SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 filed to
include the financial statements and exhibits described in Item 7
Date of report (Date of earliest event reported): June 28, 1996
---------------
CENTER BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter.)
New Jersey 2-81353 52-1273725
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation or
organization)
2455 Morris Avenue 07083
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (908) 688-9500
----------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 28, 1996, Center Bancorp, Inc. (the "Company") consummated its
acquisition of Lehigh Savings Bank, S.L.A. ("Lehigh"). The acquisition was
effected pursuant to the terms of an Agreement and Plan of Merger (the
"Agreement"), pursuant to which a subsidiary of the Company was merged with and
into Lehigh, with Lehigh being the surviving entity thereof (the "Merger").
Immediately following the Merger, the Company merged Lehigh with and into the
Company's banking subsidiary, Union Center National Bank.
The Company paid approximately $5,550,000 in cash in connection with the
acquisition, no stock was issued by the Company pursuant to the Merger.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The historical financial statements of Lehigh and the pro forma information
listed below are filed herewith.
1. Historical Financial Statements of Lehigh Savings Bank, S.L.A:
A. Audited financial statements (including Independent Auditors' Report)
for the year ended June 30, 1995 (consisting of a Statement of Financial
Condition as of June 30, 1995, a Statement of Income for the year ended
June 30, 1995, a statement of Shareholders' Equity for the year ended
June 30, 1995, a Statement of Changes Flows for the year ended June 30,
1995 and Notes to the Financial Statements)
B. Condensed Statements of Financial Condition as of March 31, 1996 and
June 30, 995.
C. Condensed Statements of Income for the nine months ended March 31, 1996
and March 31, 1995.
D. Condensed Statements of Cash Flows for the nine months ended March 31,
1996 and March 31, 1995.
E. Notes to Interim Financial Statements
2. Pro Forma data:
A. Unaudited Pro Forma Financial Information
B. Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31,
1996, and related notes.
C. Unaudited Pro Forma Combined Condensed Statement of Income for the three
months ended March 31, 1996, and related notes.
D. Unaudited Pro Forma Combined Condensed Statement of Income for the year
ended December 31, 1995, and related notes.
3. Exhibits:
Exhibit 2 - Agreement and Plan of Merger, dated February 14, 1996, as
amended, between Center Bancorp, Inc. and Lehigh Savings Bank, S.L.A., is
incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1996.
Exhibit 23.1 - Consent of KPMG Peat Marwick LLP (filed herewith)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to its report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CENTER BANCORP, INC.
By: /s/ ANTHONY C. WEAGLEY
---------------------------
Anthony C. Weagley
Treasurer
Dated: September 11, 1996
LEHIGH SAVINGS BANK, SLA
Financial Statements
June 30, 1995
(With Independent Auditors' Report Thereon)
KPMG Peat Marwick LLP
New Jersey Headquarters
150 John F. Kennedy Parkway
Short Hills, NJ 07078
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Lehigh Savings Bank, SLA:
We have audited the accompanying statement of financial condition of Lehigh
Savings Bank, SLA as of June 30, 1995, and the related statements of income,
changes in shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Lehigh Savings Bank, SLA as
of June 30, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
September 29, 1995
Member Firm of
Klynveld Peat Marwick Goerdeler
LEHIGH SAVINGS BANK, SLA
Statement of Financial Condition
June 30, 1995
ASSETS 1995
------ -----------
Cash and cash equivalents $ 2,678,427
Securities held to maturity (market value of $52,240,001) 53,087,706
Securities available for sale, at market value 7,639,575
Loans receivable, net 16,131,571
Other real estate owned, net 110,450
Federal Home Loan Bank of New York stock, at cost 583,300
Property and equipment 1,885,122
Accrued interest receivable 481,502
Other assets 83,557
-----------
Total assets $82,681,210
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits 76,080,089
Accrued interest payable 719
Advance payments from borrowers for taxes and insurance 117,897
Advances from Federal Home Loan Bank of New York 2,000,000
Accrued expenses and other liabilities 527,641
-----------
Total liabilities 78,726,346
-----------
Shareholders' equity:
Common stock, $10 par value per share. Authorized
1,395,500 shares; issued and outstanding 392,500 shares 3,925,000
Additional paid-in capital 170,662
Accumulated deficit (196,708)
Unrealized gain on debt and marketable equity
securities available for sale 55,910
------------
Total shareholders' equity 3,954,864
------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 82,681,210
============
See accompanying notes to financial statements.
LEHIGH SAVINGS BANK, SLA
Statement of Income
Year ended June 30, 1995
1995
----------
Interest income:
Loans receivable $1,373,159
Investments 3,656,523
----------
Total interest income 5,029,682
----------
Interest expense:
Deposits 2,763,646
Advances from Federal Home Loan Bank of New York 97,267
----------
Total interest expense 2,860,913
----------
Net interest income 2,168,769
Provision for possible loan losses 88,634
----------
Net interest income after provision
for possible loan losses 2,080,135
----------
Other income:
Service charges 88,461
Loan fees 18,342
Net securities gains 1,988
Net gain on operation of real estate owned 94,090
Other income 29,081
----------
Total other income 231,962
----------
Other expenses:
Compensation and employee benefits 733,271
Occupancy expense 183,374
Equipment expense 126,791
Insurance expense 299,888
Other expenses 616,033
----------
Total other expenses 1,959,357
----------
Income before provision for income taxes 352,740
Provision for income taxes 18,234
----------
Net income $ 334,506
==========
Earnings per share $ .85
=====
See accompanying notes to financial statements.
