FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-3537895
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
158 ROUTE 206 NORTH, GLADSTONE, NEW JERSEY 07934
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER (908) 234-0700
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.
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Number of shares of Common stock outstanding as of March 31, 2001:
3,028,480
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
PART I. FINANCIAL INFORMATION
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the December
31, 2000 Annual Report on Form 10-K for Peapack-Gladstone Financial Corporation
(the "Corporation").
The Corporation considers that all adjustments (all of which are normal
recurring accruals) necessary for a fair statement of the financial position and
results of operations for these periods have been made. Results for such interim
periods are not necessarily indicative of results for a full year.
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
(Unaudited)
March 31, December 31,
2001 2000
--------- ------------
ASSETS
Cash and due from banks $ 13,059 $ 17,881
Federal funds sold 49,160 36,376
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Total cash and cash equivalents 62,219 54,257
Interest-bearing deposits 15,000 --
Investment Securities:(approximate market value
$65,354 in 2001 and $70,230 in 2000) 63,605 69,575
Securities Available for Sale:(amortized cost
$93,374 in 2001 and $86,069 in 2000) 93,819 85,331
Loans:
Loans secured by real estate 329,066 315,655
Other loans 27,798 28,644
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Total loans 356,864 344,299
Less: Allowance for loan losses 3,564 3,435
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Net loans 353,300 340,864
Premises and equipment, net 12,137 11,661
Other real estate owned 75 --
Accrued interest receivable 3,846 4,164
Other assets 2,629 2,561
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TOTAL ASSETS $ 606,630 $ 568,413
========= =========
LIABILITIES
Deposits:
Noninterest-bearing demand deposits $ 100,844 $ 103,858
Interest-bearing deposits:
Checking 100,784 108,780
Savings 76,594 74,657
Money market accounts 100,333 67,962
Certificates of deposit over $100,000 45,585 40,064
Certificates of deposit less than $100,000 119,764 114,939
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Total deposits 543,904 510,260
Accrued expenses and other liabilities 5,263 2,997
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TOTAL LIABILITIES 549,167 513,257
STOCKHOLDERS' EQUITY
Common stock (no par value; stated value
$1 2/3 per share; authorized 10,000,000
shares; issued at March 31, 2001
3,054,614 shares; issued at December
31, 2000 3,038,715 shares.) 5,086 5,064
Surplus 25,263 25,104
Treasury Stock at cost, 26,134 shares in 2001
and 20,642 shares in 2000 (1,182) (956)
Retained Earnings 28,028 26,420
Accumulated other comprehensive income-
net unrealized gains/(losses) on securities
available for sale (net of income taxes) 268 (476)
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TOTAL STOCKHOLDERS' EQUITY 57,463 55,156
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 606,630 $ 568,413
========= =========
See accompanying notes to consolidated financial statements.
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
Three months ended
March 31,
----------------------------
2001 2000
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INTEREST INCOME
Interest and fees on loans $ 6,791 $ 5,876
Interest on investment securities:
Taxable 908 807
Tax-exempt 152 156
Interest on securities available for sale:
Taxable 1,352 1,512
Interest-bearing deposits 46 --
Interest on federal funds sold 606 246
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Total interest income 9,855 8,597
INTEREST EXPENSE
Interest on savings account deposits 1,587 979
Interest on certificates of deposit over $100,000 659 297
Interest on other time deposits 1,749 1,468
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Total interest expense 3,995 2,744
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NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 5,860 5,853
Provision for loan losses 126 126
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,734 5,727
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OTHER INCOME
Service charges and fees for other services 343 425
Trust Department income 1,135 1,004
Securities Gains -- 1
Other income 65 11
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Total other income 1,543 1,441
OTHER EXPENSES
Salaries and employee benefits 2,387 2,245
Premises and equipment 846 789
Merger related charges -- 500
Other expense 1,018 994
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Total other expenses 4,251 4,528
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INCOME BEFORE INCOME TAX EXPENSE 3,026 2,640
Income tax expense 996 911
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NET INCOME $ 2,030 $ 1,729
========== ==========
EARNINGS PER SHARE
Basic $ 0.67 $ 0.57
Diluted $ 0.66 $ 0.56
Average basic shares outstanding 3,021,725 3,015,072
Average diluted shares outstanding 3,082,369 3,086,584
See accompanying notes to consolidated financial statements.
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------------
2001 2000
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Balance, Beginning of Period $ 55,156 $ 47,575
Comprehensive income:
Net Income 2,030 1,729
Unrealized holding gains/(losses) on securities
arising during the period, net of tax 744 (151)
Less: Reclassification adjustment for losses/gains
included in net income -- 1
-------- --------
Unrealized holding losses on securities
arising during the period, net of tax 744 (150)
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Total Comprehensive income 2,774 1,579
Common Stock Options Exercised 183 6
Purchase of Treasury Stock (226) --
Cash Dividends Declared (424) (373)
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Balance, March 31, $ 57,463 $ 48,787
======== ========
See accompanying notes to consolidated financial statements.
