FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------
SELECTED YEAR-END DATA: 2004 2003 2002
- ------------------------------------------------------------------------------------
NET INCOME $ 13,109 $ 12,300 $ 11,925
- ------------------------------------------------------------------------------------
TOTAL ASSETS 1,067,395 968,126 859,808
- ------------------------------------------------------------------------------------
TOTAL DEPOSITS 935,666 845,771 769,688
- ------------------------------------------------------------------------------------
TOTAL SECURITIES 441,314 453,699 380,325
- ------------------------------------------------------------------------------------
TOTAL LOANS 572,164 427,001 409,760
- ------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 94,669 85,054 77,158
- ------------------------------------------------------------------------------------
TRUST DEPARTMENT ASSETS (BOOK VALUE) 1,191,186 1,089,447 1,000,272
- ------------------------------------------------------------------------------------
FINANCIAL RATIOS:
- ------------------------------------------------------------------------------------
RETURN ON AVERAGE ASSETS 1.30% 1.34% 1.53%
- ------------------------------------------------------------------------------------
RETURN ON AVERAGE EQUITY 14.72 15.14 17.06
- ------------------------------------------------------------------------------------
CAPITAL LEVERAGE RATIO 9.18 8.91 9.19
- ------------------------------------------------------------------------------------
RISK BASED CAPITAL:
- ------------------------------------------------------------------------------------
TIER I 19.02 20.38 19.51
- ------------------------------------------------------------------------------------
TOTAL 20.25 21.74 20.81
- ------------------------------------------------------------------------------------
PER SHARE:
- ------------------------------------------------------------------------------------
EARNINGS-BASIC $ 1.60 $ 1.51 $ 1.48
- ------------------------------------------------------------------------------------
EARNINGS-DILUTED 1.56 1.47 1.45
- ------------------------------------------------------------------------------------
BOOK VALUE 11.48 10.43 9.52
- ------------------------------------------------------------------------------------
[THE FOLLOWING TABLES WERE REPRESENTED AS BAR CHARTS IN THE PRINTED MATERIAL.]
NET INCOME
IN MILLIONS
$ 7.71 $ 8.92 $11.93 $12.30 $13.11
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
TOTAL ASSETS
IN MILLIONS
$ 567 $ 705 $ 860 $ 968 $1,067
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
DEPOSITS
IN MILLIONS
$ 509 $ 631 $ 770 $ 846 $ 936
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
EQUITY CAPITAL
IN MILLIONS
$55.2 $63.1 $77.2 $85.1 $94.7
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
1
DEAR SHAREHOLDERS AND FRIENDS
[LOGO]
It is hard to comprehend how quickly we move through one year into the next.
There are many explanations for this phenomenon, but we think in our case it is
because we are always excited about moving on to the next project and
opportunity. One door always leads to others and our energy levels are charged
by the possibilities.
We are pleased to report to our shareholders the 8th straight year of
record earnings. Net income increased $809,000 to $13,109,000. Our banking
environment continues to change with consolidation. Big banks have rediscovered
retail banking and have committed huge marketing budgets to try to grow that
side of their business. We feel confident that our business model of outstanding
customer service backed by first-rate products and the most committed employees
in our market translates well in the modern world of financial services.
Growth is an important component of our future success. During 2004 we
surpassed one billion in assets in the Bank. At the time, one enlightened
reporter wrote that mile markers like that are unimportant; it was only the
addition of one more account. Of course he was right. However, we celebrated
because it reaffirmed that our type of banking is still in demand. Total assets
grew 10.2% during 2004, ending the year at $1,067,000,000.
Loan growth was particularly strong during the year. Energized officers
and programs resulted in 34% growth in total loans. At the end of the year, the
Bank had more than $572,000,000 in loans outstanding.
At the same time, asset quality continues at outstanding levels.
Non-performing loans totaled $351,000 or 0.06% of total loans at December 31,
2004, while net charge-offs for all of 2004 were $63,000.
CASH AND STOCK DIVIDEND
In November your Board of Directors paid a 10% stock dividend and
increased the quarterly cash dividend to 11(cent) per share. Combined, the
effective increase in the quarterly cash dividend was 21%. This is on top of the
22% increase in 2003, 20% in 2002 and 18% in 2001. Shareholder value is always a
priority of the Board and Management.
CAPITAL INVESTMENT
We made several important investments for the future during 2004. On the
technology side, we opened our new Operations Center in February. To say it was
desperately needed is probably an understatement. The additional space and
updated equipment will give our staff the platform to provide our customers with
all the quality banking products that they require. A good example is the new
check image system just brought on line. The added convenience for our customers
represents an important advance.
2
Our long awaited Oldwick, Tewksbury Township Branch opened in June. Our
beautiful new building has become something of a landmark as travelers approach
this special community. Tonya Flowers is our Manager and we have all banking
services available there including drive-up ATM and safe deposit boxes. We
exceeded our new business targets for the year.
Our Morristown Branch opened with great excitement in November. This is a
major commitment for us to a very important community. There are a tremendous
number of businesses and households in that market and we look forward to
earning their business. Kathy Becker is our Manager. She and her staff are off
to a great start.
Because of the opportunities in the Morristown market we also have on site
Commercial Lenders and New Business Officers. Nancy Wynant and John Scerbo are
actively seeking new business opportunities.
The second floor of the Morristown building houses our first regional
office of PGB Trust & Investments. All services provided by PGB Trust &
Investments are available there. Robert Figurelli, John Lee and Mike Tormey
would be pleased to meet with you at your convenience.
NEW SERVICES
Even though it will not be effective until February 2005, we want to
announce two important new services for our customers. Beginning in February our
customers will be able to use any ATM in the world without any charges for their
first four transactions each month. Our customers know that we do not charge a
fee when they use our ATM card. However, other banks have charged our customers
when they use their machines. We will now reimburse our customers when those
charges occur. We believe this is an important enhancement for our customers. We
are now able to give access to their accounts from any of the approximately
850,000 ATMs in the world without a fee.
Along the same line, we will no longer charge for our on-line NetAccess
bill pay service. As long as our customer is actively using the service we will
absorb the fee. These are very important services for our active and mobile
clientele and we have opened two more feeless access points to their money. We
hope you all take advantage of it.
PGB TRUST & INVESTMENTS
PGB Trust & Investments generated strong results during 2004. Market value
of assets held grew 21% from $1,400,000,000 to $1,700,000,000. Fees generated
rose $961,000 to $6,700,000. These strong patterns have continued for many years
as clients find that our expertise in asset management, trust and estate
administration and tax planning is important. Clients must have a plan to reach
their financial goals. We are here to advise, implement a plan and ultimately
move assets from generation to generation. We encourage you to take the time to
meet with Craig Spengeman, John Bonk or Mike Tormey. Big financial decisions can
be intimidating. Having the right team to help you is invaluable.
3
SARBANES-OXLEY ACT
It is important to report to shareholders that we are in compliance with
the Sarbanes-Oxley Act. Our approach to compliance was to learn from the process
and hopefully have even stronger corporate governance in place at the end. We
believe that mission was accomplished, but our shareholders should know we
estimate our costs of compliance to exceed $500,000. We know exactly the hard
cost of compliance, i.e. professional fees, hardware, software, etc. However,
the largest part of the total expense has been soft cost, i.e. time and effort
of staff not spent on banking business. As the full weight of Sarbanes-Oxley
becomes known, I hope other companies will make similar reports to their
shareholders. While the goals of Sarbanes-Oxley were laudable, some shareholders
may be appalled by the true expense to Corporate America.
We look forward to 2005. We believe we should begin to see opportunities
to redeploy assets into a rising interest rate environment. It will take time
for that process to occur. In the end, we believe more normal interest rate
margins will return to the banking industry.
We want to thank our employees and Directors for all their good work this
year and our shareholders and customers for their continuing trust and support.
/s/ Frank A. Kissel /s/ Robert M. Rogers
Frank A. Kissel Robert M. Rogers
Chairman & CEO President & COO
4
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 10 percent stock dividend issued in 2004 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 eighteen branches and one mini branch in Somerset,
Hunterdon, and Morris counties.
During 2004, the cash dividend rate was increased to $0.11 per share. This
new rate, coupled with the 10 percent stock dividend paid on November 1, 2004,
effectively raised the cash dividend rate by 21 percent over the previous rate
of $0.10 per share.
The year ended December 31, 2004 represented a year of moderate earnings
growth for the Corporation. Net interest income increased during the year and
the Corporation experienced strong loan and deposit growth. As discussed in this
Management's Discussion and Analysis section some of the highlights are as
follows:
o Total assets of the Corporation exceeded $1 billion this year,
ending the year at $1.07 billion, over a 10 percent increase.
o The loan portfolio experienced growth of 34 percent.
o PGB Trust and Investments assets exceeded $1.7 billion in market
value for the first time, growing more than 20 percent.
o Deposits surpassed the $935 million level, with greater than 10
percent growth.
Peapack-Gladstone Financial Corporation's common stock trades on the
American Stock Exchange under the symbol "PGC".
[THE FOLLOWING TABLES WERE REPRESENTED AS BAR CHARTS IN THE PRINTED MATERIAL.]
RETURN ON AVERAGE EQUITY
IN PERCENT
15.30 15.03 17.06 15.14 14.72
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
RETURN ON AVERAGE ASSETS
IN PERCENT
1.47 1.42 1.53 1.34 1.30
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
5
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, 2004, 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
New Jersey 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.
EARNINGS SUMMARY: The Corporation's net income increased 7 percent to $13.1
million for the year ended December 31, 2004 compared to $12.3 million earned in
2003. Earnings per diluted share were $1.56 as compared to $1.47 in 2003, an
increase of 6 percent.
These results produced a return on average assets of 1.30 percent as
compared to 1.34 percent in 2003 and a return on average shareholders' equity of
14.72 percent as compared to 15.14 percent in 2003. While these performance
ratios are marginally lower, the results for 2004 include substantial
investments in two new branch locations and a new data center. These investments
and the higher expenses related to their operations will increase our capacity
for future growth and profitability.
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
NET INTEREST INCOME
IN MILLIONS
$23.1 $25.0 $31.9 $31.2 $35.1
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
6
The increase in net income for 2004 was primarily due to higher net
interest income and Trust fees, offset in part by higher salaries and benefits
and premises and equipment expenses. In 2004, the Corporation experienced strong
growth in loans and deposits, which was accompanied by historically low cost of
funds resulting in strong growth in net interest income.
NET INTEREST INCOME: The primary source of the Corporation's operating income is
net interest income, which is the difference between interest and dividends
earned on earning assets and fees earned on loans, and interest paid on
interest-bearing liabilities. Earning assets include loans to individuals and
businesses, investment securities, interest-earning deposits and federal funds
sold. Interest-bearing liabilities include interest-bearing checking, savings
and time deposits, Federal Home Loan Bank advances and other borrowings. Net
interest income is determined by the difference between the yields earned on
earning assets and the rates paid on interest-bearing liabilities ("Net Interest
Spread") and the relative amounts of earning assets and interest-bearing
liabilities. The Corporation's net interest spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and
deposit flows and general levels of non-performing assets.
Net interest income, on a fully tax-equivalent basis, increased from $31.8
million in 2003 to $35.9 million in 2004. Average earning assets increased $89.3
million or 10 percent from the average balances in 2003 and the interest earned
on these assets increased despite slightly lower yields. Rates earned on earning
assets declined 7 basis points in 2004. Interest expense declined $402 thousand
or 4 percent over the levels recorded in 2003 on average balances of
interest-bearing liabilities that increased $65.7 million or 10 percent. Lower
rates were paid on interest-bearing liabilities, declining 19 basis points from
1.49 percent to 1.30 percent. In 2004, the net interest margin rose to 3.78
percent from 3.69 percent in 2003.
On a fully tax-equivalent basis, interest income on earning assets rose
$3.7 million or 9 percent to $45.8 million. This increase was primarily due to
the higher average loans and investment securities, which rose $76.1 million and
$13.4 million, respectively, while rates earned on investment securities rose 17
basis points. This growth was offset in part by lower rates earned on loans,
which declined 48 basis points.
Interest expense declined during the year due to lower rates paid on
interest-bearing deposits. The overall rate paid on interest-bearing deposits
declined 22 basis points to 1.21 percent in 2004 as compared to 1.43 percent in
2003. Rates paid on borrowings rose 17 basis points to 2.68 percent. The decline
in deposit interest rates paid in 2004 reflects the market interest rates during
most of the year; however, rates began to rise later in 2004 as the Federal
Reserve Bank increased the Federal funds rate five times.
Partially offsetting lower rates paid was growth in most deposit
categories. On average, interest-bearing checking and tiered money market
accounts grew $29.8 million and $20.1 million, respectively. Savings accounts
grew $6.1 million, on average and money market accounts, $5.8 million, while
certificates of deposit declined $11.4 million, on average. Average
noninterest-bearing demand deposits increased $18.7 million or 13 percent during
2004 as compared to 2003. Average borrowings increased $15.2 million to $50.4
million during 2004.
7
THE FOLLOWING TABLE COMPARES THE AVERAGE BALANCE SHEET, NET INTEREST SPREADS AND
NET INTEREST MARGINS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
(FULLY TAX-EQUIVALENT - FTE):
YEAR ENDED DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------
INCOME/
AVERAGE EXPENSE YIELD
(IN THOUSANDS, EXCEPT YIELD INFORMATION) BALANCE (FTE) (FTE)
- ------------------------------------------------------------------------------------------
ASSETS:
INTEREST-EARNING ASSETS:
INVESTMENTS:
TAXABLE $ 418,492 $15,992 3.82%
- ------------------------------------------------------------------------------------------
TAX-EXEMPT 42,959 2,155 5.02
- ------------------------------------------------------------------------------------------
LOANS 483,397 27,566 5.70
- ------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 5,122 58 1.13
- ------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 1,640 19 1.16
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 951,610 $45,790 4.81%
- ------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 19,832
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES (5,710)
- ------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 17,785
- ------------------------------------------------------------------------------------------
OTHER ASSETS 26,317
- ------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 58,224
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,009,834
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
- ------------------------------------------------------------------------------------------
CHECKING $ 159,043 $ 991 0.62%
- ------------------------------------------------------------------------------------------
MONEY MARKETS 68,582 572 0.83
- ------------------------------------------------------------------------------------------
TIERED MONEY MARKETS 149,559 1,450 0.97
- ------------------------------------------------------------------------------------------
SAVINGS 106,518 664 0.62
- ------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 222,241 4,834 2.18
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 705,943 8,511 1.21
- ------------------------------------------------------------------------------------------
BORROWED FUNDS 50,416 1,349 2.68
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 756,359 9,860 1.30
- ------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 158,151
- ------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 6,243
- ------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 164,394
- ------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 89,081
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,009,834
==========================================================================================
NET INTEREST INCOME $35,930
==========================================================================================
NET INTEREST SPREAD 3.51
- ------------------------------------------------------------------------------------------
NET INTEREST MARGIN 3.78%
- ------------------------------------------------------------------------------------------
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 PERCENT.
3. INVESTMENTS CONSIST OF INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR
SALE AT AMORTIZED COST.
