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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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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, 1996.
__ 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 5K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to the
Form 10-K. _X_
Aggregate Market value of voting stock held by non-affiliates based on the
average of Bid and Asked prices on February 28, 1997 was approximately $51.0
million
Shares outstanding on February 28, 1997
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Common stock no par value - 2,240,160 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, 1997,
in connection with the 1997 Annual Stockholders
Meeting filed with the Commission pursuant to
Regulation 14A ............................................ Part III
Annual Report to Stockholders for the fiscal year
ended December 31, 1996 ................................... Part I and Part II
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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 REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
ITEM 6 SELECTED FINANCIAL DATA 12
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 12
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 12
PART III
ITEM 10 DIRECTORS OF THE REGISTRANT 12
ITEM 11 EXECUTIVE COMPENSATION 13
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 13
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 13
SIGNATURES 15
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 subsidiaries and the term "Parent Company" shall refer to Center
Bancorp, Inc. on an unconsolidated basis.
The Bank was organized in 1923 under the law of the United States of
America. The Bank operates six offices in Union Township, Union County, New
Jersey, one office in Springfield Township, Union County, New Jersey and
one office in Berkeley Heights, Union County, New Jersey and currently
employs 132 persons. A ninth office, located in Madison, Morris County, New
Jersey is scheduled to open in May 1998. The Bank is a full service
commercial bank offering a complete range of individual and commercial
services.
On June 28, 1996, the Corporation completed its acquisition of 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. Lehigh had a net loss of $1.1 million for the fiscal period of
July 1, 1995 to June 27, 1996. The acquisition was effected as a series of
mergers pursuant to which the Corporation paid a total of approximately
$5.5 million in cash and Lehigh ultimately was merged into the Bank . The
resulting goodwill amounted to $3.8 million and will be amortized over a 15
year period. The December 31, 1996 financial data set forth in this annual
report and the December 31, 1996 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 the
lending area, these services include short and medium term loans, lines of
credit, letters of credit, working capital loans, real estate construction
loans and mortgage loans. In the depository area, the Bank offers demand
deposits, savings accounts and time deposits. In addition, the Bank offers
collection service, wire transfers, night depository and lock box services.
The Bank offers a broad range of consumer banking services, including
checking accounts, savings accounts, NOW accounts, money market accounts,
certificates of deposit, IRA accounts, Automated Teller Machines ("ATM")
accessibility using Money Access[TM] service, secured and unsecured loans,
mortgage loans, home equity lines of credit, safe deposit boxes, Christmas
club accounts, vacation club accounts, collection services, money orders
and traveler's checks.
The Bank offers various money market services. It deals in U.S. Treasury
and U.S. Governmental agency securities, certificates of deposits,
commercial paper and repurchase agreements.
Competitive pressures affect the Corporation's manner of conducting
business. Competition stems not only from other commercial banks but also
from other financial institutions such as savings banks, savings and loan
associations, mortgage companies, leasing companies and various other
financial service and advisory
31 March 97 Page 1
Center Bancorp, Inc. Form 10-K
companies. Many of the financial institutions operating in the
Corporation's primary market are substantially larger and offer a wider
variety of products and services than the Corporation.
The Parent Company is subject to regulation by the Board of Governors of
the Federal Reserve System and the New Jersey Department of Banking. As a
national bank, the Bank is subject to regulation and periodic examination
by the Comptroller of the Currency. Deposits in the Bank are insured by the
Federal Deposit Insurance Corporation (the "FDIC").
The Parent Company is required to file with the Federal Reserve Board an
annual report and such additional information as the Federal Reserve Board
may require pursuant to the Bank Holding Company Act of 1956, as amended
(the "Act"). In addition, the Federal Reserve Board makes examinations of
bank holding companies and their subsidiaries. The Act requires each bank
holding company to obtain the prior approval of the Federal Reserve Board
before it may acquire substantially all of the assets of any bank, or
before it may acquire ownership or control of any voting shares of any
bank, if, after such acquisition, it would own or control, directly or
indirectly, more than 5 percent of the voting shares of such bank. The Act
also restricts the types of businesses and operations in which a bank
holding company and its subsidiaries may engage.
