10-Q 1 0001.txt FORM 10-Q FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2000 ------------------ PEAPACK-GLADSTONE FINANCIAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW JERSEY 22-3537895 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 158 ROUTE 206 NORTH, GLADSTONE, NEW JERSEY 07934 ------------------------------------------ --------------- (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER (908) 234-0700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No. ------ --- Number of shares of Common stock outstanding as of June 30, 2000: 2,877,783 1 PEAPACK-GLADSTONE FINANCIAL CORPORATION PART I. FINANCIAL INFORMATION Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the December 31, 1999 Annual Report on Form 10-K for Peapack-Gladstone Financial Corporation (the "Corporation"). The Corporation considers that all adjustments (all of which are normal recurring accruals) necessary for a fair statement of the financial position and results of operations for these periods have been made; however, results for such interim periods are subject to year-end adjustments. Results for such interim periods are not necessarily indicative of results for a full year. 2 PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION (Dollars in thousands) (Unaudited) June 30, December 31, 2000 1999 ----------- ------------ ASSETS Cash and due from banks ............................ $ 20,435 $ 17,770 Federal funds sold ................................. 17,675 15,247 --------- --------- Total cash and cash equivalents .................. 38,110 33,017 Investment Securities:(approximate market value $64,564 in 2000 and $61,033 in 1999) ............ 65,416 61,672 Securities Available for Sale:(amortized cost $86,698 in 2000 and $104,386 in 1999) ........... 83,499 101,324 Loans: Loans secured by real estate ....................... 293,029 261,946 Other loans ........................................ 27,928 25,987 --------- --------- Total loans ..................................... 320,957 287,933 Less: Allowance for loan losses .............. 3,115 2,962 --------- --------- Net loans ....................................... 317,842 284,971 Premises and equipment ............................. 11,582 9,718 Accrued interest receivable ........................ 3,460 3,444 Other assets ....................................... 3,983 3,389 --------- --------- TOTAL ASSETS ................................. $ 523,892 $ 497,535 ========= ========= LIABILITIES Deposits: Noninterest-bearing demand deposits .............. $ 97,874 $ 87,034 Interest-bearing deposits: Checking ...................................... 95,283 98,699 Savings ....................................... 84,329 82,962 Money market accounts ......................... 43,186 33,605 Certificates of deposit over $100,000 ......... 38,912 33,637 Certificates of deposit less than $100,000 .... 110,305 108,151 --------- --------- Total deposits ..................................... 469,889 444,088 Accrued expenses and other liabilities ............. 3,347 5,872 --------- --------- TOTAL LIABILITIES ............................. 473,236 449,960 STOCKHOLDERS' EQUITY Common stock (no par value; stated value $1 2/3 per share; authorized 10,000,000 shares; issued 2,892,736 shares.) ................................. 4,817 4,599 Surplus ............................................ 19,691 19,667 Treasury Stock at cost, 14,953 shares in 2000 and 11,898 shares in 1999 ......................... (774) (655) Retained Earnings .................................. 28,952 25,918 Accumulated other comprehensive income- net unrealized (losses) on securities available for sale (net of income taxes) ......... (2,030) (1,954) --------- --------- TOTAL STOCKHOLDERS' EQUITY ................... 50,656 47,575 --------- --------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ..... $ 523,892 $ 497,535 ========= ========= SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (Unaudited)
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- INTEREST INCOME Interest and fees on loans ......................... $ 12,012 $ 9,653 $ 6,136 $ 4,887 Interest on investment securities: Taxable ....................................... 1,658 1,493 851 720 Tax-exempt .................................... 280 280 124 146 Interest on securities available for sale: Taxable ....................................... 2,987 3,334 1,475 1,732 Interest on federal funds sold ..................... 597 718 351 333 ----------- ----------- ----------- ----------- Total interest income .............................. 17,534 15,478 8,937 7,818 INTEREST EXPENSE Interest on savings account deposits ............... 2,028 1,763 1,049 898 Interest on certificates of deposit over $100,000 .. 773 801 476 386 Interest on other time deposits .................... 2,838 2,585 1,370 1,254 ----------- ----------- ----------- ----------- Total interest expense ............................. 5,639 5,149 2,895 2,538 ----------- ----------- ----------- ----------- NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES ..................... 