SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2003 Commission File No. 000-23537
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2491488
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
158 Route 206
Peapack-Gladstone, New Jersey 07934
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number (908) 234-0700
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on which Registered ------------------- ------------------------------------ Common Stock, No par value American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K |X|.
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-d). Yes |X| No |_|.
The aggregate market value of the shares held by unaffiliated stockholders was approximately $202,485,524 on June 30, 2003.
As of February 29, 2004, 7,426,246 shares of no par value Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's 2003 Annual Report (the "2003 Annual Report") and Definitive Proxy Statement for the Corporation's 2004 Annual Meeting of Shareholders (the "2004 Proxy Statement") are incorporated by reference into Parts II and III.
FORM 10-K
PEAPACK-GLADSTONE FINANCIAL CORPORATION
For the Year Ended December 31, 2003
Table of Contents
PART I
Item 1. Business ............................................................................... 3
Item 2. Properties ............................................................................. 7
Item 3. Legal Proceedings ...................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders .................................... 7
Item 4A. Executive Officers of the Registrant ................................................... 7
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholders Matters .............. 8
Item 6. Selected Financial Data ................................................................ 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 8
Item 7A. Quantitative and Qualitative Disclosure About Market Risk .............................. 8
Item 8. Financial Statements and Supplementary Data ............................................ 8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ... 9
Item 9A. Controls and Procedures ................................................................ 9
PART III
Item 10. Directors and Executive Officers of the Registrant ..................................... 9
Item 11. Executive Compensation ................................................................. 9
Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 10
Item 13. Certain Relationships and Related Transactions ......................................... 10
PART IV
Item 14. Principal Accountant Fees and Services ................................................. 10
Item 15. Exhibits, Financial Statements, and Reports on Form 8-K ................................ 10
Signatures ............................................................................. 12
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This Form 10-K contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Corporation. Such statements are not historical facts and include expressions about the Corporation's confidence, strategies and expectations about earnings, new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by forward-looking terminology such as "expect," "believe," or "anticipate," or expressions of confidence like "strong," or "on-going," or similar statements or variations of such terms. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following possibilities:
o Unexpected decline in the direction of the economy in New Jersey.
o Unexpected decline or no increase in interest rates.
o Continued unexpected loan prepayment volume.
o Decline in the levels of loan quality and origination volume.
o Decline in the volume of increase in trust assets or deposits.
The Corporation assumes no responsibility to update such forward-looking statements in the future.
PART I
Item 1. DESCRIPTION OF BUSINESS
The Corporation
Peapack-Gladstone Financial Corporation (the "Corporation") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("Holding Company Act"). The Corporation was organized under the laws of New Jersey in August, 1997, by the Board of Directors of Peapack-Gladstone Bank (the "Bank"), its principal subsidiary, to become a holding company for the Bank. The Bank is a state chartered commercial bank founded in 1921 under the laws of the State of New Jersey. Deposits of the Bank are insured for up to $100,000 per depositor by the Bank Insurance Fund administered by the FDIC. The Bank is a member of the Federal Reserve System. The Bank offers financial services through sixteen full-service banking offices, and one mini-branch. The Bank maintains eight (8) branches and one (1) auxiliary office in Somerset County, two (2) in Hunterdon County and six (6) in Morris County.
The Bank is primarily dedicated to providing quality, personalized financial, trust and investment services to individuals and small businesses.
Commercial loan customers of the Bank are business people, including merchants, architects, doctors, dentists, attorneys and building contractors as well as various service firms and other local retailers. Most forms of commercial lending are offered, including working capital lines of credit, term loans for fixed asset acquisitions, commercial mortgages and other forms of asset-based financing.
In addition to commercial lending activities, the Bank offers a wide range of consumer banking services, including: checking and savings accounts, money market and interest-bearing checking accounts, certificates of deposit, and individual retirement accounts held in certificates of deposit. The Bank also offers residential and construction mortgages, home equity lines of credit and other second mortgage loans. For children, the Bank offers a special pony club savings account. New Jersey Consumer Checking Accounts are offered to low income customers. In addition, the Bank provides foreign and domestic travelers' checks, personal money orders, cashier's checks and wire transfers. Automated teller machines are available at sixteen (16) locations. Via the automatic teller machine access card issued by the Bank, customers may pay for commodities at point-of-sale merchant locations. Internet banking is available to customers including an on-line bill payment option. The Corporation has no foreign operations.
The Bank's Trust and Investment Department, PGB Trust and Investments, is an important function of the Bank. PGB Trust and Investments offers personal investment management services, personal trust administration services, estate settlement, income tax services, custodial services and other financial planning services. Since its inception in 1972, trust assets (book value) have increased to more than $1 billion.
The Corporation makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to such reports, available on its website at www.pgbank.com.
Employees
As of December 31, 2003, the Corporation employed 209 full-time equivalent persons. Management considers relations with employees to be satisfactory.
Principal Market Areas
The Bank's principal market for its deposit gathering activities includes Somerset, Morris and Hunterdon Counties. The area is composed of upper-income single family homes, moderate income properties, some low-income housing and several large corporate campuses. There are numerous small retail businesses in each of the towns as well as offices for various professionals, i.e. attorneys, architects, interior decorators, physicians, etc. A portion of the market area is bisected by Interstate Highways 287 and 78 where numerous corporate offices have relocated over the past 25 years.
The Bank has expanded its service areas from one office in 1968 to the present sixteen (16) full-service banking locations and one (1) mini-branch location by steadily opening new branches. All of the communities that the Bank serves are demographically similar and contiguous to the main office.
Competition
The market for banking and bank-related services is highly competitive. The Bank competes with other providers of financial services such as other bank holding companies, commercial and savings banks, savings and loan associations, credit unions, money market and mutual funds, mortgage companies, and a growing list of other local, regional and national institutions which offer financial services. Mergers between financial institutions within New Jersey and in neighboring states have added competitive pressure. The Bank competes by offering quality products and convenient services at competitive prices. In order to maintain and enhance its competitive position, the Bank regularly reviews its products, locations and new branching prospects.
Governmental Policies and Legislation
The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company's cost of doing business and limit the options of its management to deploy assets and maximize income. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, in state legislatures and before various bank regulatory agencies. The likelihood of any major changes and the impact such changes might have on the Corporation or the Bank is impossible to predict. The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on the Bank. It is intended only to briefly summarize some material provisions.
Capital Requirements
The Federal Reserve Board has adopted risk-based capital guidelines for banks and bank holding companies. The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. At least half of the total capital is to be comprised of common stock, retained earnings, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and certain other intangibles ("Tier 1 Capital"). The remainder may consist of other preferred stock, certain other instruments and a portion of the loan loss allowance. At December 31, 2003, the Corporation's Tier 1 Capital and Total Capital ratios were 20.38% and 21.74%, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for banks and bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average total assets of 3% for banks that meet certain specified criteria, including having the highest regulatory rating. All other banks and bank holding companies generally are required to maintain a leverage ratio of at least 3% plus an additional cushion of 100 to 200 basis points. The Corporation's leverage ratio at December 31, 2003 was 8.91%.
FDICIA
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each federal banking agency has promulgated regulations, specifying the levels at which a financial institution would be considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized," and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution. The regulations implementing these provisions of FDICIA provide that a bank is defined to be "well capitalized" if it maintains a leverage ratio of at least 5%, a risk-adjusted Tier 1 capital ratio of at least 6% and a risk-adjusted total capital ratio of at least 10% and is not otherwise in a "troubled condition" as specified by its appropriate federal regulatory agency. A bank is defined to be "adequately capitalized" if it meets other minimum capital requirements. In addition, a depository institution will be considered "undercapitalized" if it fails to meet any minimum required measure, "significantly undercapitalized" if it is significantly below such measure and "critically undercapitalized" if it fails to maintain a level of tangible equity equal to not less than 2% of total assets. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating.
Insurance Funds Legislation
The Corporation's wholly-owned subsidiary, the Peapack-Gladstone Bank, is a member of the Bank Insurance Fund ("BIF") of the FDIC. The FDIC also maintains another insurance fund, the Savings Association Insurance Fund ("SAIF"), which primarily covers savings and loan association deposits but also covers deposits that are acquired by a BIF-insured institution from a savings and loan association.
Restrictions on the Payment of Dividends
The holders of the Corporation's common stock are entitled to receive dividends, when, as and if declared by the Board of Directors of the Corporation out of funds legally available. The only statutory limitation is that such dividends may not be paid when the Corporation is insolvent. Since the principal source of income for the Corporation will be dividends on Bank common stock paid to the Corporation by the Bank, the Corporation's ability to pay dividends to its shareholders will depend on whether the Bank pays dividends to it. As a practical matter, restrictions on the ability of the Bank to pay dividends act as restrictions on the amount of funds available for the payment of dividends by the Corporation. As a New Jersey chartered commercial bank, the Bank is subject to the restrictions on the payment of dividends contained in the New Jersey Banking Act of 1948, as amended (the "Banking Act"). Under the Banking Act, the Bank may pay dividends only out of retained earnings, and out of surplus to the extent that surplus exceeds 50% of stated capital. Under the Financial Institutions Supervisory Act, the FDIC has the authority to prohibit a state-chartered bank from engaging in conduct that, in the FDIC's opinion, constitutes an unsafe or unsound banking practice. Under certain circumstances, the FDIC could claim that the payment of a dividend or other distribution by the Bank to the Corporation constitutes an unsafe or unsound practice. The Corporation is also subject to FRB policies, which may, in certain circumstances, limit its ability to pay dividends. The FRB policies require, among other things, that a bank holding company maintain a minimum capital base. The FRB would most likely seek to prohibit any dividend payment that would reduce a holding company's capital below these minimum amounts.
Holding Company Supervision
The Corporation is a bank holding company within the meaning of the Holding Company Act. As a bank holding company, the Corporation is supervised by the FRB and is required to file reports with the FRB and provide such additional information as the FRB may require.
The Holding Company Act prohibits the Corporation, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking "as to be a proper incident thereto." The Holding Company Act requires prior approval by the FRB of the acquisition by the Corporation of more than five percent of the voting stock of any additional bank. Satisfactory capital ratios, Community Reinvestment Act ratings and anti-money laundering policies are generally prerequisites to obtaining federal regulatory approval to make acquisitions. The policy of the FRB provides that a bank holding company is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support the subsidiary bank
in circumstances in which it might not do so absent that policy. Acquisitions through the Bank require the approval of the FDIC and the New Jersey Department of Banking and Insurance ("NJDOBI").
Recent Legislation
The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"), which became law on July 30, 2002, added new legal requirements for public companies affecting corporate governance, accounting and corporate reporting.
The Sarbanes-Oxley Act provides for, among other things:
o a prohibition on personal loans made or arranged by the issuer to its directors and executive officers (except for loans made by a bank subject to Regulation O);
o independence requirements for audit committee members;
o independence requirements for company auditors;
o certification of financial statements and Forms 10-K and 10-Q reports by the chief executive officer and the chief financial officer;
o the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement due to corporate misconduct;
o disclosure of off-balance sheet transactions;
o two-business day filing requirements for insiders filing Form 4s;
o disclosure of a code of ethics for financial officers and filing a Form 8-K for a change or waiver of such code;
o "real time" filing of periodic reports;
o posting of certain SEC filings and other information on the company website;
o the reporting of securities violations "up the ladder" by both in-house and outside attorneys;
o restrictions on the use of non-GAAP financial measures;
o the formation of a public accounting oversight board; and
o various increased criminal penalties for violations of securities laws.
Each of the national stock exchanges, including the American Stock Exchange (AMEX) where the Corporation's securities are listed, have implemented new corporate governance listing standards, including rules strengthening director independence requirements for boards, and requiring the adoption of charters for the nominating and audit committees.
As part of the USA Patriot Act, signed into law on October 26, 2001, Congress adopted the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the "Act"). The Act authorizes the Secretary of the Treasury, in consultation with the heads of other government agencies, to adopt special measures applicable to financial institutions such as banks, bank holding companies, broker-dealers and insurance companies. Among its other provisions, the Act requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering in United States private banking accounts and correspondent accounts maintained for non-United States persons or their representatives; and (iii) to avoid establishing, maintaining, administering, or managing correspondent accounts in the United States for, or on behalf of, a foreign shell bank that does not have a physical presence in any country. In addition, the Act expands the circumstances under which funds in a bank account may be forfeited and requires covered financial institutions to respond under certain circumstances to requests for information from federal banking agencies within 120 hours.
The Department of Treasury has issued regulations implementing the due diligence requirements. These regulations require minimum standards to verify customer identity and maintain accurate records, encourages cooperation among financial institutions, federal banking agencies, and law enforcement authorities regarding possible money laundering or terrorist activities, prohibits the anonymous use of "concentration accounts," and requires all covered financial institutions to have in place an anti-money laundering compliance program.
The Act also amends the Bank Holding Company Act and the Bank Merger Act to require the federal banking agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing an application under these acts.
The Gramm-Leach-Bliley Financial Modernization Act of 1999 (the "Modernization Act") became effective in early 2000. The Modernization Act:
o allows bank holding companies meeting management, capital and Community Reinvestment Act Standards to engage in a substantially broader range of nonbanking activities than previously permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies; if a bank holding company elects to become a financial holding company, it files a certification, effective in 30 days, and thereafter may engage in certain financial activities without further approvals;
o allows insurers and other financial service companies to acquire banks;
o removes various restrictions previously applied to bank holding company ownership of securities firms and mutual fund advisory companies; and
o establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations.
The Modernization Act also modified other financial laws, including laws related to financial privacy and community reinvestment.
Additional proposals to change the laws and regulations governing the banking and financial services industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such changes and the impact such changes might have on the Corporation cannot be determined at this time.
Item 2. DESCRIPTION OF PROPERTY
The Corporation owns six branches and leases 11 branches. The Corporation also owns two properties adjacent to the Main Office in Peapack-Gladstone and a future branch site in Tewksbury Township. The Corporation leases an administrative and operations office building in Peapack-Gladstone, a data center in Bedminster Township and a future branch location in the Town of Morristown.
Item 3. LEGAL PROCEEDINGS
In the normal course of its business, lawsuits and claims may be brought against the Corporation and its subsidiaries. There is no currently pending or threatened litigation or proceedings against the Corporation or its subsidiaries, which assert claims that if adversely decided, would have a material adverse effect on the Corporation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Executive Officer Since Office
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Frank A. Kissel 53 1989 Chairman and Chief Executive Officer
Craig S. Spengeman 48 1993 President, PGB Trust and Investments
Robert M. Rogers 45 1992 President and Chief Operating Officer
Arthur F. Birmingham 52 1996 Executive Vice President and Chief Financial Officer
Garrett P. Bromley 59 1997 Executive Vice President and Chief Credit Officer
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of Peapack-Gladstone Financial Corporation is traded on the American Stock Exchange under the symbol of PGC. The following table sets forth, for the periods indicated, the reported high and low sale prices on known trades and cash dividends declared per share by the Corporation.
DIVIDEND
2003 HIGH LOW PER SHARE
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1st QUARTER $31.14 $22.77 $0.090
2nd QUARTER 32.99 18.18 0.090
3rd QUARTER 32.73 28.89 0.100
4th QUARTER 33.10 30.10 0.100
DIVIDEND
2002 HIGH LOW PER SHARE
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1st QUARTER $22.73 $16.48 $0.075
2nd QUARTER 28.64 22.50 0.075
3rd QUARTER 29.55 26.21 0.090
4th QUARTER 34.05 27.05 0.090
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Future dividends payable by the Corporation will be determined by the Board of Directors after consideration of earnings and financial condition of the Corporation, need for capital and such other matters as the Board of Directors deems appropriate. The payment of dividends is subject to certain restrictions, see Part I, Item 1, "Description of Business - Restrictions on the Payment of Dividends."
On December 31, 2003, the last reported sale price of the Common Stock was $31.00. Also, on February 29, 2004, there were approximately 842 shareholders of record.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth in the 2003 Annual Report under the heading "Selected Consolidated Financial Data" is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth in the 2003 Annual Report under the heading "Management's Discussion and Analysis" is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth in the 2003 Annual Report under the heading "Market Risk Sensitive Instruments" is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements set forth in the 2003 Annual Report, together with the report thereon by KPMG LLP and the Notes to the Consolidated Financial Statements, are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. 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 of the end of the period covered by this Annual Report on Form 10-K. 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 has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting during the fourth quarter of 2003.
The Corporation's management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error 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 and 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 III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Director Information," "Corporate Governance" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2004 Proxy Statement is incorporated herein by reference. Certain information on Executive Officers of the registrant is included in Part I, Item 4A of this report, which is also incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the 2004 Proxy Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information for all equity compensation plans:
NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
NUMBER OF SECURITIES UNDER EQUITY
TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN COLUMN (A)
---------------------------------------------------------------------------------------------
EQUITY
COMPENSATION
PLANS APPROVED
BY SECURITY
HOLDERS 424,279 $14.84 372,812
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EQUITY
COMPENSATION
PLANS NOT
APPROVED BY
SECURITY HOLDERS N/A N/A N/A
-----------------------------------------------------
TOTAL 424,279 $14.84 372,812
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The information set forth under the captions "Beneficial Ownership of Common Stock" and "Stock Ownership of Directors and Executive Officers" in the 2004 Proxy Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and Related Transactions" in the 2004 Proxy Statement is incorporated herein by reference.
PART IV
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption "Independent Public Auditors" in the 2004 Proxy Statement is incorporated herein by reference.
Item 15. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules:
Those portions of the 2003 Annual Report attached hereto as Exhibit 13 contain the financial statements incorporated herein by reference.
All financial statement schedules are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto contained in the 2003 Annual Report.
(10) Exhibits
(3) Articles of Incorporation and By-Laws:
A. Restated Certificate of Incorporation as in effect on the date of this filing is incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
B. By-Laws of the Registrant as in effect on the date of this filing are incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
(10) Material Contracts:
A. "Change in Control Agreements" dated as of January 1, 1998 by and among the Corporation, the Bank and Frank A. Kissel, Robert M. Rogers, Craig C. Spengeman and Arthur F. Birmingham are incorporated by reference to Registrant's Form 10-K Annual Report for the year ended December 31, 1997.
B. Peapack-Gladstone Financial Corporation 1998 Stock Option Plan and 1998 Stock Option Plan for Outside Directors are filed herewith.
C. "Change in Control Agreement" dated April 3, 1998 by and among the Corporation, the Bank and Garrett P. Bromley is incorporated by reference to Registrant's Form 10-K Annual Report for the year ended December 31, 1998.
D. Agreement and Plan of Merger dated August 26, 1999 between Peapack-Gladstone and Chatham Savings, FSB is incorporated herein by reference to Peapack-Gladstone's Report on Form 8-K filed with the Commission on September 7, 1999.
E. Peapack-Gladstone Financial Corporation 2002 Long-Term Stock Incentive Plan and 2002 Stock Option Plan for Outside Directors are filed herewith.
F. "Employment Agreements" dated as of May 13, 2002 by and among the Corporation, the Bank and Frank A. Kissel, Craig C. Spengeman, Robert M. Rogers and Arthur F. Birmingham are incorporated by reference to Registrant's Quarterly Report Form 10-Q for the quarter ended June 30, 2002.
G. "Employment Agreement dated as of January 1, 2003 by and among the Corporation, the Bank and Garrett P. Bromley is incorporated by reference to Registrant's Quarterly Report Form 10-Q for the quarter ended March 31, 2003.
H. "Amended and Restated Change in Control Agreements" dated as of
December 11, 2003 by and among the Corporation, the Bank and Frank
A. Kissel, Robert M. Rogers, Craig C. Spengeman, Arthur F.
Birmingham and Garrett P. Bromley are filed herewith.
I. "Split Dollar Plan for Senior Management" dated as of September 7, 2001 for Frank A. Kissel, Robert M. Rogers, Craig C. Spengeman, Arthur F. Birmingham and Garrett P. Bromley is filed herewith.
J. "Directors' Retirement Plan" dated as of March 31, 2001 is filed herewith.
K. "Directors' Deferral Plan" dated as of March 31, 2001 is filed herewith.
(13) Annual Report to Shareholders
(21) List of Subsidiaries:
(a) Subsidiaries of the Corporation:
Percentage of Voting
Jurisdiction Securities Owned by
Name of Incorporation the Parent
----------------------------------------------------------------
Peapack-Gladstone Bank New Jersey 100%
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(b) Subsidiaries of the Bank:
Name ---------------------------- Peapack-Gladstone Investment Company, Inc. New Jersey 100% Peapack-Gladstone Financial Services, Inc. (Inactive) New Jersey 100% |
(c) Subsidiaries of Peapack-Gladstone Investment Company, Inc.:
Peapack-Gladstone Mortgage
Group, Inc. New Jersey 100%
(23) Consents of Experts:
Consent of KPMG LLP
(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.
b. Reports on Form 8-K
1. Current Report on Form 8-K dated November 6, 2003 (furnishing
third quarter earnings release for Peapack-Gladstone Financial
Corporation).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
(Registrant)
Dated March 11, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Date
--------- ----
T. LEONARD HILL March 11, 2004
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T. Leonard Hill, Director
ARTHUR F. BIRMINGHAM March 11, 2004 -------------------------------------------------------- Arthur F. Birmingham, Executive Vice President and CFO (Principal Financial and Accounting Officer) ANTHONY J. CONSI II March 11, 2004 -------------------------------------------------------- Anthony J. Consi II, Director PAMELA HILL March 11, 2004 -------------------------------------------------------- Pamela Hill, Director JOHN D. KISSEL March 11, 2004 -------------------------------------------------------- John D. Kissel, Director JAMES R. LAMB March 11, 2004 -------------------------------------------------------- James R. Lamb, Director EDWARD A. MERTON March 11, 2004 -------------------------------------------------------- Edward A. Merton, Director F. DUFFIELD MEYERCORD March 11, 2004 -------------------------------------------------------- F. Duffield Meyercord, Director JOHN R. MULCAHY March 11, 2004 -------------------------------------------------------- John R. Mulcahy, Director ROBERT M. ROGERS March 11, 2004 -------------------------------------------------------- Robert M. Rogers, President and COO PHILIP W. SMITH III March 11, 2004 -------------------------------------------------------- Philip W. Smith III, Director CRAIG C. SPENGEMAN March 11, 2004 -------------------------------------------------------- Craig C. Spengeman, President, PGB Trust and Investments JACK D. STINE March 11, 2004 -------------------------------------------------------- Jack D. Stine, Director |
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Peapack-Gladstone Financial Corporation:
We consent to incorporation by reference in the Registration Statements No. 333-51187 and No. 333-53001 on Form S-8 of Peapack-Gladstone Financial Corporation of our report dated February 6, 2004, relating to the consolidated statements of condition of Peapack-Gladstone Financial Corporation and subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2003, which report is incorporated by reference in the December 31, 2003 Annual Report on Form 10-K of Peapack-Gladstone Financial Corporation.
KPMG LLP
Short Hills, New Jersey
March 9, 2004
Exhibit 10 (B)
PEAPACK-GLADSTONE FINANCIAL CORPORATION
1998 Stock Option Plan
1. Purpose
The purpose of the Peapack-Gladstone Financial Corporation's (the "Corporation") 1998 Stock Option Plan (the "Plan") is to advance the interests of the Company and its shareholders by providing those key employees of the Corporation, upon whose judgment, initiative and efforts the successful conduct of the business of the Corporation largely depends, with additional incentive to perform in superior manner. A purpose of the Plan is also to attract people of experience and ability to the service of the Corporation.
2. Definitions
A. Board of Directors or Board: means the board of directors of the Corporation.
B. Change in Control: for purposes of this Plan, a Change in Control of the Company shall mean an event of a nature that; (1) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) who is not now presently but becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the Company's outstanding securities except for any securities purchased by any tax-qualified employee benefit plan of the Company; or (2) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (2), considered as though he were a member of the Incumbent Board; or (3) filing is made for regulatory approval to implement a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Company or similar transaction in which the Company is not the resulting entity or such plan, merger consolidation, sale or similar transaction occurs; or (4) a proxy statement soliciting proxies from shareholders of the Company, by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged for or converted into cash or property or securities not issued by the Company shall be distributed; or (5) a tender offer is made for 25% or more of the voting securities of the Company.
C. Committee: means a committee consisting of those members of the Compensation Committee of the Board of Directors who are non-employee members of the Board of Directors, all of whom are (i) "disinterested directors" as such term is defined under Rule 16b-3 ("Rule 16b-3") under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), as promulgated by the Securities and Exchange Commission and (ii) "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code, subject to any transition rules applicable to the definition of outside director.
D. Date of Grant: means the date an Option is granted by the Committee.
E. Disability: means the permanent and total inability by reason of mental or physical infirmity, or both, of an employee to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board of Directors must advise the Committee that it is either
not possible to determine when such Disability will terminate or that it appears probable that such Disability will be permanent during the remainder of said Participant's lifetime.
F. Fair Market Value: for purposes of the 1998 Stock Option Plan when used in connection with Common Stock on a certain date, Fair Market Value means the average of the high and low prices of known trades of the Common Stock on the relevant date, or if the Common Stock was not traded on such date, on the next preceding day on which the Common Stock was traded thereon.
G. Incentive Stock Option: means an Option granted by the Committee to a Participant, which Option is designated as an Incentive Stock Option pursuant to Section 8.
H. Non-qualified Stock Option: means an Option granted by the Committee to a Participant and which is not designated by the Committee as an Incentive Stock Option.
I. Normal Retirement: means retirement at the normal or early retirement date as set forth in any tax-qualified retirement/pension plan of the Company.
J. Option: means the grant of Incentive Stock Options or Non-qualified Stock Options granted under Section 7 or Section 8.
K. Participant: means an employee of the Company or its affiliates chosen by the Committee to participate in the Plan.
L. Plan Year(s): means the part of the year beginning with the date the plan is approved by a majority of the shareholders and ending on December 31, 1998, and calendar years thereafter.
M. Termination for Cause: means the termination upon an intentional failure to perform stated duties, breach of a fiduciary duty involving personal dishonesty or willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order.
3. Administration
The Plan shall be administered by the Committee. The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it sees necessary for the proper administration of the Plan and to make determinations and interpretations in connection with the Plan it sees as necessary or advisable. All awards to the proxy executives shall be approved in writing by the Committee. All determinations and interpretations made by the Committee shall be binding and conclusive on all Participants in the Plan and on their legal representatives and successors in interest.
4. Types of Awards
Awards under the Plan may be granted in any one or a combination of:
(a) Non-qualified Stock Options;
(b) Incentive Stock Options; and
as defined below in paragraphs 7 and 8 of the Plan.
5. Stock Subject to the Plan
Subject to adjustment as provided in Section 14, the maximum number of shares reserved for purchase pursuant to the exercise of options granted under the Plan shall not exceed 65,000 of the shares of Common Stock of the Company, no par value per share, subject to adjustments pursuant to this Section 5. These shares of Common Stock may be either authorized but unissued shares or shares previously issued and reacquired by the Company. No more than 6,500 shares may be granted to any one individual under this Plan in any one year, subject to adjustment as provided in Section 14. Shares subject to any unexercised portion of a terminated, canceled or
expired option granted hereunder, and pursuant to which a Participant never acquired benefits of ownership, including payment of a stock dividend (but excluding voting rights), may again be subjected to grant and awards under the Plan.
6. Eligibility
Officers and other employees of the Company shall be eligible to receive Incentive Stock Options and Non-qualified Stock Options under the Plan. Directors who are not employees or officers of the Company shall not be eligible to receive Options under the Plan.
7. Non-qualified Stock Options
7.1 Grant of Non-qualified Stock Options.
The Committee may, from time to time, grant Non-qualified Stock Options to eligible employees and, upon such terms and conditions as the Committee may determine, grant Non-qualified options in exchange for and upon surrender of previously granted Options under this Plan. Non-qualified Stock Options granted under this Plan are subject to the following terms and conditions.
(a) Price. The purchase price per share of Common Stock deliverable upon the exercise of each Non-qualified Stock Option shall determined by the Committee on the date the option is granted. The purchase price shall not be less than 100% of the Fair Market Value of the Company's Common Stock on the Date of Grant and in no event below the par value of the Common Stock on the Date of Grant. Shares may be purchased only upon full payment of the purchase price. Payment of the purchase price may be made, in whole or in part, through the surrender of shares of the Common Stock of the Company at the Fair Market Value of such shares on the date of surrender determined in the manner described in Section 2(i).
(b) Terms of Options. The terms during which each Non-qualified Stock Option may be exercised shall be determined by the Committee, but in no event shall a Non-qualified Stock Option be exercisable in whole or in part more than 10 years from the Date of Grant. The Committee shall determine the date on which each Non-qualified Stock Option shall become exercisable and may provide that a Non-qualified Stock Option shall become exercisable in installments. The shares comprising each installment may be purchased in whole or in part at any time after such installment becomes purchasable. The Committee may, in its sole discretion, accelerate the time at which any Non-qualified Stock Option may be exercised in whole or in part. Notwithstanding the above, in the event of a Change in Control of the Company, all Non-qualified Stock Options shall become immediately exercisable.
(c) Termination of Employment. Unless otherwise determined by the Committee at the time a Stock Option is granted, upon the termination of a Participant's service for any reason other than Disability, Normal Retirement, Change in Control, death or Termination for Cause, the Participant's Non-qualified Stock Options shall be exercisable only as to those shares which were immediately purchasable by the Participant at the date of termination and only for a period of three years following termination. Notwithstanding any provision set forth herein or contained in any Agreement relating to the award of a Stock Option, in the event of Termination for Cause, all rights under the Participant's Non-qualified Stock Options shall expire upon termination. Unless otherwise determined by the Committee at the time a Stock Option is granted, in the event of the death, Disability, termination due to Change in Control or Normal Retirement of any Participant, all Non-qualified Stock Options held by the Participant, whether or not exercisable at such time, shall be exercisable by the Participant or his legal representatives or successors in interest of the Participant for three years or such longer period as determined by the Committee following the date of the Participant's death, Normal Retirement or cessation of employment due to Disability or Change in Control, provided that in no event shall the period extend beyond the expiration of the Non-qualified Stock Option term.
8. Incentive Stock Options
8.1 Grant of Incentive Stock Options.
The Committee may, from time to time, grant Incentive Stock Options to eligible employees. Incentive Stock Options granted pursuant to the Plan shall be subject to the following terms and conditions:
(a) Price. The purchase price per share of Common Stock deliverable upon the exercise of each Incentive Stock Option shall not be less than 100% of the Fair Market Value of the Company's Common Stock on the Date of Grant and in no event below the par value of the Common Stock on the Date of Grant. However, if a Participant owns stock possessing more than 10% of the total combined voting power of all classes of Common Stock of the Company, the purchase price per share of Common Stock deliverable upon the exercise of each Incentive Stock Options shall not be less than 110% of the Fair Market Value of the Company's Common Stock on the Date of Grant. Shares may be purchased only upon payment of the full purchase price. Payment of the purchase price may be made, in whole or in part, through the surrender of shares of the Common Stock of the Company at the Fair Market Value of such shares on the date of surrender determined in the manner described in Section 2(i).
(b) Amounts of Options. Incentive Stock Options may be granted to any eligible employee in such amounts as determined by the Committee. The aggregate Fair Market Value (determined as of the time the option is granted) of the Common Stock with respect to which Incentive Stock Options granted are exercisable for the first time by the Participant during any calendar year (under all plans of the Participant's employer corporation and its parent and subsidiary corporations, if any) shall not exceed $100,000. The provisions of this Section 8.1(b) shall be construed and applied in accordance with Section 422(d) of the Code and the regulations, if any, promulgated thereunder. To the extent an award under this Section 8.1 exceeds this $100,000 limit, the portion of the award in excess of such limit shall be deemed a Non-qualified Option.
(c) Terms of Options. The term during which each Incentive Stock Option may be exercised shall be determined by the Committee, but in no event shall an Incentive Stock Options be exercisable in whole or in part more than 10 years from the Date of Grant. If at the time an Incentive Stock is granted to any employee, the employee owns Common Stock representing more than 10% of the total combined voting power of the Company (or, under Section 425(d) of the Code, is deemed to own Common Stock representing more than 10% of the total combined voting power of all such classes of Common Stock, by reason of the ownership of such classes of Common Stock, directly or indirectly, by or for any brother, sister, spouse, ancestor or lineal descendent of such employee, or by or for any corporation, partnership, estate or trust of which such employee is a shareholder, partner or beneficiary), the Incentive Stock Option granted to such employee shall not be exercisable after the expiration of five years from the Date of Grant. No Incentive Stock Option granted under the Plan is transferable except by will or the laws of descent and distribution and is exercisable in his lifetime only by the employee to whom it is granted.
The Committee shall determine the date on which each Incentive Stock Option shall become exercisable and may provide that an Incentive Stock Option shall become exercisable in installments. The shares comprising each installment may be purchased in whole or in part at any time after such installment becomes purchasable, provided that the amount able to be first exercised in a given year is consistent with the terms of Section 422 of the Code. The Committee may, in its sole discretion, accelerate the time at which any Incentive Stock Option may be exercised in whole or in part. In the event of a Change in Control of the Company, all Incentive Stock Options shall become immediately exercisable.
(d) Termination of Employment. Upon the termination of a Participant's service for any reason other than Disability, Normal Retirement, Change in Control, death or Termination for Cause, the Participant's Incentive Stock Options shall be exercisable only as to those shares which were immediately purchasable by the Participant at the date of termination and only for a period of three
months following termination. In the event of Termination for Cause all rights under the Participant's Incentive Stock Options shall expire upon termination.
In the event of death or Disability of any employee, all Incentive Stock Options held by such Participant, whether or not exercisable at such time, shall be exercisable by the Participant or the Participant's legal representatives or beneficiaries for three years following the date of the Participant's death or cessation of employment due to Disability. Upon termination of the Participant's service due to Normal Retirement, or a Change in Control, all Incentive Stock Options held by such Participant, whether or not exercisable at such time, shall be exercisable for a period of three months following the date of Participant's cessation of employment. In no event shall the exercise period extend beyond the expiration of the Incentive Stock Option term.
(e) Compliance with Code. The options granted under this Section 8 of the Plan are intended to qualify as incentive stock options within the meaning of Section 4212 of the Code, but the Company makes no warranty as to the qualifications of any option as an incentive stock options within the meaning of Section 422 of the Code.
9. Surrender Option
In the event of a Participant's termination of employment as a result of death, disability or Normal Retirement, the Participant (or the Participant's legal representative or successor(s) in interest) may, in a form acceptable to the Committee make application to surrender all or part of options held by such Participant in exchange for a cash payment from the Company of an amount equal to the difference between the Fair Market Value of the Common Stock on the date of termination of employment and the exercise price per share of the option on the Date of Grant. Whether the Committee accepts such application or determines to make payment, in whole or part, is within its absolute and sole discretion, it being expressly understood that the Committee is under no obligation to any Participant whatsoever to make such payments. In the event that the Committee accepts such application and the Company determines to make payment, such payment shall be in lieu of the exercise of the underlying option and such option shall cease to be exercisable.
10. Rights of a Shareholder: Nontransferablility
No Participant shall have any rights as a shareholder with respect to any shares covered by a Non-qualified and/or Incentive Stock Option until the date of issuance of a stock certificate for such shares. Nothing in this Plan or in any Option granted confers on any person any right to continue in the employ of the Company or to continue to perform services for the Company or interferes in any way with the right of the Company to terminate a Participant's services as an officer or other employee at any time.
No Option under the Plan shall be transferable by the optionee other than by will or the laws of descent and distribution and may only be exercised during his lifetime by the optionee, or by a guardian or legal representative.
11. Rights of a Shareholder: Transferability.
No Option under the Plan shall be transferable or assignable, or payable
to or exercisable by, anyone other than the Participant to whom it was
granted, except (i) by will or by the laws of descent and distribution,
(ii) as a result of the disability of a Participant or (iii) that the
Committee (in the form of an Option Agreement or otherwise) may permit
transfers of Options by gift or otherwise to a member of a Participant's
immediate family and/or trusts whose beneficiaries are members of the
Participant's immediate family, or to such other persons or entities as
may be approved by the Committee. Notwithstanding the foregoing, in no
event shall Incentive Stock Options be transferable or assignable other
than by will or by the laws of descent and distribution.
12. Agreement with Grantees
Each grant of Options, will be evidenced by a written agreement, executed by the Participant and the Company which describes the conditions for receiving the Options including the date of grant, the purchase price if any, applicable periods, and any other terms and conditions as may be required by the Board of Directors or applicable securities law.
13. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a person or persons to receive, in the event of death, any Options to which the Participant would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If a Participant fails effectively to designate a beneficiary, then the Participant's estate will be deemed to be the beneficiary.
