SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission File No. 001-16197
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-3537895
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
158 Route 206 North,
Gladstone, New Jersey 07934
(Address of principal executive offices, including zip code)
(908) 234-0700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|.
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-d). Yes |X| No |_|.
Number of shares of Common stock outstanding as of May 3, 2004:
7,442,138
PEAPACK-GLADSTONE FINANCIAL CORPORATION
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):
Consolidated Statements of Condition March 31, 2004 and December 31, 2003 Page 3
Consolidated Statements of Income for the three months ended March 31, 2004
and 2003 Page 4
Consolidated Statements of Changes in Shareholders' Equity for the three
months ended March 31, 2004 and 2003 Page 5
Consolidated Statements of Cash Flows for the three months ended March 31,
2004 and 2003 Page 6
Notes to the Consolidated Financial Statements Page 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations Page 8
Item 3 Quantitative and Qualitative Disclosures about Market Risk Page 14
Item 4 Controls and Procedures Page 14
PART 2 OTHER INFORMATION
Item 2 Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities Page 15
Item 6 Exhibits and Reports on Form 8-K Page 15
2
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
(Unaudited)
March 31, December 31,
2004 2003
--------- ---------
ASSETS
Cash and due from banks $ 20,561 $ 17,234
Federal funds sold 24,592 5,461
--------- ---------
Total cash and cash equivalents 45,153 22,695
Interest-earning deposits 721 30,949
Investment Securities:(approximate market value
$97,144 in 2004 and $99,515 in 2003) 94,883 97,701
Securities Available for Sale 366,155 355,998
Loans:
Loans secured by real estate 397,796 397,068
Other loans 31,840 29,933
--------- ---------
Total loans 429,636 427,001
Less: Allowance for loan losses 5,562 5,467
--------- ---------
Net loans 424,074 421,534
Premises and equipment, net 16,820 15,132
Accrued interest receivable 4,853 4,295
Cash surrender value of life insurance 16,746 16,548
Other assets 5,274 3,274
--------- ---------
TOTAL ASSETS $ 974,679 $ 968,126
========= =========
LIABILITIES
Deposits:
Noninterest-bearing demand deposits $ 167,716 $ 155,189
Interest-bearing deposits:
Checking 150,360 140,393
Savings 104,819 101,451
Money market accounts 196,829 225,863
Certificates of deposit over $100,000 65,111 60,373
Certificates of deposit less than $100,000 161,970 162,502
--------- ---------
Total deposits 846,805 845,771
Borrowed Funds 29,627 30,032
Accrued expenses and other liabilities 8,945 7,269
--------- ---------
TOTAL LIABILITIES 885,377 883,072
--------- ---------
SHAREHOLDERS' EQUITY
Common stock (no par value; stated value $0.83
per share; authorized 20,000,000 shares; issued shares,
7,558,129 at March 31, 2004 and 7,535,160 at December 31,
2003; outstanding shares, 7,433,231 at
March 31, 2004 and 7,416,031 at December 31, 2003) 6,293 6,274
Surplus 62,314 61,959
Treasury Stock at cost, 124,898 shares in 2004
and 119,129 shares in 2003 (2,577) (2,391)
Retained Earnings 19,166 16,557
Accumulated other comprehensive income,
net of income tax 4,106 2,655
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 89,302 85,054
--------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 974,679 $ 968,126
========= =========
See accompanying notes to consolidated financial statements.