11,895 10,329 6,042 5,280 Provision for loan losses .......................... 252 228 126 114 ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ..................... 11,643 10,101 5,916 5,166 ----------- ----------- ----------- ----------- OTHER INCOME Service charges and fees for other services ........ 877 1,076 452 537 Trust Department income ............................ 1,877 1,507 873 674 Securities (Losses) ................................ (196) 0 (197) 0 Other income ....................................... 227 66 216 33 ----------- ----------- ----------- ----------- Total other income ............................ 2,785 2,649 1,344 1,244 OTHER EXPENSES Salaries and employee benefits ..................... 4,435 3,915 2,190 1,983 Premises and equipment ............................. 1,516 1,327 727 691 Merger related charges ............................. 500 0 0 0 Other expense ...................................... 2,216 1,977 1,222 1,047 ----------- ----------- ----------- ----------- Total other expenses ............................... 8,667 7,219 4,139 3,721 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAX EXPENSE ................... 5,761 5,531 3,121 2,689 Income tax expense ................................. 1,974 1,975 1,063 928 ----------- ----------- ----------- ----------- NET INCOME .................................... $ 3,787 $ 3,556 $ 2,058 $ 1,761 =========== =========== =========== =========== EARNINGS PER SHARE (Reflects a 5% stock dividend effective November 1, 1999) Basic .............................................. $ 1.32 $ 1.24 $ 0.72 $ 0.61 Diluted ............................................ $ 1.29 $ 1.21 $ 0.70 $ 0.60 Average basic shares outstanding ................... 2,873,502 2,867,636 2,875,507 2,868,007 Average diluted shares outstanding ................. 2,935,441 2,949,744 2,937,446 2,950,116
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands) (Unaudited) Six Months Ended June 30, 2000 1999 -------- --------- Balance, Beginning of Period ......................... $ 47,575 $ 44,461 Comprehensive income: Net Income ...................................... 3,787 3,556 Unrealized holding losses on securities arising during the period, net of tax ....... (205) (2,055) Less: Reclassification adjustment for losses included in net income ..................... 129 0 -------- -------- Unrealized holding losses on securities arising during the period, net of tax ....... (76) (2,055) -------- -------- Total Comprehensive income ...................... 3,711 1,501 Common Stock Options Exercised ....................... 117 (6) Cash Dividends Declared .............................. (747) (586) -------- -------- Balance, June 30, .................................... $ 50,656 $ 45,370 ======== ======== SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Six Months Ended June 30, 2000 1999 -------- --------- OPERATING ACTIVITIES: Net Income: ............................................ $ 3,787 $ 3,556 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ........................................... 498 483 Amortization of premium and accretion of discount on securities, net ......................... 134 152 Provision for loan losses .............................. 252 228 Losses on security sales ............................... 196 0 Increase in interest receivable ........................ (16) (84) (Increase) decrease in other assets .................... (594) 264 (Decrease) increase in other liabilities ............... (2,524) 1,091 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES ........... 1,733 5,690 -------- -------- INVESTING ACTIVITIES: Proceeds from maturities of investment securities ...... 10,305 10,897 Proceeds from maturities of securities available for sale ............................................ 19,216 5,631 Proceeds from calls of investment securities ........... 10 4,600 Proceeds from sales and calls of securities available for sale ............................................ 8,484 7,000 Purchase of investment securities ...................... (14,093) (9,107) Purchase of securities available for sale .............. (10,248) (25,789) Net (increase) in short term investments ............... 0 (10) Net increase in loans .................................. (33,123) (7,592) Purchase of premises and equipment ..................... (2,362) (428) -------- -------- NET CASH USED IN INVESTING ACTIVITIES ............... (21,811) (14,798) -------- -------- FINANCING ACTIVITIES: Net increase in deposits ............................... 25,801 10,223 Dividends paid ......................................... (747) (586) Exercise of stock options .............................. 117 (6) -------- -------- NET CASH USED IN FINANCING ACTIVITIES ............... 25,171 9,629 -------- -------- Net increase in cash and cash equivalents ........... 5,093 521 -------- -------- Cash and cash equivalents at beginning of period ....... 33,017 52,390 -------- -------- Cash and cash equivalents at end of period ............. $ 38,110 $ 52,911 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest on deposits ................................... $ 6,016 $ 5,929 Income taxes ........................................... 2,125 2,174 See accompanying notes to consolidated financial statements. PEAPACK-GLADSTONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. PRINCIPLES OF CONSOLIDATION The consolidated financial statements of Peapack-Gladstone Financial Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly-owned subsidiary, the Peapack-Gladstone Bank. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements. Effective January 7, 2000, the Corporation acquired Chatham Savings, FSB. The acquisition has been accounted for as a pooling-of-interests and, accordingly, the financial statements include the accounts and activities of Chatham for all periods presented. The transaction resulted in the issuance of 305,730 shares of the Corporation's common stock. Prior periods have been restated as follows: For the three months ended June 30, 1999 As Previously As Restated Reported ----------- ----------- Net Interest Income after Provision for Loan Losses $ 4,425,000 $ 5,166,000 =========== =========== Net Income ......................................... $ 1,609,000 $ 1,761,000 =========== =========== For the six months ended June 30, 1999 As Previously As Restated Reported ----------- ----------- Net Interest Income after Provision for Loan Losses $ 8,722,000 $10,101,000 =========== =========== Net Income ......................................... $ 3,262,000 $ 3,556,000 =========== =========== As of December 31, 1999: Stockholders' Equity ............................... $40,715,000 $47,575,000 =========== =========== In the first half of 2000, the Corporation recorded a pre-tax merger charge of $500,000 which primarily consisted of severance costs, professional fees and consolidation costs directly attributable to the merger. 2. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level that management considers adequate to reflect the risk of future losses inherent in the Corporation's loan portfolio. In its evaluation of the adequacy of the allowance for loan losses, management considers past loan loss experience, changes in the composition of non-performing loans, the condition of borrowers facing financial pressure, the relationship of the current level of the allowance to the credit portfolio and to non-performing loans and existing economic conditions. The process of determining the adequacy of the allowance is necessarily judgmental and subject to changes in external conditions. The allowance is increased by provisions charged to expense and reduced by net charge-offs. 3. EARNINGS PER COMMON SHARE - BASIC AND DILUTED Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share includes any additional common shares as if all potentially dilutive common shares were issued (i.e., stock options). 7 4. COMPREHENSIVE INCOME The Corporation's total comprehensive income for the six months ended June 30, 2000 and 1999 was $3,711,000 and $1,501,000. The difference between the Corporation's net income and total comprehensive income for the six months ended June 30, 2000 and 1999 relates to the change in the net unrealized losses on securities available for sale during the applicable period of time less adjustments for realized losses. 8 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL: This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which involve risks and uncertainties. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. You can identify forward looking statements by looking for words such as "expect", "look", "believe", "anticipate", "may", "will", or similar statements or variations of such terms. These forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from the results the forward-looking statements contemplate because of, among others, the following factors: the direction of interest rates is different than anticipated, declines in the levels of loan quality and origination volume, relationships with major customers including sources for loans, a decline in trust business, as well as the adverse effects of economic conditions and legal and regulatory barriers and structure. RESULTS OF OPERATIONS: Net income for the six months ended June 30, 2000 was $3,787,000, or $1.29 per diluted share including a merger related charge of $423,000, net of tax or $0.14 per diluted share. These results compare to net income of $3,556,000, or $1.21 per diluted share for the same period in 1999. (all data has been restated for the Chatham Savings, FSB merger and earnings per share amounts have been restated to give effect to a 5 percent stock dividend issued November 1, 1999). Excluding the merger related charge the annualized return on average assets was 1.64% while the annualized return on average equity was 17.44% Net income was $2,058,000 or $0.70 per diluted share for the three month period ended June 30, 2000, compared