LEHIGH SAVINGS BANK, SLA
Statement of Changes in Shareholders' Equity
Year ended June 30, 1995
Unrealized
gain on
debt and
marketable
equity Total
Additional securities share-
Common paid-in Accumulated available holders'
stock capital deficit for sale equity
---------- ---------- ----------- ---------- ---------
Balance at June 30, 1994 3,925,000 170,662 (531,214) (186,959) 3,377,489
Net income -- -- 334,506 -- 334,506
Net change in depreciation on
securities available for sale -- -- -- 242,869 242,869
---------- ------- -------- -------- ---------
Balance at June 30, 1995 $3,925,000 170,662 (196,708) 55,910 3,954,864
========== ======= ======== ======== =========
See accompanying notes to financial statements.
LEHIGH SAVINGS BANK, SLA
Statement of Cash Flows
Year ended June 30, 1995
1995
-----------
Cash flows from operating activities:
Net income $ 334,506
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 91,951
Amortization of premiums and discounts on
securities 533,225
Provision for possible loan losses 88,634
Provision for other real estate owned losses 36,446
Gains on sale of securities (1,968)
Net gain on sale of real estate owned (102,349)
Decrease in other assets 1,787
Decrease in accrued expenses and other
liabilities (216,916)
Decrease in accrued interest receivable 27,673
-----------
Net cash provided by operating activities 792,989
-----------
Cash flows from investing activities:
Net decrease increase in loans receivable (387,111)
Capital expenditures (7,822)
Purchase of securities held to maturity (11,497,772)
Principal payments on securities held to maturity 8,212,466
Principal payments on securities available for sale 748,547
Proceeds from sale of securities held to maturity 17,028
Proceeds from sale of real estate owned 655,023
Net decrease in Federal Home Loan Bank of New York stock 10,600
-----------
Net cash used in investing activities (2,249,041)
-----------
(Continued)
2
LEHIGH SAVINGS BANK, SLA
Statement of Cash Flows, (Continued)
1995
-----------
Cash flows from financing activities:
Net decrease in deposits $ (737,471)
Increase in advance payments from borrowers for
taxes and insurance 10,949
-----------
Net cash used in financing activities (726,522)
-----------
Net decrease increase in cash and cash equivalents (2,182,574)
Cash and cash equivalents at beginning of year 4,861,001
-----------
Cash and cash equivalents at end of year $ 2,678,427
===========
Cash paid during the year for:
Interest $ 2,861,094
Income taxes 18,234
-----------
Noncash transactions--transfer from real estate owned to loans $ 112,000
===========
See accompanying notes to financial statements.
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements
June 30, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following describes the organization and summarizes the significant
accounting policies followed in the preparation of these financial
statements.
ORGANIZATION
Lehigh Savings Bank, SLA (the Bank) is a state chartered Savings and Loan
Association and a member of the Federal Home Loan Bank of New York (FHLB)
system. As a member of this system, the Bank maintains a required investment
in capital stock of the FHLB.
Savings deposits are insured by the Federal Deposit Insurance Corporation
(FDIC) under the Savings Association Insurance Fund (SAIF) within certain
limitations. Quarterly premiums are required by the FDIC for the insurance
of such savings deposits.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowance for possible loan losses, management
generally obtains independent appraisals for significant properties.
A substantial portion of the Bank's loans are secured by real estate in the
State of New Jersey, where the real estate market is currently recovering.
In addition, real estate owned is located in the same area. Accordingly, as
with most financial institutions in the market area, the collectibility of a
substantial portion of the carrying value of the Bank's loan portfolio and
real estate owned is susceptible to changes in market conditions.
Management believes that the allowances for possible loan losses and other
real estate owned losses is adequate. While management uses available
information to recognize losses on loans and real estate owned, future
additions to the allowances may be necessary based on changes in economic
conditions in the Bank's market area. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowances for loans and real estate owned. Such agencies
may require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examination.
(Continued)
2
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of cash on hand and non-interest
bearing amounts due from banks.
SECURITIES
Effective June 30, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). SFAS 115 requires that the Bank's securities be
classified as either held to maturity, available for sale or trading. The
Bank currently has no securities classified as trading. If management has
the intent and the Bank has the ability at the time of purchase to hold
securities until maturity, they are classified as held to maturity and
carried at amortized historical cost adjusted for the amortization of
premiums and accretion of discounts using the level yield method. Unrealized
losses due to fluctuations in market value are recognized as security losses
when a decline in value is assessed as being other than temporary.
Securities to be held for indefinite periods of time and not intended to be
held to maturity are classified as available for sale. Unrealized holding
gains and losses are excluded from earnings and reported net of related
taxes as a separate component of retained earnings until realized.
Securities available for sale are those which management intends to use as
part of its asset/liability management strategy and which may be sold in
response to changes in interest rates, resultant prepayment risk and other
factors related to interest rate and resultant prepayment risk. Gains or
losses on sale are recorded on a trade date basis, utilizing the specific
identification method.
LOANS RECEIVABLE
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan origination fees and costs. The accrual of
interest on a loan is discontinued when a loan becomes past due 90 days or
more and when management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial condition
is such that the collection of principal or interest is doubtful. Exceptions
to this policy may be made if the loan is adequately collateralized and in
the process of collection. Any accrued but unpaid interest is charged
against current operations upon management's decision to place a specific
loan into nonaccrual status. Loans are returned to an accrual status when
factors indicating doubtful collectibility on a timely basis no longer exist
and all past due interest and principal are brought current.
