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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
158 ROUTE 206 NORTH, GLADSTONE, NEW JERSEY 07934
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER (908) 234-0700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_].
Number of shares of Common stock outstanding as of March 31, 1999:
2,439,966
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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, 1998 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.
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<PAGE>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks ....................... $ 11,675 $ 13,079
Federal funds sold ............................ 36,054 29,600
--------- ---------
Total cash and cash equivalents ............ 47,729 42,679
Investment Securities: (approximate market value
$39,652 in 1999 and $44,327 in 1998) ....... 39,143 43,581
Securities Available for Sale: (amortized cost
$102,082 in 1999 and $90,781 in 1998) ...... 102,371 92,255
Loans:
Loans secured by real estate .................. 198,744 190,530
Other loans ................................... 25,146 23,326
--------- ---------
Total loans ................................ 223,890 213,856
Less: Allowance for loan losses ......... 2,306 2,224
--------- ---------
Net loans .................................. 221,584 211,632
Premises and equipment ........................ 9,183 9,170
Other real estate owned ....................... 41 0
Accrued interest receivable ................... 3,026 2,963
Other assets .................................. 508 516
--------- ---------
TOTAL ASSETS ............................ $ 423,585 $ 402,796
========= =========
LIABILITIES
Deposits:
Noninterest-bearing demand deposits ......... $ 94,110 $ 85,881
Interest-bearing deposits:
Checking ................................. 81,330 79,778
Savings .................................. 72,991 70,962
Money market accounts .................... 28,608 26,363
Certificates of deposit over $100,000 .... 27,984 27,608
Certificates of deposit less than $100,000 76,844 72,241
--------- ---------
Total deposits ................................ 381,867 362,833
Accrued expenses and other liabilities ........ 3,170 2,008
--------- ---------
TOTAL LIABILITIES ........................ 385,037 364,841
--------- ---------
STOCKHOLDERS' EQUITY
Common stock (no par value; stated value $1 2/3
per share; authorized 10,000,000
shares; issued
2,451,244 shares.) ............................ 4,085 4,085
Surplus ....................................... 12,424 12,483
Treasury Stock at cost, 11,278 shares in 1999
and 13,562 shares in 1998 .................... (654) (791)
Retained Earnings ............................. 22,521 21,252
Accumulated other comprehensive income,
net of income tax .......................... 172 926
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TOTAL STOCKHOLDERS' EQUITY .............. 38,548 37,955
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 423,585 $ 402,796
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED
STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
Three Months Ended March 31,
1999 1998
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INTEREST INCOME
<S> <C> <C>
Interest and fees on loans ......................... $ 4,123 $ 3,558
Interest on investment securities:
Taxable ....................................... 442 695
Tax-exempt .................................... 134 112
Interest on securities available for sale: Taxable . 1,423 1,430
Dividends .......................................... 6 0
Interest on federal funds sold ..................... 319 202
---------- ----------
Total interest income ......................... 6,447 5,997
INTEREST EXPENSE
Interest on savings account deposits ............... 741 812
Interest on certificates of deposit over $100,000 .. 378 267
Interest on other time deposits .................... 932 919
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Total interest expense ........................ 2,051 1,998
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NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES ..................... 4,396 3,999
Provision for loan losses .......................... 99 91
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ..................... 4,297 3,908
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OTHER INCOME
Service charges and fees for other services ........ 1,231 1,251
Securities gains ................................... 0 67
Other income ....................................... 27 28
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Total other income ............................ 1,258 1,346
OTHER EXPENSES
Salaries and employee benefits ..................... 1,671 1,632
Premises and equipment ............................. 589 534
Other expense ...................................... 688 695
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Total other expenses .......................... 2,948 2,861
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INCOME BEFORE INCOME TAX EXPENSE ................... 2,607 2,393
Income tax expense ................................. 954 903
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NET INCOME .................................... $ 1,653 $ 1,490
========== ==========
EARNINGS PER SHARE (Reflects a 5% stock
Dividend in November, 1998)
Basic .............................................. $ 0.68 $ 0.61
Diluted ............................................ $ 0.66 $ 0.59
Average basic shares outstanding ................... 2,439,551 2,444,973
Average diluted shares outstanding ................. 2,519,056 2,519,206
See accompanying notes to consolidated financial statements
</TABLE>
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<TABLE>
<CAPTION>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
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<S> <C> <C>
Balance, Beginning of Period .......................... $ 37,955 $ 33,639
Comprehensive income:
Net Income ....................................... 1,653 1,490
Change in net unrealized gains on securities
available for sale ........................... (754) (112)
-------- --------
Total Comprehensive income ....................... 899 1,378
Common Stock Options Exercised and Related Tax Benefits (13) 193
Purchase of Treasury Stock ............................ 0 (66)
Cash Dividends Declared ............................... (293) (255)
-------- --------
Balance, March 31, .................................... $ 38,548 $ 34,889
