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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended December 31, 1995.
__ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (no Fee Required) for the transition period from ___
to ___.
Commission File Number 2-81353
CENTER BANCORP, INC.
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(exact name of registrant as specified in its charter)
New Jersey 52-1273725
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
2455 Morris Avenue, Union, NJ 07083-0007
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(Address of Principal Executive Offices, Including Zip Code)
(908) 688-9500
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(Registrant's telephone number, including area code)
Securities registered
pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] or No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation 5K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to the
Form 10-K . [X]
Aggregate Market value of voting stock held by non-affiliates based on the
average of Bid and Asked prices on March 1, 1996 was approximately $47,513,280.
Shares outstanding on March 1, 1996
Common stock no par value - 1,484,790 shares
Parts of Form 10-K in which
Documents Incorporated by reference document is incorporated
Definitive proxy statement dated March 16, 1996,
in connection with the 1996 Annual Stockholders
Meeting filed with the Commission pursuant to
Regulation 14A......................................... Part III
Annual Report to Stockholders for the fiscal
year ended December 31, 1995........................... Part I and Part II
INDEX TO FORM 10-K
PART I
ITEM 1 BUSINESS .................................................. 1
ITEM 2 PROPERTIES ................................................ 10
ITEM 3 LEGAL PROCEEDINGS ......................................... 10
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....... 10
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT ...................... 11
PART II
ITEM 5 MARKET FOR THE REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS .............................. 11
ITEM 6 SELECTED FINANCIAL DATA ................................... 11
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ...................... 11
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............... 11
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ....................... 11
PART III
ITEM 10 DIRECTORS OF THE REGISTRANT .............................. 12
ITEM 11 EXECUTIVE COMPENSATION ................................... 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT .......................................... 12
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........... 12
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K ..................................... 13
CONSENT OF ACCOUNTANTS ................................................. 15
SIGNATURES ............................................................. 16
CENTER BANCORP INC
FORM 10 K
PART I
ITEM I-BUSINESS
A) HISTORICAL DEVELOPMENT OF BUSINESS
Center Bancorp, Inc., a one-bank holding company, was incorporated in the state
of New Jersey on November 12, 1982. Center Bancorp, Inc. commenced operations on
May 1, 1983, upon the acquisition of all outstanding shares of The Union Center
National Bank (the "Bank"). The holding company's sole activity, at this time,
is to act as a holding company for the Bank. As used herein, the term
"Corporation" shall refer to Center Bancorp, Inc. and its subsidiaries and the
term "Parent Company" shall refer to Center Bancorp, Inc. on an unconsolidated
basis.
The Bank was organized in 1923 under the law of the United States of America.
The Bank operates six offices in Union Township, Union County, New Jersey, one
office in Springfield Township, Union County, New Jersey and one office in
Berkeley Heights, Union County, New Jersey and currently employs 132 persons. A
ninth office, located in Madison, Morris County, New Jersey is scheduled to open
in May 1998. The Bank is a full service commercial bank offering a complete
range of individual and commercial services.
On February 14, 1996, the Parent Company entered into an Agreement and Plan of
Merger (the "Agreement") with Lehigh Savings Bank, S.L.A. ("Lehigh") pursuant to
which a subsidiary of the Company will be merged with and into Lehigh, with
Lehigh being the surviving entity thereof (the "Merger"). Immediately following
the Merger, the Company will merge Lehigh with and into the Bank. Pursuant to
the terms of the Agreement, shareholders of Lehigh will receive a total of $6.0
million in cash upon consummation of the Merger (which will be accounted for as
a purchase). These transactions are subject to several conditions, including the
approval of various banking regulators. As of December 31, 1995, Lehigh (which
operates [three] banking offices in Union, New Jersey), had total assets,
deposits and stockholders' equity of approximately $73.8 million, $67.6 million
and $3.9 million, respectively.
B) NARRATIVE DESCRIPTION OF BUSINESS
The Bank offers a broad range of lending, depository and related financial
services to commercial, industrial and governmental customers. In the lending
area, these services include short and medium term loans, lines of credit,
letters of credit, working capital loans, real estate construction loans and
mortgage loans. In the depository area, the Bank offers demand deposits, savings
accounts and time deposits. In addition, the Bank offers collection service,
wire transfers, night depository and lock box services.
The Bank offers a broad range of consumer banking services, including checking
accounts, savings accounts, NOW accounts, money market accounts, certificates of
deposit, IRA accounts, Automated Teller Machines ("ATM") accessibility using
Money Access(TM) service, secured and unsecured loans, mortgage loans, home
equity lines of credit, safe deposit boxes, Christmas club accounts, vacation
club accounts, collection services, money orders and traveler's checks.
The Bank offers various money market services. It deals in U.S. Treasury and
U.S. Governmental agency securities, certificates of deposits, commercial paper
and repurchase agreements.
Competitive pressures affect the Corporation's manner of conducting business.
