SOURCE: Center Bancorp, Inc.

July 31, 2006 09:00 ET

Center Bancorp, Inc. Announces Second Quarter Financial Results

UNION, NJ -- (MARKET WIRE) -- July 31, 2006 -- Center Bancorp, Inc. (NASDAQ: CNBC), parent company of Union Center National Bank, today reported earnings results for the second quarter ended June 30, 2006. Second quarter 2006 net income amounted to $1.4 million, as compared with net income of $1.9 million in the second quarter of 2005. The results for the second quarter were equivalent to $0.10 on a diluted per common share basis as compared with $0.18 per share for the second quarter of 2005. Second quarter results were impacted by a significant balance sheet repositioning in the first quarter, which is intended to improve the mix of interest-earning assets and interest bearing-liabilities, increase net interest margin and increase the Corporation's long-term profitability.

For the six months ended June 30, 2006, the Corporation reported net income of $305,000, equivalent to fully diluted earnings per common share of $0.02. These amounts reflect the impact of a $2.4 million, or $0.18 per share, after-tax charge in the first quarter of 2006, in connection with the restructuring of the balance sheet announced on March 24, 2006. The Corporation earned $3.7 million or $0.34 per diluted common share, for the six months ended June 30, 2005. All common stock per share amounts have been restated to reflect all previously declared and paid common stock splits and common stock dividends. Earnings per share comparisons reflect 1,904,761 additional shares issued in 2005 in connection with the acquisition of Red Oak Bank on May 20, 2005. The Corporation also issued 888,888 shares of common stock in a private placement of its securities on June 30, 2005.

Second quarter highlights:

--  Average total loans grew by 17% over the second quarter of 2005, led
    by growth in commercial and commercial real estate loans.
    
--  Significant repositioning of the balance sheet, as planned, evidenced
    by a $155 million reduction of the securities portfolio and a $146 million
    decrease in wholesale borrowings.
    
--  A 17 basis point increase in the net interest margin from the first
    quarter of 2006.
    
--  Credit quality continues to remain high.
    
--  The Corporation repurchased 208,304 shares of common stock in the
    second quarter of 2006 under its buy back program.
    
--  Total assets of $1.1 billion at June 30, 2006, which continues to
    position the Corporation as one of the largest New Jersey headquartered
    financial institutions.
    
Commenting on the results for the quarter, President and Chief Executive Officer John J. Davis stated, "I am pleased to report that we have made important progress this quarter toward our stated goals of growing core deposits, increasing loans, improving the quality and composition of our balance sheet, and positioning Center Bancorp for enhanced earnings and shareholder returns. We grew our loans in the last three months and funded that growth with cash flows from the sale of investment securities and from new deposits. And we achieved these results despite a continued challenging interest rate environment.

"With the yield curve significantly flatter than had been expected, we continue to focus on our balance sheet strategy, our initiatives to control expenses and continued strong credit quality. However, due to the uncertainty of the timing and direction of interest rates in general, which continues to have a significant effect on our spreads and margins, we expect our net interest margin will remain lower than in 2005."

Mr. Davis added, "Our core strengths in commercial lending, credit quality and core deposit generation, as well as the key markets where we operate remain attractive. We continue to make investments in our niches, leveraging these strengths. We expect to open our new Boonton/Mountain Lakes office during the third quarter. While we remain cautiously optimistic about the business climate in 2006 due to the prevailing interest rate environment, in total we are committed to enhancing profitability and returns over the longer term."

Total interest income on a fully taxable-equivalent basis for the second quarter of 2006 increased by $619,000, or 4.78%, to $13.6 million, from the comparable 2005 quarterly period, while total interest expense increased by $1.3 million, or 22.9%, to $6.7 million.

For the six months ended June 30, 2006 total interest income on a fully tax-equivalent basis increased $2.9 million, or 11.64%, compared to the comparable six-month period in 2005. For the six months ended June 30, 2006 total interest expense increased $3.5 million, or 35.4%, compared to the comparable six-month period in 2005.

The year-over-year increase in second quarter 2006 interest income reflects the assets acquired in the Red Oak acquisition, and the Corporation's organic loan growth over the past twelve months. Average interest-earning assets declined by $83.3 million, or 8.17%, to $936.0 million, which helped reduce the effects of a compressing margin and the 93 basis point increase in the average cost of funds. While the yield on earnings assets increased 71 basis points, it was not sufficient to offset the effect of the rise in the cost of funds. The increase in yield stemmed from a variety of factors, including the increase in short-term interest rates in the current second quarter and the replacement of lower yielding assets with assets reflecting higher market rates. The repositioning of the balance sheet at the end of the prior quarter included the sale of $86.3 million of securities with an average yield under 4.0%.

