-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TWU5fuOvJkS3BAasuFrI/fcBUUytVhAnMLyoy/a9ZOARbmWFVOWKRIDrmoGdepbx /MlY7xY1BvmMLoKbMpg5lQ== 0001125282-02-002496.txt : 20020814 0001125282-02-002496.hdr.sgml : 20020814 20020814103439 ACCESSION NUMBER: 0001125282-02-002496 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTER BANCORP INC CENTRAL INDEX KEY: 0000712771 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 521273725 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11486 FILM NUMBER: 02732182 BUSINESS ADDRESS: STREET 1: 2455 MORRIS AVE CITY: UNION STATE: NJ ZIP: 07083 BUSINESS PHONE: 9086889500 MAIL ADDRESS: STREET 1: 2455 MORRIS AVE CITY: UNION STATE: NJ ZIP: 07083 10-Q 1 b319827_10q.txt FORM 10-Q SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2002 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________TO___________ Commission file number 2-81353 CENTER BANCORP, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 52-1273725 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2455 Morris Avenue, Union, New Jersey 07083 - -------------------------------------------------------------------------------- (Address of principal executives offices) (Zip Code) (908) 688-9500 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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|_| Shares outstanding on July 31, 2002 - ----------------------------------- Common stock - no par value - 4,208,473 shares CENTER BANCORP, INC. INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statements of Condition at June 30, 2002(Unaudited) and December 31, 2001 3 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2002 and 2001(Unaudited) 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001(Unaudited) 5 Notes to the Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 25 Item 3. Qualitative and Quantitative Disclosures about Market Risks 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings 26 Item 6. Exhibits 26 Signature 26 2 Center Bancorp, Inc. Consolidated Statements of Condition
June 30, December 31, (Dollars in thousands) 2002 2001 ==================================================================================================================== (unaudited) Assets: Cash and due from banks $ 19,728 $ 29,668 Federal funds sold and securities purchased under agreement to resell 41,000 0 - -------------------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 60,728 29,668 Investment securities held to maturity (approximate market value of $225,591 in 2002 and $205,604 in 2001) 221,143 205,237 Investment securities available-for-sale 198,754 212,037 - -------------------------------------------------------------------------------------------------------------------- Total investment securities 419,897 417,274 - -------------------------------------------------------------------------------------------------------------------- Loans, net of unearned income 227,538 211,236 Less - Allowance for loan losses 2,344 2,191 - -------------------------------------------------------------------------------------------------------------------- Net loans 225,194 209,045 - -------------------------------------------------------------------------------------------------------------------- Premises and equipment, net 12,566 11,685 Accrued interest receivable 4,935 4,542 Bank owned separate account life insurance 13,753 13,382 Other assets 2,090 1,916 Goodwill 2,091 2,091 - -------------------------------------------------------------------------------------------------------------------- Total assets $ 741,254 $ 689,603 ==================================================================================================================== Liabilities Deposits: Non-interest bearing $ 112,543 $ 103,520 Interest bearing: Certificates of deposit $100,000 and over 39,510 23,371 Savings and time deposits 393,950 370,942 - -------------------------------------------------------------------------------------------------------------------- Total deposits 546,003 497,833 - -------------------------------------------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 70,014 72,296 Federal Home Loan Bank advances 60,000 60,000 Corporation - obligated Mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures of Corporation 10,000 10,000 Accounts payable and accrued liabilities 6,414 5,178 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 692,431 645,307 - -------------------------------------------------------------------------------------------------------------------- Stockholders' equity Preferred Stock, no par value, authorized 5,000,000 shares; none issued 0 0 Common stock, no par value: Authorized 20,000,000 shares; issued 4,741,352 and 4,732,625 shares in 2002 and 2001, respectively 18,815 14,677 Additional paid in capital 4,348 4,180 Retained earnings 27,412 28,569 Treasury stock at cost (533,462 and 569,741 shares in 2002 and 2001, respectively) (3,870) (4,115) Restricted stock (28) (135) Accumulated other comprehensive income 2,146 1,120 - -------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 48,823 44,296 - -------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 741,254 $ 689,603 ====================================================================================================================
All common stock share and per share amounts have been restated to reflect the 5% common stock dividend distributed on June 1, 2002 to stockholders of record May 17, 2002. See Accompanying Notes to Consolidated Financial Statements 3 Center Bancorp, Inc. Consolidated Statements of Income (unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------- -------------- -------------- ------------- (Dollars in thousands, except per share data) 2002 2001 2002 2001 =========================================================================================================================== Interest income: Interest and fees on loans $ 3,756 $ 3,798 $ 7,429 $ 7,600 Interest and dividends on investment securities: Taxable interest income 6,371 5,548 12,923 11,101 Nontaxable interest income 150 117 301 233 Interest on Federal funds sold and securities purchased under agreement to resell 7 139 9 305 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Total interest income 10,284 9,602 20,662 19,239 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Interest expense: Interest on certificates of deposit $100,000 or more 115 354 289 1,032 Interest on other deposits 2,165 2,523 4,356 5,030 Interest on short-term borrowings 1,331 1,337 2,643 2,540 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Total interest expense 3,611 4,214 7,288 8,602 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Net interest income 6,673 5,388 13,374 10,637 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Provision for loan losses 90 183 180 258 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Net interest income after provision for loan losses 6,583 5,205 13,194 10,379 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Other income: Service charges, commissions and fees 395 400 774 787 Other income 95 82 165 191 BOLI 191 83 371 83 Gain on securities sold 56 124 242 152 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Total other income 737 689 1,552 1,213 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Other expense: Salaries and employee benefits 2,282 1,836 4,582 3,706 Occupancy expense, net 382 370 838 804 Premises and equipment expense 395 332 784 668 Stationery and printing expense 148 134 304 227 Marketing and advertising 163 132 356 258 Other expenses 847 907 1,808 1,700 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Total other expense 4,217 3,711 8,672 7,363 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Income before income tax expense 3,103 2,183 6,074 4,229 Income tax expense 1,016 783 1,952 1,474 - ------------------------------------------------------------ ------------- -------------- -------------- ------------- Net income $ 2,087 $ 1,400 $ 4,122 $ 2,755 ============================================================ ============= ============== ============== ============= Earnings per share Basic $ 0.50 $ 0.34 $ 0.98 $ 0.67 Diluted 0.49 0.34 0.98 0.66 ============================================================ ============= ============== ============== ============= Average weighted common shares outstanding Basic 4,197,843 4,133,691 4,185,504 4,125,264 Diluted 4,231,190 4,167,571 4,219,460 4,159,009 ============================================================ ============= ============== ============== =============
All common stock share and per share amounts have been restated to reflect the 5% common stock dividend distributed on June 1, 2002 to stockholders of record May 17, 2002. See Accompanying Notes to Consolidated Financial Statements 4 Center Bancorp, Inc. Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30 -------------------------------- (Dollars in thousands) 2002 2001 ============================================================================================================ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,122 $ 2,755 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 835 752 Provision for loan losses 180 258 (Gain) on sale of investment securities available-for-sale (242) (152) Proceeds from sale of other real estate owned 0 45 (Increase) Decrease in accrued interest receivable (393) 212 Loss on sale of other real estate owned 0 4 Increase in other assets (174) (111) Increase in Cash Surrender Value of Bank Owned Life Insurance (371) (84) Increase in other liabilities 1,236 1,230 Amortization of premium and accretion of discount on investment securities, net 533 (65) - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 5,726 4,844 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available-for-sale 65,812 38,479 Purchase of FHLB stock (880) 0 Proceeds from maturities of securities held-to-maturity 41,148 36,894 Proceeds from sales of securities available-for-sale 34,956 16,421 Purchase of securities available-for-sale (84,891) (63,326) Purchase of securities held-to-maturity (58,032) (26,335) Net increase in loans (16,329) (6,484) Property and equipment expenditures, net (1,716) (613) Purchase of bank owned life insurance 0 (10,000) - ------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (19,932) (14,964) ============================================================================================================ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 48,170 (496) Dividends paid (1,309) (1,152) Proceeds from issuance of common stock 687 374 Net (decrease) increase in short-term borrowing (2,282) 18,307 - ------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 45,266 17,033 - ------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 31,060 6,913 - ------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at beginning of period $ 29,668 $ 22,274 ============================================================================================================ Cash and cash equivalents at end of period $ 60,728 $29,187 ============================================================================================================ Supplemental disclosures of cash flow information: Interest paid on deposits and short-term borrowings $ 7,073 $ 8,529 Income taxes $ 1,810 $ 1,159
