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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 31,2000.
___ 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.
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(exact name of registrant as specified in its charter)
New Jersey 52-1273725
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(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 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 28, 2001 was approximately $61.3
Million.
Shares outstanding on February 28, 2001
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Common stock no par value 3,736,379 shares
Parts of Form 10-K in which
Documents Incorporated by reference document is incorporated
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Definitive proxy statement dated March 16, 2001
in connection with the 2001 Annual Stockholders
Meeting filed with the Commission pursuant to
Regulation 14A.........................................................Part III
Annual Report to Stockholders for the fiscal
year ended December 31, 2000.................................Part I and Part II
INDEX TO FORM 10-K
PART I
ITEM 1 BUSINESS 1
ITEM 2 PROPERTIES 11
ITEM 3 LEGAL PROCEEDINGS 11
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT 12
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 13
ITEM 6 SELECTED FINANCIAL DATA 13
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 13
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 13
PART III
ITEM 10 DIRECTORS OF THE REGISTRANT 14
ITEM 11 EXECUTIVE COMPENSATION 14
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 14
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 14
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 15-16
SIGNATURES 17
Center Bancorp Inc.
Form 10 K
Part I
Item I-Business
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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 156
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 including trust, 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.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 1
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").
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.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 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 $68.7 million of deposits at December 31, 2000,
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 charged 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 2000 Annual Report
incorporated herein by reference.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 3
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 27 through 29 of the 2000 Annual Report to Shareholders (the 2000
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 2000 Annual Report incorporated herein by reference.
The market risk results and gap results noted on pages 27 through 29 of the
2000 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 points resulted in a
decrease of 3.98 percent and an increase of 9.07 percent, respectively, in
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 41 and 42 of the 2000 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, 2000, on a contractual maturity basis.
Obligations of Obligations of Other Securities
US Treasury & States & Federal Reserve
Government Political & Federal Home
(Dollars in Thousands) Agencies Subdivisions Loan Bank Stock Total
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Due in 1 year or less
Amortized Cost $ 30,578 $ 1,000 $ 5,990 $ 37,568
Market Value 30,588 1,000 6,009 $ 37,597
Weighted Average Yield 6.32% 6.15% 6.41% 6.33%
Due after one year through five years
Amortized Cost $ 66,441 $ 14,538 $ 32,624 $ 113,603
Market Value 66,518 14,582 33,000 $ 114,100
Weighted Average Yield 6.79% 6.37% 6.99% 6.81%
Due after five years through ten years
Amortized Cost $ 58,475 $ 5,764 $ 9,712 $ 73,951
Market Value 56,680 5,730 9,954 $ 72,364
Weighted Average Yield 7.01% 6.71% 10.60% 7.47%
Due after ten years
Amortized Cost $ 79,952 $ 12,278 $ 6,551 $ 98,781
Market Value 78,963 12,325 6,589 $ 97,877
Weighted Average Yield 7.08% 6.98% 9.19% 7.22%
No Maturity
Amortized Cost $ 0 $ 0 $ 5,799 $ 5,799
Market Value - - 5,799 $ 5,799
Weighted Average Yield 0.00% 0.00% 6.61% 6.61%
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Total
Amortized Cost $ 235,446 $ 33,580 $ 60,676 $ 329,702
Market Value 234,749 33,637 61,351 $ 329,737
Weighted Average Yield 6.89% 6.65% 7.59% 6.99%
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30 March 2001 Center Bancorp, Inc., Form 10-K Page 4
c) Securities of a single issuer exceeding 10 percent of stockholders'
equity amounted to $17.6 million with a market value of $17.8 million at
December 31, 2000 and are listed in the table below:
Aggregate
(Dollars in Thousands) Issuer Book Value Market Value
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Citi Group $ 4,498 $ 4,557
Goldman Sachs 4,409 4,501
California Housing Authority 3,960 3,896
Bank of America 4,762 4,820
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Total $ 17,629 $ 17,774
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For other information regarding the Corporation's investment securities
portfolio, see Pages 17, 18, 41 and 42 of the 2000 Annual Report.
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) 2000 1999 1998 1997 1996
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Commercial $ 75,280 $ 61,861 $ 52,182 $ 39,397 $ 25,950
Real estate- residential mortgage 117,762 99,800 91,189 88,067 85,994
Installment and other loans 5,907 7,669 7,060 5,565 6,584
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Total 198,949 169,330 150,431 133,029 118,528
Less:
Unearned discount - 241 332 605 698
Allowance for loan losses 1,655 1,423 1,326 1,269 1,293
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Net total $ 197,294 $ 167,666 $ 148,773 $ 131,155 $ 116,537
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Since 1996, 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 1997, 1998, 1999 and 2000.
