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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2455 Morris Avenue, Union, New Jersey 07083
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(Address of principal executives offices) (Zip Code)
(908) 688-9500
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(Registrant's telephone number, including area code)
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(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.
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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.
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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