The year-over-year increase for the three months ended June 30, 2006 in interest expense primarily reflects the liabilities acquired in the Red Oak merger, the impact of the rise in rates on the cost of borrowings and time deposits, as well as on other interest-bearing transaction accounts. In addition, the Corporation embarked on a campaign to grow core deposits in the current second quarter, increasing its rates to be more in line with the marketplace. The Corporation reduced its average borrowings by $73.6 million at the end of the second quarter 2006 as compared with the same quarter in 2005. The average balance of interest-bearing liabilities also declined by $90.2 million, or 10.3%, to $784.0 million in the current second quarter, and the average cost of funds rose 93 basis points to 3.44%.

While interest income, on a fully tax equivalent basis, rose year-over-year for the six-month period despite the impact of these factors, the Corporation's interest rate spread and net interest margin contracted during this time. The majority of the compression occurred between the first quarter of 2005 and first quarter of 2006, as expected, with the spread and margin each declining 38 and 22 basis points in the first quarter periods, respectively.

Other Income

Excluding net securities losses and gains in the respective periods, the Company recorded other income of $1,586,000 in the six months ended June 30, 2006, compared to $1,706,000 in the six months ended June 30, 2005. The 7% decrease stemmed from a $83,000 decline in service charges, commissions and fees revenue and a $45,000 decline in other income, which was related to a one-time commission on deluxe check book charges in 2005. The changes in other income also reflect growth in various revenue sources, including the Corporation's investment in Bank-owned Life Insurance ("BOLI"), and a decline in the revenue from its sale of third-party investment products throughout the branch network. Including net securities losses and gains in the respective periods, the Corporation recorded an other income loss of $1,992,000 in the six months ended June 30, 2006 as compared with other income of $1,742,000 in the six months ended June 30, 2005, reflecting the balance sheet repositioning undertaken during the first quarter of 2006.

Total other income decreased $41,000 for the second quarter of 2006 compared with the comparable quarter in 2005, primarily as a result of the aforementioned declines in service charges and other fee revenue offset by an increase of $54,000 related to gains on securities sold during the second quarter period. The Corporation continues to pursue opportunities to expand other non-interest revenue.

Other Expense

Other expense for the second quarter of 2006 totaled $5.8 million, an increase of $343,000 or 6.32% over the comparable period in 2005. Higher operating expenses during the second quarter resulted primarily from increases in occupancy and premise expense and other general and administrative expenses. The increase in occupancy and bank premise expense was largely attributable to the expansion of the branch network in connection with the Red Oak acquisition in 2005, while other general and administrative expense increased $223,000, associated with increases in professional consulting, compliance, audit fees, insurance and stationary and printing expense. The amortization of core deposit intangibles ("CDI") accounted for $31,000 and $18,000, respectively, of other expense in the current and year-earlier second quarters, with the increase reflecting the CDI amortization stemming from the acquisition of Red Oak Bank in May 2005.

Salaries and benefits increased by $33,000, or 1.1%, to $3.0 million, reflecting a stabilization of expense and staffing in comparison to the prior quarterly period in 2005. Full time equivalent staffing levels were 210 as of June 30, 2006 compared to 212 as of June 30, 2005. The change in staffing levels includes the impact of the acquisition of Red Oak Bank in 2005.

Other expense for the six months ended June 30, 2006 totaled $12.0 million, an increase of $1,205,000, or 11.2%, over the comparable period in 2005. Higher operating expenses during the six-month period resulted primarily from increases in occupancy and premise expense and other general and administrative expenses. The $89,000 increase in occupancy and bank premise expense was largely attributable to the expansion of the branch network in connection with the Red Oak acquisition in 2005, while other general and administrative expense increased $622,000 associated with increases in professional consulting, compliance, audit fees, insurance and stationary and printing expense. The amortization of core deposit intangibles ("CDI") accounted for $63,000 and $18,000, respectively, of other expense in the current year and comparable six-month period in 2005.

For the six months ended June 30, 2006 salaries and benefits increased by $438,000, or 7.4%, to $6.3 million, reflecting increases in salary and benefit expense due to normal merit and promotional increases, pension expense, and stock option expense under FAS 123(R), as compared with the prior six month period in 2005.

The Corporation's other expenses totaled $5.8 million and $12.0 million for the three and six months ended June 30, 2006, respectively, and were equivalent to 0.57% and 1.13% of average assets, respectively.

Income Tax Expense

The effective tax rate, exclusive of the impact of the realized loss on securities sold, continues to be less than the statutory rates, substantially as a result of tax-free income generated from the Corporation's municipal and other tax advantaged investments. The Corporation recorded income tax expense of $43,000 in the current second quarter, down $364,000 from the second quarter 2005 amount. The decline was primarily due to a $925,000 decline in pre-tax income to $1.4 million, and reflects an effective tax rate of 3.04%. In the second quarter of 2005, the effective tax rate was 17.4%.

Net Interest Income

The Corporation recorded net interest income of $6.3 million for the three-month period ended June 30, 2006 and $12.7 million for the current six-month period. This compared with net interest income of $6.8 million for the three-month period ended June 30, 2005 and $13.3 million for the six months ended June 30, 2005. The $556,000, or 4.2%, decrease in net interest income from the six months ended June 30, 2005 to the comparable period in 2006 was attributable to a $3.5 million, or 35.4%, rise in interest expense to $13.6 million, which more than offset a $3.0 million, or 12.8%, rise in interest income to $26.3 million.

In addition to the interest-earning assets acquired in the Red Oak merger, the year-over-year increase in interest income reflects an improved yield on loans and investments. The increased volume of loans produced over the last several quarters, offset by a reduction in the size of the securities portfolio in the first half of 2006, accounted for the major changes in the mix of the portfolio. As a result, the average balance of interest-earning assets declined by $9.2 million, or 0.9%, to $973.1 million in the current six-month period, while there was an increase of 63 basis points in the average yield to 5.62% as compared to 4.99% for the same period in 2005.

The year-over-year increase in interest expense primarily reflects the increase in short-term rates, which translated to a 94 basis point increase in the cost of funds. To a lesser extent, a shift in the mix of interest-bearing liabilities, together with the Corporation's use of borrowings in the first half of the year, also contributed to the rise in the overall cost of interest-bearing liabilities. The average balance of interest-bearing liabilities declined $22.3 million, or 2.7%, year-over-year to $815.9 million; the decline in volume was offset by the impact of the 94 basis point increase in the average cost of funds to 3.33%.

For the three months ended June 30, 2006, the Corporation's net interest spread declined 22 basis points to 2.36% as compared to 2.58% for the comparable three-month period in 2005 and the Corporation's margin declined by one basis point from 2.93% to 2.92%. For the first six months of 2006, the Corporation's spread and margin were equal to 2.29% and 2.83%, respectively, down 31 and 12 basis points, respectively, from the measures in the year-earlier six-month periods. The same combination of factors, the rise interest rates and flattening of the yield curve, that contributed in the current six-month period to the compression of the Corporation's spread and margin contributed to their compression in the current three-month period.

The Federal Reserve Board continued to raise rates in the second quarter of 2006, increasing the federal funds rate 50 basis points in the second quarter to 5.25% at June 30, 2006. For the three months ended June 30, 2006, the net interest margin (net interest income as a percentage of earning assets) decreased 1 basis point to 2.92% from 2.93% for the comparable second quarter in 2005. On a linked sequential quarter comparison, the net interest margin increased 17 basis points from 2.75% for the first quarter of 2006.

Balance Sheet Summary

The Corporation recorded total assets of $1.1 billion at June 30, 2006, down $105.8 million from the June 30, 2005 total, as expected, and a reduction of $42.1 million from the balance at December 31, 2005. The reduction in the size of the balance sheet is consistent with the balance sheet restructuring announced in the first quarter of 2006. The Corporation utilized the cash flows generated by redemptions and sales of securities to increase loan production and, at the same time, increased its deposits and reduced its wholesale borrowings. Loans totaled $530.6 million at June 30, 2006, up $24.8 million, or 4.9%, from the year-end 2005 balance, and an increase of $32.0 million, or 6.4%, from the balance recorded at June 30, 2005. On June 30, 2006, securities totaled $432.3 million, a decline of $96.3 million, or 18.2%, from the year-end 2005 balance, and a decline of a $155.4 million, or 26.44%, from the balance recorded at June 30, 2005.

Deposits totaled $773.0 million at June 30, 2006, an increase of $72.4 million from the year-end 2005 balance, and up $51.8 million from the balance recorded at June 30, 2005. With borrowings at $187.1 million at June 30, 2006, borrowed funds were consistent with the Corporation's targeted strategies.

Stockholders' equity totaled $94.2 million at June 30, 2006, down $5.3 million from the year-end 2005 total, and down $7.5 million from the balance recorded at June 30, 2005. Tangible stockholders' equity totaled $76.8 million at the close of the current second quarter, down $5.2 million and $7.4 million, respectively, from the year-end 2005 and June 30, 2005.

Loans

Total average loan volume for the second quarter of 2006 increased to $510.1 million, an increase of $74.6 million (up 17.13% from $435.5 million for the comparable prior year quarter). On a linked sequential quarter comparison, total average loans increased by $7.6 million from $502.6 million on average during the first quarter of 2006. The Corporation continues to focus on building loan volume in its marketplace.

For the six months ended June 30, 2006, total average loan volumes increased to $506.4 million, an increase of $98.1 million on average (up 24.02% from $408.3 million on average for the comparable six months ended June 30, 2005).