See Accompanying Notes to Consolidated Financial Statements 5 Notes to Consolidated Financial Statements Note I Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of Center Bancorp, Inc. (the" Corporation") are prepared on the accrual basis and include the accounts of the Corporation and its wholly owned subsidiaries, Union Center National Bank (the "Bank") and Center Bancorp Statutory Trust I. All significant inter-company accounts and transactions have been eliminated from the accompanying consolidated financial statements. Business The Bank provides a full range of banking services to individual and corporate customers through branch locations in Union and Morris Counties, New Jersey. The Bank is subject to competition from other financial institutions, is subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities. Basis of Financial Statement Presentation The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as of the date of the statement of condition, and revenues and expenses for the applicable period. Actual results could differ significantly from those estimates. In the opinion of Management, all adjustments necessary for a fair presentation of the Corporation's financial condition and results of operations for the interim periods have been made. Such adjustments are of a normal recurring nature. Certain reclassifications have been made for 2001 to conform to the classifications presented in 2002. Results for the period ended June 30, 2002 are not necessarily indicative of results for any other interim period or for the entire fiscal year. Reference is made to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001 for information regarding accounting principles. Note 2 Recent Accounting Pronouncements SFAS No. 141 In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Corporation had no business combinations subsequent to June 30, 2001, and therefore the implementation of this Statement 141 did not have an impact on the Corporation. 6 SFAS NO. 142 Upon adoption of Statement 142, the Corporation is required to evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination. In addition, the Corporation is required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. To the extent an intangible asset is identified as having an indefinite useful life, the Corporation is required to test the tangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with the transitional goodwill impairment evaluation, Statement 142 requires the Corporation to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. The Corporation will then have up to six months from the date of adoption to determine the fair value of goodwill and compare it to the carrying amount. To the extent that the goodwill carrying amount exceeds its fair value, an indication exits that the goodwill may be impaired and the Corporation must perform the second step of the transitional impairment test. In the second step, the Corporation must compare the implied fair value of the goodwill, determined by allocating the fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Corporation's statement of earnings. As of December 31, 2001, the Corporation has $2.1 million in unamortized goodwill with annual amortization of $323,000, which ceased upon the adoption of SFAS No. 142, "Goodwill and Intangible Assets". The Corporation adopted SFAS No. 142 on January 1, 2002. Accordingly, the June 30, 2002 Financial Statements do not include amortization of goodwill. For the three and six months ended June 30, 2001, amortization of goodwill totaled $81,000 and $161,000, respectively. If SFAS No. 142 had been adopted on January 1, 2001, net income for the three and six months ended June 30, 2001 would have increased $81,000 and $161,000, respectively. Accordingly basic and diluted earnings per share would have increased $.02 and $.04, for the three and six months ended June 30, 2001, respectively. SFAS NO. 144 On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", it retains many of the fundamental provisions of that Statement. The Statement is effective for fiscal years beginning after December 15, 2001. The initial adoption of SFAS No. 144 did not have a significant impact on the Corporation's consolidated financial statements. SFAS No. 145 In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64 Amendment of FASB Statement No. 13, and Technical Corrections. The Statement was issued to eliminate an inconsistency in the required accounting for sale-leaseback transactions and certain lease modifications that were similar to sale-leaseback transactions and to rescind FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers as well as amending other existing authoritative pronouncements to make various technical corrections. 7 SFAS No. 145 also rescinds SFAS No. 4 Reporting Gains and Losses from Extinguishments of Debt and SFAS No. 64 Extinguishments of Debt Made to Satisfy Sinking Fund Requirements. Under SFAS No. 4, as amended by SFAS No. 64, gains and losses from the extinguishment of debt were required to be classified as an extraordinary item, if material. Under SFAS No. 145, gains or losses from the extinguishment of debt are to be classified as a component of operating income, rather than an extraordinary item. SFAS No. 145 is effective for fiscal years beginning after May 16, 2002, with early adoption of the provisions related to the rescission of SFAS No. 4 encouraged. Upon adoption, companies must reclassify prior period amounts previously classified as an extraordinary item. Management does not anticipate that the initial adoption of SFAS 145 will have a significant impact on the Corporation's consolidated financial statements. SFAS No. 146 In July, 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The standard requires companies to recognize cost associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The Statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Note 3 A summary of comprehensive income follows.
Comprehensive Income Three Months Six Months (Dollars in thousands) Ended June 30, Ended June 30, - ----------------------------------------------------------------------------------------------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Net Income $ 2,087 $ 1,400 $ 4,122 $2,755 Other comprehensive income Unrealized holding gains arising during the period, net of taxes 567 165 1,186 1,087 Less reclassification adjustment for (gains) included in net income (net of tax benefit) (37) (82) (160) (100) - ----------------------------------------------------------------------------------------------------------------- Other total comprehensive income 530 83 1,026 987 - ----------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 2,617 $ 1,483 $ 5,148 $3,742 =================================================================================================================
Note 4 The following is a reconciliation of the calculation of basic and diluted earnings per share.
Three Months Six Months (In thousands, except per share data) Ended June 30, Ended June 30, - ----------------------------------------------------------------------------------------------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Net Income $2,087 $1,400 $4,122 $2,755 Weighted Average Shares 4,198 4,134 4,186 4,125 Effect of Dilutive Stock Options 33 34 33 34 - ----------------------------------------------------------------------------------------------------------------- Total Weighted Average Dilutive Shares 4,231 4,168 4,219 4,159 - ----------------------------------------------------------------------------------------------------------------- Basic Earnings per Share $ 0.50 $ 0.34 $ 0.98 $ 0.67 - ----------------------------------------------------------------------------------------------------------------- Diluted Earnings per Share $ 0.49 $ 0.34 $ 0.98 $ 0.66 =================================================================================================================
All common stock share and per share amounts have been restated to reflect the 5% common stock dividend distributed on June 1, 2002 to common stockholders of record May 17, 2002. 8 Management's Discussion & Analysis of Financial Condition and Results of Operations Net income for the six months ended June 30, 2002 amounted to $4,122,000 compared to $2,755,000 earned for the comparable six-month period ended June 30, 2001. On a per diluted share basis, earnings increased to $.98 per share as compared with $.66 per share for the six-months ended June 30, 2001. All common stock per share amounts have been restated to reflect the 5% common stock dividend declared April 16, 2002, and distributed June 1, 2002. The annualized return on average assets increased to 1.13 percent compared with 0.94 percent for the comparable six-month period in 2001. The annualized return on average stockholders' equity was 17.62 percent for the six-month period ended June 30, 2002 as compared to 13.39 percent for the six-months ended June 30, 2001. Earnings performance for the first six months of 2002 primarily reflects a higher level of net interest income and increased non-interest income, offsetting increased non-interest expense and income tax expense. Net income for the three -months ended June 30, 2002 amounted to $2,087,000 as compared to $1,400,000 earned for the comparable three-month period ended June 30, 2001. On a per diluted share basis, earnings increased to $.49 per share as compared with $.34 per share for the three-months ended June 30, 2001. All common stock per share amounts have been restated to reflect the 5% common stock dividend declared April 16, 2002, distributed June 1, 2002. The annualized return on average assets increased to 1.15 percent compared with 0.94 percent for the comparable three-month period in 2001. The annualized return on average stockholders' equity was 17.66 percent for the three-month period ended June 30, 2002 as compared to 13.37 percent for the three-months ended June 30, 2001. Earnings performance for the second quarter of 2002 primarily reflects a higher level of net interest income and increased non-interest income, offsetting increased non-interest expense and income tax expense. Net Interest income is the difference between the interest earned on the portfolio of earning-assets (principally loans and investments) and the interest paid for deposits and short-term borrowings, which support these assets. Net interest income is presented below first on a fully tax-equivalent basis by adjusting tax-exempt income (primarily interest earned on various obligations of state and political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable issues and then in accordance with the Corporation's consolidated financial statements.
