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, 1999 COMMISSION FILE NO. 000-23537
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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: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
--------------------------
COMMON STOCK, NO PAR VALUE
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__.
As of February 29, 2000, 2,871,530 shares of Common Stock were outstanding and
the aggregate market value of the shares held by unaffiliated stockholders was
approximately $104,137,587.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's 1999 Annual Report (the "1999 Annual Report") and
Definitive Proxy Statement for the Corporation's 2000 Annual Meeting of
Shareholders (the "2000 Proxy Statement") are incorporated by reference into
Parts II and III.
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FORM 10-K
PEAPACK-GLADSTONE FINANCIAL CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1999
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
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.................... 9
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................................................... 10
Item 13 Certain Relationships and Related Transactions................. 10
PART IV
Item 14 Exhibits, Financial Statements, and Reports on Form 8-K........ 10
Signatures..................................................... 12
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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:
(10) Competitive pressure in the banking and financial services industry
increases significantly.
(11) Changes in the interest rate environment may reduce interest rate margins.
(12) General economic conditions, either nationally or in the state of New
Jersey are less favorable than expected.
(13) Deposit attrition, customer loss or revenue loss following the
Corporation's merger with Chatham Savings, FSB is greater 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"), 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. The Corporation is a
registered bank holding company. The Bank offers financial services through
thirteen full-service banking offices, and one mini-branch. The Bank maintains
seven (7) branches and one (1) auxiliary office in Somerset County, one (1) in
Hunterdon County and six (6) in Morris County. The Bank has two wholly-owned
subsidiaries which include an investment company and a real estate investment
trust. The investment company, Peapack-Gladstone Investment Company, Inc. holds,
maintains and manages investment security portfolios for the Bank. The real
estate investment trust, Peapack-Gladstone Mortgage Group, Inc. purchases
residential mortgage loans from 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 and 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, commercial 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 ten (10) locations. Via
the Automatic Teller Machine access card issued by the Bank, customers may pay
for commodities at Point-of-Sale merchant locations.
The Trust and Investment Department is an important function of the Bank. Since
its inception in 1972, trust assets (book value) have increased to more than
$651 million. This Department is committed to sound, conservative
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management of assets for its clients and strives to maintain high-quality,
specialized services for this important market segment.
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.
RECENT DEVELOPMENTS
On August 26, 1999, Peapack-Gladstone Financial Corporation signed a definitive
merger agreement with Chatham Savings, FSB ("Chatham") and subsidiaries, a two
branch bank headquartered in Chatham, New Jersey. At December 31, 1999 Chatham
had total assets of $79,589,000 and deposits of $63,926,000. The transaction
closed January 7, 2000 and has been accounted for using the pooling of interest
methods of accounting and, accordingly, Peapack's historical consolidated
financial statements presented in future reports will be restated to include the
accounts and results of Chatham. There were 140,000 shares of Chatham common
stock outstanding at December 31, 1999. The merger agreement provides for each
share of common stock of Chatham to be exchanged for 2.18379 shares of Peapack
common stock, and as a result 305,730 shares of Corporation common stock were
exchanged.
EMPLOYEES
As of December 31, 1999, the Corporation employed 139 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 include
northern Somerset, northern Morris and northeastern Hunterdon Counties. The area
is composed of upper-income single family homes, moderate income properties,
some low-income housing and a few prosperous farms. There are numerous small
retail businesses in each of the towns as well as offices for various
professionals, i.e. attorneys, architects, interior decorators, photographers,
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 corporate decision to move offices further out of
the cities into western New Jersey 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
thirteen (13) full-service banking locations and one (1) mini-branch location by
steadily opening new branches and its recent acquisition of Chatham Savings,
FSB. All of the communities that the Bank serves are demographically similar and
contiguous to the main office, affording various management economies.
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. Competition is expected to intensify as a consequence of interstate
banking laws now in effect or that may be in effect in the future. 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.
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GOVERNMENTAL POLICIES AND LEGISLATION
The commercial banking business is affected not only by general economic
conditions, but also by the monetary and fiscal policies of the federal
government and the policies of the regulatory agencies, particularly the Federal
Reserve Board. The Federal Reserve Board implements national monetary policies
(with objectives such as curbing inflation and combating recession) by its
open-market operations in United States government securities, by adjusting the
required level of reserves for financial institutions and by varying the
discount rates applicable to borrowings by financial institutions. The actions
of the Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits, and also affect prime or reference lending rates and
interest rates paid on deposits. The nature and impact of any future changes in
monetary policies implemented by the Federal Reserve Board cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. 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 are impossible to
predict. Certain potentially significant changes which have been enacted are
discussed below.
CAPITAL REQUIREMENTS
The Federal Reserve Board has adopted risk-based capital guidelines for banks
and bank holding companies. 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, 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, 1999, the Corporation's Tier 1 Capital
and Total Capital ratios were 21.66% and 23.08%, 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, 1999 was 9.75%.
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 which, 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 which would reduce a
holding company's capital below these minimum amounts.
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FDICIA
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was enacted. FDICIA substantially revises the depository
institution regulatory and funding provisions of the FDIC and makes revisions to
several other federal banking statutes. Among other things, FDICIA requires the
federal banking regulators to take prompt corrective action in respect of
depository institutions that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately capitalized,"
"under capitalized," and "critically undercapitalized." Under recently adopted
regulations, 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 is not deemed to be well
capitalized and it meets all of its 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.
FDICIA further provides that a bank cannot accept brokered deposits unless (i)
it is well capitalized or (ii) it is adequately capitalized and receives a
waiver from the FDIC. A bank that cannot receive brokered deposits also cannot
offer "pass-through' insurance on certain employee benefit accounts. In
addition, a bank that is not well capitalized cannot offer rates of interest on
deposits which are more than 75 basis points above prevailing rates. At December
31, 1999 the Corporation and the Bank were well capitalized.
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") signed
into law on September 30, 1996 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 1999 a FICO rate of approximately 1.19 basis points was charged on BIF
deposits, and approximately 5.93 basis points was charged for SAIF deposits.
RECENT LEGISLATION
On November 12, 1999, the President signed the Gramm-Leach-Bliley Financial
Modernization Act of 1999 into law. The Modernization Act will:
* allow bank holding companies meeting management, capital and Community
Reinvestment Act standards to engage in a substantially broader range of
nonbanking activities than currently is permissible, 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;
* allow insurers and other financial services companies to acquire banks;
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* remove various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
* establish the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
This part of the Modernization Act will become effective on March 13, 2000.
On January 19,2000, the FRB adopted an interim rule allowing bank holding
companies to submit certifications by February 15 to become financial holding
companies on March 13, 2000. The FRB also provided 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 can own
insurance companies and engage in merchant banking.
On January 14, 2000, the OCC proposed rules to allow national banks to form
subsidiaries to engage in financial activities allowed for financial holding
companies. Electing national banks must meet the same management and capital
standards as financial holding companies but may not engage in insurance
underwriting, real estate development or merchant banking. Sections 23A and 23B
of the Federal Reserve Act will apply to financial subsidiaries and the capital
invested by a bank in its financial subsidiaries will be eliminated from the
bank's capital in measuring all capital ratios. These rules may be used by
national banks effective March 13, 2000.
The Modernization Act also modifies other current financial laws, including laws
related to financial privacy and community reinvestment.
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 seven 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 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.
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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 NASDAQ
as a "bulletin board item" under the symbol of PGFC. 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
---- --- -------------
1999
----
First Quarter $55.75 $53.88 $0.12
Second Quarter 53.88 52.50 0.12
Third Quarter 52.50 50.50 0.13
Fourth Quarter 50.00 45.00 0.13
1998
----
First Quarter $54.00 $46.25 $0.11
Second Quarter 60.00 54.00 0.11
Third Quarter 65.00 58.00 0.12
Fourth Quarter 56.75 54.75 0.12
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, 1999, the last reported sale price of the Common Stock was
$45.00. Also, on February 29, 2000, there were approximately 741 shareholders of
record. Trading activity in the Corporation stock has generally been limited,
and frequently there are no reported daily trades. Ryan, Beck & Co., Inc. of
Livingston, New Jersey is the principal market maker for the common stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth in the 1999 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 1999 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 1999 Annual Report under the heading "Market
Risk Sensitive Instruments" is incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements set forth in the 1999 Annual Report,
together with the report thereon by KPMG LLP and the Notes to the Consolidated
Financial Statements are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in the 2000 Proxy Statement with respect to the name
of each nominee or director, his age, his positions and offices with the
Registrant, his service on the Registrant's Board, his business experience and
his family relationships with other directors, set forth under the caption
"Nominees for Election as Directors" is incorporated herein by reference.
The following is a list of the Corporation's executive officers and their
positions at December 31, 1999. The age of each executive officer at December
31, 1999 is disclosed in parentheses.
T. LEONARD HILL (88)
Chairman of the Board of the Corporation since 1997; Chairman of the Board
of the Bank since 1989; Director of the Bank since 1944.
FRANK A. KISSEL (49)
President and Chief Executive Officer since 1997; President and Chief
Executive Officer of the Bank since 1989; Senior Vice President of Somerset
Trust Company 1973-1988; Engaged in the banking industry since 1973.
ROBERT M. ROGERS (41)
Senior Vice President and Assistant Secretary since 1997; Senior Vice
President and Chief Operating Officer of the Bank since 1996; Senior Vice
President and Comptroller of the Bank from 1992; Engaged in the banking
industry since 1981.
ARTHUR F. BIRMINGHAM (48)
Senior Vice President and Treasurer since 1997; Senior Vice President and
Comptroller of the Bank since 1996; Senior Vice President and Chief
Financial Officer of Shrewsbury State Bank 1989-1996; Engaged in the
banking industry since 1979.
CRAIG C. SPENGEMAN (44)
Senior Vice President Since 1997; Senior Vice President and Senior Trust
Officer of the Bank since 1993; Trust Officer from 1985; Engaged in the
banking industry since 1977.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation contained in the 2000 Proxy
Statement set forth under the caption "Executive Compensation" is incorporated
herein by reference.
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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 2000 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 2000 Proxy Statement is incorporated herein by reference.
The Corporation knows of no contractual arrangements which may at a subsequent
date result in a change in control of the Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
contained in the 2000 Proxy Statement set forth under the caption "Certain
Relationships and Related Transactions" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) Financial Statements
The 1999 Annual Report attached hereto contains 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 1999 Annual Report.
(c) Exhibits
(3) Articles of Incorporation and By-Laws:
A. Certificate of Incorporation dated August 14, 1997 incorporated by
reference to the Registrant's Form 10- K Annual Report for the year ended
December 31, 1997 is incorporated herein by reference.
B. By-Laws of the Registrant adopted as of August 14,1997 incorporated by
reference to the Registrant's Form 10-K Annual Report for the year ended
December 31, 1997 are incorporated herein by reference.
(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
incorporated by reference to Registrant's Form 10-K Annual Report for the
year ended December 31, 1997 are incorporated herein by reference.
B. Peapack-Gladstone Financial Corporation 1998 Stock Option Plan and 1998
Stock Option Plan for Outside Directors incorporated by reference to
Registrant's Registration Statement on Form S-8 dated May 19, 1998 are
incorporated herein by reference.
C. "Change in Control Agreement" dated April 3, 1998 by and among the
Corporation, the Bank and Garrett P. Bromley.
(13) Annual Report to Shareholders
(21) List of Subsidiaries
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(23) Consents of Experts and Counsel:
Consent of KPMG LLP.
