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 (Fee Required) for the fiscal year ended December 31, 1995.
__ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (no Fee Required) 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
(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 March 1, 1996 was approximately $47,513,280.
Shares outstanding on March 1, 1996
Common stock no par value - 1,484,790 shares
Parts of Form 10-K in which
Documents Incorporated by reference document is incorporated
Definitive proxy statement dated March 16, 1996,
in connection with the 1996 Annual Stockholders
Meeting filed with the Commission pursuant to
Regulation 14A......................................... Part III
Annual Report to Stockholders for the fiscal
year ended December 31, 1995........................... Part I and Part II
<PAGE>
INDEX TO FORM 10-K
PART I
ITEM 1 BUSINESS .................................................. 1
ITEM 2 PROPERTIES ................................................ 10
ITEM 3 LEGAL PROCEEDINGS ......................................... 10
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....... 10
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT ...................... 11
PART II
ITEM 5 MARKET FOR THE REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS .............................. 11
ITEM 6 SELECTED FINANCIAL DATA ................................... 11
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ...................... 11
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............... 11
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ....................... 11
PART III
ITEM 10 DIRECTORS OF THE REGISTRANT .............................. 12
ITEM 11 EXECUTIVE COMPENSATION ................................... 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT .......................................... 12
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........... 12
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K ..................................... 13
CONSENT OF ACCOUNTANTS ................................................. 15
SIGNATURES ............................................................. 16
<PAGE>
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 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 February 14, 1996, the Parent Company entered into an Agreement and Plan of
Merger (the "Agreement") with Lehigh Savings Bank, S.L.A. ("Lehigh") pursuant to
which a subsidiary of the Company will be merged with and into Lehigh, with
Lehigh being the surviving entity thereof (the "Merger"). Immediately following
the Merger, the Company will merge Lehigh with and into the Bank. Pursuant to
the terms of the Agreement, shareholders of Lehigh will receive a total of $6.0
million in cash upon consummation of the Merger (which will be accounted for as
a purchase). These transactions are subject to several conditions, including the
approval of various banking regulators. As of December 31, 1995, Lehigh (which
operates [three] banking offices in Union, New Jersey), had total assets,
deposits and stockholders' equity of approximately $73.8 million, $67.6 million
and $3.9 million, respectively.
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
29 March 96 Center Bancorp, Inc. Form 10-K Page 1
<PAGE>
and advisory companies. Many of the financial institutions operating in the
Corporation's primary market are substantially larger and offer a wider variety
of products and services than the Corporation.
The Parent 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
29 March 96 Center Bancorp, Inc. Form 10-K Page 2
<PAGE>
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 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 institution 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.
29 March 96 Center Bancorp, Inc. Form 10-K Page 3
<PAGE>
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and the Crime Control Act of 1990 expanded the enforcement powers
available to federal banking regulators, including providing greater flexibility
to impose enforcement action and increasing the potential civil and criminal
penalties.
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 $295.7 million
of deposits at December 31, 1995, with respect to which the Corporation pays
insurance premiums.
From the first three quarters of 1995, both SAIF-member institutions and
BIF-member institutions paid deposit insurance premiums based on a schedule from
$0.23 to $0.31 per $100 of deposits. In August, 1995, the FDIC in anticipation
of the BIF's imminent achievement of a required 1.25% reserve ratio, reduced the
deposit insurance premium rates paid by BIF-insured banks from a range of $0.23
to $0.31 per $100 of deposits to a range of $0.04 to $0.31 per $100 of deposits.
The new rate schedule for the BIF was made effective June 1, 1995. The FDIC
refunded to BIF-insured institutions the premiums they had paid for the period
beginning on June 1, 1995. On November 14, 1995, the FDIC voted to reduce annual
assessments for the semi-annual period beginning January 1, 1996 to the legal
minimum of $2,000 for BIF-insured institutions, except for the institutions that
are not well capitalized and are assigned to the higher supervisory risk
categories.
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 regulatoy 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 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 11 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)
29 March 96 Center Bancorp, Inc. Form 10-K Page 4
<PAGE>
Information regarding interest sensitivity is incorporated by reference to pages
23-24 of the 1995 Annual Report.
The gap results noted on pages 23-24 of the 1995 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 change 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 36 of the 1995 Annual Report to Shareholders (the "1995
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, 1995.
<TABLE>
<CAPTION>
Obligations
of U.S. Obligations
Treasury & of States
Government & Political Other
Agencies Subdivisions Securities Total
(Dollars in thousands)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in 1 year or less
Book Value $ 34,770 $ 7,583 $ 345 $ 42,698
Market Value 32,705 7,596 345 40,646
Average Yield 6.31% 5.99% 6.67% 6.26%
Due after one year through five
years
Book Value $ 86,787 $ 28,452 $ 2,550 $ 117,789
Market Value 97,451 28,894 2,588 128,933
Average Yield 6.30% 6.55% 6.73% 6.37%
Due after five years through ten
years
Book Value $ 38,693 $ 6,842 $ 2,977 $ 48,512
Market Value 31,592 6,960 2,980 41,532
Average Yield 7.36% 6.65% 6.78% 28.20%
No Maturity
Book Value - - 1,096 1,096
Market Value - - 1,096 1,096
Average Yield - - 5.12% 5.12%
----------------------------------------------------------------------------------------
Total
Book Value $ 160,250 $ 42,877 $ 5,872 $ 208,999
Market Value 161,748 43,450 5,913 211,111
Average Yield 6.56% 6.46% 6.75% 6.55%
=========================================================================================
</TABLE>
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 Note 3 of the Notes to
the Company's Consolidated Financial Statements.
II. LOAN PORTFOLIO
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 1995, average total
loans comprised 29.4 percent of average interest-earning assets. Growth in
lending in recent years has been strong as evidenced by a compound growth rate
in average loans since 1993 of 42.8 percent. Average loans amounted to $95.2
million in 1995, $72.8 million in 1994 and $66.7 million 1993. The composition
of Center Bancorp's loan portfolio continues to change due to the local economy.
29 March 96 Center Bancorp, Inc. Form 10-K Page 5
<PAGE>
Factors such as the economic climate, interest rates, real estate values and
employement all contribute to these changes. Loan growth has been generated
through marketing and business development efforts.
Average commercial loans of $21.3 million rose $2.6 million or 13.9 percent in
1995 as compared with 1994. The Corporation seeks to create growth in commercial
lending by offering new products, lowered 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 and 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, includes
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. The following table sets forth
average mortgage loans, which amounted to $69.9 million in 1995, increased $5.2
million or 8.2 percent as compared with a $66.7 million or 38.1 percent rise in
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. The
impact of real estate values has been steadily improving.
During the past three years, the Corporation has committed an increasing amount
of funds to the development of residential tracts and shopping centers.
Construction loans and other temporary mortgage financing increased on average
by $1.2 million to $13.6 million in 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 the loans are typically 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. Installment loans to individuals averaged $7.0
million in 1995, as compared with $6.2 million in 1994. The growth in loans to
individuals, particularly during 1995, was buoyed by increases in automobile
loans. 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 $13.2
million in 1995. At the end of 1995, automobile loans and leases amounted to
46.7 percent of total loans to individuals excluding home equity and secondary
mortgage financing. Interest rates on home equity loans are generally tied to
the prime rate while most other loans to individuals are medium-term (ranging
between one-to-five years) and carry fixed interest rates.
Unemployment in our general market area has been moderate to high over the last
several years and is reflected in our installment loan growth, and recent
changes made in product lines to make loans more readily available to consumers
who would have otherwise been reluctant to borrow.
At December 31, 1995, the Corporation has total unused lending commitments
outstanding of $20.5 million, of which approximately 71.2 percent and 0.00
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.
29 March 96 Center Bancorp, Inc. Form 10-K Page 6
<PAGE>
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 the Federal
Deposit Insurance Corporation Improvement Act (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
their own internal loan-to-value limits for real estate loans. These internal
limits should not 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 should 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 are to be identified by the bank as
exceptions to the supervisory limits and their aggregate amount be reported at
least quarterly to the 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
29 March 96 Center Bancorp, Inc. Form 10-K Page 7
<PAGE>
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 safe cushion to minimize the risk of loss if the ultimate
collection of the loan becomes dependent on the liquidation of security pleded.
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 combined consolidated classified loan report for the Corporation 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
charge-off 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. Occasionally,
exceptions are made to this policy if supporting collateral is adequate and the
loan is currently in the process of collection. 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.
A) Types of Loans
The following table presents information regarding the components of the
Corporation's loan portfolio on the dates indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 21,302 $ 18,674 $ 18,692 $ 20,873 $ 18,128 $ 24,043
Real estate-mortgage 69,954 64,666 40,005 34,078 35,454 36,918
Installment Loan 7,012 6,250 7,378 4,729 5,861 7,817
-------- -------- -------- -------- -------- -------
Total 98,268 89,590 66,075 59,680 59,443 68,778
Less:
Unearned discount 698 785 330 163 0 0
Allowance for loan losses 1,073 1,073 943 821 507 487
-------- -------- -------- -------- -------- --------
Net total $ 96,497 $ 87,732 $ 64,802 $ 58,696 $ 58,936 $ 68,291
======== ======== ======== ======== ======== ========
</TABLE>
The reduction in outstanding loans from December 31, 1990 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
29 March 96 Center Bancorp, Inc. Form 10-K Page 8
<PAGE>
marketing program coupled with positive market trends supported the growth in
1995.
B) The maturities of commercial loans at December 31, 1995 are listed below. All
such loans which are due after one year have predetermined interest rates ( in
thousands).
1 Year 1 - 5
(Dollars in thousands) or less Years Total
- --------------------------------------------------------------------------
Commercial $ 19,141 $ 2,161 $ 21,302
- --------------------------------------------------------------------------
C) Risk Elements
1. a) There were no loans accounted for on a non-accrual basis at December 31,
1995, 1994, 1993, 1992, or 1991.
b) 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) 1995 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------
Commercial $ 0 $ 0 $ 0 $ 0 $ 0 $ 94
Installment 48 0 5 23 6 90
- --------------------------------------------------------------------------------
Net loans $ 48 $ 0 $ 5 $ 23 $ 6 $ 184
- --------------------------------------------------------------------------------
c) There are no loans which are "troubled debt restructurings" for any of
the reported periods.
Generally speaking, it is the policy of management to charge-off 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.
2. There are no other known "potential problem loans" (as defined by SEC
regulations) as of December 31, 1995 that have not been identified and
classified. Classified loans consisting of other assets especially
mentioned and substandard loans amounted to $942,000 and $204,000,
respectively, December 31, 1995.
3. Foreign outstandings - none
4. As of December 31, 1995, $7.7 million of the commercial loan portfolio,
36.1 percent, represents outstanding working capital loans to various real
estate developers. All but $3.2 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 5
of this report.
29 March 96 Center Bancorp, Inc. Form 10-K Page 9
<PAGE>
<TABLE>
<CAPTION>
Loans to Real Estate Loans to Loans to
Commercial Total Loans Mortgage Total Loans Installment Total Loans Unallocated
(Dollars in thousands) Amount % Amount % Amount % Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
1991 $ 91 30.5 $ 88 59.6 $ 43 9.9 $ 285
</TABLE>
IV. DEPOSITS
The required information regarding average amounts/rates of deposits is
presented on page 29 of the 1995 Annual Report. The required information
regarding the amount of time certificates of deposits of $100,000 or more is
incorporated by reference to page 24 of the 1995 annual report.
V. RETURN ON EQUITY AND ASSETS
The required 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 1995 Annual Report. Return on average equity was 1.15 percent,
1.27 percent and 1.18 percent for the years ended December 31, 1995, 1994 and
1993, respectively. The dividend payout ratio was 44.0 percent, 41.0 percent and
43.0 percent for the years ended December 31, 1995, 1994, and 1993,
respectively.
VI. SHORT-TERM BORROWINGS
The required information regarding the amount outstanding of short-term
borrowings is incorporated by reference to page 25 of the 1995 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, Union County, New Jersey and a
new site in Madison, Morris County, New Jersey to open in May. 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 three of the nine 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. (See the back inside cover of the 1995
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.)
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 1995.
29 March 96 Center Bancorp, Inc. Form 10-K Page 10
<PAGE>
ITEM 4 A-EXECUTIVE 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:
<TABLE>
<CAPTION>
Name and Age Officer Since Business Experience
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
John J. Davis 1982 the Parent Company: President & Chief Executive Officer
Age - 53 1977 the Bank of the Parent Company and the Bank
Eileen J. Torbick 1991 the Parent Company: Senior Vice President & Senior Loan Officer
Age - 63 1972 the Bank of the Bank
Anthony C. Weagley 1991 the Parent Company: Treasurer of the Parent Company
Age - 34 1985 the Bank Vice President & Cashier (September 1991 - Present);
Assistant Vice President of the Bank
</TABLE>
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 28 of the 1995
Annual Report and is incorporated herein by reference. As of December 31, 1995,
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
1995 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 13 - 29 of the
1995 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 30 - 49 of the
1995 Annual Report and is incorporated herein by reference.
ITEM 9-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None
29 March 96 Center Bancorp, Inc. Form 10-K Page 11
<PAGE>
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 1996 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 1996 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 1996 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 1996 Annual Meeting of Stockholders.
29 March 96 Center Bancorp, Inc. Form 10-K Page 12
<PAGE>
PART IV
ITEM 14-EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8 -K
A1. Financial Statements
<TABLE>
<CAPTION>
Page in Annual Report
<S> <C>
Consolidated Statements of Condition -December 31, 1995, and 1994 30
Consolidated Statements of Income for the years ended December 31, 1995, 31
1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for the years 32
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31, 33
1995, 1994 and 1993
Notes to Consolidated Financial Statements 34
Report of Independent Auditors 49
</TABLE>
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
10.2 Employment agreement between the Registrant and John J. Davis.
10.3 The Registrant 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 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
29 March 96 Center Bancorp, Inc. Form 10-K Page 13
<PAGE>
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.
10.8 Agreement and Plan of Merger, by and between the Registrant and Lehigh
Savings Bank, S.L.A., dated as of February 14, 1996, as amended.
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, S.L.A.
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 1995.
29 March 96 Center Bancorp, Inc. Form 10-K Page 14
<PAGE>
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, 1996
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 and
in the capacities 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 Treasurer (Chief Accounting and
Financial Officer)
AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of September 1, 1995, by and among
UNION CENTER NATIONAL BANK, a bank chartered under the laws of Congress (the
"Bank"), CENTER BANCORP INC., a New Jersey corporation that owns all of the
capital stock of the Bank (the "Company"), and JOHN J. DAVIS ("Employee"),
W I T N E S S E T H :
WHEREAS, the Company, the Bank and Davis entered into an employment
agreement dated as of August 1, 1992 providing for the Employee's employment by
the Company and the Bank (the "Prior Contract");
WHEREAS, subsequent to the execution of the Prior Contract, the Bank and/or
the Company have adopted several benefit plans, including the following plans:
(i) an Achievement Incentive Plan (as it may be amended from time to time, the
"AIP"), (ii)a Benefit Equalization Plan (as it may be amended from time to time,
the "BEP"), (iii) a "Savings Equalization Plan" (as it may be amended from time
to time, the "SEP"), (iv) a split dollar insurance plan (as it may be amended
from time to time, the "SDIP") and (v) a 401(k) Savings Plan (as it may be
amended from time to time, the "401(k)Plan" and, together with the AIP, the BEP,
the SEP and the SDIP, the "Plans");
WHEREAS, the parties hereto wish to amend the Prior Contract in certain
respects to reflect the adoption of the Plans and make certain other changes in
the Employee's employment arrangements;
WHEREAS, the parties hereto wish to restate the Prior Contract, as so
amended, in its entirety;
WHEREAS, it is understood that the Company shall remain fully liable
hereunder, regardless of the extent to which the Bank is liable hereunder; and
WHEREAS, the Bank and the Company desire to employ Employee to devote full
time to the business of the Bank and the Company, and Employee desires to be so
employed,
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties hereto hereby agree that the Prior Contract is amended and restated
in its entirety to provide as follows:
1. Employment. Bank and the Company agree to employ Employee, and Employee
agrees to be so employed, in the capacity of President and Chief Executive
Officer of the Bank and the Company. Except as otherwise provided in the next
sentence of this Section 1, employment shall be for a term of five (5) years,
effective as of September 1, 1995 and terminating August 31, 2000 (the "Initial
Term"). Notwithstanding the foregoing, this Agreement
<PAGE>
shall automatically be extended (i) at the end of the Initial Term, for
successive one year renewal terms unless, at least three years prior to the
commencement of any such renewal term, notice of termination of this Agreement
is given by any party hereto to the other parties hereto and (ii) if a "Change
in Control Event" (as defined in Section 8(a) hereof) occurs at any time during
the Initial Term or during any such renewal term, for a period of five years
from the date of such Change in Control Event. It is understood that the effect
of the immediately preceding sentence is to assure Employee that in the event
that he receives notice of termination of employment pursuant to Section 8(a)
hereunder, he will be entitled to severance benefits covering at least three
full years of employment in the absence of a Change in Control Event or covering
at least five full years of employment in the case of a Change in Control Event.
2. TIME AND EFFORTS. Employee shall diligently and conscientiously devote
his full and exclusive time and attention and best efforts in discharging his
duties as the President and Chief Executive Officer of the Bank and the Company.
3. BOARD OF DIRECTORS. Employee shall at all times discharge his duties in
consultation with and under the supervision of the Boards of Directors of the
Bank and the Company. In the performance of his duties, Employee shall make his
principal office in such place as the Boards of Directors of the Bank and the
Company and Employee may from time to time mutually agree.
4. COMPENSATION.
(a) SALARY-INITIAL PERIOD. During the period from September 1, 1995 through
December 31, 1995 (the "Initial Period"), Employee shall receive, pursuant to
the determination of the Executive Compensation Committee of the Bank's Board of
Directors (the "Executive Compensation Committee"), as compensation for his
services hereunder, a salary at the rate of one hundred and seventy thousand
dollars ($170,000) per annum. This amount shall be paid in eight (8) equal
semi-monthly installments on the 15th and 30th day of each month, or as near
thereto as practicable.
(b) SALARY-SUBSEQUENT YEARS. During each twelve month period following the
Initial Period, Employee shall receive, as compensation for his services, his
salary set forth for the immediately preceding twelve month period plus such
salary increment as shall be determined by the Executive Compensation Committee,
with reference to the Bank's salary guide. During each such twelve month period,
Employee's salary shall be paid in twenty-four (24) equal semi-monthly
installments on the 15th and 30th day of each month, or as near thereto as
practicable.
(c) BONUSES. Employee shall be entitled to participate in the AIP and shall
receive incentive compensation in accordance with the terms of the AIP. In the
event that the AIP is terminated, Employee shall receive such incentive
compensation as shall be awarded to him by the Executive Compensation Committee.
-2-
<PAGE>
5. EXPENSES; BENEFITS.
(a) REIMBURSEMENT. The Bank and the Company shall reimburse Employee for
all reasonable and necessary expenses incurred in carrying out his duties under
this Agreement. Employee shall either (i) present to the Bank from time to time
an itemized account of such expenses in any form reasonably required by the Bank
and the Company for reimbursement; or (ii) post such expenses to a credit card
or other payment means issued to Employee by the Bank and the Company.
(b) AUTOMOBILE. The Bank and the Company recognize the Employee's need for
an automobile for business purposes. The Bank and the Company, therefore, shall
provide (without expense to Employee) the Employee with an automobile, including
all related maintenance, repairs, insurance, and other costs, for business and
personal use and shall reimburse the Employee for all taxes payable by him as a
result of the provision of this benefit to the Employee. The automobile and
related costs shall be comparable to those which the Bank provided to the
Employee as of August 31, 1995.
(c) MISCELLANEOUS BENEFITS. The Bank and the Company shall pay Employee's
membership fees and related expenses for membership at the Suburban Golf Club,
Union, New Jersey. The Bank and the Company shall also pay for Employee's
attendance at industry conventions and meetings, in accordance with existing
practices. The Bank and the Company shall also provide Employee with all
benefits that are provided to other officers of the Bank and/or the Company.
6. HEALTH INSURANCE; LIFE INSURANCE; DISABILITY INSURANCE; PENSION; AND
OTHER PLANS. The Bank and the Company shall provide Employee with life
insurance, disability insurance, health insurance, pension benefits and benefits
under the BEP, the SEP, the SDIP and the 401(k) Plan to the extent that such
benefits are provided to Employee on the date hereof, together with any benefit
enhancements that may be added to such plans in the future. The monetary amount
of such benefits received by Employee shall be in accordance with the terms and
conditions of such plans.
7. VACATION. Employee shall receive annual vacations in conformity with
Bank and Company policies on vacations.
8. TERMINATION BY THE BANK WITHOUT CAUSE OR BY THE EMPLOYEE WITH AND
WITHOUT GOOD REASON; DEATH.
(a) The Bank and the Company may, without "Cause" (as defined herein),
terminate this Agreement at any time by giving 30 days' written notice to the
Employee. In such event, (i) the Employee, if requested by either the Bank or
the Company, shall continue to render services, and regardless of whether such
request is made shall be paid his regular compensation and shall continue to
participate in all benefit plans of the Company and the Bank, up to the date of
termination, (ii) the Employee shall be paid in a single sum, on the date of
termination, a severance allowance equal to Employee's regular compensation for
the duration of the term of this
-3-
<PAGE>
Agreement, as theretofore renewed pursuant to Section 1 hereof, less all amounts
required to be withheld and deducted, (iii) the Employee shall be paid in a
single sum, on the date of termination, an amount equal to the largest annual
benefit received by Employee under the AIP since the commencement of the AIP
(the "Largest Bonus") multiplied by the number of years (rounded to the nearest
tenth of a year) remaining in the term of this Agreement, as theretofore renewed
pursuant to Section 1 hereof; (iv) the Employee shall be entitled to receive,
during the period commencing on the date of termination and ending on the last
day of the term (as theretofore renewed pursuant to Section 1 hereof) (the
"Extension Period"), the same benefits (or the economic equivalent thereof) that
he would have received under the BEP, the SEP, the SDIP, the 401(k) Plan and the
other benefit plans described in Section 6 hereof had he remained employed by
the Bank during the Extension Period (assuming a salary equal to the salary in
effect on the date of termination and an annual incentive under the AIP equal to
the Largest Bonus), (v) the Bank and the Company shall fund the obligations set
forth in the immediately preceding clause (iv) and (vi) all stock options
granted to Employee by the Company shall be exercisable in full, effective as of
the date of termination.
(b) The Employee shall have the right to resign (and thereby terminate this
Agreement) with "Good Reason" (as defined herein) by delivering notice of such
resignation to the Bank and the Company at least 30 days prior to the effective
date of such resignation. If, prior to the expiration of the term hereof (as
theretofore renewed pursuant to Section 1 hereof), the Employee shall resign for
Good Reason, the Employee shall be entitled to the same benefits that he would
have received pursuant to Section 8(a) hereof had his employment been terminated
(on the effective date of such resignation) by the Bank or the Company without
Cause.
(c) The Employee shall have no obligation to seek substitute employment or
otherwise mitigate the Company's obligation to make the payments and provide the
benefits described in Sections 8(a) and 8(b) hereof; provided, however, that in
the event that (i) Employee's employment terminates prior to a Change in Control
Event and (ii) Employee obtains other employment, then the salary and benefits
which he actually receives pursuant to such other employment shall be offset
against the Employer's obligations hereunder.
(d) For purposes of this Agreement, the term "Good Reason" shall mean a
resignation by the Employee within 180 days after (i) a materially adverse
change in the Employee's duties or title, (ii) a material breach of this
Agreement by the Bank or the Company, (iii) the consummation of an acquisition
by a third party of a majority of the voting capital stock of the Company or the
Bank or substantially all of the assets of the Company or the Bank or (iv) a
change in the composition of the Board of Directors of the Company such that the
"Continuing Directors" (as defined herein) no longer constitute a majority of
the Board (the events referred to in clauses "iii" and "iv" being referred to
herein as "Change in Control Events"). For purposes of this Agreement, the term
"Continuing Director" shall mean (i) each current member of the Company's Board
of Directors and (ii) each person who is hereinafter first nominated to such
Board by unanimous vote of the persons who then constitute Continuing Directors.
(e) The Employee may, without Good Reason, terminate this Agreement by
giving 60 days' written notice to the Bank and the Company. In such event the
Employee shall
-4-
<PAGE>
continue to render his services, shall be paid his regular compensation and
shall continue to participate in all benefit plans of the Company and the Bank
up to the date of termination, but he shall not receive any severance allowance
pursuant to this Agreement.
(f) In the event that the Employee dies during the term of this Agreement
as theretofore renewed pursuant to Section 1 hereof, this Agreement shall
terminate as of the date of his death, subject to the obligations of the Company
and the Bank that have accrued through the date of death and subject to the
terms of all applicable benefit plans (including insurance plans) implemented by
the Bank and the Company.
9. TERMINATION WITH CAUSE.
(a) The Bank and Company may terminate this Agreement for "Cause" by giving
Employee 30 days' written notice. In such event, the Bank and the Company shall
pay Employee his compensation, and Employee shall continue to participate in all
benefit plans of the Company and the Bank up to the date of termination, but the
Bank and the Company shall not be required to provide the Employee with any
severance allowance pursuant to this Agreement. For purposes of this Agreement,
"Cause" shall consist of the following:
(i) disloyal, dishonest or felonious conduct of Employee that
materially adversely affects the Bank or the Company; or
(ii) termination of the Bank's business due to unprofitability,
insolvency, bankruptcy or directive by governmental regulators.
Termination for "Cause" shall not be construed to include the takeover of the
Bank or the Company, in either a hostile or voluntary manner, by another person,
firm or corporation.
(b) Notwithstanding the foregoing, in the event that termination is
intended as a result of alleged disloyal or dishonest conduct, the Boards of
Directors of the Bank and the Company shall give the Employee written notice of
the occurrence of (and the facts and circumstances surrounding) the acts
allegedly constituting "Cause" and a fair opportunity to present his position to
such Boards. Such event shall not constitute "Cause" if, no later than ten (10)
business days following Employee's receipt of such notice, the Employee
establishes that either the alleged acts did not occur that such acts did not:
constitute dishonest or disloyal conduct, that such acts did not materially
adversely affect the Company and the Bank or that such acts have been fully
corrected and shall not be repeated.
10. NOTICES. All notices required or permitted to be given under this
Agreement shall be given by certified mail, return receipt requested, to the
parties at the following addresses, or to such other addresses as either may
designate in writing to the other party:
-5-
<PAGE>
If to the Bank or the Company:
Union Center National Bank
2455 Morris Avenue
Union, New Jersey 07083
Attention: Secretary
If to Employee:
John J. Davis
6 Knollwood Drive
Morristown, New Jersey 07960
With a copy to:
Peter H. Ehrenberg, Esq.
