================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 001-16197 PEAPACK-GLADSTONE FINANCIAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEW JERSEY 22-3537895 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 158 ROUTE 206 NORTH, GLADSTONE, NEW JERSEY 07934 ------------------------------------------------------------ (Address of principal executive offices, including zip code) (908) 234-0700 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of Common stock outstanding as of November 9, 2001: -------------------------------------------------------------------- 3,327,130 ================================================================================ 1
PEAPACK-GLADSTONE FINANCIAL CORPORATION PART 1 -- FINANCIAL INFORMATION Item 1--Financial Statements: Consolidated Statements of Condition September 30, 2001 and December 31, 2000 .......................................... Page 3 Consolidated Statements of Income for the three and nine months ended September 30, 2001 and 2000 ................... Page 4 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2001 and 2000 ...... Page 5 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 .......................... Page 6 Notes to the Consolidated Financial Statements ............... Page 7 Item 2--Management Discussion and Analysis of Financial Condition and Results of Operations ........................................ Page 8 Item 3--Quantitative and Qualitative Disclosures about Market Risk ... Page 11 PART 2 -- OTHER INFORMATION Item 6--Exhibits and Reports on Form 8-K ............................. Page 11 2
PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION (Dollars in thousands) (Unaudited) September 30, December 31, 2001 2000 ------------- ------------ ASSETS Cash and due from banks ............................ $ 14,802 $ 17,881 Federal funds sold ................................. 4,503 36,376 -------- --------- Total cash and cash equivalents .................. 19,305 54,257 Interest-earning deposits .......................... 15,493 -- Investment Securities:(approximate market value $58,332 in 2001 and $70,230 in 2000) ............ 56,140 69,575 Securities Available for Sale:(amortized cost $135,105 in 2001 and $86,069 in 2000) ........... 137,550 85,331 Loans: Loans secured by real estate ....................... 378,358 315,655 Other loans ........................................ 30,159 28,644 -------- -------- Total loans ..................................... 408,517 344,299 Less: Allowance for loan losses .............. 3,825 3,435 -------- -------- Net loans ....................................... 404,692 340,864 Premises and equipment, net ........................ 13,409 11,661 Accrued interest receivable ........................ 4,694 4,164 Cash surrender value on life insurance ............. 12,061 -- Other assets ....................................... 1,753 2,561 -------- -------- TOTAL ASSETS ................................. $665,097 $568,413 ======== ======== LIABILITIES Deposits: Noninterest-bearing demand deposits .............. $103,261 $103,858 Interest-bearing deposits: Checking ...................................... 99,671 108,780 Savings ....................................... 77,888 74,657 Money market accounts ......................... 100,026 67,962 Certificates of deposit over $100,000 ......... 66,400 40,064 Certificates of deposit less than $100,000 .... 149,766 114,939 -------- -------- Total deposits ..................................... 597,012 510,260 Accrued expenses and other liabilities ............. 6,102 2,997 -------- -------- TOTAL LIABILITIES ............................. 603,114 513,257 STOCKHOLDERS' EQUITY Common stock (no par value; stated value $1-2/3 per share; authorized 10,000,000 shares; issued at September 30, 2001 3,365,423 shares; issued at December 31, 2000 3,342,587 shares.) ... 5,604 5,064 Surplus ............................................ 37,750 25,104 Treasury Stock at cost, 38,131 shares in 2001 and 22,706 shares in 2000 ......................... (1,515) (956) Retained Earnings .................................. 18,665 26,420 Accumulated other comprehensive income/(loss)- net unrealized gains/(losses) on securities available for sale (net of income taxes) ......... 1,479 (476) -------- -------- TOTAL STOCKHOLDERS' EQUITY ................... 61,983 55,156 -------- -------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ..... $665,097 $568,413 ======== ======== See accompanying notes to consolidated financial statements. 3
