-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ASh1tItKZHuVkiRUDdLD8GqI4MihU7Yrvlk2hvx3wkj5JZNw1lwXMc4AcnMGXDJp AxaQCEMBhwXrBAI67aTHpQ== 0000950110-02-000145.txt : 20020415 0000950110-02-000145.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950110-02-000145 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEAPACK GLADSTONE FINANCIAL CORP CENTRAL INDEX KEY: 0001050743 IRS NUMBER: 223537895 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-16197 FILM NUMBER: 02584715 BUSINESS ADDRESS: STREET 1: PEAPACK GLADSTONE FINACIAL CORP STREET 2: 158 ROUTE 206 NORTH CITY: GLADSTONE STATE: NJ ZIP: 07934 BUSINESS PHONE: 9082340700 MAIL ADDRESS: STREET 1: PEAPACK GLADSTONE FINANCIAL CORP STREET 2: 158 ROUTE 206 NORTH CITY: GLADSTONE STATE: NJ ZIP: 07934 10-K 1 e88265_form10-k.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION FILE NO. 000-23537 --------- PEAPACK-GLADSTONE FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) NEW JERSEY 22-2491488 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 158 ROUTE 206 PEAPACK-GLADSTONE, NEW JERSEY 07934 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER (908) 234-0700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS ------------------- COMMON STOCK, NO PAR VALUE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K X . --- As of February 28, 2002, 3,329,062 shares of Common Stock were outstanding and the aggregate market value of the shares held by unaffiliated stockholders was approximately $129,001,152. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporation's 2001 Annual Report (the "2001 Annual Report") and Definitive Proxy Statement for the Corporation's 2002 Annual Meeting of Shareholders (the "2002 Proxy Statement") are incorporated by reference into Parts II and III. FORM 10-K PEAPACK-GLADSTONE FINANCIAL CORPORATION FOR THE YEAR ENDED DECEMBER 31, 2001 TABLE OF CONTENTS PART I Item 1. Description of Business................................................................................3 Item 2. Description of Property................................................................................7 Item 3. Legal Proceedings......................................................................................7 Item 4. Submission of Matters to a Vote of Security Holders....................................................7 Item 4A. Executive Officers of the Registrant...................................................................7 PART II Item 5. Market for the Registrant's Common Stock and Related Shareholders Matters..............................8 Item 6. Selected Financial Data................................................................................8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................8 Item 7A. Quantitative and Qualitative Disclosure About Market Risk..............................................8 Item 8. Financial Statements and Supplementary Data............................................................8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................9 PART III Item 10. Directors and Executive Officers of the Registrant.....................................................9 Item 11. Executive Compensation.................................................................................9 Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................9 Item 13. Certain Relationships and Related Transactions.........................................................9 PART IV Item 14. Exhibits, Financial Statements, and Reports on Form 8-K...............................................10 Signatures............................................................................................12
2 This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Corporation. Such statements are not historical facts and include expressions about the Corporation's confidence, strategies and expectations about earnings, new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by forward-looking terminology such as "expect," "believe," or "anticipate," or expressions of confidence like "strong," or "on-going," or similar statements or variations of such terms. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities: o Competitive pressure in the banking and financial services industry increases significantly. o Changes in the interest rate environment may reduce interest rate margins. o General economic conditions, either nationally or in the state of New Jersey, are less favorable than expected. The Corporation assumes no responsibility to update such forward looking statements in the future. PART I ITEM 1. DESCRIPTION OF BUSINESS THE CORPORATION The Peapack-Gladstone Financial Corporation (the "Corporation") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("Holding Company Act"). The Corporation was organized under the laws of New Jersey in August, 1997, by the Board of Directors of Peapack-Gladstone Bank (the "Bank"), its principal subsidiary, to become a holding company for the Bank. The Bank is a state chartered commercial bank founded in 1921 under the laws of the State of New Jersey. Deposits of the Bank are insured for up to $100,000 per depositor by the Bank Insurance Fund administered by the FDIC. The Bank is a member of the Federal Reserve System. The Bank offers financial services through sixteen full-service banking offices, and one mini-branch. The Bank maintains eight (8) branches and one (1) auxiliary office in Somerset County, three (3) in Hunterdon County and six (6) in Morris County. The Bank's wholly-owned subsidiary, Peapack-Gladstone