14. Dilution and other Adjustments
In the event of any change in the outstanding shares of Common Stock of the Company by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination or exchange of shares, or other similar corporate change, or other increase or decrease in such shares without receipt or payment of consideration by the Company, the Committee will make such proportionate adjustments to previously granted Options, to prevent dilution or enlargement of the rights of the Participant, including any or all of the following:
(a) proportionate adjustments in the aggregate number of kind of shares of Common Stock which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock covered by Options already granted under the Plan;
(c) adjustments in the purchase price of outstanding Incentive and/or Non-qualified Stock Options.
No such adjustments may, however, materially change the value of benefits available to a Participant under a previously granted Options.
15. Tax Withholding
There shall be deducted from each distribution of cash and/or Common Stock under the Plan the amount required by any governmental authority to be withheld for income tax purposes.
16. Amendment of the Plan
The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect subject to obtaining any shareholder approval required by applicable New Jersey and Federal banking law; provided further that if it has been determined to continue to qualify the Plan under Rule 16b-3, shareholder approval shall be required for any such modification or amendment is required in order to qualify under 16B-3, including any modifications or amendments which:
(a) increases the maximum number of shares for which options may be
granted under the Plan (subject, however, to the provisions of
Section 13 hereof);
(b) reduces the exercise price at which Options may be granted (subject, however, to the provisions of Section 13 hereof):
(c) extends the period during which Options may be granted or exercised beyond the times originally prescribed; or
(d) changes the persons eligible to participate in the Plan.
Failure to ratify or approve amendments or modifications to subsections
(a) through (d) of this Section by shareholders shall be effective only as
to the specific amendment or modification requiring such ratification.
Other provisions, sections, and subsections of this Plan will remain in
full force and effect.
No such termination, modification or amendment may affect the rights of a Participant under an outstanding Option.
17. Effective Date of Plan
This Plan was approved by the Board of Directors on February 12, 1998 and, subject to first obtaining approval at the 1998 Annual Meeting of the Shareholders of the Company by the affirmative vote of a majority of the shares of Common Stock of the Company entitled to vote at the 1998 Annual Meeting.
18. Termination of the Plan
The right to grant Options under the Plan will terminate upon the earlier of ten (10) years after the Effective Date of the Plan or the issuance of Common Stock or the exercise of Options equivalent to the maximum number of shares reserved under the Plan as set forth in Section 5. The Board of Directors has the right to suspend or terminate the Plan at any time, provided that no such action will, without the consent of a Participant, adversely affect his rights under a previously granted Option.
19. Applicable Law
The Plan will be administered in accordance with the laws of the State of New Jersey and applicable Federal law.
20. Compliance with Section 16
If this Plan is qualified under Rule 16b-3, with respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provisions of the Plan or action by the Committee fail to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.
PEAPACK-GLADSTONE FINANCIAL CORPORATION 1998 Stock Option Plan for Outside Directors, as amended and restated as of January 1, 2001
1. Purpose
The purpose of the Peapack-Gladstone Corporation (the "Company") 1998 Stock Option Plan for Outside Directors (the "Directors' Option Plan" or the "Plan") is to promote the growth and profitability of the Company by providing Outside Directors of the Company with an incentive to achieve long-term objectives of the Company and to attract and retain non-employee directors of outstanding competence by providing such Outside Directors with an opportunity to acquire an equity interest in the Company.
2. Grant of Options
(a) The Plan will be administered by the Compensation Committee of the Board of Directors (the "Committee"). The Committee shall consist solely of two or more Non-Employee Directors, as such term is defined in Rule 16b-3(b)(3) of the Exchange Act. The Committee may, from time to time, recommend the grant of options to the Outside Directors (for purposes of this Directors' Option Plan, the term "Outside Director" shall mean a member of the Board of Directors of the Company not also serving as an employee of the Company) under this Plan in such numbers and upon such terms as it deems appropriate, but all grants must be approved by the Company's Board of Directors.
(b) Option Price. The purchase price per share of the Common Stock deliverable upon exercise of such option shall equal the Fair Market Value of the Common Stock on the date of the grant of this option as determined under paragraph (d) of this Section 2 and in no event below the par value of the Common Stock on the Date of Grant.
(c) Ineligibility. An option under the Directors' Option Plan shall not be granted to any Outside Director who at any previous time was an employee of the Company and in such capacity was eligible to receive any options to purchase Common Stock.
(d) Fair Market Value. For purposes of the Directors' Option Plan, when used in connection with Common Stock on a certain date, Fair Market Value means the average of the high and low prices of known trades of the Common Stock on the relevant date, or if the Common Stock was not traded on such date, on the next preceding day on which the Common Stock was traded thereon.
3. Terms and Conditions
(a) Option Agreement. Each option shall be evidenced by a written option agreement between the Company and the recipient specifying the number of shares of Common Stock that may be acquired through its exercise and containing such other terms and conditions which are not inconsistent with the terms of this grant.
(b) Vesting. Each option granted pursuant to Section 2(a) hereof shall become exercisable in five annual installments of twenty percent (20%). The first installment of options granted pursuant to Section 2(a) shall vest one year from the date of grant and the remaining four annual installments will vest on successive anniversary dates, but only if the optionee continues to serve as an Outside Director at such applicable vesting date, unless otherwise provided in this Plan.
(c) Manner of Exercise. The option when exercisable may be exercised from
time to time in whole or in part, by delivering a written notice of
exercise to the President of the Company signed by the recipient. Such
notice is irrevocable and must be accompanied by full payment of the
exercise price (as determined in Section 2(b) hereof) in cash or shares of
previously acquired common stock of the Company at the Fair Market Value
of such shares determined on the exercise date by the manner described in
Section 2(d) above.
(d) Transferability. Each option granted hereby may be exercised only by the recipient to whom it is issued, or in the event of the Outside Director's death, his or her legal representative or successor(s) in interest pursuant to the terms of section 3(e) hereof.
(e) Termination of Service. Upon the termination of a recipient's service for any reason other than disability, Change in Control, death or removal for cause, the participant's stock options shall be exercisable only as to those shares which were immediately purchasable by the recipient at the date of termination. In the event of death or disability of any recipient, all stock options held by such recipient, whether or not exercisable at such time, shall become immediately exercisable by the recipient or the recipient's legal representatives or beneficiaries. Upon termination of the recipient's service due to a Change in Control, all stock options held by such recipient, whether or not exercisable at such time, shall become immediately exercisable. However, shares of Common Stock acquired through the exercise of options granted under Section 2 may not be sold or otherwise disposed of for a period of one year from the Date of Grant of the option. For purposes of this plan the following terms are defined:
(i) "Change in Control" for purposes of this Plan, a "Change in Control" of the Company shall mean an event of a nature that; (1) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) who is not now presently but becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the Company's outstanding securities except for any securities purchased by any tax-qualified employee benefit plan of the Company; or (2) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (2), considered as though he were a member of the Incumbent Board; or (3) filing is made for regulator approval to implement a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Company or similar transaction occurs in which the Company is not the resulting entity or such plan, merger, consolidation, sale or similar transaction occurs; or (4) a proxy statement soliciting proxies from shareholders of the Company, by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged for or converted into cash or property or securities not issued by the Company shall be distributed; or (5) a tender offer is made for 25% or more of the voting securities of the Company.
(ii) "Disability" means the permanent and total inability by reason of mental or physical infirmity, or both, of an Outside Director to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board of Directors must advise the Board that it is either not possible to determine when such disability will terminate or that it appears probable that such disability will be permanent during the remainder of said recipient's lifetime.
(f) Termination of Option. Each option shall expire upon the earlier of
(i) one hundred and twenty (120) months following the date of grant, or
(ii) three (3) years following the date on which the Outside Director
ceases to serve in such capacity for any reason other than removal for
cause. If the Outside Director dies before fully exercising any portion of
an option then exercisable, such option may be exercised by such Outside
Director's beneficiary, personal representative(s), heir(s) or devisee(s)
at any time within the three (3) year period following his or her death;
provided, however, that in no event shall the option be exercisable more
than one hundred and twenty (120) months after the date of its grant. If
the Outside Director is removed for cause, all options awarded to him
shall expire upon such removal.
4. Common Stock Subject to the Directors' Option Plan
The shares which shall be issued and delivered upon exercise of options granted under the Directors' Option Plan may be either authorized and unissued shares of Common Stock or authorized and issued shares of Common Stock held by the Company as treasury stock. The number of shares of Common Stock reserved for issuance under the Directors' Option Plan shall not exceed 35,000 shares of the Common Stock of the Company, no par value per share, subject to adjustments pursuant to this Section 4. Any shares of Common Stock subject to an option which for any reason either terminates unexercised or expires, shall again be available for issuance under the Directors' Option Plan.
In the event of any change or changes in the outstanding Common Stock of the Company by reason of any stock dividend or split, recapitalization, reorganization, merger, consolidation, spin-off, combination or any similar corporate change, or other increase or decrease in such shares effected without receipt or payment of consideration by the Company, the number of shares of Common Stock which may be issued under the Directors' Option Plan, the number of shares of Common Stock to options granted under this Directors' Option Plan and the option price of such options, shall be automatically and proportionately adjusted to prevent dilution or enlargement of the rights granted to recipient under the Directors' Option Plan.
5. Effective Date of the Plan; Shareholder Ratification
This Plan was approved by the Board of Directors on February 12, 1998 and, subject to first obtaining approval at the 1998 Annual Meeting of Shareholders of the Company by the affirmative vote of at least 66 2/3% of the shares of Common Stock of the Company entitled to vote at the 1998 Annual Meeting, when accepted by the New Jersey Department of Banking. This Plan is amended and restated effective as of January 1, 2001.
6. Termination of the Plan
The right to grant options under the Directors' Option Plan will terminate automatically upon the earlier of ten years after the Effective Date of the Plan or the issuance of 35,000 shares of Common Stock (the maximum number of shares of Common Stock reserved for under this Plan) subject to adjustment pursuant to Section 4 hereof.
7. Amendment of the Plan
The Directors' Option Plan may be amended from time to time by the Board
of Directors of the Company provided that Section 2 and 3 hereof shall not
be amended more than once every six months other than to comport with the
Internal Revenue Code of 1986, as amended, or the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. Except
as provided in Section 4 hereof, rights and obligations under any option
granted before an amendment shall not be altered or impaired by such
amendment without the written consent of the optionee. If the Directors'
Option Plan is subject to 17 C.F.R. ss.240.16(b)-3 ("Rule 16(b)-3") of the
rules and regulations promulgated under the Securities Exchange Act of
1934 and an amendment would require shareholder approval under such Rule
16(b)-3 or as otherwise may be required under applicable New Jersey and
federal banking law, then subject to the discretion of the Board of
Directors of the Company, such amendment shall be presented to
shareholders for ratification, provided, however, that the failure to
obtain shareholder ratification shall not affect the validity of this Plan
as so amended and the options granted thereunder.
8. Applicable Law
The Plan will be administered in accordance with the laws of the State of New Jersey and applicable federal law.
9. Compliance with Section 16
If this Plan is qualified under Rule 16b-3, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent that any provision of the Plan fails to so comply, such provision shall be deemed null and void, to the extent permitted by law.
Exhibit 10 (E)
PEAPACK-GLADSTONE FINANCIAL CORPORATION
2002 LONG-TERM STOCK INCENTIVE PLAN
(Adopted by Directors January 10, 2002)
(Adopted by Shareholders April 23, 2002)
1. Purpose. The purpose of the Plan is to provide additional incentive to those officers and key employees of the Company and its Subsidiaries whose substantial contributions are essential to the continued growth and success of the Company's business in order to strengthen their commitment to the Company and its Subsidiaries, to motivate such officers and employees to faithfully and diligently perform their assigned responsibilities and to attract and retain competent and dedicated individuals whose efforts will result in the long-term growth and profitability of the Company. To accomplish such purposes, the Plan provides that the Company may grant Incentive Stock Options, Nonqualified Stock Options, Restricted Stock Awards and Stock Appreciation Rights.
2. Definitions. For purposes of this Plan:
(a) "Agreement" means the written agreement between the Company and an Optionee or Grantee evidencing the grant of an Option or Award and setting forth the terms and conditions thereof.
(b) "Award" means a grant of Restricted Stock or Stock Appreciation Rights, or either or both of them.
(c) "Bank" means Peapack-Gladstone Bank, a Subsidiary.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" means termination upon an intentional failure to perform stated duties, breach of a fiduciary duty involving personal dishonesty or willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order.
(f) "Change in Capitalization" means any increase, reduction, change or exchange of Shares for a different number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise.
(g) "Change in Control" means an event of a nature that: (1) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) who is
not now presently but becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 25% or more of the Company's outstanding
securities except for any securities purchased by any tax-qualified
employee benefit plan of the Company; or (2) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under
an Incumbent Board, shall be, for purposes of this clause (2), considered
as though he were a member of the Incumbent Board; or (3) filing is made
for regulatory approval to implement a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Company
or similar transaction in which the Company is not the resulting entity or
such plan, merger, consolidation, sale or similar transaction occurs; or
(4) a proxy statement soliciting proxies from shareholders of the Company
shall be distributed by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger
or consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Company;
or (5) a tender offer is made for 25% or more of the voting securities of
the Company.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means a committee consisting solely of two (2) or more directors who are Non-Employee Directors (as defined in Rule 16b-3 of the Exchange Act as it may be amended from time to time) of the Company and outside directors as defined pursuant to Section 162(m) of the Code (as it may be amended from time to time) appointed by the Board to administer the Plan and to perform the functions set forth herein. Directors appointed by the Board to the Committee shall have the authority to act notwithstanding the failure to be so qualified.
(j) "Company" means Peapack-Gladstone Financial Corporation, a New Jersey corporation.
(k) "Disability" means the permanent and total inability by reason of mental or physical infirmity, or both, of an employee to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board of Directors must advise the Committee that it is either not possible to determine when such Disability will terminate or that it appears probable that such Disability will be permanent during the remainder of the individual's lifetime.
(l) "Eligible Employee" means any officer or other key employee of the Company or a Subsidiary designated by the Committee as eligible to receive Options or Awards subject to the conditions set forth herein.
(m) "Escrow Agent" means the escrow agent under the Escrow Agreement, designated by the Committee.
(n) "Escrow Agreement" means an agreement between the Company, the Escrow Agent and a Grantee, in the form specified by the Committee, under which shares of Restricted Stock awarded pursuant hereto shall be held by the Escrow Agent until either (a) the restrictions relating to such shares expire and the shares are delivered to the Grantee or (b) the Company reacquires the shares pursuant hereto and the shares are delivered to the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(p) "Fair Market Value" means the fair market value of the Shares as determined by the Committee in its sole discretion; provided, however, that (A) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and have been designated as a National Market System ("NMS") security, Fair Market Value on any date shall be the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported, (B) if the Shares are admitted to quotation on NASDAQ and have not been designated a NMS security, Fair Market Value on any date shall be the average of the highest bid and lowest asked prices of the Shares on such system on such date, or (C) if the Shares are admitted to trading on a national securities exchange, Fair Market Value on any date shall be the last sale price reported for the Shares on such exchange on such date or on the last date preceding such date on which a sale was reported.
(q) "Grantee" means a person to whom an Award has been granted under the Plan.
(r) "Incentive Stock Option" means an Option within the meaning of Section 422 of the Code.
(s) "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option.
(t) "Option" means an Incentive Stock Option, a Nonqualified Stock Option, or either or both of them.
(u) "Optionee" means a person to whom an Option has been granted under the Plan.
(v) "Parent" means any corporation in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock of one of the other corporations in such chain.
(w) "Plan" means the Peapack-Gladstone Financial Corporation 2002 Long-Term Stock Incentive Plan as set forth in this instrument and as it may be amended from time to time.
(x) "Restricted Stock" means Shares issued or transferred to an Eligible Employee which are subject to restrictions as provided in Section 8 hereof.
(y) "Retirement" means retirement at the normal or early retirement date as set forth in the Peapack-Gladstone Bank Retirement Plan.
(z) "Shares" means the common stock, no par value, of the Company (including any new, additional or different stock or securities resulting from a Change in Capitalization).
(aa) "Stock Appreciation Right" means a right to receive all or some portion of the increase in the value of shares of Common Stock as provided in Section 7 hereof.
(bb) "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(cc) "Successor Corporation" means a corporation, or a parent or subsidiary
thereof, which issues or assumes a stock option in a transaction to which
Section 425(a) of the Code applies.
(dd) "Ten-Percent Shareholder" means an eligible Employee, who, at the time an Incentive Stock Option is to be granted to him, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, a Parent or a Subsidiary within the meaning of Section 422(b)(6) of the Code.
3. Administration.
(a) The Plan shall be administered by the Committee which shall hold meetings
at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A majority of the
Committee shall constitute a quorum and a majority of a quorum may
authorize any action. Each member of the Committee shall be a Non-Employee
Director (as defined in Rule 16b-3 of the Exchange Act as it may be
amended from time to time) and an outside director as defined pursuant to
Section 162(m) of the Code as it may be amended from time to time. No
failure to be so qualified shall invalidate any Option or Award or any
action or inaction under the Plan. No member of the Committee shall be
personally liable for any action, determination or interpretation made in
good faith with respect to the Plan, the Options or the Awards, and all
members of the Committee shall be fully indemnified by the Company with
respect to any such action, determination or interpretation.
Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time:
(1) to determine those Eligible Employees to whom Options shall be granted under the Plan and the number of Incentive Stock Options and/or Nonqualified Options to be granted to each eligible Employee and to prescribe the terms and conditions (which need not be identical) of each Option, including the purchase price per share of each Option;
(2) to select those Eligible Employees to whom Awards shall be granted under the Plan and to determine the number of shares of Restricted Stock and/or Stock Appreciation Rights to be granted pursuant to each Award, the terms and conditions of each Award, including the restrictions or performance criteria relating to such shares or rights, the purchase price per share, if any, of Restricted Stock and whether Stock Appreciation Rights will be granted alone or in conjunction with an Option;
(3) to construe and interpret the Plan and the Options and Awards granted thereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable to make the Plan fully effective, and all decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company or a Subsidiary, the Optionees and the Grantees, as the case may be;
(4) to determine the duration and purposes for leaves of absence which may be granted to an Optionee or Grantee without constituting a termination of employment or service for purposes of the Plan; and
(5) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan.
4. Stock Subject to Plan.
(a) The maximum number of Shares that may be issued or transferred pursuant to all Options and Awards under this Plan is 100,000, of which not more than 25,000 Shares may be issued or transferred pursuant to Options and/or Awards to any one
Eligible Employee. Subject to the foregoing aggregate limitations, the maximum number of Shares (i) that may be issued or transferred pursuant to Options or Awards for Incentive Stock Options, Non-Qualified Stock Options and Stock Appreciation Rights shall be 100,000 and (ii) that may be issued or transferred pursuant to Awards of Restricted Stock shall be 10,000. In each case, upon a Change in Capitalization after the adoption of this Plan by the Board on January 11, 2002, the Shares shall be adjusted to the number and kind of Shares of stock or other securities existing after such Change in Capitalization.
(b) Whenever any outstanding Option or portion thereof expires, is cancelled or is otherwise terminated (other than by exercise of the Option or any related Stock Appreciation Right), the shares of Common Stock allocable to the unexercised portion of such Option may again be the subject of Options and Awards hereunder.
(c) Whenever any Shares subject to an Award or Option are resold to the Company, or are forfeited for any reason pursuant to the terms of the Plan, such Shares may again be the subject of Options and Awards hereunder.
5. Eligibility. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Employees who will receive Options and/or Awards, but no person shall receive any Options or Awards unless he is an employee of the Company or a Subsidiary at the time the Option or Award is granted.
6. Stock Options. The Committee may grant Options in accordance with the Plan, the terms and conditions of which shall be set forth in an Agreement. Each Option and Option Agreement shall be subject to the following conditions:
(a) Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Option shall be set forth in the Agreement, provided that the purchase price per Share under each Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share at the time the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder) and under each Nonqualified Stock Option shall not be less than 80% of the Fair Market Value of a Share at the time the Option is granted.
(b) Duration. Options granted hereunder shall be for such term as the
Committee shall determine, provided that (i) no Incentive Stock Option
shall be exercisable after the expiration of ten (10) years from the date
it is granted (five (5) years in the case of an Incentive Stock Option
granted to a Ten-Percent Shareholder) and (ii) no Nonqualified Stock
Option shall be exercisable after the expiration of ten (10) years and one
(1) day from the date it is granted. The Committee may, subsequent to the
granting of any Option, extend the term thereof, but in no event shall the
term as so extended exceed the maximum term provided for in the preceding
sentence.
(c) Non-Transferability. No Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of the Optionee.
(d) Stock Options; Vesting. Subject to Section 6(h) hereof, each Option shall be exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Option Agreement. Unless otherwise provided in the Agreement, to the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. Upon the death, Disability or Retirement of an Optionee, all Options shall become immediately exercisable. Notwithstanding the foregoing, the Committee may accelerate the exercisability of any Option or portion thereof at any time.
(e) Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise in cash, by check, or, at the discretion of the Committee and upon such terms and conditions as the Committee shall approve, by transferring Shares to the Company. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option and the Agreement evidencing any related Stock Appreciation Right to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such
Agreement to the Optionee. Not less than 100 Shares may be purchased at any time upon the exercise of an Option unless the number of Shares so purchased constitutes the total number of Shares then purchasable under the Option.
(f) Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a shareholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares.
(g) Termination of Employment. In the event that an Optionee ceases to be employed by the Company or any Subsidiary, any outstanding Options held by such Optionee shall, unless the Option Agreement evidencing such Option provides otherwise, terminate as follows:
(1) If the Optionee's termination of employment is due to his death or Disability, the Options shall become fully vested and shall be exercisable for a period of three years following such termination of employment, and shall thereafter terminate;
(2) If the Optionee's termination of employment is by the Company or a Subsidiary for Cause or is by the Optionee (other than due to the Optionee's Retirement), the Option shall terminate on the date of the termination of employment;
(3) If the termination of employment is due to the Optionee's Retirement, the Option shall become fully vested and shall be exercisable for 90 days (three years for an Option designated initially as a Nonqualified Stock Option); and
(4) If the Optionee's termination of employment is for any other reason, the Option (to the extent exercisable at the time of the Optionee's termination of employment) shall be exercisable for a period of ninety (90) days following such termination of employment, and shall thereafter terminate, except that with respect to an Option initially designated as a Nonqualified Stock Option, if the Optionee's termination of employment occurs within 12 months of a Change in Control, the Option shall be exercisable for three years following the termination of employment.
Notwithstanding the foregoing, the Committee may provide, either at the time an Option is granted or thereafter, that the Option may be exercised after the periods provided for in this Section 6(g), but in no event beyond the term of the Option. Notwithstanding anything to the contrary in this Section 6(g), no Option shall be exercisable beyond the term of the Option.
In the event of an Optionee's termination of employment as a result of death, Disability or Retirement, the Optionee's (or the Optionee's legal representative or successor(s) in interest) may, in a form acceptable to the Committee make application to surrender all or part of Options held by such Optionee in exchange for a cash payment from the Company of an amount equal to the difference between the Fair Market Value of the shares on the date of termination of employment and the exercise price per share of the Option. Whether the Committee accepts such application or determines to make payment, in whole or part, is within its absolute and sole discretion, it being expressly understood that the Committee is under no obligation to any Optionee whatsoever to make such payments. In the event that the Committee accepts such application and the Company determines to make payment, such payment shall be in lieu of the exercise of the underlying Option and such Option shall cease to be exercisable.
(h) Effect of Change in Control. In the event of a Change in Control, all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable.
(i) Substitution and Modification. Subject to the terms of the Plan, the Committee may modify outstanding Options or accept the surrender of outstanding Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Option shall alter or impair any rights or obligations under the Option without the Optionee's consent, except as provided for in this Plan or the Agreement.
7. Stock Appreciation Rights. The Committee may, in its discretion, either alone or in connection with the grant of an Option, grant Stock Appreciation Rights in accordance with the Plan, the terms and conditions of which shall be set forth in an Agreement. If granted in connection with an Option, a Stock Appreciation Right shall cover the same shares covered by the
Option (or such lesser number of shares as the Committee may determine) and shall, except as provided in this Section 7, be subject to the same terms and conditions as the related Option.
(a) Time of Grant. A Stock Appreciation Right may be granted:
(i) at any time if unrelated to an Option; or
(ii) if related to an Option, either at the time of grant, or at any time thereafter during the term of the Option.
(b) Stock Appreciation Rights Related to an Option.
(1) Payment. A Stock Appreciation Right granted in connection with an Option shall entitle the holder thereof, upon exercise of the Stock Appreciation Right or any portion thereof, to receive payment of an amount computed pursuant to Section 7(b)(3).
(2) Exercise. Subject to Section 7(f), a Stock Appreciation Right granted in connection with an Option shall be exercisable at such time or times and only to the extent that the related Option is exercisable, and will not be transferable except to the extent the related Option may be transferable. A Stock Appreciation Right granted in connection with an Incentive Stock Option shall be exercisable only if the Fair Market Value of a Share on the date of exercise exceeds the purchase price specified in the related Incentive Stock Option.
(3) Amount Payable. Except as otherwise provided in Section 7(g), upon the exercise of a Stock Appreciation Right related to an Option, the Grantee shall be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a Share on the date of exercise of such Stock Appreciation Right over the per Share purchase price under the related Option, by (B) the number of Shares as to which such Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the Agreement evidencing the Stock Appreciation Right at the time it is granted.
(4) Treatment of Related Options and Stock Appreciation Rights Upon Exercise. Except as provided in Section 7(b)(v), (A) upon the exercise of a Stock Appreciation Right granted in connection with an Option, the Option shall be cancelled to the extent of the number of Shares as to which the Stock Appreciation Right is exercised and (B) upon the exercise of an Option granted in connection with a Stock Appreciation Right or the surrender of such Option pursuant to Section 6(h), the Stock Appreciation Right shall be cancelled to the extent of the number of Shares as to which the Option is exercised or surrendered.
(5) Simultaneous Exercise of Stock Appreciation Right and Option. The
Committee may provide, either at the time a Stock Appreciation Right is
granted in connection with a Nonqualified Stock Option or thereafter
during the term of the Stock Appreciation Right, that, subject to Section
7(f), upon exercise of such Option or the surrender of the Option pursuant
to Section 6(h), the Stock Appreciation Right shall automatically be
deemed to be exercised to the extent of the number of Shares as to which
the Option is exercised or surrendered. In such event, the Grantee shall
be entitled to receive the amount described in Section 7(b)(3) or 7(g)
hereof, as the case may be (or some percentage of such amount if so
provided in the Agreement evidencing the Stock Appreciation Right), in
addition to the Shares acquired or cash received pursuant to the exercise
or surrender of the Option. If a Stock Appreciation Right Agreement
contains an automatic exercise provision described in this Section 7(b)(v)
and the Option or any portion thereof to which it relates is exercised
within six (6) months from the date the Stock Appreciation Right is
granted, such automatic exercise provision shall not be effective with
respect to that exercise of the Option. The inclusion in an Agreement
evidencing a Stock Appreciation Right of a provision described in this
Section 7(b)(v) may be in addition to and not in lieu of the right to
exercise the Stock Appreciation Right as otherwise provided herein and in
the Agreement.
(c) Stock Appreciation Rights Unrelated to an Option. The Committee may grant to Eligible Employees Stock Appreciation Rights unrelated to Options. Stock Appreciation Rights unrelated to Options shall contain such terms and conditions as to exercisability, vesting and duration as the Committee shall determine, but in no event shall they have a term of greater than ten (10) years. Upon the death, Disability or Retirement of a Grantee, all Stock Appreciation Rights shall become immediately exercisable. Upon the death or Disability of a Grantee, the Stock Appreciation Rights held by that Grantee shall be exercisable for a period of one (1) year following such termination of employment, and shall thereafter terminate. Upon the Retirement of a Grantee, the Stock Appreciation Rights held by that Grantee shall be exercisable for a period of ninety (90) days following such termination of employment, and shall thereafter terminate. Except as otherwise provided in
Section 7(g), the amount payable upon exercise of such Stock
Appreciation Rights shall be determined in accordance with Section
7(b)(3), except that "Fair Market Value of a Share on the date of
the grant of the Stock Appreciation Right" shall be substituted for
"purchase price under the related Option."
(d) Method of Exercise. Stock Appreciation Rights shall be exercised by a Grantee only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares with respect to which the Stock Appreciation Right is being exercised. If requested by the Committee, the Grantee shall deliver the Agreement evidencing the Stock Appreciation Right being exercised and the Agreement evidencing any related Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreements to the Grantee.
(e) Form of Payment. Payment of the amount determined under Sections
7(b)(3) or 7(c), may be made solely in whole shares of Common Stock
in a number determined at their Fair Market Value on the date of
exercise of the Stock Appreciation Right or, alternatively, at the
sole discretion of the Committee, solely in cash, or in a
combination of cash and Shares as the Committee deems advisable. In
the event that a Stock Appreciation Right is exercised within the
sixty-day period following a Change in Control, any amount payable
shall be solely in cash. If the Committee decides to make full
payment in Shares, and the amount payable results in a fractional
Share, payment for the fractional Share will be made in cash.
Notwithstanding the foregoing, no payment in the form of cash may be
made upon the exercise of a Stock Appreciation Right pursuant to
Section 7(b)(3) or 7(c) to an officer of the Company or a Subsidiary
who is subject to Section 16(b) of the Exchange Act, unless the
exercise of such Stock Appreciation Right is made during the period
beginning on the third business day and ending on the twelfth
business day following the date of release for publication of the
Company's quarterly or annual statements of earnings.
(f) Restrictions. No Stock Appreciation Right may be exercised before the date six (6) months after the date it is granted, except in the event that the death or Disability of the Grantee occurs before the expiration of the six-month period.
(g) Effect of Change in Control. In the event of a Change in Control, subject to Section 7(f), all Stock Appreciation Rights shall become immediately and fully exercisable.
8. Restricted Stock. The Committee may grant Awards of Restricted Stock which shall be evidenced by an Agreement between the Company and the Grantee. Each Agreement shall contain such restrictions, terms and conditions as the Committee may require and (without limiting the generality of the foregoing) such Agreements may require that an appropriate legend be placed on Share certificates. Awards of Restricted Stock shall be subject to the following terms and provisions:
(a) Rights of Grantee.
(1) Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted and the purchase price, if any, is paid by the Grantee; provided, that the Grantee has executed an Agreement evidencing the Award, an Escrow Agreement, appropriate blank stock powers and any other documents which the Committee, in its absolute discretion, may require as a condition to the issuance of such Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted Stock Award, an Escrow Agreement or appropriate blank stock powers or shall fail to pay the purchase price, if any, for the Restricted Stock, the Award shall be null and void. Shares issued in connection with a Restricted Stock Award, together with the stock powers, shall be deposited with the Escrow Agent. Except as restricted by the terms of the Agreement, upon the delivery of the Shares to the Escrow Agent, the Grantee shall have all of the rights of a shareholder with respect to such Shares, including the right to vote the shares and to receive, subject to Section 8(d), all dividends or other distributions paid or made with respect to the Shares.
(2) If a Grantee receives rights or warrants with respect to any Shares which were awarded to him as Restricted Stock, such rights or warrants or any Shares or other securities he acquires by the exercise of such rights or warrants may be held, exercised, sold or otherwise disposed of by the Grantee free and clear of the restrictions and obligations provided by this Plan.
(b) Non-Transferability. Until any restrictions upon the Shares of Restricted
Stock awarded to a Grantee shall have lapsed in the manner set forth in
Section 8(c), such Shares shall not be sold, transferred or otherwise
disposed of and shall not be pledged or otherwise hypothecated, nor shall
they be delivered to the Grantee. Upon the termination of employment of
the Grantee, all of such Shares with respect to which restrictions have
not lapsed shall be resold by the Grantee to the Company at the same
price paid by the Grantee for such Shares or shall be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company if no purchase price had been paid for such Shares. The Committee may also impose such other restrictions and conditions on the Shares as it deems appropriate.
(c) Lapse of Restrictions.
(1) Restrictions upon Shares of Restricted Stock awarded hereunder shall lapse at such time or times and on such terms, conditions and satisfaction of performance criteria as the Committee may determine; provided, however, that the restrictions upon such Shares shall lapse only if the Grantee on the date of such lapse is then and has continuously been an employee of the Company or a Subsidiary from the date the Award was granted, or unless the Committee sets a later date for the lapse of such restrictions.
(2) In the event of a Change in Control, all restrictions upon any Shares of Restricted Stock shall lapse immediately and all such Shares shall become fully vested in the Grantee thereof.
(3) In the event of termination of employment as a result of death, Disability or Retirement of a Grantee, all restrictions upon Shares of Restricted Stock awarded to such Grantee shall thereupon immediately lapse. The Committee may also decide at any time in its absolute discretion and on such terms and conditions as it deems appropriate, to remove or modify the restrictions upon Shares of Restricted Stock awarded hereunder, unless the Committee sets a later date for the lapse of such restrictions.
(d) Treatment of Dividends. At the time of an Award of Shares of Restricted
Stock, the Committee may, in its discretion, determine that the payment to
the Grantee of dividends, or a specified portion thereof, declared or paid
on Shares of Restricted Stock by the Company, shall be deferred until the
earlier to occur of (i) the lapsing of the restrictions imposed upon such
Shares, in which case such dividends shall be paid over to the Grantee, or
(ii) the forfeiture of such Shares under Section 8(b) hereof, in which
case such dividends shall be forfeited to the Company, and such dividends
shall be held by the Company for the account of the Grantee until such
time. In the event of such deferral, interest shall be credited on the
amount of such dividends held by the Company for the account of the
Grantee from time to time at such rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends, together with
interest accrued thereon as aforesaid, shall be made upon the earlier to
occur of the events specified in (i) and (ii) of the immediately preceding
sentence, in the manner specified therein.
(e) Delivery of Shares. When the restrictions imposed hereunder and in the Plan expire or have been cancelled with respect to one or more shares of Restricted Stock, the Company shall notify the Grantee and the Escrow Agent of same. The Escrow Agent shall then return the certificate covering the Shares of Restricted Stock to the Company and upon receipt of such certificate the Company shall deliver to the Grantee (or such Grantee's legal representative, beneficiary or heir) a certificate for a number of shares of Common Stock, without any legend or restrictions (except those required by any federal or state securities laws), equivalent to the number of Shares of Restricted Stock for which restrictions have been cancelled or have expired. A new certificate covering Shares of Restricted Stock previously awarded to the Grantee which remain restricted shall be issued to the Grantee and held by the Escrow Agent and the Agreement, as it relates to such shares, shall remain in effect.
9. Loans.
(a) The Company or any Subsidiary may make loans to a Grantee or Optionee in connection with the purchase of Shares pursuant to an Award or in connection with the exercise of an Option, subject to the following terms and conditions and such other terms and conditions not inconsistent with the Plan, including the rate of interest, if any, as the Committee shall impose from time to time.
(b) No loan made under the Plan shall exceed the sum of (i) the aggregate purchase price payable pursuant to the Option or Award with respect to which the loan is made, plus (ii) the amount of the reasonably estimated income taxes payable by the Optionee or Grantee with respect to the Option or Award. In no event may any such loan exceed the Fair Market Value, at the date of exercise, of any such Shares.
(c) No loan shall have an initial term exceeding ten (10) years; provided,
that loans under the Plan shall be renewable at the discretion of the
Committee; and provided, further, that the indebtedness under each loan
shall become due and payable, as the case may be, on a date no later than
(i) one (1) year after termination of the Optionee's or Grantee's
employment due to death,
retirement or Disability, or (ii) the date of termination of the Optionee's or Grantee's employment for any reason other than death, retirement or Disability.
(d) Loans under the Plan may be satisfied by an Optionee or Grantee, as determined by the Committee, in cash or, with the consent of the Committee, in whole or in part by the transfer to the Company of Shares whose Fair Market Value on the date of such payment is equal to the cash amount for which such Shares are transferred.
(e) A loan shall be secured by a pledge of Shares with a Fair Market Value of not less than the principal amount of the loan. After partial repayment of a loan, pledged shares no longer required as security may be released to the Optionee or Grantee.
(f) Every loan shall meet all applicable laws, regulations and rules of the Federal Reserve Board and any other governmental agency having jurisdiction.
10. Adjustment Upon Changes in Capitalization.
(a) In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the maximum number and class of shares of stock with respect to which Options or Awards may be granted under the Plan, the number and class of shares as to which Options or Awards have been granted under the Plan, and the purchase price therefor, if applicable.
(b) Any such adjustment in the Shares or other securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 425(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 425 of the Code.
