787		69,947
Commercial-Construction		66,785		60,589		44,764		12,703		17,703
Consumer Loans		29,789		37,264		35,836		23,468		19,597
Home Equity Loans		31,054		18,430		16,047		18,990		18,287
Other Loans		2,376		818		2,418		1,218		997
Total Loans	$	1,052,982	$	981,180	$	870,153	$	768,473	$	572,164

INVESTMENT SECURITIES HELD TO MATURITY:  Investment securities are those securities that the Corporation has both the ability and intent to hold to maturity.  These securities are carried at amortized cost.  The portfolio consists primarily of U.S. treasury securities, mortgage-backed securities and municipal obligations.  The Corporation’s investment securities held to maturity at amortized cost amounted to $51.7 million at December 31, 2008, compared with $45.1 million at December 31, 2007.

The following table presents the contractual maturities and rates of investment securities held to maturity at amortized cost, as of December 31, 2008:

				After 1			After 5
				But			But			After
	Within			Within			Within				10
(In Thousands)	1 Year			5 Years			10 Years			Years			Total
U.S. Treasuries	$	-		$	500		$	-		$	-		$	500
		-	%		4.89	%		-	%		-	%		4.89	%
Mortgage-Backed Securities (1)	$	932		$	563		$	5,398		$	3,114		$	10,007
		4.91	%		4.39	%		4.90	%		4.94	%		4.89	%
State and Political Subdivisions (2)	$	14,284		$	14,325		$	1,061		$	-		$	29,670
		3.69	%		4.76	%		7.30	%		-	%		4.33	%
Other Securities	$	-		$	-		$	-		$	11,554		$	11,554
		-	%		-	%		-	%		6.29	%		6.29	%
Total	$	15,216		$	15,388		$	6,459		$	14,668		$	51,731
		3.76	%		4.75	%		5.30	%		6.01	%		4.88	%

(1) Mortgage-backed securities are shown using stated final maturity.

(2) Yields presented on a fully tax-equivalent basis.

SECURITIES AVAILABLE FOR SALE:  Securities available for sale are used as a part of the Corporation’s interest rate risk management strategy, and they may be sold in response to changes in interest rates, liquidity needs, and other factors.  These securities are carried at estimated fair value, and unrealized changes in fair value are recognized as a separate component of shareholders’ equity, net of income taxes.  Realized gains and losses are recognized in income at the time the securities are sold.

At December 31, 2008, the Corporation had securities available for sale with a fair value of $173.5 million, compared with $236.9 million at December 31, 2007.  A $1.5 million net unrealized loss (net of income tax) and a $4.6 million net unrealized loss (net of income tax) was included in shareholders’ equity at December 31, 2008 and December 31, 2007, respectively.

10

The following table presents the contractual maturities and rates of securities available for sale, stated at fair value, as of December 31, 2008:

				After 1			After 5
				But			But			After
	Within			Within			Within				10
(In Thousands)	1 Year			5 Years			10 Years			Years			Total
Mortgage-Backed Securities (1)	$	-		$	14,337		$	39,675		$	92,063		$	146,075
		-	%		4.14	%		4.64	%		5.14	%		4.91	%
State and Political Subdivisions (2)	$	1,072		$	5,185		$	2,657		$	12,078		$	20,992
		5.22	%		6.20	%		5.61	%		3.67	%		4.60	%
Other Securities	$	-		$	320		$	-		$	2,790		$	3,110
		-	%		5.61	%		-	%		5.00	%		5.04	%
	$	1,072		$	19,842		$	42,332		$	106,931		$	170,177
		5.22	%		4.70	%		4.70	%		4.97	%		4.87	%
Marketable Equity Securities	$	3,366		$	-		$	-		$	-		$	3,366
		4.80	%		-	%		-	%		-	%		4.80	%
Total	$	4,438		$	19,842		$	42,332		$	106,931		$	173,543
		4.89	%		4.70	%		4.70	%		4.97	%		4.87	%

(1) Mortgage-backed securities are shown using stated final maturity.

(2) Yields presented on a fully tax-equivalent basis.

Federal funds sold and interest-earning deposits are an additional part of the Corporation’s investment and liquidity strategies.  The combined average balance of these investments during 2008 was $10.1 million as compared to $13.3 million in 2007.

DEPOSITS:  Total deposits at December 31, 2008 were $1.24 billion, an increase of $57.6 million or 5 percent from $1.18 billion at December 31, 2007.  Our strategy is to fund earning asset growth with core deposits, which is an important factor in the generation of net interest income.  Marketing, sales efforts and three new branch locations all contributed to the growth in deposits.  Total average deposits increased $24.2 million, or 2 percent in 2008 over 2007 levels.

The following table sets forth information concerning the composition of the Corporation’s average deposit base and average interest rates paid for the following years:

(In Thousands)	2008				2007				2006
Noninterest-Bearing Demand	$	192,578	-	%	$	185,909	-	%	$	179,597	-	%
Checking		144,070	0.76			133,574	0.81			138,045	0.76
Savings		66,071	0.61			69,247	0.67			82,016	0.69
Money Markets		392,795	2.06			383,279	3.84			317,524	3.77
Certificates of Deposit		392,589	3.65			391,922	4.85			352,114	4.40
Total Deposits	$	1,188,103			$	1,163,931			$	1,069,296

Certificates of deposit over $100,000 are generally purchased by local municipal governments or individuals for periods of one year or less.  These factors translate into a stable customer oriented cost-effective funding source.

11

The following table shows remaining maturity for certificates of deposit over $100,000 as of December 31, 2008 (In thousands):

Three Months or Less	$	91,608
Over Three Months Through Twelve Months		77,919
Over Twelve Months		26,299
Total	$	195,826

FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS:  At December 31, 2008 and 2007, Federal Home Loan Bank (FHLB) advances totaled $39.7 million and $29.2 million, respectively, with a weighted average interest rate of 3.59 percent and 3.69 percent, respectively.  The Corporation considers FHLB advances an added source of funding, and accordingly, executes transactions from time to time to meet its funding requirements.  The FHLB advances outstanding at December 31, 2008 have varying terms and interest rates, as well as prepayment penalties.

At December 31, 2008 and 2007, overnight borrowings totaled $15.3 million and $15.7 million, respectively.

ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION:  The allowance for loan losses was $9.7 million at December 31, 2008 as compared to $7.5 million at December 31, 2007.  At December 31, 2008, the allowance for loan losses as a percentage of total loans outstanding was 0.92 percent compared to 0.76 percent at December 31, 2007 and 0.78 percent at December 31, 2006.  The provision for loan losses was $2.4 million for 2008 and $750 thousand for 2007.  The allowance as a percentage of total loans rose in 2008 as compared to 2007 and the provision increased over the prior year due to loan growth and increases in commercial-related loans and delinquencies.

The provision was based upon management’s review and evaluation of the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, general market and economic conditions, detailed analysis of individual loans for which full collectibility may not be assured, and the existence and net realizable value of the collateral and guarantees securing the loans.  Although management used 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.  Accordingly, the collectibility of a substantial portion of the carrying value of the Corporation’s loan portfolio is susceptible to changes in market conditions in the state and may be adversely affected should real estate values decline further or New Jersey experience continuing adverse economic conditions.  Future adjustments to the allowance may be necessary due to economic, operating, regulatory and other conditions beyond the Corporation’s control.

12

The following table presents the loan loss experience during the periods ended December 31,

(In Thousands)	2008		2007		2006		2005		2004
Allowance for Loan Losses At	$	7,500	$	6,768	$	6,378	$	5,989	$	5,439
Beginning of Year
Loans Charged-Off During the Period
Real Estate		24		-		-		-		-
Consumer		1		23		13		14		16
Commercial and Other		214		-		13		2		62
Total Loans Charged-Off		239		23		26		16		78
Recoveries During the Period
Real Estate		12		-		-		-		-
Consumer		3		2		1		2		6
Commercial and Other		12		3		1		12		9
Total Recoveries		27		5		2		14		15
Net Charge-Offs		212		18		24		2		63
Provision Charged to Expense		2,400		750		414		391		613
Allowance for Loan Losses at End of Year	$	9,688	$	7,500	$	6,768	$	6,378	$	5,989

The following table shows the allocation of the allowance for loan losses and the percentage of each loan category to total loans as of December 31,

			% of				% of				% of				% of				% of
			Loan				Loan				Loan				Loan				Loan
			Category				Category				Category				Category				Category
			to Total				to Total				to Total				to Total				to Total
(In Thousands)	2008		Loans		2007		Loans		2006		Loans		2005		Loans		2004		Loans
Residential	$	2,627		50.9	$	2,333		52.5	$	2,910		59.1	$	2,888		61.5	$	2,647		58.4
Commercial and Other		6,753		46.3		4,885		43.7		3,591		36.8		3,327		35.4		3,145		38.2
Consumer		308		2.8		282		3.8		267		4.1		163		3.1		197		3.4
Total	$	9,688		100.00	$	7,500		100.0	$	6,768		100.0	$	6,378		100.0	$	5,989		100.0

NON-PERFORMING ASSETS:

The following table presents for the years indicated the components of non-performing assets:

				Years Ended December 31,
(In Thousands)	2008			2007			2006			2005			2004
Loans Past Due 90 Days or More
And Still Accruing Interest	$	-		$	-		$	197		$	47		$	-
Non-Accrual Loans		5,393			2,131			1,880			339			351
Total Non-Performing Loans		5,393			2,131			2,077			386			351
Other Real Estate Owned		1,211			-			-			-			-
Total Non-Performing Assets	$	6,604		$	2,131		$	2,077		$	386		$	351
Loan Charge-Offs	$	239		$	23		$	26		$	16		$	78
Loan Recoveries		(27	)		(5	)		(2	)		(14	)		(15	)
Net Loan Charge-Offs/(Recoveries)	$	212		$	18		$	24		$	2		$	63
Allowance for Loan Losses	$	9,688		$	7,500		$	6,768		$	6,378		$	5,989

Ratios:
Total Non-Performing Loans/Total Loans	0.51	%	0.22	%	0.24	%	0.05	%	0.06	%
Total Non-Performing Loans/Total Assets	0.39		0.16		0.16		0.03		0.03
Total Non-Performing Assets/Total Assets	0.48		0.16		0.16		0.03		0.03
Allowance for Loan Losses/Total Loans	0.92		0.76		0.78		0.83		1.05
Allowance for Loan Losses/Total Non-Performing Loans	1.8	X	3.5	X	3.3	X	16.5	X	17.1	X

13

Interest income of $235 thousand, $149 thousand and $129 thousand would have been recognized during 2008, 2007 and 2006, respectively, if non-accrual loans had been current in accordance with their original terms.

CONTRACTUAL OBLIGATIONS:  The following table shows the significant contractual obligations of the Corporation by expected payment period, as of December 31, 2008.  Further discussion of these commitments is included in the Footnotes to the Consolidated Financial Statements noted below:

	Less Than						More Than
(In Thousands)	One Year		1-3 Years		3-5 Years		5 Years		Total
Loan Commitments	$	131,456	$	-	$	-	$	-	$	131,456
Long-Term Debt Obligations		2,000		15,780		6,968		15,000		39,748
Operating Lease Obligations		2,724		4,712		4,202		13,616		25,254
Purchase Obligations		1,485		-		-		-		1,485
Total Contractual Obligations	$	137,665	$	20,492	$	11,170	$	28,616	$	197,943

Short-term and overnight borrowings are borrowings from the Federal Home Loan Bank with defined terms.  Long-term debt obligations include borrowings from the Federal Home Loan Bank with defined terms.  The chart is based on scheduled repayments of principal.

Operating leases represent obligations entered into by the Corporation for the use of land and premises.  The leases generally have escalation terms based upon certain defined indexes.  Common area maintenance charges may also apply and are adjusted annually based on the terms of the lease agreements.

Purchase obligations represent legally binding and enforceable agreements to purchase goods and services from third parties and consist of contractual obligations under data processing service agreements, as well as the contract for the construction of a new branch on Morris/Essex Turnpike in Summit.  The Corporation also enters into various routine rental and maintenance contracts for facilities and equipment.  These contracts are generally for one year and are not significant to the consolidated financial statements of the Corporation.

OFF-BALANCE SHEET ARRANGEMENTS:  The following table shows the amounts and expected maturities of significant commitments, consisting primarily of letters of credit, as of December 31, 2008.  Further discussion of these commitments is included in Note 13 to the Consolidated Financial Statements:

	Less Than						More Than
(In Thousands)	One Year		1-3 Years		3-5 Years		5 Years		Total
Financial Letters of Credit	$	1,237	$	-	$	-	$	-	$	1,237
Performance Letters of Credit		2,746		38		-		-		2,784
Commercial Letters of Credit		5,134		-		110		275		5,519
Total Letters of Credit	$	9,117	$	38	$	110	$	275	$	9,540

Commitments under standby letters of credit, both financial and performance do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

14

OTHER INCOME:  Other income, excluding impairment charges, was $14.9 million in 2008, an increase of $821 thousand or 6 percent over 2007 levels.  The increase was attributable to increases in trust fees and BOLI income, offset in part by a decline in other fee income.  In addition, the Corporation recorded a net gain of $483 thousand on securities sold in 2008 as compared to a net gain of $254 thousand on securities sold in 2007.

Trust fees totaling $10.5 million were realized in 2008, an increase of $975 thousand, or 10 percent over the levels in 2007.  This increase is attributable to higher levels of revenue from higher-margin investment management fees, reduced lower-margin custody fees and higher estate management fees.  The market value of assets under management decreased to $1.80 billion in 2008 compared to $2.03 billion in 2007.  This decline is attributable to the declining value in the equity markets offset in part by new business activity.

Income on increased cash surrender value on Bank Owned Life Insurance (BOLI) policies of $1.1 million was realized in 2008, as compared to $900 thousand in 2007, an increase of $215 thousand or 24 percent.  The increase was a result of an additional investment of $5.0 million during 2008.

The Corporation recognized a pre-tax loss in 2008 of $153 thousand on the disposal of premises and equipment related to the relocation of the Shunpike Branch to Green Village Road and the closure of the New Vernon Branch.  In 2007, the Corporation recorded a pre-tax gain of $548 thousand on the sale of a non-banking related property and other fixed assets.

In addition, the Corporation recorded pre-tax other-than-temporary impairment charges of $56.1 million on securities held in its available for sale and held to maturity investment portfolios.  Of this amount, $55.3 million related to the write-down of trust preferred pooled securities, consisting of securities issued primarily by banks and insurance companies, which are classified as held to maturity.  After the write-down, the securities had a total adjusted carrying value of $11.6 million.  The remaining impairment of $884 thousand was recorded on one corporate bond and four equity securities, which are all classified as available for sale.  After the write-down, the corporate bond had a total adjusted carrying value of $320 thousand and the equity securities had a total adjusted carrying value of $100 thousand.

