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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998
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PEAPACK-GLADSTONE FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-3537895
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
158 ROUTE 206 NORTH, GLADSTONE, NEW JERSEY 07934
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER (908) 234-0700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common stock outstanding as of March 31, 1998:
2,327,898
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<PAGE>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
PART I. FINANCIAL INFORMATION
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the December
31, 1997 Annual Report on Form 10-K for Peapack-Gladstone Financial Corporation
(the "Corporation").
The Corporation considers that all adjustments (all of which are normal
recurring accruals) necessary for a fair statement of the financial position and
results of operations for these periods have been made; however, results for
such interim periods are subject to year-end adjustments. Results for such
interim periods are not necessarily indicative of results for a full year.
2
<PAGE>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
(Unaudited)
March 31, December 31,
1998 1997
-------- -----------
ASSETS
Cash and due from banks ............................ $ 11,171 $ 17,740
Federal funds sold ................................. 14,000 15,500
-------- --------
Total cash and cash equivalents ................ 25,171 33,240
Investment Securities:(approximate market value
$54,909 in 1998 and $54,452 in 1997)
U.S. Treasury and Government agencies .............. 45,809 44,557
State and political subdivisions ................... 8,663 9,421
-------- --------
Total Investment Securities .................... 54,472 53,978
Securities Available for Sale:(amortized cost
$87,525 in 1998 and $90,817 in 1997)
U.S. Treasury and Government agencies .............. 85,256 86,799
Other securities available for sale ................ 2,856 4,781
-------- --------
Total Securities Available for Sale ............ 88,112 91,580
Loans:
Loans secured by real estate ....................... 159,329 149,684
Other loans ........................................ 23,621 24,690
-------- --------
Total loans .................................... 182,950 174,374
Less: Allowance for loan losses .............. 1,975 1,893
-------- --------
Net loans ...................................... 180,975 172,481
Premises and equipment ............................. 8,701 8,595
Other real estate owned ............................ 236 340
Accrued interest receivable ........................ 3,071 3,006
Other assets ....................................... 305 445
-------- --------
TOTAL ASSETS ................................. $361,043 $363,665
======== ========
LIABILITIES
Deposits:
Noninterest-bearing demand deposits .............. $ 68,309 $ 74,712
Interest-bearing deposits:
Checking ....................................... 71,437 70,745
Savings ........................................ 69,703 70,419
Money market accounts .......................... 22,636 24,624
Certificates of deposit over $100,000 .......... 21,399 18,243
Certificates of deposit less than $100,000 ..... 70,307 69,730
-------- --------
Total deposits ..................................... 323,791 328,473
Accrued expenses and other liabilities ............. 2,363 1,553
-------- --------
TOTAL LIABILITIES ............................ 326,154 330,026
======== ========
STOCKHOLDERS' EQUITY
Common stock (no par value; stated value
$1 2/3 per share; authorized 10,000,000
shares; issued 2,335,238 shares.) ................ 3,892 3,892
Surplus ............................................ 6,270 6,218
Treasury Stock at cost, 7,340 shares in 1998
and 11,178 shares in 1997 ........................ (293) (367)
Retained Earnings .................................. 24,656 23,420
Accumulated other comprehensive income--
net unrealized gains on securities
available for sale (net of income taxes) ......... 364 476
-------- --------
TOTAL STOCKHOLDERS' EQUITY ................... 34,889 33,639
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ..... $361,043 $363,665
======== ========
See accompanying notes to consolidated financial statements.
3
<PAGE>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1998 1997
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INTEREST INCOME
Interest and fees on loans ........................... $ 3,558 $ 3,045
Interest on investment securities:
Taxable ......................................... 695 674
Tax-exempt ...................................... 112 136
Interest on securities available for sale: Taxable ... 1,430 1,371
Interest on federal funds sold ....................... 202 217
---------- ----------
Total interest income ........................... 5,997 5,443
INTEREST EXPENSE
Interest on savings account deposits ................. 812 870
Interest on certificates of deposit over $100,000 .... 267 232
Interest on other time deposits ...................... 919 785
---------- ----------
Total interest expense .......................... 1,998 1,887
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NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES ....................... 3,999 3,556
Provision for loan losses ............................ 91 100
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ....................... 3,908 3,456
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OTHER INCOME
Service charges and fees for other services .......... 1,251 936
Securities gains ..................................... 67 0
Other income ......................................... 28 27
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Total other income .............................. 1,346 963
OTHER EXPENSES
Salaries and employee benefits ....................... 1,632 1,508
Premises and equipment ............................... 534 562
Other expense ........................................ 695 630
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Total other expenses ............................ 2,861 2,700
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INCOME BEFORE INCOME TAX EXPENSE ..................... 2,393 1,719
Income tax expense ................................... 903 616
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NET INCOME ...................................... $ 1,490 $ 1,103
========== ==========
EARNINGS PER SHARE (Reflects a 2:1 stock
split in December, 1997.)