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------------
2001 2000
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OPERATING ACTIVITIES:
Net Income: $ 2,030 $ 1,729
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 270 254
Amortization of premium and accretion of
discount on securities, net 38 70
Provision for loan losses 126 126
Gains on security sales -- (1)
Decrease/(increase) in interest receivable 318 (261)
Decrease in other assets (339) (54)
Increase/(decrease) in other liabilities 2,099 (1,310)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 4,542 553
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INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 1,879 8,922
Proceeds from maturities of securities available
for sale 17,924 5,156
Proceeds from calls of investment securities 5,000 10
Proceeds from sales and calls of securities available
for sale 13,400 --
Purchase of investment securities (916) (10,594)
Purchase of securities available for sale (38,661) (1,800)
Net increase in short term investments (15,000) --
Net increase in loans (12,562) (16,512)
Net increase in other real estate (75) --
Purchase of premises and equipment (746) (1,733)
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NET CASH USED IN INVESTING ACTIVITIES (29,757) (16,551)
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FINANCING ACTIVITIES:
Net increase in deposits 33,644 17,750
Dividends paid (424) (373)
Exercise of stock options 183 78
Purchase of Treasury Stock (226) --
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NET CASH PROVIDED BY FINANCING ACTIVITIES 33,177 17,455
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Net increase in cash and cash equivalents 7,962 1,457
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Cash and cash equivalents at beginning of period 54,257 33,017
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Cash and cash equivalents at end of period $ 62,219 $ 34,474
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits $ 3,496 $ 3,150
Income taxes 73 10
See accompanying notes to consolidated financial statements.
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION
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, the Peapack-Gladstone Bank. All significant
intercompany balances and transactions have been eliminated from the
accompanying consolidated financial statements.
2. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that management considers
adequate to reflect the risk of future losses inherent in the Corporation's loan
portfolio. In its evaluation of the adequacy of the allowance for loan losses,
management considers past loan loss experience, changes in the composition of
non-performing loans, the condition of borrowers facing financial pressure, the
relationship of the current level of the allowance to the credit portfolio and
to non-performing loans and existing economic conditions. The process of
determining the adequacy of the allowance is necessarily judgmental and subject
to changes in external conditions. The allowance is increased by provisions
charged to expense and reduced by net charge-offs.
3. EARNINGS PER COMMON SHARE - BASIC AND DILUTED
Basic earnings per share is computed by dividing income available to common
stockholders 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).
4. COMPREHENSIVE INCOME
The Corporation's total comprehensive income for the three months ended March
31, 2001 and 2000 was $2.77 million and $1.58 million, respectively. The
difference between the Corporation's net income and total comprehensive income
for the three months ended March 31, 2001 and 2000 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.
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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL: This Form 10-Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 which involve risks and
uncertainties. Such statements are not historical facts and include expressions
about management's confidence and strategies and management's expectations about
new and existing programs and products, relationships, opportunities, technology
and market conditions. You can identify forward looking statements by looking
for words such as "expect", "look", "believe", "anticipate", "may", "will", or
similar statements or variations of such terms. These forward-looking statements
involve certain risks and uncertainties. Actual results may differ materially
from the results the forward-looking statements contemplate because of, among
others, the following factors: the direction of interest rates is different than
anticipated, declines in the levels of loan quality and origination volume,
relationships with major customers including sources for loans, a decline in
trust business, as well as the adverse effects of economic conditions and legal
and regulatory barriers and structure. The Corporation is under no obligation to
update any forward looking statements at any time.
RESULTS OF OPERATIONS: The Corporation realized earnings of $0.66 per diluted
share for first quarter of 2001 as compared to $0.56 per diluted share for the
same quarter last year. Net income for the quarter rose 17.4 percent to $2.03
million compared with $1.73 million in the same period in 2000. The first
quarter of 2000 included merger-related charges, net of taxes, totaling $423
thousand or $0.14 per diluted share. First quarter results produced a return on
average assets of 1.40 percent and a return on average equity of 14.52 percent.
Excluding the merger-related charges recorded in the first quarter of 2000, net
income declined 5.7 percent from $2.15 million in 2000 to $2.03 million in 2001.
The decline in earnings was primarily due higher interest expense and other
expense, offset in part by higher other income.
EARNINGS ANALYSIS
NET INTEREST INCOME: Net interest income for March 31, 2001 remained flat over
the same period last year. Increased interest income was offset by a sharp
increase in interest expense. On a fully tax-equivalent basis, net interest
income rose 2.5 percent from $5.67 million to $5.81 million in 2000 and 2001,
respectively.
Average interest-earning assets increased $73.77 million, or 15.5 percent for
the first three months of 2001 over the comparable 2000 period. This was
primarily the result of increased average loans, up $48.63 million, and federal
funds sold and interest-bearing deposits, up $31.26 million, offset by lower
average investments, lower by $6.12 million.
For the first three months of 2001, average interest-bearing liabilities were
$57.98 million higher, or 15.9 percent, than the same period in 2000. The
introduction of a tiered money market account and 14-month certificates of
deposit with attractive rates led this rapid growth in deposits. Money market
accounts grew 108.7 percent or $44.4 million, while certificates of deposit grew
14.3 percent or $20.2 million.
