Peapack-Gladstone Financial Reports Q3 Net Income of $1.3M

GLADSTONE, N.J. -- Peapack-Gladstone Financial Corporation (NASDAQ Global Select Market:PGC) (the Corporation) recorded net income for the nine months ended September 30, 2009 of $5.7 million compared to $10.6 million for the same nine month period of 2008. For the nine months of 2009, diluted earnings per common share after effect of the preferred stock dividend were $0.53 as compared to diluted earnings per common share of $1.20 for the same nine months of 2008.

For the third quarter of 2009, the Corporation recorded net income of $1.3 million compared to $3.5 million for the 2008 quarter. For the 2009 quarter, diluted earnings per common share after effect of the preferred stock dividend were $0.10 as compared to diluted earnings per common share of $0.40 for the same quarter of 2008.

The decrease in earnings per share for both the nine month and quarter periods was primarily due to an increase in the provision for loan losses, an increase in the provision for losses on OREO (Other Real Estate Owned), an increase in the industry-wide FDIC assessment and the dividends on preferred stock.

The Corporation recorded a provision for loan losses of $2.8 million in the third quarter of 2009 compared to $780 thousand for the same period in 2008. Additionally, a provision for losses on OREO of $375 thousand, associated with a contract for sale, was recorded during the 2009 quarter - there was no such provision in the 2008 quarter. Due to a substantial increase in the FDIC assessment rates, total FDIC assessment expense of $724 thousand was recorded for the third quarter of 2009 as compared to $211 thousand for the same period in 2008. Dividends and accretion on preferred stock totaled $430 thousand for the quarter ended September 30, 2009. There was no such charge last year as the preferred stock was issued in January 2009 as a result of the Corporation's participation in the U.S. Treasury's Capital Purchase Program.

Frank A. Kissel, Chairman and CEO, stated, "We are pleased to have reported positive earnings and generate capital in excess of dividends this quarter, despite the significant impact the recession has had on financial institutions and their borrowers." Mr. Kissel went on to say, "While our non-performing assets have increased, we have not seen the same significant deterioration as many other institutions because of our conservative underwriting and diligence in managing our loan portfolio. Further, we are pleased with the progress we have made in resolving certain problem assets over the quarter."

Net Interest Income and Margin

In the third quarter of 2009, net interest income, on a fully tax-equivalent basis, was $12.5 million, an increase of $74 thousand or 0.60 percent from the same quarter last year. The effect of growth in overall interest earning assets funding by growth in core deposits contributed to improved net interest income.

On a fully tax-equivalent basis, the net interest margin was 3.61 percent and 3.92 percent for the third quarters of 2009 and 2008, respectively. The effect of growth in lower yielding, but less risky and shorter duration interest-earning cash deposits and investment securities coupled with declining loan balances, partially offset by the effect of growth in lower costing core deposits, contributed to the reduced margin.

Loans

Average loans totaled $1.01 billion for the third quarter of 2009 as compared to $1.02 billion for the same 2008 quarter, reflecting a decrease of $10.4 million or 1.0 percent. The average residential mortgage loan portfolio declined $31.9 million or 6.3 percent to $472.8 million, as the Corporation has opted to sell its longer-term, fixed-rate production as an interest rate risk management strategy in the lower rate environment, and loan payments have outpaced originations put into portfolio.

For the quarterly period ending September 30, 2009 compared to the same quarterly period in 2008, the average commercial mortgage portfolio grew $12.3 million or 4.7 percent to $273.0 million; the average commercial construction loan portfolio was $67.2 million, an increase of $13.4 million or 24.9 percent; and the average home equity loan portfolio rose $10.8 million or 42.5 percent to $36.2 million. The Corporation focused on the origination of these higher-yielding, shorter-maturity loans and loan originations outpaced principal paydowns over the year.

In comparing balances at September 30, 2009 to balances at December 31, 2008, the decline in the Corporation's loan portfolio has been in not only the residential mortgage loan portfolio for the same reasons described above, but also in the commercial and construction loan portfolios, as loan demand and quality borrowers on these fronts have been scarce during 2009.

Deposits

Average deposits grew 11.2 percent from $1.18 billion in the third quarter of 2008 to $1.31 billion in the third quarter of 2009. Average interest-bearing checking balances totaled $216.6 million in the third quarter of 2009, rising $70.0 million or 47.7 percent from the same quarter in 2008 due to the Corporation's focus on core deposit growth coupled with the introduction of the Ultimate Checking product, which provides customers with a low-cost checking product and a higher yield for larger balances. Average money market accounts also rose from $397.8 million in the third quarter of 2008 to $445.8 million for the same quarter of 2009, an increase of $48.1 million or 12.1 percent, as certain customers tend to "park" funds in money market accounts in the lower interest rate environment.

In comparing balances at September 30, 2009 to balances at December 31, 2008, lower costing interest-bearing checking accounts and money market accounts have continued to increase, but higher costing certificates of deposit have declined. The Corporation has opted not to pay higher rates on maturing certificates of deposit, as the Corporation has ample liquidity from core deposit growth and principal pay downs on loans.

Mr. Kissel commented, "Our core funding growth has reduced our overall cost of funds, contributed to our profitability and enhanced the value of our franchise."

