PEAPACK-GLADSTONE
FINANCIAL CORPORATION
[LOGO]
2001 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except Per Share Data)
Selected Year-end Data: 2001 2000 1999
-----------------------------------------------------------------
Net Income $ 8,924 $ 7,708 $ 7,189
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Total Assets 704,773 567,032 497,535
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Total Deposits 630,903 508,879 444,088
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Total Securities 221,342 153,525 162,996
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Total Loans 416,933 344,299 287,933
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Stockholders' Equity 63,085 55,156 47,575
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Trust Department Assets
(Book Value) 766,928 709,732 651,469
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Financial Ratios:
-----------------------------------------------------------------
Return On Average Assets 1.42% 1.47% 1.48%
-----------------------------------------------------------------
Return On Average Equity 15.03 15.30 15.67
-----------------------------------------------------------------
Capital Leverage Ratio 9.84 10.49 10.02
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Risk Based Capital:
Tier I 18.76 20.80 26.55
-----------------------------------------------------------------
Total 19.98 22.10 28.16
-----------------------------------------------------------------
Per Share:
-----------------------------------------------------------------
Earnings - Basic $ 2.68 $ 2.32 $ 2.17
-----------------------------------------------------------------
Earnings - Diluted 2.64 2.27 2.11
-----------------------------------------------------------------
Book Value 18.96 16.61 14.36
-----------------------------------------------------------------
NET INCOME TOTAL ASSETS
(in millions) (in millions)
- --------------------------------- ---------------------------------
'97 '98 '99 '00 '01 '97 '98 '99 '00 '01
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
$4.90 $6.03 $7.19 $7.71 $8.92 $443 $481 $498 $567 $705
DEPOSITS EQUITY CAPITAL
(in millions) (in millions)
- --------------------------------- ---------------------------------
'97 '98 '99 '00 '01 '97 '98 '99 '00 '01
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
$401 $431 $444 $509 $631 $39.4 $44.5 $47.6 $55.2 $63.1
Dear Shareholders
and Friends
In writing this letter for our 2001 Annual Report it was immediately
PEAPACK obvious that events in the world are intertwined even with the
[LOGO] business of your Community Bank. September 11, 2001 focuses us all on
a year of great highs and terrible lows. Peapack-Gladstone Financial
Corporation posted tremendous results in 2001 and we are concentrating
on moving forward in a world with changing rules.
There is no question that our economy was slowing prior to the attacks and
that the decline steepened after it. We felt fear for the first time in a long
while and confidence in the economy, of course, suffered. The immediate
reaction to the fear was a coming together with patriotism and resolve to rid
the world of some of its dangers. I doubt we have felt this strength since
World War II. The confidence issue will take a little longer. It involves
business orders, layoffs and corporate earnings. I'm sure we can all agree that
it is a matter of "when and not if" our economy improves because Americans are
at their best during adversity. We are very confident in that.
Our local economy has remained surprisingly strong. Low interest rates
have helped to maintain an already active real estate market. Businesses have
seen borrowing costs decline significantly, helping to offset the effects of
lower sales. Charge-offs and non-performing loans in our various loan
portfolios are at an all time low. We consider this a very good indicator for
our market area and Bank.
One of the great highs of 2001 was the performance of your Bank. Earnings
increased 15.8% to $8,924,000, a record for the Corporation. Even more
encouraging was that fourth quarter earnings were $2,406,000, a 34.8% increase
over the same period last year. These numbers translate to a 1.41% Return on
Average Assets and 15.38% Return on Average Equity. These results are strong in
any market.
Details of the financials are laid out in the Management Discussion and
Analysis section of this report, however, I would like to point out a few other
highlights. Total assets were $705,000,000 at the end of the year, an increase
of $138,000,000 or 24%. Loans grew over 21% or $73,000,000 to $416,933,000 at
the end of the year. As our markets widen, we continue to attract wonderful new
customers who bring solid credit needs with them. Three additional new
business-calling officers joined the Bank during the year. They help us get the
word out and the business in.
Speaking of new markets, we are very pleased with our start in
Hillsborough. The Grand Opening for our new office took place in April of
2
last year and since then we have many new customers with deposits in excess of
$17,000,000. As we build our base in that area this branch will be a
significant profit center for the Bank.
I would also like to report to you that we opened our new Clinton Branch
on January 2, 2002. Progress and new business to date have far exceeded our
expectations.
PGB Trust & Investments also reported a very strong 2001. We have found
that in a difficult market environment many new and existing clients are
looking for more help and advice in managing their assets. In markets like
this, assets have to work harder, more opportunities need to be found and more
pitfalls need to be avoided in order that financial goals are reached. Market
value of assets managed in PGB Trust & Investments now exceeds $1,050,000,000,
producing in excess of $4,000,000 in fees to the Bank.
During the course of the year, we issued new Peapack-Gladstone Bank Visa
Check Cards to our customers. This has proven to be a very popular new service.
Also during 2001, we began offering PGB NetAccess to customers. This is a
fully integrated Internet banking and bill paying service. Our many customers
who are using the service absolutely love it as it gives them access to their
accounts 24 hours a day from virtually anywhere in the world. As time goes on,
we believe this will become an increasingly important access point to all our
Bank services.
Your Officers and Staff are very proud of the financial and operating
results during the past year. We think our five consecutive years of record
earnings and ten consecutive years of dividend growth should continue to
attract investor interest in Peapack-Gladstone Financial Corporation stock
(Amex -- PGC).
As previously reported, some of the most important changes that occurred
during the year were brought about when Mr. T. Leonard Hill decided to step back
as active Chairman and was elected Chairman Emeritus and active Board member as
of January 1, 2002. Since 1944, Mr. Hill has served and will continue to serve,
our Board, Shareholders and Customers. To put that in perspective, in 1944 we
had one office and the total assets of the Bank were $2,400,000.
When Mr. Hill became Chairman in 1989 the Bank had grown to seven
locations with $129,000,000 in assets and a Trust Department with about
$80,000,000 in assets. Compare that to today's $700,000,000 in the Bank and
over $1,000,000,000 in PGB Trust & Investments and there is much for which Mr.
Hill can be proud. With the exception of the $70,000,000 in assets acquired
with our purchase of Chatham Savings Bank in 2000, all of our growth has been
by word of mouth and internally generated. Measured growth and outstanding
customer service is the business model we understand.
3
With typical foresight, Mr. Hill recognized that succession is a very
important part of business. He moved along the senior management team that has
been such an important part of past successes and future planning. Effective
with the new year, Frank A. Kissel was elected Chairman & CEO, Robert M.
Rogers, President & COO, Craig C. Spengeman, President & Chief Investment
Officer of PGB Trust & Investments, and Arthur F. Birmingham, Executive Vice
President & CFO.
I would like to quote from a letter that I sent to Mr. Hill while we were
planning these changes.
"You and your family are rightfully proud of Peapack-Gladstone Bank. Your
stewardship has enabled us to continue as a community organization. We have
helped countless families and businesses and by so doing have played an
important role in the evolution of the towns we do business in. Thankfully, our
long-term investors have been rewarded for their confidence and support.
"You have put us in the position where we have a business formula that
works and a vision for the future that is clearer now than perhaps at any time
in our past.
"If we are correct, our investors will continue to prosper. Our growing
list of customers will have the modern financial services they want and need.
Our employees will work for a company that is energized and moving from
strength to strength. This is certainly a formula for success."
Mr. Hill's fellow shareholders, customers and employees thank him for his
fabulous leadership. We are all very pleased that he is moving just one chair
to the left at the Board table.
Our Directors and Staff also want to thank our Shareholders for their
continuing support. Our doors are always open for questions, ideas and new
banking opportunities. Please stop in.
/s/ FRANK A. KISSEL /s/ ROBERT M. ROGERS
-------------------------- ---------------------------
Frank A. Kissel Robert M. Rogers
Chairman & CEO President & COO
4
MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW: The following discussion and analysis is intended to provide
information about the financial condition and results of operations of
Peapack-Gladstone Financial Corporation and its subsidiaries on a consolidated
basis and should be read in conjunction with the consolidated Financial
Statements and the related notes and supplemental financial information
appearing elsewhere in this report. All share and per share amounts within this
discussion have been restated to reflect the 10% and 5% stock dividends issued
in 2001 and 2000, respectively.
Peapack-Gladstone Financial Corporation (the "Corporation"), formed in
1997, is the parent holding company for The Peapack-Gladstone Bank, formed in
1921, a commercial bank operating fifteen branches in Somerset, Hunterdon and
Morris counties. An additional branch in Clinton, Hunterdon County opened
during the first quarter of 2002.
During 2001, the cash dividend rate was increased to $0.15 per share. This
new rate, coupled with the 10% stock dividend paid on November 1, 2001,
effectively raised the cash dividend rate by 18% over the previous rate of
$0.14 per share.
On January 7, 2000, the Corporation completed its merger with Chatham
Savings, FSB. Under terms of the merger agreement, each outstanding share of
Chatham common stock was exchanged for 2.522 shares of Corporation common
stock. As a result, a total of 353,118 shares of Corporation common stock were
exchanged. This merger added branches in Chatham Borough and Chatham Township.
Merger-related charges incurred amounted to $500 thousand and were expensed in
the first quarter of 2000. On an after tax basis, these charges totaled $423
thousand or $0.12 per diluted share.
Peapack-Gladstone Financial Corporation's common stock trades on the
American Stock Exchange under the symbol "PGC".
EARNINGS SUMMARY: For the year ended December 31, 2001 the Corporation's net
income increased 16% to a record $8.92 million compared to $7.71 million earned
in 2000. Earnings per diluted share were $2.64 as compared to $2.27 in 2000, an
increase of 16%. Earnings in 2000 include a $423 thousand, net of tax, or $0.12
per diluted merger-related charge recorded in connection with the first quarter
of 2000 acquisition of Chatham Savings, FSB.
RETURN ON RETURN ON
AVERAGE EQUITY AVERAGE ASSETS
(in percent) (in percent)
- --------------------------------- ---------------------------------
'97 '98 '99 '00 '01 '97 '98 '99 '00 '01
- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
13.11 14.21 15.67 15.30 15.03 1.16 1.33 1.48 1.47 1.42
5
These results produced a return on average assets of 1.42% as compared to
1.47% in 2000 and a return on average stockholders' equity of 15.03% as
compared to 15.30% in 2000.
The increase in net income for 2001 was primarily due to higher net
interest income, Trust fees, and other income, offset in part by higher other
expenses and taxes. The Corporation in 2001 experienced strong growth in assets
and deposits and the higher level of income and expense reflect these growth
patterns.
NET INTEREST INCOME: Net interest income, the primary source of the
Corporation's operating income, is the difference between interest and dividends
earned on earning assets and fees earned on loans, and interest paid on
interest-bearing liabilities. Earning assets include loans to individuals and
businesses, investment securities, interest-earning deposits and federal funds
sold. Interest-bearing liabilities include interest-bearing checking, savings
and time deposits, Federal Home Loan Bank advances and other borrowings. Net
interest income is determined by the difference between the yields earned on
earning assets and the rates paid on interest-bearing liabilities ("Net Interest
Spread") and the relative amounts of earning assets and interest-bearing
liabilities. The Corporation's net interest spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and
deposit flows and general levels of non-performing assets.
NET INTEREST INCOME
(in millions)
---------------------------------
'97 '98 '99 '00 '01
----- ----- ----- ----- -----
$17.5 $19.1 $21.2 $23.1 $25.0
Net interest income (on a tax-equivalent basis) totaled $25.5 million for
2001, an increase of 9% or $2.1 million over the $23.4 million recorded in
2000. The increase was primarily due to a $101.2 million or 21% increase in
average earning assets, offset in part by lower rates earned on earning assets,
which declined to 6.89% from 7.28% earned in 2000, and higher interest expense
which increased $3.0 million or 24% over the levels recorded in 2000. The
increase in interest expense was primarily due to a $87.1 million increase in
interest-bearing deposits while the rate paid on interest-bearing deposits was
unchanged at 3.35%. Another factor in the growth of net interest income was
higher average noninterest-bearing demand deposits which increased $7.2 million
or 8% on average during 2001 as compared to 2000. The net interest margin in
2001 declined to 4.28% from 4.74% in 2000.
Interest income on earning assets (on a tax-equivalent basis) increased
$5.0 million or 14% to $40.9 million. This increase was primarily due to higher
average loans, up $63.4 million or 20%, and higher average investment
securities, interest-earning deposits and federal funds sold which grew $37.8
million or 22% over 2000 levels. Partially offsetting the growth in average
earning assets were lower yields on earning assets. The average yield on the
loan portfolio was 7.45% for 2001 as compared to 7.74% in 2000. Rates earned on
investment securities declined to 6.15% from 6.44% in 2000, and rates on the
shorter term investments of federal funds sold and interest-earning deposits
declined 169 and 248 basis points, respectively.
The increase in interest expense was primarily due to higher average
balances of tiered money market accounts and certificates of deposits. Tiered
money market accounts, introduced during the fourth quarter of 2000, grew $42.4
million on average while the average interest rate paid on this product
declined to 3.60% from 5.78% in 2000.
6
Certificates of deposit grew $41.1 million or 28% on average as the average
interest rate paid declined to 5.29% from 5.49% in 2000, reflecting overall
declining market interest rates.
LOANS: The loan portfolio represents the Corporation's largest earning
asset and is a significant source of interest and fee income. Loan originations
are a strong indication of the Corporation's willingness to serve its customers
by helping them reach their financial goals.
Total loans increased $72.6 million or 21% from 2000 levels. This growth
was focused primarily in the real estate sector, as 1-4 family residential
loans secured by first liens increased $35.7 million or 17% and commercial and
construction loans secured by real estate increased $33.0 million or 51%. This
strong growth is primarily due to loan originations within our market area to
customers seeking residential mortgages and commercial mortgages on their
business property. Total loans at year-end were $416.9 million, as compared to
$344.3 million at December 31, 2000.
The yield on total loans averaged 7.45% for 2001, a 29 basis point
decline from the 7.74% average yield earned in 2000. The average yield on the
mortgage portfolio declined in 2001 to 7.31% from 7.36% in 2000. The decline in
yields earned in 2001 reflects the overall decline in market interest rates as
the Federal Reserve lowered interest rates on numerous occasions.
The following table presents an analysis of outstanding loans as of December 31,
(In thousands) 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Real Estate--Mortgage
1-4 Family Residential
First Liens $246,197 210,547 $168,979 $153,372 $110,903
- --------------------------------------------------------------------------------------------------------------
Junior Liens 22,903 25,017 21,263 12,840 14,107
- --------------------------------------------------------------------------------------------------------------
Home Equity 18,120 15,633 14,488 12,278 12,494
- --------------------------------------------------------------------------------------------------------------
Real Estate--Commercial 91,129 62,161 55,747 40,152 31,090
- --------------------------------------------------------------------------------------------------------------
Real Estate--Construction 6,418 2,297 1,153 1,946 4,213
- --------------------------------------------------------------------------------------------------------------
Commercial Loans 15,855 13,019 12,541 11,594 11,635
- --------------------------------------------------------------------------------------------------------------
Consumer Loans 11,237 14,084 12,413 12,959 13,741
- --------------------------------------------------------------------------------------------------------------
Other Loans 5,074 1,541 1,349 663 896
- --------------------------------------------------------------------------------------------------------------
TOTAL LOANS $416,933 $344,299 $287,933 $245,804 $199,079
==============================================================================================================
INVESTMENT SECURITIES: Investment securities are those securities that the
Corporation has both the ability and intent to hold to maturity. These
securities are carried at amortized cost. The portfolio consists primarily of
U.S. government agencies, municipal obligations, mortgage-backed securities and
other securities. The Corporation's investment securities amounted to $48.7
million at December 31, 2001, compared with $69.6 million at December 31, 2000.