Average interest rates on interest-earning assets increased during the three
months ended March 31, 2001 to 7.26 percent from 7.10 percent for the comparable
period in 2000. The increase can be attributed to higher interest rates earned
on loans and investment securities, up 23 and 20 basis points, respectively,
partially offset by lower rates earned on federal funds sold and interest
bearing deposits, down 39 basis points. Average interest rates on
interest-bearing liabilities increased 83 basis points from 3.02 percent to 3.85
percent. The increase in interest expense was primarily due to higher rates paid
on money market accounts and certificates of deposits, up 172 and 105 basis
points, respectively. This contributed to a net decrease in the interest margin
of 66 basis points, from 4.07 percent to 3.41 percent for the year to date ended
March 31, 2000 and 2001, respectively.
OTHER INCOME: Other income increased from $1.44 million for the quarter ended
March 31, 2000 to $1.54 million for the same period in 2001, a 7.1 percent
increase. Contributing to this increase was a 13.0 percent increase in Trust
Department income from $1.00 million for the first quarter of 2000 to $1.14
million for the first quarter of 2001, partially offset by lower service charges
and fees.
OTHER EXPENSES: Other expenses totaled $4.25 million for the three months ended
March 31, 2001 compared to $4.53 million the previous year. Excluding pre-tax
merger-related charges of $500 thousand, other expenses for 2000
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were $4.03 million, an increase of 5.5 percent over the same period in 2000. The
largest component of other expense, salaries and benefits expense increased 6.2
percent. This increase from $2.25 million for the first three months of 2000 to
$2.39 million for the same period of 2001 can be attributed to additions to the
professional staff and upward salary adjustments to attract and maintain
qualified employees. Premises and equipment expense rose $57 thousand or 7.2
percent as compared with the same three months in 2000. This increase is
attributable to additional expenditures related to new branch locations and
equipment upgrades. Other major components of this category, advertising,
insurance, telephone, postage, and trust expense, increased by $88 thousand to
$423 thousand for the first quarter of 2001 from $335 thousand for the same
quarter of 2000.
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 $530 thousand and $400 thousand at
March 31, 2001 and 2000, respectively. Loans past due in excess of 90 days and
still accruing are in the process of collection and are well secured.
The following table sets forth non-performing assets on the dates indicated, in
conjunction with asset quality ratios:
(In thousands) March 31, 2001 December 31, 2000
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Loans past due in excess of 90
days and still accruing $259 $ 75
Non-accrual loans 196 325
Other real estate owned 75 0
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Total non-performing assets $530 $400
==== ====
Non-performing loans as a % of total loans .15% .12%
Non-performing assets as a % of total
Loans plus other real estate owned .15% .12%
Allowance as a % of loans 1.00% 1.00%
PROVISION FOR LOAN LOSSES: For the three months ended March 31, 2001, the
provision for loan losses was $126 thousand, the same level as for the three
months ended March 31, 2000. The amount of the loan loss provision and the level
of the allowance for possible loan losses are based upon a number of factors
including Management's evaluation of potential losses in the portfolio, after
consideration of appraised collateral values, financial condition and past
credit history of the borrowers as well as prevailing and anticipated economic
conditions. Net recoveries were $3 thousand during the first three months of
2001 as compared to net charge-offs of $16 thousand during the same period in
2000.
A summary of the allowance for loan losses for the three month period ended
March 31, follows:
(In thousands) 2001 2000
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Balance, January 1, $ 3,435 $ 2,962
Provision charged to expense 126 126
Loans charged off (44) (34)
Recoveries 47 18
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Balance, March 31, $ 3,564 $ 3,072
======= =======
INCOME TAXES: Income tax expense as a percentage of pre-tax income was 33
percent for the three months ended March 31, 2001, as compared to 35 percent for
the same period in 2000. Income taxes increased $85 thousand from $911 thousand
in 2000 to $996 thousand in 2001, reflecting higher taxable income.
CAPITAL RESOURCES: The Corporation is committed to maintaining a strong capital
position. At March 31, 2001, total shareholders' equity, including net
unrealized gains, was $57.46 million, representing a 17.8 percent increase over
the same period in 2000. 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. At least half of the total capital
is to be comprised of common stock, retained earnings, minority interests in the
equity accounts of consolidated subsidiaries, non-cumulative preferred stock,
less goodwill and certain other intangibles ("Tier 1 Capital"). The remainder
may consist of other preferred stock, certain other instruments and a portion of
the loan loss allowance. At
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March 31, 2001, the Bank's Tier 1 Capital and Total Capital ratios were 18.54
percent and 19.84 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 Bank's leverage ratio at March 31, 2001,
was 8.87 percent.
MARKET RISK: The Corporation continues to monitor its exposure to various market
risk sensitive instruments. These instruments and procedures employed to monitor
market risks are listed in the Corporation's 2000 Annual Report. There has been
no significant change in market risk since December 31, 2000.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 10th day of May 2001.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
BY
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(FRANK A. KISSEL, PRESIDENT
AND CHIEF EXECUTIVE OFFICER)
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(ARTHUR F. BIRMINGHAM, SENIOR
VICE PRESIDENT AND TREASURER)
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