8
YEAR ENDED DECEMBER 31, 2003 YEAR ENDED DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME/ INCOME/
AVERAGE EXPENSE YIELD AVERAGE EXPENSE YIELD
BALANCE (FTE) (FTE) BALANCE (FTE) (FTE)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
INTEREST-EARNING ASSETS:
INVESTMENTS:
TAXABLE $ 419,464 $ 15,261 3.64% $ 281,329 $ 13,694 4.87%
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT 28,572 1,571 5.50 18,207 1,208 6.63
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS 407,261 25,155 6.18 424,661 29,248 6.89
- ------------------------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 6,128 70 1.14 8,564 135 1.58
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 917 8 0.87 3,319 138 4.16
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 862,342 $ 42,065 4.88% 736,080 $ 44,423 6.04%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 18,849 17,245
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES (5,125) (4,380)
- ------------------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 14,788 13,670
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 28,107 17,950
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 56,619 44,485
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 918,961 $ 780,565
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
- ------------------------------------------------------------------------------------------------------------------------------------
CHECKING $ 129,203 $ 616 0.48% $ 120,922 $ 718 0.59%
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKETS 62,607 552 0.88 61,058 908 1.49
- ------------------------------------------------------------------------------------------------------------------------------------
TIERED MONEY MARKETS 129,485 1,444 1.12 81,553 1,493 1.83
- ------------------------------------------------------------------------------------------------------------------------------------
SAVINGS 100,451 767 0.76 90,142 1,149 1.27
- ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 233,687 5,997 2.57 225,965 7,558 3.34
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 655,433 9,376 1.43 579,640 11,826 2.04
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS 35,248 886 2.51 7,814 229 2.93
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 690,681 10,262 1.49 587,454 12,055 2.05
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 139,476 115,487
- ------------------------------------------------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 7,578 7,730
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 147,054 123,217
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 81,226 69,894
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 918,961 $ 780,565
====================================================================================================================================
NET INTEREST INCOME $ 31,803 $ 32,368
====================================================================================================================================
NET INTEREST SPREAD 3.39 3.99
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 3.69% 4.40%
- ------------------------------------------------------------------------------------------------------------------------------------
9
RATE/VOLUME ANALYSIS:
THE EFFECT OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME (ON A TAX
EQUIVALENT BASIS) FOR THE PERIODS INDICATED ARE SHOWN BELOW:
YEAR ENDED 2004 COMPARED WITH 2003 YEAR ENDED 2003 COMPARED WITH 2002
- -----------------------------------------------------------------------------------------------------
NET NET
DIFFERENCE DUE TO CHANGE IN DIFFERENCE DUE TO CHANGE IN
CHANGE IN: INCOME/ CHANGE IN: INCOME/
(IN THOUSANDS): VOLUME RATE EXPENSE VOLUME RATE EXPENSE
- -----------------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS $ 397 $ 918 $ 1,315 $ 7,388 $(5,458) $ 1,930
- -----------------------------------------------------------------------------------------------------
LOANS 2,499 (88) 2,411 (1,198) (2,875) (4,073)
- -----------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD (12) -- (12) (38) (27) (65)
- -----------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 7 4 11 (100) (30) (130)
- -----------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $ 2,891 $ 834 $ 3,725 $ 6,052 $(8,390) $(2,338)
- -----------------------------------------------------------------------------------------------------
LIABILITIES
CHECKING $ 165 $ 210 $ 375 $ 49 $ (151) $ (102)
- -----------------------------------------------------------------------------------------------------
MONEY MARKET 68 (48) 20 23 (379) (356)
- -----------------------------------------------------------------------------------------------------
TIERED MONEY MARKET 55 (49) 6 877 (926) (49)
- -----------------------------------------------------------------------------------------------------
SAVINGS (9) (94) (103) 131 (513) (382)
- -----------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (282) (881) (1,163) 258 (1,819) (1,561)
- -----------------------------------------------------------------------------------------------------
BORROWED FUNDS 371 92 463 804 (147) 657
- -----------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 368 $ (770) $ (402) $ 2,142 $(3,935) $(1,793)
- -----------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 2,523 $ 1,604 $ 4,127 $ 3,910 $(4,455) $ (545)
=====================================================================================================
LOANS: The loan portfolio represents a significant portion of the Corporation's
earning assets and is an important source of interest and fee income. Loan
originations are primarily originated in the Bank's market or surrounding areas.
At December 31, 2004, total loans were $572.2 million, an increase of
$145.2 million, or 34 percent from 2003 levels. The growth in our portfolios is
primarily the result of new business initiatives and our entry into new market
areas. Residential loans secured by first liens on 1-4 family homes rose $101.1
million or 45 percent in 2004, while commercial mortgage loans rose $31.2
million or 24 percent from 2003 levels. The majority of residential real estate
loan origination was primarily due to the purchase of adjustable rate loans from
a third-party mortgage origination entity. All of the loans purchased are
secured by properties located within the Bank's market areas. Construction loans
and commercial loans also grew by $7.9 million and $4.2 million, respectively.
The yield on total loans averaged 5.70 percent for 2004, a 48 basis point
decline from the 6.18 percent average yield earned in 2003. The average yield on
the mortgage portfolio declined in 2004 to 5.77 percent from 6.26 percent in
2003. The average yield on the commercial loan portfolio declined 38 basis
points to 5.36 percent. The decline in yields earned in 2004 reflects asset
repricing at historically low levels. Although interest rates began to rise in
the latter part of the year, it did not have a significant impact on loan yields
in 2004.
10
THE FOLLOWING TABLE PRESENTS AN ANALYSIS OF OUTSTANDING LOANS AS OF DECEMBER 31,
(IN THOUSANDS) 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------
REAL ESTATE-MORTGAGE
1-4 FAMILY RESIDENTIAL
FIRST LIENS $327,974 $226,887 $229,679 $246,197 $210,547
- --------------------------------------------------------------------------------
JUNIOR LIENS 13,539 11,163 15,211 22,903 25,017
- --------------------------------------------------------------------------------
HOME EQUITY 20,078 18,251 22,265 18,120 15,633
- --------------------------------------------------------------------------------
REAL ESTATE-COMMERCIAL 162,166 130,968 109,932 91,129 62,161
- --------------------------------------------------------------------------------
REAL ESTATE-CONSTRUCTION 17,703 9,799 2,063 6,418 2,297
- --------------------------------------------------------------------------------
COMMERCIAL LOANS 20,821 16,632 17,859 15,855 13,019
- --------------------------------------------------------------------------------
CONSUMER LOANS 7,181 10,223 8,206 11,237 14,084
- --------------------------------------------------------------------------------
OTHER LOANS 2,702 3,078 4,545 5,074 1,541
- --------------------------------------------------------------------------------
TOTAL LOANS $572,164 $427,001 $409,760 $416,933 $344,299
================================================================================
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 and municipal obligations.
The Corporation's investment securities at amortized cost amounted to $87.1
million at December 31, 2004, compared with $97.7 million at December 31, 2003.
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES AND RATES OF INVESTMENT
SECURITIES AT AMORTIZED COST, AS OF DECEMBER 31, 2004:
AFTER 1 AFTER 5
BUT BUT
WITHIN WITHIN WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
- -------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SPONSORED AGENCIES $ 4,000 $ 4,506 $ 1,500 $ -- $10,006
6.842% 3.807% 7.390% --% 5.558%
- -------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (1) $ -- $ 3,642 $ 2,324 $27,433 $33,399
--% 4.892% 4.587% 4.240% 4.336%
- -------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS $11,706 $15,650 $14,178 $ 687 $42,221
2.182% 2.967% 3.272% 3.701% 2.862%
- -------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES $ 1,502 $ -- $ -- $ -- $ 1,502
7.281% --% --% --% 7.281%
- -------------------------------------------------------------------------------------------------------
TOTAL $17,208 $23,798 $18,002 $28,120 $87,128
3.710% 3.421% 3.785% 4.227% 3.814%
=======================================================================================================
(1) MORTGAGE-BACKED SECURITIES ARE SHOWN USING STATED FINAL MATURITY.
11
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, 2004, the Corporation had securities available for sale
with a market value of $354.2 million, compared with $356.0 million at December
31, 2003. A $1.4 million and $2.7 million net unrealized gain (net of income
tax) was included in shareholders' equity at December 31, 2004 and December 31,
2003, respectively.
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES AND RATES OF SECURITIES
AVAILABLE FOR SALE, STATED AT MARKET VALUE, AS OF DECEMBER 31, 2004:
AFTER 1 AFTER 5
BUT BUT
WITHIN WITHIN WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------
U.S. TREASURY $ 1,026 $ -- $ -- $ -- $ 1,026
4.325% --% --% --% 4.325%
- ------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SPONSORED AGENCIES $ 8,965 $ 94,482 $ 42,303 $ 1,447 $147,197
4.965% 3.616% 3.188% 2.105% 3.558%
- ------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (1) $ -- $ 248 $ 57,735 $105,737 $163,720
--% 5.297% 4.079% 4.312% 4.231%
- ------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS $ 354 $ 2,799 $ 6,516 $ -- $ 9,669
3.120% 3.997% 4.114% --% 4.043%
- ------------------------------------------------------------------------------------------------------------
OTHER SECURITIES $ 3,458 $ -- $ -- $ 29,116 $ 32,574
3.530% --% --% 4.358% 4.254%
- ------------------------------------------------------------------------------------------------------------
TOTAL $ 13,803 $ 97,529 $106,554 $136,300 $354,186
4.483% 3.631% 3.724% 4.298% 3.948%
============================================================================================================
(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 2004 was $6.8 million as compared to $7.0
million in 2003.
DEPOSITS: Total deposits at December 31, 2004 were $935.7 million, an increase
of $89.9 million or 11 percent from $845.8 million at December 31, 2003. Our
strategy is to fund earning asset growth with core deposits, which is an
important factor in the generation of net interest income. Marketing, sales
efforts, and two new branch locations all contributed to the strong growth in
deposits. Total average deposits increased $69.2 million or 9 percent over 2003
levels.
12
THE FOLLOWING TABLE SETS FORTH INFORMATION CONCERNING THE COMPOSITION OF THE
CORPORATION'S AVERAGE DEPOSIT BASE AND AVERAGE INTEREST RATES PAID FOR THE
FOLLOWING YEARS:
(IN THOUSANDS) 2004 2003 2002
- --------------------------------------------------------------------------------------
NONINTEREST-BEARING DEMAND $158,151 --% $139,476 --% $115,487 --%
- --------------------------------------------------------------------------------------
CHECKING 159,043 0.62 129,203 0.48 120,922 0.59
- --------------------------------------------------------------------------------------
SAVINGS 106,518 0.62 100,451 0.76 90,142 1.27
- --------------------------------------------------------------------------------------
MONEY MARKETS 68,582 0.83 62,607 0.88 61,058 1.49
- --------------------------------------------------------------------------------------
TIERED MONEY MARKETS 149,559 0.97 129,485 1.12 81,553 1.83
- --------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSITS 222,241 2.18 233,687 2.57 225,965 3.34
- --------------------------------------------------------------------------------------
TOTAL DEPOSITS $864,094 $794,909 $695,127
======================================================================================
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, 2004 (IN THOUSANDS):
THREE MONTHS OR LESS $32,995
- --------------------------------------------------------------------------------
OVER THREE MONTHS THROUGH TWELVE MONTHS 19,011
- --------------------------------------------------------------------------------
OVER TWELVE MONTHS 21,999
- --------------------------------------------------------------------------------
TOTAL $74,005
================================================================================
FEDERAL HOME LOAN BANK ADVANCES: At December 31, 2004 and 2003, Federal Home
Loan Bank ("FHLB") advances totaled $33.4 million and $30.0 million,
respectively. The Corporation considers FHLB advances an added source of
funding, and accordingly, executes transactions from time to time to meet its
funding requirements. The FHLB advances outstanding at December 31, 2004 have
varying terms and interest rates.
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION: The allowance for loan losses
was $6.0 million at December 31, 2004 as compared to $5.5 million at December
31, 2003. At December 31, 2004, the allowance for loan losses as a percentage of
total loans outstanding was 1.05 percent compared to 1.28 percent at December
31, 2003 and 1.17 percent at December 31, 2002. The provision for loan losses
remained constant at $600 thousand for 2004 and 2003. The allowance as a
percentage of total loans decreased in 2004 as compared to 2003 and the
provision remained consistent with the prior year as loan growth and increases
in commercial-related loans was offset by relatively low levels of
delinquencies, non-performing loans and historical charge-off experience. In
addition, the composition of the Bank's loan portfolio was comprised of a higher
percentage of lower risk 1-4 family mortgages.
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
13
susceptible to changes in local market conditions and may be adversely affected
should real estate values decline or 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.
THE FOLLOWING TABLE PRESENTS THE LOAN LOSS EXPERIENCE DURING THE PERIODS ENDED
DECEMBER 31,
(IN THOUSANDS) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES AT
BEGINNING OF YEAR $ 5,467 $ 4,798 $ 4,023 $ 3,435 $ 2,962
- ------------------------------------------------------------------------------------------------
LOANS CHARGED-OFF DURING THE PERIOD
- ------------------------------------------------------------------------------------------------
REAL ESTATE -- -- -- 42 27
- ------------------------------------------------------------------------------------------------
CONSUMER 16 42 59 35 119
- ------------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER 62 -- 9 15 28
- ------------------------------------------------------------------------------------------------
TOTAL LOANS CHARGED-OFF 78 42 68 92 174
- ------------------------------------------------------------------------------------------------
RECOVERIES DURING THE PERIOD
REAL ESTATE -- 37 -- 7 75
- ------------------------------------------------------------------------------------------------
CONSUMER 6 40 36 65 53
- ------------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER 9 34 7 8 19
- ------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 15 111 43 80 147
- ------------------------------------------------------------------------------------------------
NET CHARGE-OFFS/(RECOVERIES) 63 (69) 25 12 27
- ------------------------------------------------------------------------------------------------
PROVISION CHARGED TO EXPENSE 600 600 800 600 500
- ------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES AT END OF YEAR $ 6,004 $ 5,467 $ 4,798 $ 4,023 $ 3,435
================================================================================================
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) 2004 LOANS 2003 LOANS 2002 LOANS 2001 LOANS 2000 LOANS
- ----------------------------------------------------------------------------------------------------------------------------
REAL ESTATE $3,302 94.6 $3,007 93.0 $2,639 92.5 $2,213 92.3 $1,889 91.7
- ----------------------------------------------------------------------------------------------------------------------------
CONSUMER 300 1.3 273 2.4 240 2.0 201 2.7 172 4.1
- ----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL AND
OTHER 2,402 4.1 2,187 4.6 1,919 5.5 1,609 5.0 1,374 4.2
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $6,004 100.0 $5,467 100.0 $4,798 100.0 $4,023 100.0 $3,435 100.0
============================================================================================================================
14
NON-PERFORMING ASSETS:
THE FOLLOWING TABLE PRESENTS FOR THE YEARS INDICATED THE COMPONENTS OF
NON-PERFORMING ASSETS:
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
LOANS PAST DUE 90 DAYS OR MORE
AND STILL ACCRUING INTEREST $ -- $ 56 $ 203 $ 53 $ 75
- --------------------------------------------------------------------------------------------------------------
NON-ACCRUAL LOANS 351 159 180 274 325
- --------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 351 215 383 327 400
- --------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $ 351 $ 215 $ 383 $ 327 $ 400
==============================================================================================================
LOAN CHARGE-OFFS $ 78 $ 42 $ 68 $ 92 $ 174
- --------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES (15) (111) (43) (80) (147)
- --------------------------------------------------------------------------------------------------------------
NET LOAN CHARGE-OFFS/(RECOVERIES) $ 63 $ (69) $ 25 $ 12 $ 27
==============================================================================================================
ALLOWANCE FOR LOAN LOSSES $ 6,004 $ 5,467 $ 4,798 $ 4,023 $ 3,435
==============================================================================================================
RATIOS:
- --------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS/TOTAL LOANS 0.06% 0.05% 0.09% 0.08% 0.12%
- --------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS/TOTAL ASSETS 0.03 0.02 0.04 0.05 0.07
- --------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS/TOTAL ASSETS 0.03 0.02 0.04 0.05 0.07
- --------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/TOTAL LOANS 1.05 1.28 1.17 0.96 1.00
- --------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/
TOTAL NON-PERFORMING LOANS 17.1X 25.4X 12.5X 12.3X 8.6X
- --------------------------------------------------------------------------------------------------------------
Interest income of $11 thousand, $11 thousand and $12 thousand would have
been recognized during 2004, 2003 and 2002, respectively, if non-accrual loans
had been current in accordance with their original terms.
CONTRACTUAL OBLIGATIONS: The following table shows the significant contractual
obligations of the Corporation by expected payment period, as of December 31,
2004. Further discussion of these commitments is included in the Footnotes to
the Consolidated Financial Statements noted below (in thousands):
LESS THAN MORE THAN
CONTRACTUAL OBLIGATION ONE YEAR 1-3 YEARS 3-5 YEARS 5 YEARS TOTAL
- ----------------------------------------------------------------------------------------------------------
LONG-TERM DEBT OBLIGATIONS (NOTE 8) $ -- $10,000 $ 4,043 $19,351 $33,394
- ----------------------------------------------------------------------------------------------------------
OPERATING LEASE OBLIGATIONS (NOTE 13) 1,905 4,006 3,989 14,773 24,673
- ----------------------------------------------------------------------------------------------------------
PURCHASE OBLIGATIONS 585 587 178 -- 1,350
- ----------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES (NOTE 11) (1) 1,272 -- -- -- 1,272
- ----------------------------------------------------------------------------------------------------------
TOTAL CONTRACTUAL OBLIGATIONS $ 3,762 $14,593 $ 8,210 $34,124 $60,689
==========================================================================================================
(1) THE CORPORATION DOES NOT HAVE AN ESTIMATE OF THE ACTUAL PENSION
CONTRIBUTION FOR 2006 AND BEYOND; HOWEVER IT IS ANTICIPATED TO BE AT LEAST
THE SAME ANNUAL AMOUNT AS 2005 OF $1.3 MILLION.
Long-term debt obligations include borrowings from the Federal Home Loan
Bank with defined terms. The chart is based on scheduled repayments of
principal.
Operating leases represent obligations entered into by the Corporation for
the use of land and premises. The leases generally have escalation terms based
upon certain defined indexes. Common area maintenance charges may also apply and
are adjusted annually based on the terms of the lease agreements.
15
Purchase obligations represent legally binding and enforceable agreements
to purchase goods and services from third parties and consist of contractual
obligations under data processing service agreements. The Corporation also
enters into various routine rental and maintenance contracts for facilities and
equipment. These contracts are generally for one year and are not significant to
the consolidated financial statements of the Corporation.
OFF-BALANCE SHEET ARRANGEMENTS: The following table shows the amounts and
expected maturities of significant commitments, as of December 31, 2004. Further
discussion of these commitments is included in Note 13 to the Consolidated
Financial Statements:
LESS THAN MORE THAN
(IN THOUSANDS) ONE YEAR 1-3 YEARS 3-5 YEARS 5 YEARS TOTAL
- -----------------------------------------------------------------------------------------
FINANCIAL LETTERS OF CREDIT $ 600 $ 50 $ -- $ -- $ 650
- -----------------------------------------------------------------------------------------
PERFORMANCE LETTERS OF CREDIT 1,886 -- -- -- 1,886
- -----------------------------------------------------------------------------------------
COMMERCIAL LETTERS OF CREDIT 417 110 -- -- 527
- -----------------------------------------------------------------------------------------
TOTAL LETTERS OF CREDIT $2,903 $ 160 $ -- $ -- $3,063
=========================================================================================
Commitments under standby letters of credit, both financial and
performance do not necessarily represent future cash requirements, in that these
commitments often expire without being drawn upon.
OTHER INCOME: Other income was $9.9 million in 2004, a decline of 1 percent over
2003 levels. This decline was primarily due to lower net gains on sales of
securities, which totaled $150 thousand as compared to $1.3 million recorded in
2003. This decline was due, in part, to a $560 thousand other-than-temporary
non-cash impairment charge on adjustable rate investment-grade preferred stock.
These securities were subsequently sold in 2005 with no additional losses
recognized. Trust fees rose $961 thousand or 17 percent over the levels recorded
in 2003. This increase is attributable to increased volume of business as the
book value of assets under management increased $101.7 million or 9 percent over
last year's levels. In 2004, other income of $793 thousand was realized on
increased cash surrender value on Bank Owned Life Insurance (BOLI) policies, as
compared to $880 thousand in 2003. BOLI assists in offsetting the rising costs
of employee benefits.
THE FOLLOWING TABLE PRESENTS THE MAJOR COMPONENTS OF OTHER INCOME:
(IN THOUSANDS) 2004 2003 2002
- --------------------------------------------------------------------------------
TRUST DEPARTMENT FEES $ 6,720 $ 5,759 $ 4,678
- --------------------------------------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 1,743 1,646 1,675
- --------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE 793 880 791
- --------------------------------------------------------------------------------
SAFE DEPOSIT RENTAL FEES 233 225 219
- --------------------------------------------------------------------------------
OTHER NONINTEREST INCOME 205 201 199
- --------------------------------------------------------------------------------
SECURITIES GAINS, NET 150 1,284 52
- --------------------------------------------------------------------------------
OTHER FEE INCOME 83 77 80
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME $ 9,927 $10,072 $ 7,694
================================================================================
OTHER EXPENSES: In 2004, other expenses totaled $25.2 million, an increase of
$2.6 million or 12 percent compared to $22.5 million in 2003. This increase is
commensurate with the growth in the overall level of bank and trust business
activity.
16
Salaries and benefits expense, which accounts for the largest portion of
other expenses, increased $1.3 million or 10 percent in 2004 as compared to
2003. This increase was directly related to increased officer and staff levels,
normal merit increases, promotional raises and higher benefit costs. The full
time equivalent number of employees rose to 219 at December 31, 2004 from 209 a
year ago.
Premises and equipment expense increased to $5.7 million from $4.8 million
in 2003, an increase of $832 thousand or 17 percent. In the past year, occupancy
expenses have grown due to the investment in two new branches and a new data
center. The Oldwick and Morristown Branches opened during 2004. New branches are
our primary source of future growth and profitability. Costs also rose this year
due to the Corporation's investment in its technological capacity for future
growth and the expectation of increased levels of business activity. This year,
the Corporation invested in the equipment necessary to image customer checks and
create image statements of customer accounts. Customers now receive images of
their checks with their statements and are able to access these images through
internet banking. The Corporation is also positioned to comply with the Check 21
legislation.
Advertising expenses increased $229 thousand as compared to 2003 due to
additional advertising for two branch grand openings and advertising of deposit
products. Stationery and supplies expense increased $84 thousand or 16 percent
due to costs associated with two new branches and imaging documents. Telephone
expense also increased due to the addition of branches, growing $65 thousand or
17 percent. Professional and legal fees remained relatively constant from year
to year despite additional costs related to the implementation of Section 404 of
the Sarbanes-Oxley Act.
The Corporation strives to operate in an efficient manner and control
costs as a means of producing increased earnings and enhancing shareholder
value.
THE FOLLOWING TABLE PRESENTS THE MAJOR COMPONENTS OF OTHER EXPENSES:
(IN THOUSANDS) 2004 2003 2002
- --------------------------------------------------------------------------------
SALARIES AND BENEFITS $13,898 $12,638 $11,557
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 5,668 4,836 4,150
- --------------------------------------------------------------------------------
ADVERTISING 689 460 670
- --------------------------------------------------------------------------------
STATIONERY AND SUPPLIES 605 521 496
- --------------------------------------------------------------------------------
PROFESSIONAL AND LEGAL FEES 583 568 723
- --------------------------------------------------------------------------------
TELEPHONE 441 376 390
- --------------------------------------------------------------------------------
TRUST DEPARTMENT 416 487 451
- --------------------------------------------------------------------------------
POSTAGE 332 318 332
- --------------------------------------------------------------------------------
OTHER EXPENSES 2,559 2,345 2,292
- --------------------------------------------------------------------------------
TOTAL OTHER EXPENSES $25,191 $22,549 $21,061
================================================================================
INCOME TAXES: Income tax expense for the years ended December 31, 2004 and 2003
was $6.1 million and $5.8 million, respectively. The effective tax rate for the
year ended December 31, 2004 was 31.70 percent compared to 32.00 percent for the
year ended December 31, 2003. While taxable income rose from $18.1 million to
$19.2 million, the effective tax rate in 2004 declined due to increased
tax-exempt income.
RESULTS OF OPERATIONS 2003 COMPARED TO 2002: Net income for the year ended
December 31, 2003 increased 3 percent to $12.3 million compared to $11.9 million
earned in 2002. Diluted earnings per share increased 2 percent to $1.47 per
share from $1.45 per share earned in 2002. The increase in net income for 2003
was primarily due to higher Trust fees, other income and net security gains,
offset in part by lower net interest income, higher salaries and benefits, and
premises and equipment expense. These results produced a return on average
assets of 1.34 percent as compared to 1.53 percent in 2002 and a return on
average shareholders' equity of 15.14 percent as compared to 17.06 percent in
2002.
17
Net interest income, on a fully tax-equivalent basis, declined from $32.4
million in 2002 to $31.8 million in 2003. While average earning assets increased
$126.3 million or 17 percent from the average balances in 2002, the interest
earned on these assets declined. Interest expense declined $1.8 million or 15
percent over the levels recorded in 2002 on average balances of interest-bearing
liabilities that increased $103.2 million or 18 percent. Lower rates were earned
on earning assets in 2003, declining to 4.88 percent from 6.04 percent earned in
2002, Lower rates were paid on interest-bearing liabilities, which declined from
2.05 percent to 1.49 percent. In 2003, the net interest margin declined to 3.69
percent from 4.40 percent in 2002.
Other income before gains and losses on securities was $8.8 million in
2003, an increase of 15 percent over 2002 levels. This increase was primarily
due to higher trust fees and additions to cash surrender value of Bank Owned
Life Insurance (BOLI). Trust fees rose $1.1 million or 23 percent over the
levels recorded in 2002. This increase is attributable to increased volume of
business as the book value of assets under management increased $89.2 million or
9 percent over 2002 levels. In 2003, other income of $880 thousand was realized
on increased cash surrender value of BOLI to assist in offsetting the rising
costs of employee benefits as compared to $791 thousand in 2002. For the year
ended December 31, 2003, net securities gains were $1.3 million as compared to
$52 thousand recorded in 2002.
Other expense totaled $22.5 million in 2003, an increase of $1.5 million
or 7 percent compared to $21.1 million in 2002. This increase is commensurate
with the level of growth in the Bank and PGB Trust and Investments business
activity.
Salaries and benefits expense increased $1.1 million, or 9 percent, to
$12.6 million from $11.6 million in 2002. This increase was related to increased
officer and staff levels, normal merit increases, promotional raises and higher
benefit costs. The full-time equivalent number of employees rose to 209 at
December 31, 2003 from 205 at December 31, 2002.
Premises and equipment expense increased to $4.8 million from $4.2 million
in 2002. This increase was primarily due to the Corporation's continued
investment in technology, as the Bank converted to a new core processing system
in 2003. Higher occupancy expenses were attributable to costs associated with a
new branch location and a new operations center, which opened in 2004.
Professional fees declined $155 thousand as compared to 2002. In 2002, the
Corporation had 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.
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. Total shareholders' equity grew $9.6
million or 11 percent to $94.7 million as compared with $85.1 million at
December 31, 2003. At December 31, 2004, net unrealized gains on securities, net
of taxes, were $1.4 million as compared to net unrealized gains on securities,
net of taxes, of $2.7 million at December 31, 2003. Federal regulations require
banks to meet target Tier 1 and total capital ratios of 4 percent and 8 percent,
respectively. The Corporation's Tier 1 and total capital ratios are well in
excess of regulatory minimums at 19.02 percent and 20.25 percent, respectively.
The Corporation's capital leverage ratio was 9.18 percent at December 31, 2004.
18
LIQUIDITY: Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary investments
and securities available for sale.
Management feels the Corporation's liquidity position is sufficient to
meet future needs. Cash and cash equivalents, including federal funds sold and
interest bearing deposits, averaged $26.6 million in 2004. In addition, the
Corporation has $354.2 million in securities designated as available for sale.
These securities can be sold in response to liquidity concerns. As of December
31, 2004, investment securities and securities available for sale maturing
within one year amounted to $31.0 million and cash and cash equivalents totaled
$15.7 million.
Another source of liquidity is borrowing capacity. The Corporation has a
variety of sources of short-term liquidity available, including short and
long-term borrowings from the Federal Home Loan Bank of New York, short-term
borrowings from the Federal Reserve Bank Discount Window, federal funds
purchased from correspondent banks and loan participation or sales of loans. The
Corporation also generates liquidity from the regular principal payments made on
its loan portfolio and on its mortgage-backed security 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 0.62 on December 31, 2004 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. Management does not view this amount as
presenting an unusually high risk potential, although no assurances can be given
that the Corporation is not at risk from interest rate increases or decreases.
Expected maturities are contractual maturities adjusted for all projected
payments of principal. For investment securities, loans and long-term debt,
expected maturities are based upon contractual maturity or call dates, projected
repayments and prepayments of principal. The prepayment experience reflected
herein is based on historical experience combined with market consensus
expectations derived from independent external sources. The actual maturities of
these instruments could vary substantially if future prepayments differ from
historical experience. For non-maturity deposit liabilities, in accordance with
standard industry practice and the Corporation's own historical experience,
"decay factors" were used to estimate deposit runoff.
19
THE TABLE BELOW PRESENTS THE MATURITY AND REPRICING RELATIONSHIPS BETWEEN
INTEREST-EARNING ASSETS AND INTEREST-BEARING DEPOSITS AS OF DECEMBER 31, 2004
(IN THOUSANDS):
REPRICING OR 0-3 3-12 1-5 OVER 5
MATURITY DATE MONTHS MONTHS YEARS YEARS TOTAL
- --------------------------------------------------------------------------------------------------------
ASSETS
SECURITIES $ 37,583 $ 78,639 $ 259,457 $ 65,635 $ 441,314
- --------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 101 -- -- -- 101
- --------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 786 -- -- -- 786
- --------------------------------------------------------------------------------------------------------
LOANS (1) 51,847 116,465 272,539 125,309 566,160
- --------------------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
ASSETS $ 90,317 $ 195,104 $ 531,996 $ 190,944 $1,008,361
========================================================================================================
DEPOSITS
CERTIFICATES OF DEPOSIT $ 82,443 $ 75,293 $ 86,466 $ -- $ 244,202
- --------------------------------------------------------------------------------------------------------
SAVINGS 28,507 8,385 42,631 27,053 106,576
- --------------------------------------------------------------------------------------------------------
MONEY MARKETS 117,854 18,241 91,809 40 227,944
- --------------------------------------------------------------------------------------------------------
CHECKING 52,070 15,315 77,868 49,416 194,669
- --------------------------------------------------------------------------------------------------------
BORROWED FUNDS 2,464 1,414 16,756 12,760 33,394
- --------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING
- --------------------------------------------------------------------------------------------------------
DEMAND DEPOSITS 43,342 12,708 64,773 41,452 162,275
- --------------------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
LIABILITIES $ 326,680 $ 131,356 $ 380,304 $ 130,721 $ 969,060
========================================================================================================
ASSETS/LIABILITIES 0.28 1.49 1.40 1.46 1.04
- --------------------------------------------------------------------------------------------------------
ASSETS/LIABILITIES (CUMULATIVE) 0.28 0.62 0.98 1.04 ~
- --------------------------------------------------------------------------------------------------------
(1) 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 market risk sensitive instruments held for
trading purposes. Management believes the Corporation's market risk is
reasonable at this time.
20
THE FOLLOWING TABLE PRESENTS THE SCHEDULED MATURITY OF MARKET RISK SENSITIVE
INSTRUMENTS AS OF DECEMBER 31, 2004 (IN THOUSANDS):
AVERAGE ESTIMATED
INTEREST WITHIN 1-5 OVER FAIR
MATURING IN: RATE 1 YEAR YEARS 5 YEARS TOTAL VALUE
- --------------------------------------------------------------------------------------------------------------
ASSETS
SECURITIES 3.93% $ 31,011 $ 121,327 $ 288,976 $ 441,314 $ 441,730
- --------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 1.13 101 -- -- 101 101
- --------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 1.16 786 -- -- 786 786
- --------------------------------------------------------------------------------------------------------------
LOANS (1) 5.70 94,112 161,538 316,163 571,813 566,304
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 126,010 $ 282,865 $ 605,139 $1,014,014 $1,008,921
==============================================================================================================
LIABILITIES
SAVINGS, CHECKING
- --------------------------------------------------------------------------------------------------------------
AND MONEY MARKETS 0.76% $ 529,189 $ -- $ -- $ 529,189 $ 529,189
- --------------------------------------------------------------------------------------------------------------
CDS 2.18 157,736 86,466 -- 244,202 243,465
- --------------------------------------------------------------------------------------------------------------
BORROWED FUNDS 2.68 -- 14,043 19,351 33,394 32,709
- --------------------------------------------------------------------------------------------------------------
TOTAL $ 686,925 $ 100,509 $ 19,351 $ 806,785 $ 805,363
==============================================================================================================
(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: Financial Accounting Standards Board (FASB)
Statement No. 123 (revised 2004), Share-Based Payment, addresses the accounting
for share-based payment transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
Statement 123(R) requires an entity to recognize the grant-date fair-value of
stock options and other equity-based compensation issued to employees in the
income statement. The revised Statement generally requires that an entity
account for those transactions using the fair-value-based method, and eliminates
an entity's ability to account for share-based compensation transactions using
the intrinsic value method of accounting in APB Opinion No. 25, Accounting for
Stock Issued to Employees, which was permitted under Statement 123, as
originally issued. The revised Statement requires entities to disclose
information about the nature of the share-based payment transactions and the
effects of those transactions on the financial statements. Statement 123(R) is
effective for the Corporation beginning July 1, 2005. The Corporation must use
either the modified prospective or the modified retrospective transition method.
Early adoption of this Statement for interim or annual periods for which
financial statements or interim reports have not been issued is permitted. The
Corporation is currently evaluating the transition provisions of Statement
123(R), the adoption of which will lower reported net income and earnings per
share. The Corporation does not know the full impact on the consolidated
financial statements at this time.
21
The guidance in EITF 03-1, the Meaning of Other-than-Temporary Impairment
and its Application to Certain Investments, was effective for
other-than-temporary impairment evaluations made in reporting periods beginning
after June 15, 2004. However, the guidance contained in paragraphs 10-20 of the
Issue has been delayed by FSP EITF Issue 03-1-1, The Effective Date of
Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, posted on September 30,
2004. The disclosure requirements continue to be effective in annual financial
statements for fiscal years ending after December 15, 2003. The Corporation will
evaluate the impact on its consolidated financial statements, if any, when the
recognition and measurement requirements for other-than-temporary impairment are
finalized.
PGB TRUST AND INVESTMENTS: PGB Trust and Investments, a division of the Bank,
since its inception in 1972 has served in the roles of executor and trustee
while providing investment management, custodial, tax, retirement, and financial
services to its growing client base. Officers from PGB Trust and Investments are
now available to provide investment services at the Bank's Morristown Branch,
which opened in November 2004.
The book value of assets under management in PGB Trust and Investments
increased from $1.1 billion at December 31, 2003, to $1.2 billion at December
31, 2004, an increase of 9 percent. The corresponding market value at December
31, 2004 was in excess of $1.7 billion. Fee income generated by PGB Trust and
Investments was $6.7 million, $5.8 million and $4.7 million in 2004, 2003 and
2002, 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
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", 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, an unexpected
decline in the direction of the economy in New Jersey, unexpected changes in
interest rates, unexpected loan prepayment volume, a decline in levels of loan
quality and origination volume and a decline in the volume of increase in trust
assets or deposits. Peapack-Gladstone assumes no obligation for updating any
such forward-looking statements at any time.
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
TRUST ASSETS
BOOK VALUE IN MILLIONS
$ 710 $ 767 $1,000 $1,089 $1,191
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
22
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) 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
SUMMARY EARNINGS:
- ---------------------------------------------------------------------------------------------------------------
INTEREST INCOME $ 44,917 $ 41,426 $ 43,947 $ 40,523 $ 35,567
- ---------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE 9,860 10,262 12,055 15,486 12,509
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 35,057 31,164 31,892 25,037 23,058
- ---------------------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 600 600 800 600 500
- ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
- ---------------------------------------------------------------------------------------------------------------
FOR LOAN LOSSES 34,457 30,564 31,092 24,437 22,558
- ---------------------------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUSIVE
OF SECURITIES GAINS/(LOSSES) 9,777 8,788 7,642 6,220 5,581
- ---------------------------------------------------------------------------------------------------------------
OTHER EXPENSES 25,191 22,549 21,061 17,561 16,288
- ---------------------------------------------------------------------------------------------------------------
SECURITIES GAINS/(LOSSES) 150 1,284 52 189 (200)
- ---------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 19,193 18,087 17,725 13,285 11,651
- ---------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 6,084 5,787 5,800 4,361 3,943
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 13,109 $ 12,300 $ 11,925 $ 8,924 $ 7,708
===============================================================================================================
PER SHARE DATA: (REFLECTS A 10% STOCK DIVIDEND IN 2004 EXCEPT FOR CASH DIVIDENDS PER SHARE.)
- ---------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-BASIC $ 1.60 $ 1.51 $ 1.48 $ 1.11 $ 0.96
- ---------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 1.56 1.47 1.45 1.09 0.94
- ---------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED 0.42 0.38 0.33 0.29 0.27
- ---------------------------------------------------------------------------------------------------------------
BOOK VALUE END-OF-PERIOD 11.48 10.43 9.52 7.84 6.86
- ---------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,200,681 8,122,433 8,083,088 8,053,362 8,034,902
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK EQUIVALENTS (DILUTIVE) 177,412 231,062 165,453 135,407 190,141
- ---------------------------------------------------------------------------------------------------------------
[THE FOLLOWING TABLES WERE REPRESENTED AS BAR CHARTS IN THE PRINTED MATERIAL.]
DIVIDENDS PER SHARE
IN DOLLARS
$ 0.27 $ 0.29 $ 0.33 $ 0.38 $ 0.42
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
BOOK VALUE PER SHARE
IN DOLLARS
$ 6.86 $ 7.84 $ 9.52 $10.43 $11.48
- --------------------------------------------------------------------------------
'00 '01 '02 '03 '04
23
BALANCE SHEET DATA (AT PERIOD END): 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,067,395 $ 968,126 $ 859,808 $ 704,773 $ 567,032
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES 87,128 97,701 168,066 48,722 69,575
- --------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 354,186 355,998 212,259 172,620 83,950
- --------------------------------------------------------------------------------------------------------------------
LOANS 572,164 427,001 409,760 416,933 344,299
- --------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES 6,004 5,467 4,798 4,023 3,435
- --------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 935,666 845,771 769,688 630,903 508,879
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 94,669 85,054 77,158 63,085 55,156
- --------------------------------------------------------------------------------------------------------------------
TRUST ASSETS (BOOK VALUE) 1,191,186 1,089,447 1,000,272 766,928 709,732
- --------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED 3,226 2,760 2,207 1,846 1,592
- --------------------------------------------------------------------------------------------------------------------
SELECTED PERFORMANCE RATIOS:
- --------------------------------------------------------------------------------------------------------------------
RETURN ON AVERAGE TOTAL ASSETS 1.30% 1.34% 1.53% 1.42% 1.47%
- --------------------------------------------------------------------------------------------------------------------
RETURN ON AVERAGE TOTAL
SHAREHOLDERS' EQUITY 14.72 15.14 17.06 15.03 15.30
- --------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIO 24.61 22.44 18.51 20.69 20.65
- --------------------------------------------------------------------------------------------------------------------
AVERAGE TOTAL SHAREHOLDERS'
EQUITY TO AVERAGE ASSETS 8.82 8.84 8.95 9.44 9.63
- --------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES TO
AVERAGE ASSETS 2.49 2.45 2.70 2.79 3.11
- --------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME TO
AVERAGE ASSETS 0.98 1.10 0.99 1.02 1.03
- --------------------------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS (AT PERIOD END):
NON-ACCRUAL LOANS TO TOTAL LOANS 0.06% 0.04% 0.04% 0.07% 0.09%
- --------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS TO
TOTAL ASSETS 0.03 0.02 0.04 0.05 0.07
- --------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO
NON-PERFORMING LOANS 17.1X 25.4X 12.5X 12.3X 8.6X
- --------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO
TOTAL LOANS 1.05% 1.28% 1.17% 0.96% 1.00%
- --------------------------------------------------------------------------------------------------------------------
NET (RECOVERIES)/ CHARGE-OFFS TO
AVERAGE LOANS PLUS OTHER
REAL ESTATE OWNED 0.01 (0.02) 0.01 0.01 0.01
- --------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RATIOS:
- --------------------------------------------------------------------------------------------------------------------
AVERAGE LOANS TO AVERAGE DEPOSITS 55.94% 51.23% 61.09% 67.85% 67.99%
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY TO
TOTAL ASSETS 8.87 8.79 8.97 8.95 9.73
- --------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL TO RISK WEIGHTED ASSETS 19.02 20.38 19.51 18.76 20.80
- --------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL TO RISK WEIGHTED ASSETS 20.25 21.74 20.81 19.98 22.10
- --------------------------------------------------------------------------------------------------------------------
TIER 1 LEVERAGE RATIO 9.18 8.91 9.19 9.84 10.49
- --------------------------------------------------------------------------------------------------------------------
24
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
10 PERCENT STOCK DIVIDEND ISSUED IN 2004.):
SELECTED 2004 QUARTERLY DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------------------------------------------------------------------
INTEREST INCOME $ 10,522 $ 10,740 $ 11,547 $ 12,108
- ----------------------------------------------------------------------------------------------
INTEREST EXPENSE 2,159 2,246 2,525 2,930
- ----------------------------------------------------------------------------------------------
NET INTEREST INCOME 8,363 8,494 9,022 9,178
- ----------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 150 150 150 150
- ----------------------------------------------------------------------------------------------
TRUST FEES 1,683 1,791 1,666 1,580
- ----------------------------------------------------------------------------------------------
SECURITIES GAINS/(LOSSES), NET 193 406 12 (461)
- ----------------------------------------------------------------------------------------------
OTHER INCOME 744 722 797 794
- ----------------------------------------------------------------------------------------------
OTHER EXPENSES 6,039 6,503 6,142 6,507
- ----------------------------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAX EXPENSE 4,794 4,760 5,205 4,434
- ----------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 1,513 1,551 1,670 1,350
- ----------------------------------------------------------------------------------------------
NET INCOME $ 3,281 $ 3,209 $ 3,535 $ 3,084
==============================================================================================
EARNINGS PER SHARE-BASIC $ 0.40 $ 0.39 $ 0.43 $ 0.37
- ----------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 0.39 0.38 0.42 0.37
- ----------------------------------------------------------------------------------------------
SELECTED 2003 QUARTERLY DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------------------------------------------------------------------
INTEREST INCOME $ 10,602 $ 10,428 $ 9,947 $ 10,447
- ----------------------------------------------------------------------------------------------
INTEREST EXPENSE 2,684 2,666 2,598 2,314
- ----------------------------------------------------------------------------------------------
NET INTEREST INCOME 7,918 7,762 7,349 8,133
- ----------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 150 150 150 150
- ----------------------------------------------------------------------------------------------
TRUST FEES 1,443 1,621 1,358 1,337
- ----------------------------------------------------------------------------------------------
SECURITIES GAINS, NET 273 554 400 57
- ----------------------------------------------------------------------------------------------
OTHER INCOME 766 753 756 754
- ----------------------------------------------------------------------------------------------
OTHER EXPENSES 5,408 5,665 5,521 5,954
- ----------------------------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAX EXPENSE 4,842 4,875 4,192 4,177
- ----------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 1,582 1,592 1,308 1,304
- ----------------------------------------------------------------------------------------------
NET INCOME $ 3,260 $ 3,283 $ 2,884 $ 2,873
==============================================================================================
EARNINGS PER SHARE-BASIC $ 0.40 $ 0.40 $ 0.36 $ 0.35
- ----------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 0.39 0.39 0.34 0.34
- ----------------------------------------------------------------------------------------------
25
MANAGEMENT REPORT
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Corporation is responsible for establishing and
maintaining adequate internal control over financial reporting. The
Corporation's internal control system was designed to provide reasonable
assurance to the Corporation's management and board of directors regarding the
preparation and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management assessed the effectiveness of the Corporation's internal
control over financial reporting as of December 31, 2004. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based upon our assessment we believe that, as of December 31, 2004,
the Corporation's internal control over financial reporting is effective based
upon those criteria. The Corporation's independent auditors have issued an audit
report on our assessment of, and the effective operation of, the Corporation's
internal control over financial reporting. This report begins on the next page.
/s/ Frank A. Kissel /s/ Arthur F. Birmingham
Frank A. Kissel Arthur F. Birmingham
Chairman of the Board & EVP, Chief Financial Officer &
Chief Executive Officer Chief Accounting Officer
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS AND SHAREHOLDERS PEAPACK-GLADSTONE FINANCIAL CORPORATION:
We have audited management's assessment, included in the accompanying
Management Report on Internal Control Over Financial Reporting, that
Peapack-Gladstone Financial Corporation and subsidiary (the "Corporation")
maintained effective internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Management of the Corporation is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the Corporation's internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
27
In our opinion, management's assessment that Peapack-Gladstone Financial
Corporation and subsidiary maintained effective internal control over financial
reporting as of December 31, 2004, is fairly stated, in all material respects,
based on criteria established in Internal Control-Integrated Framework issued by
COSO. Also, in our opinion, Peapack-Gladstone Financial Corporation and
subsidiary maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated statements
of condition of Peapack-Gladstone Financial Corporation and subsidiary as of
December 31, 2004 and 2003, 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, 2004, and our report dated March 2, 2005
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Short Hills, New Jersey
March 2, 2005
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 (the "Corporation") as of
December 31, 2004 and 2003, 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, 2004. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the 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, 2004
and 2003, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2004, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of
Peapack-Gladstone Financial Corporation and subsidiary's internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 2,
2005 expressed an unqualified opinion on management's assessment of, and the
effective operation of, internal control over financial reporting.
/s/ KPMG LLP
Short Hills, New Jersey
March 2, 2005
29
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
(IN THOUSANDS) 2004 2003
- ---------------------------------------------------------------------------------------------
ASSETS
CASH AND DUE FROM BANKS $ 15,631 $ 17,234
- ---------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 101 5,461
- ---------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 15,732 22,695
- ---------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 786 30,949
- ---------------------------------------------------------------------------------------------
INVESTMENT SECURITIES (APPROXIMATE MARKET VALUE
$87,544 IN 2004 AND $99,515 IN 2003) 87,128 97,701
- ---------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 354,186 355,998
- ---------------------------------------------------------------------------------------------
LOANS 572,164 427,001
- ---------------------------------------------------------------------------------------------
LESS: ALLOWANCE FOR LOAN LOSSES 6,004 5,467
- ---------------------------------------------------------------------------------------------
NET LOANS 566,160 421,534
- ---------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 20,163 15,132
- ---------------------------------------------------------------------------------------------
ACCRUED INTEREST RECEIVABLE 4,375 4,295
- ---------------------------------------------------------------------------------------------
CASH SURRENDER VALUE OF LIFE INSURANCE 17,253 16,548
- ---------------------------------------------------------------------------------------------
OTHER ASSETS 1,612 3,274
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,067,395 $ 968,126
=============================================================================================
LIABILITIES
DEPOSITS:
NONINTEREST-BEARING DEMAND DEPOSITS $ 162,275 $ 155,189
- ---------------------------------------------------------------------------------------------
INTEREST-BEARING DEPOSITS:
CHECKING 194,669 140,393
- ---------------------------------------------------------------------------------------------
SAVINGS 106,576 101,451
- ---------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS 227,944 225,863
- ---------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT OVER $100,000 74,005 60,373
- ---------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT LESS THAN $100,000 170,197 162,502
- ---------------------------------------------------------------------------------------------
TOTAL DEPOSITS 935,666 845,771
- ---------------------------------------------------------------------------------------------
LONG-TERM DEBT 33,394 30,032
- ---------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 3,666 7,269
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES 972,726 883,072
- ---------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
COMMON STOCK (NO PAR VALUE; STATED VALUE $0.83
PER SHARE; AUTHORIZED 20,000,000 SHARES;
ISSUED SHARES, 8,393,625 AT DECEMBER 31, 2004 AND 8,288,676
AT DECEMBER 31, 2003; OUTSTANDING SHARES, 8,246,042 AT
DECEMBER 31, 2004 AND 8,157,634 AT DECEMBER 31, 2003) 6,994 6,274
- ---------------------------------------------------------------------------------------------
SURPLUS 87,991 61,959
- ---------------------------------------------------------------------------------------------
TREASURY STOCK AT COST, 147,583 SHARES IN 2004
AND 131,042 SHARES IN 2003 (2,867) (2,391)
- ---------------------------------------------------------------------------------------------
RETAINED EARNINGS 1,113 16,557
- ---------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF INCOME TAX 1,438 2,655
- ---------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 94,669 85,054
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,067,395 $ 968,126
=============================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2004 2003 2002
- --------------------------------------------------------------------------------
INTEREST INCOME
INTEREST AND FEES ON LOANS $27,542 $25,135 $29,248
- --------------------------------------------------------------------------------
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 2,650 3,889 4,165
- --------------------------------------------------------------------------------
TAX-EXEMPT 943 590 383
- --------------------------------------------------------------------------------
INTEREST AND DIVIDENDS ON SECURITIES
AVAILABLE FOR SALE:
TAXABLE 13,342 11,372 9,529
- --------------------------------------------------------------------------------
TAX-EXEMPT 363 362 349
- --------------------------------------------------------------------------------
INTEREST ON FEDERAL FUNDS SOLD 58 70 135
- --------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 19 8 138
- --------------------------------------------------------------------------------
TOTAL INTEREST INCOME 44,917 41,426 43,947
- --------------------------------------------------------------------------------
INTEREST EXPENSE
INTEREST ON CHECKING ACCOUNTS 991 616 718
- --------------------------------------------------------------------------------
INTEREST ON SAVINGS AND MONEY MARKET ACCOUNTS 2,686 2,763 3,550
- --------------------------------------------------------------------------------
INTEREST ON CERTIFICATES OF DEPOSIT OVER $100,000 1,320 1,539 2,101
- --------------------------------------------------------------------------------
INTEREST ON OTHER TIME DEPOSITS 3,514 4,458 5,457
- --------------------------------------------------------------------------------
INTEREST ON BORROWINGS 345 156 52
- --------------------------------------------------------------------------------
INTEREST ON LONG-TERM DEBT 1,004 730 177
- --------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 9,860 10,262 12,055
- --------------------------------------------------------------------------------
NET INTEREST INCOME 35,057 31,164 31,892
- --------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 600 600 800
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 34,457 30,564 31,092
- --------------------------------------------------------------------------------
OTHER INCOME
TRUST FEES 6,720 5,759 4,678
- --------------------------------------------------------------------------------
SERVICE CHARGES AND FEES 2,059 1,948 1,974
- --------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE 793 880 791
- --------------------------------------------------------------------------------
OTHER INCOME 205 201 199
- --------------------------------------------------------------------------------
SECURITIES GAINS, NET 150 1,284 52
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME 9,927 10,072 7,694
- --------------------------------------------------------------------------------
OTHER EXPENSES
SALARIES AND EMPLOYEE BENEFITS 13,898 12,638 11,557
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 5,668 4,836 4,150
- --------------------------------------------------------------------------------
OTHER EXPENSES 5,625 5,075 5,354
- --------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 25,191 22,549 21,061
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 19,193 18,087 17,725
INCOME TAX EXPENSE 6,084 5,787 5,800
- --------------------------------------------------------------------------------
NET INCOME $13,109 $12,300 $11,925
================================================================================
EARNINGS PER SHARE
- --------------------------------------------------------------------------------
BASIC $ 1.60 $ 1.51 $ 1.48
- --------------------------------------------------------------------------------
DILUTED 1.56 1.47 1.45
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
COMMON TREASURY RETAINED COMPREHENSIVE
(IN THOUSANDS, EXCEPT PER SHARE DATA) STOCK SURPLUS STOCK EARNINGS INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 $ 5,608 $37,838 $(1,588) $20,572 $ 655 $63,085
- ---------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2002 11,925 11,925
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $2,777) 4,219
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $20) 32
-------
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
- ---------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2003 12,300 12,300
UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX BENEFIT OF $1,017) (1,416)
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $513) 771
-------
NET UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX BENEFIT OF $1,530) (2,187) (2,187)
-------
TOTAL COMPREHENSIVE INCOME 10,113
DIVIDENDS DECLARED ($0.38 PER SHARE) (2,760) (2,760)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 45 869 914
COMMON STOCK DIVIDEND
(TEN PERCENT) 568 22,705 (23,273) --
TREASURY STOCK TRANSACTIONS (371) (371)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003 $ 6,274 $61,959 $(2,391) $16,557 $ 2,655 $85,054
- ---------------------------------------------------------------------------------------------------------------------------------
32
ACCUMULATED
OTHER
COMMON TREASURY RETAINED COMPREHENSIVE
(IN THOUSANDS, EXCEPT PER SHARE DATA) STOCK SURPLUS STOCK EARNINGS INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2004 13,109 13,109
UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX BENEFIT
OF $796) (1,119)
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $52) 98
-------
NET UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX BENEFIT
OF $848) (1,217) (1,217)
-------
TOTAL COMPREHENSIVE INCOME 11,892
DIVIDENDS DECLARED ($0.42 PER SHARE) (3,226) (3,226)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 85 1,340 1,425
COMMON STOCK DIVIDEND
(TEN PERCENT) 635 24,692 (25,327) --
TREASURY STOCK TRANSACTIONS (476) (476)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2004 $ 6,994 $87,991 $(2,867) $ 1,113 $ 1,438 $94,669
- ---------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2004 2003 2002
- -------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
NET INCOME $ 13,109 $ 12,300 $ 11,925
- -------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 1,658 1,448 1,348
- -------------------------------------------------------------------------------------------
AMORTIZATION OF PREMIUM AND ACCRETION
OF DISCOUNT ON SECURITIES, NET 1,450 2,761 1,346
- -------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 600 600 800
- -------------------------------------------------------------------------------------------
DEFERRED TAXES (291) (1,221) 3,560
- -------------------------------------------------------------------------------------------
GAIN ON SALE OF SECURITIES, NET (150) (1,284) (52)
- -------------------------------------------------------------------------------------------
GAIN ON LOANS SOLD (4) (13) --
- -------------------------------------------------------------------------------------------
TAX BENEFIT ON STOCK OPTION EXERCISES 477 379 --
- -------------------------------------------------------------------------------------------
INCREASE IN CASH SURRENDER VALUE OF LIFE INSURANCE (705) (801) (728)
- -------------------------------------------------------------------------------------------
DECREASE/(INCREASE) IN ACCRUED INTEREST RECEIVABLE (80) 311 591
- -------------------------------------------------------------------------------------------
DECREASE/(INCREASE) IN OTHER ASSETS 1,662 (1,125) (499)
- -------------------------------------------------------------------------------------------
(DECREASE)/INCREASE IN ACCRUED EXPENSES AND
OTHER LIABILITIES (2,556) 626 (684)
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,170 13,981 17,607
- -------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
- -------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 25,669 95,655 29,111
- -------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 42,859 32,110 19,614
- -------------------------------------------------------------------------------------------
PROCEEDS FROM CALLS OF INVESTMENT SECURITIES 2,495 9,170 4,170
- -------------------------------------------------------------------------------------------
PROCEEDS FROM SALES AND CALLS OF SECURITIES
AVAILABLE FOR SALE 102,706 177,391 60,838
- -------------------------------------------------------------------------------------------
PURCHASE OF INVESTMENT SECURITIES (18,036) (36,073) (153,382)
- -------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (146,673) (356,821) (113,684)
- -------------------------------------------------------------------------------------------
NET (INCREASE)/DECREASE IN SHORT-TERM INVESTMENTS 30,163 (30,400) 15,085
- -------------------------------------------------------------------------------------------
PROCEEDS FROM SALES OF LOANS 769 1,648 --
- -------------------------------------------------------------------------------------------
PURCHASE OF LOANS (74,452) -- --
- -------------------------------------------------------------------------------------------
NET (INCREASE)/DECREASE IN LOANS (71,539) (18,807) 7,148
- -------------------------------------------------------------------------------------------
PURCHASES OF PREMISES AND EQUIPMENT (6,689) (2,209) (2,245)
- -------------------------------------------------------------------------------------------
PURCHASE OF LIFE INSURANCE -- -- (2,775)
- -------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (112,728) (128,336) (136,120)
- -------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 89,895 76,083 138,785
- -------------------------------------------------------------------------------------------
PROCEEDS FROM LONG-TERM DEBT 8,000 26,000 --
- -------------------------------------------------------------------------------------------
REPAYMENTS OF LONG-TERM DEBT (4,638) 968 --
- -------------------------------------------------------------------------------------------
DIVIDENDS PAID (3,134) (2,549) (2,103)
- -------------------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 948 535 600
- -------------------------------------------------------------------------------------------
PURCHASE OF TREASURY STOCK (476) (371) (432)
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 90,595 98,730 136,850
- -------------------------------------------------------------------------------------------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (6,963) (15,625) 18,337
- -------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 22,695 38,320 19,983
- -------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 15,732 $ 22,695 $ 38,320
===========================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
INTEREST $ 9,578 $ 10,902 $ 12,611
- -------------------------------------------------------------------------------------------
INCOME TAXES 6,437 5,918 6,378
- -------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
34
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 its wholly owned
subsidiary, Peapack-Gladstone Mortgage Group, Inc. While the following footnotes
include the collective results of Peapack-Gladstone Financial Corporation and
Peapack-Gladstone Bank, these footnotes primarily reflect the Bank's and its
subsidiaries' activities. All significant intercompany balances and transactions
have been eliminated from the accompanying consolidated financial statements.
BUSINESS: Peapack-Gladstone Bank, the subsidiary of the Corporation, provides a
full range of banking 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.
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 on the level-yield method, over the term of the
investments.
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 estimated market 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 on a trade-date basis using the specific identification method.
A decline in the estimated market value of any security below cost that is
deemed other-than-temporary results in a reduction in the carrying amount to
estimated market value. The impairment loss is charged to earnings and a new
cost basis of the security is established. In determining whether an impairment
is other-than-temporary, the Corporation considers, among other things, the
duration of the impairment, changes in value subsequent to year end, forecasted
performance of the issuer and the Corporation's intent and ability to hold the
security until a market price recovery.
35
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 (on a level-yield method) 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 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 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.
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.
STOCK OPTION PLANS: At December 31, 2004, the Corporation had 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.
36
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 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) 2004 2003 2002
- ------------------------------------------------------------------------------------
NET INCOME:
AS REPORTED $13,109 $12,300 $11,925
- ------------------------------------------------------------------------------------
LESS: TOTAL STOCK-BASED COMPENSATION
EXPENSE DETERMINED UNDER THE FAIR VALUE BASED
METHOD ON ALL STOCK OPTIONS, NET OF RELATED
TAX EFFECTS 1,559 193 248
- ------------------------------------------------------------------------------------
PRO FORMA $11,550 $12,107 $11,677
- ------------------------------------------------------------------------------------
EARNINGS PER SHARE:
AS REPORTED
BASIC $ 1.60 $ 1.51 $ 1.48
- ------------------------------------------------------------------------------------
DILUTED 1.56 1.47 1.45
- ------------------------------------------------------------------------------------
PRO FORMA
BASIC $ 1.41 $ 1.49 $ 1.44
- ------------------------------------------------------------------------------------
DILUTED 1.38 1.45 1.42
- ------------------------------------------------------------------------------------
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 included in this report have been restated
to reflect the 10 percent stock dividend in 2004.
The following table shows the calculation of both Basic and Diluted
earnings per share for the years ended December 31, 2004, 2003 and 2002:
(IN THOUSANDS EXCEPT PER SHARE DATA) 2004 2003 2002
- -------------------------------------------------------------------------------------
NET INCOME $ 13,109 $ 12,300 $ 11,925
=====================================================================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 8,200,681 8,122,433 8,083,088
- -------------------------------------------------------------------------------------
PLUS: COMMON STOCK EQUIVALENTS 177,412 231,062 165,453
- -------------------------------------------------------------------------------------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 8,378,093 8,353,495 8,248,541
=====================================================================================
EARNINGS PER SHARE:
BASIC $ 1.60 $ 1.51 $ 1.48
- -------------------------------------------------------------------------------------
DILUTED 1.56 1.47 1.45
- -------------------------------------------------------------------------------------
TREASURY STOCK: Treasury stock is recorded using the cost method and is
presented as an unallocated reduction of shareholders' equity.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and the change
during the period in net unrealized gains (losses) on securities available for
sale, net of tax, 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 2004 presentation.
37
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, 2004 and 2003 follows:
2004
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT-SPONSORED AGENCIES $10,006 $ 153 $ (1) $10,158
- -----------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 33,399 350 (75) 33,675
- -----------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 42,221 192 (235) 42,177
- -----------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 1,502 32 -- 1,534
- -----------------------------------------------------------------------------------------
TOTAL $87,128 $ 727 $ (311) $87,544
=========================================================================================
2003
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT-SPONSORED AGENCIES $14,325 $ 673 $ -- $14,998
- -----------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 49,077 595 (45) 49,627
- -----------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 32,794 578 (105) 33,267
- -----------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 1,505 118 -- 1,623
- -----------------------------------------------------------------------------------------
TOTAL $97,701 $ 1,964 $ (150) $99,515
=========================================================================================
The amortized cost and approximate market value of investment securities
as of December 31, 2004, 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 $17,208 $17,288
- --------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 20,156 20,244
- --------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 15,678 15,655
- --------------------------------------------------------------------------------
AFTER TEN YEARS 687 682
- --------------------------------------------------------------------------------
53,729 53,869
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 33,399 33,675
- --------------------------------------------------------------------------------
TOTAL $87,128 $87,544
================================================================================
There were no investment securities pledged as of December 31, 2004.
38
The following table presents the Corporation's investment securities with
continuous unrealized losses and the approximate market value of these
investments as of December 31, 2004 and 2003.
2004
DURATION OF UNREALIZED LOSS
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
APPROXIMATE APPROXIMATE APPROXIMATE
MARKET UNREALIZED MARKET UNREALIZED MARKET UNREALIZED
(IN THOUSANDS) VALUE LOSSES VALUE LOSSES VALUE LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT-SPONSORED
AGENCIES $ 3,015 $ (1) $ -- $ -- $ 3,015 $ (1)
- ----------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 13,984 (75) -- -- 13,984 (75)
- ----------------------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 19,214 (191) 927 (44) 20,141 (235)
- ----------------------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $36,213 $ (267) $ 927 $ (44) $37,140 $ (311)
============================================================================================================================
2003
DURATION OF UNREALIZED LOSS
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
APPROXIMATE APPROXIMATE APPROXIMATE
MARKET UNREALIZED MARKET UNREALIZED MARKET UNREALIZED
(IN THOUSANDS) VALUE LOSSES VALUE LOSSES VALUE LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT-SPONSORED
AGENCIES $ -- $ -- $ -- $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 11,240 (45) -- -- 11,240 (45)
- ----------------------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 11,153 (105) -- -- 11,153 (105)
- ----------------------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $22,393 $ (150) $ -- $ -- $22,393 $ (150)
============================================================================================================================
Management has determined that these unrealized losses are temporary and
due to interest rate fluctuations rather than the credit ratings of the issuers.
The Corporation has a policy to purchase only from issuers with an investment
grade credit rating and monitors credit ratings periodically.
The unrealized losses on investments in mortgage-backed securities were
caused by interest rate increases. The contractual cash flows of these
securities are guaranteed by U.S. government-sponsored agencies. It is expected
that the securities would not be settled at a price substantially less than the
amortized cost of the investment. Because the decline in fair value is
attributable to changes in interest rates and not credit quality, and because
the Corporation has the intent to hold these investments until maturity, these
investments are not considered other-than-temporarily impaired.
Most of the securities issued by state and political subdivisions in the
table above are issued by municipalities located in New Jersey and have had
unrealized losses for six months or less. These investments represent purchases
in municipal bonds, which generally have lower coupons; however many are not
taxable by the Federal government and their effective yield is higher. Because
the Corporation intends to hold these securities to mature at par, no loss is
anticipated.
39
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, 2004 and 2003 follows:
2004
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
U.S. TREASURY $ 1,012 $ 14 $ -- $ 1,026
- ---------------------------------------------------------------------------------------------
U.S. GOVERNMENT-SPONSORED
AGENCIES 146,635 1,399 (837) 147,197
- ---------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 163,563 831 (674) 163,720
- ---------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 9,312 360 (3) 9,669
- ---------------------------------------------------------------------------------------------
OTHER SECURITIES 31,411 1,243 (80) 32,574
- ---------------------------------------------------------------------------------------------
TOTAL $351,933 $ 3,847 $ (1,594) $354,186
=============================================================================================
2003
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
U.S. TREASURY $ 1,025 $ 49 $ -- $ 1,074
- ---------------------------------------------------------------------------------------------
U.S. GOVERNMENT-SPONSORED
AGENCIES 179,039 3,714 (1,103) $181,650
- ---------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 135,998 772 (447) 136,323
- ---------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 9,364 425 -- 9,789
- ---------------------------------------------------------------------------------------------
OTHER SECURITIES 26,254 948 (40) 27,162
- ---------------------------------------------------------------------------------------------
TOTAL $351,680 $ 5,908 $ (1,590) $355,998
=============================================================================================
The amortized cost and approximate market value of debt securities
available for sale as of December 31, 2004, 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 $ 12,746 $ 13,803
- --------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 96,472 97,281
- --------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 48,862 48,819
- --------------------------------------------------------------------------------
AFTER TEN YEARS 30,290 30,563
- --------------------------------------------------------------------------------
188,370 190,466
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 163,563 163,720
- --------------------------------------------------------------------------------
TOTAL $351,933 $354,186
================================================================================
Securities having an approximate carrying value of $14.8 million and $11.8
million as of December 31, 2004 and December 31, 2003, respectively, were
pledged to secure public funds and for other purposes required or permitted by
law. Gross gains on sales of securities of $747 thousand, $1.6 million and $164
thousand and gross losses on sales of securities of $37 thousand, $363 thousand
and $112 thousand were realized in 2004, 2003 and 2002. In the fourth quarter of
2004, the Corporation recognized a non-cash charge of $560 thousand related to
an other-than-temporary impairment charge for Fannie Mae (FNMA) and Freddie Mac
(FHLMC) preferred stock with a cost of $2 million.
40
The following table presents the Corporation's available for sale
securities with continuous unrealized losses and the approximate market value of
these investments.
2004
DURATION OF UNREALIZED LOSS
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
APPROXIMATE APPROXIMATE APPROXIMATE
MARKET UNREALIZED MARKET UNREALIZED MARKET UNREALIZED
(IN THOUSANDS) VALUE LOSSES VALUE LOSSES VALUE LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT-SPONSORED
AGENCIES $ 64,143 $ (604) $ 14,807 $ (233) $ 78,950 $ (837)
- ----------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 57,964 (450) 13,430 (224) 71,394 (674)
- ----------------------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 344 (3) -- -- 344 (3)
- ----------------------------------------------------------------------------------------------------------------------------
OTHER SECURITIES 5,257 (80) -- -- 5,257 (80)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $127,747 $ (1,137) $ 28,237 $ (457) $155,987 $ (1,594)
============================================================================================================================
2003
DURATION OF UNREALIZED LOSS
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
APPROXIMATE APPROXIMATE APPROXIMATE
MARKET UNREALIZED MARKET UNREALIZED MARKET UNREALIZED
(IN THOUSANDS) VALUE LOSSES VALUE LOSSES VALUE LOSSES
- ----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT-SPONSORED
AGENCIES 47,299 $ (743) $ 1,640 $ (360) $ 48,939 $ (1,103)
- ----------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 52,078 (447) -- -- 52,078 (447)
- ----------------------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
OTHER SECURITIES 1,953 (35) 65 (5) 2,018 (40)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $101,330 $ (1,225) $ 1,705 $ (365) $103,035 $ (1,590)
============================================================================================================================
Management has determined that these unrealized losses are temporary and
due to interest rate fluctuations and volatility rather than the credit ratings
of the issuers. The Corporation has a policy to purchase only from issuers with
an investment grade credit rating and monitors credit ratings periodically.
The unrealized losses on investments in U.S. government-sponsored agency
bonds were caused by interest rate increases. The contractual terms of these
investments do not permit the issuer to settle the securities at a price less
than the amortized cost of the investment. Because the Corporation has the
ability and intent to hold these investments until a market price recovery or
maturity, these investments are not considered other-than-temporarily impaired.
The unrealized losses on investments in mortgage-backed securities were
caused by interest rate increases. The contractual cash flows of these
securities are guaranteed by U.S. government-sponsored agencies. It is expected
that the securities would not be settled at a price substantially less than the
amortized cost of the investment. Because the decline in fair value is
attributable to changes in interest rates and not credit quality, and because
the Corporation has the ability and intent to hold these investments until a
market price recovery or maturity, these investments are not considered
other-than-temporarily impaired.
The other securities with unrealized losses caused by interest rate
increases are adjustable and will price to par at the time of the rate reset.
The Corporation has the ability and intent to hold these investments until a
market price recovery or maturity; therefore these investments are not
considered other-than-temporarily impaired.
41
4. LOANS
Loans outstanding as of December 31, consisted of the following:
(IN THOUSANDS) 2004 2003
- --------------------------------------------------------------------------------
LOANS SECURED BY 1-4 FAMILY $361,591 $256,301
- --------------------------------------------------------------------------------
COMMERCIAL REAL ESTATE 162,166 130,968
- --------------------------------------------------------------------------------
CONSTRUCTION LOANS 17,703 9,799
- --------------------------------------------------------------------------------
COMMERCIAL LOANS 20,821 16,632
- --------------------------------------------------------------------------------
CONSUMER LOANS 7,181 10,223
- --------------------------------------------------------------------------------
OTHER LOANS 2,702 3,078
- --------------------------------------------------------------------------------
TOTAL LOANS $572,164 $427,001
================================================================================
Non-accrual loans totaled $351 thousand and $159 thousand at December 31,
2004 and 2003, respectively. At December 31, 2004, there were no loans past due
90 days or more and still accruing; however, at December 31, 2003 there were $56
thousand. 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 $14 thousand, $3 thousand and $5 thousand in 2004, 2003 and 2002,
respectively. Interest income of $11 thousand, $11 thousand and $12 thousand
would have been recognized during 2004, 2003 and 2002, respectively, under
contractual terms for such non-accrual loans.
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
were no impaired loans during the years ended December 31, 2004, 2003 and 2002.
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) 2004 2003 2002
- -------------------------------------------------------------------------------
BALANCE, BEGINNING OF YEAR $ 5,467 $ 4,798 $ 4,023
- -------------------------------------------------------------------------------
PROVISION CHARGED TO EXPENSE 600 600 800
- -------------------------------------------------------------------------------
LOANS CHARGED-OFF (78) (42) (68)
- -------------------------------------------------------------------------------
RECOVERIES 15 111 43
- -------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 6,004 $ 5,467 $ 4,798
===============================================================================
6. PREMISES AND EQUIPMENT
Premises and equipment as of December 31, follows:
(IN THOUSANDS) 2004 2003
- --------------------------------------------------------------------------------
LAND $ 3,518 $ 3,471
- --------------------------------------------------------------------------------
BUILDINGS 8,554 7,400
- --------------------------------------------------------------------------------
FURNITURE AND EQUIPMENT 13,421 10,617
- --------------------------------------------------------------------------------
LEASEHOLD IMPROVEMENTS 7,251 4,335
- --------------------------------------------------------------------------------
PROJECTS IN PROGRESS 382 695
- --------------------------------------------------------------------------------
33,126 26,518
- --------------------------------------------------------------------------------
LESS: ACCUMULATED DEPRECIATION 12,963 11,386
- --------------------------------------------------------------------------------
TOTAL $20,163 $15,132
================================================================================
Depreciation expense amounted to $1.7 million, $1.4 million and $1.3
million for the years ended December 31, 2004, 2003 and 2002, respectively.
42
7. DEPOSITS
Interest expense on time deposits of $100,000 or more totaled $1.3
million, $1.5 million and $2.1 million in 2004, 2003 and 2002, respectively.
The scheduled maturities of time deposits are as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2005 $157,736
- --------------------------------------------------------------------------------
2006 54,130
- --------------------------------------------------------------------------------
2007 9,141
- --------------------------------------------------------------------------------
2008 15,226
- --------------------------------------------------------------------------------
2009 7,969
- --------------------------------------------------------------------------------
TOTAL $244,202
================================================================================
8. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
At December 31, 2004 and 2003, advances from the Federal Home Loan Bank of
New York (FHLB) totaled $33.4 million and $30.0 million, respectively, with a
weighted average interest rate of 3.39 percent and 3.36 percent, respectively.
These advances are secured by blanket pledges of certain 1-4 family residential
mortgages totaling $160.3 million at December 31, 2004 and $121.6 million at
December 31, 2003. Advances totaling $23.0 million at December 31, 2004, have
fixed maturity dates, while advances totaling $10.4 million were amortizing
advances with monthly payments of principal and interest.
The final maturity dates of the advances are scheduled as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2006 $ 6,000
- --------------------------------------------------------------------------------
2007 4,000
- --------------------------------------------------------------------------------
2008 2,043
- --------------------------------------------------------------------------------
2009 2,000
- --------------------------------------------------------------------------------
OVER 5 YEARS 19,351
- --------------------------------------------------------------------------------
TOTAL $33,394
================================================================================
In addition, other borrowings consisting of overnight borrowings at FHLB
had an average balance of $20.8 million with a weighted average interest rate of
1.66 percent for the year ended December 31, 2004 and $13.4 million with a
weighted average interest rate of 1.17 percent for the year ended December 31,
2003. No amounts were outstanding as of December 31, 2004 or 2003. The maximum
amount outstanding at any month end during 2004 and 2003 was $48.3 million and
$33.6 million, respectively.
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.
43
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 buildup 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 remaining advance terms.
The following table summarizes carrying amounts and fair values for
financial instruments at December 31:
2004 2003
- --------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------
FINANCIAL ASSETS:
CASH AND CASH EQUIVALENTS $ 15,732 $ 15,732 $ 22,695 $ 22,695
- --------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 786 786 30,949 30,949
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES 87,128 87,544 97,701 99,515
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 354,186 354,186 355,998 355,998
- --------------------------------------------------------------------------------
LOANS, NET OF ALLOWANCE FOR
LOAN LOSSES 566,160 566,655 421,534 422,844
- --------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
DEPOSITS 935,666 934,929 845,771 846,528
- --------------------------------------------------------------------------------
LONG-TERM DEBT 33,394 32,709 30,032 29,335
- --------------------------------------------------------------------------------
10. INCOME TAXES
The income tax expense included in the consolidated financial statements
for the years ended December 31, is allocated as follows:
(IN THOUSANDS) 2004 2003 2002
- -------------------------------------------------------------------------------
FEDERAL:
CURRENT EXPENSE $ 6,079 $ 6,939 $ 2,010
- -------------------------------------------------------------------------------
DEFERRED (BENEFIT)/EXPENSE (102) (1,304) 3,615
- -------------------------------------------------------------------------------
STATE:
CURRENT EXPENSE 296 69 230
- -------------------------------------------------------------------------------
DEFERRED (BENEFIT)/EXPENSE (189) 83 (55)
- -------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 6,084 $ 5,787 $ 5,800
===============================================================================
SHAREHOLDERS' EQUITY:
DEFERRED (BENEFIT)/EXPENSE ON
UNREALIZED (LOSS)/GAIN ON
AVAILABLE FOR SALE $ (848) $ 1,530 $ 2,757
===============================================================================
44
Total income tax expense differed from the amounts computed by applying
the U.S. Federal income tax rate of 35 percent to income before taxes as a
result of the following:
(IN THOUSANDS) 2004 2003 2002
- -------------------------------------------------------------------------------
COMPUTED "EXPECTED" TAX EXPENSE $ 6,717 $ 6,330 $ 6,204
- -------------------------------------------------------------------------------
INCREASE/(DECREASE) IN TAXES RESULTING FROM:
TAX-EXEMPT INCOME (516) (384) (323)
- -------------------------------------------------------------------------------
STATE INCOME TAXES 70 99 114
- -------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE INCOME (244) (279) (251)
- -------------------------------------------------------------------------------
OTHER 57 21 56
- -------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 6,084 $ 5,787 $ 5,800
===============================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, are as follows:
(IN THOUSANDS) 2004 2003
- -------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
LOANS, PRINCIPALLY DUE TO ALLOWANCE FOR
LOAN LOSSES AND DEFERRED FEE INCOME $ 2,397 $ 2,178
- -------------------------------------------------------------------------------
POST RETIREMENT BENEFITS OTHER THAN PENSIONS 32 61
- -------------------------------------------------------------------------------
START-UP & ORGANIZATION COSTS -- 10
- -------------------------------------------------------------------------------
SECURITIES WRITEDOWN 224 --
- -------------------------------------------------------------------------------
PREPAID AMA 58 --
- -------------------------------------------------------------------------------
CAPITAL LOSS CARRYOVER 3 3
- -------------------------------------------------------------------------------
CONTRIBUTION LIMITATION 13 5
- -------------------------------------------------------------------------------
TOTAL GROSS DEFERRED ASSETS $ 2,727 $ 2,257
- -------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
INVESTMENT SECURITIES, PRINCIPALLY DUE TO
THE ACCRETION OF BOND DISCOUNT $ 70 $ 53
- -------------------------------------------------------------------------------
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE 815 1,663
- -------------------------------------------------------------------------------
DEFERRED LOAN ORIGINATION COSTS AND FEES 947 348
- -------------------------------------------------------------------------------
DEFERRED REIT DIVIDEND 972 2,435
- -------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT,
PRINCIPALLY DUE TO DIFFERENCES IN DEPRECIATION 1,825 799
- -------------------------------------------------------------------------------
TOTAL GROSS DEFERRED LIABILITIES 4,629 5,298
- -------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $(1,902) $(3,041)
===============================================================================
Based upon taxes paid and projected future taxable income, management
believes that it is more likely than not that the gross deferred tax assets will
be realized.