7
The following table presents the contractual maturities and yields of investment securities
at amortized cost, as of December 31, 2001:
After 1 After 5
Within But Within But Within After
(In thousands) 1 Year 5 Years 10 Years 10 Years Total
- -----------------------------------------------------------------------------------------------------------
U.S. Treasury $ 3,000 $ -- $ -- $ -- $ 3,000
6.350% -- -- -- 6.350%
- -----------------------------------------------------------------------------------------------------------
U.S. Government Agencies 4,999 11,968 4,641 -- 21,608
6.162% 6.746% 7.311% -- 6.732%
- -----------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities -- -- -- 9,262 9,262
-- -- -- 5.044% 5.044%
- -----------------------------------------------------------------------------------------------------------
State and Political Subdivisions 1,689 7,231 523 449 9,892
4.423% 6.515% 6.736% 8.909% 6.278%
- -----------------------------------------------------------------------------------------------------------
Other Debt Securities 1,503 3,457 -- -- 4,960
5.391% 6.788% -- -- 6.365%
- -----------------------------------------------------------------------------------------------------------
Total $11,191 $22,656 $5,164 $9,711 $48,722
5.846% 6.679% 7.253% 5.222% 6.258%
===========================================================================================================
SECURITIES AVAILABLE FOR SALE: Securities available for sale are used as a part
of the Corporation's interest rate risk management strategy, and they may be
sold in response to changes in interest rates, liquidity needs and other
factors. These securities are carried at estimated fair value, and unrealized
changes in fair value are recognized as a separate component of stockholders'
equity, net of income taxes. Realized gains and losses are recognized in income
at the time the securities are sold.
At December 31, 2001, the Corporation had securities available for sale
with a market value of $172.6 million, compared with $84.0 million at December
31, 2000. A $655 thousand unrealized gain and $476 thousand unrealized loss (net
of income tax) was included in stockholders' equity at December 31, 2001 and
December 31, 2000, respectively.
The following table presents the contractual maturities of debt securities available for sale,
stated at market value, as of December 31, 2001:
After 1 After 5
Within But Within But Within After
(In thousands) 1 Year 5 Years 10 Years 10 Years Total
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury $1,030 $ -- $ -- $ -- $ 1,030
6.434% -- -- -- 6.434%
- ------------------------------------------------------------------------------------------------------------
U.S. Government Agencies 306 48,663 61,011 1,985 111,965
7.250% 5.136% 5.746% 4.902% 5.471%
- ------------------------------------------------------------------------------------------------------------
Mortgage-backed Securities -- 11,516 6,904 13,565 31,985
-- 5.350% 5.455% 5.634% 5.494%
- ------------------------------------------------------------------------------------------------------------
State and Political Subdivisions -- 652 5,003 2,180 7,835
-- 4.908% 5.737% 6.136% 5.779%
- ------------------------------------------------------------------------------------------------------------
Other Debt Securities 2,112 6,232 -- 11,461 19,805
4.727% 6.100% -- 5.416% 5.559%
- ------------------------------------------------------------------------------------------------------------
TOTAL $3,448 $67,063 $72,918 $29,191 $172,620
5.472% 5.259% 5.717% 5.537% 5.505%
============================================================================================================
8
Federal funds sold and interest-earning deposits are an integral part of
the Corporation's investment and liquidity strategies. The combined average
balance of these vehicles during 2001 was $37.6 million as compared to $17.8
million in 2000.
DEPOSITS: Total deposits increased $122.0 million or 24% to $630.9 million at
December 31, 2001, compared to $508.9 million at December 31, 2000. Our strategy
to fund earning asset growth with core deposits was an important factor for
growth in net interest income. Marketing and sales efforts contributed to a
$40.5 million increase in tiered money market accounts and $60.4 million in
certificates of deposits. Total average deposits increased $94.3 million or 20%
over 2000 levels.
The following table sets forth information concerning the composition of the corporation's
average deposit base and average interest rates paid for the following years:
2001 2000 1999
-------------------------------------------------------------------------------------------------------
(In thousands) $ % $ % $ %
-------------------------------------------------------------------------------------------------------
Noninterest-Bearing
Demand $102,852 -- $ 95,621 -- $ 87,550 --
- --------------------------------------------------------------------------------------------------------
Checking 100,734 0.84 97,025 1.08 93,368 1.13
- --------------------------------------------------------------------------------------------------------
Savings 77,207 1.95 80,837 2.06 83,122 2.05
- --------------------------------------------------------------------------------------------------------
Money Markets 49,869 3.04 46,276 3.43 34,670 2.38
- --------------------------------------------------------------------------------------------------------
Tiered Money Markets 44,785 3.60 2,422 5.78 -- --
- --------------------------------------------------------------------------------------------------------
Certificates of Deposit 188,187 5.29 147,076 5.49 140,743 4.80
- --------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $563,634 $469,257 $439,453
========================================================================================================
Certificates of deposit over $100,000 are generally purchased by local
municipal governments or individuals for periods one year or less. These factors
translate into a stable customer oriented cost- effective funding source.
The following table shows remaining maturity for certificates of deposit over
$100,000 as of December 31, 2001 (in thousands):
Three months or less $37,172
- ------------------------------------------------------------------------------
Over three months through twelve months 18,778
- ------------------------------------------------------------------------------
Over twelve months 3,950
- ------------------------------------------------------------------------------
TOTAL $59,900
==============================================================================
FEDERAL HOME LOAN BANK ADVANCES: At December 31, 2001, Federal Home Loan Bank
("FHLB") advances totaled $5.0 million as compared to none at December 31, 2000.
The Corporation considers FHLB advances an added source of funding, and
accordingly, executes transactions from time to time to meet its funding
requirements. The FHLB advances outstanding at December 31, 2001 have varying
terms and interest rates.
9
The following table compares the average balance sheet, net interest
spreads and net interest margins for the years ended December 31, 2001, 2000,
and 1999 (fully tax- equivalent - FTE):
Year Ended December 31, 2001
Income/
Average Expense Yield
(In thousands, except yield information) Balance (FTE) (FTE)
----------------------------------------------------------------------
ASSETS:
Interest-Earning Assets:
Investments:
Taxable $160,191 $ 9,668 6.04%
----------------------------------------------------------------------
Tax-Exempt 13,944 1,037 7.43%
----------------------------------------------------------------------
Loans 382,430 28,476 7.45%
----------------------------------------------------------------------
Federal Funds Sold 24,660 1,143 4.64%
----------------------------------------------------------------------
Interest-Earning Deposits 12,955 612 4.72%
----------------------------------------------------------------------
Total Interest-Earning Assets 594,180 40,936 6.89%
----------------------------------------------------------------------
Noninterest-Earning Assets:
Cash and Due from Banks 15,655
----------------------------------------------------------------------
Allowance for Loan Losses (3,682)
----------------------------------------------------------------------
Premises and Equipment 12,448
----------------------------------------------------------------------
Other Assets 10,232
----------------------------------------------------------------------
Total Noninterest-Earning Assets 34,653
----------------------------------------------------------------------
TOTAL ASSETS $628,833
======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-Bearing Deposits:
Checking $100,734 $849 0.84%
----------------------------------------------------------------------
Money Markets 49,869 1,514 3.04%
----------------------------------------------------------------------
Tiered Money Markets 44,785 1,611 3.60%
----------------------------------------------------------------------
Savings 77,207 1,506 1.95%
----------------------------------------------------------------------
Certificates of Deposit 188,187 9,949 5.29%
----------------------------------------------------------------------
Total Interest-Bearing Deposits 460,782 15,429 3.35%
----------------------------------------------------------------------
Long-Term Debt 1,633 57 3.49%
----------------------------------------------------------------------
Total Interest-Bearing Liabilities 462,415 15,486 3.35%
----------------------------------------------------------------------
Noninterest-Bearing Liabilities:
Demand Deposits 102,852
----------------------------------------------------------------------
Accrued Expenses and Other Liabilities 4,193
----------------------------------------------------------------------
Total Noninterest-Bearing Liabilities 107,045
----------------------------------------------------------------------
Stockholders' Equity 59,373
----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $628,833
======================================================================
NET INTEREST INCOME $ 25,450
======================================================================
Net Interest Spread 3.54%
----------------------------------------------------------------------
Net Interest Margin 4.28%
----------------------------------------------------------------------
1. Average loan balances include non-accrual and restructured loans.
2. The tax-equivalent adjustment was computed based on a federal tax rate of
34%.
3. Investments consist of investment securities and securities available for
sale at amortized cost.
10
Year Ended December 31, 2000 Year Ended December 31, 1999
Income/ Income/
Average Expense Yield Average Expense Yield
Balance (FTE) (FTE) Balance (FTE) (FTE)
- ----------------------------------------------------------
$143,600 $9,097 6.33% $164,420 $ 9,456 5.75%
- -------------------------------------------------------------
12,585 957 7.60% 12,260 1,038 8.47%
- -------------------------------------------------------------
319,032 4,683 7.74% 261,191 20,029 7.67%
- -------------------------------------------------------------
16,977 1,092 6.33% 25,182 1,477 5.87%
- -------------------------------------------------------------
833 6 17.20% -- -- --
- -------------------------------------------------------------
493,028 35,890 7.28% 463,053 32,000 6.91%
- -------------------------------------------------------------
15,222 12,570
- -------------------------------------------------------------
(3,135) (2,653)
- -------------------------------------------------------------
11,267 9,729
- -------------------------------------------------------------
6,786 4,070
- -------------------------------------------------------------
30,140 23,716
- -------------------------------------------------------------
$523,168 $486,769
=============================================================
$ 97,025 $ 1,048 1.08% $ 93,368 $ 1,058 1.13%
- -------------------------------------------------------------
46,276 1,589 3.43% 34,670 1,095 3.16%
- -------------------------------------------------------------
2,422 140 5.78% -- -- --
- -------------------------------------------------------------
80,837 1,662 2.06% 83,122 1,977 2.38%
- -------------------------------------------------------------
147,076 8,070 5.49% 140,743 6,211 4.41%
- -------------------------------------------------------------
373,636 12,509 3.35% 351,903 10,341 2.94%
- -------------------------------------------------------------
-- -- -- -- -- --
- -------------------------------------------------------------
373,636 12,509 3.35% 351,903 10,341 2.94%
- -------------------------------------------------------------
95,621 87,550
- -------------------------------------------------------------
3,531 4,181
- -------------------------------------------------------------
99,152 91,731
- -------------------------------------------------------------
50,380 43,135
- -------------------------------------------------------------
$523,168 $486,769
=============================================================
$ 23,381 $21,659
=============================================================
3.93% 3.97%
- -------------------------------------------------------------
4.74% 4.68%
- -------------------------------------------------------------
11
RATE/VOLUME ANALYSIS (fully tax-equivalent basis):
The effect of volume and rate changes on net interest income for the years ended
December 31, 2001 and 2000 are shown below:
(In thousands) Year Ended 2001 Compared With 2000 Year Ended 2000 Compared With 1999
- -------------------------------------------------------------------------------------------------------------------
Net Net
Difference Due To Change In Difference Due To Change In
Change In: Income/ Change In: Income/
Volume Rate Expense Volume Rate Expense
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments $1,155 $ (504) $ 651 $(1,217) $ 777 $ (440)
- -------------------------------------------------------------------------------------------------------------------
Loans 4,905 (1,112) 3,793 4,436 218 4,654
- -------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 478 (427) 51 (471) 86 (385)
- -------------------------------------------------------------------------------------------------------------------
Interest-Earning Deposits 1,131 (580) 551 61 -- 61
- -------------------------------------------------------------------------------------------------------------------
Total Interest Income $7,669 $(2,623) $5,046 $ 2,809 $1,081 $3,890
===================================================================================================================
LIABILITIES
Checking $ 40 $ (239) $ (199) $ 41 $ (51) $ (10)
- -------------------------------------------------------------------------------------------------------------------
Money Markets 123 (198) (75) 367 127 494
- -------------------------------------------------------------------------------------------------------------------
Tiered Money Markets 2,449 (978) 1,471 140 -- 140
- -------------------------------------------------------------------------------------------------------------------
Savings (75) (81) (156) (54) (261) (315)
- -------------------------------------------------------------------------------------------------------------------
Certificates of Deposit 2,256 (377) 1,879 279 1,580 1,859
- -------------------------------------------------------------------------------------------------------------------
Long-Term Debt 57 -- 57 -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total Interest Expense $4,850 $(1,873) $2,977 $ 773 $1,395 $2,168
- -------------------------------------------------------------------------------------------------------------------
Net Interest Income $2,819 $ (750) $2,069 $ 2,036 $ (314) $1,722
===================================================================================================================
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION: The allowance for loan losses
was $4.0 million at December 31, 2001 as compared to $3.4 million at December
31, 2000. The allowance for loan losses currently provides 12.3 times the
coverage of all non-performing assets. At December 31, 2001, the allowance for
loan losses as a percentage of total loans outstanding was 0.96% compared to
1.00% at December 31, 2000 and 1.03% at December 31, 1999.
The provision for loan losses increased $100 thousand, or 20%, to $600
thousand for 2001, compared to $500 thousand for 2000. The provision was based
upon management's review and evaluation of the size and composition of the loan
portfolio, actual loan loss experience, level of delinquencies, general market
and economic conditions, detailed analysis of individual loans for which full
collectibility may not be assured, and the existence and net realizable value of
the collateral and guarantees securing the loans. Although management used the
best information available, the level of the allowance for loan losses remains
an estimate which is subject to significant judgment and short-term change.
Various regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for loan losses. Such agencies
may require the Corporation to make additional provisions for loan losses based
upon information available to them at the time of their examination.
Furthermore, the majority of the Corporation's loans are secured by real estate
in the State of New Jersey. Accordingly, the collectibility of a substantial
portion of the carrying value of the Corporation's loan portfolio is susceptible
to changes in local market conditions and may be adversely affected should real
estate values decline or our market area in Central New Jersey area experience
an adverse economic shock. Future adjustments to the allowance may be necessary
due to economic, operating, regulatory and other conditions beyond the
Corporation's control.