<TABLE> PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (Unaudited) <CAPTION> Nine months ended Three months ended September 30, September 30, ----------------------- ----------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> INTEREST INCOME Interest and fees on loans ......................... $ 21,175 $ 18,488 $ 7,467 $ 6,476 Interest on investment securities: Taxable ....................................... 2,508 2,557 767 912 Tax-exempt .................................... 404 456 106 160 Interest on securities available for sale: Taxable ....................................... 4,521 4,265 1,725 1,297 Tax-exempt .................................... 23 -- 13 -- Interest-bearing deposits .......................... 429 51 185 14 Interest on federal funds sold ..................... 1,110 818 143 257 ---------- ---------- ---------- ---------- Total interest income .............................. 30,170 26,635 10,406 9,116 INTEREST EXPENSE Interest on savings account deposits ............... 4,375 3,108 1,348 1,082 Interest on certificates of deposit over $100,000... 1,930 1,279 640 506 Interest on other time deposits .................... 5,565 4,534 1,958 1,697 Interest on borrowed funds ......................... 9 4 9 1 ---------- ---------- ---------- ---------- Total interest expense ............................. 11,879 8,925 3,955 3,286 ---------- ---------- ---------- ---------- NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES ..................... 18,291 17,710 6,451 5,830 Provision for loan losses .......................... 376 378 126 126 ---------- ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ..................... 17,915 17,332 6,325 5,704 ---------- ---------- ---------- ---------- OTHER INCOME Service charges and fees for other services ........ 1,016 970 347 321 Trust Department income ............................ 2,963 2,849 909 956 Securities Gains/(Losses) .......................... 190 (200) 111 (4) Other income ....................................... 645 391 230 67 ---------- ---------- ---------- ---------- Total other income ............................ 4,814 4,010 1,597 1,340 OTHER EXPENSES Salaries and employee benefits ..................... 7,431 6,678 2,586 2,242 Premises and equipment ............................. 2,563 2,167 847 704 Merger related charges ............................. -- 500 -- -- Other expense ...................................... 2,978 3,004 1,030 866 ---------- ---------- ---------- ---------- Total other expenses ............................... 12,972 12,349 4,463 3,812 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAX EXPENSE ................... 9,757 8,993 3,459 3,232 Income tax expense ................................. 3,240 3,070 1,163 1,096 ---------- ---------- ---------- ---------- NET INCOME .................................... $ 6,517 $ 5,923 $ 2,296 $ 2,136 ========== ========== ========== ========== EARNINGS PER SHARE Basic .............................................. $ 1.96 1.78 $ 0.69 $ 0.63 Diluted ............................................ $ 1.92 1.74 $ 0.68 $ 0.63 Average basic shares outstanding ................... 3,328,009 3,322,375 3,330,275 3,322,954 Average diluted shares outstanding ................. 3,393,905 3,389,429 3,396,171 3,387,778 See accompanying notes to consolidated financial statements. </TABLE> 4
PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands) (Unaudited) Nine Months Ended September 30, ------------------ 2001 2000 ------- ------- Balance, Beginning of Period ........................... $55,156 $47,575 Comprehensive income: Net Income ........................................... 6,517 5,923 ------- ------- Unrealized holding gains on securities arising during the period, net of tax ............ 2,080 448 Less: Reclassification adjustment for (gains)/losses included in net income, net of tax .............. (125) 132 ------- ------- Unrealized holding gains on securities arising during the period, net of tax ............ 1,955 580 ------- ------- Total Comprehensive income ........................... 8,472 6,503 Common Stock Options Exercised ......................... 261 139 Purchase of Treasury Stock ............................. (559) (170) Cash Dividends Declared ................................ (1,347) (1,170) ------- ------- Balance, September 30, ................................. $61,983 $52,877 ======= ======= See accompanying notes to consolidated financial statements. 5