(c) If, by reason of a Change in Capitalization, a Grantee of an Award shall be entitled to new, additional or different shares of stock or securities (other than rights or warrants to purchase securities), such new additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares or units pursuant to the Award prior to such Change in Capitalization.
11. Effect of Certain Transactions. In the event of (i) the liquidation or dissolution of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) the sale or disposition of all or substantially all of the Company's assets, provision shall be made in connection with such transaction for the assumption of the Plan and the Options or Awards theretofore granted under the Plan, or the substitution for such Options or Awards of new options or awards of the Successor Corporation, with appropriate adjustment as to the number and kind of shares and the purchase price for shares thereunder.
12. Release of Financial Information. A copy of the Company's annual report to shareholders shall be delivered to each Optionee and Grantee at the time such report is distributed to the Company's shareholders. Upon request the Company shall furnish to each Optionee and Grantee a copy of its most recent annual report and each quarterly report and current report filed under the Exchange Act, since the end of the Company's prior fiscal year.
13. Termination and Amendment of the Plan. The Plan shall terminate on the day preceding the tenth anniversary of its effective date and no Option or Award may be granted thereafter. The Board may sooner terminate or amend the Plan at any time, and from time to time; provided, however, that, except as provided in Sections 10 and 11 hereof, no amendment shall be effective unless approved by the shareholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve months before or after the date of adoption of such amendment, where such amendment will:
(a) increase the number of Shares as to which Options or Awards may be granted under the Plan; or
(b) change the class of persons eligible to participate in the Plan.
The following amendments shall not require Shareholder approval unless required by law or regulation to preserve the intended benefits of the Plan to the Company or the participants:
(a) change the minimum purchase price of Shares pursuant to Options or Awards as provided herein;
(b) extend the maximum period for granting or exercising Options provided herein; or
(c) otherwise materially increase the benefits accruing to Eligible Employees under the Plan.
Except as provided in Sections 10 and 11 hereof, rights and obligations under any Option or Award granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the Optionee or Grantee, as the case may be.
14. Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
15. Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(a) give any person any right to be granted an Option or Award other than at the sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan;
(c) limit in any way the right of the Company to terminate the employment of any person at any time; or
(d) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person in any particular position at any particular rate of compensation or for any particular period of time.
16. Regulations and Other Approvals; Governing Law.
(a) This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of New Jersey without giving effect to the choice of law principles thereof, except to the extent that such law is preempted by federal law.
(b) The obligation of the Company to sell or deliver Shares with respect to Options and Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee.
(c) The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and Section 162(m) of the Code (each as amended from time to time) and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith to the extent necessary. Any provisions inconsistent with such Rule or Section shall be inoperative but shall not affect the validity of the Plan or any grants thereunder.
(d) Except as otherwise provided in Section 13, the Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder.
(e) Each Option and Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions unacceptable to the Committee.
(f) In the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, or regulations thereunder, and the
Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares (including upon exercise of an Option), to represent to the Company in writing that the Shares acquired by such individual are acquired for investment only and not with a view to distribution.
17. Miscellaneous.
(a) Multiple Agreements. The terms of each Option or Award may differ from other Options or Awards granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option or Award to a given Eligible Employee during the term of the Plan, either in addition to, or in substitution for, one or more Options or Awards previously granted to that Eligible Employee. The grant of multiple Options and/or Awards may be evidenced by a single Agreement or multiple Agreements, as determined by the Committee.
(b) Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to any Optionee or Grantee an amount equal to the federal, state and local income taxes and other amounts required by law to be withheld with respect to any Option or Award. Notwithstanding anything to the contrary contained herein, if an Optionee or Grantee is entitled to receive Shares upon exercise of an Option or pursuant to an Award, the Company shall have the right to require such Optionee or Grantee, prior to the delivery of such Shares, to pay to the Company the amount of any federal, state or local income taxes and other amounts which the Company is required by law to withhold. The Agreement evidencing any Incentive Stock Options granted under this Plan shall provide that if the Optionee makes a disposition, within the meaning of Section 425(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him or her pursuant to his or her exercise of the Incentive Stock Option within the two-year period commencing on the day after the date of grant of such Option or within the one-year period commencing on the day after the date of transfer of the Share or Shares to the Optionee pursuant to the exercise of such Option, he or she shall, within ten (10) days of such disposition, notify the Company thereof and immediately deliver to the Company any amount of federal income tax withholding required by law.
(c) Designation of Beneficiary. Each Optionee and Grantee may, with the consent of the Committee, designate a person or persons to receive in the event of his/her death, any Option or Award or any amount payable pursuant thereto, to which he/she would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If an Optionee fails effectively to designate a beneficiary, then his/her estate will be deemed to be the beneficiary.
Effective Date. The effective date of the Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative vote of a majority of the votes cast at a meeting of shareholders at which a quorum is present to be held within twelve (12) months of such adoption. No Options or Awards shall vest hereunder unless such Shareholder approval is obtained.
Peapack-Gladstone Financial Corporation 2002 Stock Option Plan for Outside Directors
(Adopted by Directors January 10, 2002)
(Adopted by Shareholders April 23, 2002)
1. Purpose
The purpose of the Peapack-Gladstone Corporation (the "Company") 2002 Stock Option Plan for Outside Directors (the "Directors' Option Plan" or the "Plan") is to promote the growth and profitability of the Company by providing outside directors of the Company with an incentive to achieve long-term objectives of the Company and to attract and retain non-employee directors of outstanding competence by providing such outside directors with an opportunity to acquire an equity interest in the Company.
2. Grant of Options
(a) The Plan will be administered by the Compensation Committee of the Board of Directors (the "Committee"). The Committee shall consist solely of two or more Non-Employee Directors, as such term is defined in Rule 16b-3(b)(3) of the Exchange Act. The Committee may, from time to time, recommend the grant of options to the outside directors (for purposes of this Directors' Option Plan, the term "outside director" shall mean a member of the Board of Directors of the Company not also serving as an employee of the Company) under this Plan in such numbers and upon such terms as it deems appropriate, but all grants must be approved by the Company's Board of Directors.
(b) Option Price. The purchase price per share of the Common Stock deliverable upon exercise of such option shall equal the Fair Market Value of the Common Stock on the date of the grant of this option as determined under paragraph (d) of this Section 2 and in no event below the par value of the Common Stock on the Date of Grant.
(c) Ineligibility. An option under the Directors' Option Plan shall not be granted to any outside director who at any previous time was an employee of the Company and in such capacity was eligible to receive any options to purchase Common Stock.
(d) Fair Market Value. For purposes of the Directors' Option Plan, when used in connection with Common Stock on a certain date, Fair Market Value means the average of the high and low prices of known trades of the Common Stock on the relevant date, or if the Common Stock was not traded on such date, on the next preceding day on which the Common Stock was traded thereon.
3. Terms and Conditions
(a) Option Agreement. Each option shall be evidenced by a written option agreement between the Company and the recipient specifying the number of shares of Common Stock that may be acquired through its exercise and containing such other terms and conditions which are not inconsistent with the terms of this grant.
(b) Vesting. Each option granted pursuant to Section 2(a) hereof shall become exercisable in five annual installments of twenty percent (20%). The first installment of options granted pursuant to Section 2(a) shall vest one year from the date of grant and the remaining four annual installments will vest on successive anniversary dates, but only if the optionee continues to serve as an outside director at such applicable vesting date, unless otherwise provided in this Plan.
(c) Manner of Exercise. The option when exercisable may be exercised from
time to time in whole or in part, by delivering a written notice of
exercise to the President of the Company signed by the recipient. Such
notice is irrevocable and must be accompanied by full payment of the
exercise price (as determined in Section 2(b) hereof) in cash or shares of
previously acquired common stock of the Company at the Fair Market Value
of such shares determined on the exercise date by the manner described in
Section 2(d) above.
(d) Transferability. Each option granted hereby may be exercised only by the recipient to whom it is issued, or in the event of the outside director's death, his or her legal representative or successor(s) in interest pursuant to the terms of section 3(e) hereof.
(e) Termination of Service. Upon the termination of a recipient's service for any reason other than disability, Change in Control, death or removal for cause, the participant's stock options shall be exercisable only as to those shares which were immediately purchasable by the recipient at the date of termination. In the event of death or disability of any recipient, all stock options held by such recipient, whether or not exercisable at such time, shall become immediately exercisable by the recipient or the recipient's legal representatives or beneficiaries. Upon termination of the recipient's service due to or within 12 months after a Change in Control, all stock options held by such recipient, whether or not exercisable at such time, shall become immediately exercisable. However, shares of Common Stock acquired through the exercise of options granted under Section 2 may not be sold or otherwise disposed of for a period of one year from the Date of Grant of the option. For purposes of this plan the following terms are defined:
(i) "Change in Control" for purposes of this Plan shall mean an event of a nature that: (1) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) who is not now presently but becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the Company's outstanding securities except for any securities purchased by any tax-qualified employee benefit plan of the Company; or (2) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (2), considered as though he were a member of the Incumbent Board; or (3) filing is made for regulator approval to implement a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Company or similar transaction occurs in which the Company is not the resulting entity or such plan, merger, consolidation, sale or similar transaction occurs; or (4) a proxy statement soliciting proxies from shareholders of the Company shall be distributed by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged for or converted into cash or property or securities not issued by the Company; or (5) a tender offer is made for 25% or more of the voting securities of the Company.
(ii) "Disability" means the permanent and total inability by reason of mental or physical infirmity, or both, of an outside director to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board of Directors must advise the Board that it is either not possible to determine when such disability will terminate or that it appears probable that such disability will be permanent during the remainder of said recipient's lifetime.
(f) Termination of Option. Each option shall expire upon the earlier of
(i) one hundred and twenty (120) months following the date of grant, or
(ii) three (3) years following the date on which the outside director
ceases to serve in such capacity for any reason other than removal for
cause. If the outside director dies before fully exercising any portion of
an option then exercisable, such option may be exercised by such outside
director's beneficiary, personal representative(s), heir(s) or devisee(s)
at any time within the three (3) year period following his or her death;
provided, however, that in no event shall the option be exercisable more
than one hundred and twenty (120) months after the date of its grant. If
the outside director is removed for cause, all options awarded to him
shall expire upon such removal.
4. Common Stock Subject to the Directors' Option Plan
The shares which shall be issued and delivered upon exercise of options granted under the Directors' Option Plan may be either authorized and unissued shares of Common Stock or authorized and issued shares of Common Stock held by the Company as treasury stock. The number of shares of Common Stock reserved for issuance under the
Directors' Option Plan shall not exceed 40,000 shares of the Common Stock of the Company, no par value per share, subject to adjustments pursuant to this Section 4. Any shares of Common Stock subject to an option which for any reason either terminates unexercised or expires, shall again be available for issuance under the Directors' Option Plan.
In the event of any change or changes in the outstanding Common Stock of the Company by reason of any stock dividend or split, recapitalization, reorganization, merger, consolidation, spin-off, combination or any similar corporate change, or other increase or decrease in such shares effected without receipt or payment of consideration by the Company, the number of shares of Common Stock which may be issued under the Directors' Option Plan, the number of shares of Common Stock to options granted under this Directors' Option Plan, and the option price of such options, shall be automatically and proportionately adjusted to prevent dilution or enlargement of the rights granted to recipient under the Directors' Option Plan.
5. Effective Date of the Plan; Shareholder Ratification
This Plan was approved by the Board of Directors on January 10, 2002 and shall become effective on such date if it is approved by the Shareholders by a majority of the votes cast on such proposal at the 2002 Annual Meeting if a quorum is present.
6. Termination of the Plan
The right to grant options under the Directors' Option Plan will terminate automatically upon the earlier of ten years after the Effective Date of the Plan or the issuance of 40,000 shares of Common Stock (the maximum number of shares of Common Stock reserved for under this Plan) subject to adjustment pursuant to Section 4 hereof.
7. Amendment of the Plan
The Directors' Option Plan may be amended from time to time by the Board
of Directors of the Company provided that Sections 2 and 3 hereof shall
not be amended more than once every six months other than to comport with
the Internal Revenue Code of 1986, as amended, or the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. Except
as provided in Section 4 hereof, rights and obligations under any option
granted before an amendment shall not be altered or impaired by such
amendment without the written consent of the optionee. If the Directors'
Option Plan is subject to 17 C.F.R. ss.240.16(b)-3 ("Rule 16(b)-3") of the
rules and regulations promulgated under the Securities Exchange Act of
1934 and an amendment would require shareholder approval under such Rule
16(b)-3 or as otherwise may be required under applicable New Jersey law,
then subject to the discretion of the Board of Directors of the Company,
such amendment shall be presented to shareholders for approval; provided,
however, that the failure to obtain shareholder ratification shall not
affect the validity of this Plan as so amended and the options granted
thereunder.
8. Applicable Law
The Plan will be administered in accordance with the laws of the State of New Jersey and applicable federal law.
9. Compliance with Section 16
If this Plan is qualified under Rule 16b-3, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent that any provision of the Plan fails to so comply, such provision shall be deemed null and void, to the extent permitted by law.
Exhibit 10 (H)
AMENDED AND RESTATED
CHANGE-IN-CONTROL AGREEMENT
FRANK A. KISSEL
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 11 day of December, 2003, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking association with its principal office at 190 Main Street, Gladstone, New Jersey 07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey Corporation which maintains its principal office at 158 Route 206 North, Gladstone, New Jersey 07934 (Peapack and the Bank collectively are the "Company") and Frank A. Kissel (the "Executive"). This Agreement amends and restates in its entirety the Employment Agreement dated as of January 1, 1998 by and among the Executive, Peapack, and the Bank.
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many years;
WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the future services of the Executive are of great value to the Bank and Peapack and that it is important for the growth and development of the Bank that the Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
Definitions
a. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued failure by the Executive to perform his duties for the Company under this Agreement after at least one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
b. Change in Control. "Change in Control" means any of the
following events: (i) when Peapack or a Subsidiary acquires
actual knowledge that any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act), other than
an affiliate of Peapack or a Subsidiary or an employee benefit
plan established or maintained by Peapack, a Subsidiary or any
of their respective affiliates, is or becomes the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act) directly
or indirectly, of securities of Peapack representing more than
twenty-five percent (25%) of the combined voting power of
Peapack's then outstanding securities (a "Control Person"),
(ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by Peapack, a Subsidiary or an employee
benefit plan established or maintained by Peapack, a
Subsidiary or any of their respective affiliates), (iii) upon
the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation
(other than a merger or consolidation which is approved by at
least two-thirds of the Continuing Directors (as hereinafter
defined) and the definitive agreement for which provides that
at least two-thirds of the directors of the surviving or
resulting corporation immediately after the transaction are
Continuing Directors (a "Non-Control Transaction")), (B) a
sale or disposition of all or substantially all of Peapack's
assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board (the "Continuing Directors") cease for any reason to
constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee benefit plan established or maintained by Peapack or a Subsidiary, or an affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Peapack's then outstanding securities if the acquisition of all voting securities in excess of ten percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Peapack's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law.
c. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the third anniversary of the Change in Control or (ii) the death of the Executive. For the purpose
of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control.
d. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
e. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control; any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control;
(4) The Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or
(7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective.
f. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Peapack, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein.
3. Position. During the Contract Period the Executive shall be employed as Chairman of the Board of Directors & CEO of Peapack and the Bank, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments.
4. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows:
a. Base Salary. A base annual salary equal to the annual salary in effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method.
b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors.
5. Expenses and Fringe Benefits.
a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control.
b. Supplemental Retirement Plan. During the Contract Period, if the Executive was entitled to benefits under any supplemental retirement plan prior to the Change in Control, the Executive shall be entitled to continued benefits under such plan after the Change in Control and such plan may not be modified to reduce or eliminate such benefits during the Contract Period.
c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control.
d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), including the chief executive officer of such entities, then no such change shall be deemed to be contrary to this paragraph.
6. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement.
7. Disability. During the Contract Period if the Executive becomes permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement.
8. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement.
9. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three
(3.0) times the highest annual cash compensation, consisting solely
of salary and bonus, as well as any 401(k) deferral, paid to the
Executive during any calendar year in each of the three calendar
years immediately prior to the Change in Control, along with any
Gross-Up Payment due under Section 12 hereof for the calendar year
of the termination; and
(b) Continue to provide the Executive during the remainder of the Contract Period with health, hospitalization and medical insurance, as were provided at the time of the termination of his employment with the Company, at the Company's cost (subject to standard deductibles and co-pays, and the Executive's continuing payment of his part of the premium for family coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or the Gross-Up Payment due under Section 12 hereof, or to provide him with the health, hospitalization and medical insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause and not in good faith.
10. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contract Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
11. Non-Disclosure of Confidential Information.
a. Non-Disclosure of Confidential Information. Except in the course of his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive
agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information.
b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions.
c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement.
12. Gross-Up for Taxes.
a. Additional Payments. If, for any taxable year, Executive
shall be liable for the payment of an excise tax under Section
4999 or other substitute or similar tax assessment (the
"Excise Tax") of the Internal Revenue Code of 1986, as amended
(the "Code"), including the corresponding provisions of any
succeeding law, with respect to any payments under this
Section 12 or any payments and/or benefits under this
Agreement or under any benefit plan of the Company applicable
to Executive individually or generally to executives or
employees of the Company, then, the Company shall pay to the
Executive, subject to Section 15 hereof by paying the
withholding for the Executive, an additional amount (the
"Gross-Up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on such payments
and benefits and any federal, state and local income tax and
Excise Tax upon payments provided for in this Section 12,
shall be equal to the payments due to the Executive hereunder
and the payments and/or
benefits due to the Executive under any benefit plan of the Company. Each Gross-Up Payment shall be made in good funds upon the later of (i) five (5) days after the date the Executive notifies the Company or the Company receives notice from the certified public accounting firm of its need to make such Gross-Up Payment, or (ii) the date of any payment causing the liability for such Excise Tax. The amount of any Gross-Up Payment under this section shall be computed by a nationally recognized certified public accounting firm designated jointly by the Company and the Executive. The cost of such services by the accounting firm shall be paid by the Company. If the Company and the Executive are unable to designate jointly the accounting firm, then the firm shall be the accounting firm used by the Company immediately prior to the Change in Control.
b. IRS Disputed Claims. The Executive shall notify the company in writing of any claim by the Internal Revenue Service ("IRS") that, if successful, would require the payment by the Company of a Gross-Up Payment in addition to that payment previously paid by the Company pursuant to this section. Such notification shall be given an soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim, the date on which such claim is requested to be paid, and attach a copy of the IRS notice. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) Give the Company any information reasonably requested by the Company relating to such claim;
(ii) Take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;
(iii) Cooperate with the Company in good faith in order effectively to contest such claim; and
(iv) Permit the Company to participate in any proceedings relating to such claim; provided, however that the Company shall pay directly all costs and expenses (including legal and accounting fees, as well as other expenses and any additional interest and penalties) incurred by the Executive and the Company in connection with an IRS levy, contest or claim and provided further that the Company shall not take any action or fail to make any Gross-Up Payment so as to cause the assessment of any IRS levy and the Company shall cause any levy so assessed to be immediately released by payment of the Gross-Up Amount, together with all costs, interest and penalties.
13. Term and Effect Prior to Change in Control.
a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the
date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Chairman of the Board of Directors of Peapack notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years after the date of such written notice.
b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason prior to a Change in Control, this Agreement shall thereafter be of no further force and effect.
14. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policies for officers and employees.
15. Payroll and Withholding Taxes. All payments to be made or benefits to be provided hereunder by the Company shall be subject to applicable federal and state payroll or withholding taxes. Any Gross-Up Payment shall be made in the form of withholding taxes and shall not be paid to the Executive, but shall be sent to the IRS in the ordinary course of the Company's payroll withholding.
16. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Peapack. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change-in-control benefits. The parties hereto expressly agree that the Severance Agreement between the Bank and the Executive dated January 27, 1997, is hereby terminated in its entirety. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
(signature page to follow)
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial Corporation each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
ANTOINETTE ROSELL By: F. DUFFIELD MEYERCORD
----------------- ---------------------
Antoinette Rosell, Secretary F. Duffield Meyercord, Chairman,
Compensation Committee
ATTEST: PEAPACK-GLADSTONE BANK
ANTOINETTE ROSELL By: F. DUFFIELD MEYERCORD
----------------- ---------------------
Antoinette Rosell, Secretary F. Duffield Meyercord, Chairman,
Compensation Committee
WITNESS:
ANTOINETTE ROSELL FRANK A. KISSEL
----------------- ---------------------
Antoinette Rosell Frank A. Kissel, Executive
|
AMENDED AND RESTATED
CHANGE-IN-CONTROL AGREEMENT
ROBERT M. ROGERS
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 11th day of December, 2003, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking association with its principal office at 190 Main Street, Gladstone, New Jersey 07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey Corporation which maintains its principal office at 158 Route 206 North, Gladstone, New Jersey 07934 (Peapack and the Bank collectively are the "Company") and Robert M. Rogers (the "Executive"). This Agreement amends and restates in its entirety the Employment Agreement dated as of January 1, 1998 by and among the Executive, Peapack, and the Bank.
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many years;
WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the future services of the Executive are of great value to the Bank and Peapack and that it is important for the growth and development of the Bank that the Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive and rely upon his advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
Definitions
a. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued failure by the Executive to perform his duties for the Company under this Agreement after at least one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
b. Change in Control. "Change in Control" means any of the
following events: (i) when Peapack or a Subsidiary acquires
actual knowledge that any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act), other than
an affiliate of Peapack or a Subsidiary or an employee benefit
plan established or maintained by Peapack, a Subsidiary or any
of their respective affiliates, is or becomes the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act) directly
or indirectly, of securities of Peapack representing more than
twenty-five percent (25%) of the combined voting power of
Peapack's then outstanding securities (a "Control Person"),
(ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by Peapack, a Subsidiary or an employee
benefit plan established or maintained by Peapack, a
Subsidiary or any of their respective affiliates), (iii) upon
the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation
(other than a merger or consolidation which is approved by at
least two-thirds of the Continuing Directors (as hereinafter
defined) and the definitive agreement for which provides that
at least two-thirds of the directors of the surviving or
resulting corporation immediately after the transaction are
Continuing Directors (a "Non-Control Transaction")), (B) a
sale or disposition of all or substantially all of Peapack's
assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board (the "Continuing Directors") cease for any reason to
constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors
of the surviving or resulting corporation; provided that any
individual whose election or nomination for
election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee benefit plan established or maintained by Peapack or a Subsidiary, or an affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Peapack's then outstanding securities if the acquisition of all voting securities in excess of ten percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Peapack's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law.
c. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the third anniversary of the Change in Control or (ii) the death of the Executive. For the purpose of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control.
d. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
e. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control; any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control;
(4) The Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except
for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or
(7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the
requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective.
f. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Peapack, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
17. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein.
18. Position. During the Contract Period the Executive shall be employed as President & COO of Peapack and the Bank, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments.
19. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows:
a. Base Salary. A base annual salary equal to the annual salary in effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method.
b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors.
20. Expenses and Fringe Benefits.
a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control.
b. Supplemental Retirement Plan. During the Contract Period, if the Executive was entitled to benefits under any supplemental retirement plan prior to the Change in Control, the Executive shall be entitled to continued benefits under such plan after the Change in Control and such plan may not be modified to reduce or eliminate such benefits during the Contract Period.
c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control.
d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), including the chief executive officer of such entities, then no such change shall be deemed to be contrary to this paragraph.
21. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement.
22. Disability. During the Contract Period if the Executive becomes permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement.
23. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement.
24. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three
(3.0) times the highest annual cash compensation, consisting solely
of salary and bonus, as well as any 401(k) deferral, paid to the
Executive during any calendar year in each of the three calendar
years immediately prior to the Change in Control, along with any
Gross-Up Payment due under Section 12 hereof for the calendar year
of the termination; and
(b) Continue to provide the Executive during the remainder of the Contract Period with health, hospitalization and medical insurance, as were provided at the time of the termination of his employment with the Company, at the Company's cost (subject to standard deductibles and co-pays, and the Executive's continuing payment of his part of the premium for family coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or the Gross-Up Payment due under Section 12 hereof, or to provide him with the health, hospitalization and medical insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause and not in good faith.
25. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contract Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
26. Non-Disclosure of Confidential Information.
a. Non-Disclosure of Confidential Information. Except in the course of his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive
agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information.
b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions.
c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement.
27. Gross-Up for Taxes.
a. Additional Payments. If, for any taxable year, Executive
shall be liable for the payment of an excise tax under Section
4999 or other substitute or similar tax assessment (the
"Excise Tax") of the Internal Revenue Code of 1986, as amended
(the "Code"), including the corresponding provisions of any
succeeding law, with respect to any payments under this
Section 12 or any payments and/or benefits under this
Agreement or under any benefit plan of the Company applicable
to Executive individually or generally to executives or
employees of the Company, then, the Company shall pay to the
Executive, subject to Section 15 hereof by paying the
withholding for the Executive, an additional amount (the
"Gross-Up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on such payments
and benefits and any federal, state and local income tax and
Excise Tax upon payments provided for in this Section 12,
shall be equal to the payments due to the Executive hereunder
and the payments and/or
benefits due to the Executive under any benefit plan of the Company. Each Gross-Up Payment shall be made in good funds upon the later of (i) five (5) days after the date the Executive notifies the Company or the Company receives notice from the certified public accounting firm of its need to make such Gross-Up Payment, or (ii) the date of any payment causing the liability for such Excise Tax. The amount of any Gross-Up Payment under this section shall be computed by a nationally recognized certified public accounting firm designated jointly by the Company and the Executive. The cost of such services by the accounting firm shall be paid by the Company. If the Company and the Executive are unable to designate jointly the accounting firm, then the firm shall be the accounting firm used by the Company immediately prior to the Change in Control.
b. IRS Disputed Claims. The Executive shall notify the company in writing of any claim by the Internal Revenue Service ("IRS") that, if successful, would require the payment by the Company of a Gross-Up Payment in addition to that payment previously paid by the Company pursuant to this section. Such notification shall be given an soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim, the date on which such claim is requested to be paid, and attach a copy of the IRS notice. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) Give the Company any information reasonably requested by the Company relating to such claim;
(ii) Take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;
(iii) Cooperate with the Company in good faith in order effectively to contest such claim; and
(iv) Permit the Company to participate in any proceedings relating to such claim; provided, however that the Company shall pay directly all costs and expenses (including legal and accounting fees, as well as other expenses and any additional interest and penalties) incurred by the Executive and the Company in connection with an IRS levy, contest or claim and provided further that the Company shall not take any action or fail to make any Gross-Up Payment so as to cause the assessment of any IRS levy and the Company shall cause any levy so assessed to be immediately released by payment of the Gross-Up Amount, together with all costs, interest and penalties.
28. Term and Effect Prior to Change in Control.
a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the
date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Chairman of the Board of Directors of Peapack notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years after the date of such written notice.
b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason prior to a Change in Control, this Agreement shall thereafter be of no further force and effect.
29. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policies for officers and employees.
30. Payroll and Withholding Taxes. All payments to be made or benefits to be provided hereunder by the Company shall be subject to applicable federal and state payroll or withholding taxes. Any Gross-Up Payment shall be made in the form of withholding taxes and shall not be paid to the Executive, but shall be sent to the IRS in the ordinary course of the Company's payroll withholding.
31. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Peapack. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change-in-control benefits. The parties hereto expressly agree that the Severance Agreement between the Bank and the Executive dated January 27, 1997, is hereby terminated in its entirety. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
(signature page to follow)
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial Corporation each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
ANTOINETTE ROSELL By: FRANK A. KISSEL
----------------- ----------------------------
Antoinette Rosell, Secretary Frank A. Kissel, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
ANTOINETTE ROSELL By: FRANK A. KISSEL
----------------- ----------------------------
Antoinette Rosell, Secretary Frank A. Kissel, Chairman
WITNESS:
ANTOINETTE ROSELL ROBERT M. ROGERS
----------------- ----------------------------
Antoinette Rosell Robert M. Rogers, Executive
|
AMENDED AND RESTATED
CHANGE-IN-CONTROL AGREEMENT
CRAIG C. SPENGEMAN
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 11th day of December, 2003, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking association with its principal office at 190 Main Street, Gladstone, New Jersey 07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey Corporation which maintains its principal office at 158 Route 206 North, Gladstone, New Jersey 07934 (Peapack and the Bank collectively are the "Company") and Craig C. Spengeman (the "Executive"). This Agreement amends and restates in its entirety the Employment Agreement dated as of January 1, 1998 by and among the Executive, Peapack, and the Bank.
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many years;
WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the future services of the Executive are of great value to the Bank and Peapack and that it is important for the growth and development of the Bank that the Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
Definitions
a. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued failure by the Executive to perform his duties for the Company under this Agreement after at least one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
b. Change in Control. "Change in Control" means any of the
following events: (i) when Peapack or a Subsidiary acquires
actual knowledge that any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act), other than
an affiliate of Peapack or a Subsidiary or an employee benefit
plan established or maintained by Peapack, a Subsidiary or any
of their respective affiliates, is or becomes the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act) directly
or indirectly, of securities of Peapack representing more than
twenty-five percent (25%) of the combined voting power of
Peapack's then outstanding securities (a "Control Person"),
(ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by Peapack, a Subsidiary or an employee
benefit plan established or maintained by Peapack, a
Subsidiary or any of their respective affiliates), (iii) upon
the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation
(other than a merger or consolidation which is approved by at
least two-thirds of the Continuing Directors (as hereinafter
defined) and the definitive agreement for which provides that
at least two-thirds of the directors of the surviving or
resulting corporation immediately after the transaction are
Continuing Directors (a "Non-Control Transaction")), (B) a
sale or disposition of all or substantially all of Peapack's
assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board (the "Continuing Directors") cease for any reason to
constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee benefit plan established or maintained by Peapack or a Subsidiary, or an affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Peapack's then outstanding securities if the acquisition of all voting securities in excess of ten percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Peapack's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law.
c. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the third anniversary of the Change in Control or (ii) the death of the Executive. For the purpose
of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control.
d. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
e. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control; any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control;
(4) The Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or
(7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective.
f. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Peapack, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
32. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein.
33. Position. During the Contract Period the Executive shall be employed as President & Chief Investment Officer of Peapack and the Bank, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments.
34. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows:
a. Base Salary. A base annual salary equal to the annual salary in effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method.
b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors.
35. Expenses and Fringe Benefits.
a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control.
b. Supplemental Retirement Plan. During the Contract Period, if the Executive was entitled to benefits under any supplemental retirement plan prior to the Change in Control, the Executive shall be entitled to continued benefits under such plan after the Change in Control and such plan may not be modified to reduce or eliminate such benefits during the Contract Period.
c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control.
d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), including the chief executive officer of such entities, then no such change shall be deemed to be contrary to this paragraph.
36. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement.
37. Disability. During the Contract Period if the Executive becomes permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement.
38. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement.
39. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three
(3.0) times the highest annual cash compensation, consisting solely
of salary and bonus, as well as any 401(k) deferral, paid to the
Executive during any calendar year in each of the three calendar
years immediately prior to the Change in Control, along with any
Gross-Up Payment due under Section 12 hereof for the calendar year
of the termination; and
(b) Continue to provide the Executive during the remainder of the Contract Period with health, hospitalization and medical insurance, as were provided at the time of the termination of his employment with the Company, at the Company's cost (subject to standard deductibles and co-pays, and the Executive's continuing payment of his part of the premium for family coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or the Gross-Up Payment due under Section 12 hereof, or to provide him with the health, hospitalization and medical insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause and not in good faith.
40. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contract Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
41. Non-Disclosure of Confidential Information.
a. Non-Disclosure of Confidential Information. Except in the course of his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive
agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information.
b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions.
c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement.
42. Gross-Up for Taxes.
a. Additional Payments. If, for any taxable year, Executive
shall be liable for the payment of an excise tax under Section
4999 or other substitute or similar tax assessment (the
"Excise Tax") of the Internal Revenue Code of 1986, as amended
(the "Code"), including the corresponding provisions of any
succeeding law, with respect to any payments under this
Section 12 or any payments and/or benefits under this
Agreement or under any benefit plan of the Company applicable
to Executive individually or generally to executives or
employees of the Company, then, the Company shall pay to the
Executive, subject to Section 15 hereof by paying the
withholding for the Executive, an additional amount (the
"Gross-Up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on such payments
and benefits and any federal, state and local income tax and
Excise Tax upon payments provided for in this Section 12,
shall be equal to the payments due to the Executive hereunder
and the payments and/or
benefits due to the Executive under any benefit plan of the Company. Each Gross-Up Payment shall be made in good funds upon the later of (i) five (5) days after the date the Executive notifies the Company or the Company receives notice from the certified public accounting firm of its need to make such Gross-Up Payment, or (ii) the date of any payment causing the liability for such Excise Tax. The amount of any Gross-Up Payment under this section shall be computed by a nationally recognized certified public accounting firm designated jointly by the Company and the Executive. The cost of such services by the accounting firm shall be paid by the Company. If the Company and the Executive are unable to designate jointly the accounting firm, then the firm shall be the accounting firm used by the Company immediately prior to the Change in Control.
b. IRS Disputed Claims. The Executive shall notify the company in writing of any claim by the Internal Revenue Service ("IRS") that, if successful, would require the payment by the Company of a Gross-Up Payment in addition to that payment previously paid by the Company pursuant to this section. Such notification shall be given an soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim, the date on which such claim is requested to be paid, and attach a copy of the IRS notice. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) Give the Company any information reasonably requested by the Company relating to such claim;
(ii) Take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;
(iii) Cooperate with the Company in good faith in order effectively to contest such claim; and
(iv) Permit the Company to participate in any proceedings relating to such claim; provided, however that the Company shall pay directly all costs and expenses (including legal and accounting fees, as well as other expenses and any additional interest and penalties) incurred by the Executive and the Company in connection with an IRS levy, contest or claim and provided further that the Company shall not take any action or fail to make any Gross-Up Payment so as to cause the assessment of any IRS levy and the Company shall cause any levy so assessed to be immediately released by payment of the Gross-Up Amount, together with all costs, interest and penalties.
43. Term and Effect Prior to Change in Control.
a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the
date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Chairman of the Board of Directors of Peapack notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years after the date of such written notice.
b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason prior to a Change in Control, this Agreement shall thereafter be of no further force and effect.
44. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policies for officers and employees.
45. Payroll and Withholding Taxes. All payments to be made or benefits to be provided hereunder by the Company shall be subject to applicable federal and state payroll or withholding taxes. Any Gross-Up Payment shall be made in the form of withholding taxes and shall not be paid to the Executive, but shall be sent to the IRS in the ordinary course of the Company's payroll withholding.
46. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Peapack. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change-in-control benefits. The parties hereto expressly agree that the Severance Agreement between the Bank and the Executive dated January 27, 1997, is hereby terminated in its entirety. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
(signature page to follow)
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial Corporation each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
ANTOINETTE ROSELL By: FRANK A. KISSEL
----------------- -----------------------------
Antoinette Rosell, Secretary Frank A. Kissel, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
ANTOINETTE ROSELL By: FRANK A. KISSEL
----------------- -----------------------------
Antoinette Rosell, Secretary Frank A. Kissel, Chairman
WITNESS:
ANTOINETTE ROSELL CRAIG C. SPENGEMAN
----------------- -----------------------------
Antoinette Rosell Craig C. Spengeman, Executive
|
AMENDED AND RESTATED
CHANGE-IN-CONTROL AGREEMENT
ARTHUR F. BIRMINGHAM
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 11 day of December, 2003, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking association with its principal office at 190 Main Street, Gladstone, New Jersey 07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey Corporation which maintains its principal office at 158 Route 206 North, Gladstone, New Jersey 07934 (Peapack and the Bank collectively are the "Company") and Arthur F. Birmingham (the "Executive"). This Agreement amends and restates in its entirety the Employment Agreement dated as of January 1, 1998 by and among the Executive, Peapack, and the Bank.