The Corporation recorded total loans of $530.6 million at June 30, 2006, representing a $24.8 million, or 4.90%, increase from the balance recorded at December 31, 2005. At June 30, 2006, the Corporation had outstanding commitments of $13.1 million, with commercial and commercial real-estate loans representing 56.4% of that amount. Based upon the net loan growth achieved in the first six months of the year, it is currently management's expectation that we are on track to achieve continued growth in loans by the end of December 2006, fueled by a continued increase in the commercial sectors of the portfolios.

Asset Quality

Asset quality remained strong during the second quarter of 2006. At June 30, 2006, non-performing assets totaled $2.4 million. Non-performing assets represented 0.23% of total assets at the close of the current second quarter.

Reflecting the current quality of the Corporation's assets, and despite the increase in the average size of the loan portfolio, the Corporation did not make any provisions to the allowance for loan losses during 2006. At June 30, 2006, the total allowance for loans amounted to $4.9 million, or 0.93% of total loans. At June 30, 2006, total non-accrual loans amounted to $430,000, or 0.08% of total loans.

Securities

Consistent with the balance sheet strategies outlined by management in the first quarter of 2006, the Corporation realized a meaningful reduction in its securities portfolio at June 30, 2006 from the levels recorded at June 30, 2005 and December 31, 2005. Securities totaled $432.3 million at June 30, 2006, representing 40.3% of total assets, compared to $587.8 million, representing 49.9% of total assets, at the close of the second quarter 2005, and $528.7 million, representing 47.4% of total assets, at December 31, 2005.

Reflecting the lower balance of the securities portfolio and an increase in market interest rates over the course of the quarter, the net unrealized loss on securities available for sale increased to $8.8 million at June 30, 2006 from $1.5 million at June 30, 2005. At December 31, 2005, the net unrealized loss on available-for-sale securities was $6.8 million.

Deposits/Funding Sources

Deposits totaled $773.0 million at June 30, 2006, an increase of $72.4 million from the year-end 2005 balance, an increase of $51.7 million as compared to the balance recorded at the second quarter-end 2005 and an increase of $120.6 million as compared to the balance at March 31, 2006. The linked-quarter increase was the net effect of a $77.4 million rise in core deposits to $366.3 million, and a $40.3 million increase in CDs to $264.4 million. While the Corporation had experienced a decline in deposits in the first quarter of 2006 coupled with allowing certain deposits to run-off, it initiated a campaign to attract deposits beginning at the end of the first quarter of 2006.

Borrowings totaled $187.1 million at June 30, 2006, reflecting a decline of $106.9 million from the year-end 2005 balance, a reduction of $146.4 million, or 43.9%, from the balance at June 30, 2005 and $34.5 million or 15.6% from the balance at March 31, 2006. The June 30, 2006 amount represented 17.4% of total assets, an improvement from 26.4%, 28.3% and 22.3%, respectively, at the earlier dates. Federal Home Loan Bank of New York advances represented $90.2 million of the second quarter-end total, with repurchase agreements representing $96.9 million at the same date.

Stockholders' Equity

Total stockholders' equity totaled $94.2 million or 8.78% of total assets, compared to $101.7 million, or 8.63%, at June 30, 2005 and $99.5 million, or 8.92%, at December 31, 2005. Contributions to capital during the six months ended June 30, 2006 from the Corporation's option plans, dividend reinvestment and optional stock purchase plan amounted to approximately $77,917, compared to approximately $382,080 for the six months ended June 30, 2005. The Corporation's dividend reinvestment and option stock purchase plan is currently a market issuance plan. During most of 2005, the plan was operating under the original issuance method for purchases made for the plan.

Book value per common share was $7.12 at June 30, 2006, compared to $7.57 at June 30, 2005 and $7.41 at December 31, 2005. Tangible book value (i.e., total stockholders' equity less goodwill and other intangible assets) per common share was $5.81 at June 30, 2006, $6.27 at June 30, 2005 and $6.11 at December 31, 2005. The decline as compared to 2005 reflects the increase in goodwill and other intangible assets resulting from the acquisition of Red Oak Bank.

During the three months ended June 30, 2006, the Corporation purchased 208,304 shares, respectively, at an average cost per share of $12.36, under the Corporation's stock buyback program. There were no shares repurchased in the first three months of 2006. The repurchased shares were recorded as Treasury Stock, which resulted in a decrease in stockholder's equity. At June 30, 2006, there were 406,168 shares still available for repurchase under the Corporation's stock buyback program.

At June 30 2006, the Corporation's capital ratios continued to exceed the minimum federal requirements for a bank holding company, and the Bank's capital ratios continued to exceed each of the minimum levels required for classification as a "well capitalized institution" under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA").

At June 30, 2006, the total Tier 1 Capital Leverage ratio was 9.73%, the total Tier 1 Risk Based Capital ratio was 14.55 % and the total Risk Based Capital ratio was 15.29%. Total Tier 1 capital increased to approximately $97.5 million at June 30, 2006 from $82.7 million at June 30, 2005 and decreased $4.7 million from $102.2 million at December 31, 2005.