12
The following table presents the loan loss experience during the periods ended December 31,
(In thousands) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses at
Beginning of Year $3,435 $2,962 $2,428 $2,022 $1,721
- ------------------------------------------------------------------------------------------------------------------
Loans Charged-off During the Period
Real Estate 42 27 -- -- 151
- ------------------------------------------------------------------------------------------------------------------
Consumer 35 119 70 152 97
- ------------------------------------------------------------------------------------------------------------------
Commercial and Other 15 28 52 35 35
- ------------------------------------------------------------------------------------------------------------------
Total Loans Charged-Off 92 174 122 187 283
- ------------------------------------------------------------------------------------------------------------------
Recoveries During the Period
Real Estate 7 75 22 24 105
- ------------------------------------------------------------------------------------------------------------------
Consumer 65 53 63 12 25
- ------------------------------------------------------------------------------------------------------------------
Commercial and Other 8 19 16 36 9
- ------------------------------------------------------------------------------------------------------------------
Total Recoveries 80 147 101 72 139
- ------------------------------------------------------------------------------------------------------------------
Net Charge-Offs 12 27 21 115 144
- ------------------------------------------------------------------------------------------------------------------
Provision Charged to Expense 600 500 555 521 445
- ------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses at
End of Year $4,023 $3,435 $2,962 $2,428 $2,022
==================================================================================================================
The following table shows the allocation of the allowance for loan losses and
the percentage of each loan category to total loans as of December 31,
% of % of % of % of % of
Loan Loan Loan Loan Loan
Category Category Category Category Category
to Total to Total to Total to Total to Total
(In thousands) 2001 Loans 2000 Loans 1999 Loans 1998 Loans 1997 Loans
- ----------------------------------------------------------------------------------------------------------------------------------
Real Estate $2,213 92.3 $1,889 91.7 $1,629 90.9 $1,336 89.7 $1,112 86.8
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer 201 2.7 172 4.1 148 4.3 121 5.3 101 6.9
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial and Other 1,609 5.0 1,374 4.2 1,185 4.8 971 5.0 809 6.3
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL $4,023 100.0 $3,435 100.0 $2,962 100.0 $2,428 100.0 $2,022 100.0
==================================================================================================================================
13
NON-PERFORMING ASSETS:
The following table presents for the years indicated the components of
non-performing assets:
YEARS ENDED DECEMBER 31,
(In thousands) 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------
Loans past due 90 days or more
and still accruing interest $ 53 $ 75 $ 205 $ 1 $ 104
- --------------------------------------------------------------------------------------------------
Non-accrual loans 274 325 386 806 742
- --------------------------------------------------------------------------------------------------
Total non-performing loans 327 400 591 807 846
- --------------------------------------------------------------------------------------------------
Other real estate owned -- -- -- -- 340
- --------------------------------------------------------------------------------------------------
Total non-performing assets 327 400 591 807 1,186
==================================================================================================
Loan charge-offs 92 174 122 187 283
- --------------------------------------------------------------------------------------------------
Loan recoveries 80 147 101 72 139
- --------------------------------------------------------------------------------------------------
Net loan charge-offs 12 27 21 115 144
==================================================================================================
Allowance for loan losses $4,023 $3,435 $2,962 $2,428 $2,022
==================================================================================================
In addition, the Bank had restructured loans of $320 thousand and $325
thousand at December 31, 2001 and 2000, respectively.
RATIOS:
Total non-performing loans/
Total loans 0.08% 0.12% 0.21% 0.33% 0.42%
- ----------------------------------------------------------------------------------------------
Total non-performing loans/
Total assets 0.05% 0.07% 0.12% 0.17% 0.19%
- ----------------------------------------------------------------------------------------------
Total non-performing assets/
Total assets 0.05% 0.07% 0.12% 0.17% 0.27%
- ----------------------------------------------------------------------------------------------
Allowance for loan losses/
Total loans 0.96% 1.00% 1.03% 0.99% 1.02%
- ----------------------------------------------------------------------------------------------
Allowance for loan losses/
Total non-performing loans 12.3X 8.6X 5.0X 3.0X 2.4X
- ----------------------------------------------------------------------------------------------
Interest income of $20 thousand, $22 thousand and $39 thousand would have
been recognized during 2001, 2000, and 1999, respectively, if non-accrual loans
had been current in accordance with their original terms.
OTHER INCOME: Other income before gains on securities was $6.5 million in 2001,
an increase of 12% over 2000 levels. This increase was primarily due to higher
trust fees, additions to cash surrender value of Bank Owned Life Insurance, and
service charges on deposit accounts, partially offset by a non-recurring gain on
the sale of loan servicing recorded in 2000. Trust fees rose $409 thousand or
11% over the levels recorded in 2000. This increase is attributable to increased
volume of business as the book value of assets under management increased $57.2
million or 8% over last year's levels. During the third quarter of 2001, the
Corporation invested $12 million in Bank Owned Life Insurance (BOLI) to assist
in offsetting the rising costs of employee benefits, and accordingly, realized
other income of $264 thousand on increased cash surrender value on these
14
policies. For the year ended December 31, 2001, securities gains were $189
thousand as compared to a loss of $200 thousand recorded in 2000.
The following table presents the major components of other income:
(In thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------------------
Trust Department Fees $4,013 $3,604 $3,002
- ---------------------------------------------------------------------------------------------
Service Charges On Deposit Accounts 1,410 1,310 1,265
- ---------------------------------------------------------------------------------------------
Other Fee Income 345 299 660
- ---------------------------------------------------------------------------------------------
Bank Owned Life Insurance 264 -- --
- ---------------------------------------------------------------------------------------------
Other Non-Interest Income 248 221 176
- ---------------------------------------------------------------------------------------------
Safe Deposit Rental Fees 202 168 176
- ---------------------------------------------------------------------------------------------
Gain on Sale of Loan Servicing -- 211 --
- ---------------------------------------------------------------------------------------------
Other Income Before Gains/(Losses) on Securities 6,482 5,813 5,279
- ---------------------------------------------------------------------------------------------
Securities Gains/(Losses) 189 (200) 16
- ---------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $6,671 $5,613 $5,295
=============================================================================================
OTHER EXPENSES: Other expense totaled $17.8 million in 2001, an increase of $1.3
million or 8% compared to $16.5 million in 2000. This increase is commensurate
with the growth in the overall level of business activity and the addition of
two branch locations.
Salaries and benefits expense, the largest component of other expense,
increased 10% to $10.0 million from $9.0 million in 2000. This increase was
directly related to increased officer and staff levels and the related fringe
benefit costs. The full time equivalent number of employees rose to 180 at
December 31, 2001 from 167 a year ago.
Premises and equipment expense increased to $3.6 million from $3.0 million
in 2000. This increase was primarily due to higher expenses related to our new
branches in Hillsborough and Clinton.
The Corporation strives to operate in an efficient manner and control costs
as a means of producing increased earnings and enhancing shareholder value.
The following table presents the major components of other expenses:
(In thousands) 2001 2000 1999
- ------------------------------------------------------------------------
Salaries and Benefits $ 9,975 $ 9,041 $ 7,942
- ------------------------------------------------------------------------
Premises and Equipment 3,598 3,035 2,811
- ------------------------------------------------------------------------
Advertising 568 499 329
- ------------------------------------------------------------------------
Stationery and Supplies 490 393 395
- ------------------------------------------------------------------------
Professional Fees 369 248 349
- ------------------------------------------------------------------------
Trust Department 368 379 330
- ------------------------------------------------------------------------
Telephone 339 298 294
- ------------------------------------------------------------------------
Postage 320 299 234
- ------------------------------------------------------------------------
Merger-Related Charges -- 500 --
- ------------------------------------------------------------------------
Other Expense 1,796 1,828 2,531
- ------------------------------------------------------------------------
TOTAL OTHER EXPENSE $17,823 $16,520 $15,215
========================================================================
INCOME TAXES: Income tax expense for the year ended December 31, 2001 was $4.4
million as compared to $3.9 million in 2000. The effective tax rate for the year
ended December 31, 2001 was 32.83% compared to 33.84% for the year ended
December 31,
15
2000. The increased income tax expense in 2001 reflects higher levels of taxable
income partially offset by a lower effective tax rate due to increases in
tax-exempt income.
RESULTS OF OPERATIONS 2000 COMPARED TO 1999: For the year ended December 31,
2000, net income increased 7% to $7.7 million compared to $7.2 million earned in
1999. Diluted earnings per share increased 8% to $2.27 per share from $2.11 per
share earned in 1999. Earnings per diluted share before merger-related charges
of $0.12, net of tax, were $2.39 as compared to $2.11 in 1999, an increase of
14%. The increase in net income for 2000 was primarily due to growth in net
interest income and Trust fees offset in part by higher other expenses. These
results before merger-related charges produced a return on average assets of
1.55% as compared to 1.48% in 1999 and a return on average stockholders' equity
of 16.14% as compared to 15.67% in 1999.
Net interest income (on a tax equivalent basis) totaled $23.4 million for
2000, an increase of 8% or $1.7 million over the $21.7 million recorded in 1999.
The increase was primarily due to a $30.0 million increase in average earning
assets and higher rates earned on interest-earning assets, which increased to
7.28% from 6.91% earned in 1999. Offsetting higher interest income in part was
higher interest expense which increased $2.2 million or 21%. This increase was
primarily due to a $21.7 million increase in interest-bearing deposits and
higher rates paid on interest-bearing deposits, which increased to 3.35% from
2.94% in 1999. A major factor in the growth in net interest income was higher
average demand deposits which increased $8.1 million or 9% on average during
2000 as compared to 1999. The net interest margin in 2000 was 4.74%, an increase
of 6 basis points from 4.68% in 1999.
Other income before losses on securities was $5.8 million in 2000,
representing a 10% increase from 1999 levels. This increase was primarily due to
higher trust fees and gain on sale of a loan servicing portfolio, partially
offset by reduced other fee income. Trust fees for 2000 were 20% higher than
1999. The sharp rise in Trust fees can be attributed to the increase in book
value of assets under management, which increased 9% in 2000 as compared to 1999
levels in conjunction with changes in fee structure. The gain on sale of
servicing and reduction in other fee income was a result of discontinuing
Chatham Savings, FSB mortgage banking activities, which were not significant to
Chatham's assets and which were incompatible with existing lines of business.
Other expense totaled $16.5 million in 2000, an increase of $1.3 million or
9% compared to $15.2 million in 1999. Excluding merger- related charges of $500
thousand, the increase was $805 thousand, or 5%. The increase in other expense
was primarily the result of increases in salaries and benefits and advertising,
offset in part by lower equipment and data processing costs related to the
consolidation of the Chatham Savings, FSB operations.
Salaries and benefits expense, the largest component of other expense,
increased 14% to $9.0 million from $7.9 million in 1999. This increase was
primarily related to higher staff levels and costs associated with attracting
and retaining a well-trained professional staff and related fringe benefits.
CAPITAL RESOURCES: The solid capital base of the Corporation provides the
ability for future growth and financial strength. Maintaining a strong capital
position supports the Corporation's goal of providing shareholders an attractive
and stable long-term return on investment. At $63.1 million, total stockholders'
equity grew 14% or $7.9 million as compared with $55.2 million at December 31,
2000. At December 31, 2001, unrealized gains net of taxes were $655 thousand as
compared to unrealized losses net of taxes of $476 thousand at December 31,
2000. The change from unrealized losses to unrealized gains, net of taxes, was
primarily due to lower interest rates during 2001 as compared to 2000. Federal
regulations require banks to meet target Tier 1 and total capital ratios of 4%
16
and 8%, respectively. At 18.8% and 20.0%, the Corporation's Tier 1 and total
capital ratios are well in excess of regulatory minimums. The Corporation's
capital leverage ratio was 9.8% at December 31, 2001.
LIQUIDITY: Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary investments
and securities available for sale.
Management feels the Corporation's liquidity position is sufficient to meet
future needs. Cash and cash equivalents, including federal funds sold, averaged
over $40 million in 2001. In addition, the Corporation has $172.6 million in
securities designated as available for sale. These securities can be sold in
response to liquidity concerns. As of December 31, 2001, investment securities
and securities available for sale maturing within one year amounted to $14.6
million and cash and cash equivalents totaled $20.0 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 and long term borrowings from the
Federal Home Loan Bank of New York and loan participations or sales of loans.
The Corporation also generates liquidity from the regular principal payments
made on its loan portfolio.
INTEREST RATE SENSITIVITY: Interest rate sensitivity is a measure of the
relationship between interest-earning assets and supporting funds which are
susceptible to changes in interest rates during comparable time periods.
Interest rate movements on deposits have made managing the Corporation's
interest rate sensitivity increasingly more important as a means of managing net
interest income. The Corporation's Asset/Liability Committee is responsible for
managing the exposure to changes in market interest rates. The "sensitivity" gap
quantifies the repricing mismatch between assets and supporting funds over
various time intervals. The cumulative gap position as a percentage of total
rate-sensitive assets provides one relative measure of the Corporation's
interest rate exposure.
The Corporation's ratio of rate-sensitive assets to rate-sensitive
liabilities was approximately 0.24 to 1.00 on December 31, 2001 based on
contractual maturities for the next twelve months subject to certain assumptions
explained in the following paragraph. Since this ratio is less than 1.00, the
Corporation has a "negative gap" position which may cause its assets to reprice
more slowly than its deposit liabilities. In a declining interest rate
environment, interest costs may be expected to fall faster than the interest
received on earning assets, thus increasing the net interest spread. If interest
rates increase, a negative gap means that the interest received on earning
assets may be expected to increase more slowly than the interest paid on the
Corporation's liabilities, therefore decreasing the net interest spread.
For purposes of calculating the gap position, interest-earning demand
deposits, money market deposits and savings deposits are included in the 0-3
month category. The Corporation recognizes that certain of these deposits are
more stable with an effective maturity greater than their repricing frequency.
Assets with daily floating rates are included in the 0-3 month category. Assets
and liabilities are included based on their maturities or period to first
repricing, subject to the foregoing assumptions.
17
The table below presents the maturity and repricing relationships between
interest-earning assets and interest-bearing deposits as of December 31, 2001.
(In thousands)
Repricing or 0 - 3 3 - 12 1 - 5 Over 5
Maturity Date Months Months Years Years Total
- -------------------------------------------------------------------------------------------------
ASSETS
Securities $ 4,301 $10,338 $ 89,719 $116,984 $221,342
- -------------------------------------------------------------------------------------------------
Federal Funds Sold 2,543 -- -- -- 2,543
- -------------------------------------------------------------------------------------------------
Interest-Earning Deposits 15,634 -- -- -- 15,634
- -------------------------------------------------------------------------------------------------
Loans (1) 29,564 55,512 122,246 209,337 416,659
- -------------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
ASSETS $ 52,042 $65,850 $211,965 $326,321 $656,178
=================================================================================================
DEPOSITS
Certificates of Deposit $ 98,446 $93,199 $ 23,634 $ 141 $215,420
- -------------------------------------------------------------------------------------------------
Savings 82,268 -- -- -- 82,268
- -------------------------------------------------------------------------------------------------
Money Markets 109,326 -- -- -- 109,326
- -------------------------------------------------------------------------------------------------
Checking 110,878 -- -- -- 110,878
- -------------------------------------------------------------------------------------------------
Long-Term Debt -- -- 5,000 -- 5,000
- -------------------------------------------------------------------------------------------------
Noninterest-Bearing
Demand Deposits -- -- -- 113,011 113,011
- -------------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
DEPOSITS $400,918 $93,199 $ 28,634 $113,152 $635,903
=================================================================================================
Assets/Deposits 0.13 0.71 7.40 2.88 1.03
- -------------------------------------------------------------------------------------------------
Assets/Deposits (Cumulative) 0.13 0.24 0.63 1.03
- -------------------------------------------------------------------------------------------------
(1) Loan balances do not include nonaccrual loans.
MARKET RISK SENSITIVE INSTRUMENTS: A derivative financial instrument includes
futures, forwards, interest rate swaps, option contracts and other financial
instruments with similar characteristics. The Corporation currently does not
enter into futures, forwards, swaps or options. However, the Corporation is
party to financial instruments with off-balance sheet risk in the normal course
of business to meet the financing needs of the customers of the Corporation.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of condition. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates and may require collateral from the borrower if deemed
necessary by the Corporation. Standby letters of credit are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party up to a stipulated amount and with specified terms and
conditions.