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many years;
WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the future services of the Executive are of great value to the Bank and Peapack and that it is important for the growth and development of the Bank that the Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
Definitions
a. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued failure by the Executive to perform his duties for the Company under this Agreement after at least one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
b. Change in Control. "Change in Control" means any of the
following events: (i) when Peapack or a Subsidiary acquires
actual knowledge that any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act), other than
an affiliate of Peapack or a Subsidiary or an employee benefit
plan established or maintained by Peapack, a Subsidiary or any
of their respective affiliates, is or becomes the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act) directly
or indirectly, of securities of Peapack representing more than
twenty-five percent (25%) of the combined voting power of
Peapack's then outstanding securities (a "Control Person"),
(ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by Peapack, a Subsidiary or an employee
benefit plan established or maintained by Peapack, a
Subsidiary or any of their respective affiliates), (iii) upon
the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation
(other than a merger or consolidation which is approved by at
least two-thirds of the Continuing Directors (as hereinafter
defined) and the definitive agreement for which provides that
at least two-thirds of the directors of the surviving or
resulting corporation immediately after the transaction are
Continuing Directors (a "Non-Control Transaction")), (B) a
sale or disposition of all or substantially all of Peapack's
assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board (the "Continuing Directors") cease for any reason to
constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee benefit plan established or maintained by Peapack or a Subsidiary, or an affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Peapack's then outstanding securities if the acquisition of all voting securities in excess of ten percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Peapack's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law.
c. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the third anniversary of the Change in Control or (ii) the death of the Executive. For the purpose
of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control.
d. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
e. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control; any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control;
(4) The Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or
(7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective.
f. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Peapack, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
47. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein.
48. Position. During the Contract Period the Executive shall be employed as Executive Vice President & CFO of Peapack and the Bank, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments.
49. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows:
a. Base Salary. A base annual salary equal to the annual salary in effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method.
b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors.
50. Expenses and Fringe Benefits.
a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control.
b. Supplemental Retirement Plan. During the Contract Period, if the Executive was entitled to benefits under any supplemental retirement plan prior to the Change in Control, the Executive shall be entitled to continued benefits under such plan after the Change in Control and such plan may not be modified to reduce or eliminate such benefits during the Contract Period.
c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control.
d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), including the chief executive officer of such entities, then no such change shall be deemed to be contrary to this paragraph.
51. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement.
52. Disability. During the Contract Period if the Executive becomes permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement.
53. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement.
54. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three
(3.0) times the highest annual cash compensation, consisting solely
of salary and bonus, as well as any 401(k) deferral, paid to the
Executive during any calendar year in each of the three calendar
years immediately prior to the Change in Control, along with any
Gross-Up Payment due under Section 12 hereof for the calendar year
of the termination; and
(b) Continue to provide the Executive during the remainder of the Contract Period with health, hospitalization and medical insurance, as were provided at the time of the termination of his employment with the Company, at the Company's cost (subject to standard deductibles and co-pays, and the Executive's continuing payment of his part of the premium for family coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or the Gross-Up Payment due under Section 12 hereof, or to provide him with the health, hospitalization and medical insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause and not in good faith.
55. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contract Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
56. Non-Disclosure of Confidential Information.
a. Non-Disclosure of Confidential Information. Except in the course of his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive
agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information.
b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions.
c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement.
57. Gross-Up for Taxes.
a. Additional Payments. If, for any taxable year, Executive
shall be liable for the payment of an excise tax under Section
4999 or other substitute or similar tax assessment (the
"Excise Tax") of the Internal Revenue Code of 1986, as amended
(the "Code"), including the corresponding provisions of any
succeeding law, with respect to any payments under this
Section 12 or any payments and/or benefits under this
Agreement or under any benefit plan of the Company applicable
to Executive individually or generally to executives or
employees of the Company, then, the Company shall pay to the
Executive, subject to Section 15 hereof by paying the
withholding for the Executive, an additional amount (the
"Gross-Up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on such payments
and benefits and any federal, state and local income tax and
Excise Tax upon payments provided for in this Section 12,
shall be equal to the payments due to the Executive hereunder
and the payments and/or
benefits due to the Executive under any benefit plan of the Company. Each Gross-Up Payment shall be made in good funds upon the later of (i) five (5) days after the date the Executive notifies the Company or the Company receives notice from the certified public accounting firm of its need to make such Gross-Up Payment, or (ii) the date of any payment causing the liability for such Excise Tax. The amount of any Gross-Up Payment under this section shall be computed by a nationally recognized certified public accounting firm designated jointly by the Company and the Executive. The cost of such services by the accounting firm shall be paid by the Company. If the Company and the Executive are unable to designate jointly the accounting firm, then the firm shall be the accounting firm used by the Company immediately prior to the Change in Control.
b. IRS Disputed Claims. The Executive shall notify the company in writing of any claim by the Internal Revenue Service ("IRS") that, if successful, would require the payment by the Company of a Gross-Up Payment in addition to that payment previously paid by the Company pursuant to this section. Such notification shall be given an soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim, the date on which such claim is requested to be paid, and attach a copy of the IRS notice. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) Give the Company any information reasonably requested by the Company relating to such claim;
(ii) Take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;
(iii) Cooperate with the Company in good faith in order effectively to contest such claim; and
(iv) Permit the Company to participate in any proceedings relating to such claim; provided, however that the Company shall pay directly all costs and expenses (including legal and accounting fees, as well as other expenses and any additional interest and penalties) incurred by the Executive and the Company in connection with an IRS levy, contest or claim and provided further that the Company shall not take any action or fail to make any Gross-Up Payment so as to cause the assessment of any IRS levy and the Company shall cause any levy so assessed to be immediately released by payment of the Gross-Up Amount, together with all costs, interest and penalties.
58. Term and Effect Prior to Change in Control.
a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the
date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Chairman of the Board of Directors of Peapack notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years after the date of such written notice.
b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason prior to a Change in Control, this Agreement shall thereafter be of no further force and effect.
59. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policies for officers and employees.
60. Payroll and Withholding Taxes. All payments to be made or benefits to be provided hereunder by the Company shall be subject to applicable federal and state payroll or withholding taxes. Any Gross-Up Payment shall be made in the form of withholding taxes and shall not be paid to the Executive, but shall be sent to the IRS in the ordinary course of the Company's payroll withholding.
61. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Peapack. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change-in-control benefits. The parties hereto expressly agree that the Severance Agreement between the Bank and the Executive dated May 6, 1997, is hereby terminated in its entirety. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
(signature page to follow)
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial Corporation each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
ANTOINETTE ROSELL By: FRANK A. KISSEL
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Antoinette Rosell, Secretary Frank A. Kissel, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
ANTOINETTE ROSELL By: FRANK A. KISSEL
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Antoinette Rosell, Secretary Frank A. Kissel, Chairman
WITNESS:
ANTOINETTE ROSELL ARTHUR F. BIRMINGHAM
----------------- ---------------------------
Antoinette Rosell Arthur F. Birmingham, Executive
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AMENDED AND RESTATED
CHANGE-IN-CONTROL AGREEMENT
GARRETT P. BROMLEY
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 11th day of December, 2003, among PEAPACK-GLADSTONE BANK ("Bank"), a New Jersey state banking association with its principal office at 190 Main Street, Gladstone, New Jersey 07934, PEAPACK-GLADSTONE FINANCIAL CORPORATION ("Peapack"), a New Jersey Corporation which maintains its principal office at 158 Route 206 North, Gladstone, New Jersey 07934 (Peapack and the Bank collectively are the "Company") and Garrett P. Bromley (the "Executive"). This Agreement amends and restates in its entirety the Employment Agreement dated as of April 3, 1998 by and among the Executive, Peapack, and the Bank.
BACKGROUND
WHEREAS, the Executive has been continuously employed by the Bank for many years;
WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Peapack;
WHEREAS, the Board of Directors of the Bank and Peapack believe that the future services of the Executive are of great value to the Bank and Peapack and that it is important for the growth and development of the Bank that the Executive continue in his position;
WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive and rely upon his
advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined.
NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows:
Definitions
a. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued failure by the Executive to perform his duties for the Company under this Agreement after at least one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
b. Change in Control. "Change in Control" means any of the
following events: (i) when Peapack or a Subsidiary acquires
actual knowledge that any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act), other than
an affiliate of Peapack or a Subsidiary or an employee benefit
plan established or maintained by Peapack, a Subsidiary or any
of their respective affiliates, is or becomes the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act) directly
or indirectly, of securities of Peapack representing more than
twenty-five percent (25%) of the combined voting power of
Peapack's then outstanding securities (a "Control Person"),
(ii) upon the first purchase of Peapack's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by Peapack, a Subsidiary or an employee
benefit plan established or maintained by Peapack, a
Subsidiary or any of their respective affiliates), (iii) upon
the approval by Peapack's stockholders of (A) a merger or
consolidation of Peapack with or into another corporation
(other than a merger or consolidation which is approved by at
least two-thirds of the Continuing Directors (as hereinafter
defined) and the definitive agreement for which provides that
at least two-thirds of the directors of the surviving or
resulting corporation immediately after the transaction are
Continuing Directors (a "Non-Control Transaction")), (B) a
sale or disposition of all or substantially all of Peapack's
assets or (C) a plan of liquidation or dissolution of Peapack,
(iv) if during any period of two (2) consecutive years,
individuals who at the beginning of such period constitute the
Board (the "Continuing Directors") cease for any reason to
constitute at least two-thirds thereof or, following a
Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Peapack, an employee benefit plan established or maintained by Peapack or a Subsidiary, or an affiliate of Peapack or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Peapack's then outstanding securities if the acquisition of all voting securities in excess of ten percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Peapack's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law.
c. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the third anniversary of the Change in Control or (ii) the death of the Executive. For the purpose
of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control.
d. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
e. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, if taken without Executive's express written consent:
(1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, title, duties, responsibilities and status with the Company immediately prior to a Change in Control; any removal of Executive from, or any failure to re-elect Executive to, any position(s) or office(s) Executive held immediately prior to such Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph;
(2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith;
(3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control;
(4) The Company's transfer of Executive to another geographic location outside of New Jersey or more than 25 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control;
(5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control;
(6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or
(7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective.
f. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Peapack, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
62. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein.
63. Position. During the Contract Period the Executive shall be employed as Executive Vice President of Peapack and the Bank, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments.
64. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows:
a. Base Salary. A base annual salary equal to the annual salary in effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method.
b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control.
c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors.
65. Expenses and Fringe Benefits.
a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control.
b. Supplemental Retirement Plan. During the Contract Period, if the Executive was entitled to benefits under any supplemental retirement plan prior to the Change in Control, the Executive shall be entitled to continued benefits under such plan after the Change in Control and such plan may not be modified to reduce or eliminate such benefits during the Contract Period.
c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control.
d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), including the chief executive officer of such entities, then no such change shall be deemed to be contrary to this paragraph.
66. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement.
67. Disability. During the Contract Period if the Executive becomes permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement.
68. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement.
69. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to Section 12 hereof:
(a) Within 20 business days of the termination of employment pay the
Executive a lump sum severance payment in an amount equal to three
(3.0) times the highest annual cash compensation, consisting solely
of salary and bonus, as well as any 401(k) deferral, paid to the
Executive during any calendar year in each of the three calendar
years immediately prior to the Change in Control, along with any
Gross-Up Payment due under Section 12 hereof for the calendar year
of the termination; and
(b) Continue to provide the Executive during the remainder of the Contract Period with health, hospitalization and medical insurance, as were provided at the time of the termination of his employment with the Company, at the Company's cost (subject to standard deductibles and co-pays, and the Executive's continuing payment of his part of the premium for family coverage, if applicable).
The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or the Gross-Up Payment due under Section 12 hereof, or to provide him with the health, hospitalization and medical insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause and not in good faith.
70. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contract Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof.
71. Non-Disclosure of Confidential Information.
a. Non-Disclosure of Confidential Information. Except in the course of his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive
agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information.
b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions.
c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement.
72. Gross-Up for Taxes.
a. Additional Payments. If, for any taxable year, Executive
shall be liable for the payment of an excise tax under Section
4999 or other substitute or similar tax assessment (the
"Excise Tax") of the Internal Revenue Code of 1986, as amended
(the "Code"), including the corresponding provisions of any
succeeding law, with respect to any payments under this
Section 12 or any payments and/or benefits under this
Agreement or under any benefit plan of the Company applicable
to Executive individually or generally to executives or
employees of the Company, then, the Company shall pay to the
Executive, subject to Section 15 hereof by paying the
withholding for the Executive, an additional amount (the
"Gross-Up Payment") such that the net amount retained by the
Executive, after deduction of any Excise Tax on such payments
and benefits and any federal, state and local income tax and
Excise Tax upon payments provided for in this Section 12,
shall be equal to the payments due to the Executive hereunder
and the payments and/or
benefits due to the Executive under any benefit plan of the Company. Each Gross-Up Payment shall be made in good funds upon the later of (i) five (5) days after the date the Executive notifies the Company or the Company receives notice from the certified public accounting firm of its need to make such Gross-Up Payment, or (ii) the date of any payment causing the liability for such Excise Tax. The amount of any Gross-Up Payment under this section shall be computed by a nationally recognized certified public accounting firm designated jointly by the Company and the Executive. The cost of such services by the accounting firm shall be paid by the Company. If the Company and the Executive are unable to designate jointly the accounting firm, then the firm shall be the accounting firm used by the Company immediately prior to the Change in Control.
b. IRS Disputed Claims. The Executive shall notify the company in writing of any claim by the Internal Revenue Service ("IRS") that, if successful, would require the payment by the Company of a Gross-Up Payment in addition to that payment previously paid by the Company pursuant to this section. Such notification shall be given an soon as practicable but no later than fifteen (15) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim, the date on which such claim is requested to be paid, and attach a copy of the IRS notice. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
(i) Give the Company any information reasonably requested by the Company relating to such claim;
(ii) Take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company;
(iii) Cooperate with the Company in good faith in order effectively to contest such claim; and
(iv) Permit the Company to participate in any proceedings relating to such claim; provided, however that the Company shall pay directly all costs and expenses (including legal and accounting fees, as well as other expenses and any additional interest and penalties) incurred by the Executive and the Company in connection with an IRS levy, contest or claim and provided further that the Company shall not take any action or fail to make any Gross-Up Payment so as to cause the assessment of any IRS levy and the Company shall cause any levy so assessed to be immediately released by payment of the Gross-Up Amount, together with all costs, interest and penalties.
73. Term and Effect Prior to Change in Control.
a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the
date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Chairman of the Board of Directors of Peapack notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) 2 years after the date of such written notice.
b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason prior to a Change in Control, this Agreement shall thereafter be of no further force and effect.
74. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policies for officers and employees.
75. Payroll and Withholding Taxes. All payments to be made or benefits to be provided hereunder by the Company shall be subject to applicable federal and state payroll or withholding taxes. Any Gross-Up Payment shall be made in the form of withholding taxes and shall not be paid to the Executive, but shall be sent to the IRS in the ordinary course of the Company's payroll withholding.
76. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Peapack. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change-in-control benefits. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.
(signature page to follow)
IN WITNESS WHEREOF, Peapack-Gladstone Bank and Peapack-Gladstone Financial Corporation each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above.
ATTEST: PEAPACK-GLADSTONE
FINANCIAL CORPORATION
ANTOINETTE ROSELL By: FRANK A. KISSEL
----------------- ---------------------------
Antoinette Rosell, Secretary Frank A. Kissel, Chairman
ATTEST: PEAPACK-GLADSTONE BANK
ANTOINETTE ROSELL By: FRANK A. KISSEL
----------------- ---------------------------
Antoinette Rosell, Secretary Frank A. Kissel, Chairman
WITNESS:
ANTOINETTE ROSELL GARRETT P. BROMLEY
----------------- ---------------------------
Antoinette Rosell Garrett P. Bromley, Executive
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Exhibit 10 (I)
PEAPACK-GLADSTONE BANK
SPLIT DOLLAR PLAN FOR SENIOR MANAGEMENT
THIS PLAN, hereby made effective this 7th day of September 2001, by PEAPACK-GLADSTONE BANK, a state-chartered bank located in Gladstone, New Jersey (the "Bank"), the Participant selected to participate in this Plan (the "Participant") and Christiana Bank & Trust Company (the "Trustee") as Trustee of the Peapack-Gladstone Bank Employer's Trust (the "Trust").
INTRODUCTION
The Bank wishes to attract, retain and reward highly qualified executives. To further this objective, the Bank is willing to divide the death proceeds of certain life insurance policies which are owned by the Bank on the lives of the participating executives with the designated beneficiary of each insured participating executive. The Bank will pay the life insurance premiums from its general assets.
Article 1 General Definitions
The following terms shall have the meanings specified:
1.1 "Affiliate" means any company that controls, is controlled by, or is under common control with the Bank or the Corporation. For this Agreement, company includes any corporation, partnership, association, limited liability company or trust.
1.2 "Base Annual Salary" means the Participant's basic annual salary as of each January 1st, exclusive of special payments such as bonuses or fees, but including any salary reductions made in accordance with Sections 125 or 401(k) of the Code.
1.3 "Board of Directors" means a majority of the Bank's Board of Directors or the Compensation Committee designated from time to time by the Bank's Board of Directors.
1.4 "Change in Control" means any of the following:
(A) any person (as such term is used in Sections 13d and 14d-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Corporation, a subsidiary of the Corporation, an employee benefit plan (or related trust) of the Corporation or a direct or indirect subsidiary of the Corporation, or Affiliates of the Corporation (as defined in Rule 12b-2 under the Exchange Act), becomes the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 50% of the combined voting power of the Corporation's then outstanding securities (other than a person owning 10% or more of the voting power of stock on the date hereof); or
(B) the liquidation or dissolution of the Corporation or the occurrence of, or execution of an agreement providing for a sale of all or substantially all of the assets of the Corporation to an entity which is not a direct or indirect subsidiary of the Corporation; or
(C) the occurrence of, or execution of an agreement providing for a reorganization, merger, consolidation or other similar transaction or connected series of transactions of the Corporation as a result of which either (a) the Corporation does not survive or (b) pursuant to which shares of the Corporation common stock ("Common Stock") would be converted into cash, securities or other property, unless, in case of either (a) or (b), the holders of the Corporation Common Stock immediately prior to such transaction will, following the consummation of the transaction, beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation surviving, continuing or resulting from such transaction; or
(D) the occurrence of, or execution of an agreement providing for a reorganization, merger, consolidation or similar transaction of the Corporation, or before any connected series of such transactions, if upon consummation of such transaction or transactions, the persons who are members of the Board of Directors of the Corporation immediately before such transaction or transactions cease or, in the case of the execution of an agreement for such transaction or transactions, it is contemplated in such agreement that upon consummation such persons would cease to constitute a majority of the Board of Directors of the Corporation or, in the case where the Corporation does not survive in such transaction, of the corporation surviving, continuing or resulting from such transaction or transactions; or
(E) any other event which is at any time designated as a "Change in Control" for purposes of this Agreement by a resolution adopted by the Board of Directors of the Corporation with the affirmative vote of a majority of the non-employee directors in office at the time the resolution is adopted; in the event any such resolution is adopted, the Change in Control event specified thereby shall be deemed incorporated herein by reference and thereafter may not be amended, modified or revoked without the written agreement of the Participant; or
(F) during any period of two consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Bank or Corporation cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period, provided however this provision shall not apply in the event two-thirds of the Board of Directors at the beginning of a period no longer are directors due to death, normal retirement, or other circumstances
not related to a Change in Control.
Notwithstanding anything else to the contrary set forth in this Agreement, if (i) an agreement is executed by the Corporation providing for any of the transactions or events constituting a Change in Control as defined herein, and the agreement subsequently expires or is terminated without the transaction or event being consummated, and (ii) Participant's employment did not terminate during the period after the agreement and prior to such expiration or termination, for purposes of this Agreement it shall be as though such agreement was never executed and no Change in Control event shall be deemed to have occurred as a result of the execution of such agreement.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Corporation" means Peapack-Gladstone Financial Corporation
1.7 "Disability" means, if the Participant is covered by a Bank-sponsored disability policy, total disability is defined in such policy without regard to any waiting period. If the Participant is not covered by such a policy, disability means the Participant suffers from a mental or physical impairment that prevents the Participant from performing the essential functions of his or her position, with or without a reasonable accommodation. As a condition to any benefits, the Bank may require the Participant to submit to such physical or mental evaluations and tests as the Board of Directors deems appropriate.
1.8 "Insured" means the individual whose life is insured.
1.9 "Insurer" means the insurance company issuing the life insurance policy on the life of the insured.
1.10 "Participant" means the executive who is designated by the Board of Directors as eligible to participate in the Plan, elects in writing to participate in the Plan using the form attached hereto as Exhibit A, and signs a Split Dollar Endorsement for the Policy in which he or she is the Insured.
1.11 "Policy" or "Policies" means the individual insurance policy (or policies) adopted by the Board of Directors for purposes of insuring a Participant's life under this Plan, including any group term life insurance carried on the Participant's life where the premiums are paid by the Bank.
1.12 "Plan" means this instrument, including all amendments thereto.
1.13 "Plan Year" means the calendar year. In the year of implementation, Plan Year shall mean the period from the date of this Agreement through December 31 of the same year.
1.14 "Termination of Employment" means that the Participant ceases to be employed by the Bank for any reason whatsoever other than by reason of a leave of absence which is approved by the Bank. For purposes of this Agreement, if there is a dispute over the employment status of
the Participant or the date of the Participant's Termination of Employment, the Bank shall have the sole and absolute right to decide the dispute. 1.15 "Vested Insurance Benefit" means the Bank will provide the Participant with continued insurance coverage from the date of vesting until death, subject to the forfeiture provisions detailed in Section 5.2 and Article 8. Articles 4 and 5 explain how a Participant achieves vested status.
1.16 "Years of Service" means the total number of continuous years of employment with the Corporation or any of its subsidiaries, inclusive of any approved leaves of absences approved by the Corporation.
Article 2 Participation
2.1 Eligibility to Participate. The Board of Directors in its sole discretion may designate from time to time Participants who are eligible to participate in this Plan. The Board may designate this authority to the Chief Executive Officer or other senior management if it so chooses.
2.2 Participation. The eligible executive may participate in this Plan by executing an Election to Participate (Exhibit A) and a Split Dollar Endorsement. The Split Dollar Endorsement shall bind the Participant and his or her beneficiaries, assigns and transferees, to the terms and conditions of this Plan. A Participant's participation is limited to only Policies where he or she is the Insured. Exhibit A sets forth the information about the Policy or Policies and maximum Participant benefit under the Plan.
2.3 Termination of Participation. A Participant's rights under this Plan shall cease and his or her participation in this Plan shall terminate if one of the following events occur: (1) the Participant informs the Bank in writing that he or she no longer wants to participate or (2) the Plan or any Participant's rights under the Plan are terminated in accordance with Sections 5.2 or 12.1 of this Agreement. In the event that the Bank decides to maintain the Policy after the Participant's termination of participation in the Plan, the Bank shall be the direct beneficiary of the entire death proceeds of the Policy. The Bank may document the Participant's termination from the Plan by indicating the date of termination on Exhibit A.
Article 3 Premium Payments
The Trustee, at the direction of the Bank, shall pay all premiums due on all Policies under this Agreement.
Article 4 Policy Ownership/Interests
4.1 Trust Ownership. The Trust shall own the Policies and shall have the
right to exercise all incidents of ownership and, subject to Article 7, the
Trust may terminate a Policy without the consent of the Insured. With respect to
each Policy, the Trust shall be the direct beneficiary of an amount of death
proceeds equal to the greatest of: (1) the cash surrender value of the policy;
(2) the aggregate premiums paid on the Policy by the Trust less any outstanding
indebtedness to the Insurer; or (3) the amount in excess of the Participant's
interest specified in Section 4.2. If the Trust owns more than one policy on a
Participant, the Policies shall be aggregated with respect to item (3) of this
paragraph.
4.2 Participant's Interest. Each Participant, or the Participant's assignee, shall have the right to designate the beneficiary of the death proceeds of the Policy as specified in Section 4.2.1 or 4.2.2. The Participant shall also have the right to elect and change settlement options with the consent of the Trustee and the Insurer.
4.2.1 Death Prior to Termination of Employment. If the Participant dies while employed by the Bank, the Participant's beneficiary shall be entitled to a benefit equal to 2.5 times the Participant's Base Annual Salary at the date of death; but not in excess of the maximum benefit amount specified in Exhibit A.
4.2.2 Death After Termination of Employment. If the Participant dies after Termination of Employment, where such termination did not result from Disability and did not follow a Change in Control, the Participant shall be entitled to a Vested Insurance Benefit based on the Participant's combined age and Years of Service as of the date of termination as follows:
Post -Retirement Benefit
Years of As a Multiple of Base
Age Service Annual Salary
--- ------- -------------
50 15 1.0
55 15 1.5
60 15 2.5
65 15 2.5
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If the Participant has not achieved a Vested Insurance Benefit, the Participant's beneficiary will be limited to a benefit of $25,000.
Article 5 Additional Vesting/Forfeiture
5.1 Disability and Change in Control. In lieu of the vesting schedule detailed in Section 4.2.2, the Participant shall have a Vested Insurance Benefit equal to 2.5 times Base Annual
Salary if the Participant terminates employment due to Disability or if the Participant is in the Bank's employ the date a Change in Control occurs.
5.2 Forfeiture of Benefit. Notwithstanding the provisions of Sections 4.2.2
and 5.1, the Participant will forfeit his or her Vested Insurance Benefit if:
(1) the Participant violates any of the provisions detailed in Article 8 or, (2)
in the case of a Disabled Participant, if such Participant becomes gainfully
employed by an entity other than the Bank.
Article 6 Imputed Income/Reimbursement
The Bank shall impute income to the Participant in an amount equal to the annual cost of current life insurance protection on the life of the Participant measured by the lesser of the Table 2001 rate set forth in Notice 2001-10 (or the corresponding applicable provision of any later Revenue Ruling) or the Insurer's current published premium rate for annually renewable term insurance for standard risks; provided that the Insurer's current published premium rate meets the limitations set forth in Notice 2001-10 (or the corresponding applicable provision of any later Revenue Ruling.) The Bank will provide each Participant with an annual statement of the amount of income reportable by the Participant for federal and state income tax purposes as a result of such imputed income.
After the Participant reaches Normal Retirement Age, the Bank shall annually pay to the Participant an amount necessary to pay the federal and state income taxes attributable to the imputed income and to the additional cash payments under this section. In calculating the cash payments due from the Bank, the Bank shall use the Corporation's actual marginal income tax rate for the calendar year immediately preceding the payment to the Participant. The cash payments shall continue until the Participant's death.
Article 7 Comparable Coverage
7.1 Insurance Policies. If a Participant has a Vested Insurance Benefit, the Bank may direct the Trustee to provide such benefit through the Policies purchased at the commencement of this Plan or may direct the Trustee to provide comparable insurance coverage to the Participant through whatever means the Bank deems appropriate. If the Participant waives his or her right to the benefit, the Bank may direct the Trustee to cancel the Policy or Policies on the Participant, or may continue such coverage and become the direct beneficiary of the entire death proceeds.
7.2 Offer to Purchase. If the Bank discontinues a Policy on an active or vested Participant for any reason, the Bank shall give the Participant at least thirty (30) days to purchase such Policy. The purchase price shall be the cash surrender value of the Policy. Such notification shall be in writing.
Article 8 General Limitations
8.1 Excess Parachute or Golden Parachute Payment. Notwithstanding any provision of this Agreement to the contrary, the benefit provided under this Agreement shall be forfeited to the extent the benefit would be an excess parachute payment under Section 280G of the Code or would be a prohibited golden parachute payment pursuant to 12 C.F.R. ss.359.2 and for which the appropriate federal banking agency has not given written consent to pay pursuant to 12 C.F.R. ss.359.4.
8.2 "Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the benefit provided under this Agreement shall be forfeited if the Bank terminates the Participant's employment for:
(a) Gross negligence or gross neglect of duties;
(b) Commission of a felony or of a gross misdemeanor involving moral turpitude; or
(c) Fraud, disloyalty, dishonesty or willful violation of any law or significant Bank policy resulting in an adverse effect on the Bank.
8.3 Removal. Notwithstanding any provision of this Agreement to the contrary, the benefit provided under this Agreement shall be forfeited if the Participant is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act.
8.4 Competition After Termination of Employment. The Participant shall forfeit his right to any further benefits if the Participant, without the prior written consent of the Bank, violates the following described restrictive covenants.
8.4.1 Non-compete Provision. The Participant shall not, for the term of this Agreement and until all benefits have been distributed, directly or indirectly, either as an individual or as a proprietor, stockholder, partner, officer, director, employee, agent, consultant or independent contractor of any individual, partnership, corporation or other entity (excluding an ownership interest of five percent (5%) or less in the stock of a publicly traded company):
(i) participate in any way in hiring or otherwise engaging, or assisting any other person or entity in hiring or otherwise engaging, on a temporary, part-time or permanent basis, any individual who was employed by the Corporation or any of its subsidiaries during the three (3) year period immediately prior to the termination of the Participant's employment; or
(ii) divulge, disclose, or communicate to others in any manner whatsoever, any confidential information of the Corporation or any of its subsidiaries, including,
but not limited to, the names and addresses of customers of the Corporation or any of its subsidiaries, as they may have existed from time to time or of any of the Corporation's or any of its subsidiaries prospective customers, work performed or services rendered for any customer, any method and/or procedures relating to projects or other work developed for the Corporation or any of its subsidiaries, earnings or other information concerning the Corporation or any of its subsidiaries. The restrictions contained in this subparagraph (ii) apply to all information regarding the Corporation or any of its subsidiaries unless and until it becomes known to the general public from sources other than the Participant.
8.4.2 Judicial Remedies. In the event of a breach or threatened breach
by the Participant of any provision of these restrictions, the Participant
recognizes the substantial and immediate harm that a breach or threatened
breach will impose upon the Corporation or any of its subsidiaries or
Affiliates, and further recognizes that in such event monetary damages may
be inadequate to fully protect the Corporation or any of its subsidiaries
or Affiliates. Accordingly, in the event of a breach or threatened breach
of this Agreement, the Participant consents to the Corporation's or any of
its subsidiaries entitlement to such ex parte, preliminary, interlocutory,
temporary or permanent injunctive, or any other equitable relief,
protecting and fully enforcing the Corporation' or any of its subsidiaries
rights hereunder and preventing the Participant from further breaching any
of his obligations set forth herein. The Participant expressly waives any
requirement, based on any statute, rule of procedure, or other source, that
the Corporation or any of its subsidiaries or Affiliates post a bond as a
condition of obtaining any of the above-described remedies. Nothing herein
shall be construed as prohibiting the Corporation or any of its
subsidiaries or Affiliates from pursuing any other remedies available to
the Corporation or any of its subsidiaries or Affiliates at law or in
equity for such breach or threatened breach, including the recovery of
damages from the Participant. The Participant expressly acknowledges and
agrees that: (i) the restrictions set forth in Section 8.4.1 are
reasonable, in terms of scope, duration, geographic area, and otherwise,
(ii) the protections afforded the Corporation or any of its subsidiaries or
Affiliates in Section 8.4.1 are necessary to protect its legitimate
business interest, (iii) the restrictions set forth in Section 8.4.1 will
not be materially adverse to the Participant's employment with the Bank,
and (iv) his agreement to observe such restrictions forms a material part
of the consideration for this Agreement.
8.4.3 Overbreadth of Restrictive Covenant. It is the intention of the parties that if any restrictive covenant in this Agreement is determined by a court of competent jurisdiction to be overly broad, then the court should enforce such restrictive covenant to the maximum extent permitted under the law as to area, breadth and duration.
8.4.4 Change in Control. The non-compete provision detailed in Section 8.4.1 shall not apply if there is a Change in Control.
8.5 Suicide or Misstatement. The Participant shall forfeit his benefit under this Agreement if the Participant commits suicide within two years after the date of this Agreement, or if the insurance company denies coverage for material misstatements of fact made by the Participant on any application for life insurance purchased by the Trust, or any other reason.
Article 9 Assignment
Any Participant may assign without consideration all interests in his or her Policy and in this Plan to any person, entity or trust. In the event a Participant shall transfer all of his/her interest in the Policy, then all of that Participant's interest in his or her Policy and in the Plan shall be vested in his/her transferee, subject to such transferee executing agreements binding them to the provisions of this Plan, who shall be substituted as a party hereunder, and that Participant shall have no further interest in his or her Policy or in this Plan.
Article 10 Insurer
The Insurer shall be bound only by the terms of their corresponding Policy. Any payments the Insurer makes or actions it takes in accordance with a Policy shall fully discharge it from all claims, suits and demands of all persons relating to that Policy. The Insurer shall not be bound by the provisions of this Plan, except to the extent of any endorsement filed with the Insurer. The Insurer shall have the right to rely on the Trustee's representations with regard to any definitions, interpretations, or Policy interests as specified under this Plan.
Article 11 Claims Procedure
11.1 Claims Procedure. The Bank shall notify any person or entity that makes a claim against this Plan (the "Claimant"), in writing, within ninety (90) days of Claimant's written application for benefits, of Claimant's eligibility or ineligibility for benefits under this Plan. If the Bank determines that Claimant is not eligible for benefits or full benefits, the notice shall set forth (1) the specific reasons for such denial, (2) a specific reference to the provisions of this Plan on which the denial is based, (3) a description of any additional information or material necessary for the Claimant to perfect Claimant's claim, and a description of why it is needed, and (4) an explanation of this Plan's claims review procedure and other appropriate information as to the steps to be taken if the Claimant wishes to have the claim reviewed. If the Bank determines that there are special circumstances requiring additional time to make a decision, the Bank shall notify the Claimant of the special circumstances and the date by which a decision is expected to be made, and may extend the time for up to an additional ninety-day period. Upon resolution of all open issues, the Bank shall receive the proceeds and upon recovering the share of the proceeds to which it is entitled, shall distribute the Claimant's proceeds.
11.2 Review Procedure. If a Claimant is determined by the Bank not to be eligible for benefits, or if the Claimant believes that Claimant is entitled to greater or different benefits, the Claimant shall have the opportunity to have such claim reviewed by the Bank by filing a petition for review with the Bank within sixty (60) days after receipt of the notice issued by the Bank. Said petition shall state the specific reasons, which the Claimant believes, entitle Claimant to benefits or to greater or different benefits. Within sixty (60) days after receipt by the Bank of
the petition, the Bank shall afford the Claimant (and counsel, if any) an opportunity to present Claimant's position to the Bank verbally or in writing, and the Claimant (or counsel) shall have the right to review the pertinent documents. The Bank shall notify the Claimant of its decision in writing within the sixty-day period, stating specifically the basis of its decision, written in a manner calculated to be understood by the Claimant and the specific provisions of this Plan on which the decision is based. If, because of the need for a hearing, the sixty-day period is not sufficient, the decision may be deferred for up to another sixty-day period at the election of the Bank, but notice of this deferral shall be given to the Claimant.
Article 12 Amendment or Termination of Plan
12.1 Non-Vested Insurance Benefit. Unless a Participant has a Vested Insurance Benefit pursuant to Sections 4.2.2 or 5.1, the Bank may amend or terminate the Plan at any time, or may amend or terminate a Participant's rights under the Plan at any time prior to a Participant's death by written notice to the Participant.
12.2 Vested Insurance Benefit. If a Participant has a Vested Insurance
Benefit, the Bank may amend or terminate the Plan for that Participant only if:
(1) continuation of the Plan would cause significant financial harm to the Bank
and (2) the Participant agrees to such action.
Article 13 Miscellaneous
13.1 Binding Effect. This Agreement shall bind the Participant and the Bank, and their beneficiaries, survivors, executors, successors, administrators and transferees.
13.2 No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Participant the right to remain an employee of the Bank, nor does it interfere with the Bank's right to terminate the Participant's employment. It also does not require the Participant to remain in employment nor interfere with the Participant's right to terminate employment at any time.
13.3 Reorganization. The Bank shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Bank under this Agreement. Upon the occurrence of such event, the term "Bank" as used in this Agreement shall be deemed to refer to the successor or survivor company.
13.4 Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.
13.5 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the Commonwealth of Pennsylvania, except to the extent preempted by the laws of the
United States of America; provided, however, that with respect to insurance policies owned by the Bank or any insurable interest issues, the laws of Delaware shall govern.
13.6 Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the Participant as to the subject matter hereof. No rights are granted to the Participant by virtue of this Agreement other than those specifically set forth herein.
13.7 Administration. The Bank shall have powers which are necessary to administer this Agreement, including but not limited to:
(a) Interpreting the provisions of the Agreement;
(b) Establishing and revising the method of accounting for the Agreement;
(c) Maintaining a record of benefit payments; and
(d) Establishing rules and prescribing any forms necessary or desirable to administer the Agreement.
13.8 Named Fiduciary. The Bank shall be the named fiduciary and plan administrator under this Agreement. It may delegate to others certain aspects of the management and operational responsibilities including the service of advisors and the delegation of ministerial duties to qualified individuals.