Investment Company, Inc., holds, maintains and manages investment security portfolios for the Bank. The Bank is primarily dedicated to providing quality, personalized financial, trust and investment services to individuals and small businesses. Commercial loan customers of the Bank are business people, including merchants, landscapers, architects, doctors, dentists, attorneys, building contractors and restaurateurs as well as various service firms and other local retailers. Most forms of commercial lending are offered, including working capital lines of credit, term loans for fixed asset acquisitions, commercial mortgages and other forms of asset-based financing. In addition to commercial lending activities, the Bank offers a wide range of consumer banking services, including: Checking and Savings accounts, Money Market and Interest-bearing Checking accounts, Certificates of Deposit, Individual Retirement Accounts held in Certificates of Deposit or self-directed investment accounts as well as accounts for employers' pension funds. The Bank also offers residential and construction mortgages, Home Equity lines of credit and other second mortgage loans. For children, the Bank offers a special Pony Club Savings account. New Jersey Consumer Checking Accounts are offered to low income customers. In addition, the Bank provides foreign and domestic Travelers' Checks, Personal Money Orders, Cashier's Checks and Wire Transfers. Automated Teller Machines are available at sixteen (16) locations. Via the Automatic Teller Machine access card issued by the Bank, customers may pay for commodities at Point-of-Sale merchant locations. Internet banking is available to customers including an on-line bill payment option. The Corporation has no foreign operations. The Bank's Trust and Investment Department, PGB Trust and Investments, is an important function of the Bank. Since its inception in 1972, trust assets (book value) have increased to more than $766 million. 3 EMPLOYEES As of December 31, 2001, the Corporation employed 180 full-time equivalent persons. Management considers relations with employees to be satisfactory. PRINCIPAL MARKET AREAS The Bank's principal market for its deposit gathering activities includes Somerset, Morris and Hunterdon Counties. The area is composed of upper-income single family homes, moderate income properties, some low-income housing and several large corporate campuses. There are numerous small retail businesses in each of the towns as well as offices for various professionals, i.e. attorneys, architects, interior decorators, physicians, etc. A portion of the market area is bisected by Interstate Highways 287 and 78 where numerous corporate offices have relocated over the past 25 years. The Bank does not have the resource capacity to satisfy the financial needs of AT&T, Merck & Co., Chubb Insurance Company, or other large corporations based in the area. However, the Bank has targeted the management and staff of these companies as potential customers. The relocation of corporate offices further out of the cities into western New Jersey has caused the relatively rural nature of the Bank's primary trade area to change dramatically. The Bank has expanded its service areas from one office in 1968 to the present sixteen (16) full-service banking locations and one (1) mini-branch location by steadily opening new branches and its recent acquisition of Chatham Savings, FSB, in 2000. All of the communities that the Bank serves are demographically similar and contiguous to the main office. COMPETITION The market for banking and bank-related services is highly competitive. The Corporation and its subsidiary compete with other providers of financial services such as other bank holding companies, commercial and savings banks, savings and loan associations, credit unions, money market and mutual funds, mortgage companies, and a growing list of other local, regional and national institutions which offer financial services. Mergers between financial institutions within New Jersey and in neighboring states have added competitive pressure. The Corporation and its subsidiary compete by offering quality products and convenient services at competitive prices. In order to maintain and enhance its competitive position, the Corporation regularly reviews its products, locations and new branching prospects. GOVERNMENTAL POLICIES AND LEGISLATION The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company's cost of doing business and limit the options of its management to deploy assets and maximize income. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, in state legislatures and before various bank regulatory agencies. The likelihood of any major changes and the impact such changes might have on the Corporation or the Bank is impossible to predict. The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on the Bank. It is intended only to briefly summarize some material provisions. CAPITAL REQUIREMENTS The Federal Reserve Board has adopted risk-based capital guidelines for banks and bank holding companies. The minimum guideline 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 subsidiaries, noncumulative perpetual preferred stock and a limited amount of qualifying cumulative perpetual 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 December 31, 2001, the Corporation's Tier 1 Capital and Total Capital ratios were 18.76% and 19.98%, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for banks and bank holding companies. 