The operations of the Bank are subject to requirements and restrictions
under federal law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be
granted, limitations on the types of investments that may be made and the
types of services which may be offered. Various consumer laws and
regulations also affect the operations of the Bank. Approval of the
Comptroller of the Currency is required for branching, bank mergers in
which the continuing bank is a national bank and in connection with certain
fundamental corporate changes affecting the Bank. Federal law also limits
the extent to which the Parent Company may borrow from the Bank and
prohibits the Parent Company and the Bank from engaging in certain tie-in
arrangements.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the bank regulatory provisions of the
Federal Deposit Insurance Act and several other federal banking statutes.
Among other things, FDICIA requires federal banking agencies to broaden the
scope of regulatory corrective action taken with respect to banks that do
not meet minimum capital requirements and to take such actions promptly in
order to minimize losses to the FDIC. Under FDICIA, federal banking
agencies have established five capital tiers: "well capitalized",
"adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized".
FDICIA imposes significant restrictions on the operations of a depository
institution that is not in either of the first two of such categories. A
depository institution's capital tier will depend upon the relationship of
its capital to various capital measures. A depository institution will be
deemed to be "well capitalized" if it significantly exceeds the minimum
level required by regulation for each relevant capital measure, "adequately
capitalized" if it meets each such measure, "undercapitalized" if it fails
to meet any such measure, "significantly undercapitalized" if it is
significantly below any such measure and "critically undercapitalized" if
it fails to meet any critical capital level set forth in the regulations.
An institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating or is deemed to be in an unsafe or
unsound condition or to be engaging in unsafe or unsound practices.
Under regulations adopted under these provisions, for an institution to be
well capitalized it must have a total risk-based capital ratio of at least
10 percent, a Tier I risk-based capital ratio of at least 6 percent and a
Tier I leverage ratio of at least 5 percent and not be subject to any
specific capital order or directive. For an institution to be adequately
capitalized, it must have a total risk-based capital ratio of at least 8
percent, a Tier I risk-based capital ratio of at least 4 percent and a Tier
I leverage ratio of at least 4 percent (or in some cases 3 percent). Under
the regulations, an institution will be deemed to be undercapitalized if
the bank has a total risk-based capital ratio that is less than 8 percent ,
a Tier I risk-based capital ratio that is less than 4 percent or a Tier I
leverage ratio of less than 4 percent (or in some cases 3 percent). An
institution will be deemed to be significantly undercapitalized if the bank
has a total 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
31 March 97 Page 2
Center Bancorp, Inc. Form 10-K
ratio of less than 3 percent and will be deemed to be critically
undercapitalized if it has a ratio of tangible equity to total assets that
is equal to or less than 2 percent. FDICIA generally prohibits a depository
institution from making a capital distribution (including payment of
dividends) or paying management fees to any entity that controls the
institution if it thereafter would be undercapitalized. If an institution
becomes undercapitalized, it will be generally restricted from borrowing
from the Federal Reserve, increasing its average total assets, making any
acquisitions, establishing any branches or engaging in any new line of
business. An undercapitalized institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency, which plan
must, in the opinion of such agency, be based on realistic assumptions and
be "likely to succeed" in restoring the institution's capital. In
connection with the approval of such a plan, the holding company of the
institution must guarantee that the institution will comply with the plan,
subject to a limitation of liability equal to a proportion of the
institution's assets. If an undercapitalized institution fails to submit an
acceptable plan or fails to implement such a plan, it will be treated as if
it is significantly undercapitalized.
Under FDICIA, bank regulators are directed to require "significantly
undercapitalized" institutions, among other things, to restrict business
activities, raise capital through a sale of stock, merge with another
institution and/or take any other action which the agency determines would
better carry out the purposes of FDICIA.
