Peapack-
Gladstone
Financial Corporation
[GRAPHIC OMITTED]
2002 Annual Report
FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------
SELECTED YEAR-END DATA: 2002 2001 2000
- ---------------------------------------------------------------------------------------------
NET INCOME $ 11,925 $ 8,924 $ 7,708
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS 859,808 704,773 567,032
- ---------------------------------------------------------------------------------------------
TOTAL DEPOSITS 769,688 630,903 508,879
- ---------------------------------------------------------------------------------------------
TOTAL SECURITIES 380,325 221,342 153,525
- ---------------------------------------------------------------------------------------------
TOTAL LOANS 409,760 416,933 344,299
- ---------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 77,158 63,085 55,156
- ---------------------------------------------------------------------------------------------
TRUST DEPARTMENT ASSETS (BOOK VALUE) 1,000,272 766,928 709,732
- ---------------------------------------------------------------------------------------------
FINANCIAL RATIOS:
- ---------------------------------------------------------------------------------------------
RETURN ON AVERAGE ASSETS 1.53% 1.42% 1.47%
- ---------------------------------------------------------------------------------------------
RETURN ON AVERAGE EQUITY 17.06 15.03 15.30
- ---------------------------------------------------------------------------------------------
CAPITAL LEVERAGE RATIO 9.19 9.84 10.49
- ---------------------------------------------------------------------------------------------
RISK BASED CAPITAL:
- ---------------------------------------------------------------------------------------------
TIER I 19.51 18.76 20.80
- ---------------------------------------------------------------------------------------------
TOTAL 20.81 19.98 22.10
- ---------------------------------------------------------------------------------------------
PER SHARE:
- ---------------------------------------------------------------------------------------------
EARNINGS-BASIC $ 1.79 $ 1.34 $ 1.16
- ---------------------------------------------------------------------------------------------
EARNINGS-DILUTED 1.75 1.32 1.13
- ---------------------------------------------------------------------------------------------
BOOK VALUE 11.51 9.48 8.31
- ---------------------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
NET INCOME TOTAL ASSETS DEPOSITS EQUITY CAPITAL
IN MILLIONS IN MILLIONS IN MILLIONS IN MILLIONS
'98 $ 6.03 $ 481 $ 431 $ 44.5
'99 $ 7.19 $ 498 $ 444 $ 47.6
'00 $ 7.71 $ 567 $ 509 $ 55.2
'01 $ 8.92 $ 705 $ 631 $ 63.1
'02 $11.93 $ 860 $ 770 $ 77.2
1
Dear Shareholders and Friends
[GRAPHIC OMITTED]
By almost any measure, 2002 was an outstanding year for Peapack-Gladstone
Financial Corporation (Amex "PGC"), Peapack-Gladstone Bank and PGB Trust &
Investments.
We have reported record earnings of $11,925,000 for the year. This
represents a 33.6% increase over 2001 and the sixth straight year of record
earnings. These numbers translate into a strong 1.53% Return on Average Assets
and 17.06% Return on Average Shareholders' Equity.
The market took notice of what we have been able to achieve over the past
few years and rewarded our shareholders during 2002 with an 86% increase in
their investment. These results put "PGC" in the 97th percentile for relative
stock performance of all companies listed on the three major exchanges according
to Media General Financial Services.
Your Board authorized a 2 for 1 stock split on November 1, 2002 to
shareholders of record October 1, 2002. At the same time, they increased the
regular quarterly cash dividend to $0.09 per share on the post split shares,
effectively raising the cash dividend rate by 20%. Also on the stock front, we
are now offering a cash dividend reinvestment program for your convenience.
Shareholders who wish to enroll in or want more information regarding our
Dividend Reinvestment Plan should call Mr. Edwin Carr at Registrar & Transfer
Company at (800) 368-5948.
On July 1, 2002, "PGC" became a part of the Russell 2000 index. Inclusion
in this important index certainly raised the visibility of our Company and
created new buyers for our shares as the index managers balanced their funds. It
also means that Peapack-Gladstone Financial Corporation is among the 3,000
largest publicly traded companies in the nation based on market capitalization.
Total assets of the Company grew 22% or $155,035,000 to $859,808,000
during 2002. All of our markets demonstrated good growth as more individuals and
businesses look to us for convenient, courteous service. We strive to provide
our customers with the finest services available. This includes convenient
hours, a staff that will always take the extra step to ensure a happy customer,
prompt credit responses and state of the art technology. During business hours a
real live Bank representative will always answer the phone when you call.
We opened branches in two wonderful new communities during 2002. Our
Clinton Office officially opened in January and to date deposit and loan
business has far exceeded expectations. I am pleased to report that Clinton is
already a positive contributor to the Bank's bottom line.
Our fabulous new Warren Office opened in October and is well on its way to
profitability. If you have friends or associates in this or any of our markets,
please do not hesitate to make a referral and we will follow up immediately.
Word of mouth is still our best source of new business.
2
Market value of assets managed in PGB Trust & Investments increased almost
19% to over $1,200,000,000 during the course of 2002. Book value of those assets
also exceeded $1 billion for the first time at the end of the year. Many of our
new clients in PGB Trust & Investments have found that the more difficult the
market is, the more individuals need help and guidance with their wealth
management. It is very important to have clearly defined goals and an effective
plan to achieve those goals. Please call Craig Spengeman at (908) 719-3301 for
an introduction to our services and to our many outstanding officers who are
ready to help you and your family.
I would be remiss in not reporting the death of Mr. William Turnbull last
October. Shareholders knew him as an outstanding Director of your Company from
1958 until April 1999 when he was elected Director Emeritus. He represented the
very best a Director could be and helped guide our Organization to where it is
today. He was a gentleman and a friend to us all and we miss him.
As we move ahead into 2003, we look forward to many opportunities to serve
new and existing customers. We anticipate that as global issues are resolved our
national economy will gain momentum and public confidence will grow. We are
optimistic and we look forward to helping you reach your personal or business
financial goals.
/s/ Frank A. Kissel /s/ Robert M. Rogers
Frank A. Kissel Robert M. Rogers
Chairman & CEO President & COO
3
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. All share and per share amounts have been
restated to reflect the 2 for 1 stock split issued in 2002 and all prior stock
dividends and splits.
Peapack-Gladstone Financial Corporation (the "Corporation"), formed in
1997, is the parent holding company for Peapack-Gladstone Bank, formed in 1921,
a commercial bank operating sixteen branches and one mini branch in Somerset,
Hunterdon, and Morris counties. These include branches in Clinton, Hunterdon
County and Warren in Somerset County that were opened during 2002.
During 2002, the cash dividend rate was increased to $0.09 per share, an
increase of 20% over the previous rate of $0.075 per share.
The year ended December 31, 2002 represented a year of record earnings and
growth for the Corporation. As discussed in this Management's Discussion and
Analysis section, some of the milestones reached are as follows:
o Diluted earnings per share increased by 33% from 2001 to 2002.
o Assets increased 22% bringing the total assets of the Corporation to
$860 million.
o PGB Trust and Investments managed assets exceeded $1.2 billion in
market value for the first time.
o Deposits grew 22% and surpassed the $750 million level.
Peapack-Gladstone Financial Corporation's common stock trades on the
American Stock Exchange 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
accounting principles generally accepted in the United States of America. 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, 2002, contains a summary of
the Corporation's significant accounting policies. Management believes 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 is periodically reviewed
with the Audit Committee and the Board of Directors.
The allowance 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
4
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 local market conditions and may be adversely affected should real
estate values decline or the Central New Jersey area experience an adverse
economic downturn. Future adjustments to the allowance for loan losses may be
necessary due to economic, operating, regulatory and other conditions beyond the
Corporation's control.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RETURN ON RETURN ON
AVERAGE EQUITY AVERAGE ASSETS
IN PERCENT IN PERCENT
'98 14.21 1.33
'99 15.67 1.48
'00 15.30 1.47
'01 15.03 1.42
'02 17.06 1.53
EARNINGS SUMMARY: For the year ended December 31, 2002 the Corporation's net
income increased 34% to $11.9 million compared to $8.9 million earned in 2001.
Earnings per diluted share were $1.75 as compared to $1.32 in 2001, an increase
of 33%.
These results produced a return on average assets of 1.53% as compared to
1.42% in 2001 and a return on average shareholders' equity of 17.06% as compared
to 15.03% in 2001.
The increase in net income for 2002 was primarily due to higher net
interest income, Trust fees, and other income, offset in part by higher salaries
and benefits and other expenses and taxes. The Corporation in 2002 experienced
strong growth in assets and deposits and the higher level of income and expense
reflect these growth patterns.
NET INTEREST INCOME: Net interest income, the primary source of the
Corporation's operating 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 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.
Net interest income (on a tax-equivalent basis) totaled $32.4 million for
2002, an increase of $6.9 million or 27% over the $25.5 million recorded in
2001. The increase was primarily due to a $141.9 million or 24% increase in
average earning assets and lower interest expense, which declined $3.4 million
or 22% over the levels recorded in 2001, offset in part by lower rates
5
earned on earning assets, which declined to 6.04% from 6.89% earned in 2001, and
higher interest-bearing liabilities, which rose $125.0 million on average.
Another factor in the growth of net interest income was higher average
noninterest-bearing demand deposits which increased $12.6 million or 12% during
2002 as compared to 2001. The net interest margin in 2002 increased to 4.40%
from 4.28% in 2001.
[THE FOLLOWING DATA WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
NET INTEREST
IN MILLIONS
'98 $19.1
'99 $21.2
'00 $23.1
'01 $25.0
'02 $31.9
Interest income on earning assets (on a tax-equivalent basis) increased
$3.5 million or 9% to $44.4 million. This increase was primarily due to higher
average investment securities, up $125.4 million or 72% and increased average
loans, up $42.2 million or 11%, offset in part by lower average federal funds
sold and interest-earning deposits which declined $25.7 million. This change in
earning assets components, started in 2001, reflects the strategic redeployment
of lower yielding short-term assets into higher yielding investment securities.
Partially offsetting the growth in average earning assets were lower yields on
earning assets. The average tax equivalent yield on investment securities was
4.98% in 2002 as compared to 6.15% in 2001, a decline of 117 basis points. The
average yield on the loan portfolio declined 56 basis points to 6.89% in 2002 as
compared to 7.45% in 2001.
The decline in interest expense was primarily due to lower rates paid on
all categories of interest-bearing liabilities. The rate paid on
interest-bearing liabilities declined 130 basis points to 2.05% in 2002 as
compared to 3.35% in 2001. The decline in interest rates paid in 2002 reflects
the overall decline in market interest rates, as rates fell to historically low
levels. Partially offsetting lower rates paid was strong growth in each deposit
category. Tiered money market accounts and certificates of deposits grew $36.8
million and $37.8 million on average respectively, while interest-bearing
checking and savings accounts grew $20.2 million and $12.9 million on average,
respectively.
Net interest income declined in the fourth quarter of 2002 as compared to
the third quarter of 2002. This net interest income compression was primarily
due to accelerated pre-payments of mortgage-backed securities and loan
refinancing proceeds being reinvested at lower yields. Primarily because of
these factors, net interest income may continue to decline if interest rates
continue to decline or remain at historically low levels.
LOANS: The loan portfolio represents the Corporation's largest earning asset and
is a significant source of interest and fee income. Loan originations are
primarily originated in the bank's market or surrounding areas.
Total loans declined $7.2 million or 2% from 2001 levels. This decline was
focused primarily in the real estate sector, as 1-4 family residential loans
secured by first liens declined $16.5 million or 7%. The residential mortgage
portfolio experienced declines as interest rates fell to historic lows and
re-financing activity accelerated in the second half of 2002. Commercial real
estate and commercial loans increased $20.8 million or 19% from 2001 levels.
This growth was primarily due to the addition of new commercial business
development officers added to the professional staff.
6
The yield on total loans averaged 6.89% for 2002, a 56 basis point decline
from the 7.45% average yield earned in 2001. The average yield on the mortgage
portfolio declined in 2002 to 6.98% from 7.31% in 2001. The decline in yields
earned in 2002 reflects the overall decline in market interest rates as the
Federal Reserve lowered interest rates on numerous occasions.
THE FOLLOWING TABLE PRESENTS AN ANALYSIS OF OUTSTANDING LOANS AS OF DECEMBER 31,
(IN THOUSANDS) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------
REAL ESTATE-MORTGAGE
1-4 FAMILY RESIDENTIAL
FIRST LIENS $229,679 $246,197 $210,547 $168,979 $153,372
- -------------------------------------------------------------------------------
JUNIOR LIENS 15,211 22,903 25,017 21,263 12,840
- -------------------------------------------------------------------------------
HOME EQUITY 22,265 18,120 15,633 14,488 12,278
- -------------------------------------------------------------------------------
REAL ESTATE-COMMERCIAL 109,932 91,129 62,161 55,747 40,152
- -------------------------------------------------------------------------------
REAL ESTATE-CONSTRUCTION 2,063 6,418 2,297 1,153 1,946
- -------------------------------------------------------------------------------
COMMERCIAL LOANS 17,859 15,855 13,019 12,541 11,594
- -------------------------------------------------------------------------------
CONSUMER LOANS 8,206 11,237 14,084 12,413 12,959
- -------------------------------------------------------------------------------
OTHER LOANS 4,545 5,074 1,541 1,349 663
- -------------------------------------------------------------------------------
TOTAL LOANS $409,760 $416,933 $344,299 $287,933 $245,804
===============================================================================
INVESTMENT SECURITIES: 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. government agencies, mortgage-backed securities, municipal obligations, and
other securities. The Corporation's investment securities amounted to $168.1
million at December 31, 2002, compared with $48.7 million at December 31, 2001.