Net Interest Income ============================================================================================================================ (dollars in thousands) Three Months Ended Six Months Ended June 30, Percent June 30, Percent 2002 2001 Change 2002 2001 Change ------------- ----------- --------- ------------- ------------- ---------- Interest income: Investments $ 6,598 $ 5,725 15.2 $13,379 $ 11,454 16.8 Loans, including fees 3,756 3,798 (1.1) 7,429 7,600 (2.3) Federal funds sold and securities sold under agreements to repurchase 7 139 95.0 9 305 (97.0) ------------- ----------- --------- ------------- ------------- ---------- Total interest income 10,361 9,662 7.2 20,817 19,359 7.5 - ------------------------------------------------------- ----------- --------- ------------- ------------- ---------- Interest expense: Certificates $100,000 or more 115 354 (67.5) 289 1,032 (72.0) Savings and Time Deposits 2,165 2,523 (14.2) 4,356 5,030 (13.4) FHLB advances 832 832 0.0 1,654 1,654 0.0 Borrowings 499 505 (1.2) 989 886 11.6 - ---------------------------------------- ------------- ----------- --------- ------------- ------------- ---------- Total interest expense 3,611 4,214 (14.3) 7,288 $8,602 (15.3) ------------- ----------- --------- ------------- ------------- ---------- Net interest income on a fully tax-equivalent basis 6,750 5,448 23.9 13,529 10,757 25.8 - ---------------------------------------- ------------- ----------- --------- ------------- ------------- ---------- Tax-equivalent adjustment (77) (60) (28.3) (155) (120) (29.2) Net interest income * $ 6,673 $ 5,388 23.9 $13,374 $ 10,637 25.7 ============================================================================================================================
* Before the provision for loan losses. NOTE: The tax-equivalent adjustment was computed based on an assumed statutory Federal income tax rate of 34 percent. Adjustments were made for interest accrued on securities of state and political subdivisions. 9 Net interest income on a fully tax-equivalent basis increased $2,772,000 or 25.8 percent to approximately $13.5 million for the six months ended June 30, 2002, from $10.8 million for the comparable period in 2001. For the six months ended June 30, 2002, the net interest margin increased 8 basis points to 4.01 percent from 3.93 percent due primarily to an increase in interest earning assets and a lower cost of funds on interest-bearing liabilities. For the six months ended June 30, 2002, a decrease in the average yield on interest earning assets of 90 basis points was offset by a decrease in the average cost of interest-bearing liabilities of 127 basis points. Net interest income on a fully tax-equivalent basis increased $1,302,000 or 23.9 percent to $6.8 million for the three months ended June 30, 2002, from $5.4 million for the comparable period in 2001. For the three months ended June 30, 2002, the net interest margin increased 6 basis points to 4.00 percent from 3.94 percent due primarily to an increase in interest-earning assets and a lower cost of funds on interest-bearing liabilities. For the three-months ended June 30, 2002, a decrease in the average yield on interest earning assets of 83 basis points was offset by a decrease in the average cost of interest-bearing liabilities of 115 basis points. Interest income on a full-tax-equivalent basis for the six-month period ended June 30, 2002 increased by $1.5 million or 7.5 percent, versus the comparable period ended June 30, 2001. The primary increase resulted from the growth of earning assets, primarily investment securities and loans. The Corporation's loan portfolio increased on average $16.3 million to $218.0 million from $201.7 million in the same period of 2001. This growth was primarily driven by growth in commercial loans and commercial and residential mortgages. The loan portfolio represented 32.3 percent of the Corporation's interest earning assets (on average) during the first six months of 2002 and 36.9 percent in the same period in 2001. Average investment volume increased during the period $121.7 million on average compared to 2001. The growth in earning assets was funded primarily through increased levels of money market and savings deposits, and short-term borrowings. For the three-month period ended June 30, 2002 interest income on a tax-equivalent basis increased by $699,000 or 7.23 percent over the comparable three-month period in 2001. The primary increase resulted from the growth of earning assets, primarily investment securities, and loans. The Corporation's loan portfolio increased on average $18.8 million to $222.4 million from $203.6 million in the same quarter in 2001, primarily driven by growth in commercial loans and commercial and residential mortgages. The loan portfolio represented approximately 32.9 percent of the Corporation's interest earning assets (on average) during the second quarter of 2002 and 36.8 percent in the same quarter in 2001. Average investment volume increased during the period $111.9 million on average compared to 2001. The growth in earning assets was funded primarily through increased levels of money market and savings deposits, and short-term borrowings. The factors underlying the year-to year changes in net interest income are reflected in the tables appearing on pages 9, 12, 13 and 14, each of which has been presented on a tax-equivalent basis (assuming a 34 percent tax rates). The table on page 13 (Average Balance Sheet with Interest and Average Rates) shows the Corporation's consolidated average balance of assets, liabilities, and stockholders' equity, the amount of income produced from interest-earning assets and the amount of expense resulting from interest-bearing liabilities and the interest income as a percentage of average interest-earning assets. The table presented on page 12 (Analysis of Variance in Net Interest Income Due to Volume and Rates) quantifies the impact on net interest income resulting from changes in average balances and average rates over the past three years; any change in interest income or expense attributable to both changes in volume and changes in rate has been allocated in proportion to the relationship of the absolute dollar amount of change in each category. 10 Average Federal funds sold and securities purchased under agreements to resell decreased both for the six and three month periods in 2002 compared to 2001. For the six months ended June 30, 2002 the decrease amounted to approximately $11.0 million. For the three months ended June 30, 2002 the decrease amounted to approximately $10.1 million. For both the three and six-month periods the Corporation elected to invest these monies in overnight money market funds, which are part of the investment portfolio, versus Federal funds or repurchase agreements due to more favorable rates available. Interest expense for the six months ended June 30, 2002 decreased $1.3 million or 15.3 percent from the comparable six-month period ended June 30, 2001, as a result of a decline in interest rates coupled with higher average volumes of lower cost interest-bearing liabilities and borrowings. A $3.0 million decrease in interest expense attributable to decreased rates brought about by the actions of the Federal Reserve in lowering interest rates was offset in part by $1.7 million increases in interest expense attributable to volume related factors. Interest expense for the three months ended June 30, 2002 decreased $603,000 or 14.3 percent from the comparable three-month period ended June 30, 2001, as a result of a decline in interest rates and coupled with higher average volumes of lower cost interest-bearing liabilities and borrowings. A $657,000 decrease in interest expense attributable to decreased rates brought about by the actions of the Federal Reserve in lowering interest rates was offset in part by $1.3 increase in interest expense attributable to volume related factors. For both the three and six month periods, short-term interest rates have decreased as a result of monetary policy promulgated by the Federal Reserve Open Market Committee. The Fed has lowered the Federal Funds index rate on August 21, September 17, October 2, November 6 and December 11, 2001. Since June 2001 the Federal Funds rate has fallen 200 basis points. For the six months ended June 30, 2002, the Corporation's net interest spread on a tax-equivalent basis (i.e. interest income on a tax-equivalent basis as a percent of average interest-earning-assets less interest expense as a percent of total interest bearing liabilities) increased to 3.60 percent from 3.23 percent for the six months ended June 30, 2001. The increase reflected a widening of spreads between yields earned on loans and investments and rates paid for supporting funds. Net interest margins expanded due in part to a decline in interest rates, despite the increased volumes of interest-bearing checking, money market and savings deposits in addition to short-term borrowings. The Federal Reserve left the target Federal Funds rate at a 40-year low of 1.75 percent during the six months ended June 30, 2002, as compared to the same period in 2001, when the Federal Reserve lowered interest rates six times. Although the yield on interest-earning assets declined to 6.18 percent from 7.08 percent in 2001 (a change of 90 basis points), this change was offset by lower rates paid for interest-bearing liabilities coupled with a change in the mix of interest-bearing liabilities. The total cost of interest-bearing liabilities decreased to 2.58 percent, a change of 127 basis points, for the six months ended June 30, 2002 from 3.85 percent for the six months ended June 30, 2001. For the three months ended June 30, 2002, the Corporation's net interest spread on a tax-equivalent basis (i.e. interest income on a tax-equivalent basis as a percent of average interest-earning-assets less interest expense as a percent of total interest bearing liabilities) increased to 3.58 percent from 3.26 percent for the three months ended June 30, 2001. The increase reflected a widening of spreads between yields earned on loans and investments and rates paid for supporting funds. Net interest margins expanded due in part to a decline in interest rates, despite the increased volumes of interest-bearing checking, money market and savings deposits in addition to short-term borrowings. The Federal Reserve left the target Federal Funds rate at a 40-year low of 1.75 percent during the three-months ended June 30, 2002, as compared to the same period in 2001, when the Federal Reserve lowered interest rates three times. Although the yield on interest-earning assets declined to 6.15 percent from 6.98 percent in 2001 (a change of 83 basis points), this change was offset by lower rates paid for interest-bearing liabilities coupled with a change in the mix of interest-bearing liabilities. The total cost of interest-bearing liabilities decreased to 2.57 percent or 115 basis points, for the three months ended June 30, 2002 from 3.72 percent for the three months ended June 30, 2001. 11 The trend is primarily due to the previously discussed change in the mix and decrease in rates paid on certain interest-bearing liabilities. The decrease in these funding costs continues to change disproportionately to the rates on new loans and investments. The following table "Analysis of Variance in Net Interest Income due to Volume and Rates" analyzes net interest income by segregating the volume and rate components of various interest-earning assets and liabilities and the changes in the rates earned and paid by the Corporation.
Analysis of Variance in Net Interest Income on a Tax Equivalent Basis Due to Volume and Rates (Tax-Equivalent Basis) =================================================================================================================================== Three Months Ended 6/30/02 Six Months Ended 6/30/02 2002/2001 Increase/(Decrease) 2002/2001 Increase/(Decrease) Due to Change in: Due to Change in: ========================================================================================= (dollars in thousands) Average Average Net Average Average Net Interest-earning assets Volume Rate Change Volume Rate Change ------------- ------------- ------------- ------------- ------------- ------------- Investment Securities Taxable $ 1,661 $ (838) $ 823 $ 3,645 $ (1,823) $ 1,822 Non-taxable 52 (2) 50 106 (3) 103 Federal funds sold and securities purchased under agreement to resell (80) (52) (132) 215 (511) (296) Loans, net of unearned discount 334 (376) (42) 586 (757) (171) ------------- ------------- ------------- ------------- ------------- ------------- Total interest-earning assets $ 1,967 $ (1,268) $ 699 $ 4,552 $ (3,094) $ 1,458 ======================================= ============= ============= ============= ============= ============= ============= Interest-bearing liabilities: Money Market deposits $ 101 $ (133) $ (32) $ 302 $ (354) $ (52) Savings deposits 270 (215) 55 604 (542) 62 Time deposits 8 (678) (670) (219) (1,292) (1,511) Other interest-bearing deposits 72 (22) 50 149 (65) 84 Borrowings 206 (355) (149) 551 (728) (177) Trust Preferred 0 143 143 280 0 280 ------------- ------------- ------------- ------------- ------------- ------------- Total interest-bearing liabilities $ 657 $ (1,260) $ (603) $ 1,667 $ (2,981) $(1,314) ======================================= ============= ============= ============= ============= ============= ============= Change in net interest income $ 1,310 $ (8) $ 1,302 $ 2,885 $ (113) $ 2,772 ===================================================================================================================================
12 The following table, "Average Balance Sheet with Interest and Average Rates", presents for the six months ended June 30, 2002 and 2001 the Corporation's average assets, liabilities and stockholders' equity. The Corporation's net interest income, net interest spreads and net interest income as a percentage of interest-earning assets are also reflected.
Average Balance Sheet with Interest and Average Rates Six Month Period Ended June 30, 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ (tax equivalent basis, dollars in thousands) Balance Expense Rate Balance Expense Rate - ----------------------------------------------------------------------------------------------------------------------------------- Assets Interest-earning assets: Investment securities: (1) Taxable $ 441,898 $ 12,923 5.85% $323,218 $ 11,101 6.87% Non-taxable 13,071 456 6.98% 10,034 353 7.04% Federal funds sold and securities purchased under agreement to resell 999 9 1.80 11,989 305 5.09% Loans, net of unearned income (2) 217,984 7,429 6.82% 201,722 7,600 7.54% ------------- ------------ ---------- ------------- ------------ ---------- Total interest-earning assets 673,952 20,817 6.18% 546,963 19,359 7.08% ------------- ------------ ---------- ------------- ------------ ---------- Non-interest earning assets Cash and due from banks 18,387 17,295 BOLI 13,545 10,034 Other assets 23,201 13,234 Allowance for possible loan losses (2,260) (1,696) ------------- ------------- Total non-interest earning assets 52,873 38,867 ------------- ------------- Total assets $ 726,825 $585,830 ============= ============= Liabilities and stockholders' equity Interest-bearing liabilities: Money Market deposits $ 100,080 $ 980 1.96% $ 74,114 $ 1,032 2.78% Savings deposits 156,504 1,926 2.30% 113,212 1,864 3.29% Time deposits 101,553 1,326 2.93% 110,770 2,837 5.12% Other interest bearing deposits 67,047 413 1.23% 44,053 329 1.49% Borrowings 130,497 2,363 3.62% 104,555 2,540 4.86% Trust Preferred 10,000 280 5.60% 0 0 0.00% ------------- ------------ ---------- ------------- ------------ ---------- Total interest-bearing liabilities 565,681 7,288 2.58% 446,704 8,602 3.85% ------------- ------------ ---------- ------------- ------------ ---------- Non-interest-bearing liabilities: Demand deposits 108,047 92,745 Other non-interest-bearing deposits 511 1,017 Other liabilities 5,817 4,211 ------------- ------------- Total non-interest-bearing liabilities 114,375 97,973 Stockholders' equity 46,769 41,153 ------------- ------------- Total liabilities and stockholders' equity $ 726,825 $585,830 ============= ============= Net interest income (tax-equivalent basis) $ 13,529 $ 10,757 ------------ ------------ Net Interest Spread 3.60% 3.23% ---------- ---------- Net interest income as percent of earning-assets 4.01% 3.93% ========== ========== Tax equivalent adjustment (3) (155) (120) ------------ ------------ Net interest income $ 13,374 $ 10,637 ============ ============
(1) Average balances for available-for-sale securities are based on amortized cost (2) Average balances for loans include loans on non-accrual status (3) The tax-equivalent adjustment was computed based on a statutory Federal income tax rate of 34 percent 13 The following table, "Average Balance Sheet with Interest and Average Rates", presents for the three months ended June 30, 2002 and 2001 the Corporation's average assets, liabilities and stockholders' equity. The Corporation's net interest income, net interest spreads and net interest income as a percentage of interest-earning assets are also reflected.