(Continued)
3
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.
ALLOWANCES FOR LOSSES
The Bank provides valuation allowances for estimated losses on loans, real
estate owned and in-substance foreclosures when a significant impairment of
value occurs. In addition to allowances for specific loans, the Bank makes a
general provision for losses on loans based on prevailing market conditions.
Additions to the allowances are charged to earnings in the form of a
provision for losses. Loans which are determined to be uncollectible are
charged against the allowance, and subsequent recoveries, if any, are
credited to the allowance. The provision for losses charged to current
operating expenses is based upon management's evaluation of the potential
losses in its loan and real estate owned portfolios.
The evaluation of the loan portfolio takes into consideration such factors
as the past due, nonaccrual status of specific loans, prior loan loss
experience, results of regulatory exams, changes in collateral value, and
current economic conditions that may affect a borrowers' ability to pay. The
current allowance for loan losses is based upon estimates, current
appraisals on collateral, and management's evaluation of the loan portfolio.
Therefore, the possibility exists that changes in such estimates, appraisals
and evaluations may be required because of changing economic conditions and
the economic prospects of borrowers.
LOAN ORIGINATION FEES AND COSTS
Loan origination and commitment fees and certain direct origination costs
are deferred and the net amount is amortized as an adjustment to the related
loan's yield. The Bank generally amortizes these amounts using the
straight-line method, as it results in an amount which approximates the
level yield method.
REAL ESTATE OWNED
Real estate owned consists primarily of real estate acquired through
foreclosures whereby the Bank obtains titles to the properties. Real estate
owned is carried at the lower of cost or fair value less estimated cost to
sell. At the time of foreclosure, the excess of the loan balance over the
estimated fair value is charged to the allowance for loan losses. Operating
results from other real estate owned, including rental income, operating
expenses and gains and losses realized from the sales of properties, are
recorded in real estate owned expense.
(Continued)
4
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONT.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the various
classes of assets. Any gain or loss on disposition of property and equipment
is determined by the difference between the proceeds received and the net
carrying amount.
INCOME TAXES
The Bank accounts for income taxes using the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Current
income tax expense is recognized based upon taxes currently payable.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(2) REGULATORY MATTERS
On August 9, 1989, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA) was signed into law. FIRREA imposes more
stringent capital requirements upon the Bank. In addition, FIRREA includes
provisions for changes in the Federal regulatory structure, including a new
deposit insurance system, increased deposit insurance premiums and
restricted investment activities with respect to non-investment grade
corporate debt and certain other investments. FIRREA also increases the
required ratio of housing-related assets in order to qualify as a savings
association.
The legislation requires the Bank to have a minimum regulatory tangible
capital ratio equal to 1.5% of adjusted total assets, a minimum 3% leverage
(core) capital ratio and an 8% risk-based capital ratio. In April 1991, the
Office of Thrift Supervision (the OTS) issued a proposal to increase the
core capital requirement for most savings institutions. Under the proposal,
only institutions with the highest rating under the OTS's MACRO rating
system would be permitted to operate at or near the current 3% core capital
requirement. For all other savings institutions, the minimum required ratio
would be 3% plus at least an additional 100 to 200 basis points as
determined by the OTS on a case-by-case basis.
(Continued)
5
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(2) REGULATORY MATTERS, CONT.
In September 1993, the OTS issued a final rule that adds interest rate risk
to the risk-based capital requirement for thrift institutions. The
regulation became effective January 1, 1994; however, thrifts were not
required to incorporate interest rate risk into their risk-based capital
calculations until July 1, 1994, based on Thrift Financial Report (TFR) data
as of December 31, 1993. Institutions with a greater than normal interest
rate exposure must take a deduction from the total capital available to meet
their risk-based capital requirement. That deduction is equal to one half of
the difference between the institution's actual measured exposure and the
normal level of exposure. The institution's actual measured interest rate
risk is expressed as the change that occurs in its net portfolio value (NPV)
as a result of a hypothetical 200 basis point increase or decrease in
interest rates (whichever leads to the lower NPV) divided by the estimated
economic value of its assets. An above normal decline in NPV is one that
exceeds 2% of an institution's assets expressed in terms of economic value.
The Bank is in compliance with the current minimum capital requirements of
FIRREA at June 30, 1995 as follows (unaudited):
Actual Required
---------------------- ---------------------
Regulatory Capital Regulatory Capital
amount percent* capital percent
---------- -------- ---------- -------
Tangible capital $3,899,000 4.71% $1,240,000 1.5%
Core capital 3,899,000 4.71 2,480,000 3.0
Risk-based capital 3,899,000 17.73 1,760,000 8.0
========= ===== ========= ===
*Based upon a percentage of adjusted total assets for tangible and
core capital and a percentage of risk-adjusted assets for
risk-based capital.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19,
1992. In addition to the prompt corrective action requirements. FDICIA
includes significant changes to the legal and regulatory environment for
insured depository institutions, including reductions in insurance coverage
for certain kinds of deposits, increased supervision by the Federal
regulatory agencies, increased reporting requirements for insured
institutions and new regulations concerning internal controls, accounting
and operations.