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES AND YIELDS OF INVESTMENT
SECURITIES AT AMORTIZED COST, AS OF DECEMBER 31, 2002:
AFTER 1 AFTER 5
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
- -------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY $ 1,999 $ -- $ -- $ -- $ 1,999
1.625% -- -- -- 1.625%
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 1,001 17,976 3,250 -- 22,227
6.989% 5.054% 5.767% -- 5.245%
- -------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (1) -- -- 16,802 107,274 124,076
-- -- 4.629% 3.979% 4.067%
- -------------------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 5,781 9,281 819 432 16,313
2.625% 5.752% 6.528% 8.899% 4.766%
- -------------------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 1,943 1,508 -- -- 3,451
6.086% 7.330% -- -- 6.630%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL $ 10,724 $ 28,765 $ 20,871 $107,706 $168,066
3.473% 5.399% 4.881% 3.999% 4.314%
=========================================================================================================================
(1) MORTGAGE-BACKED SECURITIES ARE SHOWN USING STATED FINAL MATURITY.
7
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, 2002, the Corporation had securities available for sale
with a market value of $212.3 million, compared with $172.6 million at December
31, 2001. A $4.8 million net unrealized gain and $655 thousand net unrealized
gain (net of income tax) was included in shareholders' equity at December 31,
2002 and December 31, 2001, respectively.
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES OF DEBT SECURITIES
AVAILABLE FOR SALE, STATED AT MARKET VALUE, AS OF DECEMBER 31, 2002:
AFTER 1 AFTER 5
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
- ----------------------------------------------------------------------------------------------------------------
U.S. TREASURY $ -- $ 1,101 $ -- $ -- $ 1,101
-- 4.337% -- -- 4.337%
- ----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 101,661 31,839 1,830 135,330
-- 4.464% 5.567% 4.105% 4.713%
- ----------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (1) -- 7,119 18,817 17,487 43,423
-- 5.019% 4.851% 4.720% 4.825%
- ----------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS -- 1,444 5,485 2,430 9,359
-- 5.292% 5.721% 6.177% 5.774%
- ----------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 3,281 3,610 -- 16,155 23,046
5.005% 5.574% -- 4.487% 4.725%
- ----------------------------------------------------------------------------------------------------------------
TOTAL $ 3,281 $114,935 $ 56,141 $ 37,902 $212,259
5.005% 4.543% 5.338% 4.679% 4.782%
================================================================================================================
(1) Mortgage-backed securities are shown using stated final maturity.
Federal funds sold and interest-earning deposits are an integral part of
the Corporation's investment and liquidity strategies. The combined average
balance of these vehicles during 2002 was $11.9 million as compared to $37.6
million in 2001.
8
DEPOSITS: Total deposits increased $138.8 million or 22% to $769.7 million at
December 31, 2002, compared to $630.9 million at December 31, 2001. Our strategy
to fund earning asset growth with core deposits was an important factor for
growth in net interest income. Marketing, sales efforts, and new branch
locations all contributed to the strong growth in deposits. Total average
deposits increased $131.5 million or 23% over 2001 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:
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) $ % $ % $ %
- --------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING DEMAND $115,487 -- $102,852 -- $ 95,621 --
- --------------------------------------------------------------------------------------------------------------------
CHECKING 120,922 0.59 100,734 0.84 97,025 1.08
- --------------------------------------------------------------------------------------------------------------------
SAVINGS 90,142 1.27 77,207 1.95 80,837 2.06
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKETS 61,058 1.49 49,869 3.04 46,276 3.43
- --------------------------------------------------------------------------------------------------------------------
TIERED MONEY MARKETS 81,553 1.83 44,785 3.60 2,422 5.78
- --------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSITS 225,965 3.34 188,187 5.29 147,076 5.49
- --------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $695,127 $563,634 $469,257
====================================================================================================================
Certificates of deposit over $100,000 are generally purchased by local
municipal governments or individuals for periods one year or less. These factors
translate into a stable customer oriented cost-effective funding source.
THE FOLLOWING TABLE SHOWS REMAINING MATURITY FOR CERTIFICATES OF DEPOSIT OVER
$100,000 AS OF DECEMBER 31, 2002 (IN THOUSANDS):
THREE MONTHS OR LESS $18,629
- --------------------------------------------------------------------------------
OVER THREE MONTHS THROUGH TWELVE MONTHS 32,666
- --------------------------------------------------------------------------------
OVER TWELVE MONTHS 8,312
- --------------------------------------------------------------------------------
TOTAL $59,607
================================================================================
FEDERAL HOME LOAN BANK ADVANCES: At December 31, 2002 and 2001, Federal Home
Loan Bank ("FHLB") advances totaled $5.0 million. 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, 2002 have varying terms and interest rates.
9
THE FOLLOWING TABLE COMPARES THE AVERAGE BALANCE SHEET, NET INTEREST SPREADS AND
NET INTEREST MARGINS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(FULLY TAX-EQUIVALENT - FTE):
YEAR ENDED DECEMBER 31, 2002
- ----------------------------------------------------------------------------------------
INCOME/
AVERAGE EXPENSE YIELD
(IN THOUSANDS, EXCEPT YIELD INFORMATION) BALANCE (FTE) (FTE)
- ----------------------------------------------------------------------------------------
ASSETS:
INTEREST-EARNING ASSETS:
INVESTMENTS:
TAXABLE $ 281,329 $13,694 4.87%
- ----------------------------------------------------------------------------------------
TAX-EXEMPT 18,207 1,208 6.63%
- ----------------------------------------------------------------------------------------
LOANS 424,661 29,248 6.89%
- ----------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 8,564 135 1.58%
- ----------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 3,319 138 4.16%
========================================================================================
TOTAL INTEREST-EARNING ASSETS 736,080 44,423 6.04%
- ----------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 17,245
- ----------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES (4,380)
- ----------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 13,670
- ----------------------------------------------------------------------------------------
OTHER ASSETS 17,950
- ----------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 44,485
========================================================================================
TOTAL ASSETS $ 780,565
========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
- ----------------------------------------------------------------------------------------
CHECKING $ 120,922 $ 718 0.59%
- ----------------------------------------------------------------------------------------
MONEY MARKETS 61,058 908 1.49%
- ----------------------------------------------------------------------------------------
TIERED MONEY MARKETS 81,553 1,493 1.83%
- ----------------------------------------------------------------------------------------
SAVINGS 90,142 1,149 1.27%
- ----------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 225,965 7,558 3.34%
========================================================================================
TOTAL INTEREST-BEARING DEPOSITS 579,640 11,826 2.04%
- ----------------------------------------------------------------------------------------
BORROWED FUNDS 7,814 229 2.93%
- ----------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 587,454 12,055 2.05%
- ----------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 115,487
- ----------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 7,730
- ----------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 123,217
- ----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 69,894
========================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 780,565
========================================================================================
NET INTEREST INCOME $32,368
========================================================================================
NET INTEREST SPREAD 3.99%
- ----------------------------------------------------------------------------------------
NET INTEREST MARGIN 4.40%
- ----------------------------------------------------------------------------------------
1. Average loan balances include non-accrual and restructured loans.
2. The tax-equivalent adjustment was computed based on a federal tax rate of
35% for 2002 and 34% for 2001 and 2000.
3. Investments consist of investment securities and securities available for
sale at amortized cost.
10
YEAR ENDED DECEMBER 31, 2001 YEAR ENDED DECEMBER 31, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME/ INCOME/
AVERAGE EXPENSE YIELD AVERAGE EXPENSE YIELD
(IN THOUSANDS, EXCEPT YIELD INFORMATION) BALANCE (FTE) (FTE) BALANCE (FTE) (FTE)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
INTEREST-EARNING ASSETS:
INVESTMENTS:
TAXABLE $ 160,191 $ 9,668 6.04% $ 143,600 $ 9,097 6.33%
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT 13,944 1,037 7.43% 12,585 957 7.60%
- -----------------------------------------------------------------------------------------------------------------------------------
LOANS 382,430 28,476 7.45% 319,033 24,683 7.74%
- -----------------------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 24,660 1,143 4.64% 16,977 1,092 6.33%
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 12,955 612 4.72% 833 61 7.20%
===================================================================================================================================
TOTAL INTEREST-EARNING ASSETS 594,180 40,936 6.89% 493,028 35,890 7.28%
===================================================================================================================================
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 15,655 15,222
- -----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES (3,682) (3,135)
- -----------------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 12,448 11,267
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 10,232 6,786
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 34,653 30,140
===================================================================================================================================
TOTAL ASSETS $ 628,833 $ 523,168
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
===================================================================================================================================
CHECKING $ 100,734 $ 849 0.84% $ 97,025 $ 1,048 1.08%
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKETS 49,869 1,514 3.04% 46,276 1,589 3.43%
- -----------------------------------------------------------------------------------------------------------------------------------
TIERED MONEY MARKETS 44,785 1,611 3.60% 2,422 140 5.78%
- -----------------------------------------------------------------------------------------------------------------------------------
SAVINGS 77,207 1,506 1.95% 80,837 1,662 2.06%
- -----------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 188,187 9,949 5.29% 147,076 8,070 5.49%
===================================================================================================================================
TOTAL INTEREST-BEARING DEPOSITS 460,782 15,429 3.35% 373,636 12,509 3.35%
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS 1,633 57 3.49% -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 462,415 15,486 3.35% 373,636 12,509 3.35%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 102,852 95,621
- -----------------------------------------------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 4,193 3,531
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 107,045 99,152
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 59,373 50,380
===================================================================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 628,833 $ 523,168
===================================================================================================================================
NET INTEREST INCOME $ 25,450 $ 23,381
===================================================================================================================================
NET INTEREST SPREAD 3.54% 3.93%
- -----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 4.28% 4.74%
- -----------------------------------------------------------------------------------------------------------------------------------
11
RATE/VOLUME ANALYSIS:
THE EFFECT OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME (ON A TAX
EQUIVALENT BASIS) FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 ARE SHOWN
BELOW:
(IN THOUSANDS): YEAR ENDED 2002 COMPARED WITH 2001 YEAR ENDED 2001 COMPARED WITH 2000
- -------------------------------------------------------------------------------------------------------------------------------
NET NET
DIFFERENCE DUE TO CHANGE IN DIFFERENCE DUE TO CHANGE IN
CHANGE IN: INCOME/ CHANGE IN: INCOME/
VOLUME RATE EXPENSE VOLUME RATE EXPENSE
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS $ 7,709 $(3,512) $ 4,197 $ 1,155 $ (504) $ 651
- --------------------------------------------------------------------------------------------------------------------------------
LOANS 3,144 (2,372) 772 4,905 (1,112) 3,793
- --------------------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD (746) (262) (1,008) 478 (427) 51
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS (455) (19) (474) 1,131 (580) 551
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $ 9,652 $(6,165) $ 3,487 $ 7,669 $(2,623) $ 5,046
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
CHECKING $ 170 $ (301) $ (131) $ 40 $ (239) $ (199)
- --------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET 340 (946) (606) 123 (198) (75)
- --------------------------------------------------------------------------------------------------------------------------------
TIERED MONEY MARKET 1,323 (1,441) (118) 2,449 (978) 1,471
- --------------------------------------------------------------------------------------------------------------------------------
SAVINGS 252 (609) (357) (75) (81) (156)
- --------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 1,997 (4,388) (2,391) 2,256 (377) 1,879
- --------------------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS 216 (44) 172 57 57
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 4,298 $(7,729) $(3,431) $ 4,850 $(1,873) $ 2,977
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 5,354 $ 1,564 $ 6,918 $ 2,819 $ (750) $ 2,069
================================================================================================================================
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION: The allowance for loan losses
was $4.8 million at December 31, 2002 as compared to $4.0 million at December
31, 2001. The allowance for loan losses currently provides 12.5 times the
coverage of all non-performing assets. At December 31, 2002, the allowance for
loan losses as a percentage of total loans outstanding was 1.17% compared to
0.96% at December 31, 2001 and 1.00% at December 31, 2000. The provision for
loan losses increased $200 thousand, or 33%, to $800 thousand for 2002, compared
to $600 thousand for 2001. The increase in provision was due primarily to
changes in the composition of the loan portfolio. 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 local market conditions and may be adversely affected should real
estate values decline or our market area in Central New Jersey experiences an
adverse economic downturn. 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) 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES AT
BEGINNING OF YEAR $4,023 $3,435 $2,962 $2,428 $2,022
LOANS CHARGED-OFF DURING
THE PERIOD
REAL ESTATE -- 42 27 -- --
- --------------------------------------------------------------------------------
CONSUMER 59 35 119 70 152
- --------------------------------------------------------------------------------
COMMERCIAL AND OTHER 9 15 28 52 35
- --------------------------------------------------------------------------------
TOTAL LOANS CHARGED-OFF 68 92 174 122 187
================================================================================
RECOVERIES DURING THE PERIOD
REAL ESTATE -- 7 75 22 24
- --------------------------------------------------------------------------------
CONSUMER 36 65 53 63 12
- --------------------------------------------------------------------------------
COMMERCIAL AND OTHER 7 8 19 16 36
- --------------------------------------------------------------------------------
TOTAL RECOVERIES 43 80 147 101 72
================================================================================
NET CHARGE-OFFS 25 12 27 21 115
================================================================================
PROVISION CHARGED TO EXPENSE 800 600 500 555 521
================================================================================
ALLOWANCE FOR LOAN LOSSES
AT END OF YEAR $4,798 $4,023 $3,435 $2,962 $2,428
================================================================================
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) 2002 LOANS 2001 LOANS 2000 LOANS 1999 LOANS 1998 LOANS
- -----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE $2,639 92.5 $2,213 92.3 $1,889 91.7 $1,629 90.9 $1,336 89.7
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER 240 2.0 201 2.7 172 4.1 148 4.3 121 5.3
- -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER 1,919 5.5 1,609 5.0 1,374 4.2 1,185 4.8 971 5.0
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $4,798 100.0 $4,023 100.0 $3,435 100.0 $2,962 100.0 $2,428 100.0
===================================================================================================================================
13
NON-PERFORMING ASSETS:
THE FOLLOWING TABLE PRESENTS FOR THE YEARS INDICATED THE COMPONENTS OF
NON-PERFORMING ASSETS:
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------
LOANS PAST DUE 90 DAYS OR MORE
AND STILL ACCRUING INTEREST $ 203 $ 53 $ 75 $ 205 $ 1
- --------------------------------------------------------------------------------
NON-ACCRUAL LOANS 180 274 325 386 806
- --------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 383 327 400 591 807
================================================================================
OTHER REAL ESTATE OWNED -- -- -- -- --
- --------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS 383 327 400 591 807
================================================================================
LOAN CHARGE-OFFS 68 92 174 122 187
- --------------------------------------------------------------------------------
LOAN RECOVERIES 43 80 147 101 72
- --------------------------------------------------------------------------------
NET LOAN CHARGE-OFFS 25 12 27 21 115
================================================================================
ALLOWANCE FOR LOAN LOSSES $4,798 $4,023 $3,435 $2,962 $2,428
================================================================================
In addition, restructured loans totaled $317 thousand and $320 thousand at
December 31, 2002 and 2001, respectively.