3
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
Three months ended
March 31,
2004 2003
---------- ----------
INTEREST INCOME
Interest and fees on loans $ 6,140 $ 6,538
Interest on investment securities:
Taxable 756 1,406
Tax-exempt 205 110
Interest on securities available for sale:
Taxable 3,303 2,430
Tax-exempt 91 89
Interest-earning deposits 11 1
Interest on federal funds sold 16 28
---------- ----------
Total interest income 10,522 10,602
INTEREST EXPENSE
Interest on savings account deposits 716 972
Interest on certificates of deposit over $100,000 315 430
Interest on other time deposits 859 1,226
Interest on borrowed funds 269 56
---------- ----------
Total interest expense 2,159 2,684
---------- ----------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 8,363 7,918
Provision for loan losses 150 150
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,213 7,768
---------- ----------
OTHER INCOME
Service charges and fees for other services 398 408
Trust department income 1,683 1,443
Securities gains 193 273
Bank owned life insurance 219 220
Other income 127 138
---------- ----------
Total other income 2,620 2,482
OTHER EXPENSES
Salaries and employee benefits 3,535 3,237
Premises and equipment 1,315 1,081
Other expense 1,189 1,090
---------- ----------
Total other expenses 6,039 5,408
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 4,794 4,842
Income tax expense 1,513 1,582
---------- ----------
NET INCOME $ 3,281 $ 3,260
========== ==========
EARNINGS PER SHARE
Basic $ 0.44 $ 0.44
Diluted $ 0.43 $ 0.43
Average basic shares outstanding 7,424,483 7,375,194
Average diluted shares outstanding 7,652,558 7,587,966
See accompanying notes to consolidated financial statements.
4
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2004 2003
-------- --------
Balance, Beginning of Period $ 85,054 $ 77,158
Comprehensive income:
Net Income 3,281 3,260
Unrealized holding gains/(losses) on securities
arising during the period, net of tax 1,576 (385)
Less: Reclassification adjustment for gains
included in net income, net of tax (125) (177)
-------- --------
1,451 (562)
-------- --------
Total Comprehensive income 4,732 2,698
Common Stock Options Exercised 279 32
Purchase of Treasury Stock (186) (11)
Cash Dividends Declared (671) (604)
Tax Benefit on Disqualifying and Nonqualifying
Exercise of Stock Options 94 122
-------- --------
Balance, March 31, $ 89,302 $ 79,395
======== ========
See accompanying notes to consolidated financial statements.
5
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2004 2003
-------- --------
OPERATING ACTIVITIES:
Net Income: $ 3,281 $ 3,260
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 391 368
Amortization of premium and accretion of
discount on securities, net 371 706
Provision for loan losses 150 150
Gains on security sales (193) (273)
Tax benefit on stock option exercises 94 122
Increase in cash surrender value of life insurance (198) (201)
Increase in accrued interest receivable (558) (295)
Increase in other assets (2,000) (354)
Increase in other liabilities 811 1,841
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,149 5,324
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 5,079 15,707
Proceeds from maturities of securities available
for sale 7,974 6,355
Proceeds from calls of investment securities 235 165
Proceeds from calls of securities available for sale 22,101 8,825
Proceeds from sales of securities available for sale 10,131 15,918
Purchase of investment securities (2,617) (11,251)
Purchase of securities available for sale (48,033) (82,886)
Net (decrease)/increase in short-term investments 30,228 (149)
Net (increase)/decrease in loans (2,690) 9,732
Purchases of premises and equipment (2,079) (610)
-------- --------
NET CASH PROVIDED BY/(USED IN) INVESTING
ACTIVITIES 20,329 (38,194)
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits 1,034 27,807
Net increase in borrowed funds -- 6,000
Repayments of long-term debt (405) --
Cash dividends paid (742) (603)
Exercise of stock options 279 31
Purchase of Treasury Stock (186) (11)
-------- --------
NET CASH (USED BY)/PROVIDED BY FINANCING
ACTIVITIES (20) 33,224
-------- --------
Net (decrease)/increase in cash and cash equivalents 22,458 354
Cash and cash equivalents at beginning of period 22,695 38,320
-------- --------
Cash and cash equivalents at end of period $ 45,153 $ 38,674
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,202 $ 3,149
Income taxes -- --
See accompanying notes to consolidated financial statements.
6
PEAPACK-GLADSTONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain information and footnote disclosures normally included in the unaudited
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the December 31, 2003 Annual Report on Form 10-K for
Peapack-Gladstone Financial Corporation (the "Corporation").