Lowenstein, Sandler, Kohl, Fisher & Boylan
A Professional Corporation
65 Livingston Avenue
Roseland, New Jersey 07068
11. INDEMNIFICATION; LIABILITY. Employee shall be indemnified by the Bank
and the Company to the maximum extent permitted by law (and shall be entitled to
receive advances to the maximum extent permitted by law) with respect to all
actions and all decisions not to act taken by Employee during the term of this
Agreement. The Bank and Company shall be jointly and severally liable under this
Agreement with respect to all obligations of either such party hereunder. Any
defense available to the Bank that this Agreement is not enforceable against it
shall not constitute a defense for the Company. The obligations of this Section
11 shall survive termination of this Agreement with respect to acts or omissions
occurring prior to such termination.
12. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey.
13. ENTIRE CONTRACT. This Agreement constitutes the entire understanding
and agreement among the Bank, the Company and Employee with regard to all
matters set forth herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard thereto. This
Agreement may be amended only in writing, signed by all parties.
14. NON-WAIVER. A delay or failure by any party to exercise a right under
this Agreement, or a partial or single exercise of that right, shall not
constitute a waiver of that or any other right.
-6-
<PAGE>
15. HEADINGS. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
16. TAXES. In the event that either the Company's independent public
accountants or the Internal Revenue Service determines that any payment,
coverage or benefit provided to Employee is subject to the excise tax imposed by
Section 4999 (or any successor provision) of the Internal Revenue Code of 1986,
as amended ("Section 4999"), the Company and the Bank, within 30 days
thereafter, shall pay to Employee, in addition to any other payment, coverage or
benefit due and owing hereunder, an amount determined by multiplying the rate of
excise tax then imposed by Section 4999 by the amount of the "excess parachute
payment" received by Employee (determined without regard to any payments made to
Employee pursuant to this Section 16) and dividing the product so obtained by
the amount obtained by subtracting the aggregate local, state and Federal income
tax rate applicable to the receipt by Employee of the "excess parachute payment"
(taking into account the deductibility for Federal income tax purposes of the
payment of state and local income taxes thereon) from the amount obtained by
subtracting from 1.00 the rate of excise tax then imposed by Section 4999 of the
Code, it being the intention of the parties hereto that Employee's net after tax
position be identical to that which would have obtained had Sections 28OG and
4999 not been part of the Internal Revenue Code of 1986, as amended.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
18. BINDING EFFECT. The provisions of this Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns.
19. PRIOR CONTRACT. The Prior Contract is hereby superseded in all respects
by this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Bank and the Company each have, by its appropriate
officers, signed and affixed its seal and Employee has signed and sealed this
Agreement.
UNION CENTER NATIONAL BANK
By:___________________________________________
Charles P. Woodward, Chairman of the Board
CENTER BANCORP INC.
By:___________________________________________
Charles P. Woodward, Chairman of the Board
______________________________________________
John J. Davis
-8-
AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of January 1, 1996, by and among
UNION CENTER NATIONAL BANK, a bank chartered under the laws of Congress (the
"Bank"), CENTER BANCORP INC., a New Jersey corporation that owns all of the
capital stock of the Bank (the "Company"), and ANTHONY C. WEAGLEY ("Employee"),
W I T N E S S E T H :
WHEREAS, the Company, the Bank and the Employee desire to enter into an
employment agreement providing for the Employee's employment by the Company and
the Bank;
WHEREAS, the Bank and/or the Company have adopted certain benefit plans,
including the following plans: (i) an Achievement Incentive Plan (as it may be
amended from time to time, the "AIP"), (ii) a split dollar insurance plan (as it
may be amended from time to time, the "SDIP") and (iii) a 401(k) Savings Plan
(as it may be amended from time to time, the "401(k)Plan" and, together with the
AIP and the SDIP, the "Plans");
WHEREAS, it is understood that the Company shall remain fully liable
hereunder, regardless of the extent to which the Bank is liable hereunder; and
WHEREAS, the Bank and the Company desire to employ Employee to devote full
time to the business of the Bank and the Company, and Employee desires to be so
employed,
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties hereto hereby agree as follows:
1. Employment. Bank and the Company agree to employ Employee, and Employee
agrees to be so employed, in the capacity of Vice President and Cashier of the
Bank and Treasurer of the Company. Except as otherwise provided in the next
sentence of this Section 1, employment shall be for a term of three (3) years,
effective as of January 1, 1996 and terminating December 31, 1998 (the "Initial
Term"). Notwithstanding the foregoing, this Agreement shall automatically be
extended (i) at the end of the Initial Term, for successive one year renewal
terms unless, at least two years prior to the commencement of any such renewal
term, notice of termination of this Agreement is given by any party hereto to
the other parties hereto and (ii) if a "Change in Control Event" (as defined in
Section 8(a) hereof) occurs at any time during the Initial Term or during any
such renewal term, for a period of three years from the date of such Change in
Control Event. It is understood that the effect of the immediately preceding
sentence is to assure Employee that in the event that he receives notice of
termination of employment pursuant to Section 8(a) hereunder, he will be
entitled to severance benefits covering at least two full years of employment in
the absence of a Change in Control Event or covering at least three full years
of employment in the case of a Change in Control Event.
<PAGE>
2. TIME AND EFFORTS. Employee shall diligently and conscientiously devote
his full and exclusive time and attention and best efforts in discharging his
duties as a Vice President and Cashier of the Bank and as Treasurer of the
Company.
3. BOARD OF DIRECTORS. Employee shall at all times discharge his duties in
consultation with and under the supervision of the President and the Boards of
Directors of the Bank and the Company. In the performance of his duties,
Employee shall make his principal office in such place as the President of the
Bank and the Company and Employee may from time to time mutually agree.
4. COMPENSATION.
(a) SALARY-INITIAL PERIOD. During the period from January 1, 1996 through
December 31, 1996 (the "Initial Period"), Employee shall receive, pursuant to
the determination of the Executive Compensation Committee of the Bank's Board of
Directors (the "Executive Compensation Committee"), as compensation for his
services hereunder, a salary at the rate of eighty-five thousand dollars
($85,000) per annum. This amount shall be paid in twenty four (24) equal
semi-monthly installments on the 15th and 30th day of each month, or as near
thereto as practicable.
(b) SALARY-SUBSEQUENT YEARS. During each twelve month period following the
Initial Period, Employee shall receive, as compensation for his services, his
salary set forth for the immediately preceding twelve month period plus such
salary increment as shall be determined by the Executive Compensation Committee,
with reference to the Bank's salary guide. During each such twelve month period,
Employee's salary shall be paid in twenty-four (24) equal semi-monthly
installments on the 15th and 30th day of each month, or as near thereto as
practicable.
(c) BONUSES. Employee shall be entitled to participate in the AIP and shall
receive incentive compensation in accordance with the terms of the AIP. In the
event that the AIP is terminated, Employee shall receive such incentive
compensation as shall be awarded to him by the Executive Compensation Committee.
5. EXPENSES; BENEFITS.
(a) REIMBURSEMENT. The Bank and the Company shall reimburse Employee for
all reasonable and necessary expenses incurred in carrying out his duties under
this Agreement. Employee shall either (i) present to the Bank from time to time
an itemized account of such expenses in any form reasonably required by the Bank
and the Company for reimbursement; or (ii) post such expenses to a credit card
or other payment means issued to Employee by the Bank and the Company.
(b) AUTOMOBILE. The Bank and the Company recognize the Employee's need for
an automobile for business purposes. The Bank and the Company, therefore, shall
provide
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<PAGE>
(without expense to Employee) the Employee with an automobile, including all
related maintenance, repairs, insurance, and other costs, for business and
personal use and shall reimburse the Employee for all taxes payable by him as a
result of the provision of this benefit to the Employee. The automobile shall be
the automobile provided to the Employee in December 1995 and the related costs
shall be comparable to those which the Bank provided to the Employee as of
December 31, 1995.
(c) MISCELLANEOUS BENEFITS. The Bank and the Company shall provide Employee
with all benefits that are generally provided to officers of the Bank and/or the
Company, other than the President.
6. HEALTH INSURANCE; LIFE INSURANCE; DISABILITY INSURANCE; PENSION; AND
OTHER PLANS. The Bank and the Company shall provide Employee with life
insurance, disability insurance, health insurance, pension benefits and benefits
under the SDIP and the 401(k) Plan to the extent that such benefits are provided
to Employee on the date hereof, together with any benefit enhancements that may
be added to such plans in the future. The monetary amount of such benefits
received by Employee shall be in accordance with the terms and conditions of
such plans.
7. VACATION. Employee shall receive annual vacations in conformity with
Bank and Company policies on vacations.
8. TERMINATION BY THE BANK WITHOUT CAUSE OR BY THE EMPLOYEE WITH AND
WITHOUT GOOD REASON; DEATH.
(a) The Bank and the Company may, without "Cause" (as defined herein),
terminate this Agreement at any time by giving 30 days' written notice to the
Employee. In such event, (i) the Employee, if requested by either the Bank or
the Company, shall continue to render services, and regardless of whether such
request is made shall be paid his regular compensation and shall continue to
participate in all benefit plans of the Company and the Bank, up to the date of
termination, (ii) the Employee shall be paid in a single sum, on the date of
termination, a severance allowance equal to Employee's regular compensation for
the duration of the term of this Agreement, as theretofore renewed pursuant to
Section 1 hereof, less all amounts required to be withheld and deducted, (iii)
the Employee shall be paid in a single sum, on the date of termination, an
amount equal to the largest annual benefit received by Employee under the AIP
since the commencement of the AIP (the "Largest Bonus") multiplied by the number
of years (rounded to the nearest tenth of a year) remaining in the term of this
Agreement, as theretofore renewed pursuant to Section 1 hereof; (iv) the
Employee shall be entitled to receive, during the period commencing on the date
of termination and ending on the last day of the term (as theretofore renewed
pursuant to Section 1 hereof) (the "Extension Period"), the same benefits (or
the economic equivalent thereof) that he would have received under the SDIP, the
401(k) Plan and the other benefit plans described in Section 6 hereof had he
remained employed by the Bank during the Extension Period (assuming a salary
equal to the salary in effect on the date of termination and an annual incentive
under the AIP equal to the Largest Bonus), (v) the Bank and the Company shall
fund the obligations set forth in the immediately preceding clause (iv) and (vi)
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<PAGE>
all stock options granted to Employee by the Company shall be exercisable in
full, effective as of the date of termination.
(b) The Employee shall have the right to resign (and thereby terminate this
Agreement) with "Good Reason" (as defined herein) by delivering notice of such
resignation to the Bank and the Company at least 30 days prior to the effective
date of such resignation. If, prior to the expiration of the term hereof (as
theretofore renewed pursuant to Section 1 hereof), the Employee shall resign for
Good Reason, the Employee shall be entitled to the same benefits that he would
have received pursuant to Section 8(a) hereof had his employment been terminated
(on the effective date of such resignation) by the Bank or the Company without
Cause.
(c) The Employee shall have no obligation to seek substitute employment or
otherwise mitigate the Company's obligation to make the payments and provide the
benefits described in Sections 8(a) and 8(b) hereof; provided, however, that in
the event that (i) Employee's employment terminates prior to a Change in Control
Event and (ii) Employee obtains other employment, then the salary and benefits
which he actually receives pursuant to such other employment shall be offset
against the Employer's obligations hereunder.
(d) For purposes of this Agreement, the term "Good Reason" shall mean a
resignation by the Employee within 180 days after (i) a materially adverse
change in the Employee's duties or title, (ii) a material breach of this
Agreement by the Bank or the Company, (iii) the consummation of an acquisition
by a third party of a majority of the voting capital stock of the Company or the
Bank or substantially all of the assets of the Company or the Bank or (iv) a
change in the composition of the Board of Directors of the Company such that the
"Continuing Directors" (as defined herein) no longer constitute a majority of
the Board (the events referred to in clauses "iii" and "iv" being referred to
herein as "Change in Control Events"). For purposes of this Agreement, the term
"Continuing Director" shall mean (i) each current member of the Company's Board
of Directors and (ii) each person who is hereinafter first nominated to such
Board by unanimous vote of the persons who then constitute Continuing Directors.
(e) The Employee may, without Good Reason, terminate this Agreement by
giving 60 days' written notice to the Bank and the Company. In such event the
Employee shall continue to render his services, shall be paid his regular
compensation and shall continue to participate in all benefit plans of the
Company and the Bank up to the date of termination, but he shall not receive any
severance allowance pursuant to this Agreement.
(f) In the event that the Employee dies during the term of this Agreement
as theretofore renewed pursuant to Section 1 hereof, this Agreement shall
terminate as of the date of his death, subject to the obligations of the Company
and the Bank that have accrued through the date of death and subject to the
terms of all applicable benefit plans (including insurance plans) implemented by
the Bank and the Company.
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<PAGE>
9. TERMINATION WITH CAUSE.
(a) The Bank and Company may terminate this Agreement for "Cause" by giving
Employee 30 days' written notice. In such event, the Bank and the Company shall
pay Employee his compensation, and Employee shall continue to participate in all
benefit plans of the Company and the Bank up to the date of termination, but the
Bank and the Company shall not be required to provide the Employee with any
severance allowance pursuant to this Agreement. For purposes of this Agreement,
"Cause" shall consist of the following:
(i) disloyal, dishonest or felonious conduct of Employee that materially
adversely affects the Bank or the Company; or
(ii) termination of the Bank's business due to unprofitability, insolvency,
bankruptcy or directive by governmental regulators.
Termination for "Cause" shall not be construed to include the takeover of the
Bank or the Company, in either a hostile or voluntary manner, by another person,
firm or corporation.
(b) Notwithstanding the foregoing, in the event that termination is
intended as a result of alleged disloyal or dishonest conduct, the Boards of
Directors of the Bank and the Company shall give the Employee written notice of
the occurrence of (and the facts and circumstances surrounding) the acts
allegedly constituting "Cause" and a fair opportunity to present his position to
such Boards. Such event shall not constitute "Cause" if, no later than ten (10)
business days following Employee's receipt of such notice, the Employee
establishes that either the alleged acts did not occur that such acts did not:
constitute dishonest or disloyal conduct, that such acts did not materially
adversely affect the Company and the Bank or that such acts have been fully
corrected and shall not be repeated.
10. NOTICES. All notices required or permitted to be given under this
Agreement shall be given by certified mail, return receipt requested, to the
parties at the following addresses, or to such other addresses as either may
designate in writing to the other party:
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<PAGE>
If to the Bank or the Company:
Union Center National Bank
2455 Morris Avenue
Union, New Jersey 07083
Attention: President
If to Employee:
Anthony C. Weagley
1875 Cider Mill Road
Union, New Jersey 07083
11. INDEMNIFICATION; LIABILITY. Employee shall be indemnified by the Bank
and the Company to the maximum extent permitted by law (and shall be entitled to
receive advances to the maximum extent permitted by law) with respect to all
actions and all decisions not to act taken by Employee during the term of this
Agreement. The Bank and Company shall be jointly and severally liable under this
Agreement with respect to all obligations of either such party hereunder. Any
defense available to the Bank that this Agreement is not enforceable against it
shall not constitute a defense for the Company. The obligations of this Section
11 shall survive termination of this Agreement with respect to acts or omissions
occurring prior to such termination.
12. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Jersey.
13. ENTIRE CONTRACT. This Agreement constitutes the entire understanding
and agreement among the Bank, the Company and Employee with regard to all
matters set forth herein. There are no other agreements, conditions or
representations, oral or written, express or implied, with regard thereto. This
Agreement may be amended only in writing, signed by all parties.
14. NON-WAIVER. A delay or failure by any party to exercise a right under
this Agreement, or a partial or single exercise of that right, shall not
constitute a waiver of that or any other right.
15. HEADINGS. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
16. TAXES. In the event that either the Company's independent public
accountants or the Internal Revenue Service determines that any payment,
coverage or benefit provided to Employee is subject to the excise tax imposed by
Section 4999 (or any successor provision) of the Internal Revenue Code of 1986,
as amended ("Section 4999"), the Company and the Bank, within 30 days
thereafter, shall pay to Employee, in addition to any other payment,
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<PAGE>
coverage or benefit due and owing hereunder, an amount determined by multiplying
the rate of excise tax then imposed by Section 4999 by the amount of the "excess
parachute payment" received by Employee (determined without regard to any
payments made to Employee pursuant to this Section 16) and dividing the product
so obtained by the amount obtained by subtracting the aggregate local, state and
Federal income tax rate applicable to the receipt by Employee of the "excess
parachute payment" (taking into account the deductability for Federal income tax
purposes of the payment of state and local income taxes thereon) from the amount
obtained by subtracting from 1.00 the rate of excise tax then imposed by Section
4999 of the Code, it being the intention of the parties hereto that Employee's
net after tax position be identical to that which would have obtained had
Sections 28OG and 4999 not been part of the Internal Revenue Code of 1986, as
amended.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
18. BINDING EFFECT. The provisions of this Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns.
IN WITNESS WHEREOF, the Bank and the Company each have, by its appropriate
officers, signed and affixed its seal and Employee has signed and sealed this
Agreement.
UNION CENTER NATIONAL BANK
By:__________________________________
John J. Davis, President
CENTER BANCORP INC.
By:__________________________________
John J. Davis, President
_____________________________________
Anthony C. Weagley
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INDUCEMENT AGREEMENT
INDUCEMENT AGREEMENT, dated February 14, 1996, by and between Horace J.
DePodwin, solely in his capacity as trustee (the "Trustee") under the Trust
Agreement, dated as of November 9, 1992 (the "Trust Agreement"), by and among
Lehigh Savings Bank, S.L.A., a New Jersey chartered capital stock savings and
loan association (the "Association"), David Margolis (the "Shareholder"),
Mildred Margolis and the Office of Thrift Supervision ("OTS") and Center
Bancorp, Inc., a New Jersey corporation (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trustee is the trustee under the Trust Agreement; and
WHEREAS, pursuant to the Trust Agreement, the Trustee is holding in trust
for the benefit of the Shareholder 392,489 shares (together with all other
shares of capital stock of the Association, if any, which the Trustee may hold
pursuant to the Trust Agreement as a result of any stock split, stock dividend,
reclassification, recapitalization or otherwise of the capital stock of the
Association, the "Trust Shares") of the Common Stock, par value $10 per share
(the "Common Stock"), of the Association; and
WHEREAS, the Association and the Company have negotiated the terms and
conditions of a proposed Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which, among other things, a subsidiary of the Company will merge
with and into the Association and the shareholders of the Association, including
the Trustee on behalf of the Shareholder, will receive the Per Share
Consideration specified in the Merger Agreement for each outstanding share of
Common Stock (except in certain circumstances); and
WHEREAS, as a condition to entering into the Merger Agreement and
performing its obligations thereunder, the Company has required that the Trustee
make certain representations and warranties and agree to certain terms and
conditions as set forth herein; and
WHEREAS, in order to induce the Company to enter into the Merger Agreement
and perform its obligations thereunder, the Trustee has agreed to make the
representations and warranties and to agree to the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound, the parties hereto agree as follows:
<PAGE>
ARTICLE I
VOTING OF TRUST SHARES; NO TRANSFERS
Section 1.1. Voting of Trust Shares. The Trustee hereby irrevocably agrees
to vote the Trust Shares in favor of the Merger, subject only to Section 1.3
hereof. In furtherance of the foregoing and not in limitation thereof, if deemed
reasonably necessary by either the Association or the Company, the Trustee shall
(i) cause the Trust Shares to be present in person or by proxy at any meeting of
the shareholders of the Association (including any adjournments or postponements
thereof) called to consider and vote upon the Merger and the transactions
contemplated by the Merger Agreement and shall vote the Trust Shares or cause
the Trust Shares to be voted in favor thereof at such meeting or (ii) execute
one or more written consents approving the Merger and the other transactions
contemplated by the Merger Agreement.
Section 1.2. Prohibition on Transfers; Restrictive Legend. (a) Subject to
Section 1.3, without the prior written consent of the Company, during the term
of this Agreement the Trustee shall not transfer, sell, assign, pledge,
hypothecate, give, create a security interest in or lien on, place in trust
(voting or otherwise), transfer by operation of law (other than by way of a
merger or consolidation of the Association), grant a proxy with respect to or in
any other way encumber or dispose of, directly or indirectly and whether or not
voluntarily (each, a "Transfer"), any of the Trust Shares and shall not vote the
Trust Shares on any matter in a manner that is inconsistent with the purposes of
this Agreement.
(b) The Trustee shall cause the Association not to reflect on its books any
Transfer of Trust Shares to any person except in accordance with this Agreement.
Promptly following the execution and delivery of this Agreement, the Trustee
shall exchange the certificates representing the Trust Shares for certificates
of like tenor which shall be stamped or endorsed with a legend in substantially
the following form:
TRANSFERS AND VOTING IN RESPECT OF THE SHARES OF COMMON STOCK REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT DATED FEBRUARY 14,
1996 BY AND BETWEEN CENTER BANCORP, INC. AND HORACE J. DEPODWIN, AS TRUSTEE,, A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE ASSOCIATION
AND MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE ASSOCIATION.
Section 1.3. OTS Approval. Notwithstanding anything to the contrary
contained in this Agreement, the provisions of Article I hereof shall be of no
further force and effect in the event that the OTS does not approve the Merger
and the other transactions contemplated by the Merger Agreement (including this
Agreement).
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<PAGE>
ARTICLE II
Representations and Warranties of the Trustee
The Trustee hereby represents and warrants to the Company as follows:
Section 2.1. Capacity; Authorization. The Trustee is the trustee under the
Trust Agreement and as such has the authority and the capacity to execute and
deliver this Agreement and to perform his obligations hereunder. The Trustee is
under no impairment or other disability, legal, physical, mental or otherwise,
whether or not arising out of the Trust Agreement, that would preclude or limit
the ability of the Trustee to perform his obligations hereunder. The Trustee has
full power and authority under the Trust Agreement to execute and deliver this
Agreement and to perform his obligations hereunder, all of which have been duly
authorized by all requisite action. The Trustee has the power and authority to
bind the Shareholder to the terms hereof by his execution and delivery of this
Agreement. This Agreement as been duly authorized, executed and delivered by the
Trustee and constitutes a valid and binding agreement of the Trustee,
enforceable against the Trustee in accordance with its terms.
Section 2.2. Non-contravention. Neither the execution and delivery of this
Agreement by the Trustee nor the performance by the Trustee of his obligations
hereunder will (i) violate or result in a breach (with or without the lapse of
time, the giving of notice or both) of or constitute a default under (A) any
contract, agreement, commitment, indenture, mortgage, lease, pledge, note,
license, permit or other instrument or obligation or (B) any judgment, order,
decree, law, rule or regulation or other restriction of any governmental
authority, in each case to which the Trustee is a party or by which he or the
Trust Shares are bound or to which the Trust Shares are subject, or (iii) result
in the creation or imposition of any lien, claim, charge, mortgage, pledge,
security interest, equity, restriction or other encumbrance (collectively,
"Encumbrances") on the Trust Shares.
Section 2.3. No Consents. Other than the receipt of nonapproval of the OTS
pursuant to the Trust Agreement, no notice to, filing with, or authorization,
registration, consent or approval of any governmental authority or other person
is necessary for the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby by the Trustee.
Section 2.4. Trust Agreement; Status of Trustee. A true and complete copy
of the Trust Agreement, and any amendments, supplements and modifications
thereto, is attached hereto as Exhibit A. The Trust Agreement (as so amended,
modified or supplemented) remains in full force and effect. No breach or default
or event which, with the giving of notice, the lapse of time, or both would
constitute a breach or default under the Trust Agreement has occurred and is
continuing. Neither the Trustee nor, to the Trustee's best knowledge, the
Shareholder has taken any actions for the purpose or with the intent of (i)
further amending, modifying or supplementing the Trust Agreement, (ii)
Transferring the Trust Shares (except as contemplated by this Agreement and the
Merger Agreement), (iii) causing the Trustee to resign as trustee under the
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<PAGE>
Trust Agreement, or (iv) removing or seeking the removal of the Trustee as
trustee under the Trust Agreement, and no such action is, to the Trustee's best
knowledge, contemplated.
Section 2.5. Ownership of the Trust Shares. The Trustee owns the Trust
Shares of record for the benefit of the Shareholder, free and clear of any
Encumbrances, other than Encumbrances created by the Trust Agreement. Other than
the Trust Agreement, there are no voting trust arrangements, shareholder
agreements or other agreements (i) granting any option, warrant or right of
first refusal with respect to the Trust Shares to any person, (ii) restricting
the right of the Trustee to sell the Trust Shares to the Company pursuant to the
Merger Agreement, or (iii) restricting any other right of the Trustee with
respect to the Trust Shares. Subject to the receipt of nonapproval of the OTS
pursuant to the Trust Agreement, the Trustee has the absolute and unrestricted
right, power and capacity to sell, assign and transfer the Trust Shares to the
Company pursuant to the terms of the Merger Agreement, free and clear of any
Encumbrances. Upon delivery to the Company of the Certificates representing the
Trust Shares at Closing in exchange for the Per Share Consideration to be paid
by the Company at the Closing, the Company will acquire good, valid and
marketable title to the Trust Shares, free and clear of any Encumbrances.
Section 2.6. Brokers. No person is or will be entitled to a broker's,
finder's, investment banker's, financial adviser's or similar fee from the
Trustee in connection with this Agreement or the Merger Agreement or any of the
transactions contemplated hereby or thereby.
Section 2.7. Full Disclosure. No representation or warranty made by the
Trustee in this Agreement or any certificate delivered, or to be delivered, by
or on behalf of the Trustee pursuant hereto contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
There is no fact or circumstance that the Trustee has not disclosed to the
Company in writing that the Trustee presently believes could reasonably be
expected to have a material adverse effect on the ability of the Trustee to
perform his obligations under this Agreement.
ARTICLE III
COVENANTS OF THE TRUSTEE
Section 3.1. Certain Affirmative Covenants of the Trustee. From and after
the date hereof until the earlier of the termination of the Merger Agreement or
the Effective Time, the Trustee shall (i) use his best efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Merger Agreement, including but not limited to, obtaining consents,
approvals and the receipt of nonapproval of the OTS and all other governmental
entities and third parties necessary to the consummation of the transactions
contemplated by this Agreement, (ii) provide the Company with true and complete
copies of all correspondence and memoranda between the Trustee and the OTS,
(iii) use his best efforts to include the Company or its designated
representative in all conversations between the Trustee and the OTS and (iv)
promptly inform the
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<PAGE>
Company in writing of any material breach of or change in the representations
and warranties contained in Article II hereof.
