form10q-93754_pgf.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(MARK
ONE)
ý QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Quarter Ended June 30,
2008
OR
o 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 ý No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check
one):
Large
accelerated filer o
|
|
Accelerated
filer ý
|
Non-accelerated
filer (do not check if a smaller reporting company) o
|
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No ý.
Number of
shares of Common Stock outstanding as of August 1, 2008:
8,286,586
PEAPACK-GLADSTONE FINANCIAL CORPORATION
|
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|
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Page
3
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Page
4
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Page
5
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Page
6
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Page
7
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Page
13
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Page
25
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Page
25
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Item
1. Financial Statements (Unaudited)
PEAPACK-GLADSTONE FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollars
in thousands)
(Unaudited)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
25,433 |
|
|
$ |
25,443 |
|
Federal
funds sold
|
|
|
637 |
|
|
|
1,771 |
|
Interest-earning
deposits
|
|
|
1,709 |
|
|
|
973 |
|
Total
cash and cash equivalents
|
|
|
27,779 |
|
|
|
28,187 |
|
|
|
|
|
|
|
|
|
|
Investment
securities held to maturity (approximate market
|
|
|
|
|
|
|
|
|
value
$40,335 in 2008 and $45,070 in 2007)
|
|
|
40,277 |
|
|
|
45,139 |
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
213,057 |
|
|
|
236,944 |
|
FHLB
and FRB Stock, at cost
|
|
|
5,363 |
|
|
|
4,293 |
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
1,007,845 |
|
|
|
981,180 |
|
Less: Allowance
for loan losses
|
|
|
8,295 |
|
|
|
7,500 |
|
Net
Loans
|
|
|
999,550 |
|
|
|
973,680 |
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
26,321 |
|
|
|
26,236 |
|
Other
real estate owned
|
|
|
1,564 |
|
|
|
- |
|
Accrued
interest receivable
|
|
|
4,857 |
|
|
|
5,122 |
|
Cash
surrender value of life insurance
|
|
|
24,993 |
|
|
|
19,474 |
|
Other
assets
|
|
|
13,898 |
|
|
|
7,901 |
|
TOTAL
ASSETS
|
|
$ |
1,357,659 |
|
|
$ |
1,346,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
|
$ |
190,713 |
|
|
$ |
199,266 |
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
Checking
|
|
|
140,290 |
|
|
|
145,490 |
|
Savings
|
|
|
67,247 |
|
|
|
64,772 |
|
Money
market accounts
|
|
|
392,289 |
|
|
|
377,544 |
|
Certificates
of deposit over $100,000
|
|
|
176,862 |
|
|
|
155,410 |
|
Certificates
of deposit less than $100,000
|
|
|
211,283 |
|
|
|
237,785 |
|
Total
deposits
|
|
|
1,178,684 |
|
|
|
1,180,267 |
|
Overnight
borrowings
|
|
|
25,000 |
|
|
|
15,650 |
|
Long-term
debt
|
|
|
40,357 |
|
|
|
29,169 |
|
Accrued
expenses and other liabilities
|
|
|
11,209 |
|
|
|
14,461 |
|
TOTAL
LIABILITIES
|
|
|
1,255,250 |
|
|
|
1,239,547 |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock (no par value; $0.83 per share;
|
|
|
|
|
|
|
|
|
authorized
20,000,000 shares; issued shares, 8,623,003 at
|
|
|
|
|
|
|
|
|
June
30, 2008 and 8,577,446 at December 31, 2007;
|
|
|
|
|
|
|
|
|
outstanding
shares, 8,299,538 at June 30, 2008 and
|
|
|
|
|
|
|
|
|
8,304,486
at December 31, 2007)
|
|
|
7,185 |
|
|
|
7,148 |
|
Surplus
|
|
|
91,904 |
|
|
|
90,677 |
|
Treasury
stock at cost, 323,465 shares at June 30, 2008
|
|
|
|
|
|
|
|
|
and
272,960 shares at December 31, 2007
|
|
|
(7,525 |
) |
|
|
(6,255 |
) |
Retained
earnings
|
|
|
25,690 |
|
|
|
21,750 |
|
Accumulated
other comprehensive loss, net of income tax
|
|
|
(14,845 |
) |
|
|
(5,891 |
) |
TOTAL
SHAREHOLDERS’ EQUITY
|
|
|
102,409 |
|
|
|
107,429 |
|
TOTAL
LIABILITIES & SHAREHOLDERS’ EQUITY
|
|
$ |
1,357,659 |
|
|
$ |
1,346,976 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
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|
PEAPACK-GLADSTONE
FINANCIAL CORPORATION
CONSOLIDATED
STATEMENTS OF INCOME
(Dollars
in thousands, except share data)
(Unaudited)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
INTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$ |
14,284 |
|
|
$ |
13,576 |
|
|
$ |
28,967 |
|
|
$ |
26,755 |
|
Interest
on investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
156 |
|
|
|
217 |
|
|
|
330 |
|
|
|
451 |
|
Tax-exempt
|
|
|
233 |
|
|
|
274 |
|
|
|
474 |
|
|
|
545 |
|
Interest
on securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
2,547 |
|
|
|
3,218 |
|
|
|
5,356 |
|
|
|
6,493 |
|
Tax-exempt
|
|
|
311 |
|
|
|
243 |
|
|
|
594 |
|
|
|
488 |
|
Interest-earning
deposits
|
|
|
76 |
|
|
|
10 |
|
|
|
124 |
|
|
|
21 |
|
Interest
on federal funds sold
|
|
|
5 |
|
|
|
357 |
|
|
|
112 |
|
|
|
436 |
|
Total
interest income
|
|
|
17,612 |
|
|
|
17,895 |
|
|
|
35,957 |
|
|
|
35,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on savings and interest-bearing deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
|
|
|
2,162 |
|
|
|
4,094 |
|
|
|
5,120 |
|
|
|
8,337 |
|
Interest
on certificates of deposit over $100,000
|
|
|
1,559 |
|
|
|
1,810 |
|
|
|
3,401 |
|
|
|
3,416 |
|
Interest
on other time deposits
|
|
|
2,083 |
|
|
|
3,117 |
|
|
|
4,744 |
|
|
|
5,975 |
|
Interest
on borrowed funds
|
|
|
391 |
|
|
|
204 |
|
|
|
761 |
|
|
|
467 |
|
Total
interest expense
|
|
|
6,195 |
|
|
|
9,225 |
|
|
|
14,026 |
|
|
|
18,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME BEFORE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
11,417 |
|
|
|
8,670 |
|
|
|
21,931 |
|
|
|
16,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
590 |
|
|
|
100 |
|
|
|
1,020 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
10,827 |
|
|
|
8,570 |
|
|
|
20,911 |
|
|
|
16,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
department income
|
|
|
2,665 |
|
|
|
2,459 |
|
|
|
5,150 |
|
|
|
4,601 |
|
Service
charges and fees
|
|
|
540 |
|
|
|
513 |
|
|
|
1,029 |
|
|
|
1,003 |
|
Bank
owned life insurance
|
|
|
304 |
|
|
|
221 |
|
|
|
573 |
|
|
|
437 |
|
Securities
gains
|
|
|
69 |
|
|
|
220 |
|
|
|
379 |
|
|
|
382 |
|
Other
income
|
|
|
83 |
|
|
|
147 |
|
|
|
259 |
|
|
|
325 |
|
Total
other income
|
|
|
3,661 |
|
|
|
3,560 |
|
|
|
7,390 |
|
|
|
6,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
4,833 |
|
|
|
4,360 |
|
|
|
9,744 |
|
|
|
8,614 |
|
Premises
and equipment
|
|
|
2,108 |
|
|
|
1,748 |
|
|
|
4,148 |
|
|
|
3,602 |
|
Other
expenses
|
|
|
2,188 |
|
|
|
1,911 |
|
|
|
3,846 |
|
|
|
3,361 |
|
Total
other expenses
|
|
|
9,129 |
|
|
|
8,019 |
|
|
|
17,738 |
|
|
|
15,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAX EXPENSE
|
|
|
5,359 |
|
|
|
4,111 |
|
|
|
10,563 |
|
|
|
7,940 |
|
Income
tax expense
|
|
|
1,780 |
|
|
|
1,298 |
|
|
|
3,521 |
|
|
|
2,435 |
|
NET
INCOME
|
|
$ |
3,579 |
|
|
$ |
2,813 |
|
|
$ |
7,042 |
|
|
$ |
5,505 |
|
EARNINGS
PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.43 |
|
|
$ |
0.34 |
|
|
$ |
0.85 |
|
|
$ |
0.67 |
|
Diluted
|
|
$ |
0.43 |
|
|
$ |
0.33 |
|
|
$ |
0.84 |
|
|
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
basic shares outstanding
|
|
|
8,297,735 |
|
|
|
8,289,843 |
|
|
|
8,297,114 |
|
|
|
8,281,592 |
|
Average
diluted shares outstanding
|
|
|
8,400,052 |
|
|
|
8,400,401 |
|
|
|
8,397,022 |
|
|
|
8,384,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PEAPACK-GLADSTONE
FINANCIAL CORPORATION
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars
in thousands)
(Unaudited)
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$ |
107,429 |
|
|
$ |
103,763 |
|
|
|
|
|
|
|
|
|
|
Cumulative
effect adjustment resulting from the adoption of
|
|
|
|
|
|
|
|
|
EITF
06-04
|
|
|
(449 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
7,042 |
|
|
|
5,505 |
|
|
|
|
|
|
|
|
|
|
Unrealized
holding losses on securities
|
|
|
|
|
|
|
|
|
arising
during the period, net of tax
|
|
|
(8,708 |
) |
|
|
(864 |
) |
Less: reclassification
adjustment for gains
|
|
|
|
|
|
|
|
|
included
in net income, net of tax
|
|
|
246 |
|
|
|
248 |
|
|
|
|
(8,954 |
) |
|
|
(1,112 |
) |
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
(1,912 |
) |
|
|
4,393 |
|
|
|
|
|
|
|
|
|
|
Common
stock options exercised
|
|
|
794 |
|
|
|
953 |
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock
|
|
|
(1,270 |
) |
|
|
(682 |
) |
|
|
|
|
|
|
|
|
|
Cash
dividends declared
|
|
|
(2,654 |
) |
|
|
(2,488 |
) |
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
182 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
Tax
benefit on disqualifying and nonqualifying
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
289 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
Balance,
June 30,
|
|
$ |
102,409 |
|
|
$ |
106,148 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
PEAPACK-GLADSTONE
FINANCIAL CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars
in thousands)
(Unaudited)
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
income:
|
|
$ |
7,042 |
|
|
$ |
5,505 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,156 |
|
|
|
1,071 |
|
Amortization
of premium and accretion of
|
|
|
|