with $1,761,000 or $0.60 per diluted share for the same period in 1999. Net income for both the six and three month periods ended June 30, 2000 reflect higher net interest income and other income, offset by higher other expenses, including merger-related charges. EARNINGS ANALYSIS NET INTEREST INCOME: Net interest income is the largest source of the Corporation's operating income. Net interest income on a tax equivalent basis increased to $11,946,000 from $10,464,000, an increase of 14.2 percent for the six months ended June 30, 2000 as compared to the six months ended June 30, 1999. The increase in net interest income is due to higher average balances of loans and higher average interest rates earned on earning assets, partially offset by lower average investments and federal funds sold. Also contributing to the increase was higher interest bearing liabilities and demand deposits, partially offset by higher interest rates paid on interest bearing liabilities. The net interest margin was 4.87 percent for the six months ended June 30, 2000 compared with 4.69 percent for the same period in 1999. Average interest earning assets increased $36.9 million, or 8.3 percent for the first six months of 2000 over the comparable 1999 amount. This was mainly the result of the increase in average balances of loans of $52.8 million, offset in part by lower average investment securities and federal funds sold, lower by $10.8 million and $5.1 million, respectively. Average interest-bearing liabilities for the first six months of 2000 increased $17.6 million or 5.0 percent from the same period in 1999. Average interest-bearing checking and money market accounts increased $6.4 million and $8.4 million, respectively. Average demand deposits increased by $9.9 million or 11.5 percent over the comparable 1999 balance. Average interest rates on interest earning assets increased during the six months ended June 30, 2000 to 7.30 percent from 7.05 percent for the comparable period in 1999. The largest increase in average rates was for federal funds sold and investment securities, which rose 155 and 26 basis points, respectively. Average rates earned on loans declined 1 basis point to 7.66 percent. Average interest rates on interest-bearing liabilities also rose by 11 basis points to 3.08 percent from 2.97 percent. Overall, the growth in interest earning assets coupled with the increase in average interest rates, as compared to 1999, caused the net interest margin to increase to 4.87 percent from 4.63 percent. 9 Net interest income on a tax equivalent basis increase to $6,030,000 from $7,830,000 for the three months ended June 30, 2000 as compared with the same period in 1999. This increase is attributable to a $39.8 million increase in average interest earning assets and average demand deposits offset by an increase in average interest-bearing liabilities of $17.6 million. The net interest margin increased to 4.86 percent for the three months ended June 30, 2000 compared with 4.66 percent for the same period in 1999 as a result of increased average earning assets in conjunction with rising average interest rates. OTHER INCOME: Other income continues to represent a considerable source of income for the Corporation. Excluding losses on securities transactions, total other income amounted to $2,981,000 for the six months ended June 30, 2000 compared with $2,649,000 for the six months ended June 30, 1999. For the quarter ended June 30, 2000 total other income, excluding losses on securities transactions, was $1,541,000 compared with $1,244,000 for the quarter ended June 30, 1999. The largest component of other income is Trust Department Income which rose $370,000 or 25 percent as compared to the first six months of 1999. The book value of assets under management in the Trust Department increased by $39.8 million to $661.4 million at June 30, 2000 as compared to June 30, 1999. Service charges and fees for other services declined $199,000 for the first six months of 2000 as compared to the same period a year ago. This reduction was due to mortgage backing activities related to residential mortgage loans at Chatham Savings, FSB, in 1999 that has been discontinued. During the second quarter, the Corporation sold a residential mortgage loan servicing portfolio for a pre-tax gain of $211,000. This portfolio, acquired in the Chatham Savings, FSB merger was not compatible with existing lines of business. In the second quarter of 2000, the Corporation sold securities at a loss in the amount of $197,000. The higher rate earned on the reinvestment of the proceeds will increase interest income in future years in excess of the loss. OTHER EXPENSES: Other expenses totaled $4,139,000 and $8,667,000 for the three and six months ended June 30, 2000. Excluding merger-related charges, other expenses totaled $8,167,000 for the first half of 2000, an increase of $948,000 or 13 percent for the same period in 1999. Other expenses rose $418,000 or 11 percent in the second quarter of 2000 as compared to the