RATIOS:
- -------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS/
TOTAL LOANS 0.09% 0.08% 0.12% 0.21% 0.33%
- -------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS/
TOTAL ASSETS 0.04% 0.05% 0.07% 0.12% 0.17%
- -------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS/
TOTAL ASSETS 0.04% 0.05% 0.07% 0.12% 0.17%
- -------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/
TOTAL LOANS 1.17% 0.96% 1.00% 1.03% 0.99%
- -------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/
TOTAL NON-PERFORMING LOANS 12.5X 12.3X 8.6X 5.0X 3.0X
- -------------------------------------------------------------------------------
Interest income of $12 thousand, $20 thousand and $22 thousand would have
been recognized during 2002, 2001, and 2000, respectively, if non-accrual loans
had been current in accordance with their original terms.
OTHER INCOME: Other income before gains on securities was $7.9 million in 2002,
an increase of 22% over 2001 levels. This increase was primarily due to higher
trust fees, additions to cash surrender value of Bank Owned Life Insurance, and
service charges on deposit accounts. Trust fees rose $665 thousand or 17% over
the levels recorded in 2001. This increase is attributable to increased volume
of business as the book value of assets under management increased $233.3
million or 30% over last year's levels. During the third quarter of 2001, the
Corporation invested $12 million in Bank Owned Life Insurance (BOLI) to assist
in offsetting the rising costs of employee benefits, and accordingly, realized
other income of $791 thousand on increased cash surrender value on these
policies in 2002, as compared to $264 thousand in 2001. Additional investments
of $2.8 million were made in the fourth quarter of 2002. For the year ended
December 31, 2002, securities gains were $52 thousand as compared to $189
recorded in 2001.
14
THE FOLLOWING TABLE PRESENTS THE MAJOR COMPONENTS OF OTHER INCOME:
(IN THOUSANDS) 2002 2001 2000
- -------------------------------------------------------------------------------
TRUST DEPARTMENT FEES $4,678 $4,013 $ 3,604
- -------------------------------------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 1,675 1,410 1,310
- -------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE 791 264 --
- -------------------------------------------------------------------------------
OTHER FEE INCOME 374 345 299
- -------------------------------------------------------------------------------
SAFE DEPOSIT RENTAL FEES 219 202 168
- -------------------------------------------------------------------------------
OTHER NON-INTEREST INCOME 199 248 221
- -------------------------------------------------------------------------------
GAIN ON SALE OF LOAN SERVICING -- -- 211
===============================================================================
OTHER INCOME BEFORE GAINS/(LOSSES)
ON SECURITIES 7,936 6,482 5,813
===============================================================================
SECURITIES GAINS/(LOSSES) 52 189 (200)
- -------------------------------------------------------------------------------
TOTAL OTHER INCOME $7,988 $6,671 $ 5,613
===============================================================================
OTHER EXPENSES: Other expense totaled $21.4 million in 2002, an increase of $3.5
million or 20% compared to $17.8 million in 2001. This increase is commensurate
with the growth in the overall level of bank and trust business activity and the
addition of two branch locations.
Salaries and benefits expense, which accounted for 56% of the total
increase in other expenses, increased $2.0 million or 20% in 2002 as compared to
2001. This increase was directly related to increased officer and staff levels,
normal merit increases, promotional raises and higher benefit costs. Within the
fringe benefit costs, pension plan expenses rose $217 thousand or 44% and health
insurance expenses increased $77 thousand or 16% above 2001 levels. The full
time equivalent number of employees rose to 205 at December 31, 2002 from 180 a
year ago.
Premises and equipment expense increased to $4.2 million from $3.6 million
in 2001. This increase was primarily due to higher expenses related to our new
branches in Clinton and Warren and higher overall operating cost of facilities.
Professional fees increased $354 thousand as compared to 2001. This
increase is attributable to higher legal and consulting fees to support the
expansion in business activity, as well as costs associated with internal
training programs and services to enhance audit and financial controls.
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 PRESENTS THE MAJOR COMPONENTS OF OTHER EXPENSES:
(IN THOUSANDS) 2002 2001 2000
- --------------------------------------------------------------------------------
SALARIES AND BENEFITS $11,962 $ 9,975 $ 9,041
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 4,150 3,598 3,035
- --------------------------------------------------------------------------------
PROFESSIONAL FEES 723 369 248
- --------------------------------------------------------------------------------
ADVERTISING 670 568 499
- --------------------------------------------------------------------------------
STATIONERY AND SUPPLIES 496 490 393
- --------------------------------------------------------------------------------
TRUST DEPARTMENT 451 368 379
- --------------------------------------------------------------------------------
TELEPHONE 390 339 298
- --------------------------------------------------------------------------------
POSTAGE 332 320 299
- --------------------------------------------------------------------------------
MERGER-RELATED CHARGES -- -- 500
- --------------------------------------------------------------------------------
OTHER EXPENSE 2,181 1,796 1,828
================================================================================
TOTAL OTHER EXPENSE $21,355 $17,823 $16,520
================================================================================
15
INCOME TAXES: Income tax expense for the year ended December 31, 2002 was $5.8
million as compared to $4.4 million in 2001. The effective tax rate for the year
ended December 31, 2002 was 32.72% compared to 32.83% for the year ended
December 31, 2001. The increased income tax expense in 2002 reflects higher
levels of taxable income.
RESULTS OF OPERATIONS 2001 COMPARED TO 2000: For the year ended December 31,
2001, net income increased 16% to $8.9 million compared to $7.7 million earned
in 2000. Diluted earnings per share increased 17% to $1.32 per share from $1.13
per share earned in 2000. Earnings in 2000 include a $423 thousand, net of tax,
or $0.06 per diluted share merger-related charge recorded in connection with the
acquisition of Chatham Savings, FSB. The increase in net income for 2001 was
primarily due to growth in net interest income and Trust fees offset in part by
higher other expenses and taxes. These results produced a return on average
assets of 1.42% as compared to 1.47% in 2000 and a return on average
shareholders' equity of 15.03% as compared to 15.30% in 2000.
Net interest income (on a tax equivalent basis) totaled $25.5 million for
2001, an increase of 9% or $2.1 million over the $23.4 million recorded in 2000.
The increase was primarily due to a $101.2 million increase in average earning
assets, offset in part by lower rates earned on interest-earning assets, which
declined to 6.89% from 7.28% earned in 2000, and higher interest expense which
increased $3.0 million or 24%. This increase was primarily due to a $87.1
million increase in interest-bearing deposits while the rate paid on
interest-bearing deposits was unchanged at 3.35%. A major factor in the growth
in net interest income was higher average demand deposits which increased $7.2
million or 8% on average during 2001 as compared to 2000. The net interest
margin in 2001 declined to 4.28% from 4.74% in 2000.
Other income before gains and losses on securities was $6.5 million in
2001, an increase of 12% over 2000 levels. This increase was primarily due to
higher trust fees, additions to cash surrender value of Bank Owned Life
Insurance, and service charges on deposit accounts, partially offset by a
non-recurring gain on the sale of loan servicing recorded in 2000. Trust fees
rose $409 thousand or 11% over the levels recorded in 2000. This increase is
attributable to increased volume of business as the book value of assets under
management increased $57.2 million or 8% over 2000 levels. During the third
quarter of 2001, the Corporation invested $12 million in Bank Owned Life
Insurance (BOLI) to assist in offsetting the rising costs of employee benefits,
and accordingly, realized other income of $264 thousand on increased cash
surrender value on these policies. For the year ended December 31, 2001,
securities gains were $189 thousand as compared to losses of $200 thousand
recorded in 2000.
Other expense totaled $17.8 million in 2001, an increase of $1.3 million
or 8% compared to $16.5 million in 2000. This increase is commensurate with the
growth in the overall level of business activity and the addition of two branch
locations.
Salaries and benefits expense, the largest component of other expense,
increased 10% to $10.0 million from $9.0 million in 2000. This increase was
directly related to increased officer and staff levels and the related fringe
benefit costs. The full time equivalent number of employees rose to 180 at
December 31, 2001 from 167 at December 31, 2000.
Premises and equipment expense increased to $3.6 million from $3.0 million
in 2000. This increase was primarily due to higher expenses related to the new
branches.
CAPITAL RESOURCES: The solid capital base of the Corporation provides 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. At $77.2 million, total shareholders'
equity grew 22% or $14.1 million as compared
16
with $63.1 million at December 31, 2001. At December 31, 2002, unrealized gains
on securities, net of taxes, were $4.8 million as compared to unrealized gains
on securities, net of taxes, of $655 thousand at December 31, 2001. Federal
regulations require banks to meet target Tier 1 and total capital ratios of 4%
and 8%, respectively. At 19.5% and 20.8%, the Corporation's Tier 1 and total
capital ratios are well in excess of regulatory minimums. The Corporation's
capital leverage ratio was 9.2% at December 31, 2002.
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,
averaged over $25 million in 2002. In addition, the Corporation has $212.3
million in securities designated as available for sale. These securities can be
sold in response to liquidity concerns. As of December 31, 2002, investment
securities and securities available for sale maturing within one year amounted
to $14.0 million and cash and cash equivalents totaled $38.3 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, and loan participation
or sales of loans. The Corporation also generates liquidity from the regular
principal payments made on its loan portfolio.
INTEREST RATE SENSITIVITY: Interest rate sensitivity is a measure of the
relationship between interest-earning assets and supporting funds which are
susceptible to changes in interest rates during comparable time periods.
Interest rate movements on deposits have made managing the Corporation's
interest rate sensitivity increasingly more important as a means of managing net
interest income. The Corporation's Asset/Liability Committee is responsible for
managing the exposure to changes in market interest rates. The "sensitivity" gap
quantifies the repricing mismatch between assets and supporting funds over
various time intervals. The cumulative gap position as a percentage of total
rate-sensitive assets provides one relative measure of the Corporation's
interest rate exposure.
The Corporation's ratio of rate-sensitive assets to rate-sensitive
liabilities was approximately .19 on December 31, 2002 based on contractual
maturities for the next twelve months subject to certain assumptions explained
in the following paragraph. Since this ratio is less than 1.00, the Corporation
has a "negative gap" position which may cause its assets to reprice more slowly
than its deposit liabilities. In a declining interest rate environment, interest
costs may be expected to fall faster than the interest received on earning
assets, thus increasing the net interest spread. If interest rates increase, a
negative gap means that the interest received on earning assets may be expected
to increase more slowly than the interest paid on the Corporation's liabilities,
therefore decreasing the net interest spread.
For purposes of calculating the gap position, interest-earning demand
deposits, money market deposits and savings deposits are included in the 0-3
month category. The Corporation recognizes that certain of these deposits are
more stable with an effective maturity greater than their repricing frequency.
Assets with daily floating rates are included in the 0-3 month category. Assets
and liabilities are included based on their maturities or period to first
repricing, subject to the foregoing assumptions.
17
THE TABLE BELOW PRESENTS THE MATURITY AND REPRICING RELATIONSHIPS BETWEEN
INTEREST-EARNING ASSETS AND INTEREST-BEARING DEPOSITS AS OF DECEMBER 31, 2002
(IN THOUSANDS):
REPRICING OR 0-3 3-12 1-5 OVER 5
MATURITY DATE MONTHS MONTHS YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
SECURITIES (1) $ 8,876 $ 5,129 $143,700 $222,620 $380,325
- ------------------------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 20,400 -- -- -- 20,400
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 549 -- -- -- 549
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS (2) 28,167 51,209 85,145 245,059 409,580
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
ASSETS $ 57,992 $ 56,338 $228,845 $467,679 $810,854
====================================================================================================================================
DEPOSITS
CERTIFICATES OF DEPOSIT $ 56,620 $147,468 $ 34,405 $ 17 $238,510
- ------------------------------------------------------------------------------------------------------------------------------------
SAVINGS 94,142 -- -- -- 94,142
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKETS 173,973 -- -- -- 173,973
- ------------------------------------------------------------------------------------------------------------------------------------
CHECKING 136,956 -- -- -- 136,956
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS -- -- 5,000 -- 5,000
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
DEMAND DEPOSITS -- -- -- 126,107 126,107
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
LIABILITIES $461,691 $147,468 $ 39,405 $126,124 $774,688
====================================================================================================================================
ASSETS/LIABILITIES 0.13 0.38 5.81 3.71 1.05
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS/LIABILITIES (CUMULATIVE) 0.13 0.19 0.53 1.05
- ------------------------------------------------------------------------------------------------------------------------------------
(1) MORTGAGE-BACKED SECURITIES ARE SHOWN USING STATED FINAL MATURITY.
(2) LOAN BALANCES DO NOT INCLUDE NONACCRUAL LOANS.
MARKET RISK SENSITIVE INSTRUMENTS: A derivative financial instrument includes
futures, forwards, interest rate swaps, option contracts and other financial
instruments with similar characteristics. The Corporation currently does not
enter into futures, forwards, swaps or options. However, the Corporation is
party to financial instruments with off-balance sheet risk in the normal course
of business to meet the financing needs of the customers of the Corporation.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of condition. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates and may require collateral from the borrower if deemed
necessary by the Corporation. Standby letters of credit are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party up to a stipulated amount and with specified terms and
conditions.
Commitments to extend credit and standby letters of credit are not
recorded as an asset or liability by the Corporation until the instrument is
exercised.
