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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NO. 001-16197
PEAPACK-GLADSTONE FINANCIAL CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-3537895
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
158 ROUTE 206 NORTH,
GLADSTONE, NEW JERSEY 07934
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(908) 234-0700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
--------- ---------
Number of shares of Common stock outstanding as of November 1, 2002:
6,691,992
1
PEAPACK-GLADSTONE FINANCIAL CORPORATION
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Statements of Condition September 30, 2002
and December 31, 2001 ....................................... Page 3
Consolidated Statements of Income for the three
and nine months ended September 30, 2002 and 2001 ........... Page 4
Consolidated Statements of Changes in Stockholders'
Equity for the nine months ended September 30, 2002
and 2001 .................................................... Page 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2002 and 2001 .................... Page 6
Notes to the Consolidated Financial Statements ................ Page 7
Item 2 Management Discussion and Analysis of Financial
Condition and Results of Operations ......................... Page 9
Item 3 Quantitative and Qualitative Disclosures about Market Risk .... Page 12
Item 4 Controls and Procedures ....................................... Page 13
PART 2 OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K .............................. Page 13
2
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
(Unaudited)
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Cash and due from banks ................................... $ 22,773 $ 17,440
Federal funds sold ........................................ 2,689 2,543
--------- ---------
Total cash and cash equivalents ......................... 25,462 19,983
Interest-earning deposits ................................. 523 15,634
Investment securities (approximate market value
$132,305 in 2002 and $50,480 in 2001) .................. 129,460 48,722
Securities available for sale (amortized cost
$195,501 in 2002 and $171,529 in 2001) ................. 203,117 172,620
Loans:
Loans secured by real estate .............................. 400,593 384,767
Other loans ............................................... 29,546 32,166
--------- ---------
Total loans ............................................ 430,139 416,933
Less: Allowance for loan losses ..................... 4,594 4,023
--------- ---------
Net loans .............................................. 425,545 412,910
Premises and equipment, net ............................... 13,567 13,474
Accrued interest receivable ............................... 4,819 5,197
Cash surrender value of life insurance .................... 12,790 12,244
Other assets .............................................. 1,287 3,989
--------- ---------
TOTAL ASSETS ........................................ $ 816,570 $ 704,773
========= =========
LIABILITIES
Deposits:
Noninterest-bearing demand deposits ..................... $ 116,496 $ 113,011
Interest-bearing deposits:
Checking ............................................. 114,728 110,878
Savings .............................................. 93,481 82,268
Money market accounts ................................ 155,223 109,326
Certificates of deposit over $100,000 ................ 57,112 59,900
Certificates of deposit less than $100,000 ........... 170,389 155,520
--------- ---------
Total deposits ............................................ 707,429 630,903
Borrowed funds ............................................ 23,500 5,000
Accrued expenses and other liabilities .................... 10,826 5,785
--------- ---------
TOTAL LIABILITIES .................................... 741,755 641,688
STOCKHOLDERS' EQUITY
Common stock (no par value; stated value $0.83
per share; authorized 10,000,000 shares; issued at
September 30, 2002 6,788,706 shares; issued at
December 31, 2001 6,736,254 shares.) .................... 5,652 5,608
Surplus ................................................... 38,313 37,838
Treasury Stock at cost, 96,714 shares in 2002
and 80,558 shares in 2001 ................................ (1,991) (1,588)
Retained earnings ......................................... 28,145 20,572
Accumulated other comprehensive income-net
unrealized gains on securities available for
sale (net of income taxes) .............................. 4,696 655
--------- ---------
TOTAL STOCKHOLDERS' EQUITY .......................... 74,815 63,085
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ............ $ 816,570 $ 704,773
========= =========
See accompanying notes to consolidated financial statements.
