SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1995 OR
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 (I.R.S. Employer
incorporation or organization) Identification No.)
2455 Morris Avenue, Union, New Jersey 07083
____________________________________________________________
(Address of principal executives offices) (Zip Code)
(908) 688-9500
____________________________________________________________
(Registrant's telephone number, including area code)
____________________________________________________________
(Former name, former address nd former fiscal year,
if changed since last report)
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] No
Shares outstanding on September 30, 1995
Common stock no par value - 1,480,256 shares
CENTER BANCORP, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item I. Financial Statements
Consolidated Statements of Condition
at September 30, 1995 (Unaudited)
and December 31, 1994 2
Consolidated Statements of Income
Three and Nine Months Ended September
30, 1995 and 1994 (Unaudited) 3
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994
(Unaudited) 4
In the opinion of Management, all adjustments
necessary for a fair presentation of the financial
position and results of operations for the interim
periods have been made. Such adjustments are of a
normal recurring nature. Results for the period
ended September 30, 1995 are not necessarily
indicitive of results for any other interim period
or for the entire fiscal year. Reference is made
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 for information
regarding accounting principles.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5-12
PART II. OTHER INFORMATION 13
SIGNATURES 14
Consolidated Statement of Condition
September 30, December 31,
1995 1994
Assets: (Dollars in Thousands)
Cash and due from banks $ 18,756 $ 16,556
Federal funds sold 0 1,000
Securities purchased under agreement to resell 0 749
Total cash and cash equivalents 18,756 18,305
______ ______
Investment securities held to maturity
(approximate market value of
$175,554 in 1995 and $153,642 in 1994) 175,398 166,618
Investment securities available for sale 68,637 40,865
_______ _______
Total investment securities 244,035 207,483
Loans, net of unearned income 98,769 88,805
Less - Allowance for loan losses 1,067 1,073
______ ______
Net loans 97,702 87,732
Premises and equipment, net 7,497 7,443
Accrued interest receivable 3,913 3,938
Other assets 414 212
Total assets $ 372,317 $ 325,113
_______ _______
Liabilities
Deposits:
Non-interest bearing 61,493 $ 56,872
Interest bearing:
Certificates of deposit $100,000 and over 76,790 10,308
Other 205,440 222,995
_______ _______
Total deposits 343,723 290,175
Federal funds purchased and securities
sold under agreement to repurchase 0 9,745
Accounts payable and accrued liabilities 1,766 982
_______ _______
Total liabilities $ 345,489 300,902
Stockholder's equity
Common stock, no par value:
Authorized 20,000,000 shares; issued
1,677,587 and 1,600,000
shares in 1995 and 1994 4,128 3,967
Appropriated surplus 3,510 3,510
Retained earnings 20,827 19,103
______ ______
28,465 26,580
Less - Treasury stock at cost
(199,368 shares in 1995 1,814 1,814
and 1994, respectively)
Unrealized gain (loss) on investment
securities available-for-sale,
net of taxes 177 (555)
______ ______
Total stockholders' equity 26,828 24,211
Total liabilities and stockholders'
equity ________ _______
$ 372,317 $ 325,113
Center Bancorp, Inc.