|
|
|
|
|
discount
on securities, net
|
|
|
106 |
|
|
|
172 |
|
Provision
for loan losses
|
|
|
1,020 |
|
|
|
225 |
|
Gains
on security sales
|
|
|
(379 |
) |
|
|
(111 |
) |
Gains
on loans sold
|
|
|
- |
|
|
|
(382 |
) |
Loss/(Gain)
on disposal of fixed assets
|
|
|
153 |
|
|
|
(3 |
) |
Gain
on sale of other real estate owned
|
|
|
(24 |
) |
|
|
- |
|
Stock-based
compensation
|
|
|
182 |
|
|
|
98 |
|
Increase
in cash surrender value of life insurance, net
|
|
|
(519 |
) |
|
|
(381 |
) |
Decrease
in accrued interest receivable
|
|
|
265 |
|
|
|
141 |
|
(Increase)/decrease
in other assets
|
|
|
(129 |
) |
|
|
665 |
|
Decrease
in accrued expenses and other liabilities
|
|
|
(3,700 |
) |
|
|
(4,370 |
) |
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
5,173 |
|
|
|
2,630 |
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities of investment securities
|
|
|
4,238 |
|
|
|
5,799 |
|
Proceeds
from maturities of securities available for sale
|
|
|
25,019 |
|
|
|
27,650 |
|
Proceeds
from calls of investment securities
|
|
|
593 |
|
|
|
150 |
|
Proceeds
from calls and sales of securities available for sale
|
|
|
20,960 |
|
|
|
2,108 |
|
Purchase
of securities available for sale
|
|
|
(37,680 |
) |
|
|
(568 |
) |
Purchase
of life insurance
|
|
|
(5,000 |
) |
|
|
(12,613 |
) |
Proceeds
from sales of loans
|
|
|
8,343 |
|
|
|
2,056 |
|
Net
increase in loans
|
|
|
(35,233 |
) |
|
|
(34,266 |
) |
Proceeds
from sales of other real estate owned
|
|
|
286 |
|
|
|
- |
|
Net
increase in other real estate owned
|
|
|
(1,826 |
) |
|
|
- |
|
Purchases
of premises and equipment
|
|
|
(1,426 |
) |
|
|
(2,302 |
) |
Disposal
of premises and equipment
|
|
|
32 |
|
|
|
30 |
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(21,694 |
) |
|
|
(11,956 |
) |
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in deposits
|
|
|
(1,583 |
) |
|
|
28,818 |
|
Net
increase in other borrowings
|
|
|
9,350 |
|
|
|
- |
|
Proceeds
from Federal Home Loan Bank advances
|
|
|
12,000 |
|
|
|
- |
|
Repayments
of Federal Home Loan Bank advances
|
|
|
(812 |
) |
|
|
(891 |
) |
Cash
dividends paid
|
|
|
(2,655 |
) |
|
|
(2,482 |
) |
Tax
benefit on stock option exercises
|
|
|
289 |
|
|
|
111 |
|
Exercise
of stock options
|
|
|
794 |
|
|
|
953 |
|
Purchase
of treasury stock
|
|
|
(1,270 |
) |
|
|
(682 |
) |
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
16,113 |
|
|
|
25,827 |
|
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents
|
|
|
(408 |
) |
|
|
16,501 |
|
Cash
and cash equivalents at beginning of period
|
|
|
28,187 |
|
|
|
30,258 |
|
Cash
and cash equivalents at end of period
|
|
$ |
27,779 |
|
|
$ |
46,759 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
15,852 |
|
|
$ |
16,934 |
|
Income
taxes
|
|
|
4,579 |
|
|
|
3,170 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
PEAPACK-GLADSTONE
FINANCIAL CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Certain
information and footnote disclosures normally included in the unaudited
consolidated financial statements prepared in accordance with U.S. generally
accepted accounting principles 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 Annual Report on Form 10-K for the
period ended December 31, 2007 for Peapack-Gladstone Financial Corporation (the
“Corporation”).
Principles of
Consolidation: The Corporation considers that all adjustments
necessary for a fair presentation of the statement of the financial position and
results of operations in accordance with U.S. generally accepted accounting
principles 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, Peapack-Gladstone Bank. All significant
intercompany balances and transactions have been eliminated from the
accompanying consolidated financial statements.
Allowance for Loan
Losses: The allowance for loan losses is maintained at a level
considered adequate to provide for probable incurred loan losses in the
Corporation’s loan portfolio. The allowance is based on management’s
evaluation of the loan portfolio considering, among other things, current
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 charge-offs net of
recoveries.
Stock Option
Plans: The Corporation has stock option plans that allow the
granting of shares of the Corporation’s common stock as incentive stock options,
nonqualified stock options, restricted stock awards and stock appreciation
rights to directors, officers, employees and independent contractors of the
Corporation and its subsidiaries. The options granted under these
plans are exercisable at a price equal to the fair market value of common stock
on the date of grant and expire not more than ten years after the date of
grant. Stock options may vest during a period of up to five years
after the date of grant.
For the
three months ended June 30, 2008 and 2007, the Corporation recorded total
compensation cost for share-based payment arrangements of $81 thousand and $53
thousand, respectively, with a recognized tax benefit of $7 thousand and $3
thousand for the second quarter of 2008 and 2007, respectively.
The
Corporation recorded total compensation cost for share-based payment
arrangements of $182 thousand and $98 thousand for the six months ended June 30,
2008 and 2007, respectively, with a recognized tax benefit of $13 thousand and
$7 thousand for the same periods.
As of
June 30, 2008, there was approximately $1.2 million of unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
the Corporation’s stock incentive plans. That cost is expected to be
recognized over a weighted average period of 1.8 years.
For the
Corporation’s stock option plans, changes in options outstanding during the six
months ended June 30, 2008 were as follows:
|
|
Number
|
|
|
Exercise
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
of
|
|
|
Price
|
|
|
Average
|
|
|
Intrinsic
|
|
(Dollars
in thousands except share data)
|
Shares
|
|
|
Per
Share
|
|
|
Exercise
Price
|
|
|
Value
|
|
Balance,
December 31, 2007
|
|
|
583,812 |
|
|
$ |
13.62-$32.14 |
|
|
$ |
24.77 |
|
|
|
|
Granted
|
|
|
69,860 |
|
|
|
21.97-29.50 |
|
|
|
24.89 |
|
|
|
|
Exercised
|
|
|
(45,557 |
) |
|
|
13.68-18.23 |
|
|
|
17.42 |
|
|
|
|
Forfeited
|
|
|
(1,040 |
) |
|
|
24.57-28.89 |
|
|
|
28.24 |
|
|
|
|
Balance,
June 30, 2008
|
|
|
607,075 |
|
|
$ |
13.62-$32.14 |
|
|
$ |
25.33 |
|
|
$ |
752 |
|
Options
exercisable, June 30, 2008
|
|
|
474,478 |
|
|
|
|
|
|
|
|
|
|
$ |
752 |
|
The
aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the difference between the Corporation’s closing stock price on
the last trading day of the second quarter of 2008 and the exercise price,
multiplied by the number of in-the-money options).
The
aggregate intrinsic value of options exercised during the six months ended June
30, 2008 and 2007 was $365 thousand and $1.0 million, respectively.
The per
share weighted-average fair value of stock options granted during the first six
months of 2008 and 2007 for all plans was $10.86 and $10.36, respectively, on
the date of grant using the Black Scholes option-pricing model with the
following weighted average assumptions:
|
|
2008
|
|
2007
|
Dividend
yield
|
|
|
2.41 |
% |
|
|
2.00 |
% |
Expected
volatility
|
|
|
50 |
% |
|
|
43 |
% |
Expected
life
|
|
7
years
|
|
5
years
|
Risk-free
interest rate
|
|
|
3.82 |
% |
|
|
4.57 |
% |
Earnings per Common Share – Basic and
Diluted: The following is a reconciliation of the calculation
of basic and diluted earnings per share. Basic net income per common
share is calculated by dividing net income to common shareholders by the
weighted average common shares outstanding during the reporting
period. Diluted net income per common share is computed similarly to
that of basic net income per common share, except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares, principally stock
options, were issued during the reporting period utilizing the Treasury stock
method.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In
Thousands, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income to Common Shareholders
|
|
$ |
3,579 |
|
|
$ |
2,813 |
|
|
$ |
7,042 |
|
|
$ |
5,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Weighted-Average Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
8,297,735 |
|
|
|
8,289,843 |
|
|
|
8,297,114 |
|
|
|
8,281,592 |
|
Plus: Common
Stock Equivalents
|
|
|
102,317 |
|
|
|
110,558 |
|
|
|
99,908 |
|
|
|
102,556 |
|
Diluted
Weighted-Average Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
|
8,400,052 |
|
|
|
8,400,401 |
|
|
|
8,397,022 |
|
|
|
8,384,148 |
|
Net
Income Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.43 |
|
|
$ |
0.34 |
|
|
$ |
0.85 |
|
|
$ |
0.67 |
|
Diluted
|
|
|
0.43 |
|
|
|
0.33 |
|
|
|
0.84 |
|
|
|
0.65 |
|
Stock
options with an exercise price below the Corporation’s market price equal to
381,929 and 15,480 shares were not included in the computation of diluted
earnings per share in the second quarters of 2008 and 2007, respectively because
they were antidilutive. Stock options with an exercise price below
the Corporation’s market price equal to 383,054 and 308,161 shares were not
included in the computation of diluted earnings per share in the six months
ended June 30, 2008 and 2007, respectively because they would be
antidilutive.