(Continued)
6
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(2) REGULATORY MATTERS, CONT.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse
are subject to certain restrictions, including the requirement to file a
capital plan with the OTS, prohibitions on the payment of dividends and
management fees, restrictions on executive compensation, and increased
supervisory monitoring, among other things. Other restrictions may be
imposed on the institution either by the OTS or by the FDIC, including
requirements to raise additional capital, sell assets, or sell the entire
institution. Once an institution becomes "critically undercapitalized" it is
generally placed in receivership or conservatorship within 90 days.
To be considered "adequately capitalized," an institution must generally
have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of
at least 4%, and a total risk-based capital ratio of at least 8%. An
institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less. At June 30, 1995, the Bank has a
leverage ratio of 4.79%, a Tier 1 risk-based capital ratio of 17.73% and a
total risk-based capital ratio of 17.73%.
On July 10, 1992, the OTS issued, and the Bank's board of directors
approved, a stipulation and consent to the issuance of an order to cease and
desist. The order provides, among other matters, that the Bank shall submit
a business plan to the OTS addressing the Bank's goals with respect to
general business considerations and requires the Bank to revise internal
loan review procedures and develop policies on interest rate risk. Also,
under the terms of the order, the Bank is not permitted to engage in certain
specified investment or financing transactions without approval from the OTS
and is prohibited from paying common stock dividends without the written
approval of the OTS. Except for transactions specifically restricted, the
Bank may generally enter into transactions in the ordinary and usual course
of business. Based upon an examination as of April 17, 1995, the OTS has
determined that the Bank has not fully complied with certain provisions of
the order, since its issuance in July 1992, related to compliance with
Federal laws and regulations with respect to interest rate risk management;
quarterly reporting to the OTS certifying the adequacy of valuation
allowances; the board requirement to adopt and provide to the OTS a cease
and desist compliance resolution each month; and although adoption and
implementation of an interest rate policy has occurred, it is not considered
effective and the board of directors' monthly review of interest rate risk
is not documented as required. Management is currently addressing the above
deficiencies and believes that non-compliance will not have a material
impact on the financial condition of the Bank.
(Continued)
7
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(3) SECURITIES
At June 30, 1995, securities, net of unearned discounts and unamortized
premiums, are as follows:
1995
--------------------------------------------------
Gross un- Gross un- Estimated
Amortized realized realized market
cost gains losses value
----------- -------- ----------- ----------
Held to maturity:
Mortgage-backed securities:
FNMA $20,291,954 30,729 (552,232) 19,770,451
FHLMC 20,079,509 21,662 (434,906) 19,666,265
GNMA 7,972,011 82,522 (46,240) 8,008,293
Collateralized mortgage
obligations 4,254,489 50,176 (7,173) 4,297,492
----------- ------- ----------- ----------
52,597,963 185,089 (1,040,551) 51,742,501
Corporate bonds 489,743 7,757 -- 497,500
----------- ------- ----------- ----------
Total held to maturity $53,087,706 192,846 (1,040,551) 52,240,001
=========== ======= ========== ==========
Available for sale:
U.S. Treasury notes 2,883,665 58,660 (2,750) 2,939,575
Money market mutual fund 4,700,000 -- -- 4,700,000
----------- ------- ----------- ----------
Total available for sale $ 7,583,665 58,660 (2,750) 7,639,575
=========== ======= =========== ==========
The amortized cost and estimated market value of securities at June 30,
1995, by expected maturity, is as follows:
1995
---------------------------
Estimated
Amortized market
cost value
----------- ----------
Held to maturity:
Due in one year or less $ -- --
Due in one to five years 489,743 497,500
Mortgage-backed securities 52,597,963 51,742,501
----------- ----------
$53,087,706 52,240,001
=========== ==========
Available for sale:
Due after one year through
five years 989,000 986,250
Due after five years 1,894,665 1,953,325
Mortgage-backed securities -- --
Money market mutual fund 4,700,000 4,700,000
----------- ----------
$ 7,583,665 7,639,575
=========== ==========
(Continued)
8
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(3) SECURITIES, CONT.
Proceeds from sales of securities were $17,028 in 1995 with related gross
gains of $1,968. At June 30, 1995 securities with a value of $3,083,650 were
pledged to secure advances from the FHLB.
(4) LOANS RECEIVABLE
Loans outstanding by classification are as follows:
1995
-----------
Residential mortgage loans $15,115,618
Home equity loans 1,189,638
Loans secured by deposits 69,628
Other consumer loans 253,266
SBA loans 8,361
-----------
16,636,511
Allowance for possible
loan losses (352,762)
Unearned income (152,178)
-----------
Loans, net $16,131,571
===========
The Bank has extended credit in the ordinary course of business to its
principal shareholder, various directors, employees, and their associates.
A summary of the changes in such loans is as follows:
1995
---------
Balance at beginning of year $ 106,543
New loans --
Repayments (16,150)
---------
Balance at end of year $ 90,393
=========
All significant related-party loans are current as to principal and
interest payments as of June 30, 1995.
(Continued)
9
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(4) LOANS RECEIVABLE, CONT.