PGB Trust and Investments

PGB Trust and Investments generated $2.2 million in fee income in the third quarter of 2009, a decrease of $289 thousand or 11.6 percent over the same quarter of 2008. The decrease reflects the lower market values on assets under management, due to the recession, on which investment management fees are based, as well as reduction of certain fees earned on placement of funds in money market instruments, due to the reduced interest rate environment.

Other Income

For the third quarter of 2009, other income totaled $1.1 million as compared to $964 thousand for the same quarter of 2008, rising $173 thousand, or 18.0 percent. Income earned on the sale of mortgage loans at origination increased $176 thousand to $200 thousand in the third quarter of 2009 from $24 thousand in the same 2008 period. More customers have been interested in longer-term, fixed-rate mortgages in the current low rate environment. These mortgages are sold rather than retained in portfolio for interest rate risk management purposes. Income from Bank-Owned Life Insurance, resulting from the increase in cash surrender value, declined $53 thousand or 18.1 percent to $240 thousand for the third quarter of 2009 as compared to the third quarter of 2008 due primarily to the lower interest rate environment.

Other Expenses

The Corporation's other expenses were $10.9 million in the third quarter of 2009 compared to $9.6 million for the same quarter of 2008, an increase of $1.3 million or 14.1 percent. A large portion of this increase was due to an increase in the industry-wide FDIC assessment. Due to a substantial increase in the FDIC assessment rates, total FDIC assessment expense of $724 thousand was recorded for the third quarter of 2009 as compared to $211 thousand for the same period in 2008. Salary and benefit expense in the third quarters of 2009 and 2008 was $5.6 million and $5.5 million, respectively, increasing by $113 thousand or 2.1 percent. In addition to salary increases, the Corporation added staff for several new branches/offices. In addition, during the third quarter of 2009, the Corporation recorded a provision for losses on OREO of $375 thousand, associated with a contract for sale. There was no such provision in the 2008 quarter.

ASSET QUALITY

At September 30, 2009, non-performing assets totaled $14.9 million or 1.00 percent of total assets as compared to $6.6 million or 0.48 percent of total assets at December 31, 2008 and $5.0 million or 0.37 percent of total assets at September 30, 2008. Non-performing loans have increased during the first nine months of 2009 primarily due to two construction loans to one borrower totaling $6.0 million and one large residential loan totaling $2.1 million. Both borrowers were affected by the current economic downturn. Although both borrowers continued to make interest payments on these loans through August 2009, they have been on non-accrual status and $868 thousand in charge-offs have been recorded in 2009 related to these loans.

As noted earlier in the release, Mr. Kissel indicated he was pleased with the progress made in resolving certain problem assets over the quarter. He went on to say, "During the quarter, the property securing a $2.1 million residential loan and the note related to a $600 thousand commercial mortgage loan, have both gone under contract for sale, with closings expected during the fourth quarter. Further, a $2.6 million loan relationship was upgraded with new ownership and management, as well as an injection of capital."

Mr. Kissel went on to say, "We continue to proactively manage our loan portfolios in this economic environment in an effort to identify and stay ahead of potential problems. We are well capitalized and we are ready to lend to well-qualified individuals and businesses. However, we remain committed to our conservative underwriting standards that have served us well and will continue to serve us well in the future."

The allowance for loan losses was $12.9 million or 1.28 percent of total loans at September 30, 2009 as compared to $9.7 million or 0.92 percent of total loans at December 31, 2008 and $9.1 million or 0.88 percent of total loans at September 30, 2008.

The provision for loan losses for the third quarter of 2009 was $2.8 million as compared to $780 thousand for the same quarter of 2008. Management has determined that a higher provision is warranted because of the increase in non-performing loans and the continued weakness in the housing markets and the overall economy.

CAPITAL

At September 30, 2009, the Corporation's leverage ratio, tier 1 and total risk based capital ratios were 8.17 percent, 12.23 percent and 13.48 percent, respectively. These capital ratios are well above the minimum levels to be considered well capitalized under applicable regulatory guidelines. Additionally, the Corporation's common equity ratio (common equity to total assets) at September 30, 2009 stands at a healthy 6.17 percent. Mr. Kissel noted, "Building capital and remaining well capitalized and paying back the funds from the Treasury's Capital Purchase Program, continue to be important business objectives."

As previously announced, on October 15, 2009 the Board of Directors declared a regular cash dividend of $0.05 per share payable on November 13, 2009 to shareholders of record on October 29, 2009.

ABOUT THE CORPORATION

Peapack-Gladstone Financial Corporation is a bank holding company with total assets of $1.49 billion as of September 30, 2009. Peapack-Gladstone Bank, its wholly owned community bank, was established in 1921, and has 24 branches in Somerset, Hunterdon, Morris, Middlesex and Union Counties. Its Trust Division, PGB Trust and Investments, operates at the Bank's main office located at 190 Main Street in Gladstone and at four other locations in Clinton, Morristown and Summit, New Jersey and Bethlehem, Pennsylvania. To learn more about Peapack-Gladstone Financial Corporation and its services please visit our web site at www.pgbank.com or call 908-234-0700.