Income
Taxes: The Corporation files a consolidated
Federal income tax return and separate state income tax returns for each
subsidiary based on current laws and regulations.
The
Corporation is no longer subject to examination by the U.S. Federal tax
authorities for years prior to 2004 or by New Jersey tax authorities for years
prior to 2003. The Corporation does not expect the total amount of
unrecognized tax benefits to significantly increase in the next 12
months.
The
Corporation recognizes interest related to income tax matters as interest
expense and penalties related to income tax matters as other
expense. The Corporation did not have any amounts accrued for
interest and penalties at January 1, 2008.
Comprehensive
Income: Comprehensive income consists of net income and the
change during the period in the Corporation’s pension benefit obligation and the
net unrealized gains and losses on securities available for sale during the
applicable period of time less adjustments for realized gains and
losses. Total comprehensive income for the second quarter of 2008 was
$2.2 million and $1.4 million for the same quarter in 2007. Total
comprehensive income for the six months ended June 30, 2008 and 2007 was $1.9
million and $4.4 million, respectively.
Reclassification: Certain
reclassifications have been made in the prior periods’ financial statements in
order to conform to the 2008 presentation.
2. LOANS
Loans
outstanding as of June 30, 2008, and December 31, 2007, consisted of the
following:
|
|
June
30,
|
|
|
December
31,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Residential
real estate
|
|
$ |
499,131 |
|
|
$ |
497,016 |
|
Commercial
real estate
|
|
|
252,911 |
|
|
|
237,316 |
|
Commercial
loans
|
|
|
147,033 |
|
|
|
129,747 |
|
Construction
loans
|
|
|
52,747 |
|
|
|
60,589 |
|
Consumer
loans
|
|
|
31,528 |
|
|
|
37,264 |
|
Other
loans
|
|
|
24,495 |
|
|
|
19,248 |
|
Total
loans
|
|
$ |
1,007,845 |
|
|
$ |
981,180 |
|
Non-performing
assets, which are loans past due in excess of 90 days and still accruing,
non-accrual loans and other real estate owned totaled $5.2 million at June 30,
2008 and $2.1 million at December 31, 2007. Management believes that
the value of the real estate exceeds the balance due on the loans and expects no
loss.
3. FEDERAL
HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Advances
from the Federal Home Loan Bank of New York (FHLB) totaled $40.4 million and
$29.2 million at June 30, 2008 and December 31, 2007, respectively, with a
weighted average interest rate of 3.54 percent and 3.69 percent,
respectively. Advances totaling $13.0 million at June 30, 2008, have
fixed maturity dates, while advances totaling $4.4 million were amortizing
advances with monthly payments of principal and interest. These
advances are secured by blanket pledges of certain 1-4 family residential
mortgages totaling $217.7 million at June 30, 2008.
At June
30, 2008, the Corporation had $23.0 million in fixed rates advances that are
noncallable for one, two or three years and then callable quarterly within final
maturities of three, five or ten years. These advances are secured by
pledges of investment securities totaling $25.2 million at June 30,
2008.
Overnight
borrowings at June 30, 2008 totaled $25.0 million, while overnight borrowings at
December 31, 2007 totaled $15.7 million. For the three months ended
June 30, 2008, overnight borrowings from the FHLB averaged $5.5 million with a
weighted average interest rate of 2.25 percent, while there were no average
borrowings for the same quarter last year. For the six months ended
June 30, 2008 and 2007, overnight borrowings from the FHLB averaged $3.7 million
with a weighted average interest rate of 2.67 percent and $2.1 million with a
weighted average interest rate of 5.40 percent, respectively.
The final
maturity dates of the advances and other borrowings are scheduled as
follows:
(In
thousands)
|
|
|
|
2008
|
|
$ |
25,000 |
|
2009
|
|
|
2,000 |
|
2010
|
|
|
13,188 |
|
2011
|
|
|
3,000 |
|
2012
|
|
|
5,000 |
|
Over
5 years
|
|
|
17,169 |
|
Total
|
|
$ |
65,357 |
|
4. BENEFIT
PLANS
The
Corporation has a defined benefit pension plan covering substantially all of its
salaried employees which was discontinued on May 12, 2008. The plan
is fully funded and contributions totaling $450 thousand have been made during
2008. Employees will be receiving distributions from this plan during
the second half of the year. The Corporation amended its
existing 401-K profit-sharing and investment plan to enhance the contributions
to its salaried employees starting in May 2008. The impact of the curtailment of
the plan was not material to the financial statements.
The net
periodic expense for the periods indicated included the following
components:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$ |
203 |
|
|
$ |
439 |
|
|
$ |
637 |
|
|
$ |
877 |
|
Interest
cost
|
|
|
228 |
|
|
|
194 |
|
|
|
457 |
|
|
|
389 |
|
Expected
return on plan assets
|
|
|
(289 |
) |
|
|
(252 |
) |
|
|
(578 |
) |
|
|
(504 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
8 |
|
|
|
8 |
|
|
|
17 |
|
|
|
17 |
|
Unrecognized
remaining net assets
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
Net
periodic benefit cost
|
|
$ |
149 |
|
|
$ |
388 |
|
|
$ |
530 |
|
|
$ |
776 |
|
Late in
2007, the Corporation changed internal accounting and reporting processes in
order to segregate and assess its results among two operating segments, Banking
and Trust and adopted the new processes as of January 1,
2008. Management uses certain methodologies to allocate income and
expense to the business segments. A funds transfer pricing
methodology is used to assign interest income and interest expense to each
interest-earning asset and interest-bearing liability on a matched maturity
funding basis. Certain indirect expenses are allocated to
segments. These include support unit expenses such as technology and
operations and other support functions. Taxes are allocated to each
segment based on the effective rate for the period shown.
Banking
The
Banking segment includes commercial, commercial real estate, residential and
consumer lending activities; deposit generation; operation of ATMs; telephone
and internet banking services; merchant credit card services and customer
support and sales.
PGB Trust &
Investments
PGB Trust
& Investments includes asset management services provided for individuals
and institutions; personal trust services, including services as executor,
trustee, administrator, custodian and guardian; corporate trust services
including services as trustee for pension and profit sharing plans; and other
financial planning and advisory services.
The
following table presents the statements of income and total assets for the
Corporation’s reportable segments for the three and six months ended June 30,
2008.
|
|
Three Months Ended
June 30, 2008
|
|
(in
thousands)
|
|
|
|
|
PGB
Trust
|
|
|
|
|
|
|
Banking
|
|
|
&
Investments
|
|
|
Total
|
|
Net
interest income
|
|
$ |
10,631 |
|
|
$ |
786 |
|
|
$ |
11,417 |
|
Noninterest
income
|
|
|
964 |
|
|
|
2,697 |
|
|
|
3,661 |
|
Total
income
|
|
|
11,595 |
|
|
|
3,483 |
|
|
|
15,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
590 |
|
|
|
- |
|
|
|
590 |
|
Premises
and equipment expense
|
|
|
1,933 |
|
|
|
175 |
|
|
|
2,108 |
|
Other
noninterest expense
|
|
|
5,385 |
|
|
|
1,636 |
|
|
|
7,021 |
|
Total
noninterest expense
|
|
|
7,908 |
|
|
|
1,811 |
|
|
|
9,719 |
|
Income
before income tax expense
|
|
|
3,687 |
|
|
|
1,672 |
|
|
|
5,359 |
|
Income
tax expense
|
|
|
1,225 |
|
|
|
555 |
|
|
|
1,780 |
|
Net
income
|
|
$ |
2,462 |
|
|
$ |
1,117 |
|
|
$ |
3,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June
30, 2008
|
|
(in
thousands)
|
|
|
|
|
PGB
Trust
|
|
|
|
|
|
|
Banking
|
|
|
&
Investments
|
|
|
Total
|
|
Net
interest income
|
|
$ |
20,434 |
|
|
$ |
1,497 |
|
|
$ |
21,931 |
|
Noninterest
income
|
|
|
2,139 |
|
|
|
5,251 |
|
|
|
7,390 |
|
Total
income
|
|
|
22,573 |
|
|
|
6,748 |
|
|
|
29,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
1,020 |
|
|
|
- |
|
|
|
1,020 |
|
Premises
and equipment expense
|
|
|
3,761 |
|
|
|
387 |
|
|
|
4,148 |
|
Other
noninterest expense
|
|
|
10,278 |
|
|
|
3,312 |
|
|
|
13,590 |
|
Total
noninterest expense
|
|
|
15,059 |
|
|
|
3,699 |
|
|
|
18,758 |
|
Income
before income tax expense
|
|
|
7,514 |
|
|
|
3,049 |
|
|
|
10,563 |
|
Income
tax expense
|
|
|
2,505 |
|
|
|
1,016 |
|
|
|
3,521 |
|
Net
income
|
|
$ |
5,009 |
|
|
$ |
2,033 |
|
|
$ |
7,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at period end
|
|
$ |
1,356,961 |
|
|
$ |
698 |
|
|
$ |
1,357,659 |
|
Statement
157 establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs
that may be used to measure fair value:
|
Level
1:
|
Quoted
prices (unadjusted) or identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement
date.
|
|
Level
2:
|
Significant
other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data.
|
|
Level
3:
|
Significant
unobservable inputs that reflect a reporting entity’s own assumptions
about the assumptions that market participants would use in pricing an
asset or liability.
|
The fair
values of securities available for sale are determined by obtaining quoted
prices on nationally recognized securities exchanges (Level 1 inputs) or matrix
pricing, which is a mathematical technique widely used in the industry to value
debt securities without relying exclusively on quoted prices for the specific
securities but rather by relying on the securities’ relationship to other
benchmark quoted securities (Level 2 inputs).