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(in thousands, except per share data)
Interest income:
Interest and fees on loans $ 1,937 $ 1,445 $ 5,573 $ 4,048
Interest and dividends on
investment securities
Taxable interest income 3,177 2,998 9,300 8,569
Nontaxable interest income 323 401 1,055 1,299
Interest on Federal funds sold 37 12 105 31
_____ _____ ______ ______
Total interest income 5,474 4,856 16,033 13,947
_____ _____ ______ ______
Interest expense:
Interest on certificates of 712 132 1,880 233
deposit $100,000 or more
Interest on other deposits 1,494 1,354 4,517 3,981
Interest on short-term
borrowings 0 41 93 47
_____ _____ _____ _____
Total interest expense 2,206 1,527 6,490 4,261
_____ _____ _____ _____
Net interest income 3,268 3,329 9,543 9,686
Provision for loan losses 0 0 0 10
_____ _____ _____ _____
Net interest income after
provision for loan losses 3,268 3,329 9,543 9,676
Other income:
Service charges, commissions
and fees 122 136 379 427
Other income 28 27 161 79
Gain on securities sold 0 0 17 0
___ ___ ___ ___
Total other income 150 163 557 506
___ ___ ___ ___
Other expense:
Salaries and employee benefits 992 931 3,098 2,839
Occupancy expense, net 180 184 520 584
Premises and equipment expense 211 182 593 500
Stationery and printing expense 57 71 208 263
FDIC Insurance expense (17) 163 308 486
Other expenses 368 405 1,201 1,308
Total other expense 1,791 1,936 5,928 5,980
_____ _____ _____ _____
Income before income tax
expense 1,627 1,556 4,172 4,202
Income tax expense 486 421 1,117 1,014
_____ _____ _____ _____
Net income $ 1,141 $ 1,135 $ 3,055 $ 3,188
===== ===== ===== =====
Earnings per share:
* (on 1,477,504 average shares
outstanding in 1995, and
1,473,413 in 1994)
Net income $ 0.77 $ 0.77 $ 2.07 $ 2.16
====== ===== ==== ====
Consolidated Statements of Cash Flows
September 30, 1995
(Dollars in thousands) 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,055 $ 3,188
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 539 476
Provision for loan losses 0 10
(Increase and decrease) in accrued 25 (353)
interest receivable
(Increase) in other assets (202) (92)
Increase (decrease) in other
liabilities 498 (901)
Amortization of premium and accretion
of discount on investment securities, net 507 703
_____ _____
Net cash provided by operating activities 4,422 3,031
_____ _____
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment 6,612 2,013
securities available-for-sale
Proceeds from maturities of investment 35,284 34,190
securities held-to-maturity
Proceeds from sales of investment 1,029 0
securities available-for-sale
Purchase of investment securities (4,550) (4,729)
available-for-sale
Purchase of investment securities held- (74,416) (34,829)
to-maturity
Net decrease in loans (9,970) (12,752)
Property and equipment expenditures, net (593) (704)
______ _______
Net cash used in investing activities (46,604) (16,811)
_______ ______
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 53,548 3,347
Dividends paid (1,331) (1,288)
Proceeds from issuance of common stock 161 116
Net decrease in short term borrowings (9,745) 0
______ _____
Net cash provided by financing activities 42,633 2,175
______ _____
Net (increase and decrease) in
cash and cash equivalents 451 (11,605)
Cash and cash equivalents at beginning of period 18,305 35,676
Cash and cash equivalents at end of period $ 18,756 $ 24,071
______ ______
Supplemental disclosures of cash flow
information:
Interest paid on deposits and short-term
borrowings $ 4,220 $ 4,241
Income taxes $ 990 $ 898
Transfers from securities held-to-maturity
to securities available-for-sale $ 0 $ 63,244
Management's Discussion & Analysis of Financial Condition
and Results of Operations
Net income for the nine months ended September 30, 1995 declined 4.17
percent to $3,055,000 as compared to $3,188,000 earned for the
comparable nine month period of 1994. On a per share basis, earnings
declined 3.70 percent to $2.07 as compared to $2.16 earned for the nine
months ended September 30, 1994. The annualized return on average
assets was 1.18 percent for the nine months ended September 30, 1995 as
compared with 1.31 percent for the comparable period ended September 30,
1994, while the annualized return on average stockholders' equity was
15.7 percent and 18.1 percent, respectively. Earnings performance for
the nine months ended September 30, 1995 reflected narrowed net interest
margins partially offset by a decline in noninterest expense.