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 and bank holding companies generally are required to maintain a leverage ratio of at least 3% plus an additional cushion of 100 to 200 basis points. The Corporation's leverage ratio at December 31, 2001 was 9.84%. 4 FDICIA Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each federal banking agency has promulgated regulations, specifying the levels at which a financial institution would be considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized," and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution. The regulations implementing these provisions of FDICIA provide that a bank is defined to be "well capitalized" if it maintains a leverage ratio of at least 5%, a risk-adjusted Tier 1 capital ratio of at least 6% and a risk-adjusted total capital ratio of at least 10% and is not otherwise in a "troubled condition" as specified by its appropriate federal regulatory agency. A bank is defined to be "adequately capitalized" if it meets other minimum capital requirements. In addition, a depository institution will be considered "undercapitalized" if it fails to meet any minimum required measure, "significantly undercapitalized" if it is significantly below such measure and "critically undercapitalized" if it fails to maintain a level of tangible equity equal to not less than 2% of total assets. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. INSURANCE FUNDS LEGISLATION The Corporation's wholly-owned subsidiary, the Peapack-Gladstone Bank, is a member of the Bank Insurance Fund ("BIF") of the FDIC. The FDIC also maintains another insurance fund, the Savings Association Insurance Fund ("SAIF"), which primarily covers savings and loan association deposits but also covers deposits that are acquired by a BIF-insured institution from a savings and loan association. The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act") included The Deposit Insurance Funds Act of 1996 (the "Funds Act") under which the FDIC was required to impose a special assessment on SAIF-assessable deposits to recapitalize the SAIF. Under the Funds Act, the FDIC will also charge assessments for SAIF and BIF deposits in a 5 to 1 ratio to pay Financing Corp. ("FICO") bonds until January 1, 2000, at which time the assessment will be equal. During 2001 a FICO rate of approximately 4.59 basis points was charged on BIF deposits. RESTRICTIONS ON THE PAYMENT OF DIVIDENDS The holders of the Corporation's common stock are entitled to receive dividends, when, as and if declared by the Board of Directors of the Corporation out of funds legally available. The only statutory limitation is that such dividends may not be paid when the Corporation is insolvent. Since the principal source of income for the Corporation will be dividends on Bank common stock paid to the Corporation by the Bank, the Corporation's ability to pay dividends to its shareholders will depend on whether the Bank pays dividends to it. As a practical matter, restrictions on the ability of the Bank to pay dividends act as restrictions on the amount of funds available for the payment of dividends by the Corporation. As a New Jersey chartered commercial bank, the Bank is subject to the restrictions on the payment of dividends contained in the New Jersey Banking Act of 1948, as amended (the "Banking Act"). Under the Banking Act, the Bank may pay dividends only out of retained earnings, and out of surplus to the extent that surplus exceeds 50% of stated capital. Under the Financial Institutions Supervisory Act, the FDIC has the authority to prohibit a state-chartered bank from engaging in conduct that, in the FDIC's opinion, constitutes an unsafe or unsound banking practice. Under certain circumstances, the FDIC could claim that the payment of a dividend or other distribution by the Bank to the Corporation constitutes an unsafe or unsound practice. The Corporation is also subject to FRB policies, which may, in certain circumstances, limit its ability to pay dividends. The FRB policies require, among other things, that a bank holding company maintain a minimum capital base. The FRB would most likely seek to prohibit any dividend payment that would reduce a holding company's capital below these minimum amounts. HOLDING COMPANY SUPERVISION The Corporation is a bank holding company within the meaning of the Holding Company Act. As a bank holding company, the Corporation is supervised by the FRB and is required to file reports with the FRB and provide such additional information as the FRB may require. The Holding Company Act prohibits the Corporation, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business 5 other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking "as to be a proper incident thereto." The Holding Company Act requires prior approval by the FRB of the acquisition by the Corporation of more than five percent of the voting stock of any additional bank. Satisfactory capital ratios, Community Reinvestment Act ratings and anti-money laundering policies are generally prerequisites to obtaining federal regulatory approval to make acquisitions. The policy of the FRB provides that a bank holding company is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support the subsidiary bank in circumstances in which it might not do so absent that policy. Acquisitions through the Bank require the approval of the FDIC and the New Jersey Department of Banking and Insurance ("NJDOBI"). RECENT LEGISLATION The Gramm-Leach-Bliley Financial Modernization Act of 1999 became effective in early 2000. The Modernization Act: o allows bank holding companies meeting management, capital