Assets Measured on a
Recurring Basis
|
|
Fair
Value Measurements at June 30, 2008 Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices
in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
For
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
June
30,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale Securities
|
|
$ |
213,057 |
|
|
$ |
2,317 |
|
|
$ |
210,740 |
|
|
$ |
- |
|
Item
2
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
GENERAL: The
following discussion and analysis 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
view of future interest income and net loans, management’s confidence and
strategies and management’s expectations about new and existing programs and
products, relationships, opportunities 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. Actual results may differ materially from
such forward-looking statements. Factors that may cause actual
results to differ materially from those contemplated by such forward-looking
statements include, among others, the following possibilities:
|
·
|
Effectiveness
of the Corporation’s balance sheet restructuring
initiative.
|
|
·
|
The
uncertain credit environment in which the Corporation
operates.
|
|
·
|
Unexpected
decline in the direction of the economy in New
Jersey.
|
|
·
|
Unexpected
changes in interest rates.
|
|
·
|
Failure
to grow business.
|
|
·
|
Inability
to manage growth in commercial
loans.
|
|
·
|
Unexpected
high loan prepayment volume.
|
|
·
|
Unanticipated
exposure to credit risks.
|
|
·
|
Insufficient
allowance for loan losses.
|
|
·
|
Competition
from other financial institutions.
|
|
·
|
Adverse
effects of government regulation or different than anticipated effects
from existing regulations.
|
|
·
|
Decline
in the levels of loan quality and origination
volume.
|
|
·
|
Decline
in trust assets or deposits.
|
|
·
|
Unexpected
classification of securities to other-than-temporary impaired
status.
|
The
Corporation assumes no responsibility to update such forward-looking statements
in the future.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES: “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” is based upon the Corporation’s
consolidated financial statements, which have been prepared in accordance with
U.S. generally accepted accounting principles. The preparation of
these financial statements requires the Corporation to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. Note 1 to the Corporation’s Audited Consolidated Financial
Statements included in the December 31, 2007 Annual Report on Form 10-K,
contains a summary of the Corporation’s significant accounting
policies. Management believes the Corporation’s policy with respect
to the methodology for the determination of the allowance for loan losses
involves a higher degree of complexity and requires management to make difficult
and subjective judgments, which often require assumptions or estimates about
highly uncertain matters. Changes in these judgments, assumptions or
estimates could materially impact results of operations. This
critical policy and its application are periodically reviewed with the Audit
Committee and the Board of Directors.
The
provision for loan losses is based upon management’s evaluation of the adequacy
of the allowance, including an assessment of known and inherent risks in the
portfolio, giving consideration to the size and composition of the loan
portfolio, actual loan loss experience, level of delinquencies, detailed
analysis of individual loans for which full collectibility may not be assured,
the existence and estimated net realizable value of any underlying collateral
and guarantees securing the loans, and current economic and market
conditions. Although management uses the best information available,
the level of the allowance for loan losses remains an estimate, which is subject
to significant judgment and short-term change. Various regulatory
agencies, as an integral part of their examination process,
periodically
review the Corporation’s provision for loan losses. Such agencies may
require the Corporation to make additional provisions for loan losses based upon
information available to them at the time of their
examination. Furthermore, the majority of the Corporation’s loans are
secured by real estate in the State of New Jersey. Accordingly, the
collectibility of a substantial portion of the carrying value of the
Corporation’s loan portfolio is susceptible to changes in local market
conditions and may be adversely affected should real estate values decline or
should New Jersey experience adverse economic conditions. Future
adjustments to the provision for loan losses may be necessary due to economic,
operating, regulatory and other conditions beyond the Corporation’s
control.
EXECUTIVE
SUMMARY: For the second quarter of 2008, the Corporation’s net
income was $3.6 million as compared to $2.8 million for the same quarter of
2007, an increase of $766 thousand, or 27.2 percent. Earnings per
share were $0.43 per diluted share in the second quarter of 2008 as compared to
$0.33 per diluted share for the second quarter of 2007. The primary
factor contributing to the increase in net income is the improvement in net
interest income and the net interest margin, which is explained
below. Annualized return on average assets for the quarter was 1.05
percent and annualized return on average equity was 13.52 percent for the second
quarter of 2008.
In the
second quarter of 2008, net interest income, on a fully tax-equivalent basis,
was $11.7 million, an increase of $2.8 million or 31.6 percent from the second
quarter last year and an increase of $939 thousand or 8.7 percent over the first
quarter of 2008. On a fully tax-equivalent basis, the net interest
margin was 3.63 percent for the second quarter of 2008 as compared to 2.86
percent for the same period last year and 3.34 percent for the first quarter of
2008.
For the
second quarter of 2008, average loans increased $101.1 million or 11.3 percent
to $992.0 million. The Corporation’s long-term plan calls for a
substantial shift in the asset mix, with less emphasis on residential mortgages
and more emphasis on higher yielding commercial loans and commercial
mortgages. As a result of this strategy, the average commercial loan
portfolios grew $98.7 million or 28.7 percent, while the average mortgage loan
portfolio increased slightly to $493.9 million. Loan rates declined
33 basis points from the second quarter of 2007 to 5.77 percent for the same
quarter of 2008.
Deposits
averaged $1.19 billion in the second quarter of 2008, growing $19.2 million, or
1.6 percent, over the levels of the same year ago period. Deposit
gathering remains highly competitive as short-term market rates have declined in
the past few months. Rates paid for interest-bearing deposits were
2.34 percent in the second quarter of 2008, as compared to 3.67 percent for the
same quarter of 2007, a decline of 133 basis points.
The
Corporation recorded net income of $7.0 million for the first half of 2008, an
increase of $1.5 million or 27.9 percent over the $5.5 million recorded for the
same period of 2007. For the six months ended June 30, 2008 and 2007,
earnings per diluted share were $0.84 and $0.65,
respectively. Annualized return on average assets for the year to
date was 1.04 percent and annualized return on average equity was 13.16 percent
for the first six months of 2008.
Net
interest income, on a fully tax-equivalent basis, was $22.5 million for the
first six months of 2008, an increase of $5.0 million or 28.9 percent from the
first half of last year. On a fully tax-equivalent basis, the net
interest margin, was 3.48 percent and 2.84 percent for the six months ended June
30, 2008 and 2007, respectively.
Average
loans for the first half of 2008 totaled $987.3 million as compared to $881.0
million, an increase of $106.4 million or 12.1 percent over the same year ago
period. While the average mortgage loan portfolio remained flat to
the first half of 2007, the average commercial loan portfolios rose $105.4
million or 31.8 percent. Loan rates declined 20 basis points to 5.88
percent for the first six months of 2008 as compared to 2007.
In the
six months ended June 30, 2008 and 2007, deposits averaged $1.19 billion and
$1.16 billion, respectively, an increase of $37.9 million or 3.3
percent. Rates paid for interest-bearing deposits declined 100 basis
points to 2.65 percent in the first half of 2008. Borrowings for the
six months ended June 30, 2008 averaged $43.5 million, an increase of $17.9
million. During the first half of 2008, the Corporation borrowed
$23.0 million in fixed rates advances that are noncallable for one, two or three
years.
Average
investments declined $46.5 million for the first six months of 2008 when
compared to the same year-to-date period of 2007 and yields on investments
remained relatively constant. In 2007 and for the first six months of
2008, the Corporation followed a strategy of investing the proceeds of maturing
and sold securities into higher yielding loans. Investments include
pooled trust preferred securities, principally issued by banks, with an
amortized cost of $67.1 million and a fair value of $48.4 million at June 30,
2008. These securities have been classified in the available-for-sale
portfolio since their purchase and are performing in accordance with contractual
terms. The Corporation has the ability and intent to hold these
securities until maturity and, accordingly, transferred the securities to the
held-to-maturity portfolio in July of 2008.
Given the
challenging environment for many banks in the United States, there has been an
increase in payment deferrals by issuers of trust preferred securities and a
steady decline in the fair value of these securities. At June 30,
2008, all but one of the trust preferred securities owned by the Corporation had
an investment grade rating of A or better. The rating agencies have
recently placed a number of these securities on credit watch while they evaluate
the current rating for possible downgrade. At June 30, 2008,
Management does not believe an adverse change in the cash flows of the
underlying securities has occurred and, therefore, has not recorded a charge for
other-than-temporary impairment. The Corporation will continue to
evaluate these securities in the future.
EARNINGS
ANALYSIS
NET INTEREST
INCOME: Net interest income, on a tax-equivalent basis on
interest-earning assets and before the provision for loan losses, was $11.7
million for the second quarter of 2008 as compared to $8.9 million for the
second quarter of 2007, an increase of $2.8 million or 31.6
percent. On a fully tax-equivalent basis, the net interest margin was
3.63 percent and 2.86 percent in the second quarters of 2008 and 2007,
respectively, an increase of 77 basis points. When compared to the
first quarter of 2008, net interest income for the second quarter of 2008, rose
$939 thousand, or 8.7 percent, from $10.8 million on a tax-equivalent
basis. On a fully tax equivalent basis, the net interest margin,
increased from 3.34 percent in the first quarter of 2008, to 3.63 percent in the
second quarter of 2008.