(27) Financial Data Schedule
- ------------------------------------------------
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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 /s/ T. LEONARD HILL
------------------------------------------
T. Leonard Hill, Chairman of the Board
DATED MARCH 9, 2000
------------------------------
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
/s/ T. LEONARD HILL March 9, 2000
- --------------------------------------
T. Leonard Hill,
Chairman of the Board
/s/ FRANK A. KISSEL March 9, 2000
- --------------------------------------
Frank A. Kissel,
President and CEO
/s/ ARTHUR F. BIRMINGHAM March 9, 2000
- --------------------------------------
Arthur F. Birmingham,
Senior Vice President and Treasurer
(Principal Financial and Accounting
Officer)
/s/ ANTHONY J. CONSI II March 9, 2000
- --------------------------------------
Anthony J. Consi II,
Director
/s/ PAMELA HILL March 9, 2000
- --------------------------------------
Pamela Hill,
Director
/s/ JOHN D. KISSEL March 9, 2000
- --------------------------------------
John D. Kissel,
Director
/s/ JAMES R. LAMB March 9, 2000
- --------------------------------------
James R. Lamb,
Director
/s/ GEORGE R. LAYTON March 9, 2000
- --------------------------------------
George R. Layton,
Director
/s/ EDWARD A. MERTON March 9, 2000
- --------------------------------------
Edward A. Merton,
Director
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/s/ F. DUFFIELD MEYERCORD March 9, 2000
- --------------------------------------
F. Duffield Meyercord,
Director
/s/ JOHN R. MULCAHY March 9, 2000
- --------------------------------------
John R. Mulcahy,
Director
/s/ PHILIP W. SMITH III March 9, 2000
- --------------------------------------
Philip W. Smith III,
Director
/s/ JACK D. STINE March 9, 2000
- --------------------------------------
Jack D. Stine,
Director
13
PEAPACK-GLADSTONE
FINANCIAL CORPORATION
1999 ANNUAL REPORT
<PAGE>
FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED YEAR-END DATA: 1999 1998 1997
- --------------------------------------------------------------------------------
NET INCOME $ 6,621 $ 5,319 $ 4,492
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TOTAL ASSETS 423,021 402,796 363,665
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TOTAL DEPOSITS 380,163 362,833 328,473
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TOTAL SECURITIES 133,077 135,836 145,558
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TOTAL LOANS 242,391 213,856 174,374
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STOCKHOLDERS' EQUITY 40,715 37,955 33,639
- --------------------------------------------------------------------------------
TRUST DEPARTMENT ASSETS
(BOOK VALUE) 651,469 549,321 453,671
- --------------------------------------------------------------------------------
FINANCIAL RATIOS:
- --------------------------------------------------------------------------------
RETURN ON AVERAGE ASSETS 1.62% 1.42% 1.30%
- --------------------------------------------------------------------------------
RETURN ON AVERAGE EQUITY 16.91 14.79 14.22
- --------------------------------------------------------------------------------
CAPITAL LEVERAGE RATIO 9.75 9.60 9.40
- --------------------------------------------------------------------------------
RISK BASED CAPITAL:
TIER 1 21.66 20.25 20.25
- --------------------------------------------------------------------------------
TOTAL 23.08 21.50 21.43
- --------------------------------------------------------------------------------
PER SHARE:
- --------------------------------------------------------------------------------
EARNINGS - BASIC $ 2.58 $ 2.08 $ 1.75
- --------------------------------------------------------------------------------
EARNINGS - DILUTED 2.50 2.01 1.72
- --------------------------------------------------------------------------------
BOOK VALUE 15.87 14.83 13.12
- --------------------------------------------------------------------------------
NET INCOME(in millions)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
$3.91 $3.58 $4.49 $5.32 $6.62
TOTAL ASSETS(in millions)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
$300 $327 $364 $403 $423
TRUST ASSETS(book value in millions)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
$251 $379 $454 $549 $651
EQUITY CAPITAL(in millions)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
$28.4 $30.2 $33.6 $37.9 $40.7
<PAGE>
DEAR SHAREHOLDERS
AND FRIENDS
[PICTURE]
Welcome to the new millennium! Now that Y2K worries are gone, we can be
thankful for the good fortune and prosperity that blessed so many at the end of
the last century. We look forward to the future and all the promise and
opportunities that are there for all of us and our Organization. There is so
much to be excited about. For example, fabulous new technologies will continue
to make our lives easier and more efficient. Just as new medicines will enable
us to live healthier, happier and longer, new technologies will enable us to
service more customers more conveniently. Things such as these are mutually
beneficial to us all and the Bank. We are fortunate to live in such a time.
Our challenge is to continue to manage our business in this fast changing
world, positioning ourselves to provide the best financial services to our
customers. At the same time we are always mindful that economic indicators do
not always go in just one direction. There will always be challenges to manage
our way through.
1999 is now in the books and we are pleased with the results. Details of
our financial results are reviewed in the Management Discussion and Analysis
section of this report. There are, however, a few highlights we want to touch
on.
We are reporting record earnings for the third straight year. Net income
for 1999 increased 24.5% from $5,319,000 to $6,621,000. Net interest income,
loan growth, Trust and Investment fees, and cost controls all contributed to the
bottom line.
Higher income pushed diluted earnings per share (EPS) to $2.50, up 24.4%
since last year. Similarly, return on average equity (ROE) grew from 14.79% in
1998 to 16.91% in 1999. This ratio level is very strong in the banking industry.
The Board paid a 5% stock dividend to our shareholders in November of last
year. This followed a 5% stock dividend in 1998, a 2 for 1 split in 1997, a 5%
stock dividend in 1996 and a 2 for 1 split in 1995. In addition, the cash
dividend rate was increased 8% during 1999. We believe our strong earnings and
capital growth give us an outstanding platform for the future. Our stock symbol
is PGFC if you wish to follow more closely.
In the interest of balance, we also must report that our stock price did
not follow all the good financial results. Interest rate concerns and the
popularity
2
<PAGE>
of other equity sectors have put pressure on the entire banking sector. Our
stock, being part of that group, ended the year at about $45.00 per share down
22% from a year ago. The price of our shares had increased 31% in 1996, 43% in
1997 and 35% in 1998. We continue to believe that strong financial results will
ultimately reward our shareholders.
The biggest news of the year was that your Board agreed to acquire Chatham
Savings, FSB through merger. We have exchanged 305,730 of our shares for all the
outstanding shares of Chatham Savings, FSB as of the closing date on January 7,
2000.
When the merger was announced last August, I said in the press release that
"This is an important and exciting step for our organization. We believe that
the long-term growth potential in this market justifies a break from our
traditional de novo branching strategy. We anticipate we will achieve cost
savings and new revenues sufficient to be earnings accretive in the first full
year of operation. Beyond that, we will apply our customer service ethic and
commercial banking background to grow our market share." Since that was written
we are even more convinced that we made the right decision and that our type of
high service banking and Trust and Investment Department will do well in the
Chatham Borough and Township markets.
As this letter is being written in February 2000 the two Chatham branches
are being renovated, ATMs will be installed and we will be ready to serve
existing and new customers with our full line-up of products.
As announced in our January 7, 2000 press release, we are delighted to
report that Mr. Anthony J. Consi II has been elected to our Board. Mr. Consi was
Chairman of Chatham Savings, FSB and is Chief Financial Officer of Weichert Co.
Realtors. We welcome Mr. Consi to the Board and look forward to working with him
as our business continues to grow.
In addition to the two new Chatham branches, we have signed a lease for a
new branch in the "Old Barn" on Main Street, New Vernon. New Vernon is situated
half way between our Bernardsville branch and the Chatham branches and will give
us continuity in that area. New Vernon is a wonderful community that deserves a
community bank committed to the residents and businesses in the area. We
anticipate being open early in March.
Our Trust and Investment Department also had an outstanding year. Assets in
this area continue to grow at a much faster pace than deposits in the Bank, and
we believe that trend will continue. The market value of assets in the Trust and
Investment Department were $981,000,000 at year-end. As our market area
continues to grow, so does the demand for asset management, trust
administration, estate planning services, tax preparation, retirement accounts
and mutual funds. I encourage each of you to meet with one of our
3
<PAGE>
Trust and Investment officers to discuss how we can help you achieve personal
and family financial objectives.
Our stated goal in the Bank and the Trust and Investment Department is to
provide the finest financial services available to our customers. We are also
well aware that virtually all our competitors are saying the same thing. The
difference is that our employees and officers are committed to our customers and
will take the extra step to be sure that the service is delivered.
While on this subject, there is a tremendous amount of discussion in the
press and with our legislators about privacy of information. It is an
unfortunate side effect of the information age. There is more access to the
details of our lives than most of us want. Our advice has always been to be
careful with what information you divulge to whom. That advice holds true
whether you're in a store, on the phone or at your computer. Privacy needs to be
managed. We believe that financial information can be secure even as we all use
the fabulous new technologies that are available.
Privacy of customer information is of paramount importance to us at
Peapack-Gladstone Bank. Compromising the privacy of a customer is a cardinal sin
here. Without the consent of the customer we have never, and we will never,
divulge customer names or information to a third party.
All of us at Peapack-Gladstone Bank welcome our new customers, employees
and shareholders from Chatham Savings and we look forward to working with each
of you.
We thank our Board for their efforts, and our officers and employees for
making it happen.
By: /s/ T. LEONARD HILL By: /s/ FRANK A. KISSEL
--------------- ---------------------
T. Leonard Hill Frank A. Kissel
Chairman President & CEO
4
<PAGE>
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.
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 eleven branches in Somerset, Hunterdon, and Morris
counties. An additional branch in New Vernon, Morris County opened during the
first quarter of 2000.
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 2.18379 shares of Corporation common
stock. As a result, a total of 305,730 shares of Corporation common stock were
exchanged. This merger added branches in Chatham Borough and Chatham Township.
Merger-related charges incurred upon consummation of the merger on January 7,
2000 amounted to $254,931 and have been expensed in the first quarter of the
year 2000. As of December 31, 1999, Peapack also incurred $244,591 of
merger-related charges which have been capitalized and will be expensed in the
first quarter of the year 2000. On an after tax basis, these charges totaled
$422,703 or $0.14 per diluted share. 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.
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.
5
<PAGE>
RESULTS OF OPERATIONS: For the year ended December 31, 1999 the Corporation's
net income increased 24% to $6,621,000 compared to $5,319,000 earned in 1998.
Diluted earnings per share increased 24% to $2.50 per share from $2.01 per share
earned in 1998. All share and per share amounts have been restated to reflect
the 5% stock dividend issued in November 1999.
The increase in net income for 1999 was primarily due to growth in net
interest income, strong performance in Trust income and a lower effective income
tax rate. Higher costs were incurred in growing and maintaining staff positions,
higher consulting and professional fees, and increased technology costs
accounted for the majority of the increase in noninterest expense.
Return on average stockholders' equity increased to 16.91% in 1999 compared
to 14.79% in 1998, and return on average assets increased to 1.62% in 1999
compared to 1.42% in 1998.
EARNING ASSETS: Total earning assets, consisting primarily of loans,
securities, and federal funds sold, increased approximately 4% from $379,292,000
at December 31, 1998 to $395,715,000 at December 31, 1999.
LOANS: The loan portfolio represents the Corporation's largest earning
asset balance and is a significant source of interest and fee income.
Total loans increased $28,535,000 or 13% from 1998 levels. This growth was
focused primarily in the real estate sector, as loans secured by real estate
increased $26,190,000. The increase related primarily to the Corporation's
increased lending within its geographic market areas to customers seeking
residential first mortgages and home equity loans on their primary residence.
Total loans at year-end were $242,391,000 and $213,856,000 in 1999 and 1998,
respectively.
RETURN ON AVERAGE EQUITY(in percent)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
15.05 12.41 14.22 14.79 16.91
RETURN ON AVERAGE ASSETS(in percent)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
1.37 1.13 1.30 1.42 1.62
6
<PAGE>
THE FOLLOWING TABLE PRESENTS AN ANALYSIS OF OUTSTANDING LOANS AS OF DECEMBER
31, (IN THOUSANDS) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------
REAL ESTATE--MORTGAGE
1-4 FAMILY RESIDENTIAL:
FIRST LIENS $152,619 $141,782 $ 99,168 $ 77,365 $ 59,410
- ----------------------------------------------------------------------------
JUNIOR LIENS 14,002 9,082 10,914 11,147 9,804
- ----------------------------------------------------------------------------
HOME EQUITY 6,643 4,820 6,238 4,817 4,757
- ----------------------------------------------------------------------------
REAL ESTATE--COMMERCIAL 42,303 32,900 29,151 26,726 22,882
- ----------------------------------------------------------------------------
REAL ESTATE--CONSTRUCTION 1,153 1,946 4,213 4,703 1,686
- ----------------------------------------------------------------------------
COMMERCIAL LOANS 12,226 9,833 10,332 11,832 10,396
- ----------------------------------------------------------------------------
CONSUMER LOANS 12,096 12,830 13,462 11,219 10,882
- ----------------------------------------------------------------------------
OTHER LOANS 1,349 663 896 2,065 2,615
- ----------------------------------------------------------------------------
TOTAL LOANS $242,391 $213,856 $174,374 $149,874 $122,432
============================================================================
THE FOLLOWING TABLE SETS FORTH THE MATURITY DISTRIBUTION OF THE
CORPORATION'S LOAN PORTFOLIO AS OF DECEMBER 31, 1999. THE TABLE EXCLUDES
REAL ESTATE LOANS (OTHER THAN CONSTRUCTION LOANS) AND INSTALLMENT LOANS:
DUE AFTER
DUE IN ONE YEAR DUE AFTER
ONE YEAR THROUGH FIVE
(IN THOUSANDS) OR LESS FIVE YEARS YEARS TOTAL
- ---------------------------------------------------------------
COMMERCIAL LOANS $5,273 $4,944 $2,009 $12,226
- ---------------------------------------------------------------
CONSTRUCTION LOANS 636 201 316 1,153
- ---------------------------------------------------------------
TOTAL $5,909 $5,145 $2,325 $13,379
===============================================================
THE FOLLOWING TABLE SETS FORTH, AS OF DECEMBER 31, 1999, THE SENSITIVITY OF THE
LOAN AMOUNTS DUE AFTER ONE YEAR TO CHANGES IN INTEREST RATES. THE TABLE EXCLUDES
REAL ESTATE LOANS (OTHER THAN CONSTRUCTION LOANS) AND INSTALLMENT LOANS:
DUE AFTER
ONE YEAR DUE AFTER
THROUGH FIVE
(IN THOUSANDS) FIVE YEARS YEARS
- -------------------------------------------------------------
FIXED INTEREST RATES $2,238 $ 795
- -------------------------------------------------------------
VARIABLE INTEREST RATES 2,907 1,530
- -------------------------------------------------------------
TOTAL $5,145 $2,325
=============================================================
INVESTMENT SECURITIES: Investment securities are those securities that the
Corporation has both the ability and intent to be held to maturity. These
securities are carried at amortized cost. The portfolio consists primarily of
U.S. Treasury and U.S. Government Agency and municipal obligations. The
Corporation's investment securities amounted to $46,222,000 at December 31,
1999, compared with $43,581,000 at December 31, 1998.