and Community Reinvestment Act standards to engage in a substantially broader range of nonbanking activities than is permissible, for a bank holding company, including insurance underwriting and making merchant banking investments in commercial and financial companies; if a bank holding company elects to become a financial holding company, it files a certification, effective in 30 days, and thereafter may engage in certain financial activities without further approvals; o allows banks to establish subsidiaries to engage in certain activities which a financial holding company could engage in, if the bank meets certain management, capital and Community Reinvestment Act standards; o allows insurers and other financial services companies to acquire banks; removes various restrictions that currently apply to bank holding company ownership of securities firms and mutual fund advisory companies; and o establishes the overall regulatory structure applicable to financial holding companies that also engage in insurance and securities operations. The FRB has adopted a regulation which allows bank holding companies to submit certifications by February 15, 2000 to become financial holding companies on March 13, 2000. The FRB also promulgated regulations on procedures which would be used against financial holding companies which have depository institutions which fall out of compliance with the management or capital criteria. Only financial holding companies can own insurance companies and engage in merchant banking. The Corporation has not elected to become a financial holding company and the Bank has no financial subsidiaries. The Modernization Act also modified other financial laws, including laws related to financial privacy and community reinvestment. As part of the USA Patriot Act, signed into law on October 26, 2001, Congress adopted the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the "Act"). The Act authorizes the Secretary of the Treasury, in consultation with the heads of other government agencies, to adopt special measures applicable to financial institutions such as banks, bank holding companies, broker-dealers and insurance companies. Among its other provisions, the Act requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering in United States private banking accounts and correspondent accounts maintained for non-United States persons or their representatives; and (iii) to avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, a foreign bank that does not have a physical presence in any country. In addition, the Act expands the circumstances under which funds in a bank account may be forfeited and requires covered financial institutions to respond under certain circumstances to requests for information from federal banking agencies within 120 hours. Treasury regulations implementing the due diligence requirements must be issued no later than April 24, 2002. Whether or not regulations are adopted, the law becomes effective July 23, 2002. Additional regulations are to be adopted during 2002 to implement minimum standards to verify customer identity, to encourage cooperation among financial institutions, federal banking agencies, and law enforcement authorities regarding possible money laundering or terrorist activities, to prohibit the anonymous use of "concentration accounts," and to require all covered financial institutions to have in place a Bank Secrecy Act compliance program. 6 The Act also amends the Bank Holding Company Act and the Bank Merger Act to require the federal banking agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing an application under these acts. Additional proposals to change the laws and regulations governing the banking and financial services industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such changes and the impact such changes might have on the Corporation cannot be determined at this time. ITEM 2. DESCRIPTION OF PROPERTY The Corporation owns six branches and leases ten branches. The Corporation also owns two properties adjacent to the Main Office in Peapack-Gladstone, and leases an administrative and operations office building in Peapack-Gladstone. ITEM 3. LEGAL PROCEEDINGS There is no currently pending litigation against the Corporation or its subsidiaries which assert claims, that if adversely decided, would have a material adverse effect on the Corporation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT WHO ARE NOT DIRECTORS
Executive Name Age Officer Since Office - ---------------------- ----------- ------------- ---------------------------------------------------- Arthur F. Birmingham 50 1996 Executive Vice President and Chief Financial Officer Garrett P. Bromley 57 1997 Senior Vice President and Chief Credit Officer