For the
second quarter of 2008, average loans totaled $992.0 million, an increase of
$101.1 million or 11.3 percent from $890.9 million for the same quarter of
2007. While the average mortgage loan portfolio remained flat during
this period, the average commercial loan portfolios grew $98.7 million or 28.7
percent.
For the
second quarters of 2008 and 2007, average deposits were $1.19 billion and $1.17
billion, respectively, growing $19.2 million, or 1.6 percent. In the
second quarter of 2008, average non-interest bearing demand deposits increased
$8.5 million or 4.5 percent to $198.9 million, from the same quarter in
2007. Average money markets rose $22.7 million or 6.1 percent from
the second quarter in 2007, totaling $394.3 million in the second quarter of
2008. Average certificates of deposit declined $5.8 million or 1.4
percent due to competitive pressure on rates and the maturity of certificates
offered at a special rate for the grand opening of the Summit Branch beginning
in March 2007. Average borrowings increased by $22.8 million to $46.0
million in the second quarter of 2008, from $23.2 million in the same quarter of
2007.
Average
interest rates on interest-earning assets, on a tax-equivalent basis, declined
27 basis points to 5.55 percent for the second quarter of 2008 from 5.82 percent
for the same quarter of 2007. Average interest rates earned on
investment securities declined 14 basis points to 4.95 percent for the second
quarter of 2008. Average interest rates earned on loans declined 33
basis points for the second quarter of 2008 to 5.77 percent from 6.10 percent
for the same period in 2007. Improvement has already been seen in our
net interest margin since last year when we implemented our long-term plan,
which calls for a substantial shift in our asset mix, with less emphasis on
residential mortgages and more emphasis on higher yielding commercial loans and
commercial mortgages. We believe this material shift in our asset mix
will deliver substantially superior earnings performance over the coming
years. However, increases this quarter have been offset by lower
yields on adjustable-rate products and new loans as market rates and competition
drive some rates down.
For the
second quarter of 2008, average rates paid on interest-bearing deposits declined
133 basis points to 2.34 percent as compared to 3.67 percent for the same
quarter of 2007. Yields on money market products averaged 1.87
percent, while certificates of deposit yields averaged 3.67 percent for the
second quarter of 2008. Although overnight rates have declined since the second
quarter of 2007, interest expense on borrowings has increased due to the
increase in average overnight borrowings to $5.5 million in the second quarter
of 2008.
The cost
of funds decreased to 2.00 percent for the second quarter of 2008 as compared to
3.08 percent for the same quarter in 2007. The net interest income
and net interest margin has benefited from the Federal Reserve Board’s decisions
to reduce the fed funds target rate 225 basis points since the beginning of the
year.
For the
six months ended June 30, 2008, net interest income, on a fully tax-equivalent
basis and before the provision for loan losses, was $22.5 million as compared to
$17.5 million for the same period in 2007, an increase of $5.0 million or 28.9
percent. The net interest margin, on a fully tax-equivalent basis,
was 3.48 percent and 2.84 percent in the first six months of 2008 and 2007,
respectively, an increase of 64 basis points. Net interest income has
mostly benefited from the reduction in short-term market rates as liability
costs have declined $4.2 million when compared to the first half of
2007.
Average
loans for the six months ended June 30, 2008 and 2007 totaled $987.3 million and
$881.0 million, respectively, an increase of $106.4 million or 12.1
percent. The average commercial loan portfolios grew to $436.8
million for the first half of 2008 from $331.4 million for the same period in
2007, an increase of $105.4 million or 31.8 percent. The average
mortgage loan portfolio remained flat during this same
period. Average investments declined $46.5 million or 13.9 percent to
$286.9 million as maturities in this portfolio were reinvested in the loan
portfolio.
For the
first six months of 2008, average deposits were $1.19 billion, an increase of
$37.9 million or 3.3 percent. Average non-interest bearing demand
deposits increased to $192.4 million for the first half of 2008 from $185.4
million for the same year ago period, rising $7.0 million or 3.8
percent. Average money markets rose $25.3 million or 6.8 percent from
the six months ended June 30, 2007, totaling $400.2 million in the first half of
2008. Average certificates of deposit rose $12.8 million or 3.3
percent to $400.4 million for the first six months of 2008. For the
same six months of 2008, average borrowings increased by $17.9 million to $43.5
million from $25.6 million in the same period a year ago. The reason
for the increase is $23.0 million in fixed rates advances that the Corporation
has borrowed in the past year. These advances are noncallable for
one, two or three years and then callable quarterly within final maturities of
three, five or ten years.
On a
tax-equivalent basis, average interest rates on assets, for the first six months
of 2008 and 2007 were 5.65 percent and 5.79 percent, respectively, declining 14
basis points between 2008 and 2007. Average interest rates earned on
loans accounted for much of this decrease, declining 20 basis points for the
period in 2008 to 5.88 percent from 6.08 percent for the same period in
2007.
For the
six months ended June 30, 2008, average rates paid on interest-bearing deposits
declined 100 basis points to 2.65 percent as compared to 3.65 percent for the
same period in 2007. Yields on money market products averaged 2.25
percent, while certificates of deposit yields averaged 4.07 percent for the
first half of 2008. Average rates paid on borrowings declined 15
basis points, yielding 3.50 percent and 3.65 percent for the first half of 2008
and 2007, respectively.
The cost
of funds for the first half of 2008 also declined to 2.27 percent from 3.08
percent for the same year ago period. The net interest income and net
interest margin has benefited from the Federal Reserve Board’s decisions to
reduce the fed funds target rate 225 basis points since the beginning of the
year.
The
following tables reflect the components of net interest income for the periods
indicated:
Average
Balance Sheet
Unaudited
Quarters
Ended
(Tax-Equivalent
Basis, Dollars in Thousands)
|
|
June 30,
2008
|
|
|
June 30,
2007
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earnings
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
(1)
|
|
$ |
226,594 |
|
|
$ |
2,703 |
|
|
|
4.77 |
% |
|
$ |
271,494 |
|
|
$ |
3,435 |
|
|
|
5.06 |
% |
Tax-exempt
(1) (2)
|
|
|
58,617 |
|
|
|
828 |
|
|
|
5.65 |
|
|
|
56,597 |
|
|
|
740 |
|
|
|
5.23 |
|
Loans
(2) (3)
|
|
|
992,032 |
|
|
|
14,309 |
|
|
|
5.77 |
|
|
|
890,939 |
|
|
|
13,590 |
|
|
|
6.10 |
|
Federal
funds sold
|
|
|
849 |
|
|
|
5 |
|
|
|
2.15 |
|
|
|
26,935 |
|
|
|
357 |
|
|
|
5.30 |
|
Interest-earning
deposits
|
|
|
14,406 |
|
|
|
76 |
|
|
|
2.10 |
|
|
|
718 |
|
|
|
10 |
|
|
|
5.77 |
|
Total
interest-earning assets
|
|
|
1,292,498 |
|
|
$ |
17,921 |
|
|
|
5.55 |
% |
|
|
1,246,683 |
|
|
$ |
18,132 |
|
|
|
5.82 |
% |
Noninterest
-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
20,731 |
|
|
|
|
|
|
|
|
|
|
|
22,727 |
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(7,771 |
) |
|
|
|
|
|
|
|
|
|
|
(6,896 |
) |
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
26,484 |
|
|
|
|
|
|
|
|
|
|
|
25,121 |
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
25,984 |
|
|
|
|
|
|
|
|
|
|
|
26,851 |
|
|
|
|
|
|
|
|
|
Total
noninterest-earning assets
|
|
|
65,428 |
|
|
|
|
|
|
|
|
|
|
|
67,803 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,357,926 |
|
|
|
|
|
|
|
|
|
|
$ |
1,314,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
|
|
$ |
136,649 |
|
|
$ |
214 |
|
|
|
0.63 |
% |
|
$ |
138,530 |
|
|
$ |
303 |
|
|
|
0.87 |
% |
Money
markets
|
|
|
394,267 |
|
|
|
1,848 |
|
|
|
1.87 |
|
|
|
371,605 |
|
|
|
3,669 |
|
|
|
3.95 |
|
Savings
|
|
|
65,993 |
|
|
|
100 |
|
|
|
0.61 |
|
|
|
70,232 |
|
|
|
122 |
|
|
|
0.69 |
|
Certificates
of deposit
|
|
|
396,969 |
|
|
|
3,642 |
|
|
|
3.67 |
|
|
|
402,787 |
|
|
|
4,927 |
|
|
|
4.89 |
|
Total
interest-bearing deposits
|
|
|
993,878 |
|
|
|
5,804 |
|
|
|
2.34 |
|
|
|
983,154 |
|
|
|
9,021 |
|
|
|
3.67 |
|
Borrowings
|
|
|
45,975 |
|
|
|
391 |
|
|
|
3.40 |
|
|
|
23,224 |
|
|
|
204 |
|
|
|
3.51 |
|
Total
interest-bearing liabilities
|
|
|
1,039,853 |
|
|
|
6,195 |
|
|
|
2.38 |
|
|
|
1,006,378 |
|
|
|
9,225 |
|
|
|
3.67 |
|
Noninterest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
198,924 |
|
|
|
|
|
|
|
|
|
|
|
190,432 |
|
|
|
|
|
|
|
|
|
Accrued
expenses and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
liabilities
|
|
|
13,227 |
|
|
|
|
|
|
|
|
|
|
|
11,235 |
|
|
|
|
|
|
|
|
|
Total
noninterest-bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
|
|
|
212,151 |