3
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------------- ----------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans ...................... $ 7,457 $ 7,434 $ 22,207 $ 21,057
Interest on investment securities:
Taxable .................................... 1,219 740 2,832 2,492
Tax-exempt ................................. 97 134 280 420
Interest on securities available for sale:
Taxable .................................... 2,365 1,723 7,308 4,521
Tax-exempt ................................. 90 13 260 24
Interest-earning deposits ....................... 2 185 136 429
Interest on federal funds sold .................. 25 143 96 1,110
---------- ---------- ---------- ----------
Total interest income ........................... 11,255 10,372 33,119 30,053
INTEREST EXPENSE
Interest on savings account deposits ............ 1,125 1,348 3,185 4,375
Interest on certificates of deposit over $100,000 513 640 1,599 1,930
Interest on other time deposits ................. 1,345 1,958 4,098 5,565
Interest on borrowed funds ...................... 76 9 181 9
---------- ---------- ---------- ----------
Total interest expense .......................... 3,059 3,955 9,063 11,879
---------- ---------- ---------- ----------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES .................. 8,196 6,417 24,056 18,174
Provision for loan losses ....................... 199 126 599 376
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .................. 7,997 6,291 23,457 17,798
---------- ---------- ---------- ----------
OTHER INCOME
Service charges and fees for other services ..... 424 347 1,249 1,016
Trust department income ......................... 1,172 909 3,577 2,963
Securities (losses)/gains ....................... (7) 111 19 190
Bank owned life insurance ....................... 196 66 592 66
Other income .................................... 201 183 602 623
---------- ---------- ---------- ----------
Total other income ......................... 1,986 1,616 6,039 4,858
OTHER EXPENSES
Salaries and employee benefits .................. 3,028 2,586 8,972 7,431
Premises and equipment .......................... 1,047 847 3,044 2,563
Other expense ................................... 1,315 1,015 3,841 2,905
---------- ---------- ---------- ----------
Total other expenses ............................ 5,390 4,448 15,857 12,899
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX EXPENSE ................ 4,593 3,459 13,639 9,757
Income tax expense .............................. 1,530 1,163 4,460 3,240
---------- ---------- ---------- ----------
NET INCOME ................................. $ 3,063 $ 2,296 $ 9,179 $ 6,517
========== ========== ========== ==========
EARNINGS PER SHARE
Basic ........................................... $ 0.46 $ 0.34 $ 1.37 $ 0.98
Diluted ......................................... $ 0.44 $ 0.34 $ 1.34 $ 0.96
Average basic shares outstanding ................ 6,689,276 6,660,550 6,675,520 6,656,018
Average diluted shares outstanding .............. 6,911,975 6,792,342 6,862,177 6,787,810
See accompanying notes to consolidated financial statements.
4
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2002 2001
-------- --------
Balance, Beginning of Period ........................ $ 63,085 $ 55,156
Comprehensive income:
Net Income ..................................... 9,179 6,517
-------- --------
Unrealized holding gains on securities
arising during the period, net of tax ...... 4,054 2,080
Less: Reclassification adjustment for gains
included in net income, net of tax ...... (13) (125)
-------- --------
4,041 1,955
-------- --------
Total Comprehensive income ..................... 13,220 8,472
Common Stock Options Exercised ...................... 515 333
Purchase of Treasury Stock .......................... (403) (559)
Cash Dividends Declared ............................. (1,602) (1,347)
-------- --------
Balance, September 30, .............................. $ 74,815 $ 62,055
======== ========
See accompanying notes to consolidated financial statements.
5
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
---------------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Net Income: ............................................. $ 9,179 $ 6,517
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................ 989 855
Amortization of premium and accretion of
discount on securities, net .......................... 674 155
Provision for loan losses ............................... 599 376
Gains on security sales ................................. (19) (190)
Increase in cash surrender value of life insurance ...... (546) (61)
Decrease/(increase) in interest receivable accrued ...... 378 (530)
Decrease in other assets ................................ 2,703 538
Increase in other liabilities ........................... 2,455 2,075
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............ 16,412 9,735
--------- ---------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities ....... 12,881 4,706
Proceeds from maturities of securities available
for sale ............................................. 10,508 11,847
Proceeds from calls of investment securities ............ 3,170 10,111
Proceeds from sales and calls of securities available
for sale ............................................. 49,772 55,936
Purchase of investment securities ....................... (97,074) (1,396)
Purchase of securities available for sale ............... (84,622) (118,151)
Net decrease/(increase) in short-term investments ....... 15,111 (14,583)
Net increase in loans ................................... (13,234) (64,204)
Purchase of premises and equipment ...................... (1,082) (2,603)
Purchase of life insurance .............................. -- (12,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ................ (104,570) (130,337)
--------- ---------
FINANCING ACTIVITIES:
Net increase in deposits ................................ 76,526 88,133
Net increase in short-term borrowings ................... 18,500 --
Dividends paid .......................................... (1,501) (1,347)
Exercise of stock options ............................... 515 333
Purchase of Treasury Stock .............................. (403) (559)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 93,637 86,560
--------- ---------
Net increase/(decrease) in cash and cash equivalents .... 5,479 (34,042)
Cash and cash equivalents at beginning of period ........ 19,983 53,347
--------- ---------
Cash and cash equivalents at end of period .............. $ 25,462 $ 19,305
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................. $ 8,703 $ 11,066
Income taxes ......................................... 3,996 2,189
See accompanying notes to consolidated financial statements.
