SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 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 |_|.
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act. Yes |_| No |X|.
Number of shares of Common Stock outstanding as of November 1, 2005:
8,289,940
1
PEAPACK-GLADSTONE FINANCIAL CORPORATION
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):
Consolidated Statements of Condition September 30, 2005 and
December 31, 2004
Page 3
Consolidated Statements of Income for the three and nine
months ended September 30, 2005 and 2004 Page 4
Consolidated Statements of Changes in Shareholders' Equity
for the nine months ended September 30, 2005 and 2004 Page 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 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 18
Item 4 Controls and Procedures Page 18
PART II OTHER INFORMATION
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Page 19
Item 6 Exhibits Page 19
2
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
(Unaudited)
September 30, December 31,
2005 2004
-------------- --------------
ASSETS
Cash and due from banks $ 24,410 $ 15,631
Federal funds sold 19,523 101
Interest-earning deposits 830 786
-------------- --------------
Total cash and cash equivalents 44,763 16,518
Investment Securities Held to Maturity (approximate
market value $68,665 in 2005 and $87,544 in 2004) 69,060 87,128
Securities Available for Sale 316,287 354,186
Loans:
Loans secured by real estate 718,738 541,460
Other loans 33,314 30,704
-------------- --------------
Total loans 752,052 572,164
Less: Allowance for loan losses 6,514 6,004
-------------- --------------
Loans, net 745,538 566,160
Premises and equipment, net 21,487 20,163
Accrued interest receivable 4,848 4,375
Cash surrender value of life insurance 17,780 17,253
Other assets 5,173 1,612
-------------- --------------
TOTAL ASSETS $ 1,224,936 $ 1,067,395
============== ==============
LIABILITIES
Deposits:
Noninterest-bearing demand deposits $ 173,917 $ 162,275
Interest-bearing deposits:
Checking 189,577 194,669
Savings 95,859 106,576
Money market accounts 285,938 227,944
Certificates of deposit over $100,000 94,036 74,005
Certificates of deposit less than $100,000 204,750 170,197
-------------- --------------
Total deposits 1,044,077 935,666
Borrowed Funds 77,133 33,394
Accrued expenses and other liabilities 5,252 3,666
-------------- --------------
TOTAL LIABILITIES 1,126,462 972,726
-------------- --------------
SHAREHOLDERS' EQUITY
Common stock (no par value; stated value $0.83
per share; authorized 20,000,000 shares; issued shares,
8,467,417 at September 30, 2005 and 8,393,625 at December
31, 2004; outstanding shares, 8,292,414
at September 30, 2005 and 8,246,042 at December 31, 2004) 7,056 6,994
Surplus 88,858 87,991
Treasury Stock at cost, 175,003 shares in 2005
and 147,583 shares in 2004 (3,630) (2,867)
Retained Earnings 8,265 1,113
Accumulated other comprehensive (loss)/income, net of
income tax (2,075) 1,438
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 98,474 94,669
-------------- --------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,224,936 $ 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 Nine months ended
September 30, September 30,
2005 2004 2005 2004
---------- ---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans $ 10,282 $ 7,126 $ 27,649 $ 19,544
Interest on investment securities:
Taxable 350 623 1,278 2,069
Tax-exempt 296 262 880 700
Interest on securities available for sale:
Taxable 3,217 3,438 10,183 10,165
Tax-exempt 90 91 271 273
Interest-earning deposits 8 2 17 15
Interest on federal funds sold 23 5 46 43
---------- ---------- ---------- ----------
Total interest income 14,266 11,547 40,324 32,809
INTEREST EXPENSE
Interest on savings and interest-bearing deposit
accounts 2,333 932 5,842 2,446
Interest on certificates of deposit over $100,000 716 321 1,793 950
Interest on other time deposits 1,591 862 4,042 2,581
Interest on borrowed funds 864 410 1,912 953
---------- ---------- ---------- ----------
Total interest expense 5,504 2,525 13,589 6,930
---------- ---------- ---------- ----------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 8,762 9,022 26,735 25,879
Provision for loan losses 150 150 500 450
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,612 8,872 26,235 25,429
---------- ---------- ---------- ----------
OTHER INCOME
Trust division income 1,895 1,666 5,815 5,141
Service charges and fees 466 435 1,401 1,259
Securities gains, net 216 12 551 612
Bank owned life insurance 201 185 599 599
Other income 161 177 484 404
---------- ---------- ---------- ----------
Total other income 2,939 2,475 8,850 8,015
OTHER EXPENSES
Salaries and employee benefits 3,775 3,470 11,192 10,508
Premises and equipment 1,695 1,420 4,924 4,186
Other expense 1,391 1,252 4,318 3,991
---------- ---------- ---------- ----------
Total other expenses 6,861 6,142 20,434 18,685
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 4,690 5,205 14,651 14,759
Income tax expense 1,475 1,670 4,515 4,734
---------- ---------- ---------- ----------
NET INCOME $ 3,215 $ 3,535 $ 10,136 $ 10,025
========== ========== ========== ==========
EARNINGS PER SHARE
Basic $ 0.39 $ 0.43 $ 1.22 $ 1.22
Diluted $ 0.38 $ 0.42 $ 1.21 $ 1.19
Average basic shares outstanding 8,300,574 8,206,321 8,286,714 8,188,047
Average diluted shares outstanding 8,417,581 8,406,096 8,405,195 8,390,680
See accompanying notes to consolidated financial statements.
