Center Bancorp, Inc. Reports Second Quarter 2010 Earnings

UNION, N.J., July 28, 2010 (GLOBE NEWSWIRE) -- Center Bancorp, Inc. (Nasdaq:CNBC) (the "Corporation", or "Center"), parent company of Union Center National Bank, today reported operating results for the second quarter ended June 30, 2010. Net income amounted to $2.0 million, or $0.13 per fully diluted common share, for the quarter ended June 30, 2010, as compared with earnings of $1.2 million, or $0.08 per fully diluted common share, for the quarter ended June 30, 2009.

Net income for the current quarter included investment securities impairment charges of $706,000, and a one-time charge of $437,000 incurred from a lease/sale transaction on the Corporation's former operations facility.

For the six months ended June 30, 2010, net income amounted to $2.3 million, or $0.14 per fully diluted common share, as compared to $1.7 million, or $0.13 per fully diluted common share, for the same period in 2009.

"The Corporation's performance for the second quarter of 2010 reflected sustained progress on many levels with solid results that are beginning to reflect Center's real core value. We achieved earnings growth in the quarter and continued to experience loan demand and deposit growth. Our cost effective funding base of non interest-bearing demand deposits again contributed to a strong net interest margin despite the current market and economic conditions. We also see encouraging signs of a continued improvement in credit quality. The actions we have taken to strengthen the balance sheet over the recent past quarters are beginning to have an impact in positioning the Corporation for improved earnings performance going forward," said Anthony C Weagley, Center's President and Chief Executive Officer.

Mr. Weagley further noted, "We are pleased with the growth achieved for the quarter and are optimistic that the Corporation will continue to strengthen its balance sheet. Our current loan demand remains strong and will support our strategic goal of increasing the earning asset mix. Notwithstanding the slowdown in the general markets, we believe that current economic conditions offer a unique window of opportunity for Center to expand its franchise as the market and businesses begin to recover from the recession and seek a strong community bank with the capacity and commitment to meet their needs."

Results for the quarter include:

• Impairment charges totaling $706,000 were recorded on two issues within the investment securities portfolio, further reducing the remaining exposure related to these bonds.
• A loss on fixed assets totaling $437,000 was recorded relative to entering into a direct financing lease on the Corporation's former operations facility. Earnings on the lease arrangement and occupancy expense savings are expected to bring the Corporation to breakeven on the loss related to the transaction within a year.
• Net interest income increased to $8.7 million, compared to $8.5 million for the first quarter 2010 and $6.6 million for the second quarter 2009. Net interest margin on a fully taxable equivalent basis increased 2 basis points to 3.37% compared to 3.35% for the first quarter of 2010, and expanded 64 basis points compared to the second quarter of 2009, primarily the result of lower rates on deposits and borrowings.
• At June 30, 2010, total loans amounted to $722.5 million, an increase of $8.6 million as compared to March 31, 2010. The net growth occurred primarily in the commercial loan portfolio, which is the Corporation's current strategic focus. Commercial real estate loan growth was nominal during the second quarter 2010 and was more than offset by runoff in the residential real estate portfolio. Total loans at June 30, 2010 increased $28.3 million, or 4.1%, as compared to June 30, 2009.
• Overall credit quality in the loan portfolio improved during the quarter. Non-performing assets, consisting of non-accrual loans, accruing loans past due 90 days or more and other real estate owned, amounted to 0.79% of total assets at June 30, 2010, compared to 0.96% at March 31, 2010 and 0.94% at December 31, 2009. At June 30, 2010, the allowance for loan losses amounted to approximately $8.6 million, or 1.19% of total loans. The allowance for loan losses as a percentage of total non-performing loans was 112.4% at June 30, 2010 compared to 71.7% at March 31, 2010 and 77.2% at December 31, 2009.
• Deposits increased to $802.5 million at June 30, 2010 from $792.5 million at March 31, 2010 and decreased $152.7 million from the balance reported at June 30, 2009. The growth in the current quarter was primarily in interest-bearing checking deposits, while the decline from a year ago was largely in time deposits.
• Tier 1 leverage capital ratio of 8.57% at June 30, 2010, compared to 7.52% at June 30, 2009, and 7.73% at December 31, 2009, exceeding regulatory guidelines.
• Book value per common share was $6.71 at June 30, 2010, compared to $6.32 at December 31, 2009 and $6.14 at June 30, 2009. Tangible book value per common share was $5.54 at June 30, 2010, compared to $5.15 at December 31, 2009 and $4.83 at June 30, 2009.