Section 3.2. Certain Negative Covenants of the Trustee. From and after the
date hereof until the earlier of the termination of the Merger Agreement or the
Effective Time, the Trustee shall not and shall use his best efforts to cause
the Shareholder not to (i) enter into any contract, agreement or commitment or
take any other action which, if entered into or taken prior to the date of this
Agreement, would cause any representation or warranty of the Trustee to be
untrue, (ii) incur, create or suffer to exist any Encumbrance on the Trust
Shares, other than Encumbrances existing under the Trust Agreement as of the
date hereof and Encumbrances created hereby, (iii) amend, modify or supplement
the Trust Agreement or (iv) take or omit to be taken any action which could
reasonably be expected to delay, hinder or make impossible or illegal the
transactions contemplated by this Agreement and the Merger Agreement.
Section 3.3. No Acquisition Proposals. The Trustee shall not, directly or
indirectly, and shall instruct and otherwise use his best efforts to cause the
Shareholder and their respective agents, advisors and other representatives not
to, directly or indirectly, (i) encourage, solicit or initiate any proposals or
offers from any person relating to any acquisition or purchase of all or a
material amount of the assets of, or any securities of, or any merger,
consolidation or business combination with, the Association (such transactions
are referred to herein as "Acquisition Transactions") or (ii) participate in any
discussions or negotiations regarding, or furnish to any other person any
information with respect to, an Acquisition Transaction. The Trustee shall
promptly notify the Company orally and in writing of any proposal or offer
regarding an Acquisition Transaction, any inquiries with respect thereto and any
request for information relating thereto. Such written notification shall
include the identify of the entity making such inquiry or Acquisition
Transaction proposal or offer or request and such other information with respect
thereto as is reasonably necessary to apprise the Company of the material terms
of such Acquisition Transaction proposal or offer or request and all other
material information relating thereto.
Section 3.4. Affirmation of Representations and Warranties; Compliance With
Terms. At the Closing, the Trustee will deliver to the Company a certificate
certifying that the representation and warranties of the Trustee contained
herein are true and correct in all respects as of the Closing and that the
Trustee has duly performed or complied with all of the covenants, obligations
and conditions to be performed or complied with by him under the terms of this
Agreement on or prior to or at Closing.
Section 3.5. Delivery of Certificates. At the Closing, the Trustee shall
deliver to the Company the Certificates representing the Trust Shares properly
endorsed or otherwise in proper form for surrender, with all signatures
guaranteed.
Section 3.6. Execution of General Release. Prior to or at the Closing, the
Trustee shall deliver to the Company a general release, in form and substance
satisfactory to the Company, executed by each of the Trustee and the
Shareholder, in favor of the Association and certain related parties and
containing such other terms as the Company may reasonably require.
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Section 3.7. Further Assurances. In the event that at any time after
Closing any further action is necessary to carry out the purposes of this
Agreement, the Trustee shall, at the Company's cost, take all such action
without any further consideration therefor.
ARTICLE IV
TERMINATION
Section 4.1. Termination. This Agreement may be terminated as follows:
(a) by mutual consent of the parties hereto;
(b) by the Company if the Trustee shall breach in any material respect any
of his representations, warranties, covenants, obligations or agreements
contained in this Agreement; and
(c) by any party hereto in the event that the Merger Agreement is
terminated prior to Closing.
Section 4.2. Effect of Termination. If this Agreement is terminated
pursuant to Section 4.1 hereof, all rights and obligations of the parties
hereunder shall terminate and no party shall have any liability to any other
party, except for obligations of the parties hereto in Sections 4.3 and 5.2,
which shall survive the termination of this Agreement, and except nothing herein
will relieve any party from liability for any breach of any representation,
warranty, covenant, obligation or agreement contained herein prior to such
termination.
Section 4.3. Limitation of Liability; Equitable Remedies. The Company
acknowledges that the Trustee has entered into this Agreement as trustee under
the Trust Agreement and not in his personal capacity. Accordingly, the Trustee
shall not be personally liable to the Company, or any of its affiliates for any
costs, damages, losses, liabilities or obligations (collectively, "Damages")
suffered by any of them as a result of a breach or violation by the Trustee of
the terms hereof, unless caused by the gross negligence or willful misconduct of
the Trustee. The Trustee acknowledges that any breach by the Trustee of the
terms hereof would result in immediate and irreparable harm to the Company for
which an adequate remedy would not be available at law. Accordingly, in the
event of any breach, or threatened breach, of the provisions of this Agreement,
the Company shall be entitled to an order of specific performance or other
injunctive relief in addition to any other rights and remedies to which the
Company may be entitled, whether at law or in equity, and the Trustee hereby
consents to the entry of an order providing such relief. The Company shall not
be required to post any bond or other security in connection with any such
action for specific performance or other injunctive relief. The provisions of
this Section 4.3 shall survive the expiration or termination of this Agreement.
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<PAGE>
ARTICLE V
MISCELLANEOUS
Section 5.1. Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by certified, registered or express air mail, postage prepaid,
and shall be deemed given when so delivered personally, or by facsimile, or if
mailed, five days after the date of mailing, as follows:
If to the Trustee: c/o Economic Studies, Inc.
One Gateway Center
Suite 420
Newark, New Jersey 07102-4082
Telephone: (201) 621-0180
Facsimile: (201) 621-0182
With a copy to: Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Telephone: (201) 966-6300
Facsimile: (201) 966-1550
Attention: Joseph Lunin, Esq.
If to the Company: 2455 Morris Avenue
Union, New Jersey 07083
Telephone: (908) 688-9500
Facsimile: (908) 688-3043
Attention: Jack Davis
With a copy to: Lowenstein, Sandler, Kohl,
Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (201) 992-8700
Facsimile: (201) 992-5820
Attention: Peter H. Ehrenberg, Esq.
or to such other address as any party hereto shall notify the other parties
hereto (as provided above) from time to time.
Section 5.2. Expenses. Regardless of whether the transactions provided for
in this Agreement are consummated, except as otherwise provided herein, each
party hereto shall pay his own expenses incident to this Agreement and the
transactions contemplated herein.
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<PAGE>
Section 5.3. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the United States and, to the extent
not inconsistent therewith, the internal laws of the State of New Jersey,
without reference to the choice of law principles thereof.
Section 5.4. Assignment; Successors and Assigns; No Third Party Rights.
This Agreement may not be assigned by operation of law or otherwise, and any
attempted assignment shall be null and void; provided, however, that the
provisions of this sentence shall not prohibit the appointment of a successor
trustee under the Trust Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and legal representatives (including, but not limited to,
any successor trustee under the Trust Agreement). This Agreement shall be for
the sole benefit of the parties to this Agreement and their respective heirs,
successors, assigns and legal representatives and is not intended, nor shall be
construed, to give any person, other than the parties hereto and their
respective heirs, successors, assigns and legal representatives, any legal or
equitable right, remedy or claim hereunder.
Section 5.5. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original agreement, but all of which together
shall constitute one and the same instrument.
Section 5.6. Titles and Headings. The titles and headings in this Agreement
are for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 5.7. Entire Agreement. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement among the parties with respect
to the matters covered hereby and supersedes all previous written, oral or
implied understandings among them with respect to such matters.
Section 5.8. Amendment and Modification. This Agreement may only be amended
or modified in writing signed by the party against whom enforcement of such
amendment or modification is sought.
Section 5.9. Waiver. Any of the terms or conditions of this Agreement may
be waived at any time by the party or parties entitled to the benefit thereof,
but only by a writing signed by the party or parties waiving such terms or
conditions.
Section 5.10. Severability. The invalidity of any portion hereof shall not
affect the validity, force or effect of the remaining portions hereof. If it is
ever held that any restriction hereunder is too broad to permit enforcement of
such restriction to his fullest extent, such restriction shall be enforced to
the maximum extent permitted by law.
Section 5.11. No Strict Construction. Each of the parties hereto
acknowledges that this Agreement has been prepared jointly by the parties
hereto, and shall not be strictly construed against any party.
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<PAGE>
Section 5.12. Capitalized Terms. Capitalized terms used herein shall have
the respective meanings ascribed thereto in the Merger Agreement unless
otherwise defined herein.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
__________________________________
Horace J. DePodwin, as Trustee
CENTER BANCORP, INC.
By: ______________________________
Name:
Title:
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AGREEMENT AND PLAN OF MERGER
by and between
CENTER BANCORP, INC.
and
LEHIGH SAVINGS BANK, S.L.A.
dated as of February 14, 1996
<PAGE>
INDEX TO DEFINITIONS
Act.................................................................Section 1.1
Affected Loans......................................................Section 5.7
Agreement..........................................................Introduction
Association........................................................Introduction
Association Disclosure Schedule.....................................Article III
Association Financial Statements..................................Section 3.4.1
Association Statement of Condition Date...........................Section 3.4.3
Bank................................................................Section 4.7
Acquisition Transactions............................................Section 5.1
Agreement..........................................................Introduction
Branch Property....................................................Section 3.24
CERCLA.............................................................Section 3.24
Certificate.........................................................Section 1.5
Closing.............................................................Section 1.4
Code..............................................................Section 3.8.2
Collateral Shares.................................................Section 2.1.1
Commissioner........................................................Section 1.2
Common Stock......................................................Section 2.1.1
Company............................................................Introduction
Company Disclosure Schedule..........................................Article IV
Confidentiality Agreement...........................................Section 5.4
Consents..........................................................Section 6.1.2
Constituent Banks...................................................Section 5.6
Constituent Entities................................................Section 1.2
Department........................................................Section 3.3.2
DEPE..............................................................Section 3.3.2
Effective Date......................................................Section 1.2
Environmental Law..................................................Section 3.20
Escrow Account......................................................Section 2.3
Escrow Agent........................................................Section 2.3
Excess TILA Costs...................................................Section 2.3
FDIC..............................................................Section 3.1.1
GAAP..............................................................Section 3.4.1
Hazardous Substance................................................Section 3.20
Inducement Agreement...............................................Introduction
IRS...............................................................Section 3.8.1
ISRA...............................................................Section 3.20
Legal Proceedings...................................................Section 3.7
Material Adverse Effect...........................................Section 3.3.2
Merger.............................................................Introduction
Merger Sub.........................................................Introduction
OCC...............................................................Section 4.2.2
OTS................................................................Introduction
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PCBs................................................................Section 3.20
Post-Closing Merger..................................................Section 5.6
Qualifying TILA Costs................................................Section 2.3
RCRA................................................................Section 3.20
Real Property.......................................................Section 3.20
Returns............................................................Section 3.8.1
SAIF...............................................................Section 3.1.1
Settlement Agreement................................................Section 3.14
Side Letter.........................................................Section 5.17
Stockholder.........................................................Introduction
Surviving Bank.......................................................Section 5.6
Surviving Entity.....................................................Section 1.3
TILA................................................................Section 5.16
TILA Costs........................................................Section 6.3.10
TILA Violation......................................................Section 5.16
Trust Account Shares...............................................Section 2.1.1
Trust Agreement.....................................................Introduction
Trustee.............................................................Introduction
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of
February 14, 1996, is made by and between Center Bancorp, Inc., a New Jersey
corporation (the "Company"), and Lehigh Savings Bank, S.L.A., a New Jersey
chartered capital stock savings and loan association (the "Association").
WHEREAS, the respective Boards of Directors of the Company and the
Association, by the requisite vote required under applicable law, have each
determined that it is in the best interests of the Company and the Association
and their respective stockholders for the Company to acquire the Association by
(i) organizing an interim New Jersey-chartered capital stock savings and loan
association (the "Merger Sub") and (ii) merging Merger Sub with and into the
Association upon the terms and subject to the conditions set forth herein (the
"Merger");
WHEREAS, the respective Boards of Directors of the Company and the
Association, by the requisite vote required under applicable law, have each
approved the Merger upon the terms and subject to the conditions set forth
herein; and
WHEREAS, the trustee (the "Trustee") under the Trust Agreement, dated as of
November 9, 1992 (the "Trust Agreement"), by and among David Margolis (the
"Stockholder"), Mildred Margolis, the Trustee and the Office of Thrift
Supervision (the "OTS") has entered into an Inducement Agreement, dated of even
date herewith (the "Inducement Agreement"), pursuant to which, among other
things, the Trustee has agreed to vote the shares of the Association's common
stock held by him in favor of the Merger, subject to receipt of notice of
non-disapproval from the OTS;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, the parties hereto
hereby agree as follows:
ARTICLE I-THE MERGER
1.1. Merger. Subject to the terms and conditions of this Agreement, on the
Effective Date (as defined in Section 1.2), the Merger Sub shall be merged with
and into the Association and the separate legal existence of Merger Sub shall
thereupon cease in accordance with the applicable provisions of the New Jersey
Savings and Loan Act (the "Act"). The Merger shall be treated as a taxable
purchase of the Common Stock of the Association by the Company for federal and
state income tax purposes.
1.2. Effective Date. As soon as practicable following fulfillment or waiver
of the conditions specified in Article VI, and provided that this Agreement has
not been terminated or abandoned pursuant to Section 7.1, Merger Sub and the
Association (the "Constituent Entities") shall jointly certify to the New Jersey
Commissioner of Banking (the "Commissioner") that they
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<PAGE>
have complied with all of the requirements of the Act. The Merger shall
become effective on the date such certification is approved by the Commissioner
(the "Effective Date").
1.3. Effect of Merger. The Merger shall have the effects specified in the
Act. Without limiting the generality of the foregoing, the corporate existence
of each of Merger Sub and the Association shall be merged into each other and
all of their respective rights, privileges and franchises, and their respective
right, title and interest in and to all property of whatever kind, whether real,
personal or mixed, and things in action and every right, privilege, interest or
asset of value or benefit then existing shall be vested in the Association as
the surviving entity of the Merger (sometimes hereinafter referred to as the
"Surviving Entity").
1.4. Consummation of Merger. The closing of the Merger (the "Closing")
shall take place (a) at the offices of Lowenstein, Sandler, Kohl, Fisher &
Boylan, 65 Livingston Avenue, Roseland, New Jersey 07068 five business days
after notification that all of the conditions set forth in Article VI have been
satisfied or duly waived or (b) at such other time and place and on such other
date as the Company and the Association may agree.
1.5. Certificate of Incorporation and By-laws. The Certificate of
Incorporation and By-Laws of Merger Sub in effect immediately prior to the
Effective Date shall be the Certificate of Incorporation and By-Laws of the
Surviving Entity, until duly amended in accordance with their terms and the Act.
1.6 Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Date shall be the directors and officers,
respectively, of the Surviving Entity, from and after the Effective Date, until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the terms of the
Surviving Entity's Certificate of Incorporation and By-Laws and the Act.
ARTICLE II-CONVERSION OF SHARES
2.1. Conversion of Shares. By virtue of the Merger, automatically and
without any action on the part of the holder thereof, upon the effectiveness of
the Merger, the following shall occur:
2.1.1. Each then-outstanding share of common stock, par value $10 per
share, of the Association ("Common Stock"), other than (a) shares owned by
the Company, Merger Sub or any direct or indirect wholly-owned subsidiary
of the Company or Merger Sub (except for any shares of Common Stock held in
trust accounts, managed accounts or in any similar manner as trustee or in
a fiduciary capacity ("Trust Account Shares") and shares held as collateral
or in lieu of a debt previously contracted ("Collateral Shares")), (b)
shares held in the treasury of the Association and (c) shares of Common
Stock the holders of which perfect any dissenters' rights they may have
under applicable law, shall be converted into the right to receive $15.2867
per share (as such amount may be reduced pursuant to Section 2.3, the "Per
Share Consideration"), without interest;
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<PAGE>
2.1.2. Each then-outstanding share owned by the Company, Merger Sub or
any direct or indirect wholly-owned subsidiary of the Company or Merger Sub
(except for any Shares that are Trust Account Shares or Collateral Shares)
shall be canceled and retired;
2.1.3. Each share issued and held in the Association's treasury shall
be canceled and retired;
2.14. Each issued and outstanding share of common stock of Merger Sub
shall be converted into one fully paid and nonassessable share of the
common stock of the Surviving Entity; and
2.1.5. Until surrendered and exchanged in accordance with this
Agreement, each certificate representing outstanding shares of Common Stock
entitled to the Per Share Consideration (each such certificate, a
"Certificate") shall, after the Effective Date, represent solely the right
to receive, without interest, the Per Share Consideration multiplied by the
number of shares of Common Stock evidenced by such Certificate and shall
have no other rights. Neither the Association, the Company or Merger Sub
shall be liable to any holder of shares of Common Stock for any Per Share
Consideration (or interest with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
2.2. Dissenters' Rights. Notwithstanding any provision of this Agreement to
the contrary, any shares of Common Stock outstanding immediately prior to the
Effective Date held by a holder who has demanded and perfected the right, if
any, to dissent from this Agreement in accordance with applicable law and as of
the Effective Date has not withdrawn or lost such right to dissent shall not be
converted into or represent a right to receive the Per Share Consideration, but
the holder of such shares shall only be entitled to such rights as are granted
by applicable law. If a holder of shares of Common Stock who dissents shall
effectively withdraw or lose (through failure to perfect or otherwise) the right
to dissent, then, as of the Effective Date or the occurrence of such event,
whichever last occurs, those shares shall be converted into and represent only
the right to receive the Per Share Consideration as provided in Section 2.1.1,
without interest, upon the surrender of the Certificate representing those
shares. The Association shall give the Company copies of any notice of dissent
of any shares of Common Stock received by the Association, notice of any
attempted withdrawals of any such notices of dissent and any other instruments
served pursuant to applicable law received by the Association relating to
stockholders' rights, if any, to dissent. The Association shall not, except with
the prior written consent of the Company, voluntarily make any payment with
respect to any dissenting shares of the Association, offer to settle or settle
any demands for payment with respect thereto or approve any withdrawal of any
such demands.
2.3. Adjustment to Per Share Consideration; Escrow Account. (a) In the
event that the aggregate TILA Costs (as defined herein) exceed $30,000, the Per
Share Consideration shall be reduced by an amount (determined on a per share
basis) equal to the excess, in any, of the Qualifying TILA Costs (as defined
herein) actually incurred and paid by the Association on or prior to Closing
over $30,000. As used herein, the term "Qualifying TILA Costs" means only
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<PAGE>
those TILA Costs which are (i) for a sum certain, (ii) liquidated, and
(iii) indefeasibly paid in full by the Association in cash on or prior to
Closing; such term specifically excludes any TILA Costs which are contingent,
unliquidated or unpaid. In the event that the Per Share Consideration is reduced
as provided in this Section 2.3(a), at the Closing the Company will cause the
Surviving Bank to assign to the Stockholder, as the representative of all of the
former stockholders of the Association, any claims which the Association may
have against any third party as a result of the TILA Violations (as defined in
Section 5.16) giving rise to the adjustment in the Per Share Consideration;
provided, however, that the Surviving Bank shall be entitled to receive the
first $30,000 of any recoveries based upon, resulting from or arising out of the
claims so assigned, together with the reimbursement in full of any out-of-pocket
expenses incurred by the Surviving Bank in connection therewith (including, but
not limited to, the fees and disbursements of counsel) before any amounts are
paid to the former stockholders of the Association in respect thereof. No later
than the business day immediately prior to the Closing, the Association shall
certify to the Company the amount of the Qualifying TILA Costs and shall provide
the Company with a reasonably detailed analysis of such Qualifying TILA Costs.
(b) If the aggregate amount of TILA Costs (net of Qualifying TILA Costs for
which a reduction in the Per Share Consideration has been made in accordance
with paragraph (a)) exceeds $30,000, then the Company shall have the right
exercisable at any time prior to the Closing, at its sole election, to either
terminate this Agreement as provided in Section 7.1 as a result of the failure
by the Association to satisfy the conditions of Section 6.3.10 or to further
reduce the Per Share Consideration otherwise payable pursuant to Section 2.1.1
by paying into an escrow account (the "Escrow Account") with an unrelated third
party financial institution selected by the Company and reasonably satisfactory
to the Association (the "Escrow Agent") an amount equal to the sum of (i) such
excess and (ii) the aggregate amount of the litigation expenses expected to be
incurred or paid after the Closing (the "Excess TILA Costs"); provided, however,
that the Company shall not have the right to terminate the Agreement as provided
above if the aggregate amount of the Excess TILA Costs is less than $100,000.
Amounts deposited into the Escrow Account shall be paid either to the Company
(or its designee) to the extent that any TILA Costs are actually incurred by the
Company or its subsidiaries or to the former shareholders of the Association in
accordance with the terms of a mutually satisfactory escrow agreement to be
entered into by the Company, the Stockholder, as the representative of the
former shareholders of the Association, and the Escrow Agent at the time the
Escrow Account is established. For purposes of this Agreement, TILA Costs shall
include the maximum amount of all disputed claims, unless otherwise mutually
agreed by the Association and the Company.
ARTICLE III-REPRESENTATIONS AND WARRANTIES OF THE ASSOCIATION
References herein to "Association Disclosure Schedules" shall mean all of
the disclosure schedules required by this Article III, dated as of the date
hereof and referenced to the specific sections and subsections of Article III of
this Agreement, which have been delivered on the date hereof by the Association
to the Company. The Association hereby represents and warrants to the Company as
follows:
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<PAGE>
3.1. Organization.
3.1.1. Association. The Association is a capital stock savings and
loan association duly organized, validly existing and in good standing
under the laws of the State of New Jersey. The Association has full power
and authority, corporate and otherwise, to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted. All eligible accounts of depositors issued by the Association
are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC") to the fullest extent
permitted by law. The Association Disclosure Schedule sets forth true and
complete copies of the Association's Certificate of Incorporation and
By-Laws, as in effect on the date hereof.
3.1.2. Subsidiaries. The Association has not previously and does not
now own or control, directly or indirectly, any controlling equity interest
in any corporation, company, association, partnership, joint venture or
other entity or otherwise control, directly or indirectly, the management
and policies of any such entity.
3.2. Capitalization. The authorized capital stock of the Association
consists of 1,395,500 shares of Common Stock. As of the date hereof, there are
392,500 shares of Common Stock issued and outstanding. The Association
Disclosure Schedules accurately set forth the names and addresses of each of the
shareholders of the Association and the number of shares of Common Stock owned
by each such shareholder. There are no shares of Common Stock issuable upon
exercise of outstanding options. The Association has not adopted any plan
pursuant to which capital stock may be issued. All issued and outstanding shares
of Common Stock have been duly authorized and validly issued, have been issued
without violating the pre-emptive or other rights of third-parties or the
provisions of any applicable federal or state securities laws, are fully paid,
and are nonassessable. The Association has not granted and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the transfer, purchase, subscription or issuance of
any shares of the Association's capital stock and has not issued any securities
representing the right to purchase, subscribe or otherwise receive any shares of
such capital stock or any securities convertible into any such shares, and there
are no agreements or understandings to which the Association is a party with
respect to voting of any such shares.
3.3. Authority; No Violation.
3.3.1. Authority. The Association has full power and authority,
corporate and otherwise, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby in accordance with the
terms hereof. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of the Association in accordance
with the Certificate of Incorporation of the Association and all applicable
laws and regulations. Except for stockholder approval of the Merger, no
other corporate proceedings on the part of the Association are necessary to
consummate the transactions so contemplated.
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<PAGE>
This Agreement constitutes a valid and binding obligation of the
Association, enforceable against the Association in accordance with its
terms.
3.3.2. Neither the execution and delivery of this Agreement by the
Association, nor the consummation by the Association of the transactions
contemplated hereby in accordance with the terms hereof, or compliance by
the Association with any of the terms or provisions hereof, will (i)
violate any provision of the Association's Certificate of Incorporation or
By-Laws, (ii) assuming that the consents and approvals set forth below are
duly obtained, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to the Association
or any of its properties or assets, or (iii) except as set forth in the
Association Disclosure Schedule, violate, conflict with, result in a breach
of any provisions of, constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon
any of the properties or assets of the Association under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
commitment, pledge, permit, deed of trust, license, lease, contract,
agreement or other instrument or obligation or (assuming that the consents
and approvals set forth below are duly obtained) any judgment, order,
decree, law, rule or other restriction of any governmental authority, in
each case to which the Association is a party, or by which the Association
may be bound or to which any of its assets or properties are subject
except, with respect to (ii) and (iii) above, such as individually or in
the aggregate would not have a material adverse effect on the business,
results of operations, assets, financial condition or prospects (financial
and otherwise) (a "Material Adverse Effect") of the Association and which
will not prevent or delay the consummation of the transactions contemplated
hereby. Except for consents and approvals of or filings or registrations
with or notices to the FDIC, the Office of Thrift Supervision ("OTS"), the
New Jersey Department of Banking ("Department"), the New Jersey Department
of Environmental Protection and Energy ("DEPE"), the stockholders of the
Association, no consents or approvals of or filings or registrations with
or notices to any third party or any public body or authority are necessary
on behalf of the Association in connection with (x) the execution and
delivery by the Association of this Agreement and (y) the consummation by
the Association of the Merger and the other transactions contemplated
hereby (including, without limitation, the "Post-Closing Merger" as defined
herein) (other than consents, approvals, filings, registrations or notices,
the failure of the Association to obtain which would not have a Material
Adverse Effect).
3.4. Financial Statements.
3.4.1. The Association Disclosure Schedule sets forth copies of the
consolidated statements of condition of the Association as of June 30, 1995
and June 30, 1994 and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the fiscal years
in the three-year period ended June 30, 1995, in each case accompanied by
the audit reports of KPMG Peat Marwick LLP and Arthur Andersen LLP,
independent public accountants with respect to the Association, and the
unaudited
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Thrift Financial Reports of the Association as of September 30, 1995
and December 31, 1995 (collectively, the "Association Financial
Statements"). The audited Association Financial Statements (including the
related notes) have been prepared in accordance with generally accepted
accounting principles ("GAAP"), consistently applied during the periods
covered thereby (except as may be indicated therein or in the notes
thereto), and the Thrift Financial Reports have been prepared in accordance
with generally accepted regulatory accounting principles, consistently
applied during the periods covered thereby and the Association Financial
Statements fairly present the consolidated financial condition of the
Association as of the respective dates set forth therein, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows (if any, in the case of the Thrift Financial Reports) fairly present
the results of the consolidated operations, changes in stockholders' equity
and cash flows of the Association for the respective periods set forth
therein.
3.4.2. The books and records of the Association have been maintained
in material compliance with all applicable legal and accounting
requirements.