PEAPACK-GLADSTONE FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Nine Months Ended September 30, ---------------------- 2001 2000 --------- --------- OPERATING ACTIVITIES: Net Income: .......................................... $ 6,517 $ 5,923 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ......................................... 855 757 Amortization of premium and accretion of discount on securities, net ....................... 155 184 Provision for loan losses ............................ 376 378 (Gains)/Losses on security sales ..................... (190) 200 Increase in cash surrender value ..................... (60) -- Increase in interest receivable accrued .............. (530) (493) Decrease in other assets ............................. 537 30 Increase/(decrease) in other liabilities ............. 2,146 (1,576) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES ......... 9,806 5,403 --------- --------- INVESTING ACTIVITIES: Proceeds from maturities of investment securities .... 4,706 12,485 Proceeds from maturities of securities available for sale .......................................... 11,847 24,815 Proceeds from calls of investment securities ......... 10,111 10 Proceeds from sales and calls of securities available for sale ................................ 55,936 10,484 Purchase of investment securities .................... (1,396) (20,320) Purchase of securities available for sale ............ (116,769) (17,263) Net increase in short-term investments ............... (15,493) -- Net increase in loans ................................ (64,204) (43,638) Purchase of premises and equipment ................... (2,603) (2,712) Purchase of life insurance ........................... (12,000) -- --------- --------- NET CASH USED IN INVESTING ACTIVITIES ............. (129,865) (36,139) --------- --------- FINANCING ACTIVITIES: Net increase in deposits ............................. 86,752 25,976 Dividends paid ....................................... (1,347) (1,170) Exercise of stock options ............................ 261 139 Purchase of Treasury Stock ........................... (559) (170) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES ......... 85,107 24,775 --------- --------- Net decrease in cash and cash equivalents ............ (34,952) (5,961) --------- --------- Cash and cash equivalents at beginning of period ..... 54,257 33,017 --------- --------- Cash and cash equivalents at end of period ........... $ 19,305 $ 27,056 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest .......................................... $ 11,066 $ 8,081 Income taxes ...................................... 2,189 3,105 See accompanying notes to consolidated financial statements. 6
PEAPACK-GLADSTONE FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION Certain information and footnote disclosures normally included in the unaudited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the December 31, 2000 Annual Report on Form 10-K for Peapack-Gladstone Financial Corporation (the "Corporation"). 2. PRINCIPLES OF CONSOLIDATION The Corporation considers that all adjustments (all of which are normal recurring accruals) necessary for a fair statement of the financial position and results of operations for these periods have been made. Results for such interim periods are not necessarily indicative of results for a full year. The consolidated financial statements of Peapack-Gladstone Financial Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly-owned subsidiary, the Peapack-Gladstone Bank. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements. 3. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level that management considers adequate to reflect the risk of future losses inherent in the Corporation's loan portfolio. In its evaluation of the adequacy of the allowance for loan losses, management considers past loan loss experience, changes in the composition of non-performing loans, the condition of borrowers facing financial pressure, the relationship of the current level of the allowance to the credit portfolio and to non-performing loans and existing economic conditions. The process of determining the adequacy of the allowance is necessarily judgmental and subject to changes in external conditions. The allowance is increased by provisions charged to expense and reduced by net charge-offs. 4. EARNINGS PER COMMON SHARE -- BASIC AND DILUTED Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share includes any additional common shares as if all potentially dilutive common shares were issued (i.e., stock options). 5. COMPREHENSIVE INCOME The difference between the Corporation's net income and total comprehensive income for the nine months ended September 30, 2001 and 2000 relates to the change in the net unrealized gains and losses on securities available for sale during the applicable period of time less adjustments for realized gains and losses. 6. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141), was issued by the Financial Accounting Standards Board (FASB) on June 27, 2001. SFAS No. 141 eliminated pooling-of-interests accounting for mergers. All transactions initiated after June 30, 2001 must use purchase accounting. SFAS No. 141 also redefines intangible assets and requires separation of intangible assets from goodwill and requires non-amortization of new goodwill and certain intangible assets. The adoption of SFAS No. 141 has not had a material impact on the financial statements. Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" (SFAS No. 142), was issued by the Financial Accounting Standards Board (FASB) on June 27, 2001. SFAS No. 142 eliminates the amortization of existing goodwill and requires evaluating goodwill for impairment on an annual basis of whenever circumstances occur that would reduce the fair value. SFAS No. 142 also requires allocation of goodwill to reporting segments defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement is effective for fiscal years beginning after December 15, 2001. The Company anticipates that the adoption of SFAS No. 142 will not have a material impact on the financial statements. 7
In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets. The Company is required to adopt the provisions of SFAS No. 143 for fiscal years beginning after June 15, 2002. The Company does not anticipate that SFAS No. 143 will significantly impact the Company's consolidated financial statements. On October 3, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment of disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," it retains many of the fundamental provisions of that Statement. The Statement is effective for fiscal years beginning after December 15, 2001. The Company does not anticipate that the initial adoption of SFAS No. 144 will have a significant impact on the Company's financial statements. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL: This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such forward-looking terminology as "expect", "look", "believe", "anticipate", "may", "will", or similar statements or variations of such terms. Such forward-looking statements include certain risks and uncertainties. These include, but are not limited to, the direction of the economy in New Jersey especially as it has been affected by recent developments, the direction of interest rates, continued levels of loan quality and origination volume, continued relationship with major customers including sources for loans, as well as the effects of general economic conditions and legal and regulatory barriers and structure. The Corporation assumes no obligation for updating such forward-looking statements at any time. RESULTS OF OPERATIONS: The Corporation realized earnings of $0.68 per diluted share for the third quarter of 2001 as compared to $0.63 per diluted share for the same quarter last year. Net income for the quarter was $2.30 million compared with $2.14 million in the same period in 2000, a 7.5 percent increase. All per share data has been restated to give effect to a 10 percent stock dividend issued November 1, 2001 and a 5 percent stock dividend issued November 1, 2000. Return on average assets for the quarter was 1.43 percent and return on average equity was 15.29 percent. Net income for the nine months ended September 30, 2001 was $6.52 million compared to $5.92 million for the nine months ended September 30, 2000. Year to date earnings per diluted share for September 30, 2001 and 2000 were $1.92 and $1.74, respectively. Income for 2000 includes a merger related charge of $423 thousand, net of tax, or $.12 per diluted share. Excluding the merger-related charges recorded in 2000, net income was $6.35 million as compared to $6.52 million in 2001. For the nine months ended September 30, 2001, the return on average assets was 1.42 percent and the return on average equity was 14.98 percent. EARNINGS ANALYSIS NET INTEREST INCOME: Net interest income increased for the third quarter of 2001 as compared to the third quarter of 2000. Net interest income on a tax-equivalent basis was $6.52 million and $5.93 million for the three months ended September 30, 2001 and 2000, respectively. Average loans increased $71.88 million or 21.9 percent quarter to quarter. The average interest rate on loans declined 32 basis points. Average investment securities, federal funds sold and interest-earning deposits increased $43.09 million over the third quarter of last year, while the average interest earned declined 84 basis points from the third quarter of 2000 as compared to the third quarter of 2001. Total average interest-bearing deposits increased $100.59 million for the quarter ended September 30, 2001 as compared to the same quarter last year and interest rates paid declined 18 basis points during this same period. The net interest margin decreased 38 basis points, from 4.15 percent to 4.53 percent for the three months ended September 30, 2001 and 2000, respectively. 8
The net interest margin declined 50 basis points for the nine months ended September 30, 2001 versus September 30, 2000. Net interest income for the year to date September 30, 2001 increased $890 thousand over the same period last year. On a fully tax-equivalent basis, net interest income was $18.57 million as compared to $18.04 million for the year to date 2001 and 2000, respectively. For the first nine months of 2001, average interest-earning assets increased $92.55 million, or 19.0 percent over the comparable 2000 period. Average interest-earning deposits, including federal funds sold, increased 125.0 percent or $23.80 million while average loans increased 18.9 percent or $59.13 million. Average investments increased $9.61 million or 6.2 percent. Average interest-bearing liabilities were $77.49 million or 21.0 percent higher for the nine months ended September 30, 2001 compared to the same period in 2000. Loan growth was funded by the introduction of a tiered money market account and six-month and 14-month certificates of deposit with highly competitive rates. On average, money market accounts grew $47.77 million or 110.6 percent, while certificates of deposit grew $33.17 million or 22.8 percent. Demand deposits grew $9.29 million or 10.0 percent on average. Interest rates on average interest-earning assets declined during the nine months ended September 30, 2001 to 7.04 percent from 7.24 percent for the same period in 2000. The decrease was primarily due to lower interest rates on federal funds sold, down 118 basis points. Average interest rates on investment securities and loans also decreased during this period of 2001, down 23 and 10 basis points, respectively. Average interest rates on interest-bearing liabilities increased 34 basis points from 3.22 percent to 3.56 percent. The increase in interest expense was primarily due to higher average balances in the higher rate money market accounts and certificates of deposits, up 42 and 30 basis points, respectively. This contributed to a net decrease in the interest margin of 50 basis points, from 4.65 percent to 4.15 percent for the year to date ended September 30, 2000 and 2001, respectively. OTHER INCOME: Other income increased 19.2 percent, from $1.34 million for third quarter 2000 to $1.60 million for the same period in 2001. Trust Department income declined 4.9 percent, from $956 thousand this quarter last year to $909 thousand for the third quarter of 2001. Service charges and fees increased $26 thousand to $347 thousand or 8.1 percent. Security gains realized in the quarter ended September 30, 2001 were $111 thousand as compared to $4 thousand of security losses in the same quarter last year. In September 2001, the Corporation invested $12.00 million in Bank Owned Life Insurance (BOLI) to help offset the rising costs of employee benefits. Interest-earning assets were reduced by a like amount and income of $60 thousand, net of expenses, is included in other income for the third quarter. During the nine months ended September 30, 2001, other income was $4.81 million compared to $4.01 million for the year 2000, a 20.1 percent increase. Security gains of $190 thousand were realized this year compared to $200 thousand in security losses last year. Income from the Trust Department rose 4.0 percent to $2.96 million for the nine months ended September 30, 2001 as compared to $2.85 million for the same nine months in 2000 and income from service charges and fees increased 4.7 percent to $1.02 million. OTHER EXPENSES: Other expenses for the third quarter increased $651 thousand or 17.1 percent from $3.81 million for the quarter in 2000 to $4.46 in 2001. Other expenses included salaries and benefits expense of $2.59 million, an increase of 15.3 percent, due to additions to professional staff and branch expansion and premises and equipment expense of $847 thousand, an increase of 20.3 percent, due to a new branch location and equipment upgrades. Other operational expenses increased from $866 thousand for the quarter ended September 30, 2000 to $1.03 million for the same quarter in 2001. For the nine months ended September 30, 2001 other expenses rose 5.0 percent or $623 thousand to $12.97 million compared to $12.35 million the previous year. Excluding pre-tax merger-related charges of $500 thousand for 2000, other expenses increased 9.5 percent year to year. Salaries and benefits expense, the largest component of other expense, increased from $6.68 million for the nine months of 2000 to $7.43 million for the same period of 2001. This increase can be attributed to additions to the professional staff, branch expansion and upward salary adjustments to attract and maintain qualified employees. Premises and equipment expense rose $396 thousand or 18.3 percent as compared with the same period in 2000. This increase is attributable to additional expenditures related to new branch locations and equipment upgrades. Other major components of this category, advertising, insurance, telephone, postage, and trust expense, increased by $111 thousand or 9.9 percent to $1.23 million for the year to date September 30, 2001 from $1.12 million for the same period of 2000. NON-PERFORMING ASSETS: Other real estate owned (OREO), loans past due in excess of 90 days and still accruing, and non-accrual loans are considered non-performing assets. These assets totaled $449 thousand and $363 thousand at September 30, 2001 and 2000, respectively. Loans past due in excess of 90 days and still accruing are in the process of collection and are well secured. 9
The following table sets forth non-performing assets on the dates indicated, in conjunction with asset quality ratios: September 30, December 31, 2001 2000 ------------- ----------- (In thousands) Loans past due in excess of 90 days and still accruing .......................... $ 197 $ 75 Non-accrual loans .................................. 252 325 ------ ------ Total non-performing assets ........................ $ 449 $ 400 ====== ====== Non-performing loans as a % of total loans ......... .11% .12% Non-performing assets as a % of total Loans plus other real estate owned ............... .11% .12% Allowance as a % of loans .......................... 0.94% 1.00% PROVISION FOR LOAN LOSSES: For the three months ended September 30, 2001 and 2000, the provision for loan losses was $126 thousand. The amount of the loan loss provision and the level of the allowance for possible loan losses are based upon a number of factors including Management's evaluation of potential losses in the portfolio, after consideration of appraised collateral values, financial condition and past credit history of the borrowers as well as prevailing and anticipated economic conditions. Recoveries and charge-offs for the third quarter 2001 were each $13 thousand resulting in a net recovery of zero as compared to net charge-offs of $22 thousand during the same period in 2000. For the nine months ended September 30, 2001, net recoveries were $14 thousand compared to $121 thousand in net charge-offs for the same period in 2000. A summary of the allowance for loan losses for the nine-month period ended September 30, follows: 2001 2000 ------ ------- (In thousands) Balance, January 1, .......................... $3,435 $2,962 Provision charged to expense ................. 376 378 Loans charged off ............................ (57) (162) Recoveries ................................... 71 41 ------ ------ Balance, September 30, ....................... $3,825 $3,219 ====== ====== INCOME TAXES: Income tax expense as a percentage of pre-tax income was 34 percent for the three months ended September 30, 2001 and 33 percent for the nine months ended September 30, 2001, as compared to 34 percent for the same periods in 2000. The decrease in the effective tax rate is due to an increase in tax-exempt income. Income taxes increased 5.5 percent from $3.07 million in 2000 to $3.24 million in 2001, reflecting higher taxable income. CAPITAL RESOURCES: The Corporation is committed to maintaining a strong capital position. At September 30, 2001, total shareholders' equity, including net unrealized gains, was $61.98 million, representing a 17.22 percent increase over the same period in 2000. The Federal Reserve Board has adopted risk-based capital guidelines for banks. The minimum guideline for the ratio of total capital to risk-weighted assets is 8 percent. At least half of the total capital is to be comprised of common stock, retained earnings, minority interests in the equity accounts of consolidated subsidiaries, non-cumulative preferred stock, less goodwill and certain other intangibles ("Tier 1 Capital"). The remainder may consist of other preferred stock, certain other instruments and a portion of the loan loss allowance. At September 30, 2001, the Corporation's Tier 1 Capital and Total Capital ratios were 19.03 percent and 20.25 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets of 3 percent for banks that meet certain specified criteria, including having the highest regulatory rating. All other banks are generally required to maintain a leverage ratio of at least 3 percent plus an additional 100 to 200 basis points. The Bank's leverage ratio at September 30, 2001, was 9.81 percent. 10
MARKET RISK: The Corporation continues to monitor its exposure to various market risk sensitive instruments. These instruments and procedures employed to monitor market risks are listed in the Corporation's 2000 Annual Report. There has been no significant change in market risk since December 31, 2000. PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 13th day of November 2001. PEAPACK-GLADSTONE FINANCIAL CORPORATION (Registrant) By ------------------------------------ (Frank A. Kissel, President and Chief Executive Officer) ------------------------------------ (Arthur F. Birmingham, Senior Vice President and Treasurer) 11