The maturities of commercial loans at December 31, 2000 are listed below.
At December 31, 2000, Maturing
----------------------------------------------------
After One Year
In One Year Through After
(Dollars in thousands) Or Less Five Years Five Years Total
--------------------------------------------- ------------ ------------ ------------
Construction loans $ 4,162 $ 62 $ - $ 4,224
Commercial real estate loans 3,119 21,959 7,528 32,606
Commercial loans 15,575 19,339 3,536 38,450
------------ ------------ ------------ ------------
Total $ 22,856 $ 41,360 $ 11,064 $ 75,280
============ ============ ============ ============
Loans with:
Fixed rates $ 1,052 $ 22,910 $ 10,878 $ 34,840
Variable rates 21,804 18,450 186 40,440
------------ ------------ ------------ ------------
Total $ 22,856 $ 41,360 $ 11,064 $ 75,280
============ ============ ============ ============
30 March 2001 Center Bancorp, Inc., Form 10-K Page 5
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 2000, average total
loans comprised 37.22 percent of average interest-earning assets. The
Corporation has experienced a compound growth rate in average loans since
1996 of 12.0 percent. Average loans amounted to $185.8 million in 2000
compared with $160.2 million in 1999 and $139.0 million in 1998. 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 $3.4 million or 10.4 percent
in 2000 as compared with 1999. 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.
Average mortgage loans, which amounted to $110.6 million in 2000, increased
$15.3 million or 16.1 percent as compared with average mortgage loans of
$95.3 million in 1999 (which reflected a 10.3 percent increase over 1998).
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, and the Federal Home Loan Bank of New York
5-year advance rate, most of these loans and residential mortgage loans have
fixed interest rates.
Residential loans increased steadily in 1996 and in 1997; the increase was
attributable to the Lehigh acquisition. During 1998 growth increased as rates
stabilized with similar trends experienced during 1999. During 1999 and 2000
growth was affected by refinancing activity, competition among lenders and
rising interest rates during the second half of 2000.
Average construction loans and other temporary mortgage financing increased
from 1999 to 2000 by $3.9 million to $4.2 million. Such loans decreased by
$397,000 from 1998 to 1999. 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 $5.9 million in 2000, as compared with $7.7 million in
1999 and $7.0 million in 1998. The decrease in loans to individuals, during
2000, was due to decreases in personal 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. Home equity loans and secondary mortgages averaged $35.2 million
in 2000, an increase of $8.0 million or 29.4 percent as compared with average
home equity loans of $27.2 million in 1999. 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.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 6
At December 31,2000, the Corporation had total lending commitments
outstanding of $28.3 million, of which approximately 43.8 percent were for
commercial loans, commercial real estate and construction loans.
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.
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.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 7
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.
Non-performing and Past Due Loans, OREO. Non-performing loans include
non-accrual loans and troubled debt restructuring. 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, 2000, other real estate owned (OREO) consisted
of a two family residential property with a carrying value of $49,000, while
at December 31, 1999 OREO consisted of closed branch facility with a carrying
value of approximately $73,000.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 8
Loans accounted for on a non-accrual basis at December 31, 2000, 1999, 1998,
1997 and 1996 are as follows:
(Dollars in thousands) 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------
Mortgage Real Estate $246 $269 $ 38 $ 27 $298
Installment $ 0 $ 23 $ 3 $ 0 $ 0
-----------------------------------------------------------------------------------------------------------------
Total non-accrual loans $246 $292 $ 41 $ 27 $298
-----------------------------------------------------------------------------------------------------------------
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) 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------
Commercial $ 0 $ 0 $ 0 $ 0 $ 11
Installment 2 0 24 73 110
-----------------------------------------------------------------------------------------------------------------
Total $ 2 $ 0 $ 24 $ 73 $121
-----------------------------------------------------------------------------------------------------------------
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, 2000 that have not been identified and
classified. Such loans, consisting of other assets especially mentioned and
substandard loans, amounted to $321,000 and $1,461,000, respectively, at
December 31, 2000. At December 31, 1999 these loans amounted to $2,576,534
and $519,021 respectively. The Corporation has no foreign loans.
As of December 31, 2000, $8.6 million of the commercial loan portfolio or
22.3 percent of $38.5 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.