4
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2005 2004
---------- ----------
Balance, Beginning of Period $ 94,669 $ 85,054
Comprehensive income:
Net Income 10,136 10,025
Unrealized holding losses on securities
arising during the period, net of tax (3,155) (339)
Less: Reclassification adjustment for gains
included in net income, net of tax 358 398
---------- ----------
(3,513) (737)
---------- ----------
Total Comprehensive income 6,623 9,288
Common Stock Options Exercised 598 742
Purchase of Treasury Stock (763) (392)
Cash Dividends Declared (2,984) (2,319)
Tax Benefit on Disqualifying and Nonqualifying 331 313
Exercise of Stock Options
---------- ----------
Balance, September 30, $ 98,474 $ 92,686
========== ==========
See accompanying notes to consolidated financial statements.
5
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2005 2004
---------- ----------
OPERATING ACTIVITIES:
Net Income: $ 10,136 $ 10,025
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,474 1,220
Amortization of premium and accretion of
discount on securities, net 817 1,132
Provision for loan losses 500 450
Gains on security sales (170) (612)
Gain on loans sold (13) (2)
Gain on disposal of fixed assets (28) --
Tax benefit on stock option exercises 331 313
Increase in cash surrender value of life insurance, net (527) (534)
Increase in accrued interest receivable (473) (744)
Decrease in other assets (2,182) (869)
Decrease in accrued expenses and other
liabilities 2,090 885
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,955 11,264
---------- ----------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 31,277 21,507
Proceeds from maturities of securities available
for sale 31,344 31,728
Proceeds from calls of investment securities 4,685 745
Proceeds from calls of securities available for sale 7,000 4,600
Proceeds from sales of securities available for sale 34,800 92,817
Purchase of investment securities (18,087) (16,849)
Purchase of securities available for sale (41,349) (126,164)
Proceeds from sales of loans 2,316 532
Purchase of loans (108,339) (60,016)
Net increase in loans (73,842) (60,320)
Purchases of premises and equipment (2,817) (4,698)
Disposal of premises and equipment 47 --
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (132,965) (116,118)
---------- ----------
FINANCING ACTIVITIES:
Net increase in deposits 108,411 34,101
Net increase in short-term borrowings 45,000 46,500
Repayments of borrowed funds (1,261) (1,224)
Cash dividends paid (2,730) (2,230)
Exercise of stock options 598 742
Purchase of Treasury Stock (763) (392)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 149,255 77,497
---------- ----------
Net increase/(decrease) in cash and cash equivalents 28,245 (27,357)
Cash and cash equivalents at beginning of period 16,518 53,644
---------- ----------
Cash and cash equivalents at end of period $ 44,763 $ 26,287
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 12,676 $ 6,914
Income taxes 6,903 5,326
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 September 30, 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 Nine Months Ended
September 30, September 30,
(In Thousands Except per Share Data) 2005 2004 2005 2004
---------- ---------- ---------- ----------
Net Income:
As Reported $ 3,215 $ 3,535 $ 10,136 $ 10,025
Less: Total Stock-Based Compensation Expense
Determined under the Fair Value Based Method
on all Stock Options, Net of Related Tax Effects 99 100 296 1,460
---------- ---------- ---------- ----------
Pro Forma $ 3,116 $ 3,435 $ 9,840 $ 8,565
Earnings Per Share:
As Reported
Basic $ 0.39 $ 0.43 $ 1.22 $ 1.22
Diluted $ 0.38 $ 0.42 $ 1.21 $ 1.19
Pro Forma
Basic $ 0.38 $ 0.42 $ 1.19 $ 1.05
Diluted $ 0.37 $ 0.41 $ 1.17 $ 1.02
7
Earnings per Common Share - Basic and Diluted: The following is a reconciliation
of the calculation of basic and diluted earnings per share. Basic net income per
common share is calculated by dividing net income to common shareholders by the
weighted average common shares outstanding during the reporting period. Diluted
net income per common share is computed similarly to that of basic net income
per common share, except that the denominator is increased to include the number
of additional common shares that would have been outstanding if all potentially
dilutive common shares, principally stock options, were issued during the
reporting period utilizing the Treasury stock method.
Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands, except per share data) 2005 2004 2005 2004
---------- ---------- ---------- ----------
Net Income to Common Shareholders $ 3,215 $ 3,535 $ 10,136 $ 10,025
Basic Weighted-Average Common Shares Outstanding 8,300,574 8,206,321 8,286,714 8,188,047
Plus: Common Stock Equivalents 117,007 199,775 118,481 202,633
---------- ---------- ---------- ----------
Diluted Weighted-Average Common Shares Outstanding 8,417,581 8,406,096 8,405,195 8,390,680
Net Income Per Common Share
Basic $ 0.39 $ 0.43 $ 1.22 $ 1.22
Diluted 0.38 0.42 1.21 1.19
Options to purchase 327,774 shares of common stock at a weighted average price
of $28.93 per share were outstanding and were not included in the computation of
diluted earnings per share in the third quarter of 2005 because the option price
was greater than the average market price. Options to purchase 326,774 shares of
common stock at a weighted average price of $28.94 per share were outstanding
and were not included in the year-to-date 2005 computation of diluted earnings
per share because the option price was greater than the average market price.
Options to purchase 320,804 shares of common stock at a weighted average price
of $29.03 per share were outstanding and were not included in the computation of
diluted earnings per share in the third quarter of 2004 because the option price
was greater than the average market price. Options to purchase 23,209 shares of
common stock at a weighted average price of $30.87 per share were outstanding
and were not included in the year-to-date 2004 computation of diluted earnings
per share because the option price was greater than the average market price.
Comprehensive Income: The difference between the Corporation's net income and
total comprehensive income for the three and nine months ended September 30,
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
nine months ended September 30, 2005 and 2004 was $6.6 million and $9.3 million,
respectively.
2. LOANS
Loans outstanding as of September 30, consisted of the following:
(In Thousands) 2005 2004
---------- ----------
Loans Secured by 1-4 Family $ 500,875 $ 340,137
Commercial Real Estate 187,210 157,312
Construction Loans 30,653 16,463
Commercial Loans 24,660 22,112
Consumer Loans 6,134 7,417
Other Loans 2,520 3,301
---------- ----------
Total Loans $ 752,052 $ 546,742
========== ==========
3. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
At September 30, 2005 and 2004, advances from the Federal Home Loan Bank of New
York (FHLB) totaled $77.1 million and $75.3 million, respectively, with a
weighted average interest rate of 3.35 percent and 2.65 percent, respectively.
These advances are secured by blanket pledges of certain 1-4 family residential
mortgages totaling $212.6 million at September 30, 2005. At September 30, 2005,
advances totaling $23.0 million have fixed maturity dates, advances totaling
$9.1 million were amortizing advances with monthly payments of principal and
interest and $45 million are floating rate advances with a 90-day original term.
8
The final maturity dates of the advances are scheduled as follows:
(In Thousands)
2005 $45,000
2006 6,000
2007 4,000
2008 1,599
2009 2,000
Over 5 Years 18,534
-------
Total $77,133
=======
4. BENEFIT PLANS
The Corporation has a defined benefit pension plan covering substantially all of
its salaried employees.
The net periodic expense for the three and nine months ended September 30
included the following components:
Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands) 2005 2004 2005 2004
------- ------- ------- -------
Service Cost $ 351 $ 275 $ 1,053 $ 824
Interest Cost 146 126 439 378
Expected Return on Plan Assets (133) (117) (400) (351)
Amortization of:
Net Loss 16 6 50 18
Unrecognized Prior Service Cost 1 -- 1 (1)
Unrecognized Remaining Net Assets (2) (2) (5) (5)
------- ------- ------- -------
Net Periodic Benefit Cost $ 379 $ 288 $ 1,138 $ 863
======= ======= ======= =======
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 September 30, 2005, contributions of $954 thousand had been made
in the current year.
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 costs in connection with the additional branch
openings.
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.
o Disallowance of tax strategies.
9
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.
EXECUTIVE SUMMARY: Net income was $3.2 million for the third quarter ended
September 30, 2005, compared to $3.5 million for the third quarter of 2004,
representing a 9.1 percent decline. Diluted earnings per share declined to $0.38
for the third quarter of 2005 from $0.42 for the same period in 2004. Net income
for the nine months ended September 30, 2005 was $10.1 million compared to $10.0
million for the same period in 2004. Diluted earnings per share increased to
$1.21 for the nine months ended September 30, 2005, compared to $1.19 for the
same period a year ago.