|
|
|
|
|
|
|
|
|
|
|
201,667 |
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
105,922 |
|
|
|
|
|
|
|
|
|
|
|
106,441 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders’
equity
|
|
$ |
1,357,926 |
|
|
|
|
|
|
|
|
|
|
$ |
1,314,486 |
|
|
|
|
|
|
|
|
|
Net
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(tax-equivalent
basis)
|
|
|
|
|
|
|
11,726 |
|
|
|
|
|
|
|
|
|
|
|
8,907 |
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
3.17 |
% |
|
|
|
|
|
|
|
|
|
|
2.15 |
% |
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
3.63 |
% |
|
|
|
|
|
|
|
|
|
|
2.86 |
% |
Tax
equivalent adjustment
|
|
|
|
|
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
(237 |
) |
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
11,417 |
|
|
|
|
|
|
|
|
|
|
$ |
8,670 |
|
|
|
|
|
Average
Balance Sheet
Unaudited
Year-To-Date
(Tax-Equivalent
Basis, Dollars in Thousands)
|
|
June 30,
2008
|
|
|
June 30,
2007
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
|
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
|
Balance
|
|
|
Expense
|
|
|
Yield
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earnings
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
(1)
|
|
$ |
229,155 |
|
|
$ |
5,686 |
|
|
|
4.96 |
% |
|
$ |
276,786 |
|
|
$ |
6,944 |
|
|
|
5.02 |
% |
Tax-exempt
(1) (2)
|
|
|
57,719 |
|
|
|
1,603 |
|
|
|
5.56 |
|
|
|
56,549 |
|
|
|
1,479 |
|
|
|
5.23 |
|
Loans
(2) (3)
|
|
|
987,328 |
|
|
|
29,014 |
|
|
|
5.88 |
|
|
|
880,978 |
|
|
|
26,783 |
|
|
|
6.08 |
|
Federal
funds sold
|
|
|
7,001 |
|
|
|
112 |
|
|
|
3.19 |
|
|
|
16,468 |
|
|
|
436 |
|
|
|
5.30 |
|
Interest-earning
deposits
|
|
|
11,113 |
|
|
|
124 |
|
|
|
2.22 |
|
|
|
807 |
|
|
|
21 |
|
|
|
5.36 |
|
Total
interest-earning assets
|
|
|
1,292,316 |
|
|
$ |
36,539 |
|
|
|
5.65 |
% |
|
|
1,231,588 |
|
|
$ |
35,663 |
|
|
|
5.79 |
% |
Noninterest
-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
20,770 |
|
|
|
|
|
|
|
|
|
|
|
22,926 |
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(7,617 |
) |
|
|
|
|
|
|
|
|
|
|
(6,833 |
) |
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
26,478 |
|
|
|
|
|
|
|
|
|
|
|
24,765 |
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
27,210 |
|
|
|
|
|
|
|
|
|
|
|
26,748 |
|
|
|
|
|
|
|
|
|
Total
noninterest-earning assets
|
|
|
66,841 |
|
|
|
|
|
|
|
|
|
|
|
67,606 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,359,157 |
|
|
|
|
|
|
|
|
|
|
$ |
1,299,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking
|
|
$ |
136,544 |
|
|
$ |
424 |
|
|
|
0.62 |
% |
|
$ |
137,740 |
|
|
$ |
585 |
|
|
|
0.85 |
% |
Money
markets
|
|
|
400,168 |
|
|
|
4,497 |
|
|
|
2.25 |
|
|
|
374,825 |
|
|
|
7,506 |
|
|
|
4.01 |
|
Savings
|
|
|
65,373 |
|
|
|
199 |
|
|
|
0.61 |
|
|
|
71,397 |
|
|
|
246 |
|
|
|
0.69 |
|
Certificates
of deposit
|
|
|
400,441 |
|
|
|
8,145 |
|
|
|
4.07 |
|
|
|
387,618 |
|
|
|
9,391 |
|
|
|
4.85 |
|
Total
interest-bearing deposits
|
|
|
1,002,526 |
|
|
|
13,265 |
|
|
|
2.65 |
|
|
|
971,580 |
|
|
|
17,728 |
|
|
|
3.65 |
|
Borrowings
|
|
|
43,495 |
|
|
|
761 |
|
|
|
3.50 |
|
|
|
25,564 |
|
|
|
467 |
|
|
|
3.65 |
|
Total
interest-bearing liabilities
|
|
|
1,046,021 |
|
|
|
14,026 |
|
|
|
2.68 |
|
|
|
997,144 |
|
|
|
18,195 |
|
|
|
3.65 |
|
Noninterest
bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
192,371 |
|
|
|
|
|
|
|
|
|
|
|
185,368 |
|
|
|
|
|
|
|
|
|
Accrued
expenses and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
liabilities
|
|
|
13,747 |
|
|
|
|
|
|
|
|
|
|
|
11,101 |
|
|
|
|
|
|
|
|
|
Total
noninterest-bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
|
|
|
206,118 |
|
|
|
|
|
|
|
|
|
|
|
196,469 |
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
107,018 |
|
|
|
|
|
|
|
|
|
|
|
105,581 |
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders’
equity
|
|
$ |
1,359,157 |
|
|
|
|
|
|
|
|
|
|
$ |
1,299,194 |
|
|
|
|
|
|
|
|
|
Net
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(tax-equivalent
basis)
|
|
|
|
|
|
|
22,513 |
|
|
|
|
|
|
|
|
|
|
|
17,468 |
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
|
|
2.97 |
% |
|
|
|
|
|
|
|
|
|
|
2.14 |
% |
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
3.48 |
% |
|
|
|
|
|
|
|
|
|
|
2.84 |
% |
Tax
equivalent adjustment
|
|
|
|
|
|
|
(582 |
) |
|
|
|
|
|
|
|
|
|
|
(474 |
) |
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
21,931 |
|
|
|
|
|
|
|
|
|
|
$ |
16,994 |
|
|
|
|
|
|
(1)
|
Average
balances for available-for sale securities are based on amortized
cost.
|
|
(2)
|
Interest
income is presented on a tax-equivalent basis using a 35 percent federal
tax rate.
|
|
(3)
|
Loans
are stated net of unearned income and include non-accrual
loans.
|
|
(4)
|
Net
interest income on a tax-equivalent basis as a percentage of total average
interest-earning assets.
|
OTHER INCOME: Other
income was $3.7 million and $3.6 million in the second quarters of 2008 and
2007, respectively, an increase of $101 thousand, or 2.8 percent. In
the second quarter of 2008, PGB Trust and Investments, the Bank’s trust
division, generated $2.7 million in fee income, an increase of $206 thousand or
8.4 percent over the same quarter of 2007 due in part to higher levels of
overall business and higher estate fees. At June 30, 2008 the market
value of trust assets under administration for PGB Trust and Investments was
over $1.91 billion.
In the
second quarters of 2008 and 2007, the Corporation recorded securities gains of
$69 thousand and $220 thousand, respectively. The Corporation closed
the New Vernon Branch in the second quarter resulting in a loss on disposal of
fixed assets of $82 thousand.
Other
income, excluding trust fee income and the gains and losses noted above, totaled
$1.0 million and $881 thousand for the three months ended June 30, 2008 and
2007, respectively. In the first quarter of 2008, the Bank invested
in an additional $5.0 million of Bank Owned Life Insurance, which resulted in
additional income of $83 thousand in the second quarter of 2008. Also
included in other income in the second quarter of 2008 is fee income from the
sale of mortgage loans of $18 thousand.
For the
first half of 2008, other income was $7.4 million, an increase of $642 thousand
or 9.5 percent when compared to the $6.7 million recorded in the same period a
year ago. PGB Trust and Investments generated fee income of $5.2
million and $4.6 million in the first six months of 2008 and 2007,
respectively.
Securities
gains for the first half of 2008 totaled $379 thousand as compared to $382
thousand in the same period a year ago. Included in securities gains
in 2008 was a gain of $81 thousand from the mandatory redemption of Class B Visa
shares in conjunction with Visa’s initial public offering.
Relocating
the Shunpike Branch to Green Village Road and closing the New Vernon Branch in
2008 resulted in a $153 thousand loss on disposal of fixed
assets. All other income, excluding trust fee income and gains and
losses, for the first half of 2008, totaled $2.0 million, an increase of $252
thousand or 14.3 percent over the other income recorded in the first half of
2007. Income from Bank Owned Life Insurance increased $136 thousand
or 31.1 percent to $573 thousand for the six months ended June 30, 2008 when
compared to the year ago period. Also included in other income in the
first six months of 2008 and 2007 is fee income from the sale of mortgage loans
of $80 thousand and $18 thousand, respectively.
The
following table presents the components of other income for the periods
indicated:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Trust
department income
|
|
$ |
2,665 |
|
|
$ |
2,459 |
|
|
$ |
5,150 |
|
|
$ |
4,601 |
|
Service
charges and fees
|
|
|
540 |
|
|
|
513 |
|
|
|
1,029 |
|
|
|
1,003 |
|
Bank
owned life insurance
|
|
|
304 |
|
|
|
221 |
|
|
|
573 |
|
|
|
437 |
|
Other
non-interest income
|
|
|
83 |
|
|
|
68 |
|
|
|
238 |
|
|
|
158 |
|
Safe
deposit rental fees
|
|
|
56 |
|
|
|
56 |
|
|
|
123 |
|
|
|
122 |
|
Fees
for other services
|
|
|
26 |
|
|
|
23 |
|
|
|
51 |
|
|
|
42 |
|
(Losses)/gains
on disposal of fixed assets
|
|
|
(82 |
) |
|
|
- |
|
|
|
(153 |
) |
|
|
3 |
|
Securities
gains, net
|
|
|
69 |
|
|
|
220 |
|
|
|
379 |
|
|
|
382 |
|
Total
other income
|
|
$ |
3,661 |
|
|
$ |
3,560 |
|
|
$ |
7,390 |
|
|
$ |
6,748 |
|
OTHER EXPENSES: For
the second quarter of 2008, other expenses totaled $9.1 million as compared to
$8.0 million recorded in the second quarter of 2007, an increase of $1.1 million
or 13.8 percent. Salaries and benefits, the Corporation’s largest
non-interest expense, was $4.8 million for the second quarter of 2008 as
compared to $4.4 million for the same quarter of 2007, an increase of $473
thousand or 10.9 percent. This increase is due to the addition of new commercial
lending officers and support staff to carry out the Corporation’s strategic plan
to grow the commercial and construction loan portfolios, as well as normal
salary increases, branch expansion, higher group health insurance and pension
plan costs. Also, the Corporation expensed $82 thousand of
stock-based compensation expense in the second quarter of 2008 as compared to
$53 thousand in the same quarter of 2007.