Competition stems not only from other commercial banks but also from other
financial institutions such as savings banks, savings and loan associations,
mortgage companies, leasing companies and various other financial service
29 March 96 Center Bancorp, Inc. Form 10-K Page 1
and advisory companies. Many of the financial institutions operating in the
Corporation's primary market are substantially larger and offer a wider variety
of products and services than the Corporation.
The Parent Company is subject to regulation by the Board of Governors of the
Federal Reserve System and the New Jersey Department of Banking. As a national
bank, the Bank is subject to regulation and periodic examination by the
Comptroller of the Currency. Deposits in the Bank are insured by the Federal
Deposit Insurance Corporation (the "FDIC").
The Parent Company is required to file with the Federal Reserve Board an annual
report and such additional information as the Federal Reserve Board may require
pursuant to the Bank Holding Company Act of 1956, as amended (the "Act"). In
addition, the Federal Reserve Board makes examinations of bank holding companies
and their subsidiaries. The Act requires each bank holding company to obtain the
prior approval of the Federal Reserve Board before it may acquire substantially
all of the assets of any bank, or before it may acquire ownership or control of
any voting shares of any bank, if, after such acquisition, it would own or
control, directly or indirectly, more than 5 percent of the voting shares of
such bank. The Act also restricts the types of businesses and operations in
which a bank holding company and its subsidiaries may engage.
The operations of the Bank are subject to requirements and restrictions under
federal law, including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be granted, limitations
on the types of investments that may be made and the types of services which may
be offered. Various consumer laws and regulations also affect the operations of
the Bank. Approval of the Comptroller of the Currency is required for branching,
bank mergers in which the continuing bank is a national bank and in connection
with certain fundamental corporate changes affecting the Bank. Federal law also
limits the extent to which the Parent Company may borrow from the Bank and
prohibits the Parent Company and the Bank from engaging in certain tie-in
arrangements.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revised the bank regulatory provisions of the Federal Deposit
Insurance Act and several other federal banking statutes. Among other things,
FDICIA requires federal banking agencies to broaden the scope of regulatory
corrective action taken with respect to banks that do not meet minimum capital
requirements and to take such actions promptly in order to minimize losses to
the FDIC. Under FDICIA, federal banking agencies have established five capital
tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized".
FDICIA imposes significant restrictions on the operations of a depository
institution that is not in either of the first two of such categories. A
depository institution's capital tier will depend upon the relationship of its
capital to various capital measures. A depository institution will be deemed to
be "well capitalized" if it significantly exceeds the minimum level required by
regulation for each relevant capital measure, "adequately capitalized" if it
meets each such measure, "undercapitalized" if it fails to meet any such
measure, "significantly undercapitalized" if it is significantly below any such
measure and "critically undercapitalized" if it fails to meet any critical
capital level set forth in the regulations. An institution may be deemed to be
in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating or is
deemed to be in an unsafe or unsound condition or to be engaging in unsafe or
unsound practices.
Under regulations adopted under these provisions, for an institution to be well
capitalized it must have a total risk-based capital ratio of at least 10
percent, a Tier I risk-based capital ratio of at least 6 percent and a Tier I
leverage ratio of at least 5 percent and not be subject to any specific capital
order or directive. For an institution to be adequately capitalized, it must
have a total risk-based capital ratio of at least 8 percent, a Tier I risk-based
capital ratio of at least 4 percent and a Tier I leverage ratio of at least 4
percent (or in some cases 3 percent). Under the regulations, an institution will
be deemed to be undercapitalized if the bank has a total risk-based capital
ratio that is less than 8 percent, a Tier I risk-based capital ratio that is
less than 4 percent or a Tier I leverage ratio of less than 4 percent (or in
some cases 3 percent). An institution will be deemed to be significantly
undercapitalized if the bank has a total
29 March 96 Center Bancorp, Inc. Form 10-K Page 2
risk-based capital ratio that is less than 6 percent, a Tier I risk-based
capital ratio that is less than 3 percent, or a Tier I leverage ratio of less
than 3 percent and will be deemed to be critically undercapitalized if it has a
ratio of tangible equity to total assets that is equal to or less than 2
percent. FDICIA generally prohibits a depository institution from making a
capital distribution (including payment of dividends) or paying management fees
to any entity that controls the institution if it thereafter would be
undercapitalized. If an institution becomes undercapitalized, it will be
generally restricted from borrowing from the Federal Reserve, increasing its
average total assets, making any acquisitions, establishing any branches or
engaging in any new line of business. An undercapitalized institution must
submit an acceptable capital restoration plan to the appropriate federal banking
agency, which plan must, in the opinion of such agency, be based on realistic
assumptions and be "likely to succeed" in restoring the institution's capital.
In connection with the approval of such a plan, the holding company of the
institution must guarantee that the institution will comply with the plan,
subject to a limitation of liability equal to a proportion of the institution's
assets. If an undercapitalized institution fails to submit an acceptable plan or
fails to implement such a plan, it will be treated as if it is significantly
undercapitalized.