7
<PAGE>
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES OF INVESTMENT SECURITIES
AT AMORTIZED COST, AS OF DECEMBER 31, 1999:
<TABLE>
<CAPTION>
AFTER 1 AFTER 5
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY $ 2,001 $ 2,002 $ -- $ -- $ 4,003
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 12,171 10,035 2,450 -- 24,656
- -------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 2,366 10,382 1,847 -- 14,595
- -------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 504 2,464 -- -- 2,968
- -------------------------------------------------------------------------------------
TOTAL $17,042 $24,883 $4,297 $ -- $46,222
=====================================================================================
</TABLE>
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, 1999, the Corporation had securities available for sale
with a market value of $86,855,000, compared with $92,255,000 at December 31,
1998. A $1,740,000 unrealized loss and $926,000 unrealized gain (net of income
tax) was included in stockholders' equity at December 31, 1999 and December 31,
1998, respectively.
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES OF DEBT SECURITIES
AVAILABLE FOR SALE, STATED AT MARKET VALUE, AS OF DECEMBER 31, 1999:
<TABLE>
<CAPTION>
AFTER 1 AFTER 5
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY $11,518 $14,977 $ -- $ -- $26,495
- ------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 20,486 32,933 -- -- 53,419
- ------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS -- -- 225 -- 225
- ------------------------------------------------------------------------------------
OTHER DEBT SECURITIES
AVAILABLE FOR SALE 1,453 5,263 -- -- 6,716
- ------------------------------------------------------------------------------------
TOTAL $33,457 $53,173 $ 225 $ -- $86,855
====================================================================================
</TABLE>
Federal funds sold are an integral part of the Corporation's investment and
liquidity strategies. The average balance of federal funds sold during 1999 and
1998 was $25.2 million and $17.0 million, respectively.
8
<PAGE>
DEPOSITS: Total deposits increased $17,330,000 or 5% to $380,163,000 at December
31, 1999, compared to $362,833,000 at December 31, 1998. Noninterest-bearing
demand deposits increased $2,075,000 or 3%. Certificates of deposits increased
$10,660,000 or 11%. Competitively priced certificates of deposit were an
important factor in funding loan growth throughout the year.
The Corporation does not participate in the brokered deposit market, and
certificates of deposit over $100,000 are generally purchased by local municipal
governments or individual depositors for periods of 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, 1999 (IN THOUSANDS):
THREE MONTHS OR LESS $18,512
- --------------------------------------------------------------------------------
OVER THREE MONTHS THROUGH TWELVE MONTHS 9,337
- --------------------------------------------------------------------------------
OVER TWELVE MONTHS 2,519
- --------------------------------------------------------------------------------
TOTAL $30,368
================================================================================
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:
1999 1998 1997
(IN THOUSANDS) $ % $ % $ %
- -----------------------------------------------------------------------------
NONINTEREST-BEARING
DEMAND DEPOSITS $ 74,318 -- $ 66,711 -- $ 60,741 --
- -----------------------------------------------------------------------------
CHECKING DEPOSITS 85,729 1.05 77,686 1.04 67,864 1.28
- -----------------------------------------------------------------------------
SAVINGS DEPOSITS 71,074 1.97 69,641 2.45 71,624 2.46
- -----------------------------------------------------------------------------
MONEY MARKET DEPOSITS 29,714 2.54 23,882 3.19 27,919 2.89
- -----------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 105,273 4.88 97,808 5.28 82,358 5.17
- -----------------------------------------------------------------------------
TOTAL DEPOSITS $366,108 $335,728 $310,506
=============================================================================
9
<PAGE>
NET INTEREST INCOME: Net interest income, the Corporation's largest
component of operating income, is the difference between interest and fees
earned on loans and other interest-earning assets and interest paid on deposits.
The dynamics of the changes in interest rates, as well as the mix and volume of
interest-earning assets and interest-bearing liabilities, combine to affect net
interest income.
Net interest income on a tax-equivalent basis totaled $18,537,000 for 1999,
an increase of 13% or $2,071,000 over the $16,466,000 recorded in 1998. The
improvement was primarily due to a 10% increase in average interest-earning
assets, an 11% increase in average demand deposits, and a higher net interest
spread, up 16 basis points from 1998 levels. The net interest margin in 1999 was
4.82%, an increase of 12 basis points from 4.70% in 1998.
Interest income on interest-earning assets (on a tax-equivalent basis)
increased $1,823,000 or 7% to $26,727,000. This increase was primarily due to
higher average loans, up $28,995,000 or 15% over 1998 levels and higher average
federal funds sold, up $8,198,000 over year ago levels, offset in part by lower
rates earned on earning assets, down 17 basis points to 6.94% from 7.11% in
1998.
The decline in interest expense was primarily attributable to lower rates
paid. The interest rates paid on interest-bearing deposits dropped to 2.81% in
1999 from 3.14% in 1998. Offsetting lower rates paid was higher average balance
in each of the interest-bearing deposit categories. Overall, the average
balances of interest-bearing deposits increased $22,773,000 over the 1998
levels.
Tax-equivalent net interest income equaled $16,466,000 for 1998 an increase
of $1,143,000 or 7% from the $15,323,000 earned in 1997. The net interest margin
in 1998 was 4.70%, a decrease of 13 basis points from 4.83% in 1997.
10
<PAGE>
NET INTEREST INCOME(in millions)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
$12.2 $13.1 $15.2 $16.4 $18.4
11
<PAGE>
THE FOLLOWING TABLE COMPARES THE AVERAGE BALANCE SHEET, NET INTEREST SPREADS AND
NET INTEREST MARGINS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (FULLY
TAX-EQUIVALENT - FTE) (IN THOUSANDS, EXCEPT YIELD INFORMATION):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
INCOME/ INCOME/ INCOME/
AVERAGE EXPENSE YIELD AVERAGE EXPENSE YIELD AVERAGE EXPENSE YIELD
(IN THOUSANDS, EXCEPT YIELD INFORMATION) BALANCE (FTE) (FTE) BALANCE (FTE) (FTE) BALANCE (FTE) (FTE)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
INVESTMENTS:
TAXABLE $123,924 $ 7,564 6.10% $129,353 $ 7,999 6.18% $132,547 $ 8,497 6.41%
TAX-EXEMPT 12,260 779 6.36% 9,375 595 6.34% 10,495 655 6.24%
- ---------------------------------------------------------------------------------------------------------------------------------
LOANS 223,583 17,159 7.67% 194,588 15,418 7.92% 158,232 13,025 8.23%
- ---------------------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 25,170 1,225 4.87% 16,972 892 5.26% 15,681 844 5.38%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 384,937 26,727 6.94% 350,288 24,904 7.11% 316,955 23,021 7.26%
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 12,179 11,939 16,713
- ---------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES (2,397) 92,036) (1,773)
- ---------------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 9,189 9,049 8,508
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 3,861 5,098 4,373
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 22,832 24,050 27,821
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $407,769 $374,338 $344,776
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
- ---------------------------------------------------------------------------------------------------------------------------------
CHECKING $ 85,729 $ 900 1.05% $ 77,686 $ 805 1.04% $ 67,864 $ 867 1.28%
- ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET 29,714 754 2.54% 23,882 763 3.19% 27,919 807 2.89%
- ---------------------------------------------------------------------------------------------------------------------------------
SAVINGS 71,074 1,401 1.97% 69,641 1,709 2.45% 71,624 1,765 2.46%
- ---------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 105,273 5,135 4.88% 97,808 5,161 5.28% 82,358 4,259 5.17%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 291,790 8,190 2.81% 269,017 8,438 3.14% 249,765 7,698 3.08%
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 74,318 66,711 60,741
- ---------------------------------------------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 2,509 2,647 2,686
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 76,827 69,358 63,427
- ---------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 39,152 35,963 31,584
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $407,769 $374,338 $344,776
=================================================================================================================================
NET INTEREST INCOME $18,537 $16,466 $15,323
=================================================================================================================================
NET INTEREST SPREAD 4.13% 3.97% 4.18%
- ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 4.82% 4.70% 4.83%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Average loan balances include nonaccrual 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.
12 13
<PAGE>
RATE/VOLUME ANALYSIS (fully tax-equivalent basis):
THE EFFECT OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 ARE SHOWN BELOW: (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED 1999 COMPARED WITH 1998 YEAR ENDED 1998 COMPARED WITH 1997
- ------------------------------------------------------------------------------------------------
NET NET
DIFFERENCE DUE TO CHANGE IN DIFFERENCE DUE TO CHANGE IN
CHANGE IN: INCOME/ CHANGE IN: INCOME/
VOLUME RATE EXPENSE VOLUME RATE EXPENSE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INVESTMENTS $ (158) $ (93) $ (251) $ (276) $ (282) $ (558)
- ------------------------------------------------------------------------------------------------
LOANS 2,297 (556) 1,741 2,993 (600) 2,393
- ------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 431 (98) 333 69 (21) 48
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $2,570 $ (747) $1,823 $2,786 $ (903) $1,883
================================================================================================
LIABILITIES
CHECKING $ 83 $ 12 $ 95 $ 63 $ (125) $ (62)
- ------------------------------------------------------------------------------------------------
MONEY MARKET 186 (195) (9) (117) 73 (44)
- ------------------------------------------------------------------------------------------------
SAVINGS 35 (343) (308) (49) (7) (56)
- ------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 394 (420) (26) 799 103 902
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 698 $ (946) $ (248) $ 696 $ 44 $ 740
================================================================================================
</TABLE>
PROVISION FOR LOAN LOSSES: The provision for loan losses represents management's
determination of the amount necessary to bring the allowance for loan losses to
a level that management considers adequate to reflect the risk of 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 total provision for loan losses for 1999 was $400,000 as compared to
$465,000 in 1998 and $400,000 in 1997. Net charge-offs for 1999, 1998 and 1997
were $43,000, $134,000 and $143,000, respectively. There was no other real
estate owned at December 31, 1999 and 1998 as compared to $340,000 at December
31, 1997. Non-performing assets consist of non-performing loans and other real
estate owned. Non-performing loans are composed of loans on nonaccrual status or
loans which are contractually past due 90 days or more as to interest and
principal payments but have not been classified as nonaccrual. Non-performing
assets were $284,000 in 1999, $807,000 in 1998 and $1,186,000 in 1997. The
allowance for loan losses was $2,581,000 at December 31, 1999 as compared to
$2,224,000 at December 31, 1998. The allowance for loan losses currently
provides 909% coverage of all non-performing assets. At December 31, 1999, the
allowance for loan losses as a percentage of total loans outstanding was 1.06%
compared to 1.04% at December 31, 1998 and 1.09% at December 31, 1997.
14
<PAGE>
THE FOLLOWING TABLE PRESENTS THE LOAN LOSS EXPERIENCE DURING THE YEARS ENDED
DECEMBER 31:
(IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES AT
BEGINNING OF YEAR $2,224 $1,893 $1,636 $1,221 $1,473
- --------------------------------------------------------------------------------
LOANS CHARGED OFF DURING THE PERIOD:
REAL ESTATE -- -- 150 202 190
- --------------------------------------------------------------------------------
CONSUMER 70 152 97 49 34
- --------------------------------------------------------------------------------
COMMERCIAL AND OTHER 52 35 35 25 153
- --------------------------------------------------------------------------------
TOTAL LOANS CHARGED-OFF 122 187 282 276 377
- --------------------------------------------------------------------------------
RECOVERIES DURING THE PERIOD:
- --------------------------------------------------------------------------------
REAL ESTATE -- 5 105 19 --
- --------------------------------------------------------------------------------
CONSUMER 63 12 25 8 8
- --------------------------------------------------------------------------------
COMMERCIAL AND OTHER 16 36 9 22 42
- --------------------------------------------------------------------------------
TOTAL RECOVERIES 79 53 139 49 50
- --------------------------------------------------------------------------------
NET CHARGE-OFFS 43 134 143 227 327
- --------------------------------------------------------------------------------
PROVISION CHARGED TO EXPENSE 400 465 400 642 75
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES AT
END OF YEAR $2,581 $2,224 $1,893 $1,636 $1,221
================================================================================
THE FOLLOWING TABLE SHOWS THE ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AS OF
DECEMBER 31:
(IN THOUSANDS) 1999 % 1998 % 1997 %
- --------------------------------------------------------------------------------
REAL ESTATE $1,420 55 $1,223 55 $ 946 50
- --------------------------------------------------------------------------------
CONSUMER 129 5 111 5 95 5
- --------------------------------------------------------------------------------
COMMERCIAL AND OTHER 1,032 40 890 40 852 45
- --------------------------------------------------------------------------------
TOTAL $2,581 100 $2,224 100 $1,893 100
================================================================================
15
<PAGE>
NON-PERFORMING ASSETS:
THE FOLLOWING TABLE PRESENTS FOR THE YEARS INDICATED THE COMPONENTS OF
NON-PERFORMING ASSETS: YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOANS PAST DUE 90 DAYS OR MORE
AND STILL ACCRUING INTEREST $ 22 $ 1 $ 104 $ 122 $ 636
- ------------------------------------------------------------------------------------------
NONACCRUAL LOANS 262 806 742 1,183 541
- ------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 284 807 846 1,305 1,177
- ------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED 0 0 340 432 999
- ------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS 284 807 1,186 1,737 2,176
- ------------------------------------------------------------------------------------------
LOAN CHARGE-OFFS 122 187 282 276 377
- ------------------------------------------------------------------------------------------
LOAN RECOVERIES 79 53 139 49 50
- ------------------------------------------------------------------------------------------
NET LOAN CHARGE-OFFS 43 134 143 227 327
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES $2,581 $2,224 $1,893 $1,636 $1,221
==========================================================================================
</TABLE>
In addition, the Bank had restructured loans of $255,000 and $457,000 at
December 31, 1999 and December 31, 1998, respectively.