Premises
and equipment expense increased $360 thousand, or 20.6 percent, from the second
quarter in 2007 to $2.1 million for the second quarter of 2008. The
increase is due in part to the additional expenses associated with new branches
and additional employees. New branches are vital to our future growth
and profitability. Deposit and loan growth continues as we add new
markets and expand our staff to include professional commercial
lenders. The Corporation continues to strive to operate in an
efficient manner.
Stationery
and supplies and telephone expense also rose due to the addition of new
branches, totaling $132 thousand, an increase of $15 thousand or 12.8 percent
and $117 thousand, an increase of $12 thousand or 11.4 percent,
respectively. Advertising expenses were $280 thousand for the second
quarter of 2008 as compared to $401 thousand for the same quarter in
2007. Professional services increased $33 thousand or 9.4 percent for
the second quarter of 2008 when compared to the same quarter last year and
includes increased legal expenses related to nonperforming loans.
Other
expenses totaled $17.7 million for the first six months of 2008, an increase of
$2.2 million or 13.9 percent over the $15.6 million recorded for the same period
of 2007. For the six months ended June 30, 2008, salaries and
benefits expense was $9.7 million, an increase of $1.1 million or 13.1 percent
over the expense recorded year to date June 30, 2007. As noted above,
the Corporation has hired additional commercial lending officers and support
staff in order to increase the commercial and construction loan
portfolios. In addition, branch expansion, normal salary increases
and higher group health insurance and pension plan costs contributed to the
increase.
The
Corporation recorded $4.1 million of premises and equipment expense in the six
months ended June 30, 2008 as compared to $3.6 million for the same period a
year ago, an increase of $546 thousand or 15.2 percent. The increase
is due in part to the additional expenses, such as depreciation, utilities and
various equipment associated with a new branch and additional
employees.
The
following table presents the components of other expense for the periods
indicated:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Salaries
and employee benefits
|
|
$ |
4,833 |
|
|
$ |
4,360 |
|
|
$ |
9,744 |
|
|
$ |
8,614 |
|
Premises
and equipment
|
|
|
2,108 |
|
|
|
1,748 |
|
|
|
4,148 |
|
|
|
3,603 |
|
Professional
fees
|
|
|
383 |
|
|
|
350 |
|
|
|
620 |
|
|
|
514 |
|
Advertising
|
|
|
280 |
|
|
|
401 |
|
|
|
533 |
|
|
|
623 |
|
Trust
department expense
|
|
|
198 |
|
|
|
131 |
|
|
|
337 |
|
|
|
211 |
|
Stationery
and supplies
|
|
|
132 |
|
|
|
117 |
|
|
|
242 |
|
|
|
166 |
|
Telephone
|
|
|
117 |
|
|
|
105 |
|
|
|
228 |
|
|
|
230 |
|
Postage
|
|
|
106 |
|
|
|
82 |
|
|
|
197 |
|
|
|
195 |
|
Other
expense
|
|
|
972 |
|
|
|
725 |
|
|
|
1,689 |
|
|
|
1,421 |
|
Total
other expense
|
|
$ |
9,129 |
|
|
$ |
8,019 |
|
|
$ |
17,738 |
|
|
$ |
15,577 |
|
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 $5.2 million and $2.1
million at June 30, 2008 and December 31, 2007 respectively. The
increase in non-performing assets from the year end 2007 was the result of
higher non-accrual loans, including a commercial loan of $1.2 million and
several residential mortgage loans. Peapack-Gladstone Bank has no
sub-prime loans or higher-interest rate loans to borrowers with impaired or
non-existent credit histories, in its loan portfolio.
The
following table sets forth non-performing assets on the dates indicated, in
conjunction with asset quality ratios:
|
|
June
30,
|
|
|
December
31,
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Loans
past due in excess of 90 days and still accruing
|
|
$ |
- |
|
|
$ |
- |
|
Non-accrual
loans
|
|
|
3,611 |
|
|
|
2,131 |
|
Other
real estate owned
|
|
|
1,564 |
|
|
|
- |
|
Total
non-performing assets
|
|
$ |
5,175 |
|
|
$ |
2,131 |
|
|
|
|
|
|
|
|
|
|
Non-performing
loans as a % of total loans
|
|
|
0.36 |
% |
|
|
0.22 |
% |
Non-performing
assets as a % of total loans plus
|
|
|
|
|
|
|
|
|
other
real estate owned
|
|
|
0.51 |
% |
|
|
0.22 |
% |
Allowance
as a % of total loans
|
|
|
0.82 |
% |
|
|
0.76 |
% |
PROVISION FOR LOAN
LOSSES: The provision for loan losses was $590 thousand for
the second quarter of 2008 as compared to $100 thousand for the same period of
2007 and $430 thousand for the first quarter of 2008. The provision
for loan losses for the first six months of 2008 and 2007 was $1.0 million and
$225 thousand, respectively. The amount of the loan loss provision
and the level of the allowance for loan losses are based upon a number of
factors including management’s evaluation of probable losses inherent in the
portfolio, after consideration of appraised collateral values, financial
condition and past credit history of the borrowers as well as prevailing
economic conditions. The higher provision reflects the increased
percentage of commercial credits in relation to the entire loan
portfolio. Commercial credits carry a higher risk profile, which is
reflected in Management’s determination of the proper level of the allowance for
loan losses. In addition, Management has determined a higher
provision prudent because of continued weakness in the housing
markets.
For the
second quarter of 2008 there were net charge-offs of $71 thousand as compared to
no net charge-offs or recoveries in the second quarter of 2007. Net
charge-offs for the six months ended June 30, 2008 were $225 thousand as
compared to net recoveries of $1 thousand for the same six months of
2007.
A summary
of the allowance for loan losses for the periods indicated:
(In
thousands)
|
|
2008
|
|
|
2007
|
|
Balance,
January 1,
|
|
$ |
7,500 |
|
|
$ |
6,768 |
|
Provision
charged to expense
|
|
|
1,020 |
|
|
|
225 |
|
Charge-offs
|
|
|
(238 |
) |
|
|
(2 |
) |
Recoveries
|
|
|
13 |
|
|
|
3 |
|
Balance,
June 30,
|
|
$ |
8,295 |
|
|
$ |
6,994 |
|
INCOME
TAXES: Income tax expense as a percentage of
pre-tax income was 33.2 percent and 31.6 percent for the quarters ended June 30,
2008 and 2007, respectively. Pre-tax income increased from $4.1
million for the second quarter in 2007 to $5.4 million from the same period in
2008. For the first six months in 2008 and 2007, income tax expense
as a percentage of pre-tax income was 33.3 percent and 30.7 percent,
respectively.
CAPITAL
RESOURCES: At June 30, 2008, total shareholders’ equity was
$102.4 million as compared to $106.1 million at June 30, 2007 and $107.4 million
at December 31, 2007. The primary reason for the decline reflects the
recognition of unrealized losses as a component of shareholders’ equity in the
Bank’s available for sale corporate securities portfolio.
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. Tier 1 Capital consists of common
stock, retained earnings, minority interests in the equity accounts of
consolidated subsidiaries and non-cumulative preferred stock, less goodwill and
certain other intangibles. The remainder may consist of other
preferred stock, certain other instruments and a portion of the allowance for
loan loss. At June 30, 2008, the Corporation’s Tier 1 Capital and
Total Capital ratios were 12.18 percent and 13.05 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 Corporation’s leverage ratio at June 30, 2008, was 8.59
percent.
LIQUIDITY: Liquidity
refers to an institution’s ability to meet short-term requirements in the form
of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary
investments and securities available for sale.
Management’s
opinion is that the Corporation’s liquidity position is sufficient to meet
future needs. Cash and cash equivalents, interest earning deposits
and federal funds sold totaled $27.8 million at June 30, 2008. In
addition, the Corporation has $164.6 million in securities designated as
available for sale excluding the market value of the trust preferred securities
of $48.5 million transferred to held to maturity on July 1,
2008. These securities can be sold in response to liquidity concerns
or pledged as collateral for borrowings as discussed below. Carrying
value as of June 30, 2008, of investment securities and securities available for
sale maturing within one year totals $10.9 million.
The
primary source of funds available to meet liquidity needs is the Corporation’s
core deposit base, which excludes certificates of deposit greater than $100
thousand. As of June 30, 2008, core deposits equaled $1.0
billion.
Another
source of liquidity is borrowing capacity. The Corporation has a
variety of sources of short-term liquidity available, including federal funds
purchased from correspondent banks, short-term and long-term borrowings from the
Federal Home Loan Bank of New York, access to the Federal Reserve Bank discount
window and loan participations of sales of loans. The Corporation
also generates liquidity from the regular principal payments made on its
mortgage-backed securities and loan portfolios.
RECENT ACCOUNTING
PRONOUNCEMENTS:
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(Statement No. 157). Statement No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Statement No. 157 establishes a fair value
hierarchy about the assumptions used to measure fair value and clarifies
assumptions about risk and the effect of a restriction on the sale or use of an
asset. The standard is effective for fiscal years beginning after
November 15, 2007. The adoption of Statement No. 157 did not have a
material impact on the Corporation’s financial statements.