same period in 1999. Salaries and benefits expense, the largest component of other expense increased $520,000 or 13 percent during the first half of 2000 as compared to the first half of 1999. Additions to the professional and clerical staff along with increased pension expense of $238,000 were the primary reasons for the increase. The significant components of other expense include advertising, data processing, trust department, telephone, postage, stationery and professional fees which totaled $663,000 and $1,282,000 for the three and six months ended June 30, 2000. PROVISION FOR LOAN LOSSES: For the six months ended June 30, 2000, the provision for loan losses was $252,000, compared to $228,000 for the same period last year. The amount of the loan loss provision and the level of the allowance for possible loan losses are based upon a number of factors including Management's evaluation of potential losses in the portfolio, after consideration of appraised collateral values, financial condition and past credit history of the borrowers are well are prevailing and anticipated economic conditions. Net charge-offs were $99,000 during the first half of 2000 as compared with net charge-offs of $9,000 during the same period in 1999. A summary of the allowance for loan losses for the six month period ended June 30, follows: (In thousands) 2000 1999 ------- ------- Balance, January 1, .......................... $ 2,962 $ 2,428 Provision charged to expense ................. 252 228 Loans charged off ............................ (131) (53) Recoveries ................................... 32 44 ------- ------- Balance, June 30, ............................ $ 3,115 $ 2,647 ======= ======= INCOME TAXES: Income tax expense as a percentage of pre-tax income was 34 percent for both the three and six months ended June 30, 2000, as compared to 35 percent and 36 percent for the same periods in 1999. The lower effective tax rate is attributable to a tax strategy implemented in July 1999 to minimize state tax expense. CAPITAL RESOURCES: Maintaining a strong capital position is an important goal of the Corporation. At June 30, 2000, total shareholders' equity (including net unrealized (losses)) was $50,656,000, representing an 6.5% increase over the same period in 1999. The Federal Reserve Board has adopted risk-based capital guidelines for banks. The minimum guidelines for the ratio of total capital to risk-weighted assets is 8%. At least half of the total capital is to be comprised of common stock, retained earnings, minority interests in the equity accounts of consolidated 10 subsidiaries, non-cumulative preferred stock, less goodwill and certain other intangibles ("Tier 1 Capital"). The remainder may consist of other preferred stock, certain other instruments and a portion of the loan loss allowance. At June 30, 2000, the Bank's Tier 1 Capital and Total Capital ratios were 19.94% and 21.23%, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for banks. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets of 3% for banks that meet certain specified criteria, including having the highest regulatory rating. All other banks are generally required to maintain a leverage ratio of at least 3% plus an additional cushion of 100 to 200 basis points. The Bank's leverage ratio at June 30, 2000 was 9.39%. MARKET RISK: The Corporation continues to monitor its exposure to various market risk sensitive instruments. These instruments and procedures employed to monitor market risks are listed in the Corporation's 1999 Annual Report. There has been no significant change in market risk since December 31, 1999. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No information is reported under this item. ITEM 2. CHANGES IN SECURITIES No changes have been made to the rights of holders of any class of securities during the second quarter of 2000. ITEM 3. DEFAULTS UPON SENIOR SECURITIES No default has occurred with respect to any of the Corporation's securities during 2000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of shareholders held on April 25, 2000, in Peapack-Gladstone, New Jersey, the following matters were discussed and voted upon: (1) The following persons were elected as directors of Peapack-Gladstone Financial Corporation for a term of one year: Anthony J. Consi II, Pamela Hill, T. Leonard Hill, Frank A. Kissel, John D. Kissel, Edward A. Merton, F. Duffield Meyercord, John R. Mulcahy, Jack D. Stine, James R. Lamb, George R. Layton and Philip W. Smith III. ITEM 5. OTHER INFORMATION No information is reported under this item. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K None 11 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 11th day of August 2000. PEAPACK-GLADSTONE FINANCIAL CORPORATION (Registrant) BY /s/ FRANK A. KISSEL ------------------------------------- (FRANK A. KISSEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER) BY /s/ ARTHUR F. BIRMINGHAM ------------------------------------- (ARTHUR F. BIRMINGHAM, SENIOR VICE PRESIDENT AND TREASURER) 12