Commitments to extend credit and standby letters of credit are not recorded
as an asset or liability by the Corporation until the instrument is exercised.
The Corporation's exposure to market risk is reviewed on a regular basis by
the Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the statement of condition to minimize the inherent risk while at the
same time maximize income. Management realizes certain risks
18
are inherent and that the goal is to identify and minimize the risks. Tools used
by management include the standard GAP report and interest rate shock simulation
report. The Corporation has no market risk sensitive instruments held for
trading purposes. Management believes the Corporation's market risk is
reasonable at this time.
The following table presents the scheduled maturity of market risk sensitive instruments as of December 31, 2001:
(In thousands)
Average Within 1 - 5 Over Estimated
Maturing In: Interest Rate 1 Year Years 5 Years Total Fair Value
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Securities 6.15% $ 14,639 $ 89,719 $116,984 $221,342 $223,100
- -------------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 4.64% 2,543 -- -- 2,543 2,543
- -------------------------------------------------------------------------------------------------------------------------
Interest-Earning Deposits 4.72% 15,634 -- -- 15,634 15,634
- -------------------------------------------------------------------------------------------------------------------------
Loans (1) 7.45% 85,076 122,246 209,337 416,659 420,842
- -------------------------------------------------------------------------------------------------------------------------
Total $117,892 $211,965 $326,321 $656,178 $662,119
=========================================================================================================================
LIABILITIES
Savings, Checking
And Money Markets 2.01%$ 302,472 $ -- $ -- $302,472 $302,472
- -------------------------------------------------------------------------------------------------------------------------
CD'S 5.29% 191,645 23,634 141 215,420 218,393
- -------------------------------------------------------------------------------------------------------------------------
Long-Term Debt 3.49% -- 5,000 -- 5,000 5,018
- -------------------------------------------------------------------------------------------------------------------------
Total $494,117 $ 28,634 $ 141 $522,892 $525,883
=========================================================================================================================
(1) Loan balances do not include nonaccrual loans.
EFFECTS OF INFLATION AND CHANGING PRICES: The financial statements and related
financial data presented herein have been prepared in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same magnitude as the prices of goods and services.
The Corporation believes residential real estate values have stabilized,
however, if real estate prices in the Corporation's trade area decrease, the
values of real estate collateralizing the Corporation's loans and real estate
held by the Corporation as other real estate owned could also be adversely
affected.
19
RECENT ACCOUNTING PRONOUNCEMENTS: Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended by SFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an Amendment of Financial Accounting Standards Board
(FASB) Statement No. 133 was adopted by the Corporation on January 1, 2001. The
adoption of these statements did not have a material impact on the consolidated
financial statements of the Corporation.
SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities (a Replacement of FASB Statement 125)"
supersedes and replaces the guidance of SFAS No. 125. SFAS No. 140 provides
guidance on the following topics: securitization transactions involving
financial assets; sales of financial assets such as receivables, loans, and
securities; factoring transactions; wash sales; servicing assets and
liabilities; collateralized borrowing arrangements; securities lending
transactions; repurchase agreements; loan collateralized borrowing
arrangements; securities lending transactions; repurchase agreements; loan
participations; and extinguishment of liabilities. The provisions of SFAS No.
140 are effective for transactions entered into after March 31, 2001. The
initial adoption of SFAS No. 140 did not have a material impact on the
Corporation's consolidated financial statements.
On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 141 specifies the
criteria acquired intangible assets must meet to be recognized and reported
apart from goodwill. The Corporation adopted SFAS No. 141 effective July 1,
2001. The initial adoption of SFAS No. 141 had no significant impact on the
Corporation's consolidated financial statements.
On July 20, 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
The Corporation was required to adopt SFAS No. 142 effective January 1, 2002.
As of December 31, 2001, the Corporation had $563 thousand in unamortized
goodwill with annual amortization of $100 thousand, which ceased upon the
adoption of SFAS No. 142. The Corporation has evaluated the transitional
goodwill impairment criteria of SFAS No. 142 and has determined that the
goodwill recorded at December 31, 2001 has not been impaired. Therefore
management has determined that the initial adoption of SFAS No. 142 had no
impact on the consolidated financial statements of the Corporation.
In August, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 requires an enterprise to
record the fair value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets. The Corporation is required to adopt the provisions
of SFAS No. 143 for fiscal years beginning after June 15, 2002. The Corporation
does not anticipate that SFAS No. 143 will significantly impact the
Corporation's consolidated financial statements.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", it retains many
of the fundamental provisions of that Statement. The
20
Statement is effective for fiscal years beginning after December 15, 2001. The
initial adoption of SFAS No. 144 did not have a significant impact on the
Corporation's financial statements.
PGB TRUST AND INVESTMENTS: PGB Trust and Investments, a division of the bank,
continues to be an extremely important part of Peapack-Gladstone Financial
Corporation. Since its inception in 1972, it has served in the roles of executor
and trustee while providing investment management, custodial, tax, retirement
and financial services to its growing client base.
TRUST ASSETS
(book value in millions)
---------------------------------
'97 '98 '99 '00 '01
----- ----- ----- ----- -----
$454 $549 $651 $710 $767
The book value of assets under management in PGB Trust and Investments
increased from $709.7 million at December 31, 2000 to $766.9 million at
December 31, 2001, an increase of 8%. The corresponding market value at
December 31, 2001 is in excess of $1 billion. Fee income generated by PGB Trust
and Investments was $4.0 million, $3.6 million and $3.0 million in 2001, 2000
and 1999, respectively.
FORWARD LOOKING STATEMENTS: In addition to historical information, this annual
report contains or may contain certain forward-looking statements and
information that are based on beliefs of, and information currently available to
management. When using this report and in oral statements by management the
words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan,"
and similar expressions as they relate to the Corporation, identify
forward-looking statements.
Such statements reflect the current views of management with respect to
future events and are subject to certain risks, uncertainties and assumptions
relating to the Corporation's operations and results of operations, competitive
factors and pricing pressures, shifts in market demand, the performance and
needs of customers served by the Corporation and other risks and uncertainties.
These include uncertainties specifically identified in the text surrounding
such statements and uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory
circumstances and conditions and actions taken or omitted to be taken by third
parties, competitors, and legislative, regulatory, judicial and other
governmental authorities and officials.
Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may vary
significantly from those anticipated, believed, estimated, expected, intended
or planned.
21
SELECTED CONSOLIDATED FINANCIAL DATA:
The following is selected consolidated financial data for the corporation and
its subsidiaries for the years indicated. This information is derived from the
historical consolidated financial statements and should be read in conjunction
with the consolidated financial statements and notes.
Years Ended December 31,
(In thousands, except
per share data) 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
SUMMARY EARNINGS:
Interest Income $40,523 $35,567 $31,587 $29,949 $27,708
- ---------------------------------------------------------------------------------------------------------------------
Interest Expense 15,486 12,509 10,341 10,843 10,193
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income 25,037 23,058 21,246 19,106 17,515
- ---------------------------------------------------------------------------------------------------------------------
Provision for Loan Losses 600 500 555 521 445
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision
for Loan Losses 24,437 22,558 20,691 18,585 17,070
- ---------------------------------------------------------------------------------------------------------------------
Other Income, Exclusive
of Securities Gains/(Losses) 6,482 5,813 5,279 4,623 3,604
- ---------------------------------------------------------------------------------------------------------------------
Other Expenses 17,823 16,520 15,215 13,802 12,695
- ---------------------------------------------------------------------------------------------------------------------
Securities Gains/(Losses) 189 (200) 16 178 29
- ---------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Expense 13,285 11,651 10,771 9,584 8,008
- ---------------------------------------------------------------------------------------------------------------------
Income Tax Expense 4,361 3,943 3,582 3,550 3,109
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $8,924 $7,708 $7,189 $6,034 $4,899
=====================================================================================================================
Per share data: (reflects 10% stock dividend paid in 2001, 5% stock dividends
paid in 2000, 1999 and 1998; and a 2:1 stock split in December, 1997.)
Earnings per Share-Basic $ 2.68 $ 2.32 $ 2.17 $ 1.82 $ 1.48
- -----------------------------------------------------------------------------------------------------------------
Earnings per Share-Diluted 2.64 2.27 2.11 1.77 1.45
- -----------------------------------------------------------------------------------------------------------------
Cash Dividends Declared 0.58 0.54 0.50 0.46 0.41
- -----------------------------------------------------------------------------------------------------------------
Book Value End-of-Period 18.96 16.61 14.36 14.04 12.47
- -----------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 3,327,836 3,320,208 3,313,511 3,313,297 3,317,222
- -----------------------------------------------------------------------------------------------------------------
Common Stock Equivalents 55,954 78,571 95,093 100,104 53,731
- -----------------------------------------------------------------------------------------------------------------
DIVIDENDS BOOK VALUE
PER SHARE PER SHARE
(in dollars) (in dollars)
- --------------------------------- --------------------------------------
'97 '98 '99 '00 '01 '97 '98 '99 '00 '01
- ----- ----- ----- ----- ----- ------ ------ ------ ------ ------
$0.41 $0.46 $0.50 $0.51 $0.58 $12.47 $14.04 $14.36 $16.61 $18.96
22
2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA: (at period end)
Total Assets $704,773 $567,032 $497,535 $480,929 $442,760
- -------------------------------------------------------------------------------------------------------------------------
Investment Securities 48,722 69,575 61,672 65,500 84,192
- -------------------------------------------------------------------------------------------------------------------------
Securities Available for Sale 172,620 83,950 101,324 103,604 97,863
- -------------------------------------------------------------------------------------------------------------------------
Loans 416,933 344,299 287,933 245,804 199,079
- -------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses 4,023 3,435 2,962 2,428 2,022
- -------------------------------------------------------------------------------------------------------------------------
Total Deposits 630,903 508,879 444,088 430,750 400,793
- -------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 63,085 55,156 47,575 44,461 39,426
- -------------------------------------------------------------------------------------------------------------------------
Trust Assets (Book Value) 766,928 709,732 651,469 549,321 453,671
- -------------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared 1,846 1,592 1,292 1,097 978
- -------------------------------------------------------------------------------------------------------------------------
SELECTED PERFORMANCE RATIOS:
Return on Average Total Assets 1.42% 1.47% 1.48% 1.33% 1.16%
- -------------------------------------------------------------------------------------------------------------------------
Return on Average Total Stockholders' Equity 15.03 15.30 15.67 14.21 13.11
- -------------------------------------------------------------------------------------------------------------------------
Dividend Payout Ratio 20.69 20.65 17.97 16.21 18.59
- -------------------------------------------------------------------------------------------------------------------------
Average Total Stockholders' Equity
to Average Assets 9.44 9.63 8.86 9.39 8.82
- -------------------------------------------------------------------------------------------------------------------------
Non-interest Expenses to Average Assets 2.83 3.16 3.13 3.05 3.00
- -------------------------------------------------------------------------------------------------------------------------
Non-interest Income to Average Assets 1.06 1.07 1.09 1.06 0.85
- -------------------------------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS: (at period end)
Non-accrual Loans to Total Loans 0.07% 0.09% 0.13% 0.33% 0.37%
- -------------------------------------------------------------------------------------------------------------------------
Non-performing Assets to Total Assets 0.05 0.07 0.12 0.17 0.27
- -------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses to
Non-performing Loans 12.3X 8.6X 5.0X 3.0X 2.4X
- -------------------------------------------------------------------------------------------------------------------------
Allowance for Loan Losses to Total Loans 0.96% 1.00% 1.03% 0.99% 1.02%
- -------------------------------------------------------------------------------------------------------------------------
Net Charge-Offs to Average
Loans Plus Other Real Estate Owned 0.01 0.01 0.01 0.05 0.08
- -------------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RATIOS:
Average Loans to Average Deposits 67.85% 67.99% 59.44% 56.36% 48.67%
- -------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity to Total Assets 8.95 9.73 9.56 9.24 8.90
- -------------------------------------------------------------------------------------------------------------------------
Tier 1 Capital to Risk Weighted Assets 18.76 20.80 26.55 18.97 14.91
- -------------------------------------------------------------------------------------------------------------------------
Total Capital to Risk Weighted Assets 19.98 22.10 28.16 19.06 15.66
- -------------------------------------------------------------------------------------------------------------------------
Tier 1 Leverage Ratio 9.84 10.49 10.02 9.40 8.76
- -------------------------------------------------------------------------------------------------------------------------
23
The following table sets forth certain unaudited quarterly financial data for
the periods indicated:
SELECTED 2001 QUARTERLY DATA:
(Dollars in thousands
except per share data) March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------
Interest Income $9,694 $9,988 $10,372 $10,469
- -----------------------------------------------------------------------------------------------------------
Interest Expense 3,959 3,964 3,955 3,608
- -----------------------------------------------------------------------------------------------------------
Net Interest Income 5,735 6,024 6,417 6,861
- -----------------------------------------------------------------------------------------------------------
Provision for Loan Losses 126 124 126 224
- -----------------------------------------------------------------------------------------------------------
Other Income, Excluding
Securities Gains/(Losses) 1,634 1,530 1,504 1,814
- -----------------------------------------------------------------------------------------------------------
Securities Gains/(Losses) -- 79 111 (1
- -----------------------------------------------------------------------------------------------------------
Other Expense 4,217 4,236 4,447 4,923
- -----------------------------------------------------------------------------------------------------------
Net Income before Income Tax Expense 3,026 3,273 3,459 3,527
- -----------------------------------------------------------------------------------------------------------
Income Tax Expense 996 1,081 1,163 1,121
- -----------------------------------------------------------------------------------------------------------
NET INCOME $2,030 $2,192 $ 2,296 $ 2,406
===========================================================================================================
Earnings per Share-Basic $ 0.61 $ 0.66 $ 0.69 $ 0.72
- -----------------------------------------------------------------------------------------------------------
Earnings per Share-Diluted 0.60 0.65 0.68 0.71
- -----------------------------------------------------------------------------------------------------------
SELECTED 2000 QUARTERLY DATA:
(dollars in thousands
except per share data) March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------
Interest Income $8,563 $8,861 $8,842 $9,301
- -----------------------------------------------------------------------------------------------------------
Interest Expense 2,744 2,895 3,303 3,567
- -----------------------------------------------------------------------------------------------------------
Net Interest Income 5,819 5,966 5,539 5,734
- -----------------------------------------------------------------------------------------------------------
Provision for Loan Losses 126 126 126 122
- -----------------------------------------------------------------------------------------------------------
Other Income, Excluding
Securities Gains/(Losses) 1,460 1,567 1,518 1,268
- -----------------------------------------------------------------------------------------------------------
Securities Gains/(Losses) 1 (197) (4) --
- -----------------------------------------------------------------------------------------------------------
Other Expense 4,514 4,089 3,695 4,222
- -----------------------------------------------------------------------------------------------------------
Net Income before Income Tax Expense 2,640 3,121 3,232 2,658
- -----------------------------------------------------------------------------------------------------------
Income Tax Expense 911 1,063 1,096 873
- -----------------------------------------------------------------------------------------------------------
NET INCOME $1,729 $2,058 $2,136 $1,785
===========================================================================================================
Earnings per Share-Basic $ 0.52 $ 0.63 $ 0.63 $ 0.54
- -----------------------------------------------------------------------------------------------------------
Earnings per Share-Diluted 0.51 0.60 0.63 0.53
- -----------------------------------------------------------------------------------------------------------
24
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Peapack-Gladstone Financial Corporation
We have audited the accompanying consolidated statements of condition of
Peapack-Gladstone Financial Corporation and subsidiary as of December 31, 2001