Principles of Consolidation: The Corporation considers that all adjustments (all
of which are normal recurring accruals) necessary for a fair presentation of the
statement of the financial position and results of operations in accordance with
accounting principles generally accepted in the United States for these periods
have been made. Results for such interim periods are not necessarily indicative
of results for a full year.
The consolidated financial statements of Peapack-Gladstone Financial Corporation
are prepared on the accrual basis and include the accounts of the Corporation
and its wholly owned subsidiary, Peapack-Gladstone Bank. All significant
intercompany balances and transactions have been eliminated from the
accompanying consolidated financial statements.
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
Corporation's loan portfolio. The allowance is based on management's evaluation
of the loan portfolio considering, among other things, current 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.
Stock Option Plans: At March 31, 2004, the Corporation had stock-based employee
and non-employee director compensation plans. The Corporation accounts for these
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 an 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
for the periods indicated 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:
Three Months Ended
March 31,
(In Thousands Except per Share Data) 2004 2003
--------- ---------
Net Income:
As Reported $ 3,281 $ 3,260
Less: Total Stock-Based Compensation Expense
Determined under the Fair Value Based Method
on all Stock Options, Net of Related Tax Effects 1,261 48
--------- ---------
Pro Forma $ 2,020 $ 3,212
Earnings Per Share:
As Reported
Basic $ 0.44 $ 0.44
Diluted $ 0.43 $ 0.43
Pro Forma
Basic $ 0.27 $ 0.44
Diluted $ 0.26 $ 0.42
7
Earnings per Common Share - Basic and Diluted: Basic earnings per share is
computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding. Diluted earnings per share includes
any additional common shares as if all potentially dilutive common shares were
issued (i.e., stock options) utilizing the treasury stock method. All share and
per share amounts have been restated to reflect all prior stock dividends and
stock splits.
Comprehensive Income: The difference between the Corporation's net income and
total comprehensive income for the three months ended March 31, 2004 and 2003
relates to the change in the net unrealized gains and losses on securities
available for sale during the applicable period of time less adjustments for
realized gains and losses.
2. BENEFIT PLANS
The Corporation has a defined benefit pension plan covering substantially all of
its salaried employees.
The net periodic expense for the three months ended March 31 included the
following components:
(In Thousands) 2004 2003
----- -----
Service Cost $ 274 $ 244
Interest Cost 126 109
Expected Return on Plan Assets (117) (99)
Amortization of:
Net Loss/(Gain) 6 14
Unrecognized Prior Service Cost 1 1
Unrecognized Remaining Net Assets (2) (2)
----- -----
Net Periodic Benefit Cost $ 288 $ 267
===== =====
As previously disclosed in the financial statements for the year ended December
31, 2003, the Corporation expects to contribute $1.2 million to its pension plan
in 2004. As of March 31, 2004, contributions of $300 thousand had been made.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL: The following discussion and analysis contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are not historical facts and include expressions about
management's view of future interest income and net loans, management's
confidence and strategies and management's expectations about new and existing
programs and products, relationships, opportunities and market conditions. These
statements may be identified by such forward-looking terminology as "expect",
"look", "believe", "anticipate", "may", "will", or similar statements or
variations of such terms. Actual results may differ materially from such
forward-looking statements. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among others, the following possibilities:
o Unanticipated changes or no change in interest rates.
o Competitive pressure in the banking industry causes unanticipated adverse
changes.
o An unexpected decline in the economy of New Jersey causes customers to
default in the payment of their loans or causes loans to become impaired.
o Enactment of the Highlands Water Protection and Planning Act,
anti-development legislation currently under consideration by the New
Jersey State Legislature.
o Loss of key managers or employees.
o Loss of major customers or failure to develop new customers.
o A decrease in loan quality and loan origination volume.
o An increase in non-performing loans.
o A decline in the volume of increase in trust assets or deposits.
The Corporation assumes no responsibility to update such forward-looking
statements in the future.
8
Currently, the New Jersey State Legislature is considering the Highlands Water
Protection and Planning Act, which may cause reductions in loan volume because,
as proposed, the Act restricts development in the Bank's market area. The
provisions of the Act may also restrict our ability to expand our branch
network. The Act has not passed at this time, nor is there any guarantee that it
will pass in its current form; however, the Bank is monitoring the situation to
determine its impact on our customers and our business.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES: "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is based upon the
Corporation's consolidated financial statements, which have been prepared in
accordance with 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 included in the December 31, 2003 Annual
Report on Form 10-K, 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 are periodically reviewed with the Audit Committee and the Board of
Directors.
The provision for loan losses is based upon management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, giving consideration to the size and composition of the loan
portfolio, actual loan loss experience, level of delinquencies, detailed
analysis of individual loans for which full collectibility may not be assured,
the existence and estimated net realizable value of any underlying collateral
and guarantees securing the loans, and current economic and market conditions.
Although management uses the best information available, the level of the
allowance for loan losses remains an estimate which is subject to significant
judgment and short-term change. Various regulatory agencies, as an integral part
of their examination process, periodically review the Corporation's provision
for loan losses. Such agencies may require the Corporation to make additional
provisions for loan losses based upon information available to them at the time
of their examination. Furthermore, the majority of the Corporation's loans are
secured by real estate in the State of New Jersey. Accordingly, the
collectibility of a substantial portion of the carrying value of the
Corporation's loan portfolio is susceptible to changes in local market
conditions and may be adversely affected should real estate values decline or
the Central New Jersey area experience an adverse economic shock. Future
adjustments to the provision for loan losses may be necessary due to economic,
operating, regulatory and other conditions beyond the Corporation's control.
OVERVIEW: The Corporation realized earnings of $0.43 per diluted share for the
first quarters of 2004 and 2003. Net income of $3.3 million for the quarter was
marginally higher when compared to the same quarter last year. Annualized return
on average assets for the quarter was 1.38 percent and annualized return on
average equity was 15.14 percent for the first quarter of 2004.
EARNINGS ANALYSIS
NET INTEREST INCOME: On a tax-equivalent basis, net interest income, before the
provision for loan losses, was $8.6 million for the first quarter of 2004, while
the same quarter of 2003 was $8.1 million, an increase of $508 thousand or 6.3
percent. The increase in net interest income during the quarter was primarily
the result of lower deposit rates paid, partially offset by a decline in the
rates received on investments and loans. The net interest margin on a fully tax
equivalent basis was 3.81 percent in the first quarter of 2004 as compared to
3.96 percent for the first quarter of 2003, a decline of 15 basis points. When
compared to the fourth quarter of 2003, net interest income increased $243
thousand, or 2.9 percent, from $8.3 million on a tax-equivalent basis. The net
interest margin, on a fully tax equivalent basis also increased from 3.71
percent in the fourth quarter of 2003, to 3.81 percent in the first quarter of
2004.
Average interest earning assets increased $84.6 million or 10.4 percent for the
first quarter 2004 to $899.0 million as compared to $814.3 million for the same
quarter in 2003. This was due to the increase in average investment security
balances of $58.5 million and average loan balances of $25.0 million. The
Corporation has attempted to limit its interest rate risk by not extending
long-term fixed rate assets during this low interest rate cycle.
9
For the quarter ended March 31, 2004, average interest-bearing liabilities
increased $54.6 million or 8.3 percent to $708.7 million from $654.0 million in
the same period in 2003. Average balances of money market accounts increased
$28.2 million or 15.1 percent, while interest-bearing checking accounts rose
$5.0 million and average balances of savings accounts rose $6.7 million. Average
certificates of deposits declined $13.4 million when comparing the quarters
ended March 31, 2004 and 2003. Federal Home Loan Bank advances averaged $36.5
million for the quarter ended March 31, 2004 as compared to $8.4 million for the
quarter ended March 31, 2003. During 2003, the Corporation positioned some of
its borrowings to try to take advantage of the low long-term interest rate
environment that existed. This strategy of extending the maturities of
borrowings and matching with lower yielding fixed rate loans is intended to
reduce interest rate risk if interest rates begin to rise. Average demand
deposits increased $24.9 million or 20.1 percent as compared to the first
quarter of 2003.