Within 90 days after an institution is determined to be "critically
undercapitalized", the appropriate federal banking agency must, in most
cases, appoint a receiver or conservator for the institution or take such
other action as the agency determines would better achieve the purposes of
FDICIA. In general, "critically undercapitalized" institutions will be
prohibited from paying principal or interest on their subordinated debt and
will be subject to other substantial restrictions.
Under FDICIA, an institution that is not well capitalized is generally
prohibited from accepting brokered deposits. Undercapitalized institutions
are prohibited from offering interest rates on deposits significantly
higher than prevailing rates.
FDICIA also directs that each federal banking agency prescribe standards
for depository institutions and depository institution holding companies
relating to internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset
growth, a maximum ratio of classified assets to capital, a minimum ratio of
market value to book value for publicly traded shares (if feasible) and
such other standards as the agency deems appropriate.
FDICIA also contains a variety of other provisions that could affect the
operations of the Corporation, including reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, the
requirement that depository 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.
31 March 97 Page 3
Center Bancorp, Inc. Form 10-K
BIF PREMIUMS
The Corporation is a member of the Bank Insurance Fund ("BIF") of the FDIC.
The FDIC also maintains another insurance fund, the Savings Association
Insurance Fund ("SAIF"), which primarily cover savings and loan association
deposits but also covers deposits that are acquired by a BIF-insured
institution from a savings and loan association. The Corporation has
approximately $412.4 million of deposits at December 31, 1996, with respect
to which the Corporation pays insurance premiums.
The Omnibus Spending Bill (H.R. 3610) that President Clinton signed on
September 30, 1996 included provisions for a special assessment to
recapitalize the SAIF, provisions to provide funding to meet the Financing
Corporation (FICO) bond obligations, and to merge BIF with SAIF fund on
January 1, 1999. As a result of the acquisition of Lehigh, the Corporation
was obligated to pay a one-time assessment on Lehigh's deposits. The total
assessment amounted to $469,606 and was paid to the Federal Deposit
Insurance Corporation on November 27, 1996.
Effective January 1, 1997, Federal legislation separates FICO assessment to
service the interest on its bond obligations from the SAIF assessment. The
amount assessed on individual institutions by the FICO will be in addition
to the amount paid for deposit insurance according to the FDIC's
risk-related assessment rate schedules. However, between October 1, 1996,
and January 1, 1997, any amount required by the FICO was deducted from the
amounts the FDIC was authorized to assess SAIF-member savings associations,
and could not be assessed against certain institutions. FICO assessment
rates for the first semiannual period of 1997 were set at 1.30 basis points
annually for BIF-assessable deposits and 6.48 basis points annually for
SAIF-assessable deposits. (These rates may be adjusted quarterly to reflect
changes in assessment bases for the BIF and the SAIF by law; the FICO rate
on BIF-assessable deposits must be one-fifth the rate on SAIF-assessable
deposits until the insurance funds are merged or until January 1, 2000,
whichever occurs first.)
Future Federal Deposit Insurance expense will be affected by the FICO bond
payment and continued expense on Lehigh's acquired deposits. The FICO
obligation is to be shared by both SAIF and BIF insured institutions. For
the years 1997-1999, BIF-assessable deposits will be assessed at a rate of
1/5 of the rate imposed on SAIF-assessable deposits. This assessment is
estimated to be 1.3 cents per $100.00 for BIF-insured deposits. The
estimated assessments should be completely phased out by the year 2019.
The SAIF-assessable deposits of "Oakar" banks are reduced by 20 percent for
the purpose of the special assessment where the Bank's BIF deposits exceed
50 percent of the total insured deposits. In addition, the SAIF-assessable
deposits of Oakar banks are reduced by 20 percent for the purposes of
ongoing regular premium assessments. The deposits acquired from Lehigh are
classified as "Oakar deposits" for premium assessments.