and 2000, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peapack-
Gladstone Financial Corporation and subsidiary as of December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP [LOGO]
Short Hills, New Jersey
January 17, 2002
25
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
(Dollars in thousands) 2001 2000
-----------------------------------------------------------------------------
ASSETS
Cash and Due from Banks $ 17,440 $ 16,971
-----------------------------------------------------------------------------
Federal Funds Sold 2,543 36,376
-----------------------------------------------------------------------------
Total Cash and Cash Equivalents 19,983 53,347
-----------------------------------------------------------------------------
Interest-Earning Deposits 15,634 910
-----------------------------------------------------------------------------
Investment Securities (Approximate Market Value
$50,480 in 2001 and $70,230 in 2000) 48,722 69,575
-----------------------------------------------------------------------------
Securities Available for Sale (Amortized Cost
$171,529 in 2001 and $84,688 in 2000) 172,620 83,950
-----------------------------------------------------------------------------
Loans 416,933 344,299
-----------------------------------------------------------------------------
Less: Allowance for Loan Losses 4,023 3,435
-----------------------------------------------------------------------------
Net Loans 412,910 340,864
-----------------------------------------------------------------------------
Premises and Equipment 13,474 11,661
-----------------------------------------------------------------------------
Accrued Interest Receivable 5,197 4,164
-----------------------------------------------------------------------------
Cash Surrender Value 12,244 --
-----------------------------------------------------------------------------
Other Assets 3,989 2,561
-----------------------------------------------------------------------------
TOTAL ASSETS $704,773 $567,032
=============================================================================
LIABILITIES
Deposits:
Noninterest-Bearing Demand Deposits $113,011 $103,858
-----------------------------------------------------------------------------
Interest-Bearing Deposits:
Checking 110,878 108,780
-----------------------------------------------------------------------------
Savings 82,268 74,657
-----------------------------------------------------------------------------
Money Markets 109,326 66,581
-----------------------------------------------------------------------------
Certificates of Deposit Over $100,000 59,900 40,064
-----------------------------------------------------------------------------
Certificates of Deposit Less Than $100,000 155,520 114,939
-----------------------------------------------------------------------------
Total Deposits 630,903 508,879
-----------------------------------------------------------------------------
Long-Term Debt 5,000 --
-----------------------------------------------------------------------------
Accrued Expenses and Other Liabilities 5,785 2,997
-----------------------------------------------------------------------------
TOTAL LIABILITIES 641,688 511,876
-----------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock (No Par Value; Stated Value $12/3
Per Share; Authorized 10,000,000 Shares;
Issued 3,368,127 Shares in 2001 and 3,038,715 in 2000) 5,608 5,064
-----------------------------------------------------------------------------
Surplus 37,838 25,104
-----------------------------------------------------------------------------
Treasury Stock at Cost, 40,279 Shares in 2001
and 22,706 Shares in 2000 (1,588) (956)
-----------------------------------------------------------------------------
Retained Earnings 20,572 26,420
-----------------------------------------------------------------------------
Accumulated Other Comprehensive Income/
(Loss), Net of Income Tax 655 (476)
-----------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 63,085 55,156
-----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $704,773 $567,032
=============================================================================
See accompanying notes to Consolidated Financial Statements
26
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(Dollars in thousands, except per share amounts) 2001 2000 1999
------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans $28,476 $24,683 $ 20,029
------------------------------------------------------------------------------
Interest on Investment Securities:
Taxable 3,190 3,469 2,921
------------------------------------------------------------------------------
Tax-Exempt 523 634 619
------------------------------------------------------------------------------
Interest and Dividends on Securities Available for Sale:
Taxable 6,498 5,628 6,535
------------------------------------------------------------------------------
Tax-Exempt 81 -- 6
------------------------------------------------------------------------------
Interest on Federal Funds Sold 1,143 1,092 1,477
------------------------------------------------------------------------------
Interest-Earning Deposits 612 61 --
------------------------------------------------------------------------------
Total Interest Income 40,523 35,567 31,587
------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Checking Accounts 849 1,048 1,058
------------------------------------------------------------------------------
Interest on Savings Accounts 4,631 3,391 3,072
------------------------------------------------------------------------------
Interest on Certificates of Deposit Over $100,000 2,518 1,843 1,846
------------------------------------------------------------------------------
Interest on Other Time Deposits 7,431 6,227 4,365
------------------------------------------------------------------------------
Interest on Long-Term Debt 57 -- --
------------------------------------------------------------------------------
Total Interest Expense 15,486 12,509 10,341
------------------------------------------------------------------------------
NET INTEREST INCOME 25,037 23,058 21,246
------------------------------------------------------------------------------
Provision for Loan Losses 600 500 555
------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 24,437 22,558 20,691
------------------------------------------------------------------------------
OTHER INCOME
Trust Fees 4,013 3,604 3,002
------------------------------------------------------------------------------
Service Charges and Fees 1,957 1,777 2,101
------------------------------------------------------------------------------
Other Income 512 432 176
------------------------------------------------------------------------------
Securities Gains/(Losses) 189 (200) 16
------------------------------------------------------------------------------
Total Other Income 6,671 5,613 5,295
------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and Employee Benefits 9,975 9,041 7,942
------------------------------------------------------------------------------
Premises and Equipment 3,598 3,035 2,811
------------------------------------------------------------------------------
Merger-Related Charges -- 500 --
------------------------------------------------------------------------------
Other Expenses 4,250 3,944 4,462
------------------------------------------------------------------------------
Total Other Expenses 17,823 16,520 15,215
------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 13,285 11,651 10,771
Income Tax Expense 4,361 3,943 3,582
------------------------------------------------------------------------------
NET INCOME $ 8,924 $ 7,708 $ 7,189
==============================================================================
EARNINGS PER SHARE
Basic $ 2.68 $ 2.32 $ 2.17
------------------------------------------------------------------------------
Diluted 2.64 2.27 2.11
==============================================================================
See accompanying notes to Consolidated Financial Statements
27
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Accumulated
Other
Comprehensive
(Dollars in thousands, except Common Treasury Retained Income
per share amounts) Stock Surplus Stock Earnings (Loss) Total
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $4,596 $13,640 $(791) $26,086 $ 930 $44,461
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net Income 1999 7,189 7,189
Unrealized Holding Losses on
Securities Arising During the
Period (Net of Tax Benefit
of ($1,352)) (2,874)
Less: Reclassification Adjustment
for Gains Included in Net Income
(Net of Income Tax of $6) 10
Net Unrealized Holding Losses on
Securities Arising During the
Period (Net of Tax Benefit
of ($1,358)) (2,884) (2,884)
Total Comprehensive Income 4,305
Dividends Declared ($0.50 per share) (1,292) (1,292)
Common Stock Options Exercised
and Related Tax Benefits 6 55 (96) (35)
Common Stock Dividend
(Five Percent) 202 5,767 (5,969) --
Treasury Stock Transactions 136 136
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $4,804 $19,462 $(655) $ 25,918 $(1,954) $47,575
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net Income 2000 7,708 7,708
Unrealized Holding Gains on
Securities Arising During the
Period (Net of Income Tax of
$780) 1,351
Less: Reclassification Adjustment
For Losses Included in Net Income
(Net of Tax Benefit of ($68)) (127)
Net Unrealized Holding Gains on
Securities Arising During the
Period (Net of Income Tax of $848) 1,478 1,478
Total Comprehensive Income 9,186
Dividends Declared ($0.54 per share) (1,592) (1,592)
Common Stock Options Exercised
and Related Tax Benefits 30 265 (7) 288
Common Stock Dividend
(Five Percent) 230 5,377 (5,607) --
Treasury Stock Transactions (301) (301)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $5,064 $25,104 $(956) $ 26,420 $ (476) $55,156
-----------------------------------------------------------------------------------------------------------------------------------
(continued on following page)
28
Accumulated
Other
Comprehensive
(Dollars in thousands, except Common Treasury Retained Income
per share amounts) Stock Surplus Stock Earnings (Loss) Total
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net Income 2001 8,924 8,924
Unrealized Holding Gains on
Securities Arising During the
Period (Net of Income Tax of
$762) 1,256
Less: Reclassification Adjustment
For Gains Included in Net Income
(Net of Income Tax of $64) 125
---
Net Unrealized Holding Gains on
Securities Arising During the
Period (Net of Income Tax of
$698) 1,131 1,131
-----
Total Comprehensive Income 10,055
Dividends Declared ($0.58 per share) (1,846) (1,846)
Common Stock Options Exercised
and Related Tax Benefits 34 318 352
Common Stock Dividend
(Ten Percent) 510 12,416 (12,926) --
Treasury Stock Transactions (632) (632)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $5,608 $37,838 $(1,588) $20,572 $ 655 $63,085
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Dollars in thousands) 2001 2000 1999
------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income $ 8,924 $ 7,708 $ 7,189
------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 1,204 1,001 981
------------------------------------------------------------------------------
Amortization of Premium and Accretion
of Discount on Securities, Net 247 239 349
------------------------------------------------------------------------------
Provision for Loan Losses 600 500 555
------------------------------------------------------------------------------
Benefit for Deferred Taxes (313) (185) (255)
------------------------------------------------------------------------------
(Gain)/Loss on Sale of Securities (189) 200 (16)
------------------------------------------------------------------------------
Increase in Cash Surrender Value (244) -- --
------------------------------------------------------------------------------
(Increase) Decrease in Accrued Interest Receivable (1,033) (720) 141
------------------------------------------------------------------------------
(Increase)/Decrease in Other Assets (1,813) 913 (1,855)
------------------------------------------------------------------------------
Increase in Accrued Expenses and Other Liabilities 2,788 125 1,533
------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,171 9,781 8,622
------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from Maturities of Investment Securities 8,487 15,205 21,770
------------------------------------------------------------------------------
Proceeds from Maturities of Securities
Available for Sale 11,943 31,096 8,937
------------------------------------------------------------------------------
Proceeds from Calls of Investment Securities 12,831 10 4,600
------------------------------------------------------------------------------
Proceeds from Sales and Calls of Securities
Available for Sale 68,796 13,297 17,663
------------------------------------------------------------------------------
Purchase of Investment Securities (1,494) (23,176) (22,676)
------------------------------------------------------------------------------
Purchase of Securities Available for Sale (166,609) (27,203) (30,025)
------------------------------------------------------------------------------
Net (Increase)/Decrease in Short-Term Investments (14,724) (910) 2,153
------------------------------------------------------------------------------
Net Increase in Loans (72,646) (56,393) (41,344)
------------------------------------------------------------------------------
Purchases of Premises and Equipment (3,017) (2,944) (947)
------------------------------------------------------------------------------
Purchase of Life Insurance (12,000) -- --
------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (168,433) (51,018) (39,869)
------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net Increase in Deposits 122,024 66,172 13,338
------------------------------------------------------------------------------
Net Decrease of Short-Term Borrowings -- (3,000) --
------------------------------------------------------------------------------
Proceeds from Long-Term Borrowings 5,000 -- --
------------------------------------------------------------------------------
Dividends Paid (1,846) (1,592) (1,292)
------------------------------------------------------------------------------
Exercise of Stock Options 352 288 (35)
------------------------------------------------------------------------------
Purchase of Treasury Stock (632) (301) (136)
------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 124,898 61,567 11,875
------------------------------------------------------------------------------
Net (Decrease)/Increase in Cash
and Cash Equivalents (33,364) 20,330 (19,372)
------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 53,347 33,017 52,389
------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 19,983 $ 53,347 $ 33,017
==============================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest $ 15,725 $ 12,009 $ 10,167
------------------------------------------------------------------------------
Income Taxes 2,197 3,984 3,697
------------------------------------------------------------------------------
TRANSFER OF SECURITIES FROM HELD TO
MATURITY TO AVAILABLE FOR SALE 1,004 -- --
------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION: The consolidated financial
statements of the Corporation are prepared on the accrual basis and include the
accounts of the Corporation and its wholly-owned subsidiary, Peapack-Gladstone
Bank and its wholly-owned subsidiaries, Peapack-Gladstone Investment Company and
Peapack-Gladstone Mortgage Group, Inc. While the following footnotes include the
collective results of Peapack-Gladstone Financial Corporation and
Peapack-Gladstone Bank, these footnotes primarily reflect the Bank's and its
subsidiaries activities. All significant intercompany balances and transactions
have been eliminated from the accompanying consolidated financial statements.
BUSINESS: The Peapack-Gladstone Bank, the subsidiary of the Corporation,
provides a full range of banking services to individual and corporate customers
through its branch operations in northwestern New Jersey. The Bank is subject to
competition from other financial institutions, is regulated by certain federal
and state agencies and undergoes periodic examinations by those regulatory
authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION: The consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the statement of condition and revenues and
expenses for that period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows, cash
and cash equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES: Investment securities are comprised of debt securities
that the Corporation has the positive intent and ability to hold to maturity.
Such securities are stated at cost, adjusted for amortization of premium and
accretion of discount over the term of the investments.
SECURITIES AVAILABLE FOR SALE: Debt securities that cannot be categorized as
investment securities are classified as securities available for sale. Such
securities include debt securities to be held for indefinite periods of time and
not intended to be held to maturity, as well as marketable equity securities.
Securities held for indefinite periods of time include securities that
management intends to use as part of its asset/liability management strategy and
that may be sold in response to changes in interest rates, resultant prepayment
risk and other factors related to interest rate and resultant prepayment risk
changes. Securities available for sale are carried at fair value and unrealized
holding gains and losses (net of related tax effects) on such securities are
excluded from earnings, but are included in Stockholders' Equity as Accumulated
Other Comprehensive Income. Upon realization, such gains or losses are included
in earnings using the specific identification method.
LOANS: Loans are stated at the principal amount outstanding. Loan origination
fees and certain direct loan origination costs are deferred and recognized over
the life of the loan as an adjustment to the loan's yield. The accrual of income
on loans, including impaired loans,
31
is discontinued if certain factors indicate reasonable doubt as to the timely
collectibility of such interest, generally when the loan becomes over 90 days
delinquent. A non-accrual loan is not returned to an accrual status until
factors indicating doubtful collection no longer exist. The majority of the
loans are secured by real estate located within the Corporation's market area in
Northwestern New Jersey.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level considered adequate to provide for probable loan losses inherent in the
portfolio. The allowance is based on management's evaluation of the loan
portfolio considering economic conditions, the volume and nature of the loan
portfolio, historical loan loss experience and individual credit situations. The
allowance is increased by provisions charged to expense and reduced by net
charge-offs.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, future additions
to the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such agencies may
require the Corporation to recognize additions to the allowance based on their
judgments about information available to them at the time of their examinations.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Corporation will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of impairment is measured based on the
fair value of the collateral. Impairment losses are included in the allowance
for loan losses through provisions charged to operations.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation charges are computed using the straight-
line method. Premises and equipment are depreciated over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are expensed as
incurred. The cost of major renewals and improvements are capitalized. Gains or
losses realized on routine dispositions are recorded as other income or other
expense.
OTHER REAL ESTATE OWNED: Other real estate owned is carried at fair value minus
estimated costs to sell, based on an independent appraisal. When a property is
acquired, the excess of the loan balance over the estimated fair value is
charged to the allowance for loan losses. Any subsequent write-downs that may be
required to the carrying value of the properties or losses on the sale of
properties are charged to the valuation allowance on other real estate owned or
to other expense.