13.9 Recovery of Estate Taxes. If the Participant's gross estate for federal estate tax purposes includes any amount determined by reference to and on account of this Plan, and if the beneficiary is other than the Participant's estate, then the Participant's estate shall be entitled to recover from the beneficiary receiving such benefit under the terms of the Plan, an amount by which the total estate tax due by the Participant's estate, exceeds the total estate tax which would have been payable if the value of such benefit had not been included in the Participant's gross estate. If there is more than one person receiving such benefit, the right of recovery shall be against each such person. In the event the beneficiary has a liability hereunder, the beneficiary may petition the Bank for a lump sum payment in an amount not to exceed the beneficiary's liability hereunder.
IN WITNESS WHEREOF, the Bank executes this Plan as of the date indicated above.
BANK:
PEAPACK-GLADSTONE BANK
By ARTHUR F. BIRMINGHAM
Title Chief Financial Officer
By execution hereof, Peapack-Gladstone Financial Corporation consents to and agrees to be bound by the terms and condition of this Plan document.
ATTEST: CORPORATION:
Peapack-Gladstone
Financial Corporation
MARY M. RUSSELL By ARTHUR F. BIRMINGHAM
Title Chief Financial Officer
ATTEST: TRUSTEE:
CHRISTIANA BANK & TRUST COMPANY
MARY ANN BENKO By JOSEPH D. FRENEY
Title Vice President
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DOCID687400A02- 6 -
PEAPACK-GLADSTONE FINANCIAL CORPORATION
DIRECTORS' RETIREMENT PLAN
Effective March 31, 2001, there is hereby established a plan under which certain members of the Board of Directors of Peapack-Gladstone Financial Corporation or any of its subsidiaries, who are not current employees ("Directors") are provided with a nonqualified retirement plan benefit following termination of their service as Directors.
When used in the Plan, the following terms shall have the definitions set forth in this Section 2:
2.1 Beneficiary: The term "Beneficiary" means the beneficiary or beneficiaries (including any contingent beneficiary or beneficiaries designated by the Participant pursuant to Section 4.3. hereof).
2.2 Board of Directors: The term "Board of Directors" means the Board of Directors of the Company.
2.3 Company: The term "Company" means Peapack-Gladstone Financial Corporation and all of its subsidiaries.
2.4 Final Compensation: The term "Final Compensation" means the retainer and the aggregate of all fees for service and attendance at Board of Directors and committee meetings to which a Director is entitled for services rendered to the Company as a Director for the last year in which a Director served as a member of the Board of Directors for the entire calendar year.
2.5 Disability: The term "Disability" means the complete and permanent inability of an individual, by reason of illness or accident, to perform the individual's duties as a Director. The determination whether a Director has suffered a Disability shall be made by the Board of Directors based upon such evidence as it deems appropriate.
2.6 Participant: The term "Participant" means a Director who is not a
current employee of the Company and who has become a Participant pursuant to
Section 3.
2.7 Plan: The term "Plan" means this Peapack-Gladstone Financial Corporation Directors' Retirement Plan, as set forth herein and as it may be amended from time to time.
2.8 Retirement: The term "Retirement" means the date on which a Participant ceases to serve as a member of the Board of Directors, whether by retirement, death, Disability or otherwise. 2.9 Retirement Benefit: The term "Retirement Benefit" has the meaning set forth in Section 4. 2.10 Years of Service: The term "Years of Service" means the number of complete years during which a Participant serves as a member of the Board of Directors. Notwithstanding the above, no more than ten (10) Years of Service will be granted to any Director for service prior to the Effective Date. Years of Service shall be measured from the date on which a Director is first elected as a Director (but disregarding any periods thereafter during which the Director did not serve as a member of the Board of Directors).
Each individual who is or becomes a member of the Board of Directors on or after the Effective Date, and who is not an employee of the Company, is automatically a Participant in
the Plan. If a member of the Board of Directors was or is an employee of the Company, then he or she shall become a Participant in the Plan only upon termination of employment as an employee with the Company, and only if he or she continues to be a member of the Board of Directors thereafter.
4.1 Benefit Formula. Each Participant who is a member of the Board on or after the Effective Date, will be entitled to a Retirement Benefit under the Plan upon his or her Retirement, provided that upon such Retirement he or she is credited with at least ten (10) Years of Service. Notwithstanding the above, in the event that a Participant who is credited with at least ten (10) Years of Service ceases to be a Director as a result of death or Disability, he or she shall be credited with a total of fifteen (15) Years of Service. In the event that a Director with at least five (5) Years of Service ceases to serve as a Director following a Change of Control (as such term is defined under Section 280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as amended) of the Company, then such Director will nevertheless be treated as having fifteen (15) Years of Service as of such Retirement. The annual amount of the Retirement Benefit will be equal to twenty-five percent (25%) of the Participant's Final Compensation (for a Participant with ten (10) Years of Service), except that the percentage will increase by five percent (5%) for each Year of Service in excess of ten (10), but in all cases limited to a maximum of fifty percent (50%) of Final Compensation.
4.2 Duration of Retirement Benefit. Each Participant who is entitled to a Retirement Benefit under the Plan will receive such Retirement Benefit for a period of five (5) years. In the event that the Participant dies prior to the end of the five year payout period (or if he or she dies while still a Director, and is otherwise entitled to a Retirement Benefit), the
remaining portions of the Retirement Benefit will be paid to his or her Beneficiary pursuant to the original schedule of payments. All Retirement Benefit payments will be made annually, in January of a given year for such year.
4.3 Beneficiary Designations. A Participant may designate a Beneficiary, in writing, in a form acceptable to the Board of Directors. A Participant may revoke a prior designation of a Beneficiary and may also designate a new Beneficiary without the consent of the previously designated Beneficiary, provided, however, that such revocation and new designation (if any) are in writing and filed with the Company before the Participant's death. If the Participant does not designate a Beneficiary, or if no designated Beneficiary survives the Participant, any amount not distributed to the Participant during the Participant's lifetime shall be paid to the Participant's estate.
The right of a Participant to receive payments under the Plan may not be transferred except by will or applicable laws of descent and distribution. A Participant may not assign, sell, pledge, or otherwise transfer amounts to which he/she is entitled hereunder prior to payment thereof.
6.1 Director's Rights Unsecured. The Plan is unfunded. The right of any Participant to receive retirement benefits under the provisions of the Plan shall be an unsecured claim against the general assets of the Company.
6.2 Administration. Except as otherwise provided in the Plan, the Plan shall be administered by the Board of Directors, which shall have the authority to adopt rules and
regulations for carrying out the Plan, and which shall interpret, construe, and implement the provisions of the Plan. The Board of Directors, however, shall have the right to delegate some or any of its administrative functions under the Plan to another person or entity.
6.3 Legal Opinions. The Board of Directors may consult with legal counsel, who may be counsel for the Company, with respect to its obligations and duties under the Plan, or with respect to any action, proceeding, or any questions of law, and shall not be liable with respect to any good faith action taken, or omitted, by it pursuant to the advice of such counsel.
6.4 Liability. Any decision made or action taken by the Board of Directors, or any employee of the Company or any of its subsidiaries, arising out of or in connection with the construction, administration, interpretation or effect of the Plan, shall be absolutely discretionary, and shall be conclusive and binding on all parties. Neither the Board of Directors nor any employee of the Company or any of its subsidiaries shall be liable for any retirement benefits or any action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving bad faith, for anything done or omitted to be done.
6.5 Withholding. The Company shall have the right to deduct from all payments hereunder any taxes required by law to be withheld from such payments. The recipients of such payments shall bear all taxes on amounts paid under the Plan to the extent that no taxes are withheld thereon, irrespective of whether withholding is required.
The Board of Directors shall have the right at any time, and for any reason, to amend, suspend, or terminate the Plan, provided, however, that no amendment, suspension, or
termination shall reduce or eliminate a Participant's Retirement Benefit accrued as of the date of such amendment, suspension or termination.
The Plan shall be governed by, and construed in accordance with, the laws of the State of New Jersey, except to the extent that such laws are preempted by federal law.
The Effective Date of this Plan is March 31, 2001.
PEAPACK-GLADSTONE FINANCIAL CORPORATION
DIRECTORS' DEFERRAL PLAN
Effective March 31, 2001, there is hereby established a plan whereby certain members of the Board of Directors of the Peapack-Gladstone Financial Corporation or any of its subsidiaries, who are not current employees of the Company ("Directors"), may voluntarily defer receipt of some or all of the fees payable to them by the Company (the "Deferred Compensation").
When used in the Plan, the following terms shall have the definitions set forth in this Section 2:
2.1 Beneficiary: The term "Beneficiary" means the beneficiary or beneficiaries (including any contingent beneficiary or beneficiaries designated by the Participant pursuant to Section 5.3. hereof).
2.2 Board of Directors: The term "Board of Directors" means the boards of directors of the Company.
2.3 Company: The term "Company" means Peapack-Gladstone Financial Corporation and all of its subsidiaries.
2.4 Company Credit: The term "Company Credit" means an amount computed and credited to a Participant's Deferred Compensation Account, as described in Section 4.2.
2.5 Compensation: The term "Compensation" means the retainer and the aggregate of all fees for service and attendance at Board of Director and committee meetings to which a Director is entitled for services rendered to the Company as a Director.
2.6 Deferred Amount: The term "Deferred Amount" means the amount of Compensation that a Participant elects to defer in accordance with Section 3 hereof.
2.7 Deferred Compensation Account: The term "Deferred Compensation Account" means the account described in Section 4.1. A Participant's Deferred Compensation Account shall be fully vested at all times.
2.8 Disability: The term "Disability" means the complete and permanent inability of an individual, by reason of illness or accident, to perform the individual's duties as a Director. The determination whether a Director has suffered a Disability shall be made by the Board of Directors based upon such evidence as it deems appropriate.
2.9 Participant: The term "Participant" means a Director who has elected to defer receipt of Compensation pursuant to the Plan.
2.10 Plan: The term "Plan" means this Peapack-Gladstone Financial Corporation Directors' Deferral Plan, as set forth herein and as it may be amended from time to time.
Section 3. Participation
Prior to the Effective Date, and thereafter at the beginning of any calendar quarter in each calendar year, any Director who is not an employee of the Company may defer the receipt of Compensation to be earned by the Director during such calendar quarter and the ensuing calendar quarters by filing with the Company a written election that:
(i) defers payment of a designated amount or a percentage of his/her Compensation for services attributable to such calendar quarters (the "Deferred Amount");
(ii) specifies the payment option selected by the Participant pursuant to Section 5.2 hereof for such Deferred Amount.
The amount deferred may not exceed the Director's Compensation for
the period of deferral. Notwithstanding the foregoing, any individual who is not
an employee of the Company, and who is newly elected or appointed to serve as a
Director, may, not later than thirty (30) days after his/her election or
appointment as a Director becomes effective, elect in accordance with the
preceding provisions of this Section 3, to defer the receipt of Compensation
earned during the portion of the current calendar quarter that follows his/her
filing of the election with the Company. Any elections made pursuant to this
Section 3 shall be irrevocable when made. Notwithstanding the foregoing, the
Board of Directors, in its sole discretion, may make a distribution to a
Participant under either Section 5.2(i)(a) or 5.4. If a Participant fails to
discontinue an election under Section 4 with respect to his/her Deferred Amount
for a future period, the Participant's current election shall remain in effect,
provided, however, that the Participant may thereafter make a new election with
regard to a future period at any time in accordance with the first paragraph of
this Section 3.
The Company shall maintain individual accounts for Participants, as follows:
4.1 Deferred Compensation Account: The Company shall maintain a Deferred Compensation Account in the name of each Deferred Compensation Participant with respect to any amounts deferred under the Plan.
4.2 Accrual of Company Credit: The Company shall credit to each Participant's account an interest component equal to that which would have been credited if such Deferred Amount were invested in the Peapack-Gladstone Money Market Account (also known as the Tellson Money Market). The Company Credit shall be compounded and credited to each Deferred Compensation Account as of the last day of each calendar month. If a Participant elects the payment option under Section 5.2(i)(b), the Company Credit shall continue to be credited to the Participant's account until distributed.
4.3 Account Statements: Within a reasonable time following each June 30 and December 31, the Company shall provide a semi-annual statement of account to each Participant.
5.1 Method of Payment. All payments to a Participant (or to a Participant's Beneficiary or estate, as the case may be) with respect to the Participant's Deferred Compensation Account shall be paid in cash only.
5.2 Payment Options:
(i) At the time each Director first elects to make a deferral, the Participant shall select a payment option with respect to the payment of the Participant's Deferred Compensation Account from the following payment options:
(a) a lump sum paid on the first day of the calendar quarter following termination of service as a Director, or the first day of a calendar quarter that is at least five (5) years following the date of the original deferral election, provided that this period will be
accelerated until the first day of the calendar quarter following the calendar quarter in which the Participant ceases to be a Director. Furthermore, if a Director is scheduled to receive a payment pursuant to this Section at a time when he or she still serves as a Director, he or she may elect, at least six (6) months prior the scheduled date of payment, to redefer all amounts otherwise due to him or her for an additional period of time (which is at least equal to three (3) years), again subject to earlier payment in the event that he or she thereafter ceases to serve as a Director;
(b) payments in substantially equal annual installments over a period of between two (2) to ten (10) years, commencing in January of the calendar year following the calendar year during which the Participant ceases to be a Director.
(ii) If the payment option described in paragraph (i)(a) above has been elected, the amount of the lump sum with respect to the Participant's Deferred Compensation Account shall be equal to the amount credited to the Participant's Deferred Compensation Account as of the last business day of the calendar quarter preceding the date of payment.
(iii) If the payment option described in paragraph (i)(b) above has been elected, the amount of each installment with respect to the Participant's Deferred Compensation Account shall be paid annually, in installment amounts.
(iv) Notwithstanding the above, a Director may elect to change the form of distribution from installments to lump sum, or vice versa, provided that such new election may not be made less than six (6) months prior to such Director's becoming entitled to a distribution hereunder.
5.3 Payment Upon Death. Notwithstanding any other provision of the
Plan to the contrary, within a reasonable period of time following the death of
a Participant, the amount credited to the Participant's Deferred Compensation
Account shall be paid by the Company in a lump sum to the Participant's
Beneficiary. For purposes of this Section 5.3, the amount credited to the
Participant's Deferred Compensation Account shall be determined as of the date
of payment. A Participant may designate a Beneficiary, in writing, in a form
acceptable to the Board of Directors. A Participant may revoke a prior
designation of a Beneficiary and may also designate a new Beneficiary without
the consent of the previously designated Beneficiary, provided, however, that
such revocation and new designation (if any) are in writing and filed with the
Company before the Participant's death. If the Participant does not designate a
Beneficiary, or if no designated Beneficiary survives the Participant, any
amount not distributed to the Participant during the Participant's lifetime
shall be paid to the Participant's estate in a lump sum in accordance with this
Section 5.3.
5.4 Payment on Unforeseeable Emergency. The Board of Directors may, in its sole discretion, direct payment to a Participant of all or of any portion of the Participant's Deferred Compensation Account, notwithstanding an election of a payment option under Section 5.2 above, at any time that the Board of Directors determines that such Participant has an unforeseeable emergency, and then only to the extent reasonably necessary to meet the emergency. For purposes of this section, "unforeseeable emergency" means severe financial
hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
The right of a Participant to receive payments under the Plan may not be transferred except by will or applicable laws of descent and distribution. A Participant may not assign, sell, pledge, or otherwise transfer amounts to which he/she is entitled hereunder prior to payment thereof to the Participant.
7.1 Director's Rights Unsecured. The Plan is unfunded. The right of any Participant to receive payments of cash under the provisions of the Plan shall be an unsecured claim against the general assets of the Company.
7.2 Administration. Except as otherwise provided in the Plan, the Plan shall be administered by the Board of Directors, which shall have the authority to adopt rules and regulations for carrying out the Plan, and which shall interpret, construe, and implement the provisions of the Plan. The Board of Directors, however, shall have the right to delegate some or any of its administrative functions under the Plan to another person or entity.
7.3 Legal Opinions. The Board of Directors may consult with legal counsel, who may be counsel for the Company, with respect to its obligations and duties under the Plan, or with respect to any action, proceeding, or any questions of law, and shall not be liable with respect to any good faith action taken, or omitted, by it pursuant to the advice of such counsel.
7.4 Liability. Any decision made or action taken by the Board of Directors, or any employee of the Company or any of its subsidiaries, arising out of or in connection with the construction, administration, interpretation or effect of the Plan, shall be absolutely discretionary, and shall be conclusive and binding on all parties. Neither the Board of Directors nor any employee of the Company or any of its subsidiaries shall be liable for any Deferred Compensation Account or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving bad faith, for anything done or omitted to be done.
7.5 Withholding. The Company shall have the right to deduct from all payments hereunder any taxes required by law to be withheld from such payments. The recipients of such payments shall bear all taxes on amounts paid under the Plan to the extent that no taxes are withheld thereon, irrespective of whether withholding is required.
The Board of Directors shall have the right at any time, and for any reason, to amend, suspend, or terminate the Plan, provided, however, that no amendment, suspension, or termination shall reduce the cash balance in any Participant's Deferred Compensation Account.
The Plan shall be governed by, and construed in accordance with, the laws of the State of New Jersey, except to the extent that such laws are preempted by federal law.
The Effective Date of this Plan is March 31, 2001.
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------------------
SELECTED YEAR-END DATA: 2003 2002 2001
---------------------------------------------------------------------------------------
NET INCOME $ 12,300 $ 11,925 $ 8,924
---------------------------------------------------------------------------------------
TOTAL ASSETS 968,126 859,808 704,773
---------------------------------------------------------------------------------------
TOTAL DEPOSITS 845,771 769,688 630,903
---------------------------------------------------------------------------------------
TOTAL SECURITIES 453,699 380,325 221,342
---------------------------------------------------------------------------------------
TOTAL LOANS 427,001 409,760 416,933
---------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 85,054 77,158 63,085
---------------------------------------------------------------------------------------
TRUST DEPARTMENT ASSETS (BOOK VALUE) 1,089,447 1,000,272 766,928
---------------------------------------------------------------------------------------
FINANCIAL RATIOS:
---------------------------------------------------------------------------------------
RETURN ON AVERAGE ASSETS 1.34% 1.53% 1.42%
---------------------------------------------------------------------------------------
RETURN ON AVERAGE EQUITY 15.14 17.06 15.03
---------------------------------------------------------------------------------------
CAPITAL LEVERAGE RATIO 8.91 9.19 9.84
---------------------------------------------------------------------------------------
RISK BASED CAPITAL:
TIER I 20.38 19.51 18.76
---------------------------------------------------------------------------------------
TOTAL 21.74 20.81 19.98
---------------------------------------------------------------------------------------
PER SHARE:
---------------------------------------------------------------------------------------
EARNINGS-BASIC $ 1.67 $ 1.62 $ 1.22
---------------------------------------------------------------------------------------
EARNINGS-DILUTED 1.62 1.59 1.20
---------------------------------------------------------------------------------------
BOOK VALUE 11.47 10.47 8.62
---------------------------------------------------------------------------------------
|
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
NET INCOME
IN MILLIONS
$7.19 $7.71 $8.92 $11.93 $12.30
-----------------------------------------------------------
'99 '00 '01 '02 '03
TOTAL ASSETS
IN MILLIONS
$498 $567 $705 $860 $968
-----------------------------------------------------------
'99 '00 '01 '02 '03
DEPOSITS
IN MILLIONS
$444 $509 $631 $770 $846
-----------------------------------------------------------
'99 '00 '01 '02 '03
EQUITY CAPITAL
IN MILLIONS
$47.6 $55.2 $63.1 $77.2 $85.1
-----------------------------------------------------------
'99 '00 '01 '02 '03
|
DEAR SHAREHOLDERS AND FRIENDS
* PEAPACK GLADSTONE BANK *
[LOGO]
FOUNDED 1921
Confidence and optimism in our economy and way of life are growing. We are seeing it in a very strong equity market, better earnings and a general perception that it is time to come out of the bunker and look to the future for the opportunities that will be there. The last piece to the puzzle will be with the creation of new jobs which must come with an expanding economy. We should never underestimate the resilience of Americans and their resolve to move ahead.
The historically low interest rate market in 2003 created an unusual and challenging banking environment. We are very pleased to report that the Bank posted record earnings for the seventh year in a row. Net income for the year was up 3.1% to $12,300,000. These numbers translate into a 1.34% return on average assets and a 15.14% return on average equity. Both are strong and consistent returns for our shareholders.
Total assets grew over $108,000,000 to $968,000,000. Our branches continued to grow bringing new customers and opportunities to the Bank. We view the ongoing consolidation of our industry in our market area as a positive. We believe we have a competitive advantage when customers have a choice between us and a bank headquartered in Pittsburgh or Charlotte. Thanks to technology, we are able to offer virtually any service available at large regional or national banks. Our customers have the added advantage of a management team and Board of Directors who live and work in the communities they serve. Outstanding service is our one and only objective.
In order to continue our steady growth pattern, we are looking forward to opening two new branches during 2004. The first is our long awaited Oldwick Branch in Tewksbury Township, which is currently under construction and should be ready to open in the late spring. The second is a fabulous building in Morristown. Located at the intersection of Headley Road, Madison Avenue and South Street, our new branch will offer customers easy access and convenience in a very busy area. We will have New Business Officers and Trust & Investment Officers on site to serve our customers. The Morristown Planning Board has just approved our application and we hope to open by early summer.
You will find detailed financials in the Management's Discussion and Analysis section of this report, however, there are a few highlights I would like to emphasize.
We made the decision to add a little leverage to our balance sheet in order to take advantage of the very low interest rate environment. We did this with a simple borrowing program with the Federal Home Loan Bank. We borrowed approximately $30,000,000 with an average life of six years at an average rate of 3.36%. We feel confident that during the term of this program our net interest income will benefit. In the meantime we were able to match fund some of our new longer-term fixed rate assets, which attempts to remove interest rate risk from that part of our balance sheet.
Readers will notice that balances in some of our loan portfolios actually dropped during the course of the year. As our customers know, we portfolio most of the loans that we originate. This is because we will be able to provide better service to our customers than second or third or fourth party providers. We made the decision, because of the historically low interest rate environment, not to incur the interest rate
risk of booking and holding long-term fixed rate mortgages. As anticipated, our balances did decline, however we believe we made the right decision in the long term for our Bank in this business environment.
Another point we would like to emphasize is that our non-performing loans were at an all time low of 0.05% of total loans as of December 31, 2003. A total of $215,000 was considered non-performing out of total loan portfolios of over $420,000,000. We believe that this coupled with a balance sheet structured to benefit from gradually rising rates over the next few years, puts the Bank in a very strong position for the future.
On November 3, 2003 your Board paid a 10% stock dividend and increased the quarterly cash dividend to 10(cent) per share. Combined, the quarterly cash dividend increased 22% with the November payout. This is on top of a 20% increase in 2002 and an 18% increase in 2001. Investor returns are a primary focus of the Board and Management. We continue to believe that the best way to create shareholder value is to post strong earnings as we did in 2003. While our stock price was flat during the year, we are pleased with the three-year average increase in market capitalization of 24% and average return on equity for the same period of 15.74%. We manage the Bank for the long term, not quarter to quarter. We believe that our focus on steady growth in assets and earnings is recognized in the market place and will ultimately continue to reward our shareholders.
We remind our shareholders that our dividend reinvestment program is available. Information is available at the branches or you may call Mr. Edwin Carr directly at Registrar and Transfer Company at (800) 368-5948.
PGB Trust & Investments had another outstanding year. The market value of assets held in the Department grew to over $1,400,000,000, an increase of 14.2%. Fees generated by this area grew 23% to $5,800,000.
During 2003 we were very pleased to have formed an alliance with the Rumson-Fair Haven Bank and Trust to provide trust and investment services to their customers on a referral basis. We believe this is an exciting new business model. It works not only for the benefit of both organizations but also for the new customers who will find PGB Trust & Investments ready, willing and very able to help them and their families plan and reach their financial goals.
It cannot be stressed often enough, that in order to reach a financial goal, you have to take the time to make a plan. We can help you grow your assets and minimize your tax expense during your lifetime. We can help you develop an estate plan that addresses your specific needs and those of your family. We will ensure that your plan is carried out generation to generation. Please call either Craig Spengeman at (908) 719-3301 or John Bonk at (908) 719-3318 to find out how our outstanding Trust & Investment Department can become part of your team.
Finally, we would like to thank our Employees, Officers and Directors for their outstanding efforts during 2003. We especially want to thank our customers and shareholders for their confidence in us. Please refer your friends and associates to your Bank. Your referral is our best source of new business.
/s/ Frank A. Kissel /s/ Robert M. Rogers Frank A. Kissel Robert M. Rogers Chairman & CEO President & COO |
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW: The following discussion and analysis is intended to provide information about the financial condition and results of operations of Peapack-Gladstone Financial Corporation and its subsidiaries on a consolidated basis and should be read in conjunction with the consolidated Financial Statements and the related notes and supplemental financial information appearing elsewhere in this report. All share and per share amounts have been restated to reflect the 10 percent stock dividend issued in 2003 and all prior stock dividends and splits.
Peapack-Gladstone Financial Corporation (the "Corporation"), formed in 1997, is the parent holding company for Peapack-Gladstone Bank, formed in 1921, a commercial bank operating sixteen branches and one mini branch in Somerset, Hunterdon, and Morris counties.
During 2003, the cash dividend rate was increased to $0.10 per share. This new rate, coupled with the 10 percent stock dividend paid on November 1, 2003, effectively raised the cash dividend rate by 22 percent over the previous rate of $0.09 per share.
The year ended December 31, 2003 represented a year of moderate earnings growth for the Corporation. The continuing low interest rate environment negatively affected net interest income, yet deposit growth was strong. As discussed in this Management's Discussion and Analysis section some of the highlights are as follows:
o Assets increased 13 percent bringing the total assets of the Corporation to $968 million.
o PGB Trust and Investments managed assets exceeded $1.4 billion in market value for the first time.
o Deposits grew 10 percent and surpassed the $845 million level.
Peapack-Gladstone Financial Corporation's common stock trades on the American Stock Exchange under the symbol "PGC".
CRITICAL ACCOUNTING POLICIES AND ESTIMATES: "Management's Discussion and Analysis of Financial Condition and Results of Operation" is based upon the Corporation's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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, 2003, 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 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 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 the Central New Jersey area experience an adverse economic shock. 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 FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
RETURN ON AVERAGE EQUITY
IN PERCENT
RETURN ON AVERAGE ASSETS
IN PERCENT
EARNINGS SUMMARY: The Corporation's net income increased 3 percent to $12.3 million for the year ended December 31, 2003 compared to $11.9 million earned in 2002. Earnings per diluted share were $1.62 as compared to $1.59 in 2002, an increase of 2 percent.
These results produced a return on average assets of 1.34 percent as compared to 1.53 percent in 2002 and a return on average shareholders' equity of 15.14 percent as compared to 17.06 percent in 2002.
The increase in net income for 2003 was primarily due to higher Trust fees, other income and net security gains offset in part by lower net interest income, higher salaries and benefits and premises and equipment expenses. In 2003, the Corporation experienced strong growth in assets and deposits; however, the historically low interest rates mitigated the impact of the growth by lowering interest income. Conversely, the low interest rate environment lowered rates paid on deposits.
NET INTEREST INCOME: Net interest income, the primary source of the Corporation's operating income, is the difference between interest and dividends earned on earning assets and fees earned on loans, and interest paid on interest-bearing liabilities. Earning assets include loans to individuals and businesses, investment securities, interest-earning deposits and federal funds sold. Interest-bearing liabilities include interest-bearing checking, savings and time deposits, Federal Home Loan Bank advances and other borrowings. Net interest income is determined by the difference between the yields earned on earning assets and the rates paid on interest-bearing liabilities ("Net Interest Spread") and the relative amounts of earning assets and interest-bearing liabilities. The Corporation's net interest spread is affected
by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows and general levels of non-performing assets.
Net interest income (on a tax-equivalent basis) declined from $32.4 million in 2002 to $31.8 million in 2003. While average earning assets increased $126.3 million or 17 percent from the average balances in 2002, the interest earned on these assets declined. Interest expense declined $1.8 million or 15 percent over the levels recorded in 2002 on average balances of interest-bearing liabilities that increased $103.2 million or 18 percent. Lower rates were earned on earning assets in 2003, declining to 4.88 percent from 6.04 percent earned in 2002, Lower rates were paid on interest-bearing liabilities, which declined from 2.05 percent to 1.49 percent. In 2003, the net interest margin declined to 3.69 percent from 4.40 percent in 2002.
Interest income on earning assets (on a tax-equivalent basis) declined $2.3 million or 5 percent to $42.1 million. This decrease was primarily due to lower interest rates on investment securities and loans, which earned 122 basis points less and 71 basis points less, respectively. Federal funds sold and interest-earning deposits rates earned also declined by 119 basis points. During 2003, average investments increased 50 percent to $448.0 million, while average loans declined $17.4 million or 4 percent to $407.3 million. The Corporation reduced the balances of the lower yielding federal funds sold and interest-earning deposits, by 41 percent to $7.0 million in order to invest in higher yielding investment securities.
The decline in interest expense was primarily due to lower rates paid on all categories of interest-bearing liabilities. The rate paid on interest-bearing deposits declined 61 basis points to 1.43 percent in 2003 as compared to 2.04 percent in 2002. Rates paid on borrowings declined 42 basis points to 2.51 percent. The decline in interest rates paid in 2003 reflects the overall decline in market interest rates, as rates continued to fall to historically low levels.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
NET INTEREST INCOME
IN MILLIONS
Partially offsetting lower rates paid was strong growth in most deposit categories. Tiered money market accounts showed the strongest growth, increasing $47.9 million on average. Savings accounts and interest bearing checking grew $10.3 million and $8.3 million on average, respectively. Average noninterest-bearing demand deposits increased $24.0 million or 21 percent during 2003 as compared to 2002. During 2003, the Corporation positioned some of its borrowings to try to take advantage of the low long-term interest rate environment that existed. This strategy of extending the maturities of borrowings and matching with lower yielding fixed rate loans is intended to reduce interest rate risk if interest rates begin to rise. As a result, average borrowings increased $27.4 million to $35.2 million.
LOANS: The loan portfolio represents a significant portion of the Corporation's earning assets and is an important source of interest and fee income. Loan originations are primarily originated in the Bank's market or surrounding areas.
Total loans increased $17.2 million, or 4 percent, to $427.0 million from 2002 levels. This increase was primarily in commercial mortgage loans, which increased $21.0 million or 19 percent. This growth was primarily due to the addition of new commercial business development officers to the professional staff. Residential loans secured by first liens on 1-4 family homes declined $2.8 million or 1 percent in 2003, while commercial loans declined $1.2 million or 7 percent from 2002 levels.
Loans totaling $1.6 million were sold to the Federal Home Loan Bank (FHLB) during the third and fourth quarters of 2003 at a gain of $13 thousand. The loans sold represented lower yielding, longer-term mortgages. The sale of these loans will mitigate interest rate risk if interest rates rise.
The yield on total loans averaged 6.18 percent for 2003, a 71 basis point decline from the 6.89 percent average yield earned in 2002. The average yield on the mortgage portfolio declined in 2003 to 6.26 percent from 6.98 percent in 2002. The average yield on the commercial loan portfolio declined 64 basis points to 5.74 percent. The decline in yields earned in 2003 reflects the overall decline in market interest rates as the Federal Reserve kept short-term interest rates at a historical low during the year.
THE FOLLOWING TABLE PRESENTS AN ANALYSIS OF OUTSTANDING LOANS AS OF DECEMBER 31,
(IN THOUSANDS) 2003 2002 2001 2000 1999
----------------------------------------------------------------------------------------------
REAL ESTATE-MORTGAGE
1-4 FAMILY RESIDENTIAL
FIRST LIENS $ 226,887 $ 229,679 $ 246,197 $ 210,547 $ 168,979
----------------------------------------------------------------------------------------------
JUNIOR LIENS 11,163 15,211 22,903 25,017 21,263
----------------------------------------------------------------------------------------------
HOME EQUITY 18,251 22,265 18,120 15,633 14,488
----------------------------------------------------------------------------------------------
REAL ESTATE-COMMERCIAL 130,968 109,932 91,129 62,161 55,747
----------------------------------------------------------------------------------------------
REAL ESTATE-CONSTRUCTION 9,799 2,063 6,418 2,297 1,153
----------------------------------------------------------------------------------------------
COMMERCIAL LOANS 16,632 17,859 15,855 13,019 12,541
----------------------------------------------------------------------------------------------
CONSUMER LOANS 10,223 8,206 11,237 14,084 12,413
----------------------------------------------------------------------------------------------
OTHER LOANS 3,078 4,545 5,074 1,541 1,349
==============================================================================================
TOTAL LOANS $ 427,001 $ 409,760 $ 416,933 $ 344,299 $ 287,933
==============================================================================================
|
INVESTMENT SECURITIES: Investment securities are those securities that the Corporation has both the ability and intent to hold to maturity. These securities are carried at amortized cost. The portfolio consists primarily of U.S. government agencies, mortgage-backed securities and municipal obligations. The Corporation's investment securities at amortized cost amounted to $97.7 million at December 31, 2003, compared with $168.1 million at December 31, 2002.
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES AND INTEREST RATES OF INVESTMENT SECURITIES AT AMORTIZED COST, AS OF DECEMBER 31, 2003:
AFTER 1 AFTER 5
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
-------------------------------------------------------------------------------------------------
U.S. TREASURY $ -- $ -- $ -- $ -- $ --
-------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 2,502 8,573 3,250 -- 14,325
6.460% 5.256% 5.767% -- 5.584%
-------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (1) -- -- 8,308 40,769 49,077
-- -- 4.637% 4.338% 4.389%
-------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 7,788 12,786 11,785 435 32,794
3.489% 3.983% 4.219% 8.602% 4.012%
-------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES -- 1,505 -- -- 1,505
-- 7.301% -- -- 7.301%
-------------------------------------------------------------------------------------------------
TOTAL $10,290 $22,864 $23,343 $41,204 $97,701
4.212% 4.679% 4.583% 4.383% 4.485%
=================================================================================================
|
(1) MORTGAGE-BACKED SECURITIES ARE SHOWN USING STATED FINAL MATURITY.
SECURITIES AVAILABLE FOR SALE: Securities available for sale are used as a part of the Corporation's interest rate risk management strategy, and they may be sold in response to changes in interest rates, liquidity needs, and other factors. These securities are carried at estimated fair value, and unrealized changes in fair value are recognized as a separate component of shareholders' equity, net of income taxes. Realized gains and losses are recognized in income at the time the securities are sold.
At December 31, 2003, the Corporation had securities available for sale with a market value of $356.0 million, compared with $212.3 million at December 31, 2002. A $2.7 million and $4.8 million unrealized gain (net of income tax) was included in shareholders' equity at December 31, 2003 and December 31, 2002, respectively.
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES AND INTEREST RATES OF DEBT SECURITIES AVAILABLE FOR SALE, STATED AT MARKET VALUE, AS OF DECEMBER 31, 2003:
AFTER 1 AFTER 5
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
-------------------------------------------------------------------------------------------------
U.S. TREASURY $ -- $ 1,074 $ -- $ -- $ 1,074
-- 4.328% -- -- 4.328%
-------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 1,542 129,528 48,940 1,640 181,650
4.820% 3.848% 3.250% 2.600% 3.677%
-------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (1) -- 526 37,437 98,360 136,323
-- 5.140% 3.920% 4.191% 4.120%
-------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS -- 1,436 7,818 535 9,789
-- 5.284% 5.732% 6.069% 5.685%
-------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 4,959 529 -- 21,674 27,162
4.598% 4.605% -- 3.894% 4.022%
-------------------------------------------------------------------------------------------------
TOTAL $ 6,501 $133,093 $ 94,195 $122,209 $355,998
4.656% 3.875% 3.713% 4.121% 3.931%
=================================================================================================
|
(1) MORTGAGE-BACKED SECURITIES ARE SHOWN USING STATED FINAL MATURITY.
Federal funds sold and interest-earning deposits are an integral part of the Corporation's investment and liquidity strategies. The combined average balance of these vehicles during 2003 was $7.0 million as compared to $11.9 million in 2002.
DEPOSITS: Total deposits at December 31, 2003 were $845.8 million, an increase of $76.1 million or 10 percent from $769.7 million at December 31, 2002. Our strategy is to fund earning asset growth with core deposits, which is an important factor in the generation of net interest income. Marketing, sales efforts, and new branch locations all contributed to the strong growth in deposits. Total average deposits increased $99.8 million or 14 percent over 2002 levels.