Commercial Real Estate Mortgage Installment Unallocated
---------- -------------------- ----------- -----------
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans Amount
(Dollars in thousands) % %
- -----------------------------------------------------------------------------------------------------------------------------
2000 $894 37.8 $530 59.2 $191 3.0 $ 40
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
30 March 2001 Center Bancorp, Inc., Form 10-K Page 9
Information regarding charge-offs and recoveries is incorporated by reference
to page 22 of the 2000 Annual Report.
IV. Deposits
Information regarding average amounts/rates of deposits is incorporated by
reference to pages 30 and 33 of the 2000 Annual Report. Information regarding
the amount of certificates of deposit of $100,000 or more is presented on
pages 30 and 34 of the 2000 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 15 of the 2000 Annual Report. Return on average
assets was 0.94 percent, 0.92 percent and 0.88 percent for the years ended
December 31, 2000, 1999, and 1998, respectively. The dividend payout ratio
was 45.3 percent, 47.8 percent, and 48.5 percent for the years ended December
31, 2000, 1999, and 1998, respectively. Return on tangible average
shareholders equity was 14.4 percent in 2000, compared with 13.5 percent in
1999, compared with 12.9 percent for 1998.
VI. Short-term Borrowings
Information regarding the amount outstanding of short-term borrowings is
incorporated by reference to page 30 of the 2000 Annual Report.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 10
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. The Bank completed the
purchase of property located at 214 South Street, Morristown, NJ 07960 in
2000. A full service branch facility will be constructed in 2001 on the site.
The Bank owns five of the locations and the Bank leases six of the locations.
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 58 of the 2000 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 one off-site ATM at Union
Hospital, 100 Galloping Hill Road, Union, New Jersey.
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 2000.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 11
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 - 58 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 - 39 1995 the Bank Senior Vice President & Cashier (1996-Present),
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 - 57 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
John F. McGowan 1998 the Parent Corporation Vice President of the Parent Corporation
Age -54 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 - 37 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 1999 the Parent Corporation Vice President & Secretary (2001)
Age - 39 Corporate Secretary (1998-2000)
1998 the Bank Senior Vice President & Secretary (2001)
Assistant-to-The-President & Corporate Secretary
(1998-2000)
William A. Arnold 2000 the Parent Corporation Vice President of the Parent Corporation
Age - 49 2000 the Bank Senior Vice President & Senior Loan Officer
Metropolitan State Bank (2000-Present)
Executive Vice President & Senior Lending
Officer (1994-April 2000)
30 March 2001 Center Bancorp, Inc., Form 10-K Page 12
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 pages 31 and 32 of
the 2000 Annual Report and is incorporated herein by reference. As of
December 31, 2000 there were 581 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 15 of
the 2000 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 16 through
33 of the 2000 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 page 4 under the
title Statistical Information in for 10-K and on pages 27 through 29 of the
2000 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 34 through
55 of the 2000 Annual Report and is incorporated herein by reference.
ITEM 9-Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures
- --------------------------------------------------------------------------------
None
30 March 2001 Center Bancorp, Inc., Form 10-K Page 13
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 2001 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 2001 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 2001 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 2001 Annual Meeting of Stockholders.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 14
Part IV
ITEM 14-Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
- --------------------------------------------------------------------------------
Pages in Annual Report
Consolidated Statements of Condition at December 31, 2000, and 1999 34
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998 35
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998 36
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 37
Notes to Consolidated Financial Statements 38-54
Independent Auditors' Report 55
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, 1998.
3.2 By-Laws 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, 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
30 March 2001 Center Bancorp, Inc., Form 10-K Page 15
10.10 Directors' Retirement Plan is incorporated by reference to exhibit
10.10 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998.
10.11 Center Bancorp, Inc. 1999 Stock Incentive Plan is incorporated by
references to exhibit 10.11 to the Registrant's Annual Report on form
10-K for the year ended December 31, 1999.
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, 2000 (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 2000.
30 March 2001 Center Bancorp, Inc., Form 10-K Page 16
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, 2001
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 Director
Officer and Director
/s/ PAUL LOMAKIN, JR. /s/ NORMAN F. SCHROEDER
- --------------------------------- ---------------------------------
Paul Lomakin, Jr. Norman F. Schroeder
Director Director
/s/ WILLIAM THOMPSON /s/ ANTHONY C. WEAGLEY
- --------------------------------- ---------------------------------
William Thompson Anthony C. Weagley
Director Vice President & Treasurer (Chief
Accounting and Financial Officer)
/s/ JAMES J. KENNEDY
- ---------------------------------
James J. Kennedy
Director
30 March 2001 Center Bancorp, Inc., Form 10-K Page 17