For the quarter ended September 30, 2005, the Corporation achieved an annualized
return on average shareholders equity of 13.00 percent and an annualized return
on average assets of 1.08 percent.
Net interest income for the current quarter declined $235 thousand on a tax
equivalent basis to $9.0 million as compared to $9.3 million in the third
quarter of 2004, and the net interest margin declined to 3.18 percent from 3.78
percent in the third quarter of 2004 and 3.37 percent in the second quarter of
2005.
The net interest margin and the corresponding net interest income continues to
be negatively impacted by a combination of an aberrant rate cycle, market
pressure on loan spreads and the change in deposit funding mix towards higher
cost certificates and money market accounts. While the net interest margin will
likely remain under pressure in the short term, we believe the relatively short
repricing term of our earning assets will yield margin expansion if the interest
rate yield curve returns to more historically normal levels.
Average loans grew by $225.0 million for the quarter ended September 30, 2005,
or 44.8 percent as a result of new business development, higher originations and
the purchase of adjustable-rate mortgage loans from a third-party entity. The
yield on loans declined to 5.66 percent, representing a two basis point decrease
from the third quarter of 2004. Credit quality has remained high and loan
delinquencies have continued at very low levels.
Average interest-bearing deposits increased $107.4 million, or 15.0 percent, for
the third quarter of 2005, compared with the same period in 2004. Average demand
deposits increased $14.9 million or 9.5 percent for the third quarter of 2005 as
compared to the year ago period. Average borrowings increased by $27.9 million
compared to the prior year. Higher average borrowings were used to fund growth
in the loan portfolios. The cost of deposits and borrowings increased by 95
basis points over the prior year period to 2.02 percent.
10
EARNINGS ANALYSIS
NET INTEREST INCOME: Net interest income, on a tax-equivalent basis, for the
third quarter of 2005 decreased $235 thousand or 2.5 percent to $9.0 million
over the same quarter of 2004 and $187 thousand or 2.0 percent over the second
quarter of 2005. The net interest margin on a tax-equivalent basis was 3.18
percent, 19 basis points lower than the second quarter of 2005. The decline was
mainly the result of the flattening of the yield curve with funding costs
increasing faster than yields on new and repricing term loans and investments.
The overall yield on interest-earning assets increased over the second quarter
of 2005 by 12 basis points, while deposit and borrowing costs increased 33 basis
points causing the narrowing of the margin. Deposit and borrowing costs have
been increasing mainly due to competitive pricing pressure combined with rising
short-term interest rates.
For the third quarter of 2005, average loans increased $225.0 million or 44.8
percent while average investments declined $72.0 million or 15.2 percent over
the same period in 2004. Compared to the linked second quarter of 2005, average
loans grew $77.8 million or 12.0 percent, while the average balance of
investments declined $39.1 million or 8.9 percent. Proceeds from sold or matured
securities were used to fund higher yielding loans in both periods.
Average interest-bearing liabilities for the quarter ended September 30, 2005
increased $135.3 million or 17.3 percent as compared to the quarter ended
September 30, 2004 and increased $44.3 million or 5.1 percent as compared with
the second quarter of 2005. Average total interest-bearing deposits increased
$107.4 million or 15.0 percent for the quarter ended September 30, 2005 as
compared with the same period in 2004 and increased $22.6 million or 2.8 percent
compared with the second quarter of 2005. These increases were primarily
attributed to the opening of the Morristown and Bridgewater branches and
successful marketing of new certificate and money market products.
Interest on loans increased $1.19 million for the third quarter of 2005 compared
to the second quarter of 2005 due to the increased volume of loans and higher
short-term interest rates. Interest from investments declined $341 thousand, on
a tax-equivalent basis, for the three month period ended September 30, 2005
compared with the quarter ended June 30, 2005 mainly due to lower average
balances offset in part by higher rates earned. The Federal Reserve increased
short-term interest rates 11 times from June 2004 through September 2005,
including two 25 basis point increases in the third quarter of 2005. The
Corporation's prime rate moved in conjunction with each interest rate increase,
which resulted in higher interest income during the quarters on commercial and
home equity loans tied to the prime lending rate.
Interest expense for the three months ended September 30, 2005 increased $1.05
million compared with the quarter ended June 30, 2005. This increase was
primarily due to increased deposit interest rates due to pressures on deposit
pricing from the market place and competitors, customers shifting deposits into
higher yielding products and higher borrowing costs due to the rise in
short-term rates.