Net income for the three months ended September 30, 1995 amounted to
$1,141,000 as compared to $1,135,000 earned for the comparable period of
1994. On a per share basis, earnings remained consistent at 2.99
percent to $.77 per share for both the three month periods in 1995 and
1994, respectively. The annualized return on average assets was 1.29
percent for both of the three month periods ended September 30, 1995 and
1994, while the annualized return on average stockholders' equity for
both such periods was 17.1 percent. Earnings performance for the three
months ended September 30, 1995 reflected the effects of narrowed net
interest margins offset by a decrease in noninterest expense.
Net interest income is the difference between the interest earned on the
portfolio of earnings assets (principally loans and investments) and the
interest paid for deposits and short-term borrowings which support these
assets. Net interest income is presented below first in accordance with
the Company's consolidated financial statements and then on a fully tax-
equivalent basis by adjusting tax-exempt income (primarily interest
earned on various obligations of state and political subdivisions) by
the amount of income tax which would have been paid had the assets been
invested in taxable issues.
<TABLE>
Net Interest Income
(dollars in thousands)
Three months ended Nine months ended
September 30, Percent September 30, Percent
Change Change
1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Investments $ 3,500 $ 3,399 3.0 $ 10,355 $ 9,868 4.9
Loans, including fees 1,937 1,445 34.0 5,573 4,048 37.7
Federal funds sold 37 12 208.3 105 31 238.7
Total interest income 5,474 4,856 12.7 16,033 13,947 15.0
Interest expense:
Certificates $100,000
or more 712 132 439.4 1,880 233 706.9
Deposits 1,494 1,354 10.3 4,517 3,981 13.5
Short-term borrowings 0 41 - 100.0 93 47 97.9
Total interest expense 2,206 1,527 44.5 6,490 4,261 52.3
NET INTEREST INCOME* 3,268 3,329 -1.8 9,543 9,686 -1.5
Tax-equivalent adjustment 166 206 -19.4 543 669 -18.8
Net interest income on a fully
tax-equivalent basis $ 3,434 $ 3,535 -2.9 $ 10,086 $ 10,355 -2.6
</TABLE>
*Before the provision for loan losses. NOTE: The tax-equivalent
adjustment was computed based on an assumed statutory Federal income tax
rate of 34 percent. Adjustments were made for interest accrued on
securities of state and political subdivisions.
Net interest income on a fully tax-equivalent basis for the nine months
ended September 30, 1995 declined $269,000 or 2.60 percent as compared
with the nine months ended September 30, 1994. This change was due
primarily to a decrease in the Corporation's net interest margin. There
was a greater increase in average interest rates on interest-bearing
deposit liabilities, 103 basis points, than the increase in the
corresponding average yield on interest-earning assets, 41 basis points.
For the three months ended September 30, 1995, net interest income on a
fully tax-equivalent basis declined $101,000 or 2.86 percent over the
comparable period in 1994. This decline was primarily due to a
compression of margins. Average interest rates on interest-bearing
liabilities increased by 91 basis points while the average yield on
interest-earning assets increased by only 34 basis points.
Interest income on a fully tax-equivelent basis increased by $1,960,000
or 13.4 percent for the first nine months of 1995, as compared with the
nine months ended September 30, 1994. A key factor in this change was
the increased income from the loan portfolio, reflecting an increase in
the average loan volume. This was offset in part by the decrease in the
average volume of tax-exempt investment securties carried in the
investment portfolio as compared with the nine month period ended
September 30, 1994.
For the three months ended September 30, 1995, interest income on a
fully tax-equivelent basis increased by $578,000 or 11.4 percent as
compared with the three months ended September 30, 1994. This change
was primarily due to an increase in loan income reflecting the increase
in average loan volume, offset in part by a decrease in the average
volume of tax-exempt investment securities as compared with the
comparable three month period ended September 30, 1994
For the nine months ended September 30, 1995 average loan volume
increased $25.5 million while the portfolio yield increased by 8 basis
points, compared with the nine months ended September 30, 1994. Total
average loan volume increased to $94.4 million and the net interest
yield of 7.97 percent during the first nine months of 1995, as compared
to $68.9 million with a yield of 7.89 percent for the nine-month period
ended September 30, 1994. The decrease in yield was a result of a
competitive rate structure to attract loan business in the market
coupled with some continued refinancing activity in the mortgage
portfolio.