Under FDICIA, bank regulators are directed to require "significantly
undercapitalized" institutions, among other things, to restrict business
activities, raise capital through a sale of stock, merge with another
institution and/or take any other action which the agency determines would
better carry out the purposes of FDICIA.
Within 90 days after an institution is determined to be "critically
undercapitalized", the appropriate federal banking agency must, in most cases,
appoint a receiver or conservator for the institution or take such other action
as the agency determines would better achieve the purposes of FDICIA. In
general, "critically undercapitalized" institutions will be prohibited from
paying principal or interest on their subordinated debt and will be subject to
other substantial restrictions.
Under FDICIA, an institution that is not well capitalized is generally
prohibited from accepting brokered deposits. Undercapitalized institutions are
prohibited from offering interest rates on deposits significantly higher than
prevailing rates.
FDICIA also directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, a
maximum ratio of classified assets to capital, a minimum ratio of market value
to book value for publicly traded shares (if feasible) and such other standards
as the agency deems appropriate.
FDICIA also contains a variety of other provisions that could affect the
operations of the Corporation, including reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, the
requirement that depository institution give 90 days notice to customers and
regulatory authorities before closing any branch, limitations on credit exposure
between banks, restrictions on loans to a bank's insiders and guidelines
governing regulatory examinations.
29 March 96 Center Bancorp, Inc. Form 10-K Page 3
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and the Crime Control Act of 1990 expanded the enforcement powers
available to federal banking regulators, including providing greater flexibility
to impose enforcement action and increasing the potential civil and criminal
penalties.
BIF PREMIUMS
The Corporation is a member of the Bank Insurance Fund ("BIF") of the FDIC. The
FDIC also maintains another insurance fund, the Savings Association Insurance
Fund ("SAIF"), which primarily cover savings and loan association deposits but
also covers deposits that are acquired by a BIF-insured institution from a
savings and loan association. The Corporation has approximately $295.7 million
of deposits at December 31, 1995, with respect to which the Corporation pays
insurance premiums.
From the first three quarters of 1995, both SAIF-member institutions and
BIF-member institutions paid deposit insurance premiums based on a schedule from
$0.23 to $0.31 per $100 of deposits. In August, 1995, the FDIC in anticipation
of the BIF's imminent achievement of a required 1.25% reserve ratio, reduced the
deposit insurance premium rates paid by BIF-insured banks from a range of $0.23
to $0.31 per $100 of deposits to a range of $0.04 to $0.31 per $100 of deposits.
The new rate schedule for the BIF was made effective June 1, 1995. The FDIC
refunded to BIF-insured institutions the premiums they had paid for the period
beginning on June 1, 1995. On November 14, 1995, the FDIC voted to reduce annual
assessments for the semi-annual period beginning January 1, 1996 to the legal
minimum of $2,000 for BIF-insured institutions, except for the institutions that
are not well capitalized and are assigned to the higher supervisory risk
categories.
PROPOSED LEGISLATION
From time to time proposals are made in the U.S. Congress and before various
bank regulatory authorities which would alter the policies of and place
restrictions on different types of banking operations. It is impossible to
predict the impact if any, of potential legislative trends on the business of
the Corporation and the Bank.
C) DIVIDEND RESTRICTIONS
Most of the revenue of the Corporation available for payment of dividends on its
capital stock will result from amounts paid to the Parent Company by the Bank.
There are a number of statutory and regulatoy restrictions applicable to the
payment of dividends by national banks and bank holding companies. First, the
Bank must obtain the approval of the Comptroller of the Currency (the
"Comptroller") if the total dividends declared by the Bank in any year will
exceed the total of the Bank's net profits (as defined and interpreted by
regulation) for that year and retained profits (as defined) for the preceding
two years, less any required transfers to surplus. Second, the Bank cannot pay
dividends except to the extent that net profits then on hand exceed statutory
bad debts. Third, the authority of federal regulators to monitor the levels of
capital maintained by the Corporation and the Bank (see Item 7 of this Annual
Report on Form 10-K and the discussion of FDICIA above), as well as the
authority of such regulators to prohibit unsafe or unsound practices, could
limit the amount of dividends which the Parent Company and the Bank may pay.
Regulatory pressures to reclassify and charge off loans to establish additional
loan loss reserves also can have the effect of reducing current operating
earnings and thus impacting an institution's ability to pay dividends.
Regulatory authorities have indicated that bank holding companies which are
experiencing high levels of non-performing loans and loan charge-offs should
review their dividend policies. Reference is also made to Note 11 of the Notes
to the Company's Consolidated Financial Statements.
D) STATISTICAL INFORMATION
(Reference is also made to Item 7 of this Annual Report on Form 10-K)
29 March 96 Center Bancorp, Inc. Form 10-K Page 4
Information regarding interest sensitivity is incorporated by reference to pages
23-24 of the 1995 Annual Report.
The gap results noted on pages 23-24 of the 1995 Annual Report take into
consideration repricing and maturities of assets and liabilities, but fail to
consider the interest sensitivities of those asset and liability accounts.
Management has prepared for its use an income simulation model to forecast
future net interest income, in light of the current gap position. Management has
also prepared for its use alternative scenarios to measure levels of next
interest income associated with various change in interest rates. Results have
reflected that an interest rate increase of 200 basis points and a decline of 50
basis resulted in an impact on future net interest income which is consistent
with target levels contained in the Corporation's Asset/Liability Policy.
Management cannot provide any assurances about the actual effect of changes in
interest rates on the Corporations net income.
I. INVESTMENT PORTFOLIO
a) For information regarding the carrying value of the investment
portfolio, see page 36 of the 1995 Annual Report to Shareholders (the "1995
Annual Report") which is incorporated herein by reference.
b) The following table illustrates the maturity distribution and weighted
average yield on a tax-equivalent basis for investment securities at
December 31, 1995.
Obligations
of U.S. Obligations
Treasury & of States
Government & Political Other
Agencies Subdivisions Securities Total
(Dollars in thousands)
-----------------------------------------------------------------------------------------
Due in 1 year or less
Book Value $ 34,770 $ 7,583 $ 345 $ 42,698
Market Value 32,705 7,596 345 40,646
Average Yield 6.31% 5.99% 6.67% 6.26%
Due after one year through five
years
Book Value $ 86,787 $ 28,452 $ 2,550 $ 117,789
Market Value 97,451 28,894 2,588 128,933
Average Yield 6.30% 6.55% 6.73% 6.37%
Due after five years through ten
years
Book Value $ 38,693 $ 6,842 $ 2,977 $ 48,512
Market Value 31,592 6,960 2,980 41,532
Average Yield 7.36% 6.65% 6.78% 28.20%
No Maturity
Book Value - - 1,096 1,096
Market Value - - 1,096 1,096
Average Yield - - 5.12% 5.12%
----------------------------------------------------------------------------------------
Total
Book Value $ 160,250 $ 42,877 $ 5,872 $ 208,999
Market Value 161,748 43,450 5,913 211,111
Average Yield 6.56% 6.46% 6.75% 6.55%
=========================================================================================
c) For information regarding securities of a single issuer exceeding 10
percent of stockholders' equity and for other information regarding the
Corporation's investment securities portfolio, see Note 3 of the Notes to
the Company's Consolidated Financial Statements.
II. LOAN PORTFOLIO
Lending is one of Center Bancorp's primary business activities. The
Corporation's loan portfolio consists of both retail and commercial loans,
serving the diverse customer base in its market area. In 1995, average total
loans comprised 29.4 percent of average interest-earning assets. Growth in
lending in recent years has been strong as evidenced by a compound growth rate
in average loans since 1993 of 42.8 percent. Average loans amounted to $95.2
million in 1995, $72.8 million in 1994 and $66.7 million 1993. The composition
of Center Bancorp's loan portfolio continues to change due to the local economy.
29 March 96 Center Bancorp, Inc. Form 10-K Page 5
Factors such as the economic climate, interest rates, real estate values and
employement all contribute to these changes. Loan growth has been generated
through marketing and business development efforts.
Average commercial loans of $21.3 million rose $2.6 million or 13.9 percent in
1995 as compared with 1994. The Corporation seeks to create growth in commercial
lending by offering new products, lowered pricing and capitalizing on the
positive trends in its market area. Specialized products are offered to meet the
financial requirements of the Corporation's clients. It is the objective of the
Corporation's credit procedures to diversify the commercial loan portfolio to
limit concentrations in any single industry.
The Corporation's and commercial loan portfolio includes, in addition to real
estate development, loans to the manufacturing, services, automobile,
professional and retail trade sectors, and to specialized borrowers, includes
high technology businesses. A large proportion of the Corporation's commercial
loans have interest rates which reprice with changes in short-term market
interest rates or mature in one year or less. The following table sets forth
average mortgage loans, which amounted to $69.9 million in 1995, increased $5.2
million or 8.2 percent as compared with a $66.7 million or 38.1 percent rise in
1994. The Corporation's long-term mortgage portfolio includes both residential
and commercial financing. Growth during the past two years largely reflected
brisk activity in mortgage financing. Although a portion of the Corporation's
commercial mortgages adjust to changes in the prime rate, most of these loans
and residential mortgage loans have fixed interest rates.
Residential loans increased steadily since 1994, but began to slow considerably
in the beginning of 1995 as economic interest rates began to rise in 1995. The
impact of real estate values has been steadily improving.
During the past three years, the Corporation has committed an increasing amount
of funds to the development of residential tracts and shopping centers.
Construction loans and other temporary mortgage financing increased on average
by $1.2 million to $13.6 million in 1995. The growth in construction and other
temporary mortgage lending has been generated by increased residential and
commercial development throughout New Jersey. Interest rates on such mortgages
are generally tied to key short-term market interest rates. Funds are typically
advanced to the builder or developer during various stages of construction and
upon completion of the project the loans are typically repaid by cash flows
derived from the ongoing project.
Loans to individuals include personal loans, student loans, home equity loans,
home improvement loans and secondary mortgages, as well as financing for
automobiles and other vehicles. Installment loans to individuals averaged $7.0
million in 1995, as compared with $6.2 million in 1994. The growth in loans to
individuals, particularly during 1995, was buoyed by increases in automobile
loans. Home equity loans, which the Corporation began actively promoting in 1994
and 1995 , as well as traditional secondary mortgage loans, have become popular
with consumers due to their tax advantages over other forms of consumer
borrowing vehicles. Home equity loans and secondary mortgages averaged $13.2
million in 1995. At the end of 1995, automobile loans and leases amounted to
46.7 percent of total loans to individuals excluding home equity and secondary
mortgage financing. Interest rates on home equity loans are generally tied to
the prime rate while most other loans to individuals are medium-term (ranging
between one-to-five years) and carry fixed interest rates.
Unemployment in our general market area has been moderate to high over the last
several years and is reflected in our installment loan growth, and recent
changes made in product lines to make loans more readily available to consumers
who would have otherwise been reluctant to borrow.
At December 31, 1995, the Corporation has total unused lending commitments
outstanding of $20.5 million, of which approximately 71.2 percent and 0.00
percent were for commercial loans and construction loans, respectively.
Credit risks are an inherent part of the lending function. The Corporation has
set in place specific policies and guidelines to limit credit risks to the
degree possible. The following describes the Corporation's credit management
policy and describes certain risk elements in its earning assets portfolio.
29 March 96 Center Bancorp, Inc. Form 10-K Page 6
CREDIT MANAGEMENT. The maintenance of comprehensive and effective credit
policies is a paramount objective of the Corporation. Credit procedures are
enforced at each individual branch office and are maintained at the senior
administrative level as well as through internal control procedures.
Prior to extending credit, the Corporation's credit policy generally requires a
review of the borrower's credit history, collateral and purpose of each loan.
Requests for most commercial and financial loans are to be accompanied by
financial statements and other relevant financial data for evaluation. After the
granting of a loan or lending commitment, this financial data is typically
updated and evaluated by the credit staff on a periodic basis for the purpose of
identifying potential problems. Construction financing requires a periodic
submission by the borrowers of sales/leasing status reports regarding their
projects, as well as, in some case, inspections of the project sites by
independent engineering firms. Advances are normally made only upon the
satisfactory completion of periodic phases of construction.
Certain lending authorities are granted to loan officers based upon each
officer's position and experience. However, large dollar loans and lending lines
are reported to and are subject to the approval of the Bank's loan committee
and/or board of directors. Loan committees are chaired by either the president
or a senior officer of the Bank.
Real Estate lending policies must include changes implemented by the Federal
Deposit Insurance Corporation Improvement Act (FDICIA) more specifically the
requirement to monitor and report the aggregate of any loans with loan-to-value
ratios in excess of the supervisory limits set forth in the Interagency
Guidelines for Real Estate Lending Policies. The Corporation has established
their own internal loan-to-value limits for real estate loans. These internal
limits should not exceed the following supervisory limits.:
Loan Category Loan-to-Value Limit
Raw Land 65%
Land Development 75%
Construction:
Commercial, Multifamily*,
and other Nonresidential 80%
1 to 4 Family Residential 85%
Improved Property 85%
Owner-occupied 1 to 4 family and home equity **
- ------------
* Multifamily construction includes condominiums and cooperatives.
** A loan-to-value limit has not been established for permanent mortgage or
home equity loans on owner-occupied, 1 to 4 family residential property.
However, for any such loan with a loan-to-value ratio that equals or
exceeds 90 percent at origination, an institution should require
appropriate credit enhancement in the form of either mortgage insurance or
readily marketable collateral.
It may be appropriate in individual cases to originate loans with loan-to-value
ratios in excess of the supervisory loan-to-value limits, based on the support
provided by other credit factors. The President or Board of Directors must
approve such exceptions. These loans are to be identified by the bank as
exceptions to the supervisory limits and their aggregate amount be reported at
least quarterly to the Board of Directors. Non conforming loans should not
exceed 100% of capital, with a 30% sublimit for non 1 to 4 family residential
loans.
Collateral margin guidelines are based on cost, market, or other appraised value
to maintain a reasonable amount of collateral protection in relation to the
inherent risk in the loan. This does not mitigate the
29 March 96 Center Bancorp, Inc. Form 10-K Page 7
fundamental analysis of cash flow from the conversion of assets in the normal
course of business or from operations to repay the loan. It is merely designed
to provide a safe cushion to minimize the risk of loss if the ultimate
collection of the loan becomes dependent on the liquidation of security pleded.
The Corporation also seeks to minimize lending risk through loan
diversification. The composition of the Corporation's commercial loan portfolio
reflects and is highly dependent upon the economy and industrial make-up of the
region it serves. Effective loan diversification spreads risk to many different
industries, thereby reducing the impact of downturns in any specific industry on
overall loan profitability.
Weakening credits are monitored through a loan review process which requires
that, on a regular basis, a classified loan report is prepared. Classified loans
are categorized into one of several categories depending upon the condition of
the borrower and the strength of the underlying collateral. "Other assets
especially mentioned" is an early warning signal consisting of loans with only
modest deficiencies in documentation or with potentially weakening credit
features.
A combined consolidated classified loan report for the Corporation is prepared
on a monthly basis and is examined by both the senior management of the Bank and
the Corporation's Board of Directors. The review of classified loan reports is
designed to enable management to take such action as is considered necessary to
remedy problems on a timely basis.
Regularly scheduled audits performed by the Corporation's internal and external
credit review staff further the integrity of the credit monitoring process. Any
noted deficiencies are expected to be corrected within a reasonable period of
time.
RISK ELEMENTS. Risk elements include non-performing loans, loans past due ninety
days or more as to interest or principal payments but not placed on a non
accrual status, potential problem loans, other real estate owned, net, and other
non-performing, interest-earning assets.
NON-PERFORMING AND PAST DUE LOANS Non-performing loans include non accrual loans
and troubled debt restructurings. Non-accrual loans represent loans on which
interest accruals have been suspended. It is the Corporation's general policy to
charge-off loans when they become contractually past due ninety days or more as
to interest or principal payments or when other internal or external factors
indicate that collection of principal or interest is doubtful. Occasionally,
exceptions are made to this policy if supporting collateral is adequate and the
loan is currently in the process of collection. Troubled debt restructurings
represent loans on which a concession was granted to a borrower, such as a
reduction in interest rate which is lower than the current market rate for new
debt with similar risks.
A) Types of Loans
The following table presents information regarding the components of the
Corporation's loan portfolio on the dates indicated.
Years Ended December 31,
--------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------
Commercial $ 21,302 $ 18,674 $ 18,692 $ 20,873 $ 18,128 $ 24,043
Real estate-mortgage 69,954 64,666 40,005 34,078 35,454 36,918
Installment Loan 7,012 6,250 7,378 4,729 5,861 7,817
-------- -------- -------- -------- -------- -------
Total 98,268 89,590 66,075 59,680 59,443 68,778
Less:
Unearned discount 698 785 330 163 0 0
Allowance for loan losses 1,073 1,073 943 821 507 487
-------- -------- -------- -------- -------- --------
Net total $ 96,497 $ 87,732 $ 64,802 $ 58,696 $ 58,936 $ 68,291
======== ======== ======== ======== ======== ========
The reduction in outstanding loans from December 31, 1990 to December 31, 1993
primarily reflects lessened demand for loans and the then current economic
conditions. In 1994, demand for the Bank's real estate mortgage products
improved substantially, and new products in conjunction with a new
29 March 96 Center Bancorp, Inc. Form 10-K Page 8
marketing program coupled with positive market trends supported the growth in
1995.
B) The maturities of commercial loans at December 31, 1995 are listed below. All
such loans which are due after one year have predetermined interest rates ( in
thousands).
1 Year 1 - 5
(Dollars in thousands) or less Years Total
- --------------------------------------------------------------------------
Commercial $ 19,141 $ 2,161 $ 21,302
- --------------------------------------------------------------------------
C) Risk Elements
1. a) There were no loans accounted for on a non-accrual basis at December 31,
1995, 1994, 1993, 1992, or 1991.
b) Accruing loans which are contractually past due 90 days or more as to
principal or interest payments are as follows: December 31,
(Dollars in thousands) 1995 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------
Commercial $ 0 $ 0 $ 0 $ 0 $ 0 $ 94
Installment 48 0 5 23 6 90
- --------------------------------------------------------------------------------
Net loans $ 48 $ 0 $ 5 $ 23 $ 6 $ 184
- --------------------------------------------------------------------------------
c) There are no loans which are "troubled debt restructurings" for any of
the reported periods.
Generally speaking, it is the policy of management to charge-off loans at
the point that they become past due in excess of 90 days, with the
exception of loans that are secured by cash or marketable securities or
mortgage loans which are in the process of foreclosure.
2. There are no other known "potential problem loans" (as defined by SEC
regulations) as of December 31, 1995 that have not been identified and
classified. Classified loans consisting of other assets especially
mentioned and substandard loans amounted to $942,000 and $204,000,
respectively, December 31, 1995.
3. Foreign outstandings - none
4. As of December 31, 1995, $7.7 million of the commercial loan portfolio,
36.1 percent, represents outstanding working capital loans to various real
estate developers. All but $3.2 million of these loans are secured by
mortgages on land and on buildings under construction.
III. ALLOWANCE FOR LOAN LOSSES
Implicit in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being
made, the creditworthiness of the borrower and prevailing economic conditions.
The allowance for loan losses is at the maximum amount allowable for Federal
income tax purposes and has been allocated below according to the estimated
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the following categories of loans at December 31,
for each of the past five years. The following table shows, for three types of
loans, the amounts of the allowance allocable to such loans and the percentage
of such loans to total loans. The percentage of loans to total loans is based
upon the classification of loans shown in Table II-A (Types of Loans) on page 5
of this report.
29 March 96 Center Bancorp, Inc. Form 10-K Page 9
Loans to Real Estate Loans to Loans to
Commercial Total Loans Mortgage Total Loans Installment Total Loans Unallocated
(Dollars in thousands) Amount % Amount % Amount % Amount
- ------------------------------------------------------------------------------------------------------------------------
1995 $ 467 21.7 $ 187 71.2 $ 22 7.1 $ 397
1994 $ 399 20.2 $ 185 72.8 $ 55 7.0 $ 434
1993 $ 408 23.4 $ 140 69.4 $ 87 7.2 $ 308
1993 $ 358 27.8 $ 174 65.1 $ 77 7.1 $ 212
1991 $ 91 30.5 $ 88 59.6 $ 43 9.9 $ 285
IV. DEPOSITS
The required information regarding average amounts/rates of deposits is
presented on page 29 of the 1995 Annual Report. The required information
regarding the amount of time certificates of deposits of $100,000 or more is
incorporated by reference to page 24 of the 1995 annual report.
V. RETURN ON EQUITY AND ASSETS
The required information regarding the return on average assets, return on
average equity and dividend payout ratio is incorporated by reference to pages
10 and 11 of the 1995 Annual Report. Return on average equity was 1.15 percent,
1.27 percent and 1.18 percent for the years ended December 31, 1995, 1994 and
1993, respectively. The dividend payout ratio was 44.0 percent, 41.0 percent and
43.0 percent for the years ended December 31, 1995, 1994, and 1993,
respectively.
VI. SHORT-TERM BORROWINGS
The required information regarding the amount outstanding of short-term
borrowings is incorporated by reference to page 25 of the 1995 Annual Report.
ITEM 2-PROPERTIES
The Bank's operations are located at six sites in Union Township, one in
Springfield Township, one in Berkeley Heights, Union County, New Jersey and a
new site in Madison, Morris County, New Jersey to open in May. The principal
office is located at 2455 Morris Avenue, Union, Union County, New Jersey. The
principal office is a two story building constructed in 1993.
All but three of the nine locations are owned by the Bank. The lease of the Five
Points Branch located at 356 Chestnut Street, Union, New Jersey expires November
30, 1997 and is subject to renewal at the Bank's option. The Career Center
Branch located in Union High School expires December 31, 2002 and is also
subject to renewal at the Bank's option and the lease of the Madison office
located at 300 Main Street, Madison, New Jersey expires June 6, 2005 and is
subject to renewal at the Bank's option. (See the back inside cover of the 1995
Annual Report for a complete listing of all branches and locations. The Drive
In/walk Up located at 2022 Stowe Street, Union, New Jersey is adjacent to a part
of the Main Office facility.)
ITEM 3-LEGAL PROCEEDINGS
Not applicable.
ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation had no matter submitted to a vote of security holders during the
fourth quarter of 1995.
29 March 96 Center Bancorp, Inc. Form 10-K Page 10
ITEM 4 A-EXECUTIVE OFFICERS
The following table sets forth the name and age of each executive officer of the
Parent Company, the period during which each such person has served as an
officer of the Parent Company or the Bank and each such person's business
experience (including all positions with the Parent Company and the Bank) for
the past five years:
Name and Age Officer Since Business Experience
- ---------------------------------------------------------------------------------------------------------
John J. Davis 1982 the Parent Company: President & Chief Executive Officer
Age - 53 1977 the Bank of the Parent Company and the Bank
Eileen J. Torbick 1991 the Parent Company: Senior Vice President & Senior Loan Officer
Age - 63 1972 the Bank of the Bank
Anthony C. Weagley 1991 the Parent Company: Treasurer of the Parent Company
Age - 34 1985 the Bank Vice President & Cashier (September 1991 - Present);
Assistant Vice President of the Bank
PART II
ITEM 5-MARKET INFORMATION FOR THE REGISTRANT'S STOCK AND RELATED
STOCKHOLDER MATTERS
The information required by Item 5 of Form 10-K appears on page 28 of the 1995
Annual Report and is incorporated herein by reference. As of December 31, 1995,
there were 629 holders of record of the Parent Company's Common Stock.
ITEM 6-SELECTED FINANCIAL DATA
The information required by Item 6 of Form 10-K appears on pages 10 - 11 of the
1995 Annual Report and is incorporated herein by reference.
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 of Form 10-K appears on pages 13 - 29 of the
1995 Annual Report and is incorporated herein by reference.
ITEM 8-FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K appears on pages 30 - 49 of the
1995 Annual Report and is incorporated herein by reference.
ITEM 9-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None
29 March 96 Center Bancorp, Inc. Form 10-K Page 11
PART III
ITEM 10-DIRECTORS OF THE REGISTRANT
The Corporation responds to this item by incorporating herein by reference the
material responsive to such item in the Corporation's definitive proxy statement
for its 1996 Annual Meeting of Stockholders.
ITEM 11-EXECUTIVE COMPENSATION
The Corporation responds to this item by incorporating herein by reference the
material responsive to such item in the Corporation's definitive proxy statement
for its 1996 Annual Meeting of Stockholders.
ITEM 12-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Corporation responds to this item by incorporating herein by reference the
material responsive to such item in the Corporation's definitive proxy statement
for its 1996 Annual Meeting of Stockholders.
ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation responds to this item by incorporating herein by reference the
material responsive to such item in the Corporation's definitive proxy statement
for its 1996 Annual Meeting of Stockholders.
29 March 96 Center Bancorp, Inc. Form 10-K Page 12
PART IV
ITEM 14-EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8 -K
A1. Financial Statements
Page in Annual Report
Consolidated Statements of Condition -December 31, 1995, and 1994 30
Consolidated Statements of Income for the years ended December 31, 1995, 31
1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for the years 32
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31, 33
1995, 1994 and 1993
Notes to Consolidated Financial Statements 34
Report of Independent Auditors 49
A2. Financial Statement Schedules
All Schedules have been omitted as inapplicable, or not required, or because the
required information is included in the Consolidated Financial Statements or the
notes thereto.
A3. Exhibits
3.1 Certificate of Incorporation of the Registrant is incorporated by
reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992
3.2 Bylaws of the Registrant is incorporated by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992
10.2 Employment agreement between the Registrant and John J. Davis.
10.3 The Registrant Employee Stock Option Plan is incorporated by reference
to exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993
10.4 The Registrant Outside Director Stock Option Plan is incorporated by
reference to exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
29 March 96 Center Bancorp, Inc. Form 10-K Page 13
10.5 Supplemental Executive Retirement Plans ("SERPS") are incorporated by
reference to exhibit 10.5 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994
10.6 Executive Split Dollar Life Insurance Plan is incorporated by
reference to exhibit 10.5 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994
10.7 Employment agreement between the Registrant and Anthony Weagley, dated
as of January 1, 1996.
10.8 Agreement and Plan of Merger, by and between the Registrant and Lehigh
Savings Bank, S.L.A., dated as of February 14, 1996, as amended.
10.9 Inducement Agreement, dated February 14, 1996 by and between the
Registrant and the trustee under a trust agreement applicable to the
majority shareholder of Lehigh Savings Bank, S.L.A.
11.1 Statement regarding computation of per share earnings is omitted
because the computation can be clearly determined from the material
incorporated by reference in this Report.
13.1 Registrant's Annual Report to Shareholders for the year ended December
31, 1995 (parts not incorporated by reference are furnished for information
purposes only and are not to be deemed to be filed herewith.)
21.1 Subsidiaries of the Registrant is incorporated by reference to exhibit
22.1 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
B. Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of 1995.
29 March 96 Center Bancorp, Inc. Form 10-K Page 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Center Bancorp, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CENTER BANCORP, INC.
/s/ JOHN J. DAVIS
-------------------------------------
John J. Davis
President and Chief Executive Officer
Dated March 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated above:
/s/ CHARLES P. WOODWARD /s/ HUGO BARTH, III
- ------------------------------------- --------------------------------
Charles P. Woodward, Hugo Barth, III
Director and Chairman of the Board Director
/s/ ROBERT L. BISCHOFF /s/ ALEXANDER BOL
- ------------------------------------- --------------------------------
Robert L. Bischoff Alexander Bol
Director Director
/s/ BRENDA CURTIS /s/ DONALD G. KEIN
- ------------------------------------- --------------------------------
Brenda Curtis Donald G. Kein
Director Director
/s/ JOHN J. DAVIS /s/ HERBERT SCHILLER
- ------------------------------------- --------------------------------
John J. Davis Herbert Schiller
President and Chief Executive officer Director
/s/ PAUL LOMAKIN, JR. /s/ STAN R. SOMMER
- ------------------------------------- --------------------------------
Paul Lomakin, Jr. Stan R. Sommer
Director Director
/s/ WILLIAM THOMPSON /s/ ANTHONY C. WEAGLEY
- ------------------------------------- --------------------------------
William Thompson Anthony C. Weagley
Director Treasurer (Chief Accounting and
Financial Officer)