3.4.3. Except as and to the extent reflected, disclosed or reserved
against in the Association Financial Statements (including the notes
thereto), as of December 31, 1995 (the "Association Statement of Condition
Date") the Association did not have any liabilities, whether absolute,
accrued, contingent or otherwise, material to the business, operations,
assets or financial condition of the Association which were required by
GAAP (consistently applied) to be disclosed in the Association's
consolidated statement of condition as of the Association Statement of
Condition Date or the notes thereto. Since the Association Statement of
Condition Date, the Association has not incurred any liabilities except in
the ordinary course of business and consistent with prudent banking
practice or except as related to the transactions contemplated by this
Agreement.
3.5. Broker's and Other Fees. Except for Alex Sheshunoff Investment
Banking, neither the Association nor any of its directors or officers has
employed any broker or finder or incurred any liability for any broker's or
finder's fees or commissions in connection with any of the transactions
contemplated by this Agreement. All agreements with Alex Sheshunoff Investment
Banking are set forth in the Association Disclosure Schedule. There are no other
fees (other than time charges billed at usual and customary rates) payable by
the Association to any consultants, including lawyers, accountants and
investment bankers, in connection with the Merger or which would be triggered by
consummation of the Merger or the termination of the services of such
consultants by the Association. The Association has not paid, and will not pay,
any fees to any attorney, accountant (other than customary accounting fees
payable to KPMG Peat Marwick in an amount not to exceed $5,000), investment
banker (other than fees payable to Alex Sheshunoff Investment Banking in an
amount not to exceed $15,000 plus reasonable out-of-pocket expenses) or other
consultant who or which represents any of the shareholders of the Association.
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3.6. Absence of Certain Changes or Events.
3.6.1. Except as disclosed in the Association Disclosure Schedule,
there has not been any material adverse change in the business, results of
operations, assets, prospects (financial or otherwise) or financial
condition of the Association since the Association Statement of Condition
Date, and to the best of the Association's knowledge, no facts or
conditions exist which are likely to cause such a material adverse change
in the future.
3.6.2 Except as disclosed in the Association Disclosure Schedule, the
Association has not taken or permitted any of the actions described in
Section 5.2 hereof between December 31, 1995 and the date hereof.
3.7. Legal Proceedings. Except as disclosed in the Association Disclosure
Schedule, the Association is not a party to any, and there are no pending or, to
the best of the Association's knowledge, threatened, legal, administrative,
arbitrable or other proceedings, claims, actions or governmental investigations
of any nature (collectively, "Legal Proceedings") against the Association and
there are no pending or, to the best of the Association's knowledge, threatened
Legal Proceedings which seek to enjoin, prohibit or delay the transactions
contemplated hereby. Except as disclosed in the Association Disclosure Schedule,
the Association is not a party to any order, judgment or decree entered in any
lawsuit or proceeding (other than routine foreclosure or collection orders
entered in the ordinary course of business).
3.8. Taxes and Tax Returns.
3.8.1. The Association has duly filed (and until the Effective Date
will so file) all returns, declarations, reports, information returns and
statements ("Returns") required to be filed by it in respect of any
federal, state and local taxes (including withholding taxes, penalties or
other payments required) and has duly paid when due (and until the
Effective Date will so pay) all such taxes due and payable, other than
taxes or other changes which are being contested in good faith (and
disclosed to the Company in writing). The Association has established (and
until the Effective Date will establish) on its books and records reserves
that are adequate for the payment of all federal, state and local taxes not
yet due and payable but which should be accrued in respect of the
Association through such date in accordance with GAAP. The Association
Disclosure Schedule identifies the federal income tax returns of the
Association which have been examined by the Internal Revenue Service (the
"IRS") within the past six years. No deficiencies were asserted as a result
of such examinations which have not been resolved and paid in full. To the
best knowledge of the Association, there are no audits or other
administrative or court proceedings presently pending nor any other
disputes pending with respect to, or claims asserted for, taxes or
assessments upon the Association, nor has the Association given any
currently outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any taxes or
Returns.
3.8.2. Except as set forth in the Association Disclosure Schedule, the
Association (i) has not requested any extension of time within which to
file any Return which Return
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has not since been filed, (ii) is not a party to any agreement
providing for the allocation or sharing of taxes, (iii) is not required to
include in income any adjustment pursuant to Section 481(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), by reason of a voluntary
change in accounting method initiated by the Association (nor does the
Association have any knowledge that the IRS has proposed any such
adjustment or change of accounting method), and (iv) has not filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply.
3.9. Reports. The Association has, since January 1, 1991, duly filed
with the OTS and the Department in form which was correct in all material
respects the monthly, quarterly and annual financial reports required to be
filed under applicable laws and regulations, and the Association promptly
will deliver or make available to the Company accurate and complete copies
of such reports.
3.10. Certain Contracts.
3.10.1. Except as disclosed in the Association Disclosure Schedule,
(i) the Association is not a party to or bound by any written contract or
understanding (whether written or oral) with respect to the employment of
any officers, employees, directors or consultants, and (ii) the
consummation of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any additional acts or events)
result in any payment (either of severance pay or otherwise) becoming due
from the Association, the Company or any affiliate of either such entity,
to any officer, employee, director or consultant of the Association. The
Association Disclosure Schedule sets forth true and correct copies of all
severance or employment agreements with officers, directors, employees,
agents or consultants to which the Association is a party.
3.10.2. Except as disclosed in the Association Disclosure Schedule and
except for loan commitments issued in the ordinary course of business, (i)
as of the date of this Agreement, the Association is not a party to or
bound by any commitment, agreement or other instrument which is material to
the business, operations, assets or financial condition of the Association,
but in no event shall a contract for less than $10,000 per year be deemed
material under this Section 3.10.2 or a contract for more than $25,000 per
year be deemed immaterial under this Section 3.10.2, (ii) no commitment,
agreement or other instrument to which the Association is a party or by
which it is bound limits the freedom of the Association to compete in any
line of business or with any person, and (iii) the Association is not a
party to any collective bargaining agreement.
3.10.3. Except as disclosed in the Association Disclosure Schedule,
the Association or, to the best knowledge of the Association, any other
party thereto, is not in default in any material respect under any material
lease, contract, mortgage, promissory note, deed of trust, loan or other
commitment or arrangement, except for defaults which individually or in the
aggregate would not have a Material Adverse Effect on the Association.
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3.11. Properties and Insurance.
3.11.1. The Association has good and, as to owned real property,
marketable title to all material assets and properties, whether real,
personal or mixed, tangible or intangible, reflected in the Association's
consolidated statement of condition (as set forth in the Association
Disclosure Schedule) as of the Association Statement of Condition Date, or
owned and acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of for fair value in the ordinary
course of business since the Association Statement of Condition Date),
subject to no encumbrances, liens, mortgages, security interests or
pledges, except (i) those items that secure liabilities that are reflected
in said consolidated statement of condition or the notes thereto or that
secure liabilities incurred in the ordinary course of business after the
date of such consolidated statement of condition, (ii) statutory liens for
amounts not yet delinquent or which are being contested in good faith,
(iii) such encumbrances, liens, mortgages, security interests, pledges and
title imperfections that are not in the aggregate material to the business,
operations, assets and financial condition of the Association and (iv) with
respect to owned real property, title imperfections noted in title reports
set forth in the Association Disclosure Schedule. The Association as lessee
has the right under valid and subsisting leases to occupy, use, possess and
control all real property leased by the Association in all material
respects as presently occupied, used, possessed and controlled by the
Association.
3.11.2. The business operations and all insurable properties and
assets of the Association are insured for its benefit against all risks
which, in the reasonable judgment of the management of the Association,
should be insured against, in each case under policies or bonds issued by
insurers of recognized responsibility, in such amounts with such
deductibles and against such risks and losses as are in the reasonable
opinion of the management of the Association adequate for the business
engaged in by the Association. As of the date hereof, the Association has
not received any notice of cancellation or notice of a material amendment
of any such insurance policy or bond and is not in default under any such
policy or bond, no coverage thereunder is being disputed and all material
claims thereunder have been filed in a timely fashion.
3.12. Minute Books. The minute books of the Association contain accurate
records of all meetings and other corporate action held of its stockholders and
Board of Directors (including committees thereof), for all meetings held and
actions taken since January 1, 1991.
3.13. Reserves. As of the Association Statement of Condition Date, the
allowance for loan losses in the Association Financial Statements was adequate
based upon all factors required to be considered by the Association in
determining the amount of such allowance. The methodology used to compute such
allowance complies in all material respects with all applicable OTS and
Department policies. As of the Association Statement of Condition Date, the
reserve for OREO properties in the Association Financial Statements was adequate
based upon all factors required to be considered by the Association in
determining the amount of such reserve.
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3.14. No Parachute Payments. No officer, director, employee or agent (or
former officer, director, employee or agent) of the Association is entitled now,
or will or may be entitled to as a consequence of this Agreement or the Merger,
to any payment or benefit from the Association, the Company or any subsidiary of
the Association or the Company which if paid or provided would constitute an
"excess parachute payment", as defined in Section 280G of the Code or
regulations promulgated thereunder. The Association has established an adequate
reserve in accordance with GAAP on the Association Financial Statements for all
amounts payable to Gary Restivo pursuant to the Settlement Agreement, dated
February 9, 1995 (the "Settlement Agreement").
3.15. Disclosure. No representation or warranty contained in Article III of
this Agreement or in the Association Disclosure Schedule contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
3.16. Employee Plans. Except as set forth in the Association Disclosure
Schedule, the Association does not maintain, and has no liability of any kind or
nature whatsoever (whether known or unknown, actual or contingent) under any
former, employee benefit, welfare, bonus, deferred compensation, pension, profit
sharing, stock option, employee stock ownership, consulting, severance or fringe
benefit plans, formal or informal, written or oral, or any trust agreements
related thereto, relating to any present or former directors, officers or
employees of the Association
3.17. Compliance with Laws and Orders. Except as set forth in the
Association Disclosure Schedule, the business of the Association has not been,
and is not being, conducted in violation of any law, ordinance, regulation,
judgment, order, decree, license or permit of any governmental entity
(including, without limitation, all statutes, rules and regulations pertaining
to the conduct of the banking business and the exercise of trust powers), except
for possible violations which individually or in the aggregate do not, and,
insofar as reasonably can be foreseen, in the future shall not, have a Material
Adverse Effect on the Association. Except as set forth in the Association
Disclosure Schedule, no investigation or review by any governmental entity with
respect to the Association is pending or, to the knowledge of the Association,
threatened, nor has any governmental entity indicated an intention to conduct
the same, in each case other than those the outcome of which shall not have a
Material Adverse Effect on the Association.
3.18. Agreements with Bank Regulators. Except as set forth in the
Association Disclosure Schedule, neither the Association nor any of its
shareholders is a party to any agreement or memorandum of understanding with, or
a party to any commitment letter, Board resolution submitted to a regulatory
authority or similar undertaking to, or is subject to any order or directive by,
or is a recipient of any extraordinary supervisory letter from, any governmental
entity which restricts materially the conduct of the Association's business, or
in any manner relates to its capital adequacy, its credit or reserve policies,
its management or its stockholders, nor has the Association been advised by any
governmental entity that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree,
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agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter or similar submission, except as set forth in the Association
Disclosure Schedule. The Association Disclosure Schedule also describes the
status of any such matter. The Association is required by Section 32 of the
Federal Deposit Insurance Act to give prior notice to a Federal banking agency
of the proposed addition of an individual to its board of directors or the
employment of an individual as a senior executive officer.
3.19. Association Action. The Board of Directors of the Association (at a
meeting duly called and held) has by the requisite vote of all directors present
(a) approved this Agreement and (b) directed that the Agreement be submitted for
consideration by the Association's stockholders.
3.20. Environmental Matters.
3.20.1. (a) For purposes of this Section 3.20.1, the following terms shall
have the following meanings:
"Branch Property" means all real property presently or formerly owned or
operated by the Association on which branches or facilities are or were located.
"Environmental Law" means any applicable federal, state or local statute,
law, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction, directive, requirement
or agreement with any Governmental Entity, now existing, relating to: (a) the
protection, preservation or restoration of the environment (including, without
limitation, air, water vapor, surface water, groundwater, drinking water supply,
surface land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety, or (b) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each case
as amended. The term Environmental Law includes, without limitation, (x) the
following statutes, each as amended:
(i) the federal Clean Air Act;
(ii) the federal Clean Water Act;
(iii) the federal Water Pollution Control Act of 1972;
(iv) the federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto) ("RCRA");
(v) the federal Comprehensive Environmental Response Compensation Liability
Act of 1980 (including the Superfund Amendments and Reauthorization Act of 1986)
("CERCLA");
(vi) the federal Toxic Substances Control Act;
(vii) the federal Occupational Safety and Health Act of 1970;
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(viii) the federal Emergency Planning and Community Right-to-Know Act of
1986;
(ix) the federal Safe Drinking Water Act;
(x) the federal Solid Waste Disposal Act;
(xi) the federal Insecticide, Fungicide and Rodenticide Act; and
(xii) the Industrial Site Recovery Act ("ISRA").
and (y) any common law or equitable doctrine (including, without
limitation, injunctive relief and tort doctrines such as negligence, nuisance,
trespass and strict liability) that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Substance.
"Hazardous Substance" means any substance, whether liquid, solid or gas,
listed, defined, designated, or classified as hazardous, toxic, radioactive, or
dangerous under any applicable Environmental Law, whether by type or by
quantity. Hazardous Substance includes, without limitation, (i) any "hazardous
substance" as defined in CERCLA, (ii) any "hazardous waste" as defined in RCRA,
and (iii) any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste or petroleum or any derivative or
by-product thereof, radon, radioactive material, asbestos, asbestos containing
material, urea formaldehyde foam insulation, lead and poly chlorinated biphenyls
("PCBs").
"Real Property" means the Branch Property, all real property classified by
the Association as OREO and all real property (including property held as
trustee or in any other fiduciary capacity) over which the Association currently
or formerly has exercised dominion, management or control.
(b) Except as set forth in the Association Disclosure Schedule or as would
not have a Material Adverse Effect on the Association:
(i) the Association is and has been in compliance with all applicable
Environmental Laws,
(ii) the Real Property does not contain any Hazardous Substance in
violation of any applicable Environmental Law,
(iii) the Association has not received any written notices, demand letters
or written requests for information from any governmental entity or any
third-party indicating that the Association may be in violation of, or
liable under, any Environmental Law.
(iv) there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigations or proceedings pending or
threatened against the Association
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with respect to the Association or the Real Property relating to any
violation, or alleged violation, of any Environmental Law;
(v) no reports have been filed, or are required to be filed, by the
Association concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law on or at the Real
Property;
(vi) to the knowledge of the Association, there are no underground storage
tanks on, in or under any of the Branch Property and no underground storage
tanks have been abandoned or removed from any Branch Property while such
Branch Property was owned or operated by the Association; and
(vii) to the knowledge of the Association, the Association has not
incurred, and none of the Real Property is presently subject to, any
liabilities (fixed or, to the knowledge of the Association, contingent)
relating to any suit, settlement, court order, administrative order,
judgment or claim asserted or arising under any Environmental Law.
(c) For purposes of this Section 3.20, "to the knowledge of the
Association" shall mean to the knowledge of each person with the title of Vice
President of the Association or higher.
(d) There are no permits, licenses or registrations required under any
Environmental Law with respect to the Branch Property presently operated by the
Association;
(e) The Association has not received written notice that any part of the
Real Property has been or is listed as a site having thereon Hazardous
Substances pursuant to any Environmental Law.
3.21. Labor Relations. Except as set forth in the Association Disclosure
Schedule, the Association is not a party to or bound by any collective
bargaining agreement respecting its employees, nor is there pending, or to the
best knowledge of the Association threatened, any strike, walk out or other work
stoppage or labor organizational effort.
3.22. Indemnification. Except as set forth in the Certificate of
Incorporation and By-Laws of the Association or in the Association Disclosure
Schedule, (i) the Association is not a party to any indemnification agreement
with any of its present or future directors, officers, employees, agents or
other persons who serve or served in any other capacity with any other
enterprise at the request of the Association (a "Covered Person"), and (ii) to
the best knowledge of the Association, there are no claims for which any Covered
Person would be entitled to indemnification under the Certificate of
Incorporation or By-Laws of the Association, or otherwise.
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ARTICLE IV-REPRESENTATIONS AND WARRANTIES OF THE COMPANY
References herein to "Company Disclosure Schedules" shall mean all of the
disclosure schedules required by this Article IV, dated as of the date hereof
and referenced to the specific sections and subsections of Article IV of this
Agreement, which have been delivered on the date hereof by the Company to the
Association. The Company hereby represents and warrants to the Association as
follows:
4.1. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of New Jersey. The Company has full
power and authority, corporate and otherwise, to own or lease all of its
properties and assets and to carry on its business as it is now being conducted.
4.2 Authority; No Violation.
4.2.1. Authority. The Company has full power and authority, corporate
and otherwise, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby in accordance with the terms hereof. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company in accordance with the Certificate of
Incorporation of the Company and all applicable laws and regulations. No
other corporate proceedings on the part of the Company are necessary to
consummate the transactions so contemplated. This Agreement constitutes a
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
4.2.2. Neither the execution and delivery of this Agreement by the
Company, nor the consummation by the Company of the transactions
contemplated hereby in accordance with the terms hereof, or compliance by
the Company with any of the terms or provisions hereof, will (i) violate
any provision of the Company's Certificate of Incorporation or By-Laws,
(ii) assuming that the consents and approvals set forth below are duly
obtained, violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to the Company or any of its
properties or assets, or (iii) except as set forth in the Company
Disclosure Schedule, violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon
any of the properties or assets of the Company under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
commitment, pledge, permit, deed of trust, license, lease, contract,
agreement or other instrument or obligation or any judgment, order, decree,
law, rule or other restriction of any governmental authority, in each case
to which the Company is a party, or by which the Company may be bound or to
which any of its assets or properties are subject except, with respect to
(ii) and (iii) above, such as individually or in the aggregate will not
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole and which will not prevent or delay the consummation of the
transactions contemplated hereby.
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Except for consents and approvals of or filings or registrations with
or notices to the FDIC, the Office of the Comptroller of the Currency (the
"OCC"), the Department, the DEPE, the Federal Reserve Board and the OTS, no
consents or approvals of or filings or registrations with or notices to any
third party or any public body or authority are necessary on behalf of the
Company in connection with (x) the execution and delivery by the Company of
this Agreement and (y) the consummation by the Company of the Merger and
the other transactions contemplated hereby.
4.3 Finances. At the Closing, the Company will have sufficient cash
resources to consummate the Merger and to pay the Per Share Consideration.
4.4 Capital Ratio. The Company has no reason to believe that as of the
Closing, on a pro forma basis giving effect to the Merger, (i) the Company's
Tier I risk-based capital ratio will be less than 4%, (ii) the Company's total
risk-based capital ratio will be less than 8%, or (iii) the Company's leverage
ratio will be less than 5%.
4.5 CRA Compliance. The Company has no reason to believe that it is in
material violation of the provisions of the Community Reinvestment Act of 1977,
as amended.
4.6. Absence of Certain Changes or Events. There has not been any material
adverse change in the business, results of operations, assets, prospects
(financial or otherwise) or financial condition of the Company and its
subsidiaries since September 30, 1995 and, to the best of the Company's
knowledge, no facts or conditions exist which are likely to cause such a
material adverse change in the future.
4.7. Reports. The Company's bank subsidiary, Union Center National Bank
(the "Bank"), has, since January 1, 1995, duly filed with the OCC in form which
was correct in all material respects the monthly, quarterly and annual financial
reports required to be filed under applicable laws and regulations, and the Bank
promptly will deliver or make available to the Association accurate and complete
copies of such reports.
4.8. Disclosure. No representation or warranty contained in Article IV of
this Agreement or in the Company Disclosure Schedule contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
4.9. Agreements with Bank Regulators. Neither the Company nor the Bank is a
party to any agreement or memorandum of understanding with, or a party to any
commitment letter, Board resolution submitted to a regulatory authority or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, any governmental entity
which would materially affect the ability of the Company to perform its
obligations hereunder nor has the Company or the Bank been advised by any
governmental entity that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, extraordinary
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supervisory letter, commitment letter or similar submission, except as
disclosed in the Company Disclosure Schedule.
4.10. Company Action. The Board of Directors of the Company (at a meeting
duly called and held) has by the requisite vote of all directors present (a)
determined that the Merger is advisable and in the best interests of the Company
and (b) approved this Agreement and the transactions contemplated hereby,
including the Merger.
4.11. Broker's Fees. Other than Capital Consultants of Princeton, Inc., no
person is or will be entitled to a broker's, finder's, investment banker's,
financial adviser's or similar fee from the Company in connection with this
Agreement or any of the transactions contemplated hereby. The fees and expenses
of Capital Consultants of Princeton, Inc. shall be the sole responsibility of
the Company.
ARTICLE V-COVENANTS
5.1. Acquisition Proposals. The Association shall not, directly or
indirectly, and shall instruct and otherwise use its best efforts to cause its
stockholders, officers, directors, employees, agents or advisors or other
representatives or consultants not to, directly or indirectly, (i) encourage,
solicit or initiate any proposals or offers from any person relating to any
acquisition or purchase of all or a material amount of the assets of, or any
securities of, or any merger, consolidation or business combination with, the
Association (such transactions are referred to herein as "Acquisition
Transactions") or (ii) participate in any discussions or negotiations regarding,
or furnish to any other person any information with respect to, an Acquisition
Transaction. The Association shall promptly notify the Company orally and in
writing of any proposal or offer regarding an Acquisition Transaction, any
inquiries with respect thereto and any request for information relating thereto.
Such written notification shall include the identity of the entity making such
inquiry or Acquisition Transaction proposal or offer or request and such other
information with respect thereto as is reasonably necessary to apprise the
Company of the material terms of such Acquisition Transaction proposal or offer
or request and all other material information relating thereto.
5.2. Interim Operations of the Association. During the period from the date
of this Agreement to the Effective Date, except as expressly provided in this
Agreement, as required by law, or as otherwise approved in writing and in
advance by the Company:
5.2.1. Conduct of Business. The Association shall conduct its business
only in, and not take any action except in, the ordinary course of the
Association's business. The Association shall use reasonable efforts to
preserve intact the business organization of the Association, to keep
available the services of its present key officers and employees and to
preserve the goodwill of those having business relationships with the
Association. Without limiting the generality of the foregoing, the
Association shall not pay interest on its deposits (or offer other
incentives which have the effect of increasing the rate of
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interest otherwise payable on such deposits) at a rate per annum which
is significantly in excess of market interest rates on deposits of similar
type, size and maturity.
5.2.2. Certificate of Incorporation and By-Laws. The Association shall
not make any chage or amendment to its Certificate of Incorporation or
By-Laws .
5.2.3. Capital Stock. The Association shall not issue or sell any
shares of capital stock or any other securities or issue any subscriptions,
options, warrants, rights, convertible securities or enter into any
agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Association obligating
the Association to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock of the Association or
obligating the Association to grant, extend or enter into any subscription,
option, warrant, right, convertible security or other similar agreement or
commitment or enter into any arrangement or contact with respect to the
purchase or voting of shares of its capital stock, or adjust, split,
combine or reclassify any of its capital stock or other securities or make
any other changes in its capital structure.
5.2.4. Dividends. The Association shall not declare, set aside, pay or
make any dividend or other distribution or payment (whether in cash, stock
or property) with respect to, or purchase or redeem, any shares of its
capital stock; provided, however, that the payments to Alex Sheshunoff
Investment Banking contemplated by Section 3.5 and compliance with the
provisions of Section 6.3.6 and 6.3.8 shall be deemed not to violate the
provisions of this Section 5.2.4.
5.2.5. Employee Plans, Compensation, Etc. Except as set forth in the
Association Disclosure Schedule, the Association shall not adopt or amend
any bonuses, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit agreements, trusts, plans, funds, employee stock
ownership, consulting, severance or fringe benefit plan, formal or
informal, written or oral, or other arrangements for the benefit or welfare
of any director, officer or employee, or (except pursuant to commitments of
the Association existing as of the date hereof as disclosed in the
Association Disclosure Schedule) increase the compensation or fringe
benefits of any director, officer or employee (other than in the ordinary
course of business consistent with past practices) or pay any benefit not
required by any existing plan or arrangement (including, without
limitation, the granting of stock options or stock appreciation rights) or
take any action or grant any benefit not required under the terms of any
existing agreements, trusts, plans, funds or other such arrangements or
enter into any contract, agreement, commitment or arrangement to do any of
the foregoing.
5.2.6. Representations and Covenants. The Association shall not take
any action, or knowingly omit to take any action, that would, or that would
reasonably be expected to, result in (A) any of the representations and
warranties of the Association set forth in
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Article III becoming untrue or (B) any of the conditions to closing
set forth in Sections 6.1 or 6.3 not being satisfied.
5.2.7. Other Actions. The Association shall not take any action that
would, in any such case, (i) materially delay or adversely affect the
ability of the Association or its shareholders to obtain any approvals of
governmental entities required to permit consummation of the Merger or (ii)
materially adversely affect its ability to perform its obligations under
this Agreement.
5.2.8. Environmental Actions. The Association shall not change any of
its existing policies and practices with respect to taking any action that
results or would be likely to result in it being deemed to exercise
dominion, management or control over collateral securing any extension of
credit (other than residential and one-to-four-family dwellings); provided,
however that such practices comply with all Environmental Laws and provided
further, however that the Association shall not take any such action with
respect to any outstanding extension of credit (other than residential and
one-to-four-family dwellings) in an amount of $25,000 or more or in
connection with which there is reasonably anticipated to be an
environmental exposure of $5,000 or more without prior consultation with
the Company.
5.3. Company Representations and Covenants. The Company shall not take any
action, or knowingly omit to take any action, that would, or that would
reasonably be expected to, result in (A) any of the representations and
warranties of the Company set forth in Article IV becoming untrue or (B) any of
the conditions to closing set forth in Sections 6.1 or 6.2 not being satisfied.
5.4. Access and Information. Upon reasonable notice and at reasonable
times, the Association shall afford to the Company and its representatives
(including, without limitation, directors, officers and employees of the Company
and its affiliates and counsel, accountants and other professionals retained by
it) access during normal business hours throughout the period prior to the
Effective Date to the books, records (including, without limitation, tax returns
and work papers of independent auditors), properties, personnel and to such
other information as the Company reasonably requests; provided, however, that
the Association shall not be required to provide access to any such information
if the providing of such access (i) would violate a binding contractual
obligation, (ii) would, as advised by outside counsel, be reasonably likely to
result in the loss or impairment of any privilege with respect to such
information or (iii) would be precluded by any law, ordinance, regulation,
judgment, order, decree, license or permit of any governmental entity. Any
access granted to the Company pursuant to this Section 5.4 shall not in any way
limit any representation or warranty set forth in this Agreement. The rights and
obligations of each of the Bank and the Association pursuant to the
Confidentiality Letter Agreements ("Confidentiality Agreements") between the
Bank and the Association, shall survive the execution and delivery of this
Agreement, and all information heretofore and hereafter obtained by the Company
or any of its advisors pursuant to this Section 5.4 or otherwise shall be deemed
Evaluation Material (as that term is defined in such Confidentiality Agreements)
and shall remain subject to the provisions of such Confidentiality Agreements
until the Effective Date.
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5.5. Certain Filings, Consents and Arrangements. The Company, the Bank and
the Association shall (a) cooperate with the Company in filing all applications
and reports required to be filed with all applicable governmental entities
between the date of this Agreement and the Effective Date with respect to the
Merger and the other transactions contemplated by this Agreement (including
without limitation the Post-Closing Merger (as hereinafter defined) described in
Section 5.6 hereof), (b) cooperate with one another (i) in promptly determining
whether any other filings are required to be made or consents, approvals,
permits or authorizations are required to be obtained under any other applicable
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such consents, approvals, permits or authorizations and (c)
subject to the qualifications set forth in the proviso in Section 5.4, deliver
to the other party hereto copies of all such reports and filings promptly after
they are filed. Notwithstanding anything to the contrary contained in this
Agreement, the Company shall not be required to take any action that would
subject it to any obligations under ISRA unless the Effective Date shall have
occurred.
5.6 Post-Closing Merger. Immediately after the Effective Date, the Company,
as the sole shareholder of the Association and the Bank, intends to merge the
Association with and into the Bank (the "Post-Closing Merger"). The Association
shall, at the Company's expense, take all actions reasonably requested by the
Company, including without limitation the processing of all applications and
filings contemplated by Section 5.5 hereof) in order to enable the Company to
effect the Post-Closing Merger immediately after the Effective Date. For
purposes of this Agreement, the term "Surviving Bank" shall mean the Bank as the
surviving entity of the Post-Closing Merger and the term "Constituent Banks"
shall mean the parties to the Post-Closing Merger.
5.7. Loan Sales. From time to time after the date hereof and prior to the
Closing, the Company shall have the right to require the Association to dispose
of one or more of the loans or other extensions of credit listed on Schedule 5.7
(the "Affected Loans") at the Closing. In the event that the Company wishes to
exercise its rights under this Section 5.7, the Company shall give written
notice to the Association referencing this Section 5.7 and setting forth the
Affected Loans to be disposed. Promptly after receipt of such notice, the
Association shall use its best efforts to dispose of the Affected Loans for cash
to a bona fide purchaser in the open market at the Closing. The Association
shall provide the Company with regular updates regarding the status of the
Association's disposition activities upon request. Notwithstanding the
foregoing, the Association shall not be required to comply with the provisions
of this Section 5.7 until the Effective Date.
5.8. Assessment Accruals. To the extent permitted under GAAP, prior to the
Closing the Association shall make appropriate provisions on its financial
statements to account for any "special" or "one-time" SAIF assessments which may
be imposed on the deposits of the Association subsequent to the Effective Date.
Notwithstanding the foregoing, the Association shall not be required to comply
with the provisions of this Section 5.8 until the Effective Date.
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5.9. Other Adjustments. Prior to the Closing, the Association shall write
down the value of its bank premises to an amount which approximates the fair
value of such premises as determined by the appraisals obtained by the Company.
Notwithstanding the foregoing, the Association shall not be required to comply
with the provisions of this Section 5.9 until the Effective Date.
5.10. Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto shall use its best efforts to take
promptly, or cause to be taken, all actions and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement (including, without limitation, the Post-Closing Merger),
including, without limitation, using its best efforts to obtain all necessary
actions or non-actions, extensions, waivers, consents and approvals from all
applicable governmental entities, effecting all necessary registrations and
filings (including, without limitation, making all filings under any applicable
banking and securities laws) and obtaining any required contractual consents.
If, at any time after the Effective Date, the Surviving Bank considers or is
advised that any deeds, bills of sale, assignments, assurances or any other
actions or things are necessary or desirable to vest, perfect or confirm of
record or otherwise in the Surviving Bank its right, title or interest in, to or
under any of the rights, properties or assets of either of the Constituent Banks
acquired or to be acquired by the Surviving Bank as a result of, or in
connection with the Merger or the Post-Closing Merger or otherwise to carry out
the purposes of this Agreement, the officers and directors of the Surviving Bank
shall be authorized to execute and deliver, in the name and on behalf of each of
the Constituent Banks or otherwise, all such deeds, bills of sale, assignments
and assurances and to take and do, in the name and on behalf of each of the
Constituent Banks or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and al right, title and
interest in, to and under such rights, properties or assets in the Surviving
Bank or otherwise to carry out the purposes of this Agreement.
5.11. Publicity. The initial press release announcing this Agreement shall
be a joint press release reasonably acceptable to the Association and the
Company, and thereafter (until the Effective Date) the Association and the
Company shall consult with each other before issuing any press releases with
respect to the transactions contemplated hereby or making any filings with any
governmental entity with respect thereto.
5.12. ISRA Approval. The Association, at its sole cost and expense, shall
obtain prior to the Effective Date (i) a determination from the DEPE that the
Merger is not subject to the requirements of ISRA, or (ii) an order issued by
the DEPE pursuant to ISRA authorizing the consummation of the transaction
contemplated by this Agreement prior to the issuance of any "Negative
Declarations" or approval of any "Clean-Up Plans," as such terms are defined
under ISRA or (iii) "Negative Declarations" or approvals of any "Clean-up Plans"
with respect to each property in New Jersey which the Association owns or
operates, in each case to the extent that such property renders the provisions
of ISRA applicable to the transaction contemplated by this Agreement. The
Association will post or have posted with the DEPE a surety bond or other
financial security approved by the DEPE in an amount requested by the DEPE as
required in furtherance of the Association's obligations under this covenant.
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5.13. Employee Matters. The Company shall interview all of the existing
employees of the Association so as to determine their relative qualifications
and shall make appropriate staffing decisions with respect to those employees as
the Company may determine in its sole discretion.
5.14. Transfer Covenants. From and after the date hereof, the Association
shall not reflect on its books any Transfer (as such term is defined in the
Inducement Agreement) of Trust Shares (as such term is defined in the Inducement
Agreement) except in accordance with the terms of the Inducement Agreement.
5.15. Payment of Certain Amounts. Prior to Closing, the Association shall
have fully discharged all of its obligations under the Settlement Agreement.
5.16. Truth in Lending Covenants. The Association shall take all actions as
may be necessary or advisable to fully resolve all outstanding violations of the
Truth in Lending Act ("TILA") and/or the provisions of Regulation Z promulgated
thereunder, whether existing on the date hereof or arising prior to the Closing
(the "TILA Violations"), on or prior to the Closing or as soon thereafter as
practicable. Without limiting the generality of the foregoing, the Association
shall (i) within 40 business days after the date hereof, deliver to all persons
entitled thereto appropriate notices of their right to rescind extensions of
credit made by the Association meeting the requirements of TILA and 12 C.F.R.
226.23(A) (as determined in the written opinion of Hehl & Hehl, special
independent counsel to the Association, which opinion shall be satisfactory, in
form and substance, to the Company), (ii) rescind any outstanding extension of
credit which is the subject of a TILA Violation if such rescission is timely
requested by any person entitled by TILA and Regulation Z to rescind such
credit, (iii) pay any statutory and other damages resulting from the TILA
Violations, and (iv) pay any other fines, penalties, charges, costs, expenses or
damages incurred in connection with the provisions of this Section 5.16;
provided, however, that the Company expressly acknowledges that the Association
shall have the right to institute appropriate proceedings if the Association
deems such proceedings to be reasonably necessary in fully resolving the TILA
Violations and the effects thereof.
5.17. Planning Board Determinations. The Association shall use its best
efforts to obtain the Planning Board determinations contemplated by the letter
agreement, dated February 14, 1996 (the "Side Letter"), from Washington Group,
Ltd., Lehigh Financial Corp., the Stockholder and Mildred Margolis to the
Company and the Association.
ARTICLE VI-CONDITIONS
6.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
6.1.1. The Merger shall have been approved and adopted by the
requisite vote of the holders of the Common Stock.
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6.1.2. All authorizations, consents, orders or approvals of, and all
expirations of waiting periods imposed by, any governmental entity or other
third party (collectively, "Consents") which are necessary for the
consummation of the Merger and the Post-Closing Merger (other than
immaterial Consents, the failure to obtain which would not have a material
adverse effect on the Company or the Association) shall have been obtained
or shall have occurred and shall be in full force and effect at the
Effective Date; provided, however, that the entry by a court, in any suit
brought by a private party or governmental entity challenging the Merger or
the Post-Closing Merger as violative of the antitrust laws, of an order or
decree permitting the Merger or the Post-Closing Merger, but requiring that
any of the businesses, product lines or assets of the Bank or the
Association be held separate thereafter, shall not be deemed to satisfy the
conditions specified in this Section 6.1.2.
6.1.3. No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court in the United
States which prevents the consummation of the Merger or the Post-Closing
Merger shall have been issued and remains in effect.
6.2. Conditions to Obligations of the Association to Effect the Merger. The
obligation of the Association to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Date of the additional
following conditions:
6.2.1. The Company shall have performed in all material respects its
covenants contained in this Agreement required to be performed at or prior
to the Effective Date.
6.2.2. The representations and warranties of the Company contained in
this Agreement shall be true in all material respects when made, and as of
the Effective Date as if made at and as of such time, except as expressly
contemplated or permitted by this Agreement and except for representations
and warranties relating to a time or times other than the Effective Date
which were or shall be true in all material respects at such time or times.
6.2.3. The Company shall have delivered to the Association a
Certificate dated the date of the Closing, signed by the President or Chief
Financial Officer of the Company that, to the best of his knowledge and
belief after due inquiry, the conditions set forth in Sections 6.2.1 and
6.2.2 have been satisfied.
6.3. Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Date of the additional
following conditions:
6.3.1. The Association shall have performed in all material respects
its covenants contained in this Agreement required to be performed at or
prior to the Effective Date.
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6.3.2. The representations and warranties of the Association contained
in this Agreement shall be true in all material respects when made, and as
of the Effective Date as if made at and as of such time, except as
expressly contemplated or permitted by this Agreement and except for
representations and warranties relating to a time or times other than the
Effective Date which were or shall be true in all material respects at such
time or times.
6.3.3. The Association shall have delivered to the Company a
Certificate dated the date of the Closing, signed by the Chief Executive
Officer or Chief Financial Officer of the Association that, to the best of
his knowledge and belief after due inquiry, the conditions set forth in
Sections 6.3.1 and 6.3.2 have been satisfied.
6.3.4. The Trustee shall have voted in favor of the transactions
contemplated hereby, including the Merger, and no default, breach or
violation of any of the representations, warranties, covenants and
agreements of the Trustee contained in the Inducement Agreement (or any
certificate or other document delivered pursuant thereto) shall have
occurred and be continuing.
6.3.5. Prior to or at the Closing, the Company shall have received
general releases, in form and substance satisfactory to the Company,
executed by each of the Trustee and the Stockholder, in favor of the
Association and certain related parties and containing such other terms as
the Company may reasonably require.
6.3.6. Prior to or at the Closing, the Bank and the Stockholder shall
have entered into an agreement, in form and substance satisfactory to the
Bank, granting the Bank the right to either terminate the Association's
lease of the premises located at 952 Stuyvesant Avenue, Union, New Jersey
on the 90th day after the Closing or, at the Bank's option, continue such
lease on a month-to month basis for up to three months after the end of
such 90-day period and containing such other terms as the Bank may
reasonably require.
6.3.7. The aggregate deposits of the Association as of a date not more
than five business days prior to the Closing shall not be less than $62.5
million and the Association shall have provided the Company with
satisfactory evidence regarding the composition and amounts of such
deposits as of such date.
6.3.8. The Association shall have entered into agreements satisfactory
to the Bank regarding the premises located at 944 Stuyvesant Avenue, Union,
New Jersey such that the Surviving Bank shall not be obligated either to
lease such premises from the owner thereof or to sublet such premises to
any sublessee thereof and such other agreements relating to such premises
as are described in the Side Letter.
6.3.9. The Company shall have received all such assurances as it shall
reasonably require to the effect that the Post-Closing Merger may be
consummated immediately after the Effective Date without any further
approvals or consents of any governmental authority.
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6.3.10. The Company shall have received satisfactory evidence that (i)
the Association has taken all actions necessary to resolve all outstanding
TILA Violations in accordance with Section 5.16 and (ii) subject to the
provisions of Section 5.16, at the Closing the Association is in full
compliance in all respects with the provisions of TILA and Regulation Z
promulgated thereunder; provided, however, that this condition shall be
deemed not to have been met if the costs incurred or expected to be
incurred by the Association in complying with the provisions of Section
5.16 (including, without limitation, all out-of-pocket expenses, the fees
and disbursements of counsel to the Association, all fines, penalties,
charges, costs, expenses or damages, all interest and fees foregone or
refunded in respect of extensions of credit which are rescinded pursuant to
Section 5.16 and all expenses incurred or to be incurred in connection with
any proceedings relating thereto) exceed $30,000 in the aggregate, net of
all amounts actually received by the Association in reimbursement thereof
prior to Closing (collectively, "TILA Costs"). For purposes of this Section
6.3.10, TILA Costs shall be reduced by the sum of (i) the aggregate amount
of Qualifying TILA Costs deducted from the Per Share Consideration in
respect thereof as provided in Section 2.3 hereof and (ii) the aggregate
amount, if any, deposited by the Company into the Escrow Account in
accordance with Section 2.3.
6.3.11. The Company shall have received satisfactory evidence that the
representations and warranties set forth in the second paragraph of the
Side Letter are true and correct in all material respects as of the
Closing.
ARTICLE VII-MISCELLANEOUS
7.1. Termination. This Agreement may be terminated at any time prior to the
Effective Date, whether before or after approval by the stockholders of the
Association:
7.1.1. by mutual consent of the Company and the Association;
7.1.2. by either the Company or the Association if the Merger shall
not have been consummated on or before December 31, 1996 (provided the
terminating party is not otherwise in material breach of its obligations
under this Agreement);
7.1.3. by either the Company or the Association, in the event of (i) a
breach by the other party of any representation or warranty contained
herein, which breach has not been cured within thirty (30) days after the
giving of written notice to the breaching party of such breach and which
breaches, individually or in the aggregate, would cause the conditions set
forth in Sections 6.2.2, 6.3.2 or 6.3.4 as the case may be, not to be met
if the date of the action described above were the date of the Closing or
(ii) a material breach by the other party of any of the covenants or
agreements contained herein, which breach has not been cured within thirty
(30) days after the giving of written notice to the breaching party of such
breach;
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7.1.4. by the Association if any of the conditions specified in
Sections 6.1 and 6.2 have not been met or waived by the Association at such
time as such conditions can no longer be satisfied;
7.1.5. by the Company if any of the conditions specified in Sections
6.1 and 6.3 have not been met or waived by the Company at such time as such
condition can no longer be satisfied; and
7.1.6. by the Company in the event of any material breach of the
provisions of the Inducement Agreement.
7.2. Non-Survival of Representations, Warranties, and Agreements. The
representations, warranties and covenants in this Agreement shall terminate at
the Effective Date or the earlier termination of this Agreement pursuant to
Section 7.1, as the case may be; provided, however, that if the Merger is
consummated, Sections 5.10, 7.2 and 7.5 hereof shall survive the Effective Date
to the extent contemplated by such Sections; provided, further, however that the
last sentence of Section 5.4 and all of Section 7.5 hereof shall in all events
survive any termination of this Agreement.
7.3. Interpretation. Unless the contest of this Agreement expressly
indicates otherwise, (i) any singular term in this Agreement shall include the
plural and any plural term shall include the singular and (ii) the term section
or schedule shall mean a section or schedule of or to this Agreement. Each of
the parties hereto acknowledge that this Agreement has been prepared jointly by
the parties hereto, and shall not be strictly construed against either party.
7.4. Parties in Interest; Assignment. This Agreement is not intended to nor
shall it confer upon any other person other than the parties hereto any rights
or remedies.
7.5. Expenses.
7.5.1. Subject to Section 7.5.2, the parties hereto shall each be
responsible for their own costs and expenses relating to this Agreement.
7.5.2. If this Agreement is terminated by the Association or the
Company pursuant to Sections 7.1.3, 7.1.4 or 7.1.5, respectively, because
of the willful breach of any representation, warranty, covenant,
undertaking or restriction contained in this Agreement and if the
terminating party is not in material breach of any representation,
warranty, covenant, undertaking or restriction contained in this Agreement,
then the breaching party shall pay all costs and expenses of the
terminating party; provided, however, that if this Agreement is terminated
under circumstances other than those described in the preceding clauses of
this Section 7.5.2, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses. Nothing contained in this Section
7.5.2 shall constitute or shall
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be deemed to constitute liquidated damages for the willful breach by a
party of the terms of this Agreement or otherwise limit the rights of the
non-breaching party.
7.5.3. Final settlement with respect to payment of fees and expenses
by the parties to this Agreement pursuant to Section 7.5.2 shall be made
within thirty (30) days of the termination of this Agreement.
7.6. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
7.7. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by and rule of law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the partes hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
7.8. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be delivered personally, by facsimile or
sent by certified, registered or express air mail, postage prepaid, and shall be
deemed given when so delivered personally, or by facsimile, or if mailed, five
days after the date of mailing, as follows:
If to the Company: 2455 Morris Avenue
Union, New Jersey 07083
Telephone: (908) 688-9500
Facsimile: (908) 688-3043
Attention: Jack Davis
With a copy to: Lowenstein, Sandler, Kohl,
Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068
Telephone: (201) 992-8700
Facsimile: (201) 992-5820
Attention: Peter H. Ehrenberg, Esq.
If to the Association: 950 Stuyvesant Avenue
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Union, New Jersey 07083
Telephone: (908) 686-6655
Facsimile: (908) 851-9523
Attention: Joseph LaMountain
With copies to: Levy, Lybeck, Bertele & Beck
385 Morris Avenue
P.O. Box 478
Springfield, New Jersey 07081
Telephone: (201) 912-7200
Facsimile: (201)912-7272
Attention: E. Robert Levy, Esq.
and: Horace J. DePodwin
c/o Economic Studies, Inc.
One Gateway Center
Suite 420
Newark, New Jersey 07102-4082
Telephone: (201) 621-0180
Facsimile: (201) 621-0182
and: Pitney, Hardin, Kipp & Szuch
200 Campus Drive
Florham Park, New Jersey 07932-0950
Telephone: (201) 966-6300
Facsimile: (201) 966-1550
Attention: Joseph Lunin, Esq.
7.9. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New Jersey without reference
to choice of law principles thereof.
7.10. Assignment; Successors and Assigns. This Agreement may not be
assigned, and any attempted assignment shall be null and void. This Agreement
shall be binding on and inure to the benefit of the parties hereto and their
respective successors, assigns and legal representatives.
7.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original agreement, but all of
which together shall constitute one and the same instrument.
7.12. Titles and Headings. The titles, headings and table of contents in
this Agreement are for reference purposes only, and shall not in any way affect
the meaning or interpretation of this Agreement.
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7.13. Entire Agreement. This Agreement, including the Schedules attached
hereto, and the Confidentiality Agreement shall constitute the entire agreement
among the parties with respect to the matters covered hereby and shall supersede
all previous written, oral or implied understandings among them with respect to
such matters.
7.14. Amendment and Modification. This Agreement may only be amended or
modified in writing signed by the party against whom enforcement of such
amendment or modification is sought.
7.15. Waiver. Except as otherwise required by law, any of the terms and
conditions of this Agreement may be waived at any time by the party or parties
entitled to the benefit thereof, but only by a writing signed by the party or
parties waiving such terms or conditions.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CENTER BANCORP, INC.
By: ________________________________
Name:
Title:
LEHIGH SAVINGS BANK, S.L.A.
By: ________________________________
Name:
Title:
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FIRST AMENDMENT
FIRST AMENDMENT, dated March , 1996 (this "Amendment"), to the Agreement
and Plan of Merger, dated as of February 14, 1996 (the "Merger Agreement"), by
and between Center Bancorp, Inc. (the "Company") and Lehigh Savings Bank, S.L.A.
("Lehigh").
W I T N E S S E T H:
WHEREAS, the Company and Lehigh previously entered into the Merger
Agreement;
WHEREAS, pursuant to the Merger Agreement a subsidiary of the Company
("Merger Sub") is to be merged with and into Lehigh; and
WHEREAS, the Merger Agreement provides that Merger Sub will be a New Jersey
state chartered capital stock savings and loan association; and
WHEREAS, the Company and Lehigh have agreed that it is in their mutual best
interests that the Merger Agreement be amended to provide that Merger Sub will
be a national association organized under the National Bank Act, as amended, and
to make certain other changes relating thereto; and
WHEREAS, except as expressly amended pursuant to the terms of this
Amendment, the Merger Agreement shall continue in full force and effect;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound, the parties hereto agree as follows:
Section 1. The first recital of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"WHEREAS, the respective Boards of Directors of the Company and the
Association, by the requisite vote required under applicable law, have each
determined that it is in the best interests of the Company and the Association
and their respective stockholders for the Company to acquire the Association by
(i) organizing an interim national association (the "Merger Sub") and (ii)
merging Merger Sub with and into the Association upon the terms and subject to
the conditions set forth herein (the "Merger");"
Section 2. Section 1.1 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"1.1. Merger. Subject to the terms and conditions of this Agreement,
on the Effective Date (as defined in Section 1.2), the Merger Sub shall be
merged with and into the Association and the separate legal existence of
Merger Sub shall thereupon cease in accordance with the applicable
provisions of the National Bank
<PAGE>
Act, as amended (the "Act"), and any other applicable law. The Merger shall
be treated as a taxable purchase of the Common Stock of the Association by
the Company for federal and state income tax purposes."
Section 3. Section 1.2 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"1.2. Effective Date. As soon as practicable following fulfillment or
waiver of the conditions specified in Article VI, and provided that this
Agreement has not been terminated or abandoned pursuant to Section 7.1,
Merger Sub and the Association (the "Constituent Entities") shall take all
action (in the manner contemplated by this Agreement) necessary under the
Act and any other applicable law to cause the Merger to become effective.
The date upon which the Merger is declared effective by the applicable
regulatory authority is hereinafter referred to as the "Effective Date.""
Section 4. Section 1.3 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"1.3. Effect of Merger. The Merger shall have the effects specified in
the Act and other applicable law. Without limiting the generality of the
foregoing, the corporate existence of each of Merger Sub and the
Association shall be merged into each other and all of their respective
rights, privileges and franchises, and their respective right, title and
interest in and to all property of whatever kind, whether real, personal or
mixed, and things in action and every right, privilege, interest or asset
of value or benefit then existing shall be vested in the Association as the
surviving entity of the Merger (sometimes hereinafter referred to as the
"Surviving Entity")."
Section 5. Section 1.5 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"1.5. Certificate of Incorporation and By-laws. The Certificate of
Incorporation and By-Laws of Merger Sub in effect immediately prior to the
Effective Date shall be the Certificate of Incorporation and By-Laws of the
Surviving Entity, until duly amended in accordance with their terms and
applicable law."
Section 6. Section 1.6 of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"1.6 Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Date shall be the directors and
officers, respectively, of the Surviving Entity, from and after the
Effective Date, until their successors have been duly elected or appointed
and qualified or until their earlier
-2-
<PAGE>
death, resignation or removal in accordance with the terms of the Surviving
Entity's Certificate of Incorporation and By-Laws and applicable law."
Section 7. Except as expressly amended pursuant to the terms of this
Amendment, the Merger Agreement shall continue in full force and effect.
[Remainder of page intentionally left blank]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
CENTER BANCORP, INC.
By: ______________________________
Name: John J. Davis
Title: President and Chief Executive Officer
LEHIGH SAVINGS BANK, S.L.A.
By: ______________________________
Name: Joseph LaMountain
Title: President and Chief Executive Officer
-4-
[CENTER BANCORP INC. LOGO]
SUMMARY OF SELECTED STATISTICAL INFORMATION AND FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Income
Interest income $ 21,749 $ 18,983 $ 18,341 $ 17,492 $ 17,269 $ 16,975
Interest expense 8,787 5,914 6,762 7,328 8,815 8,827
----------- ----------- --------- ----------- ----------- ---------
Net interest income 12,962 13,069 11,579 10,164 8,454 8,148
Provision for loan losses 0 10 200 461 117 119
----------- ----------- --------- ----------- ----------- ---------
Income from earning assets 12,962 13,059 11,379 9,703 8,337 8,029
Other income 732 668 820 1,159 878 723
Other expense 8,138 8,116 7,384 6,753 5,480 5,094
----------- ----------- --------- ----------- ----------- ---------
Income before income tax expense 5,556 5,611 4,815 4,109 3,735 3,658
Income tax expense 1,516 1,434 1,014 916 1,046 1,135
----------- ----------- --------- ----------- ----------- ---------
Net income $ 4,040 $ 4,177 $ 3,801 $ 3,193 $ 2,689 $ 2,523
- -------------------------------------------------------------------------------------------------------------------------------
Statement of Financial Condition Data*
Investments $ 209,692 $ 207,483 $ 206,844 $ 208,928 $ 136,877 $ 96,361
Total loans 97,570 88,805 65,745 59,517 59,443 68,778
Total assets 347,777 325,113 318,607 309,664 237,428 209,912
Deposits 295,666 290,175 294,469 286,665 215,714 186,828
Stockholders' equity 27,679 24,211 22,203 19,975 18,327 17,033
- -------------------------------------------------------------------------------------------------------------------------------
Dividends
Cash dividends $ 1,775 $ 1,730 $ 1,623 $ 1,570 $ 1,395 $ 1,393
Dividend payout ratio 44% 41% 43% 49% 52% 55%
- -------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Per Share
Cash dividends $ 1.20 $ 1.17 $ 1.11 $ 1.07 $ 0.95 $ 0.95
- -------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Net income $ 2.73 $ 2.83 $ 2.59 $ 2.18 $ 1.84 $ 1.72
- -------------------------------------------------------------------------------------------------------------------------------
Average Shares Outstanding
Average shares outstanding 1,473,671 1,473,671 1,468,538 1,464,523 1,464,364 1,464,364
- -------------------------------------------------------------------------------------------------------------------------------
Operating Ratios
Return on average assets 1.15% 1.27% 1.18% 1.19% 1.21% 1.26%
Return on average equity 15.32% 17.59% 17.93% 16.35% 15.37% 15.34%
- -------------------------------------------------------------------------------------------------------------------------------
Book Value Per Common Share
Book value (at year end) $ 18.69 $ 16.39 $ 15.85 $ 14.30 $ 13.14 $ 12.22
- -------------------------------------------------------------------------------------------------------------------------------
Non-Financial Information
Common stockholders 629 598 586 562 551 511
Staff 132 132 133 118 101 100
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
[UNION CENTER LOGO]
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1989 1988 1987 1986 1985 1984
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Income
Interest income $ 15,981 $ 14,713 $ 13,371 $ 11,459 $ 10,797 $ 8,962
Interest expense 8,253 6,773 5,995 4,795 4,698 3,873
----------- ----------- ----------- ----------- ----------- -----------
Net interest income 7,728 7,940 7,376 6,664 6,099 5,089
Provision for loan losses 27 40 15 28 31 24
----------- ----------- ----------- ----------- ----------- -----------
Income from earning assets 7,701 7,900 7,361 6,636 6,068 5,065
Other income 525 379 369 353 302 295
Other expense 4,509 3,950 3,427 3,162 3,001 2,832
----------- ----------- ----------- ----------- ----------- -----------
Income before income tax expense 3,717 4,329 4,303 3,827 3,369 2,528
Income tax expense 1,165 1,345 1,501 1,485 1,248 828
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 2,552 $ 2,984 $ 2,802 $ 2,342 $ 2,121 $ 1,700
- -------------------------------------------------------------------------------------------------------------------------------
Statement of Financial Condition Data*
Investments $ 80,963 $ 94,558 $ 97,983 $ 73,683 $ 62,965 $ 48,016
Total loans 70,348 63,720 49,760 40,560 44,183 40,886
Total assets 191,277 182,459 176,712 157,937 128,218 108,814
Deposits 168,909 161,195 161,917 145,523 115,091 94,800
Stockholders' equity 15,905 14,729 13,137 11,426 10,500 10,371
- -------------------------------------------------------------------------------------------------------------------------------
Dividends
Cash dividends $ 1,393 $ 1,356 $ 1,165 $ 1,085 $ 927 $ 776
Dividend payout ratio 55% 45% 42% 46% 45% 46%
- -------------------------------------------------------------------------------------------------------------------------------
Cash Dividends Per Share
Cash dividends $ 0.95 $ 0.92 $ 0.80 $ 0.74 $ 0.61 $ 0.49
- -------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share
Net income $ 1.75 $ 2.03 $ 1.92 $ 1.59 $ 1.39 $ 1.07
- -------------------------------------------------------------------------------------------------------------------------------
Average Shares Outstanding
Average shares outstanding 1,461,989 1,468,538 1,459,765 1,472,684 1,528,712 1,591,531
- -------------------------------------------------------------------------------------------------------------------------------
Operating Ratios
Return on average assets 1.38% 1.65% 1.70% 1.78% 1.26% 1.38%
Return on average equity 16.43% 22.52% 20.92% 20.35% 15.34% 16.43%
- -------------------------------------------------------------------------------------------------------------------------------
Book Value Per Common Share*
Book value (at year end) $ 9.97 $ 9.23 $ 8.23 $ 7.16 $ 7.12 $ 6.50
- -------------------------------------------------------------------------------------------------------------------------------
Non-Financial Information*
Common stockholders 504 499 480 490 480 531
Staff 92 92 86 95 95 96
- -------------------------------------------------------------------------------------------------------------------------------
At year end.
</TABLE>
11
<PAGE>
[CENTER BANCORP INC. LOGO]
FINANCIAL REVIEW
Table of Contents
Management's Discussion & Analysis ........................... 13
Consolidated Statements of Condition ......................... 30
Consolidated Statements of Income ............................ 31
Consolidated Statements of Changes in Stockholders' Equity ... 32
Consolidated Statements of Cash Flows ........................ 33
Notes to Consolidated Financial Statements ................... 34
Independent Auditors' Report ................................. 49
12
<PAGE>
[UNION CENTER LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS
The following introduction to Management's Discussion and Analysis
highlights the principal activities of Center Bancorp Inc. that have contributed
to its earnings performance in 1995. Although net income for 1995 declined,
earnings continue to reflect a healthy and stable performance.
Net income for the twelve months ended December 31, 1995, amounted to
$4,040,000 as compared to $4,177,000 and $3,801,000 earned in 1994 and 1993,
respectively. The resulting earnings per share amounted to $2.73 as compared to
$2.83 and $2.59 earned in 1994 and 1993, respectively. All share and per share
amounts have been restated to reflect the five percent stock dividend in 1994.
Earnings performance for 1995 was stable as compared to 1994. While net
interest margins declined, the impact of that decline was largely offset by
improvement in net operating overhead. The decline in net interest income was
primarily a result of an increase in the cost of funds. An expanded level of net
average earning assets was primarily supported by business related
interest-bearing deposits.
The Corporation's total assets grew to an all time year-end high of $347.8
million at December 31, 1995, increasing $22.7 million or 6.98 percent over
December 1994 levels. The return on average assets was 1.15 percent in 1995, as
compared with 1.27 percent and 1.18 percent in 1994 and 1993 respectively. The
return on average shareholders' equity was 15.32 percent in 1995, as compared to
17.59 percent in 1994 and 17.93 in 1993.
The Corporation's capital base remains strong. The Corporation's risk-based
capital ratios at December 31, 1995 were 23.4 percent for Tier I capital and
24.3 percent for total capital. These ratios substantially exceed the minimum of
4 percent for Tier I capital and 8 percent for total capital under regulatory
guidelines.
The following sections discuss the Corporation's Results of Operations,
Assets and Liability Management, Liquidity and Capital Resources.
RESULTS OF OPERATIONS
The most significant component of Center Bancorp's earnings is net interest
income, which is the difference between the interest earned on the portfolio of
earning assets (principally investments and loans) and the interest paid for
deposits and short-term borrowings which support these assets. Net interest
income is directly affected by changes in the volume and mix of earning-assets
and interest-bearing liabilities which support those assets, as well as changes
in the rates earned and paid. Net interest income is presented in this financial
review on a fully tax-equivalent basis, which is a standard analytical technique
designed to adjust 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. As a
result, the net interest income data presented in this financial review differ
from the Corporation's net interest income components of the consolidated
financial statements presented elsewhere in this report.
13
<PAGE>
[CENTER BANCORP INC. LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)
The following table presents the components of net interest income (on a
tax equivalent basis) for the past three years.
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------------- --------------------------------------- -----
Increase Increase
(Decrease) from Percent (Decrease) from Percent
(dollars in thousands) Amount Prior Year Change Amount Prior Year Change Amount
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Investments $ 13,930 $ 688 5.2 $ 13,242 $ 342 2.7 $ 12,900
Loans, including fees 7,526 1,827 32.1 5,699 304 5.6 5,395
Federal funds sold 293 251 597.6 42 (4) (8.7) 46
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 21,749 2,766 14.6 18,983 642 3.5 18,341
- ----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
- ----------------------------------------------------------------------------------------------------------------------------------
Certificates $100,000 or more 2,764 2,303 499.6 461 224 94.5 237
Deposits 5,921 556 10.4 5,365 (1,116) (17.2) 6,481
Short-term borrowings 102 14 15.9 88 44 100.0 44
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 8,787 2,873 48.6 5,914 (848) (12.5) 6,762
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income* 12,682 (107) (0.8) 13,069 1,490 12.9 11,579
Tax-equivalent adjustment 690 (175) (20.2) 865 (254) (22.7) 1,119
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income on a
fully tax-equivalent basis $ 13,652 $ (282) (2.0) $ 13,934 $ 1,236 9.7 $ 12,698
==================================================================================================================================
</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
Net interest income on a fully tax-equivalent basis decreased $282,000 or
2.0 percent to approximately $13.7 million during 1995 from approximately $13.9
million for 1994. The net interest margin decreased from 4.62 percent to 4.21
percent for 1995 due to the effect of the increased cost of funds reflecting the
rise in short-term interest rates that prevailed throughout most of 1995. This
was offset in part by an increase in the net average volume of interest-earning
assets in 1995 as compared to 1994. The average balance of interest-earning
assets and interest-bearing liabilities increased from $302.1 million and $244.7
million, respectively, in 1994 to $324.3 million and $260.1 million,
respectively, in 1995. Net average interest-earning-assets increased from $57.4
million in 1994 to $63.8 million in 1995. The 1995 increases in average balances
are primarily due to increased volumes of time deposits. The improvement of 95
basis points in the net volume of interest-earning assets was offset by the
increases in the average cost of interest-bearing liabilities (2.42 percent in
1994 versus 3.37 percent in 1995). The increase in the average yield on
interest-earning assets was only 35 basis points (6.57 percent in 1994 versus
6.92 percent in 1995). These various factors are reflected in the following
table presenting a rate/volume analysis of changes in net interest income which
indicates, for 1995, a net decrease of $771,000 from rate-related factors and a
net increase of $489,000 from volume related factors.
14
<PAGE>
[UNION CENTER LOGO]
The table on page 29 (Average Balance Sheet with Interest and Average
Rates) shows the Corporation's consolidated average balance of assets,
liabilities and stockholders' equity, the amount of average interest-earning
assets and interest-bearing liabilities, net interest income as a percentage of
average interest-earning assets.
The factors underlying these year-to-year changes in net interest income
are reflected in the tables appearing below and on page 29, both of which have
been presented on a tax-equivalent basis (assuming a 34 percent tax rate). The
table presented below (Analysis of Variance in Net Interest Income Due to Volume
and Rates) describes the impact on net interest income resulting from changes in
average balances and average rates over the past three years. Any change in
interest income or expense attributable to both changes in volume and changes in
rate has been allocated in proportion to the relationship of the absolute dollar
amount of change in each category.
ANALYSIS OF VARIANCE IN NET INTEREST INCOME DUE TO VOLUME AND RATES
<TABLE>
<CAPTION>
1995/1994 1994/1993
Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
- ------------------------------------------------------------------------------------------------------------------------
Average Average Net Average Average Net
(dollars in thousands) Volume Rate Change Volume Rate Change
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities:
Taxable $ 244 $ 784 $1,028 $ 754 $ 81 $ 835
Non-taxable (595) 80 (515) (967) 220 (747)
Federal funds sold 229 22 251 (15) 11 (4)
Loans, net of unearned discounts 1,775 52 1,827 482 (178) 304
- -----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,653 938 2,591 254 134 388
- -----------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Money market deposits (285) 338 53 (299) (366) (665)
Savings deposits (184) 275 91 136 (373) (237)
Time deposits 1,670 963 2,633 (8) 35 27
Other interest-bearing deposits (35) 117 82 116 (133) (17)
Short-term borrowings (2) 16 14 5 39 44
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,164 1,709 2,873 (50) (798) (848)
- ----------------------------------------------------------------------------------------------------------------------
Change in net interest income $ 489 $ (771) $ (282) $ 304 $ 932 $1,236
======================================================================================================================
</TABLE>
Interest income increased by $2.8 million from 1994 to 1995 and by $.6
million from 1993 to 1994. Contributing to the improvement in interest income
during 1995 was the increased levels of earning-assets, as previously noted.
Growth in the loan portfolio represented the most significant change. The
Corporation's loan portfolio, particularly residential mortgages, home equity
and consumer loans, increased on average a net $22.4 million. This was primarily
funded through deposit growth. The loan portfolio (traditionally the highest
yielding type of interest-earning asset) has improved to 29.4 percent of the
Corporation's interest-earning assets (on average) during 1995 from 24.1 percent
of such assets (on average) during 1994. Interest income generated from the loan
portfolio in 1995 was adversely affected by declines in market rates coupled
with continued refinancing activity in the portfolio as borrowers looked to
capitalize on the prevailing lower interest rates available during the latter
half of the year. Earnings were positively impacted by the rate related factors
in the beginning of 1995 due to investment portfolio purchases, which were
sufficient to offset the declines in the average volume of investment
securities.
During 1995 interest expense increased $2.9 million or 48.6 percent as
compared with the twelve months ended December 31, 1994. This was
15
<PAGE>
[CENTER BANCORP INC. LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)
primarily a result of higher average funding costs, as short-term interest rates
moved higher throughout most of 1995. The resulting average cost of funds to the
Corporation increased by 95 basis points. This cost was further impacted by a
change in the liability mix, as the Corporation had increased volumes of more
costly interest-bearing liabilities and funding sources. During 1995, less
expensive deposits such as NOW checking, Savings and Money Market accounts were
replaced by more costly time deposits of $100,000 and over.
Rate changes made by the Federal Reserve during 1995, along with
inflationary fears and the expanding economy, pushed short-term interest rates
higher during 1995. Despite subsequent easing by the Federal Reserve, there
continues to be a disintermediation of rates in the short-term interest rate
market. This in turn has effected the cost of funds associated with a number of
the Corporation's funding products. i.e. municipal deposits tied to market
indicies, "Jumbo" Certificates of Deposit, and short-term repurchase agreements.
Management believes that this pressure and continued disparity in the level of
interest rates in the short-term end of the yield curve will continue to exert
upward pressure on the cost of funds into the beginning of 1996.
Interest expense during 1994 declined $848,000 or 12.5 percent as compared
with the twelve months ended December 31, 1993. This was primarily as a result
of lower average interest rates, as market interest rates generally remained low
during 1994 and the resulting average cost of funds to the Corporation remained
low despite market pressures. Although the total average cost of
interest-bearing funds decreased by 33 basis points, this positive change in
funding costs was partially offset by the effects of a change in the liability
mix, as the Corporation had increased volumes of more costly interest-bearing
liabilities and funding sources. The growth in interest-bearing liabilities and
funding sources has been primarily in NOW checking, Jumbo Certificates of
Deposit and short-term borrowings. Money Market accounts of $100,000 and over
continued to be reinvested in certificates to obtain higher rates. This trend is
the result of deregulation of interest rates and expanded competition in the
Corporation's market area which has in turn resulted in the offering of higher
costing Certificates of Deposit.
The Corporation's net interest rate spread (i.e., the average yield on
average interest-earning assets, calculated on a tax-equivalent basis, minus the
average rate paid on interest-bearing liabilities) declined to 3.55 percent in
1995 from 4.15 percent in 1994 and 3.78 percent in 1993. The decline in net
interest spreads is primarily a result of the increased cost of interest-bearing
liabilities and the Corporation's inability to fund a greater portion of the
increase in earning-assets through increases in noninterest-bearing sources and
core deposits.
The Corporation's net interest yield (i.e., net interest income on a
tax-equivalent basis, as a percentage of interest-earning assets) decreased by
41 basis points in 1995 from 1994, following an increase of 36 basis points to
4.62 percent in 1994 from 4.26 percent in 1993.
The contribution of noninterest-bearing funds (i.e., the differential
between the average rate paid on all sources of funds and the average rate paid
on interest-bearing funding sources) increased in 1995 (66 basis points) from
1994 (48 basis points) and from 1993 (47 basis points). During the past three
years, average noninterest-bearing sources have consistently increased as a
percent of interest-earning assets to 19.4 percent in 1995 from 19.0 percent in
1994 and 18.1 percent in 1993.
16
<PAGE>
[UNION CENTER LOGO]
INVESTMENTS
The average volume of investment securities decreased by $4.4 million in
1995 as compared to 1994. The tax-equivalent yield on investments increased to
6.53 percent or by 35 basis points from a yield of 6.18 percent during 1994. The
increase in yields on the investment portfolio in 1995, was achieved due to
higher market rates on purchases made to replace lower yielding investments
which had matured.
The impact of repricing activity on yields was lessened by shorter
investment maturities, resulting in narrowed spreads, due to the change in
investment strategies brought about by the current uncertainty of rates and the
constraints imposed by SFAS No. 115. 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.
On January 3, 1994, the Corporation adopted SFAS No. 115. In connection
with this policy, management reviewed the composition of the investment
portfolio and designated all municipal securities, certain fixed rate
collateralized mortgage obligations, federal agency and U.S. treasury bonds as
held-to-maturity. These securities are being carried at amortized cost. All
other securities, comprised primarily of U.S. treasury notes and certain Federal
Agency and CMO securities, with an amortized cost amounting to approximately
$65.8 million, were designated as available-for-sale and marked to their
estimated market values. Prior to the adoption of SFAS No. 115, the Corporation
did not maintain an available-for-sale portfolio. All investment securities were
carried at amortized cost.
Pursuant to the provisions and implementation guidance contained within the
special report "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities", on November 27, 1995, the
Corporation reassessed the classification of all securities within its portfolio
and transferred $17.9 million from its held-to-maturity investment portfolio to
its available-for-sale portfolio. These securities had a market value of $17.9
million which resulted in the Corporation recording an unrealized gain on
securities available-for-sale, net of tax, within shareholders' equity of
$60,000.
At December 31, 1995, the total investment portfolio excluding overnight
investments, was $209.7 million, or 62.1 percent of earning assets, as compared
to $207.5 million or 66.1 percent at December 31, 1994. The principal components
of the investment portfolio are U.S. government Treasury and Federal Agency
securities. For additional information regarding the Corporation's investment
portfolio, see Note 3 of the Notes to the Corporations's Consolidated Financial
Statements.
17
<PAGE>
[CENTER BANCORP INC. LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION
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 allowance for loan losses is
maintained at an amount considered adequate by management to provide for
potential credit losses based upon a periodic evaluation of the risk
characteristics of the loan portfolio. In establishing an appropriate allowance,
an assessment of the individual borrowers, 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 problem loans are
considered. Such factors as the level and trend of interest rates and current
economic conditions are also reviewed. At year-end 1995, the level of allowance
returned to a year end balance of $1,073,000 as compared to the same year-end
level at December 31, 1994, and a level of $943,000 at December 31, 1993. The
Corporation had no charges to earnings (through the provision of loan losses) in
1995.
Various regulatory agencies, as an integral part of their examination
process, periodically review the Corporation's allowance for loan losses. Such
agencies may require the Corporation to increase the allowance based on their
analysis of information available to them at the time of their examination. The
allowance for loan losses as a percentage of total loans amounted to 1.10
percent, 1.21 percent and 1.43 percent at December 31, 1995, 1994 and 1993,
respectively. The Corporation's provision for loan losses required to reach
these levels was $0, $10,000 and $200,000 for 1995, 1994 and 1993, respectively.
During 1995 the Corporation did not experience any substantial problems
within its loan portfolio. Net charge-offs were $0 in 1995. The Corporation has
had no non-performing loans at year-end for the past five years. The Corporation
continues to aggressively pursue collections of principal and interest on loans
previously charged off. The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" which applies to financial statements for fiscal years
beginning after December 15, 1994. This statement requires that impaired loans
be measured based on the present value of expected future cash flows discounted
at the 1oan's effective interest rate or, as a practical expedient, at the
loan's observable market price or at the fair value of the collateral if the
loan is collateral dependent. Management has adopted the statement on January 1,
1995, with no material impact to the Corporation's financial position or results
of operations.
18
<PAGE>
[UNION CENTER LOGO]
FIVE YEAR STATISTICAL ALLOWANCE FOR LOAN LOSSES
The following table reflects the relationship of loan volume, the provision
and allowance for loan losses and net charge-offs for the past five years:
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993 1992 1991
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Average loans outstanding $ 95,216 $ 72,752 $ 66,656 $ 60,856 $ 62,087
=======================================================================================================================
Total loans at end of period $ 97,570 $ 88,805 $ 65,745 $ 59,517 $ 59,443
=======================================================================================================================
Analysis of the Allowance for Loan Losses
Balance at the beginning of year $ 1,073 $ 973 $ 821 $ 507 $ 487
Charge-offs:
Commercial 0 0 20 120 24
Real estate-mortgage 0 0 58 21 33
Installment loans 10 12 20 32 53
- -----------------------------------------------------------------------------------------------------------------------
Total charge-offs 10 12 98 173 110
- -----------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial 0 110 -- -- --
Real estate-mortgage 5 20 19 23 --
Installment loan 5 2 1 3 13
- -----------------------------------------------------------------------------------------------------------------------
Total recoveries 10 132 20 26 13
- -----------------------------------------------------------------------------------------------------------------------
Net charge offs: 0 (120) 78 147 97
=======================================================================================================================
Additions charged to operations $ 0 $ 10 $ 200 $ 461 $ 117
=======================================================================================================================
Balance at end of year $ 1,073 $ 1,073 $ 943 $ 821 $ 507
=======================================================================================================================
Ratio of net charge-offs during the year to
average loans outstanding during the year 0.00% (.16%) 0.12% 0.24% 0.16%
=======================================================================================================================
Allowance for Loan Losses as a percentage
of total loans at end of year 1.10% 1.21% 1.43% 1.38% 0.85%
=======================================================================================================================
</TABLE>
19
<PAGE>
[CENTER BANCORP INC. LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)
ASSET QUALITY
The Corporation manages asset quality and credit risk by maintaining
diversification in its loan portfolio and through review processes that include
analysis of credit requests and ongoing examination of outstanding loans and
delinquencies, with particular attention to portfolio dynamics and mix. 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
ninety days.
At December 31, 1995, the Corporation had no non-accrual or restructured
loans. Past due loans 90 days or more amounted to $48,000. Additionally, the
Corporation did not have any other real estate owned (OREO) at December 31,
1995.
NONINTEREST INCOME
The following table presents the principal categories of noninterest income
for each of the years in the three year period ended December 31, 1995.
<TABLE>
<CAPTION>
Years Ended December 31, Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 % change 1994 1993 % change
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Other income:
Service charges, commissions
and fees $ 570 $ 556 2.5 $ 556 $ 698 (20.3)
Other income 113 112 0.9 112 109 2.8
Gain on securities sold 49 0 100.0 0 13 (100.00)
- --------------------------------------------------------------------------------------------------------------------------
Total other noninterest-income $ 732 $ 668 9.6 $ 668 $ 820 (18.5)
==========================================================================================================================
</TABLE>
Total other (noninterest) income, exclusive of gains on securities sold,
reflects an increase of $15,000 or 2.2 percent in 1995. The primary component of
the increase was the improvement made in fee revenue reflected in service
charges, commissions and fees. This increase of $14,000 or 2.5 percent in such
fees, was derived from checking account activity. For the 1994 period total
other (noninterest) income, exclusive of gains on securities sold, reflects a
decline of $139,000 or 17.2 percent. The primary component of the decline was a
$142,000 reduction in service charges derived from business checking accounts
resulting from a lower level of business activity. Other less significant
factors contributing to the decline in service charges were reductions in other
fee income sources resulting from lower levels of business activity and a
reduction in automated teller fees.
During 1995 there were $49,000 in net gains on securities sold. These sales
were made from the Corporation's available-for-sale investment portfolio and
were made as part of its interest rate risk management position. In 1994, there
were no sales of securities from the Corporation's investment portfolio.
20
<PAGE>
[UNION CENTER LOGO]
NONINTEREST EXPENSE
The following table presents the principal categories of noninterest
expense for each of the years in the three-year period ended December 31, 1995.
<TABLE>
<CAPTION>
Years Ended December 31, Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 % change 1994 1993 % change
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Other noninterest-expense:
Salaries and employee benefits $ 4,323 $ 3,846 12.4 $ 3,846 $ 3,530 9.0
Occupancy expense, net 712 773 (7.9) 773 595 29.9
Premises and equipment expense 794 692 14.7 692 508 36.2
Stationery and printing expense 295 331 (10.9) 331 322 2.8
Correspondent fees expense 70 107 (34.6) 107 177 (39.5)
Computer expense 58 109 (46.8) 109 103 5.8
FDIC Insurance expense 338 649 (47.9) 649 619 4.8
Other expenses 1,548 1,609 (3.8) 1,609 1,530 5.2
- --------------------------------------------------------------------------------------------------------------------------------
Total other noninterest-expense $ 8,138 $ 8,116 0.3 $ 8,116 $ 7,384 9.9
================================================================================================================================
</TABLE>
Total other (noninterest) expense increased $22,000 or 0.3 percent in 1995
as compared to an increase of $732,000 or 9.9 percent from 1993 to 1994.
Salaries and employee benefits accounted for 53.8 percent of total other expense
for 1995, as compared to 47.4 percent and 47.8 percent for the years 1994 and
1993, respectively. Strict control over other expenses has been a key objective
of Management. The Corporation's overhead ratio (other expenses less other
income as a percentage of net interest income on a tax-equivalent basis) was
54.2 percent, 53.3 percent and 51.7 percent, respectively for 1995, 1994 and
1993. The ratio of other expenses to average assets has increased slightly to
2.50 percent in 1995 from 2.48 percent in 1994 which had increased from 2.29
percent in 1993.
Salaries and employees benefits increased $477,000 or 12.4 percent in 1995.
This increase is primarily attributed to expense arising from merit and
promotional raises and higher benefit costs. The increase of $379,000 in such
expense in 1993 was due to an increase in employee promotions, merit increases
and the higher cost of benefits. Staffing levels overall amounted to 132, 132
and 133 full-time equivalent employees at December 31, 1995, 1994 and 1993,
respectively. Employees' longevity has continued to be significant. As of
December 31, 1995, the Corporation's employees, excluding officers, have been
employed by the Corporation for an average of 308.68 weeks or 6.18 years. This
factor contributes to the Corporation's continued productivity, as evidenced by
the ratio of average assets, in millions, per full time equivalent employee,
which amounted to $2.6 million, $2.5 million and $2.6 million in 1995, 1994 and
1993, respectively.
Occupancy and bank premise expense increased $41,000 or 2.80 percent in
1995 over 1994. This increase in 1995 expense reflects the operating costs
associated with the expanded facilities and operations, offset in part by
operating overhead efficiencies achieved. The increase in such expenses of
$362,000 or 32.8 percent in 1994 to 1993, reflect the increased costs associated
with the new corporate headquarters and main office, and extraordinary weather
related expense incurred during the winter months.
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,
21
<PAGE>
[CENTER BANCORP INC. LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)
under previously established mandates passed by Congress, the FDIC indicated
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 during September
representing the excess premiums paid into the Bank Insurance Fund from May of
1995 through September 30, 1995. Effective with the fourth quarter of 1995, the
Corporation's new assessment rate was lowered to the 4 cents per $100.00 of
deposits. Subsequent to that change the FDIC announced that well capitalized
banks would not be assessed annual insurance premiums and would only be subject
to minimum fund membership fees. The Corporation's entire FDIC insurance fund
assessment for 1996 is estimated at approximately $1,000.
The decline in other expense of $61,000 or 3.8 percent in 1995 resulted
from improved operating overhead efficiencies. The $79,000 or 5.2 percent
increase in other expenses in 1994 over the 1993 period, resulted primarily from
expanded marketing and advertising promotions and other operating expenses.
