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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 for the fiscal year ended December 31, 1999.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934. for the transition period from to .
Commission File Number 2-81353 ----- ------
CENTER BANCORP, INC.
----------------------------------------------------------
(exact name of registrant as specified in its charter)
New Jersey 52-1273725
- -----------------------------------------------------------------------
(State or other jurisdiction of IRS Employer
incorporation or organization) identification No.)
2455 Morris Avenue, Union, NJ 07083-0007
(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. YesX or No_
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation 5-K 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 February 29, 2000 was approximately $54.2
Million.
Shares outstanding on February 29, 2000
- ---------------------------------------
Common stock no par value 3,794,477 shares
Parts of Form 10-K in which
Documents Incorporated by reference document is incorporated
Definitive proxy statement dated March 17, 2000
in connection with the 2000 Annual Stockholders
Meeting filed with the Commission pursuant to
Regulation 14A.......................................... Part III
Annual Report to Stockholders for the fiscal
year ended December 31, 1999............................ Part I and Part II
INDEX TO FORM 10-K
PART I
ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 9-10
ITEM 3 LEGAL PROCEEDINGS 10
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT 10
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S 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 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 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 13-14
SIGNATURES 15
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 subsidiary and the
term "Parent Corporation" 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 five offices in Union Township, Union County, New Jersey, one
office in Summit, Union County, New Jersey, one office in Springfield Township,
Union County, New Jersey, one office in Berkeley Heights, Union County, New
Jersey, one office in Madison, Morris County, New Jersey and one office in
Morristown, Morris County, New Jersey and currently employs 162 full time
equivalent persons. The Bank is a full service commercial bank offering a
complete range of individual and commercial services.
On June 28, 1996, the Corporation acquired Lehigh Savings Bank SLA ("Lehigh"), a
New Jersey chartered savings & loan association, in a transaction accounted for
under the purchase method of accounting. At June 28, 1996, Lehigh Savings Bank
SLA had assets of $70.9 million (primarily cash and cash equivalents of $53.0
million and loans of $15.0 million), deposits of $68.2 million and stockholders'
equity of $2.7 million. The Corporation paid a total of $5.5 million in cash for
Lehigh resulting in goodwill of $3.8 million. The goodwill is being amortized on
a straight-line basis over 15 years. The consolidated financial statements of
the Corporation include the assets, liabilities, and results of operations of
Lehigh since the acquisition date.
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 1999, the Bank
obtained full trust powers enabling it to offer a variety of trust services to
its 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 services, wire transfers, night depository and lock box
services.
The Bank offers a broad range of consumer banking services, including interest
bearing and non-interest bearing checking accounts, savings accounts, money
market accounts, certificates of deposit, IRA accounts, Automated Teller
Machines ("ATM") accessibility using Money AccessTM 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 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 Corporation 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").
1
The Parent Corporation 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 periodic 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 Corporation may borrow from the Bank and
prohibits the Parent Corporation 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".
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 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 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 institutions 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.
2
BIF Premiums and Recapitalization of SAIF
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 covers savings and loan association deposits but
also covers deposits that are acquired by a BIF-insured institution from a
savings and loan association ("Oakar deposits"). The Corporation had
approximately $385.3 million of deposits at December 31, 1999, with respect to
which it pays SAIF FICO Assessments.
The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act") signed
into law on September 30, 1996, included the Deposit Insurance Funds Act of 1996
(the "Funds Act") under which the FDIC was required to impose special
assessments on SAIF-assessable deposits to recapitalize the SAIF. Under the
Funds Act, the FDIC also changed assessments for SAIF and BIF deposits in a 5 to
1 ratio to pay Financing Corp. ("FICO") bonds until January 1, 2000. A FICO rate
of approximately 1.29 basis points was charged on BIF deposits, and
approximately 6.44 basis points was on SAIF deposits.