INTANGIBLE ASSETS: Intangible assets resulting from acquisitions under the
purchase method of accounting consist of goodwill. Goodwill is being amortized
on a straight-line basis over 25 years.
INCOME TAXES: The Corporation files a consolidated Federal income tax return.
Separate State income tax returns are filed for each subsidiary based on current
laws and regulations.
The Corporation recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in its
financial statements or tax returns. The measurement of deferred tax assets and
liabilities is based on the enacted tax rates applicable to taxable income for
the years in which these temporary differences are
32
expected to be recovered or settled. Such tax assets and liabilities are
adjusted for the effect of a change in tax rates in the period of enactment.
STOCK OPTION PLAN: The Corporation applies the provisions of APB Opinion No. 25
and provides pro forma net income and pro forma earnings per share disclosures
for employee stock option grants as if the fair-value-based method defined in
SFAS No. 123 had been applied.
EARNINGS PER SHARE: The numerator of both the Basic and Diluted EPS is
equivalent to net income. The weighted average number of shares outstanding used
in the denominator for Diluted EPS is increased over the denominator used for
Basic EPS by the effect of potentially dilutive common stock equivalents
utilizing the treasury stock method. Common stock equivalents are common stock
options outstanding.
All share and per share amounts have been restated to reflect the 10% stock
dividend issued in 2001 and the 5% stock dividends issued in 2000 and 1999.
The following table shows the calculation of both Basic and Diluted
earnings per share for the years ended December 31, 2001, 2000 and 1999:
(In thousands, except for share data) 2001 2000 1999
- -------------------------------------------------------------------------------------
Net income $8,924 $7,708 $7,189
=====================================================================================
Basic weighted average shares
outstanding 3,327,836 3,320,208 3,313,511
- -------------------------------------------------------------------------------------
Plus: Common Stock Equivalents 55,954 78,571 95,093
- -------------------------------------------------------------------------------------
Diluted weighted average shares
outstanding 3,383,790 3,398,779 3,408,604
=====================================================================================
Earnings per share:
- -------------------------------------------------------------------------------------
Basic $ 2.68 $ 2.32 $ 2.17
- -------------------------------------------------------------------------------------
Diluted 2.64 2.27 2.11
- -------------------------------------------------------------------------------------
TREASURY STOCK: Treasury stock is recorded using the cost method and accordingly
is presented as an unallocated reduction of stockholders' equity.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and net
unrealized gains or losses on securities available for sale and is presented in
the consolidated statements of changes in stockholders' equity.
RECLASSIFICATION: Certain reclassifications have been made in the prior periods'
financial statements in order to conform to the 2001 presentation.
33
ACQUISITIONS: On January 7, 2000, the Corporation acquired Chatham Savings, FSB
("Chatham"). The transaction was accounted for using the pooling of interests
method of accounting. The consolidated financial statements of Peapack-Gladstone
Financial Corporation have been restated to include Chatham for all periods
presented. Separate results of the combining companies for the year ended
December 31, 1999 are as follows:
(In thousands) 1999
------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses
Peapack-Gladstone $17,877
- ------------------------------------------------------------------------
Chatham 2,814
- ------------------------------------------------------------------------
$20,691
========================================================================
Net Income
Peapack-Gladstone $ 6,621
- ------------------------------------------------------------------------
Chatham 568
- ------------------------------------------------------------------------
$ 7,189
========================================================================
During the first quarter of 2000, the Corporation recorded a merger-related
charge of $500 thousand related to the acquisition of Chatham. This charge was
fully realized in 2000. These charges include only identified direct and
incremental costs associated with this acquisition. Items included in these
charges include the following: personnel expenses which include severance
payments and benefits for terminated employees, principally, senior executives
of Chatham; professional fees which include investment banking, accounting and
legal fees; and other expenses which include data processing and the write-off
of supplies and other assets not considered useful in the operation of the
combined entity.
34
2. INVESTMENT SECURITIES
A summary of amortized cost and approximate market value of investment
securities included in the consolidated statements of condition as of December
31, 2001 and 2000 follows:
2001
- ------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------
U.S. Treasury &
Government Agencies $24,608 $1,205 $ -- $25,813
- ------------------------------------------------------------------------------
Mortgage-Backed
Securities 9,262 124 (69) 9,317
- ------------------------------------------------------------------------------
State and Political
Subdivisions 9,892 317 -- 10,209
- ------------------------------------------------------------------------------
Other Debt Securities 4,960 181 -- 5,141
- ------------------------------------------------------------------------------
$48,722 $1,827 $ (69) $50,480
==============================================================================
2000
- ------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
- -----------------------------------------------------------------------------
U.S. Treasury &
Government Agencies $36,748 $525 $ (78) $37,195
- -----------------------------------------------------------------------------
Mortgage-Backed
Securities 11,334 102 (148) 11,288
- -----------------------------------------------------------------------------
State and Political
Subdivisions 15,520 237 (36) 15,721
- -----------------------------------------------------------------------------
Other Debt Securities 5,973 80 (27) 6,026
- -----------------------------------------------------------------------------
$69,575 $944 $(289) $70,230
=============================================================================
The amortized cost and approximate market value of investment securities as
of December 31, 2001, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or repay obligations with or without call or prepayment
penalties.
Maturing in:
Approximate
(In thousands) Amortized Cost Market Value
- ------------------------------------------------------------------------------
One Year or Less $11,191 $11,437
- ------------------------------------------------------------------------------
After One Year Through Five Years 22,656 23,787
- ------------------------------------------------------------------------------
After Five Years Through Ten Years 5,164 5,398
- ------------------------------------------------------------------------------
After Ten Years 9,711 9,858
- ------------------------------------------------------------------------------
$48,722 $50,480
==============================================================================
Securities having an approximate carrying value of $1.7 million as of December
31, 2001 and 2000 were pledged to secure public funds and for other purposes
required or permitted by law. During 2001, the Corporation transferred one
security in the amount of $1.0 million from Held to Maturity to Available for
Sale. The security had a market value of $1.0 million. The transfer was made due
to a significant deterioration in the issuer's credit worthiness.
35
3. SECURITIES AVAILABLE FOR SALE
A summary of amortized cost and approximate market value of securities
available for sale included in the consolidated statements of condition as of
December 31, 2001 and 2000 follows:
2001
- ------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------
U.S. Treasury &
Government Agencies $111,907 $1,377 $(289) $112,995
- ------------------------------------------------------------------------------
Mortgage-Backed
Securities 32,137 66 (218) 31,985
- ------------------------------------------------------------------------------
State and Political
Subdivisions 7,955 11 (131) 7,835
- ------------------------------------------------------------------------------
Other Securities 19,530 383 (108) 19,805
- ------------------------------------------------------------------------------
$171,529 $1,837 $(746) $172,620
==============================================================================
2000
- ------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------
U.S. Treasury &
Government Agencies $70,883 $111 $(586) $70,408
- ------------------------------------------------------------------------------
Mortgage-Backed
Securities 1,882 1 (16) 1,867
- ------------------------------------------------------------------------------
State and Political
Subdivisions 240 -- (2) 238
- ------------------------------------------------------------------------------
Other Securities 11,683 99 (345) 11,437
- ------------------------------------------------------------------------------
$84,688 $211 $(949) $83,950
==============================================================================
The amortized cost and approximate market value of debt securities
available for sale as of December 31, 2001, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without call
or prepayment penalties.
Maturing In:
Approximate
(In thousands) Amortized Cost Market Value
- ------------------------------------------------------------------------------
One Year or Less $ 3,307 $ 3,448
- ------------------------------------------------------------------------------
After One Year Through Five Years 66,247 67,063
- ------------------------------------------------------------------------------
After Five Years Through Ten Years 72,635 72,918
- ------------------------------------------------------------------------------
After Ten Years 29,340 29,191
- ------------------------------------------------------------------------------
$171,529 $172,620
==============================================================================
Securities having an approximate carrying value of $3.0 million as of December
31, 2001 were pledged to secure public funds and for other purposes required or
permitted by law. There were no available for sale securities pledged as of
December 31, 2000. Gross gains of $189 thousand and $16 thousand were realized
in 2001 and 1999. There were gross realized losses in 2000 of $200 thousand.
36
4. LOANS
Loans outstanding as of December 31, 2001 and 2000 consisted of the following:
(In thousands) 2001 2000
- ---------------------------------------------------------------------------
Loans Secured By 1-4 Family $287,220 $251,197
- ---------------------------------------------------------------------------
Commercial Real Estate 91,129 62,161
- ---------------------------------------------------------------------------
Construction Loans 6,418 2,297
- ---------------------------------------------------------------------------
Commercial Loans 15,855 13,019
- ---------------------------------------------------------------------------
Consumer Loans 11,237 14,084
- ---------------------------------------------------------------------------
Other Loans 5,074 1,541
- ---------------------------------------------------------------------------
TOTAL LOANS $416,933 $344,299
===========================================================================
Non-accrual loans totaled $274 thousand and $325 thousand at December 31,
2001 and 2000, respectively. Loans past due 90 days or more and still accruing
interest totaled $53 thousand and $75 thousand at December 31, 2001 and 2000,
respectively. There are no commitments to lend additional amounts on non-accrual
loans. The amount of interest income recognized on year-end non-accrual loans
totaled $10 thousand, $8 thousand and $3 thousand in 2001, 2000 and 1999,
respectively. Interest income of $20 thousand, $22 thousand and $39 thousand
would have been recognized during 2001, 2000 and 1999, respectively, under
contractual terms for such non-accrual loans.
Loans that met the criteria of troubled debt restructuring totaled $320
thousand and $325 thousand at December 31, 2001 and 2000, respectively. The
amount of interest income recognized on troubled debt restructurings in 2001,
2000 and 1999 totaled $22 thousand, $17 thousand and $32 thousand, respectively.
Interest income of approximately $32 thousand, $33 thousand and $40 thousand
would have been recognized during 2001, 2000 and 1999, based on original terms.
There are no commitments to lend additional amounts on troubled debt
restructurings.
The Corporation defines an impaired loan as an investment in a loan that is
on non-accrual status with a principal outstanding balance in excess of $100
thousand. Residential mortgage loans, a group of homogeneous loans that are
collectively evaluated for impairment, are excluded. There was no recorded
investment in impaired loans as of or for the years ended December 31, 2001 and
2000.
5. ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses for the years
indicated follows:
Years Ended December 31,
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------
Balance, Beginning of Year $3,435 $2,962 $2,428
- -------------------------------------------------------------------------------
Provision Charged to Expense 600 500 555
- -------------------------------------------------------------------------------
Loans Charged-Off (92) (174) (122)
- -------------------------------------------------------------------------------
Recoveries 80 147 101
- -------------------------------------------------------------------------------
Balance, End of Year $4,023 $3,435 $2,962
===============================================================================
37
6. PREMISES AND EQUIPMENT
Premises and equipment as of December 31, follows:
(In thousands) 2001 2000
- -------------------------------------------------------------------------------
Land $ 2,554 $ 2,554
- -------------------------------------------------------------------------------
Buildings 7,298 5,994
- -------------------------------------------------------------------------------
Furniture and Equipment 7,481 6,493
- -------------------------------------------------------------------------------
Leasehold Improvements 3,360 3,049
- -------------------------------------------------------------------------------
Projects in Progress 1,511 1,268
- -------------------------------------------------------------------------------
22,204 19,358
- -------------------------------------------------------------------------------
Less: Accumulated Depreciation 8,730 7,697
- -------------------------------------------------------------------------------
TOTAL $13,474 $11,661
===============================================================================
Depreciation expense amounted to $1.2 million, $1.0 million and $981
thousand for the years ended December 31, 2001, 2000 and 1999, respectively.
7. DEPOSITS
Interest expense on time deposits of $100,000 or more totaled $2.5 million,
$1.8 million and $1.8 million in 2001, 2000 and 1999, respectively.
The scheduled maturities of time deposits are as follows:
(In thousands)
- -------------------------------------------------------------------------------
2002 $191,645
- -------------------------------------------------------------------------------
2003 19,300
- -------------------------------------------------------------------------------
2004 653
- -------------------------------------------------------------------------------
2005 1,093
- -------------------------------------------------------------------------------
2006 2,729
- -------------------------------------------------------------------------------
TOTAL $215,420
===============================================================================
8. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
At December 31, 2001, advances from the Federal Home Loan Bank of New York
(FHLB) amounted to $5.0 million with a weighted average interest rate of 3.73%.
There were no advances outstanding at December 31, 2000. These advances are
secured by pledges of 1-4 family residential mortgages totaling $219.0 million
at December 31, 2001. The advances have fixed maturity dates with $3.0 million
scheduled to mature in 2004 and $2.0 million in 2006.
Other borrowings consisting of overnight borrowings at FHLB had an average
balance of $1.6 million for the year ended December 31, 2001. There were no
borrowings outstanding at any month end during 2001. There were no overnight
borrowings in 2000.
38
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation discloses estimated fair values for its significant
financial instruments. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the fair value
of each class of significant financial instruments:
CASH AND SHORT-TERM INVESTMENTS -- The carrying amount of cash and
short-term investments is considered to be fair value.
SECURITIES -- The fair value of securities is based upon quoted market
prices or dealer quotes.
LOANS -- The fair value of loans is estimated by discounting the future
cash flows using the build-up approach consisting of four components: the
risk-free rate, credit quality, operating expense and prepayment option price.
DEPOSITS -- The fair value of deposits with no stated maturity, such as
demand deposits, checking accounts, savings and money market accounts, is equal
to the carrying amount. The fair value of certificates of deposit is based on
the discounted value of contractual cash flows.
LONG-TERM DEBT -- The fair value of FHLB advances is based on the
discounted value of estimated cash flows. The discount rate is estimated using
the rates currently offered for similar advances.