7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of Peapack-Gladstone Financial Corporation is traded on the American Stock Exchange under the symbol of PGC since November 1, 2000. The following table sets forth, for the periods indicated, the reported high and low sale prices on known trades and cash dividends declared per share by the Corporation. CASH DIVIDEND HIGH LOW PER SHARE ------ ------ ------------- 2001 ---- First Quarter $42.27 $35.45 $0.14 Second Quarter 36.36 32.27 0.14 Third Quarter 38.60 33.68 0.15 Fourth Quarter 39.25 36.50 0.15 2000 ---- First Quarter $38.95 $35.38 $0.13 Second Quarter 33.33 32.46 0.13 Third Quarter 33.55 33.33 0.14 Fourth Quarter 39.04 33.55 0.14 Future dividends payable by the Corporation will be determined by the Board of Directors after consideration of earnings and financial condition of the Corporation, need for capital and such other matters as the Board of Directors deems appropriate. The payment of dividends is subject to certain restrictions, see Part I, Item I, "Description of Business - Restrictions on the Payment of Dividends." On December 31, 2001, the last reported sale price of the Common Stock was $36.82. Also, on February 28, 2002, there were approximately 763 shareholders of record. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The information set forth in the 2001 Annual Report under the heading "Management's Discussion and Analysis" is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in the 2001 Annual Report under the heading "Management's Discussion and Analysis" is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The information set forth in the 2001 Annual Report under the heading "Market Risk Sensitive Instruments" is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements set forth in the 2001 Annual Report, together with the report thereon by KPMG LLP and the Notes to the Consolidated Financial Statements, are incorporated herein by reference. 8 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information which will be set forth under the captions "Director Information" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2001 Proxy Statement is incorporated herein by reference. Certain information on Executive Officers of the registrant is included in Part I, Item 4A of this report, which is also incorporated herein by reference. Effective March 31, 2001, Peapack-Gladstone established a retirement plan for eligible non-employee directors of Peapack-Gladstone and/or its subsidiaries. The plan provides 5 years of annual benefits to directors with 10 or more years of service, which commence after a director has retired from the Board. The annual benefit is equal to 25 percent of the director's final compensation, except that the percentage will increase by 5 percent for each year of service in excess of 10, but in all cases is limited to a maximum of 50 percent of final compensation. No director was credited with more than 10 years of service when the plan became effective, regardless of how long the person had served as director as of the effective date. If a director with 10 years of service ceases to be a director as a result of death or disability, or a director with 5 years of service ceases to be a director following a change in control, the director will be credited with a total of 15 years of service for plan purposes. In the event that the director dies prior to receipt of all benefits, the payments continue to the director's beneficiary or estate. Effective March 31, 2001, Peapack-Gladstone established a nonqualified deferred compensation plan for non-employee directors covering retainer fees and the aggregate of all fees for service and attendance at Board and committee meetings. Participation is optional. Interest is paid on the deferred fees equal to that which would have been credited if such deferred fees were invested in the Peapack-Gladstone Money Market Account which yields 2.00% as of March 18, 2002. The provisions of the deferred compensation plan are designed to comply with certain rulings of the Internal Revenue Service under which the deferred amounts are not taxed until received. Under the deferred compensation plan, the directors who elect to defer their fees receive the fees either (i) in a lump sum on the first day of the calendar quarter following termination of service as director, or on the first day of a calendar quarter that is at least 5 years following the date of the original deferral election, or (ii) in substantially equal annual installments over a period of between 2 to 10 years, commencing in January of the calendar year following the calendar year during which the director ceases serving as director. In the event the director dies, within a reasonable period of time following his or her death, the amount credited to the director's deferred compensation account shall be paid in a lump sum to the director's beneficiary or estate. ITEM 11. EXECUTIVE COMPENSATION Information with respect to executive compensation contained in the 2002 Proxy Statement set forth under the caption "Executive Compensation" is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to beneficial ownership of persons known to the Corporation to own beneficially more than five percent of the outstanding common stock contained in the 2002 Proxy Statement set forth under the caption "Beneficial Ownership of Common Stock" is incorporated herein by reference. Information with respect to the security ownership of management contained in the 2001 Proxy Statement set forth under the caption "Beneficial Ownership of Common Stock" is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to certain relationships and related transactions contained in the 2001 Proxy Statement set forth under the caption "Certain Relationships and Related Transactions" is incorporated herein by reference. 