In February 2007, the Financial
Accounting Standards Board (FASB) issued FASB Statement No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (Statement No.
159). Statement No. 159 provides companies with an option to report
selected financial assets and liabilities at fair value. Statement
No. 159’s objective is to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets
and liabilities differently. Statement No. 159 is effective as of the
beginning of an entity’s first fiscal year beginning after November 15,
2007. The adoption of Statement No. 159 did not have a material
impact on the Corporation’s financial statements.
In
September 2006, the FASB Emerging Issues Task Force (EITF) finalized Issue No.
06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsement Split-Dollar Life Insurance Arrangements.” EITF 06-4
requires that a liability be recorded during the service period when a
split-dollar life insurance agreement continues after participants’ employment
or retirement. The required accrued liability will be based on either
the post-employment benefit cost for the continuing life insurance or based on
the future death benefit depending on the contractual terms of the underlying
agreement. EITF 06-4 is effective for fiscal years beginning after
December 15, 2007. The adoption of EITF 06-4 resulted in an accrued
benefit liability of $449 thousand, which was taken against retained earnings
and an annual expense of approximately $94 thousand in 2008.
In
November 2007, the SEC issued Staff Accounting Bulletin No. 109, “Written Loan
Commitments Recorded at Fair Value through Earnings” (SAB 109). Previously,
SAB 105, “Application of Accounting Principles to Loan Commitments,” stated that
in measuring the fair value of a derivative loan commitment, a company should
not incorporate the expected net future cash flows related to the associated
servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the
expected net future cash flows related to the associated servicing of the loan
should be included in measuring fair value for all written loan commitments that
are accounted for at fair value through earnings. SAB 105 also
indicated that internally-developed intangible assets should not be recorded as
part of the fair value of a derivative loan commitment, and SAB 109 retains that
view. SAB 109 is effective for derivative loan commitments issued or
modified in fiscal quarters beginning after December 15, 2007. The
adoption of SAB 109 did not have a material impact on the Corporation’s
consolidated financial statements.
In
December 2007, the SEC issued Staff Accounting Bulletin No. 110, “Share-Based
Payment” (SAB 110) allows companies to continue to use a “simplified” method, as
discussed in SAB 107, in developing an estimate of the expected term of “plain
vanilla” share options in accordance with FAS 123R. SAB 107
originally indicated that use of the “simplified” method could not continue
beyond December 31, 2007. The simplified method can only be used
under certain circumstances. Examples of situations where it may be
appropriate to use the simplified method include 1) instances where a company
does not have sufficient historical exercise data, 2) significantly changes the
terms of its share option grants or types of employees who receive grants and 3)
instances when a company expects significant changes to its business that would
impact the reliance on historical exercise data. The adoption of SAB
110 did not have a material effect on the Corporation’s financial
statements.
ITEM
3. Quantitative and Qualitative Disclosures about
Market Risk
There
have been no material changes to information required regarding quantitative and
qualitative disclosures about market risk from the end of the preceding fiscal
year to the date of the most recent interim financial statements (June 30,
2008).
ITEM
4. Controls and Procedures
The
Corporation’s Chief Executive Officer and Chief Financial Officer, with the
assistance of other members of the Corporation’s management, have evaluated the
effectiveness of the Corporation’s disclosure controls and procedures (as
defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the
end of the period covered by this Quarterly report on Form
10-Q. Based on such evaluation, the Corporation’s Chief Executive
Officer and Chief Financial Officer have concluded that the Corporation’s
disclosure controls and procedures are effective.
The
Corporation’s Chief Executive Officer and Chief Financial Officer have also
concluded that there have not been any changes in the Corporation’s internal
control over financial reporting that have materially affected, or is reasonable
likely to materially affect, the Corporation’s internal control over financial
reporting.
The
Corporation’s management, including the CEO and CFO, does not expect that our
disclosure controls and procedures of our internal controls will prevent all
errors and all fraud. A control system, no matter how well conceived
and operated, provides reasonable, not absolute, assurance that the objectives
of the control system are met. The design of a control system
reflects resource constraints; the benefits of controls must be considered
relative to their costs. Because there are inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Corporation
have been or will be detected. These inherent limitations include the
realities that judgments in decision-making can be faulty that breakdowns occur
because of simple error or mistake. Controls can be circumvented by
the individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events. There can be no assurance that any design will succeed
in achieving its stated goals under all future conditions; over time, control
may become inadequate because of changes in conditions or deterioration in the
degree of compliance with the policies or procedures. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
There
were no material changes in the Corporation’s risk factors during the three
months ended June 30, 2008 from the risk factors disclosed in Part I, Item 1A of
the Corporation’s Annual Report on Form 10-K for the year ended December 31,
2007.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
Total
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Maximum
Number
|
|
|
|
Total
|
|
|
|
|
|
Purchased
as
|
|
|
Of
Shares That May
|
|
|
|
Number
of
|
|
|
Average
|
|
|
Part
of Publicly
|
|
|
Yet
be Purchased
|
|
|
|
Shares
|
|
|
Price
Paid
|
|
|
Announced
Plans
|
|
|
Under
the Plans or
|
|
Period
|
|
Purchased
|
|
|
Per
Share
|
|
|
Or
Programs
|
|
|
Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
1-30, 2008
|
|
|
1,300 |
|
|
$ |
25.22 |
|
|
|
1,300 |
|
|
|
44,000 |
|
May
1-31, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
44,000 |
|
June
1-30, 2008
|
|
|
1,548 |
|
|
|
25.50 |
|
|
|
1,548 |
|
|
|
42,452 |
|
Total
|
|
|
2,848 |
|
|
$ |
25.37 |
|
|
|
2,848 |
|
|
|
|
|
On April
15, 2005, the Board of Directors of Peapack-Gladstone Financial Corporation
announced the authorization of a stock repurchase plan. The Board
authorized the purchase of up to 150,000 shares of outstanding common stock, to
be made from time to time, in the open market or in privately negotiated
transactions, at prices not exceeding prevailing market prices. The
Board of Directors authorized another extension of the stock buyback program for
an additional twelve months to April 15, 2009.
ITEM
4. Submission of Matters to a Vote of Security Holders
At the
Annual Meeting of shareholders held on April 22, 2008, in the Borough of
Peapack-Gladstone, New Jersey, the following persons were elected as directors
of Peapack-Gladstone Financial Corporation for a term of one year:
DIRECTORS
|
FOR
|
WITHHELD
|
|
|
|
Anthony
J. Consi II
|
7,420,018
|
30,679
|
Pamela
Hill
|
7,398,196
|
52,501
|
Frank
A. Kissel
|
7,421,146
|
29,551
|
John
D. Kissel
|
7,421,836
|
28,861
|
James
R. Lamb
|
7,425,854
|
24,843
|
Edward
A. Merton
|
7,398,581
|
52,116
|
F.
Duffield Meyercord
|
7,415,085
|
35,612
|
John
R. Mulcahy
|
7,395,645
|
55,052
|
Robert
M. Rogers
|
7,421,646
|
29,051
|
Philip
W. Smith III
|
7,405,406
|
45,291
|
Craig
C. Spengeman
|
7,424,281
|
26,416
|
3
|
|
Articles
of Incorporation and By-Laws:
|
|
|
A. Restated
Certificate of Incorporation as in effect on the date of this filing are
incorporated herein by reference to the Registrant’s Current Report on
Form 10-Q filed on May 8, 2008.
|
|
|
|
|
|
B.
Amended By-Laws of the Registrant as in effect on the date of this
filing are incorporated herein by reference to the Registrant’s Current
Report on Form 8-K filed on April 27, 2007.
|
|
|
|
31.1
|
|
Certification
of Frank A. Kissel, Chief Executive Officer of the Corporation, pursuant
to Securities Exchange Act Rule 13a-14(a).
|
|
|
|
31.2
|
|
Certification
of Arthur F. Birmingham, Chief Financial Officer of the Corporation,
pursuant to Securities Exchange Act Rule 13a-14(a).
|
|
|
|
32
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act Of 2002, signed by Frank A. Kissel, Chief Executive
Officer of the Corporation, and Arthur F. Birmingham, Chief Financial
Officer of the Corporation.
|
SIGNATURES
Pursuant
to the requirements 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)
|
|
|
|
|
DATE: August
8, 2008
|
By:
/s/ Frank A. Kissel
|
|
Frank
A. Kissel
|
|
Chairman
of the Board and Chief Executive Officer
|
|
|
|
|
DATE: August
8, 2008
|
By:
/s/ Arthur F. Birmingham
|
|
Arthur
F. Birmingham
|
|
Executive
Vice President and Chief Financial
Officer
|
EXHIBIT
INDEX
Number
|
|
Description
|
|
|
|
3
|
|
Articles
of Incorporation and By-Laws:
|
|
|
A. Restated
Certificate of Incorporation as in effect on the date of this filing are
incorporated herein by reference to the Registrant’s Current Report on
Form 10-Q filed on May 8, 2008.
|
|
|
|
|
|
B.
Amended By-Laws of the Registrant as in effect on the date of this
filing are incorporated herein by reference to the Registrant’s Current
Report on Form 8-K filed on April 27, 2007.
|
|
|
|
|
|
Certification
of Frank A. Kissel, Chief Executive Officer of the Corporation, pursuant
to Securities Exchange Act Rule 13a-14(a).
|
|
|
|
|
|
Certification
of Arthur F. Birmingham, Chief Financial Officer of the Corporation,
pursuant to Securities Exchange Act Rule 13a-14(a).
|
|
|
|
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act Of 2002, signed by Frank A. Kissel, Chief Executive
Officer of the Corporation, and Arthur F. Birmingham, Chief Financial
Officer of the Corporation.
|
29