11
The following table reflects the components of net interest income for the three
months ended September 30, 2005 and 2004:
Average Balance Sheet
Unaudited
Quarters Ended
(Tax-Equivalent Basis, Dollars in Thousands)
September 30, 2005 September 30, 2004
------------------ ------------------
Average Income/ Average Income/
Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- -----
ASSETS:
Interest-Earning Assets:
Investments:
Taxable (1) $ 350,342 $ 3,567 4.07% $ 427,945 $ 4,061 3.80%
Tax-Exempt (1) (2) 52,334 638 4.88 46,753 582 4.98
Loans (2) (3) 727,517 10,291 5.66 502,552 7,133 5.68
Federal Funds Sold 2,670 23 3.40 1,475 5 1.36
Interest-Earning Deposits 1,014 8 3.18 715 2 1.12
----------- ------------------- ----------- --------------------
Total Interest-Earning Assets 1,133,877 $ 14,527 5.12% 979,440 $ 11,783 4.81%
----------- ------------------- ----------- --------------------
Noninterest-Earning Assets:
Cash and Due from Banks 21,171 19,969
Allowance for Loan Losses (6,367) (5,769)
Premises and Equipment 21,606 18,242
Other Assets 24,697 23,407
----------- -----------
Total Noninterest-Earning Assets 61,107 55,849
----------- -----------
Total Assets $ 1,194,984 $ 1,035,289
=========== ===========
LIABILITIES:
Interest-Bearing Deposits
Checking $ 196,156 $ 674 1.37% $ 165,293 $ 279 0.68%
Money Markets 154,565 1,124 2.91 66,220 117 0.71
Tiered Money Markets 95,849 363 1.51 155,854 367 0.94
Savings 98,657 172 0.70 109,557 169 0.62
Certificates of Deposit 277,733 2,307 3.32 218,611 1,183 2.16
----------- ------------------- ----------- --------------------
Total Interest-Bearing Deposits 822,960 4,640 2.26 715,535 2,115 1.18
Borrowings 96,398 864 3.59 68,474 410 2.40
----------- ------------------- ----------- --------------------
Total Interest-Bearing Liabilities 919,358 5,504 2.39 784,009 2,525 1.29
----------- ------------------- ----------- --------------------
Noninterest Bearing
Liabilities
Demand Deposits 172,421 157,508
Accrued Expenses and
Other Liabilities 4,287 5,409
----------- -----------
Total Noninterest-Bearing
Liabilities 176,708 162,917
Shareholders' Equity 98,918 88,363
----------- -----------
Total Liabilities and
Shareholders' Equity $ 1,194,984 $ 1,035,289
=========== ===========
Net Interest Income
(tax-equivalent basis) 9,023 9,258
Net Interest Spread 2.73% 3.52%
==== ====
Net Interest Margin (4) 3.18% 3.78%
==== ====
Tax equivalent adjustment (261) (236)
----------- -----------
Net Interest Income $ 8,762 $ 9,022
=========== ===========
(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.
12
The following table reflects the components of net interest income for the three
months ended September 30, 2005 and June 30, 2005:
Average Balance Sheet
Unaudited
Quarters Ended
(Tax-Equivalent Basis, Dollars in Thousands)
September 30, 2005 June 30, 2005
------------------ -------------
Average Income/ Average Income/
Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- -----
ASSETS:
Interest-Earning Assets:
Investments:
Taxable (1) $ 350,342 $ 3,567 4.07% $ 385,908 $ 3,891 4.03%
Tax-Exempt (1) (2) 52,334 638 4.88 55,881 655 4.69
Loans (2) (3) 727,517 10,291 5.66 649,733 9,101 5.60
Federal Funds Sold 2,670 23 3.40 1,719 12 2.90
Interest-Earning Deposits 1,014 8 3.18 776 6 3.02
----------- -------------------- ----------- -------------------
Total Interest-Earning Assets 1,133,877 $ 14,527 5.12% 1,094,017 $ 13,665 5.00%
----------- -------------------- ----------- -------------------
Noninterest-Earning Assets:
Cash and Due from Banks 21,171 21,641
Allowance for Loan Losses (6,367) (6,166)
Premises and Equipment 21,606 21,155
Other Assets 24,697 23,703
----------- -----------
Total Noninterest-Earning Assets 61,107 60,333
----------- -----------
Total Assets $ 1,194,984 $ 1,154,350
=========== ===========
LIABILITIES:
Interest-Bearing Deposits
Checking $ 196,156 $ 674 1.37% $ 205,237 $ 609 1.19%
Money Markets 154,565 1,124 2.91 130,355 789 2.42
Tiered Money Markets 95,849 363 1.51 103,468 375 1.45
Savings 98,657 172 0.70 101,952 177 0.69
Certificates of Deposit 277,733 2,307 3.32 259,392 1,895 2.92
----------- -------------------- ----------- -------------------
Total Interest-Bearing Deposits 822,960 4,640 2.26 800,404 3,845 1.92
Borrowings 96,398 864 3.59 74,668 610 3.27
----------- -------------------- ----------- -------------------
Total Interest-Bearing Liabilities 919,358 5,504 2.39 875,072 4,455 2.04
----------- -------------------- ----------- -------------------
Noninterest Bearing
Liabilities
Demand Deposits 172,421 177,270
Accrued Expenses and
Other Liabilities 4,287 5,297
----------- -----------
Total Noninterest-Bearing
Liabilities 176,708 182,567
Shareholders' Equity 98,918 96,711
----------- -----------
Total Liabilities and
Shareholders' Equity $ 1,194,984 $ 1,154,350
=========== ===========
Net Interest Income
(tax-equivalent basis) 9,023 9,210
Net Interest Spread 2.73% 2.96%
==== ====
Net Interest Margin (4) 3.18% 3.37%
==== ====
Tax equivalent adjustment (261) (265)
----------- -----------
Net Interest Income $ 8,762 $ 8,945
=========== ===========
(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.
13
The following table reflects the components of net interest income for the nine
months ended September 30, 2005 and 2004:
Average Balance Sheet
Unaudited
Year-to-Date
(Tax-Equivalent Basis, Dollars in Thousands)
September 30, 2005 September 30, 2004
------------------ ------------------
Average Income/ Average Income/
Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- -----
ASSETS:
Interest-Earning Assets:
Investments:
Taxable (1) $ 379,263 $ 11,461 4.03% $ 429,385 $ 12,234 3.80%
Tax-Exempt (1) (2) 53,321 1,898 4.75 42,018 1,606 5.09
Loans (2) (3) 657,264 27,673 5.61 457,791 19,561 5.70
Federal Funds Sold 2,057 46 2.97 5,841 43 0.98
Interest-Earning Deposits 806 17 2.87 1,905 15 1.05
----------- -------------------- ----------- -------------------
Total Interest-Earning Assets 1,092,711 $ 41,095 5.01% 936,940 $ 33,459 4.76%
----------- -------------------- ----------- -------------------
Noninterest-Earning Assets:
Cash and Due from Banks 21,260 19,483
Allowance for Loan Losses (6,188) (5,640)
Premises and Equipment 20,984 17,255
Other Assets 24,534 25,825
----------- -----------
Total Noninterest-Earning Assets 60,590 56,923
----------- -----------
Total Assets $ 1,153,301 $ 993,863
=========== ===========
LIABILITIES:
Interest-Bearing Deposits
Checking $ 200,727 $ 1,811 1.20% $ 153,285 $ 629 0.55%
Money Markets 130,224 2,348 2.40 65,926 311 0.63
Tiered Money Markets 107,292 1,153 1.43 148,167 1,013 0.91
Savings 102,077 530 0.69 106,393 493 0.62
Certificates of Deposit 263,072 5,835 2.96 221,711 3,531 2.12
----------- -------------------- ----------- -------------------
Total Interest-Bearing Deposits 803,392 11,677 1.94 695,482 5,977 1.15
Borrowings 76,013 1,912 3.35 48,017 953 2.64
----------- -------------------- ----------- -------------------
Total Interest-Bearing Liabilities 879,405 13,589 2.06 743,499 6,930 1.24
----------- -------------------- ----------- -------------------
Noninterest Bearing
Liabilities
Demand Deposits 172,033 156,740
Accrued Expenses and
Other Liabilities 4,806 6,188
----------- -----------
Total Noninterest-Bearing
Liabilities 176,839 162,928
Shareholders' Equity 97,057 87,436
----------- -----------
Total Liabilities and
Shareholders' Equity $ 1,153,301 $ 993,863
=========== ===========
Net Interest Income
(tax-equivalent basis) 27,506 26,529
Net Interest Spread 2.95% 3.52%
==== ====
Net Interest Margin (4) 3.36% 3.78%
==== ====
Tax equivalent adjustment (771) (650)
----------- -----------
Net Interest Income $ 26,735 $ 25,879
=========== ===========
(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.
14
OTHER INCOME: For the three and nine months ended September 30, 2005, other
income increased $464 thousand or 18.7 percent and $835 thousand or 10.4
percent, respectively. The increases were due to higher trust division fees and
service charges on deposit accounts.
Income from PGB Trust and Investments, the Bank's trust division, was $1.9
million, an increase of $229 thousand or 13.7 percent for the third quarter of
2005 compared to the same period a year ago. For the first nine months of 2005,
trust fees were $5.8 million as compared to $5.1 million for the same period in
2004, an increase of $674 thousand or 13.1 percent. The increased fee income is
attributable to growth in client assets, which increased $154.4 million, or 9.9
percent, in market value over the third quarter of 2004.
Service charges on deposit accounts increased $31 thousand or 7.1 percent for
the third quarter of 2005 and increased $142 thousand or 11.3 percent for the
nine months ended September 30, 2005, compared with the same period in 2004.
These increases were primarily due to the introduction of a new overdraft
protection product.
Gains on securities transactions, net, increased $204 thousand in the third
quarter of 2005 and declined $61 thousand for the nine months ended September
30, 2005 as compared to the same periods in 2004.
The following table presents the components of other income for the three and
nine months ended September 30, 2005 and 2004:
Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands) 2005 2004 2005 2004
-------- -------- -------- --------
Trust division income $ 1,895 $ 1,666 $ 5,815 $ 5,141
Service charges and fees 466 435 1,401 1,259
Securities gains, net 216 12 551 612
Bank owned life insurance 201 185 599 599
Other non-interest income 73 84 224 168
Safe deposit rental fees 64 64 179 179
Fees for other services 24 29 81 57
-------- -------- -------- --------
Total other income $ 2,939 $ 2,475 $ 8,850 $ 8,015
======== ======== ======== ========
OTHER EXPENSES: Other expenses increased by $719 thousand or 11.7 percent and
$1.7 million or 9.4 percent for the three and nine months ended September 30,
2005 compared with the same periods in 2004, primarily due to increases in
salaries and employee benefits and premises and equipment expenses. The
Corporation incurred these additional expenses to support branch expansion and
new business development initiatives.
Salary and employee benefits increased $305 thousand or 8.8 percent and $684
thousand or 6.5 percent for the three and nine months ended September 30, 2005,
compared with the same periods in the prior year. At September 30, 2005, the
Corporation's full-time equivalent staff was 224 compared with 212 at September
30, 2004. Normal salary increases, as well as additions to staff, branch
expansion and higher group health insurance and pension plan costs accounted for
the increase.
Premises and equipment expense for the three and nine months ended September 30,
2005 increased $275 thousand or 19.4 percent and $738 thousand or 17.6 percent
compared with the same periods in 2004. These increases were largely due to
business expansion such as new and refurbished branches, as well as, higher
depreciation charges in connection with investments in technology and
facilities.
Other expense, excluding salaries and employee benefits and premises and
equipment, increased $139 thousand or 11.1 percent and $327 thousand or 8.2
percent for the three and nine months ended September 30, 2005 as compared to
the same periods in 2004. The significant components of other expense include
advertising, stationery, professional fees and trust division expense.
15
The following table presents the components of other expense for the three and
nine months ended September 30, 2005 and 2004:
Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands) 2005 2004 2005 2004
-------- -------- -------- --------
Salaries and employee benefits $ 3,775 $ 3,470 $ 11,192 $ 10,508
Premises and equipment 1,695 1,420 4,924 4,186
Advertising 178 110 670 439
Stationery and supplies 128 141 426 408
Professional fees 116 120 359 371
Trust division expense 99 103 308 296
Telephone 88 113 280 356
Postage 74 70 212 250
Other expense 708 595 2,063 1,871
-------- -------- -------- --------
Total other expense $ 6,861 $ 6,142 $ 20,434 $ 18,685
======== ======== ======== ========
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 $532 thousand and $289 thousand at
September 30, 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:
September 30,
(In thousands) 2005 2004
-------- --------
Other real estate owned $ -- $ --
Loans past due in excess of 90 days and still accruing 192 188
Non-accrual loans 340 101
-------- --------
Total non-performing assets $ 532 $ 289
======== ========
Non-performing loans as a % of total loans 0.07% 0.05%
Non-performing assets as a % of total
loans plus other real estate owned 0.07% 0.05%
Allowance as a % of total loans 0.87% 1.07%
PROVISION FOR LOAN LOSSES: The provision for loan losses was $150 thousand for
the third 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 nine months ended September 30, 2005, the provision for loan losses was $500
thousand as compared to $450 thousand for the same nine-month period last year.
For the third quarter of 2005, net recoveries were $2 thousand as compared to
net recoveries of $4 thousand during the third quarter of 2004. Net recoveries
for the nine months ended September 30, 2005 were $10 thousand as compared to
net charge-offs of $65 thousand for the nine months ended September 30, 2004.
A summary of the allowance for loan losses for the nine-month periods ended
September 30, follows:
(In Thousands) 2005 2004
---- ----
Balance, January 1, $ 6,004 $ 5,467
Provision charged to expense 500 450
Loans charged off (3) (77)
Recoveries 13 12
------- -------
Balance, September 30, $ 6,514 $ 5,852
======= =======
16
INCOME TAXES: Income tax expense as a percentage of pre-tax income was 31.4
percent and 32.1 percent for the three months ended September 30, 2005 and 2004,
respectively. On a year to date basis, income tax expense as a percentage of
pre-tax income was 30.8 percent in 2005 and 32.1 percent in 2004. The rate of
income tax expense declined due to higher levels of tax-exempt income as well as
a decline in the state income tax due to higher taxable income in the Real
Estate Investment Trust subsidiary, which has a lower effective tax rate.
CAPITAL RESOURCES: The Corporation is committed to maintaining a strong capital
position. At September 30, 2005, total shareholders' equity, including net
unrealized losses on securities available for sale, was $98.5 million,
representing an increase in total shareholders' equity recorded at December 31,
2004, of $3.8 million or 4.0 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
September 30, 2005, the Corporation's Tier 1 Capital and Total Capital ratios
were 17.05 percent and 18.16 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines. These guidelines provide for a minimum ratio of Tier 1 Capital to
average total assets of 3 percent for banks that meet certain specified
criteria, including having the highest regulatory rating. All other banks are
generally required to maintain a leverage ratio of at least 3 percent plus an
additional 100 to 200 basis points. The Corporation's leverage ratio at
September 30, 2005, was 8.67 percent.
LIQUIDITY: Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary investments
and securities available for sale.
Management's opinion is that the Corporation's liquidity position is sufficient
to meet future needs. Cash and cash equivalents, interest earning deposits and
federal funds sold totaled $44.8 million at September 30, 2005. In addition, the
Corporation had $316.3 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 September 30,
2005, of investment securities and securities available for sale maturing within
one year amounted to $15.4 million and $25.7 million, respectively.
The primary source of funds available to meet liquidity needs is the
Corporation's core deposit base, which excludes certificates of deposit greater
than $100 thousand. As of September 30, 2005, core deposits equaled $950.0
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.
17
Financial Accounting Standards Board (FASB) Statement No. 154, Accounting
Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB
Statement No. 3, changes the requirements for the accounting for and reporting
of a change in accounting principle. The Statement applies to all voluntary
changes in accounting principle and to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. The Corporation does
not expect FAS No. 154 to impact on the consolidated financial statements at
this time.
The American Institute of Certified Public Accountants (AICPA) Accounting
Standards Executive Committee (AcSEC) Statements of Position (SOP) 03-3,
Accounting for Certain Loans or Debt Securities Acquired in a Transfer, issued
in December 2003, effective for loans acquired in fiscal years beginning after
December 15, 2004, with early adoption encouraged. SOP 03-3 addresses accounting
for differences between contractual cash flows and cash flows expected to be
collected from an investors initial investments in loans or debt securities
(loans) acquired in a transfer if those differences are attributable, at least
in part, to credit quality. It includes loans acquired in business combinations
and applies to all nongovernmental entities, including not-for-profit
organizations, but does not apply to loans originated by the entity. A
transition provision applies for certain aspects of loans currently within the
scope of Practice Bulletin 6, Amortization of Discounts on Certain Acquired
Loans. The Corporation does not expect SOP 03-3 to 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 (September 30, 2005).
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.
18
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
Purchased as of Shares that May
Total Number Average Part of Publicly Yet Be Purchased
of Shares Price Paid Announced Plans Under the Plans or
Period Purchased per Share or Programs Programs
- -------------------- -------------- --------------- ---------------- --------------------
July 1-31, 2005 -- $ -- -- 150,000
August 1-31, 2005 7,300 26.95 7,300 142,700
September 1-30, 2005 8,700 27.51 8,700 134,000
--------------- --------------- ----------------
Total 16,000 27.25 16,000
=============== =============== ================
On April 15, 2005, the Board of Directors of Peapack-Gladstone Financial
Corporation announced the authorization of a stock repurchase plan. The Board
authorized the purchase of up to 150,000 shares of outstanding common stock, to
be made from time to time, in the open market or in privately negotiated
transactions, at prices not exceeding prevailing market prices. The plan expires
on April 15, 2006.
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.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
DATE: November 7, 2005 By: /s/ Frank A. Kissel
-------------------------------------------------
FRANK A. KISSEL
Chairman of the Board and Chief Executive Officer
DATE: November 7, 2005 By: /s/ Arthur F. Birmingham
--------------------------------------------------
ARTHUR F. BIRMINGHAM
Executive Vice President and Chief Financial Officer
20
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.
21