In the first quarter of 2004, average interest rates earned on interest-earning
assets, on a tax-equivalent basis, declined to 4.77 percent, from 5.27 percent
earned in the same quarter of 2003, a decline of 50 basis points. The average
interest rates earned on loans declined 76 basis points while the average
interest rates earned on investment securities declined 19 basis points to 3.94
percent in the first quarter of 2004 as compared with the same period in 2003.
The average interest rate paid on interest-bearing liabilities declined 42 basis
points to 1.22 percent when compared to the first quarter of 2003. The average
rate paid on certificate of deposits declined 70 basis points and average rates
paid on money market accounts declined 37 basis points in the first quarter of
2004 as compared with the same quarter in 2003.
10
The following table reflects the components of net interest income for each of
the three months ended March 31, 2004 and 2003:
Average Balance Sheet
Unaudited
(Tax-Equivalent Basis, Dollars in Thousands)
March 31, 2004 March 31, 2003
Average Income/ Average Income/
Balance Expense Yield Balance Expense Yield
ASSETS:
Interest-Earning Assets:
Investments:
Taxable $ 424,362 $ 4,059 3.83% $ 381,409 $ 3,836 4.02%
Tax-Exempt (1) 37,155 488 5.25% 21,654 328 6.09%
Loans (1) (2) 426,423 6,145 5.76% 401,467 6,543 6.52%
Federal Funds Sold 6,794 16 0.95% 9,249 28 1.23%
Interest-Earning Deposits 4,240 11 1.07% 567 1 1.02%
---------- -------------------- ---------- -------------------
Total Interest-Earning Assets 898,974 $ 10,719 4.77% 814,346 $ 10,736 5.27%
---------- -------------------- ---------- -------------------
Noninterest-Earning Assets:
Cash and Due from Banks 18,845 19,007
Allowance for Loan
Losses (5,526) (4,875)
Premises and Equipment 15,972 14,627
Other Assets 23,332 21,738
---------- ----------
Total Noninterest-Earning Assets 52,623 50,497
---------- ----------
Total Assets $ 951,597 $ 864,843
========== ==========
LIABILITIES:
Interest-Bearing Deposits
Checking $ 131,837 $ 110 0.34% $ 126,862 $ 182 0.58%
Money Markets 65,412 101 0.62% 67,796 175 1.03%
Tiered Money Markets 149,460 344 0.92% 118,886 385 1.30%
Savings 102,276 161 0.63% 95,548 230 0.96%
Certificates of Deposit 223,170 1,174 2.10% 236,585 1,656 2.80%
---------- -------------------- ---------- -------------------
Total Interest-Bearing Deposits 672,155 1,890 1.12% 645,677 2,628 1.63%
Borrowings 36,495 269 2.94% 8,368 56 2.66%
---------- -------------------- ---------- -------------------
Total Interest-Bearing Liabilities 708,650 2,159 1.22% 654,045 2,684 1.64%
---------- -------------------- ---------- -------------------
Noninterest Bearing
Liabilities
Demand Deposits 148,884 123,946
Accrued Expenses and
Other Liabilities 7,358 8,501
Total Noninterest-Bearing
---------- ----------
Liabilities 156,242 132,447
Shareholders' Equity 86,705 78,351
Total Liabilities and
---------- ----------
Shareholders' Equity $ 951,597 $ 864,843
========== ==========
Net Interest Income $ 8,560 $ 8,052
========== =========
Net Interest Spread 3.55% 3.63%
======= ======
Net Interest Margin (3) 3.81% 3.96%
======= ======
(1) Interest income is presented on a tax-equivalent basis using a 35 percent
federal tax rate.