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
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OPERATING ACTIVITIES:
<S> <C> <C>
Net Income: ........................................... $ 1,653 $ 1,490
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .......................................... 231 189
Amortization of premium and accretion of
discount on securities, net ........................ 58 12
Provision for loan losses ............................. 99 91
Provision for deferred taxes .......................... (25) (6)
Gains on securities ................................... 0 (67)
Increase in interest receivable ....................... (63) (65)
Increase in other assets .............................. 508 209
Increase in other liabilities ......................... 1,162 810
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NET CASH PROVIDED BY OPERATING ACTIVITIES .......... 3,623 2,663
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities ..... 4,175 4,750
Proceeds from maturities of securities available
for sale ........................................... 1,000 6,000
Proceeds from calls of investment securities .......... 4,600 0
Proceeds from sales and calls of securities available
for sale ........................................... 5,000 13,754
Purchase of investment securities ..................... (4,353) (5,249)
Purchase of securities available for sale ............. (16,876) (17,324)
Net (increase) decrease in short term investments ..... (470) 924
Net increase in loans ................................. (10,092) (8,585)
Net (increase) decrease in other real estate .......... (41) 104
Purchase of premises and equipment .................... (244) (295)
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NET CASH USED IN INVESTING ACTIVITIES .............. (17,301) (5,921)
-------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits ................... 19,034 (4,683)
Dividends paid ........................................ (293) (255)
Exercise of stock options ............................. (13) 193
Purchase of Treasury stock ............................ 0 (66)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 18,728 (4,811)
-------- --------
Net increase (decrease) in cash and cash equivalents 5,050 (8,069)
-------- --------
Cash and cash equivalents at beginning of period ...... 42,679 33,240
======== ========
Cash and cash equivalents at end of period ............ $ 47,729 $ 25,171
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits ............................... $ 2,058 $ 2,146
Income taxes ....................................... 50 864
Noncash investing activities:
Transfer of loans to Other Real Estate ............. 41 0
See accompanying notes to consolidated financial statements.
</TABLE>
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<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).
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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: Net income for the three month period ended March 31,
1999 was $1,653,000, as compared to $1,490,000 in 1998. On a diluted per share
basis, the Corporation earned $0.66 and $0.59 during the first three months of
1999 and 1998, respectively. Higher net interest income offset partially by
modestly higher other expenses 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 1999 increased 10% to $4,297,000 from $3,908,000 in 1998. The
increase in net interest income was primarily due to increased loan volume,
which was funded by increased low cost core deposits.
Average interest-earning assets during the first quarter of 1999 were
$381,095,000, representing an increase of $45,691,000 or 14% over the previous
year. Average interest-bearing liabilities rose to $279,763,000 for the first
three months of 1999 as compared with $256,513,000 during the same period in
1998.
The yield on average interest-earning assets, including loans, securities and
federal funds sold declined during the first three months of 1999 to 6.87% from
7.16% during the first quarter of 1998. This decline is attributable to the
overall decline in interest rates as the Federal Reserve Bank lowered the
federal funds rate 25 basis points on three separate occasions during the later
part of 1998.
The rate paid on average interest-bearing deposits declined to 2.97% during the
first three months of 1999 from 3.16% the previous year. Interest rates declined
in each of the deposit product lines following the trend of lower interest rates
during the period. A significant contribution to the increase in net interest
income was made by the strong growth in average non-interest bearing demand
deposits, which increased $15,357,000 or 23% during the period.
OTHER INCOME: Other income before gains on securities was $1,258,000 and
$1,279,000 for the first three months of 1999 and 1998, respectively. The steady
level of other income is attributable to free checking account promotions during
the period.
The Corporation had no gains or losses on the sale of securities during the
first quarter of 1999. During the first three months of 1998, gains on sale of
securities amounted to $67,000.
OTHER EXPENSES: Other expenses for the first three months increased from
$2,861,000 in 1998 to $2,948,000 in 1999, an increase of 3%. Salary expense for
the first quarter of 1999 increased $96,000 as compared with the same period in
1998. Merit and promotional raises and additions to the professional staff
contributed to this increase. Partially offsetting the increase in salary
expense was lower benefit expense, which declined $57,000 from the prior year
period. The decline was primarily due to reduced pension contribution costs.
Premises and equipment expense increased $55,000 or 10% during the first quarter
of 1999. This increase was primarily due to higher depreciation expenses on
computer equipment purchased during 1998 as the Corporation upgraded various
computer hardware and software.
PROVISION FOR LOAN LOSSES: At March 31, 1999, the allowance for loan losses
amounted to $2,306,000 as compared with $1,975,000 a year earlier.
Non-performing loans (consisting of all non-accrual loans and loans over 90 days
past due and still accruing interest) were $868,000 and $956,000 at March 31,
1999 and 1998, respectively. A provision of $99,000 and $91,000 for loan losses
was recorded for the period ended March 31, 1999 and 1998, respectively. Net
charge-offs were $17,000 during the first three months of 1999 as compared with
net charge-offs of $9,000 during the same period in 1998.