A comparative summary of loans receivable for which the accrual of interest
has been discontinued at June 30, 1995 is as follows:
Number Amount
------ ---------
1995 16 $ 699,878
== =========
(5) ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses for the year ended
June 30, 1995 is as follows:
Balance at June 30, 1994 359,374
Provisions charged to operations 88,634
Charge-offs, net (95,246)
---------
Balance at June 30, 1995 $ 352,762
=========
(6) OTHER REAL ESTATE OWNED
The components of net gain on operation of real estate owned for the year
ended June 30, 1995 is as follows:
1995
---------
Property taxes and maintenance $ (18,890)
Rental income 47,077
Provision for other real estate owned losses (36,446)
Net gain on sale of other real estate owned 102,349
---------
$ 94,090
=========
(7) PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1995 consists of the following:
Land $ 826,300
Banking facilities 874,958
Leasehold improvements 211,175
Furniture and equipment 571,066
-----------
2,483,499
Less accumulated depreciation 598,377
-----------
$ 1,885,122
===========
(Continued)
10
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(8) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30, 1995 is summarized as follows:
1995
---------
Investment securities $ 70,764
Mortgage-backed securities 323,029
Loans receivable 87,709
---------
$ 481,502
=========
(9) DEPOSITS
Deposits at June 30, 1995 are summarized as follows:
1995
------------------------------
Interest
Account type rate Balance
------------ ---------- ------------
Certificates of deposit 3.80-7.30% $ 45,229,735
Money market accounts 0.00-3.06 3,599,010
Savings accounts 3.00-3.25 22,425,690
NOW accounts 0.00-2.50 4,825,654
========== ------------
$ 76,080,089
============
Remaining maturities of certificates of deposit at June 30, 1995 are as
follows:
Within one year $ 30,623,125
One to three years 9,934,001
Over three years 4,672,609
------------
$ 45,229,735
============
Interest expense on deposits for the year ended June 30. 1995 is as
follows:
1995
----------
NOW accounts $ 54,675
Money market 129,420
Passbook 848,997
Time deposits 1,728,867
Other savings 1,687
----------
$2,763,646
==========
(Continued)
11
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(10) INCOME TAXES
The bank utilizes the asset and liability method of computing deferred
income taxes. Deferred income taxes are recognized for tax consequences of
temporary differences by applying enacted statutory tax rates, applicable
to future years, to differences between the financial reporting and the tax
basis of existing assets and liabilities.
At June 30, 1995, the Bank had net operating loss carryforwards of
approximately $35,000 which expire through 2007. In accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," the Bank has evaluated its ability to realize tax benefits
associated with these net operating loss carryforwards and existing
temporary differences. Based on its operating history, the Bank has
provided a valuation allowance of $125,273 as a full reserve against the
estimated tax benefits associated with the net operating loss carryforwards
and temporary differences relating primarily to deferred loan fees,
allowance for possible loan losses and discount accretion on securities.
(11) ADVANCES FROM THE FHLB
In 1991, the Bank entered into advance agreements with the FHLB. The
advances outstanding at June 30, 1995 were $2,000,000. Securities having a
collateral value of $3,083,650 at June 30, 1995 were pledged to secure such
advances, which are payable at a rate of 4.85% and mature in 1996.
(12) COMMITMENTS AND CONTINGENCIES, AND RELATED-PARTY TRANSACTIONS
OFF-BALANCE-SHEET RISKS AND CONTINGENCIES
In the normal course of business, there are various financial instruments
which are not recorded in the financial statements. The Bank is a party to
these financial instruments with off-balance-sheet risk to meet the
financing needs of its customers. These financial instruments include loan
commitments, lines of credit and letters of credit. The instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the financial statements. Credit risk represents the
possibility of a loss occurring from the failure of another party to
perform in accordance with the terms of the contract.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments is represented
by the contractual amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it
does for on-
(Continued)
12
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(12) COMMITMENTS AND CONTINGENCIES, AND RELATED-PARTY TRANSACTIONS, CONT.
OFF-BALANCE-SHEET RISKS AND CONTINGENCIES, CONT.
balance-sheet instruments. The Bank has no significant concentrations of
credit risk with any individual counterparty to originate loans. The Bank's
lending is concentrated in the central New Jersey market. The total amounts
of financial instruments with off-balance-sheet risk are as follows:
Financial instruments whose contract
amounts represent credit risk:
Loan commitments $318,000
Lines of credit 488,000
Letter of credit 14,000
========
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on management's credit
evaluation of the counterparty.
The credit risk involved in issuing lines of credit and letters of credit
is essentially the same as that involved in extending loan facilities to
customers.
CONCENTRATIONS OF CREDIT RISK
The Bank grants one- to four-family first mortgage real estate loans and
multifamily first mortgage real estate loans to borrowers primarily located
in the Counties of Union and Essex, New Jersey. Its borrowers' abilities to
repay their obligations are dependent upon various factors including the
borrowers' income and net worth, cash flows generated by the underlying
collateral, value of the underlying collateral and priority of the Bank's
lien on the property. Such factors are dependent upon various economic
conditions and individual circumstances beyond the Bank's control; the Bank
is therefore subject to risk of loss. The Bank believes its lending
policies and procedures adequately minimize the potential exposure to such
risks and that adequate provisions for loan losses are provided for all
known and inherent risks. Collateral and/or guarantees are required for all
loans.
LITIGATION
The Bank, from time to time, may be a defendant in legal proceedings
relating to the conduct of its business. In management's judgment, the
financial position of the Bank will not be affected materially by the
outcome of any current legal proceedings or other contingent liabilities
and commitments.
(Continued)
13
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(12) COMMITMENTS AND CONTINGENCIES, AND RELATED-PARTY TRANSACTIONS, CONT.
OPERATING LEASES AND RELATED-PARTY TRANSACTIONS
The Bank leases its main office from its principal shareholder. Lease
payments for this facility were approximately $41,000 in 1995. The initial
five-year term of the lease ended on August 31, 1992. The Bank has the
option of renewing the lease for five-year terms through August 31, 2007.