THE FOLLOWING TABLE SETS FORTH INFORMATION CONCERNING THE COMPOSITION OF THE CORPORATION'S AVERAGE DEPOSIT BASE AND AVERAGE INTEREST RATES PAID FOR THE FOLLOWING YEARS:
2003 2002 2001
--------------------------------------------------------------------------------------------
(IN THOUSANDS) $ % $ % $ %
--------------------------------------------------------------------------------------------
NONINTEREST-BEARING DEMAND $139,476 -- $115,487 -- $102,852 --
--------------------------------------------------------------------------------------------
CHECKING 129,203 0.48 120,922 0.59 100,734 0.84
--------------------------------------------------------------------------------------------
SAVINGS 100,451 0.76 90,142 1.27 77,207 1.95
--------------------------------------------------------------------------------------------
MONEY MARKETS 62,607 0.88 61,058 1.49 49,869 3.04
--------------------------------------------------------------------------------------------
TIERED MONEY MARKETS 129,485 1.12 81,553 1.83 44,785 3.60
--------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSITS 233,687 2.57 225,965 3.34 188,187 5.29
--------------------------------------------------------------------------------------------
TOTAL DEPOSITS $794,909 $695,127 $563,634
============================================================================================
|
Certificates of deposit over $100,000 are generally purchased by local municipal governments or individuals for periods one year or less. These factors translate into a stable customer oriented cost-effective funding source.
THE FOLLOWING TABLE SHOWS REMAINING MATURITY FOR CERTIFICATES OF DEPOSIT OVER
$100,000 AS OF DECEMBER 31, 2003 (IN THOUSANDS):
THREE MONTHS OR LESS $16,808
--------------------------------------------------------------------------------
OVER THREE MONTHS THROUGH TWELVE MONTHS 29,078
--------------------------------------------------------------------------------
OVER TWELVE MONTHS 14,487
--------------------------------------------------------------------------------
TOTAL $60,373
================================================================================
|
FEDERAL HOME LOAN BANK ADVANCES: At December 31, 2003 and 2002, Federal Home Loan Bank ("FHLB") advances totaled $30.0 million and $5.0 million, respectively. The Corporation considers FHLB advances an added source of funding, and accordingly, executes transactions from time to time to meet its funding requirements. During 2003, the Corporation extended the maturities of some of its borrowings and matched them with lower yielding fixed rate loans. This strategy is intended to reduce interest rate risk if interest rates begin to rise. The FHLB advances outstanding at December 31, 2003 have varying terms and interest rates.
THE FOLLOWING TABLE COMPARES THE AVERAGE BALANCE SHEET, NET INTEREST SPREADS AND NET INTEREST MARGINS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001 (FULLY TAX-EQUIVALENT - FTE):
YEAR ENDED DECEMBER 31, 2003
-----------------------------------------------------------------------------------------------------
INCOME/
AVERAGE EXPENSE YIELD
(IN THOUSANDS, EXCEPT YIELD INFORMATION) BALANCE (FTE) (FTE)
-----------------------------------------------------------------------------------------------------
ASSETS:
INTEREST-EARNING ASSETS:
INVESTMENTS:
TAXABLE $ 419,464 $ 15,261 3.64%
-----------------------------------------------------------------------------------------------------
TAX-EXEMPT 28,572 1,571 5.50%
-----------------------------------------------------------------------------------------------------
LOANS 407,261 25,175 6.18%
-----------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 6,128 70 1.14%
-----------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 917 8 0.87%
-----------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 862,342 $ 42,085 4.88%
-----------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 18,849
-----------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES (5,125)
-----------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 14,788
-----------------------------------------------------------------------------------------------------
OTHER ASSETS 28,107
-----------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 56,619
-----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 918,961
=====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
-----------------------------------------------------------------------------------------------------
CHECKING $ 129,203 $ 616 0.48%
-----------------------------------------------------------------------------------------------------
MONEY MARKETS 62,607 552 0.88%
-----------------------------------------------------------------------------------------------------
TIERED MONEY MARKETS 129,485 1,444 1.12%
-----------------------------------------------------------------------------------------------------
SAVINGS 100,451 767 0.76%
-----------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 233,687 5,997 2.57%
-----------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 655,433 9,376 1.43%
-----------------------------------------------------------------------------------------------------
BORROWED FUNDS 35,248 886 2.51%
-----------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 690,681 10,262 1.49%
-----------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 139,476
-----------------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 7,578
-----------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 147,054
-----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY 81,226
-----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 918,961
-----------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 31,823
-----------------------------------------------------------------------------------------------------
NET INTEREST SPREAD 3.39%
-----------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 3.69%
=====================================================================================================
|
1. Average loan balances include non-accrual and restructured loans.
2. The tax-equivalent adjustment was computed based on a federal tax rate of 35 percent for 2003, 35 percent for 2002 and 34 percent for 2001.
3. Investments consist of investment securities and securities available for sale at amortized cost.
YEAR ENDED DECEMBER 31, 2002 YEAR ENDED DECEMBER 31, 2001
------------------------------------------------------------------------------------------------------
INCOME/ INCOME/
AVERAGE EXPENSE YIELD AVERAGE EXPENSE YIELD
BALANCE (FTE) (FTE) BALANCE (FTE) (FTE)
------------------------------------------------------------------------------------------------------
$ 281,329 $ 13,694 4.87% $ 160,191 $ 9,668 6.04%
------------------------------------------------------------------------------------------------------
18,207 1,208 6.63% 13,944 1,037 7.43%
------------------------------------------------------------------------------------------------------
424,661 29,248 6.89% 382,430 28,476 7.45%
------------------------------------------------------------------------------------------------------
8,564 135 1.58% 24,660 1,143 4.64%
------------------------------------------------------------------------------------------------------
3,319 138 4.16% 12,955 612 4.72%
------------------------------------------------------------------------------------------------------
736,080 $ 44,423 6.04% 594,180 $ 40,936 6.89%
------------------------------------------------------------------------------------------------------
17,245 15,655
------------------------------------------------------------------------------------------------------
(4,380) (3,682)
------------------------------------------------------------------------------------------------------
13,670 12,448
------------------------------------------------------------------------------------------------------
17,950 10,232
------------------------------------------------------------------------------------------------------
44,485 34,653
------------------------------------------------------------------------------------------------------
$ 780,565 $ 628,833
======================================================================================================
------------------------------------------------------------------------------------------------------
$ 120,922 $ 718 0.59% $ 100,734 $ 849 0.84%
------------------------------------------------------------------------------------------------------
61,058 908 1.49% 49,869 1,514 3.04%
------------------------------------------------------------------------------------------------------
81,553 1,493 1,83% 44,785 1,611 3.60%
------------------------------------------------------------------------------------------------------
90,142 1,149 1.27% 77,207 1,506 1.95%
------------------------------------------------------------------------------------------------------
225,965 7,558 3.34% 188,187 9,949 5.29%
------------------------------------------------------------------------------------------------------
579,640 11,826 2.04% 460,782 15,429 3.35%
------------------------------------------------------------------------------------------------------
7,814 229 2.93% 1,633 57 3.49%
------------------------------------------------------------------------------------------------------
587,454 12,055 2.05% 462,415 15,486 3.35%
------------------------------------------------------------------------------------------------------
115,487 102,852
------------------------------------------------------------------------------------------------------
7,730 4,193
------------------------------------------------------------------------------------------------------
123,217 107,045
------------------------------------------------------------------------------------------------------
69,894 59,373
------------------------------------------------------------------------------------------------------
$ 780,565 $ 628,833
======================================================================================================
$ 32,368 $ 25,450
======================================================================================================
3.99% 3.54%
------------------------------------------------------------------------------------------------------
4.40% 4.28%
------------------------------------------------------------------------------------------------------
|
RATE/VOLUME ANALYSIS:
THE EFFECT OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME (ON A TAX-EQUIVALENT BASIS) FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 ARE SHOWN BELOW:
YEAR ENDED 2003 COMPARED WITH 2002 YEAR ENDED 2002 COMPARED WITH 2001
---------------------------------------------------------------------------------------------------------------------
NET NET
DIFFERENCE DUE TO CHANGE IN DIFFERENCE DUE TO CHANGE IN
CHANGE IN: INCOME/ CHANGE IN: INCOME/
(IN THOUSANDS): VOLUME RATE EXPENSE VOLUME RATE EXPENSE
---------------------------------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS $ 7,388 $(5,458) $ 1,930 $ 7,709 $(3,512) $ 4,197
---------------------------------------------------------------------------------------------------------------------
LOANS (1,198) (2,875) (4,073) 3,144 (2,372) 772
---------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD (38) (27) (65) (746) (262) (1,008)
---------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS (100) (30) (130) (455) (19) (474)
---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $ 6,052 $(8,390) $(2,338) $ 9,652 $(6,165) $ 3,487
=====================================================================================================================
LIABILITIES
CHECKING $ 49 $ (151) $ (102) $ 170 $ (301) $ (131)
---------------------------------------------------------------------------------------------------------------------
MONEY MARKET 23 (379) (356) 340 (946) (606)
---------------------------------------------------------------------------------------------------------------------
TIERED MONEY MARKET 877 (926) (49) 1,323 (1,441) (118)
---------------------------------------------------------------------------------------------------------------------
SAVINGS 131 (513) (382) 252 (609) (357)
---------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 258 (1,819) (1,561) 1,997 (4,388) (2,391)
---------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS 804 (147) 657 216 (44) 172
---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 2,142 $(3,935) $(1,793) $ 4,298 $(7,729) $(3,431)
---------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $ 3,910 $(4,455) $ (545) $ 5,354 $ 1,564 $ 6,918
=====================================================================================================================
|
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION: The allowance for loan losses was $5.5 million at December 31, 2003 as compared to $4.8 million at December 31, 2002. The allowance for loan losses currently provides 25.4 times the coverage of all non-performing assets. At December 31, 2003, the allowance for loan losses as a percentage of total loans outstanding was 1.28 percent compared to 1.17 percent at December 31, 2002 and 0.96 percent at December 31, 2001.
The provision for loan losses declined $200 thousand, or 25 percent, to $600 thousand for 2003, compared to $800 thousand for 2002. The decrease in provision was due primarily to reduced levels on non-performing loans, net recoveries on loans, partially offset by increases in loans outstanding and changes in the composition of the loan portfolio. The provision was based upon management's review and evaluation of the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, general market and economic conditions, detailed analysis of individual loans for which full collectibility may not be assured, and the existence and net realizable value of the collateral and guarantees securing the loans. Although management used 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 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 our market area in Central New Jersey experiences an adverse economic downturn. Future adjustments to the allowance may be necessary due to economic, operating, regulatory and other conditions beyond the Corporation's control.
THE FOLLOWING TABLE PRESENTS THE LOAN LOSS EXPERIENCE DURING THE PERIODS ENDED
DECEMBER 31,
(IN THOUSANDS) 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES AT
BEGINNING OF YEAR $ 4,798 $ 4,023 $ 3,435 $ 2,962 $ 2,428
---------------------------------------------------------------------------------------------------
LOANS CHARGED-OFF DURING
THE PERIOD
REAL ESTATE -- -- 42 27 --
---------------------------------------------------------------------------------------------------
CONSUMER 42 59 35 119 70
---------------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER -- 9 15 28 52
---------------------------------------------------------------------------------------------------
TOTAL LOANS CHARGED-OFF 42 68 92 174 122
---------------------------------------------------------------------------------------------------
RECOVERIES DURING THE PERIOD
REAL ESTATE 37 -- 7 75 22
---------------------------------------------------------------------------------------------------
CONSUMER 40 36 65 53 63
---------------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER 34 7 8 19 16
---------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 111 43 80 147 101
---------------------------------------------------------------------------------------------------
NET (RECOVERIES)/CHARGE-OFFS (69) 25 12 27 21
---------------------------------------------------------------------------------------------------
PROVISION CHARGED TO EXPENSE 600 800 600 500 555
---------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
AT END OF YEAR $ 5,467 $ 4,798 $ 4,023 $ 3,435 $ 2,962
===================================================================================================
|
THE FOLLOWING TABLE SHOWS THE ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AND THE PERCENTAGE OF EACH LOAN CATEGORY TO TOTAL LOANS AS OF DECEMBER 31,
% OF % OF % OF % OF % OF
LOAN LOAN LOAN LOAN LOAN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
(IN THOUSANDS) 2003 LOANS 2002 LOANS 2001 LOANS 2000 LOANS 1999 LOANS
----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE $3,007 93.0 $2,639 92.5 $2,213 92.3 $1,889 91.7 $1,629 90.9
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CONSUMER 273 2.4 240 2.0 201 2.7 172 4.1 148 4.3
----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER 2,187 4.6 1,919 5.5 1,609 5.0 1,374 4.2 1,185 4.8
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TOTAL $5,467 100.0 $4,798 100.0 $4,023 100.0 $3,435 100.0 $2,962 100.0
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NON-PERFORMING ASSETS:
THE FOLLOWING TABLE PRESENTS FOR THE YEARS INDICATED THE COMPONENTS OF NON-PERFORMING ASSETS:
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2003 2002 2001 2000 1999
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LOANS PAST DUE 90 DAYS OR MORE
AND STILL ACCRUING INTEREST $ 56 $ 203 $ 53 $ 75 $ 205
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NON-ACCRUAL LOANS 159 180 274 325 386
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TOTAL NON-PERFORMING LOANS 215 383 327 400 591
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OTHER REAL ESTATE OWNED -- -- -- -- --
---------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS 215 383 327 400 591
===============================================================================================================
LOAN CHARGE-OFFS 42 68 92 174 122
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LOAN RECOVERIES (111) (43) (80) (147) (101)
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NET LOAN (RECOVERIES)/
CHARGE-OFFS (69) 25 12 27 21
===============================================================================================================
ALLOWANCE FOR LOAN LOSSES $ 5,467 $ 4,798 $ 4,023 $ 3,435 $ 2,962
===============================================================================================================
RATIOS:
---------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS/
TOTAL LOANS 0.05% 0.09% 0.08% 0.12% 0.21%
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TOTAL NON-PERFORMING LOANS/
TOTAL ASSETS 0.02% 0.04% 0.05% 0.07% 0.12%
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TOTAL NON-PERFORMING ASSETS/
TOTAL ASSETS 0.02% 0.04% 0.05% 0.07% 0.12%
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ALLOWANCE FOR LOAN LOSSES/
TOTAL LOANS 1.28% 1.17% 0.96% 1.00% 1.03%
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ALLOWANCE FOR LOAN LOSSES/
TOTAL NON-PERFORMING LOANS 25.4x 12.5x 12.3x 8.6x 5.0x
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Interest income of $11 thousand, $12 thousand and $20 thousand would have been recognized during 2003, 2002, and 2001, respectively, if non-accrual loans had been current in accordance with their original terms.
CONTRACTUAL OBLIGATIONS: The following table shows the significant contractual obligations of the Corporation by expected payment period, as of December 31, 2003. Further discussion of these commitments is included in the Footnotes to the Consolidated Financial Statements noted below:
LESS THAN MORE THAN
(IN THOUSANDS) ONE YEAR 1-3 YEARS 3-5 YEARS 5 YEARS TOTAL
---------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT OBLIGATIONS
(NOTE 8) $ 6,580 $ 3,315 $ 3,533 $16,604 $30,032
OPERATING LEASE OBLIGATIONS
(NOTE 13) 1,750 3,598 3,716 14,685 23,749
PURCHASE OBLIGATIONS 789 703 528 -- 2,020
OTHER LONG-TERM LIABILITIES
REFLECTED ON THE BALANCE SHEET
UNDER GAAP (NOTE 11) (1) 1,194 -- -- -- 1,194
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TOTAL CONTRACTUAL OBLIGATIONS $10,313 $ 7,616 $ 7,777 $31,289 $56,995
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(1) The Corporation does not have an estimate of the actual pension contribution for 2005 and beyond; however the Corporation anticipates that it will be at least the same annual amount as 2004 of $1.2 million.
Long-term debt obligations include borrowings from the Federal Home Loan Bank with defined terms. The chart is based on scheduled repayments of principal.
Operating leases represent obligations entered into by the Corporation for the use of land and premises. The leases generally have escalation terms based upon certain defined indexes. Common area maintenance charges may also apply and are adjusted annually based on the terms of the lease agreements.
Purchase obligations represent legally binding and enforceable agreements to purchase goods and services from third parties and consist of contractual obligations under data processing service agreements, as well as the contract for the construction of a new branch in Oldwick. The Corporation also enters into various routine rental and maintenance contracts for facilities and equipment. These contracts are generally for one year and are not significant to the consolidated financial statements of the Corporation.
Other long-term liabilities include the anticipated 2004 pension contribution.
OFF-BALANCE SHEET ARRANGEMENTS: The following table shows the amounts and expected maturities of significant commitments, as of December 31, 2003. Further discussion of these commitments is included in Note 13 to the Consolidated Financial Statements:
LESS THAN MORE THAN
(IN THOUSANDS) ONE YEAR 1-3 YEARS 3-5 YEARS 5 YEARS TOTAL
------------------------------------------------------------------------------------------------
FINANCIAL LETTERS OF CREDIT $2,429 $ -- $-- $-- $2,429
PERFORMANCE LETTERS OF CREDIT 1,609 -- -- -- 1,609
COMMERCIAL LETTERS OF CREDIT 1,352 116 -- -- 1,468
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TOTAL LETTERS OF CREDIT $5,390 $116 $-- $-- $5,506
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Commitments under standby letters of credit, both financial and performance do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.
OTHER INCOME: Other income before gains on securities was $9.0 million in 2003, an increase of 14 percent over 2002 levels. This increase was primarily due to higher trust fees and additions to cash surrender value of Bank Owned Life Insurance. Trust fees rose $1.1 million or 23 percent over the levels recorded in 2002. This increase is attributable to increased volume of business as the book value of assets under management increased $89.2 million or 9 percent over last year's levels. During the third quarter of 2001 and again in the fourth quarter of 2002, the Corporation invested in Bank Owned Life Insurance (BOLI) to assist in offsetting the rising costs of employee benefits. In 2003, other income of $880 thousand was realized on increased cash surrender value on these policies, as compared to $791 thousand in 2002. For 2003, other noninterest income includes $13 thousand of income related to the sale of loans to the Federal Home Loan Bank. For the year ended December 31, 2003, net securities gains were $1.3 million as compared to $52 thousand recorded in 2002.
THE FOLLOWING TABLE PRESENTS THE MAJOR COMPONENTS OF OTHER INCOME:
(IN THOUSANDS) 2003 2002 2001
-----------------------------------------------------------------------------------------------
TRUST DEPARTMENT FEES $ 5,759 $4,678 $4,013
-----------------------------------------------------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 1,646 1,675 1,410
-----------------------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE 880 791 264
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OTHER FEE INCOME 314 374 345
-----------------------------------------------------------------------------------------------
SAFE DEPOSIT RENTAL FEES 225 219 202
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OTHER NON-INTEREST INCOME 201 199 248
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SECURITIES GAINS 1,284 52 189
-----------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $10,309 $7,988 $6,671
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OTHER EXPENSES: In 2003, other expense totaled $22.8 million, an increase of $1.4 million or 7 percent compared to $21.4 million in 2002. This increase is commensurate with the growth in the overall level of bank and trust business activity.
Salaries and benefits expense, which accounts for the largest portion of other expenses, increased $1.3 million or 11 percent in 2003 as compared to 2002. This increase was directly related to increased officer and staff levels, normal merit increases, promotional raises and higher benefit costs. Within the fringe benefit costs, pension plan expenses rose $360 thousand or 51 percent and health insurance expenses increased $112 thousand or 20 percent above 2002 levels. The full time equivalent number of employees rose to 209 at December 31, 2003 from 205 a year ago.
Premises and equipment expense increased to $4.8 million from $4.2 million in 2002. This increase was primarily due to the Corporation's continued investment in technology, as the Bank converted to a new core processing system in 2003. Higher occupancy expenses were attributable to costs associated with a new branch location and a new operations center scheduled to open in 2004.
Professional and legal fees declined $155 thousand as compared to 2002. In 2002, the Corporation had higher legal and consulting fees to support the expansion in business activity, as well as costs associated with internal training programs and services to enhance audit and financial controls.
The Corporation strives to operate in an efficient manner and control costs as a means of producing increased earnings and enhancing shareholder value.
THE FOLLOWING TABLE PRESENTS THE MAJOR COMPONENTS OF OTHER EXPENSES:
(IN THOUSANDS) 2003 2002 2001
-------------------------------------------------------------------------------
SALARIES AND BENEFITS $13,262 $11,962 $ 9,975
-------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 4,836 4,150 3,598
-------------------------------------------------------------------------------
PROFESSIONAL AND LEGAL FEES 568 723 369
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ADVERTISING 460 670 568
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STATIONERY AND SUPPLIES 521 496 490
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TRUST DEPARTMENT 487 451 368
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TELEPHONE 376 390 339
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POSTAGE 318 332 320
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OTHER EXPENSE 1,958 2,181 1,796
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TOTAL OTHER EXPENSE $22,786 $21,355 $17,823
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INCOME TAXES: Income tax expense for the years ended December 31, 2003 and 2002 was $5.8 million. The effective tax rate for the year ended December 31, 2003 was 32.00 percent compared to 32.72 percent for the year ended December 31, 2002. While taxable income rose from $17.7 million to $18.1 million, income tax expense in 2003 remained stable due to a lower effective tax rate from increased tax-exempt income.
RESULTS OF OPERATIONS 2002 COMPARED TO 2001: Net income for the year ended December 31, 2002 increased 34 percent to $11.9 million compared to $8.9 million earned in 2001. Diluted earnings per share increased 33 percent to $1.59 per share from $1.20 per share earned in 2001. The increase in net income for 2002 was primarily due to higher net interest income, Trust fees and other income, offset in part by higher salaries and benefits, other expenses and income taxes. These results produced a return on average assets of 1.53 percent as compared to 1.42 percent in 2001 and a return on average shareholders' equity of 17.06 percent as compared to 15.03 percent in 2001.
Net interest income (on a tax-equivalent basis) totaled $32.4 million for 2002, an increase of $6.9 million or 27 percent over the $25.5 million recorded in 2001. The increase was primarily due to a $141.9 million or 24 percent increase in average earning assets and lower interest expense, which declined $3.4 million or 22 percent over levels recorded in 2001. This increase was offset in part by lower rates earned on earning assets, which declined to 6.04 percent from 6.89 percent earned in 2001, and higher interest-bearing liabilities, which rose $125.0 million on average. The growth of net interest income was also due to higher average noninterest-bearing demand deposits, which increased $12.6 million or 12 percent during 2002 as compared to 2001. The net interest margin in 2002 increased to 4.40 percent from 4.28 percent in 2001.
Other income before gains and losses on securities was $7.9 million in 2002, an increase of 22 percent over 2001 levels. This increase was primarily due to higher trust fees, additions to cash surrender value of Bank Owned Life Insurance, and service charges on deposit accounts. Trust fees rose $665 thousand or 17 percent over the levels recorded in 2001. This increase is attributable to increased volume of business as the book value of assets under management increased $233.3 million or 30 percent over 2001 levels.
During the third quarter of 2001, the Corporation invested $12 million in Bank Owned Life Insurance (BOLI) to assist in offsetting the rising costs of employee benefits, and realized other income of $791 thousand on increased cash surrender value on these policies in 2002, as compared to $264 thousand in 2001. Additional investments of $2.8 million were made in the fourth quarter of 2002. For the year ended December 31, 2002, net securities gains were $52 thousand as compared to $189 thousand recorded in 2001.
Other expense totaled $21.4 million in 2002, an increase of $3.5 million or 20 percent compared to $17.8 million in 2001. This increase is commensurate with the level of growth in the Bank and PGB Trust and Investments and the addition of two branch locations.
Salaries and benefits expense, the largest component of other expense, increased $2.0 million, or 20 percent, to $12.0 million from $10.0 million in 2001. This increase was related to increased officer and staff levels, normal merit increases, promotional raises and higher benefit costs. The full-time equivalent number of employees rose to 205 at December 31, 2002 from 180 at December 31, 2001.
Premises and equipment expense increased to $4.2 million from $3.6 million in 2001. This increase was primarily due to higher expenses related to the new branches in Clinton and Warren and higher overall operating cost of facilities.
Professional fees also increased in 2002, to $723 thousand from $369 thousand, an increase of $354 thousand. This increase is attributable to higher legal and consulting fees to support the expansion in business activity, as well as costs associated with internal training programs and services to enhance audit and financial controls.
CAPITAL RESOURCES: The solid capital base of the Corporation provides the ability for future growth and financial strength. Maintaining a strong capital position supports the Corporation's goal of providing shareholders an attractive and stable long-term return on investment. At $85.1 million, total shareholders' equity grew 10 percent or $7.9 million as compared with $77.2 million at December 31, 2002. At December 31, 2003, unrealized gains on securities, net of taxes, were $2.7 million as compared to unrealized gains on securities, net of taxes, of $4.8 million at December 31, 2002. Federal regulations require banks to meet target Tier 1 and total capital ratios of 4 percent and 8 percent, respectively. At 20.38 percent and 21.74 percent, the Corporation's Tier 1 and total capital ratios are well in excess of regulatory minimums. The Corporation's capital leverage ratio was 8.91 percent at December 31, 2003.
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 feels the Corporation's liquidity position is sufficient to meet future needs. Cash and cash equivalents, including federal funds sold, averaged $25.9 million in 2003. In addition, the Corporation has $356.0 million in securities designated as available for sale. These securities can be sold in response to liquidity concerns. As of December 31, 2003, investment securities and securities available for sale maturing within one year amounted to $16.8 million and cash and cash equivalents totaled $22.7 million.
Another source of liquidity is borrowing capacity. The Corporation has a variety of sources of short-term liquidity available, including short and long-term borrowings from the Federal Home Loan Bank of New York, short-term borrowings from the Federal Reserve Bank Discount Window, and loan participation or sales of loans. The Corporation also generates liquidity from the regular principal payments made on its loan portfolio and on its mortgage-backed security portfolio.
INTEREST RATE SENSITIVITY: Interest rate sensitivity is a measure of the relationship between interest-earning assets and supporting funds, which are susceptible to changes in interest rates during comparable time periods. Interest rate movements on deposits have made managing the Corporation's interest rate sensitivity increasingly more important as a means of managing net interest income. The Corporation's Asset/Liability Committee is responsible for managing the exposure to changes in market interest rates. The "sensitivity" gap quantifies the repricing mismatch between assets and supporting funds over various time intervals. The cumulative gap position as a percentage of total rate-sensitive assets provides one relative measure of the Corporation's interest rate exposure.
The Corporation's ratio of rate-sensitive assets to rate-sensitive liabilities was approximately .71 on December 31, 2003 for the next twelve months subject to certain assumptions explained in the following paragraph. Since this ratio is less than 1.00, the Corporation has a "negative gap" position, which may cause its assets to reprice more slowly than its deposit liabilities. In a declining interest rate environment, interest costs may be expected to fall faster than the interest received on earning assets, thus increasing the net interest spread. If interest rates increase, a negative gap means that the interest received on earning assets may be expected to increase more slowly than the interest paid on the Corporation's liabilities, therefore decreasing the net interest spread.
For purposes of calculating the gap position, 25 percent of noninterest-earning demand deposits, interest-bearing checking accounts and savings deposits are included in the 0-3 month category. The remainder is decayed at 10 percent per year with the rest included in the greater than five years category. Included in the 0-3 month category are 50 percent of the money market accounts, which are then decayed at 10 percent per year with the remainder included in the greater than five years category. The Corporation recognizes that certain of these deposits are more stable with an effective maturity greater than their repricing frequency. Assets and liabilities are included based on their maturities and prepayment assumptions or period to first repricing, subject to the foregoing assumptions.
THE TABLE BELOW PRESENTS THE MATURITY AND REPRICING RELATIONSHIPS BETWEEN INTEREST-EARNING ASSETS AND INTEREST-BEARING DEPOSITS AS OF DECEMBER 31, 2003 (IN THOUSANDS):
REPRICING OR 0-3 3-12 1-5 OVER 5
MATURITY DATE MONTHS MONTHS YEARS YEARS TOTAL
-------------------------------------------------------------------------------------------------------------
ASSETS
SECURITIES $ 35,906 $ 79,377 $269,474 $ 68,942 $453,699
-------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 5,461 -- -- -- 5,461
-------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 30,949 -- -- -- 30,949
-------------------------------------------------------------------------------------------------------------
LOANS (1) 40,653 76,458 209,889 99,842 426,842
-------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
ASSETS $112,969 $155,835 $479,363 $168,784 $916,951
=============================================================================================================
DEPOSITS
CERTIFICATES OF DEPOSIT $ 43,482 $113,889 $ 65,503 $ -- $222,875
-------------------------------------------------------------------------------------------------------------
SAVINGS 25,363 -- 62,010 14,078 101,451
-------------------------------------------------------------------------------------------------------------
MONEY MARKETS 112,903 -- 90,605 22,355 225,863
-------------------------------------------------------------------------------------------------------------
CHECKING 35,099 -- 45,909 59,385 140,393
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BORROWED FUNDS 2,391 4,189 6,848 16,604 30,032
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NONINTEREST-BEARING
DEMAND DEPOSITS 38,780 -- 50,856 65,554 155,189
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TOTAL INTEREST-SENSITIVE
LIABILITIES $258,018 $118,078 $321,731 $177,976 $875,803
=============================================================================================================
ASSETS/LIABILITIES 0.44 1.32 1.49 0.95 1.05
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ASSETS/LIABILITIES (CUMULATIVE) 0.44 0.71 1.07 1.05
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(1) LOAN BALANCES DO NOT INCLUDE NONACCRUAL LOANS.
MARKET RISK SENSITIVE INSTRUMENTS: A derivative financial instrument includes futures, forwards, interest rate swaps, option contracts and other financial instruments with similar characteristics. The Corporation currently does not enter into futures, forwards, swaps or options. However, the Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of the customers of the Corporation. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of condition. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require collateral from the borrower if deemed necessary by the Corporation. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party up to a stipulated amount and with specified terms and conditions.
Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Corporation until the instrument is exercised.
The Corporation's exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the statement of condition to minimize the inherent risk while at the same time maximize income. Management realizes certain risks are inherent and that the goal is to identify and minimize the risks. Tools used by management include the standard GAP report and interest rate shock simulation report. The Corporation has no market risk sensitive instruments held for trading purposes. Management believes the Corporation's market risk is reasonable at this time.
THE FOLLOWING TABLE PRESENTS THE SCHEDULED MATURITY OF MARKET RISK SENSITIVE INSTRUMENTS AS OF DECEMBER 31, 2003 (IN THOUSANDS):
AVERAGE ESTIMATED
INTEREST WITHIN 1-5 OVER FAIR
MATURING IN: RATE 1 YEAR YEARS 5 YEARS TOTAL VALUE
-----------------------------------------------------------------------------------------------------------------------
ASSETS
SECURITIES 4.05% $ 16,791 $155,958 $280,950 $453,699 $455,513
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FEDERAL FUNDS SOLD 1.13% 5,461 -- -- 5,461 5,461
-----------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 0.86% 30,949 -- -- 30,949 30,949
-----------------------------------------------------------------------------------------------------------------------
LOANS (1) 6.09% 73,188 108,771 244,883 426,842 428,152
-----------------------------------------------------------------------------------------------------------------------
TOTAL $126,389 $264,729 $525,833 $916,951 $920,075
=======================================================================================================================
LIABILITIES
SAVINGS, CHECKING
AND MONEY MARKETS 0.80% $467,707 $ -- $ -- $467,707 $467,707
-----------------------------------------------------------------------------------------------------------------------
CD'S 2.57% 157,372 65,503 -- 222,875 223,632
-----------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS 2.51% 3,000 4,622 22,410 30,032 29,335
-----------------------------------------------------------------------------------------------------------------------
TOTAL $628,079 $ 70,125 $ 22,410 $720,614 $720,674
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(1) LOAN BALANCES DO NOT INCLUDE NONACCRUAL LOANS.
EFFECTS OF INFLATION AND CHANGING PRICES: The financial statements and related financial data presented herein have been prepared in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than do general levels of inflation. Interest rates do not necessarily move in the same magnitude as the prices of goods and services.
The Corporation believes residential real estate values have stabilized, however, if real estate prices in the Corporation's trade area decrease, the values of real estate collateralizing the Corporation's loans and real estate held by the Corporation as other real estate owned could also be adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS: In December 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities," which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," which was issued in January 2003. The Corporation will be required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The initial adoption of FIN 46 and FIN 46R is not expected to have a significant impact on the consolidated financial statements of the Corporation.
FASB Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," was issued in May 2003. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement
also includes required disclosures for financial instruments within its scope. For the Corporation, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Corporation on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Corporation currently does not have any financial instruments that are within the scope of this Statement.
[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
TRUST ASSETS BOOK VALUE
IN MILLIONS
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," was issued on April 30, 2003. The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement was effective for contracts entered into or modified after June 30, 2003. The provisions of SFAS No. 149 which relate to the commitments to originate or purchase mortgages that the Corporation intends to hold for sale or forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 did not have an impact on the Corporation's consolidated financial statements.
PGB TRUST AND INVESTMENTS: PGB Trust and Investments, a division of the Bank, continues to be an extremely important part of Peapack-Gladstone Financial Corporation. Since its inception in 1972, it has served in the roles of executor and trustee while providing investment management, custodial, tax, retirement, and financial services to its growing client base.
The book value of assets under management in PGB Trust and Investments increased from $1.0 billion at December 31, 2002, to $1.1 billion at December 31, 2003, an increase of 9 percent. The corresponding market value at December 31, 2003 was in excess of $1.4 billion. Fee income generated by PGB Trust and Investments was $5.8 million, $4.7 million and $4.0 million in 2003, 2002 and 2001, respectively.
FORWARD LOOKING STATEMENTS: The foregoing 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 results to differ materially from such forward-looking statements include, but are not limited to, an unexpected decline in the direction of the economy in New Jersey, an unexpected decline or no increase in interest rates, continued unexpected loan prepayment volume, a decline in levels of loan quality and origination volume and a decline in the volume of increase in trust assets or deposits. Peapack-Gladstone Financial Corporation assumes no obligation for updating any such forward-looking statements at any time.
SELECTED CONSOLIDATED FINANCIAL DATA:
THE FOLLOWING IS SELECTED CONSOLIDATED FINANCIAL DATA FOR THE CORPORATION AND ITS SUBSIDIARIES FOR THE YEARS INDICATED. THIS INFORMATION IS DERIVED FROM THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
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YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE DATA) 2003 2002 2001 2000 1999
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SUMMARY EARNINGS:
INTEREST INCOME $ 41,426 $ 43,947 $ 40,523 $ 35,567 $ 31,587
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INTEREST EXPENSE 10,262 12,055 15,486 12,509 10,341
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NET INTEREST INCOME 31,164 31,892 25,037 23,058 21,246
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PROVISION FOR LOAN LOSSES 600 800 600 500 555
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 30,564 31,092 24,437 22,558 20,691
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OTHER INCOME, EXCLUSIVE
OF SECURITIES GAINS/(LOSSES) 9,025 7,936 6,482 5,813 5,279
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OTHER EXPENSES 22,786 21,355 17,823 16,520 15,215
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SECURITIES GAINS/(LOSSES) 1,284 52 189 (200) 16
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INCOME BEFORE INCOME TAX EXPENSE 18,087 17,725 13,285 11,651 10,771
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INCOME TAX EXPENSE 5,787 5,800 4,361 3,943 3,582
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NET INCOME $ 12,300 $ 11,925 $ 8,924 $ 7,708 $ 7,189
================================================================================================================================
PER SHARE DATA: (REFLECTS A 10% STOCK DIVIDEND IN 2003 EXCEPT FOR CASH DIVIDENDS PER SHARE.)
EARNINGS PER SHARE-BASIC $ 1.67 $ 1.62 $ 1.22 $ 1.05 $ 0.98
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EARNINGS PER SHARE-DILUTED 1.62 1.59 1.20 1.03 0.95
--------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED 0.38 0.33 0.29 0.27 0.25
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BOOK VALUE END-OF-PERIOD 11.47 10.47 8.62 7.55 6.53
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WEIGHTED AVERAGE
SHARES OUTSTANDING 7,384,030 7,348,262 7,321,239 7,304,457 7,289,724
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COMMON STOCK EQUIVALENTS (DILUTIVE) 210,057 150,412 123,098 172,856 209,204
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[THE FOLLOWING TABLE WAS DEPICTED AS A BAR CHART IN THE PRINTED MATERIAL.]
