SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 001-16197
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-3537895
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
158 Route 206 North,
Gladstone, New Jersey 07934
(Address of principal executive offices, including zip code)
(908) 234-0700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|.
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No |_|.
Number of shares of Common Stock outstanding as of May 2, 2005:
8,299,000
1
PEAPACK-GLADSTONE FINANCIAL CORPORATION
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):
Consolidated Statements of Condition March 31, 2005 and
December 31, 2004 Page 3
Consolidated Statements of Income for the three months ended
March 31, 2005 and 2004 Page 4
Consolidated Statements of Changes in Shareholders' Equity
for the three months ended March 31, 2005 and 2004 Page 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2005 and 2004 Page 6
Notes to the Consolidated Financial Statements Page 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations Page 9
Item 3 Quantitative and Qualitative Disclosures about Market Risk Page 14
Item 4 Controls and Procedures Page 15
PART 2 OTHER INFORMATION
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds Page 15
Item 5 Other Information Page 15
Item 6 Exhibits Page 16
2
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
(Unaudited)
March 31, December 31,
2005 2004
----------- ------------
ASSETS
Cash and due from banks $ 23,346 $ 15,631
Federal funds sold 915 101
----------- -----------
Total cash and cash equivalents 24,261 15,732
Interest-earning deposits 674 786
Investment Securities (approximate market value
$85,526 in 2005 and $87,544 in 2004) 85,824 87,128
Securities Available for Sale 370,986 354,186
Loans:
Loans secured by real estate 583,377 541,460
Other loans 30,796 30,704
----------- -----------
Total loans 614,173 572,164
Less: Allowance for loan losses 6,161 6,004
----------- -----------
Net loans 608,012 566,160
Premises and equipment, net 20,031 20,163
Accrued interest receivable 5,372 4,375
Cash surrender value of life insurance 17,426 17,253
Other assets 3,629 1,612
----------- -----------
TOTAL ASSETS $ 1,136,215 $ 1,067,395
=========== ===========
LIABILITIES
Deposits:
Noninterest-bearing demand deposits $ 184,587 $ 162,275
Interest-bearing deposits:
Checking 202,443 194,669
Savings 104,603 106,576
Money market accounts 238,624 227,944
Certificates of deposit over $100,000 76,613 74,005
Certificates of deposit less than $100,000 179,812 170,197
----------- -----------
Total deposits 986,682 935,666
Borrowed Funds 49,727 33,394
Accrued expenses and other liabilities 5,535 3,666
----------- -----------
TOTAL LIABILITIES 1,041,944 972,726
----------- -----------
SHAREHOLDERS' EQUITY
Common stock (no par value; stated value $0.83
per share; authorized 20,000,000 shares; issued shares,
8,424,783 at March 31, 2005 and 8,393,625 at December 31,
2004; outstanding shares, 8,270,224 at
March 31, 2005 and 8,246,042 at December 31, 2004) 7,020 6,994
Surplus 88,358 87,991
Treasury Stock at cost, 154,559 shares in 2005
and 147,583 shares in 2004 (3,076) (2,867)
Retained Earnings 3,907 1,113
Accumulated other comprehensive (loss)/income, net of
income tax (1,938) 1,438
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 94,271 94,669
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,136,215 $ 1,067,395
=========== ===========
See accompanying notes to consolidated financial statements.
3
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
Three months ended
March 31,
2005 2004
----------- -----------
INTEREST INCOME
Interest and fees on loans $ 8,274 $ 6,140
Interest on investment securities:
Taxable 498 756
Tax-exempt 276 205
Interest on securities available for sale:
Taxable 3,505 3,303
Tax-exempt 90 91
Interest-earning deposits 10 11
Interest on federal funds sold 3 16
----------- -----------
Total interest income 12,656 10,522
INTEREST EXPENSE
Interest on savings and interest-bearing deposit
accounts 1,559 716
Interest on certificates of deposit over $100,000 498 315
Interest on other time deposits 1,135 859
Interest on borrowed funds 437 269
----------- -----------
Total interest expense 3,629 2,159
----------- -----------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 9,027 8,363
Provision for loan losses 150 150
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,877 8,213
----------- -----------
OTHER INCOME
Service charges and fees 465 398
Trust department income 2,013 1,683
Securities gains 298 193
Bank owned life insurance 197 219
Other income 177 127
----------- -----------
Total other income 3,150 2,620
OTHER EXPENSES
Salaries and employee benefits 3,652 3,463
Premises and equipment 1,566 1,315
Other expense 1,337 1,261
----------- -----------
Total other expenses 6,555 6,039
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 5,472 4,794
Income tax expense 1,769 1,513
----------- -----------
NET INCOME $ 3,703 $ 3,281
=========== ===========
EARNINGS PER SHARE
Basic $ 0.45 $ 0.40
Diluted $ 0.44 $ 0.39
Average basic shares outstanding 8,261,692 8,167,137
Average diluted shares outstanding 8,405,073 8,391,563
See accompanying notes to consolidated financial statements.
4
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
-------- --------
Balance, Beginning of Period $ 94,669 $ 85,054
Comprehensive income:
Net Income 3,703 3,281
Unrealized holding (losses)/gains on securities
arising during the period, net of tax (3,182) 1,576
Less: Reclassification adjustment for gains
included in net income, net of tax 194 125
-------- --------
(3,376) 1,451
-------- --------
Total Comprehensive income 327 4,732
Common Stock Options Exercised 243 279
Purchase of Treasury Stock (209) (186)
Cash Dividends Declared (909) (671)
Tax Benefit on Disqualifying and Nonqualifying
Exercise of Stock Options 150 94
-------- --------
Balance, March 31, $ 94,271 $ 89,302
======== ========
See accompanying notes to consolidated financial statements.
5
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
-------- --------
OPERATING ACTIVITIES:
Net Income: $ 3,703 $ 3,281
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 474 391
Amortization of premium and accretion of
discount on securities, net 310 371
Provision for loan losses 150 150
Gains on security sales (298) (193)
Gain on loans sold (7) --
Gain on disposal of fixed assets (10) --
Tax benefit on stock option exercises 150 94
Increase in cash surrender value of life insurance, net (173) (198)
Increase in accrued interest receivable (997) (558)
Increase in other assets (755) (2,000)
Increase in accrued expenses and other liabilities 2,682 811
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,229 2,149
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 7,109 5,079
Proceeds from maturities of securities available
for sale 8,173 7,974
Proceeds from calls of investment securities 3,185 235
Proceeds from calls of securities available for sale 2,000 22,101
Proceeds from sales of securities available for sale 1,489 10,131
Purchase of investment securities (9,073) (2,617)
Purchase of securities available for sale (33,845) (48,033)
Net decrease in short-term investments 112 30,228
Proceeds from sales of loans 607 --
Purchase of loans (28,972) --
Net increase in loans (13,630) (2,690)
Purchases of premises and equipment (353) (2,079)
Disposal of premises and equipment 21 --
-------- --------
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES (63,177) 20,329
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits 51,016 1,034
Net increase in short-term borrowings 16,750 --
Repayments of long-term debt (417) (405)
Cash dividends paid (906) (742)
Exercise of stock options 243 279
Purchase of Treasury Stock (209) (186)
-------- --------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES 66,477 (20)
-------- --------
Net increase in cash and cash equivalents 8,529 22,458
Cash and cash equivalents at beginning of period 15,732 22,695
-------- --------
Cash and cash equivalents at end of period $ 24,261 $ 45,153
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,469 $ 2,202
Income taxes 943 --
See accompanying notes to consolidated financial statements.
6
PEAPACK-GLADSTONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain information and footnote disclosures normally included in the unaudited
consolidated financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the Annual
Report on Form 10-K for the period ended December 31, 2004 for Peapack-Gladstone
Financial Corporation (the "Corporation").
Principles of Consolidation: The Corporation considers that all adjustments (all
of which are normal recurring accruals) necessary for a fair presentation of the
statement of the financial position and results of operations in accordance with
U.S. generally accepted accounting principles for these periods have been made.
Results for such interim periods are not necessarily indicative of results for a
full year.
The consolidated financial statements of Peapack-Gladstone Financial Corporation
are prepared on the accrual basis and include the accounts of the Corporation
and its wholly owned subsidiary, Peapack-Gladstone Bank. All significant
intercompany balances and transactions have been eliminated from the
accompanying consolidated financial statements.
Allowance for Loan Losses: The allowance for loan losses is maintained at a
level considered adequate to provide for probable loan losses inherent in the
Corporation's loan portfolio. The allowance is based on management's evaluation
of the loan portfolio considering, among other things, current economic
conditions, the volume and nature of the loan portfolio, historical loan loss
experience, and individual credit situations. The allowance is increased by
provisions charged to expense and reduced by net charge-offs.
Stock Option Plans: At March 31, 2005, the Corporation had stock-based employee
and non-employee director compensation plans. The Corporation accounts for these
plans under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost is reflected in net income as all options
granted under those plans had an exercise price equal to or greater than the
market value of the underlying common stock on the date of the grant.
The following table illustrates the effect on net income and earnings per share
for the periods indicated if the Corporation had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation:
Three Months Ended
March 31,
(In Thousands Except per Share Data) 2005 2004
-------- --------
Net Income:
As Reported $ 3,703 $ 3,281
Less: Total Stock-Based Compensation Expense
Determined under the Fair Value Based Method
on all Stock Options, Net of Related Tax Effects 98 1,261
-------- --------
Pro Forma $ 3,605 $ 2,020
Earnings Per Share:
As Reported
Basic $ 0.45 $ 0.40
Diluted $ 0.44 $ 0.39
Pro Forma
Basic $ 0.44 $ 0.25
Diluted $ 0.43 $ 0.24
7
Earnings per Common Share - Basic and Diluted: Basic earnings per share is
computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding. Diluted earnings per share includes
any additional common shares as if all potentially dilutive common shares were
issued (i.e., stock options) utilizing the treasury stock method. All share and
per share amounts have been restated to reflect all prior stock dividends and
stock splits and a 10 percent stock dividend declared on September 9, 2004.
Comprehensive Income: The difference between the Corporation's net income and
total comprehensive income for the three months ended March 31, 2005 and 2004
relates to the change in the net unrealized gains and losses on securities
available for sale during the applicable period of time less adjustments for
realized gains and losses. Total comprehensive income for the three months ended
March 31, 2005 and 2004 was $327 thousand and $4.7 million, respectively.
2. BENEFIT PLANS
The Corporation has a defined benefit pension plan covering substantially all of
its salaried employees.
The net periodic expense for the three months ended March 31 included the
following components:
Three Months Ended
March 31,
(In Thousands) 2005 2004
-------- --------
Service Cost $ 351 $ 274
Interest Cost 146 126
Expected Return on Plan Assets (133) (117)
Amortization of:
Net Loss 17 6
Unrecognized Prior Service Cost -- 1
Unrecognized Remaining Net Assets (2) (2)
-------- --------
Net Periodic Benefit Cost $ 379 $ 288
======== ========
As previously disclosed in the financial statements for the year ended December
31, 2004, the Corporation expects to contribute $1.3 million to its pension plan
in 2005. As of March 31, 2005, contributions of $318 thousand had been made in
the current year.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL: The following discussion and analysis contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are not historical facts and include expressions about
management's view of future interest income and net loans, management's
confidence and strategies and management's expectations about new and existing
programs and products, relationships, opportunities and market conditions. These
statements may be identified by such forward-looking terminology as "expect",
"look", "believe", "anticipate", "may", "will", or similar statements or
variations of such terms. Actual results may differ materially from such
forward-looking statements. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among others, the following possibilities:
o Unanticipated changes or no change in interest rates.
o Competitive pressure in the banking industry causes unanticipated
adverse changes.
o An unexpected decline in the economy of New Jersey causes customers
to default in the payment of their loans or causes loans to become
impaired.
o Enforcement of the Highlands Water Protection and Planning Act
o Loss of key managers or employees.
o Loss of major customers or failure to develop new customers.
o A decrease in loan quality and loan origination volume.
o An increase in non-performing loans.
o A decline in the volume of increase in trust assets or deposits.
The Corporation assumes no responsibility to update such forward-looking
statements in the future.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES: "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is based upon the
Corporation's consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires the Corporation to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. Note 1 to the Corporation's Audited Consolidated Financial Statements
included in the December 31, 2004 Annual Report on Form 10-K, contains a summary
of the Corporation's significant accounting policies. Management believes the
Corporation's policy with respect to the methodology for the determination of
the allowance for loan losses involves a higher degree of complexity and
requires management to make difficult and subjective judgments, which often
require assumptions or estimates about highly uncertain matters. Changes in
these judgments, assumptions or estimates could materially impact results of
operations. This critical policy and its application are periodically reviewed
with the Audit Committee and the Board of Directors.
The provision for loan losses is based upon management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, giving consideration to the size and composition of the loan
portfolio, actual loan loss experience, level of delinquencies, detailed
analysis of individual loans for which full collectibility may not be assured,
the existence and estimated net realizable value of any underlying collateral
and guarantees securing the loans, and current economic and market conditions.
Although management uses the best information available, the level of the
allowance for loan losses remains an estimate which is subject to significant
judgment and short-term change. Various regulatory agencies, as an integral part
of their examination process, periodically review the Corporation's provision
for loan losses. Such agencies may require the Corporation to make additional
provisions for loan losses based upon information available to them at the time
of their examination. Furthermore, the majority of the Corporation's loans are
secured by real estate in the State of New Jersey. Accordingly, the
collectibility of a substantial portion of the carrying value of the
Corporation's loan portfolio is susceptible to changes in local market
conditions and may be adversely affected should real estate values decline or
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.
9
OVERVIEW: The Corporation realized earnings of $0.44 per diluted share in the
first quarter of 2005 as compared to $0.39 per diluted share for the same
quarter of 2004. Net income of $3.7 million for the quarter was $422 thousand,
or 12.9 percent higher, than the net income of $3.3 million for the first
quarter last year. Annualized return on average assets for the quarter was 1.33
percent and annualized return on average equity was 15.51 percent for the first
quarter of 2005.
EARNINGS ANALYSIS
NET INTEREST INCOME: On a tax-equivalent basis, net interest income, before the
provision for loan losses, was $9.3 million for the first quarter of 2005,
compared to $8.6 million for the same quarter of 2004, an increase of $711
thousand or 8.3 percent. The increase in net interest income during the quarter
was primarily the result of higher loan volume offset in part by lower rates
earned on loans, higher deposit balances and higher rates paid on deposits. The
net interest margin on a fully tax equivalent basis was 3.53 percent in the
first quarter of 2005 as compared to 3.83 percent for the same quarter of 2004,
a decrease of 30 basis points. Net interest income for the first quarter of
2005, when compared to the fourth quarter of 2004, declined $130 thousand, or
1.4 percent, from $9.4 million on a tax-equivalent basis. The net interest
margin, on a fully tax equivalent basis declined from 3.78 percent in the fourth
quarter of 2004, to 3.53 percent in the first quarter of 2005, a 25 basis point
decrease.
Average interest-earning assets increased $155.6 million or 17.4 percent to
$1.05 billion for the first quarter of 2005 as compared to $893.7 million for
the same quarter in 2004. This was due to the increase in average loan balances
of $166.6 million, or 39.1 percent, offset in part by a decline in average
investment securities, federal funds sold and interest-earning deposits balances
of $11.0 million, or 2.4 percent. The increase in loan balances during the first
quarter of 2005 was the result of growth in residential real estate, commercial
mortgage and commercial loans. The majority of residential real estate loan
origination was 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 in the State of New Jersey and many are within the Bank's
market area.
For the quarter ended March 31, 2005, average interest-bearing liabilities
increased $134.3 million or 19.0 percent to $842.9 million from $708.7 million
in the same period in 2004. Average balances of interest-bearing checking
accounts rose $69.0 million or 52.3 percent, certificate of deposits rose $28.6
million or 12.8 percent and money market accounts increased $13.2 million or 6.1
percent. Average savings accounts rose $3.4 million, or 3.3 percent for the
first quarter of 2005 when compared to the first quarter of 2004. In addition to
opening two new branches since first quarter 2004, several new deposit products
have been introduced in the past year, which have been well received by
customers, including Master Escrow Account, Fed Flyer CD and the Fed Tracker
Money Market Account. Federal Home Loan Bank advances averaged $56.5 million for
the first quarter of 2005 as compared to $36.5 million for the same quarter of
2004. Average non-interest-bearing demand deposits increased $17.5 million or
11.7 percent for the first quarter of 2005 as compared to the first quarter of
2004.
On a tax-equivalent basis, average interest rates earned on interest-earning
assets rose 12 basis points to 4.92 percent for the first quarter of 2005, from
4.80 percent for the first quarter of 2004. In the first quarter of 2005, the
average interest rates earned on loans declined 18 basis points to 5.58 percent,
due to the flattening yield curve and competitive pressures. For the quarter
ended March 31, 2005, the average interest rates earned on investment securities
rose 14 basis points to 4.06 percent from 3.92 percent in the same period in
2004. The average interest rate paid on interest-bearing liabilities in the
first quarter of 2005 and 2004 was 1.72 percent and 1.22 percent, respectively,
a 50 basis point increase. The average rate paid on certificate of deposits in
the first quarter of 2005 rose 49 basis points to 2.59 percent and average rates
paid on money market accounts increased 66 basis points to 1.49 percent when
compared with the same quarter in 2004. Higher retail deposit rates were the
result of the Federal Reserve increasing the Federal Funds rate five times
during the year. The cost of funds for the quarter increased to 1.44 percent as
compared to the first quarter of 2004 of 1.01 percent.
10
The following tables reflect the components of net interest income for the three
months ended March 31, 2005 and 2004:
Average Balance Sheet
Unaudited
Year-to-Date
(Tax-Equivalent Basis, Dollars in Thousands)
March 31, 2005 March 31, 2004
-------------- --------------
Average Income/ Average Income/
Balance Expense Yield Balance Expense Yield
----------- --------- ------- --------- --------- -------
ASSETS:
Interest-Earning Assets:
Investments:
Taxable (1) $ 402,107 $ 4,003 3.98% $ 419,082 $ 4,059 3.87%
Tax-Exempt (1) (2) 51,741 603 4.66 37,155 488 5.25%
Loans (2) (3) 593,063 8,280 5.58 426,423 6,145 5.76%
Federal Funds Sold 1,772 11 2.48 6,794 16 0.95%
Interest-Earning Deposits 622 3 1.93 4,240 11 1.07%
----------- -------------------- --------- --------------------
Total Interest-Earning Assets 1,049,305 $ 12,900 4.92% 893,694 $ 10,719 4.80%
----------- -------------------- --------- --------------------
Noninterest-Earning Assets:
Cash and Due from Banks 20,968 18,845
Allowance for Loan Losses (6,027) (5,526)
Premises and Equipment 20,176 15,972
Other Assets 25,203 28,612
----------- ---------
Total Noninterest-Earning Assets 60,320 57,903
----------- ---------
Total Assets $ 1,109,625 $ 951,597
=========== =========
LIABILITIES:
Interest-Bearing Deposits
Checking $ 200,839 $ 528 1.05% $ 131,837 $ 110 0.34%
Money Markets 105,210 434 1.65 65,412 101 0.62%
Tiered Money Markets 122,855 415 1.35 149,460 344 0.92%
Savings 105,701 182 0.69 102,276 161 0.63%
Certificates of Deposit 251,807 1,633 2.59 223,170 1,174 2.10%
----------- -------------------- --------- --------------------
Total Interest-Bearing Deposits 786,412 3,192 1.62 672,155 1,890 1.12%
Borrowings 56,536 437 3.09 36,495 269 2.94%
----------- -------------------- --------- --------------------
Total Interest-Bearing Liabilities 842,948 3,629 1.72 708,650 2,159 1.22%
----------- -------------------- --------- --------------------
Noninterest Bearing
Liabilities
Demand Deposits 166,339 148,884
Accrued Expenses and
Other Liabilities 4,833 7,358
----------- ---------
Total Noninterest-Bearing
Liabilities 171,172 156,242
Shareholders' Equity 95,505 86,705
----------- ---------
Total Liabilities and
Shareholders' Equity $ 1,109,625 $ 951,597
=========== =========
Net Interest Income
(tax-equivalent basis) 9,271 8,560
Net Interest Spread 3.20% 3.58%
======= =======
Net Interest Margin (4) 3.53% 3.83%
======= =======
Tax equivalent adjustment (244) (197)
--------- ---------
Net Interest Income $ 9,027 $ 8,363
========= =========
(1) Average balances for available-for-sale securities are based on amortized
cost.
(2) Interest income is presented on a tax-equivalent basis using a 35 percent
federal tax rate.
(3) Loans are stated net of unearned income and include non-accrual loans.
(4) Net interest income on a tax-equivalent basis as a percentage of total
average interest-earning assets.
11
OTHER INCOME: Other income was $3.15 million for the first quarter 2005, as
compared to $2.62 million in the first quarter 2004, an increase of $530
thousand or 20.2 percent. Income from PGB Trust and Investments, the Bank's
trust division, was $2.01 million, an increase of $330 thousand or 19.6 percent
over last year's first quarter. The market value of trust assets increased
$179.3 million or 12.1 percent from the first quarter of 2004 to 2005. In the
first quarter of 2005 and 2004, service charges and fees were $465 thousand and
$398 thousand, respectively, an increase of $67 thousand or 16.8 percent.
Security gains of $298 thousand were recorded in the first quarter of 2005 as
compared to $193 thousand for the same quarter of 2004. This quarter's gain
included the recognition of a $249 thousand gain on the non-monetary exchange of
an equity security.
The following table presents the components of other income for the three months
ended March 31, 2005 and 2004:
Three Months Ended
March 31,
(In Thousands) 2005 2004
-------- --------
Trust department income $ 2,013 $ 1,683
Service charges and fees 465 398
Bank owned life insurance 197 219
Safe deposit rental fees 61 61
Other non-interest income 86 48
Fees for other services 30 18
Securities gains 298 193
-------- --------
Total other income $ 3,150 $ 2,620
======== ========
OTHER EXPENSES: For the first quarter of 2005, other expenses increased $516
thousand or 8.5 percent to $6.56 million compared to $6.04 million for the first
quarter of 2004. Salaries and benefits expense during the first quarter of 2005
were $3.65 million as compared to $3.46 million for the first quarter of 2004,
an increase of $189 thousand or 5.5 percent. Normal salary increases as well as
additions to business development officer ranks and the related benefits costs
account for the increase. For the first quarter of 2005, premises and equipment
expenses recorded were $1.57 million, an increase of $251 thousand or 19.1
percent, when compared to $1.32 million for the same quarter of 2004. In the
past year, premises and equipment expenses have increased due to the investment
in two new branches and a new operations center. In addition, the Corporation
invested in its technological capacity for this future growth and the
expectation of increased business activity.
The following table presents the components of other expense for the three
months ended March 31, 2005 and 2004:
Three Months Ended
March 31,
(In Thousands) 2005 2004
-------- --------
Salaries and employee benefits $ 3,652 $ 3,463
Premises and equipment 1,566 1,315
Advertising 154 101
Stationery and supplies 158 103
Professional fees 96 136
Telephone 103 101
Trust department expense 107 102
Postage 68 85
Other expense 651 633
-------- --------
Total other expense $ 6,555 $ 6,039
======== ========
12
NON-PERFORMING ASSETS: Other real estate owned (OREO), loans past due in excess
of 90 days and still accruing, and non-accrual loans are considered
non-performing assets. These assets totaled $255 thousand and $153 thousand at
March 31, 2005 and 2004, respectively. Loans past due in excess of 90 days and
still accruing are in the process of collection and are considered well secured.
The following table sets forth non-performing assets on the dates indicated, in
conjunction with asset quality ratios:
March 31,
(In thousands) 2005 2004
-------------------
Other real estate owned $ -- $ --
Loans past due in excess of 90 days and still accruing 12 52
Non-accrual loans 243 101
------- -------
Total non-performing assets $ 255 $ 153
======= =======
Non-performing loans as a % of total loans 0.04% 0.04%
Non-performing assets as a % of total
loans plus other real estate owned 0.04% 0.04%
Allowance as a % of total loans 1.00% 1.29%
PROVISION FOR LOAN LOSSES: The provision for loan losses was $150 thousand for
both the first quarters of 2005 and 2004. The amount of the loan loss provision
and the level of the allowance for loan losses are based upon a number of
factors including management's evaluation of probable losses inherent in the
portfolio, after consideration of appraised collateral values, financial
condition and past credit history of the borrowers as well as prevailing
economic conditions.
For the first quarter of 2005, net recoveries were $7 thousand as compared to
net charge-offs of $55 thousand during the first quarter of 2004.
A summary of the allowance for loan losses for the three-month period ended
March 31, follows:
(In thousands) 2005 2004
---- ----
Balance, January 1, $ 6,004 $ 5,467
Provision charged to expense 150 150
Loans charged off -- (65)
Recoveries 7 10
------- -------
Balance, March 31, $ 6,161 $ 5,562
======= =======
INCOME TAXES: Income tax expense as a percentage of pre-tax income was 32.3
percent and 31.6 percent for the three months ended March 31, 2005 and 2004,
respectively.
CAPITAL RESOURCES: The Corporation is committed to maintaining a strong capital
position. At March 31, 2005, total shareholders' equity, including net
unrealized losses on securities available for sale, was $94.3 million,
representing a decline in total shareholders' equity recorded at December 31,
2004, of $398 thousand or 0.4 percent. The Federal Reserve Board has adopted
risk-based capital guidelines for banks. The minimum guideline for the ratio of
total capital to risk-weighted assets is 8 percent. Tier 1 Capital consists of
common stock, retained earnings, minority interests in the equity accounts of
consolidated subsidiaries, non-cumulative preferred stock, less goodwill and
certain other intangibles. The remainder may consist of other preferred stock,
certain other instruments and a portion of the allowance for loan loss. At March
31, 2005, the Corporation's Tier 1 Capital and Total Capital ratios were 18.46
percent and 19.65 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines. These guidelines provide for a minimum ratio of Tier 1 Capital to
average total assets of 3 percent for banks that meet certain specified
criteria, including having the highest regulatory rating. All other banks are
generally required to maintain a leverage ratio of at least 3 percent plus an
additional 100 to 200 basis points. The Corporation's leverage ratio at March
31, 2005, was 8.62 percent.
13
LIQUIDITY: Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary investments
and securities available for sale.
Management's opinion is that the Corporation's liquidity position is sufficient
to meet future needs. Cash and cash equivalents, interest earning deposits and
federal funds sold totaled $24.9 million at March 31, 2005. In addition, the
Corporation has $371.0 million in securities designated as available for sale.
These securities can be sold in response to liquidity concerns or pledged as
collateral for borrowings as discussed below. Book value as of March 31, 2005,
of investment securities and securities available for sale maturing within one
year amounted to $21.9 million and $18.1 million, respectively.
The primary source of funds available to meet liquidity needs is the
Corporation's core deposit base, which excludes certificates of deposit greater
than $100 thousand. As of March 31, 2005, core deposits equaled $910.1 million.
Another source of liquidity is borrowing capacity. The Corporation has a variety
of sources of short-term liquidity available, including federal funds purchased
from correspondent banks, short-term and long-term borrowings from the Federal
Home Loan Bank of New York, access to the Federal Reserve Bank discount window
and loan participations or sales of loans. The Corporation also generates
liquidity from the regular principal payments made on its mortgage-backed
security and loan portfolios.
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. Statement 123(R) 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.
Statement 123(R) 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 January 1, 2006. The Corporation must use either the modified
prospective or the modified retrospective transition method. Early adoption of
Statement 123(R) 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.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to information required regarding
quantitative and qualitative disclosures about market risk from the end of the
preceding fiscal year to the date of the most recent interim financial
statements (March 31, 2005).
14
ITEM 4. Controls and Procedures
The Corporation's Chief Executive Officer and Chief Financial Officer, with the
assistance of other members of the Corporation's management, have evaluated the
effectiveness of the Corporation's disclosure controls and procedures as of the
end of the period covered by this Quarterly Report on Form 10-Q. Based on such
evaluation, the Corporation's Chief Executive Officer and Chief Financial
Officer have concluded that the Corporation's disclosure controls and procedures
are effective.
The Corporation's Chief Executive Officer and Chief Financial Officer have also
concluded that there have not been any changes in the Corporation's internal
control over financial reporting that have materially affected, or is reasonably
likely to materially affect, the Corporation's internal control over financial
reporting.
The Corporation's management, including the CEO and CFO, does not expect that
our disclosure controls and procedures or our internal controls will prevent all
errors and all fraud. A control system, no matter how well conceived and
operated, provides reasonable, not absolute, assurance that the objectives of
the control system are met. The design of a control system reflects resource
constraints; the benefits of controls must be considered relative to their
costs. Because there are inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Corporation have been or will be
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns occur because of simple error
or mistake. Controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the controls.
The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design
will succeed in achieving its stated goals under all future conditions; over
time, control may become inadequate because of changes in conditions or
deterioration in the degree of compliance with the policies or procedures.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Total Number of
Shares Maximum Number
Total Weighted Purchased as of Shares that May
Number of Average Part of Publicly Yet Be Purchased
Shares Price Paid Announced Plans Under the Plans
Period Purchased per Share or Programs or Programs
January 1-31, 2005 4,309 $ 31.13 -- --
February 1-28, 2005 1,320 28.14 -- --
March 1-31, 2005 1,073 27.03 -- --
------- ------- ------- -------
Total 6,702 $ 29.88 -- --
======= ======= ======= =======
Note: All shares listed above are added to treasury stock through the cashless
exercise of employee and director stock options as allowed in the Stock Option
Plans.
ITEM 5. Other Information
On January 13, 2005, the Board of Directors, with the Compensation Committee
members abstaining, approved an additional annual retainer of $10,000 for the
Compensation Committee Chair and an additional annual retainer of $1,000 for
each of the Compensation Committee members.
15
ITEM 6. Exhibits
a. Exhibits
3 Articles of Incorporation and By-Laws:
A. Restated Certificate of Incorporation as in effect on
the date of this filing is incorporated herein by
reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2003.
B. By-Laws of the Registrant as in effect on the date of
this filing are incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003.
31.1 Certification of Frank A. Kissel, Chief Executive Officer of
the Corporation, pursuant to Securities Exchange Act Rule
13a-14(a).
31.2 Certification of Arthur F. Birmingham, Chief Financial Officer
of the Corporation, pursuant to Securities Exchange Act Rule
13a-14(a).
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002,
signed by Frank A. Kissel, Chief Executive Officer of the
Corporation, and Arthur F. Birmingham, Chief Financial Officer
of the Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
DATE: May 9, 2005 By: /s/ Frank A. Kissel
-------------------------------------------------
FRANK A. KISSEL
Chairman of the Board and Chief Executive Officer
DATE: May 9, 2005 By: /s/ Arthur F. Birmingham
-------------------------------------------------
ARTHUR F. BIRMINGHAM
Executive Vice President and Chief Financial Officer
16
EXHIBIT INDEX
Number Description
- ------ -----------
3 Articles of Incorporation and By-Laws:
A. Restated Certificate of Incorporation as in effect on the date
of this filing is incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003.
B. By-Laws of the Registrant as in effect on the date of this
filing are incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003.
31.1 Certification of Frank A. Kissel, Chief Executive Officer of the
Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).
31.2 Certification of Arthur F. Birmingham, Chief Financial Officer of
the Corporation, pursuant to Securities Exchange Act Rule 13a-14(a).
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002, signed by
Frank A. Kissel, Chief Executive Officer of the Corporation, and
Arthur F. Birmingham, Chief Financial Officer of the Corporation.
17