Center Bancorp, Inc., through its wholly owned subsidiary, Union Center National Bank, Union, New Jersey, currently operates fourteen banking locations. Banking centers are located in Union Township (6 locations), Berkeley Heights, Madison, Millburn/Vauxhall, Morristown (3 locations), Springfield, and Summit, New Jersey. The Bank also operates remote ATM locations in the Union New Jersey Transit train station, Union Hospital and the Boys and Girls Club of Union. The Bank recently received approvals to install and operate two additional off-premise ATM locations in the Chatham and Madison New Jersey Transit Stations, which are scheduled to be operational in 2006.

Union Center National Bank is the largest commercial Bank headquartered in Union County; it was chartered in 1923 and is a full-service banking company.

For further information regarding Center Bancorp Inc., call 1-(800)-862-3683. For information regarding Union Center National Bank, visit our web site at http://www.centerbancorp.com

Non-GAAP Financial Measures

The Corporation's reference to its total other income, exclusive of the losses recorded on securities sales, may constitute a "non-GAAP financial measure." The Corporation has provided reconciliation by also reporting its total other income for that period. The Corporation believes that the above-mentioned reference enhances the public's ability to compare results between the first six months of 2006 and the first six months of 2005.

Forward-Looking Statements

All non-historical statements in this press release (including statements regarding cost-cutting measures, the impact of the Corporation's balance sheet repositioning, the Corporation's outlook for the balance of 2006 (including potential growth in loans and core deposits), the Corporation's net interest margin, the Corporation's long term outlook regarding profitability, the Corporation's goal to reduce other expenses, and the Corporation's expansion plans and the Corporation's views regarding the business climate in 2006 ) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may use such forward-looking terminology as "expect," "look," "believe," "plan," "anticipate," "may," "will" or similar statements or variations of such terms or otherwise express views concerning trends and the future. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, the direction of interest rates, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, as well as the effects of international, national, regional and local economic conditions and legal and regulatory barriers and structure, including those relating to the deregulation of the financial services industry, and other risks cited in reports filed by the Corporation with the Securities and Exchange Commission. Actual results may differ materially from such forward-looking statements. Center Bancorp, Inc. assumes no obligation for updating any such forward-looking statement at any time.


CENTER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION

                                                  June 30,   December 31,
(Dollar Amounts in Thousands)                       2006         2005
                                                -----------  -------------
                                                (unaudited)
ASSETS
Cash and due from banks                         $    17,007  $      19,343
Federal funds sold and securities purchased
 under agreement to resell                           30,228              -
                                                -----------  -------------
Total cash and cash equivalents                      47,235         19,343
Investment securities held to maturity
 (approximate market value of
 $134,294 in 2006 and $140,628 in 2005)             136,224        140,514
Investment securities available-for-sale            296,117        388,170
                                                -----------  -------------
    Total investment securities                     432,341        528,684
Loans, net of unearned income                       530,650        505,826
Less - Allowance for loan losses                      4,935          4,937
                                                -----------  -------------
     Net Loans                                      525,715        500,889
Premises and equipment, net                          18,425         18,343
Accrued interest receivable                           4,925          5,875
Bank owned life insurance                            20,972         18,588
Other Assets                                          5,725          5,670
Goodwill and other intangible assets                 17,375         17,437
                                                -----------  -------------
     Total assets                               $ 1,072,713  $   1,114,829
                                                ===========  =============

LIABILITIES
Deposits:
     Non-interest bearing                       $   132,098  $     139,911
     Interest-bearing:
       Certificate of deposit $100 and over         125,614        154,409
       Interest-bearing transactions, savings
        and time deposits $100 and less             515,251        406,281
                                                -----------  -------------
     Total deposits                                 772,963        700,601
Overnight Federal funds and securities sold
 under agreement to repurchase                       27,373         98,193
Short-term borrowings                                 2,000         23,900
Long-term borrowings                                157,682        171,870
Subordinated debentures                              15,465         15,465
Accounts payable and accrued liabilities              3,012          5,311
                                                -----------  -------------
     Total liabilities                              978,495      1,015,340
                                                -----------  -------------

STOCKHOLDERS' EQUITY
Preferred Stock, no par value:
     Authorized 5,000,000 shares; none issued             -              -
Common stock, no par value:
     Authorized 20,000,000 shares; issued
      14,467,962 and 14,467,962 shares in
      2006 and 2005, respectively                    65,592         65,592
Additional paid-in capital                            3,912          3,787
Retained earnings                                    36,336         38,453
Treasury stock, at cost (1,236,501 and
 1,036,334 shares in 2006 and 2005,
 respectively)                                       (6,242)        (3,701)
Accumulated other comprehensive loss                 (5,380)        (4,642)
                                                -----------  -------------
     Total stockholders' equity                      94,218         99,489
                                                -----------  -------------
     Total liabilities and stockholders' equity $ 1,072,713  $   1,114,829
                                                ===========  =============


CENTER BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME

                              Three Months Ended        Six Months Ended
(Dollars in Thousands,             June 30,                 June 30,
 Except Per Share Data)        2006        2005         2006        2005
                            ----------- -----------  ---------- -----------
                                  (Unaudited)              (Unaudited)
 Interest income:
 Interest and fees on loans $     7,777 $     5,928  $   15,138 $    10,961
 Interest and dividends on
  investment securities:
    Taxable interest income       3,912       4,935       8,401       9,423
    Non-taxable interest
     income                       1,010         992       2,026       1,965
    Dividends                       214         465         569         915
 Interest on Federal funds
  sold and securities
  purchased under
  agreement to resell               141          17         151          29
                            ----------- -----------  ---------- -----------
    Total interest income        13,054      12,337      26,285      23,293
                            ----------- -----------  ---------- -----------
 Interest expense:
    Interest on
     certificates of
     deposit $100,000 or
     more                         1,354         987       2,703       1,986
    Interest on other
     deposits                     2,819       1,896       4,889       3,456
    Interest on borrowings        2,573       2,605       5,985       4,587
                            ----------- -----------  ---------- -----------
 Total interest expense           6,746       5,488      13,577      10,029
                            ----------- -----------  ---------- -----------
    Net interest income           6,308       6,849      12,708      13,264
    Provision for loan
     losses                           0           0           0           0
                            ----------- -----------  ---------- -----------
 Net interest income after
  provision for loan losses       6,308       6,849      12,708      13,264
                            ----------- -----------  ---------- -----------
Other income:
   Service charges,
    commissions and fees            449         475         887         970
   Other income                      91         160         210         255
   Annuity and Insurance             53          72         105         114
   Bank Owned Life
    Insurance                       203         184         384         367
   Gain (loss) on
    securities sold                  77          23      (3,578)         36
                            ----------- -----------  ---------- -----------
 Total other income (loss)          873         914      (1,992)      1,742
                            ----------- -----------  ---------- -----------
Other expense:
    Salaries and employee
     benefits                     3,037       3,004       6,319       5,881
    Occupancy, net                  521         442       1,127       1,012
    Premises and equipment          467         483         915         941
    Stationery and printing         178         181         389         302
    Marketing and
     advertising                    187         160         301         332
    Other                         1,376       1,153       2,916       2,294
                            ----------- -----------  ---------- -----------
 Total other expense              5,766       5,423      11,967      10,762
                            ----------- -----------  ---------- -----------
    Income (loss) before
     income tax expense
     (benefit)                    1,415       2,340      (1,251)      4,244
    Income tax expense
     (benefit)                       43         407      (1,556)        566
                            ----------- -----------  ---------- -----------
 Net income                 $     1,372 $     1,933  $      305 $     3,678
                            =========== ===========  ========== ===========
 Earnings per share:
    Basic                   $      0.10 $      0.18  $     0.02 $      0.34
    Diluted                 $      0.10 $      0.18  $     0.02 $      0.34
                            ----------- -----------  ---------- -----------
 Weighted average common
  shares outstanding:
    Basic                    13,276,568  10,962,507  13,355,459  10,697,411
    Diluted                  13,353,176  11,005,043  13,423,412  10,741,239
                            =========== ===========  ========== ===========

All per common share amounts have been adjusted retroactively for common
stock splits and common stock dividends impacting the periods presented.



AVERAGE STATEMENTS OF CONDITION WITH INTEREST AND AVERAGE RATES

                                       Six Month Period Ended June 30,
                                                     2006
                                                    Interest     Average
(tax-equivalent basis, dollars in      Average      Income/      Yield/
 thousands)                            Balance      Expense       Rate
                                     -----------  -----------  -----------
 Assets

 Interest-earning assets:
   Investment securities: (1)
        Taxable                      $   347,897  $     8,850         5.09%
        Non-taxable                      112,585        3,227         5.73%
   Federal funds sold and securities
    purchased under agreement to
    resell                                 6,255          151         4.83%
   Loans, net of unearned income (2)     506,365       15,138         5.98%
                                     -----------  -----------  -----------
   Total interest-earning assets         973,102       27,366         5.62%
                                     ===========  ===========  ===========
Non-interest-earning assets
   Cash and due from banks                21,811
   BOLI                                   19,275
   Intangible assets                      17,408
   Other assets                           28,088
   Allowance for possible loan
    losses                                (4,936)
                                     -----------  -----------  -----------
   Total non-interest-earning assets      81,646
                                     -----------  -----------  -----------
    Total assets                     $ 1,054,748
                                     ===========  ===========  ===========