Average Balance Sheet with Interest and Average Rates Three Month Period Ended June 30, 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------------ Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ (tax equivalent basis, dollars in thousands) Balance Expense Rate Balance Expense Rate - ------------------------------------------------------------------------------------------------------------------------------------ Assets Interest-earning assets: Investment securities:(1) Taxable $ 437,444 $ 6,371 5.83% $ 328,483 $ 5,548 6.76% Non-taxable 13,020 227 6.97% 10,034 177 7.06% Federal funds sold and securities purchased under agreement to resell 1,352 7 2.07% 11,508 139 4.83% Loans, net of unearned income (2) 222,389 3,756 6.76% 203,596 3,798 7.46% ------------- ----------- ---------- ------------- ------------- ---------- Total interest-earning assets $ 674,205 $ 10,361 6.15% 553,621 9,662 6.98% ------------- ----------- ---------- ------------- ------------- ---------- Non-interest earning assets Cash and due from banks 18,856 17,161 BOLI 13,641 2,834 Other assets 23,825 23,649 Allowance for possible loan losses (2,296) (1,730) ------------- ------------- Total non-interest earning assets 54,026 41,914 ------------- ------------- Total assets $ 728,231 $ 595,535 ============= ============= Liabilities and stockholders' equity Interest-bearing liabilities: Money Market deposits $ 91,934 456 1.98% $ 74,473 488 2.62% Savings deposits 157,634 1,053 2.48% 120,585 998 3.31% Time deposits 102,764 574 2.53% 102,105 1,244 4.87% Other interest bearing deposits 67,446 197 1.17% 43,602 147 1.35% Borrowings 132,198 1,188 3.59% 112,913 1,337 4.74% Trust Preferred 10,000 143 5.60% 0 0 0.00% ------------- ----------- ---------- ------------- ------------- ---------- Total interest-bearing liabilities 561,976 3,611 2.57% 453,678 4,214 3.72% ------------- ----------- ---------- ------------- ------------- ---------- Noninterest-bearing liabilities: Demand deposits 112,506 94,320 Other noninterest-bearing deposits 509 1,161 Other liabilities 5,971 4,495 ------------- ------------- Total noninterest-bearing liabilities 118,986 99,976 Stockholders' equity 47,269 41,881 ------------- ------------- Total liabilities and stockholders' equity $ 728,231 $ 595,535 ============= ============= Net interest income (tax-equivalent basis) $ 6,750 $ 5,448 ----------- ------------- Net Interest Spread 3.58% 3.26% ---------- ---------- Net interest income as percent of earning-assets 4.00% 3.94% ========== ========== Tax equivalent adjustment (3) (77) (60) ----------- ------------- Net interest income $ 6,673 $ 5,388 =========== =============
(1) Average balances for available-for-sale securities are based on amortized cost (2) Average balances for loans include loans on non-accrual status (3) The tax-equivalent adjustment was computed based on a statutory Federal income tax rate of 34 percent 14 Investments For the six months ended June 30, 2002, the average volume of investment securities increased to approximately $455.0 million, or 67.5 percent of average earning assets, an increase of $121.7 million on average as compared to the same period in 2001. The tax-equivalent yield on investments decreased by 99 basis points to 5.88 percent from a yield of 6.87 percent during the six month period ended June 30, 2002. The 99 basis points decline in yield on the portfolio was attributable to both additional volume added to the portfolio coupled with purchases made to replace maturing and called investments made at lower rates. The volume related figures during the six month period ended June 30, 2002 contributed an increase in revenue of $3,751,000, while rate related changes amounted to ($1,826,000). The increased size of the investment portfolio for both the six and three months ended June 30, 2002 largely reflects the Corporation's leverage strategies, which were implemented in the fourth quarter of 2001. For the three months ended June 30, 2002, the average volume of investment securities increased to approximately $450.1 million, or 66.7 percent of average earning assets, an increase of $111.9 million on average as compared to the same period in 2001. The tax-equivalent yield on investments decreased by 90 basis points to 5.86 percent from a yield of 6.76 percent during the three month period ended June 30, 2002. The 90 basis points decline in yield on the portfolio was attributable to both additional volume added to the portfolio coupled with purchases made to replace maturing and called investments made at lower rates. The volume related figures during the three-month period ended June 30, 2002 contributed an increase in revenue of $1,713,000, while rate related changes amounted to ($840,000). At June 30, 2002, the principal components of the investment portfolio are U.S. Government Federal Agency callable and non-callable securities, including agency issued collateralized mortgage obligations, corporate securities and municipals. The impact of repricing activity on investment yields was increased to some extent, for both the three and six month periods ended June 30, 2002, by the change in portfolio mix and shortening of portfolio duration. Other factors to a lesser extent were some portfolio extension where risk is relatively minimal within the portfolio, resulting in wider spreads. The Corporation also carried on average $15.4 million and $17.2 million, in short-term overnight money market and federal funds as compared with $22.6 million and $17.7 million for the comparable three and six month periods in 2001, respectively. These funds carried significantly lower rates than other securities in the portfolio (on average 1.89 percent and 1.98 percent for the three and six month periods, respectively, compared to 4.67 percent and 4.87 percent earned on these overnight funds for the comparable period in 2001.) and contributed to the decline in yield as compared to the comparable periods in 2001. The increased volume of such overnight funds in both the six and three month periods was for liquidity purposes. Securities available-for-sale is a part of the Corporation's interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, liquidity management and other factors. For the three and six-month period ended June 30, 2002 the Corporation sold from its available-for-sale portfolio securities totaling approximately $13.3 million and $34.9 million, respectively. At June 30, 2002 the net unrealized gain carried as a component of other comprehensive income and included in shareholders' equity net of tax amounted to a net unrealized gain of $2.1 million as compared with an unrealized gain of $1.3 million at June 30, 2001, resulting from a decline in interest rates fostered by the Federal Open Market Committee's actions to lower the Federal Funds target rate as an economic stimulus. 15 Loans Loan growth during the six months ended June 30, 2002 occurred primarily in the residential 1-4 family and commercial loan portfolio. This growth resulted from the Corporation's business development efforts enhanced by the Corporation's entry into new markets through expanded branch facilities. The decrease in the loan portfolio yields for the three and six month periods was the result of decline in interest rates as compared with the comparable period in 2001, coupled with a competitive rate pricing structure maintained by the Corporation to attract new loans and by the heightened competition for lending relationships that exists in the Corporation's market. The Corporation's desire to grow this segment of the earning-asset mix is reflected in its current business development plan and marketing plans, as well as its short-term strategic plan. Analyzing the loan portfolio for the six-months ended June 30, 2002, average loan volume increased $16.3 million or 8.1 percent, while portfolio yield decreased by 72 basis points as compared with the same period in 2001. The volume related factors during the period-contributed increased revenue of $586,000 while rate related changes amounted to ($757,000). Total average loan volume increased to $218.0 million with a net interest yield of 6.82 percent, as compared to $201.7 million with a yield of 7.54 percent for the six months ended June 30, 2001. For the three months ended June 30, 2002, average loan volume increased $18.8 million or 9.23 percent, while portfolio yield decreased by 70 basis points as compared with the same period in 2001. The volume related factors during the period-contributed increased revenue of $334,000 while rate related changes amounted to ($376,000). Total average loan volume increased to $222.4 million with a net interest yield of 6.76 percent, as compared to $203.6 million with a yield of 7.46 percent for the three months ended June 30, 2002. Allowance for Loan Losses The purpose of the allowance for loan losses is to absorb the impact of losses inherent in the loan portfolio. Additions to the allowance are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The allowance for loan losses is maintained at an amount considered adequate by management to provide for potential credit losses inherent in the loan portfolio based upon a periodic evaluation of the risk characteristics of the loan portfolio. The amount of the loan loss provision and the level of the allowance for loan losses are critical accounting policies of the Corporation. In establishing an appropriate allowance, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience, a review of peer group loss experience and an analysis of the levels and trends of loan categories, delinquencies, and problem loans are considered. Such factors as the level and trend of interest rates and current economic conditions are also reviewed. At June 30, 2002, the allowance amounted to $2,344,000 as compared to $2,191,000 at December 31, 2001, and $1,864,000 at June 30, 2001. The Corporation has a provision to the allowance for loan losses during the six and three month periods ended June 30, 2002 amounting to $180,000 and $90,000, respectively, compared to $258,000 and $183,000 during the six and three month periods ended June 30, 2001, respectively. The additions to the provision during the six and three month periods discussed was commensurate with the loan volume recorded during the respective periods and increased focus on the changing composition of the commercial and residential real estate loan portfolios. At June 30, 2002, the allowance for loan losses amounted to 1.03 percent of total loans, as compared with .91 percent at June 30, 2001. In management's view, the level of the allowance as of June 30, 2002 is adequate to cover losses inherent in the loan portfolio. The Corporation's statements herein regarding the adequacy of the allowance for loan losses constitute "Forward-Looking Statement" under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from management's analysis, based principally upon factors considered by management in establishing the allowance. 16 Although management uses the best information available, the level of the allowance for loan losses remains as estimate, which is subject to significant judgment and short-term changes. 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 increase the allowance based on their analysis of information available to them at the time of their examinations. Future adjustments to the allowance may be necessary due to economic, operating, regulatory, and other conditions beyond the Corporation's control. To the extent actual results differ from forecasts or management's judgment the allowance for loan losses may be greater or less than future charge-offs. During the six and three-month periods ended June 30, 2002 and 2001, the Corporation did not experience any substantial credit problems within its loan portfolio. Net charge-offs were approximately $28,000 and were comprised of installment loans as compared with total charge-offs of $49,000 for the comparable period in 2001, which was also comprised of installment loans. At June 30, 2002 the Corporation had non-accrual loans amounting to $115,000 as compared with $109,000 at December 31, 2001 and $209,000 of non-accrual loans at June 30, 2001. The Corporation continues to aggressively pursue collections of principal and interest on loans previously charged-off. The decrease in such loans in 2002 compared to June 30, 2001 was attributable to a home equity loan, which was charged-off, and a residential mortgage loan, which was re-paid in full by the borrower. The value of impaired loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate or as a practical expedient, at the loan's observable market price or at the fair value of the collateral if the loan is collateral dependant. Impaired loans consist of non-accrual loans and loans internally classified as substandard or below, in each instance above an established dollar threshold of $200,000. All loans below the established dollar threshold are considered homogenous and are collectively evaluated for impairment. At June 30, 2002, total impaired loans were approximately $2,135,000 compared to $1,859,000 at December 31, 2001 and $1,999,000 at June 30, 2001. Although classified as substandard, impaired loans (other than those in non-accrual status) were current with respect to principal and interest payments. Changes in the allowance for possible loan losses for the six-month periods ended June 30, 2002 and 2001, respectively, are set forth below.