PROPOSED LEGISLATION
From time to time proposals are made in the U.S. Congress and before
various bank regulatory authorities which would alter the policies of and
place restrictions on different types of banking operations. It is
impossible to predict the impact if any, of potential legislative trends on
the business of the Corporation and the Bank.
C) DIVIDEND RESTRICTIONS
Most of the revenue of the Corporation available for payment of dividends
on its capital stock will result from amounts paid to the Parent Company by
the Bank. There are a number of statutory and 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
31 March 97 Page 4
Center Bancorp, Inc. Form 10-K
any required transfers to surplus. Second, the Bank cannot pay dividends
except to the extent that net profits then on hand exceed statutory bad
debts. Third, the authority of federal regulators to monitor the levels of
capital maintained by the Corporation and the Bank (see Item 7 of this
Annual Report on Form 10-K and the discussion of FDICIA above), as well as
the authority of such regulators to prohibit unsafe or unsound practices,
could limit the amount of dividends which the Parent Company and the Bank
may pay. Regulatory pressures to reclassify and charge off loans to
establish additional loan loss reserves also can have the effect of
reducing current operating earnings and thus impacting an institution's
ability to pay dividends. Regulatory authorities have indicated that bank
holding companies which are experiencing high levels of non-performing
loans and loan charge-offs should review their dividend policies. Reference
is also made to Note 13 of the Notes to the Company's Consolidated
Financial Statements.
D) STATISTICAL INFORMATION
(Reference is also made to Item 7 of this Annual Report on Form 10-K)
Information regarding interest sensitivity is incorporated by reference to
pages 25-27 of the 1996 Annual Report.
The gap results noted on pages 26 and 27 of the 1996 Annual Report take
into consideration repricing and maturities of assets and liabilities, but
fail to consider the interest sensitivities of those asset and liability
accounts. Management has prepared for its use an income simulation model to
forecast future net interest income, in light of the current gap position.
Management has also prepared for its use alternative scenarios to measure
levels of next interest income associated with various changes in interest
rates. Results have reflected that an interest rate increase of 200 basis
points and a decline of 50 basis resulted in an impact on future net
interest income which is consistent with target levels contained in the
Corporation's Asset/Liability Policy. Management cannot provide any
assurances about the actual effect of changes in interest rates on the
Corporations net income.
I. INVESTMENT PORTFOLIO
a) For information regarding the carrying value of the investment
portfolio, see page 40 of the 1996 Annual Report to Shareholders (the
"1996 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, 1996, on a contractual maturity basis.
31 March 97 Page 5
Center Bancorp, Inc. Form 10-K
Obligations
of US Obligations Federal Reserve
Treasury & of States and Federal
Government & Political Home Loan
(Dollars in Thousands) Agencies Subdivisions Bank Stock Total
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Due in 1 year or less
Book Value $ 82,770 $ 10,929 $ 284 $ 93,983
Market Value 82,618 10,987 285 93,890
Weigh Average Yield 6.874% 5.278% 6.608% 6.688%
Due after one year through five years
Book Value $ 96,099 $ 19,161 $ 6,576 $ 121,836
Market Value 96,614 19,352 6,679 122,645
Weigh Average Yield 6.566% 5.424% 6.985% 6.409%
Due after five years through ten years
Book Value $ 28,562 $ 9,263 $ 3,509 $ 41,334
Market Value 28,529 9,295 3,507 41,331
Weigh Average Yield 6.906% 5.392% 6.687% 6.548%
Due after ten years
Book Value $ 20,905 $ 0 $ 801 $ 21,706
Market Value 20,914 0 801 21,715
Weigh Average Yield 6.443% 0.000% 6.816% 6.456%
No Maturity
Book Value $ 0 $ 0 $ 746 $ 746
Market Value 0 0 746 746
Weigh Average Yield 0.000% 0.000% 6.330% 6.330%
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Total
Book Value $ 228,336 $ 39,353 $ 11,916 $ 279,605
Market Value 228,675 39,634 12,018 280,327
Weigh Average Yield 6.709% 5.376% 6.836% 6.527%
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c) For information regarding securities of a single issuer exceeding 10
percent of stockholders' equity and for other information regarding the
Corporation's investment securities portfolio, see Page 18 of the 1996
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,
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(Dollars in thousands) 1996 1995 1994 1993 1992
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Commercial $ 25,950 $ 21,302 $ 18,674 $ 18,692 $ 20,873
Real estate-mortgage 78,347 69,954 64,666 40,005 34,078
Installment Loan 14,231 7,012 6,250 7,378 4,729
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Total 118,528 98,268 89,590 66,075 59,680
Less:
Unearned discount 698 698 785 330 163
Allowance for loan losses 1,293 1,073 1,073 943 821
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Net total $ 116,537 $ 96,497 $ 87,732 $ 64,802 $ 58,696
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The reduction in outstanding loans from December 31, 1991 to December 31,
1993 primarily reflects lessened demand for loans and the then current
economic conditions. In 1994, demand for the Bank's real estate mortgage
products improved substantially, and new products in conjunction with a new
marketing program coupled with positive market trends supported the growth
in 1995 and 1996. The Lehigh acquisition also accounted for a portion of
1996 loan growth approximating $15.2 million.