<TABLE>
<CAPTION>
RATIOS:
<S> <C> <C> <C> <C> <C>
TOTAL NON-PERFORMING LOANS/
TOTAL LOANS 0.12% 0.38% 0.49% 0.87% 0.96%
- ------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS/
TOTAL ASSETS 0.07% 0.20% 0.23% 0.40% 0.39%
- ------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS/
TOTAL ASSETS 0.07% 0.20% 0.33% 0.53% 0.73%
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/
TOTAL LOANS 1.06% 1.04% 1.09% 1.09% 1.00%
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/
TOTAL NON-PERFORMING LOANS 908.80% 275.59% 223.76% 125.36% 103.74%
- ------------------------------------------------------------------------------------------
</TABLE>
Interest income of $39,000, $68,000 and $47,000 would have been recognized
during 1999, 1998, and 1997, respectively, if nonaccrual loans had been current
in accordance with their original terms.
OTHER INCOME: Other income before gains on securities was $4,789,000 in 1999,
representing a 17% increase from 1998 and a 49% increase from 1997 levels. This
increase was primarily due to higher trust fees. Trust and Investment Department
fees for 1999 were $3,002,000, 34% higher than 1998 and 104% higher than 1997.
Service charges on deposit accounts declined to $1,200,000 in 1999 from
$1,351,000 in 1998. This decline was primarily due to "free checking" promotions
and reduced overdraft fees. For the year ended December 31, 1999, securities
gains were $16,000 as compared to gains of $178,000 and $29,000 for 1998 and
1997, respectively.
16
<PAGE>
The following table presents the major components of other income:
Years Ended December 31,
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Trust Department fees $3,002 $2,241 $1,474
- --------------------------------------------------------------------------------
Service charges on deposit accounts 1,200 1,351 1,307
- --------------------------------------------------------------------------------
Safe deposit rental fees 176 173 164
- --------------------------------------------------------------------------------
Other fee income 282 226 180
- --------------------------------------------------------------------------------
Check printing fees 74 46 49
- --------------------------------------------------------------------------------
Other non-interest income 55 58 45
- --------------------------------------------------------------------------------
Other income before gain on securities 4,789 4,095 3,219
- --------------------------------------------------------------------------------
Securities gains 16 178 29
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME $4,805 $4,273 $3,248
================================================================================
OTHER EXPENSE: Other expense totaled $12,967,000 in 1999, an increase of
$1,206,000 or 10%, compared to $11,761,000 in 1998. Other expense in 1998
increased 10% from $10,726,000 in 1997. The increase in other expense in 1999
was primarily the result of increases in employee salaries and benefits,
consulting and professional fees, and expenses related to enhancing the
organization's technology capabilities.
Salaries and benefits expense, the largest component of other expense,
increased 5% to $6,877,000 from $6,568,000 in 1998, due primarily to increased
staff positions and higher incentive compensation.
Higher professional and consulting fees were primarily attributable to the
formation of a real estate investment trust subsidiary. These one time
expenditures will enhance the profitability and improve the overall liquidity of
the Corporation in future years.
The increase in data processing related costs were primarily due to
upgrades in technology and automation, higher costs for equipment depreciation
and increased costs for telecommunications and computer maintenance.
17
<PAGE>
THE FOLLOWING TABLE PRESENTS THE MAJOR COMPONENTS OF OTHER EXPENSE:
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------
SALARIES AND BENEFITS $ 6,877 $ 6,568 $ 6,093
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 2,607 2,363 2,231
- --------------------------------------------------------------------------------
TRUST DEPARTMENT EXPENSE 330 336 270
- --------------------------------------------------------------------------------
ADVERTISING 261 198 223
- --------------------------------------------------------------------------------
STATIONERY AND SUPPLIES 218 240 279
- --------------------------------------------------------------------------------
POSTAGE 221 270 218
- --------------------------------------------------------------------------------
TELEPHONE 258 227 187
- --------------------------------------------------------------------------------
FDIC INSURANCE ASSESSMENT 43 38 37
- --------------------------------------------------------------------------------
OTHER EXPENSE 2,152 1,521 1,188
- --------------------------------------------------------------------------------
TOTAL OTHER EXPENSE $12,967 $11,761 $10,726
================================================================================
INCOME TAXES: Income tax expense for the year ended December 31, 1999 was
$3,194,000 as compared to $3,092,000 and $2,822,000 for the years 1998 and 1997,
respectively. The increased income tax expense in 1999 reflects higher levels of
taxable income offset, in part, by a lower effective tax rate. The lower tax
rate is attributable to the formation of a real estate investment trust
subsidiary in 1999.
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 $40,715,000, total stockholders'
equity grew 7% or $2,760,000 as compared with $37,955,000 at December 31, 1998.
At December 31, 1999, unrealized losses net of taxes were $1,740,000 as compared
to unrealized gains net of taxes of $926,000 at December 31, 1998. Federal
regulations require banks to meet target Tier 1 and total capital ratios of 4%
and 8%, respectively. At 21.66% and 23.08%, the Bank's Tier 1 and total capital
ratios are well in excess of regulatory minimums. The Bank's capital leverage
ratio was 9.75% at December31, 1999.
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 investment securities.
Management feels the Corporation's liquidity position is sufficient to meet
any future needs. Cash and cash equivalents, including federal funds sold,
averaged over $37 million in 1999. In addition, the Corporation has over $86
million in securities designated as available for sale. These securities can be
sold in response to liquidity concerns. As of December 31, 1999, investment
securities and securities available for sale maturing within one year amounted
to over $50 million and cash and cash equivalents totaled over $35 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, sales of securities under repurchase
agreements, loan participation or sales of loans and sales of securities
available for sale. 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
18
<PAGE>
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 .32 on December 31, 1999 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.
THE TABLE BELOW PRESENTS THE MATURITY AND REPRICING RELATIONSHIPS BETWEEN
INTEREST-EARNING ASSETS AND INTEREST-BEARING DEPOSITS AS OF DECEMBER 31, 1999.
(IN THOUSANDS)
<TABLE>
<CAPTION>
REPRICING OR 0 - 3 3 - 12 1 - 5 OVER 5
MATURITY DATE MONTHS MONTHS YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
SECURITIES $ 16,581 $ 33,918 $ 78,057 $ 4,521 $133,077
- ------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 15,247 -- -- -- 15,247
- ------------------------------------------------------------------------------------------
LOANS (1) 21,752 3,963 65,470 150,944 242,129
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
ASSETS $ 53,580 $ 37,881 $143,527 $155,465 $390,453
==========================================================================================
DEPOSITS
CERTIFICATES OF DEPOSIT $ 37,846 $ 57,785 $ 14,884 $ -- $110,515
- ------------------------------------------------------------------------------------------
SAVINGS 69,345 -- -- -- 69,345
- ------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS 31,158 -- -- -- 31,158
- ------------------------------------------------------------------------------------------
CHECKING 91,304 -- -- -- 91,304
- ------------------------------------------------------------------------------------------
NONINTEREST-BEARING
DEMAND DEPOSITS -- -- -- 77,841 77,841
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
DEPOSITS $229,653 $ 57,785 $ 14,884 $ 77,841 $380,163
==========================================================================================
ASSETS/DEPOSITS 0.23 0.66 9.64 2.00 1.03
- ------------------------------------------------------------------------------------------
ASSETS/DEPOSITS (CUMULATIVE) 0.23 0.32 0.78 1.03
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Loan balances do not include nonaccrual loans.
19
<PAGE>
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 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.
20
<PAGE>
<TABLE>
The following table presents the scheduled maturity of market risk sensitive
instruments as of December 31, 1999:
<CAPTION>
AVERAGE WITHIN 1-5 OVER ESTIMATED
(IN THOUSANDS) INTEREST RATE 1 YEAR YEARS 5 YEARS TOTAL FAIR VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
SECURITIES 6.15% $ 50,499 $ 78,057 $ 4,521 $133,077 $132,435
- ------------------------------------------------------------------------------------------
LOANS 7.46% 25,715 65,470 150,944 242,129 231,901
- ------------------------------------------------------------------------------------------
TOTAL $ 76,214 $143,527 $155,465 $375,206 $364,336
==========================================================================================
LIABILITIES
SAVINGS, CHECKING
AND MONEY MARKET 1.93% $191,807 $ -- $ -- $191,807 $191,807
- ------------------------------------------------------------------------------------------
CD'S 4.91% 95,631 14,884 -- 110,515 110,089
- ------------------------------------------------------------------------------------------
TOTAL $287,438 $ 14,884 $ -- $302,322 $301,896
==========================================================================================
</TABLE>
(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.
21
<PAGE>
CHANGES IN ACCOUNTING PRINCIPLES: In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
SFAS 133 standardizes the accounting for derivative instruments and hedging
activities, including certain derivative instruments embedded in other
contracts. Under SFAS 133, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. SFAS 133 is effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, an amendment of SFAS No. 133 which defers the effective date to periods
beginning after June 15, 2000. The Company does not expect the adoption of SFAS
No. 133 to have a material impact on its consolidated financial statements.
TRUST AND INVESTMENT DEPARTMENT: The Trust and Investment Department continues
to be an extremely important part of Peapack-Gladstone Financial Corporation.
Since its inception in 1972, the Trust and Investment Department has served in
the roles of executor and trustee while providing investment management,
custodial, tax, retirement, and financial services to its growing client base.
The book value of assets under management in the Trust and Investment
Department increased from $549,321,000 at December 31, 1998 to $651,469,000 at
December 31, 1999, an increase of 19%. The corresponding market value at
December 31, 1999 is now in excess of $981,964,000. Fee income generated by the
Trust and Investment Department was $3,002,000, $2,241,000 and $1,474,000 in
1999, 1998 and 1997, respectively.
THE FOLLOWING TABLE PRESENTS THE TOTAL BOOK VALUE OF ASSETS UNDER MANAGEMENT IN
THE TRUST AND INVESTMENT DEPARTMENT FOR THE YEARS ENDED DECEMBER 31:
(IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
TRUST ASSETS $651,469 $549,321 $453,671 $378,879 $251,254
- --------------------------------------------------------------------------------
22
<PAGE>
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.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY EARNINGS:
INTEREST INCOME $26,567 $24,802 $22,890 $20,955 $19,420
- -----------------------------------------------------------------------------------------------
INTEREST EXPENSE 8,190 8,438 7,698 7,889 7,231
- -----------------------------------------------------------------------------------------------
NET INTEREST INCOME 18,377 16,364 15,192 13,066 12,189
- -----------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 400 465 400 642 75
- -----------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 17,977 15,899 14,792 12,424 12,114
- -----------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUSIVE OF SECURITIES
GAINS 4,789 4,095 3,219 2,869 2,357
- -----------------------------------------------------------------------------------------------
OTHER EXPENSES 12,967 11,761 10,726 10,072 9,108
- -----------------------------------------------------------------------------------------------
SECURITIES GAINS 16 178 29 118 62
- -----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 9,815 8,411 7,314 5,339 5,425
- -----------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 3,194 3,092 2,822 1,760 1,518
- -----------------------------------------------------------------------------------------------
NET INCOME $ 6,621 $ 5,319 $ 4,492 $ 3,579 $ 3,907
===============================================================================================
PER SHARE DATA: (REFLECTS 5% STOCK DIVIDENDS PAID IN 1999 AND 1998; 2:1 STOCK
SPLIT IN DECEMBER, 1997; 5% STOCK DIVIDEND PAID IN 1996; AND 2:1 STOCK SPLIT IN
APRIL, 1995.)
<CAPTION>
<S> <C> <C> <C> <C> <C>
EARNINGS PER SHARE-BASIC $ 2.58 $ 2.08 $ 1.75 $ 1.39 $ 1.52
- -----------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 2.50 2.01 1.72 1.38 1.51
- -----------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED 0.50 0.46 0.41 0.40 0.37
- -----------------------------------------------------------------------------------------------
BOOK VALUE END-OF-PERIOD 15.87 14.83 13.12 11.76 11.02
- -----------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 2,563,110 2,562,926 2,566,324 2,571,714 2,574,600
- -----------------------------------------------------------------------------------------------
COMMON STOCK EQUIVALENTS 82,332 86,670 46,521 30,704 6,963
- -----------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (AT PERIOD END)
TOTAL ASSETS $423,021 $402,796 $363,665 $327,404 $300,076
- ------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES 46,222 43,581 53,978 55,198 45,540
- ------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 86,855 92,255 91,580 84,596 90,890
- ------------------------------------------------------------------------------------------------
LOANS 242,391 213,856 174,374 149,874 122,432
- ------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES 2,581 2,224 1,893 1,636 1,221
- ------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 380,163 362,833 328,473 295,190 269,504
- ------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 40,715 37,955 33,639 30,208 28,376
- ------------------------------------------------------------------------------------------------
TRUST ASSETS (BOOK VALUE) 651,469 549,321 453,671 378,879 251,254
- ------------------------------------------------------------------------------------------------
SELECTED PERFORMANCE RATIOS:
RETURN ON AVERAGE TOTAL ASSETS 1.62% 1.42% 1.30% 1.13% 1.37%
- ------------------------------------------------------------------------------------------------
RETURN ON AVERAGE TOTAL
STOCKHOLDERS' EQUITY 16.91 14.79 14.22 12.41 15.05
- ------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIO 19.51 20.62 21.77 25.45 21.06
- ------------------------------------------------------------------------------------------------
AVERAGE TOTAL STOCKHOLDERS' EQUITY
TO AVERAGE ASSETS 9.60 9.61 9.16 9.10 9.08
- ------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES TO AVERAGE ASSETS 3.18 3.14 3.11 3.18 3.19
- ------------------------------------------------------------------------------------------------
NON-INTEREST INCOME TO AVERAGE ASSETS 1.18 1.09 0.93 0.91 0.82
- ------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS: (AT PERIOD END)
NON-ACCRUAL LOANS TO TOTAL LOANS 0.11% 0.38% 0.43% 0.79% 0.44%
- ------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS TO TOTAL ASSETS 0.07 0.20 0.33 0.53 0.73
- ------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO
NON-PERFORMING LOANS 908.80 275.59 223.76 125.36 103.74
- ------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO TOTAL LOANS 1.06 1.04 1.09 1.09 1.00
- ------------------------------------------------------------------------------------------------
NET CHARGE-OFFS (RECOVERIES) TO AVERAGE
LOANS PLUS OTHER REAL ESTATE OWNED 0.02 0.07 0.09 0.17 0.29
- ------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RATIOS:
AVERAGE LOANS TO AVERAGE DEPOSITS 61.07% 57.96% 50.96% 47.23% 43.26%
- ------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY TO
TOTAL ASSETS 9.64 9.42 9.25 9.23 9.46
- ------------------------------------------------------------------------------------------------
TIER 1 CAPITAL TO RISK WEIGHTED ASSETS 21.66 20.25 20.25 24.06 23.63
- ------------------------------------------------------------------------------------------------
TOTAL CAPITAL TO RISK WEIGHTED ASSETS 23.08 21.50 21.43 25.37 24.68
- ------------------------------------------------------------------------------------------------
TIER 1 LEVERAGE RATIO 9.75 9.60 9.40 9.43 9.63
- ------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
THE FOLLOWING TABLE SETS FORTH CERTAIN UNAUDITED QUARTERLY FINANCIAL DATA FOR
THE PERIODS INDICATED:
<TABLE>
<CAPTION>
SELECTED 1999 QUARTERLY DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME $6,447 $6,525 $6,740 $6,855
- -------------------------------------------------------------------------------------------
INTEREST EXPENSE 2,051 2,001 2,037 2,101
- -------------------------------------------------------------------------------------------
NET INTEREST INCOME 4,396 4,524 4,703 4,754
- -------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 99 99 96 106
- -------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUDING
SECURITIES GAINS 1,258 1,113 1,134 1,284
- -------------------------------------------------------------------------------------------
SECURITIES GAINS -- -- 16 --
- -------------------------------------------------------------------------------------------
OTHER EXPENSE 2,948 3,101 3,396 3,522
- -------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 954 828 643 769
- -------------------------------------------------------------------------------------------
NET INCOME $1,653 $1,609 $1,718 $1,641
===========================================================================================
EARNINGS PER SHARE-BASIC $ 0.65 $ 0.63 $ 0.64 $ 0.66
- -------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED $ 0.63 $ 0.62 $ 0.62 $ 0.63
- -------------------------------------------------------------------------------------------
SELECTED 1998 QUARTERLY DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------
INTEREST INCOME $5,997 $6,080 $6,373 $6,352
- -------------------------------------------------------------------------------------------
INTEREST EXPENSE 1,998 2,044 2,195 2,201
- -------------------------------------------------------------------------------------------
NET INTEREST INCOME 3,999 4,036 4,178 4,151
- -------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 91 91 91 192
- -------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUDING
SECURITIES GAINS 1,279 928 934 954
- -------------------------------------------------------------------------------------------
SECURITIES GAINS 67 46 5 60
- -------------------------------------------------------------------------------------------
OTHER EXPENSE 2,861 2,926 2,912 3,062
- -------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 903 697 798 694
- -------------------------------------------------------------------------------------------
NET INCOME $1,490 $1,296 $1,316 $1,217
===========================================================================================
EARNINGS PER SHARE-BASIC $ 0.58 $ 0.50 $ 0.50 $ 0.50
- -------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED $ 0.56 $ 0.49 $ 0.49 $ 0.47
- -------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
INDEPENDENT AUTDITORS' 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, 1999
and 1998, 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, 1999. 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 onour audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1999
and 1998, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
KPMG LLP
Short Hills, New Jersey
February 4, 2000
26
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
(DOLLARS IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 15,386 $ 13,079
- ------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 15,247 29,600
- ------------------------------------------------------------------------------------------
INTEREST BEARING DEPOSITS 5,000 --
- ------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 35,633 42,679
- ------------------------------------------------------------------------------------------
INVESTMENT SECURITIES: (APPROXIMATE MARKET VALUE
$45,580 IN 1999 AND $44,327 IN 1998) 46,222 43,581
- ------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE (AMORTIZED COST
$89,583 IN 1999 AND $90,781 IN 1998) 86,855 92,255
- ------------------------------------------------------------------------------------------
LOANS: 242,391 213,856
- ------------------------------------------------------------------------------------------
LESS: ALLOWANCE FOR LOAN LOSSES 2,581 2,224
- ------------------------------------------------------------------------------------------
NET LOANS 239,810 211,632
- ------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 9,225 9,170
- ------------------------------------------------------------------------------------------
ACCRUED INTEREST RECEIVABLE 2,905 2,963
- ------------------------------------------------------------------------------------------
OTHER ASSETS 2,371 516
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $423,021 $402,796
- ------------------------------------------------------------------------------------------
LIABILITIES
DEPOSITS:
NONINTEREST-BEARING DEMAND DEPOSITS $ 77,841 $ 75,766
- ------------------------------------------------------------------------------------------
INTEREST-BEARING DEPOSITS:
CHECKING 91,304 89,893
- ------------------------------------------------------------------------------------------
SAVINGS 69,345 70,962
- ------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS 31,158 26,363
- ------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT OVER $100,000 30,368 27,608
- ------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT LESS THAN $100,000 80,147 72,241
- ------------------------------------------------------------------------------------------
TOTAL DEPOSITS 380,163 362,833
- ------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 2,143 2,008
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES 382,306 364,841
- ------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
COMMON STOCK (NO PAR VALUE; STATED VALUE $1-2/3
PER SHARE; AUTHORIZED 10,000,000 SHARES;
ISSUED 2,577,268 SHARES) 4,293 4,085
- ------------------------------------------------------------------------------------------
SURPLUS 18,305 12,483
- ------------------------------------------------------------------------------------------
TREASURY STOCK AT COST, 11,898 SHARES IN 1999
AND 14,240 SHARES IN 1998 (655) (791)
- ------------------------------------------------------------------------------------------
RETAINED EARNINGS 20,512 21,252
- ------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
(LOSS) INCOME, NET OF INCOME TAX (1,740) 926
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 40,715 37,955
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $423,021 $402,796
==========================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements
27
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS $17,159 $15,418 $13,025
- ----------------------------------------------------------------------------------------
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 1,843 2,540 2,800
- ----------------------------------------------------------------------------------------
TAX-EXEMPT 619 469 524
- ----------------------------------------------------------------------------------------
INTEREST AND DIVIDENDS ON SECURITIES AVAILABLE FOR SALE:
TAXABLE 5,721 5,478 5,697
- ----------------------------------------------------------------------------------------
TAX-EXEMPT -- 5 --
- ----------------------------------------------------------------------------------------
INTEREST ON FEDERAL FUNDS SOLD 1,225 892 844
- ----------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 26,567 24,802 22,890
- ----------------------------------------------------------------------------------------
INTEREST EXPENSE
INTEREST ON CHECKING ACCOUNT DEPOSITS 900 904 867
- ----------------------------------------------------------------------------------------
INTEREST ON SAVINGS ACCOUNT DEPOSITS 2,155 2,373 2,572
- ----------------------------------------------------------------------------------------
INTEREST ON CERTIFICATES OF DEPOSIT
OVER $100,000 1,695 1,411 965
- ----------------------------------------------------------------------------------------
INTEREST ON OTHER TIME DEPOSITS 3,440 3,750 3,294
- ----------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 8,190 8,438 7,698
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME 18,377 16,364 15,192
- ----------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 400 465 400
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 17,977 15,899 14,792
- ----------------------------------------------------------------------------------------
OTHER INCOME
SERVICE CHARGES AND FEES 1,658 1,750 1,651
- ----------------------------------------------------------------------------------------
TRUST FEES 3,002 2,241 1,474
- ----------------------------------------------------------------------------------------
SECURITIES GAINS 16 178 29
- ----------------------------------------------------------------------------------------
OTHER INCOME 129 104 94
- ----------------------------------------------------------------------------------------
TOTAL OTHER INCOME 4,805 4,273 3,248
- ----------------------------------------------------------------------------------------
OTHER EXPENSES
SALARIES AND EMPLOYEE BENEFITS 6,877 6,568 6,093
- ----------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 2,607 2,363 2,231
- ----------------------------------------------------------------------------------------
OTHER EXPENSES 3,483 2,830 2,402
- ----------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 12,967 11,761 10,726
- ----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 9,815 8,411 7,314
INCOME TAX EXPENSE 3,194 3,092 2,822
- ----------------------------------------------------------------------------------------
NET INCOME $ 6,621 $ 5,319 $ 4,492
========================================================================================
EARNINGS PER SHARE (REFLECTS 5% STOCK
DIVIDENDS IN 1999 AND 1998; AND A 2:1 STOCK
SPLIT IN DECEMBER, 1997)
BASIC $ 2.58 $ 2.08 $ 1.75
- ----------------------------------------------------------------------------------------
DILUTED $ 2.50 $ 2.01 $ 1.72
========================================================================================
</TABLE>
see accompanying notes to Consolidated Financial Statements
28
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
(DOLLARS IN THOUSANDS, EXCEPT COMMON TREASURY RETAINED COMPREHENSIVE
PER SHARE AMOUNTS) STOCK SURPLUS STOCK EARNINGS INCOME TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $3,892 $6,205 $(142) $19,924 $329 $30,208
COMPREHENSIVE INCOME:
NET INCOME 1997 4,492 4,492
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF TAX OF $103) 165
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $11) 18
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $92) 147 147
-----
TOTAL COMPREHENSIVE INCOME 4,639
DIVIDENDS DECLARED ($0.41 PER SHARE) (978) (978)
COMMON STOCK OPTIONS EXERCISED
AND RELATED TAX BENEFITS 13 56 (18) 51
PURCHASE OF TREASURY STOCK (281) (281)
- -----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $3,892 $ 6,218 $(367) $23,420 $476 $33,639
- -----------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 1998 5,319 5,319
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF TAX OF $327) 563
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $65) 113
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $262) 450 450
---
TOTAL COMPREHENSIVE INCOME 5,769
DIVIDENDS DECLARED ($0.46 PER SHARE) (1,097) (1,097)
COMMON STOCK OPTIONS EXERCISED
AND RELATED TAX BENEFITS 68 459 527
COMMON STOCK DIVIDEND
(FIVE PERCENT) 193 6,197 (6,390) --
PURCHASE OF TREASURY STOCK (883) (883)
- -----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $4,085 $12,483 $(791) $21,252 $926 $37,955
- -----------------------------------------------------------------------------------------------------
(continued on following page)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
(DOLLARS IN THOUSANDS, EXCEPT COMMON TREASURY RETAINED COMPREHENSIVE
PER SHARE AMOUNTS) STOCK SURPLUS STOCK EARNINGS INCOME TOTAL
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPREHENSIVE INCOME
NET INCOME 1999 6,621 6,621
UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF BENEFIT OF ($1,281)) (2,656)
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 BENEFIT OF ($1,287)) (2,666) (2,666)
------
TOTAL COMPREHENSIVE INCOME 3,955
DIVIDENDS DECLARED ($0.50 PER SHARE) (1,292) (1,292)
COMMON STOCK OPTIONS EXERCISED AND
RELATED TAX BENEFITS 6 55 (100) (39)
COMMON STOCK DIVIDEND
(FIVE PERCENT) 202 5,767 (5,969) --
TREASURY STOCK TRANSACTIONS 136 136
- ------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $4,293 $18,305 $(655) $20,512 $(1,740) $40,715
- ------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS DECLARED PER SHARE REFLECT 2:1 STOCK SPLIT IN DECEMBER, 1997.
See accompanying notes to Consolidated financial statements
30
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31,
1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 6,621 $ 5,319 $ 4,492
- ------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 890 817 694
- ------------------------------------------------------------------------------------------
AMORTIZATION OF PREMIUM AND ACCRETION
OF DISCOUNT ON SECURITIES, NET 237 117 43
- ------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 400 465 400
- ------------------------------------------------------------------------------------------
(BENEFIT) PROVISION FOR DEFERRED TAXES (144) (138) 399
- ------------------------------------------------------------------------------------------
GAIN ON SALE OF SECURITIES (16) (178) (29)
- ------------------------------------------------------------------------------------------
DECREASE (INCREASE) IN INTEREST RECEIVABLE 58 43 (91)
- ------------------------------------------------------------------------------------------
INCREASE IN OTHER ASSETS (1,711) (195) (270)
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN ACCRUED EXPENSES
AND OTHER LIABILITIES 1,673 455 (453)
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,008 6,705 5,185
- ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 15,375 8,280 14,671
- ------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 7,000 10,000 11,000
- ------------------------------------------------------------------------------------------
PROCEEDS FROM CALLS OF INVESTMENT SECURITIES 4,600 17,220 2,000
- ------------------------------------------------------------------------------------------
PROCEEDS FROM SALES AND CALLS OF SECURITIES
AVAILABLE FOR SALE 17,663 42,335 6,840
- ------------------------------------------------------------------------------------------
PURCHASE OF INVESTMENT SECURITIES (22,676) (15,132) (15,466)
- ------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (25,780) (52,192) (24,625)
- ------------------------------------------------------------------------------------------
NET DECREASE (INCREASE) IN SHORT-TERM INVESTMENTS 2,153 (16) 38
- ------------------------------------------------------------------------------------------
NET INCREASE IN LOANS (28,578) (39,616) (24,903)
- ------------------------------------------------------------------------------------------
NET DECREASE IN OTHER REAL ESTATE OWNED -- 340 352
- ------------------------------------------------------------------------------------------
PURCHASES OF PREMISES AND EQUIPMENT (945) (1,392) (689)
- ------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (31,188) (30,173) (30,782)
- ------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 17,330 34,360 33,283
- ------------------------------------------------------------------------------------------
DIVIDENDS PAID (1,292) (1,097) (978)
- ------------------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 110 9 51
- ------------------------------------------------------------------------------------------
PURCHASE OF TREASURY STOCK (14) (365) (281)
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,134 32,907 32,075
- ------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (7,046) 9,439 6,478
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 42,679 33,240 26,762
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $35,633 $42,679 $33,240
==========================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
CASH PAID DURING THE YEAR FOR:
INTEREST ON DEPOSITS $ 8,016 $ 8,288 $ 8,836
- ------------------------------------------------------------------------------------------
INCOME TAXES 3,470 3,146 2,487
- ------------------------------------------------------------------------------------------
NONCASH INVESTING ACTIVITIES:
TRANSFER OF LOANS TO OTHER REAL ESTATE -- -- 260
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements
31
<PAGE>
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 generally accepted accounting principles.
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, federal funds sold and
interest bearing deposits. Generally, federal funds are sold for one-day
periods.
INVESTMENT SECURITIES: Investment securities are composed 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.
32
<PAGE>
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 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 nonaccrual 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 potential 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.
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 expected to be
33
<PAGE>
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: Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding including common stock equivalents utilizing the treasury
stock method.
The Board of Directors approved a 2 for 1 stock split effective December
29, 1997. In addition, per share data reflects 5 percent stock dividends paid in
November 1999 and November 1998. As a result, the average number of shares
outstanding was 2,645,442, 2,649,596 and 2,612,845 for 1999, 1998 and 1997,
respectively, and included common stock equivalents of 82,332, 86,670 and 46,521
for 1999, 1998 and 1997, respectively.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and net
unrealized gains (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 1997 and 1998
financial statements in order to conform to the 1999 presentation.
34
<PAGE>
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, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999
- ------------------------------------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES $28,659 $ 3 $(700) $27,962
- -------------------------------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS 14,595 159 (104) 14,650
- -------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 2,968 -- -- 2,968
- -------------------------------------------------------------------------------------------
$46,222 $162 $(804) $45,580
===========================================================================================
1998
- -------------------------------------------------------------------------------------------
<CAPTION>
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES $30,598 $344 $(13) $30,929
- -------------------------------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS 12,472 417 (2) 12,887
- -------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 511 -- -- 511
- -------------------------------------------------------------------------------------------
$43,581 $761 $(15) $44,327
===========================================================================================
The amortized cost and approximate market value of investment securities as of
December 31, 1999, 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:
<CAPTION>
APPROXIMATE
(IN THOUSANDS) AMORTIZED COST MARKET VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ONE YEAR OR LESS $17,042 $16,775
- -------------------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 24,883 24,588
- -------------------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 4,297 4,217
- -------------------------------------------------------------------------------------------
$46,222 $45,580
===========================================================================================
</TABLE>
Securities having an approximate carrying value of $8,034,000 and
$5,169,000 as of December 31, 1999 and 1998, respectively, were pledged to
secure public funds and for other purposes required or permitted by law. Gross
gains of $8,000 and $5,000 were realized in 1998 and 1997, respectively. There
were no gains in 1999. There were no gross realized losses in 1999, 1998 and
1997. There were no sales of investment securities in 1999, 1998 or 1997 except
for securities called by issuers.
35
<PAGE>
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, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999
- ------------------------------------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES $82,318 $ 56 $(2,460) $79,914
- ------------------------------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS 240 -- (15) 225
- ------------------------------------------------------------------------------------------
OTHER SECURITIES 7,025 25 (334) 6,716
- ------------------------------------------------------------------------------------------
$89,583 $ 81 $(2,809) $86,855
===========================================================================================
<CAPTION>
1998
- ------------------------------------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES $85,232 $1,567 $ (130) $86,669
- ------------------------------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS 240 14 -- 254
- ------------------------------------------------------------------------------------------
OTHER SECURITIES 5,309 23 -- 5,332
- ------------------------------------------------------------------------------------------
$90,781 $1,604 $ (130) $92,255
===========================================================================================
</TABLE>
The amortized cost and approximate market value of debt securities
available for sale as of December 31, 1999, 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 $34,381 $ 33,457
- -----------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 54,962 53,173
- -----------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 240 225
=============================================================================
$89,583 $ 86,855
- -----------------------------------------------------------------------------
Gross gains of $16,000, $170,000 and $24,000 were realized in 1999, 1998
and 1997, respectively. There were no gross realized losses in 1999, 1998 and
1997.
4. LOANS
Loans outstanding as of December 31, 1999 and 1998 consisted of the
following:
(IN THOUSANDS) 1999 1998
- ---------------------------------------------------------------------------
LOANS SECURED BY 1-4 FAMILY $173,264 $155,684
- ---------------------------------------------------------------------------
COMMERCIAL REAL ESTATE 42,303 32,900
- ---------------------------------------------------------------------------
CONSTRUCTION LOANS 1,153 1,946
- ---------------------------------------------------------------------------
COMMERCIAL LOANS 12,226 9,833
- ---------------------------------------------------------------------------
CONSUMER LOANS 12,096 12,830
- ---------------------------------------------------------------------------
OTHER LOANS 1,349 663
- ---------------------------------------------------------------------------
TOTAL LOANS $242,391 $213,856
===========================================================================
36
<PAGE>
Nonaccrual loans totaled $262,000 and $806,000 at December 31, 1999 and
1998, respectively. Loans past due 90 days or more and still accruing interest
totaled $22,000 and $1,000 at December 31, 1999 and 1998, respectively. There
are no commitments to lend additional amounts on non-accrual loans. The amount
of interest income recognized on year-end nonaccrual loans totaled $3,000,
$17,000 and $25,000 in 1999, 1998 and 1997, respectively. Interest income of
$39,000, $68,000 and $47,000 would have been recognized during 1999, 1998 and
1997, respectively, under contractual terms for such nonaccrual loans.
Loans that met the criteria of troubled debt restructuring totaled $255,000
and $457,000 at December 31, 1999 and 1998, respectively. The amount of interest
income recognized on troubled debt restructurings in 1999, 1998 and 1997 totaled
$32,000, $23,000 and $18,000, respectively. Interest income of approximately
$40,000, $43,000 and $26,000 would have been recognized during 1999, 1998 and
1997, 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 nonaccrual status with a principal outstanding balance in excess of $100,000.
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 December 31, 1999 and 1998 and no investments in impaired
loans during 1999 and 1998.
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) 1999 1998 1997
- --------------------------------------------------------------------------------
BALANCE, BEGINNING OF YEAR $2,224 $1,893 $1,636
- --------------------------------------------------------------------------------
PROVISION CHARGED TO EXPENSE 400 465 400
- --------------------------------------------------------------------------------
LOANS CHARGED-OFF (122) (187) (282
- --------------------------------------------------------------------------------
RECOVERIES 79 53 139
- --------------------------------------------------------------------------------
BALANCE, END OF YEAR $2,581 $2,224 $1,893
================================================================================
6. PREMISES AND EQUIPMENT
Premises and equipment for the years indicated follows:
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------
LAND $ 2,440 $ 2,440
- -------------------------------------------------------------------------
BUILDINGS 4,760 4,714
- -------------------------------------------------------------------------
FURNITURE AND EQUIPMENT 5,348 4,938
- -------------------------------------------------------------------------
LEASEHOLD IMPROVEMENTS 2,599 2,574
- -------------------------------------------------------------------------
PROJECTS IN PROGRESS 535 83
- -------------------------------------------------------------------------
15,682 14,749
- -------------------------------------------------------------------------
LESS: ACCUMULATED DEPRECIATION 6,457 5,579
- -------------------------------------------------------------------------
TOTAL $ 9,225 $ 9,170
=========================================================================
Depreciation expense amounted to $890,000, $817,000 and $694,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
37
<PAGE>
7. 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.
The following table summarizes carrying amounts and fair values for
financial instruments at December 31, 1999 and 1998:
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------
FINANCIAL ASSETS:
CASH AND CASH EQUIVALENTS $ 35,633 $ 35,633 $ 42,679 $ 42,679
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES 46,222 45,580 43,581 44,327
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 86,855 86,855 92,255 92,255
- --------------------------------------------------------------------------------
LOANS, NET OF ALLOWANCE
FOR LOAN LOSSES 239,810 232,163 211,632 215,804
- --------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
DEPOSITS 380,163 379,737 362,833 362,833
- --------------------------------------------------------------------------------
38
<PAGE>
8. INCOME TAXES
The income tax expense included in the consolidated financial statements
for the years ended December 31, 1999, 1998 and 1997, is allocated as follows:
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------
INCOME TAX EXPENSE FROM OPERATIONS:
FEDERAL:
CURRENT EXPENSE $ 3,180 $2,850 $2,178
- --------------------------------------------------------------------------------
DEFERRED (BENEFIT) EXPENSE (123) (107) 309
- --------------------------------------------------------------------------------
STATE:
CURRENT EXPENSE 158 380 245
- --------------------------------------------------------------------------------
DEFERRED (BENEFIT) EXPENSE (21) (31) 90
- --------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE
FROM OPERATIONS $ 3,194 $3,092 $2,822
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
DEFERRED EXPENSE:
UNREALIZED (LOSSES) GAINs ON SECURITIES
Available for Sale $(1,536) $ 261 $ 153
================================================================================
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% in 1999, 1998 and 1997 to income before
taxes as a result of the following:
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------
COMPUTED "EXPECTED" TAX EXPENSE $3,337 $2,860 $2,487
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN TAXES
RESULTING FROM:
TAX-EXEMPT INCOME (210) (170) (161)
- --------------------------------------------------------------------------------
STATE INCOME TAXES 90 230 221
- --------------------------------------------------------------------------------
DEFERRED TAX ADJUSTMENT-TAX BAD DEBT -- -- 210
- --------------------------------------------------------------------------------
OTHER (23) 172 65
- --------------------------------------------------------------------------------
$3,194 $3,092 $2,822
================================================================================
39
<PAGE>
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, 1999 and 1998 are as follows:
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
LOANS, PRINCIPALLY DUE TO ALLOWANCE FOR
LOAN LOSSES AND DEFERRED FEE INCOME $ 832 $ 674
- --------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED, PRINCIPALLY DUE TO
RESERVES FOR WRITEDOWNS -- 5
- --------------------------------------------------------------------------------
POST RETIREMENT BENEFITS OTHER THAN PENSIONS 50 46
- --------------------------------------------------------------------------------
START-UP & ORGANIZATION COSTS 82 --
- --------------------------------------------------------------------------------
UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE 988 --
- --------------------------------------------------------------------------------
TOTAL GROSS DEFERRED ASSETS $1,952 $ 725
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE $ -- $ 548
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES, PRINCIPALLY DUE TO
THE ACCRETION OF BOND DISCOUNT 33 37
- --------------------------------------------------------------------------------
DEFERRED LOAN ORIGINATION COSTS AND FEES 105 --
PREMISES AND EQUIPMENT
PRINCIPALLY DUE TO DIFFERENCES IN DEPRECIATION 388 396
- --------------------------------------------------------------------------------
TOTAL GROSS DEFERRED LIABILITIES $ 526 981
- --------------------------------------------------------------------------------
NET DEFERRED TAX (LIABILITY) ASSET $1,426 $ (256)
================================================================================
40
<PAGE>
9. 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) 1999 1998
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
BENEFIT OBLIGATION AT BEGINNING OF YEAR $3,714 $3,178
SERVICE COST 559 484
INTEREST COST 225 189
ACTUARIAL LOSS 65 7
BENEFITS PAID (250) (144)
------ ------
BENEFIT OBLIGATION AT END OF YEAR $4,313 $3,714
====== ======
CHANGE IN PLAN ASSETS:
FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR $4,554 $3,635
ACTUAL RETURN ON PLAN ASSETS 518 718
EMPLOYER CONTRIBUTION 52 345
BENEFITS PAID (250) (144)
------ ------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $4,874 $4,554
====== ======
FUNDED STATUS $ 562 $ 840
UNRECOGNIZED TRANSITION ASSET (65) (71)
UNRECOGNIZED PRIOR SERVICE COST (4) (4)
UNRECOGNIZED NET ACTUARIAL GAIN (812) (713)
------ ------
(ACCRUED) PREPAID BENEFIT COST $ (319) $ 52
====== ======
Net periodic expense for the years ended December 31 included the following
components:
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------
SERVICE COST $559 $484 $430
- --------------------------------------------------------------------------------
INTEREST COST 225 189 157
- --------------------------------------------------------------------------------
EXPECTED RETURN ON PLAN ASSETS (518) (718) (545)
- --------------------------------------------------------------------------------
AMORTIZATION OF:
NET GAIN 174 424 313
UNRECOGNIZED PRIOR SERVICE COST 1 1 1
UNRECOGNIZED REMAINING NET ASSETS (18) (8) (8)
- --------------------------------------------------------------------------------
NET PERIODIC PENSION COST $423 $372 $348
================================================================================
For December 31, 1999, 1998 and 1997 the weighted average discount rate and
rate of increase in future compensation used in determining the actuarial
present value of the projected benefit obligation were 6.0 percent and 3.0
percent, respectively. The related expected long-term rate of return on plan
assets was 7.5 percent for the same three year period.
41
<PAGE>
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 service. Under the savings portion of the plan, employee
contributions are partially matched by the Corporation. Expense for the savings
plan was approximately $25,000, $24,000 and $23,000 in 1999, 1998 and 1997,
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 $250,000 in
1999, $200,000 in 1998 and $175,000 in 1997.
10. STOCK OPTION PLANS
The Corporation's incentive stock option plans allows the granting of up to
199,002 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, 1996 69,606 $15.54-$21.60
- --------------------------------------------------------------------------------
GRANTED DURING 1997 47,628 26.08-35.93
- --------------------------------------------------------------------------------
EXERCISED DURING 1997 2,381 15.54
- --------------------------------------------------------------------------------
FORFEITED DURING 1997 441 15.54
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 114,412 15.54-35.93
- --------------------------------------------------------------------------------
GRANTED DURING 1998 1,817 48.98-53.57
- --------------------------------------------------------------------------------
EXERCISED DURING 1998 3,984 33.10
- --------------------------------------------------------------------------------
FORFEITED DURING 1998 1,349 15.54-33.10
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 110,896 15.54-53.57
- --------------------------------------------------------------------------------
GRANTED DURING 1999 26,976 48.57-57.35
- --------------------------------------------------------------------------------
EXERCISED DURING 1999 5,549 15.54-33.10
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 1999 132,323 $15.54-$57.35
================================================================================
At December 31, 1999, the number of options exercisable was 63,255 and the
weighted-average price of those options was $20.99 per share. At December 31,
1998, the number of options exercisable was 43,998 and the weighted-average
price of those options was $19.54 per share.
42
<PAGE>
The Corporation has non-qualified stock option plans for non-employee
directors. The plan allows the granting of up to 108,046 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, 1996 55,571 $15.54-$18.90
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 55,571 15.54-18.90
- --------------------------------------------------------------------------------
GRANTED DURING 1998 27,563 48.98
- --------------------------------------------------------------------------------
EXERCISED DURING 1998 1,103 48.98
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 82,031 15.54-48.98
- --------------------------------------------------------------------------------
EXERCISED DURING 1999 2,310 15.54
- --------------------------------------------------------------------------------
FORFEITED DURING 1999 3,914 15.54-48.98
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 75,807 $15.54-$48.98
================================================================================
At December 31, 1999, the number of options exercisable was 45,771 and the
weighted-average price of those options was $19.43. At December 31, 1998, the
number of options exercisable was 31,768 and the weighted-average price of those
options was $15.84.
At December 31, 1999, there were 64,476 additional shares available for
grant under the Plans. The per share weighted-average fair value of stock
options granted during 1999 and 1998 was $11.86 and $10.98 on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 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;
1998--expected dividend yield of 0.82%, expected volatility of 9%, risk-free
interest rate of 5.65%, and an expected life of 5 years; 1997--expected dividend
yield of 0.88%, expected volatility of 11%, risk-free interest rate of 6.13%,
and an expected life of 5 years.
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) 1999 1998 1997
- --------------------------------------------------------------------------------
NET INCOME:
AS REPORTED $6,621 $5,319 $4,492
- --------------------------------------------------------------------------------
PRO FORMA $6,423 $5,174 $4,389
- --------------------------------------------------------------------------------
EARNINGS PER SHARE:
AS REPORTED
BASIC $2.58 $2.08 $1.75
- --------------------------------------------------------------------------------
DILUTED $2.50 $2.01 $1.72
- --------------------------------------------------------------------------------
PRO FORMA
BASIC $2.51 $2.02 $1.71
- --------------------------------------------------------------------------------
DILUTED $2.43 $1.95 $1.68
- --------------------------------------------------------------------------------
43
<PAGE>
11. 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
$42,961,000 and $37,131,000 and letters of credit of $1,605,000 and $1,232,000
at December 31, 1999 and 1998, 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, 1999, the Corporation was obligated under non-cancelable
operating leases for certain premises. Rental expense aggregated $805,000,
$478,000 and $579,000 for the years ended December 31, 1999, 1998 and 1997,
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, 1999, were as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
2000 $ 609
- --------------------------------------------------------------------------------
2001 701
- --------------------------------------------------------------------------------
2002 698
- --------------------------------------------------------------------------------
2003 699
- --------------------------------------------------------------------------------
2004 502
- --------------------------------------------------------------------------------
THEREAFTER 2,948
- --------------------------------------------------------------------------------
TOTAL $6,157
================================================================================
12. REGULATORY CAPITAL
The Bank is 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
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital
44
<PAGE>
(as defined) to average assets (as defined). Management believes, as of December
31, 1999, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, 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 Bank's
category.
The Bank's actual capital amounts and ratios are also 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, 1999:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $42,126 23.1% $18,253 10.0% $14,603 8.0%
- --------------------------------------------------------------------------------
TIER I CAPITAL
(TO RISK-WEIGHTED ASSETS) 39,545 21.7% 10,952 6.0% 7,301 4.0%
- --------------------------------------------------------------------------------
TIER I CAPITAL
(TO AVERAGE ASSETS) 39,545 9.8% 20,281 5.0% 12,169 3.0%
- --------------------------------------------------------------------------------
AS OF DECEMBER 31, 1998:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $38,070 21.5% $17,705 10.0% $14,164 8.0%
- --------------------------------------------------------------------------------
TIER I CAPITAL
(TO RISK-WEIGHTED ASSETS) 35,846 20.3% 10,623 6.0% 7,082 4.0%
- --------------------------------------------------------------------------------
TIER I CAPITAL
(TO AVERAGE ASSETS) 35,846 9.6% 18,670 5.0% 11,202 3.0%
- --------------------------------------------------------------------------------
45
<PAGE>
13. CONDENSED FINANCIAL STATEMENTS OF PEAPACK-GLADSTONE FINANCIAL CORPORATION
(PARENT COMPANY ONLY):
The following information of the parent company only financial statements
as of December 31, 1999 and 1998 should be read in conjunction with the notes to
the consolidated financial statements.
STATEMENTS OF CONDITION
DECEMBER 31,
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------
ASSETS
CASH $ 466 $ 429
- -------------------------------------------------------------------------------
INVESTMENT SECURITIES 498 --
- -------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 1,953 1,014
- -------------------------------------------------------------------------------
INVESTMENT IN SUBSIDIARY 37,881 36,757
- -------------------------------------------------------------------------------
OTHER ASSETS 368 116
- -------------------------------------------------------------------------------
TOTAL ASSETS $41,166 $38,316
===============================================================================
LIABILITIES
OTHER LIABILITIES $ 451 $ 361
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 451 361
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
COMMON STOCK 4,293 4,085
- -------------------------------------------------------------------------------
SURPLUS 18,305 12,483
- -------------------------------------------------------------------------------
TREASURY STOCK (655) (791)
- -------------------------------------------------------------------------------
RETAINED EARNINGS 20,512 21,252
- -------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (NET OF
INCOME TAX) (1,740) 926
- -------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 40,715 37,955
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $41,166 $38,316
===============================================================================
STATEMENTS OF INCOME
YEAR ENDED
DECEMBER 31,
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
INCOME
DIVIDEND FROM BANK $ 3,000 $ 2,000
- --------------------------------------------------------------------------------
OTHER INCOME 99 24
- --------------------------------------------------------------------------------
TOTAL INCOME 3,099 2,024
- --------------------------------------------------------------------------------
EXPENSES
OTHER EXPENSES 216 184
- --------------------------------------------------------------------------------
TOTAL EXPENSES 216 184
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX BENEFIT AND
EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 2,883 1,840
- --------------------------------------------------------------------------------
INCOME TAX BENEFIT 39 (54)
- --------------------------------------------------------------------------------
NET INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF BANK 2,922 1,894
- --------------------------------------------------------------------------------
EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 3,699 3,425
- --------------------------------------------------------------------------------
NET INCOME $ 6,621 $ 5,319
- --------------------------------------------------------------------------------
47
<PAGE>
STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 6,621 $ 5,319
- --------------------------------------------------------------------------------
LESS EQUITY IN UNDISTRIBUTED EARNINGS (3,699) (3,425)
- --------------------------------------------------------------------------------
AMORTIZATION AND ACCRETION ON SECURITIES (4) --
- --------------------------------------------------------------------------------
INCREASE IN OTHER ASSETS (252) (74)
- --------------------------------------------------------------------------------
INCREASE IN OTHER LIABILITIES 150 104
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,816 1,924
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------------
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE -- 201
- --------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (1,583) (1,190)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES (1,583) (989)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
DIVIDENDS PAID (1,292) (1,097)
- --------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 110 9
- --------------------------------------------------------------------------------
TREASURY STOCK TRANSACTIONS (14) (365)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,196) (1,453)
- --------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 37 (518)
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 429 947
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 466 $ 429
================================================================================
48
<PAGE>
14. ACQUISITIONS
On August 26, 1999, Peapack-Gladstone Financial Corporation ("Peapack")
signed a definitive merger agreement with Chatham Savings, FSB and subsidiaries
("Chatham"), a two branch bank headquartered in Chatham, New Jersey. At December
31, 1999 Chatham had total assets of $79,589,000 and deposits of $63,926,000.
The transaction closed January 7, 2000 and will be accounted for using the
pooling of interest methods of accounting and, accordingly, Peapack's historical
consolidated financial statements presented in future reports will be restated
to include the accounts and results of Chatham. There were 140,000 shares of
Chatham common stock outstanding at December 31, 1999. The merger agreement
provides for each share of common stock of Chatham to be exchanged for 2.18379
shares of Peapack common stock, and as a result 305,730 shares of Corporation
common stock were exchanged.