The following table summarizes carrying amounts and fair values for
financial instruments at December 31, 2001 and 2000:
(In thousands) 2001 2000
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------
Financial Assets:
Cash and Cash
Equivalents $ 19,983 $ 19,983 $ 53,347 $ 53,347
- -------------------------------------------------------------------------------
Interest-Earning
Deposits 15,634 15,634 910 910
- -------------------------------------------------------------------------------
Investment Securities 48,722 50,480 69,575 70,230
- -------------------------------------------------------------------------------
Securities Available
for Sale 172,620 172,620 83,950 83,950
- -------------------------------------------------------------------------------
Loans, Net of Allowance
for Loan Losses 412,910 420,842 340,864 339,461
- -------------------------------------------------------------------------------
Financial Liabilities:
Deposits 630,903 633,876 510,260 510,862
- -------------------------------------------------------------------------------
Long-Term Debt 5,000 5,018 -- --
- -------------------------------------------------------------------------------
39
10. INCOME TAXES
The income tax expense included in the consolidated financial statements
for the years ended December 31, 2001, 2000 and 1999, is allocated as follows:
(In thousands) 2001 2000 1999
- ------------------------------------------------------------------------------
Federal:
Current Expense $4,493 $4,014 $ 3,639
- ------------------------------------------------------------------------------
Deferred Benefit (252) (180) (225)
- ------------------------------------------------------------------------------
State:
Current Expense 181 114 198
- ------------------------------------------------------------------------------
Deferred Benefit (61) (5) (30)
- ------------------------------------------------------------------------------
Total Income Tax Expense $4,361 $3,943 $ 3,582
- ------------------------------------------------------------------------------
Stockholders' Equity:
Deferred Expense/(Benefit)
Unrealized Gain (Loss) on
Securities Available for Sale $ 698 $ 848 $ (1,660)
==============================================================================
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% in 2001, 2000 and 1999 to income before
taxes as a result of the following:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------
Computed "Expected" Tax
Expense $4,517 $3,961 $3,662
- -------------------------------------------------------------------------------
Increase/(Decrease) in Taxes Resulting From:
Tax-Exempt Income (234) (217) (210)
- -------------------------------------------------------------------------------
State Income Taxes 79 72 111
- -------------------------------------------------------------------------------
Bank Owned Life Insurance (82) -- --
- -------------------------------------------------------------------------------
Other 81 127 19
- -------------------------------------------------------------------------------
$4,361 $3,943 $3,582
===============================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 2001 and 2000 are as follows:
(In thousands) 2001 2000
- -------------------------------------------------------------------------------
Deferred Tax Assets:
Loans, Principally Due to Allowance for
Loan Losses and Deferred Fee Income $1,532 $1,171
- -------------------------------------------------------------------------------
Post Retirement Benefits Other Than
Pensions 147 162
- -------------------------------------------------------------------------------
Start-up & Organization Costs 51 70
- -------------------------------------------------------------------------------
Capital Loss Carryover 2 --
- -------------------------------------------------------------------------------
Unrealized Loss on Securities Available
for Sale -- 262
- -------------------------------------------------------------------------------
Total Gross Deferred Assets $1,732 $1,665
===============================================================================
Deferred Tax Liabilities:
Investment Securities, Principally due
to The Accretion of Bond Discount 54 29
- -------------------------------------------------------------------------------
Unrealized Gain on Securities Available
for Sale 436 --
- -------------------------------------------------------------------------------
Deferred Loan Origination Costs and Fees 300 263
- -------------------------------------------------------------------------------
Bank Premises and Equipment,
Principally Due to Differences in
Depreciation 417 463
- -------------------------------------------------------------------------------
Total Gross Deferred Liabilities 1,207 755
- -------------------------------------------------------------------------------
Net Deferred Tax Asset $ 525 $ 910
===============================================================================
40
11. BENEFIT PLANS
The Corporation sponsors a non-contributory defined benefit pension plan
that covers substantially all salaried employees. The benefits are based on an
employee's compensation, age at retirement and years of service. It is the
policy of the Corporation to fund not less than the minimum funding amount
required by the Employee Retirement Income Security Act (ERISA). Plan assets
primarily consist of U.S. government agencies and common stock.
The following table shows the change in benefit obligation, the change in
plan assets and the funded status for the plan at December 31,
(In thousands) 2001 2000
- -----------------------------------------------------------------------------
Change in Benefit Obligation
- -----------------------------------------------------------------------------
Benefit Obligation at Beginning of Year $4,319 $4,313
- ----------------------------------------------------------------------------
Service Cost 590 474
- ----------------------------------------------------------------------------
Interest Cost 360 286
- ----------------------------------------------------------------------------
Actuarial (Gain)/Loss 644 (698)
- ----------------------------------------------------------------------------
Benefits Paid (271) (56)
- ----------------------------------------------------------------------------
Benefit Obligation at End of Year $5,642 $4,319
=============================================================================
Change in Plan Assets
- -----------------------------------------------------------------------------
Fair Value of Plan Assets at Beginning of Year $5,224 $4,874
- -----------------------------------------------------------------------------
Actual Return on Plan Assets (340) 88
- -----------------------------------------------------------------------------
Employer Contribution 572 318
- -----------------------------------------------------------------------------
Benefits Paid (271) (56)
- -----------------------------------------------------------------------------
Fair Value of Plan Assets at End of Year $5,185 $5,224
=============================================================================
Funded Status $ (457) $ 905
- -----------------------------------------------------------------------------
Unrecognized Transition Asset (51) (58)
- -----------------------------------------------------------------------------
Unrecognized Prior Service Cost (3) (4)
- -----------------------------------------------------------------------------
Unrecognized Net Actuarial Gain 322 (1,137)
- -----------------------------------------------------------------------------
Accrued Benefit Cost $ (189) $ (294)
=============================================================================
Net periodic expense for the years ended December 31 included the following
components:
(In thousands) 2001 2000 1999
- ------------------------------------------------------------------------------
Service Cost $590 $474 $558
- ------------------------------------------------------------------------------
Interest Cost 360 286 225
- ------------------------------------------------------------------------------
Expected Return on Plan Assets (459) (412) (343)
- ------------------------------------------------------------------------------
Amortization of:
- ------------------------------------------------------------------------------
Net Gain (19) (49) (11)
- ------------------------------------------------------------------------------
Unrecognized Prior Service Cost 1 1 1
- ------------------------------------------------------------------------------
Unrecognized Remaining Net Assets (7) (7) (7)
- ------------------------------------------------------------------------------
Net Periodic Benefit Cost $466 $293 $423
==============================================================================
41
The following table shows the actuarial assumption applied for the plan at
December 31,
2001 2000 1999
------------------------------------------------------------------------------
Weighted-average discount rate 7% 8% 6%
------------------------------------------------------------------------------
Weighted-average rate of increase
on future compensation 3% 3% 3%
------------------------------------------------------------------------------
Weighted-average expected long-term
rate of return on plan assets 8% 8% 7.5%
------------------------------------------------------------------------------
SAVINGS AND PROFIT SHARING PLANS:
In addition to the retirement plan, the Corporation sponsors a profit
sharing plan and a savings plan under Section 401(k) of the Internal Revenue
Code, covering substantially all salaried employees over the age of 21 with at
least 12 months of service. Under the savings portion of the plan, employee
contributions are partially matched by the Corporation. Expense for the savings
plan was approximately $30 thousand, $30 thousand and $25 thousand in 2001, 2000
and 1999, respectively. Contributions to the profit sharing portion are made at
the discretion of the Board of Directors and all funds are invested solely in
Corporation stock. The contribution to the profit sharing plan was $300 thousand
in 2001, $275 thousand in 2000 and $250 thousand in 1999.
12. STOCK OPTION PLANS
The Corporation's incentive stock option plans allow the granting of up to
229,847 shares of the Corporation's common stock to certain key employees. The
options granted under this plan are, in general, exercisable not earlier than
one year after the date of grant, at a price equal to the fair market value of
the common stock on the date of grant, and expire not more than ten years after
the date of grant. The stock options will vest during a period of up to five
years after the date of grant. Changes in options outstanding during the past
three years were as follows:
Option Price
Shares Per Share
- -------------------------------------------------------------------------------
Balance, December 31, 1998 128,084 $13.45 -- $46.38
- -------------------------------------------------------------------------------
Granted During 1999 31,156 42.41 -- 49.65
- -------------------------------------------------------------------------------
Exercised During 1999 (6,408) 13.45 -- 28.65
- -------------------------------------------------------------------------------
Balance, December 31, 1999 152,832 $13.45 -- $49.65
- -------------------------------------------------------------------------------
Granted During 2000 7,564 32.90 -- 41.36
- -------------------------------------------------------------------------------
Exercised During 2000 (10,506) 13.45 -- 28.65
- -------------------------------------------------------------------------------
Forfeited During 2000 (986) 28.65 -- 41.36
- -------------------------------------------------------------------------------
Balance, December 31, 2000 148,904 $13.45 -- $49.65
- -------------------------------------------------------------------------------
Granted During 2001 41,430 32.95 -- 44.88
- -------------------------------------------------------------------------------
Exercised During 2001 (24,760) 13.45 -- 28.65
- -------------------------------------------------------------------------------
Forfeited During 2001 (3,272) 28.65 -- 40.80
- -------------------------------------------------------------------------------
Balance, December 31, 2001 162,302 $13.45 -- $49.65
===============================================================================
42
At December 31, 2001, the number of options exercisable was 85,306 and the
weighted-average price of those options was $24.84 per share. At December 31,
2000, the number of options exercisable was 92,832 and the weighted-average
price of those options was $20.45 per share.
The Corporation has non-qualified stock option plans for non-employee
directors. The plan allows the granting of up to 124,792 shares of the
Corporation's common stock. The options granted under this plan are, in general,
exercisable not earlier than one year after the date of grant, at a price equal
to the fair market value of the common stock on the date of grant, and expire
not more than ten years after the date of grant. The stock options will vest
during a period of up to five years after the date of grant. Changes in options
outstanding during the past three years were as follows:
Option Price
Shares Per Share
- --------------------------------------------------------------------------------
Balance, December 31, 1998 94,745 $13.45 -- $42.41
- --------------------------------------------------------------------------------
Exercised During 1999 (2,668) 13.45
- --------------------------------------------------------------------------------
Forfeited During 1999 (4,520) 13.45 -- 42.41
- --------------------------------------------------------------------------------
Balance, December 31, 1999 87,557 $13.45 -- $42.41
- --------------------------------------------------------------------------------
Granted During 2000 1,909 39.83
- --------------------------------------------------------------------------------
Exercised During 2000 (2,217) 13.45
- --------------------------------------------------------------------------------
Balance, December 31, 2000 87,249 $13.45 -- $39.39
- --------------------------------------------------------------------------------
Granted During 2001 16,039 37.95
- --------------------------------------------------------------------------------
Exercised During 2001 (772) 13.45
- --------------------------------------------------------------------------------
Balance, December 31, 2001 102,516 $13.45 -- $42.41
================================================================================
At December 31, 2001, the number of options exercisable was 73,481 and the
weighted-average price of those options was $20.57. At December 31, 2000, the
number of options exercisable was 68,143 and the weighted-average price of those
options was $18.55.
At December 31, 2001, there were 27,807 additional shares available for
grant under the Plans. The per share weighted-average fair value of stock
options granted during 2001, 2000 and 1999 was $8.85, $9.43, and $10.14 on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 2001--expected dividend yield of 1.70%, expected
volatility of 20%, risk-free interest rate of 4.77%, and an expected life of 5
years; 2000--expected dividend yield of 1.40%, expected volatility of 21%,
risk-free interest rate of 5.97%, and an expected life of 5 years;
1999--expected dividend yield of 0.96%, expected volatility of 17%, risk-free
interest rate of 4.88%, and an expected life of 5 years.
43
The Corporation applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Corporation determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Corporation's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
(In thousands except per share data) 2001 2000 1999
- --------------------------------------------------------------------------------
Net Income:
As Reported $8,924 $7,708 $7,189
- --------------------------------------------------------------------------------
Pro Forma $8,630 $7,421 $6,991
- --------------------------------------------------------------------------------
Earnings Per Share:
As Reported
- --------------------------------------------------------------------------------
Basic $2.68 $2.32 $2.17
- --------------------------------------------------------------------------------
Diluted $2.64 $2.27 $2.11
- --------------------------------------------------------------------------------
Pro Forma
Basic $2.59 $2.24 $2.11
- --------------------------------------------------------------------------------
Diluted $2.55 $2.18 $2.05
- --------------------------------------------------------------------------------
13. COMMITMENTS
The Corporation, in the ordinary course of business, is a party to
litigation arising from the conduct of its business. Management does not
consider that its actions depart from routine legal proceedings and such actions
will not affect its financial position or results of its operations in any
material manner. There are various outstanding commitments and contingencies,
such as guarantees and credit extensions, including loan commitments of $78.0
million and $66.0 million and letters of credit of $2.5 million and $4.0 million
at December 31, 2001 and 2000, respectively, which are not included in the
accompanying consolidated financial statements.
For commitments to originate loans, the Corporation's maximum exposure to
credit risk is represented by the contractual amount of those instruments. Those
commitments represent ultimate exposure to credit risk only to the extent that
they are subsequently drawn upon by customers. The Corporation uses the same
credit policies and underwriting standards in making loan commitments as it does
for on-balance-sheet instruments. For loan commitments, the Corporation would
generally be exposed to interest rate risk from the time a commitment is issued
with a defined contractual interest rate.
At December 31, 2001, the Corporation was obligated under non-cancelable
operating leases for certain premises. Rental expense aggregated $869 thousand,
$718 thousand and $805 thousand for the years ended December 31, 2001, 2000 and
1999, respectively, which is included in premises and equipment expense in the
consolidated statements of income.
The minimum annual lease payments under the terms of the lease agreements,
as of December 31, 2001, were as follows:
(In thousands)
- -------------------------------------------------------------------------------
2002 $ 1,124
- -------------------------------------------------------------------------------
2003 1,136
- -------------------------------------------------------------------------------
2004 931
- -------------------------------------------------------------------------------
2005 899
- -------------------------------------------------------------------------------
2006 1,010
- -------------------------------------------------------------------------------
Thereafter 8,235
- -------------------------------------------------------------------------------
Total $13,335
===============================================================================
44
14. REGULATORY CAPITAL
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Corporation's and the Bank's consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Corporation and the Bank must meet
specific capital guidelines that involve quantitative measures of the
Corporation's and the Bank's assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Corporation's and
the Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 2001, that the Corporation and the Bank
meet all capital adequacy requirements to which they are subject.
As of December 31, 2001, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Corporation and the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well-capitalized, the Corporation and the Bank must maintain
minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the Corporation's or the Bank's category.
The Corporation's actual capital amounts and ratios are presented in the
table.
To Be Well
Capitalized Under For Capital
Prompt Corrective Adequacy
(In thousands) Actual Action Provisions Purposes
- --------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------
As of December 31, 2001:
Total Capital
(To Risk-Weighted
Assets) $65,890 20.0% $32,970 10.0% $26,376 8.0%
- --------------------------------------------------------------------------------------------------
Tier I Capital
(To Risk-Weighted
Assets) 61,867 18.8 19,782 6.0 13,188 4.0
- --------------------------------------------------------------------------------------------------
Tier I Capital
(To Average Assets) 61,867 9.8 31,442 5.0 18,865 3.0
- --------------------------------------------------------------------------------------------------
As of December 31, 2000:
Total Capital
(To Risk-Weighted
Assets) $58,328 22.1% $26,394 10.0% $21,115 8.0%
- --------------------------------------------------------------------------------------------------
Tier I Capital
(To Risk-Weighted
Assets) 54,893 20.8 15,836 6.0 10,557 4.0
- --------------------------------------------------------------------------------------------------
Tier I Capital
(To Average Assets) 54,893 10.5 26,158 5.0 15,695 3.0
- --------------------------------------------------------------------------------------------------
45
15. CONDENSED FINANCIAL STATEMENTS OF PEAPACK-GLADSTONE FINANCIAL CORPORATION
(PARENT COMPANY ONLY):
The following information of the parent company only financial statements
as of and for the years ended December 31, 2001 and 2000 should be read in
conjunction with the notes to the consolidated financial statements.
STATEMENTS OF CONDITION
December 31,
(In thousands) 2001 2000
- -------------------------------------------------------------------------------
ASSETS:
Cash $ 53 $ 1,577
- -------------------------------------------------------------------------------
Securities Available for Sale 7,574 3,719
- -------------------------------------------------------------------------------
Investment in Subsidiary 55,952 50,024
- -------------------------------------------------------------------------------
Other Assets 80 228
- -------------------------------------------------------------------------------
TOTAL ASSETS $63,659 $55,548
===============================================================================
LIABILITIES:
Other Liabilities $ 574 $ 392
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 574 392
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common Stock 5,608 5,064
- -------------------------------------------------------------------------------
Surplus 37,838 25,104
- -------------------------------------------------------------------------------
Treasury Stock (1,588) (956)
- -------------------------------------------------------------------------------
Retained Earnings 20,572 26,420
- -------------------------------------------------------------------------------
Accumulated Other Comprehensive
Income/(Loss), Net of Income Tax 655 (476)
- -------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 63,085 55,156
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $63,659 $55,548
===============================================================================
STATEMENTS OF INCOME
Years Ended December 31,
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------
INCOME:
Dividend from Bank $4,000 $4,000 $3,000
- -------------------------------------------------------------------------------
Other Income 300 212 99
- -------------------------------------------------------------------------------
TOTAL INCOME 4,300 4,212 3,099
- -------------------------------------------------------------------------------
EXPENSES:
Other Expenses 280 389 216
- -------------------------------------------------------------------------------
TOTAL EXPENSES 280 389 216
- -------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX BENEFIT/
EXPENSE AND EQUITY IN UNDISTRIBUTED
EARNINGS OF BANK 4,020 3,823 2,883
- -------------------------------------------------------------------------------
Income Tax (Benefit)/Expense (8) 15 (39)
- -------------------------------------------------------------------------------
NET INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF BANK 4,028 3,808 2,922
- -------------------------------------------------------------------------------
Equity in Undistributed
Earnings of Bank 4,896 3,900 4,267
- -------------------------------------------------------------------------------
NET INCOME $8,924 $7,708 $7,189
===============================================================================
46
STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $8,924 $7,708 $7,189
- -------------------------------------------------------------------------------
Less Equity in Undistributed Earnings (4,896) (3,900) (4,267)
- -------------------------------------------------------------------------------
Amortization and Accretion on Securities (5) (5) (4)
- -------------------------------------------------------------------------------
Increase/(Decrease) in Other Assets 148 (4) 15
- -------------------------------------------------------------------------------
Increase in Other Liabilities 116 32 150
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,287 3,831 3,083
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Securities
Available for Sale 3,576 1,001 --
- -------------------------------------------------------------------------------
Purchase of Securities Available for Sale (7,261) (2,116) (1,583)
- -------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (3,685) (1,115) (1,583)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends Paid (1,846) (1,592) (1,292)
- -------------------------------------------------------------------------------
Exercise of Stock Options 352 288 (35)
- -------------------------------------------------------------------------------
Treasury Stock Transactions (632) (301) (136)
- -------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (2,126) (1,605) (1,463)
- -------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents (1,524) 1,111 37
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at
Beginning of Period 1,577 466 429
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at
End of Period $ 53 $1,577 $ 466
===============================================================================
47
COMMON STOCK PRICES (UNAUDITED)
The following table shows the 2001 and 2000 range of prices paid on known
trades of Peapack-Gladstone Financial Corporation common stock.
DIVIDEND
2001 HIGH LOW PER SHARE
- -----------------------------------------------------------------------------
1ST QUARTER $42.27 $35.45 $0.14
- -----------------------------------------------------------------------------
2ND QUARTER 36.36 32.27 0.14
- -----------------------------------------------------------------------------
3RD QUARTER 38.60 33.68 0.15
- -----------------------------------------------------------------------------
4TH QUARTER 39.25 36.50 0.15
- -----------------------------------------------------------------------------
Dividend
2000 High Low Per Share
- -----------------------------------------------------------------------------
1st Quarter $38.95 $35.38 $0.13
- -----------------------------------------------------------------------------
2nd Quarter 33.33 32.46 0.13
- -----------------------------------------------------------------------------
3rd Quarter 33.55 33.33 0.14
- -----------------------------------------------------------------------------
4th Quarter 39.04 33.55 0.14
- -----------------------------------------------------------------------------
48
OFFICERS
- -------------------------------------------------------------------------------------------------
GLADSTONE T. LEONARD HILL Chairman Emeritus*
LOAN AND ----------------------------------------------------------------------
ADMINISTRATION FRANK A. KISSEL Chairman of the Board & CEO*
BUILDING ----------------------------------------------------------------------
ROBERT M. ROGERS President & COO*
----------------------------------------------------------------------
ARTHUR F. BIRMINGHAM Executive Vice President & CFO*
----------------------------------------------------------------------
GARRETT P. BROMLEY Senior Vice President &
Chief Credit Officer
----------------------------------------------------------------------
PAUL W. BELL Senior Vice President &
Security Officer
----------------------------------------------------------------------
HUBERT P. CLARKE Senior Vice President
Information Systems
----------------------------------------------------------------------
BARBARA A. GRECO Senior Vice President &
Personnel Officer
----------------------------------------------------------------------
TODD T. BRUNGARD Vice President
----------------------------------------------------------------------
ROBERT A. BUCKLEY Vice President
----------------------------------------------------------------------
KAREN M. CHIARELLO Vice President & Auditor
----------------------------------------------------------------------
KAREN M. FERRARO Vice President
----------------------------------------------------------------------
MICHAEL J. GIACOBELLO Vice President
----------------------------------------------------------------------
JEREMY H. GREENMAN Vice President
----------------------------------------------------------------------
V. SHERRI LICATA Vice President &
Operations Officer
----------------------------------------------------------------------
TERESA A. PETERS Vice President
----------------------------------------------------------------------
ROBERT G. PFUNDSTEIN Vice President
----------------------------------------------------------------------
MARY M. RUSSELL Vice President & Assistant Comptroller
----------------------------------------------------------------------
JOHN A. SCERBO Vice President
----------------------------------------------------------------------
PATRICIA J. SCHWARTZ Vice President
----------------------------------------------------------------------
JAMES S. STADTMUELLER Vice President
----------------------------------------------------------------------
EILEEN C. WOLFE Vice President
----------------------------------------------------------------------
SANDRA BORNGESSER Assistant Vice President
----------------------------------------------------------------------
MARIA FORNARO Assistant Vice President
----------------------------------------------------------------------
JOHN G. HARITON Assistant Vice President &
Corporate Trainer
----------------------------------------------------------------------
KAREN R. HORVATH Assistant Vice President &
Assistant Comptroller
----------------------------------------------------------------------
VALERIE L. KODAN Assistant Vice President
----------------------------------------------------------------------
MARY ANNE MALONEY Assistant Vice President
----------------------------------------------------------------------
KATHRYN M. NEIGH Assistant Vice President
----------------------------------------------------------------------
PAULA A. PHILHOWER Assistant Vice President
----------------------------------------------------------------------
CHRISTOPHER P. POCQUAT Assistant Vice President
----------------------------------------------------------------------
DIANE M. RIDOLFI Assistant Vice President
----------------------------------------------------------------------
S. SHAY SCHOENBAUM Assistant Vice President &
Marketing Officer
----------------------------------------------------------------------
PATRICIA A. STUMP Assistant Vice President
----------------------------------------------------------------------
EDWARD J. SWEENEY Assistant Vice President
----------------------------------------------------------------------
FRANK C. WALDRON Assistant Vice President
----------------------------------------------------------------------
SHERRI L. AMATO Assistant Cashier
----------------------------------------------------------------------
MARJORIE A. DZWONCZYK Assistant Cashier &
CRA and Compliance Officer
----------------------------------------------------------------------
DAVID L. PETRY Assistant Cashier
----------------------------------------------------------------------
KRISTIN A. ROMEO Assistant Cashier
----------------------------------------------------------------------
SCOTT T. SEARLE Assistant Cashier
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PGB TRUST AND INVESTMENTS CRAIG C. SPENGEMAN President & Chief
GLADSTONE Investment Officer*
--------------------------------------------------------------------
BRYANT K. ALFORD First Vice President &
Senior Trust Officer
--------------------------------------------------------------------
JOHN M. BONK First Vice President & Director of
Business Development
--------------------------------------------------------------------
JOHN C. KAUTZ First Vice President & Senior
Investment Officer
--------------------------------------------------------------------
RICHARD K. DONNELLY Vice President & Trust Officer
--------------------------------------------------------------------
ROBERT M. FIGURELLI Vice President & Trust Officer
--------------------------------------------------------------------
ROY C. MILLER Vice President & Trust Officer
--------------------------------------------------------------------
KATHERINE S. QUAY Vice President & Trust Officer
--------------------------------------------------------------------
SUSAN K. SHEEHAN Vice President & Trust Officer
--------------------------------------------------------------------
ANNE M. SMITH Vice President & Trust Officer
--------------------------------------------------------------------
KURT G. TALKE Vice President & Trust Officer
--------------------------------------------------------------------
LAWRENCE J. VERNY Vice President & Trust Officer
--------------------------------------------------------------------
JENNIFER DAVIS Assistant Vice President
& Trust Officer
--------------------------------------------------------------------
EDWARD P. NICOLICCHIA Trust Officer
--------------------------------------------------------------------
CATHERINE A. MCCATHARN Assistant Trust Officer & Secretary *
--------------------------------------------------------------------
PATRICIA K. SAWKA Assistant Trust Officer
- -------------------------------------------------------------------------------------------------
BERNARDSVILLE CHARLES A. STUDDIFORD III Vice-President
--------------------------------------------------------------------
CAROL E. RITZER Assistant Cashier
- -------------------------------------------------------------------------------------------------
CALIFON LAURINE J. HAMILTON Assistant Vice President
- -------------------------------------------------------------------------------------------------
CHATHAM MAIN STREET VALERIE A. OLPP Assistant Vice President
--------------------------------------------------------------------
TONYA M. FLOWERS Assistant Cashier
--------------------------------------------------------------------
MARY M. FOLEY Assistant Cashier
- -------------------------------------------------------------------------------------------------
CHESTER DONNA M. WHRITENOUR Assistant Vice President
- -------------------------------------------------------------------------------------------------
CLINTON CAROLYN I. SEPKOWSKI Assistant Vice President
- -------------------------------------------------------------------------------------------------
FAR HILLS LINDA ZIROPOULOS Assistant Cashier
- -------------------------------------------------------------------------------------------------
FELLOWSHIP JANET E. BATTAGLIA Assistant Cashier
- -------------------------------------------------------------------------------------------------
GLADSTONE THOMAS N. KASPER Vice President
--------------------------------------------------------------------
CAROL L. BEHLER Assistant Cashier
- -------------------------------------------------------------------------------------------------
HILLSBOROUGH AMY E. GLASER Assistant Vice President
- -------------------------------------------------------------------------------------------------
LONG VALLEY KATHERINE M. KREMINS Vice President
--------------------------------------------------------------------
JAMES A. CICCONE Assistant Cashier
- -------------------------------------------------------------------------------------------------
MENDHAM LINDA E. BURNS Assistant Vice President
--------------------------------------------------------------------
J. ANTHONY KATTERMANN Assistant Cashier
- -------------------------------------------------------------------------------------------------
NEW VERNON DONNA I. GISONE Vice President
- -------------------------------------------------------------------------------------------------
PLUCKEMIN LEEANN HUNT Vice President
--------------------------------------------------------------------
TERESA M. LAWLER Assistant Cashier
- -------------------------------------------------------------------------------------------------
POTTERSVILLE PHYLLIS E. HERZOG Assistant Cashier
- -------------------------------------------------------------------------------------------------
CHATHAM SHUNPIKE DONNA I. GISONE Vice-President
- -------------------------------------------------------------------------------------------------
* Denotes a Holding Company Officer
DIRECTORS OFFICES
- ---------------------------- ----------------------------------------------------------------
ANTHONY J. CONSI II LOAN & ADMINISTRATION PGB TRUST &
Senior Vice President BUILDING INVESTMENTS
Weichert Realtors 158 Route 206 North 190 Main Street
Morris Plains, NJ Gladstone, NJ 07934 Gladstone, NJ 07934
(908) 234-0700 (908) 719-4360
PAMELA HILL www.pgbank.com
President ----------------------------------------------------------------
Ferris Corp.
Gladstone, NJ GLADSTONE (Main Office) BERNARDSVILLE
190 Main Street 36 Morristown Road
T. LEONARD HILL Gladstone, NJ 07934 Bernardsville, NJ 07924
Chairman Emeritus (908) 719-4360 (908) 766-1711
FRANK A. KISSEL ----------------------------------------------------------------
Chairman of the Board & CEO CALIFON CHESTER
438 Route 513 350 Main Street
JOHN D. KISSEL Califon, NJ 07830 Chester, NJ 07930
Turpin Realty, Inc (908) 832-5131 (908) 879-8115
Far Hills, NJ
----------------------------------------------------------------
JAMES R. LAMB, ESQ. FAR HILLS FELLOWSHIP VILLAGE
James R. Lamb, P.C. 26 Dumont Road 8000 Fellowship Road
Morristown, NJ Far Hills, NJ 07931 Basking Ridge, NJ 07920
(908) 781-1018 (908) 719-4332
GEORGE R. LAYTON
Director ----------------------------------------------------------------
Layton Funeral Home LONG VALLEY MENDHAM
Bedminster, NJ 59 East Mill Road (Route 24) 17 East Main Street
Long Valley, NJ 07853 Mendham, NJ 07945
EDWARD A. MERTON (908) 876-3300 (973) 543-6499
President
Merton Excavating & Paving Co. ----------------------------------------------------------------
Chester, NJ PLUCKEMIN POTTERSVILLE
468 Route 206 North 11 Pottersville Road
F. DUFFIELD MEYERCORD Bedminster, NJ 07921 Pottersville, NJ 07979
Managing Director (908) 658-4500 (908) 439-2265
Meyercord Advisors, Inc.
Bedminster, NJ ----------------------------------------------------------------
NEW VERNON CHATHAM MAIN STREET
JOHN R. MULCAHY Village Road 311 Main Street
Far Hills, NJ New Vernon, NJ 07976 Chatham, NJ 07928
(973) 540-0444 (973) 635-8500
ROBERT M. ROGERS
President & COO ----------------------------------------------------------------
CHATHAM SHUNPIKE HILLSBOROUGH
PHILIP W. SMITH III 650 Shunpike Road 417 Route 206 North
President Chatham Township, NJ 07928 Hillsborough, NJ 08844
Phillary Management, Inc. (973) 377-0081 (908) 281-1031
Far Hills, NJ
----------------------------------------------------------------
CRAIG C. SPENGEMAN CLINTON
President, PGB Trust and 189 Center Street
Investments Clinton, NJ 08809
(908) 238-1935
JACK D. STINE
Trustee
Proprietary House Association
Perth Amboy, NJ
WILLIAM TURNBULL
Director Emeritus
SHAREHOLDER INFORMATION
CORPORATE ADDRESS STOCK LISTING INDEPENDENT AUDITORS
- ------------------------------------------------------------------------------------------------------
158 Route 206, North Peapack-Gladstone Financial KPMG LLP
Gladstone, New Jersey Corporation common stock is 150 John F. Kennedy Parkway
07934 traded on the American Short Hills, New Jersey 07078
(908) 234-0700 Stock Exchange under the
www.pgbank.com symbol PGC and reported in
the Wall Street Journal and
most major newspapers.
ANNUAL MEETING TRANSFER AGENT SHAREHOLDER RELATIONS
- ------------------------------------------------------------------------------------------------------
The annual meeting of First City Transfer Company Arthur F. Birmingham
shareholders of Peapack- PO Box 170 Executive Vice President and
Gladstone Financial Iselin, New Jersey 08830 Chief Financial Officer
Corporation will be held on (908) 719-4308
April 23, 2002 at 2:00 p.m. birmingham@pgbank.com
[PEAPACK-GLADSTONE BANK LOGO]