The maturities of commercial loans at December 31, 1996 are listed below.
All such loans which are due after one year have fixed interest rates ( in
thousands).
31 March 97 Page 6
Center Bancorp, Inc. Form 10-K
1 Year 1 - 5
(Dollars in thousands) or less Years Total
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Commercial $ 19,969 $ 5,981 $ 25,950
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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 1996, average
total loans comprised 28.02 percent of average interest-earning assets. The
Corporation has experienced a compound growth rate in average loans since
1994 of 44.2 percent. Average loans amounted to $107.9 million in 1996,
$95.2 million in 1995 and $72.8 million 1994. 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 marketing and business development efforts.
Average commercial loans rose $3.4 million or 44.2 percent in 1996 as
compared with 1995. The Corporation seeks to create growth in commercial
lending by offering new products, lowering pricing and capitalizing on the
positive trends in its market area. Specialized products are offered to
meet the financial requirements of the Corporation's clients. It is the
objective of the Corporation's credit procedures to diversify the
commercial loan portfolio to limit concentrations in any single industry.
The Corporation's 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 $71.6 million in 1996, increased
$1.7 million or 2.43 percent as compared with average mortgage loans of
$69.9 million in 1995 (reflecting an 8.18 percent increase over 1994). The
Corporation's long-term mortgage portfolio includes both residential and
commercial financing. Growth during the past two years largely reflected
brisk activity in mortgage financing. Although a portion of the
Corporation's commercial mortgages adjust to changes in the prime rate,
most of these loans and residential mortgage loans have fixed interest
rates.
Residential loans increased steadily since 1994, but began to slow
considerably in the beginning of 1995 as economic interest rates began to
rise in 1995. During 1996 growth increased as rates stabilized.
Construction loans and other temporary mortgage financing increased on
average by $1.0 million to $14.6 million in 1996. Such loans grew an
average by $ 1.2 million from 1994 to 1995. The growth in construction and
other temporary mortgage lending has been generated by increased
residential and commercial development throughout New Jersey. Interest
rates on such mortgages are generally tied to key short-term market
interest rates. Funds are typically advanced to the builder or developer
during various stages of construction and upon completion of the project 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, home equity
loans, home improvement loans and secondary mortgages, as well as financing
for automobiles and other vehicles. Such loans averaged $14.2 million in
1996, as compared with $7.0 million in 1995 and 6.2 million in 1994. The
growth in loans to individuals, during 1996, was buoyed by increases in
automobile loans, while fixed rate home equity loans comprised the majority
of the growth in 1996. Home equity loans, which the Corporation began
actively promoting in 1994 and 1995 , as well as traditional secondary
mortgage loans, have become popular with consumers due to their tax
advantages over other forms of consumer borrowing vehicles. Home equity
loans and secondary mortgages averaged $15.3 million in 1996. At the end of
1996, automobile loans amounted to 60.8 percent of total loans to
individuals excluding home equity and secondary mortgage financing.