Allowance for loan losses (Dollars in thousands) ================================================================================================= Six Months Ended June 30, 2002 2001 Average loans outstanding $ 217,984 $ 201,722 - ------------------------------------------------------------------------------------------------- Total loans at end of period 227,538 205,384 - ------------------------------------------------------------------------------------------------- Analysis of the allowance for loan losses Balance at the beginning of year 2,191 1,655 Charge-offs: Commercial 0 0 Real estate-mortgage 0 0 Installment loans 34 51 - ------------------------------------------------------------------------------------------------- Total charge-offs 34 51 Recoveries: Commercial 0 0 Real estate-mortgage 0 0 Installment loans 6 2 - ------------------------------------------------------------------------------------------------- Total recoveries 6 2 Net Charge-offs: 28 49 ================================================================================================= Provision for Loan Losses 180 258 ================================================================================================= Balance at end of period $ 2,344 $ 1,864 - ------------------------------------------------------------------------------------------------- Ratio of net charge-offs during the period to average loans outstanding during the period 0.01% 0.02% - ------------------------------------------------------------------------------------------------- Allowance for loan losses as a percentage of total loans 1.03% 0.91% - -------------------------------------------------------------------------------------------------
17 Asset Quality The Corporation manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans and delinquencies, with particular attention to portfolio dynamics and mix. The Corporation strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values, and to maintain an adequate allowance for loan losses at all times. These practices have protected the Corporation during economic downturns and periods of uncertainty. It is generally the Corporation's policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected. 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. Accruing loans past due 90 days or more are generally well secured and in the process of collection. At June 30, 2002, December 31, 2001 and June 30, 2001, the Corporation had no restructured loans. Non-accrual loans amounted to $115,000 at June 30, 2002, and were comprised of a commercial loan and two home equity loans. At December 31, 2001, non-accrual loans amounted to $109,000 and were comprised of first and second lien residential mortgages. At June 30, 2001, non-accrual loans amounted to $209,000 and were comprised of first and second lien residential mortgages. At June 30, 2002 the Corporation did not have any loans 90 days past due and still accruing. Such loans amounted to $8,000 at December 31, 2001 and $242,000 at June 30, 2001. The outstanding balances of accruing loans, which are 90 days or more past due as to principal or interest payments and non-accrual loans at June 30, 2002, December 31, 2001 and June 30, 2001, were as follows:
Non-Performing Loans At June 30, December 31, June 30, (Dollars in thousands) 2002 2001 2001 ================================================================================================== Loans past due 90 days and still accruing $ 0 $ 8 $ 242 Non-accrual loans 115 109 209 - ------------------------------------------------- ------------- ------------ ------------ Total non-performing loans 115 117 451 ================================================================================================== Total non-performing assets $ 115 $ 117 $ 451 - --------------------------------------------------------------------------------------------------
At June 30, 2002, non-performing assets, consisting of loans on non-accrual status plus other real estate owned (OREO), amounted to $115,000 or .05 percent of total loans outstanding as compared to $109,000 or .05 percent at December 31, 2001 and $209,000 or .10 percent at June 30, 2001. At June 30, 2002, other than the loans set forth above, the Corporation is not aware of any loans which present serious doubts as to the ability of its borrowers to comply with the present loan and repayment terms and which are expected to fall into one of the categories set forth in the table above. At June 30, 2002, December 31, 2001 and June 30, 2001 the Corporation did not have any other real estate owned. 18 Other Non-Interest Income The following table presents the principal categories of non-interest income for the three and six month periods ended June 30, 2002 and 2001.
- ---------------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended (dollars in thousands) June 30, June 30, 2002 2001 % change 2002 2001 % change -------- -------- -------- --------- Other non-interest income: Service charges, commissions and fees $395 $400 (1.3) $ 774 $ 787 (1.7) Other income. 286 165 73.3 536 274 95.6 Net gain on securities sold 56 124 (54.8) 242 152 59.2 -------- --------- ------------ ----------- --------- ---------- Total other non-interest income $737 $689 7.0 $ 1,552 $ 1,213 27.9 - ----------------------------------------------------------------------------------------------------------------------------
For the six-month period ended June 30, 2002, total other (non-interest) income increased $339,000 or 27.9 percent as compared to the comparable six-month period in June 2001. Other non-interest income, exclusive of gains on securities sold (which increased $90,000 or 59.2 percent), reflects an increase of $249,000 or 24.5 percent compared with the comparable six-month period ended June 30, 2001. This increased revenue was primarily driven by the increase in the cash surrender value of bank owned life insurance, which amounted to $ 371,000 for the six months ended June 30, 2002 as compared to $83,000 for the comparable period in 2001. Other income, excluding BOLI income, reflected a decline of $26,000 or 13.6 percent due primarily to lower letter of credit fees during the six months ended June 30, 2002 as compared with the comparable period in 2001. For the three month period ended June 30, 2002, total other (non-interest) income increased $48,000 or 7.0 percent as compared to the comparable three-month period in June 2001. Other non-interest income, exclusive of net gains on securities sold (which decreased $68,000 or 54.8 percent), reflects an increase of $116,000 or 20.5 percent compared with the comparable three month period ended June 30, 2001. This increased revenue was primarily driven by the increase in the cash surrender value of bank owned life insurance, which amounted to $191,000 for the three months ended June 30, 2002 as compared to $83,000 for the comparable period in 2001. Other income, excluding BOLI income, reflected an increase of $13,000 or 15.85 percent due primary to higher loan servicing, documentation and gains on sale of loans during the three months ended June 30, 2002 as compared with the comparable period in 2001. For the three and six month periods ended June 30, 2002 the Corporation recorded net gains of $56,000 and $242,000 on securities sold from the available-for-sale investment portfolio compared to gains of $124,000 and $152,000 recorded in the 2001 comparable periods. These sales were made in the normal course of business and proceeds were reinvested in securities. 19 Other Non-Interest Expense The following table presents the principal categories of non-interest expense for the three and six month periods ended June 30, 2002 and 2001.