Management believes that these increases were essential in light of expanded
competition in the Corporation's market place and increased costs associated
with regulatory compliance changes.
In October, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which is effective beginning in 1996. SFAS 123 allows
companies either to continue to account for stock-based employee compensation
plans under existing accounting standards or adopt a fair value based method of
accounting for stock options as compensation expense over the service period as
defined in the new standard. SFAS 123 requires that if a company continues to
account for stock options under APB opinion No. 25, it must provide proforma net
income and earnings per share information as if the new fair value approach had
been adopted. Center Bancorp will continue to follow the existing accounting
standards for these plans and will make the required disclosure in 1996.
22
<PAGE>
[UNION CENTER LOGO]
INCOME TAXES
The Corporation's provision for income taxes increased from 1993 to 1994
and from 1994 to 1995 primarily as a result of increased state taxes and a
reduction of tax-exempt income. The effective tax rate for the Corporation for
the periods ended December 31, 1995, 1994 and 1993 were 27.3 percent, 25.6
percent and 21.3 percent. The effective tax rate continues to be substantially
less than the statutory Federal tax rate of 34 percent. The difference between
the statutory and effective tax rates primarily reflects the tax-exempt status
of interest income on obligations of states and political subdivisions.
Tax-exempt interest income, on a tax-equivalent basis, decreased by $515,000 or
20.2 percent from 1994 to 1995, while this income also declined by $747,000 or
22.7 percent from 1993 to 1994.
ASSET AND LIABILITY MANAGEMENT
The composition of the Corporation's statement of condition is planned and
monitored by the Asset and Liability Committee (ALCO). Asset and Liability
management encompasses the control of interest rate risk (interest sensitivity
management) and the ongoing maintenance and planning of liquidity and capital.
In general, management's objective is to optimize net interest income and
minimize interest rate risk by monitoring these components of the statement of
condition.
INTEREST SENSITIVITY
The management of interest rate risk is also important to the profitability
of the Corporation. Interest rate risk arises when an earning asset matures or
when its interest rate changes in a time period different from that of a
supporting interest bearing liability, or when an interest bearing liability
matures or when its interest rate changes in a time period different from that
of an earning asset that it supports. While the Corporation matches only a small
portion of specific assets and liabilities, total earning assets and interest
bearing liabilities are grouped to determine the overall interest rate risk
within a number of specific time frames.
Interest sensitivity analysis attempts to measure the responsiveness of net
interest income to changes in interest rate levels. The difference between
interest sensitive assets and interest sensitive liabilities is referred to as
the interest sensitivity gap. At any given point in time, the Corporation may be
in an asset-sensitive position, whereby its interest-sensitive assets exceed its
interest-sensitive liabilities, or in a liability-sensitive position, whereby
its interest-sensitive liabilities exceed its interest-sensitive assets,
depending on management's judgment as to projected interest rate trends.
The Corporation's rate sensitivity position in each time frame may be
expressed as assets less liabilities, as liabilities less assets, or as the
ratio between rate sensitive assets (RSA) and rate sensitive liabilities (RSL).
For example, a short funded position (liabilities repricing before assets) would
be expressed as a net negative position, when period gaps are computed by
subtracting repricing liabilities from repricing assets. When using the ratio
method, a RSA/RSL ratio of 1 indicates a balanced position, a ratio greater than
1 indicates an asset sensitive position, and a ratio less than 1 indicates a
liability sensitive position.
A negative gap and/or a rate sensitivity ratio less than 1 tends to expand
net interest margins in a falling rate environment and to reduce net interest
margins in a rising rate environment. Conversely, when a positive gap occurs,
generally margins expand in a rising rate environment and contract in a failing
rate environment.
From time to time, the Corporation may elect to deliberately mismatch
liabilities and assets in a strategic gap position.
At December 31, 1995, the Corporation reflects a negative interest
sensitivity gap (or an interest sensitivity ratio) of .72:1.00 at the cumulative
one year position. During much of 1995 the Corporation had a negative interest
sensitivity gap at that position. The maintenance of a liability-sensitive
position during 1995 has had an impact on the Corporation's net interest
margins; however, based on management's perception that interest rates will
continue to be volatile, emphasis has been and will continue to be placed on
interest-sensitivity matching with the objective of achieving a stable net
interest spread during 1996.
23
<PAGE>
[CENTER BANCORP INC. LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
Daily Due After Due After
Floating and Three Months One Year
Due Within But Within Through Due After
(dollars in thousands) Three Months One Year Five Years Five Years Total
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $ 19,912 $ 1,079 $ 8,439 $ 66,140 $ 95,570
Investments 9,605 35,684 117,884 46,519 209,692
Other 16,000 16,000
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 45,517 $ 36,763 $ 126,323 $ 112,659 $ 321,262
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Time certificates of deposit of
$100,000 or greater $ 38,216 $ 1,188 $ 117 $ 0 $ 39,521
Time certificates of deposit of
less than $100,000 6,168 15,925 5,219 0 25,312
Other interest bearing deposits 29,838 0 56,501 83,859 170,198
Securities sold under agreements
to repurchase 22,326 22,326
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 96,548 $ 17,113 $ 59,837 $ 83,859 $ 257,357
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative interest earning assets $ 45,517 $ 82,280 $ 208,603 $ 321,262 $ 321,262
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative interest bearing liabilities $ 98,548 $ 113,661 $ 173,498 $ 257,357 $ 257,357
- ----------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ (51,031) $ 19,650 $ 66,486 $ 28,800 $ 64,354
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitivity gap (51,031) (31,381) 35,105 63,905 64,354
- ----------------------------------------------------------------------------------------------------------------------------
Interest-sensitive assets to interest
sensitive liabilities 0.47 2.15 2.11 1.34 1.25
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative ratio of interest-sensitive
assets to interest sensitive liabilities 0.47 0.72 1.20 1.25 1.25
============================================================================================================================
</TABLE>
The table above indicates the time period in which interest-earning assets and
interest-bearing liabilities will mature or may reprice in accordance with their
contractual terms. However, this table does not necessarily indicate the impact
of general interest rate movements on the Corporation's net interest yield
because the repricing of various catagories of assets and liabilities is
discretionary and is subject to competitive and other pressures. As a result,
various assets and liabilities indicated as repricing within the same period may
in fact reprice at different times and at different rate levels.
LIQUIDITY
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 accommodate possible
deposit outflows and to meet customers' requests for loans. Such needs can be
satisfied by scheduled principal loan repayments, maturing investments,
short-term liquid assets and deposit in-flows. The objective of liquidity
management is to enable the Corporation to maintain sufficient liquidity to meet
its obligations in a timely and cost-effective manner. Management monitors
current and projected cashflows, and adjusts positions as necessary to maintain
adequate levels of liquidity. By using a variety of potential funding sources
and staggering maturities, the risk of potential funding pressure is
significantly reduced. Management also maintains
24
<PAGE>
[UNION CENTER LOGO]
a detailed liquidity contingency plan designed to adequately respond to
situations which could lead to liquidity concerns.
The Corporation derives a significant proportion of its liquidity from its
stable core deposit base. At December 31, 1995, core deposits (comprised of
total demand and savings accounts plus money market accounts under $100,000)
represented 68.0 percent of total deposits. More volatile rate sensitive
deposits, concentrated in Certificates of deposit $100,000 and greater,
increased to 3.6 percent of total deposits from 1.0 percent at December 31,
1994. This change has been brought about due to the sharp rise in short-term
rates during the latter part of 1994 which continued into 1995.
On February 14, 1996, the Corporation entered into a letter of intent to
acquire the $74 million Lehigh Savings Bank, SLA (Lehigh) and its three branches
located in Union County, New Jersey at a cost of approximately $6 million. The
acquisition will be accounted for under the purchase method of accounting, and
is subject to regulatory approval. As a result of the acquisition the excess of
cost over fair market value of tangible assets acquired will be recorded as
goodwill.
<TABLE>
CORE DEPOSITS MIX
<CAPTION>
December 31, December 31,
============================================================================================================================
1995 1994 Net Change
(dollars in thousands) Amount Percentage Amount Percentage 95 vs. 94
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Demand Deposits $ 60,635 30.0 $ 56,872 26.0 7.11%
NOW Accounts 42,811 21.1 57,494 26.2 -25.54%
Regular Savings 71,075 35.0 76,448 34.9 -7.03%
Money Market Deposits under $100 28,035 13.8 28,318 12.9 -1.00%
- ----------------------------------------------------------------------------------------------------------------------------
Total core deposits $ 202,836 100.00 $219,132 100.00 -7.44%
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits $ 295,666 $390,175 2.05%
- ----------------------------------------------------------------------------------------------------------------------------
Core deposits to total deposits 68% 76% -9.30%
============================================================================================================================
</TABLE>
Short-term borrowings can be used to satisfy daily funding needs. Balances
in those 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 of approximately $1.9
million did not change from the 1994 period.
The following table is a summary of securities sold under repurchase
agreements for each of the last three years.
(dollars in thousands) 1995 1994 1993
================================================================================
Securities sold under repurchase agreements:
Average interest rate:
At year end 5.25% 4.56% 2.53%
For the year 5.65% 5.16% 0.00%
Average amount outstanding during the year: $ 1,887 $ 1,928 $ 1,740
Maximum amount outstanding at any month end 22,326 9,745 4,248
Amount outstanding at year end $ 22,326 $ 9,745 $ 0
===============================================================================
25
<PAGE>
[CENTER BANCORP INC. LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)
CASHFLOW
The consolidated statements of cash flows present the changes in cash and
cash equivalents from operating, investing and financing activities. During 1995
cash and cash equivalents (which increased overall by $11.9 million) were
provided (on a net basis) by operating and financing activities and used (on a
net basis) in investing activities. The cash flow provided by the increase in
deposits and short-term borrowings, coupled with a reduction in the investment
portfolio at year end, supported the net increase in the loan portfolio and the
property and equipment expenditures. Cash flow from operating activities,
primarily net income contributed to the balance of the increase in cash.
STOCKHOLDERS' EQUITY AND DIVIDENDS
STOCKHOLDERS' EQUITY
Stockholders' equity averaged $26.2 million during 1995, an increase of
$2.3 million, or 9.66 percent, as compared to 1994. At December 31, 1995,
stockholders' equity totaled $27.7, or 14.5 percent over the prior year. In
November of 1993 the Corporation announced the offering of a dividend
reinvestment and optional stock purchase plan. This plan, which contributed
$232,000 in new capital during 1995, together with internal capital generation,
is expected to enhance the Corporation's equity position. Book value per common
share rose to $18.69 at year end 1995 from $16.39 the prior year, as adjusted to
reflect the five percent stock dividend paid on August 1, 1994.
CAPITAL
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 stockholders with an attractive
long-term return on their investment.
RISK-BASED CAPITAL/LEVERAGE GUIDELINES
The Federal Reserve Board has established a leverage test which requires
banking institutions to maintain a 3.00 percent minimum of Tier I 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 December 31, 1995, total Tier l capital (defined as tangible
stockholders' equity for common stock and certain perpetual preferred stock)
amounted to $27.3 million or 7.84 percent of total assets. Total capital
(defined as Tier I capital and Tier II capital which does not qualify as Tier I
capital) amounted to $28.3 million or 8.15 percent of total assets. Tier I
capital excludes the effect of SFAS No. 115. Under SFAS No. 115 at December 31,
1995, $416,010 of net unrealized gains, after tax effect, on securities
available-for-sale are included as a component of stockholders' equity.
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
catagorized 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 December 31, 1995, the Corporation's estimated Tier I
and total risk-based capital ratios were 23.4 percent and 24.3 percent,
respectively. These ratios are well above the minimum guidelines of capital to
risk-adjusted assets in effect as of December 31, 1995 of 4 percent for Tier I
capital as a percentage of risk adjusted assets and the 8 percent minimum for
the aggregate Tier I and Tier II capital to risk adjusted assets.
The following table presents the components of the Corporation's risk-based
capital at December 31, in each of the last three years.
26
<PAGE>
[UNION CENTER LOGO]
CAPITAL
December 31,
- --------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
================================================================================
RISKED-BASED CAPITAL
TIER I CAPITAL
Total shareholders' equity, as adjusted $ 27,263 $ 24,766 $ 22,203
- --------------------------------------------------------------------------------
Total Tier I capital $ 27,263 $ 24,766 $ 22,203
================================================================================
TIER II CAPITAL
Qualifying allowance for loan losses $ 1,073 $ 1,073 $ 943
- --------------------------------------------------------------------------------
Total Tier II capital 1,073 1,073 943
- --------------------------------------------------------------------------------
Total capital (Tier I + Tier II) $ 28,336 $ 25,839 $ 23,146
- --------------------------------------------------------------------------------
Risk-adjusted assets $116,713 $128,101 $ 95,524
- --------------------------------------------------------------------------------
Ratio of Tier I capital to
risk-adjusted assets 23.36% 19.33% 20.78%
- --------------------------------------------------------------------------------
Regulatory requirement minimum 4.00% 4.00% 4.00%
- --------------------------------------------------------------------------------
Ratio of total capital to
risk-adjusted assets 24.28% 20.17% 21.36%
- --------------------------------------------------------------------------------
Regulatory requirement minimum 8.00% 8.00% 8.00%
- --------------------------------------------------------------------------------
Total assets $347,777 $325,113 $318,607
- --------------------------------------------------------------------------------
Leverage ratio 8.15% 7.95% 6.97%
================================================================================
27
<PAGE>
[CENTER BANCORP INC. LOGO]
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION & RESULTS OF OPERATIONS (continued)
SECURITY MARKET INFORMATION
The common stock of the Corporation is inactively traded in the
over-the-counter market. As of December 31, 1995, the Corporation had 629 common
stockholders of record. This does not include beneficial owners for whom CEDE &
Company or others act as nominees. On December 31, 1995, the closing market bid
and ask price was $30.00-$32.00 respectively. During the last two fiscal years,
the high and low bid prices (as reported by National Quotation Bureau) and
dividends declared on common stock per share, adjusted for the 5 percent stock
dividend paid on August 1, 1994.
Common Stock Price Common
1995 1994 Dividends Declared
- --------------------------------------------------------------------------------
High Low High Low 1995 1994
Bid Bid Bid Bid
================================================================================
Fourth Quarter 31.00 26.00 28.50 26.50 $ 0.30 $ 0.29
Third Quarter 26.50 25.00 27.14 25.00 0.30 0.29
Second Quarter 26.50 25.50 30.00 25.44 0.30 0.30
First Quarter 30.00 25.00 30.47 28.58 0.30 0.29
- --------------------------------------------------------------------------------
$ 1.20 $ 1.17
================================================================================
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
For information on dividend restrictions and capital requirements which may
limit the ability to pay dividends, see Note 11 to the consolidated financial
statements.
Inflation, as measured by the Consumer Price Index, has been relatively
steady during the last three years: 2.8 percent in 1995, 2.7 percent in 1994,
and 2.7 percent in 1993. Since the Corporation's assets and liabilities are
predominantly monetary, the effects of inflation on the Corporation's
performance are primarily measured by the level and volatility of interest rates
earned and paid. During the past three years, the prime rate changed several
times, ranging from 10.0 percent to 6.0 percent. During this period, the
Corporation was able to control interest rate risk, as a result of its
continuing policy of managing its interest-sensitive assets and liabilities.
28
<PAGE>
<TABLE>
[UNION CENTER LOGO]
AVERAGE STATEMENT OF CONDITION WITH INTEREST AND AVERAGE RATES
YEARS ENDED DECEMBER 31,
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
(tax equivalent basis, Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Investment securities:
Taxable $195,626 $12,590 6.44% $191,639 $11,562 6.03% $179,140 $10,727 5.99%
Non-taxable 28,343 2,030 7.16% 36,688 2,545 6.94% 50,817 3,292 6.48%
Federal funds sold 5,103 293 5.74% 1,013 42 4.15% 1,433 46 3.21%
Loans, net of unearned income 95,216 7,526 7.90% 72,752 5,699 7.83% 66,656 5,395 8.09%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 324,288 22,439 6.92% 302,092 19,848 6.57% 298,046 19,460 6.53%
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets:
Cash and due from banks 16,628 15,069 16,126
Other assets 11,420 11,443 9,621
Allowance for possible loan losses (1,070) (974) (897)
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets 26,978 25,538 24,700
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $351,266 $327,630 $322,746
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Money market deposits $ 63,971 1,783 2.79% $ 75,375 1,730 2.30% $ 87,135 2,395 2.75%
Savings deposits 72,995 1,917 2.63% 80,649 1,826 2.26% 75,421 2,063 2.74%
Time deposits 72,143 3,822 5.30% 35,674 1,189 3.33% 35,929 1,162 3.23%
Other interest-bearing deposits 49,469 1,163 2.35% 51,087 1,081 2.12% 45,926 1,098 2.39%
Short-term borrowings 1,887 102 5.41% 1,928 88 4.56% 1,740 44 2.53%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $260,465 8,787 3.37% $244,713 5,914 2.42% $246,151 6,762 2.75%
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities:
Demand deposits 62,878 57,200 53,945
Other noninterest-bearing deposits 310 331 313
Other liabilities 1,454 1,543 1,137
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing liabilities 64,642 59,074 55,395
Stockholders' equity 26,159 23,843 21,200
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
Stockholders' equity $351,226 $327,630 $322,746
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income
(tax equivalent basis) $13,652 $13,934 $12,698
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.55% 4.15% 3.78%
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income as percent
of earning assets 4.21% 4.62% 4.26%
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-equivalent adjustment (690) (865) (1,119)
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $12,962 $13,069 $ 11,579
===================================================================================================================================
</TABLE>
29
<PAGE>
<TABLE>
[CENTER BANCORP INC. LOGO]
CONSOLIDATED STATEMENTS OF CONDITION
<CAPTION>
(dollars in thousands) December 31,
====================================================================================================================================
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 2) $ 14,172 $ 16,556
Federal funds sold 16,000 1,000
Securities purchased under agreement to resell 0 749
- ------------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 30,172 18,305
Investment securities held to maturity
(approximate market value of $157,449 in 1995 and $161,026 in 1994) 156,030 166,618
Investmeent securities available for sale 53,662 40,865
Total investment securities (Note 3) 209,692 207,483
Loans, net of unearned income (Note 4) 97,570 88,805
Less--Allowance for loan losses (Note 4) 1,073 1,073
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 96,497 87,732
Premises and equipment, net (Note 5) 7,462 7,443
Accrued interest receivable 3,643 3,938
Other assets 311 212
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $347,777 $325,113
====================================================================================================================================
LIABILITIES
Deposits:
Non-interest bearing $ 60,635 $ 56,872
Interest bearing:
Certificates of deposit $100,000 and over 39,521 10,308
Other 195,510 222,995
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 295,666 290,175
Federal funds purchased and securities sold under agreements to repurchase 22,326 9,745
Accounts payable and accrued liabilities (Notes 6 and 7) 2,106 982
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 320,098 300,902
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 3, 10 and 11)
Common stock, no par value:
Authorized 20,000,000 shares; issued 1,682,301 and 1,673,805 shares
in 1995 and 1994 respectively 4,199 3,967
Appropriated surplus 3,510 3,510
Retained earnings 21,368 19,103
- ------------------------------------------------------------------------------------------------------------------------------------
29,077 26,580
Less--Treasury stock at cost (199,368 shares in 1995 and 1994, respectively) 1,814 1,814
Net unrealized (loss) on investment securities available for sale, net of taxes 416 555
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 27,679 24,211
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $347,777 $325,113
====================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
<PAGE>
<TABLE>
[UNION CENTER LOGO]
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 7,526 $ 5,699 $ 5,395
Interest and dividends on investment securities:
Taxable interest income 12,580 11,552 10,717
Nontaxable interest income 1,340 1,680 2,173
Dividends 10 10 10
Interest on Federal funds sold 293 42 46
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 21,749 18,983 18,341
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on certificates of deposit $100,000 or more 2,764 461 237
Interest on other deposits 5,921 5,365 6,481
Interest on short-term borrowings 102 88 44
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 8,787 5,914 6,762
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 12,962 13,069 11,579
Provision for loan losses (Note 4) 0 10 200
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,962 13,059 11,379
- ------------------------------------------------------------------------------------------------------------------------------------
Other income:
Service charges, commissions and fees 570 556 698
Other income 113 112 109
Gain on securities sold 49 0 13
- ------------------------------------------------------------------------------------------------------------------------------------
Total other income 732 668 820
- ------------------------------------------------------------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits (Note 6) 4,323 3,846 3,530
Occupancy expense, net 712 773 595
Premises and equipment expense 794 692 508
Stationery and printing expense 295 331 322
Correspondent fees expense 70 107 177
Computer expense 58 109 103
FDIC Insurance expense 338 649 619
Other expenses 1,548 1,609 1,530
- ------------------------------------------------------------------------------------------------------------------------------------
Total other expense 8,138 8,116 7,384
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 5,556 5,611 4,815
Income tax expense (Note 7) 1,516 1,434 1,014
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,040 $ 4,177 $ 3,801
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share:
(Based on 1,478,887, 1,473,671 and 1,468,538 weighted average shares
outstanding in 1995, 1994 and 1993, respectively)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2.73 $ 2.83 $ 2.59
====================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
<PAGE>
<TABLE>
[CENTER BANCORP INC. LOGO]
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Years Ended December 31, 1995, 1994 and 1993
-----------------------------------------------------------------------------------------------
Unrealized Gain Total
Common Common (Loss) on Securities Stock-
(in thousands, Stock Stock Appropriated Retained Treasury Available for sale holders'
except per share data) Shares Amount Surplus Earnings Stock Net of Taxes Equity
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR 1993
Balance January 1, 1993 1,396,632 $ 2,000 $ 3,497 $ 16,329 $ (1,851) $ -- $ 19,975
Net income 3,801 3,801
Cash dividend (1,623) (1,623)
Exercise of stock option 4,000 13 37 50
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 1,400,632 $ 2,000 $ 3,510 $ 18,507 $ (1,814) $ -- $ 22,203
YEAR 1994
Unrealized gain on investment
securities available for sale as
of January 1, 1994 756 756
Net Income 4,177 4,177
Cash dividend (1,730) (1,730)
Common stock dividend 70,054 1,851 (1,851) 0
Issuance of common stock 3,751 116 116
Net change in unrealized loss
on investment securities
available for sale (1,311) (1,311)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,474,437 $ 3,967 $ 3,510 $ 19,103 $ (1,814) $ (555) $ 24,211
YEAR 1995
Net income 4,040 4,040
Cash dividend (1,775) (1,775)
Issuance of common stock 8,496 232 232
Net change in unrealized gain
(loss) on investment securities
available for sale 971 971
- -----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 1,482,933 $ 4,199 $ 3,510 $ 21,368 $ (1,814) $ 416 $ 27,679
===================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
32
<PAGE>
<TABLE>
[UNION CENTER LOGO]
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
===================================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,040 $ 4,177 $ 3,801
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 728 672 487
Provision for loan losses 0 10 200
Provision for deferred taxes 118 (125) 160
Gain on sale of investment securities 49 0 (13)
(Increase) decrease in accrued interest receivable 295 (266) 192
(Increase) decrease in other assets (99) 330 274
Increase (Decrease) in other liabilities 1,186 (670) (136)
Amortization of premium and accretion of discount
on investment securities, net 674 904 974
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,991 5,032 5,939
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 7,691 7,027 0
Proceeds from maturities of securities held to maturity 84,335 42,628 84,860
Proceeds from sales of investment securities available for sale 7,629 0 4,716
Purchase of securities available-for-sale (6,435) (2,750) 0
Purchase of securities held to maturity (95,361) (49,349) (88,453)
Net increase in loans (8,765) (22,940) (6,306)
Property and equipment expenditures, net (747) (856) (4,021)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,653) (26,240) (9,204)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 5,491 (4,294) 7,804
Dividends paid (1,775) (1,730) (1,623)
Proceeds from issuance of common stock 232 116 0
Proceeds from exercise of stock option 0 0 50
Net increase (decrease) in short-term borrowing 12,581 9,745 (1,355)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,529 3,837 4,876
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)in cash and cash equivalents 11,867 (17,371) 1,611
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 18,305 35,676 34,065
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 30,172 $ 18,305 $ 35,676
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid on deposits and short-term borrowings $ 8,641 $ 5,869 $ 6,683
Income taxes $ 1,397 $ 1,495 $ 897
Transfers from securities held to maturity to
securities available for sale $ 17,819 $ 63,244 $ 0
Transfers from securities available for sale to
securities held to maturity $ 0 $ 16,992 $ 0
==================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDA TED FINANCIAL STATEMENTS
33
<PAGE>
[CENTER BANCORP INC. LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Center Bancorp Inc. (the
Corporation) are prepared on the accrual basis and include the accounts of the
Corporation and its wholly-owned subsidiary, Union Center National Bank (the
Bank). All significant intercompany accounts and transactions have been
eliminated from the accompanying consolidated financial statements.
BUSINESS
The Bank provides a full range of banking services to individual and
corporate customers through branch locations in Union County, New Jersey. The
Bank is subject to competition from other financial institutions and is subject
to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
statement of condition and revenues and expenses for that period. Actual results
could differ significantly from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, Federal funds
sold, and securities purchased under agreement to resell. Generally, Federal
funds are sold for one-day periods.
INVESTMENT SECURITIES
The Corporation adopted Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," on April 1, 1994. SFAS No. 115 establishes the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Under the provisions of
SFAS No. 115, those investments will be classified into three categories: (1)
held to maturity securities, which the Corporation has both the positive intent
and ability to hold until maturity, will be reported at amortized cost; (2)
trading securities, which are purchased and held principally for the purpose of
selling in the near term, will be reported at fair value with unrealized gains
and losses, included in earnings; and (3) available for sale securities, which
do not meet the criteria of the other two categories, will be reported at fair
value with unrealized gains and losses, net of applicable income taxes, reported
as a separate component of stockholders' equity and excluded from earnings.
Investment securities that the Corporation has both the intent and ability
to hold until maturity are stated at cost, adjusted for amortization of premiums
and accretion of discounts which are recognized on a level yield method, as
adjustments to interest income. Investment securities identified for sale prior
to their contractual maturities in order to meet asset and liability management
objectives are classified as available for sale and carried at fair value.
Investment securities gains or losses are determined using the specific
identification method.
INCOME TAXES
On January 1, 1993 the Corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the first year in which the differences are expected to be settled. The adoption
of SFAS 109 was accounted for prospectively and did not have a significant
impact on the Corporation's results of operations for the year ended December
31, 1993.
34
<PAGE>
[UNION CENTER LOGO]
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LOANS
Loans are stated at their principal amounts less net deferred loan
origination fees. Interest income is credited as earned except when a loan
becomes seriously past due and doubt exists as to the ultimate collection of
interest or principal; in those cases the recognition of income is discontinued.
