10-K 1 0001.txt ANNUAL REPORT 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. -------------------------------------------------------------------------------- (exact name of registrant as specified in its charter) New Jersey 52-1273725 -------------------------------------------------------------------------------- (State or other jurisdiction of IRS Employer incorporation or organization) identification No.) 2455 Morris Avenue, Union, NJ 07083-0007 -------------------------------------------------------------------------------- (Address of Principal Executive Offices, Including Zip Code) (908) 688-9500 -------------------------------------------------------------------------------- (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 --------------------------------------- Common stock no par value 3,736,379 shares Parts of Form 10-K in which Documents Incorporated by reference document is incorporated ----------------------------------- ------------------------ 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 -------------------------------------------------------------------------------- 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 --------------------------------------------------------------------------------------------------------------------------------- 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% --------------------------------------------------------------------------------------------------------------------------------- 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% ---------------------------------------------------------------------------------------------------------------------------------
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 ----------------------------------------------------------------------------------------------- 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 ----------------------------------------------------------------------------------------------- Total $ 17,629 $ 17,774 -----------------------------------------------------------------------------------------------
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 ------------------------------------------------------------------------------------------------------------------------------ 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 ------------------------------------------------------------------------------------------------------------------------------ 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 ------------------------------------------------------------------------------------------------------------------------------ Net total $ 197,294 $ 167,666 $ 148,773 $ 131,155 $ 116,537 ------------------------------------------------------------------------------------------------------------------------------
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