Basic ................................................ $ 0.64 $ 0.47
Diluted .............................................. $ 0.62 $ 0.47
Average basic shares outstanding ..................... 2,328,546 2,329,792
Average diluted shares outstanding ................... 2,399,244 2,368,968
See accompanying notes to consolidated financial statements.
4
<PAGE>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
-------------------
1998 1997
------- -------
Balance, Beginning of Period ......................... $33,639 $30,208
Comprehensive income:
Net Income ......................................... 1,490 1,103
Change in net unrealized gains on securities
available for sale ............................. (112) (620)
------- -------
Total Comprehensive income ....................... 1,378 483
Common Stock Options Exercised ....................... 12 0
Treasury Stock Transactions, net ..................... 115 0
Cash Dividends Declared .............................. (255) (233)
------- -------
Balance, March 31, ................................... $34,889 $30,458
======= =======
See accompanying notes to consolidated financial statements.
5
<PAGE>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
OPERATING ACTIVITIES:
Net Income: ............................................ $ 1,490 $ 1,103
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................... 189 171
Amortization of premium and accretion of
discount on securities, net .......................... 12 15
Provision for loan losses .............................. 91 100
Provision for deferred taxes ........................... (6) (11)
Gains on securities .................................... (67) 0
Increase in interest receivable ........................ (65) (171)
Decrease in other assets ............................... 209 71
Increase in other liabilities .......................... 810 520
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........... 2,663 1,798
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities ...... 4,750 2,725
Proceeds from maturities of securities available
for sale ............................................ 6,000 5,500
Proceeds from sales and calls of securities
available for sale ................................... 13,754 0
Purchase of investment securities ...................... (5,249) (4,173)
Purchase of securities available for sale .............. (17,324) (7,995)
Net decrease in short term investments ................. 924 2,026
Net increase in loans .................................. (8,585) (3,490)
Net decrease in other real estate ...................... 104 352
Purchase of premises and equipment ..................... (295) (99)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ............... (5,921) (5,154)
-------- --------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits .................... (4,683) 10,780
Dividends paid ......................................... (255) (233)
Exercise of stock options .............................. 12 0
Treasury stock transactions, net ....................... 115 0
-------- --------
NET CASH USED IN FINANCING ACTIVITIES ............... (4,811) 10,547
-------- --------
Net (decrease) increase in cash and cash equivalents. (8,069) 7,191
-------- --------
Cash and cash equivalents at beginning of period ....... 33,240 26,762
-------- --------
Cash and cash equivalents at end of period ............. $ 25,171 $ 33,953
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits ................................. $ 2,146 $ 2,135
Income taxes ......................................... 864 528
Noncash investing activities:
Transfer of loans to Other Real Estate ............... 0 248
See accompanying notes to consolidated financial statements.
6
<PAGE>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Peapack-Gladstone Financial Corporation
are prepared on the accrual basis and include the accounts of the Corporation
and its wholly-owned subsidiary, the Peapack-Gladstone Bank. All significant
intercompany balances and transactions have been eliminated from the
accompanying consolidated financial statements.
2. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that management considers
adequate to reflect the risk of future losses inherent in the Corporation's loan
portfolio. In its evaluation of the adequacy of the allowance for loan losses,
management considers past loan loss experience, changes in the composition of
non-performing loans, the condition of borrowers facing financial pressure, the
relationship of the current level of the allowance to the credit portfolio and
to non-performing loans and existing economic conditions. The process of
determining the adequacy of the allowance is necessarily judgmental and subject
to changes in external conditions. The allowance is increased by provisions
charged to expense and reduced by net charge-offs.
3. EARNINGS PER COMMON SHARE -- BASIC AND DILUTED
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share includes any additional common shares as if all
potentially dilutive common shares were issued (i.e., stock options).
4. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This Statement
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. In
accordance with the provisions of SFAS 130 for interim period reporting, the
Corporation's total comprehensive income for the three months ended March 31,
1998 and 1997 was $1,378,000 and $483,000. The difference between the
Corporation's net income and total comprehensive income for these periods
relates to the change in the net unrealized gains on securities available for
sale during the applicable period of time.
7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: Net income for the three month period ended March 31,
1998 was $1,490,000, as compared to, net income of $1,103,000 in 1997. On a
diluted per share basis, the Corporation earned $0.62 and $0.47 during the first
quarter of 1998 and 1997, respectively. Higher net interest income and higher
other income were the main factors contributing to the increase in net income.
NET INTEREST INCOME: Net interest income after provision for loan losses for the
first quarter of 1998 increased 13% to $3,908,000 from $3,456,000 in 1997. The
increase in net interest income is primarily due to increased loan volume, which
was funded by increased low cost core deposits.
Average interest-bearing assets during the first quarter of 1998 were
$335,404,000, representing an increase of $27,742,000 or 9% over the previous
year. Average interest-bearing liabilities rose to $256,513,000 for the first
three months of 1998 as compared with $245,110,000 during the same period in
1997.