DIVIDENDS PER SHARE
IN DOLLARS
BOOK VALUE PER SHARE
IN DOLLARS
$6.53 $7.55 $8.62 $10.47 $11.47
-----------------------------------------------------------
'99 '00 '01 '02 '03
22
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BALANCE SHEET DATA (AT PERIOD END): 2003 2002 2001 2000 1999
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TOTAL ASSETS $ 968,126 $ 859,808 $ 704,773 $ 567,032 $ 497,535
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INVESTMENT SECURITIES 97,701 168,066 48,722 69,575 61,672
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SECURITIES AVAILABLE FOR SALE 355,998 212,259 172,620 83,950 101,324
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LOANS 427,001 409,760 416,933 344,299 287,933
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ALLOWANCE FOR LOAN LOSSES 5,467 4,798 4,023 3,435 2,962
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TOTAL DEPOSITS 845,771 769,688 630,903 508,879 444,088
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TOTAL SHAREHOLDERS' EQUITY 85,054 77,158 63,085 55,156 47,575
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TRUST ASSETS (BOOK VALUE) 1,089,447 1,000,272 766,928 709,732 651,469
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CASH DIVIDENDS DECLARED 2,760 2,207 1,846 1,592 1,292
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SELECTED PERFORMANCE RATIOS:
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RETURN ON AVERAGE TOTAL ASSETS 1.34% 1.53% 1.42% 1.47% 1.48%
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RETURN ON AVERAGE TOTAL
SHAREHOLDERS' EQUITY 15.14 17.06 15.03 15.30 15.67
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DIVIDEND PAYOUT RATIO 22.44 18.51 20.69 20.65 17.97
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AVERAGE TOTAL SHAREHOLDERS'
EQUITY TO AVERAGE ASSETS 8.84 8.95 9.44 9.63 8.86
----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES TO
AVERAGE ASSETS 2.48 2.74 2.83 3.16 3.13
----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME TO
AVERAGE ASSETS 1.12 1.02 1.06 1.07 1.09
----------------------------------------------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS (AT PERIOD END):
----------------------------------------------------------------------------------------------------------------------------------
NON-ACCRUAL LOANS TO TOTAL LOANS 0.04% 0.04% 0.07% 0.09% 0.13%
----------------------------------------------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS TO
TOTAL ASSETS 0.02 0.04 0.05 0.07 0.12
----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO
NON-PERFORMING LOANS 25.4x 12.5x 12.3x 8.6x 5.0x
----------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO
TOTAL LOANS 1.28% 1.17% 0.96% 1.00% 1.03%
----------------------------------------------------------------------------------------------------------------------------------
NET (RECOVERIES)/CHARGE-OFFS
TO AVERAGE LOANS PLUS
OTHER REAL ESTATE OWNED (0.02) 0.01 0.01 0.01 0.01
----------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RATIOS:
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE LOANS TO AVERAGE DEPOSITS 51.23% 61.09% 67.85% 67.99% 59.44%
----------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY TO
TOTAL ASSETS 8.79 8.97 8.95 9.73 9.56
----------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL TO RISK WEIGHTED
ASSETS 20.38 19.51 18.76 20.80 26.55
----------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL TO RISK WEIGHTED
ASSETS 21.74 20.81 19.98 22.10 28.16
----------------------------------------------------------------------------------------------------------------------------------
TIER 1 LEVERAGE RATIO 8.91 9.19 9.84 10.49 10.02
----------------------------------------------------------------------------------------------------------------------------------
|
THE FOLLOWING TABLE SETS FORTH CERTAIN UNAUDITED QUARTERLY FINANCIAL DATA FOR THE PERIODS INDICATED (PER SHARE DATA HAVE BEEN RESTATED FOR THE EFFECT OF THE 10 PERCENT STOCK DIVIDEND ISSUED IN 2003.):
SELECTED 2003 QUARTERLY DATA:
(IN THOUSANDS
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------------------------------------------------------------------------------------------------
INTEREST INCOME $ 10,602 $ 10,428 $ 9,947 $ 10,447
---------------------------------------------------------------------------------------------------
INTEREST EXPENSE 2,684 2,666 2,598 2,314
---------------------------------------------------------------------------------------------------
NET INTEREST INCOME 7,918 7,762 7,349 8,133
---------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 150 150 150 150
---------------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUDING
SECURITIES GAINS 2,284 2,457 2,183 2,101
---------------------------------------------------------------------------------------------------
SECURITIES GAINS 273 554 400 57
---------------------------------------------------------------------------------------------------
OTHER EXPENSE 5,483 5,748 5,590 5,964
---------------------------------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAX EXPENSE 4,842 4,875 4,192 4,177
---------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 1,582 1,592 1,308 1,304
---------------------------------------------------------------------------------------------------
NET INCOME $ 3,260 $ 3,283 $ 2,884 $ 2,873
===================================================================================================
EARNINGS PER SHARE-BASIC $ 0.44 $ 0.44 $ 0.39 $ 0.39
---------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 0.43 0.43 0.38 0.38
---------------------------------------------------------------------------------------------------
SELECTED 2002 QUARTERLY DATA:
(IN THOUSANDS
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------------------------------------------------------------------------------------------------
INTEREST INCOME $ 10,690 $ 11,174 $ 11,255 $ 10,828
---------------------------------------------------------------------------------------------------
INTEREST EXPENSE 2,981 3,022 3,059 2,993
---------------------------------------------------------------------------------------------------
NET INTEREST INCOME 7,709 8,152 8,196 7,835
---------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 199 201 199 201
---------------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUDING
SECURITIES GAINS/(LOSSES) 1,950 2,075 1,993 1,918
---------------------------------------------------------------------------------------------------
SECURITIES GAINS/(LOSSES) 17 8 (7) 34
---------------------------------------------------------------------------------------------------
OTHER EXPENSE 5,132 5,335 5,390 5,498
---------------------------------------------------------------------------------------------------
NET INCOME BEFORE INCOME TAX EXPENSE 4,345 4,699 4,593 4,088
---------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 1,384 1,546 1,530 1,340
---------------------------------------------------------------------------------------------------
NET INCOME $ 2,961 $ 3,153 $ 3,063 $ 2,748
===================================================================================================
EARNINGS PER SHARE-BASIC $ 0.40 $ 0.43 $ 0.42 $ 0.37
---------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED 0.40 0.42 0.40 0.36
---------------------------------------------------------------------------------------------------
|
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
PEAPACK-GLADSTONE FINANCIAL CORPORATION
We have audited the accompanying consolidated statements of condition of Peapack-Gladstone Financial Corporation and subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Peapack-Gladstone Financial Corporation and subsidiary as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Short Hills, New Jersey
February 6, 2004
|
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
(IN THOUSANDS) 2003 2002
------------------------------------------------------------------------------------------------
ASSETS
CASH AND DUE FROM BANKS $ 17,234 $ 17,920
------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 5,461 20,400
------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 22,695 38,320
------------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 30,949 549
------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES (APPROXIMATE MARKET VALUE
$99,515 IN 2003 AND $171,290 IN 2002) 97,701 168,066
------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 355,998 212,259
------------------------------------------------------------------------------------------------
LOANS 427,001 409,760
------------------------------------------------------------------------------------------------
LESS: ALLOWANCE FOR LOAN LOSSES 5,467 4,798
------------------------------------------------------------------------------------------------
NET LOANS 421,534 404,962
------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 15,132 14,371
------------------------------------------------------------------------------------------------
ACCRUED INTEREST RECEIVABLE 4,295 4,606
------------------------------------------------------------------------------------------------
CASH SURRENDER VALUE OF LIFE INSURANCE 16,548 15,747
------------------------------------------------------------------------------------------------
OTHER ASSETS 3,274 928
------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 968,126 $ 859,808
================================================================================================
LIABILITIES
DEPOSITS:
NONINTEREST-BEARING DEMAND DEPOSITS $ 155,189 $ 126,107
------------------------------------------------------------------------------------------------
INTEREST-BEARING DEPOSITS:
CHECKING 140,393 136,956
------------------------------------------------------------------------------------------------
SAVINGS 101,451 94,142
------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS 225,863 173,973
------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT OVER $100,000 60,373 59,607
------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT LESS THAN $100,000 162,502 178,903
------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 845,771 769,688
------------------------------------------------------------------------------------------------
LONG-TERM DEBT 30,032 5,000
------------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 7,269 7,962
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 883,072 782,650
------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
COMMON STOCK (NO PAR VALUE; STATED VALUE $0.83
PER SHARE; AUTHORIZED 20,000,000 SHARES;
ISSUED SHARES, 7,535,160 AT DECEMBER 31, 2003 AND 7,480,045
AT DECEMBER 31, 2002; OUTSTANDING SHARES, 7,416,031 AT
DECEMBER 31, 2003 AND 7,372,775 AT DECEMBER 31, 2002) 6,274 5,661
------------------------------------------------------------------------------------------------
SURPLUS 61,959 38,385
------------------------------------------------------------------------------------------------
TREASURY STOCK AT COST, 119,129 SHARES IN 2003
AND 107,270 SHARES IN 2002 (2,391) (2,020)
------------------------------------------------------------------------------------------------
RETAINED EARNINGS 16,557 30,290
------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF INCOME TAX 2,655 4,842
------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 85,054 77,158
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 968,126 $ 859,808
================================================================================================
|
See Accompanying Notes To Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE DATA) 2003 2002 2001
--------------------------------------------------------------------------------------------
INTEREST INCOME
INTEREST AND FEES ON LOANS $25,135 $29,248 $28,476
--------------------------------------------------------------------------------------------
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 3,889 4,165 3,190
--------------------------------------------------------------------------------------------
TAX-EXEMPT 590 383 523
--------------------------------------------------------------------------------------------
INTEREST AND DIVIDENDS ON SECURITIES
AVAILABLE FOR SALE:
TAXABLE 11,372 9,529 6,498
--------------------------------------------------------------------------------------------
TAX-EXEMPT 362 349 81
--------------------------------------------------------------------------------------------
INTEREST ON FEDERAL FUNDS SOLD 70 135 1,143
--------------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 8 138 612
--------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 41,426 43,947 40,523
--------------------------------------------------------------------------------------------
INTEREST EXPENSE
INTEREST ON CHECKING ACCOUNTS 616 718 849
--------------------------------------------------------------------------------------------
INTEREST ON SAVINGS AND MONEY MARKET ACCOUNTS 2,763 3,550 4,631
--------------------------------------------------------------------------------------------
INTEREST ON CERTIFICATES OF DEPOSIT OVER $100,000 1,539 2,101 2,518
--------------------------------------------------------------------------------------------
INTEREST ON OTHER TIME DEPOSITS 4,458 5,457 7,431
--------------------------------------------------------------------------------------------
INTEREST ON BORROWINGS 156 52 17
--------------------------------------------------------------------------------------------
INTEREST ON LONG-TERM DEBT 730 177 40
--------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 10,262 12,055 15,486
--------------------------------------------------------------------------------------------
NET INTEREST INCOME 31,164 31,892 25,037
--------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 600 800 600
--------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 30,564 31,092 24,437
--------------------------------------------------------------------------------------------
OTHER INCOME
TRUST FEES 5,759 4,678 4,013
--------------------------------------------------------------------------------------------
SERVICE CHARGES AND FEES 2,185 2,268 1,957
--------------------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE 880 791 264
--------------------------------------------------------------------------------------------
OTHER INCOME 201 199 248
--------------------------------------------------------------------------------------------
SECURITIES GAINS 1,284 52 189
--------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 10,309 7,988 6,671
--------------------------------------------------------------------------------------------
OTHER EXPENSES
SALARIES AND EMPLOYEE BENEFITS 13,262 11,962 9,975
--------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 4,836 4,150 3,598
--------------------------------------------------------------------------------------------
OTHER EXPENSES 4,688 5,243 4,250
--------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 22,786 21,355 17,823
--------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 18,087 17,725 13,285
INCOME TAX EXPENSE 5,787 5,800 4,361
--------------------------------------------------------------------------------------------
NET INCOME $12,300 $11,925 $ 8,924
============================================================================================
EARNINGS PER SHARE
BASIC $ 1.67 $ 1.62 $ 1.22
--------------------------------------------------------------------------------------------
DILUTED 1.62 1.59 1.20
============================================================================================
|
See Accompanying Notes To Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
(IN THOUSANDS, EXCEPT COMMON TREASURY RETAINED COMPREHENSIVE
PER SHARE DATA) STOCK SURPLUS STOCK EARNINGS INCOME/(LOSS) TOTAL
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $ 5,064 $ 25,104 $ (956) $26,420 $ (476) $ 55,156
------------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2001 8,924 8,924
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $762) 1,256
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $64) 125
--------
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $698) 1,131 1,131
--------
TOTAL COMPREHENSIVE INCOME 10,055
DIVIDENDS DECLARED ($0.29 PER SHARE) (1,846) (1,846)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 34 318 352
COMMON STOCK DIVIDEND
(TEN PERCENT) 510 12,416 (12,926) --
TREASURY STOCK TRANSACTIONS (632) (632)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 $ 5,608 $ 37,838 $(1,588) $20,572 $ 655 $ 63,085
------------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2002 11,925 11,925
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX
OF $2,775) 4,221
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $18) 34
--------
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $2,757) 4,187 4,187
--------
TOTAL COMPREHENSIVE INCOME 16,112
DIVIDENDS DECLARED ($0.33 PER SHARE) (2,207) (2,207)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 53 547 600
TREASURY STOCK TRANSACTIONS (432) (432)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 $ 5,661 $ 38,385 $(2,020) $30,290 $ 4,842 $ 77,158
------------------------------------------------------------------------------------------------------------------------------------
|
ACCUMULATED
OTHER
(IN THOUSANDS, EXCEPT COMMON TREASURY RETAINED COMPREHENSIVE
PER SHARE DATA) STOCK SURPLUS STOCK EARNINGS INCOME/(LOSS) TOTAL
--------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2003 12,300 12,300
UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX
BENEFIT OF $1,081) (1,352)
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $449) 835
------
NET UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX
BENEFIT OF $1,530) (2,187) (2,187)
--------
TOTAL COMPREHENSIVE INCOME 10,113
DIVIDENDS DECLARED ($0.38 PER SHARE) (2,760) (2,760)
COMMON STOCK OPTIONS
EXERCISED AND RELATED
TAX BENEFITS 45 869 914
COMMON STOCK DIVIDEND
(TEN PERCENT) 568 22,705 (23,273) --
TREASURY STOCK TRANSACTIONS (371) (371)
--------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003 $ 6,274 $ 61,959 $ (2,391) $16,557 $2,655 $ 85,054
================================================================================================================================
|
See Accompanying Notes To Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2003 2002 2001
-----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
NET INCOME $ 12,300 $ 11,925 $ 8,924
-----------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 1,448 1,348 1,204
-----------------------------------------------------------------------------------------------------
AMORTIZATION OF PREMIUM AND ACCRETION
OF DISCOUNT ON SECURITIES, NET 2,761 1,346 247
-----------------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 600 800 600
-----------------------------------------------------------------------------------------------------
DEFERRED TAXES (1,221) 3,560 (313)
-----------------------------------------------------------------------------------------------------
GAIN ON SALE OF SECURITIES (1,284) (52) (189)
-----------------------------------------------------------------------------------------------------
GAIN ON LOANS SOLD (13) -- --
-----------------------------------------------------------------------------------------------------
TAX BENEFIT ON STOCK OPTION EXERCISE 379 -- --
-----------------------------------------------------------------------------------------------------
INCREASE IN CASH SURRENDER VALUE OF LIFE INSURANCE (801) (728) (244)
-----------------------------------------------------------------------------------------------------
DECREASE/(INCREASE) IN ACCRUED INTEREST RECEIVABLE 311 591 (1,033)
-----------------------------------------------------------------------------------------------------
INCREASE IN OTHER ASSETS (1,125) (499) (1,813)
-----------------------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN ACCRUED EXPENSES AND OTHER
-----------------------------------------------------------------------------------------------------
LIABILITIES 626 (684) 2,727
-----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,981 17,607 10,110
-----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 95,655 29,111 8,487
-----------------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 32,110 19,614 11,943
-----------------------------------------------------------------------------------------------------
PROCEEDS FROM CALLS OF INVESTMENT SECURITIES 9,170 4,170 12,831
-----------------------------------------------------------------------------------------------------
PROCEEDS FROM SALES AND CALLS OF SECURITIES
AVAILABLE FOR SALE 177,391 60,838 68,796
-----------------------------------------------------------------------------------------------------
PURCHASE OF INVESTMENT SECURITIES (36,073) (153,382) (1,494)
-----------------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (356,821) (113,684) (166,609)
-----------------------------------------------------------------------------------------------------
NET (INCREASE)/DECREASE IN SHORT-TERM
INVESTMENTS (30,400) 15,085 (14,724)
-----------------------------------------------------------------------------------------------------
PROCEEDS FROM SALES OF LOANS 1,648 -- --
-----------------------------------------------------------------------------------------------------
NET (INCREASE)/DECREASE IN LOANS (18,807) 7,148 (72,646)
-----------------------------------------------------------------------------------------------------
PURCHASES OF PREMISES AND EQUIPMENT` (2,209) (2,245) (3,017)
-----------------------------------------------------------------------------------------------------
PURCHASE OF LIFE INSURANCE -- (2,775) (12,000)
-----------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (128,336) (136,120) (168,433)
-----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 76,083 138,785 122,024
-----------------------------------------------------------------------------------------------------
PROCEEDS FROM LONG-TERM DEBT 26,000 -- 5,000
-----------------------------------------------------------------------------------------------------
REPAYMENTS OF LONG-TERM DEBT (968) -- --
-----------------------------------------------------------------------------------------------------
DIVIDENDS PAID (2,549) (2,103) (1,785)
-----------------------------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 535 600 352
-----------------------------------------------------------------------------------------------------
PURCHASE OF TREASURY STOCK (371) (432) (632)
-----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 98,730 136,850 124,959
-----------------------------------------------------------------------------------------------------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (15,625) 18,337 (33,364)
-----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 38,320 19,983 53,347
-----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,695 $ 38,320 $ 19,983
=====================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
CASH PAID DURING THE YEAR FOR:
INTEREST $ 10,902 $ 12,611 $ 15,725
-----------------------------------------------------------------------------------------------------
INCOME TAXES 5,918 6,378 2,197
-----------------------------------------------------------------------------------------------------
TRANSFER OF SECURITIES FROM HELD TO
MATURITY AVAILABLE FOR SALE -- -- 1,004
-----------------------------------------------------------------------------------------------------
|
See Accompanying Notes To Consolidated Financial Statements
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION: The consolidated financial statements of the Corporation are prepared on the accrual basis and include the accounts of the Corporation and its wholly owned subsidiary, Peapack-Gladstone Bank. The consolidated statements also include the Bank's wholly owned subsidiaries, Peapack-Gladstone Investment Company and it's wholly owned subsidiary, Peapack-Gladstone Mortgage Group, Inc. While the following footnotes include the collective results of Peapack-Gladstone Financial Corporation and Peapack-Gladstone Bank, these footnotes primarily reflect the Bank's and its subsidiaries' activities. All significant intercompany balances and transactions have been eliminated from the accompanying consolidated financial statements.
BUSINESS: Peapack-Gladstone Bank, the subsidiary of the Corporation, provides a full range of banking services to individual and corporate customers through its branch operations in central New Jersey. The Bank is subject to competition from other financial institutions, is regulated by certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION: The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statement of condition and revenues and expenses for that period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES: Investment securities are comprised of debt securities that the Corporation has the positive intent and ability to hold to maturity. Such securities are stated at cost, adjusted for amortization of premium and accretion of discount over the term of the investments.
SECURITIES AVAILABLE FOR SALE: Debt securities that cannot be categorized as investment securities are classified as securities available for sale. Such securities include debt securities to be held for indefinite periods of time and not intended to be held to maturity, as well as marketable equity securities. Securities held for indefinite periods of time include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk and other factors related to interest rate and resultant prepayment risk changes. Securities available for sale are carried at fair value and unrealized holding gains and losses (net of related tax effects) on such securities are excluded from earnings, but are included in Shareholders' Equity as Accumulated Other Comprehensive Income. Upon realization, such gains or losses are included in earnings using the specific identification method.
LOANS: Loans are stated at the principal amount outstanding. Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the loan as an adjustment to the loan's yield. The accrual of income on loans, including impaired loans, is discontinued if certain factors indicate reasonable doubt as to the timely collectibility of such
interest, generally when the loan becomes over 90 days delinquent. A non-accrual loan is not returned to an accrual status until factors indicating doubtful collection no longer exist. The majority of the loans are secured by real estate located within the Corporation's market area in central New Jersey.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a level considered adequate to provide for probable loan losses inherent in the portfolio. The allowance is based on management's evaluation of the loan portfolio considering economic conditions, the volume and nature of the loan portfolio, historical loan loss experience, and individual credit situations. The allowance is increased by provisions charged to expense and reduced by net charge-offs.
Management believes that the allowance for loan losses is adequate. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examinations.
Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of impairment is measured based on the fair value of the collateral. Impairment losses are included in the allowance for loan losses through provisions charged to operations.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less accumulated depreciation. Depreciation charges are computed using the straight-line method. Premises and equipment are depreciated over the estimated useful lives of the assets. Expenditures for maintenance and repairs are expensed as incurred. The cost of major renewals and improvements are capitalized. Gains or losses realized on routine dispositions are recorded as other income or other expense.
OTHER REAL ESTATE OWNED: Other real estate owned is carried at fair value minus estimated costs to sell, based on an independent appraisal. When a property is acquired, the excess of the loan balance over the estimated fair value is charged to the allowance for loan losses. Any subsequent write-downs that may be required to the carrying value of the properties or losses on the sale of properties are charged to the valuation allowance on other real estate owned or to other expense.
INCOME TAXES: The Corporation files a consolidated Federal income tax return. Separate State income tax returns are filed for each subsidiary based on current laws and regulations.
The Corporation recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on the enacted tax rates applicable to taxable income for the years in which these temporary differences are expected to be recovered or settled. Such tax assets and liabilities are adjusted for the effect of a change in tax rates in the period of enactment.
STOCK OPTION PLANS: At December 31, 2003, the Corporation had stock-based employee and non-employee director compensation plans, which are described more fully in Note 12. The Corporation accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant.
The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:
(IN THOUSANDS EXCEPT PER SHARE DATA) 2003 2002 2001
------------------------------------------------------------------------------------------------------
NET INCOME:
AS REPORTED $ 12,300 $ 11,925 $ 8,924
------------------------------------------------------------------------------------------------------
LESS: TOTAL STOCK-BASED EMPLOYEE COMPENSATION
EXPENSE DETERMINED UNDER THE FAIR VALUE BASED
METHOD ON ALL STOCK OPTIONS, NET OF RELATED
TAX EFFECTS 193 248 294
------------------------------------------------------------------------------------------------------
PRO FORMA $ 12,107 $ 11,677 $ 8,630
======================================================================================================
EARNINGS PER SHARE:
AS REPORTED
BASIC $ 1.67 $ 1.62 $ 1.22
------------------------------------------------------------------------------------------------------
DILUTED 1.62 1.59 1.20
------------------------------------------------------------------------------------------------------
PRO FORMA
BASIC $ 1.64 $ 1.59 $ 1.18
------------------------------------------------------------------------------------------------------
DILUTED 1.59 1.56 1.16
------------------------------------------------------------------------------------------------------
|
EARNINGS PER SHARE: The numerator of both the Basic and Diluted EPS is equivalent to net income. The weighted average number of shares outstanding used in the denominator for Diluted EPS is increased over the denominator used for Basic EPS by the effect of potentially dilutive common stock equivalents utilizing the treasury stock method. Common stock equivalents are common stock options outstanding.
All share and per share amounts have been restated to reflect the 10 percent stock dividend in 2003.
The following table shows the calculation of both Basic and Diluted earnings per share for the years ended December 31, 2003, 2002 and 2001:
(IN THOUSANDS EXCEPT PER SHARE DATA) 2003 2002 2001 ------------------------------------------------------------------------------------------------------ NET INCOME $ 12,300 $ 11,925 $ 8,924 ====================================================================================================== BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 7,384,030 7,348,262 7,321,239 ------------------------------------------------------------------------------------------------------ PLUS: COMMON STOCK EQUIVALENTS 210,057 150,412 123,098 ------------------------------------------------------------------------------------------------------ DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 7,594,087 7,498,674 7,444,337 ====================================================================================================== EARNINGS PER SHARE: BASIC $ 1.67 $ 1.62 $ 1.22 ------------------------------------------------------------------------------------------------------ DILUTED 1.62 1.59 1.20 ------------------------------------------------------------------------------------------------------ |
TREASURY STOCK: Treasury stock is recorded using the cost method and accordingly is presented as an unallocated reduction of shareholders' equity.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and net unrealized gains (losses) on securities available for sale and is presented in the consolidated statements of changes in shareholders' equity.
RECLASSIFICATION: Certain reclassifications have been made in the prior periods' financial statements in order to conform to the 2003 presentation.
RECENTLY ADOPTED ACCOUNTING STANDARDS: In November 2003, the Emerging Issues Task Force (EITF) issued EITF Issue No. 03-1 "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments." Issue 03-1 requires new tabular and narrative disclosure items effective for fiscal years ending after December 15, 2003. Companies are required to provide expanded information about their debt and marketable equity securities with market values below carrying values. The narrative information must include positive and negative information management considered in concluding the unrealized loss was not other-than-temporary and therefore was not recognized. The Corporation's disclosures in notes 2 and 3 incorporate the requirements of Issue No. 03-1.
In December 2003, FASB Statement No. 132 (revised), "Employers' Disclosures about Pensions and Other Postretirement Benefits," was issued. Statement 132 (revised) prescribes employers' disclosures about pension plans and other postretirement benefit plans; it does not change the measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003. The Corporation's disclosures in note 11 incorporate the requirements of Statement 132 (revised).
2. INVESTMENT SECURITIES
A summary of amortized cost and approximate market value of investment securities included in the consolidated statements of condition as of December 31, 2003 and 2002 follows:
2003
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $ 14,325 $ 673 $ -- $ 14,998
------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 49,077 595 (45) 49,627
------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 32,794 578 (105) 33,267
------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 1,505 118 -- 1,623
------------------------------------------------------------------------------------------------------------
TOTAL $ 97,701 $ 1,964 $ (150) $ 99,515
============================================================================================================
2002
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $ 24,226 $ 1,102 $ -- $ 25,328
------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 124,076 1,538 (152) 125,462
------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 16,313 599 (7) 16,905
------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 3,451 144 -- 3,595
------------------------------------------------------------------------------------------------------------
TOTAL $168,066 $ 3,383 $ (159) $171,290
============================================================================================================
|
The amortized cost and approximate market value of investment securities as of December 31, 2003, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
MATURING IN:
APPROXIMATE
(IN THOUSANDS) AMORTIZED COST MARKET VALUE
--------------------------------------------------------------------------------
ONE YEAR OR LESS $10,290 $10,407
--------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 22,864 23,717
--------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 15,035 15,205
--------------------------------------------------------------------------------
AFTER TEN YEARS 435 559
--------------------------------------------------------------------------------
48,624 49,888
--------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 49,077 49,627
--------------------------------------------------------------------------------
TOTAL $97,701 $99,515
================================================================================
|
There were no investment securities pledged as of December 31, 2003.
During 2001, the Corporation transferred one security in the amount of $1.0 million from Held to Maturity to Available for Sale. The security had a market value of $1.0 million. The transfer was made due to a significant deterioration in the issuer's credit worthiness. The security was subsequently sold at a gain of $27 thousand.
The following table presents the Corporation's investment securities with continuous unrealized losses and the approximate market value of these investments.
DURATION OF LOSS
------------------------------------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
------------------------------------------------------------------------------------------------------------------------
APPROXIMATE APPROXIMATE APPROXIMATE
MARKET UNREALIZED MARKET UNREALIZED MARKET UNREALIZED
(IN THOUSANDS) VALUE LOSSES VALUE LOSSES VALUE LOSSES
------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY &
GOVERNMENT AGENCIES $ -- $ -- $ -- $ -- $ -- $ --
------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED
SECURITIES 11,240 (45) -- -- 11,240 (45)
------------------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL
SUBDIVISIONS 11,153 (105) -- -- 11,153 (105)
------------------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES -- -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------
$ 22,393 $ (150) $ -- $ -- $ 22,393 $ (150)
========================================================================================================================
|
Management has determined that these unrealized losses are temporary and due to interest rate fluctuations rather than the credit ratings of the issuers. The Corporation has a policy to purchase only from issuers with an investment grade credit rating and monitors credit ratings periodically.
The unrealized losses on investments in mortgage-backed securities were caused by interest rate increases. The contractual cash flows of these securities are guaranteed by U.S. government agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation has the intent to hold these investments until maturity, these investments are not considered other-than-temporarily impaired.
Most of the securities issued by state and political subdivisions in the table above are issued by municipalities located in New Jersey and have had unrealized losses for six months or less. These investments represent purchases in municipal bonds, which generally have lower coupons; however many are not taxable by the Federal government and their effective yield is higher. Because the Corporation intends to hold these securities to mature at par, no loss is anticipated.
3. SECURITIES AVAILABLE FOR SALE
A summary of amortized cost and approximate market value of securities available for sale included in the consolidated statements of condition as of December 31, 2003 and 2002 follows:
2003
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $180,064 $ 3,763 $ (1,103) $182,724
-------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 135,998 772 (447) 136,323
-------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 9,364 425 -- 9,789
-------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 26,254 948 (40) 27,162
-------------------------------------------------------------------------------------------------------------
TOTAL $351,680 $ 5,908 $ (1,590) $355,998
=============================================================================================================
2002
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
-------------------------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $130,360 $ 6,241 $ (170) $136,431
-------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 42,197 1,243 (17) 43,423
-------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 9,055 304 -- 9,359
-------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 22,612 540 (106) 23,046
-------------------------------------------------------------------------------------------------------------
TOTAL $204,224 $ 8,328 $ (293) $212,259
=============================================================================================================
|
The amortized cost and approximate market value of debt securities available for sale as of December 31, 2003, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
MATURING IN:
APPROXIMATE
(IN THOUSANDS) AMORTIZED COST MARKET VALUE
-------------------------------------------------------------------------------------------------------------
ONE YEAR OR LESS $ 5,771 $ 6,501
-------------------------------------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 129,074 132,567
-------------------------------------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 56,824 56,758
-------------------------------------------------------------------------------------------------------------
AFTER TEN YEARS 24,013 23,849
-------------------------------------------------------------------------------------------------------------
215,682 219,675
-------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 135,998 136,323
-------------------------------------------------------------------------------------------------------------
TOTAL $351,680 $355,998
=============================================================================================================
|
Securities having an approximate carrying value of $11.8 million and $11.9 million as of December 31, 2003 and December 31, 2002, respectively, were pledged to secure public funds and for other purposes required or permitted by law. Net security gains of $1.3 million, $52 thousand and $189 thousand were realized in 2003, 2002 and 2001.
The following table presents the Corporation's available for sale securities with continuous unrealized losses and the approximate market value of these investments.
DURATION OF LOSS
--------------------------------------------------------------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
--------------------------------------------------------------------------------------------------------------------------------
APPROXIMATE APPROXIMATE APPROXIMATE
MARKET UNREALIZED MARKET UNREALIZED MARKET UNREALIZED
(IN THOUSANDS) VALUE LOSSES VALUE LOSSES VALUE LOSSES
--------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY &
GOVERNMENT AGENCIES $ 47,299 $ (743) $ 1,640 $ (360) $ 48,939 $ (1,103)
--------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED
SECURITIES 52,078 (447) -- -- 52,078 (447)
--------------------------------------------------------------------------------------------------------------------------------
STATE AND POLITICAL
SUBDIVISIONS -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 1,953 (35) 65 (5) 2,018 (40)
--------------------------------------------------------------------------------------------------------------------------------
$ 101,330 $ (1,225) $ 1,705 $ (365) $ 103,035 $ (1,590)
================================================================================================================================
|
Management has determined that these unrealized losses are temporary and due to interest rate fluctuations and volatility rather than the credit ratings of the issuers. The Corporation has a policy to purchase only from issuers with an investment grade credit rating and monitors credit ratings periodically.
The unrealized losses on investments in U.S. government agency bonds were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the Corporation has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.
The unrealized losses on investments in mortgage-backed securities were caused by interest rate increases. The contractual cash flows of these securities are guaranteed by U.S. government agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.
The other debt securities with unrealized losses caused by interest rate increases are adjustable and will price to par at the time of the rate reset. The Corporation has the ability and intent to hold these investments until a market price recovery or maturity; therefore these investments are not considered other-than-temporarily impaired.
4. LOANS
Loans outstanding as of December 31, 2003 and 2002 consisted of the following:
(IN THOUSANDS) 2003 2002 -------------------------------------------------------------------------------- LOANS SECURED BY 1-4 FAMILY $256,301 $267,155 -------------------------------------------------------------------------------- COMMERCIAL REAL ESTATE 130,968 109,932 -------------------------------------------------------------------------------- CONSTRUCTION LOANS 9,799 2,063 -------------------------------------------------------------------------------- COMMERCIAL LOANS 16,632 17,859 -------------------------------------------------------------------------------- CONSUMER LOANS 10,223 8,206 -------------------------------------------------------------------------------- OTHER LOANS 3,078 4,545 -------------------------------------------------------------------------------- TOTAL LOANS $427,001 $409,760 ================================================================================ |
Non-accrual loans totaled $159 thousand and $180 thousand at December 31, 2003 and 2002, respectively. Loans past due 90 days or more and still accruing interest totaled $56 thousand and $203 thousand at December 31, 2003 and 2002, respectively. There are no commitments to lend additional amounts on non-accrual loans. The amount of interest income recognized on year-end non-accrual loans totaled $3 thousand, $5 thousand and $10 thousand in 2003, 2002 and 2001, respectively. Interest income of $11 thousand, $12 thousand and $20 thousand would have been recognized during 2003, 2002 and 2001, respectively, under contractual terms for such non-accrual loans.
The Corporation defines an impaired loan as an investment in a loan that is on non-accrual status with a principal outstanding balance in excess of $100 thousand. Residential mortgage loans, a group of homogeneous loans that are collectively evaluated for impairment, and consumer loans are excluded. There were no impaired loans as of or for the years ended December 31, 2003 and 2002.
5. ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses for the years indicated follows:
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2003 2002 2001 -------------------------------------------------------------------------------- BALANCE, BEGINNING OF YEAR $ 4,798 $ 4,023 $ 3,435 -------------------------------------------------------------------------------- PROVISION CHARGED TO EXPENSE 600 800 600 -------------------------------------------------------------------------------- LOANS CHARGED-OFF (42) (68) (92) -------------------------------------------------------------------------------- RECOVERIES 111 43 80 -------------------------------------------------------------------------------- BALANCE, END OF YEAR $ 5,467 $ 4,798 $ 4,023 ================================================================================ |
6. PREMISES AND EQUIPMENT
Premises and equipment as of December 31, follows:
(IN THOUSANDS) 2003 2002
--------------------------------------------------------------------------------
LAND $ 3,471 $ 2,554
--------------------------------------------------------------------------------
BUILDINGS 7,400 7,298
--------------------------------------------------------------------------------
FURNITURE AND EQUIPMENT 10,617 8,857
--------------------------------------------------------------------------------
LEASEHOLD IMPROVEMENTS 4,335 4,369
--------------------------------------------------------------------------------
PROJECTS IN PROGRESS 695 1,294
--------------------------------------------------------------------------------
26,518 24,372
--------------------------------------------------------------------------------
LESS: ACCUMULATED DEPRECIATION 11,386 10,001
--------------------------------------------------------------------------------
TOTAL $15,132 $14,371
================================================================================
|
Depreciation expense amounted to $1.4 million, $1.3 million and $1.2 million for the years ended December 31, 2003, 2002 and 2001, respectively.
7. DEPOSITS
Interest expense on time deposits of $100,000 or more totaled $1.5 million, $2.1 million and $2.5 million in 2003, 2002 and 2001, respectively.
The scheduled maturities of time deposits are as follows:
(IN THOUSANDS)
-------------------------------------------------------------------------------- 2004 $ 157,372 -------------------------------------------------------------------------------- 2005 38,532 -------------------------------------------------------------------------------- 2006 2,416 -------------------------------------------------------------------------------- 2007 8,931 -------------------------------------------------------------------------------- 2008 15,624 -------------------------------------------------------------------------------- TOTAL $ 222,875 ================================================================================ 38 |
8. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
At December 31, 2003 and 2002, advances from the Federal Home Loan Bank of New York (FHLB) totaled $30.0 million and $5.0 million, respectively, with a weighted average interest rate of 3.36 percent and 3.53 percent, respectively. These advances are secured by blanket pledges of 1-4 family residential mortgages totaling $121.6 million at December 31, 2003 and $110.9 million at December 31, 2002. Advances totaling $18.0 million at December 31, 2003, have fixed maturity dates, while advances totaling $12.0 million were amortizing advances with monthly payments of principal and interest.