The Bank also has an option to purchase the facility for $1,260,000 in
fiscal 1996. The purchase price increases by $70,000 in each succeeding
annual period through the end of the lease term.
The minimum annual rental commitments for all renewable leases at June 30,
1995, assuming all option periods will be exercised by the Bank, are
summarized as follows:
Related
party Others Total
-------- ------- -------
1996 $ 41,000 67,000 108,000
1997 41,000 67,000 108,000
1998 41,000 67,000 108,000
1999 41,000 70,000 111,000
2000 41,000 70,000 111,000
Thereafter 280,000 157,000 437,000
-------- ------- -------
Total $485,000 498,000 983,000
======== ======= =======
Total rental expense amounted to approximately $109,000 in 1995.
RECAPITALIZATION OF SAVINGS ASSOCIATION INSURANCE FUND (SAIF)
Deposits of the Bank are currently insured by the SAIF. Members of the SAIF
and the Bank Insurance Fund (BIF), the deposit insurance fund that covers
most commercial bank deposits, are currently paying average deposit
insurance premiums of between 24 and 25 basis points. The BIF currently
meets the required reserve deposits ratio, whereas the SAIF is not expected
to be recapitalized until 2002 at the earliest.
The FDIC recently adopted a new assessment rate schedule of 4 to 31 basis
points for BIF members beginning on September 30, 1995. With respect to
SAIF member institutions, the FDIC adopted a final rule retaining the
existing assessment rate schedule applicable to SAIF member institutions of
23 to 31 basis points. As long as the premium differential continues, it
may place SAIF members, such as the Bank, at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits
and the ability to achieve lower operations costs.
(Continued)
14
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(12) COMMITMENTS AND CONTINGENCIES, AND RELATED-PARTY TRANSACTIONS, CONT.
RECAPITALIZATION OF SAVINGS ASSOCIATION INSURANCE FUND (SAIF), CONT.
Several alternatives to mitigate the effect of the BIF/SAIF premium
disparity have been suggested by the Federal banking regulators, members of
Congress and industry groups, ranging from a merger of the funds to a
payment by all SAIF member institutions, including the Bank, of a one-time
fee of approximately 85 basis points on the amount of deposits held by a
SAIF member institution to recapitalize the SAIF fund. The payment of a
one-time fee would have the effect of immediately reducing the capital of
SAIF member institutions by the amount of the fee, net of any tax effect.
Management cannot predict whether legislation imposing such a fee will be
enacted, or, if enacted the amount of any one-time fee, or whether ongoing
SAIF premiums will be reduced to a level equal to that of BIF premiums.
The Bank's assessment rate for 1995 was 29 basis points and the premium
incurred for the year was $238,882. While a significant increase in SAIF
insurance premiums or a significant one-time fee to recapitalize the SAIF
would likely have an adverse effect on the operating expenses and results
of operations of the Bank, management believes it would not affect the
Bank's compliance with its regulatory capital requirements.
TRUTH IN LENDING DISCLOSURES
The Bank routinely originates residential mortgage loans secured by a
borrower's principal dwelling and is therefore subject to certain
disclosure requirements of Regulation Z ("Truth in Lending"). The
Regulation's purpose is to fully inform the consumer of the nature of the
credit extended, by requiring meaningful disclosures about credit terms and
cost. Meaningful disclosure also includes the giving of notice of the right
to rescind the transaction. Each consumer with an ownership interest in the
property securing the loan has the right of recision.
The Bank became aware of certain unintentional possible violations of the
Regulations as they relate to providing the right of recision to borrowers
and is currently in the process of reviewing legal advice in connection
with this matter. At this time, the financial impact, if any, that may
result from this matter can not be determined.
(13) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" (SFAS 114), in May 1993 and amended it with Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures" (SFAS 118), issued in October
1994.
(Continued)
15
LEHIGH SAVINGS BANK, SLA
Notes to Financial Statements, Continued
(13) RECENT ACCOUNTING PRONOUNCEMENTS, CONT.
SFAS 114 and SFAS 118 require that the value of an impaired loan be
measured based upon: (a) the present value of expected future cash flows
discounted at the loan's effective interest rate or (b) at the fair value
of the collateral, if the loan is collateral dependent. SFAS 114 and SFAS
118 are effective, on a prospective basis, for fiscal years beginning after
December 15, 1994. The Bank's loans are collateral dependent and, when
impaired, are usually carried at the lower of book value or the fair value
of the collateral. Therefore, the Bank believes that SFAS 114 and SFAS 118
will not have a significant impact on its financial position or results of
operations.
LEHIGH SAVINGS BANK CONDENSED STATEMENTS OF CONDITION
(DOLLARS IN THOUSANDS)
(Unaudited)
March 31, 1996 June 30, 1995
-------------- -------------
Assets:
Cash and cash equivalents $15,262 $ 2,678
Securities held to maturity 3,513 53,088
Securities available for sale 39,365 7,640
Loans receivable, net 15,505 16,132
Premises and equipment, net 1,833 1,885
Other Assets 645 1,258
------- -------
Total Assets $76,123 $82,681
======= =======
Liabilities:
Deposits $70,048 $76,080
Other Liabilities 2,459 2,646
------- -------
Total Liabilities 72,507 78,726
------- -------
Shareholders' Equity:
Common stock 3,925 3,925
Appropriated surplus 171 171
Accumulated deficit (72) (198)
Unrealized (loss) gain
on securities available for sale (408) 57
------- -------
Total shareholders' equity 3,616 3,955
------- -------
Total liabilities and shareholders' equity $76,123 $82,681
======= =======
See accompanying notes.
LEHIGH SAVINGS BANK CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(Unaudited) (Unaudited)
Nine months ended Nine months ended
March 31, 1996 March 31, 1995
----------------- -----------------
Interest income $3,885 $3,644
Interest expense 2,249 2,027
------ ------
Net interest income 1,636 1,617
------ ------
Provision for possible
credit losses 101 114
------ ------
Net interest income after
provision for possible
credit loss 1,535 1,503
------ ------
Other income 125 122
Other expenses 1,528 1,382
Income before provision
for income taxes 132 243
Income taxes 6 16
------ ------
Net income $ 126 $ 227
====== ======
Earnings per share $ 0.32 $ 0.58
====== ======
See accompanying notes.
LEHIGH SAVINGS BANK CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(Unaudited) (Unaudited)
Nine months ended Nine months ended
March 31, 1996 March 31, 1995
----------------- -----------------
Cash flows from operating activities
Net income $ 126 $ 227
Adjustments to reconcile net
income to net cash provided
by operating activitites:
Provision for loan loss 101 114
Depreciation 52 65
Decrease in other assets 613 788
(Decrease) increase in other
liabilities (187) 57
------- -------
Net cash provided by
operating activities 705 1,251
------- -------
Cash flows from investing activities
Decrease (increase) in loans, net 526 (848)
Net sales and maturities of securities 17,386 2,851
------- -------
Net cash provided by
investing activities 17,912 2,003
------- -------
Cash flows from financing activities
Net decrease in deposits (6,032) (4,320)
------- -------
Increase (decrease) in cash
and cash equivalents 12,585 (1,066)
Cash and cash equivalents at
beginning of period 2,678 4,861
------- -------
Cash and cash equivalents at
end of period $15,263 $ 3,795
======= =======
See accompanying notes.
NOTES TO INTERIM FINANCIAL STATEMENTS
(1) The financial statements include the accounts of Lehigh Savings Bank
(Lehigh).
The statements of condition at March 31, 1996, the statements of operations
and statement of cash flows for the nine month periods ended March 31, 1996
and 1995 have been prepared by the bank on an accrual basis without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial condition,
results of operations, and cash flows for all periods presented have been
made. The results of operations for the nine month periods ended March 31,
1995 and 1994 are not necessarily indicative of the operating results for
the full year.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements
are to be read in conjunction with the June 30, 1995 audited financial
statements and notes thereto.
On June 28, 1996, Center Bancorp (Center) acquired Lehigh, a New
Jersey bank, in a transaction accounted for under the purchase method
of accounting. Center purchased Lehigh for approximately $5.5 million
resulting in goodwill of $4.2 million.
(2) From March 31, 1996 to the date of the merger, June 28, 1996 Lehigh
sustained operating losses resulting largely from the sale of its entire
investment portfolio which reduced shareholders' equity from $3,616,000 at
March 31, 1996 to $2,215,000 at the date of the merger.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited proforma financial information combines the
historical financial statements of Center Bancorp (Center) and Lehigh Savings
Bank (Lehigh) as of and for the periods ended March 31, 1996 and December 31,
1995 giving effect to the Merger. The Pro Forma Combined Condensed Balance Sheet
assumes the merger was consummated as of March 31, 1996 and Condensed Statements
of Income assumes the merger was consummated as of January 1, the beginning of
the reporting years. The merger will be accounted for under the purchase method
of accounting. Under the purchase method of accounting, all assets and
liabilities of Lehigh at March 31, 1996 have been adjusted, net of income tax
effects, to their current estimated fair values and combined with the assets and
liabilities of Center. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial condition and results of operations for all periods presented have
been made. For the purposes of these unaudited pro forma financial statements
Lehigh's fiscal year end has been changed from June 30 to December 31.