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.
31 March 97 Page 7
Center Bancorp, Inc. Form 10-K
At December 31, 1996, the Corporation has total unused lending commitments
outstanding of $23.9 million, of which approximately 66.8 percent and 9.2
percent were for commercial loans and construction loans, respectively.
Credit risks are an inherent part of the lending function. The Corporation
has set in place specific policies and guidelines to limit credit risks to
the degree possible. The following describes the Corporation's credit
management policy and describes certain risk elements in its earning assets
portfolio.
CREDIT MANAGEMENT. The maintenance of comprehensive and effective credit
policies is a paramount objective of the Corporation. Credit procedures are
enforced at each individual branch office and are maintained at the senior
administrative level as well as through internal control procedures.
Prior to extending credit, the Corporation's credit policy generally
requires a review of the borrower's credit history, collateral and purpose
of each loan. Requests for most commercial and financial loans are to be
accompanied by financial statements and other relevant financial data for
evaluation. After the granting of a loan or lending commitment, this
financial data is typically updated and evaluated by the credit staff on a
periodic basis for the purpose of identifying potential problems.
Construction financing requires a periodic submission by the borrowers of
sales/leasing status reports regarding their projects, as well as, in some
case, inspections of the project sites by independent engineering firms.
Advances are normally made only upon the satisfactory completion of
periodic phases of construction.
Certain lending authorities are granted to loan officers based upon each
officer's position and experience. However, large dollar loans and lending
lines are reported to and are subject to the approval of the Bank's loan
committee and/or board of directors. Loan committees are chaired by either
the president or a senior officer of the Bank.
Real Estate lending policies must include changes implemented by FDICIA,
more specifically the requirement to monitor and report the aggregate of
any loans with loan-to-value ratios in excess of the supervisory limits set
forth in the Interagency Guidelines for Real Estate Lending Policies. The
Corporation has established 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%
1 to 4 Family Residential 85%
Improved Property 85%
Owner-occupied 1 to 4 family and home equity **
* Multifamily construction includes condominiums and cooperatives.
** A loan-to-value limit has not been established for permanent mortgage
or home equity loans on owner-occupied, 1 to 4 family residential
property. However, for any such loan with a loan-to-value ratio that
equals or exceeds 90 percent at origination, an institution 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
31 March 97 Page 8
Center Bancorp, Inc. Form 10-K
Board of Directors. Non-conforming loans should not exceed 100% of capital,
with a 30% sublimit for non 1 to 4 family residential loans.
Collateral margin guidelines are based on cost, market, or other appraised
value to maintain a reasonable amount of collateral protection in relation
to the inherent risk in the loan. This does not mitigate the 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 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.
Loans accounted for on a non-accrual basis at December 31, 1996, 1995,
1994, 1993, and 1992 are as follows.
(Dollars in thousands) 1996 1995 1994 1993 1992
=======================================================================
Mortgage Real Estate $ 298 $ 0 $ 0 $ 0 $ 0
Commercial 0 0 0 0 0
Installment 0 0 0 0 0
=======================================================================
Net loans $ 298 $ 0 $ 0 $ 0 $ 0
=======================================================================
31 March 97 Page 9
Center Bancorp, Inc. Form 10-K
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) 1996 1995 1994 1993 1992
===========================================================================
Commercial $ 11 $ 0 $ 0 $ 0 $ 0
Installment 110 48 0 5 23
===========================================================================
Net loans $ 121 $ 48 $ 0 $ 5 $ 23
===========================================================================
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, 1996 that have not been identified and
classified. Such loans, consisting of other assets especially mentioned and
substandard loans, amounted to $994,000 and $942,000, respectively, at
December 31, 1996. At December 31, 1995 these loans amounted to $994,000
and $942,000 respectively.
The Corporation has no foreign loans.