====================================================================================================================== (dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, 2002 2001 % change 2002 2001 % change ---------- ---------- ---------- ---------- ------------- ---------- Other expense: Salaries and employee benefits $ 2,282 $ 1,836 24.3 $ 4,582 $ 3,706 18.2 Occupancy expense, net 382 370 3.2 838 804 4.2 Premise & equipment expense 395 332 19.0 784 668 17.4 Stationery and printing expense 148 134 10.4 304 227 33.9 Marketing & Advertising 163 132 23.5 356 258 38.0 Legal and Consulting 105 191 (45.0) 245 306 (19.9) Other expenses 742 716 3.6 1,563 1,394 12.1 ---------- ---------- ---------- ------------- Total other expense $ 4,217 $ 3,711 13.6 $ 8,672 $ 7,363 17.8 ======================================================================================================================
For the six month period ended June 30, 2002 total other (non-interest) expenses increased $1,309,000 or 17.8 percent over the comparable six months ended June 30, 2001, with increased salary and benefit expense, Bank premise and equipment, stationary and printing and marketing and advertising accounting for most of the increase. Effective January 1, 2002, the Corporation adopted SFAS No. 142 "Goodwill and Intangible Assets", under which goodwill was amortized annually has ceased. Accordingly there was no amortization expense in 2002 as compared with 2001. For the three and six months ended June 30 2001 other expense included amortization expense of $161,000 and $81,000 respectively, as compared to $0 in 2002. The period-to-period increases in other operating expenses also include the costs of higher data processing and technology costs. For the three months ended June 30, 2002 total other (non-interest) expenses increased $506,000 or 13.6 percent over the comparable three-months ended June 30, 2001, with increased salary and benefit expense, and Bank premise and equipment accounting for most of the increase. The level of operating expenses during both the six and three month periods of 2002 were unfavorably impacted by an increase in several expense categories. The year to year increase in expenses are primarily attributable to the continued investment in technology and the need to attract, develop, and retain high caliber employees. The Corporation's ratio of other expenses (annualized) to average assets increased to 2.33 percent in the first six months of 2002 from 2.02 percent for the first six months of 2001. The Corporation's efficiency ratio (defined as non-interest expenses divided by tax-equivalent net interest income plus recurring non-interest income) at June 30, 2002 was 57.1 percent compared to 60.7 percent at June 30, 2001. Salaries and employee benefits increased $676,000 or 18.2 percent in the six months of 2002 over the comparable six month period ended June 30, 2001. This increase is primarily attributable to normal merit increases, promotional raises and higher benefit costs. Staffing levels overall increased to 182 full-time equivalent employees at June 30, 2002 compared to 158 full-time equivalent employees at June 30, 2001. For the three months ended June 30, 2002 salaries and benefits increased $446,000 or 24.3 percent. This increase is primarily attributable to higher staffing levels due to the opening of the Town Hall banking center, as well as, higher benefit costs. 20 For the six months ended June 30, 2002 occupancy and premises and equipment expense increased $150,000 or 10.2 percent over the comparable six-month period in 2001. The increase in occupancy and Bank premise and equipment expenses reflects the expense associated with higher operating costs (utilities, rent, real-estate axes and general repair and maintenance) of the Corporation's expanded facilities, as well as higher equipment and maintenance cost and depreciation expense of the expanded bank facilities. For the three months ended June 30, 2002, when expenses increased $75,000 or 10.7 percent as compared with the comparable three month period in 2001. Stationery and printing expense increased 33.9 percent or $77,000 for the six months ended June 30, 2002 as compared with the comparable period in 2001, primarily attributable to the opening of the new Townhall banking Center in Morristown. Provision for Income Taxes The Corporation's provision for income taxes increased from 2001 to 2002, primarily as a result of higher levels of taxable income. The effective tax rates for the Corporation for the periods ended June 30, 2002 and 2001 were 32.1 percent, and 34.9 percent, respectively. The effective tax rate continues to be less than the combined statutory Federal tax rate of 34 percent and the New Jersey State tax rate of 9 percent. The difference between the statutory and effective tax rates primarily reflects the tax-exempt status of interest income on obligations of states and political subdivisions and disallowed expense items for tax purposes, such as travel and entertainment expense, as well as amortization of goodwill. Tax-exempt interest income on a tax-equivalent basis increased by $103,000 or 29.2 percent from 2001 to 2002. The New Jersey legislature passed the New Jersey Business Tax Reform Act with new tax law changes to the Corporation Business Tax ("CBT") on July 2, 2002. Management is currently reviewing the implications of the new tax law, which are retroactively effective to January 1, 2002. The enactment of the new legislation may have an impact on the future tax liability and subsequent New Jersey Corporate Business Tax expense. Asset Liability Management The composition and mix of the Corporation's assets and liabilities is planned and monitored by the Asset and Liability Committee (ALCO). Asset and Liability management encompasses the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital. In general, management's objective is to optimize net interest income and minimize interest rate risk by monitoring these components of the statement of condition. Interest Sensitivity Market Risk "Market risk" represents the risk of loss from adverse changes in market prices and rates. The Corporation's market rate risk arises primarily from interest rate risk inherent in its investing, lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The Corporation's profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest rates may adversely affect the Corporation's earnings to the extent that the interest rates borne by assets and liabilities do not similarly adjust. The Corporation's primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Corporation's net interest income and capital, while structuring the Corporation's asset-liability structure to obtain the maximum yield-cost spread on that structure. The Corporation relies primarily on its asset-liability structure to control interest rate risk. The Corporation continually evaluates interest rate risk management opportunities, including the use of derivative financial instruments. The management of the Corporation believes that hedging instruments currently available are not cost-effective, and, therefore, has focused its efforts on increasing the Corporation's yield-cost spread through wholesale and retail growth opportunities. 21 The Corporation monitors the impact of changes in interest rates on its net interest income using several tools. One measure of the Corporation's exposure to differential changes in interest rates between assets and liabilities is the Corporation's analysis of its interest rate sensitivity. This test measures the impact on net interest income and on net portfolio value of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities and off-balance sheet contracts. The primary tool used by management to measure and manage interest rate exposure is a simulation model. Use of the model to perform simulations reflecting changes in interest rates over one and two-year time horizons has enabled management to develop and initiate strategies for managing exposure to interest rate risk. In its simulations, management estimates the impact on net interest income of various changes in interest rates. Projected net interest income sensitivity to movements in interest rates is modeled based on both an immediate rise and fall in interest rates ("rate shock"), as well as gradual changes in interest rates over a 12 month time period. The model is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities. The model incorporates assumptions regarding earning-asset and deposit growth, prepayments, interest rates and other factors. Management believes that both individually and taken together, these assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not an absolutely precise calculation, of exposure. For example, estimates of future cash flows must be made for instruments without contractual maturity or payment schedules. Based on the results of the interest simulation model as of June 30, 2002, the Corporation would expect a decrease of 2.50 percent in net interest income and an increase of 3.40 percent in net interest income if interest rates increased or decreased by 200 basis points, respectively, from current rates in an immediate and parallel shock over a twelve month horizon. Short-term interest rate exposure analysis is supplemented with an interest sensitivity gap model. The Corporation utilizes interest sensitivity analysis to measure the responsiveness of net interest income to changes in interest rate levels. Interest rate risk arises when an earning-asset matures or when its interest rate changes in a time period different from that of a supporting interest-bearing liability, or when an interest-bearing liability matures or when its interest rate changes in a time period different from that of an earning-asset that it supports. While the Corporation matches only a small portion of specific assets and liabilities, total earning assets and interest-bearing liabilities are grouped to determine the overall interest rate risk within a number of specific time frames. The difference between interest sensitive assets and interest sensitive liabilities is referred to as the interest sensitivity gap. At any given point in time, the Corporation may be in an asset-sensitive position, whereby its interest-sensitive assets exceed its interest-sensitive liabilities, or in a liability-sensitive position, whereby its interest-sensitive liabilities exceed its interest-sensitive assets, depending on management's judgment as to projected interest rate trends. The Corporation's rate sensitivity position in each time frame may be expressed as assets less liabilities, as liabilities less assets, or as the ratio between rate sensitive assets (RSA) and rate sensitive liabilities (RSL). For example, a short funded position (liabilities repricing before assets) would be expressed as a net negative position, when period gaps are computed by subtracting repricing liabilities from repricing assets. When using the ratio method, a RSA/RSL ratio of 1 indicates a balanced position, a ratio greater than 1 indicates an asset sensitive position and a ratio less than 1 indicates a liability sensitive position. 