Earnings Summary for the Quarter Ended June 30, 2010

For the three months ended June 30, 2010, total interest income on a fully taxable equivalent basis decreased $0.3 million or 2.4%, to $12.5 million, as compared to the three months ended June 30, 2009. Total interest expense decreased by $2.2 million, or 37.0%, to $3.8 million, for the three months ended June 30, 2010, as compared to the same period last year. Net interest income on a fully taxable equivalent basis was $8.7 million for the three months ended June 30, 2010, increasing $1.9 million, or 28.6%, from $6.8 million for the comparable period in 2009.

The decrease in interest expense reflects the impact of the sustained low levels in short-term interest rates and lower volume of time deposits.  The combined positive effect was a decrease in the average cost of funds, which declined 84 basis points to 1.67% from 2.51% for the quarter ended June 30, 2009 and on a linked sequential quarter decreased 12 basis points as compared to the first quarter of 2010.

For the three months ended June 30, 2010, the Corporation's net interest spread increased 51 basis points to 3.18% as compared to 2.67% for the comparable three month period in 2009, and the Corporation's net interest margin (net interest income as a percentage of interest-earning assets) widened by 64 basis points from 2.73% to 3.37%, in all cases on an annualized basis.

Condensed Statements of Income

The following presents condensed consolidated statement of income data for the periods indicated.

Other Income

Other income decreased $1.1 million for the second quarter of 2010 compared with the comparable quarter of 2009, primarily as a result of lower net investment securities gains. During the second quarter of 2010, the Corporation recorded net investment securities gains of $657,000 compared to $1.7 million in net investment securities gains for the same period last year. Excluding net securities gains, the Corporation recorded other income of $825,000 for the three months ended June 30, 2010 compared to other income, excluding net securities losses, of $895,000 on a sequential linked quarter basis and other income, excluding net securities gains, of $841,000 for the three months ended June 30, 2009.

The following presents the components of other income for the periods indicated.

Other Expense

Other expense for the second quarter of 2010 totaled $6.3 million which was approximately $124,000 lower than the three months ended March 31, 2010, but which represented a decrease of $1.0 million, or 14.3%, from the second quarter of 2009. Other real estate owned expense for the three months ended June 30, 2010 decreased $1.3 million from the comparable period in 2009. FDIC insurance expense for the three months ended June 30, 2010 decreased $160,000 on a sequential linked quarter basis and decreased $482,000 from the comparable period in 2009. The three months ended June 30, 2010 included a loss on fixed assets of $437,000 due to a lease/sale transaction involving the Corporation's former operations facility.

The following presents the components of other expense for the periods indicated.

Asset Quality

At June 30, 2010, non-performing assets totaled $9.4 million, or 0.79% of total assets, as compared with $11.3 million, or 0.94%, at December 31, 2009 and $9.8 million, or 0.73%, at June 30, 2009.

The allowance for loan losses at June 30, 2010 amounted to approximately $8.6 million, or 1.19% of total loans, compared to 1.21% of total loans at December 31, 2009. The allowance for loan losses as a percentage of total non-performing loans was 112.4% at June 30, 2010 compared to 77.2% at December 31, 2009.