As of December 31, 1996, $8.2 million of the commercial loan portfolio, or
31.6 percent of $25.9, represents outstanding working capital loans to
various real estate developers. All but $2.8 million of these loans are
secured by mortgages on land and on buildings under construction.
III. ALLOWANCE FOR LOAN LOSSES
Implicit in the lending function is the fact that loan losses will be
experienced and that the risk of loss will vary with the type of loan being
made, the creditworthiness of the borrower and prevailing economic
conditions. The allowance for loan losses is at the maximum amount
allowable for Federal income tax purposes and has been allocated below
according to the estimated amount deemed to be reasonably necessary to
provide for the possibility of losses being incurred within the following
categories of loans at December 31, for each of the past five years. The
following table shows, for three types of loans, the amounts of the
allowance allocable to such loans and the percentage of such loans to total
loans. The percentage of loans to total loans is based upon the
classification of loans shown in Table II-A (Types of Loans) on page 6 of
this report.
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) % % %
===================================================================================================================
1996 $415 21.9 $220 66.1 $62 12.0 $596
1995 $467 21.7 $187 71.2 $22 7.1 $397
1994 $399 20.2 $185 72.8 $55 7.0 $434
1993 $408 23.4 $140 69.4 $87 7.2 $308
1993 $358 27.8 $174 65.1 $77 7.1 $212
IV. DEPOSITS
Information regarding average amounts/rates of deposits is incorporated by
reference to page 31 of the 1996 Annual Report. Information regarding the
amount of time certificates of deposits of $100,000 or more is presented on
page 28 of the 1996 annual report.
31 March 97 Page 10
Center Bancorp, Inc. Form 10-K
V. RETURN ON EQUITY AND ASSETS
Information regarding the return on average assets, return on average
equity and dividend payout ratio is incorporated by reference to pages 10
and 11 of the 1996 Annual Report. Return on average assets was 1.00
percent, 1.15 percent and 1.27 percent for the years ended December 31,
1996, 1995 and 1994, respectively. The dividend payout ratio was 43.0
percent, 44.0 percent and 41.0 percent for the years ended December 31,
1996, 1995, and 1994, respectively.
VI. SHORT-TERM BORROWINGS
Information regarding the amount outstanding of short-term borrowings is
incorporated by reference to page 28 of the 1996 Annual Report.
ITEM 2--PROPERTIES
- --------------------------------------------------------------------------------
The Bank's operations are located at six sites in Union Township, one in
Springfield Township, one in Berkeley Heights, and one in Vauxhall, Union
County, New Jersey. The Bank also has one site in Madison, 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.
All but four of the thirteen locations are owned by the Bank. The lease of
the Five Points Branch located at 356 Chestnut Street, Union, New Jersey
expires November 30, 1997 and is subject to renewal at the Bank's option.
The Career Center Branch located in Union High School expires December 31,
2002 and is also subject to renewal at the Bank's option and the lease of
the Madison office located at 300 Main Street, Madison, New Jersey expires
June 6, 2005 and is subject to renewal at the Bank's option. The lease of
the Millburn Mall Branch located at 2933 Vauxhall Road, Vauxhall, New
Jersey expires January 31, 1997 and is subject to renewal at the Bank's
option. (See the back inside cover of the 1996 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.
ITEM 3--LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Not applicable.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
The Corporation had no matter submitted to a vote of security holders
during the fourth quarter of 1996.