The Gramm-Leach-Bliley Act Of 1999
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act (the "Act") which among other things, permits qualifying bank holding
companies to become financial holding companies and thereby affiliate with
securities firms and insurance companies and engage in other activities that are
financial in nature. The Act defines "financial in nature" to include securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; merchant banking activities; and
activities that the Board has determined to be closely related to banking. A
qualifying national bank also may engage subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development, and real estate
investment, through a financial subsidiary of the bank.
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 Corporation by the
Bank. There are a number of statutory and regulatory 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 Corporation 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 13 of the Notes
to the Corporation's Consolidated Financial Statements included in the 1999
Annual Report incorporated herein by reference.
D) Statistical Information
(Reference is also made to Exhibit 13.1 of this Annual Report on Form 10-K)
Information regarding interest sensitivity is incorporated by reference to pages
24 through 26 of the 1999 Annual Report to Shareholders (the 1999 Annual
Report).
Information regarding related party transactions is incorporated by reference to
Note 5 of the Notes to the Corporation's Consolidated Financial Statements
included in the 1999 Annual Report incorporated herein by reference.
3
The market risk results and gap results noted on pages 24 through 26 of the 1999
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 net interest income associated with various changes in
interest rates. Results have indicated that an interest rate increase of 200
basis points and a decline of 200 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 Corporation's net
income.
I. Investment Portfolio
a) For information regarding the carrying value of the investment portfolio,
see pages 39 and 40 of the 1999 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, 1999, on a contractual maturity basis.
Obligations Other Securities,
of US Obligations Federal Reserve
Treasury & of States and Federal
Government & Political Home Loan
(Dollars in Thousands) Agencies Subdivisions Bank Stock Total
- ---------------------------------------------------------------------------------------------------------
Due in 1 year or less
Amortized Cost $ 98,261 $ 10,118 $ 3,999 $ 112,378
Market Value 92,940 10,114 4,002 107,056
Weighted Average Yield 6.765% 6.308% 6.705% 6.722%
Due after one year through five years
Amortized Cost $ 87,869 $ 23,202 $ 29,903 $ 140,974
Market Value 85,712 22,960 29,405 138,077
Weighted Average Yield 6.550% 6.586% 6.530% 6.552%
Due after five years through ten years
Amortized Cost $ 7,596 $ 17,293 $ 498 $ 25,387
Market Value 7,374 16,343 476 24,193
Weighted Average Yield 6.439% 6.783% 6.250% 6.669%
Due after ten years
Amortized Cost $ 21,564 $ 0 $ 0 $ 21,564
Market Value 20,944 0 0 20,944
Weighted Average Yield 6.645% 0.000% 0.000% 6.645%
No Maturity
Amortized Cost $ 0 $ 0 $ 6,762 $ 6,762
Market Value 0 0 6,762 6,762
Weighted Average Yield 0.000% 0.000% 6.493% 6.493%
- ---------------------------------------------------------------------------------------------------------
Total
Amortized Cost $ 215,290 $ 50,613 $ 41,162 $ 307,065
Market Value 206,970 49,417 40,645 297,032
Weighted Average Yield 6.654% 6.597% 6.537% 6.629%
- ---------------------------------------------------------------------------------------------------------
c) Securities of a single issuer exceeding 10 percent of stockholders' equity
amounted to $14.3 million - for 1999 at December 31, 1999 and are listed in the
table below:
Aggregate
(Dollars in thousands) Issuer Book Value Market Value
- ---------------------------------------------------------------------------------------------------------
Citi Group $ 4,498 $ 4,392
California Housing Authority $ 4,400 $ 4,095
Federal Home Loan Bank Stock $ 5,423 $ 5,423
- ---------------------------------------------------------------------------------------------------------
Total $ 14,321 $ 13,910
- ---------------------------------------------------------------------------------------------------------
For other information regarding the Corporation's investment securities
portfolio, see Pages 17, 18, 39 and 40 of the 1999 Annual Report.
4
II. Loan Portfolio
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) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------
Commercial $ 61,861 $ 52,182 $ 39,397 $ 25,950 $ 21,302
Real estate-mortgage 99,800 91,189 88,067 85,994 69,954
Installment and other 7,669 7,060 5,565 6,584 7,012
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Total 169,330 150,431 133,029 118,528 98,268
Less:
Unearned discount 241 332 605 698 698
Allowance for loan losses 1,423 1,326 1,269 1,293 1,073
---------------------------------------------------------------------------------------------------------
Net total $ 167,666 $ 148,773 $ 131,155 $ 116,537 $ 96,497
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Since 1995, demand for the Bank's commercial loan, commercial real estate and
real estate mortgage products improved gradually. Business development and
marketing programs coupled with positive market trends supported the growth, in
1996, 1997, 1998 and 1999. The Lehigh acquisition also accounted for a portion
of 1996 loan growth approximating $15.2 million.
The maturities of commercial loans at December 31, 1999 are listed below.
At December 31, 1999, Maturing
----------------------------------------------------------------------
After One Year
In One Year Through After
(Dollars in thousands) Or Less Five Years Five Years Total
- ---------------------- ----------- -------------- ---------- -----
Construction loans $ 284 $ 86 $ 0 $ 370
Commercial real estate loans 1,249 2,305 20,560 24,114
Commercial loans 17,224 7,579 12,574 37,377
------- ------- ------- -------
Total $18,757 $ 9,970 $33,134 $61,861
======= ======= ======= =======
Loans with:
Fixed rates $ 818 $ 8,177 $33,134 $42,129
Variable rates 17,939 $ 1,793 $ 0 19,732
------- ------- ------- -------
Total $18,757 $ 9,970 $33,134 61,861
======= ======= ======= =======
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 1999, average total
loans comprised 34.1 percent of average interest-earning assets. The Corporation
has experienced a compound growth rate in average loans since 1995 of 11.4
percent. Average loans amounted to $160.2 million in 1999 compared with $139.0
million in 1998 and $125.5 million in 1997. The composition of Center Bancorp's
loan portfolio continues to change due to the local economy. Factors such as the
economic climate, interest rates, real estate values and employment all
contribute to these changes. Loan growth has been generated through business
development efforts and entry through branching into new markets.
Average commercial loans increased approximately $5.9 million or 21.8 percent in
1999 as compared with 1998. The Corporation seeks to create growth in commercial
lending by offering customized products, competitive pricing and by 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 policies to diversify the commercial loan
portfolio to limit concentrations in any single industry.
The Corporation's 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, including 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.
5
Average mortgage loans, which amounted to $95.3 million in 1999, increased $8.9
million or 10.3 percent as compared with average mortgage loans of $86.4 million
in 1998 (which reflected a 7.2 percent increase over 1997). 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, as well as indices tied to 5 year Treasury Notes,
most of these loans and residential mortgage loans have fixed interest rates.
Residential loans increased steadily in 1995 and in 1996; the increase was
attributable to the Lehigh acquisition. During 1998 growth increased as rates
stabilized with similar trends experienced during 1999. During 1998 and 1999
growth was affected by refinancing activity, competition among lenders and
rising interest rates during the second half of 1999.
Average construction loans and other temporary mortgage financing decreased from
1998 to 1999 by $173,000 to $594,000. Such loans increased by $209,000 from 1997
to 1998. The change in construction and other temporary mortgage lending has
been generated by the market activity of the Corporation's customers engaging in
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 it is contemplated that the
loans will be repaid by cash flows derived from the ongoing project.
Loans to individuals include personal loans, student loans, and home improvement
loans, as well as financing for automobiles and other vehicles. Such loans
averaged $7.7 million in 1999, as compared with $7.1 million in 1998 and $5.6
million in 1997. The growth in loans to individuals, during 1999, was buoyed by
increases in personal loans, offset in part by sales of student loans and
declines in automobile loans.
Home equity loans, which the Corporation has been actively promoting since 1994,
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 $27.5 million in
1999, an increase of $6.0 million or 27.9 percent as compared with average home
equity loans of $21.5 million in 1998. Interest rates on floating rate home
equity loans are generally tied to the prime rate while most other loans to
individuals, including fixed rate home equity loans, are medium-term (ranging
between one-to-five years) and carry fixed interest rates.
At December 31,1999, the Corporation had total lending commitments outstanding
of $37.0 million, of which approximately 43.0 percent and 21.1 percent were for
commercial loans and commercial real estate 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.
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 cases, 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.
6
The Corporation has established its own internal loan-to-value limits for real
estate loans. In general, except as described below, these internal limits are
not permitted to exceed the following supervisory limits.
Loan Category Loan-to-Value Limit
Raw Land 65%
Land Development 75%
Construction:
Commercial, Multifamily *,
and other Nonresidential 80%
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 is expected
to 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 must be identified by the Bank as
exceptions to the supervisory limits and their aggregate amount must be reported
at least quarterly to the Board of Directors. Non-conforming loans should not
exceed 100% of capital, or 30% with respect to 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 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 cushion to
minimize the risk of loss if the ultimate collection of the loan becomes
dependent on the liquidation of security pledged.
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 consolidated classified loan report 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.
7
Non-performing and Past Due Loans, OREO. 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 consider the charge-off of 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. 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. At
December 31, 1999, other real estate owned (OREO) consisted of a closed branch
facility with a carrying value of approximately $73,000.
Loans accounted for on a non-accrual basis at December 31, 1999, 1998, 1997,
1996, and 1995 are as follows.
(Dollars in thousands) 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------
Mortgage Real Estate $ 269 $ 38 $ 27 $ 298 $ 0
Commercial 0 0 0 0 0
Installment 23 3 0 0 0
--------------------------------------------------------------------------------
Total non-accrual loans $ 292 $ 41 $ 27 $ 298 $ 0
--------------------------------------------------------------------------------
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) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------
Commercial $ 0 $ 0 $ 0 $ 11 $ 0
Installment 0 24 73 110 48
-----------------------------------------------------------------------------------
Total $ 0 $ 24 $ 73 $ 121 $ 48
-----------------------------------------------------------------------------------
There were no loans which are "troubled debt restructurings" as of the last day
of each of the last five years.
In general, it is the policy of management to consider the charge-off of 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.
There were no other known "potential problem loans" (as defined by SEC
regulations) as of December 31, 1999 that have not been identified and
classified. Classified loans, consisting of other assets especially mentioned
and substandard loans, amounted to $2,572,534 and $519,021, respectively, at
December 31, 1999. On March 21, 2000, a $500,000 loan classified as substandard
at December 31, 1999, was repaid in full by the borrower. At December 31, 1998
these loans amounted to $119,440 and $75,670 respectively. The Corporation has
no foreign loans.
As of December 31, 1999, $8.6 million of the commercial loan portfolio, or 23.0
percent of $37.4 million, represented outstanding working capital loans to
various real estate developers. All but $4.4 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 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 table below 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 on page 5 of this report.
8
Commercial Real Estate Mortgage Installment Unallocated
---------- -------------------- ----------- -----------
Amount Loans to Amount Loans to Amount Loans to Amount
Total Loans Total Loans Total Loans
(Dollars in thousands) % %
- ---------------------------------------------------------------------------------------------------------------
1999 $ 718 36.6 $ 492 58.9 $155 4.5 $ 58
1998 $ 553 34.7 $ 330 60.6 $ 66 4.7 $ 377
1997 $ 498 29.6 $ 262 66.2 $ 56 4.2 $ 453
1996 $ 415 21.9 $ 220 66.1 $ 62 12.0 $ 596
1995 $ 467 21.7 $ 187 71.2 $ 22 7.1 $ 397
Information regarding charge-offs and recoveries is incorporated by reference to
page 20 of the 1999 Annual Report.
IV. Deposits
Information regarding average amounts/rates of deposits is incorporated by
reference to pages 26 and 31 of the 1999 Annual Report. Information regarding
the amount of time certificates of deposit of $100,000 or more is presented on
pages 26, 31, and 32 of the 1999 Annual Report.
V. Return on Equity and Assets
Information regarding the return on average assets, return on average equity,
the equity to assets ratio and dividend payout ratio is incorporated by
reference to pages 1 and 13 of the 1999 Annual Report. Return on average assets
was 0.92 percent, 0.88 percent and 0.94 percent for the years ended December 31,
1999, 1998 and 1997, respectively. The dividend payout ratio was 47.8 percent,
48.5 percent and 41.3 percent for the years ended December 31, 1999, 1998 and
1997, respectively. Return on tangible average shareholders equity was 13.5
percent in 1999, compared with 12.9 percent for 1998 and 15.9 percent in 1997.
Average shareholders equity as a percent of average assets was 7.43 percent,
7.49 percent and 6.65 percent for the years ended December 31, 1999, 1998 and
1997, respectively.
VI. Short-term Borrowings
Information regarding the amount outstanding of short-term borrowings is
incorporated by reference to page 28 of the 1999 Annual Report.
ITEM 2-Properties
The Bank's operations are located at five sites in Union Township, one in
Springfield Township, one in Berkeley Heights, one in Vauxhall and one in Summit
, Union County, New Jersey. The Bank also has one site in Madison, and one site
in Morristown, Morris County, New Jersey. 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.
Five of the locations are owned by the Bank and six of the locations are leased
by the Bank. The lease of the Five Points Branch located at 356 Chestnut Street,
Union, New Jersey expires November 30, 2002 and is subject to renewal at the
Bank's option. The lease of 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.
The lease of the Millburn Mall Branch located at 2933 Vauxhall Road, Vauxhall,
New Jersey expires February 01, 2003 and is subject to renewal at the Bank's
option and the lease of the Morristown office located at 86 South Street, Suite
2A, Morristown, New Jersey expires February 28, 2003 and is subject to renewal
at the Bank's option. The lease of the Summit branch located 392 Springfield
Avenue, Summit, New Jersey expires March 31, 2009 and is subject to renewal at
the Bank's option. (See page the inside of back cover of the 1999 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.) The Bank has two off-site ATM's, one at Union Hospital,
100 Galloping Hill Road, Union, New Jersey and one at Union County College, 1033
Springfield Avenue, Cranford, New Jersey.
On November 14, 1999, the Corporation executed a Purchase Agreement with the
Town of Morristown , New Jersey in the amount of $751,000 to purchase at public
auction property located at 214 South Street, At that date, the Corporation
deposited the sum of $50,000 with the Town Officer conducting the Auction.
9
ITEM 3-Legal Proceedings
There are no significant pending legal proceedings involving the Parent
Corporation or Bank other than those arising out of routine operations.
Management does not anticipate that the ultimate liability, if any, arising out
of such litigation will have a material effect on the financial condition or
results of operations of the Parent Corporation and Bank on a consolidated
basis. Such statement constitutes a forward-looking statement under the Private
Securities Litigation Reform Act of 1995. Actual results could differ materially
from this statement as a result of various factors, including the uncertainties
arising in proving facts within the Judicial System.
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 1999.
ITEM 4 A-Executive Officers
The following table sets forth the name and age of each executive officer of the
Parent Corporation, the period during which each such person has served as an
officer of the Parent Corporation or the Bank and each such person's business
experience (including all positions with the Parent Corporation and the Bank)
for the past five years:
Name and Age Officer Since Business Experience
---------------------------------------------------------------------------------------------------------
John J. Davis 1982 the Parent Corporation President & Chief Executive Officer
Age - 57 1977 the Bank of the Parent Corporation and the Bank
Anthony C. Weagley 1996 the Parent Corporation Vice President & Treasurer of the Parent
Corporation
Age - 38 1995 the Bank Senior Vice President & Cashier (1996-Present),
1985 the Bank Vice President & Cashier (1991 - 1996) and
Assistant Vice President prior years of the Bank
Donald Bennetti 1996 the Parent Corporation: Vice President of the Parent Corporation
Age - 56 1990 the Bank Senior Vice President (1997-Present)
Vice President (1993-1997)
Assistant Vice President (1992-1993) and
Assistant Cashier (1990-1992) of the Bank
Robert J. Diesner 1998 the Parent Corporation Vice President of the Parent Corporation
Age - 52 1996 the Bank Senior Vice President & Senior Loan Officer
(1998-Present)
Vice President (1997-1998) and
Assistant Vice President (1996-1997) of the Bank
John F. McGowan 1998 the Parent Corporation Vice President of the Parent Corporation
Age - 53 1996 the Bank Senior Vice President ( 1998-Present) and
Vice President (1996-1998) of the Bank
Lori A. Wunder 1998 the Parent Corporation Vice President of the Parent Corporation
Age - 36 1995 the Bank Senior Vice President (1998-Present)
Vice President (1997-1998)
Assistant Vice President (1996-1997) and
Assistant Cashier (1995-1996) of the Bank
Julie D'Aloia 1998 the Parent Corporation Secretary of the Parent Corporation
Age - 38 1998 the Bank Corporate Secretary and Assistant to the
President
Assistant Secretary and Assistant
To the President (1997-1998) of the Bank
10
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 29 of the 1999
Annual Report and is incorporated herein by reference. As of December 31, 1999
there were 603 holders of record of the Parent Corporation's Common Stock.
ITEM 6-Selected Financial Data
The information required by Item 6 of Form 10-K appears on pages 1 and 13 of the
1999 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 14 through 30
of the 1999 Annual Report and is incorporated herein by reference.
ITEM 7A-Quantitative and Qualitative Disclosures About Market Risk
The information required by Item 7A of Form 10-K appears on pages 24 through 27
of the 1999 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 32 through 54
of the 1999 Annual Report and is incorporated herein by reference.
ITEM 9-Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures
None
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 2000 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 2000 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 2000 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 2000 Annual Meeting of Stockholders.
12
Part IV
ITEM 14-Exhibits, Financial Statement Schedules, and
Reports on Form 8 -K
Consolidated Statements of Condition at December 31, 1999, and 1998 32
-------------------------------------------------------------------------------------------------------
Consolidated Statements of Income for the years ended
December 31, 1999 and 1998 and 1997 33
-------------------------------------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997 34
-------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 35
-------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 36-53
-------------------------------------------------------------------------------------------------------
Independent Auditors' Report 54
-------------------------------------------------------------------------------------------------------
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 10K for
the year ended December 31, 1998.
3.2 By- Laws of the Registrant is incorporated by reference to exhibit 3.2 to
the Registrant's Annual Report on Form 10K for the year ended December 31,
1998.
10.1 Employment agreement between the Registrant and Donald Bennetti, dated
January 1, 1996, is incorporated by reference to exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.
10.2 Employment agreement between the Registrant and John J. Davis is
incorporated by reference to exhibit 10.2 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995
10.3 The Registrant's 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's Outside Director Stock Option Plan is incorporated by
reference to exhibit 10.4 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993
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 C. Weagley,
dated as of January 1, 1996 is incorporated by reference to exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1995
10.10 Directors' Retirement Plan is incorporated by reference to exhibit
10.10 to the Registrant's Annual Report on Form 10K for the year ended
December 31, 1998.
13
10.11 Center Bancorp, Inc. 1999 Stock Incentive Plan.
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, 1999 (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
23.1 Consent of KPMG 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 1999.
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, 2000
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, in
the capacities described below 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
and Director
/s/ PAUL LOMAKIN, JR. /s/ STANLEY R. SOMMER
- ------------------------------------ ---------------------
Paul Lomakin, Jr. Stan R. Sommer
Director Director
/s/ WILLIAM THOMPSON /s/ ANTHONY C. WEAGLEY
- ------------------------------------ ----------------------
William Thompson Anthony C. Weagley
Director Vice President & Treasurer (Chief
Accounting and Financial Officer)
15