The following table presents the major components of other income:

(In Thousands)	2008			2007		2006
Trust Fees	$	10,538		$	9,563	$	8,367
Service Charges on Deposit Accounts		2,134			2,021		1,960
Bank Owned Life Insurance		1,115			900		837
(Losses)/Gains on Sales of Fixed Assets		(153	)		548		15
Other Noninterest Income		410			428		519
Impairment Charges		(56,146	)		-		-
Securities Gains/(Losses), Net		483			254		(1,781	)
Safe Deposit Rental Fees		243			239		233
Other Fee Income		95			90		117
Total Other Income	$	(41,281	)	$	14,043	$	10,267

15

OTHER EXPENSES:  In 2008, other expenses totaled $37.3 million as compared to $32.1 million in 2007, an increase of $5.2 million or 16 percent.  This increase is commensurate with the growth in the overall level of bank and trust business activity.

Salaries and benefits expense, which accounts for the largest portion of other expenses, increased $3.1 million, or 18 percent, in 2008 as compared to 2007.  This increase is due, in part, to the amendment of our existing 401(K) profit-sharing and investment plan to enhance the contributions to its salaried employees starting in May 2008.  The amended 401(K) plan replaced the Bank’s defined benefit pension plan which was terminated in 2008.  These actions will reduce the retirement costs per employee in future years and eliminates the market risk of maintaining a defined benefit plan.  In addition, the Corporation added new officers and support staff to carry out the Corporation’s strategic plan, and accordingly, paid higher salaries and incurred higher health care costs as compared to prior periods.  At December 31, 2008, the Corporation’s full-time equivalent staff was 278 compared with 254 at December 31, 2007.

Premises and equipment expense increased to $8.5 million in 2008 from $7.8 million in 2007, an increase of $709 thousand, or 9 percent.  The Corporation opened new branches in Whitehouse and Piscataway, New Jersey, in 2008 and began recording additional depreciation, utility and maintenance expense as a result.  The Corporation also recorded additional maintenance costs for branch upkeep and increases to expenditures such as utilities and real estate taxes.

Professional and legal fees increased $238 thousand, or 30 percent, over levels for 2007, due in part to expenses related to the sale of preferred stock to the Treasury under the TARP program and the extensive analysis of the trust preferred pooled securities portfolio.  Advertising expenses increased $259 thousand, or 29 percent when compared to 2007 due to additional advertising for the Green Village, Whitehouse and Piscataway Branches and to promote deposit products.  The Corporation strives to operate in an efficient manner and control costs as a means of producing increased earnings and enhancing shareholder value.

The following table presents the major components of other expenses:

(In Thousands)	2008		2007		2006
Salaries and Benefits	$	20,586	$	17,511	$	15,698
Premises and Equipment		8,470		7,761		6,909
Professional and Legal Fees		1,462		1,124		833
Advertising		1,151		892		732
Trust Department		643		483		467
Stationery and Supplies		479		440		469
Telephone		471		450		396
Postage		363		342		339
Other Expenses		3,660		3,084		3,102
Total Other Expenses	$	37,285	$	32,087	$	28,945

16

INCOME TAXES:  Income tax expense, exclusive of the tax benefit of $19.7 million recorded on the impairment charges, for the year ended December 31, 2008 was $7.1 million as compared to income tax expense for 2007 of $5.2 million.  The effective tax rate, exclusive of the impairment charges and corresponding tax benefit, for the year ended December 31, 2008 was 32.86 percent compared to 30.53 percent for the year ended December 31, 2007.

RESULTS OF OPERATIONS 2007 COMPARED TO 2006:  The Corporation’s net income for the year ended December 31, 2007, was $11.9 million, an increase of $1.7 million or 16 percent, as compared to $10.2 million for the year ended December 31, 2006.  Earnings per diluted share were $1.42 and $1.22 for the years 2007 and 2006, respectively.  In 2007, these results produced a return on average assets of 0.90 percent as compared to 0.79 percent in 2006 and a return on average shareholders’ equity of 11.12 percent as compared to 10.10 percent in 2006.  In 2007, the Corporation implemented a long-term business plan, which called for a shift in the asset mix to place more emphasis on commercial loans and commercial mortgages.  The balance sheet at the time was uniquely suited to accommodate a gradual and significant change.

In 2007, net interest income, on a fully tax-equivalent basis, rose to $36.8 million from $34.0 million in 2006.  Average earning assets increased $16.8 million or one percent from the average balances in 2006 and rates earned on earning assets increased 32 basis points in 2007.  Interest expense increased 6 percent over the levels recorded in 2006 on average balances of interest-bearing liabilities that increased $4.7 million.  Rates paid in 2007 on interest-bearing liabilities rose 18 basis points over those paid in 2006.  Although competition remained strong, interest rates were also influenced by decreases in the federal funds target rates during the last two quarters of 2007.  The net interest margin rose to 2.95 percent in 2007 from 2.76 percent in 2006.

The Corporation completed a balance sheet restructuring in the third quarter of 2006, selling $61.6 million of available-for-sale securities that were yielding 4.14 percent.  The sale resulted in a before-tax charge of approximately $1.9 million and an after-tax charge of $1.1 million, or $0.13 per diluted share.  The Corporation used a majority of the proceeds from the sale to redeem high cost, short-term borrowings and used approximately $20 million to purchase floating-rate securities.  The Corporation continued to experience an improvement in net interest income and net interest margin into 2007.

In 2007, other income was $14.0 million, an increase of 37 percent over 2006 levels.  The increase was attributable to increases in trust fees and other noninterest income, offset in part by a decline in other fee income.  In addition, the Corporation recorded a net gain of $254 thousand on securities sold in 2007 as compared to a net loss of almost $1.8 million on securities sold in 2006.

Trust fees increased $1.2 million, or 14 percent, to $9.6 million in 2007 as compared to 2006.  This increase is attributable to an increased volume of business as the market value of assets under management increased to $2.03 billion in 2007 compared to $1.92 billion in 2006.

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Other income of $900 thousand was realized in 2007 on increased cash surrender value on Bank Owned Life Insurance (BOLI) policies, as compared to $837 thousand in 2006.  The Corporation recognized a pre-tax gain of $548 thousand in 2007 on the sale of a non-banking related property and other fixed assets as compared to $15 thousand in 2006.

Other expenses totaled $32.1 million in 2007, an increase of $3.1 million or 11 percent compared to $28.9 million in 2006.  This increase is commensurate with the growth in the overall level of bank and trust business activity.  Salaries and benefits expense increased $1.8 million, or 12 percent, in 2007 ascompared to 2006.  In an effort to improve the net interest margin, the Corporation’s strategic plan called for an increased emphasis on commercial and construction loans, and accordingly, additional commercial lending officers and support staff were hired in 2007.   In addition to this increase in staff, salary expense rose due to normal salary increases, trust department and branch expansion and higher group health insurance.  At December 31, 2007, the Corporation’s full-time equivalent staff was 254 compared with 232 at December 31, 2006.

In 2007, premises and equipment expense increased to $7.8 million from $6.9 million in 2006, an increase of $852 thousand, or 12 percent, due to increases charged by outside vendors for utilities, real estate taxes and additional maintenance costs for branch upkeep.  In addition, the Corporation opened a branch in Summit, New Jersey, in April 2007 and began recording additional depreciation, utility and maintenance expense as a result.

Professional and legal fees increased $291 thousand, or 35 percent in 2007, over levels for 2006, due in part to expenses generated by a review of our benefit plans and higher recruitment fees to fill new lending positions.  When compared to 2006, advertising expenses increased $160 thousand, or 22 percent in 2007 due to additional advertising for the Summit Branch and to promote deposit products.

CAPITAL RESOURCES:  A solid capital base provides the Corporation with the ability for future growth and financial strength.  Maintaining a strong capital position supports the Corporation’s goal of providing shareholders an attractive and stable long-term return on investment.  Total shareholders’ equity declined $23.5 million or 22 percent to $83.9 million at December 31, 2008 as compared with $107.4 million at December 31, 2007.

At December 31, 2008, unrealized losses on securities, net of taxes, were $1.5 million as compared to unrealized losses on securities, net of taxes, of $4.6 million at December 31, 2007.

Federal regulations require banks to meet target Tier 1 and total capital ratios of 4 percent and 8 percent, respectively.  The Corporation’s Tier 1 and total capital ratios are in excess of regulatory minimums at 9.11 percent and 10.05 percent, respectively, at December 31, 2008.  The Corporation’s capital leverage ratio was 6.15 percent at December 31, 2008.

On January 9, 2009, the Corporation sold 28,685 shares of 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 143,139 shares of the Corporation’s common stock at an exercise price of $30.06 per share, for an

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aggregate purchase price of $28.7 million.  Had the Corporation completed the sale before year end, the Corporation’s leverage ratio, tier 1 and total risk based capital ratios would have been 8.23 percent, 12.16 percent and 13.10 percent, respectively.

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, but will be paid only when declared by the Corporation’s Board of Directors.  The preferred shares have no maturity date and rank senior to the common stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Corporation.  The Corporation may redeem the senior preferred shares three years after the date of the Treasury’s investment, or earlier if it raises in an equity offering net proceeds equal to the amount of the senior preferred shares to be redeemed.  It must raise proceeds equal to at least 25 percent of the issue price of the senior preferred shares to redeem any senior preferred shares prior to the end of the third year.  The redemption price is equal to the sum of the liquidation amount per share and any accrued and unpaid dividends on the senior preferred shares up to, but excluding, the date fixed for redemption.  Notwithstanding the foregoing limitations, under the Stimulus Act the Treasury may, after consultation with the Corporation’s federal regulator, permit the Corporation at any time to redeem the senior preferred shares.  Upon such redemption, the Treasury will liquidate at the current market price the warrant that the Corporation issued to the Treasury.

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 feels the Corporation’s liquidity position is sufficient to meet future needs.  Cash and cash equivalents, including federal funds sold and interest-earning deposits, totaled $26.9 million at December 31, 2008.  In addition, the Corporation has $173.5 million in securities designated as available for sale.  These securities can be sold in response to liquidity concerns.  As of December 31, 2008, investment securities held to maturity and securities available for sale maturing within one year amounted to $19.7 million.

Another source of liquidity is borrowing capacity.  The Corporation has a variety of sources of short-term liquidity available, including short and long-term borrowings from the Federal Home Loan Bank of New York, short-term borrowings from the Federal Reserve Bank Discount Window, federal funds purchased from correspondent banks and loan participation or sales of loans.  The Corporation also generates liquidity from the regular principal payments received on its loan portfolio and on its mortgage-backed security portfolio.

ASSET/LIABILITY MANAGEMENT:  The Corporation’s Asset/Liability Committee (ALCO) is responsible for managing the exposure to changes in market interest rates and for establishing policies that monitor and coordinate its sources, uses and pricing of funds.

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We have sought to manage our interest rate risk in order to control the exposure of our earnings and capital to changes in interest rates.  As part of our ongoing asset/liability management, we currently use the following strategies to manage our interest rate risk:

· Actively market adjustable-rate residential mortgage loans

· Actively market commercial business 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 non-interest bearing demand deposit accounts

· Lengthen the weighted average maturity of our liabilities through retail deposit pricing strategies and through longer-term wholesale funding sources such as fixed-rate advances from the Federal Home Loan Bank of New York

· Invest in shorter to medium-term  securities

· Maintain high levels of capital

The Corporation is not engaged in hedging through the use of derivatives nor does it use interest rate caps and floors although these are options available to manage interest rate risk.

ALCO uses a simulation model to analyze net interest income sensitivity to movements in interest rates.  The simulation model projects net interest income based on various interest rate scenarios over a 12 and 24 month period.  The model is based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities.  The model incorporates certain assumptions, which management believes to be reasonable regarding the impact of changing interest rates and the prepayment assumptions of certain assets and liabilities as of December 31, 2008.  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 December 31, 2008.

The simulation model is based on market interest rates and prepayment speeds prevalent in the market as of December 31, 2008.  New interest earning asset and interest-bearing liability originations and rate spreads are estimated using the Corporation’s budgeted originations for 2009.

The table shows the estimated changes in the Corporation’s net portfolio value that would result from an immediate parallel change in the market interest rates at December 31, 2008.

		Estimated Decrease in NPV								NPV as a Percentage of Present Value of Assets (2)
(Dollars in Thousands)
Change in
Interest
Rates		Estimated								NPV			Increase/(Decrease)
(basis points)		NPV (1)		Amount			Percent			Ratio (3)			(basis points)
	+ 300	$	104,176	$	(23,111	)		(18.16	) %		7.97	%		(109.2	)
	+ 200		112,957		(14,331	)		(11.26	)		8.44			(62.6	)
	+ 100		121,975		(5,312	)		(4.17	)		8.89			(17.5	)
	-		127,287		-			-			9.06			-
	-100		121,479		(5,808	)		(4.56	)		8.54			(52.5	)
	-200		103,982		(23,305	)		(18.31	)		7.29			(177.4	)
	- 300		86,528		(40,759	)		(32.02	)		6.07			(299.5	)

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(1) NPV 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) NPV Ratio represents NPV divided by the present value of assets.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net portfolio value.  Modeling changes in net portfolio value require 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 net portfolio value tables presented assume 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 assume 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 net portfolio value tables provide 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.

EFFECTS OF INFLATION AND CHANGING PRICES:  The financial statements and related financial data presented herein have been prepared in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.  Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.  As a result, interest rates have a more significant impact on a financial institution’s performance than do general levels of inflation.  Interest rates do not necessarily move in the same magnitude as the prices of goods and services.

Real estate prices have declined in the Corporation’s trade area and the values of real estate collateralizing the Corporation’s loans could also be adversely affected.  However, the Corporation is monitoring the situation closely and its results have not been adversely affected.

RECENT ACCOUNTING PRONOUNCEMENTS:   In February 2007, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (Statement No. 159).  Statement No. 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities.  Statement No. 159 was effective for the Corporation on January 1, 2008.  The Corporation did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008.

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In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (Statement No. 157).  Statement No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  Statement No. 157 establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset.  The standard was effective for fiscal years beginning after November 15, 2007.  The adoption of Statement No. 157 did not have a material impact on its financial statements.

In February 2008, the FASB issued Staff Position (FSP) 157-2, “Effective Date of FASB Statement No. 157.”This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material.

In October 2008, the FASB issued Staff Position (FSP) 157-3, “Determining the Fair Value of a Financial Asset when the Market for That Asset Is Not Active.”  This FSP clarifies the application of FAS 157 in a market that is not active.

In September 2006, the FASB Emerging Issues Task Force (EITF) finalized Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.”  EITF 06-4 requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement.  The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement.  EITF 06-4 is effective for fiscal years beginning after December 15, 2007.  The adoption of EITF 06-4 resulted in an accrued benefit liability entry of $449 thousand, which was taken against retained earnings and an expense of approximately $130 thousand in 2008.

On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value through Earnings”(SAB 109). Previously, SAB 105, “Application of Accounting Principles to Loan Commitments,” stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings.  SAB 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view.  SAB 109 is effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007.  The adoption of SAB 109 did not have a material impact on the Corporation’s consolidated financial statements.

In December 2007, the SEC issued SAB No. 110, which expresses the views of the SEC regarding the use of a “simplified” method, as discussed in SAB No. 107, in developing an estimate of expected term of “plain vanilla” share options in accordance with Statement No. 123(R), “Share-Based Payment.”  The SEC

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concluded that a company could, under certain circumstances, continue to use the simplified method for share option grants after December 31, 2007.  The Corporation does not use the simplified method for share options and therefore SAB No. 110 has no impact on the Corporation’s consolidated financial statements.

In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), “Business Combinations” (Statement No. 141(R)), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination.  Statement No. 141(R) is effective for fiscal years beginning on or after December 15, 2008.  Earlier adoption is prohibited.  The adoption of this standard is not expected to have a material effect on the Corporation’s results of operations or financial position.

In December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (Statement No. 160), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets.  Statement No. 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008.  Earlier adoption is prohibited.  The adoption of this standard is not expected to have a material effect on the Corporation’s results of operations or financial position.

In March 2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of Statement No. 133 (Statement No. 161).”  Statement No. 161 amends and expands the disclosure requirements of Statement No. 133 for derivative instruments and hedging activities.  Statement No. 161 requires qualitative disclosure about objectives and strategies for using derivative and hedging instruments, quantitative disclosures about fair value amounts of the instruments and gains and losses on such instruments, as well as disclosures about credit-risk features in derivative agreements.  Statement No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  The adoption of Statement No. 161 is not expected to have a material effect on the Corporation’s results of operations or financial position.

PGB TRUST AND INVESTMENTS:  PGB Trust and Investments, a division of the Bank, since its inception in 1972 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 investment services at the Bank’s Gladstone, Clinton, Morristown and Summit Branches.

The market value of assets under management at December 31, 2008 was $1.80 billion.  Fee income generated by PGB Trust and Investments was $10.5 million, $9.6 million and $8.4 million in 2008, 2007 and 2006, respectively.

Trust Assets
(Market Value in Billions)
2004	$	1.69
2005	$	1.76
2006	$	1.92
2007	$	2.03
2008	$	1.80

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FORWARD LOOKING STATEMENTS:  The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect”, “look”, “believe”, “anticipate”, “may”, or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to the following possibilities:

· Impairment charges with respect to securities.

· Unanticipated costs in connection with new branch openings.

· Further deterioration of the economy.

· Decline in commercial and residential real estate values.

· Unexpected changes in interest rates.

· Inability to manage growth in commercial loans.

· Unexpected loan prepayment volume.

· Unanticipated exposure to credit risks.

· Insufficient allowance for loan losses.

· Competition from other financial institutions.

· Adverse effects of government regulation or different than anticipated effects from existing regulations.

· Passage by Congress of a law which unilaterally amends the terms of the Treasury’s investment in us in a way that adversely affects us.

· A decline in the levels of loan quality and origination volume

· A decline in trust assets or deposits.

· Other unexpected events.

Peapack-Gladstone assumes no obligation for updating any such forward-looking statements at any time.

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SELECTED CONSOLIDATED FINANCIAL DATA:

The following is selected consolidated financial data for the Corporation and its subsidiaries for the years indicated.  This information is derived from the historical consolidated financial statements and should be read in conjunction with the Consolidated Financial Statements and Notes.

	Years Ended December 31,
(In Thousands, Except Per Share Data)	2008			2007		2006			2005		2004
Summary Earnings:
Interest Income	$	71,917		$	72,352	$	67,267		$	55,414	$	44,917
Interest Expense		25,597			36,483		34,444			20,123		9,860
Net Interest Income		46,320			35,869		32,823			35,291		35,057
Provision for Loan Losses		2,400			750		414			391		613
Net Interest Income After Provision
For Loan Losses		43,920			35,119		32,409			34,900		34,444
Other Income, Exclusive of Securities
Gains/(Losses), net		14,382			13,789		12,048			10,944		9,777
Other Expenses		37,285			32,087		28,945			27,492		25,178
Securities (Losses)/Gains, Net		(55,663	)		254		(1,781	)		551		150
(Loss)/Income Before Income Tax Expense		(34,646	)		17,075		13,731			18,903		19,193
Income Tax (Benefit)/Expense		(12,586	)		5,213		3,505			5,773		6,084
Net (Loss)/Income	$	(22,060	)	$	11,862	$	10,226		$	13,130	$	13,109

Per Share Data:
(Loss)/Earnings Per Share-Basic	$	(2.66	)	$	1.43	$	1.24	$	1.58	$	1.60
(Loss)/Earnings Per Share-Diluted		(2.66	)		1.42		1.22		1.56		1.56
Cash Dividends Declared		0.64			0.62		0.58		0.50		0.42
Book Value End-Of-Period		10.12			12.94		12.55		11.97		11.48
Weighted Average Shares Outstanding		8,292,693			8,299,271		8,268,226		8,286,926		8,200,681
Common Stock Equivalents (Dilutive)		-			69,754		102,095		116,348		177,412

Balance Sheet Data (At Period End):
Total Assets	$	1,385,425	$	1,346,976	$	1,288,376	$	1,255,383	$	1,067,410
Investment Securities		51,731		45,139		55,165		78,084		87,128
Securities Available for Sale		173,543		236,944		282,878		334,862		349,656
Total Loans		1,052,982		981,180		870,153		768,473		572,164
Allowance for Loan Losses		9,688		7,500		6,768		6,378		5,989
Total Deposits		1,237,888		1,180,267		1,144,736		1,041,996		935,666
Total Shareholders’ Equity		83,894		107,429		103,763		99,155		94,669
Trust Assets (Market Value)		1,804,629		2,028,232		1,924,954		1,761,846		1,691,860
Cash Dividends Declared		5,304		5,150		4,794		4,143		3,226

Selected Performance Ratios:
Return on Average Total Assets	(1.62	) %	0.90	%	0.79	%	1.12	%	1.30	%
Return on Average Total Shareholders’ Equity	(20.74	)	11.12		10.10		13.49		14.72
Dividend Payout Ratio	(24.04	)	43.42		46.88		31.56		24.61
Average Total Shareholders’ Equity to
Average Assets	7.81		8.12		7.84		8.30		8.82
Non-Interest Expenses to Average Assets	2.74		2.44		2.24		2.34		2.49
Non-Interest Income to Average Assets	(3.03	)	1.07		0.80		0.98		0.98

Asset Quality Ratios (At Period End):
Non-Performing Loans to Total Loans	0.51	%	0.22	%	0.24	%	0.05	%	0.06	%
Non-Performing Assets to Total Assets	0.48		0.16		0.16		0.03		0.03
Allowance For Loan Losses to
Non-Performing Loans	1.8	X	3.5	X	3.3	X	16.5	X	17.1	X
Allowance For Loan Losses to
Total Loans	0.92	%	0.76	%	0.78	%	0.83	%	1.05	%
Net Charge-Offs/(Recoveries) to Average
Loans plus Other Real Estate Owned	0.02		0.00		0.00		0.00		0.01

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Liquidity and Capital Ratios:
Average Loans to Average Deposits	85.01	%	78.22	%	77.47	%	69.25	%	55.94	%
Total Shareholders’ Equity to Total Assets	6.06		7.98		8.05		7.90		8.87
Tier 1 Capital to Risk Weighted Assets	9.11		14.92		15.33		16.71		19.02
Total Capital to Risk Weighted Assets	10.05		15.91		16.31		17.78		20.25
Tier 1 Leverage Ratio	6.15		8.59		8.20		8.66		9.18

The following table sets forth certain unaudited quarterly financial data for the periods indicated:

Dividends Per Share
(In Dollars)
2004	$	0.42
2005	$	0.50
2006	$	0.58
2007	$	0.62
2008	$	0.64

Book Value Per Share
(In Dollars)
2004	$	11.48
2005	$	11.97
2006	$	12.55
2007	$	12.94
2008	$	10.12

Selected 2008 Quarterly Data:	March 31		June 30		September 30		December 31
(In Thousands Except Per Share Data)
Interest Income	$	18,345	$	17,612	$	17,912	$	18,048
Interest Expense		7,831		6,195		5,759		5,812
Net Interest Income		10,514		11,417		12,153		12,236
Provision for Loan Losses		430		590		780		600
Trust Fees		2,485		2,665		2,489		2,899
Impairment Charges		-		-		-		(56,146	)
Securities Gains, Net		310		69		104		-
Other Income		934		927		964		1,019
Other Expenses		8,609		9,129		9,591		9,956
Income Before Income Tax Expense		5,204		5,359		5,339		(50,548	)
Income Tax Expense/(Benefit)		1,741		1,780		1,822		(17,929	)
Net Income	$	3,463	$	3,579	$	3,517	$	(32,619	)
Earnings Per Share-Basic	$	0.42	$	0.43	$	0.42	$	(3.93	)
Earnings Per Share-Diluted		0.41		0.43		0.42		(3.93	)

Selected 2007 Quarterly Data:	March 31		June 30		September 30		December 31
(In Thousands Except Per Share Data)
Interest Income	$	17,294	$	17,895	$	18,256	$	18,907
Interest Expense		8,970		9,225		9,369		8,919
Net Interest Income		8,324		8,670		8,887		9,988
Provision for Loan Losses		125		100		125		400
Trust Fees		2,142		2,459		2,252		2,710
Securities Gains/(Losses), Net		162		220		-		(128	)
Other Income		884		881		912		1,549
Other Expenses		7,558		8,019		8,098		8,412
Income Before Income Tax Expense		3,829		4,111		3,828		5,307
Income Tax Expense		1,137		1,298		1,179		1,599
Net Income	$	2,692	$	2,813	$	2,649	$	3,708
Earnings Per Share-Basic	$	0.33	$	0.34	$	0.32	$	0.45
Earnings Per Share-Diluted		0.32		0.33		0.32		0.44

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Management Report

Internal Control Over Financial Reporting

Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control system was designed to provide reasonable assurance to the Corporation’s management and board of directors regarding the preparation and fair presentation of published financial statements.   All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based upon our assessment we believe that, as of December 31, 2008, the Corporation’s internal control over financial reporting is effective based upon those criteria.  The Corporation’s independent auditors have issued an audit report on our assessment of, and the effective operation of, the Corporation’s internal control over financial reporting.  This report begins on the next page.

/s/  Frank A. Kissel	/s/  Arthur F. Birmingham
Frank A. Kissel	Arthur F. Birmingham
Chairman of the Board and	Executive Vice President,
Chief Executive Officer	Chief Financial Officer and
	Chief Accounting Officer

March 10, 2009

27

Report of Independent Registered Public Accounting Firm

Peapack-Gladstone Financial Corporation

Gladstone, New Jersey

We have audited Peapack-Gladstone Financial Corporation’s (the Company) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report of Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are

28

subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Peapack-Gladstone Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of condition at December 31, 2008 and 2007 and the related statements of income, changes in shareholders’ equity, and cash flows for the years then ended of Peapack-Gladstone Financial Corporation and our report dated March 10, 2009 expressed an unqualified opinion on those financial statements.

                                                                                            /s/  Crowe Horwath LLP

Livingston, New Jersey

March 10, 2009

29

Report of Independent Registered Public Accounting Firm

Peapack-Gladstone Financial Corporation

Gladstone, New Jersey

We have audited the accompanying statements of condition of Peapack-Gladstone Financial Corporation as of December 31, 2008 and 2007, and the related statements of income, changes in shareholders' equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Peapack-Gladstone Financial Corporation’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2009, expressed an unqualified opinion thereon.

                                                                                                                 /s/  Crowe Horwath LLP

Livingston, New Jersey

March 10, 2009

30

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND SHAREHOLDERS

PEAPACK-GLADSTONE FINANCIAL CORPORATION:

      We have audited the consolidated statements of income, changes in shareholders’ equity, and cash  flows  of Peapack-Gladstone  Financial  Corporation and subsidiary (the Corporation) for the year ended December 31, 2006. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial  statements are free of  material  misstatement.  An audit includes examining,  on a test basis,  evidence supporting the amounts and disclosures in the  financial  statements.  An audit also  includes  assessing  the  accounting principles  used  and  significant  estimates  made  by  management,  as well as evaluating the overall  financial  statement  presentation.  We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material   respects,   the results of the operations and the cash flows for the year ended December 31, 2006 for Peapack-Gladstone Financial Corporation and subsidiary, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 14 to the consolidated financial statements, the Corporation has changed its method of quantifying misstatements in the financial statements in the year ended December 31, 2006 due to the adoption of SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements”.

                                                                                                                             /s/ KPMG LLP

Short Hills, New Jersey

February 27, 2007

31

CONSOLIDATED STATEMENTS OF CONDITION

	December 31,
(In Thousands Except Share Data)	2008			2007
Assets
Cash and Due From Banks	$	25,686		$	25,443
Federal Funds Sold		200			1,771
Interest-Earning Deposits		1,003			973
Total Cash and Cash Equivalents		26,889			28,187
Investment Securities Held to Maturity (Fair
Value $52,175 in 2008 and $45,070 in 2007)		51,731			45,139
Securities Available for Sale		173,543			236,944
FHLB and FRB Stock, at cost		4,902			4,293
Loans		1,052,982			981,180
Less: Allowance for Loan Losses		9,688			7,500
Net Loans		1,043,294			973,680
Premises and Equipment		26,936			26,236
Other Real Estate Owned		1,211			-
Accrued Interest Receivable		4,117			5,122
Cash Surrender Value of Life Insurance		25,480			19,474
Deferred Tax Assets, net		23,143			6,387
Other Assets		4,179			1,514
Total Assets	$	1,385,425		$	1,346,976
Liabilities
Deposits:
Noninterest-Bearing Demand Deposits	$	210,030		$	199,266
Interest-Bearing Deposits:
Checking		167,727			145,490
Savings		67,453			64,772
Money Market Accounts		364,628			377,544
Certificates of Deposit over $100,000		195,826			155,410
Certificates of Deposit less than $100,000		232,224			237,785
Total Deposits		1,237,888			1,180,267
Overnight Borrowings		15,250			15,650
Federal Home Loan Bank Advances		39,748			29,169
Accrued Expenses and Other Liabilities		8,645			14,461
Total Liabilities		1,301,531			1,239,547
Shareholders’ Equity
Common Stock (No Par Value; Stated Value $0.83
Per Share; Authorized 20,000,000 shares;
Issued Shares, 8,628,729 at December 31, 2008 and 8,577,446
at December 31, 2007; Outstanding shares, 8,289,823 at
December 31, 2008 and 8,304,486 at December 31, 2007)		7,190			7,148
Surplus		92,169			90,677
Treasury Stock at Cost, 338,906 shares in 2008
and 272,960 shares in 2007		(7,894	)		(6,255	)
Retained Earnings		(6,063	)		21,750
Accumulated Other Comprehensive Loss,
Net of Income Tax Benefit		(1,508	)		(5,891	)
Total Shareholders’ Equity		83,894			107,429
Total Liabilities and Shareholders’ Equity	$	1,385,425		$	1,346,976
See Accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
(In Thousands, Except Per Share Data)	2008			2007		2006
Interest Income
Interest and Fees on Loans	$	58,771		$	55,906	$	49,510
Interest on Investment Securities
Held to Maturity:
Taxable		2,166			848		1,068
Tax-Exempt		917			1,062		1,344
Interest and Dividends on Securities
Available for Sale:
Taxable		8,895			12,859		14,789
Tax-Exempt		916			982		349
Interest on Federal Funds Sold		116			656		146
Interest-Earning Deposits		136			39		61
Total Interest Income		71,917			72,352		67,267
Interest Expense
Interest on Checking Accounts		1,096			1,076		1,044
Interest on Savings and Money Market Accounts		8,504			15,166		12,522
Interest on Certificates of Deposit Over $100,000		6,094			7,134		5,406
Interest on Other Certificates of Deposit		8,232			11,870		10,099
Interest on Overnight and Short-Term Borrowings		217			272		4,305
Interest on Federal Home Loan Bank Advances		1,454			965		1,068
Total Interest Expense		25,597			36,483		34,444
Net Interest Income Before Provision
For Loan Losses		46,320			35,869		32,823
Provision for Loan Losses		2,400			750		414
Net Interest Income After Provision
For Loan Losses		43,920			35,119		32,409
Other Income
Trust Fees		10,538			9,563		8,367
Service Charges and Fees		2,134			2,350		2,310
Bank Owned Life Insurance		1,115			900		837
Other Income		595			976		534
Impairment Charges		(56,146	)		-		-
Securities Gains/(Losses), Net		483			254		(1,781	)
Total Other Income		(41,281	)		14,043		10,267
Other Expenses
Salaries and Employee Benefits		20,586			17,511		15,698
Premises and Equipment		8,470			7,761		6,909
Professional and Legal Fees		1,462			1,124		833
Advertising		1,151			892		732
Other Expenses		5,616			4,799		4,773
Total Other Expenses		37,285			32,087		28,945
(Loss)/Income Before Income Tax Expense		(34,646	)		17,075		13,731
Income Tax (Benefit)/Expense		(12,586	)		5,213		3,505
Net (Loss)/Income	$	(22,060	)	$	11,862	$	10,226
(Loss)/Earnings Per Share
Basic	$	(2.66	)	$	1.43	$	1.24
Diluted		(2.66	)		1.42		1.22
See Accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

											Accumulated
											Other
(In Thousands, Except	Common				Treasury			Retained			Comprehensive
Share Data)	Stock		Surplus		Stock			Earnings			(Loss)/Income			Total
Balance at December 31, 2005
8,284,715 Shares Outstanding	$	7,061	$	88,973	$	(4,022	)	$	10,100		$	(2,957	)	$	99,155
Cumulative Effect Adjustment
resulting from the adoption of
SAB No. 108 (Net of Income
Tax Benefit of $341)									(494	)					(494	)
Balance at January 1, 2006,
As adjusted	$	7,061	$	88,973	$	(4,022	)	$	9,606		$	(2,957	)	$	98,661
Comprehensive Income:
Net Income 2006									10,226						10,226
Unrealized Holding Gains on
Securities Arising During the
Period (Net of Income
Tax Benefit of $398)												416
Less: Reclassification
Adjustment for Losses
Included in Net Income
(Net of Income Tax Benefit of $623)												(1,158	)
Net Unrealized Holding
Gains on Securities Arising
During the Period (Net of
Income Tax Benefit of
$1,021)												1,574			1,574
Total Comprehensive Income															11,800
Adjustment to initially apply
FAS Statement 158 (Net of tax
Benefit of $929)												(1,346	)		(1,346	)
Dividends Declared
($0.58 per Share)									(4,794	)					(4,794	)
Common Stock Option Expense				59											59
Common Stock Options
Exercised and Related
Tax Benefits, 13,742 shares		20		340											360
Treasury Stock Transactions
37,484 shares						(977	)								(977	)
Balance at December 31, 2006
8,270,973 Shares Outstanding	$	7,081	$	89,372	$	(4,999	)	$	15,038		$	(2,729	)	$	103,763
Comprehensive Income:
Net Income 2007									11,862						11,862
Unrealized Holding Losses on
Securities Arising During the
Period (Net of Income
Tax Benefit of $2,110)												(3,076	)
Less: Reclassification
Adjustment for Gains
Included in Net Income
(Net of Income Tax of $89)												165
Net Unrealized Holding
Losses on Securities Arising
During the Period (Net of
Income Tax Benefit of $2,199)												(3,241	)		(3,241	)
Pension Costs (Net of Tax of $54)												79			79
Total Comprehensive Income															8,700

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											Accumulated
											Other
(In Thousands, Except	Common				Treasury			Retained			Comprehensive
Share Data)	Stock		Surplus		Stock			Earnings			(Loss)/Income			Total
Dividends Declared
($0.62 per Share)									(5,150	)					(5,150	)
Common Stock Option Expense				203											203
Common Stock Options
Exercised and Related
Tax Benefits, 79,983 shares		67		1,102											1,169
Treasury Stock Transactions,
46,470 shares						(1,256	)								(1,256	)
Balance at December 31, 2007
8,304,486 Shares Outstanding	$	7,148	$	90,677	$	(6,255	)	$	21,750		$	(5,891	)	$	107,429
Cumulative Effect Adjustment
resulting from the adoption of
EITF 06-4									(449	)					(449	)
Balance at January 1, 2008,
As adjusted	$	7,148	$	90,677	$	(6,255	)	$	21,301		$	(5,891	)	$	106,980
Comprehensive Loss:
Net Loss 2008									(22,060	)					(22,060	)
Unrealized Holding Losses on
Securities Arising During the
Period (Net of Income
Tax Benefit of $17,497)												(33,065	)
Less: Reclassification
Adjustment for Gains
Included in Net Income
(Net of Income Tax Benefit
of $19,482)												(36,181	)
Net Unrealized Holding
Losses on Securities Arising
During the Period (Net of
Income Tax Expense of $1,985)												3,116			3,116
Pension Costs (Net of Tax of
$875)												1,267			1,267
Total Comprehensive Loss															(17,677	)
Dividends Declared
($0.64 per Share)									(5,307	)					(5,307	)
Common Stock Option Expense				347											347
Common Stock Options
Exercised and Related
Tax Benefits, 51,283 shares		42		1,145					3						1,190
Treasury Stock Transactions,
65,946 shares						(1,639	)								(1,639	)
Balance at December 31, 2008
8,289,823 Shares Outstanding	$	7,190	$	92,169	$	(7,894	)	$	(6,063	)	$	(1,508	)	$	83,894

See Accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
(In Thousands)	2008			2007			2006
Operating Activities:
Net (Loss)/Income	$	(22,060	)	$	11,862		$	10,226
Adjustments to Reconcile Net (Loss)/Income to Net Cash Provided
By Operating Activities:
Depreciation		2,274			2,254			2,068
Amortization of Premium and Accretion of Discount on
Securities, Net		144			313			498
Provision for Loan Losses		2,400			750			414
Stock-based Compensation		347			203			59
Deferred Tax (Benefit)/Expense		(19,615	)		256			(1,786	)
Excess tax benefit from exercise of stock options		289			93			29
Impairment Charge		56,146			-			-
(Gain)/Loss on Sale of Securities, Net		(483	)		(254	)		1,781
Proceeds From Sales of Loans		12,203			3,701			622
Loss/(Gain) on Disposal of Premises and Equipment		153			(548	)		(15	)
Increase in Cash Surrender Value of Life Insurance		(1,006	)		(785	)		(732	)
Distribution of Pension Liability		(3,112	)		-			-
Decrease/(Increase) in Accrued Interest Receivable		1,005			59			(353	)
(Increase)/Decrease in Other Assets		(2,393	)		(559	)		2,434
(Decrease)/Increase in Accrued Expenses and Other Liabilities		(1,015	)		(1,500	)		7,738
Net Cash Provided by Operating Activities		25,277			15,845			22,983
Investing Activities:
Proceeds From Maturities of Investment Securities
Held to Maturity		13,216			16,435			32,505
Proceeds From Maturities of Securities Available for Sale		46,746			60,804			66,093
Proceeds From Calls of Investment Securities Held to Maturity		593			150			11,996
Proceeds From Sales and Calls of Securities Available for Sale		36,120			16,086			60,330
Purchase of Investment Securities Held to Maturity		(9,195	)		(6,654	)		(9,722	)
Purchase of Securities Available for Sale, including FHLB
And FRB Stock		(82,545	)		(37,345	)		(82,569	)
Purchase of Loans		-			-			(26,774	)
Net Increase in Loans		(85,941	)		(114,746	)		(75,552	)
Proceeds From Sales of Other Real Estate		513			-			-
Purchases of Premises and Equipment		(3,159	)		(4,544	)		(4,715	)
Proceeds from Disposal of Premises and Equipment		32			661			15
Purchase of Life Insurance		(5,000	)		-			-
Net Cash Used in Investing Activities		(88,620	)		(69,153	)		(28,393	)
Financing Activities:
Net Increase in Deposits		57,621			35,531			102,740
Net (Decrease)/Increase in Overnight Borrowings		(400	)		15,650			-
Net Decrease in Short-Term Borrowings		-			-			(77,500	)
Proceeds From FHLB Advances		12,000			11,000			-
Repayments of FHLB Advances		(1,421	)		(5,795	)		(7,741	)
Dividends Paid		(5,307	)		(5,062	)		(4,713	)
Tax Benefit on Stock Option Exercises		289			93			29
Exercise of Stock Options		902			1,076			331
Purchase of Treasury Stock		(1,639	)		(1,256	)		(977	)
Net Cash Provided by Financing Activities		62,045			51,237			12,169
Net (Decrease)/Increase in Cash and Cash Equivalents		(1,298	)		(2,071	)		6,759
Cash and Cash Equivalents at Beginning of Year		28,187			30,258			23,499
Cash and Cash Equivalents at End of Year	$	26,889		$	28,187		$	30,258
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest	$	28,809		$	34,578		$	32,857
Income Taxes		8,987			4,527			2,222
Transfer of Securities from Available for Sale to Held to
Maturity		48,429			-			-
Transfer of Loans to Other Real Estate Owned		1,731			-			-
See Accompanying Notes to Consolidated Financial Statements

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Organization:  The consolidated financial statements of Peapack-Gladstone Financial Corporation (the “Corporation”) are prepared on the accrual basis and include the accounts of the Corporation and its wholly-owned subsidiary, Peapack-Gladstone Bank.  The consolidated statements also include the Bank’s wholly-owned subsidiary, Peapack-Gladstone Investment Company and its wholly-owned subsidiary, Peapack-Gladstone Mortgage Group, Inc.  While the following footnotes include the collective results of Peapack-Gladstone Financial Corporation and Peapack-Gladstone Bank, these footnotes primarily reflect the Bank’s and its subsidiaries’ activities.  All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.

Business:  Peapack-Gladstone Bank, the subsidiary of the Corporation, provides a full range of banking and trust services to individual and corporate customers through its branch operations in central New Jersey.  The Bank is subject to competition from other financial institutions, is regulated by certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Basis of Financial Statement Presentation:  The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statement of condition and revenues and expenses for that period.  Actual results could differ from those estimates.

Segment Information:  The Corporation’s business is conducted through its banking subsidiary and involves the delivery of loan and deposit products and trust services to customers.  Beginning in 2008, the Corporation changed internal accounting and reporting processes in order to segregate and assess its results among two operating segments, Banking and PGB Trust and Investments and adopted the new processes as of January 1, 2008.  Management uses certain methodologies to allocate income and expense to the business segments.  It was not possible to provide information for prior periods.

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 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.

Cash and Cash Equivalents:  For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-earning deposits and federal funds sold.  Generally, federal funds are sold for one-day periods.  Net cash flows are reported for customer loan and deposit transactions and federal funds purchased and overnight funds.

37

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.

Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses and results in a new cost basis being established.  In estimating other-than-temporary losses, 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 the Corporation’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) Stock:  The Bank is a member of the FHLB system.  Members are required to own a certain amount of stock, based on the level of borrowings and other factors, and may invest in additional amounts.  FHLB stock is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value.  Cash dividends are reported as income.

The Bank is also a member of the Federal Reserve Bank and required to own a certain amount of stock.  FRB stock is carried at cost and classified as a restricted security.  Cash dividends are reported as income.

Loans:  Loans are stated at the principal amount outstanding.  Interest on loans is recognized based upon the principal amount outstanding.  Loans are stated at face value, less unearned income and net deferred fees.  Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the loan as an adjustment, on a level-yield method, to the loan’s yield.

Loans are considered past due when they are not paid in accordance with contractual terms.  The accrual of income on loans, including impaired loans, is discontinued if certain factors indicate reasonable doubt as to the timely collectibility of such interest, generally when the loan becomes over 90 days delinquent.  A non-accrual loan is not returned to an accrual status until factors indicating doubtful collection no longer exist.  Commercial loans are generally charged off after an analysis is completed which indicates that collectibility of the full principal balance is in doubt.  Consumer loans are generally charged off after they become 120 days past due.  Mortgage loans are not generally placed on a nonaccrual status unless the value of the real estate has deteriorated to the point that a potential loss of principal or interest exists.  Subsequent payments are credited to income only if collection of principal is not in doubt.  If principal and interest payments are brought contractually current and future collectibility is reasonably assured, loans are returned to accrual status.  Mortgage loans are generally charged off when the value of the underlying collateral does not cover the outstanding

38

principal balance.  The majority of the Corporation’s loans are secured by real estate in the State of New Jersey.

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 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.  Impairment losses are included in the allowance for loan losses through provisions charged to operations.

Premises and Equipment:  Premises and equipment are stated at cost, less accumulated depreciation.  Depreciation charges are computed using the straight-line method.  Equipment and other fixed assets are depreciated over the estimated useful lives, which range from three to ten years.  Premises are depreciated over the estimated useful life of 40 years, while leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the lease.  Expenditures for maintenance and repairs are expensed as incurred.  The cost of major renewals and improvements are capitalized.  Gains or losses realized on routine dispositions are recorded as other income or other expense.

Bank Owned Life Insurance (BOLI):  The Bank has purchased life insurance policies on certain key executives.  BOLI is recorded at its cash surrender value, which is the amount that can be realized.

The FASB Emerging Issues Task Force (EITF) finalized Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” in September 2006.  EITF 06-4 requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participants’ employment or retirement.  The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement.  EITF 06-4 is effective for fiscal years beginning after December 15, 2007.  The Corporation adopted EITF 06-4 on January 1, 2008, which resulted in a cumulative-effect adjustment decreasing retained earnings and increasing liabilities by $449 thousand as of January 1, 2008.

Other Real Estate Owned:  Other real estate owned is carried at the lower of book value or fair value, based on an independent appraisal, less costs to sell.  When a property is acquired, the excess of the loan balance over the estimated fair value is charged to the allowance for loan losses.  Any subsequent write-downs that may be required to the carrying value of the properties or losses on the sale of properties are charged to the valuation allowance on other real estate owned or to other expense.  The Corporation had $1.2 million of other real estate owned as of December 31, 2008 and no other real estate owned as of December 31, 2007.

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

The Corporation recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns.  The measurement of deferred tax assets and liabilities is based on the enacted tax rates applicable to taxable income for the years in which these temporary differences are expected to be recovered or settled.  Such tax assets and liabilities are adjusted for the effect of a change in tax rates in the period of enactment.

The Corporation adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes, “FIN 48,” as of January 1, 2007.  A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.  The adoption had no affect on the Corporation’s financial statements.

The Corporation is no longer subject to examination by the U.S. federal tax authorities for years prior to 2005 or by New Jersey tax authorities for years prior to 2004.  In 2008, the Corporation was audited by the U.S. Federal tax authorities for 2006.  No changes to the tax return were made.

The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense.

In February 2006, the State of New Jersey Division of Taxation adopted new regulations relating to the dividends paid by Real Estate Investment Trusts (REIT).  Dividends received from a REIT are now ineligible for inclusion in the dividends received deduction for corporations.  This regulation applies to dividends paid on or after February 6, 2006.  This new regulation did not have a material impact on the Corporation’s financial condition or results of operations during 2006; however, tax expense increased in 2007 as a result of this regulation.

Benefit Plans:  The Corporation had a defined benefit pension plan covering substantially all of its salaried employees, which was discontinued on May 12, 2008 and is more fully described in Note 11.  The Plan was terminated and substantially all benefits were paid to employees during September 2008.  Contributions totaling $2.1 million have been made during 2008 and no further contributions are expected.  The Corporation amended its existing 401(K) profit-sharing and investment plan to enhance the contributions to its salaried employees starting in May 2008.

Effective December 31, 2006, the Corporation adopted FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (Statement No. 158), which requires employers to recognize on their balance sheets the funded status of pension and other postretirement benefit plans.  Statement No. 158 also requires fiscal-year-end measurements of plan assets and benefit obligations, the use of earlier measurement dates are not permitted.  Statement No. 158 amends Statements No. 87, No. 88, No. 106 and No. 132R, but retains most of their measurement and disclosure guidance and will not change the amounts recognized in the income statement as net periodic benefit cost.  The Corporation recorded $2.3 million as unfunded pension benefit obligation at December 31, 2006.  Provisions related to changes in funded status were

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adopted in 2007.  Provisions related to the measurement date were adopted in 2008; however, they will have no effect on the Corporation because at the time the defined benefit plan was terminated, the obligation was adjusted to zero.

Stock Option Plans:  The Corporation has incentive and non-qualified stock option plans that allow the granting of shares of the Corporation’s common stock to employees and non-employee directors, which are more fully described in Note 12.  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.

Earnings Per Share:  In calculating earnings per share, there are no adjustments to net income, which is the numerator of both the Basic and Diluted EPS.  The weighted average number of shares outstanding used in the denominator for Diluted EPS is increased over the denominator used for Basic EPS by the effect of potentially dilutive common stock equivalents utilizing the treasury stock method.  Common stock equivalents are common stock options outstanding.

The following table shows the calculation of both Basic and Diluted earnings per share for the years ended December 31, 2008, 2007 and 2006:

(In Thousands Except Per Share Data)	2008			2007		2006
Net (Loss)/Income	$	(22,060	)	$	11,862	$	10,226
Basic Weighted Average Shares Outstanding		8,292,693			8,299,271		8,268,226
Plus:  Common Stock Equivalents		-			69,754		102,095
Diluted Weighted Average Shares Outstanding		8,292,693			8,369,025		8,370,321
(Loss)/Earnings Per Share:
Basic	$	(2.66	)	$	1.43	$	1.24
Diluted		(2.66	)		1.42		1.22

Stock options for 377,289, 375,638 and 317,209 were not considered in computing diluted earnings per share for 2008, 2007 and 2006, respectively, because they were antidilutive.

Treasury Stock:  Treasury stock is recorded using the cost method and is presented as an unallocated reduction of shareholders’ equity.

Comprehensive Income:  Comprehensive income consists of net income and the change during the period in net unrealized gains or losses on securities available for sale, net of tax, and the change in the pension benefit obligation, net of tax.  It is presented in the consolidated statements of changes in shareholders’ equity.

New Accounting Policies:  In February 2007, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (Statement No. 159).  Statement No. 159 provides companies with an option to report selected financial assets and liabilities at fair value.  Statement No. 159’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently.  Statement No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007.  The Corporation did not adopt fair value

41

accounting for financial assets or liabilities as of January 1, 2008.  Therefore, the  adoption of Statement No. 159 did not have a material impact on its financial statements.

In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (Statement No. 157).  Statement No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  Statement No. 157 establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset.  The standard is effective for fiscal years beginning after November 15, 2007.  The adoption of Statement No. 157 did not have a material impact on its financial statements.

Reclassification:  Certain reclassifications have been made in the prior periods’ financial statements in order to conform to the 2008 presentation.

2.  INVESTMENT SECURITIES HELD TO MATURITY

A summary of amortized cost and fair value of investment securities held to maturity included in the consolidated statements of condition as of December 31, 2008 and 2007 follows:

			2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
U.S. Treasury	$	500	$	14	$	-		$	514
Mortgage-Backed Securities		10,007		214		(34	)		10,187
State and Political Subdivisions		29,670		257		(7	)		29,920
Other Securities		11,554		-		-			11,554
Total	$	51,731	$	485	$	(41	)	$	52,175

			2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
U.S. Treasury	$	500	$	14	$	-		$	514
Mortgage-Backed Securities		13,196		84		(88	)		13,192
State and Political Subdivisions		31,443		58		(137	)		31,364
Total	$	45,139	$	156	$	(225	)	$	45,070

The amortized cost and fair value of investment securities held to maturity as of December 31, 2008, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.  Securities not due at a single maturity, mortgage-backed securities, are shown separately.

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Maturing In:
(In Thousands)	Amortized Cost		Fair Value
One Year or Less	$	14,284	$	14,418
After One Year Through Five Years		14,825		14,934
After Five Years Through Ten Years		1,061		1,082
After Ten Years		11,554		11,554
		41,724		41,988
Mortgage-Backed Securities		10,007		10,187
Total	$	51,731	$	52,175

Securities having an approximate carrying value of $1.4 million and $300 thousand as of December 31, 2008 and 2007, respectively, were pledged to secure public funds and for other purposes required or permitted by law.

In 2008, the Corporation recognized a non-cash charge of $55.3 million related to an other-than-temporary impairment charge for the trust preferred portfolio with a cost of $67.1 million.  The Corporation has the intent and ability to hold these securities to maturity and consequently, as of July 1, 2008, Management changed the accounting treatment for the portfolio from “available for sale” to “held to maturity.”   Although the Corporation’s intent is to continue to hold these securities until maturity, some of the securities may default and, therefore, the Corporation may not recover the original book value.

The following table presents the Corporation’s investment securities held to maturity with continuous unrealized losses and the fair value of these investments as of December 31, 2008 and 2007.

							2008
							Duration of Unrealized Loss
	Less Than 12 Months						12 Months or Longer						Total
		Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
(In Thousands)		Value		Losses				Value		Losses				Value		Losses
Mortgage-Backed Securities		$	1,736	$	(34	)		$	-	$	-			$	1,736	$	(34	)
State and Political Subdivisions			3,146		(6	)			349		(1	)			3,495		(7	)
Total		$	4,882	$	(40	)		$	349	$	(1	)		$	5,231	$	(41	)

							2007
							Duration of Unrealized Loss
	Less Than 12 Months						12 Months or Longer						Total
		Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
(In Thousands)		Value		Losses				Value		Losses				Value		Losses
Mortgage-Backed Securities		$	1,235	$	(2	)		$	6,025	$	(86	)		$	7,260	$	(88	)
State and Political Subdivisions			5,449		(30	)			15,634		(107	)			21,083		(137	)
Total		$	6,684	$	(32	)		$	21,659	$	(193	)		$	28,343	$	(225	)

Management has determined that these unrealized losses on debt securities are temporary and due to interest rate fluctuations rather than the credit ratings of the issuers.  The Corporation has a policy to purchase only from issuers with an investment grade credit rating and monitors credit ratings periodically.

The unrealized losses on investments in mortgage-backed securities were caused by interest rate increases and recent volatile market conditions in the mortgage-backed securities market.  These securities are all rated AAA.  The Corporation has the ability and intent to hold these securities for a period of time sufficient to recover all gross unrealized losses.

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3.  SECURITIES AVAILABLE FOR SALE

A summary of amortized cost and fair value of securities available for sale included in the consolidated statements of condition as of December 31, 2008 and 2007 follows:

			2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Mortgage-Backed Securities	$	146,456	$	2,952	$	(3,333	)	$	146,075
State and Political Subdivisions		21,282		141		(431	)		20,992
Other Securities		4,319		-		(1,209	)		3,110
Marketable Equity Securities		4,069		15		(718	)		3,366
Total	$	176,126	$	3,108	$	(5,691	)	$	173,543

			2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
U.S. Government-Sponsored Agencies	$	23,999	$	60	$	(7	)	$	24,052
Mortgage-Backed Securities		119,073		204		(784	)		118,493
State and Political Subdivisions		24,926		192		(495	)		24,623
Other Securities		72,524		68		(6,847	)		65,745
Marketable Equity Securities		4,107		281		(357	)		4,031
Total	$	244,629	$	805	$	(8,490	)	$	236,944

The amortized cost and fair value of securities available for sale as of December 31, 2008, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.

Maturing In:
(In Thousands)	Amortized Cost		Fair Value
One Year or Less	$	1,065	$	1,072
After One Year Through Five Years		5,390		5,505
After Five Years Through Ten Years		2,702		2,657
After Ten Years		16,444		14,868
		25,601		24,102
Mortgage-Backed Securities		146,456		146,075
Marketable Equity Securities		4,069		3,366
Total	$	176,126	$	173,543

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Securities having an approximate carrying value of $30.4 million and $17.5 million as of December 31, 2008 and December 31, 2007, respectively, were pledged to secure public funds and for other purposes required or permitted by law.

Gross gains on sales of securities of $609 thousand, $498 thousand and $83 thousand and gross losses on sales of securities of $117 thousand, $272 thousand and $1.9 million were realized in 2008, 2007 and 2006, respectively.  In 2008, the Corporation recognized $9 thousand in losses on the non-monetary exchange of equity securities and recognized $28 thousand in gains on the non-monetary exchange of equity securities in 2007.  There were no non-monetary exchanges in 2006.  In 2008, the Corporation recognized a non-cash charge of $884 thousand related to an other-than-temporary impairment charge for one corporate bond and four equity securities with a cost of $1.3 million.

The following table presents the Corporation’s available for sale securities with continuous unrealized losses and the fair value of these investments as of December 31, 2008 and 2007.

.

						2008
						Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer						Total
	Fair		Unrealized				Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses				Value		Losses			Value		Losses
Mortgage-Backed Securities	$	24,019	$	(3,157	)		$	5,354	$	(176	)	$	29,373	$	(3,333	)
State and Political Subdivisions		7,513		(431	)			-		-			7,513		(431	)
Other Securities		-		-				1,790		(1,208	)		1,790		(1,208	)
Marketable Equity Securities		1,843		(366	)			800		(353	)		2,643		(719	)
Total	$	33,375	$	(3,954	)		$	7,944	$	(1,737	)	$	41,319	$	(5,691	)

						2007
						Duration of Unrealized Loss
	Less Than 12 Months					12 Months or Longer						Total
	Fair		Unrealized				Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses				Value		Losses			Value		Losses
U.S. Government-Sponsored
Agencies	$	-	$	-			$	1,491	$	(7	)	$	1,491	$	(7	)
Mortgage-Backed Securities		14,492		(57	)			59,266		(727	)		73,758		(784	)
State and Political Subdivisions		16,363		(491	)			328		(4	)		16,691		(495	)
Other Securities		53,297		(6,310	)			3,459		(538	)		56,756		(6,848	)
Marketable Equity Securities		2,350		(309	)			176		(47	)		2,526		(356	)
Total	$	86,502	$	(7,167	)		$	64,720	$	(1,323	)	$	151,222	$	(8,490	)

Management has determined that the unrealized losses on debt securities are temporary and due to interest rate fluctuations and volatility rather than the credit ratings of the issuers.  The Corporation has a policy to purchase debt securities only from issuers with an investment grade credit rating and monitors credit ratings periodically.

The unrealized losses on investments in mortgage-backed securities were caused by interest rate increases and recent volatile market conditions in the non-agency mortgage-backed securities market.  These securities are all rated AAA.  The Corporation has the ability and intent to hold these securities for a period of time sufficient to recover all gross unrealized losses.

As noted above, Management changed their intent and reclassified the trust preferred pooled securities portfolio from “available for sale” to “held to maturity” as of July 1, 2008 since the Corporation has the ability and intent to hold these securities to maturity.

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4.  LOANS

Loans outstanding as of December 31, consisted of the following:

(In Thousands)	2008		2007
Residential Mortgage	$	505,150	$	497,016
Commercial Mortgage		274,640		237,316
Commercial Loans		143,188		129,747
Construction Loans		66,785		60,589
Consumer Loans		29,789		37,264
Home Equity Loans		31,054		18,430
Other Loans		2,376		818
Total Loans	$	1,052,982	$	981,180

Included in the totals above for December 31, 2008 are $2.7 million of unamortized discount and $2.7 million of deferred origination costs net of deferred origination fees as compared to $3.4 million of unamortized discount and $2.8 million of deferred origination costs net of deferred origination fees for December 31, 2007.

Non-accrual loans totaled $5.4 million and $2.1 million at December 31, 2008 and 2007, respectively.  At December 31, 2008 and December 31, 2007 there were no loans past due 90 days or more and still accruing interest.

At December 31, 2008, the impaired loan portfolio consisted of four residential loans for $1.1 million and eleven commercial loans for $13.5 million for which there was $949 thousand of specific allocation in the allowance for loan losses.  At December 31, 2007, the impaired loan portfolio consisted of four commercial loans for $1.8 million for which there was $111 thousand of specific allocation in the allowance for loan losses.  At December 31, 2006, the impaired loan portfolio consisted of two commercial loans for $1.5 million for which there was $378 thousand of specific allocation in the allowance for loan losses.  At December 31, 2008, there were no commitments to lend additional funds to borrowers whose loans are classified as nonperforming.

(In Thousands)	2008		2007		2006
Average of Individually Impaired Loans During Year	$	7,574	$	4,686	$	12
Interest Income Recognized During Impairment		419		341		-
Cash-Basis Interest Income Recognized		419		341		-

In the ordinary course of business, the Corporation, through the Bank, may extend credit to officers, directors or their associates.  These loans are subject to the Corporation’s normal lending policy and Federal Reserve Bank Regulation O.

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The following table shows the changes in loans to officers, directors or their associates:

(In thousands)	2008			2007
Balance, Beginning of Year	$	4,373		$	2,907
New loans		361			2,706
Repayments		(936	)		(1,240	)
Balance, End of Year	$	3,798		$	4,373

5.  ALLOWANCE FOR LOAN LOSSES

A summary of changes in the allowance for loan losses for the years indicated follows:

	Years Ended December 31,
(In Thousands)	2008			2007			2006
Balance, Beginning of Year	$	7,500		$	6,768		$	6,378
Provision Charged to Expense		2,400			750			414
Loans Charged-Off		(239	)		(23	)		(26	)
Recoveries		27			5			2
Balance, End of Year	$	9,688		$	7,500		$	6,768

6.  PREMISES AND EQUIPMENT

Premises and equipment as of December 31, follows:

(In Thousands)	2008		2007
Land and Land Improvements	$	6,761	$	6,027
Buildings		12,875		11,316
Furniture and Equipment		17,673		16,268
Leasehold Improvements		8,974		8,284
Projects in Progress		800		2,586
		47,083		44,481
Less:  Accumulated Depreciation		20,147		18,245
Total	$	26,936	$	26,236

Depreciation expense amounted to $2.3 million, $2.3 million and $2.1 million for the years ended December 31, 2008, 2007 and 2006, respectively.

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7.  DEPOSITS

The scheduled maturities of time deposits are as follows:

(In Thousands)
2009	$	346,933
2010		59,486
2011		4,543
2012		3,259
2013		13,829
Total	$	428,050

8.  FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Advances from FHLB totaled $39.7 million and $29.2 million at December 31, 2008 and 2007, respectively, with a weighted average interest rate of 3.59 percent and 3.69 percent, respectively.

Advances totaling $13.0 million at December 31, 2008, have fixed maturity dates, while advances totaling $3.7 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 $203.9 million at December 31, 2008 and $237.2 million at December 31, 2007.

At December 31, 2008, the Corporation had $23.0 million in fixed rate advances that are noncallable for one, two or three years and then callable quarterly with final maturities of three, five, seven or ten years.  These advances are secured by pledges of investment securities totaling $25.4 million at December 31, 2008 and $13.1 million at December 31, 2007.

The advances have prepayment penalties.

The scheduled repayments of advances are as follows:

(In Thousands)
2009	$	2,000
2010		12,780
2011		3,000
2012		5,000
2013		1,968
Over 5 Years		15,000
Total	$	39,748

At December 31, 2008, overnight borrowings with FHLB totaled $15.3 million at a rate of 1.61 percent as compared to $15.7 million at a rate of 4.11 percent at December 31, 2007.  At December 31, 2008, unused short-term or overnight borrowings commitments totaled $234.8 million from FHLB and $58.0 million from correspondent banks.

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9.  FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement 157 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).

Assets Measured on a Recurring Basis

			Fair Value Measurements at December 31, 2008 Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant
			Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2008		(Level 1)		(Level 2)		(Level 3)
Assets:
Available for Sale Securities	$	173,543	$	3,366	$	170,177	$	-

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Assets Measured on a Non-Recurring Basis

			Fair Value Measurements at December 31, 2008 Using
			Quoted
			Prices in
			Active
			Markets		Significant
			For		Other		Significant
			Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2008		(Level 1)		(Level 2)		(Level 3)
Assets:
Held To Maturity Securities	$	11,554	$	-	$	-	$	11,554
Impaired Loans		13,641		-		13,641		-

The trust preferred pooled securities within the Corporation’s held to maturity investment portfolio are collateralized by trust preferred securities issued primarily by individual banks, 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 it is more appropriate to determine fair value using discounted cash flow analysis.  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.

In prior periods, the Corporation used a constant rate of default derived from the historic performance of the underlying collateral to assess other-than-temporary impairment.  During the fourth quarter of 2008 a significant portion of the Corporation’s trust preferred pooled securities were downgraded from investment grade to below investment grade; as a result, in the fourth quarter of 2008 the Corporation chose to employ the valuation methodology set forth in the preceding paragraph to assess fair value and other-than-temporary impairment with respect to the pooled trust preferred securities.

The impaired loan balances were compared to current appraisals of the underlying collateral to determine the current fair value.

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10.  INCOME TAXES

The income tax expense included in the consolidated financial statements for the years ended December 31, is allocated as follows:

(In Thousands)	2008			2007			2006
Federal:
Current Expense	$	6,303		$	3,986		$	4,963
Deferred (Benefit)/ Expense		(19,374	)		878			(645	)
State:
Current Expense		726			971			328
Deferred Benefit		(2,857	)		(622	)		(1,141	)
Valuation Allowance		2,610			-			-
Total Income Tax (Benefit)/Expense	$	(12,586	)	$	5,213		$	3,505
Shareholders’ Equity:
Deferred (Benefit)/Expense on
Unrealized (Loss)/Gain on Available for Sale	$	(1,075	)	$	(3,060	)	$	1,021
Lease Adjustment		-			-			(341	)
Unfunded Pension Benefit		-			(875	)		(929	)
Total Deferred Benefit	$	(1,075	)	$	(3,935	)	$	(249	)

Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35 percent to income before taxes as a result of the following:

(In Thousands)	2008			2007			2006
Computed “Expected” Tax (Benefit)/Expense	$	(12,126	)	$	5,976		$	4,806
(Decrease)/Increase in Taxes Resulting From:
Tax-Exempt Income		(569	)		(746	)		(509	)
State Income Taxes		315			225			(529	)
Bank Owned Life Insurance Income		(299	)		(270	)		(254	)
Other		93			28			(9	)
Total Income Tax (Benefit)/Expense	$	(12,586	)	$	5,213		$	3,505

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The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31 are as follows:

(In Thousands)	2008			2007
Deferred Tax Assets:
Allowance for Loan Losses	$	3,923		$	3,006
Unfunded Pension Benefit		-			875
Unrealized Loss on Securities Available for Sale		1,075			3,060
State Net Operating Loss Carry Forward		1,211			1,131
Lease Adjustment		246			267
Post Retirement Benefits		218			483
Prepaid Alternative Minimum Assessment		283			283
Contribution Limitation		47			34
Other Than Temporary Impairment		22,261			-
Stock Option Expense		45			-
Nonaccrued Interest		113			-
Other		-			7
Valuation Allowance – Other-Than-Temporary Impairment State Tax		(2,610	)		-
Total Gross Deferred Tax Assets	$	26,812		$	9,146
Deferred Tax Liabilities:
Bank Premises and Equipment,
Principally Due to Difference in Depreciation	$	1,351		$	1,751
Deferred Loan Origination Costs and Fees		847			702
Deferred REIT Dividend		898			-
Deferred Income		425			133
Nonmonetary Gain		97			84
Investment Securities, Principally Due to
the Accretion of Bond Discount		42			89
Other		9			-
Total Gross Deferred Tax Liabilities		3,669			2,759
Net Deferred Tax Asset	$	23,143		$	6,387

The net deferred asset includes the tax effect of $20.7 million of New Jersey net operating loss carryforwards that expire from 2012 through 2015.  Management has recorded a valuation reserve against the state tax benefits of $2.61 million related to the security impairment charges.  Losses realized upon the ultimate disposition of these securities will likely create additional state tax losses.  Management does not feel it is more likely than not that the Corporation would be able to utilize the losses during the net operating loss carryforward period.

Based upon taxes paid and projected future taxable income, management believes that it is more likely than not that the remaining gross deferred tax assets will be realized.

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11.  BENEFIT PLANS

PENSION PLAN:

The Corporation had a defined benefit pension plan covering substantially all of its salaried employees which was discontinued on May 12, 2008.  The Plan was settled and substantially all benefits were paid to employees during September 2008.  Contributions totaling $2.1 million were made during 2008 and no further contributions are expected.  The Corporation amended its existing 401(K) profit-sharing and investment plan to enhance the contributions to its salaried employees starting in May 2008.

The following table shows the change in benefit obligation and plan assets of the defined benefit pension plan at December 31:

(In Thousands)	2008			2007
Change in Benefit Obligation
Benefit Obligation, Beginning of Year	$	16,039		$	13,942
Service Cost		637			1,753
Interest Cost		460			779
Actuarial Gain		(1,994	)		(295	)
Benefits Paid		(15,142	)		(140	)
Benefit Obligation, End of Year	$	-		$	16,039
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year	$	13,154		$	11,377
Actual Return on Plan Assets		(123	)		817
Employer Contribution		2,111			1,100
Benefits Paid		(15,142	)		(140	)
Fair Value of Plan Assets at End of Year	$	-		$	13,154
Funded Status at End of Year	$	-		$	(2,885	)

Amounts recognized in other accumulated comprehensive income at December 31, 2007 consist of

(In Thousands)	2007
Unrecognized Net Actuarial Loss	$	2,157
Unrecognized Transition Asset		(13	)
Unrecognized Prior Service Cost		(2	)
Total Accumulated Other Comprehensive Loss	$	2,142

The accumulated benefit obligation was $12.4 million at December 31, 2007.

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Net periodic expense for the years ended December 31, included the following components:

(In Thousands)	2008			2007			2006
Service Cost	$	637		$	1,753		$	1,670
Interest Cost		633			779			659
Expected Return on Plan Assets		(839	)		(1,008	)		(897	)
Net Periodic Benefit Cost		431			1,524			1,432
Amortization of:
Net Loss		17			35			75
Transition Asset		(3	)		(7	)		(7	)
Total Recognized in Other Comprehensive Income		14			28			68
Total Recognized in Net Periodic Benefit
Cost and Other Comprehensive Income	$	445		$	1,552		$	1,500

The following table shows the actuarial assumptions applied for the valuation of plan obligations at December 31:

	2007			2006
Discount Rate		5.75	%		5.75	%
Rate of Increase on Future Compensation		3.00			3.00

The Discount Rate was obtained using a high-quality (AA rated), corporate bond rate at year end.

The following table shows the actuarial assumptions applied for the net periodic expense at December 31:

	2007			2006
Discount Rate		5.75	%		5.50	%
Rate of Increase on Future Compensation		3.00			3.00
Expected Long-Term Rate of Return on Plan Assets		8.50			8.50

The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual assets categories.

The asset allocation of the Corporation’s pension benefits plan assets at December 31, 2007 were as follows:

	2007
Equity Securities		58.3	%
Debt Securities		36.8
Cash and Cash Equivalents		4.9
Total		100.0	%

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The Plan’s Trustees are granted full discretion to buy, sell, invest and reinvest in accordance with the pension plan’s investment policy.  The Trustees establish target asset allocations for equity and debt securities at their regular committee meetings.  Cash equivalents are invested in money market funds or in other high quality investments approved by the Trustees of the Plan.

SAVINGS AND PROFIT SHARING PLANS:

The Corporation sponsors a profit sharing plan and a savings plan under Section 401(K) of the Internal Revenue Code, covering substantially all salaried employees over the age of 21 with at least 12 months service.  The 401(K) plan was amended to enhance the contributions to its salaried employees starting in May 2008 and replaced the Bank’s defined benefit pension plan which was terminated in 2008.  These actions will reduce the retirement costs per employee in future years and eliminates the market risk of maintaining a defined benefit plan.  Under the savings portion of the plan, the Corporation contributes 3% for each employee regardless of the employees' contributions as well as partially matching employee contributions.  In addition, the Corporation is contributing an enhanced benefit to employees who were previously in the defined benefit plan.  In 2008, the enhanced benefit was approximately $765 thousand.  Expense for the savings plan totaled approximately $1.4 million, $51 thousand and $45 thousand in 2008, 2007 and 2006, respectively.

Contributions to the profit sharing plan are made at the discretion of the Board of Directors and all funds are invested solely in Peapack-Gladstone Corporation common stock.  The aggregate contribution to the profit sharing plan was $100 thousand each in 2008, 2007 and 2006.

12.  STOCK OPTION PLANS

The Corporation’s stock option plans 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 total number available to grant in active plans was 738,800 shares.  There are no shares remaining for issuance with respect to stock option plans approved in 1995 and 1998; however, shares granted under those plans are still included in the numbers below.

Options granted under these plans are, in general, exercisable not earlier than one year after the date of grant, at a price equal to the fair market value of the 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.  Some options granted to officers at or above the senior vice president level were immediately exercisable at the date of grant.

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Changes in options outstanding during 2008 were as follows:

						Weighted		Aggregate
						Average		Intrinsic
	Number of			Exercise Price		Exercise		Value
	Shares			Per Share		Price		(In Thousands)
Balance, December 31, 2007		583,812		$	13.62-$32.14	$	24.77
Granted During 2008		72,360			21.97-33.18		25.07
Exercised During 2008		(51,283	)		13.68-28.89		17.65
Forfeited During 2008		(5,278	)		15.70-33.00		25.65
Balance, December 31, 2008		599,611		$	13.62-$33.18	$	25.41	$	1,560
Vested and Expected to Vest (1)		591,434		$	15.68-$33.18	$	25.41	$	1,550
Exercisable at December 31,
2008		468,710		$	13.62-$32.14	$	25.12	$	1,423

(1)  The difference between the shares which are exercisable (fully vested) and those which are expected to vest is due to anticipated forfeitures.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of 2008 and the exercise price, multiplied by the number of in-the-money options).

The aggregate intrinsic value of options exercised during 2008, 2007 and 2006 was $428 thousand, $1.2 million and $288 thousand, respectively.

The following table summarizes information about stock options outstanding at December 31, 2008.

	Shares	Remaining	Shares
Exercise Price	Outstanding	Contractual Life	Exercisable
< $18.00	90,514	2.0 years	90,514
18.01 – 28.00	135,209	5.0 years	65,277
28.01 – 28.50	64,414	8.0 years	13,590
28.51 – 29.00	288,814	4.9 years	284,961
29.01 – 40.00	20,660	6.4 years	14,368
$25.41 *	599,611	4.9 years	468,710

* Weighted average exercise price

At December 31, 2008, there were 366,405 additional shares available for grant under the Plans.

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The per share weighted-average fair value of stock options granted during 2008, 2007 and 2006 was $10.94, $10.38 and $8.56, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:

	2008			2007			2006
Dividend yield		2.40	%		2.00	%		2.19	%
Expected volatility		50	%		43	%		37	%
Expected life	7 years			5 years			5 years
Risk-free interest rate		3.80	%		4.56	%		4.76	%

For 2008, the expected life of the option is the typical holding period of the Corporation’s options before being exercised by the optionee.  For 2007 and 2006, the expected life of the option is the typical vesting period of the Corporation’s options.  The risk-free interest rate is the rate on a seven-year treasury bond for 2008 and the five year treasury bond for 2007 and 2006.  The volatility, or beta, is the performance the stock has experienced in the last five years.

As of December 31, 2008, there was approximately $1.0 million of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Corporation’s stock incentive plans.  That cost is expected to be recognized over a weighted average period of 1.9 years.

13.  COMMITMENTS

The Corporation, in the ordinary course of business, is a party to litigation arising from the conduct of its business.  Management does not consider that these actions depart from routine legal proceedings and believes that such actions will not affect its financial position or results of its operations in any material manner.  There are various outstanding commitments and contingencies, such as guarantees and credit extensions, including mostly variable-rate loan commitments of $131.5 million and $142.9 million at December 31, 2008 and 2007, respectively, which are not included in the accompanying consolidated financial statements.  These commitments include unused commercial and home equity lines of credit.

The Corporation issues financial standby letters of credit that are within the scope of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”  These are irrevocable undertakings by the Corporation to guarantee payment of a specified financial obligation.  Most of the Corporation’s financial standby letters of credit arise in connection with lending relationships and have terms of one year of less.  The maximum potential future payments the Corporation could be required to make equals the contract amount of the standby letters of credit and amounted to $9.5 million and $12.7 million at December 31, 2008 and 2007, respectively.  The Corporation’s recognized liability for financial standby letters of credit was insignificant at December 31, 2008.

For commitments to originate loans, the Corporation’s maximum exposure to credit risk is represented by the contractual amount of those instruments.  Those commitments represent ultimate exposure to credit risk only to the extent that they are subsequently drawn upon by customers.  The Corporation uses the same credit policies

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and underwriting standards in making loan commitments as it does for on-balance-sheet instruments.  For loan commitments, the Corporation would generally be exposed to interest rate risk from the time a commitment is issued with a defined contractual interest rate.

At December 31, 2008, the Corporation was obligated under non-cancelable operating leases for certain premises.  Rental expense aggregated $2.7 million, $2.5 million and $2.3 million for the years ended December 31, 2008, 2007 and 2006, respectively, which is included in premises and equipment expense in the consolidated statements of income.

The minimum annual lease payments under the terms of the lease agreements, as of December 31, 2008, were as follows:

(In Thousands)
2009	$	2,724
2010		2,626
2011		2,086
2012		2,096
2013		2,106
Thereafter		13,616
Total	$	25,254

The Corporation is also obligated under legally binding and enforceable agreements to purchase goods and services from third parties, including data processing service agreements.

14.  SEC STAFF ACCOUNTING BULLETIN NO. 108

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108), to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires that the Corporation quantify misstatements based on their impact on each of its financial statements and related disclosures. SAB 108 was effective as of the end of the Corporation’s 2006 fiscal year, allowing a one-time transitional cumulative effect adjustment to retained earnings as of January 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB 108.

The Corporation has several operating leases that have been previously accounted for on a cash basis, which is not in accordance with the straight-line basis requirements of FASB Statement No. 13, “Accounting for Leases.”  In prior years, the Corporation had evaluated the impact of this error on an annual basis and determined that the difference was not material in each of the respective years.  Upon the adoption of SAB 108, which requires that the impact of the error be evaluated on a cumulative basis, the Corporation determined that the error was material and therefore, recorded a correction to the rent liability of $835 thousand and a cumulative effect adjustment, net of tax, of $494 thousand to Shareholders’ Equity at the beginning of 2006.

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15.  REGULATORY CAPITAL

The Corporation and the Bank are subject to various regulatory capital requirements administered by the Federal banking 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.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of the Corporation’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.  The Corporation’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).  As of December 31, 2008, the Corporation and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2008, the Corporation met all requirements to be considered well capitalized under the regulatory guidelines.  While the Bank’s Tier I capital ratios met the requirements to be considered well capitalized, the total capital ratio is considered adequate.  To be categorized as well capitalized, the Corporation and the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table.

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The Corporation’s actual capital amounts and ratios are presented in the following table.

To Be Well

Capitalized Under

For Capital

Prompt Corrective

Adequacy

(In Thousands)

Actual

Action Provisions

Purposes

Amount

Ratio

Amount

Ratio

Amount

Ratio

As of December 31, 2008:

Total Capital

(To Risk-Weighted Assets)

$

93,557

10.05

%

$

N/A

N/A

%

$

N/A

N/A

%

Tier I Capital

(To Risk-Weighted Assets)

84,819

9.11

N/A

N/A

N/A

N/A

Tier I Capital

(To Average Assets)

84,819

6.15

N/A

N/A

N/A

N/A

As of December 31, 2007:

Total Capital

(To Risk-Weighted Assets)

$

120,229

15.91

$

N/A

N/A

%

$

N/A

N/A

%

Tier I Capital

(To Risk-Weighted Assets)

112,729

14.92

N/A

N/A

N/A

N/A

Tier I Capital

(To Average Assets)

112,729

8.59

N/A

N/A

N/A

N/A

The Bank’s actual capital amounts and ratios are presented in the following table.

						To Be Well
						Capitalized Under					For Capital
						Prompt Corrective					Adequacy
(In Thousands)	Actual					Action Provisions					Purposes
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2008:
Total Capital
(To Risk-Weighted Assets)	$	88,926		9.44	%	$	94,160		10.00	%	$	75,328		8.00	%
Tier I Capital
(To Risk-Weighted Assets)		80,188		8.52			56,496		6.00			37,664		4.00
Tier I Capital
(To Average Assets)		80,188		5.83			68,716		5.00			41,229		3.00
As of December 31, 2007:
Total Capital
(To Risk-Weighted Assets)	$	99,254		10.53		$	94,271		10.00	%	$	75,417		8.00	%
Tier I Capital
(To Risk-Weighted Assets)		91,753		9.73			56,563		6.00			37,708		4.00
Tier I Capital
(To Average Assets)		91,753		6.90			66,491		5.00			39,895		3.00

16.  BUSINESS SEGMENTS

Late in 2007, the Corporation changed internal accounting and reporting processes in order to segregate and assess its results among two operating segments, Banking and PGB Trust and Investments and adopted the new processes as of January 1, 2008.  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 to each interest-earning asset and interest-bearing liability on a matched maturity funding basis.  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.

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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.

The following table presents the statements of income and total assets for the Corporation’s reportable segments for the twelve months ended December 31, 2008.

(in thousands)				PGB Trust
	Banking			& Investments		Total
Net interest income	$	43,198		$	3,122	$	46,320
Noninterest (loss)/income		(51,995	)		10,714		(41,281	)
Total (loss)/income		(8,797	)		13,836		5,039
Provision for loan losses		2,400			-		2,400
Premises and equipment expense		7,703			767		8,470
Salaries and benefits		15,994			4,592		20,586
Other noninterest expense		5,630			2,599		8,229
Total noninterest expense		31,727			7,958		39,685
(Loss)/income before income tax expense		(40,524	)		5,878		(34,646	)
Income tax (benefit)/expense		(14,517	)		1,931		(12,586	)
Net (loss)/income	$	(26,007	)	$	3,947	$	(22,060	)
Total assets at period end	$	1,384,036		$	1,389	$	1,385,425

17.           SUBSEQUENT EVENTS

On January 9, 2009, as part of the U.S. Department of the Treasury (the “Treasury”) Troubled Asset Relief Program (“TARP”) Capital Purchase Program, 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 143,139 shares of the Corporation’s common stock, no par

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value at an exercise price of $30.06 per share, for an aggregate purchase price of $28,685,000 in cash.

Cumulative dividends on the Preferred Shares will accrue on the liquidation preference at a rate of 5% per annum for the first five years, and at a rate of 9% 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 143,139 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”).

18.  CONDENSED FINANCIAL STATEMENTS OF PEAPACK-GLADSTONE FINANCIAL CORPORATION (PARENT COMPANY ONLY)

The following information of the parent company only financial statements should be read in conjunction with the notes to the consolidated financial statements.

Statements of Condition

	December 31,
(In Thousands)	2008			2007
Assets:
Cash	$	124		$	207
Interest-Earning Deposits		270			11,057
Total Cash and Cash Equivalents		394			11,264
Securities Available for Sale		4,686			10,418
Investment in Subsidiary		79,684			86,543
Other Assets		630			779
Total Assets	$	85,394		$	109,004
Liabilities:
Other Liabilities	$	1,500		$	1,575
Total Liabilities		1,500			1,575
Shareholders’ Equity
Common Stock		7,190			7,148
Surplus		92,169			90,677
Treasury Stock		(7,894	)		(6,255	)
Retained Earnings		(6,063	)		21,750
Accumulated Other Comprehensive
Loss, Net of Income Tax Benefit		(1,508	)		(5,891	)
Total Shareholders’ Equity		83,894			107,429
Total Liabilities and Shareholders’ Equity	$	85,394		$	109,004

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Statements of Income

	Years Ended December 31,
(In Thousands)	2008			2007		2006
Income
Dividend From Bank	$	2,000		$	5,000	$	6,250
Other Income		666			978		854
Securities (Losses)/Gains, Net		(718	)		233		83
Total Income		1,948			6,211		7,187
Expenses
Other Expenses		97			98		106
Total Expenses		97			98		106
Income Before Income Tax Expense and
Equity in Undistributed Earnings of
Bank		1,851			6,113		7,081
Income Tax (Benefit)/Expense		(53	)		356		268
Net Income Before Equity in
Undistributed Earnings of Bank		1,904			5,757		6,813
Equity in Undistributed Earnings of Bank		(23,964	)		6,105		3,413
Net (Loss)/Income	$	(22,060	)	$	11,862	$	10,226

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Statements of Cash Flows

	Years Ended December 31,
(In Thousands)	2008			2007			2006
Cash Flows From Operating Activities:
Net (Loss)/Income	$	(22,060	)	$	11,862		$	10,226
Less Equity in Undistributed Earnings		23,964			(6,105	)		(3,413	)
Amortization and Accretion on Securities		-			(3	)		(1	)
Loss/(Gain) on Securities Available for Sale		718			(233	)		(83	)
Decrease/(Increase) in Other Assets		342			(527	)		139
Increase in Other Liabilities		(77	)		200			53
Net Cash Provided by Operating Activities		2,887			5,194			6,921
Cash Flows From Investing Activities:
Capital Contribution to Subsidiary		(12,500	)		-			-
Proceeds From Sales and Calls of Securities
Available for Sale		5,937			4,024			1,580
Proceeds From Maturities of Securities
Available for Sale		-			1,002			2,001
Purchase of Securities Available for Sale		(1,439	)		(1,220	)		(4,835	)
Net Cash (Used in)/Provided by
Investing Activities		(8,002	)		3,806			(1,254	)
Cash Flows From Financing Activities:
Dividends Paid		(5,307	)		(5,062	)		(4,713	)
Tax Benefit on Stock Option Exercises		289			93			29
Exercise of Stock Options		902			1,076			331
Treasury Stock Transactions		(1,639	)		(1,256	)		(977	)
Net Cash Used in Financing Activities		(5,755	)		(5,149	)		(5,330	)
Net (Decrease)/Increase in Cash and
Cash Equivalents		(10,870	)		3,851			337
Cash and Cash Equivalents at Beginning of Period		11,264			7,413			7,076
Cash and Cash Equivalents at End of Period	$	394		$	11,264		$	7,413

64

COMMON STOCK PRICES (UNAUDITED)

The following table shows the 2008 and 2007 range of prices paid on known trades of Peapack-Gladstone Financial Corporation common stock.

					Dividend
2008	High		Low		Per Share
1st Quarter	$	27.25	$	20.98	$	0.16
2nd Quarter		29.79		21.97		0.16
3rd Quarter		37.93		21.16		0.16
4th Quarter		34.00		22.85		0.16

					Dividend
2007	High		Low		Per Share
1st Quarter	$	31.03	$	25.62	$	0.15
2nd Quarter		32.47		26.78		0.15
3rd Quarter		27.80		24.80		0.16
4th Quarter		26.35		24.45		0.16

65

OFFICERS
Loan and Administration	Frank A. Kissel	Chairman of the Board & CEO*
Gladstone	Robert M. Rogers	President & COO*
	Arthur F. Birmingham	Executive Vice President & CFO *
	Garrett P. Bromley	Executive Vice President & Chief Lending Officer
	Finn M.W. Caspersen, Jr.	Executive Vice President & General Counsel
	Robert A. Buckley	Senior Vice President & Branch Administrator
	Michael J. Giacobello	Senior Vice President & Retail Delivery
	Charles T. Kirk	Senior Vice President & Construction Lender
	Vincent A. Spero	Senior Vice President & Senior Commercial Lender
	Bridget J. Walsh	Senior Vice President & Human Resources Director
	Todd T. Brungard	Vice President & Bank Secrecy Act Compliance Officer
	Lynda A. Cross	Vice President & Security Officer
	Karen M. Ferraro	Vice President
	Dirk H. Graham	Vice President
	Valerie L. Kodan	Vice President
	Katherine M. Kremins	Vice President & Risk Management Administrator
	Doreen A. Macchiarola	Vice President & Corporate Trainer
	Rene Merghart	Vice President & Facilities Director
	Stephen S. Miller	Vice President
	Elaine Muldowney	Vice President
	Denise M. Pace	Vice President & Marketing Director
	Paula L. Palermo	Vice President & Director of Sales
	Denise L. Parella	Vice President & Business Development Officer
	Christopher P. Pocquat	Vice President
	Mary M. Russell	Vice President & Comptroller
	Scott T. Searle	Vice President
	Susan K. Smith	Vice President
	James S. Stadtmueller	Vice President
	Veronica V. Valentine	Vice President & Business Development Officer
	Margaret O. Volk	Vice President & Mortgage Officer
	Jesse D. Williams	Vice President
	Randall J. Williams	Vice President
	Julie A. Burt	Assistant Vice President
	Betty J. Cariello	Assistant Vice President & Assistant Comptroller
	Ryan P. Corcoran	Assistant Vice President
	Yvonna R. Coyne	Assistant Vice President
	Ann M. Ficken	Assistant Vice President
	Michael Moreland	Assistant Vice President
	Sheryl L. Cappa	Assistant Cashier
	Marjorie A. Dzwonczyk	Assistant Cashier & CRA and Compliance Officer
	Alexandra A. Garms	Assistant Cashier
	Annette Hanson	Assistant Cashier
	Lisa A. Lough	Assistant Cashier
	Eram F. Mirza	Assistant Cashier
	Michele Ravo	Assistant Cashier
	Ana P. Ribeiro	Assistant Cashier
	Laura M. Watt	Assistant Cashier
	Antoinette Rosell	Corporate Secretary *
Operations	Hubert P. Clarke	Senior Vice President & Chief Information Officer
Bedminster	Thomas N. Kasper	Vice President
	V. Sherri LiCata	Vice President
	Diane M. Ridolfi	Vice President
	Frank C. Waldron	Vice President
	Nancy A. Murphy	Assistant Vice President
	Vita M. Parisi	Assistant Vice President
	Kristin A. Romeo	Assistant Vice President
	Margaret A. Trimmer	Assistant Vice President
	Carol L. Behler	Assistant Cashier
Audit	Karen M. Chiarello	Vice President & Auditor
Chester	Lisa S. Hagen	Assistant Vice President
Loan	Marc R. Magliaro	Vice President
Morristown	John A. Scerbo	Vice President
* Denotes A Holding Company Officer

66

PGB Trust & Investments	Craig C. Spengeman	President & Chief Investment Officer *
Gladstone	Bryant K. Alford	First Vice President & Senior Trust Officer
	John M. Bonk	First Vice President & Director of Business Development
	John E. Creamer	First Vice President & Senior Portfolio Manager
	John C. Kautz	First Vice President & Senior Investment Officer
	Michael Pylypyshyn	First Vice President & Senior Trust Operations Officer
	Kurt G. Talke	First Vice President & Senior Trust Officer
	Catherine M. Denning	Vice President & Trust Officer
	Glenn C. Guerin	Vice President & Trust Officer
	Michael E. Herrmann	Vice President & Trust Officer
	James R. Housman	Vice President & Director of Tax
	George P. Kurtz, Jr.	Vice President & Trust Officer
	Peter T. Lillard	Vice President & Trust Officer
	John Markovich	Vice President & Trust Officer
	Scott A. Marshman	Vice President & Trust Officer
	Edward P. Nicolicchia	Vice President & Trust Officer
	Liza Rosenzweig	Vice President & Trust Officer
	Anne M. Smith	Vice President & Trust Officer
	MJ Sully	Vice President & Trust Officer
	John Tarver	Vice President & Trust Officer
	David C. O’Meara	Assistant Vice President & Trust Officer
	Catherine A. McCatharn	Trust Officer & Assistant Corporate Secretary *
	Patricia K. Sawka	Trust Officer
	Polly S. Sumerfield	Assistant Trust Officer
Morristown	John J. Lee	Vice President & Trust Officer
	Michael T. Tormey	Vice President & Trust Officer
Branches
Bernardsville	Charles A. Studdiford, III	Vice President
	Carol E. Ritzer	Assistant Vice President
Bridgewater	Todd E. Young	Vice President
Califon	Ann W. Kallam	Vice President
	Jacqueline R. Miller	Assistant Cashier
Chatham	Mary Anne Maloney	Vice President
	Lisa A. Treich	Assistant Cashier
Chester	Joan S. Wychules	Vice President
	Louise Takacs	Assistant Cashier
Chubb Corporate Headquarters	Amy A. Messler	Assistant Vice President
Clinton	Carolyn I. Sepkowski	Vice President
	Heather L. Begasse	Assistant Cashier
Far Hills	Rohinton E. Madon	Assistant Vice President
Fellowship	Janet E. Battaglia	Assistant Vice President
Gladstone	Annette F. Malanga	Vice President
Green Village	Donna I. Gisone	Vice President
Hillsborough	Teresa M. Lawler	Vice President
Long Valley	Amy E. Glaser	Vice President
	Therese Tadolini	Assistant Cashier
Mendham	Linda S. Ziropoulos	Vice President
	Anna M. Mentes	Assistant Cashier
Morristown	Valerie A. Olpp	Vice President
	Krista L. Bullard	Assistant Cashier
Oldwick	Deborah J. Krehely	Vice President
Piscataway	Lorraine M. Meyers	Vice President
Pluckemin	Lee Ann Hunt	Vice President
Pottersville	Tracey L. Tomacheske	Assistant Cashier
Summit – DeForest	John W. Brun	Vice President
Warren	Ronald F. Field	Vice President
	James Ciccone	Assistant Cashier
Whitehouse	Elizabeth Miller	Vice President
*  Denotes Holding Company Officer

67

DIRECTORS

ANTHONY J. CONSI, II

Chester, NJ

PAMELA HILL

President, Ferris Corp

Gladstone, NJ

FRANK A. KISSEL

Chairman of the Board & Chief Executive Officer

JOHN D. KISSEL

Turpin Realty, Inc.

Far Hills, NJ

JAMES R. LAMB, ESQ.

James R. Lamb, P.C.

Morristown, NJ

EDWARD A. MERTON

President, Merton Excavating & Paving Co.

Chester, NJ

F. DUFFIELD MEYERCORD

Managing Director and Partner, Carl Marks Consulting Group, LLC

Bedminster, NJ

JOHN R. MULCAHY

Far Hills, NJ

ROBERT M. ROGERS

President & Chief Operating Officer

PHILIP W. SMITH, III

President, Phillary Management, Inc.

Far Hills, NJ

CRAIG C. SPENGEMAN

President, PGB Trust and Investments

JACK D. STINE

Director Emeritus

Pluckemin, NJ

69

OFFICES
LOAN & ADMINISTRATION BUILDING
158 Route 206 North, Gladstone, NJ 07934	(908) 234-0700
www.pgbank.com
PGB TRUST & INVESTMENTS
190 Main Street, Gladstone, NJ 07934	(908) 719-4360
BERNARDSVILLE
36 Morristown Road, Bernardsville, NJ 07924	(908) 766-1711
BRIDGEWATER
619 East Main Street, Bridgewater, NJ 08807	(908) 429-9988
CALIFON
438 Route 513, Califon, NJ 07830	(908) 832-5131
CHATHAM
311 Main Street, Chatham, NJ 07928	(973) 635-8500
CHESTER
350 Main Street, Chester, NJ 07930	(908) 879-8115
CHUBB CORPORATE HEADQUARTERS
15 Mountain View Road, Warren, NJ 07059	(908) 903-2597
CLINTON
189 Center Street, Clinton, NJ 08809	(908) 238-1935
FAR HILLS
26 Dumont Road, Far Hills, NJ 07931	(908) 781-1018
FELLOWSHIP VILLAGE
8000 Fellowship Road, Basking Ridge, NJ 07920	(908) 719-4332
GLADSTONE (Main Office)
190 Main Street, Gladstone, NJ 07934	(908) 719-4360
GREEN VILLAGE
278 Green Village Road, Green Village, NJ 07935	(973) 377-0081
HILLSBOROUGH
417 Route 206 North, Hillsborough, NJ 08844	(908) 281-1031
LONG VALLEY
59 East Mill Road (Route 24), Long Valley, NJ 07853	(908) 876-3300
MENDHAM
17 East Main Street, Mendham, NJ 07945	(973) 543-6499
MORRISTOWN
233 South Street, Morristown, NJ 07960	(973) 455-1118
OLDWICK
169 Lamington Road, Oldwick, NJ 08858	(908) 439-2320
PISCATAWAY
1038 Stelton Road, Piscataway, NJ 08854	(732) 562-8799
PLUCKEMIN
468 Route 206 North, Bedminster, NJ 07921	(908) 658-4500

70

POTTERSVILLE
11 Pottersville Road, Pottersville, NJ 07979	(908) 439-2265
SUMMIT - DEFOREST
48 DeForest Avenue, Summit, NJ 07901	(908) 273-2890
WARREN
58 Mountain Boulevard, Warren, NJ 07059	(908) 757-2805
WHITEHOUSE
531 US Highway 22 East, Whitehouse Station, NJ 08889	(908) 534-5590

71

SHAREHOLDER INFORMATION

Corporate Address

158 Route 206, North

Gladstone, New Jersey 07934

(908) 234-0700

www.pgbank.com

Stock Listing

Peapack-Gladstone Financial Corporation common stock is traded on the

NASDAQ Global Select Market under the symbol PGC and reported in the Wall Street

Journal and most major newspapers.

Independent Registered Public Accounting Firm

Crowe Horwath LLP

345 Eisenhower Parkway, Plaza 1

Livingston, New Jersey 07039-1027

Transfer Agent

Registrar and Transfer Company

10 Commerce Drive

Cranford, New Jersey 07016-3572

Shareholder Relations

Arthur F. Birmingham, Executive Vice President and Chief Financial Officer

(908) 719-4308

investorrelations@pgbank.com

Annual Meeting

The annual meeting of shareholders of Peapack-Gladstone Financial Corporation

will be held on April 28, 2009 at 2:00 p.m. at Bridgewater Manor in

Bridgewater.

72

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-133591, No. 333-86986, No. 333-51187 and No. 333-53001 on Form S-8 and No. 333-157086 on Form S-3 of Peapack-Gladstone Financial Corporation of our reports dated March 10, 2009 with respect to the consolidated financial statements of Peapack-Gladstone Financial Corporation and the effectiveness of internal control over financial reporting, which reports are incorporated by reference in Form 10-K of Peapack-Gladstone Financial Corporation for the year ended December 31, 2008.

/s/ Crowe Horwath LLP

Livingston, New Jersey

March 13, 2009

24

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Peapack-Gladstone Financial Corporation:

We consent to incorporation by reference in the registration statements No. 333-133591, No. 333-86986, No.  333-51187 and No.  333-53001  on Form S-8 and No. 333-157086 on Form S-3 of Peapack-Gladstone  Financial  Corporation (the  Corporation) of our report dated February 27, 2007,  with respect to the  consolidated  statements  of income,  changes in  shareholders' equity,  and cash  flows  of Peapack-Gladstone  Financial Corporation and subsidiary as of December 31, 2006, which report is incorporated by reference in the December 31, 2008 Annual Report on Form 10-K of Peapack-Gladstone Financial Corporation.

Our report referred to the Corporation’s adoption of SEC Staff Accounting Bulletin No. 108, “Quantifying the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” on January 1, 2006.

                                                                                                                               /S/ KPMG LLP

Short Hills, New Jersey

March 13, 2009

25

EX-24

Exhibit 24

POWER OF ATTORNEY

We, the undersigned directors and officers of Peapack-Gladstone Financial Corporation, hereby severally constitute and lawfully appoint Frank A. Kissel and Arthur F. Birmingham, and each of them singly, our true and lawful attorneys-in-fact with full power to them and each of them to sign for us, in our names in the capacities indicated below, the Annual Report on Form 10-K for the fiscal year ended December 31, 2008 of Peapack-Gladstone Financial Corporation and any and all amendments thereto, and to file the same with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Signature	Title	Date
/s/ Frank A. Kissel	Chairman of the Board, Chief Executive Officer and Director	March 13, 2009
Frank A. Kissel
/s/ Arthur F. Birmingham	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March 13, 2009
Arthur F. Birmingham
/s/ Anthony J. Consi II	Director	March 13, 2009
Anthony J. Consi II
/s/ Pamela Hill	Director	March 13, 2009
Pamela Hill
/s/ John D. Kissel	Director	March 13, 2009
John D. Kissel
/s/ James R. Lamb	Director	March 13, 2009
James R. Lamb
/s/ Edward A. Merton	Director	March 13, 2009
Edward A. Merton
/s/ F. Duffield Meyercord	Director	March 13, 2009
F. Duffield Meyercord
/s/ John R. Mulcahy	Director	March 13, 2009
John R. Mulcahy
/s/ Robert M. Rogers	Director, President and Chief Operating Officer	March 13, 2009
Robert M. Rogers
/s/ Philip W. Smith III	Director	March 13, 2009
Philip W. Smith III
/s/ Craig C. Spengeman	Director, President of PGB Trust and Investments	March 13, 2009
Craig C. Spengeman

26

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Frank A. Kissel, certify that:

1. I have reviewed this annual report on Form 10-K of Peapack-Gladstone Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2009

By: /s/ Frank A. Kissel                                           

Name: Frank A. Kissel

Title:Chairman of the Board and Chief Executive Officer

27

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Arthur F. Birmingham, certify that:

1. I have reviewed this annual report on Form 10-K of Peapack-Gladstone Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 13, 2009

By: /s/ Arthur F. Birmingham                                   

Name: Arthur F. Birmingham

Title:Executive Vice President and Chief Financial Officer

28

EX-32

Exhibit 32

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Peapack-Gladstone Financial Corporation, (the “Corporation”) for the fiscal year ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Frank A. Kissel, as Chief Executive Officer of the Corporation, and Arthur F. Birmingham, as Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. (section) 1350, as adopted pursuant to (section) 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Frank A. Kissel

Name:  Frank A. Kissel

Title:   Chief Executive Officer

Date:   March 13, 2009

/s/ Arthur F. Birmingham

Name:  Arthur F. Birmingham

Title:    Chief Financial Officer

Date:    March 13, 2009

29