ITEM 4--AEXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The following table sets forth the name and age of each executive officer
of the Parent Company, the period during which each such person has served
as an officer of the Parent Company or the Bank and each such person's
business experience (including all positions with the Parent Company and
the Bank) for the past five years:
31 March 97 Page 11
Center Bancorp, Inc. Form 10-K
Name and Age Officer Since Business Experience
=================================================================================================
John J. Davis 1982 the Parent Company: President & Chief Executive Officer
Age - 54 1977 the Bank of the Parent Company and the Bank
Donald Bennetti 1996 the Parent Company: Vice President of the Parent Company
Age - 53 1993 the Bank Vice President of the Bank
Anthony C. Weagley 1996 the Parent Company: Vice President & Treasurer of the Parent
Age - 35 1985 the Bank Company Senior Vice President & Cashier
(1996-Present),Vice President & Cashier
(1991 - 1996) and Assistant Vice President
prior years of the Bank
PART II
ITEM 5--MARKET INFORMATION FOR THE REGISTRANT'S STOCK AND RELATED
STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The information required by Item 5 of Form 10-K appears on page 30 of the
1996 Annual Report and is incorporated herein by reference. As of December
31, 1996, there were 629 holders of record of the Parent Company's Common
Stock.
ITEM 6--SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The information required by Item 6 of Form 10-K appears on pages 10 - 11 of
the 1996 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 12-31 of
the 1996 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 32-52 of
the 1996 Annual Report and is incorporated herein by reference.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
- --------------------------------------------------------------------------------
None
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 1997 Annual Meeting of Stockholders.
31 March 97 Page 12
Center Bancorp, Inc. Form 10-K
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 1997 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 1997 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 1997 Annual Meeting of Stockholders.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8 -K
- --------------------------------------------------------------------------------
A1. Financial Statements
Page in Annual Report
---------------------
Consolidated Statements of Condition -December 31, 1996, and 1995 32
--------------------------------------------------------------------------------------------
Consolidated Statements of Income for the years ended December 31, 1996, 33
1995 and 1994
--------------------------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity for the years 34
ended December 31, 1996, 1995 and 1994
--------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 35
1995 and 1994
--------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements 36-52
--------------------------------------------------------------------------------------------
Report of Independent Auditors 53
--------------------------------------------------------------------------------------------
A2. Financial Statement Schedules
All Schedules have been omitted as inapplicable, or not required, or
because the required information is included in the Consolidated Financial
Statements or the notes thereto.
A3. Exhibits
3.1 Certificate of Incorporation of the Registrant is incorporated by
reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992
3.2 Bylaws of the Registrant is incorporated by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992
31 March 97 Page 13
Center Bancorp, Inc. Form 10-K
10.1 Employment agreement between the Registrant and Don Bennetti.
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 10.3 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 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
10.8 Agreement and Plan of Merger, by and between the Registrant and Lehigh
Savings Bank, SLA., dated as of February 14, 1996, as amended is
incorporated by reference to exhibit 2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995
10.9 Inducement Agreement, dated February 14, 1996 by and between the
Registrant and the trustee under a trust agreement applicable to the
majority shareholder of Lehigh Savings Bank, SLA is incorporated by
reference to exhibit 10.2 of the Registrant's for 10Q for the period ended
March 31, 1996.
11.1 Statement regarding computation of per share earnings is omitted
because the computation can be clearly determined from the material
incorporated by reference in this Report.
13.1 Registrant's Annual Report to Shareholders for the year ended December
31, 1995 (parts not incorporated by reference are furnished for information
purposes only and are not to be deemed to be filed herewith.)
21.1 Subsidiaries of the Registrant is incorporated by reference to exhibit
22.1 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
B. Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the fourth
quarter of 1996.
31 March 97 Page 14
Center Bancorp, Inc. Form 10-K
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 31, 1997
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
/s/ PAUL LOMAKIN, JR. /s/ STAN R. SOMMER
- ---------------------------------- -----------------------------------
Paul Lomakin, Jr. Stan R. Sommer
Director Director
/s/ WILLIAM THOMPSON /s/ ANTHONY C. WEAGLEY
- ---------------------------------- -----------------------------------
William Thompson Anthony C. Weagley
Director Vice President & Treasurer (Chief
Accounting and Financial Officer)
31 March 97 Page 15
Center Bancorp, Inc. Form 10-K
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
13.1 Registrant's Annual Report to Shareholders for the year
ended December 31, 1995 (parts not incorporated by
reference are furnished for information purposes only and
are not to be deemed to be filed herewith.)
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule