Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
PGC > SEC Filings for PGC > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for PEAPACK GLADSTONE FINANCIAL CORP

Form 10-Q for PEAPACK GLADSTONE FINANCIAL CORP


9-Nov-2012

Quarterly Report


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, those risk factors identified in the Corporation's Form 10-K for the year ended December 31, 2011 and the following:

a continued or unexpected decline in the economy, in particular in our New Jersey market area;

declines in value in our investment portfolio;

higher than expected increases in our allowance for loan losses;

higher than expected increases in loan losses or in the level of nonperforming loans;

unexpected changes in interest rates;

inability to successfully grow our business;

inability to manage our growth;

a continued or unexpected decline in real estate values within our market areas;

legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations) subject us to additional regulatory oversight which may result in increased compliance costs;

higher than expected FDIC insurance premiums;

lack of liquidity to fund our various cash obligations;

reduction in our lower-cost funding sources;

our inability to adapt to technological changes;

claims and litigation pertaining to fiduciary responsibility, environmental laws and other matters;

adverse effects of Hurricane Sandy on business conditions and property values in New Jersey; and

other unexpected material adverse changes in our operations or earnings.

The Corporation assumes no responsibility to update such forward-looking statements in the future even if experience shows that the indicated results or events will not be realized. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the Corporation cannot guarantee future results, levels of activity, performance, or achievements.

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 for the year ended December 31, 2011, contains a summary of the Corporation's significant accounting policies.

Management believes that 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 requires assumptions or estimates about highly uncertain matters. Changes in these judgments, assumption 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.

Table of Contents

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 collectability may not be assured, the existence and estimated fair 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 allowance 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 collectability 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 continue to decline or New Jersey experiences continuing adverse economic conditions. Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Corporation's control.

The Corporation accounts for its securities in accordance with "Accounting for Certain Investments in Debt and Equity Securities," which was codified into ASC
320. Debt securities are classified as held to maturity and carried at amortized cost when Management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity due to changes in interest rates, prepayment, risk, liquidity or other factors. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

For declines in the fair value of securities below their cost that are other-than-temporary, the amount of impairment is split into two components - other-than-temporary impairment related to other factors, which is recognized in other comprehensive income and other-than-temporary impairment related to credit loss, which must be recognized in the income statement. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. In estimating other-than-temporary losses on a quarterly basis, Management considers the length of time and extent that fair value has been less than cost; the financial condition and near-term prospects of the issuer; and whether the Corporation has the intent to sell these securities or it is likely that it will be required to sell the securities before their anticipated recovery.

Securities are evaluated on at least a quarterly basis to determine whether a decline in their values is other-than-temporary. To determine whether a loss in value is other-then-temporary, Management utilizes criteria such as the reasons underlying the decline, the magnitude and the duration of the decline and whether the Corporation intends to sell or is likely to be required to sell the security before its anticipated recovery. "Other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. The Corporation recognized no other-than-temporary impairment charges in the three or nine months ended September 30, 2012 and 2011.

RECENT EVENTS: On October 29, 2012, Hurricane Sandy struck New Jersey and the Northeast, causing damage and business closures throughout our primary New Jersey market area. While the Corporation did experience some minor damage and service disruptions during the storm, it did return to normal operations within a matter of days.

The Corporation completed the first phase of its review of its loan portfolio following the hurricane. Amounts outstanding or committed on residential first and second mortgage loans and commercial mortgage loans secured by properties located in a designated flood zone within New Jersey coastal towns total $15.9 million, or 1.5 percent of the outstanding loan portfolio as of September 30, 2012. The weighted average loan-to-value ratio at origination of such loans was 56 percent, implying property values at loan origination of approximately $28 million. Further, all such properties were required to carry flood insurance, resulting in $8.8 million of potential flood insurance coverage.

The Corporation continues to evaluate the effects of the storm in general, and on its loan portfolio, and, although there can be no assurances, does not believe the overall effect of the storm will materially affect financial performance. For more details regarding risk factors that may affect the Corporation, see Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2012.

Table of Contents

EXECUTIVE SUMMARY: For the third quarter of 2012, the Corporation recorded net income of $2.8 million as compared to $5.3 million for same quarter 2011. Diluted earnings per common share, after giving effect for the preferred dividend, were $0.32 and $0.58 for the third quarters of 2012 and 2011, respectively. For the third quarter of 2012, annualized return on average assets was 0.72 percent and annualized return on average common equity was 9.77 percent. The 2012 quarter includes an increase in net interest income, trust fee income and gain on sale of loans, a decline in the provision for loan losses and a decline in the dividends and accretion on preferred stock as a result of the 2012 redemption of the remaining preferred shares issued under the Treasury's CPP, offset by an increase in operating expenses and tax expense.

The results for the third quarter of 2011 include the reversal of a previously recorded valuation allowance that was established against deferred state tax assets of $3.0 million, or $0.34 per diluted earnings per common share. The Corporation believes that comparing net income without considering the reversal of the state tax valuation allowance provides a better analysis of net income trends. Excluding the reversal, net income for the third quarter of 2011 was $2.3 million, and when compared to this number, net income for the third quarter of 2012 increased $488 thousand, or 20.8 percent.

Net interest income, on a fully tax-equivalent basis, was $13.0 million for the third quarter of 2012 as compared to $12.1 million for the same quarter of 2011, an increase of $943 thousand or 7.8 percent. For the third quarters of 2012 and 2011, the net interest margin, on a fully tax-equivalent basis, was 3.50 percent and 3.37 percent, respectively.

For the third quarter of 2012, average loans totaled $1.10 billion, increasing $134.5 million, or 13.9 percent, from $964.4 million for the same quarter of 2011. The yield on loans was 4.36 percent for the third quarter of 2012 as compared to 4.81 percent for the same quarter of 2011, a decline of 45 basis points from the 2011 quarter to the 2012 quarter.

Average deposits for the three months ended September 30, 2012, were $1.44 billion as compared to $1.38 billion for the third quarter of 2011, increasing $56.8 million or 4.1 percent. The average cost of interest-bearing deposits for the third quarter of 2012 was 0.32 percent, as compared to 0.51 percent for the same quarter in 2011, a decline of 19 basis points.

The Corporation recorded net income of $8.6 million and $9.6 million for the nine months ended September 30, 2012 and 2011, respectively, a decrease of $1.0 million or 10.4 percent over the 2011 period. Diluted earnings per common share, after giving effect for the preferred dividend, were $0.93 for the nine months ended September 30, 2012 as compared to $0.98 for the same period of 2011. The annualized return on average assets was 0.73 percent and annualized return on average common equity was 9.63 percent for the nine months ended September 30, 2012. The nine-month 2012 period includes an increase in operating and tax expenses, offset by an increase in net interest income, trust fee income and gain on sale of loans, a decline in the provision for loan losses and a decline in the dividends and accretion on preferred stock as a result of the 2012 redemption of the remaining preferred shares issued under the Treasury's CPP, offset by an increase in operating expenses and tax expense.

For the nine months ended September 30, 2012 and 2011, net interest income, on a fully tax-equivalent basis, was $39.1 million and $36.8 million, respectively, an increase of $2.4 million or 6.4 percent. The net interest margin, on a fully tax-equivalent basis, was 3.52 percent and 3.46 percent for the nine months ended September 30, 2012 and 2011, respectively.

Table of Contents

For the first nine months of 2012, average loans increased $127.7 million or 13.3 percent to $1.08 billion from $956.7 million for the same 2011 period. The yield on loans was 4.43 percent for the nine months ended September 30, 2012 as compared to 4.88 percent for the same 2011 period, a decrease of 45 basis points.

Average deposits totaled $1.42 billion for the nine months ended September 30, 2012, increasing $62.5 million, or 4.6 percent from $1.36 billion for the same months of 2011. The average cost of interest-bearing deposits for the first nine months of 2012 was 0.34 percent, as compared to 0.57 percent for the same period in 2011, a decline of 23 basis points.

CONTRACTUAL OBLIGATIONS:For a discussion of our contractual obligations, see the information set forth in the Corporation's 2011 Annual Report on Form 10-K under the heading "Management's Discussion and Analysis - Contractual Obligations" which is incorporated herein by reference.

OFF-BALANCE SHEET ARRANGEMENTS:For a discussion of our off-balance sheet arrangements, see the information set forth in the Corporation's 2011 Annual Report on Form 10-K under the heading "Management's Discussion and Analysis - Off-Balance Sheet Arrangements" which is incorporated herein by reference.

EARNINGS ANALYSIS

NET INTEREST INCOME: For the third quarter of 2012, the Corporation recorded net interest income, on a tax-equivalent basis, of $13.0 million as compared to $12.1 million for the same quarter of 2011, an increase of $943 thousand or 7.8 percent. For the third quarters of 2012 and 2011, the net interest margin was 3.50 percent and 3.37 percent, respectively. During the third quarter of 2012, rates were lower on new loans, compared to the rates on loans that are maturing or paying down; however, the growth in the loan portfolio contributed to the growth in net interest income. Additionally, the Corporation continued to lower average funding costs in core deposits, and, to a lesser extent, certificates of deposits repriced at lower market rates or transferred to other, lower-costing deposit products.

Average investments, federal funds sold and interest-earning deposits totaled $382.6 million for the third quarter of 2012, declining $83.0 million, or 17.8 percent, from the $465.6 million recorded for the same quarter of 2011. The decline in these categories primarily funded loan growth.

Average loans totaled $1.10 billion for the third quarter of 2012 as compared to $964.4 million for the same period in 2011, increasing $134.5 million, or 13.9 percent, when compared to the same quarter in 2011. Much of the growth was in mortgages as the residential mortgage portfolio increased to an average of nearly $521.0 million for the third quarter of 2012, increasing $86.6 million, or 19.9 percent, over the same quarter of 2011. The commercial mortgage portfolio increased $65.8 million, or 20.8 percent, from the year ago period, averaging $382.4 million for the third quarter of 2012. The Corporation has increased its emphasis on multifamily lending, as well as continuing to provide mortgage loans on a variety of commercial and residential properties to creditworthy borrowers. Home equity loans averaged $50.6 million for the third quarter of 2012, rising $778 thousand or 1.6 percent from the same period of 2011. For the third quarters of 2012 and 2011, the commercial construction portfolio averaged $7.7 million and $15.1 million, respectively, declining $7.3 million, or 48.6 percent, from the same period in 2011, due to the conversion of some loans to permanent loans and also due to the resolution of some problem loans. For the third quarter of 2012, the commercial loan portfolio averaged nearly $114.8 million as compared to $127.7 million for the same quarter of 2011, a decline of $12.9 million, or 10.1 percent, from the prior year, while the installment loans portfolio averaged $21.8 million for the third quarter of 2012 as compared to $20.1 million for the same three months in 2011, an increase of $1.7 million, or 8.4 percent.

Table of Contents

For the third quarters of 2012 and 2011, average deposits totaled $1.44 billion and $1.38 billion, respectively, increasing $56.8 million, or 4.1 percent. Interest-bearing checking accounts averaged $335.0 million for the three months ended September 30, 2012, as compared to $321.4 million for the same period in 2011, an increase of $13.6 million, or 4.2 percent. Noninterest-bearing demand deposits increased $58.5 million, or 23.7 percent, over the third quarter of 2011 to an average of $305.2 million for the third quarter of 2012. Checking growth is attributable to the Corporation's continued focus on business and personal core deposit growth. For the third quarter of 2012, savings accounts averaged $104.3 million, increasing $16.4 million or 18.7 percent from the same quarter of 2011. Money market accounts averaged $503.2 million for the third quarter of 2012, as compared to $519.9 million for the third quarter of 2011, decreasing $16.7 million, or 3.2 percent from the prior year quarter. Overall, the Corporation has seen an increase in savings accounts as customers tend to increase savings in a lower or uncertain interest rate environment, to wait for a higher or a more certain rate environment. Average certificates of deposit totaled $188.6 million and $203.6 million, for the third quarters of 2012 and 2011 respectively, decreasing $15.0 million, or 7.4 percent, over the 2011 quarter. The Corporation has opted not to pay higher rates on maturing certificates of deposit. The Corporation believes it has ample liquidity from core deposits, principal paydowns on loans and maturing or called investments.

Overnight borrowings from the Federal Home Loan Bank of New York averaged $1.7 million for the third quarter of 2012; there was no average balance for the 2011 quarter. For the third quarter of 2012, average other borrowings totaled $13.6 million, declining $7.2 million, or 34.6 percent when compared to the same quarter of 2011, as maturing borrowings were not replaced.

Average yields on interest-earning assets, on a tax-equivalent basis, declined four basis points to 3.81 percent for the third quarter of 2012 from 3.85 percent for the same quarter of 2011. Average yields earned on investments securities were 2.57 percent for the third quarter of 2012, as compared to 2.18 percent for the same period in the prior year, a decline of 39 basis points. For the third quarter of 2012, the average yield on the loan portfolio was 4.36 percent, declining 45 basis points from the 2011 quarter. Yields on loans continue to experience downward pressure as competition for quality loans is intense.

Including the effect of noninterest-earning demand deposits, the cost of funds was 31 basis points for the third quarter of 2012 as compared to 48 basis points for the same 2011 quarter, decreasing 17 basis points. The average cost of interest-bearing checking deposits was 11 basis points in the third quarter of 2012, declining 22 basis points from 33 basis points in the same period in 2011. For the quarters ended September 30, 2012 and 2011, the cost of money market products averaged 21 basis points and 34 basis points, respectively, declining 13 basis points when compared to the same period in 2011. Certificates of deposit costs averaged 1.17 percent in the third quarter of 2012, as compared to 1.34 percent for the same quarter of 2011, declining 17 basis points, from the prior year period.

The Corporation's repricing of its interest-bearing assets and liabilities and the effect of the sustained low rate environment on market rates contributed to the decline in yields and costs of these assets and liabilities. The growth of the loan portfolio funded by the decline in lower-yielding investments and interest-earning deposits enabled the Corporation to increase the net interest margin to 3.50 percent in the third quarter of 2012 from 3.37 percent for the same period in 2011.

For the nine months ended September 30, 2012 and 2011, the Corporation recorded net interest income, on a tax-equivalent basis, of $39.1 million and $36.8 million, respectively, an increase of $2.4 million or 6.4 percent. The net interest margin was 3.52 percent for the first nine months of 2012 as compared to 3.46 percent for the same 2011 period. Rates on new loans were lower when compared to the rates on loans that were maturing or paying down in the first nine months of 2012; however, the growth in the loan portfolio offset much of this decline and contributed to a slightly increased margin. The Corporation also continued to lower average funding costs in certificates of deposits and core deposits.

Average investments, federal funds sold and interest-earning deposits totaled $395.0 million for the nine months ended September 30, 2012, declining $62.4 million, or 13.6 percent, from the average of $457.4 million for the same 2011 period. The decline in these categories primarily funded loan growth.

Table of Contents

For the nine months ended September 30, 2012, average loans totaled almost $1.08 billion, increasing $127.7 million or 13.3 percent over the $956.7 million averaged for the same period of 2011. Much of the growth in loans year over year was in the residential mortgage and commercial mortgage portfolios, as the Corporation increased its emphasis on multifamily lending, as well as continued to provide mortgage loans on a variety of commercial and residential properties to creditworthy borrowers. The residential mortgage portfolio averaged $521.1 million for the nine months ended September 30, 2012, as compared to $434.2 million for the same 2011 period, an increase of $86.9 million, or 20.0 percent. The commercial mortgage portfolio increased $58.4 million, or 19.1 percent, to $363.6 million for the first nine months of 2012 when compared to the year ago period. Home equity loans averaged $49.5 million and $48.0 million for the nine months ended September 30, 2012 and 2011, respectively, an increase of $1.5 million or 3.2 percent. The commercial loan portfolio declined $12.2 million, or 9.3 percent, from the nine months ended September 30, 2011 to an average of $118.1 million for the same period in 2012 and the commercial construction portfolio declined $7.6 million, or 41.1 percent from the first nine months of 2011, averaging $10.9 million for the nine months ended September 30, 2012. These declines in average balances were due to the resolution of some problem loans and the conversion of certain construction loans to permanent.

Total deposits averaged $1.42 billion and $1.36 billion for the nine month ended September 30, 2012 and 2011, respectively, increasing $62.5 million, or 4.6 percent from the prior year period to 2012. For the first nine months of 2012, total interest-bearing checking deposits averaged $332.8 million as compared to $309.6 million for the same period in 2011, an increase of $23.2 million, or 7.5 percent. Noninterest-bearing checking deposits averaged $291.0 million for the first nine months of 2012, an increase of $55.3 million, or 23.5 percent over the same year ago period. For the nine months ended September 30, 2012, savings accounts averaged $99.7 million as compared to $85.4 million for the same period in 2011, an increase of $14.3 million, or 16.7 percent. Average money market accounts declined $11.4 million, or 2.2 percent, to $508.3 million for the nine months ended September 30, 2012 as compared to the same year ago period. The Corporation recorded average certificate of deposit balances of $191.6 million and $210.5 million, for the nine months ended September 30, 2012 and 2011, respectively, a decrease of $18.9 million, or 9.0 percent from the 2011 period. The Corporation believes it has ample liquidity from core deposits, principal paydowns on loans and maturing or called investments. Overnight borrowings from the Federal Home Loan Bank of New York averaged $13.6 million for the first nine months of 2012 as compared to $1.2 million for the same nine months of 2011, while other borrowings declined $6.6 million from the year ago period to $16.1 million for the first nine months of 2012.

Average yields on interest-earning assets, on a tax-equivalent basis, declined 15 basis points to 3.85 percent for the first nine months of 2012 from 4.00 percent for the same 2011 period. Investment securities earned average yields of 2.45 percent and 2.39 percent for the nine months ended September 30, 2012 and 2011, respectively, declining six basis points from the prior year period. Average yields on the loan portfolio were 4.43 percent for the first nine months of 2012 as compared to 4.88 percent for the same period of 2011, reflecting a 45 basis point decline.

The Corporation's cost of funds, including the effect of noninterest-bearing deposits, was 33 basis points for the first nine months of 2012, declining 21 basis points from 54 basis points in the same period of 2011. In the nine months ended September 30, 2012, the average cost of interest-bearing checking deposits was 12 basis points as compared to 37 basis points for the same period of 2011, declining 25 basis points, while the cost of money market products averaged 22 basis points for the same 2012 period as compared to 42 basis points for the same year ago period, declining 20 basis points. Certificates of deposit costs for the first nine months of 2012 and 2011 averaged 1.19 percent and 1.38 percent, respectively, declining 19 basis points, from the 2011 period.

Table of Contents

The following tables reflect the components of net interest income for the periods indicated:

                             Average Balance Sheet

                                   Unaudited

                               Three Months Ended

                 (Tax-Equivalent Basis, Dollars in Thousands)



                                              September 30, 2012                      September 30, 2011
                                        Average       Income/                   Average       Income/
                                        Balance       Expense      Yield        Balance       Expense      Yield
ASSETS:
Interest-earning assets:
 Investments:
  Taxable (1)                         $   284,440     $  1,787       2.51 %   $   350,946     $  1,762       2.01 %
  Tax-exempt (1) (2)                       44,481          322       2.90          37,238          353       3.79
 Loans held for sale                        2,829           34       4.77             610           12       8.37
 Loans (2) (3)                          1,098,857       11,965       4.36         964,400       11,589       4.81
 Federal funds sold                           100            -       0.10             100            -       0.25
 Interest-earning deposits                 53,560           27       0.20          77,295           43       0.22
 Total interest-earning assets          1,484,267       14,135       3.81 %     1,430,589       13,759       3.85 %
Noninterest-earning assets:
 Cash and due from banks                    5,611                                   8,458
 Allowance for loan losses                (14,005 )                               (14,592 )
. . .
  Add PGC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for PGC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.