 Liabilities and stockholders'
 equity

 Interest-bearing liabilities:
   Money market deposits             $    79,022          958         2.42%
   Savings deposits                       99,090          957         1.93%
   Time deposits                         239,851        4,799         4.00%
   Other interest-bearing deposits       120,766          878         1.45%
   Short-term Borrowings and FHLB
    Advances                             261,670        5,319         4.07%
   Subordinated Debentures                15,465          665         8.60%
                                     -----------  -----------  -----------
   Total interest-bearing
    liabilities                          815,864       13,576         3.33%
                                     ===========  ===========  ===========
Non-interest-bearing liabilities:
   Demand deposits                       135,509
   Other non-interest-bearing
    deposits                               2,547
   Other liabilities                       3,697
                                     -----------  -----------  -----------
   Total non-interest-bearing
    liabilities                          141,753
   Stockholders' equity                   97,131
                                     -----------  -----------  -----------
   Total liabilities and
    stockholders' equity             $ 1,054,748
                                     -----------  -----------  -----------
   Net interest income
    (tax-equivalent basis)                        $    13,790
                                     -----------  -----------  -----------
   Net Interest Spread                                                2.29%
                                     -----------  -----------  -----------
   Net interest income as percent
    of earning-assets (net
    interest margin)                                                  2.83%
                                     -----------  -----------  -----------
   Tax-equivalent adjustment (3)                       (1,081)
                                     -----------  -----------  -----------
   Net interest income                            $    12,709
                                     ===========  ===========  ===========



                                       Six Month Period Ended June 30,
                                                     2005
                                                    Interest     Average
(tax-equivalent basis, dollars in      Average      Income/      Yield/
 thousands)                            Balance      Expense       Rate
                                     -----------  -----------  -----------
 Assets

 Interest-earning assets:
   Investment securities: (1)
        Taxable                      $   425,932  $     9,676         4.54%
        Non-taxable                      145,900        3,846         5.27%
   Federal funds sold and securities
    purchased under agreement to
    resell                                 2,201           29         2.64%
   Loans, net of unearned income (2)     408,292       10,961         5.37%
                                     -----------  -----------  -----------
   Total interest-earning assets         982,325       24,512         4.99%
                                     ===========  ===========  ===========
Non-interest-earning assets
   Cash and due from banks                19,840
   BOLI                                   18,013
   Intangible assets                       6,066
   Other assets                           27,475
   Allowance for possible loan
    losses                                (4,082)
                                     -----------  -----------  -----------
   Total non-interest-earning assets      67,312
                                     -----------  -----------  -----------
    Total assets                     $ 1,049,637
                                     ===========  ===========  ===========

 Liabilities and stockholders'
 equity

 Interest-bearing liabilities:
   Money market deposits             $    87,849          932         2.12%
   Savings deposits                      113,732          765         1.35%
   Time deposits                         240,274        3,311         2.76%
   Other interest-bearing deposits       120,873          434         0.72%
   Short-term Borrowings and FHLB
    Advances                             260,048        4,125         3.17%
   Subordinated Debentures                15,465          462         5.97%
                                     -----------  -----------  -----------
   Total interest-bearing
    liabilities                          838,241       10,029         2.39%
                                     ===========  ===========  ===========
Non-interest-bearing liabilities:
   Demand deposits                       132,781
   Other non-interest-bearing
    deposits                               2,224
   Other liabilities                       5,042
                                     -----------  -----------  -----------
   Total non-interest-bearing
    liabilities                          140,047
   Stockholders' equity                   71,349
                                     -----------  -----------  -----------
   Total liabilities and
    stockholders' equity             $ 1,049,637
                                     -----------  -----------  -----------
   Net interest income
    (tax-equivalent basis)                        $    14,483
                                     -----------  -----------  -----------
   Net Interest Spread                                                2.60%
                                     -----------  -----------  -----------
   Net interest income as percent
    of earning-assets (net
    interest margin)                                                  2.95%
                                     -----------  -----------  -----------
   Tax-equivalent adjustment (3)                       (1,219)
                                     -----------  -----------  -----------
   Net interest income                            $    13,264
                                     ===========  ===========  ===========

(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



AVERAGE STATEMENTS OF CONDITION WITH INTEREST AND AVERAGE RATES

                                         Three Month Period Ended June 30,
                                                       2006
                                                      Interest    Average
(tax-equivalent basis, dollars in        Average      Income/      Yield/
 thousands)                              Balance      Expense      Rate
                                       -----------  -----------  ---------
 Assets