(2) Loans are stated net of unearned income and include non-accrual loans.
(3) Net interest income on a tax-equivalent basis as a percentage of total
average interest-earning assets.
11
OTHER INCOME: Other income totaled $2.6 million for the quarter ended March 31,
2004, as compared to $2.5 million for the quarter ended March 31, 2003, an
increase of $138 thousand or 5.6 percent. PGB Trust and Investments, the Bank's
trust division, generated gross fees of $1.7 million for the first quarter of
2004 as compared to $1.4 million in the first quarter of 2003, an increase of
16.6 percent. This increase was primarily due to an increase in trust assets
under management. Service charges and fees declined slightly from $408 thousand
in the first quarter of 2003 to $398 thousand for the same quarter this year.
For the three-month periods ended March 31, 2004 and 2003, the Corporation's net
gains on securities were $193 thousand and $273 thousand, respectively.
The following table presents the components of other income for the three months
ended March 31, 2004 and 2003:
Three Months Ended
March 31,
(In Thousands) 2004 2003
------ ------
Trust department income $1,683 $1,443
Service charges 398 408
Bank owned life insurance 219 220
Safe deposit rental fees 61 60
Other non-interest income 48 62
Fee for other services 18 16
Securities gains 193 273
------ ------
Total other income $2,620 $2,482
====== ======
OTHER EXPENSES: For the three months ended March 31, 2004 total other expenses
increased $631 thousand or 11.7 percent over the same three months of 2003.
Salaries and employee benefits expense for the quarter ended March 31, 2004
increased to $3.5 million from $3.2 million for the quarter ended March 31,
2003, a 9.2 percent increase. This increase can be attributed to additions to
the professional staff and higher health insurance and pension costs. For the
quarters ended March 31, 2004 and 2003, premises and equipment expense increased
$253 thousand or 23.8 percent. These higher costs are attributable to additional
rent for new branch and data center space, depreciation expense and computer
expense. The new operations center expands the Corporation's technological
capacity for future growth.
Expenses including professional fees, stationery expense, trust department
expense, advertising, telephone and postage expense showed a net decline of 9.9
percent from first quarter 2003 to first quarter 2004. Insurance expense,
however, grew $28 thousand or 52.8 percent to $81 thousand, as premiums
increased in the past year. Other expense increased from $498 thousand for the
first quarter of 2003 to $552 thousand for the same period in 2004, an increase
of $54 thousand or 10.8 percent. Included in this total are large increases to
delivery expense and charitable contributions of $19 thousand and $20 thousand,
respectively.
The following table presents the components of other expense for the three
months ended March 31, 2004 and 2003:
Three Months Ended
March 31,
(In Thousands) 2004 2003
------- -------
Salaries and employee benefits $ 3,535 $ 3,237
Premises and equipment 1,315 1,062
Professional fees 136 151
Stationery and supplies 103 124
Trust department expense 102 136
Advertising 101 93
Telephone 101 88
Postage 85 105
Insurance 81 53
Deferred Loan Origination Costs (72) (139)
Other expense 552 498
------- -------
Total other expense $ 6,039 $ 5,408
======= =======
NON-PERFORMING ASSETS: Other real estate owned (OREO), loans past due in excess
of 90 days and still accruing, and non-accrual loans are considered
non-performing assets. These assets totaled $153 thousand and $188 thousand at
March 31, 2004 and 2003, respectively. Loans past due in excess of 90 days and
still accruing are in the process of collection and are considered well secured.
12
The following table sets forth non-performing assets on the dates indicated, in
conjunction with asset quality ratios:
March 31,
(In thousands) 2004 2003
-------------------------
Loans past due in excess of 90
days and still accruing $ 52 $ 15
Non-accrual loans 101 173
-------- --------
Total non-performing assets $ 153 $ 188
======== ========
Non-performing loans as a % of total loans 0.04% 0.05%
Non-performing assets as a % of total
Loans plus other real estate owned 0.04% 0.05%
Allowance as a % of loans 1.29% 1.25%
PROVISION FOR LOAN LOSSES: For the three months ended March 31, 2004 and 2003,
the provision for loan losses was $150 thousand. The amount of the loan loss
provision and the level of the allowance for loan losses are based upon a number
of factors including Management's evaluation of probable losses inherent in the
portfolio, after consideration of appraised collateral values, financial
condition and past credit history of the borrowers as well as prevailing
economic conditions. For the first quarter of 2004, net charge-offs were $55
thousand as compared to net recoveries of $35 thousand during the first quarter
of 2003.
A summary of the allowance for loan losses for the three-month period ended
March 31, follows:
(In thousands) 2004 2003
------- -------
Balance, January 1, $ 5,467 $ 4,798
Provision charged to expense 150 150
Loans charged off (65) (3)
Recoveries 10 38
------- -------
Balance, March 31, $ 5,562 $ 4,983
======= =======
INCOME TAXES: Income tax expense as a percentage of pre-tax income was 31.6
percent for the three months ended March 31, 2004 compared to 32.7 percent for
the same period in 2003. Income tax expense declined slightly for the three
months ended March 31, 2004 and 2003 due to higher levels of tax-exempt income.
CAPITAL RESOURCES: The Corporation is committed to maintaining a strong capital
position. At March 31, 2004, total shareholders' equity, including net
unrealized gains on securities available for sale, was $89.3 million,
representing a 5.0 percent increase over total shareholders' equity recorded at
December 31, 2003. The Federal Reserve Board has adopted risk-based capital
guidelines for banks. The minimum guideline for the ratio of total capital to
risk-weighted assets is 8 percent. Tier 1 Capital consists of common stock,
retained earnings, minority interests in the equity accounts of consolidated
subsidiaries, non-cumulative preferred stock, less goodwill and certain other
intangibles. The remainder may consist of other preferred stock, certain other
instruments and a portion of the loan loss allowance. At March 31, 2004, the
Corporation's Tier 1 Capital and Total Capital ratios were 20.71 percent and
22.07 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines. These guidelines provide for a minimum ratio of Tier 1 Capital to
average total assets of 3 percent for banks that meet certain specified
criteria, including having the highest regulatory rating. All other banks are
generally required to maintain a leverage ratio of at least 3 percent plus an
additional 100 to 200 basis points. The Corporation's leverage ratio at March
31, 2004, was 8.89 percent.
LIQUIDITY: Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary investments
and securities available for sale.
Management's opinion is that the Corporation's liquidity position is sufficient
to meet future needs. Cash and cash equivalents, interest earning deposits and
federal funds sold totaled $45.9 million at March 31, 2004. In addition, the
Corporation has $366.2 million in securities designated as available for sale.
These securities can be sold in response to liquidity concerns or pledged as
collateral for borrowings as discussed below. Book value as of March
13
31, 2004, of investment securities and securities available for sale maturing
within one year amounted to $12.9 million and $5.2 million, respectively.
The primary source of funds available to meet liquidity needs is the
Corporation's core deposit base, which excludes certificates of deposit greater
than $100 thousand. As of March 31, 2004, core deposits equaled $781.7 million.
Another source of liquidity is borrowing capacity. The Corporation has a variety
of sources of short-term liquidity available, including federal funds purchased
from correspondent banks, short-term and long-term borrowings from the Federal
Home Loan Bank of New York, access to the Federal Reserve Bank discount window
and loan participations or sales of loans. The Corporation also generates
liquidity from the regular principal payments made on its mortgage-backed
security and loan portfolios.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to information required regarding
quantitative and qualitative disclosures about market risk from the end of the
preceding fiscal year to the date of the most recent interim financial
statements (March 31, 2004).