11. BENEFIT PLANS
PENSION PLAN:
The Corporation has a defined benefit pension plan covering substantially
all of its salaried employees. The benefits are based on an employee's
compensation during the five years before retirement, age at retirement and
years of service. The Corporation makes annual contributions to the plan equal
to the maximum amount that can be deducted for income tax purposes.
45
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) 2004 2003
- -------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
- -------------------------------------------------------------------------------
BENEFIT OBLIGATION AT BEGINNING OF YEAR $ 8,448 $ 6,782
- -------------------------------------------------------------------------------
SERVICE COST 1,098 978
- -------------------------------------------------------------------------------
INTEREST COST 504 437
- -------------------------------------------------------------------------------
ACTUARIAL LOSS 677 726
- -------------------------------------------------------------------------------
BENEFITS PAID (499) (475)
- -------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $ 10,228 $ 8,448
===============================================================================
CHANGE IN PLAN ASSETS
- -------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR $ 6,672 $ 4,944
- -------------------------------------------------------------------------------
ACTUAL RETURN ON PLAN ASSETS 675 980
- -------------------------------------------------------------------------------
EMPLOYER CONTRIBUTION 1,244 1,223
- -------------------------------------------------------------------------------
BENEFITS PAID (499) (475)
- -------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 8,092 $ 6,672
===============================================================================
FUNDED STATUS $ (2,136) $ (1,776)
- -------------------------------------------------------------------------------
UNRECOGNIZED TRANSITION ASSET (32) (38)
- -------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST (2) (3)
- -------------------------------------------------------------------------------
UNRECOGNIZED NET ACTUARIAL LOSS 2,341 1,895
- -------------------------------------------------------------------------------
PREPAID BENEFIT COST $ 171 $ 78
===============================================================================
The accumulated benefit obligation for the pension plan was $7.4 million
and $6.1 million at December 31, 2004 and 2003, respectively.
Net periodic expense for the years ended December 31, included the
following components:
(IN THOUSANDS) 2004 2003 2002
- -------------------------------------------------------------------------------
SERVICE COST $ 1,098 $ 978 $ 744
- -------------------------------------------------------------------------------
INTEREST COST 504 437 388
- -------------------------------------------------------------------------------
EXPECTED RETURN ON PLAN ASSETS (468) (395) (392)
- -------------------------------------------------------------------------------
AMORTIZATION OF:
NET LOSS 23 55 --
- -------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST 1 1 1
- -------------------------------------------------------------------------------
UNRECOGNIZED REMAINING NET ASSETS (7) (7) (7)
- -------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $ 1,151 $ 1,069 $ 734
- -------------------------------------------------------------------------------
The following table shows the actuarial assumptions applied for the
valuation of plan obligations at December 31:
2004 2003 2002
- -------------------------------------------------------------------------------
DISCOUNT RATE 5.75% 6.00% 6.50%
- -------------------------------------------------------------------------------
RATE OF INCREASE ON FUTURE COMPENSATION 3.00 3.00 3.00
- -------------------------------------------------------------------------------
EXPECTED LONG-TERM RATE OF RETURN ON
PLAN ASSETS 5.75 6.00 6.50
- -------------------------------------------------------------------------------
46
The following table shows the actuarial assumptions applied for the net
periodic expense at December 31:
2004 2003 2002
- -------------------------------------------------------------------------------
DISCOUNT RATE 6.00% 6.50% 7.00%
- -------------------------------------------------------------------------------
RATE OF INCREASE ON FUTURE COMPENSATION 3.00 3.00 3.00
- -------------------------------------------------------------------------------
EXPECTED LONG-TERM RATE OF RETURN ON
PLAN ASSETS 6.00 6.50 7.00
- -------------------------------------------------------------------------------
The Corporation's overall expected long-term rate of return on assets is
5.75 percent. The expected long-term rate of return is based on the portfolio as
a whole and not on the sum of the returns on individual asset categories.
The weighted-average asset allocation of the Corporation's pension
benefits plan assets at December 31, were as follows:
2004 2003
- -------------------------------------------------------------------------------
EQUITY SECURITIES 60.7% 59.8%
- -------------------------------------------------------------------------------
DEBT SECURITIES 31.0 29.0
- -------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS 8.3 11.2
- -------------------------------------------------------------------------------
TOTAL 100.0% 100.0%
===============================================================================
The Plan's Trustees are granted full discretion to buy, sell, invest and
reinvest in accordance with the pension plan's investment policy. The Trustees
establish target asset allocations for equity and debt securities at their
regular committee meetings. Cash equivalents are invested in money market funds
or in other high quality investments approved by the Trustees of the Plan.
The Corporation expects to contribute $1.3 million to its pension plan in
2005.
The following table shows the estimated future pension benefit payments.
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2005 $ 168
- --------------------------------------------------------------------------------
2006 175
- --------------------------------------------------------------------------------
2007 241
- --------------------------------------------------------------------------------
2008 300
- --------------------------------------------------------------------------------
2009 325
- --------------------------------------------------------------------------------
2010-2014 3,222
- --------------------------------------------------------------------------------
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 $37 thousand, $36 thousand and $33 thousand in 2004, 2003
and 2002, respectively. Contributions to the profit sharing portion are made at
the discretion of the Board of Directors and all funds are invested solely in
Peapack-Gladstone Corporation common stock. The contribution to the profit
sharing plan was $425 thousand in 2004, $375 thousand in 2003 and $350 thousand
in 2002.
47
12. STOCK OPTION PLANS
The Corporation's incentive stock option plans allow the granting of up to
798,229 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. Options granted to officers at or above the
senior vice president level are immediately exercisable at the date of grant.
Changes in options outstanding during the past three years were as follows:
OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 392,770 $5.56 - $20.52
- --------------------------------------------------------------------------------
GRANTED DURING 2002 7,018 15.08 - 26.65
EXERCISED DURING 2002 (57,061) 5.56 - 17.53
FORFEITED DURING 2002 (11,289) 5.56 - 16.86
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 331,438 $5.56 - $26.65
- --------------------------------------------------------------------------------
GRANTED DURING 2003 2,530 24.84 - 28.85
EXERCISED DURING 2003 (60,871) 5.56 - 20.52
FORFEITED DURING 2003 (2,401) 15.19 - 28.93
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 270,696 $5.56 - $28.85
- --------------------------------------------------------------------------------
GRANTED DURING 2004 224,965 27.36 - 32.14
EXERCISED DURING 2004 (52,680) 5.56 - 24.17
FORFEITED DURING 2004 (3,899) 13.68 - 28.89
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004 439,082 $5.56 - $32.14
================================================================================
At December 31, 2004, the number of options exercisable was 379,624 and
the weighted-average price of those options was $20.54 per share. At December
31, 2003, the number of options exercisable was 260,910 and the weighted-average
price of those options was $14.00 per share.
The Corporation has non-qualified stock option plans for non-employee
directors. The plans allow the granting of up to 398,796 shares of the
Corporation's common stock. 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, 2001 248,087 $5.56 - $17.53
- --------------------------------------------------------------------------------
EXERCISED DURING 2002 (20,119) 5.56
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 227,968 $5.56 - $17.53
- --------------------------------------------------------------------------------
EXERCISED DURING 2003 (31,956) 5.56 - 15.68
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 196,012 $5.56 - $17.53
- --------------------------------------------------------------------------------
GRANTED DURING 2004 98,999 28.89
EXERCISED DURING 2004 (52,555) 5.56 - 17.53
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004 242,456 $5.56 - $28.89
================================================================================
At December 31, 2004, the number of options exercisable was 128,532 and
the weighted-average price of those options was $13.72. At December 31, 2003,
the number of options exercisable was 173,188 and the weighted-average price of
those options was $11.40.
48
At December 31, 2004, there were 90,123 additional shares available for
grant under the Plans. The per share weighted-average fair value of stock
options granted during 2004, 2003 and 2002 was $10.32, $9.24, and $6.83 on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 2004 - expected dividend yield of 1.18%, expected
volatility of 40%, risk free interest rate of 3.26%, and an expected life of 5
years; 2003 - expected dividend yield of 1.29%, expected volatility of 40%,
risk-free interest rate of 3.27%, and an expected life of 5 years; 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.
13. COMMITMENTS
The Corporation, in the ordinary course of business, is a party to
litigation arising from the conduct of its business. Management does not
consider that these actions depart from routine legal proceedings and believes
that such actions will not affect its financial position or results of its
operations in any material manner. There are various outstanding commitments and
contingencies, such as guarantees and credit extensions, including loan
commitments of $71.7 million and $69.4 million at December 31, 2004 and 2003,
respectively, which are not included in the accompanying consolidated financial
statements.
The Corporation issues financial standby letters of credit that are within
the scope of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." These are irrevocable undertakings by the Corporation to guarantee
payment of a specified financial obligation. Most of the Corporation's financial
standby letters of credit arise in connection with lending relationships and
have terms of one year or less. The maximum potential future payments the
Corporation could be required to make equals the contract amount of the standby
letters of credit and amounted to $3.1 million and $5.5 million at December 31,
2004 and 2003, respectively. The Corporation's recognized liability for
financial standby letters of credit was insignificant at December 31, 2004.
For commitments to originate loans, the Corporation's maximum exposure to
credit risk is represented by the contractual amount of those instruments. Those
commitments represent ultimate exposure to credit risk only to the extent that
they are subsequently drawn upon by customers. The Corporation uses the same
credit policies and underwriting standards in making loan commitments as it does
for on-balance-sheet instruments. For loan commitments, the Corporation would
generally be exposed to interest rate risk from the time a commitment is issued
with a defined contractual interest rate.
At December 31, 2004, the Corporation was obligated under non-cancelable
operating leases for certain premises. Rental expense aggregated $2.0 million,
$1.5 million and $1.1 million for the years ended December 31, 2004, 2003 and
2002, 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, 2004, were as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2005 $ 1,905
- --------------------------------------------------------------------------------
2006 2,016
- --------------------------------------------------------------------------------
2007 1,990
- --------------------------------------------------------------------------------
2008 2,010
- --------------------------------------------------------------------------------
2009 1,979
- --------------------------------------------------------------------------------
THEREAFTER 14,773
- --------------------------------------------------------------------------------
TOTAL $24,673
================================================================================
49
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's and
the Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Corporation's and the Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 2004, that the Corporation and the Bank
meet all capital adequacy requirements to which they are subject.
As of December 31, 2004, 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.
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, 2004:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $98,626 20.25% $48,707 10.00% $38,966 8.00%
- ---------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO RISK-WEIGHTED ASSETS) 92,622 19.02 29,224 6.00 19,483 4.00
- ---------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO AVERAGE ASSETS) 92,622 9.18 50,464 5.00 30,278 3.00
- ---------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2003:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $87,303 21.74% $40,150 10.00% $32,120 8.00%
- ---------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO RISK-WEIGHTED ASSETS) 81,836 20.38 24,090 6.00 16,060 4.00
- ---------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO AVERAGE ASSETS) 81,836 8.91 45,948 5.00 27,569 3.00
- ---------------------------------------------------------------------------------------------------------------
50
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, 2004, 2003 and 2002 should be read in
conjunction with the notes to the consolidated financial statements.
STATEMENTS OF CONDITION
DECEMBER 31,
(IN THOUSANDS) 2004 2003
- -------------------------------------------------------------------------------
ASSETS:
CASH $ 101 $ 162
- -------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 99 --
- -------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 18,186 14,323
- -------------------------------------------------------------------------------
INVESTMENT IN SUBSIDIARY 77,308 71,632
- -------------------------------------------------------------------------------
OTHER ASSETS 228 83
- -------------------------------------------------------------------------------
TOTAL ASSETS $ 95,922 $ 86,200
===============================================================================
LIABILITIES:
- -------------------------------------------------------------------------------
OTHER LIABILITIES $ 1,253 $ 1,146
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 1,253 1,146
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
COMMON STOCK 6,994 6,274
- -------------------------------------------------------------------------------
SURPLUS 87,991 61,959
- -------------------------------------------------------------------------------
TREASURY STOCK (2,867) (2,391)
- -------------------------------------------------------------------------------
RETAINED EARNINGS 1,113 16,557
- -------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF INCOME TAX 1,438 2,655
- -------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 94,669 85,054
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 95,922 $ 86,200
===============================================================================
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2004 2003 2002
- --------------------------------------------------------------------------------
INCOME
DIVIDEND FROM BANK $ 5,750 $ 5,250 $ 5,000
- --------------------------------------------------------------------------------
OTHER INCOME 452 372 375
- --------------------------------------------------------------------------------
SECURITIES GAINS, NET 236 90 32
- --------------------------------------------------------------------------------
TOTAL INCOME 6,438 5,712 5,407
- --------------------------------------------------------------------------------
EXPENSES
OTHER EXPENSES 105 104 307
- --------------------------------------------------------------------------------
TOTAL EXPENSES 105 104 307
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE AND
EQUITY IN UNDISTRIBUTED EARNINGS OF
- --------------------------------------------------------------------------------
BANK 6,333 5,608 5,100
- --------------------------------------------------------------------------------
INCOME TAX EXPENSE 196 110 15
- --------------------------------------------------------------------------------
NET INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF BANK 6,137 5,498 5,085
- --------------------------------------------------------------------------------
EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 6,972 6,802 6,840
- --------------------------------------------------------------------------------
NET INCOME $13,109 $12,300 $11,925
================================================================================
51
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2004 2003 2002
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 13,109 $ 12,300 $ 11,925
- ------------------------------------------------------------------------------------------
LESS EQUITY IN UNDISTRIBUTED EARNINGS (6,972) (6,802) (6,840)
- ------------------------------------------------------------------------------------------
AMORTIZATION AND ACCRETION ON SECURITIES 13 13 (3)
- ------------------------------------------------------------------------------------------
GAIN ON SECURITIES AVAILABLE FOR SALE (236) (90) (32)
- ------------------------------------------------------------------------------------------
(INCREASE)/DECREASE IN OTHER ASSETS (145) (33) 30
- ------------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN OTHER LIABILITIES 295 (10) 74
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,064 5,378 5,154
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES AVAILABLE
- ------------------------------------------------------------------------------------------
FOR SALE 5,476 1,670 75
- ------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
HELD TO MATURITY -- 2,000 --
- ------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 13,452 9,692 8,700
- ------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES HELD TO MATURITY -- -- (1,989)
- ------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (22,292) (16,339) (9,912)
- ------------------------------------------------------------------------------------------
NET INCREASE IN SHORT-TERM INVESTMENTS (99) -- --
- ------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (3,463) (2,977) (3,126)
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
DIVIDENDS PAID (3,134) (2,549) (2,103)
- ------------------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 948 535 600
- ------------------------------------------------------------------------------------------
TREASURY STOCK TRANSACTIONS (476) (371) (432)
- ------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (2,662) (2,385) (1,935)
- ------------------------------------------------------------------------------------------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (61) 16 93
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 162 146 53
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 101 $ 162 $ 146
==========================================================================================
52
COMMON STOCK PRICES (UNAUDITED)
The following table shows the 2004 and 2003 range of prices paid on known trades
of Peapack-Gladstone Financial Corporation common stock.