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules: Those portions of the 2001 Annual Report attached hereto as Exhibit 13 contain the financial statements incorporated herein by reference. All financial statement schedules are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto contained in the 2001 Annual Report. (10) Exhibits (3) Articles of Incorporation and By-Laws: A. Certificate of Incorporation dated August 14, 1997 is incorporated by reference to the Registrant's Form 10- K Annual Report for the year ended December 31, 1997. B. By-Laws of the Registrant adopted as of August 14,1997 are incorporated by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1997. (10) Material Contracts: A. "Change in Control Agreements" dated as of January 1, 1998 by and among the Corporation, the Bank and Frank A. Kissel, Paul W. Bell, Robert M. Rogers, Craig C. Spengeman, Arthur F. Birmingham and Barbara Greco are incorporated by reference to Registrant's Form 10-K Annual Report for the year ended December 31, 1997. B. Peapack-Gladstone Financial Corporation 1998 Stock Option Plan and 1998 Stock Option Plan for Outside Directors are incorporated by reference to Registrant's Registration Statement on Form S-8 dated May 19, 1998. C. "Change in Control Agreement" dated April 3, 1998 by and among the Corporation, the Bank and Garrett P. Bromley. D. Agreement and Plan of Merger dated August 26, 1999 between Peapack-Gladstone and Chatham Savings, FSB is incorporated herein by reference to Peapack-Gladstone's Report on Form 8-K filed with the Commission on September 7, 1999. (13) Annual Report to Shareholders (21) List of Subsidiaries: (a) Subsidiaries of the Corporation: PERCENTAGE OF VOTING JURISDICTION SECURITIES OWNED BY THE NAME OF INCORPORATION PARENT -------------------------------------------------------------------------- Peapack-Gladstone Bank New Jersey 100% 10 (b) Subsidiaries of the Bank: NAME ---- Peapack-Gladstone Investment Company, Inc. New Jersey 100% Peapack-Gladstone Financial Services, Inc. (Inactive) New Jersey 100% (c) Subsidiaries of Peapack-Gladstone Investment Company, Inc: NAME ---- Peapack-Gladstone Mortgage Group New Jersey 100% (23) Consents of Experts and Counsel: Consent of KPMG LLP ------------------------------------------------ 11 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. PEAPACK-GLADSTONE FINANCIAL CORPORATION (Registrant) BY FRANK A. KISSEL --------------------------------------- Frank A. Kissel, Chairman of the Board DATED MARCH 14, 2002 ------------------------------------- PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE DATE --------- ---- T. LEONARD HILL March 14, 2002 - ------------------------------------------------------ T. Leonard Hill, Director FRANK A. KISSEL March 14, 2002 - ------------------------------------------------------ Frank A. Kissel, Chairman of the Board ARTHUR F. BIRMINGHAM March 14, 2002 - ------------------------------------------------------ Arthur F. Birmingham, Executive Vice President and CFO (Principal Financial and Accounting Officer) ANTHONY J. CONSI II March 14, 2002 - ------------------------------------------------------ Anthony J. Consi II, Director PAMELA HILL March 14, 2002 - ------------------------------------------------------ Pamela Hill, Director JOHN D. KISSEL March 14, 2002 - ------------------------------------------------------ John D. Kissel, Director JAMES R. LAMB March 14, 2002 - ------------------------------------------------------ James R. Lamb, Director GEORGE R. LAYTON March 14, 2002 - ------------------------------------------------------ George R. Layton, Director EDWARD A. MERTON March 14, 2002 - ------------------------------------------------------ Edward A. Merton, Director F. DUFFIELD MEYERCORD March 14, 2002 - ------------------------------------------------------ F. Duffield Meyercord, Director 12 JOHN R. MULCAHY March 14, 2002 - ------------------------------------------------------ John R. Mulcahy, Director ROBERT M. ROGERS March 14, 2002 - ------------------------------------------------------ Robert M. Rogers, President and COO PHILIP W. SMITH III March 14, 2002 - ------------------------------------------------------ Philip W. Smith III, Director CRAIG C. SPENGEMAN March 14, 2002 - ------------------------------------------------------ Craig C. Spengeman, President, PGB Trust and Investments JACK D. STINE March 14, 2002 - ------------------------------------------------------ Jack D. Stine, Director 13 EX-13 3 e88265_ex-13.txt ANNUAL REPORT 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 ----------------------------------------------------------------- Total Assets 704,773 567,032 497,535 ----------------------------------------------------------------- Total Deposits 630,903 508,879 444,088 ----------------------------------------------------------------- Total Securities 221,342 153,525 162,996 ----------------------------------------------------------------- Total Loans 416,933 344,299 287,933 ----------------------------------------------------------------- Stockholders' Equity 63,085 55,156 47,575 ----------------------------------------------------------------- Trust Department Assets (Book Value) 766,928 709,732 651,469 ----------------------------------------------------------------- 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 ----------------------------------------------------------------- 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] EX-23 4 e88265_ex-23.txt CONSENT OF KPMG LLP INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors Peapack-Gladstone Financial Corporation: We consent to incorporation by reference in the Registration Statements No. 333-51187 and No. 333-53001 on Form S-8 of Peapack-Gladstone Financial Corporation of our report dated January 17, 2002, relating to the 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, which report is incorporated by reference in the December 31, 2001 Annual Report on Form 10-K of Peapack-Gladstone Financial Corporation. KPMG LLP Short Hills, New Jersey March 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----