THE FINAL MATURITY DATES OF THE ADVANCES ARE SCHEDULED AS FOLLOWS:
(IN THOUSANDS)
-------------------------------------------------------------------------------- 2004 $ 3,000 -------------------------------------------------------------------------------- 2005 -- -------------------------------------------------------------------------------- 2006 2,000 -------------------------------------------------------------------------------- 2007 -- -------------------------------------------------------------------------------- 2008 2,622 -------------------------------------------------------------------------------- OVER 5 YEARS 22,410 -------------------------------------------------------------------------------- TOTAL $ 30,032 ================================================================================ |
In addition, other borrowings consisting of overnight borrowings at FHLB had an average balance of $13.4 million with a weighted average interest rate of 1.17 percent and $2.8 million with a weighted average interest rate of 1.85 percent for the years ended December 31, 2003 and 2002, respectively. No amounts were outstanding as of December 31, 2003 or 2002. The maximum amount outstanding at any month end during 2003 and 2002 was $33.6 million and $18.5 million, respectively.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation discloses estimated fair values for its significant financial instruments. Because no market exists for a significant portion of the Corporation's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the fair value of each class of significant financial instruments:
CASH AND SHORT-TERM INVESTMENTS - The carrying amount of cash and short-term investments is considered to be fair value.
SECURITIES - The fair value of securities is based upon quoted market prices.
LOANS - The fair value of loans is estimated by discounting the future cash flows using the build-up approach consisting of four components: the risk-free rate, credit quality, operating expense and prepayment option price.
DEPOSITS - The fair value of deposits with no stated maturity, such as demand deposits, checking accounts, savings and money market accounts, is equal to the carrying amount. The fair value of certificates of deposit is based on the discounted value of contractual cash flows.
LONG-TERM DEBT - The fair value of FHLB advances is based on the discounted value of estimated cash flows. The discount rate is estimated using the rates currently offered for similar advances.
The following table summarizes carrying amounts and fair values for financial instruments at December 31, 2003 and 2002:
(IN THOUSANDS) 2003 2002
------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------------------
FINANCIAL ASSETS:
CASH AND CASH EQUIVALENTS $ 22,695 $ 22,695 $ 38,320 $ 38,320
-------------------------------------------------------------------------------------
INTEREST-EARNING DEPOSITS 30,949 30,949 549 549
-------------------------------------------------------------------------------------
INVESTMENT SECURITIES 97,701 99,515 168,066 171,290
-------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 355,998 355,998 212,259 212,259
-------------------------------------------------------------------------------------
LOANS, NET OF ALLOWANCE FOR
LOAN LOSSES 421,534 422,844 404,962 423,090
-------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
DEPOSITS 845,771 846,528 769,688 772,822
-------------------------------------------------------------------------------------
LONG-TERM DEBT 30,032 29,335 5,000 5,114
-------------------------------------------------------------------------------------
|
10. INCOME TAXES
The income tax expense included in the consolidated financial statements for the years ended December 31, 2003, 2002 and 2001, is allocated as follows:
(IN THOUSANDS) 2003 2002 2001
-------------------------------------------------------------------------------------
FEDERAL:
CURRENT EXPENSE $ 6,939 $ 2,010 $ 4,493
-------------------------------------------------------------------------------------
DEFERRED (BENEFIT)/EXPENSE (1,304) 3,615 (252)
-------------------------------------------------------------------------------------
STATE:
CURRENT EXPENSE 69 230 181
-------------------------------------------------------------------------------------
DEFERRED EXPENSE/(BENEFIT) 83 (55) (61)
-------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 5,787 $ 5,800 $ 4,361
-------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
DEFERRED EXPENSE ON UNREALIZED
GAIN ON SECURITIES AVAILABLE FOR SALE $ 1,530 $ 2,757 $ 698
=====================================================================================
|
Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35 percent in 2003 and 2002 and 34 percent in 2001 to income before taxes as a result of the following:
(IN THOUSANDS) 2003 2002 2001
-------------------------------------------------------------------------------------
COMPUTED "EXPECTED" TAX EXPENSE $ 6,330 $ 6,204 $ 4,517
-------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN TAXES RESULTING FROM:
TAX-EXEMPT INCOME (384) (323) (234)
-------------------------------------------------------------------------------------
STATE INCOME TAXES 99 114 79
-------------------------------------------------------------------------------------
BANK OWNED LIFE INSURANCE INCOME (279) (251) (82)
-------------------------------------------------------------------------------------
OTHER 21 56 81
-------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $ 5,787 $ 5,800 $ 4,361
=====================================================================================
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2003 and 2002 are as follows:
(IN THOUSANDS) 2003 2002
--------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
LOANS, PRINCIPALLY DUE TO ALLOWANCE FOR
LOAN LOSSES AND DEFERRED FEE INCOME $ 2,178 $ 1,814
--------------------------------------------------------------------------------
POST RETIREMENT BENEFITS OTHER THAN PENSIONS 61 107
--------------------------------------------------------------------------------
START-UP & ORGANIZATION COSTS 10 33
--------------------------------------------------------------------------------
CAPITAL LOSS CARRYOVER 3 20
--------------------------------------------------------------------------------
CONTRIBUTION LIMITATION 5 --
--------------------------------------------------------------------------------
TOTAL GROSS DEFERRED ASSETS $ 2,257 $ 1,974
--------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
INVESTMENT SECURITIES, PRINCIPALLY DUE TO
THE ACCRETION OF BOND DISCOUNT 53 41
--------------------------------------------------------------------------------
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE 1,663 3,193
--------------------------------------------------------------------------------
DEFERRED LOAN ORIGINATION COSTS AND FEES 348 311
--------------------------------------------------------------------------------
DEFERRED REIT DIVIDEND 2,435 3,652
--------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT,
PRINCIPALLY DUE TO DIFFERENCES IN DEPRECIATION 799 569
--------------------------------------------------------------------------------
TOTAL GROSS DEFERRED LIABILITIES 5,298 7,766
--------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITY $(3,041) $(5,792)
================================================================================
|
Based upon taxes paid and projected future taxable income, management believes that it is more likely than not that the gross deferred tax assets will be realized.
11. BENEFIT PLANS
PENSION PLAN
The Corporation has a defined benefit pension plan covering substantially all of its salaried employees. The benefits are based on an employee's compensation during the five years before retirement, age at retirement and years of service. The Corporation makes annual contributions to the plan equal to the maximum amount that can be deducted for income tax purposes.
The following table shows the change in benefit obligation, the change in plan assets and the funded status for the plan at December 31,
(IN THOUSANDS) 2003 2002 -------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION -------------------------------------------------------------------------------- BENEFIT OBLIGATION AT BEGINNING OF YEAR $ 6,782 $ 5,642 -------------------------------------------------------------------------------- SERVICE COST 978 744 -------------------------------------------------------------------------------- INTEREST COST 437 388 -------------------------------------------------------------------------------- ACTUARIAL LOSS 726 610 -------------------------------------------------------------------------------- BENEFITS PAID (475) (602) -------------------------------------------------------------------------------- BENEFIT OBLIGATION AT END OF YEAR $ 8,448 $ 6,782 ================================================================================ CHANGE IN PLAN ASSETS -------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR $ 4,944 $ 5,185 -------------------------------------------------------------------------------- ACTUAL RETURN ON PLAN ASSETS 980 (485) -------------------------------------------------------------------------------- EMPLOYER CONTRIBUTION 1,223 846 -------------------------------------------------------------------------------- BENEFITS PAID (475) (602) -------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 6,672 $ 4,944 ================================================================================ FUNDED STATUS $(1,776) $(1,838) -------------------------------------------------------------------------------- UNRECOGNIZED TRANSITION ASSET (38) (45) -------------------------------------------------------------------------------- UNRECOGNIZED PRIOR SERVICE COST (3) (3) -------------------------------------------------------------------------------- UNRECOGNIZED NET ACTUARIAL GAIN 1,895 1,809 -------------------------------------------------------------------------------- ACCRUED BENEFIT COST $ 78 $ (77) ================================================================================ |
The accumulated benefit obligation for the pension plan was $5.7 million and $5.0 million at December 31, 2003 and 2002, respectively.
Net periodic expense for the years ended December 31 included the following components:
(IN THOUSANDS) 2003 2002 2001
--------------------------------------------------------------------------------
SERVICE COST $ 978 $ 744 $ 590
--------------------------------------------------------------------------------
INTEREST COST 437 388 360
--------------------------------------------------------------------------------
EXPECTED RETURN ON PLAN ASSETS (395) (392) (459)
--------------------------------------------------------------------------------
AMORTIZATION OF:
NET LOSS/(GAIN) 55 -- (19)
--------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST 1 1 1
--------------------------------------------------------------------------------
UNRECOGNIZED REMAINING NET ASSETS (7) (7) (7)
--------------------------------------------------------------------------------
NET PERIODIC BENEFIT COST $ 1,069 $ 734 $ 466
================================================================================
The following table shows the actuarial assumptions applied for the
valuation of plan obligations at December 31,
2003 2002 2001
--------------------------------------------------------------------------------
WEIGHTED-AVERAGE DISCOUNT RATE 6% 6.5% 7%
--------------------------------------------------------------------------------
WEIGHTED-AVERAGE RATE OF INCREASE
ON FUTURE COMPENSATION 3% 3% 3%
--------------------------------------------------------------------------------
WEIGHTED-AVERAGE EXPECTED LONG-TERM RATE
OF RETURN ON PLAN ASSETS 6.5% 7% 8%
--------------------------------------------------------------------------------
|
The Corporation's overall expected long-term rate of return on assets is 6.5 percent. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories.
The weighted-average asset allocation of the Corporation's pension benefits at December 31, 2003 and 2002 were as follows:
PENSION BENEFITS PLAN ASSETS
AT DECEMBER 31
--------------------------------------------------------------------------------
ASSET CATEGORY 2003 2002
--------------------------------------------------------------------------------
EQUITY SECURITIES 59.8% 54.7%
--------------------------------------------------------------------------------
DEBT SECURITIES 29.0 36.3
--------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS 11.2 9.0
--------------------------------------------------------------------------------
TOTAL 100.0% 100.0%
================================================================================
|
The Corporation's investment policies and strategies for the pension benefits plan do not use target allocations for the individual asset categories. The Corporation's investment goals are to maximize returns subject to specific risk management policies. Its risk management policies permit investments in mutual funds, and prohibit direct investments in debt and equity securities and derivative financial instruments. The Corporations addresses diversification by the use of mutual fund investments whose underlying investments are in domestic and international fixed income securities and domestic and international equity securities. These mutual funds are readily marketable and can be sold to fund benefit payment obligations as they become payable.
The Corporation expects to contribute $1.2 million to its pension plan in 2004.
SAVINGS AND PROFIT SHARING PLANS:
In addition to the retirement plan, the Corporation sponsors a profit sharing plan and a savings plan under Section 401(k) of the Internal Revenue Code, covering substantially all salaried employees over the age of 21 with at least 12 months service. Under the savings portion of the plan, employee contributions are partially matched by the Corporation. Expense for the savings plan was approximately $36 thousand, $33 thousand and $30 thousand in 2003, 2002 and 2001, respectively. Contributions to the profit sharing portion are made at the discretion of the Board of Directors and all funds are invested solely in Corporation stock. The contribution to the profit sharing plan was $375 thousand in 2003, $350 thousand in 2002 and $300 thousand in 2001.
12. STOCK OPTION PLANS
The Corporation's incentive stock option plans allow the granting of up to 725,663 shares of the Corporation's common stock to certain key employees. The options granted under these plans are, in general, exercisable not earlier than one year after the date of grant, at a price equal to the fair market value of the common stock on the date of grant, and expire not more than ten years after the date of grant. The stock options will vest during a period of up to five years after the date of grant. Options granted to officers at or above the senior vice president level are immediately exercisable at the date of grant.
Changes in options outstanding during the past three years were as follows:
OPTION PRICE
SHARES PER SHARE
--------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2000 327,588 $6.12 - $22.57
--------------------------------------------------------------------------------
GRANTED DURING 2001 91,146 14.98 - 20.40
--------------------------------------------------------------------------------
EXERCISED DURING 2001 (54,472) 6.12 - 13.03
--------------------------------------------------------------------------------
FORFEITED DURING 2001 (7,198) 13.03 - 18.55
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 357,064 $6.12 - $22.57
--------------------------------------------------------------------------------
GRANTED DURING 2002 6,380 16.59 - 29.32
--------------------------------------------------------------------------------
EXERCISED DURING 2002 (51,874) 6.12 - 19.28
--------------------------------------------------------------------------------
FORFEITED DURING 2002 (10,263) 6.12 - 18.55
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 301,307 $6.12 - $29.32
--------------------------------------------------------------------------------
GRANTED DURING 2003 2,300 27.32 - 31.74
--------------------------------------------------------------------------------
EXERCISED DURING 2003 (55,338) 6.12 - 22.57
--------------------------------------------------------------------------------
FORFEITED DURING 2003 (2,183) 16.71 - 31.82
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 246,086 $6.12 - $31.74
================================================================================
|
At December 31, 2003, the number of options exercisable was 237,191 and the weighted-average price of those options was $15.40 per share. At December 31, 2002, the number of options exercisable was 186,140 and the weighted-average price of those options was $13.46 per share.
The Corporation has non-qualified stock option plans for non-employee directors. The plans allow the granting of up to 362,542 shares of the Corporation's common stock. The options granted under these plans are, in general, exercisable not earlier than one year after the date of grant, at a price equal to the fair market value of the common stock on the date of grant, and expire not more than ten years after the date of grant. The stock options will vest during a period of up to five years after the date of grant. Changes in options outstanding during the past three years were as follows:
OPTION PRICE
SHARES PER SHARE
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 191,947 $6.12 - $17.91
--------------------------------------------------------------------------------
GRANTED DURING 2001 35,285 17.25
--------------------------------------------------------------------------------
EXERCISED DURING 2001 (1,698) 6.12
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 225,534 $6.12 - $19.28
--------------------------------------------------------------------------------
EXERCISED DURING 2002 (18,290) 6.12
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 207,244 $6.12 - $19.28
--------------------------------------------------------------------------------
EXERCISED DURING 2003 (29,051) 6.12 - 17.25
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 178,193 $6.12 - $19.28
================================================================================
|
At December 31, 2003, the number of options exercisable was 157,444 and the weighted-average price of those options was $12.54. At December 31, 2002, the number of options exercisable was 163,872 and the weighted-average price of those options was $10.86.
At December 31, 2003, there were 372,812 additional shares available for grant under the Plans. The per share weighted-average fair value of stock options granted during 2003, 2002 and 2001 was $10.16, $7.51, and $4.34 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 2003 - expected dividend yield of 1.29%, expected volatility of 40%, risk free interest rate of 3.27%, and an expected life of 5 years; 2002 - expected dividend yield of 1.79%, expected volatility of 34%, risk-free interest rate of 4.12%, and an expected life of 5 years; 2001 - expected dividend yield of 1.70%, expected volatility of 20%, risk-free interest rate of 4.77%, and an expected life of 5 years.
13. COMMITMENTS
The Corporation, in the ordinary course of business, is a party to litigation arising from the conduct of its business. Management does not consider that these actions depart from routine legal proceedings and believes that such actions will not affect its financial position or results of its operations in any material manner. There are various outstanding commitments and contingencies, such as guarantees and credit extensions, including loan commitments of $69.4 million and $95.0 million at December 31, 2003 and 2002, respectively, which are not included in the accompanying consolidated financial statements.
The Corporation issues financial standby letters of credit that are within the scope of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." These are irrevocable undertakings by the Corporation to guarantee payment of a specified financial obligation. Most of the Corporation's financial standby letters of credit arise in connection with lending relationships and have terms of one year or less. The maximum potential future payments the Corporation could be required to make equals the contract amount of the standby letters of credit and amounted to $5.5 million and $4.0 million at December 31, 2003 and 2002, respectively. The Corporation's recognized liability for financial standby letters of credit was insignificant at December 31, 2003.
For commitments to originate loans, the Corporation's maximum exposure to credit risk is represented by the contractual amount of those instruments. Those commitments represent ultimate exposure to credit risk only to the extent that they are subsequently drawn upon by customers. The Corporation uses the same credit policies and underwriting standards in making loan commitments as it does for on-balance-sheet instruments. For loan commitments, the Corporation would generally be exposed to interest rate risk from the time a commitment is issued with a defined contractual interest rate.
At December 31, 2003, the Corporation was obligated under non-cancelable operating leases for certain premises. Rental expense aggregated $1.5 million, $1.1 million and $869 thousand for the years ended December 31, 2003, 2002 and 2001, respectively, which is included in premises and equipment expense in the consolidated statements of income.
The minimum annual lease payments under the terms of the lease agreements, as of December 31, 2003, were as follows:
(IN THOUSANDS)
-------------------------------------------------------------------------------- 2004 $ 1,750 -------------------------------------------------------------------------------- 2005 1,738 -------------------------------------------------------------------------------- 2006 1,860 -------------------------------------------------------------------------------- 2007 1,851 -------------------------------------------------------------------------------- 2008 1,865 -------------------------------------------------------------------------------- THEREAFTER 14,685 -------------------------------------------------------------------------------- TOTAL $ 23,749 ================================================================================ |
14. REGULATORY CAPITAL
The Corporation and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation and the Bank's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of the Corporation's and the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The
Corporation's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2003, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2003, the Corporation and the Bank met all requirements to be considered well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Corporation and the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table.
The Corporation's actual capital amounts and ratios are presented in the table.
TO BE WELL
CAPITALIZED UNDER FOR CAPITAL
PROMPT CORRECTIVE ADEQUACY
(IN THOUSANDS) ACTUAL ACTION PROVISIONS PURPOSES
------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2003:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $87,303 21.7% $40,150 10.0% $32,120 8.0%
------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO RISK-WEIGHTED ASSETS) 81,836 20.4 24,090 6.0 16,060 4.0
------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO AVERAGE ASSETS) 81,836 8.9 45,948 5.0 27,569 3.0
------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2002:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $76,551 20.8% $36,777 10.0% $29,422 8.0%
------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO RISK-WEIGHTED ASSETS) 71,753 19.5 22,066 6.0 14,711 4.0
------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
(TO AVERAGE ASSETS) 71,753 9.2 39,028 5.0 23,417 3.0
------------------------------------------------------------------------------------------------------------------
|
15. CONDENSED FINANCIAL STATEMENTS OF PEAPACK-GLADSTONE FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
The following information of the parent company only financial statements as of and for the years ended December 31, 2003 and 2002 should be read in conjunction with the notes to the consolidated financial statements.
STATEMENTS OF CONDITION
DECEMBER 31,
(IN THOUSANDS) 2003 2002 -------------------------------------------------------------------------------- ASSETS: CASH $ 162 $ 146 -------------------------------------------------------------------------------- SECURITIES HELD TO MATURITY -- 1,999 -------------------------------------------------------------------------------- SECURITIES AVAILABLE FOR SALE 14,323 8,832 -------------------------------------------------------------------------------- INVESTMENT IN SUBSIDIARY 71,632 66,913 -------------------------------------------------------------------------------- OTHER ASSETS 83 50 -------------------------------------------------------------------------------- TOTAL ASSETS $ 86,200 $ 77,940 ================================================================================ LIABILITIES: OTHER LIABILITIES $ 1,146 $ 782 -------------------------------------------------------------------------------- TOTAL LIABILITIES 1,146 782 -------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY: COMMON STOCK 6,274 5,661 -------------------------------------------------------------------------------- SURPLUS 61,959 38,385 -------------------------------------------------------------------------------- TREASURY STOCK (2,391) (2,020) -------------------------------------------------------------------------------- RETAINED EARNINGS 16,557 30,290 -------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF INCOME TAX 2,655 4,842 -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 85,054 77,158 -------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 86,200 $ 77,940 ================================================================================ |
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2003 2002 2001 -------------------------------------------------------------------------------- INCOME: DIVIDEND FROM BANK $ 5,250 $ 5,000 $ 4,000 -------------------------------------------------------------------------------- OTHER INCOME 372 375 300 -------------------------------------------------------------------------------- SECURITIES GAINS 90 32 -- -------------------------------------------------------------------------------- TOTAL INCOME 5,712 5,407 4,300 -------------------------------------------------------------------------------- EXPENSES: -------------------------------------------------------------------------------- OTHER EXPENSES 104 307 280 -------------------------------------------------------------------------------- TOTAL EXPENSES 104 307 280 -------------------------------------------------------------------------------- INCOME BEFORE INCOME TAX BENEFIT/ EXPENSE AND EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 5,608 5,100 4,020 -------------------------------------------------------------------------------- INCOME TAX EXPENSE/(BENEFIT) 110 15 (8) -------------------------------------------------------------------------------- NET INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 5,498 5,085 4,028 -------------------------------------------------------------------------------- EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 6,802 6,840 4,896 -------------------------------------------------------------------------------- Net Income $12,300 $11,925 $ 8,924 ================================================================================ |
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2003 2002 2001
----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 12,300 $ 11,925 $ 8,924
----------------------------------------------------------------------------------------------
LESS EQUITY IN UNDISTRIBUTED EARNINGS (6,802) (6,840) (4,896)
----------------------------------------------------------------------------------------------
AMORTIZATION AND ACCRETION IN SECURITIES 13 (3) (5)
----------------------------------------------------------------------------------------------
GAIN ON SECURITIES AVAILABLE FOR SALE (90) (32) --
----------------------------------------------------------------------------------------------
(INCREASE)/DECREASE IN OTHER ASSETS (33) 30 148
----------------------------------------------------------------------------------------------
(DECREASE)/INCREASE IN OTHER LIABILITIES (10) 74 55
----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,378 5,154 4,226
----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 1,670 75 --
----------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
HELD TO MATURITY 2,000 -- --
----------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 9,692 8,700 3,576
----------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES HELD TO MATURITY -- (1,989) --
----------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (16,339) (9,912) (7,261)
----------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,977) (3,126) (3,685)
----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
DIVIDENDS PAID (2,549) (2,103) (1,785)
----------------------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 535 600 352
----------------------------------------------------------------------------------------------
TREASURY STOCK TRANSACTIONS (371) (432) (632)
----------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (2,385) (1,935) (2,065)
----------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 16 93 (1,524)
----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 146 53 1,577
----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 162 $ 146 $ 53
==============================================================================================
|
COMMON STOCK PRICES (UNAUDITED)
The following table shows the 2003 and 2002 range of prices paid on known trades of Peapack-Gladstone Financial Corporation common stock.
DIVIDEND
2003 HIGH LOW PER SHARE
----------------------------------------------------------------------------------------------
1ST QUARTER $ 31.14 $ 22.77 $ 0.090
----------------------------------------------------------------------------------------------
2ND QUARTER 32.99 18.18 0.090
----------------------------------------------------------------------------------------------
3RD QUARTER 32.73 28.89 0.100
----------------------------------------------------------------------------------------------
4TH QUARTER 33.10 30.10 0.100
----------------------------------------------------------------------------------------------
DIVIDEND
2002 HIGH LOW PER SHARE
----------------------------------------------------------------------------------------------
1ST QUARTER $ 22.73 $ 16.48 $ 0.075
----------------------------------------------------------------------------------------------
2ND QUARTER 28.64 22.50 0.075
----------------------------------------------------------------------------------------------
3RD QUARTER 29.55 26.21 0.090
----------------------------------------------------------------------------------------------
4TH QUARTER 34.05 27.05 0.090
----------------------------------------------------------------------------------------------
|
OFFICER
-------------------------------------------------------------------------------------------------------------
GLADSTONE T. LEONARD HILL Chairman Emeritus *
LOAN AND ----------------------------------------------------------------------------------------
ADMINISTRATION FRANK A. KISSEL Chairman of the Board & CEO*
BUILDING ----------------------------------------------------------------------------------------
ROBERT M. ROGERS President & COO *
----------------------------------------------------------------------------------------
ARTHUR F. BIRMINGHAM Executive Vice President & CFO *
----------------------------------------------------------------------------------------
GARRETT P. BROMLEY Executive Vice President & Chief Credit Officer
----------------------------------------------------------------------------------------
PAUL W. BELL Senior Vice President & Security Officer
----------------------------------------------------------------------------------------
HUBERT P. CLARKE Senior Vice President Information Systems
----------------------------------------------------------------------------------------
MICHAEL J. GIACOBELLO Senior Vice President & Senior Commercial Loan Officer
----------------------------------------------------------------------------------------
BARBARA A. GRECO Senior Vice President & Personnel Officer
----------------------------------------------------------------------------------------
TODD T. BRUNGARD Vice President
----------------------------------------------------------------------------------------
ROBERT A. BUCKLEY Vice President
----------------------------------------------------------------------------------------
KAREN M. CHIARELLO Vice President & Auditor
----------------------------------------------------------------------------------------
MICHELE DELLAVALLE Vice President
----------------------------------------------------------------------------------------
KAREN M. FERRARO Vice President
----------------------------------------------------------------------------------------
VALERIE L. KODAN Vice President
----------------------------------------------------------------------------------------
V. SHERRI LICATA Vice President & Bank Secrecy Act Compliance Officer
----------------------------------------------------------------------------------------
DOUGLAS J. MOORE Vice President
----------------------------------------------------------------------------------------
TERESA A. PETERS Vice President
----------------------------------------------------------------------------------------
MARY M. RUSSELL Vice President & Comptroller
----------------------------------------------------------------------------------------
JOHN A. SCERBO Vice President
----------------------------------------------------------------------------------------
PATRICIA J. SCHWARTZ Vice President
----------------------------------------------------------------------------------------
JAMES S. STADTMUELLER Vice President
----------------------------------------------------------------------------------------
MARGARET VOLK Vice President & Mortgage Officer
----------------------------------------------------------------------------------------
FRANK C. WALDRON Vice President
----------------------------------------------------------------------------------------
EILEEN C. WOLFE Vice President
----------------------------------------------------------------------------------------
NANCY L. WYNANT Vice President
----------------------------------------------------------------------------------------
SANDRA BORNGESSER Assistant Vice President
----------------------------------------------------------------------------------------
JOHN G. HARITON Assistant Vice President & Corporate Trainer
----------------------------------------------------------------------------------------
KAREN R. HORVATH Assistant Vice President & Assistant Comptroller
----------------------------------------------------------------------------------------
KATHRYN M. NEIGH Assistant Vice President
----------------------------------------------------------------------------------------
CHRISTOPHER P. POCQUAT Assistant Vice President
----------------------------------------------------------------------------------------
DIANE M. RIDOLFI Assistant Vice President
----------------------------------------------------------------------------------------
S. SHAY SCHOENBAUM Assistant Vice President & Marketing Officer
----------------------------------------------------------------------------------------
EDWARD J. SWEENEY Assistant Vice President
----------------------------------------------------------------------------------------
SHANIN BACHSTEIN Assistant Cashier
----------------------------------------------------------------------------------------
CAROL L. BEHLER Assistant Cashier
----------------------------------------------------------------------------------------
ELAINE CARDOSO Assistant Cashier
----------------------------------------------------------------------------------------
LYNDA CROSS Assistant Cashier
----------------------------------------------------------------------------------------
MARJORIE A. DZWONCZYK Assistant Cashier & CRA and Compliance Officer
----------------------------------------------------------------------------------------
LAURA GARMS Assistant Cashier
----------------------------------------------------------------------------------------
E. SUSAN GIANETTI Assistant Cashier
----------------------------------------------------------------------------------------
VITA M. PARISI Assistant Cashier
----------------------------------------------------------------------------------------
DAVID L. PETRY Assistant Cashier
----------------------------------------------------------------------------------------
KRISTIN A. ROMEO Assistant Cashier
----------------------------------------------------------------------------------------
JOSEPH J. SARDINI Assistant Cashier
----------------------------------------------------------------------------------------
SCOTT T. SEARLE Assistant Cashier
----------------------------------------------------------------------------------------
ANTOINETTE ROSELL Corporate Secretary *
----------------------------------------------------------------------------------------
|
----------------------------------------------------------------------------------------
PGB TRUST & CRAIG C. SPENGEMAN President & Chief Investment Officer *
INVESTMENTS ----------------------------------------------------------------------------------------
GLADSTONE BRYANT K. ALFORD First Vice President & Senior Trust Officer
----------------------------------------------------------------------------------------
JOHN M. BONK First Vice President & Director of Business
Development
----------------------------------------------------------------------------------------
JOHN C. KAUTZ First Vice President & Senior
Investment Officer
----------------------------------------------------------------------------------------
ROY C. MILLER First Vice President & Trust Officer
----------------------------------------------------------------------------------------
ROBERT M. FIGURELLI Vice President & Trust Officer
----------------------------------------------------------------------------------------
MICHAEL E. HERRMANN Vice President & Trust Officer
----------------------------------------------------------------------------------------
KATHERINE S. QUAY Vice President & Trust Officer
----------------------------------------------------------------------------------------
ANNE M. SMITH Vice President & Trust Officer
----------------------------------------------------------------------------------------
KURT G. TALKE Vice President & Trust Officer
----------------------------------------------------------------------------------------
MICHAEL T. TORMEY Vice President & Trust Officer
----------------------------------------------------------------------------------------
LAWRENCE J. VERNY Vice President & Trust Officer
----------------------------------------------------------------------------------------
JENNIFER CUCE Assistant Vice President & Trust Officer
----------------------------------------------------------------------------------------
EDWARD P. NICOLICCHIA Assistant Vice President & Trust Officer
----------------------------------------------------------------------------------------
DAVID C. O'MEARA Trust Officer
----------------------------------------------------------------------------------------
CATHERINE A. MCCATHARN Assistant Trust Officer & Assistant
Corporate Secretary *
----------------------------------------------------------------------------------------
R. GARY O'CONNOR Assistant Trust Officer
----------------------------------------------------------------------------------------
PATRICIA K. SAWKA Assistant Trust Officer
-------------------------------------------------------------------------------------------------------------
BERNARDSVILLE CHARLES A. STUDDIFORD, III Vice President
----------------------------------------------------------------------------------------
CAROL E. RITZER Assistant Cashier
-------------------------------------------------------------------------------------------------------------
CALIFON ANN W. KALLAM Assistant Vice President
-------------------------------------------------------------------------------------------------------------
CHATHAM
MAIN STREET VALERIE A. OLPP Assistant Vice President
-------------------------------------------------------------------------------------------------------------
CHATHAM
SHUNPIKE DONNA I. GISONE Vice President
-------------------------------------------------------------------------------------------------------------
CHESTER DONNA M. WHRITENOUR Assistant Vice President
-------------------------------------------------------------------------------------------------------------
CLINTON CAROLYN I. SEPKOWSKI Assistant Vice President
-------------------------------------------------------------------------------------------------------------
FAR HILLS TONYA FLOWERS Assistant Cashier
-------------------------------------------------------------------------------------------------------------
FELLOWSHIP JANET E. BATTAGLIA Assistant Cashier
-------------------------------------------------------------------------------------------------------------
GLADSTONE THOMAS N. KASPER Vice President
-------------------------------------------------------------------------------------------------------------
HILLSBOROUGH AMY E. GLASER Assistant Vice President
-------------------------------------------------------------------------------------------------------------
LONG VALLEY KATHERINE M. KREMINS Vice President
----------------------------------------------------------------------------------------
JAMES A. CICCONE Assistant Cashier
-------------------------------------------------------------------------------------------------------------
MENDHAM LINDA S. ZIROPOULOS Assistant Vice President
----------------------------------------------------------------------------------------
PENNY M. BURNS Assistant Cashier
-------------------------------------------------------------------------------------------------------------
NEW VERNON DONNA I. GISONE Vice President
-------------------------------------------------------------------------------------------------------------
PLUCKEMIN MARY ANNE MALONEY Assistant Vice President
----------------------------------------------------------------------------------------
TERESA M. LAWLER Assistant Cashier
-------------------------------------------------------------------------------------------------------------
WARREN LEE ANN HUNT Vice President
-------------------------------------------------------------------------------------------------------------
|
* Denotes a Holding Company Officer
DIRECTORS OFFICES
ANTHONY J. CONSI, II LOAN & ADMINISTRATION PGB TRUST &
Senior Vice President BUILDING INVESTMENTS
Weichert Realtors 158 Route 206 North 190 Main Street
Morris Plains, NJ Gladstone, NJ 07934 Gladstone, NJ 07934
(908) 234-0700 (908) 719-4360
PAMELA HILL www.pgbank.com
President
Ferris Corp. GLADSTONE (Main Office) BERNARDSVILLE
Gladstone, NJ 190 Main Street 36 Morristown Road
Gladstone, NJ 07934 Bernardsville, NJ 07924
T. LEONARD HILL (908) 719-4360 (908) 766-1711
Chairman Emeritus
CALIFON CHESTER
FRANK A. KISSEL 438 Route 513 350 Main Street
Chairman of the Board & CEO Califon, NJ 07830 Chester, NJ 07930
(908) 832-5131 (908) 879-8115
JOHN D. KISSEL
Turpin Realty, Inc FAR HILLS FELLOWSHIP VILLAGE
Far Hills, NJ 26 Dumont Road 8000 Fellowship Road
Far Hills, NJ 07931 Basking Ridge, NJ 07920
JAMES R. LAMB, ESQ. (908) 781-1018 (908) 719-4332
James R. Lamb, P.C.
Morristown, NJ LONG VALLEY MENDHAM
59 East Mill Road (Route 24) 17 East Main Street
EDWARD A. MERTON Long Valley, NJ 07853 Mendham, NJ 07945
President (908) 876-3300 (973) 543-6499
Merton Excavating & Paving Co.
Chester, NJ PLUCKEMIN POTTERSVILLE
468 Route 206 North 11 Pottersville Road
F. DUFFIELD MEYERCORD Bedminster, NJ 07921 Pottersville, NJ 07979
Managing Director (908) 658-4500 (908) 439-2265
Meyercord Advisors, Inc.
Bedminster, NJ NEW VERNON CHATHAM MAIN STREET
Village Road 311 Main Street
JOHN R. MULCAHY New Vernon, NJ 07976 Chatham, NJ 07928
Far Hills, NJ (973) 540-0444 (973) 635-8500
ROBERT M. ROGERS CHATHAM SHUNPIKE HILLSBOROUGH
President & COO 650 Shunpike Road 417 Route 206 North
Chatham Township, NJ 07928 Hillsborough, NJ 08844
PHILIP W. SMITH, III (973) 377-0081 (908) 281-1031
President
Phillary Management, Inc. CLINTON WARREN
Far Hills, NJ 189 Center Street 58 Mountain Boulevard
Clinton, NJ 08809 Warren, NJ 07059
CRAIG C. SPENGEMAN (908) 238-1935 (908) 757-2805
President, PGB Trust and
Investments
JACK D. STINE
Trustee
Proprietary House Association
Perth Amboy, NJ
|
SHAREHOLDER INFORMATION
CORPORATE ADDRESS STOCK LISTING INDEPENDENT AUDITORS
---------------------------------------------------------------------------------------------------------
158 Route 206, North Peapack-Gladstone Financial KPMG LLP
Gladstone, New Jersey 07934 Corporation common stock is 150 John F. Kennedy Parkway
(908) 234-0700 traded on the American Stock Short Hills, New Jersey 07078
www.pgbank.com Exchange under the symbol PGC
and reported in the Wall Street
Journal and most major newspapers.
ANNUAL MEETING TRANSFER AGENT SHAREHOLDER RELATIONS
---------------------------------------------------------------------------------------------------------
The annual meeting of shareholders Registrar and Transfer Company Arthur F. Birmingham
of Peapack-Gladstone Financial 10 Commerce Drive Executive Vice President and
Corporation will be held on Cranford, New Jersey 07016-3572 Chief Financial Officer
April 27, 2004 at 2:00 p.m. (908) 719-4308
birmingham@pgbank.com
|
Exhibit 31.1
CERTIFICATIONS
I, Frank A. Kissel, certify that:
1. I have reviewed this annual report on Form 10-K of Peapack-Gladstone Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 11, 2004
Exhibit 31.2
CERTIFICATIONS
I, Arthur F. Birmingham, certify that:
1. I have reviewed this annual report on Form 10-K of Peapack-Gladstone Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 11, 2004
Exhibit 32
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Peapack-Gladstone Financial Corporation, (the "Corporation") for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Frank A. Kissel, as Chief Executive Officer of the Corporation, and Arthur F. Birmingham, as Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. (section) 1350, as adopted pursuant to (section) 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.