- --------------------------------------------------------------------------------
DIVIDEND
2004 HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1ST QUARTER $31.55 $27.73 $0.100
- --------------------------------------------------------------------------------
2ND QUARTER 32.27 25.35 0.100
- --------------------------------------------------------------------------------
3RD QUARTER 31.09 26.09 0.110
- --------------------------------------------------------------------------------
4TH QUARTER 33.00 28.75 0.110
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVIDEND
2003 HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1ST QUARTER $28.35 $20.66 $0.090
- --------------------------------------------------------------------------------
2ND QUARTER 29.99 20.67 0.090
- --------------------------------------------------------------------------------
3RD QUARTER 30.79 25.74 0.100
- --------------------------------------------------------------------------------
4TH QUARTER 30.23 27.06 0.100
- --------------------------------------------------------------------------------
53
OFFICERS
- ----------------------------------------------------------------------------------------------
LOAN AND T. LEONARD HILL CHAIRMAN EMERITUS *
ADMINISTRATION -----------------------------------------------------------------------------
GLADSTONE FRANK A. KISSEL CHAIRMAN OF THE BOARD & CEO*
-----------------------------------------------------------------------------
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
-----------------------------------------------------------------------------
ROBERT A. BUCKLEY SENIOR VICE PRESIDENT & BRANCH ADMINISTRATOR
-----------------------------------------------------------------------------
FINN M.W. CASPERSEN, JR SENIOR VICE PRESIDENT & CHIEF CORPORATE
RISK MANAGER
-----------------------------------------------------------------------------
MICHAEL J. GIACOBELLO SENIOR VICE PRESIDENT & SENIOR COMMERCIAL
LOAN OFFICER
-----------------------------------------------------------------------------
BARBARA A. GRECO SENIOR VICE PRESIDENT & PERSONNEL OFFICER
-----------------------------------------------------------------------------
STEPHANIE ADKINS VICE PRESIDENT
-----------------------------------------------------------------------------
TODD T. BRUNGARD VICE PRESIDENT & BANK SECRECY ACT
COMPLIANCE OFFICER
-----------------------------------------------------------------------------
MICHELE DELLAVALLE VICE PRESIDENT
-----------------------------------------------------------------------------
KAREN M. FERRARO VICE PRESIDENT
-----------------------------------------------------------------------------
VALERIE L. KODAN VICE PRESIDENT
-----------------------------------------------------------------------------
DOUGLAS J. MOORE VICE PRESIDENT
-----------------------------------------------------------------------------
MARY M. RUSSELL VICE PRESIDENT & COMPTROLLER
-----------------------------------------------------------------------------
PATRICIA J. SCHWARTZ VICE PRESIDENT
-----------------------------------------------------------------------------
JAMES S. STADTMUELLER VICE PRESIDENT
-----------------------------------------------------------------------------
MARGARET VOLK VICE PRESIDENT & MORTGAGE OFFICER
-----------------------------------------------------------------------------
E. SUE GIANETTI ASSISTANT VICE PRESIDENT
-----------------------------------------------------------------------------
JOHN G. HARITON ASSISTANT VICE PRESIDENT & CORPORATE TRAINER
-----------------------------------------------------------------------------
KAREN R. HORVATH ASSISTANT VICE PRESIDENT & ASSISTANT COMPTROLLER
-----------------------------------------------------------------------------
KATHRYN M. NEIGH ASSISTANT VICE PRESIDENT
-----------------------------------------------------------------------------
CHRISTOPHER P. POCQUAT ASSISTANT VICE PRESIDENT
-----------------------------------------------------------------------------
S. SHAY SCHOENBAUM ASSISTANT VICE PRESIDENT & MARKETING OFFICER
-----------------------------------------------------------------------------
SCOTT T. SEARLE ASSISTANT VICE PRESIDENT
-----------------------------------------------------------------------------
SHERYL L. CAPPA ASSISTANT CASHIER
-----------------------------------------------------------------------------
ELAINE CARDOSO ASSISTANT CASHIER
-----------------------------------------------------------------------------
LYNDA CROSS ASSISTANT CASHIER
-----------------------------------------------------------------------------
MARJORIE A. DZWONCZYK ASSISTANT CASHIER & CRA AND COMPLIANCE OFFICER
-----------------------------------------------------------------------------
LAURA WATT ASSISTANT CASHIER
-----------------------------------------------------------------------------
LINDSEY A. GROVES ASSISTANT CASHIER
-----------------------------------------------------------------------------
DAVID L. PETRY ASSISTANT CASHIER
-----------------------------------------------------------------------------
ANTOINETTE ROSELL CORPORATE SECRETARY *
- ----------------------------------------------------------------------------------------------
* Denotes a Holding Company Officer
54
OPERATIONS HUBERT P. CLARKE SENIOR VICE PRESIDENT INFORMATION SYSTEMS
BEDMINSTER -----------------------------------------------------------------------------
DIANE M. RIDOLFI VICE PRESIDENT
-----------------------------------------------------------------------------
FRANK C. WALDRON VICE PRESIDENT
-----------------------------------------------------------------------------
SANDRA BORNGESSER ASSISTANT VICE PRESIDENT
-----------------------------------------------------------------------------
CAROL L. BEHLER ASSISTANT CASHIER
-----------------------------------------------------------------------------
VITA M. PARISI ASSISTANT CASHIER
-----------------------------------------------------------------------------
KRISTIN A. ROMEO ASSISTANT CASHIER
-----------------------------------------------------------------------------
MARGARET A. TRIMMER ASSISTANT CASHIER
- ----------------------------------------------------------------------------------------------
AUDIT KAREN M. CHIARELLO VICE PRESIDENT & AUDITOR
CHESTER -----------------------------------------------------------------------------
SHANIN BACHSTEIN ASSISTANT VICE PRESIDENT
- ----------------------------------------------------------------------------------------------
LOAN JOHN A. SCERBO VICE PRESIDENT
MORRISTOWN -----------------------------------------------------------------------------
NANCY L. WYNANT VICE PRESIDENT
- ----------------------------------------------------------------------------------------------
PGB TRUST & CRAIG C. SPENGEMAN PRESIDENT & CHIEF INVESTMENT OFFICER *
INVESTMENTS -----------------------------------------------------------------------------
BRYANT K. ALFORD FIRST VICE PRESIDENT & SENIOR TRUST OFFICER
-----------------------------------------------------------------------------
GLADSTONE JOHN M. BONK FIRST VICE PRESIDENT & DIRECTOR
OF BUSINESS DEVELOPMENT
-----------------------------------------------------------------------------
JOHN C. KAUTZ FIRST VICE PRESIDENT &
SENIOR INVESTMENT OFFICER
-----------------------------------------------------------------------------
ROY C. MILLER FIRST VICE PRESIDENT & TRUST OFFICER
-----------------------------------------------------------------------------
JOHN E. CREAMER VICE PRESIDENT & TRUST OFFICER
-----------------------------------------------------------------------------
MICHAEL E. HERRMANN 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
-----------------------------------------------------------------------------
EDWARD P. NICOLICCHIA ASSISTANT VICE PRESIDENT & TRUST OFFICER
-----------------------------------------------------------------------------
CATHERINE A. MCCATHARN TRUST OFFICER & ASSISTANT
CORPORATE SECRETARY *
-----------------------------------------------------------------------------
DAVID C. O'MEARA TRUST OFFICER
-----------------------------------------------------------------------------
HELEN F. PLUMMER ASSISTANT TRUST OFFICER
-----------------------------------------------------------------------------
PATRICIA K. SAWKA ASSISTANT TRUST OFFICER
- ----------------------------------------------------------------------------------------------
MORRISTOWN ROBERT M. FIGURELLI VICE PRESIDENT & TRUST OFFICER
-----------------------------------------------------------------------------
JOHN J. LEE VICE PRESIDENT & TRUST OFFICER
-----------------------------------------------------------------------------
MICHAEL T. TORMEY VICE PRESIDENT & TRUST OFFICER
-----------------------------------------------------------------------------
THOMAS S. DIEMAR ASSISTANT TRUST OFFICER
- ----------------------------------------------------------------------------------------------
* Denotes a Holding Company Officer
55
BRANCHES
BERNARDSVILLE CHARLES A. STUDDIFORD, III VICE PRESIDENT
---------------------------------------------------------------
CAROL E. RITZER ASSISTANT CASHIER
- --------------------------------------------------------------------------------
CALIFON ANN W. KALLAM ASSISTANT VICE PRESIDENT
- --------------------------------------------------------------------------------
CHATHAM
MAIN STREET VALERIE A. OLPP VICE PRESIDENT
- --------------------------------------------------------------------------------
CHATHAM
SHUNPIKE DONNA I. GISONE VICE PRESIDENT
- --------------------------------------------------------------------------------
CHESTER JOAN S. WYCHULES ASSISTANT VICE PRESIDENT
- --------------------------------------------------------------------------------
CLINTON CAROLYN I. SEPKOWSKI VICE PRESIDENT
- --------------------------------------------------------------------------------
FAR HILLS MARY ANNE MALONEY ASSISTANT VICE PRESIDENT
- --------------------------------------------------------------------------------
FELLOWSHIP JANET E. BATTAGLIA ASSISTANT CASHIER
- --------------------------------------------------------------------------------
GLADSTONE THOMAS N. KASPER VICE PRESIDENT
---------------------------------------------------------------
TERESA M. LAWLER ASSISTANT CASHIER
- --------------------------------------------------------------------------------
HILLSBOROUGH AMY E. GLASER VICE PRESIDENT
- --------------------------------------------------------------------------------
LONG VALLEY KATHERINE M. KREMINS VICE PRESIDENT
---------------------------------------------------------------
JAMES A. CICCONE ASSISTANT CASHIER
- --------------------------------------------------------------------------------
MENDHAM LINDA S. ZIROPOULOS ASSISTANT VICE PRESIDENT
- --------------------------------------------------------------------------------
MORRISTOWN KATHLEEN T. BECKER ASSISTANT VICE PRESIDENT
- --------------------------------------------------------------------------------
NEW VERNON DONNA I. GISONE VICE PRESIDENT
- --------------------------------------------------------------------------------
OLDWICK TONYA M. FLOWERS ASSISTANT CASHIER
---------------------------------------------------------------
DEBORAH J. KREHELY ASSISTANT CASHIER
- --------------------------------------------------------------------------------
PLUCKEMIN LEE ANN HUNT VICE PRESIDENT
- --------------------------------------------------------------------------------
WARREN RONALD F. FIELD ASSISTANT CASHIER
- --------------------------------------------------------------------------------
56
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
- --------------------------------------------------------------------------------
EDWARD A. MERTON
President, Merton Excavating & Paving Co.
Chester, NJ
- --------------------------------------------------------------------------------
F. DUFFIELD MEYERCORD
Managing Director and Partner, Carl Marks Consulting Group, LLC
Bedminster, NJ
- --------------------------------------------------------------------------------
JOHN R. MULCAHY
Far Hills, NJ
- --------------------------------------------------------------------------------
ROBERT M. ROGERS
President & 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
- --------------------------------------------------------------------------------
57
OFFICES
- --------------------------------------------------------------------------------
LOAN & ADMINISTRATION BUILDING
158 Route 206 North, Gladstone, NJ 07934 (908) 234-0700
www.pgbank.com
- --------------------------------------------------------------------------------
PGB TRUST & INVESTMENTS
190 Main Street, Gladstone, NJ 07934 (908) 719-4360
- --------------------------------------------------------------------------------
BERNARDSVILLE
36 Morristown Road, Bernardsville, NJ 07924 (908) 766-1711
- --------------------------------------------------------------------------------
CALIFON
438 Route 513, Califon, NJ 07830 (908) 832-5131
- --------------------------------------------------------------------------------
CHATHAM MAIN STREET
311 Main Street, Chatham, NJ 07928 (973) 635-8500
- --------------------------------------------------------------------------------
CHATHAM SHUNPIKE
650 Shunpike Road, Chatham Township, NJ 07928 (973) 377-0081
- --------------------------------------------------------------------------------
CHESTER
350 Main Street, Chester, NJ 07930 (908) 879-8115
- --------------------------------------------------------------------------------
CLINTON
189 Center Street, Clinton, NJ 08809 (908) 238-1935
- --------------------------------------------------------------------------------
FAR HILLS
26 Dumont Road, Far Hills, NJ 07931 (908) 781-1018
- --------------------------------------------------------------------------------
FELLOWSHIP VILLAGE
8000 Fellowship Road, Basking Ridge, NJ 07920 (908) 719-4332
- --------------------------------------------------------------------------------
GLADSTONE (Main Office)
190 Main Street, Gladstone, NJ 07934 (908) 719-4360
- --------------------------------------------------------------------------------
HILLSBOROUGH
417 Route 206 North, Hillsborough, NJ 08844 (908) 281-1031
- --------------------------------------------------------------------------------
LONG VALLEY
59 East Mill Road (Route 24), Long Valley, NJ 07853 (908) 876-3300
- --------------------------------------------------------------------------------
MENDHAM
17 East Main Street, Mendham, NJ 07945 (973) 543-6499
- --------------------------------------------------------------------------------
MORRISTOWN
233 South Street, Morristown, NJ 07960 (973) 455-1118
- --------------------------------------------------------------------------------
NEW VERNON
Village Road, New Vernon, NJ 07976 (973) 540-0444
- --------------------------------------------------------------------------------
OLDWICK
169 Lamington Road, Oldwick, NJ 08858 (908) 439-2320
- --------------------------------------------------------------------------------
PLUCKEMIN
468 Route 206 North, Bedminster, NJ 07921 (908) 658-4500
- --------------------------------------------------------------------------------
POTTERSVILLE
11 Pottersville Road, Pottersville, NJ 07979 (908) 439-2265
- --------------------------------------------------------------------------------
WARREN
58 Mountain Boulevard, Warren, NJ 07059 (908) 757-2805
- --------------------------------------------------------------------------------
58
SHAREHOLDER INFORMATION
CORPORATE ADDRESS
- --------------------------------------------------------------------------------
158 Route 206, North
Gladstone, New Jersey 07934
(908) 234-0700
www.pgbank.com
STOCK LISTING
- --------------------------------------------------------------------------------
Peapack-Gladstone Financial Corporation common stock is traded on the American
Stock Exchange under the symbol PGC and reported in the Wall Street Journal and
most major newspapers.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
KPMG LLP
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
TRANSFER AGENT
- --------------------------------------------------------------------------------
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
SHAREHOLDER RELATIONS
- --------------------------------------------------------------------------------
Arthur F. Birmingham, Executive Vice President and Chief Financial Officer
(908) 719-4308
birmingham@pgbank.com
ANNUAL MEETING
- --------------------------------------------------------------------------------
The annual meeting of shareholders of Peapack-Gladstone Financial Corporation
will be held on April 26, 2005 at 2:00 p.m. at Fiddler's Elbow Country Club in
Bedminster Township.
59
NOTES
- --------------------------------------------------------------------------------
60