Overall credit quality in the Bank's loan portfolio remains relatively strong and improved during the quarter. Non-accrual loans decreased from $9.8 million at March 31, 2010 to $7.3 million at June 30, 2010. Loans past due 90 days or more and still accruing decreased from $1.6 million at March 31, 2010 to $336,000 at June 30, 2010. Other real estate owned at June 30, 2010 of $1.8 million consisted of one residential property that is under contract of sale subject to contingencies waiting to be satisfied; at March 31, 2010 there was no other real estate owned. Troubled debt restructured loans, which are performing loans, increased $4.9 million from March 31, 2010 to $9.4 million at June 30, 2010, due to the addition of four restructurings, offset in part by the removal of three restructured loans that reverted to their original contract terms.

The following presents the components of non-performing assets and other asset quality data for the periods indicated.

A discussion of the significant components of non-accrual loans at June 30, 2010 is outlined below. This grouping of loans accounts for approximately 82% of total non-accrual loans.

- A $3.0 million loan secured by a commercial property located in Essex County, New Jersey. This non-accrual loan represents an expired participation with Highlands State Bank. 

- A $2.0 million loan secured by a commercial property located in Monmouth County, New Jersey. At present, the borrower has changed listing brokers to one that specializes in this type of property. Aggressive marketing is anticipated, and the Corporation expects to be repaid in full from the ultimate sale of the property.

- A $1.0 million loan for a construction project secured by a commercial property in Union County, New Jersey. The borrower has entered into a contract of sale with a closing expected during the third quarter of 2010. From a combination of the net sales proceeds and a restructuring agreement entered into with the borrower, guarantors and affiliated entities, the Corporation expects to be repaid as a result.

Capital

Total stockholders' equity amounted to $107.4 million, or 8.98% of total assets, at June 30, 2010. Tangible common stockholders' equity was $80.8 million, or 6.85% of tangible assets. Book value per common share was $6.71 at June 30, 2010, compared to $6.14 at June 30, 2009. Tangible book value per common share was $5.54 at June 30, 2010 compared to $4.83 at June 30, 2009.

At June 30, 2010, the Corporation's Tier 1 leverage capital ratio was 8.57%, the Tier 1 risk-based capital ratio was 11.34% and the Total risk-based capital ratio was 12.32%. Tier 1 capital increased to approximately $99.0 million at June 30, 2010 from $88.6 million at June 30, 2009, reflecting the Corporation's proceeds from the rights offering and private placement with its standby purchaser in October 2009 and increases in retained earnings.

Statement of Condition Highlights at June 30, 2010

• Total assets amounted to $1.2 billion at June 30, 2010, which positions the Corporation as one of the largest New Jersey headquartered financial institutions.
• Total loans were $722.5 million at June 30, 2010, increasing $28.3 million, or 4.1%, from June 30, 2009.  Total real estate loans declined $3.6 million from the comparable period in 2009 as a result of a decrease in the residential real estate portfolio which more than offset the increase in commercial real estate loans. Commercial loans increased $32.5 million year over year.
• Investment securities decreased by $84.6 million at June 30, 2010 compared to June 30, 2009.
• Deposits totaled $802.5 million at June 30, 2010, a decrease of $152.7 million from June 30, 2009. Time certificates of deposit of $100,000 and over decreased $159.9 million compared to June 30, 2009, primarily due to a decline in CDARS Reciprocal deposits.
• Total deposit funding sources, including overnight repurchase agreements (which agreements are considered part of the demand deposit base), amounted to $845.1 million at June 30, 2010, a decrease of $134.1 million from June 30, 2009, reflecting outflows of CDARS time deposits. The Corporation's core deposit gathering efforts remain strong.
• Borrowings totaled $248.9 million at June 30, 2010, decreasing $25.5 million from December 31, 2009, primarily due to repayment of a Federal Home Loan Bank advance and a structured repurchase agreement.

The following reflects the composition of the Corporation's loan portfolio as of the dates indicated.

The following reflects the composition of the Corporation's deposits as of the dates indicated.

Condensed Statements of Condition

The following tables present condensed statements of condition at or for the periods indicated. 

Non-GAAP Financial Measures

Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Corporation's management believes that the supplemental non-GAAP information is utilized by market analysts and others to evaluate a company's financial condition and, therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

"Return on average tangible stockholders' equity" is a non-GAAP financial measure and is defined as net income as a percentage of tangible stockholders' equity. Tangible stockholders' equity is defined as common stockholders' equity less goodwill and other intangible assets. The return on average tangible stockholders' equity measure may be important to investors that are interested in analyzing our return on equity excluding the effect of changes in intangible assets on equity.

The following presents a reconciliation of average tangible stockholders' equity and a reconciliation of return on average tangible stockholders' equity for the periods presented.

"Tangible book value per common share" is a non-GAAP financial measure and represents tangible stockholders' equity (or tangible book value) calculated on a per common share basis. The disclosure of tangible book value per common share may be helpful to those investors who seek to evaluate the Corporation's book value per common share without giving effect to goodwill and other intangible assets.

The following presents a reconciliation of book value per common share to tangible book value per common share as of the dates presented.

"Tangible common stockholders' equity/tangible assets" is a non-GAAP financial measure and is defined as tangible common stockholders' equity as a percentage of total assets minus goodwill and other intangible assets. This measure may be important to investors that are interested in analyzing the financial condition of the Corporation without consideration of intangible assets, inasmuch as tangible common stockholders' equity and tangible assets both exclude goodwill and other intangible assets.

The following presents a reconciliation of total assets to tangible assets and a reconciliation of total stockholders' equity/total assets to tangible common stockholders' equity/tangible assets as of the dates presented.

Other income is presented in the table below including and excluding net securities gains (losses). We believe that many investors desire to evaluate other income without regard for securities gains (losses).

"Efficiency ratio" is a non-GAAP financial measure and is defined as other expense as a percentage of net interest income on a tax equivalent basis plus other income, excluding net securities gains (losses), calculated as follows:

About Center Bancorp

Center Bancorp, Inc. is a bank holding company which operates Union Center National Bank, its main subsidiary. Chartered in 1923, Union Center National Bank is one of the oldest national banks headquartered in the state of New Jersey and currently the largest commercial bank headquartered in Union County. Its primary market niche is its commercial banking business. The Bank focuses its lending activities on commercial lending to small and medium-sized businesses, real estate developers and high net worth individuals.

The Bank, through its Private Wealth Management Division, which includes its wholly-owned subsidiary, Center Financial Group LLC, provides financial services including brokerage services, insurance and annuities, mutual funds, financial planning, estate and tax planning, trust, elder care and benefit plan administration.

The Bank currently operates 13 banking locations in Union and Morris Counties in New Jersey. Banking centers are located in Union Township (6 locations), Berkeley Heights, Boonton/Mountain Lakes, Madison, Millburn/Vauxhall, Morristown, Springfield, and Summit, New Jersey. The Bank also operates remote ATM locations in the Chatham and Madison New Jersey Transit train stations, and the Boys and Girls Club of Union.

While the Bank's primary market area is comprised of Union and Morris Counties, New Jersey, the Corporation has expanded to northern and central New Jersey. At June 30, 2010, the Corporation had total assets of $1.2 billion, total deposit funding sources, which includes overnight repurchase agreements, of $845.1 million and stockholders' equity of $107.4 million. For further information regarding Center Bancorp, Inc., visit our web site at http://www.centerbancorp.com or call (800) 862-3683. For information regarding Union Center National Bank, visit our web site at http://www.ucnb.com.

Forward-Looking Statements

All non-historical statements in this press release (including statements regarding future earnings performance, future results and financial condition, future earning asset mix, the Corporation's real core value, the future impact of a direct financing lease on the Corporation's former operations facility, future credit quality, repayment expectations relating to non-performing assets, market and economic conditions, growth and economic recovery) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may use forward-looking terminology such 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 protracted global financial crisis and the deregulation of the financial services industry, and other risks cited in the Corporation's most recent Annual Report on Form 10-K and other 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.