The unaudited pro forma information presented herein does not give effect
to operating results of Center or Lehigh subsequent to March 31, 1996. Purchase
accounting adjustments to estimated fair values have been made with respect to
assets and liabilities of Lehigh and the related income and expense accounts
based on preliminary estimates and evaluations as of March 31, 1996. Such
preliminary estimates and assumptions are subject to change as additional
information is obtained. The pro forma information does not reflect anticipated
cost savings expected to be realized from the merger. The allocations of
purchase costs are subject to final determinations, based upon estimates and
other evaluations of fair value, as of the close of the transaction. Therefore,
the allocations reflected in the unaudited pro forma financial information may
differ from the amounts ultimately determined. The unaudited pro forma
information may not be indicative of the combined financial position or results
of operations of future periods and should be read in conjunction with the
historical consolidated financial statements of Center and Lehigh, including the
respective notes thereto.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
March 31, 1996
----------------------------------------------------------------------
Pro Forma
Center Lehigh Adjustments Pro Forma
Bancorp Savings Bank Increase (Decrease) Combined
------- ------------ ------------------- ---------
Assets:
Cash and cash
equivalents $ 12,117 $15,262 $(5,550)(1) $ 21,829
Securities held
to maturity 201,238 3,513 204,751
Securities
available for sale 53,482 39,365 92,847
Loans receivable, net 97,552 15,505 (773)(1) 112,284
Premises and
equipment, net 7,515 1,833 (907)(1) 8,441
Other Assets 4,948 645 3,325 (1) 9,892
974 (1)
-------- ------- ------- --------
Total assets $376,852 $76,123 $(2,931) $450,044
======== ======= ======= ========
Liabilities:
Deposits 333,872 70,048 403,920
Other liabilities 14,608 2,459 546 (1) 17,752
139 (1)
-------- ------- ------- --------
Total liabilities 348,480 72,507 685 421,672
-------- ------- ------ --------
Shareholders' Equity:
Common stock 4,261 3,925 (3,925)(2) 4,261
Appropriated surplus 3,510 171 (171)(2) 3,510
Retained Earnings (deficit) 22,158 (72) 72 (2) 22,158
Unrealized gain
(loss) on securities
available for sale 257 (408) 408 (2) 257
Less: Treasury stock (1,814) 0 (1,814)
-------- ------- ------ --------
Total shareholders' equity 28,372 3,616 (3,616) 28,372
-------- ------- ------ --------
Total liabilities and
shareholders' equity $376,852 $76,123 $(2,931) $450,044
======== ======= ======= ========
See accompanying notes.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(1) To reflect the acquisition of the Lehigh savings Bank for $5,550,000 cash,
including $1,252,000 in purchase accounting adjustments reflecting the
estimated fair value of assets and liabilities, resulting in goodwill of
$3,325,000 (in thousands):
Total purchase price $5,550
Cost of acquisition 139
------
Gross purchase price 5,689
Tangible net assets at book value 3,616
Purchase accounting adjustments:
Decrease in loans (773)
Decrease in premises and equipment (907)
Accrued liabilities (546)
Increase in deferred tax asset 974 (1,252)
--- -----
Tangible net assets after purchase
accounting adjustments 2,364
------
Goodwill $3,325
------
(2) To eliminate the stockholders' equity of Lehigh as follows (in thousands):
Common stock ($3,925)
Additional paid-in capital (171)
Accumulated deficit 72
Allowance for debt and marketable equity
securities available for sale 408
------
Total shareholders' equity ($3,616)
(3) From March 31, 1996 to the date of the Merger, June 28, 1996 Lehigh
sustained operating losses resulting largely from the sale of its entire
investment portfolio which reduced shareholders' equity to $2,215,000 at
the date of the merger. This decrease in equity resulted in the increase at
the date of the merger of goodwill to $4,160,000.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
Three Months Ended March 31, 1996
------------------------------------------------------------------------
Pro Forma
Adjustments
Center Lehigh Increase Pro Forma
Bancorp Savings Bank (Decrease) Combined
------- ------------ ------------ ----------
Interest Income $5,960 $1,240 $(55)(3) $7,145
Interest expense 2,504 686 3,190
------ ------ ----- -------
Net interest income 3,456 554 (55) 3,955
------ ------ ----- -------
Provision for possible
credit losses 0 0 0
Net interest income
after provision for
possible credit losses 3,456 554 (55) 3,955
------- ------ ----- -------
Other income 145 38 39 (1) 222
(15)(2)
Other expenses 1,994 563 55 (2) 2,597
------- ------ ----- -------
Income before provision
for income taxes 1,607 29 (56) 1,580
Income taxes 372 (1) (1)(4) 370
------ ------ ----- -------
Net income $1,235 $ 30 $ (55) $ 1,210
====== ====== ===== =======
Earnings per share $ .55 $ .01 $(.02) $ .54
====== ====== ===== =======
See accompanying notes.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(1) Purchase accounting loan discount accretion of $38,650 utilizing a weighted
average expected life of 5 years.
(2) Decrease in depreciation as a result of purchase accounting adjustment on
premises and equipment of $15,117.
(3) Lost interest of $55,000 on funds used to purchase Lehigh.
(4) Income tax benefit of $1,000 on notes 1 through 3 based upon an assumed
effective tax rate of 36%.
(5) Amortization of $55,417 related to goodwill of $3,325,000, using a life of
15 years.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
Year Ended December 31, 1995
------------------------------------------------------------------------
Pro Forma
Adjustments
Center Lehigh Increase Pro Forma
Bancorp Savings Bank (Decrease) Combined
------- ------------ ------------ ----------
Interest Income $21,749 $5,239 $(220)(3) $26,768
Interest expense 8,787 3,112 11,899
------- ------ ----- -------
Net interest income 12,962 2,127 (220) 14,869
------- ------ ----- -------
Provision for possible
credit losses 0 106 106
------- ------ ----- -------
Net interest income
after provision for
possible credit losses 12,962 2,021 (220) 14,763
------- ------ ----- -------
Other income 732 237 155 (1) 1,124
(60)(2)
Other expenses 8,138 2,036 222 (5) 10,336
------- ------ ----- -------
Income before provision
for income taxes 5,556 222 (227) 5,551
Income taxes 1,516 7 (2)(4) 1,521
------- ------ ----- -------
Net income $ 4,040 $ 215 $(225) $ 4,030
======= ====== ===== =======
Earnings per share $ 1.83 $ .10 $(.10) $ 1.83
======= ====== ===== =======
See accompanying notes.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(1) Purchase accounting loan discount accretion of $154,600 utilizing a
weighted average expected life of 5 years.
(2) Decrease in depreciation as a result of purchase accounting adjustment on
premises and equipment of $60,467.
(3) Lost interest of $220,000 on funds used to purchase Lehigh.
(4) Income tax benefit of $2,000 on notes 1 through 3 based upon an assumed
effective tax rate of 36%.
(5) Amortization of $221,667 related to goodwill of $3,325,000, using a life of
15 years.