The Corporation's exposure to market risk is reviewed on a regular basis
by the Asset/Liability Committee. Interest rate risk is the potential of
economic losses due to future interest rate changes. These economic losses can
be reflected as a loss of future net interest income and/or a loss of current
fair market values. The objective is to measure the effect on net interest
income and to adjust the statement of condition to minimize the inherent risk
while at the same time maximize income. Management realizes certain risks are
inherent and that the goal is to identify and minimize the risks. Tools used by
management include the standard GAP report and interest rate shock simulation
report. The Corporation has no
18
market risk sensitive instruments held for trading purposes. Management believes
the Corporation's market risk is reasonable at this time.
THE FOLLOWING TABLE PRESENTS THE SCHEDULED MATURITY OF MARKET RISK SENSITIVE
INSTRUMENTS AS OF DECEMBER 31, 2002 (IN THOUSANDS):
AVERAGE ESTIMATED
INTEREST WITHIN 1-5 OVER FAIR
MATURING IN: RATE 1 YEAR YEARS 5 YEARS TOTAL VALUE
- ------------------------------------------------------------------------------------------------------------
ASSETS
SECURITIES 4.98% $ 14,005 $143,700 $222,620 $380,325 $383,549
- ------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 1.58% 20,400 -- -- 20,400 20,400
- ------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 4.16% 549 -- -- 549 549
- ------------------------------------------------------------------------------------------------------------
LOANS (1) 6.89% 79,376 85,145 245,059 409,580 423,090
- ------------------------------------------------------------------------------------------------------------
TOTAL $114,330 $228,845 $467,679 $810,854 $827,588
============================================================================================================
LIABILITIES
SAVINGS, CHECKING
AND MONEY MARKETS 1.21% $405,071 $ -- $ -- $405,071 $405,071
- ------------------------------------------------------------------------------------------------------------
CD'S 3.34% 204,088 34,405 17 238,510 241,644
- ------------------------------------------------------------------------------------------------------------
BORROWED FUNDS 2.93% -- 5,000 -- 5,000 5,114
- ------------------------------------------------------------------------------------------------------------
TOTAL ~ $609,159 $ 39,405 $ 17 $648,581 $651,829
============================================================================================================
(1) LOAN BALANCES DO NOT INCLUDE NONACCRUAL LOANS.
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.
The Corporation believes residential real estate values have stabilized,
however, if real estate prices in the Corporation's trade area decrease, the
values of real estate collateralizing the Corporation's loans and real estate
held by the Corporation as other real estate owned could also be adversely
affected.
RECENT ACCOUNTING PRONOUNCEMENTS: In December 2002, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment to FASB Statement No. 123." SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both interim and annual financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Corporation elected to remain on its historic
accounting method related to stock-based awards. The Corporation has provided
the expanded disclosures required by SFAS No. 148 in the December 31, 2002
consolidated financial statements. The interim reporting requirements of SFAS
No. 148 are effective for interim periods beginning after December 31, 2002.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions, an amendment to FASB Statements No. 72 and 144 and FASB
Interpretation No. 9."
19
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.
SFAS 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 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
accounting or amortization of the recorded intangible asset.
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." 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
20
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 reported operations for
the year ended 2002 as compared to the year ended 2001. Year-to-date 2001 basic
and diluted earnings per share excluding $100 thousand of year-to-date goodwill
amortization were $1.36 and $1.33, respectively.
TRUST ASSETS
BOOK VALUE IN MILLIONS
'98 $ 549
'99 $ 651
'00 $ 710
'01 $ 767
'02 $1,000
PGB TRUST AND INVESTMENTS: PGB Trust and Investments, a division of the bank,
continues to be an extremely important part of Peapack-Gladstone Financial
Corporation. Since its inception in 1972, it has served in the roles of executor
and trustee while providing investment management, custodial, tax, retirement,
and financial services to its growing client base.
The book value of assets under management in PGB Trust and Investments
increased from $766.9 million at December 31, 2001 to $1.0 billion at December
31, 2002, an increase of 30%. The corresponding market value at December 31,
2002 is in excess of $1.2 billion. Fee income generated by PGB Trust and
Investments was $4.7 million, $4.0 million and $3.6 million in 2002, 2001 and
2000, respectively.
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, relationships, opportunities, taxation, technology and
market conditions. These statements may be identified by such forward-looking
terminology as "expect," "look," "believe," "anticipate," "may," "will," or
similar statements or variations of such terms. Actual results may differ
materially from such forward-looking statements. Factors that may cause results
to differ materially from such forward-looking statements include, but are not
limited to, changes in the direction of the economy in New Jersey, the direction
of interest rates, effective income tax rates, loan prepayment assumptions,
continued levels of loan quality and origination volume, continued relationships
with major customers including sources for loans, as well as the effects of
general economic conditions and legal and regulatory barriers and structure.
Peapack-Gladstone Financial Corporation assumes no obligation for updating any
such forward-looking statements at any time.
21
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) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY EARNINGS:
INTEREST INCOME $ 43,947 $ 40,523 $ 35,567 $ 31,587 $ 29,949
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE 12,055 15,486 12,509 10,341 10,843
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 31,892 25,037 23,058 21,246 19,106
- ------------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 800 600 500 555 521
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 31,092 24,437 22,558 20,691 18,585
====================================================================================================================================
OTHER INCOME, EXCLUSIVE
OF SECURITIES GAINS/(LOSSES) 7,936 6,482 5,813 5,279 4,623
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES 21,355 17,823 16,520 15,215 13,802
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES GAINS/(LOSSES) 52 189 (200) 16 178
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 17,725 13,285 11,651 10,771 9,584
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 5,800 4,361 3,943 3,582 3,550
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 11,925 $ 8,924 $ 7,708 $ 7,189 $ 6,034
====================================================================================================================================
PER SHARE DATA: (REFLECTS A 2 FOR 1 STOCK SPLIT ISSUED IN 2002.)
EARNINGS PER SHARE-BASIC $ 1.79 $ 1.34 $ 1.16 $ 1.08 $ 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 1.75 1.32 1.13 1.05 0.88
- ------------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED 0.33 0.29 0.27 0.25 0.23
- ------------------------------------------------------------------------------------------------------------------------------------
BOOK VALUE END-OF-PERIOD 11.51 9.48 8.31 7.18 7.02
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE
SHARES OUTSTANDING 6,680,239 6,655,672 6,640,416 6,627,022 6,626,594
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK EQUIVALENTS 136,739 111,908 157,142 190,186 200,208
- ------------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE BOOK VALUE PER SHARE
IN DOLLARS IN DOLLARS
'98 $0.23 $7.02
'99 $0.25 $7.18
'00 $0.27 $8.31
'01 $0.29 $9.48
'02 $0.33 $11.51
22
BALANCE SHEET DATA (AT PERIOD END): 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 859,808 $ 704,773 $ 567,032 $ 497,535 $ 480,929
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES 168,066 48,722 69,575 61,672 65,500
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 212,259 172,620 83,950 101,324 103,604
- -------------------------------------------------------------------------------------------------------------------------
LOANS 409,760 416,933 344,299 287,933 245,804
- -------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES 4,798 4,023 3,435 2,962 2,428
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 769,688 630,903 508,879 444,088 430,750
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 77,158 63,085 55,156 47,575 44,461
- -------------------------------------------------------------------------------------------------------------------------
TRUST ASSETS (BOOK VALUE) 1,000,272 766,928 709,732 651,469 549,321
- -------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED 2,207 1,846 1,592 1,292 1,097
- -------------------------------------------------------------------------------------------------------------------------
SELECTED PERFORMANCE RATIOS:
- -------------------------------------------------------------------------------------------------------------------------
RETURN ON AVERAGE TOTAL ASSETS 1.53% 1.42% 1.47% 1.48% 1.33%
- -------------------------------------------------------------------------------------------------------------------------
RETURN ON AVERAGE TOTAL
SHAREHOLDERS' EQUITY 17.06 15.03 15.30 15.67 14.21
- -------------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIO 18.51 20.69 20.65 17.97 16.21
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE TOTAL SHAREHOLDERS'
EQUITY TO AVERAGE ASSETS 8.95 9.44 9.63 8.86 9.39
- -------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES TO
AVERAGE ASSETS 2.74 2.83 3.16 3.13 3.05
- -------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME TO
AVERAGE ASSETS 1.02 1.06 1.07 1.09 1.06
- -------------------------------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS (AT PERIOD END):
- -------------------------------------------------------------------------------------------------------------------------
NON-ACCRUAL LOANS TO TOTAL LOANS 0.04% 0.07% 0.09% 0.13% 0.33%
- -------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS TO
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 0.04 0.05 0.07 0.12 0.177
- -------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO
NON-PERFORMING LOANS 12.5x 12.3x 8.6x 5.0x 3.0x
- -------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO
TOTAL LOANS 1.17% 0.96% 1.00% 1.03% 0.99%
- -------------------------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS TO AVERAGE LOANS
PLUS OTHER REAL ESTATE OWNED 0.01 0.01 0.01 0.01 0.05
- -------------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RATIOS:
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE LOANS TO AVERAGE DEPOSITS 61.09% 67.85% 67.99% 59.44% 56.36%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY TO
TOTAL ASSETS 8.97 8.95 9.73 9.56 9.24
- -------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL TO RISK WEIGHTED
ASSETS 19.51 18.76 20.80 26.55 18.97
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL TO RISK WEIGHTED
ASSETS 20.81 19.98 22.10 28.16 19.06
- -------------------------------------------------------------------------------------------------------------------------
TIER 1 LEVERAGE RATIO 9.19 9.84 10.49 10.02 9.40
- -------------------------------------------------------------------------------------------------------------------------
23
THE FOLLOWING TABLE SETS FORTH CERTAIN UNAUDITED QUARTERLY FINANCIAL DATA FOR
THE PERIODS INDICATED (PER SHARE DATA HAVE BEEN RESTATED FOR THE EFFECT OF THE 2
FOR 1 STOCK SPLIT ISSUED IN 2002.):
SELECTED 2002 QUARTERLY DATA:
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME $10,690 $11,174 $ 11,255 $ 10,828
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE 2,981 3,022 3,059 2,993
===============================================================================================================================
NET INTEREST INCOME 7,709 8,152 8,196 7,835
===============================================================================================================================
PROVISION FOR LOAN LOSSES 199 201 199 201
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUDING
SECURITIES GAINS/(LOSSES) 1,950 2,075 1,993 1,918
- -------------------------------------------------------------------------------------------------------------------------------
SECURITIES GAINS/(LOSSES) 17 8 (7) 34
- -------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE 5,132 5,335 5,390 5,498
===============================================================================================================================
NET INCOME BEFORE INCOME TAX EXPENSE 4,345 4,699 4,593 4,088
- -------------------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 1,384 1,546 1,530 1,340
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,961 $ 3,153 $ 3,063 $ 2,748
===============================================================================================================================
EARNINGS PER SHARE-BASIC $ 0.44 $ 0.47 $ 0.46 $ 0.41
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 0.44 0.46 0.44 0.40
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED 2001 QUARTERLY DATA:
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME $ 9,694 $ 9,988 $ 10,372 $ 10,469
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE 3,959 3,964 3,955 3,608
===============================================================================================================================
NET INTEREST INCOME 5,735 6,024 6,417 6,861
===============================================================================================================================
PROVISION FOR LOAN LOSSES 126 124 126 224
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUDING
SECURITIES GAINS/(LOSSES) 1,634 1,530 1,504 1,814
- -------------------------------------------------------------------------------------------------------------------------------
SECURITIES GAINS/(LOSSES) -- 79 111 (1)
- -------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE 4,217 4,236 4,447 4,923
===============================================================================================================================
NET INCOME BEFORE INCOME TAX EXPENSE 3,026 3,273 3,459 3,527
- -------------------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 996 1,081 1,163 1,121
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,030 $ 2,192 $ 2,296 $ 2,406
===============================================================================================================================
EARNINGS PER SHARE-BASIC $ 0.31 $ 0.33 $ 0.34 $ 0.36
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 0.30 0.32 0.34 0.36
- -------------------------------------------------------------------------------------------------------------------------------
24
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
PEAPACK-GLADSTONE FINANCIAL CORPORATION
We have audited the accompanying consolidated statements of condition of
Peapack-Gladstone Financial Corporation and subsidiary as of December 31, 2002
and 2001, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Peapack-Gladstone Financial Corporation and subsidiary as of December 31, 2002
and 2001, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Short Hills, New Jersey
January 22, 2003
25
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
(DOLLARS IN THOUSANDS) 2002 2001
- -------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS $ 17,920 $ 17,440
- -------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 20,400 2,543
- -------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 38,320 19,983
- -------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 549 15,634
- -------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES (APPROXIMATE MARKET VALUE
$171,290 IN 2002 AND $50,480 IN 2001) 168,066 48,722
- -------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 212,259 172,620
- -------------------------------------------------------------------------------------------------
LOANS 409,760 416,933
- -------------------------------------------------------------------------------------------------
LESS: ALLOWANCE FOR LOAN LOSSES 4,798 4,023
- -------------------------------------------------------------------------------------------------
NET LOANS 404,962 412,910
- -------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 14,371 13,474
- -------------------------------------------------------------------------------------------------
ACCRUED INTEREST RECEIVABLE 4,606 5,197
- -------------------------------------------------------------------------------------------------
CASH SURRENDER VALUE OF LIFE INSURANCE 15,747 12,244
- -------------------------------------------------------------------------------------------------
OTHER ASSETS 928 3,989
=================================================================================================
TOTAL ASSETS $ 859,808 $ 704,773
=================================================================================================
LIABILITIES
DEPOSITS:
NONINTEREST-BEARING DEMAND DEPOSITS $ 126,107 $ 113,011
- -------------------------------------------------------------------------------------------------
INTEREST-BEARING DEPOSITS:
CHECKING 136,956 110,878
- -------------------------------------------------------------------------------------------------
SAVINGS 94,142 82,268
- -------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS 173,973 109,326
- -------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT OVER $100,000 59,607 59,900
- -------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT LESS THAN $100,000 178,903 155,520
- -------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 769,688 630,903
- -------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,000 5,000
- -------------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 7,962 5,785