The yield on interest-earning assets, including securities, federal funds sold
and loans, was flat during the first three months of 1998 as compared with the
first three months of 1997, as slightly lower rates earned on securities and
loans were offset by higher yields on federal funds sold.
The rate paid on interest-bearing liabilities increased to 3.16% during the
first three months of 1998 from 3.09% over the previous year. Higher rates paid
on Certificates of Deposits were offset by lower rates paid on interest bearing
checking and money market accounts. Further contributing to the increase in the
net interest margin was strong growth in noninterest-bearing demand deposits.
Average noninterest-bearing demand deposits increased to $67,870,000,
representing a 21% increase over the previous year.
OTHER INCOME: Other income before gains on securities was $1,279,000 and
$963,000 for the first three months of 1998 and 1997, respectively. This
increase was primarily due to higher trust fees, up $296,000 from 1997.
During the first three months of 1998, gains on sale of securities amounted to
$67,000. The Corporation had no gains or losses on the sale of securities during
the first quarter of 1997.
OTHER EXPENSES: Other expenses for the first three months of 1998 increased from
$2,700,000 in 1997 to $2,861,000 in 1998. Salary and employee benefit expenses
for the first quarter of 1998 increased $124,000 as compared with the same
period in 1997. Merit and promotional raises plus several additions to the
professional staff contributed to this increase. Other operating expenses
increased $65,000 or 10% in the first quarter as compared with the same period
in 1997. Higher Trust Department expenses and professional fees accounted for a
majority of this increase.
PROVISION FOR LOAN LOSSES: At March 31, 1998, the allowance for loan losses
amounted to $1,975,000 as compared with $1,663,000 a year earlier.
Non-performing loans (consisting of all non-accrual loans and loans over 90 days
past due and still accruing interest) were $956,000 and $829,000 at March 31,
1998 and 1997, respectively. A provision of $91,000 and $100,000 for loan losses
was expensed for the period ended March 31, 1998 and 1997, respectively. Net
charge-offs were $9,000 during the first three months of 1998 as compared with
net charge-offs of $73,000 during the same period in 1997.
A summary of the allowance for loan losses for the three month period ending
March 31, follows:
1998 1997
------ ------
(In thousands)
Balance, January 1 .................................. $1,893 $1,636
Provision charged to expense ........................ 91 100
Loans charged off ................................... (15) (81)
Recoveries .......................................... 6 8
------ ------
Balance, March 31 ................................... $1,975 $1,663
====== ======
8
<PAGE>
CAPITAL RESOURCES: Maintaining a strong capital position is an important goal of
the Corporation. At March 31, 1998, total shareholders' equity (including net
unrealized gains) was $34,889,000, representing an 15% increase over the same
period in 1997. The Federal Reserve Board has adopted risk-based capital
guidelines for banks. The minimum guidelines for the ratio of total capital to
risk-weighted assets is 8%. At least half of the total capital is to be
comprised of common stock, retained earnings, minority interests in the equity
accounts of consolidated subsidiaries, non-cumulative preferred stock, less
goodwill and certain other intangibles ("Tier 1 Capital"). The remainder may
consist of other preferred stock, certain other instruments and a portion of the
loan loss allowance. At March 31, 1998, the Bank's Tier 1 Capital and Total
Capital ratios were 20.26% and 21.44%, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for banks. These guidelines provide for a minimum ratio of Tier 1
Capital to average total assets of 3% for banks that meet certain specified
criteria, including having the highest regulatory rating. All other banks are
generally required to maintain a leverage ratio of at least 3% plus an
additional cushion of 100 to 200 basis points. The Bank's leverage ratio at
March 31, 1998 was 9.42%.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No information is reported under this item.
ITEM 2. CHANGES IN SECURITIES
No changes have been made to the rights of holders of any class of securities
during the first quarter of 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No default has occurred with respect to any of the Corporation's securities
during 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION No information is reported under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the twelfth day of May 1998.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
By: /s/ FRANK A. KISSEL
-----------------------------------
(Frank A. Kissel, President
and Chief Executive Officer)
/s/ ARTHUR F. BIRMINGHAM
-----------------------------------
(Arthur F. Birmingham, Senior
Vice President and Treasurer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,171
<SECURITIES> 142,584
<RECEIVABLES> 186,021
<ALLOWANCES> 1,975
<INVENTORY> 0
<CURRENT-ASSETS> 541
<PP&E> 8,701
<DEPRECIATION> 0
<TOTAL-ASSETS> 361,043
<CURRENT-LIABILITIES> 326,154
<BONDS> 0
0
0
<COMMON> 3,892
<OTHER-SE> 30,997
<TOTAL-LIABILITY-AND-EQUITY> 361,043
<SALES> 0
<TOTAL-REVENUES> 7,343
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,861
<LOSS-PROVISION> 91
<INTEREST-EXPENSE> 1,998
<INCOME-PRETAX> 2,393
<INCOME-TAX> 903
<INCOME-CONTINUING> 1,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,490
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.62
</TABLE>