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A summary of the allowance for loan losses for the three month period ending
March 31, follows:
(In thousands) 1999 1998
------ ------
Balance, January 1, $2,224 $1,893
Provision charged to expense 99 91
Loans charged off (29) (15)
Recoveries 12 6
------ ------
Balance, March 31, $2,306 $1,975
====== ======
CAPITAL RESOURCES: Maintaining a strong capital position is an important goal of
the Corporation. At March 31, 1999, total shareholders' equity (including net
unrealized gains) was $38,548,000, representing a 10% increase over the same
period in 1998. 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, 1999, the Bank's Tier 1 Capital and Total
Capital ratios were 18.43% and 19.63%, 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, 1999 was 8.83%.
NEW ACCOUNTING PRONOUNCEMENT: In June 1998, the FASB issued SAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This Statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet, either as an asset, or as a
liability, measured at its fair value. The Statement requires that changes in
the derivative's fair value shall be recognized in current earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.
SAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance but cannot be applied retroactively. SAS No. 133 must be
applied to derivative instruments and certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively modified after
December 31, 1997.
The Corporation does not currently have derivative or hedged instruments and
management does not anticipate the statement having a material impact on its
financial position or results of operations.
YEAR 2000 COMPLIANCE: During fiscal 1998, the Corporation adopted a Year 2000
Compliance Plan (the "Plan") and established a Year 2000 Compliance Committee
(the "Committee"). The objectives of the Plan and the Committee are to prepare
the Corporation for the new millennium. As recommended by the Federal Financial
Institutions Examination Council, the Plan encompasses the following phases:
Awareness, Assessment, Renovation, Validation and Implementation. These phases
will enable the Corporation to identify risks, develop an action plan, perform
adequate testing and complete certification that its processing systems will be
Year 2000 ready. Execution of the Plan is currently on target. The Corporation
is currently in Phase 4, Validation, for our core processing software. This
phase involves testing of changes to hardware and software, accompanied by
monitoring and testing with vendors. Concurrently, the Corporation is also
addressing some issues related to subsequent phases. Prioritization of the most
critical applications has been addressed, along with contract and service
agreements. The primary operating software for the Corporation is obtained and
maintained by an external provider of software (the "External Provider"). The
Corporation has maintained ongoing contact with this vendor so that modification
of the software for Year 2000 readiness is a top priority and is expected to be
accomplished, though there is no assurance, by December 31, 1998. The
Corporation has contacted all other material vendors and suppliers regarding
their Year 2000 state of readiness. Each of these third parties has delivered
written assurance to the Corporation that they expect to be Year 2000 compliant
prior to the Year 2000. The Corporation is in the
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<PAGE>
process of contacting all material customers and non-information technology
suppliers (i.e., utility systems, telephone systems and security systems),
regarding their Year 2000 state of readiness. The Validation Phase is targeted
for completion by June 30, 1999. The Implementation Phase is to certify that
systems are Year 2000 ready, along with assurances that any new systems are
compliant on a going-forward basis. The Implementation Phase is targeted for
completion by September 30, 1999.
Costs will be incurred due to the replacement of non-compliant hardware and
software. The Corporation does not anticipate that the related overall costs
will be material in any single year. In total, the Corporation estimates that
its cost for compliance will amount to approximately $200,000 over the two-year
period from 1998-1999, of which approximately $125,000 was incurred as of March
31, 1999. No assurance can be given that the Year 2000 Compliance Plan will be
completed successfully by the Year 2000, in which event the Corporation could
incur significant costs. If the External Provider is unable to resolve the
potential problem in time, the Corporation would likely experience significant
data processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on the financial statements of the
Corporation.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the
Corporation's External Provider, testing plans, and all vendors, suppliers and
customer readiness.
MARKET RISK: The Corporation continues to monitor its exposure to various market
risk sensitive instruments. These instruments and procedures employed to monitor
market risks are listed in the Corporation's 1998 Annual Report.
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<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 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No default has occurred with respect to any of the Corporation's securities
during 1999.
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
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<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 tenth day of May, 1999.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
BY _____________________________________
(FRANK A. KISSEL, PRESIDENT
AND CHIEF EXECUTIVE OFFICER)
_____________________________________
(ARTHUR F. BIRMINGHAM, SENIOR
VICE PRESIDENT AND TREASURER)
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 47,729 42,679
<SECURITIES> 141,514 135,836
<RECEIVABLES> 226,916 216,819
<ALLOWANCES> 2,306 2,224
<INVENTORY> 0 0
<CURRENT-ASSETS> 508 516
<PP&E> 9,183 9,170
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 423,585 402,796
<CURRENT-LIABILITIES> 385,037 364,841
<BONDS> 0 0
0 0
0 0
<COMMON> 4,085 4,085
<OTHER-SE> 34,463 33,870
<TOTAL-LIABILITY-AND-EQUITY> 423,585 402,796
<SALES> 0 0
<TOTAL-REVENUES> 7,705 29,075
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,948 11,761
<LOSS-PROVISION> 99 465
<INTEREST-EXPENSE> 2,051 8,438
<INCOME-PRETAX> 2,607 8,411
<INCOME-TAX> 954 3,092
<INCOME-CONTINUING> 1,653 5,319
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,653 5,319
<EPS-PRIMARY> 0.68 2.18
<EPS-DILUTED> 0.66 2.11
</TABLE>