=================================================================================================
TOTAL LIABILITIES 782,650 641,688
=================================================================================================
SHAREHOLDERS' EQUITY
COMMON STOCK (NO PAR VALUE; STATED VALUE $0.83
PER SHARE; AUTHORIZED 10,000,000 SHARES;
ISSUED SHARES, 6,800,041 AT DECEMBER 31, 2002 AND 6,736,254
AT DECEMBER 31, 2001; OUTSTANDING SHARES, 6,702,523 AT
DECEMBER 31, 2002 AND 6,655,696 AT DECEMBER 31, 2001) 5,661 5,608
- -------------------------------------------------------------------------------------------------
SURPLUS 38,385 37,838
- -------------------------------------------------------------------------------------------------
TREASURY STOCK AT COST, 97,518 SHARES IN 2002
AND 80,558 SHARES IN 2001 (2,020) (1,588)
- -------------------------------------------------------------------------------------------------
RETAINED EARNINGS 30,290 20,572
- -------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF INCOME TAX 4,842 655
=================================================================================================
TOTAL SHAREHOLDERS' EQUITY 77,158 63,085
=================================================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 859,808 $ 704,773
=================================================================================================
See Accompanying Notes To Consolidated Financial Statements
26
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2002 2001 2000
- -----------------------------------------------------------------------------------------------
INTEREST INCOME
INTEREST AND FEES ON LOANS $29,248 $28,476 $ 24,683
- -----------------------------------------------------------------------------------------------
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 4,165 3,190 3,469
- -----------------------------------------------------------------------------------------------
TAX-EXEMPT 383 523 634
- -----------------------------------------------------------------------------------------------
INTEREST AND DIVIDENDS ON SECURITIES
AVAILABLE FOR SALE:
TAXABLE 9,529 6,498 5,628
- -----------------------------------------------------------------------------------------------
TAX-EXEMPT 349 81 --
- -----------------------------------------------------------------------------------------------
INTEREST ON FEDERAL FUNDS SOLD 135 1,143 1,092
- -----------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 138 612 61
===============================================================================================
TOTAL INTEREST INCOME 43,947 40,523 35,567
===============================================================================================
INTEREST EXPENSE
INTEREST ON CHECKING ACCOUNTS 718 849 1,048
- -----------------------------------------------------------------------------------------------
INTEREST ON SAVINGS AND MONEY MARKET ACCOUNTS 3,550 4,631 3,391
- -----------------------------------------------------------------------------------------------
INTEREST ON CERTIFICATES OF DEPOSIT OVER $100,000 2,101 2,518 1,843
- -----------------------------------------------------------------------------------------------
INTEREST ON OTHER TIME DEPOSITS 5,457 7,431 6,227
- -----------------------------------------------------------------------------------------------
INTEREST ON BORROWINGS 52 17 --
- -----------------------------------------------------------------------------------------------
INTEREST ON LONG-TERM DEBT 177 40 --
- -----------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 12,055 15,486 12,509
===============================================================================================
NET INTEREST INCOME 31,892 25,037 23,058
===============================================================================================
PROVISION FOR LOAN LOSSES 800 600 500
===============================================================================================
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 31,092 24,437 22,558
===============================================================================================
OTHER INCOME
TRUST FEES 4,678 4,013 3,604
- -----------------------------------------------------------------------------------------------
SERVICE CHARGES AND FEES 2,268 1,957 1,777
- -----------------------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE 791 264 --
- -----------------------------------------------------------------------------------------------
OTHER INCOME 199 248 432
- -----------------------------------------------------------------------------------------------
SECURITIES GAINS/(LOSSES) 52 189 (200)
===============================================================================================
TOTAL OTHER INCOME 7,988 6,671 5,613
===============================================================================================
OTHER EXPENSES
SALARIES AND EMPLOYEE BENEFITS 11,962 9,975 9,041
- -----------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 4,150 3,598 3,035
- -----------------------------------------------------------------------------------------------
MERGER-RELATED CHARGES -- -- 500
- -----------------------------------------------------------------------------------------------
OTHER EXPENSES 5,243 4,250 3,944
===============================================================================================
TOTAL OTHER EXPENSES 21,355 17,823 16,520
===============================================================================================
INCOME BEFORE INCOME TAX EXPENSE 17,725 13,285 11,651
INCOME TAX EXPENSE 5,800 4,361 3,943
===============================================================================================
NET INCOME $11,925 $ 8,924 $ 7,708
===============================================================================================
EARNINGS PER SHARE
BASIC $ 1.79 $ 1.34 $ 1.16
- -----------------------------------------------------------------------------------------------
DILUTED 1.75 1.32 1.13
===============================================================================================
See Accompanying Notes To Consolidated Financial Statements
27
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
(DOLLARS IN THOUSANDS, EXCEPT COMMON TREASURY RETAINED COMPREHENSIVE
PER SHARE DATA) STOCK SURPLUS STOCK EARNINGS INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ 4,804 $ 19,462 $ (655) $25,918 $(1,954) $ 47,575
- ----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2000 7,708 7,708
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $780) 1,351
LESS: RECLASSIFICATION ADJUSTMENT
FOR LOSSES INCLUDED IN NET INCOME
(NET OF INCOME TAX BENEFIT OF ($68)) (127)
-----------
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $848) 1,478 1,478
-------
TOTAL COMPREHENSIVE INCOME 9,186
DIVIDENDS DECLARED ($0.27 PER SHARE) (1,592) (1,592)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 30 265 (7) 288
COMMON STOCK DIVIDEND
(FIVE PERCENT) 230 5,377 (5,607) --
TREASURY STOCK TRANSACTIONS (301) (301)
==================================================================================================================================
BALANCE AT DECEMBER 31, 2000 $ 5,064 $ 25,104 $ (956) $26,420 $ (476) $55,156
==================================================================================================================================
COMPREHENSIVE INCOME
NET INCOME 2001 8,924 8,924
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $762) 1,256
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $64) 125
----------
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $698) 1,131 1,131
-------
TOTAL COMPREHENSIVE INCOME 10,055
DIVIDENDS DECLARED ($0.29 PER SHARE) (1,846) (1,846)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 34 318 352
COMMON STOCK DIVIDEND
(TEN PERCENT) 510 12,416 (12,926) --
TREASURY STOCK TRANSACTIONS (632) (632)
==================================================================================================================================
BALANCE AT DECEMBER 31, 2001 $ 5,608 $ 37,838 $(1,588) $20,572 $ 655 $63,085
==================================================================================================================================
28
ACCUMULATED
OTHER
(DOLLARS IN THOUSANDS, EXCEPT COMMON TREASURY RETAINED COMPREHENSIVE
PER SHARE DATA) STOCK SURPLUS STOCK EARNINGS INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2002 11,925 11,925
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX
OF $2,775) 4,221
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $18) 34
---------
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $2,757) 4,187 4,187
--------
TOTAL COMPREHENSIVE INCOME 16,112
DIVIDENDS DECLARED ($0.33 PER SHARE) (2,207) (2,207)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 53 547 600
TREASURY STOCK TRANSACTIONS (432) (432)
==================================================================================================================================
BALANCE AT DECEMBER 31, 2002 $5,661 $38,385 $(2,020) $30,290 $4,842 $ 77,158
==================================================================================================================================
See Accompanying Notes To Consolidated Financial Statements
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
NET INCOME $ 11,925 $ 8,924 $ 7,708
- ------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 1,348 1,204 1,001
- ------------------------------------------------------------------------------------------------------
AMORTIZATION OF PREMIUM AND ACCRETION
OF DISCOUNT ON SECURITIES, NET 1,346 247 239
- ------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 800 600 500
- ------------------------------------------------------------------------------------------------------
DEFERRED TAXES 3,560 (313) (185)
- ------------------------------------------------------------------------------------------------------
(GAIN)/LOSS ON SALE OF SECURITIES (52) (189) 200
- ------------------------------------------------------------------------------------------------------
INCREASE IN CASH SURRENDER VALUE OF LIFE INSURANCE (728) (244) --
- ------------------------------------------------------------------------------------------------------
DECREASE/(INCREASE) IN ACCRUED INTEREST RECEIVABLE 591 (1,033) (720)
- ------------------------------------------------------------------------------------------------------
(INCREASE)/DECREASE IN OTHER ASSETS (499) (1,813) 913
- ------------------------------------------------------------------------------------------------------
(DECREASE)/INCREASE IN ACCRUED EXPENSES AND OTHER
LIABILITIES (684) 2,727 89
======================================================================================================
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,607 10,110 9,745
======================================================================================================
INVESTING ACTIVITIES:
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 29,111 8,487 15,205
- ------------------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 19,614 11,943 31,096
- ------------------------------------------------------------------------------------------------------
PROCEEDS FROM CALLS OF INVESTMENT SECURITIES 4,170 12,831 10
- ------------------------------------------------------------------------------------------------------
PROCEEDS FROM SALES AND CALLS OF SECURITIES
AVAILABLE FOR SALE 60,838 68,796 13,297
- ------------------------------------------------------------------------------------------------------
PURCHASE OF INVESTMENT SECURITIES (153,382) (1,494) (23,176)
- ------------------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (113,684) (166,609) (27,203)
- ------------------------------------------------------------------------------------------------------
NET DECREASE/(INCREASE) IN SHORT-TERM INVESTMENTS 15,085 (14,724) (910)
- ------------------------------------------------------------------------------------------------------
NET DECREASE/(INCREASE) IN LOANS 7,148 (72,646) (56,393)
- ------------------------------------------------------------------------------------------------------
PURCHASES OF PREMISES AND EQUIPMENT (2,245) (3,017) (2,944)
- ------------------------------------------------------------------------------------------------------
PURCHASE OF LIFE INSURANCE (2,775) (12,000) --
======================================================================================================
NET CASH USED IN INVESTING ACTIVITIES (136,120) (168,433) (51,018)
======================================================================================================
FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 138,785 122,024 66,172
- ------------------------------------------------------------------------------------------------------
NET DECREASE OF SHORT-TERM BORROWINGS -- -- (3,000)
- ------------------------------------------------------------------------------------------------------
PROCEEDS FROM LONG-TERM BORROWINGS -- 5,000 --
- ------------------------------------------------------------------------------------------------------
DIVIDENDS PAID (2,103) (1,785) (1,556)
- ------------------------------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 600 352 288
- ------------------------------------------------------------------------------------------------------
PURCHASE OF TREASURY STOCK (432) (632) (301)
======================================================================================================
NET CASH PROVIDED BY FINANCING ACTIVITIES 136,850 124,959 61,603
- ------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS 18,337 (33,364) 20,330
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,983 53,347 33,017
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,320 $ 19,983 $ 53,347
======================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
CASH PAID DURING THE YEAR FOR:
INTEREST $ 12,611 $ 15,725 $ 12,009
- ------------------------------------------------------------------------------------------------------
INCOME TAXES 6,378 2,197 3,984
- ------------------------------------------------------------------------------------------------------
TRANSFER OF SECURITIES FROM HELD TO
MATURITY AVAILABLE FOR SALE -- 1,004 --
- ------------------------------------------------------------------------------------------------------
See Accompanying Notes To Consolidated Financial Statements
30
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION: The consolidated financial
statements of 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
subsidiaries, Peapack-Gladstone Investment Company and it's 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 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 accounting principles generally accepted
in the United States of America. 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.
CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows, cash
and cash equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES: Investment securities are comprised of debt securities
that the Corporation has the positive intent and ability to hold to maturity.
Such securities are stated at cost, adjusted for amortization of premium and
accretion of discount over the term of the investments.
SECURITIES AVAILABLE FOR SALE: Debt securities that cannot be categorized as
investment securities are classified as securities available for sale. Such
securities include debt securities to be held for indefinite periods of time and
not intended to be held to maturity, as well as marketable equity securities.
Securities held for indefinite periods of time include securities that
management intends to use as part of its asset/liability management strategy and
that may be sold in response to changes in interest rates, resultant prepayment
risk and other factors related to interest rate and resultant prepayment risk
changes. Securities available for sale are carried at fair value and unrealized
holding gains and losses (net of related tax effects) on such securities are
excluded from earnings, but are included in Shareholders' Equity as Accumulated
Other Comprehensive Income. Upon realization, such gains or losses are included
in earnings using the specific identification method.
LOANS: Loans are stated at the principal amount outstanding. Loan origination
fees and certain direct loan origination costs are deferred and recognized over
the life of the loan as an adjustment to the loan's yield. The accrual of income
on loans, including impaired loans, is discontinued if certain factors indicate
reasonable doubt as to the timely collectibility of such
31
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. The majority of the loans are secured by real estate
located within the Corporation's market area in central New Jersey.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level considered adequate to provide for probable 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 net
charge-offs.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, future additions
to the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such agencies may
require the Corporation to recognize additions to the allowance based on their
judgments about information available to them at the time of their examinations.
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. Premises and equipment are depreciated over the estimated
useful lives of the assets. 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.
OTHER REAL ESTATE OWNED: Other real estate owned is carried at fair value minus
estimated costs to sell, based on an independent appraisal. 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.
INTANGIBLE ASSETS: Intangible assets resulting from acquisitions under the
purchase method of accounting consist of goodwill. 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 reported operations for the year ended 2002 as compared to
the year ended 2001. Year-to-date 2001 basic and diluted earnings per share
excluding $100 thousand of year-to-date goodwill amortization were $1.36 and
$1.33, respectively.
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.
32
STOCK OPTION PLANS: At December 31, 2002, the Corporation has stock-based
employee and non-employee director compensation plans, which are described more
fully in Note 12. The Corporation accounts for those plans under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net income as all options granted under those plans had a
exercise price equal to the market value of the underlying common stock on the
date of the grant.
The following table illustrates the effect on net income and earnings per
share if the Corporation had applied the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation:
(IN THOUSANDS EXCEPT PER SHARE DATA) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
NET INCOME:
AS REPORTED $ 11,925 $ 8,924 $ 7,708
========================================================================================================
LESS: TOTAL STOCK-BASED EMPLOYEE COMPENSATION
EXPENSE DETERMINED UNDER THE FAIR VALUE BASED
METHOD ON ALL STOCK OPTIONS, NET OF RELATED
TAX EFFECTS 248 294 287
- --------------------------------------------------------------------------------------------------------
PRO FORMA $ 11,677 $ 8,630 $ 7,421
========================================================================================================
EARNINGS PER SHARE:
AS REPORTED
BASIC $ 1.79 $ 1.34 $ 1.16
- --------------------------------------------------------------------------------------------------------
DILUTED 1.75 1.32 1.13
- --------------------------------------------------------------------------------------------------------
PRO FORMA
BASIC $ 1.75 $ 1.30 $ 1.12
- --------------------------------------------------------------------------------------------------------
DILUTED 1.71 1.28 1.09
- --------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE: The numerator of both the Basic and Diluted EPS is
equivalent to net income. 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.
All share and per share amounts have been restated to reflect the 2 for 1
stock split issued in 2002.
THE FOLLOWING TABLE SHOWS THE CALCULATION OF BOTH BASIC AND DILUTED EARNINGS PER
SHARE FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000:
(IN THOUSANDS EXCEPT PER SHARE DATA) 2002 2001 2000
- -------------------------------------------------------------------------------------------------
NET INCOME $ 11,925 $ 8,924 $ 7,708
=================================================================================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 6,680,239 6,655,672 6,640,416
- -------------------------------------------------------------------------------------------------
PLUS: COMMON STOCK EQUIVALENTS 136,739 111,908 157,142
- -------------------------------------------------------------------------------------------------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 6,816,978 6,767,580 6,797,558
=================================================================================================
EARNINGS PER SHARE:
BASIC $ 1.79 $ 1.34 $ 1.16
- -------------------------------------------------------------------------------------------------
DILUTED 1.75 1.32 1.13
- -------------------------------------------------------------------------------------------------
33
TREASURY STOCK: Treasury stock is recorded using the cost method and accordingly
is presented as an unallocated reduction of shareholders' equity.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and net
unrealized gains or losses on securities available for sale and is presented in
the consolidated statements of changes in shareholders' equity.
RECLASSIFICATION: Certain reclassifications have been made in the prior periods'
financial statements in order to conform to the 2002 presentation.
2. INVESTMENT SECURITIES
A summary of amortized cost and approximate market value of investment
securities included in the consolidated statements of condition as of December
31, 2002 and 2001 follows:
2002
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $ 24,226 $1,102 $ -- $ 25,328
- -----------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (U.S
GOVERNMENT AGENCIES) 124,076 1,538 (152) 125,462
- -----------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 16,313 599 (7) 16,905
- -----------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 3,451 144 -- 3,595
- -----------------------------------------------------------------------------------------------
TOTAL $168,066 $3,383 $(159) $171,290
===============================================================================================
2001
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $ 24,608 $1,205 $ -- $ 25,813
- -----------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (U.S
GOVERNMENT AGENCIES) 9,262 124 (69) 9,317
- -----------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 9,892 317 -- 10,209
- -----------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 4,960 181 -- 5,141
- -----------------------------------------------------------------------------------------------
TOTAL $ 48,722 $1,827 $ (69) $ 50,480
===============================================================================================
34
The amortized cost and approximate market value of investment securities
as of December 31, 2002, 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:
APPROXIMATE
(IN THOUSANDS) AMORTIZED COST MARKET VALUE
- --------------------------------------------------------------------------------
ONE YEAR OR LESS $ 10,724 $ 10,775
- --------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 28,765 30,171
- --------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 4,069 4,332
- --------------------------------------------------------------------------------
AFTER TEN YEARS 432 550
- --------------------------------------------------------------------------------
43,990 45,828
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 124,076 125,462
- --------------------------------------------------------------------------------
TOTAL $168,066 $171,290
================================================================================
There were no securities pledged as of December 31, 2002. Securities
having an approximate carrying value of $1.7 million as of December 31, 2001
were pledged to secure public funds and for other purposes required or permitted
by law. During 2001, the Corporation transferred one security in the amount of
$1.0 million from Held to Maturity to Available for Sale. The security had a
market value of $1.0 million. The transfer was made due to a significant
deterioration in the issuer's credit worthiness. The security was subsequently
sold at a gain of $27 thousand.
35
3. SECURITIES AVAILABLE FOR SALE
A summary of amortized cost and approximate market value of securities available
for sale included in the consolidated statements of condition as of December 31,
2002 and 2001 follows:
2002
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $130,360 $6,241 $(170) $136,431
- -----------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (U.S
GOVERNMENT AGENCIES) 42,197 1,243 (17) 43,423
- -----------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 9,055 304 -- 9,359
- -----------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 22,612 540 (106) 23,046
- -----------------------------------------------------------------------------------------------
TOTAL $204,224 $8,328 $(293) $212,259
===============================================================================================
2002
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $111,907 $1,377 $(289) $112,995
- -----------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (U.S
GOVERNMENT AGENCIES) 32,137 66 (218) 31,985
- -----------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 7,955 11 (131) 7,835
- -----------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 19,530 383 (108) 19,805
- -----------------------------------------------------------------------------------------------
TOTAL $171,529 $1,837 $(746) $172,620
===============================================================================================
The amortized cost and approximate market value of debt securities
available for sale as of December 31, 2002, 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:
APPROXIMATE
(IN THOUSANDS) AMORTIZED COST MARKET VALUE
- --------------------------------------------------------------------------------
ONE YEAR OR LESS $ 3,140 $ 3,281
- --------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 103,298 107,817
- --------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 35,207 37,323
- --------------------------------------------------------------------------------
AFTER TEN YEARS 20,382 20,415
- --------------------------------------------------------------------------------
162,027 168,836
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 42,197 43,423
- --------------------------------------------------------------------------------
TOTAL $204,224 $212,259
- --------------------------------------------------------------------------------
Securities having an approximate carrying value of $11.9 million and $3.0
million as of December 31, 2002 and December 31, 2001, respectively, were
pledged to secure public funds and for other purposes required or permitted by
law. Gross gains of $52 thousand and $189 thousand were realized in 2002 and
2001. There were gross realized losses in 2000 of $200 thousand.
36
4. LOANS
Loans outstanding as of December 31, 2002 and 2001 consisted of the
following:
(IN THOUSANDS) 2002 2001
- --------------------------------------------------------------------------------
LOANS SECURED BY 1-4 FAMILY $267,155 $287,220
- --------------------------------------------------------------------------------
COMMERCIAL REAL ESTATE 109,932 91,129
- --------------------------------------------------------------------------------
CONSTRUCTION LOANS 2,063 6,418
- --------------------------------------------------------------------------------
COMMERCIAL LOANS 17,859 15,855
- --------------------------------------------------------------------------------
CONSUMER LOANS 8,206 11,237
- --------------------------------------------------------------------------------
OTHER LOANS 4,545 5,074
- --------------------------------------------------------------------------------
TOTAL LOANS $409,760 $416,933
================================================================================
Non-accrual loans totaled $180 thousand and $274 thousand at December 31,
2002 and 2001, respectively. Loans past due 90 days or more and still accruing
interest totaled $203 thousand and $53 thousand at December 31, 2002 and 2001,
respectively. There are no commitments to lend additional amounts on non-accrual
loans. The amount of interest income recognized on year-end non-accrual loans
totaled $5 thousand, $10 thousand and $8 thousand in 2002, 2001 and 2000,
respectively. Interest income of $12 thousand, $20 thousand and $22 thousand
would have been recognized during 2002, 2001 and 2000, respectively, under
contractual terms for such non-accrual loans.
Loans that met the criteria of troubled debt restructuring totaled $317
thousand and $320 thousand at December 31, 2002 and 2001, respectively. The
amount of interest income recognized on troubled debt restructurings in 2002,
2001 and 2000 totaled $25 thousand, $22 thousand and $17 thousand, respectively.
Interest income of approximately $32 thousand, $32 thousand and $33 thousand
would have been recognized during 2002, 2001 and 2000, based on original terms.
There are no commitments to lend additional amounts on troubled debt
restructurings.
The Corporation defines an impaired loan as an investment in a loan that
is on non-accrual status with a principal outstanding balance in excess of $100
thousand. Residential mortgage loans, a group of homogeneous loans that are
collectively evaluated for impairment, and consumer loans are excluded. There
was no recorded investment in impaired loans as of or for the years ended
December 31, 2002 and 2001.
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) 2002 2001 2000
- -------------------------------------------------------------------------------
BALANCE, BEGINNING OF YEAR $ 4,023 $ 3,435 $ 2,962
- -------------------------------------------------------------------------------
PROVISION CHARGED TO EXPENSE 800 600 500
- -------------------------------------------------------------------------------
LOANS CHARGED-OFF (68) (92) (174)
- -------------------------------------------------------------------------------
RECOVERIES 43 80 147
- -------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 4,798 $ 4,023 $ 3,435
===============================================================================
37
6. PREMISES AND EQUIPMENT
Premises and equipment as of December 31, follows:
(IN THOUSANDS) 2002 2001
- --------------------------------------------------------------------------------
LAND $ 2,554 $ 2,554
- --------------------------------------------------------------------------------
BUILDINGS 7,298 7,298
- --------------------------------------------------------------------------------
FURNITURE AND EQUIPMENT 8,857 7,481
- --------------------------------------------------------------------------------
LEASEHOLD IMPROVEMENTS 4,369 3,360
- --------------------------------------------------------------------------------
PROJECTS IN PROGRESS 1,294 1,511
- --------------------------------------------------------------------------------
24,372 22,204
- --------------------------------------------------------------------------------
LESS: ACCUMULATED DEPRECIATION 10,001 8,730
- --------------------------------------------------------------------------------
TOTAL $14,371 $13,474
================================================================================
Depreciation expense amounted to $1.3 million, $1.2 million and $1.0
million for the years ended December 31, 2002, 2001 and 2000, respectively.
7. DEPOSITS
Interest expense on time deposits of $100,000 or more totaled $2.1
million, $2.5 million and $1.8 million in 2002, 2001 and 2000, respectively.
The scheduled maturities of time deposits are as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2003 $204,088
- --------------------------------------------------------------------------------
2004 22,284
- --------------------------------------------------------------------------------
2005 1,188
- --------------------------------------------------------------------------------
2006 2,370
- --------------------------------------------------------------------------------
2007 8,563
- --------------------------------------------------------------------------------
OVER 5 YEARS 17
- --------------------------------------------------------------------------------
TOTAL $238,510
================================================================================
8. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
At December 31, 2002 and 2001, advances from the Federal Home Loan Bank of
New York (FHLB) totaled $5.0 million with a weighted average interest rate of
3.53% and 3.73%, respectively. These advances are secured by blanket pledges of
1-4 family residential mortgages totaling $110.9 million at December 31, 2002
and $219.0 million at December 31, 2001. The advances have fixed maturity dates
with $3.0 million scheduled to mature in 2004 and $2.0 million in 2006.
Other borrowings consisting of overnight borrowings at FHLB had an average
balance of $2.8 million and $1.6 million for the years ended December 31, 2002
and 2001, respectively. No amounts were outstanding as of December 31, 2002 or
2001. The maximum amount outstanding at any month end during 2002 was $18.5
million. There were no borrowings outstanding at any month end during 2001.
38
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation discloses estimated fair values for its significant
financial instruments. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the fair value
of each class of significant financial instruments:
CASH AND SHORT-TERM INVESTMENTS - The carrying amount of cash and
short-term investments is considered to be fair value.
SECURITIES - The fair value of securities is based upon quoted market
prices.
LOANS - The fair value of loans is estimated by discounting the future
cash flows using the build-up approach consisting of four components: the
risk-free rate, credit quality, operating expense and prepayment option price.
DEPOSITS - The fair value of deposits with no stated maturity, such as
demand deposits, checking accounts, savings and money market accounts, is equal
to the carrying amount. The fair value of certificates of deposit is based on
the discounted value of contractual cash flows.
LONG-TERM DEBT - The fair value of FHLB advances is based on the
discounted value of estimated cash flows. The discount rate is estimated using
the rates currently offered for similar advances.
The following table summarizes carrying amounts and fair values for
financial instruments at December 31, 2002 and 2001:
(IN THOUSANDS) 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
CASH AND CASH EQUIVALENTS $ 38,320 $ 38,320 $ 19,983 $ 19,983
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 549 549 15,634 15,634
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES 168,066 171,290 48,722 50,480
- ----------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 212,259 212,259 172,620 172,620
- ----------------------------------------------------------------------------------------------------------------------------
LOANS, NET OF ALLOWANCE FOR
LOAN LOSSES 404,962 423,090 412,910 420,842
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
- ----------------------------------------------------------------------------------------------------------------------------
DEPOSITS 769,688 772,822 630,903 633,876
- ----------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,000 5,114 5,000 5,018
- ----------------------------------------------------------------------------------------------------------------------------
39
10. INCOME TAXES
The income tax expense included in the consolidated financial statements
for the years ended December 31, 2002, 2001 and 2000, is allocated as follows:
(IN THOUSANDS) 2002 2001 2000
- -------------------------------------------------------------------------------
FEDERAL:
CURRENT EXPENSE $ 2,010 $ 4,493 $ 4,014
- -------------------------------------------------------------------------------
DEFERRED EXPENSE/(BENEFIT) 3,615 (252) (180)
- -------------------------------------------------------------------------------
STATE:
- -------------------------------------------------------------------------------
CURRENT EXPENSE 230 181 114
- -------------------------------------------------------------------------------
DEFERRED BENEFIT (55) (61) (5)
TOTAL INCOME TAX EXPENSE $ 5,800 $ 4,361 $ 3,943
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
DEFERRED EXPENSE ON UNREALIZED
GAIN ON SECURITIES AVAILABLE FOR SALE $ 2,757 $ 698 $ 848
===============================================================================
Total income tax expense differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% in 2002 and 34% in 2001 and 2000 to
income before taxes as a result of the following:
(IN THOUSANDS) 2002 2001 2000
- -------------------------------------------------------------------------------
COMPUTED "EXPECTED" TAX EXPENSE $ 6,204 $ 4,517 $ 3,961
- -------------------------------------------------------------------------------
INCREASE/(DECREASE) IN TAXES RESULTING FROM:
TAX-EXEMPT INCOME (323) (234) (217)
- -------------------------------------------------------------------------------
STATE INCOME TAXES 114 79 72
- -------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE INCOME (251) (82) --
- -------------------------------------------------------------------------------
OTHER 56 81 127
- -------------------------------------------------------------------------------
$ 5,800 $ 4,361 $ 3,943
===============================================================================
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, 2002 and 2001 are as follows:
(IN THOUSANDS) 2002 2001
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
LOANS, PRINCIPALLY DUE TO ALLOWANCE FOR
LOAN LOSSES AND DEFERRED FEE INCOME $ 1,814 $1,532
- --------------------------------------------------------------------------------
POST RETIREMENT BENEFITS OTHER THAN PENSIONS 107 147
- --------------------------------------------------------------------------------
START-UP & ORGANIZATION COSTS 33 51
- --------------------------------------------------------------------------------
CAPITAL LOSS CARRYOVER 20 2
- --------------------------------------------------------------------------------
TOTAL GROSS DEFERRED ASSETS $ 1,974 $1,732
================================================================================
DEFERRED TAX LIABILITIES
INVESTMENT SECURITIES, PRINCIPALLY DUE TO
THE ACCRETION OF BOND DISCOUNT 41 54
- --------------------------------------------------------------------------------
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE 3,193 436
- --------------------------------------------------------------------------------
DEFERRED LOAN ORIGINATION COSTS AND FEES 311 300
- --------------------------------------------------------------------------------
DEFERRED REIT DIVIDEND 3,652 --
- --------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT,
PRINCIPALLY DUE TO DIFFERENCES IN DEPRECIATION 569 417
- --------------------------------------------------------------------------------
TOTAL GROSS DEFERRED LIABILITIES 7,766 1,207
- --------------------------------------------------------------------------------
NET DEFERRED TAX (LIABILITY)/ASSET $(5,792) $ 525
================================================================================
40
11. BENEFIT PLANS
The Corporation sponsors a non-contributory defined benefit pension plan
that covers substantially all salaried employees. The benefits are based on an
employee's compensation, age at retirement and years of service. It is the
policy of the Corporation to fund not less than the minimum funding amount
required by the Employee Retirement Income Security Act (ERISA). Plan assets
primarily consist of U.S. government agencies and common stock.
The following table shows the change in benefit obligation, the change in
plan assets and the funded status for the plan at December 31,
(IN THOUSANDS) 2002 2001
- -------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
- -------------------------------------------------------------------------------
BENEFIT OBLIGATION AT BEGINNING OF YEAR $ 5,642 $ 4,319
- -------------------------------------------------------------------------------
SERVICE COST 744 590
- -------------------------------------------------------------------------------
INTEREST COST 388 360
- -------------------------------------------------------------------------------
ACTUARIAL LOSS 610 644
- -------------------------------------------------------------------------------
BENEFITS PAID (602) (271)
- -------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $ 6,782 $ 5,642
===============================================================================
CHANGE IN PLAN ASSETS
- -------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR $ 5,185 $ 5,224
- -------------------------------------------------------------------------------
ACTUAL RETURN ON PLAN ASSETS (485) (340)
- -------------------------------------------------------------------------------
EMPLOYER CONTRIBUTION 846 572
- -------------------------------------------------------------------------------
BENEFITS PAID (602) (271)
- -------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 4,944 $ 5,185
===============================================================================
FUNDED STATUS $(1,838) $ (457)
- -------------------------------------------------------------------------------
UNRECOGNIZED TRANSITION ASSET (45) (51)
- -------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST (3) (3)
- -------------------------------------------------------------------------------
UNRECOGNIZED NET ACTUARIAL GAIN 1,809 322
- -------------------------------------------------------------------------------
ACCRUED BENEFIT COST $ (77) $ (189)
===============================================================================
Net periodic expense for the years ended December 31 included the
following components:
(IN THOUSANDS) 2002 2001 2000
- ------------------------------------------------------------------------------
SERVICE COST $ 744 $ 590 $ 474
- ------------------------------------------------------------------------------
INTEREST COST 388 360 286
- ------------------------------------------------------------------------------
EXPECTED RETURN ON PLAN ASSETS (392) (459) (412)
- ------------------------------------------------------------------------------
AMORTIZATION OF:
NET GAIN -- (19) (49)
- ------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST 1 1 1
- ------------------------------------------------------------------------------
UNRECOGNIZED REMAINING NET ASSETS (7) (7) (7)
- ------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $ 734 $ 466 $ 293
==============================================================================
The following table shows the actuarial assumptions applied for the
valuation of plan obligations at December 31,
2002 2001 2000
- ------------------------------------------------------------------------------
WEIGHTED-AVERAGE DISCOUNT RATE 6.5% 7% 8%
- ------------------------------------------------------------------------------
WEIGHTED-AVERAGE RATE OF INCREASE
ON FUTURE COMPENSATION 3% 3% 3%
- ------------------------------------------------------------------------------
WEIGHTED-AVERAGE EXPECTED LONG-TERM RATE
OF RETURN ON PLAN ASSETS 7% 8% 8%
- ------------------------------------------------------------------------------
41
SAVINGS AND PROFIT SHARING PLANS:
In addition to the retirement plan, 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. Under the savings portion of the plan, employee
contributions are partially matched by the Corporation. Expense for the savings
plan was approximately $33 thousand, $30 thousand and $30 thousand in 2002, 2001
and 2000, respectively. Contributions to the profit sharing portion are made at
the discretion of the Board of Directors and all funds are invested solely in
Corporation stock. The contribution to the profit sharing plan was $350 thousand
in 2002, $300 thousand in 2001 and $275 thousand in 2000.
12. STOCK OPTION PLANS
The Corporation's incentive stock option plans allow the granting of up to
659,694 shares of the Corporation's common stock to certain key employees. The
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. The stock options will vest during a period of up to five
years after the date of grant. Changes in options outstanding during the past
three years were as follows:
OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 305,664 $6.73 - $24.83
================================================================================
GRANTED DURING 2000 15,128 16.45 - 20.68
- --------------------------------------------------------------------------------
EXERCISED DURING 2000 (21,012) 6.73 - 14.33
- --------------------------------------------------------------------------------
FORFEITED DURING 2000 (1,972) 14.33 - 20.68
================================================================================
BALANCE, DECEMBER 31, 2000 297,808 $6.73 - $24.83
================================================================================
GRANTED DURING 2001 82,860 16.48 - 22.44
- --------------------------------------------------------------------------------
EXERCISED DURING 2001 (49,520) 6.73 - 14.33
- --------------------------------------------------------------------------------
FORFEITED DURING 2001 (6,544) 14.33 - 20.40
================================================================================
BALANCE, DECEMBER 31, 2001 324,604 $6.73 - $24.83
================================================================================
GRANTED DURING 2002 5,800 18.25 - 32.25
- --------------------------------------------------------------------------------
EXERCISED DURING 2002 (47,159) 6.73 - 21.21
- --------------------------------------------------------------------------------
FORFEITED DURING 2002 (9,330) 6.73 - 20.40
================================================================================
BALANCE, DECEMBER 31, 2002 273,915 $6.73 - $32.25
================================================================================
At December 31, 2002, the number of options exercisable was 169,219 and
the weighted-average price of those options was $14.81 per share. At December
31, 2001, the number of options exercisable was 170,612 and the weighted-average
price of those options was $12.42 per share.
42
The Corporation has non-qualified stock option plans for non-employee
directors. The plans allow the granting of up to 329,584 shares of the
Corporation's common stock. The options granted under this plan 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. The stock options will vest
during a period of up to five years after the date of grant. Changes in options
outstanding during the past three years were as follows:
OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 175,114 $6.73 - $21.21
================================================================================
GRANTED DURING 2000 3,818 19.92
- --------------------------------------------------------------------------------
EXERCISED DURING 2000 (4,434) 6.73
================================================================================
BALANCE, DECEMBER 31, 2000 174,498 $6.73 - $19.70
================================================================================
GRANTED DURING 2001 32,078 18.98
- --------------------------------------------------------------------------------
EXERCISED DURING 2001 (1,544) 6.73
================================================================================
BALANCE, DECEMBER 31, 2001 205,032 $6.73 - $21.21
================================================================================
EXERCISED DURING 2002 (16,628) 6.73
================================================================================
BALANCE, DECEMBER 31, 2002 188,404 $6.73 - $21.21
================================================================================
At December 31, 2002, the number of options exercisable was 148,975 and
the weighted-average price of those options was $11.95. At December 31, 2001,
the number of options exercisable was 146,962 and the weighted-average price of
those options was $10.29.
At December 31, 2002, there were 339,144 additional shares available for
grant under the Plans. The per share weighted-average fair value of stock
options granted during 2002, 2001 and 2000 was $8.26, $4.77, and $4.43 on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 2002 - expected dividend yield of 1.79%, expected
volatility of 34%, risk free interest rate of 4.12%, and an expected life of 5
years; 2001 - expected dividend yield of 1.70%, expected volatility of 20%,
risk-free interest rate of 4.77%, and an expected life of 5 years; 2000 -
expected dividend yield of 1.40%, expected volatility of 21%, risk-free interest
rate of 5.97%, and an expected life of 5 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 its actions depart from routine legal proceedings and 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 loan commitments of $95.0
million and $78.0 million and letters of credit of $4.0 million and $2.5 million
at December 31, 2002 and 2001, respectively, which are not included in the
accompanying consolidated financial statements.
For commitments to originate loans and letters of credit, 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 and underwriting
standards in making loan and letter of credit 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.
43
At December 31, 2002, the Corporation was obligated under non-cancelable
operating leases for certain premises. Rental expense aggregated $1.1 million,
$869 thousand and $718 thousand for the years ended December 31, 2002, 2001 and
2000, 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, 2002, were as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2003 $ 1,141
- --------------------------------------------------------------------------------
2004 919
- --------------------------------------------------------------------------------
2005 905
- --------------------------------------------------------------------------------
2006 1,015
- --------------------------------------------------------------------------------
2007 1,005
- --------------------------------------------------------------------------------
THEREAFTER 7,285
================================================================================
TOTAL $12,270
================================================================================
14. 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 and the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Corporation 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).
Management believes, as of December 31, 2002, that the Corporation and the Bank
meet all capital adequacy requirements to which they are subject.
As of December 31, 2002, the Corporation and the Bank met all requirements
to be considered well capitalized under the regulatory framework for prompt
corrective action. 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.
44
The Corporation's actual capital amounts and ratios are presented in the
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, 2002:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $ 76,551 20.8% $ 36,777 10.0% $ 29,422 8.0%
- --------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO RISK-WEIGHTED ASSETS) 71,753 19.5 22,066 6.0 14,711 4.0
- --------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO AVERAGE ASSETS) 71,753 9.2 39,028 5.0 23,417 3.0
================================================================================================================================
AS OF DECEMBER 31, 2001:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $ 65,890 20.0% $ 32,970 10.0% $ 26,376 8.0%
- --------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO RISK-WEIGHTED ASSETS) 61,867 18.8 19,782 6.0 13,188 4.0
- --------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO AVERAGE ASSETS) 61,867 9.8 31,442 5.0 18,865 3.0
================================================================================================================================
45
15. CONDENSED FINANCIAL STATEMENTS OF PEAPACK-GLADSTONE
FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
The following information of the parent company only financial statements
as of and for the years ended December 31, 2002 and 2001 should be read in
conjunction with the notes to the consolidated financial statements.
STATEMENTS OF CONDITION
DECEMBER 31,
(IN THOUSANDS) 2002 2001
- -------------------------------------------------------------------------------
ASSETS:
CASH $ 146 $ 53
- -------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY 1,999 --
- -------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 8,832 7,574
- -------------------------------------------------------------------------------
INVESTMENT IN SUBSIDIARY 66,913 55,952
- -------------------------------------------------------------------------------
OTHER ASSETS 50 80
===============================================================================
TOTAL ASSETS $ 77,940 $ 63,659
===============================================================================
LIABILITIES:
OTHER LIABILITIES $ 782 $ 574
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 782 574
===============================================================================
SHAREHOLDERS' EQUITY:
COMMON STOCK 5,661 5,608
- -------------------------------------------------------------------------------
SURPLUS 38,385 37,838
- -------------------------------------------------------------------------------
TREASURY STOCK (2,020) (1,588)
- -------------------------------------------------------------------------------
RETAINED EARNINGS 30,290 20,572
- -------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS),
- -------------------------------------------------------------------------------
NET OF INCOME TAX 4,842 655
===============================================================================
TOTAL SHAREHOLDERS' EQUITY 77,158 63,085
===============================================================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 77,940 $ 63,659
===============================================================================
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2002 2001 2000
- --------------------------------------------------------------------------------
INCOME:
DIVIDEND FROM BANK $ 5,000 $ 4,000 $ 4,000
- --------------------------------------------------------------------------------
OTHER INCOME 375 300 212
- --------------------------------------------------------------------------------
SECURITIES GAINS 32 -- --
================================================================================
TOTAL INCOME 5,407 4,300 4,212
================================================================================
EXPENSES:
- --------------------------------------------------------------------------------
OTHER EXPENSES 307 280 168
- --------------------------------------------------------------------------------
MERGER-RELATED EXPENSES -- -- 221
================================================================================
TOTAL EXPENSES 307 280 389
================================================================================
INCOME BEFORE INCOME TAX BENEFIT/
EXPENSE AND EQUITY IN
UNDISTRIBUTED EARNINGS OF BANK 5,100 4,020 3,823
- --------------------------------------------------------------------------------
INCOME TAX EXPENSE/(BENEFIT) 15 (8) 15
================================================================================
NET INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF BANK 5,085 4,028 3,808
- --------------------------------------------------------------------------------
EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 6,840 4,896 3,900
================================================================================
NET INCOME $ 11,925 $ 8,924 $ 7,708
================================================================================
46
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2002 2001 2000
- --------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 11,925 $ 8,924 $ 7,708
- --------------------------------------------------------------------------------------
LESS EQUITY IN UNDISTRIBUTED EARNINGS (6,840) (4,896) (3,900)
- --------------------------------------------------------------------------------------
AMORTIZATION AND ACCRETION IN SECURITIES (3) (5) (5)
- --------------------------------------------------------------------------------------
GAIN ON SECURITIES AVAILABLE FOR SALE (32) -- --
- --------------------------------------------------------------------------------------
DECREASE/(INCREASE) IN OTHER ASSETS 30 148 (4)
- --------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN OTHER LIABILITIES 74 55 (4)
======================================================================================
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,154 4,226 3,795
======================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 75 -- --
- --------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 8,700 3,576 1,001
- --------------------------------------------------------------------------------------
PURCHASE OF SECURITIES HELD TO MATURITY (1,989) -- --
- --------------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (9,912) (7,261) (2,116)
======================================================================================
NET CASH USED IN INVESTING ACTIVITIES (3,126) (3,685) (1,115)
======================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
DIVIDENDS PAID (2,103) (1,785) (1,556)
- --------------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 600 352 288
- --------------------------------------------------------------------------------------
TREASURY STOCK TRANSACTIONS (432) (632) (301)
======================================================================================
NET CASH USED IN FINANCING ACTIVITIES (1,935) (2,065) (1,569)
======================================================================================
NET INCREASE IN CASH AND CASH EQUIVALENTS 93 (1,524) 1,111
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53 1,577 466
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 146 $ 53 $ 1,577
======================================================================================
47
COMMON STOCK PRICES (UNAUDITED)
The following table shows the 2002 and 2001 range of prices paid on known
trades of Peapack-Gladstone Financial Corporation Common Stock.
DIVIDEND
2002 HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1ST QUARTER $25.00 $18.13 $0.075
- --------------------------------------------------------------------------------
2ND QUARTER 31.50 24.75 0.075
- --------------------------------------------------------------------------------
3RD QUARTER 32.50 28.83 0.090
- --------------------------------------------------------------------------------
4TH QUARTER 37.46 29.75 0.090
- --------------------------------------------------------------------------------
DIVIDEND
2001 HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1ST QUARTER $21.14 $17.73 $0.070
- --------------------------------------------------------------------------------
2ND QUARTER 18.18 16.14 0.070
- --------------------------------------------------------------------------------
3RD QUARTER 19.30 16.84 0.075
- --------------------------------------------------------------------------------
4TH QUARTER 19.63 18.25 0.075
- --------------------------------------------------------------------------------
48
OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
GLADSTONE T. LEONARD HILL Chairman Emeritus *
LOAN AND -------------------------------------------------------------------------------------------------------
ADMINISTRATION FRANK A. KISSEL Chairman of the Board & CEO*
BUILDING -------------------------------------------------------------------------------------------------------
ROBERT M. ROGERS President & COO *
-------------------------------------------------------------------------------------------------------
ARTHUR F. BIRMINGHAM Executive Vice President & CFO *
-------------------------------------------------------------------------------------------------------
GARRETT P. BROMLEY Executive Vice President & Chief Credit Officer
-------------------------------------------------------------------------------------------------------
PAUL W. BELL Senior Vice President & Security Officer
-------------------------------------------------------------------------------------------------------
HUBERT P. CLARKE Senior Vice President Information Systems
-------------------------------------------------------------------------------------------------------
MICHAEL J. GIACOBELLO Senior Vice President & Senior Commercial Loan
Officer
-------------------------------------------------------------------------------------------------------
BARBARA A. GRECO Senior Vice President & Personnel Officer
-------------------------------------------------------------------------------------------------------
TODD T. BRUNGARD Vice President
-------------------------------------------------------------------------------------------------------
ROBERT A. BUCKLEY Vice President
-------------------------------------------------------------------------------------------------------
KAREN M. CHIARELLO Vice President & Auditor
-------------------------------------------------------------------------------------------------------
KAREN M. FERRARO Vice President
-------------------------------------------------------------------------------------------------------
V. SHERRI LICATA Vice President & Bank Secrecy Act Compliance
Officer
-------------------------------------------------------------------------------------------------------
DOUGLAS J. MOORE Vice President
-------------------------------------------------------------------------------------------------------
TERESA A. PETERS Vice President
-------------------------------------------------------------------------------------------------------
MARY M. RUSSELL Vice President & Comptroller
-------------------------------------------------------------------------------------------------------
JOHN A. SCERBO Vice President
-------------------------------------------------------------------------------------------------------
PATRICIA J. SCHWARTZ Vice President
-------------------------------------------------------------------------------------------------------
JAMES S. STADTMUELLER Vice President
-------------------------------------------------------------------------------------------------------
EILEEN C. WOLFE Vice President
-------------------------------------------------------------------------------------------------------
SANDRA BORNGESSER Assistant Vice President
-------------------------------------------------------------------------------------------------------
MARIA FORNARO Assistant Vice President
-------------------------------------------------------------------------------------------------------
JOHN G. HARITON Assistant Vice President & Corporate Trainer
-------------------------------------------------------------------------------------------------------
KAREN R. HORVATH Assistant Vice President & Assistant Comptroller
-------------------------------------------------------------------------------------------------------
VALERIE L. KODAN Assistant Vice President
-------------------------------------------------------------------------------------------------------
KATHRYN M. NEIGH Assistant Vice President
-------------------------------------------------------------------------------------------------------
PAULA A. PHILHOWER Assistant Vice President
-------------------------------------------------------------------------------------------------------
CHRISTOPHER P. POCQUAT Assistant Vice President
-------------------------------------------------------------------------------------------------------
DIANE M. RIDOLFI Assistant Vice President
-------------------------------------------------------------------------------------------------------
S. SHAY SCHOENBAUM Assistant Vice President & Marketing Officer
-------------------------------------------------------------------------------------------------------
EDWARD J. SWEENEY Assistant Vice President
-------------------------------------------------------------------------------------------------------
FRANK C. WALDRON Assistant Vice President
-------------------------------------------------------------------------------------------------------
SHANIN BACHSTEIN Assistant Cashier
-------------------------------------------------------------------------------------------------------
MARJORIE A. DZWONCZYK Assistant Cashier & CRA and Compliance Officer
-------------------------------------------------------------------------------------------------------
E. SUSAN GIANETTI Assistant Cashier
-------------------------------------------------------------------------------------------------------
DAVID L. PETRY Assistant Cashier
-------------------------------------------------------------------------------------------------------
KRISTIN A. ROMEO Assistant Cashier
-------------------------------------------------------------------------------------------------------
JOSEPH J. SARDINI Assistant Cashier
-------------------------------------------------------------------------------------------------------
SCOTT T. SEARLE Assistant Cashier
-------------------------------------------------------------------------------------------------------
CAROL L. BEHLER Assistant Cashier
-------------------------------------------------------------------------------------------------------
ANTOINETTE ROSELL Corporate Secretary *
-------------------------------------------------------------------------------------------------------
49
- ------------------------------------------------------------------------------------------------------------------------------------
PGB TRUST & CRAIG C. SPENGEMAN President & Chief Investment Officer *
INVESTMENTS -------------------------------------------------------------------------------------------------------
GLADSTONE BRYANT K. ALFORD First Vice President & Senior Trust Officer
-------------------------------------------------------------------------------------------------------
JOHN M. BONK First Vice President & Director of Business Development
-------------------------------------------------------------------------------------------------------
JOHN C. KAUTZ First Vice President & Senior
Investment Officer
-------------------------------------------------------------------------------------------------------
ROBERT M. FIGURELLI Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
ROY C. MILLER Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
KATHERINE S. QUAY Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
ANNE M. SMITH Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
KURT G. TALKE Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
MICHAEL T. TORMEY Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
LAWRENCE J. VERNY Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
JENNIFER CUCE Assistant Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
MICHAEL E. HERRMANN Assistant Vice President & Trust Officer
-------------------------------------------------------------------------------------------------------
EDWARD P. NICOLICCHIA Trust Officer
-------------------------------------------------------------------------------------------------------
CATHERINE A. MCCATHARN Assistant Trust Officer & Assistant
Corporate Secretary *
-------------------------------------------------------------------------------------------------------
R. GARY O'CONNOR Assistant Trust
-------------------------------------------------------------------------------------------------------
PATRICIA K. SAWKA Assistant Trust Officer
- ------------------------------------------------------------------------------------------------------------------------------------
BERNARDSVILLE CHARLES A. STUDDIFORD, III Vice President
-------------------------------------------------------------------------------------------------------
CAROL E. RITZER Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
CALIFON ANN W. KALLAM Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
CHATHAM MAIN STREET VALERIE A. OLPP Assistant Vice President
-------------------------------------------------------------------------------------------------------
TONYA M. FLOWERS Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
CHATHAM SHUNPIKE DONNA I. GISONE Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
CHESTER DONNA M. WHRITENOUR Assistant Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
CLINTON CAROLYN I. SEPKOWSKI Assistant Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
FAR HILLS LINDA ZIROPOLOUS Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
FELLOWSHIP JANET E. BATTAGLIA Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
GLADSTONE THOMAS N. KASPER Vice President
-------------------------------------------------------------------------------------------------------
PENNY M. BURNS Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
HILLSBOROUGH AMY E. GLASER Assistant Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
LONG VALLEY KATHERINE M. KREMINS Vice President
-------------------------------------------------------------------------------------------------------
JAMES A. CICCONE Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
MENDHAM LAURINE J. HAMILTON Assistant Vice President
-------------------------------------------------------------------------------------------------------
J. ANTHONY KATTERMANN Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
NEW VERNON DONNA I. GISONE Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
PLUCKEMIN MARY ANNE MALONEY Assistant Vice President
-------------------------------------------------------------------------------------------------------
TERESA M. LAWLER Assistant Cashier
- ------------------------------------------------------------------------------------------------------------------------------------
WARREN LEE ANN HUNT Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
* Denotes a Holding Company Officer
50
DIRECTORS
ANTHONY J. CONSI, II
Senior Vice President
Weichert Realtors
Morris Plains, NJ
PAMELA HILL
President
Ferris Corp.
Gladstone, NJ
T. LEONARD HILL
Chairman Emeritus
FRANK A. KISSEL
Chairman of the Board & CEO
JOHN D. KISSEL
Turpin Realty, Inc
Far Hills, NJ
JAMES R. LAMB, ESQ.
James R. Lamb, P.C.
Morristown, NJ
GEORGE R. LAYTON
Director
Layton Funeral Home
Bedminster, NJ
EDWARD A. MERTON
President
Merton Excavating & Paving Co.
Chester, NJ
F. DUFFIELD MEYERCORD
Managing Director
Meyercord Advisors, Inc.
Bedminster, NJ
JOHN R. MULCAHY
Far Hills, NJ
ROBERT M. ROGERS
President & COO
PHILIP W. SMITH, III
President
Phillary Management, Inc.
Far Hills, NJ
CRAIG C. SPENGEMAN
President, PGB Trust and
Investments
JACK D. STINE
Trustee
Proprietary House Association
Perth Amboy, NJ
OFFICES
LOAN & ADMINISTRATION
BUILDING
158 Route 206 North
Gladstone, NJ 07934
(908) 234-0700
www.pgbank.com
GLADSTONE (Main Office)
190 Main Street
Gladstone, NJ 07934
(908) 719-4360
CALIFON
438 Route 513
Califon, NJ 07830
(908) 832-5131
FAR HILLS
26 Dumont Road
Far Hills, NJ 07931
(908) 781-1018
LONG VALLEY
59 East Mill Road (Route 24)
Long Valley, NJ 07853
(908) 876-3300
PLUCKEMIN
468 Route 206 North
Bedminster, NJ 07921
(908) 658-4500
NEW VERNON
Village Road
New Vernon, NJ 07976
(973) 540-0444
CHATHAM SHUNPIKE
650 Shunpike Road
Chatham Township, NJ 07928
(973) 377-0081
CLINTON
189 Center Street
Clinton, NJ 08809
(908) 238-1935
PGB TRUST &
INVESTMENTS
190 Main Street
Gladstone, NJ 07934
(908) 719-4360
BERNARDSVILLE
36 Morristown Road
Bernardsville, NJ 07924
(908) 766-1711
CHESTER
350 Main Street
Chester, NJ 07930
(908) 879-8115
FELLOWSHIP VILLAGE
8000 Fellowship Road
Basking Ridge, NJ 07920
(908) 719-4332
MENDHAM
17 East Main Street
Mendham, NJ 07945
(973) 543-6499
POTTERSVILLE
11 Pottersville Road
Pottersville, NJ 07979
(908) 439-2265
CHATHAM MAIN STREET
311 Main Street
Chatham, NJ 07928
(973) 635-8500
HILLSBOROUGH
417 Route 206 North
Hillsborough, NJ 08844
(908) 281-1031
WARREN
58 Mountain Boulevard
Warren, NJ 07059
(908) 757-2805
51
SHAREHOLDER INFORMATION
CORPORATE ADDRESS STOCK LISTING INDEPENDENT AUDITORS
- ---------------------------------------------------------------------------------------------------------------------------------
158 Route 206, North Peapack-Gladstone Financial KPMG LLP
Gladstone, New Jersey 07934 Corporation common stock is 150 John F. Kennedy Parkway
(908) 234-0700 traded on the American Stock Short Hills, New Jersey 07078
www.pgbank.com Exchange under the symbol PGC
and reported in the Wall Street
Journal and most major newspapers.
ANNUAL MEETING TRANSFER AGENT SHAREHOLDER RELATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
The annual meeting of Registrar and Transfer Company Arthur F. Birmingham
shareholders of 30 Commerce Drive Executive Vice President and
Peapack-Gladstone Financial Cranford, New Jersey 07016 Chief Financial Officer
Corporation will be held on (908) 719-4308
April 22, 2003 at 2:00 p.m. birmingham@pgbank.com
52