ITEM 4. Controls and Procedures
The Corporation's Chief Executive Officer and Chief Financial Officer, with the
assistance of other members of the Corporation's management, have evaluated the
effectiveness of the Corporation's disclosure controls and procedures as of the
end of the period covered by this Quarterly Report on Form 10-Q. Based on such
evaluation, the Corporation's Chief Executive Officer and Chief Financial
Officer have concluded that the Corporation's disclosure controls and procedures
are effective.
The Corporation's Chief Executive Officer and Chief Financial Officer have also
concluded that there have not been any changes in the Corporation's internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Corporation's internal control over financial
reporting.
The Corporation's management, including the CEO and CFO, does not expect that
our disclosure controls and procedures or our internal controls will prevent all
error and all fraud. A control system, no matter how well conceived and
operated, provides reasonable, not absolute, assurance that the objectives of
the control system are met. The design of a control system reflects resource
constraints; the benefits of controls must be considered relative to their
costs. Because there are inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Corporation have been or will be
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns occur because of simple error
or mistake. Controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the controls.
The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design
will succeed in achieving its stated goals under all future conditions; over
time, control may become inadequate because of changes in conditions or
deterioration in the degree of compliance with the policies or procedures.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
14
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
Issuer Purchases of Equity Securities
- -----------------------------------------------------------------------------------------------------------------------------
Total Number of Shares Maximum Number of
Total Number Weighted Purchased as Part of Shares that May Yet Be
of Shares Average Price Publicly Announced Purchased Under the
Period Purchased Paid per Share Plans or Programs Plans or Programs
- ----------------------------- ---------------- ----------------- ------------------------ -------------------------
January 1-31, 2004 1,815 $ 31.23 -- --
February 1-29, 2004 2,693 33.50 -- --
March 1-31, 2004 1,261 31.74 -- --
---------------- ----------------- ------------------------ -------------------------
Total 5,769 $ 32.40 -- --
================ ================= ======================== =========================
Note: The Corporation has no repurchase plan or program. All shares listed above
are added to treasury stock through the cashless exercise of employee and
director stock options as allowed in the Stock Option Plans.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
3 Articles of Incorporation and By-Laws:
A. Restated Certificate of Incorporation as in effect on
the date of this filing is incorporated herein by
reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2003.
B. By-Laws of the Registrant as in effect on the date of
this filing are incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003.
31.1 Certification of Frank A. Kissel, Chief Executive Officer of
the Corporation, pursuant to Securities Exchange Act Rule
13a-14(a).
31.2 Certification of Arthur F. Birmingham, Chief Financial Officer
of the Corporation, pursuant to Securities Exchange Act Rule
13a-14(a).
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002,
signed by Frank A. Kissel, Chief Executive Officer of the
Corporation, and Arthur F. Birmingham, Chief Financial Officer
of the Corporation.
b. Reports on Form 8-K
1 Current Report on Form 8-K dated February 3, 2004 (furnishing
fourth quarter earnings release for Peapack-Gladstone
Financial Corporation).
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
DATE: May 7, 2004 By:
-------------------------------------------------
FRANK A. KISSEL
Chairman of the Board and Chief Executive Officer
DATE: May 7, 2004 By:
-------------------------------------------------
ARTHUR F. BIRMINGHAM
Executive Vice President and Chief Financial Officer
16
EXHIBIT INDEX
Number Description
- ------ -----------
3 Articles of Incorporation and By-Laws:
A. Restated Certificate of Incorporation as in effect on the date
of this filing is incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003.
B. By-Laws of the Registrant as in effect on the date of this
filing are incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003.
31.1 Certification of Frank A. Kissel, Chief Executive Officer of the
Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).
31.2 Certification of Arthur F. Birmingham, Chief Financial Officer of
the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002, signed by
Frank A. Kissel, Chief Executive Officer of the Corporation, and
Arthur F. Birmingham, Chief Financial Officer of the Corporation.
17