The following pro forma data summarizes the combined financial data of
Peapack and Chatham as if the combination had been consummated on December 31,
1999:
DECEMBER 31,
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
Total Assets $497,610 $480,954
- --------------------------------------------------------------------------------
Total Loans 287,805 246,737
- --------------------------------------------------------------------------------
Total Investments 162,557 169,103
- --------------------------------------------------------------------------------
Total Deposits 444,089 431,345
================================================================================
YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest Income $31,687 $29,949 $27,707
- --------------------------------------------------------------------------------
Interest Expense 10,340 10,844 10,193
- --------------------------------------------------------------------------------
Net Interest Income 21,347 19,105 17,514
- --------------------------------------------------------------------------------
Net Income $ 7,189 $ 6,038 $ 4,899
================================================================================
Earnings Per Share-Basic $ 2.51 $ 2.10 $ 1.71
- --------------------------------------------------------------------------------
Earnings Per Share-Diluted 2.44 2.04 1.68
================================================================================
As of December 31, 1999, Peapack incurred $244,591 of merger-related
charges which have been capitalized and will be expensed in the first quarter of
the year 2000.
48
<PAGE>
STOCK PRICES:
The following table shows the 1999 and 1998 range of prices paid on known
trades of Corporation stock.
DIVIDEND
1999 HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1ST QUARTER $55.75 $53.88 $0.12
- --------------------------------------------------------------------------------
2ND QUARTER 53.88 52.50 0.12
- --------------------------------------------------------------------------------
3RD QUARTER 52.50 50.50 0.13
- --------------------------------------------------------------------------------
4TH QUARTER 50.00 45.00 0.13
- --------------------------------------------------------------------------------
DIVIDEND
1998 HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1ST QUARTER $54.00 $46.25 $0.11
- --------------------------------------------------------------------------------
2ND QUARTER 60.00 54.00 0.11
- --------------------------------------------------------------------------------
3RD QUARTER 65.00 58.00 0.12
- --------------------------------------------------------------------------------
4TH QUARTER 56.75 54.75 0.12
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
STOCK LISTING
Peapack-Gladstone Financial Corporation's common stock is listed on the
NASDAQ (Bulletin Board) under the symbol PGFC.
PRINCIPAL MARKET MAKERS
Ryan, Beck & Co.
220 South Orange Avenue
Livingston, NJ 07039
1 (800) 325-7926
Sandler O'Neill & Partners, L.P.
Two World Trade Center
104th Floor
New York, NY 10048
1 (800) 635-6860
McConnell, Budd & Downes, Inc.
365 South Street
Morristown, NJ 07960
1 (800) 538-6957
TRANSFER AGENT
First City Transfer Company
PO Box 170
Iselin, NJ 08830
SHAREHOLDER INQUIRIES
Arthur F. Birmingham
Senior Vice President and Treasurer
(908) 719-4308
[email protected]
49
<PAGE>
OFFICERS
- --------------------------------------------------------------------------------
GLADSTONE T. LEONARD HILL Chairman of the Board *
LOAN AND FRANK A. KISSEL President & CEO *
ADMINISTRATION --------------------------------------------------------------
BUILDING ROBERT M. ROGERS Senior Vice President & COO *
--------------------------------------------------------------
PAUL W. BELL Senior Vice President
--------------------------------------------------------------
ARTHUR F. BIRMINGHAM Senior Vice President &
Comptroller *
--------------------------------------------------------------
GARRETT P. BROMLEY Senior Vice President &
Chief Credit Officer
--------------------------------------------------------------
BARBARA A. GRECO Senior Vice President
--------------------------------------------------------------
ELIZABETH B. BOOCOCK Vice President
--------------------------------------------------------------
TODD T. BRUNGARD Vice President
--------------------------------------------------------------
KAREN M. CHIARELLO Vice President & Auditor
--------------------------------------------------------------
RICHARD CIMO Vice President
--------------------------------------------------------------
THOMAS COUGHLIN Vice President
--------------------------------------------------------------
V. SHERRI LICATA Vice President
--------------------------------------------------------------
PATRICIA MORSCH Vice President
--------------------------------------------------------------
TERESA A. PETERS Vice President
--------------------------------------------------------------
JOHN SCERBO Vice President
--------------------------------------------------------------
PAUL A. SMITH Vice President
--------------------------------------------------------------
JAMES STADTMUELLER Vice President
--------------------------------------------------------------
FLOYD S. WEINER Vice President
--------------------------------------------------------------
MARIA FORNARO Assistant Vice President
--------------------------------------------------------------
JOHN G. HARITON Assistant Vice President
--------------------------------------------------------------
VALERIE L. KODAN Assistant Vice President
--------------------------------------------------------------
KATHRYN M. NEIGH Assistant Vice President
--------------------------------------------------------------
PAULA A. PHILHOWER Assistant Vice President
--------------------------------------------------------------
CHRISTOPHER POCQUAT Assistant Vice President
--------------------------------------------------------------
MARY M. RUSSELL Assistant Vice President
--------------------------------------------------------------
PATRICIA A. STUMP Assistant Vice President
--------------------------------------------------------------
EDWARD J. SWEENEY Assistant Vice President
--------------------------------------------------------------
FRANK C. WALDRON Assistant Vice President
--------------------------------------------------------------
SANDRA BORNGESSER Assistant Cashier
--------------------------------------------------------------
MARJORIE DZWONCZYK Assistant Cashier
--------------------------------------------------------------
DONNA HAMEL Assistant Cashier
--------------------------------------------------------------
DAVID PETRY Assistant Cashier
--------------------------------------------------------------
DIANE M. RIDOLFI Assistant Cashier
--------------------------------------------------------------
SHAY SCHOENBAUM Assistant Cashier
- --------------------------------------------------------------------------------
* Denotes a Holding Company Officer
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C> <C>
TRUST DEPARTMENT CRAIG C. SPENGEMAN Senior Vice President &
GLADSTONE Senior Trust Officer *
---------------------------------------------------------------------
BRYANT K. ALFORD Vice President & Trust Officer
---------------------------------------------------------------------
JOHN M. BONK Vice President & Trust Officer
---------------------------------------------------------------------
GRETA N. DAWSON Vice President & Trust Officer
---------------------------------------------------------------------
RICHARD K. DONNELLY Vice President & Trust Officer
---------------------------------------------------------------------
JOHN C. KAUTZ Vice President & Trust Officer
---------------------------------------------------------------------
JENNIFER DAVIS Assistant Vice President & Trust Officer
---------------------------------------------------------------------
ANNE M. SMITH Assistant Vice President & Trust Officer
---------------------------------------------------------------------
KURT G. TALKE Assistant Vice President & Trust Officer
---------------------------------------------------------------------
CATHERINE A. McCATHARN
Assistant Trust Officer& Secretary *
---------------------------------------------------------------------
EDWARD NICOLICCHIA Assistant Trust Officer
- ------------------------------------------------------------------------------------------
BERNARDSVILLE CHARLES STUDDIFORD, III Vice President
- ------------------------------------------------------------------------------------------
CALIFON LAURINE HAMILTON Assistant Vice President
- ------------------------------------------------------------------------------------------
CHESTER DONNA M. WHRITENOUR Assistant Vice President
- ------------------------------------------------------------------------------------------
GLADSTONE THOMAS N. KASPER Vice President
---------------------------------------------------------------------
JAMES CICCONE Assistant Cashier
- ------------------------------------------------------------------------------------------
FAR HILLS CAROL L. BEHLER Assistant Cashier
- ------------------------------------------------------------------------------------------
LONG VALLEY KATHERINE M. KREMINS Assistant Vice President
---------------------------------------------------------------------
SHERRI HALLETT Assistant Cashier
- ------------------------------------------------------------------------------------------
MENDHAM ELIZABETH RAHN Vice President
---------------------------------------------------------------------
LINDA ZIROPOLOUS Assistant Cashier
- ------------------------------------------------------------------------------------------
FELLOWSHIP JANET E. BATTAGLIA Assistant Cashier
- ------------------------------------------------------------------------------------------
PLUCKEMIN PAMELA W. STONE Vice President
---------------------------------------------------------------------
MARILYN M. MORROW Assistant Cashier
- ------------------------------------------------------------------------------------------
POTTERSVILLE PHYLLIS HERZOG Assistant Cashier
- ------------------------------------------------------------------------------------------
NEW VERNON DONNA GISONE Vice President
- ------------------------------------------------------------------------------------------
CHATHAM MAIN STREET VALERIE OLPP Assistant Vice President
- ------------------------------------------------------------------------------------------
CHATHAM SHUNPIKE MARY FOLEY Assistant Cashier
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
DIRECTORS OFFICES
- --------------------------- -------------------------------------------------------
<S> <C> <C>
ANTHONY J. CONSI, II LOAN & ADMINISTRATION TRUST & INVESTMENT
Senior Vice President BUILDING DEPARTMENT
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 (Main Office) BERNARDSVILLE
Gladstone, NJ 190 Main Street 36 Morristown Road
Gladstone, NJ 07934 Bernardsville, NJ 07924
T. LEONARD HILL (908) 719-4360 (908) 766-1711
Chairman of the Board
Gladstone, NJ CALIFON CHESTER
438 Route 513 350 Main Street
FRANK A. KISSEL Califon, NJ 07830 Chester, NJ 07930
President & CEO (908) 832-5131 (908) 879-8115
JOHN D. KISSEL FAR HILLS FELLOWSHIP VILLAGE
Turpin Realty, Inc. 26 Dumont Road 8000 Fellowship Road
Far Hills, NJ Far Hills, NJ 07931 Basking Ridge, NJ 07920
(908) 781-1018 (908) 719-4332
JAMES R. LAMB, ESQ.
James R. Lamb, P.C. LONG VALLEY MENDHAM
Morristown, NJ 59 East Mill Road (Route 24) 17 East Main Street
Long Valley, NJ 07853 Mendham, NJ 07945
GEORGE R. LAYTON (908) 876-3300 (973) 543-6499
Director
Layton Funeral Home PLUCKEMIN POTTERSVILLE
Bedminster, NJ 468 Route 206 North 11 Pottersville Rd.
Bedminster, NJ 07921 Pottersville, NJ 07979
EDWARD A. MERTON (908) 658-4500 (908) 439-2265
President
Merton Excavating & Paving Co. NEW VERNON CHATHAM MAIN STREET
Chester, NJ Village Road 311 Main Street
New Vernon, NJ 07976 Chatham, NJ 07928
F. DUFFIELD MEYERCORD (973) 540-0444 (973) 635-8500
Managing Director
Meyercord Advisors, Inc. CHATHAM SHUNPIKE
Bedminster, NJ 650 Shunpike Road
Chatham Township, NJ 07928
JOHN R. MULCAHY (973) 377-0081
Far Hills, NJ
PHILIP W. SMITH III
President
Phillary Management, Inc.
Far Hills, NJ
JACK D. STINE
Trustee
Proprietary House Association
Perth Amboy, NJ
WILLIAM TURNBULL
Gladstone, NJ
Director Emeritus
</TABLE>
(a) Subsidiaries of the Corporation:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
JURISDICTION SECURITIES OWNED BY THE
NAME OF INCORPORATION PARENT
<S> <C> <C>
Peapack-Gladstone Bank New Jersey 100%
</TABLE>
(b) Subsidiaries of the Bank:
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
JURISDICTION SECURITIES OWNED BY THE
NAME OF INCORPORATION PARENT
<S> <C> <C>
Peapack-Gladstone Investment
Company, Inc. New Jersey 100%
Peapack-Gladstone Financial
Services, Inc. (Inactive) New Jersey 100%
Peapack-Gladstone Mortgage Group,
Inc. New Jersey 100%
</TABLE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Peapack-Gladstone Financial Corporation:
We consent to incorporation by reference in the Registration Statement on Form
S-8 of Peapack-Gladstone Financial Corporation of our report dated February 4,
2000, relating to the consolidated statements of condition of Peapack-Gladstone
Financial Corporation and subsidiary as of December 31, 1999 and 1998, 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,
1999, which report is incorporated by reference in the December 31, 1999 Annual
Report on Form 10-K of Peapack-Gladstone Financial Corporation.
KPMG LLP
Short Hills, New Jersey
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 35,633 42,679
<SECURITIES> 133,077 135,836
<RECEIVABLES> 245,296 216,819
<ALLOWANCES> 2,581 2,224
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,371 516
<PP&E> 9,225 9,170
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 423,021 402,796
<CURRENT-LIABILITIES> 382,306 364,841
<BONDS> 0 0
0 0
0 0
<COMMON> 4,293 4,085
<OTHER-SE> 36,422 33,870
<TOTAL-LIABILITY-AND-EQUITY> 423,021 402,796
<SALES> 0 0
<TOTAL-REVENUES> 31,372 29,075
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 12,967 11,761
<LOSS-PROVISION> 400 465
<INTEREST-EXPENSE> 8,190 8,438
<INCOME-PRETAX> 9,815 8,411
<INCOME-TAX> 3,194 3,092
<INCOME-CONTINUING> 6,621 5,319
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,621 5,319
<EPS-BASIC> 2.58 2.08
<EPS-DILUTED> 2.50 2.01
</TABLE>