For the three months ended September 30, 1995 total average loan volume
increased by $23.5 million to $94.4 million with a net interest yield of
7.93 percent as compared to $74.1 million with an average yield of 7.98
percent for the nine month period ended September 30, 1994. The
decrease in yields during the third quarter was a result of a continued
lag in loan pricing despite the level of the current prime, discount,
and the 30-Year Treasury indicies coupled with the continued refinancing
activity in the loan portfolio.
Changes in the composition of interest-earning assets, (which overall
remained stable at a level of 92 percent of total assets, for the three
and nine months ended September 30, 1995), were primarily in increased
volumes of loans and investments. Although there was a favorable change
in the asset mix the current rate environment reflects the effects of
narrower spreads in comparison with prior periods.
Interest expense increased sharply during the first nine months of 1995,
primarily as a result of rising funding costs as market rates climbed
and banks became more competitive as a result of these deposit pricing
pressures. For the nine months ended September 30, 1995, interest
expense increased by $2,229,000 or 52.3 percent as compared with the
nine months ended September 30, 1994. The average cost of funds
increased by 81 basis points changes in the liability mix, (i.e.,
increased volumes of more costly interest-bearing liabilities). The
growth in interest-bearing liabilities has been primarily in jumbo
certificates of deposit and interest rate sensitive public fund
deposits.
For the three months ended September 30, 1995 interest expense increased
by $679,000 or 44.5 percent as compared with the comparable three month
period ended September 30, 1994. The current trend in the cost of funds
as reflected by the 72 basis point increase in the average cost of funds
reflects the pressure on core deposit rates , as well as, general
funding costs. The rate increases made by the Federal Reserve during
the second quarter coupled with inflation fears pushed short-term
interest rates higher. This in turn effected the cost of funds
associated with a number of the Bank's funding products, i.e. municipal
deposits tied to the Federal funds index, Jumbo Certficates of Deposit,
and short-term repurchase agreements. During the third quarter the
pressure on short-term rates remained consistent despite a subsequent
rate cut by the Federal Reserve. This cut had little impact on Short-
Term Funding Costs.
For the nine months ended September 30, 1995, the Corporation's net
interest spread on a tax-equivelent basis (i.e. the average yield on
average interest-earning assets, calculated on a tax-equivelent basis,
minus the average rate paid on interest-bearing liabilities) declined to
3.58 percent annualized as compared to 4.20 percent annualized for the
nine months ended September 30, 1994. The decline was primarily due to
a narrowing of spreads between yields earned on loans and investments
and rates paid for supporting funds. As previously noted, there was a
favorable change in the mix of interest-earning assets, primarily the
increased loan volumes however, this was offset by a change in the mix
of interest-bearing liabilities to more costly funding.
The contribution of noninterest-bearing sources (i.e. the differential
between the average rate paid on all sources of funds and the average
rate paid on interest-bearing sources) increased favorably from 44 basis
points during the first nine months of 1994 to 66 basis points during
the first nine months of 1995. This change has helped to absorb some
pressure on margins.
Short-term borrowings can be used to satisfy daily funding needs.
Balances in these accounts fluctuate significantly on a day-to-day
basis. The Corporation's principal short-term funding sources are
securities sold under agreement to repurchase. Average short-term
borrowings during the first nine months of 1995 were $2.2 million, an
increase from $1.5 million in average short-term borrowings during the
comparable nine months ended September 30, 1994. This change was due to
insufficient funding liquidity from deposit activity
I n v e s t m e n t s
The average volume of investment securities increased by $2.4 million
for the nine month period ended September 30, 1995, as compared to the
comparable period ended September 30, 1994. The tax-equivalent yield on
investments increased to 6.48 percent or by 21 basis points from a yield
of 6.27 percent during the nine month period ended September 30, 1994.
The increase in yields on the investment portfolio was due to higher
market rates on purchases made to replace investments which had matured.
The impact of repricing activity on yields was lessened by shorter
investment maturities sought and the current disparity in the yield
curve, resulting in narrowed spreads, due to the change in investment
strategies brought about by the current uncertainty of rates.
Securities available-for-sale are a part of the Corporation's interest
rate risk management strategy and may be sold in response to changes in
interest rates, changes in prepayment risk, liquidity management and
other factors.
At September 30, 1995, the net unrealized gain carried as a component of
shareholders' equity amounted to $177,000. The change in market value is
a direct result of the change in interest rates that has occured since
December 31, 1994, coupled with the volume changes in the portfolio.
At September 30, 1995, the total investment portfolio excluding
overnight investments, was $200.6 million, or 63.9 percent of earning
assets, as compared to $207.5 million or 66.2 percent at December 31,
1994. The principal components of the investment portfolio are U.S.
Government Treasury and Federal Agency and Agency-backed securities.
Other Noninterest Income
The following table presents the principal categories of noninterest
income for each of the three and nine month periods ended September 30,
1995 and 1994.
(dollars in thousands)
<TABLE>
Three months ended Nine months ended
September 30, September 30,
1995 1994 % change 1995 1994 % change
<S> <C> <C> <C> <C> <C>
Other income:
Service charges,
commissions and fees $ 122 $ 136 -10.3% $ 379 $ 427 -11.2%
Other income 28 27 3.7% 161 79 103.8%
Gain on securities sold 0 0 170.0% 17 0 170.0%
___ ___ _____ ___ ___ _____
Total other income $ 150 $ 163 -8.0% $ 557 $ 506 10.1%
==== === ===== === === =====
</TABLE>
For the first nine months of 1995, total other (noninterest) income, net
of gains on securities sold, reflects a increase of $34,000 or 6.72
percent compared to the nine months ended September 30, 1994. Of the
decrease of $48,000 reflected in service charges, commissions and fees
$21,000, is a result of free service offerings as part of an aggresive
marketing campaign. The remaining decline is a result of a decline in
business activity. The increase of $69,000 reflected in other income is
due to a dividend paid on insurance.
For the three months ended September 30, 1995, total other (noninterest)
income, net of gains on securities sold, decreased $13,000 or 8.0
percent percent as compared to the three months ended September 30,
1994. The decline in service charges, commissions and fees is
primarily a result of a decline in business activity.
Other Noninterest Expense
The following table presents the principal categories of noninterest
expense for each of the three and nine month periods ended September 30,
of 1995 and 1994.
<TABLE>
(dollars in thousands Three months ended Nine months ended
September 30, September 30,
<S> <C> <C> <C> <C> <C> <C>
Other expense: 1995 1994 % change 1995 1994 % change
Salaries and employee benefits $ 992 $ 931 13.0% $ 3,098 $ 2,839 11.2%
Occupancy expense, net 180 184 -2.2% 520 584 -11.0%
Premise & equipment expense 211 182 15.9% 593 500 18.6%
Stationery and printing expense 57 71 -19.7% 208 263 -20.9%
FDIC Insurance expense (17) 163 -110.4% 308 486 -36.6%
Other expenses 368 405 -9.1% 1,201 1,308 -8.2%
______ _____ _____ _______ _____ ____
Total other expense $ 1,791 $ 1,936 -4.4% $ 5,928 $ 5,980 0.1%
====== ===== ==== ======= =====
</TABLE>
For the nine month period ended September 30, 1995, total other
(noninterest) expenses decreased $52,000 or .87 percent over the
comparable nine months ended September 30, 1994. For the three months
ended September 30, 1995 total other noninterest expense decreased
$145,000 or 4.4 percent over the comparable three month period in 1994.
Salaries and employee benefits accounted for the majority of the total
increase for both periods. The primary factor contibuting to the
overall decline was the rebate of previously paid FDIC insurance
assessments.
Salaries and employees benefits increased $259,000 or 9.1 percent in
1995 over the comparable nine month period ended September 30, 1994.
This increase is primarily attributed to increases arising from merit
and promotional raises and higher benefit costs. Furthermore, staffing
levels overall amounted to 139 at September 30, 1995 as compared to 125
full time equivalent employees at September 30, 1994 respectively.
For the three months ended September 30, 1995, salaries and employees'
benefits increased by $61,000 or 6.55 percent. This change is also
primarily attributable to the staffing increases as discussed above.
Occupancy and bank premise expense for the nine month period ended
September 30, 1995 increased only $29,000 or 2.67% as compared with the
nine months ended September 30, 1994. The stabilization in occupancy
expense reflect the mild weather conditions experienced in 1995 as
compared to 1994, while the increased bank premise and equipment
expenses were primarily a result of increased repair and maintenance.
For the three months ended September 30, 1995, the increase of $33,000
in occupancy and premise expense is primarily related to increased
depreciation and related expenses, as compared with the three months
ended September 30, 1994.
During May of 1995, the Federal Deposit Insurance Corporation announced
that the Bank Insurance Fund had reached its targeted recapitalization
level of 1.25 percent. Therefore, under previously established mandates
established by Congress, the FDIC announced that it would lower bank
insurance premiums to 4 cents per $100.00 of deposits. The FDIC further
indicated that it would rebate to banks the excess premiums that had
been collected through the third quarter of 1995. Accordingly, the
Corporation received a rebate of approximately $189,000.00 during
September representing the excess premiums paid into the Bank Insurance
Fund from May of 1995 thru September 30, 1995. Effective with the
fourth quarter of 1995, the Corporation's new assessment rate will be 4
cents per $100.00 of deposits.
The decrease of $107,000 or 8.2 percent in other noninterest expenses
inclusive of stationery and printing expense and FDIC insurance expense
for the nine months ended September 30, 1995 over the comparable nine
month period in 1994, as well as the $37,000 or 9.1 percent change of
such expenses for the three months ended September 30, 1995 as compared
with the comparable three months of 1994 reflect a control of these
costs from year to year and the Corporation's focus on efficiency.
P r o v i s i o n f o r I n c o m e T a x e s
The effective tax rate for the nine month period ended September 30,
1995 increased to 26.7 percent as compared to 24.1 percent for the nine
months ended September 30, 1994. For the three months ended September
30, 1995 the effective tax rate increased to 29.7 percent compared to
27.1 percent for the comparable three months ended September 30, 1994.
The effective tax rate continues to be substantially less than the
statutory Federal tax rate of 34 percent. The difference between the
statutory and the effective tax rates primarily reflects the tax-exempt
status of interest income on obligations of states and political
subdivisions. The change for both the three and nine month periods
ended September 30, 1995 reflects an increase in State taxes paid and
decreased volumes of tax-exempt securities of states and political
subdivisions.
Risk Elements
The purpose of the allowance for loan losses is to absorb the impact of
losses inherent in the loan portfolio. Additions to the allowance are
made through provisions charged against current operations and through
recoveries made on loans previously charged-off. The level of the
allowance is determined at an amount that the Corporation believes is
adequate to cover losses in the loan portfolio. In establishing an
appropriate allowance, an assessment of the individual borrower, a
determination of the value of the underlying collateral, a review of
historical loss experience and an analysis of the levels and trends of
loan categories, delinquencies, and questionable loans are considered.
Such factors as the level and trend of interest rates and current
economic conditions are also reviewed. Additionally, various regulatory
agencies, as an integral part of their examination process, periodically
review the Corporation's allowance for such loan losses. Such agencies
may require the Corporation to increase the allowance based on their
judgments of information available to them at the time of their
examination. Historically, the Corporation's allowance for loan losses
has been more than adequate to meet the volume of charge-offs and
problem credits. At September 30, 1995, the allowance for loan losses
amounted to $1,067,000 or 1.08 percent of total loans. In management's
view, the level of the allowance was more than adequate to cover any
loss experience and therefore has not warranted any additions to the
allowance during 1995.
Changes in the allowance for possible loans losses for the period ended
September 30, 1995 and 1994, respectively, are set forth below.
A l l o w a n c e f o r l o a n l o s s e s
(in thousands)
Nine months ended September 30,
1995 1994
Average loans outstanding $ 92,755 $ 66,208
Total loans at end of period 98,769 78,506
Analysis of the allowance for loan losses
Balance at the beginning of year 1,073 943
Charge-offs:
Commercial 0 0
Real estate-mortgage 0 0
Installment loans 10 11
__ __
Total charge-offs 10 11
Recoveries:
Commercial 0 0
Real estate-mortgage 0 15
Installment loans 4 5
__ __
Total recoveries 4 20
Net Charge-offs: 6 (9)
Additions charged to Operations 0 10
_______ ___
Balance at end of period $ 1,067 $ 962
======= ====
Ratio of net charge-offs during the
period to average loans outstanding during
the period .56% .00%
____ ___
Allowance for loan losses as a
percentage of total loans 1.08% 1.39%
____ ____
A s s e t Q u a l i t y
The Corporation manages asset quality and credit risk by maintaining
diversification in its loan portfolio and through review processes that
include careful analysis of credit requests and ongoing examination of
outstandings and delinquencies, with particular attention to portfolio
dynamics. The Corporation strives to identify loans experiencing
difficulty early enough to correct the problems, to record charge-offs
promptly based on realistic assessments of current collateral values,
and to maintain an adequate allowance for loan losses at all times.
These practices have protected the Corporation during economic
downturns; the Corporation was not significantly impacted by the recent
extended recession.
It is generally the Corporation's policy to discontinue interest
accruals once a loan is past due as to interest/or principal payments
for a period of 90 days.
Effective January 1, 1995 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" and its subsequent amendment SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures."
SFAS No. 114, as amended, addresses the accounting for impaired loans
and requires that impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loans observable
market price or at the fair value of the collateral if the loan is
collateral dependent. At March 31, 1995 and September 30, 1995, SFAS
No. 114 impaired loans totaled $ 0 and related allowance for loan losses
was $ 0. The determination of impaired loans consisted of non-acccrual
loans and loans internally classified as substandard or below and in
each instance above an established dollar threshold. All loans below
the established dollar threshold are considered homogenous and are
considered in the Bank's normal credit evaluation process. The average
recorded investment in impaired loans for the first quarter of 1995 was
$ 0. Since the Company did not have any impaired loans and sufficiently
evaluates the adequacy of the allowance for loan losses, there was no
impact of adopting SFAS No. 114, as amended and did not have an effect
on the allowance for loan losses or the existing income recognition and
charge-off policies for nonperforming loans.
At September 30, 1995, the Corporation had no non-accrual or
restructured loans. Loans past due 90 days or more amounted to $42,000
and are comprised primarily of guaranteed student loans. Additionally,
the Corporation did not have any other real estate owned (OREO) at
September 30, 1995.
L i q u i d i t y
The liquidity position of the Corporation is dependent on successful
management of its assets and liabilities so as to meet the needs of both
deposit and credit customers. Liquidity needs arise principally to
accomodate possible deposit outflows and to meet customers' requests for
loans. Such needs can be satisfied by scheduled principal loan
prepayments, maturing investments and short-term liquid assets. Cash
flows at September 30, 1995 which provide the Bank with liquidity remain
strong with approximately $83.4 million in repayments and maturities
over the next 12 months.
The Corporation derives a significant proportion of its liquidity from
its stable core deposit base. For the nine month period ended September
30, 1995 average core deposits (comprised of total demand and savings
accounts plus money market accounts under $100,000) represented 72.6
percent of total deposits. More volatile rate sensitive deposits,
concentrated in Certificates of deposit $100,000 and greater comprised
on average during the first nine months of 1995 of 22.2 percent of total
deposits, as compared with percent during the first nine months of 1994.
This change has been brought about due to the sharp rise in short-term
rates during the first nine months of 1995.
The increase in funding sources during the nine months ended September
30, 1995 resulted primarily from an increase in business and public fund
deposits offset by a decrease of $9.7 million in Federal funds purchased
and securities sold under agreement to repurchase. Noninterest-bearing
funding sources as a percentage of the funding mix increased to 19.8
percent as compared to 18.8 percent for the nine month period ended
September 30, 1994. Demand deposits as a percentage of the funding mix
continue to be replaced by more expensive interest-bearing core
deposits.
The consolidated statements of cash flows present the changes in cash
and cash equivalents from operating, investing and financing activites.
During the nine months ended September 30, 1995, cash and cash
equivalents (which increased overall by $451,000) were provided (on a
net basis) by operating and financing activities and were used in part
in investing activities. The cash flow provided by the increase in
deposits supported the net increase in the investment portfolio at
period end, and supported the net increase in the loan portfolio. Cash
flow from operating activities resulted primarily from net income.
Shareholders' Equity and Dividends
S h a r e h o l d e r s ' E q u i t y
Shareholders' equity averaged $26.0 million for the nine month period
ended September 30, 1995, an increase of $2.5 million, or 10.6 percent,
as compared to 1994. The Corporation's dividend reinvestment and
optional stock purchase plan has raised $161,000 in new capital for the
nine months ended September 30, 1995. That plan together with internal
capital generation, may enhance the Corporation's equity position during
1995. Book value per common share was $18.12 at September 30, 1995 as
compared to $16.93 at September 30, 1994, as adjusted to reflect the 5%
stock dividend paid August 1, 1994.
C a p i t a l
The maintenance of a solid capital foundation continues to be a primary
goal for the Corporation. Accordingly, capital plans and dividend
policies are monitored on an ongoing basis. The most important
objective of the capital planning process is to balance effectively the
retention of capital to support future growth and the goal of providing
shareholders with an attractive long term return on their investment.
The Federal Reserve Board has established a minimum leverage test which
requires banking institutions to maintain a 3.00 percent minimum of Tier
I (defined as tangible Stockholders' Equity for common stock and
perpetual preferred stock) capital to total assets. The 3.00 percent
minimum applies only to the most highly rated banks. All other
institutions are expected to maintain an additional percentage of at
least 100 to 200 basis points above the minimum.
At September 30, 1995, Stockholders' Equity amounted to $26.8 million.
Total Tier I capital as a percentage of average total assets for the
nine months ended September 30, 1995 was 7.19 percent, as compared with
7.50 percent for the comparable nine month period in 1994. At September
30, 1995, total capital (defined as Tier I capital and Tier II capital,
which includes a portion of the Allowance for Loan Losses, certain
qualifying long term debt and preferred stock which does not qualify as
Tier I capital) as a percentage of total assets amounted to
approximately 7.48 percent.
United States bank regulators have additionally issued guidelines
establishing minimum capital standards related to the level of assets
and off balance-sheet exposures adjusted for credit risk. Specifically,
these guidelines categorize assets and off-balance sheet items into four
risk-weightings and require banking institutions to maintain a minimum
ratio of capital to risk weighted assets. At September 30, 1995, the
Company's estimated Tier I to risk-adjusted assets and total risk-based
capital ratios were 20.6 percent and 21.5 percent, respectively. These
ratios are well above the minimum guidelines (in effect as of June 30,
1994) of 4 percent for Tier I capital and the 8 percent minimum for the
aggregate of Tier I and Tier II capital to risk adjusted assets.
II. OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits
10.1 Employment agreement among Center Bancorp,
Inc.and Union Center National Bank and John J.
Davis as amended and restated
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the six
months ended September 30, 1995
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf, by
the undersigned, thereunto duly authorized.
CENTER BANCORP, INC.
DATE: November 10, 1995 /s/ Anthony C. Weagley
Anthony C. Weagley, Treasurer
(Chief Financial Officer)