22 A negative gap and/or a rate sensitivity ratio less than 1, tends to expand net interest margins in a falling rate environment and to reduce net interest margins in a rising rate environment. Conversely, when a positive gap occurs, generally margins expand in a rising rate environment and contract in a falling rate environment. From time to time, the Corporation may elect to deliberately mismatch liabilities and assets in a strategic gap position. At June 30, 2002, the Corporation reflects a negative interest sensitivity gap (or an interest sensitivity ratio) of .68:1.00: at the cumulative one-year position. During 2001, the Corporation had a negative interest sensitivity gap. The maintenance of a liability-sensitive position during 2001 and for the six-months ended June 30, 2002 had a favorable impact on the Corporation's net interest margins; based on management's perception that interest rates will continue to be volatile, emphasis has been, and is expected to continue to be, placed on interest-sensitivity matching with the objective of stabilizing the net interest spread during 2002. However, no assurance can be given that this objective will be met. Liquidity The liquidity position of the Corporation is dependent on successful management of its assets and liabilities so as to meet the needs of both deposit and credit customers. Liquidity needs arise principally to accommodate possible deposit outflows and to meet customers' requests for loans. Scheduled principal loan repayments, maturing investments, short-term liquid assets and deposit in-flows, can satisfy such needs. The objective of liquidity management is to enable the Corporation to maintain sufficient liquidity to meet its obligations in a timely and cost-effective manner. Management monitors current and projected cash flows, and adjusts positions as necessary to maintain adequate levels of liquidity. By using a variety of potential funding sources and staggering maturities, the risk of potential funding pressure is somewhat reduced. Management also maintains a detailed liquidity contingency plan designed to adequately respond to situations which could lead to liquidity concerns. Anticipated cash-flows at June 30, 2002, projected to July of 2003, indicates that the Bank's liquidity should remain strong, with an approximate projection of $133.6 million in anticipated cash flows over the next twelve months. This projection represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from this projection depending upon a number of factors, including the liquidity needs of the Bank's customers, the availability of sources of liquidity and general economic conditions. The Corporation derives a significant proportion of its liquidity from its core deposit base. For the six-month period ended June 30, 2002, core deposits (comprised of total demand, savings accounts (excluding Super Max and money market accounts under $100,000) remained relatively stable and represented 52.7 percent of total deposits as compared with 52.8 percent at June 30, 2001. More volatile rate sensitive deposits, concentrated in time certificates of deposit greater than $100,000, for the six-month period ended June 30, 2002, increased slightly on average to 7.4 percent of total deposits from 7.3 percent during the six-months ended June 30, 2001. This change has resulted from a $8.2 million increase in time deposits on average for the six-months ended June 30, 2002 compared to the prior year period. Short-term borrowings can be used to satisfy daily funding needs. Balances in these accounts fluctuate significantly on a day-to-day basis. The Corporation's principal short-term funding sources are securities sold under agreements to repurchase, advances from the Federal Home Loan Bank and Federal funds purchased. Average short-term borrowings during the six-months ended June 30, 2002 were $130.5 million, an increase of $25.9 million or 24.8 percent from $104.6 million in average short-term borrowings during the comparable six-months ended June 30, 2001. 23 During the six-months ended June 30, 2002, average funding sources increased by approximately $133.8 million or 26.7 percent, compared to the same period in 2001. Interest-bearing deposit liabilities increased approximately $119.0 million on average and were comprised primarily of increases in savings deposits, money market and short-term borrowings offset in part by a decrease in time deposits greater than $100,000. Non-interest bearing funding sources as a percentage of the total funding mix decreased to 16.7 percent on average as compared to 17.3 percent for the six-month period ended June 30, 2001. This is primarily attributable to a more rapid growth in non-deposit funding sources as a percentage of the funding base as compared with overall deposit growth. Cash Flow The consolidated statements of cash flows present the changes in cash and cash equivalents from operating, investing and financing activities. During the six months ended June 30, 2002, cash and cash equivalents (which increased overall by $31.1 million) were provided (on a net basis) by financing activities) approximately $45.3 million) primarily due to an increase in deposits of $48.2 million offset in part by a $2.3 million net decrease in borrowings, and by operating activities of $5.7 million. Approximately $19.9 million was used in net investing activities; principally a $16.3 million increase in loans and $1.9 million increase in the investment portfolio. Stockholders' Equity Total stockholders' equity averaged $46.8 million or 6.43 percent of average assets for the six month period ended June 30, 2002, as compared to $41.2 million, or 7.09 percent, during the same period in 2001. The Corporation's dividend reinvestment and optional stock purchase plan contributed $168,000 in new capital for the six-months ended June 30, 2002 as compared with $119,000 for the comparable period in 2001. Book value per common share was $11.60 at June 30, 2002 as compared to $10.19 at June 30, 2001. Tangible book value per common share was $11.11 at June 30, 2002 and $9.64 at June 30, 2001. Capital The maintenance of a solid capital foundation continues to be a primary goal for the Corporation. Accordingly, capital plans and dividend policies are monitored on an ongoing basis. The most important objective of the capital planning process is to balance effectively the retention of capital to support future growth and the goal of providing stockholders with an attractive long-term return on their investment. Risk-Based Capital/Leverage Banking regulations require banks to maintain minimum levels of regulatory capital. Under the regulations in effect at March 31, 2002, the Bank was required to maintain (i) a minimum leverage ratio of Tier 1 capital to total adjusted assets of 4.00%, and (ii) minimum ratios of Tier 1 and total capital to risk-weighted assets of 4.00% and 8.00%, respectively. At June 30, 2002, total Tier 1 capital (defined as tangible stockholders' equity for common stock and certain perpetual preferred stock) amounted to $54.6 million or 7.51 percent of total assets. Tier I capital excludes the effect of SFAS No. 115, which amounted to $2.3 million of net unrealized gains, after tax, on securities available-for-sale (included as a component of other comprehensive income) and goodwill of approximately $2.1 million as of June 30, 2002. At June 30, 2002, the Corporation's estimated Tier I risk-based and total risk-based capital ratios were 12.23 percent and 12.95 percent, respectively. These ratios are well above the minimum guidelines of capital to risk-adjusted assets in effect as of June 30, 2002. 24 Under prompt corrective action regulations, bank regulators are required to take certain supervisory actions and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution's financial statements. The regulations establish a framework for the classification of financial institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well capitalized if it has a leverage (Tier 1) capital ratio of at least 5.0%; a Tier 1 risk-based capital ratio of at least 6.0%; and a total risk-based capital ratio of at least 10.0%. The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the bank regulators about capital components, risk weightings and other factors. As of June 30, 2002, management believes that the Bank meets all capital adequacy requirements to which it is subject. Item 3 - Qualitative and Quantitative Disclosures about Market Risks The primary market risk faced by the Corporation is interest rate risk. The Corporation's Asset/Liability Committee ("ALCO") monitors the changes in the movement of funds and rate and volume trends to enable appropriate management response to changing market and rate conditions. The Corporation's income simulation model analyzes interest rate sensitivity by projecting net interest income over the next 24 months in a flat rate scenario versus net interest in alternative interest rate scenarios. Management reviews and refines its interest rate risk management process in response to the changing economic climate. Currently, the Corporation's model projects a 200 basis point change in rates during the first year, in even monthly increments, with rates held constant in the second year. The Corporation's ALCO has established that interest income sensitivity will be considered acceptable if net interest income in the above interest rate scenario does not exceed 10 percent of net interest income over a 12-month horizon to a +200 basis point shock in rates the first year and so that the present value of equity at risk does not exceed 15 percent when compared to the forecast. Year 2 will not carry a policy limit, due to the inaccuracies inherent with longer-term projections. Generally, year 2 is calculated and identified for review and presentation purposes only. At June 30, 2002, the Corporation's income simulation model indicates an acceptable level of interest rate risk, with no significant change from March 31, 2002. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and duration of deposits, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions that ALCO could undertake in response to changes in interest rates. 25 II. OTHER INFORMATION Item 1 Legal Proceedings The Corporation is subject to claims and lawsuits, which arise primarily in the ordinary course of business. Based upon the information currently available, it is the opinion of management that the disposition or ultimate determination of such claims will not have a material adverse impact on the consolidated financial position, results of operations, or liquidity of the Corporation. This statement represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from this statement, primarily due to the uncertainties involved in the legal processes. Item 6 Exhibits and Reports on Form 8-K A) Exhibits: None B) Reports on Form 8-K There were no reports on Form 8-K filed during the six months ended June 30, 2002 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. CENTER BANCORP, INC. DATE: August 14, 2002 /s/ Anthony C. Weagley ---------------------- Anthony C. Weagley, Treasurer (Chief Financial Officer) 26 -----END PRIVACY-ENHANCED MESSAGE-----