6
PEAPACK-GLADSTONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in the unaudited
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the December 31, 2001 Annual Report on Form 10-K for
Peapack-Gladstone Financial Corporation (the "Corporation").
2. PRINCIPLES OF CONSOLIDATION
The Corporation considers that all adjustments (all of which are normal
recurring accruals) necessary for a fair presentation of the statement of the
financial position and results of operations in accordance with accounting
principals generally accepted in the United States for these periods have been
made. Results for such interim periods are not necessarily indicative of results
for a full year.
The consolidated financial statements of Peapack-Gladstone Financial Corporation
are prepared on the accrual basis and include the accounts of the Corporation
and its wholly-owned subsidiary, the Peapack-Gladstone Bank. All significant
intercompany balances and transactions have been eliminated from the
accompanying consolidated financial statements.
3. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that management considers
adequate to reflect the risk of future losses inherent in the Corporation's loan
portfolio. In its evaluation of the adequacy of the allowance for loan losses,
management considers past loan loss experience, changes in the composition of
non-performing loans, the financial condition of borrowers, the relationship of
the current level of the allowance to the credit portfolio and to non-performing
loans and existing economic conditions. The allowance is increased by provisions
charged to expense and reduced by net charge-offs.
4. EARNINGS PER COMMON SHARE - BASIC AND DILUTED
Basic earnings per share are computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share include any additional common shares as if all
potentially dilutive common shares were issued (i.e., stock options). All share
and per share amounts have been restated to reflect the 2 for 1 stock split
declared September 12, 2002, and all prior stock dividends and stock splits.
5. COMPREHENSIVE INCOME
The difference between the Corporation's net income and total comprehensive
income for the nine months ended September 30, 2002 and 2001 relates to the
change in the net unrealized gains and losses on securities available for sale
during the applicable period of time less adjustments for realized gains.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In October 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 147, "Acquisitions of Certain Financial Institutions, an amendment
to FASB Statements No. 72 and 144 and FASB Interpretation No. 9." This Statement
removes acquisitions of financial institutions from the scope of both Statement
72 and Interpretation 9 and requires that those transactions be accounted for in
accordance with FASB Statements No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets." The provisions of Statement No. 147 that
relate to the application of the purchase method of accounting apply to all
acquisitions of financial institutions, except transactions between two or more
mutual enterprises.
Statement No. 147 clarifies that a branch acquisition that meets the definition
of a business should be accounted for as a business combination, otherwise the
transaction should be accounted for as an acquisition of net assets that
7
does not result in the recognition of goodwill. The provisions of Statement No.
147 are effective October 1, 2002. This Statement will have no effect on the
Corporation's consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. The Statement is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The Corporation does not anticipate that SFAS No. 146 will
significantly impact the Corporation's consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
The Statement, among other things, rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishments of Debt," as amended. Under SFAS No. 4, as amended
by SFAS No. 64, gains and losses from the extinguishment of debt were required
to be classified as an extraordinary item, if material. Under SFAS No. 145,
gains or losses from the extinguishment of debt are to be classified as a
component of operating income, rather than an extraordinary item. SFAS No. 145
is effective for fiscal years beginning after May 15, 2002, with early adoption
of the provisions related to the rescission of SFAS No. 4 encouraged. Upon
adoption, companies must reclassify prior period amounts previously classified
as an extraordinary item. The Corporation does not anticipate that the initial
adoption of SFAS 145 will have a significant impact on the Corporation's
consolidated financial statements.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", it retains many of the fundamental
provisions of that Statement. The Statement is effective for fiscal years
beginning after December 15, 2001. The initial adoption of SFAS No. 144 did not
have a significant impact on the Corporation's consolidated financial
statements.
In August, 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 requires an enterprise to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets. The Corporation is required to adopt the provisions of SFAS No. 143 for
fiscal years beginning after June 15, 2002. The Corporation does not anticipate
that SFAS No. 143 will significantly impact the Corporation's consolidated
financial statements.
On July 20, 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and periodically reviewed for impairment.
The Corporation adopted the provisions of SFAS No. 142 on January 1, 2002. The
Corporation had $563 thousand in recorded goodwill at January 1, 2002, with
amortization of $100 thousand per year. The cessation of amortization upon the
adoption of SFAS No. 142 had no significant impact on report operations for the
third quarter 2002 or year-to-date 2002 as compared to the same periods ended
September 30, 2001. Excluding the $25 thousand of goodwill amortization recorded
in the quarter ended September 30, 2001, the basic and diluted earnings per
share were $0.35 and $0.34, respectively. Year-to-date 2001 basic and diluted
earnings per share excluding $75 thousand of year-to-date goodwill amortization
were $1.00 and $0.96, respectively.
8
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL: 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, relationships, opportunities and market conditions. These statements
may be identified by such forward-looking terminology as "expect", "believe", or
similar statements or variations of such terms. Actual results may differ
materially from such forward-looking statements. Factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include, among others, the following possibilities:
o Competitive pressure in the banking industry causes unanticipated
adverse changes.
o A downturn in the economy of New Jersey causes customers to default in
the payment of their loans or causes loans to become impaired.
o Loss of key managers or employees.
o Loss of major customers or failure to develop new customers.
o A decrease in loan quality and loan origination volume.
o An increase in non-performing loans.
The Corporation assumes no responsibility to update such forward-looking
statements in the future.
RESULTS OF OPERATIONS: The Corporation realized earnings of $0.44 per diluted
share for the quarter ended September 30, 2002, an increase of 29.4 percent over
the $0.34 per diluted share for the same quarter last year. Net income for the
quarter rose 33.4 percent to $3.1 million compared with $2.3 million for the
quarter ended September 30, 2001. Return on average assets for the quarter was
1.54 percent and return on average equity was 16.92 percent.
Net income for the year-to-date September 30, 2002 was $9.2 million as compared
to $6.5 million for September 30, 2001 year to date. Diluted earnings per share
were $1.34 for the nine months ended September 30, 2002 as compared to $0.96 for
the year-to-date September 30, 2001. Return on average assets was 1.61 percent
and return on average equity was 18.01 percent for the first nine months of
2002. Significant factors regarding the results of operations are discussed
below in the earnings analysis.
EARNINGS ANALYSIS
NET INTEREST INCOME: For the third quarter of 2002, net interest income before
the provision for loan losses was $8.2 million as compared to $6.4 million for
the third quarter of 2001, an increase of $1.8 million or 27.7 percent.
Significant factors in the increase in net interest income were the lower cost
of funds, the redeployment of lower yielding short-term assets into higher
yielding securities, and loan and deposit growth. On a fully tax equivalent
basis, the net interest margin was 4.33 percent for the third quarter of 2002
and 4.12 percent for the third quarter of 2001.
Average interest earning assets increased $140.3 million or 23.0 percent for the
quarter ended September 30, 2002 as compared to the same period in 2001. This
was primarily due to the increase in average investment securities balances of
$133.2 million and average loan balances of $32.0 million. During this time,
average interest-earning deposits declined $15.0 million and federal funds sold
balances declined $9.9 million.
Average interest-bearing liabilities for the third quarter of 2002 increased
$128.2 million or 27.0 percent from the third quarter of 2001. For the quarter
ended September 30, 2002, average balances of money market accounts rose by
$54.2 million; certificates of deposits rose by $25.9 million; interest-bearing
checking accounts rose by $21.9 million; and savings accounts rose by $15.4
million from the same period a year ago. Federal Home Loan Bank advances
averaged $11.8 million for the quarter ended September 30, 2002 as compared to
$1.0 million for the quarter ended September 30, 2001. Average demand deposits
increased $8.8 million or 8.4 percent as compared to the third quarter of 2001.
Average interest rates earned on interest-earning assets declined 80 basis
points to 6.03 percent from 6.83 percent in the third quarter of 2002 and 2001,
respectively. The average interest rates earned on investment securities and
loans decreased 108 basis points and 42 basis points, respectively, in the third
quarter of 2002 as compared with the same period in 2001. When compared to the
quarter ended September 30, 2001, the average interest rate paid on
interest-bearing liabilities declined to 2.01 percent, a change of 129 basis
points in 2002. For the quarters ended September 30, 2002 and 2001, the average
rate paid on money market accounts declined 137 basis points and average rates
paid on certificate of deposits declined 191 basis points.
9
For the nine months ended September 30, 2002, net interest income before
provision for loan losses rose $5.9 million or 32.4 percent from $18.2 million
for the same period a year ago to $24.1 million. The net interest margin on a
fully tax equivalent basis for the year-to-date September 30, 2002 and 2001 was
4.49 percent and 4.11 percent, respectively.
For the nine months ended, average interest-earning assets increased $135.9
million from September 30, 2001 to 2002 as both the investment and loan
portfolios experienced significant growth. Average balances on federal funds
sold declined by $23.1 million from September 30, 2001 as the strategy to
replace these lower-yielding balances with higher-yielding investments
continued. Average balances of investments increased $112.6 million or 68.7
percent and average balances of loans increased $54.2 million or 14.6 percent.
Interest-bearing deposits increased on average from $446.5 million to $564.6
million or 26.5 percent from September 30, 2001. On average, borrowed funds
increased to $8.5 million from $339 thousand a year ago.
For the year to date ended September 30, 2002, average interest rates earned on
federal funds sold declined 310 basis points, while interest rates on
investments and loans declined 97 basis points and 50 basis points,
respectively, from the year to date ended September 30, 2001. Interest rates
paid on interest-bearing deposits decreased 145 basis points for the same
periods with the largest decreases in the interest rates paid on certificates of
deposit, 216 basis points and money market accounts, 194 basis points.
OTHER INCOME: Other income totaled $2.0 million and $1.6 million for the
quarters ended September 30, 2002 and 2001, respectively, an increase of $370
thousand or 22.9 percent. PGB Trust and Investments, the bank's trust division,
generated gross fee income of $1.2 million in the quarter ended September 30,
2002 as compared to $909 thousand in the same quarter of 2001. Service charges
and fees increased $77 thousand or 22.2 percent for the third quarter of 2002 as
compared with the third quarter of 2001. The growth in these two areas reflects
the overall higher level of accounts and new branch locations.
For the nine months ended September 30, 2002, other income increased $1.2
million or 24.3 percent from the nine months ended September 30, 2001. Gross fee
income from PGB Trust and Investments increased to $3.6 million from $3.0
million or 20.7 percent as compared with the nine months ended September 30,
2001. Service charges and fees increased 22.9 percent to $1.2 million for the
comparative nine months.
In the third quarter of 2001, the Corporation invested $12.0 million in Bank
Owned Life Insurance (BOLI) to assist in offsetting the rising cost of employee
benefits. Included in other income are the increases in cash surrender value of
$196 thousand and $66 thousand for the third quarter of 2002 and 2001,
respectively. Year-to-date 2002 increases in cash surrender value are $592
thousand compared to $66 thousand for the year-to-date 2001.
The following table presents the components of other income for the three and
nine months ended September 30, 2002 and 2001:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
(In Thousands) 2002 2001 2002 2001
------- ------- ------- -------
Trust Department Fees ................................ $ 1,172 $ 909 $ 3,577 $ 2,963
Service Charges on Deposit Accounts .................. 424 347 1,249 1,016
Other Fee Income ..................................... 89 81 272 253
Bank Owned Life Insurance ............................ 196 66 592 66
Other Non-Interest Income ............................ 55 47 160 221
Safe Deposit Rental Fees ............................. 57 55 170 149
------- ------- ------- -------
Other Income Before (Losses)/Gains on Securities ... 1,993 1,505 6,020 4,668
Securities (Losses)/Gains ............................ (7) 111 19 190
------- ------- ------- -------
Total Other Income ........... $ 1,986 $ 1,616 $ 6,039 $ 4,858
======= ======= ======= =======
OTHER EXPENSES: For the quarter ended September 30, 2002, other expenses
increased $942 thousand to $5.4 million from $4.4 million in the quarter ended
September 30, 2001. Salaries and employee benefits expense totaled $3.0 million
for the quarter as compared to $2.6 million in the same quarter of 2001. This
increase can be attributed to additions to the professional staff, salary
adjustments to attract and retain highly qualified employees and the opening of
two new branch locations. Premises and equipment expense increased 23.6 percent
or $200 thousand to $1.0 million for the third quarter of 2002 as compared to
the third quarter of 2001. This increase can be attributed to an overall
increase in the cost of operating bank facilities including the new branch
locations. Expense for other professional services was $167 thousand for the
quarter ended September 30, 2002 as compared to $61 thousand for the quarter
ended September 30, 2001. This increase is primarily due to consulting fees
required to enhance internal controls and higher legal and audit fees.
10
Other expenses totaled $15.9 million for the nine months ended September 30,
2002, an increase of $3.0 million or 22.9 percent when compared to $12.9 million
for the nine months ended September 30, 2001. Salaries and employee benefits,
the largest component of other expense, increased 20.7 percent to $9.0 million,
while premises and equipment expense rose $481 thousand or 18.8 percent year
over year to $3.0 million. For the nine months ended September 30, 2002, other
professional services expense was $543 thousand as compared to $207 thousand for
the comparable period last year. The increase is primarily due to consulting
fees required to enhance internal controls and higher legal and audit fees.
The following table presents the components of other expense for the three and
nine months ended September 30, 2002 and 2001:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(In Thousands) 2002 2001 2002 2001
------- ------- ------- -------
Salaries and Benefits ......................... $ 3,028 $ 2,586 $ 8,972 $ 7,431
Premises and Equipment ........................ 1,047 847 3,044 2,563
Advertising ................................... 147 121 486 421
Stationery and Supplies ....................... 115 126 359 340
Professional Fees ............................. 167 61 543 207
Trust Department .............................. 93 105 309 276
Telephone ..................................... 110 80 283 249
Postage ....................................... 87 87 247 224
Other Expense ................................. 596 435 1,614 1,188
------- ------- ------- -------
Total Other Expense ... $ 5,390 $ 4,448 $15,857 $12,899
======= ======= ======= =======
NON-PERFORMING ASSETS: Other real estate owned (OREO), loans past due in excess
of 90 days and still accruing, and non-accrual loans are considered
non-performing assets. These assets totaled $279 thousand and $449 thousand at
September 30, 2002 and 2001, respectively. Loans past due in excess of 90 days
and still accruing are in the process of collection and are well secured.
The following table sets forth non-performing assets on the dates indicated, in
conjunction with asset quality ratios:
September 30,
-----------------------
(In thousands) 2002 2001
------- -------
Loans past due in excess of 90
days and still accruing .................... $ 94 $ 197
Non-accrual loans ............................ 185 252
------- -------
Total non-performing assets .................. $ 279 $ 449
======= =======
Non-performing loans as a % of total loans ... 0.06% 0.11%
Non-performing assets as a % of total
loans plus other real estate owned ......... 0.06% 0.11%
Allowance as a % of loans .................... 1.07% 0.94%
PROVISION FOR LOAN LOSSES: The provision for loan losses was $199 thousand for
the three months ended September 30, 2002 as compared to $126 thousand for the
three months ended September 30, 2001. For the nine months ended September 30,
2002 and 2001, the provision for loan losses was $599 thousand and $376
thousand, respectively. The increase in the provision is commensurate with the
increase in the loan portfolio. The process of determining the adequacy of the
allowance is a critical accounting policy of the Corporation and is necessarily
judgmental and subject to changes in external conditions. The amount of the loan
loss provision and the level of the allowance for loan losses are based upon a
number of factors including growth in the loan portfolio, Management's
evaluation of potential losses in the portfolio, consideration of appraised
collateral values, financial condition and past credit history of the borrowers
as well as prevailing economic conditions. Net charge-offs for the third quarter
of 2002 were $25 thousand as compared to net recoveries of $1 thousand during
the same period of 2001. For the nine months ended September 30, 2002, net
charge-offs were $28 thousand compared to $14 thousand in net recoveries for the
same period in 2001.
11
A summary of the allowance for loan losses for the nine-month period ended
September 30, follows:
(In thousands) 2002 2001
------- -------
Balance, January 1, ................. $ 4,023 $ 3,435
Provision charged to expense ........ 599 376
Loans charged off ................... (64) (57)
Recoveries .......................... 36 71
------- -------
Balance, September 30, .............. $ 4,594 $ 3,825
======= =======
INCOME TAXES: Income tax expense as a percentage of pre-tax income was 33.3
percent for the three months ended September 30, 2002 and 33.6 percent for the
three months ended September 30, 2001. For the nine months ended September 30,
2002 and 2001, the income tax expense as a percentage of pre-tax income was 32.7
percent and 33.2 percent, respectively. Income taxes increased 37.7 percent from
$3.2 million for the nine months ended September 30, 2001 to $4.5 million for
the nine months ended September 30, 2002, reflecting higher taxable income.
CAPITAL RESOURCES: The Corporation is committed to maintaining a strong capital
position. At September 30, 2002, total stockholders' equity, including net
unrealized gains, was $74.8 million, representing an 18.6 percent increase over
the balance at December 31, 2001. The Federal Reserve Board has adopted
risk-based capital guidelines for banks. The minimum guideline for the ratio of
total capital to risk-weighted assets is 8 percent. 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, non-cumulative
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 September 30, 2002, the
Corporation's Tier 1 Capital and Total Capital ratios were 19.60 percent and
20.90 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines. These guidelines provide for a minimum ratio of Tier 1 Capital to
average total assets of 3 percent for banks that meet certain specified
criteria, including having the highest regulatory rating. All other banks are
generally required to maintain a leverage ratio of at least 3 percent plus an
additional 100 to 200 basis points. The Corporation's leverage ratio at
September 30, 2002, was 9.13 percent.
LIQUIDITY: Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary investments
and securities available for sale.
Management feels the Corporation's liquidity position is sufficient to meet
future needs. Cash and cash equivalents, interest-earning deposits and federal
funds sold totaled $26.0 million at September 30, 2002. In addition, the
Corporation has $203.1 million in securities designated as available for sale.
These securities can be sold in response to liquidity concerns. Book value as of
September 30, 2002, of investment securities and securities available for sale
maturing within one year amounted to $17.9 million and $1.6 million,
respectively.
The primary source of funds available to meet liquidity needs is the
Corporation's core deposit base, which excludes certificates of deposit greater
than $100 thousand. As of September 30, 2002, core deposits equaled $650.3
million.
Another source of liquidity is borrowing capacity. The Corporation has a variety
of sources of short-term liquidity available, including federal funds purchased
from correspondent banks, short-term and long-term borrowings from the Federal
Home Loan Bank of New York, access to the Federal Reserve Bank discount window
and loan participations or sales of loans. The Corporation also generates
liquidity from the regular principal payments made on its mortgage-backed
security and loan portfolios.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to information required regarding
quantitative and qualitative disclosures about market risk from the end of the
preceding fiscal year to the date of the most recent interim financial
statements (September 30, 2002).
12
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation of the Corporation's disclosure controls and
procedures in the 90 days prior to the date hereof, the Corporation's principal
executive officer and principal financial officer have determined that such
controls and procedures are effective. No significant change has occurred in the
Corporation's internal controls since the date of the evaluation that could
significantly affect these controls subsequent to the date of the evaluation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
DATE: November 12, 2002 By:
-------------------------------------------------
FRANK A. KISSEL
Chairman of the Board and Chief Executive Officer
DATE: November 12, 2002 By:
------------------------------------------------
ARTHUR F. BIRMINGHAM
Executive Vice President and Chief Financial Officer
14
CERTIFICATIONS
I, Frank A. Kissel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peapack-Gladstone
Financial Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
_________________________________________________
Frank A. Kissel
Chairman of the Board and Chief Executive Officer
15
I, Arthur F. Birmingham, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Peapack-Gladstone
Financial Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
____________________________________________________
Arthur F. Birmingham
Executive Vice President and Chief Financial Officer
16