 Interest-earning assets:
   Investment securities: (1)
   Taxable                             $   303,421  $     4,110       5.42%
   Non-taxable                             110,872        1,551       5.60%
   Federal funds sold and securities
    purchased under agreement
    to resell                               11,553          141       4.88%
   Loans, net of unearned income (2)       510,126        7,777       6.10%
                                       -----------  -----------  ---------
   Total interest-earning assets           935,972       13,579       5.80%
                                       ===========  ===========  =========
Non-interest-earning assets
   Cash and due from banks                  23,272
   BOLI                                     19,884
   Intangible Assets                        17,393
   Other assets                             27,800
   Allowance for possible loan losses       (4,936)
                                       -----------  -----------  ---------
   Total non-interest-earning assets        83,413
                                       -----------  -----------  ---------
   Total assets                        $ 1,019,385
                                       ===========  ===========  =========

 Liabilities and stockholders' equity

 Interest-bearing liabilities:
   Money market deposits               $    95,371          658       2.76%
   Savings deposits                         94,498          468       1.98%
   Time deposits                           242,804        2,586       4.26%
   Other interest-bearing deposits         123,348          461       1.49%
   Short-term Borrowings & FHLB
    Advances                               212,549        2,234       4.20%
   Subordinated Debentures                  15,465          338       8.74%
                                       -----------  -----------  ---------
   Total interest-bearing liabilities      784,035        6,745       3.44%
                                       ===========  ===========  =========
Non-interest-bearing liabilities:
   Demand deposits                         135,299
   Other non-interest-bearing deposits       1,803
   Other liabilities                         2,782
                                       -----------  -----------  ---------
   Total non-interest-bearing
    liabilities                            139,884
   Stockholders' equity                     95,466
                                       -----------  -----------  ---------
   Total liabilities and stockholders'
    equity                             $ 1,019,385
                                       -----------  -----------  ---------
   Net interest income (tax-equivalent
    basis)                                          $     6,834
                                       -----------  -----------  ---------
   Net Interest Spread                                                2.36%
                                       -----------  -----------  ---------
   Net interest income as percent
    of earning-assets (net
    interest margin)                                                  2.92%
                                       -----------  -----------  ---------
   Tax-equivalent adjustment (3)                           (525)
                                       -----------  -----------  ---------
   Net interest income                              $     6,309
                                       ===========  ===========  =========



                                         Three Month Period Ended June 30,
                                                       2005
                                                      Interest    Average
(tax-equivalent basis, dollars in        Average      Income/      Yield/
 thousands)                              Balance      Expense      Rate
                                       -----------  -----------  ---------
 Assets

 Interest-earning assets:
   Investment securities: (1)
   Taxable                             $   437,799  $     5,041       4.61%
   Non-taxable                             143,506        1,974       5.50%
   Federal funds sold and securities
    purchased under agreement
    to resell                                2,397           17       2.84%
   Loans, net of unearned income (2)       435,539        5,928       5.44%
                                       -----------  -----------  ---------
   Total interest-earning assets         1,019,241       12,960       5.09%
                                       ===========  ===========  =========
Non-interest-earning assets
   Cash and due from banks                  20,478
   BOLI                                     18,103
   Intangible Assets                         9,961
   Other assets                             28,182
   Allowance for possible loan losses       (4,343)
                                       -----------  -----------  ---------
   Total non-interest-earning assets        72,381
                                       -----------  -----------  ---------
   Total assets                        $ 1,091,622
                                       ===========  ===========  =========

 Liabilities and stockholders' equity

 Interest-bearing liabilities:
   Money market deposits               $    91,206          526       2.31%
   Savings deposits                        137,004          410       1.20%
   Time deposits                           235,311        1,672       2.84%
   Other interest-bearing deposits         109,153          275       1.01%
   Short-term Borrowings & FHLB
    Advances                               286,144        2,364       3.30%
   Subordinated Debentures                  15,465          241       6.23%
                                       -----------  -----------  ---------
   Total interest-bearing liabilities      874,283        5,488       2.51%
                                       ===========  ===========  =========
Non-interest-bearing liabilities:
   Demand deposits                         135,433
   Other non-interest-bearing deposits       2,785
   Other liabilities                         5,150
                                       -----------  -----------  ---------
   Total non-interest-bearing
    liabilities                            143,368
   Stockholders' equity                     73,971
                                       -----------  -----------  ---------
   Total liabilities and stockholders'
    equity                             $ 1,091,622
                                       -----------  -----------  ---------
   Net interest income (tax-equivalent
    basis)                                          $     7,472
                                       -----------  -----------  ---------
   Net Interest Spread                                                2.58%
                                       -----------  -----------  ---------
   Net interest income as percent
    of earning-assets (net
    interest margin)                                                  2.93%
                                       -----------  -----------  ---------
   Tax-equivalent adjustment (3)                           (623)
                                       -----------  -----------  ---------
   Net interest income                              $     6,849
                                       ===========  ===========  =========


(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

Contact Information

  • Contact:
    Anthony C. Weagley
    Vice President & Treasurer
    (908) 206-2886