Loan origination fees and certain direct loan origination costs are deferred and
recognized over the life of the loan as an adjustment to the loan's yield.
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 as the 1oan's effective interest rate or, as a practical expedient,
at the 1oan's observable market price or at the fair value of the collateral if
the loan is collateral dependent. The determination of impaired loans consisted
of non-accrual loans and loans internally classified as substandard or below 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. 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 these
statements did not have an effect on the existing income recognition and
charge-off policies for nonperforming loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level determined adequate
to provide for potential loan losses. The allowance is increased by provisions
charged to operations and reduced by loan charge-offs, net of recoveries. The
allowance is based on Management's evaluation of the loan portfolio considering
economic conditions, the volume and nature of the loan portfolio, historical
loan loss experience and individual credit situations.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses.
In connection with the determination of the allowance for loan losses,
management obtains independent appraisals for significant properties.
Accordingly, the ultimate collectibility of a substantial portion of the
Bank's loan portfolio is susceptible to changes in market conditions in the
state of New Jersey.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, future additions
to the allowance may be necessary based on changes in economic conditions,
particularly in New Jersey. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments about information available
to them at the time of their examinations.
BANK PREMISES AND EQUIPMENT
Land is carried at cost and bank premises and equipment at cost less
accumulated depreciation based on estimated useful lives of assets, computed
principally on the straight-line basis. Expenditures for maintenance and repairs
are charged to operations as incurred; major renewals and betterments are
capitalized. Gains and losses on sales or other dispositions are recorded as
other income or other expenses.
RECLASSIFICATIONS
Certain reclassifications have been made in the consolidated financial
statements for 1994 and 1993 to conform to the classifications presented in
1995.
35
<PAGE>
[CENTER BANCORP INC. LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTANT POLICIES
(continued)
PENSION PLAN
The Corporation has a non-contributory pension plan covering all eligible
employees. The Corporation's policy is to fund at least the minimum contribution
required by the Employee Retirement Income Security Act of 1974.
EARNINGS PER SHARE
All share and per share amounts have been restated to reflect the 5%
stock dividend on August 1, 1994.
NOTE 2
CASH AND DUE FROM BANKS
The subsidiary bank, Union Center National Bank, maintained average cash
balances reserved to meet regulatory requirements of the Federal Reserve Board
of approximately $2,900,000 and $3,900,000 at December 31, 1995 and 1994,
respectively.
NOTE 3
INVESTMENT SECURITIES
The following table presents information related to the Corporation's
portfolio of securities held for maturity and available for sale at December 31,
1995 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(dollars in thousands) Cost Gains Losses Value
=============================================================================================================
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
U.S. government and federal agency obligations $ 107,446 $ 0 $ 69 $ 107,377
Obligations of U.S. states and political subdivisions 42,877 639 0 43,516
Other securities 5,707 849 0 6,556
- -------------------------------------------------------------------------------------------------------------
$ 156,030 $ 1,488 $ 69 $ 157,449
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(dollars in thousands) Cost Gains Losses Value
=============================================================================================================
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. government and federal agency obligations $ 52,804 $ 693 $ 0 $ 53,497
Other securities 165 0 0 165
- -------------------------------------------------------------------------------------------------------------
$ 52,969 $ 693 $ 0 $ 53,662
=============================================================================================================
</TABLE>
36
<PAGE>
[UNION CENTER LOGO]
NOTE 3
INVESTMENT SECURITIES (continued)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(dollars in thousands) Cost Gains Losses Value
=============================================================================================================
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
U.S. government and federal agency obligations $ 111,139 $ 0 $4,649 $ 106,490
Obligations of U.S. states and political subdivisions 55,026 0 943 54,083
Other securities 453 0 0 453
- -------------------------------------------------------------------------------------------------------------
$ 166,618 $ 0 $5,592 $ 161,026
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(dollars in thousands) Cost Gains Losses Value
=============================================================================================================
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. government and federal agency obligations $ 40,084 $ 0 $ 883 $ 39,201
Obligations of U.S. states and political subdivisions 750 0 17 733
Other securities 931 0 0 931
- -------------------------------------------------------------------------------------------------------------
$ 41,765 $ 0 $ 900 $ 40,865
=============================================================================================================
</TABLE>
The following table presents information for investments in securities held
to maturity and securities available for sale at December 31, 1995, based on
scheduled maturities. Actual maturities can be expected to differ from scheduled
maturities due to prepayment or early call privileges of the issuer.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
------------------------ ----------------------
Estimated
Amortized Market Amortized Book/Market
(dollars in thousands) Cost Value Cost Value
=============================================================================================================
<S> <C> <C> <C> <C>
Due in one year or less $ 22,269 $ 19,457 $20,429 $ 21,189
Due after one year through five years 90,857 102,164 26,932 26,769
Due after five years through ten years 42,904 35,828 5,608 5,704
- -------------------------------------------------------------------------------------------------------------
$ 156,030 $ 157,449 $52,969 $ 53,662
=============================================================================================================
</TABLE>
Pursuant to the provisions and implementation guidance contained within the
special report "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities", on November 27, 1995, the
Corporation reassessed the classification of all securities within its portfolio
and transferred $17.9 million from its held-to-maturity investment portfolio to
its available-for-sale portfolio. These securities had a market value of $17.9
million which resulted in the Corporation recording an unrealized gain on
securities available-for-sale, net of tax, within shareholders' equity of
$60,000.
37
<PAGE>
[CENTER BANCORP INC. LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3
INVESTMENT SECURITIES (continued)
Investment securities having a carrying value of approximately $33,500,000
and $20,000,000 at December 31, 1995 and 1994, respectively, were pledged to
secure public deposits, short-term borrowings and for other purposes required or
permitted by law.
The amortized cost and market values of investment securities with an
amortized cost in excess of ten percent of stockholders' equity at December 31,
1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------
Amortized Market Amortized Market
(dollars in thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jefferson Township, New Jersey $ -- $ -- $ 3,225 $ 3,193
State of Connecticut General Obligation -- -- 3,350 3,365
Broward County, Florida -- -- 2,750 2,674
Lodi, New Jersey General Obligation -- -- 2,117 2,048
State of Texas General Obligation 3,747 3,940 3,745 3,674
Maricopa, Arizona -- -- 2,750 2,674
Seattle, Washington General Obligation -- -- 2,690 2,200
- ------------------------------------------------------------------------------------------------------------
Total $ 3,747 $ 3,940 $ 20,627 $ 19,828
============================================================================================================
</TABLE>
NOTE 4
LOANS AND THE ALLOWANCE FOR LOAN LOSSES
The following table sets forth the composition of the Corporation's loan
portfolio at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate--residential mortgage $ 69,954 $ 64,666
Real estate--commercial 13,603 12,427
Commercial and industrial 7,699 6,247
Installment 6,841 6,250
All other 171 31
Less unearned income (698) (785)
- ------------------------------------------------------------------------------------------------------------
Loans, net of unearned income $ 97,570 $ 88,805
============================================================================================================
</TABLE>
At December 31, 1995 and 1994 loans to officers and directors aggregated
approximately $3,039,000 and $2,769,000 respectively. During the year ended
December 31, 1995, the Corporation made new loans to officers and directors in
the amount of $1,374,000; payments by such persons during 1995 aggregated
$1,104,000. Management is of the opinion that the above loans were made on the
same terms and conditions as those prevailing for comparable transactions with
non-related borrowers.
38
<PAGE>
[UNION CENTER LOGO]
NOTE 4
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (continued)
At December 31, 1995 the Corporation had no impaired loans or related
allocations to the allowance for loan losses, as defined by SFAS 114. The
average recorded investment in impaired loans was $0 for the year ended December
31, 1995.
A summary of the activity in the allowance for loan losses is as follows:
(dollars in thousands) 1995 1994 1993
================================================================================
Balance a the beginning of the year $ 1,073 $ 943 $ 821
Provisions charged to expense 0 10 200
Loans charged off (10) (12) (98)
Recoveries on loans previously charged off 10 132 20
- -------------------------------------------------------------------------------
Balance at the end of the year $ 1,073 $ 1,073 $ 943
================================================================================
The allowance for loan losses for Federal income tax purposes amounted to
$758,000 and $638,000 at December 31, 1995 and 1994, which is the maximum
allowable.
The Bank's policy is to grant commercial, mortgage, and installment loans
to New Jersey residents and businesses within its local trading area. The
borrowers' abilities to repay their obligations are dependent upon various
factors including the borrowers' income and net worth, cash flows generated by
the borrowers' underlying collateral, value of the underlying collateral, and
priority of the Bank's lien on the property. Such factors are dependent upon
various economic conditions and individual circumstances beyond the Bank's
control. The Bank is therefore subject to risk of loss. The Bank believes its
lending policies and procedures adequately minimize the potential exposure to
such risks and that adequate provisions for loan losses are provided for all
known and inherent risks. Collateral and personal guarantees are required for
virtually all loans.
NOTE 5
BANK PREMISES AND EQUIPMENT
A summary of the Corporation's premises and equipment at December 31, 1995
and 1994 follows:
(dollars in thousands) 1995 1994
==========================================================================
Land $ 1,463 $ 1,079
Buildings 4,965 4,947
Furniture, fixtures and equipment 4,201 3,907
Leasehold improvements 288 286
==========================================================================
10,917 10,219
Less accumulated depreciation and amortization 3,455 2,776
- --------------------------------------------------------------------------
$ 7,462 $ 7,443
==========================================================================
39
<PAGE>
[CENTER BANCORP INC. LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6
PENSION AND BENEFITS
The Corporation maintains a non-contributory pension plan for substantially
all its employees. The benefits are based on years of service and the employee's
compensation over the prior five-year period. The plan's assets consist
primarily of an insurance annuity. In addition, the Corporation has a new
non-qualified retirement plan which is designed to supplement the pension plan
for key employees.
The following table sets forth the funded status and amounts recognized in
the consolidated statements of condition for the Corporation's pension plans at
December 31, 1995 and 1994.
(dollars in thousands) 1995 1994
================================================================================
Actuarial present value of benefit obligations
Vested $ 2,700 $ 2,299
Non-Vested 117 71
- --------------------------------------------------------------------------------
Accumulated benefit obligation 2,817 2,370
Effect of projected future compensation levels 865 1,191
- --------------------------------------------------------------------------------
Projected benefit obligation 3,682 3,561
Plan assets at fair value 3,318 3,100
- --------------------------------------------------------------------------------
Assets less than projected benefit obligation (364) (461)
Unrecognized net asset (25) (28)
Unamortized Prior Service Cost 184 --
Deferred gain (574) (192)
- --------------------------------------------------------------------------------
Accrued expense $ (779) $ (681)
================================================================================
The net periodic pension cost for 1995, 1994 and 1993 include the following
components.
(dollars in thousands) 1995 1994 1993
================================================================================
Service cost $ 208 $ 187 $ 191
Interest 251 226 223
Actual return on plan assets (275) (196) (220)
Net amortization and deferral. 21 (11) 21
- --------------------------------------------------------------------------------
Net periodic pension expense $ 205 $ 206 $ 215
================================================================================
40
<PAGE>
[UNION CENTER LOGO]
NOTE 6
PENSIONS SND BENEFITS (continued)
The following table presents the assumptions used to calculate the
projected benefit obligation and pension expense in each of the last three
years.
1995 1994 1993
===============================================================================
Discount rate 7.50% 8.00% 8.00%
Rate of compensation increase 6.50% 6.75% 7.75%
Expected long-term rate of return on plan assets 8.00% 7.00% 7.00%
===============================================================================
401K BENEFIT PLAN
During 1994, the Corporation established a 401K employee savings plan to
provide for defined contributions which covers substantially all employees of
the Bank. The Corporation's contributions to the plan are limited to fifty
percent of a matching percentage of each employee's contribution up to six
percent of the employee's salary. The plan was effective January 1, 1995.
Employer contributions made in 1994 amounted to $0. Employer contributions
amounted to $43,050 in 1995.
STOCK OPTION PLANS
The Stock Option Plans permit Center Bancorp common stock to be issued to
key employees and directors of the company and its subsidiaries. The options
granted under the Plans are intended to be either Incentive Stock Options or
Non-Qualified Options.
Options have been granted to purchase common stock principally at the fair
market value of the stock at the date of grant. Options are exercisable starting
one year after the date of grant and generally expire ten years from the date of
grant. Upon the exercise of options, proceeds received in excess of par value of
the shares are credited to surplus.
41
<PAGE>
[CENTER BANCORP LOGO]
Notes to Consolidated Financial Statements (continued)
NOTE 6
PENSIONS AND BENEFITS
(continued)
Changes in options outstanding during the past three years were as follows:
<TABLE>
<CAPTION>
Exercise
Price Range
Stock Option Plan Shares Per Share
===============================================================================
<S> <C> <C> <C>
Outstanding, December 31, 1992
(4,200 shares exercisable) 4,200 $ 11.90 to $ 11.90
Granted during 1993 63,000 29.28 to 29.28
Exercised during 1993 0 -- to --
Expired or cancelled during 1993 0 -- to --
- -------------------------------------------------------------------------------
Outstanding, December 31, 1993,
(4,200 shares exercisable) 67,200 11.90 to 29.28
Granted during 1994 12,600 29.28 to 29.28
Exercised during 1994 (4,200) 11.90 to 11.90
Expired or cancelled during 1994 (525) 29.28 to 29.28
- -------------------------------------------------------------------------------
Outstanding, December 31, 1994,
(23,415 shares exercisable) 75,075 29.28 to 29.28
Granted during 1995 -- -- to --
Exercised during 1995 -- -- to --
Expired or cancelled during 1995 (6,825) 29.28 to 29.28
- -------------------------------------------------------------------------------
OUTSTANDING, DECEMBER 31, 1995
(34,020 shares exercisable) 68,250 $ 29.28 to $ 29.28
===============================================================================
</TABLE>
NOTE 7
INCOME TAXES
The current and deferred amounts of income tax expense for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994 1993
==============================================================================
<S> <C> <C> <C>
CURRENT:
Federal $1,273 $ 1,241 $ 1,117
State 125 68 57
- ------------------------------------------------------------------------------
1,398 1,309 1,174
DEFERRED:
Federal 118 125 (160)
- -------------------------------------------------------------------------------
Income tax expense from continuing operations 1,516 1,434 1,014
===============================================================================
</TABLE>
42
<PAGE>
[UNION CENTER LOGO]
NOTE 7
INCOME TAXES
(continued)
A reconciliation between the amount of reported income tax expense and the
amount computed by applying the statutory Federal income tax rate is as follows:
(dollars in thousands) 1995 1994 1993
==============================================================================
Income before income tax expense $5,556 $5,611 $4,815
Federal statutory rate 34% 34% 34%
- ------------------------------------------------------------------------------
Computed "expected" Federal income
tax expense 1,889 1,907 1,637
State tax net of Federal tax benefit 82 45 38
Tax-exempt interest and dividends (429) (526) (669)
Decrease in valuation allowance 0 (22) 0
Other, net (26) 30 8
- ------------------------------------------------------------------------------
Income tax expense 1,516 $1,434 $1,014
==============================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liability at December 31,
1995 and 1994 are presented below.
(dollars in thousands) 1995 1994
==============================================================================
Deferred tax assets:
Allowance for loan losses $126 $174
Pension Expense 295 262
Deferred fee income-Mortgages 61 67
Unrealized loss on securities available
for sale 0 345
- ------------------------------------------------------------------------------
Total gross deferred tax asset 482 848
Valuation allowance (58) (58)
- ------------------------------------------------------------------------------
Net deferred tax asset $424 $790
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $141 $ 81
Market discount accretion 199 163
Premium amortization 0 43
Deferred fee expense-Mortages 126 82
Unrealized gains on securities available
for sale 277 0
- ------------------------------------------------------------------------------
Total gross deferred tax liabilities 743 369
- ------------------------------------------------------------------------------
Net deferred tax asset (liability) $(319) $421
==============================================================================
43
<PAGE>
[CENTER BANCORP LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7
INCOME TAXES
(continued)
Based on the Corporation's historical and current pre-tax earnings and the
availability of net operating loss carrybacks on a federal basis, management
believes it is more likely than not that the Company will realize the benefit of
the net deductible temporary differences existing at December 31, 1995 and 1994,
respectively.
The valuation allowance is due to the state tax effect of the net
deductible temporary difference calculated on a separate company basis. The
valuation allowance for deferred tax assets as of December 31, 1995 and 1994 was
$58,000 and $58,000 respectively.
NOTE 8 (unaudited)
QUARTERLY FINANCIAL INFORMATION
CENTER BANCORP, INC.
<TABLE>
<CAPTION>
FISCAL 1995
(dollars in thousands, except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income $ 5,716 $ 5,474 $ 5,353 $ 5,206
Total interest expense 2,297 2,206 2,214 2,070
Net interest income 3,419 3,268 3,139 3,136
Provision for loan losses 0 0 0 0
Other income 175 150 248 159
Other expense 2,210 1,791 2,164 1,973
Income before income taxes 1,384 1,627 1,223 1,322
Net Income 985 1,141 914 1,000
Earnings per share $ 0.66 $ 0.77 $ 0.62 $ 0.68
Weighted average common shares outstanding 1,478,357 1,477,504 1,476,557 1,475,671
========================================================================================================================
<CAPTION>
FISCAL 1994
(dollars in thousands, except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total interest income $ 5,036 $ 4,856 $ 4,583 $ 4,508
Total interest expense 1,653 1,527 1,393 1,341
Net interest income 3,383 3,329 3,190 3,167
Provision for loan losses 0 0 0 10
Other income 162 163 177 166
Other expense 2,136 1,936 2,064 1,980
Income before income taxes 1,409 1,556 1,303 1,343
Net Income 989 1,135 1,012 1,041
Earnings per share $ 0.67 $ 0.77 $ 0.69 $ 0.70
Weighted average common shares outstanding 1,474,264 1,473,413 1,472,032 1,472,032
========================================================================================================================
</TABLE>
44
<PAGE>
[UNION CENTER LOGO]
NOTE9
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107), requires that the Bank disclose
estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Corporation's financial
instruments:
The carrying amounts for cash and cash equivalents approximate fair value
because they mature in 90 days or less and do not present unanticipated credit
concerns. The fair value of investment securities is estimated based on bid
quotations received from securities dealers.
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, real
estate-mortgage, and installment loans. The fair value of performing loans,
except residential mortgages, is calculated by discounting scheduled cash flows
through the estimated maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the Bank's historical experience with prepayments for each
loan classification, modified as required by an estimate of the effect of
current economic and lending conditions. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows adjusted
for prepayment estimates using discount rates based on secondary market sources
adjusted to reflect differences in servicing and credit costs.
Under SFAS 107, the fair value of deposit with no stated maturity, such as
noninterest-bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, is equal to the amount payable on demand as of December
31, 1995 and 1994. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities.
The fair value estimates of commitments to extend credit and standby
letters of credit are estimated at the contract amounts.
Short-term borrowings that mature within six months have fair values equal
to their carrying value.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Corporation's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Bank's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets or liabilities include deferred tax liabilities, and
premises and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered.
45
<PAGE>
[CENTER BANCORP INC. LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9
FAIR VALUE OF FINANCIAL INSTRUMENTS
(continued)
The estimated fair value of the Corporation's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994
====================================================================================================================
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 30,172 $ 30,172 $ 18,305 $ 18,305
Investments 209,692 211,111 207,483 201,891
Net loans 96,497 94,497 87,732 83,167
FINANCIAL LIABILITIES:
Noninterest-bearing deposits $ 60,635 $ 60,635 $ 56,872 $ 56,872
Interest-Bearing deposits 235,031 235,031 233,304 233,304
Federal funds purchased and securities sold under
agreement to repurchase 22,326 22,326 9,745 9,745
====================================================================================================================
</TABLE>
NOTE 10
PARENT COMPANY ONLY FINANCIAL STATEMENTS
Center Bancorp, Inc., operates its wholly-owned subsidiary, Union Center
National Bank. The earnings of this subsidiary are recognized by the Corporation
using the equity method of accounting. Accordingly, earnings are recorded as
increases in the Corporation's investment in the subsidiary and dividends paid
reduce the investment in the subsidiary. Dividends payable by the Corporation
are unrestricted, although the ability of the Corporation to pay dividends will
largely depend upon the dividends paid to it by the Bank. Dividends payable by
the Bank to the Corporation are restricted under supervisory regulations (see
Note 11). Condensed financial statements of the Parent Company only follow:
CONDENSED STATEMENTS OF CONDITION
For years ended December 31,
- --------------------------------------------------------------------------------
(dollars in thousands) 1995 1994
================================================================================
ASSETS
Cash and cash equivalents $ 890 $ 629
Investment in subsidiary 27,357 24,074
- --------------------------------------------------------------------------------
$28,247 $24,703
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 567 $ 492
Stockholders' equity 27,679 24,211
- --------------------------------------------------------------------------------
$28,246 $24,703
================================================================================
46
<PAGE>
[UNION CENTER LOGO]
NOTE 10
PARENT COMPANY ONLY FINANCIAL STATEMENTS
(continued)
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For years ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
===============================================================================================
<S> <C> <C> <C>
Income
Dividend income from subsidiary $ 1,775 $ 1,727 $ 1,698
Management fees 48 45 61
Other 0 3 0
- -----------------------------------------------------------------------------------------------
1,823 1,775 1,759
Expenses 95 140 126
- -----------------------------------------------------------------------------------------------
Net income before equity in earnings of subsidiary 1,728 1,635 1,633
Equity in earnings of subsidiary 2,312 2,542 2,168
- -----------------------------------------------------------------------------------------------
Net Income $ 4,040 $ 4, 177 $ 3,801
===============================================================================================
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
For years ended December 31,
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
===============================================================================================
<S> <C> <C> <C>
Operating Activities:
Net income $ 4,040 $ 4,177 $ 3,801
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of subsidiary (2,312) (2,542) (2,168)
Other, net 76 (260) 33
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,804 1,375 1,666
- -----------------------------------------------------------------------------------------------
Financing Activities:
Cash Dividends (1,775) (1,730) (1,623)
Proceeds from exercise of stock options 0 0 50
Proceeds from issuance of common stock 232 116 0
- -----------------------------------------------------------------------------------------------
Net cash used in financing activities (1,543) (1,614) (1,573)
- -----------------------------------------------------------------------------------------------
Increase (decrease)in cash 261 (239) 93
Cash at the beginning of year 629 868 775
- -----------------------------------------------------------------------------------------------
Cash at the end of year $ 890 $ 629 $ 868
===============================================================================================
</TABLE>
NOTE 11
DIVIDENDS AND OTHER RESTRICTIONS
Certain restrictions, including capital requirements, exist on the
availability of undistributed net profits of the subsidiary bank for the future
payment of dividends to the Corporation. A dividend may not be paid if it would
impair the Bank's capital. Furthermore, prior approval by the Comptroller of the
Currency is required if the total of dividends declared in a calendar year
exceeds the total of its net profits for that year combined with its retained
profits for the two preceding years. At December 31, 1995, $7,022,000 was
available for the payment of dividends.
47
<PAGE>
[CENTER BANCORP INC. LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12
COMMITMENTS, CONTINGENCIES AND
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Corporation has outstanding
commitments and contingent liabilities such as commitments to extend credit,
including loan commitments of $20,467,000 and $20,538,000 and standby letters of
credit totaling $9,439,000 and $8,128,000 at December 31, 1995 and 1994,
respectively, which are not reflected in the accompanying consolidated financial
statements. Commitments to extend credit and standby letters of credit generally
do not exceed one year. These financial instruments involve, to varying degrees,
elements of credit risk in excess of the amounts recognized in the consolidated
financial statements. The commitment or contract amount of these financial
instruments is an indicator of the Corporation's level of involvement in each
type of instrument as well as the exposure to credit loss in the event of
non-performance by the other party to the financial instrument. The Corporation
controls credit risk of these financial instruments through credit approvals,
limits and monitoring procedures. To minimize potential credit risk the
Corporation generally requires collateral and other credit related terms and
conditions from the customer. In the opinion of management the financial
condition of the Corporation will not be materially affected by the final
outcome of these commitments and contingent liabilities.
A substantial portion of the Bank's loans are one to four family
residential first mortgage loans secured by real estate located in New Jersey.
Accordingly, the collectibility of a substantial portion of the Bank's loan
portfolio is susceptible to changes in the real estate market.
The Corporation is subject to claims and lawsuits which arise primarily in
the ordinary course of business. Based upon the information currently available
and advice received from legal counsel representing the Corporation in
connection with such claims, it is the opinion of management that the
disposition or ultimate determination of such claims will not have a material
adverse impact on the consolidated financial position or results of operations,
or liquidity of the Corporation.
NOTE 13
SUBSEQUENT EVENT (unaudited)
On February 14, 1996, the Corporation entered into a letter of intent to
acquire the $74 million Lehigh Savings Bank, SLA (Lehigh) and its three branches
located in Union County, New Jersey at a cost of approximately $6 million. The
acquisition will be accounted for under the purchase method of accounting, and
is subject to regulatory approval. As a result of the acquisition the excess of
cost over fair market value of tangible assets acquired will be recorded as
goodwill.
48
<PAGE>
[UNION CENTER LOGO]
KPMG Peat Marwick LLP
Certified Public Accountants
INDEPENDENT
AUDITORS' REPORT
The Board of Directors
and Stockholders
Center Bancorp Inc.:
We have audited the accompanying consolidated statements of condition of Center
Bancorp, Inc. and subsidiary (the Corporation) as of December 31, 1995 and 1994,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Corporation as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Corporation
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" in 1994 and Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" in 1993.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
January 31, 1996
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Center Bancorp Inc.:
We consent to the incorporation by reference in the Registration Statement
No. 33-72176 on Form S-8 and Registration Statement No. 33-72178 on Form S-3 of
Center Bancorp Inc. of our report dated January 31, 1996, relating to the
consolidated statements of condition of Center Bancorp Inc. as of December 31,
1995 and 1994 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, which report is incorporated by reference in the
December 31, 1995 Annual Report on Form 10-K of Center Bancorp Inc.
Our report refers to a change in accounting for certain investments in debt and
equity securities in 1994 and accounting for income taxes in 1993.
/s/ KPMG PEAT MARWICK LLP
----------------------------
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 30,172
<INT-BEARING-DEPOSITS> 235,031
<FED-FUNDS-SOLD> 16,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,662
<INVESTMENTS-CARRYING> 156,030
<INVESTMENTS-MARKET> 157,449
<LOANS> 97,570
<ALLOWANCE> 1,073
<TOTAL-ASSETS> 347,777
<DEPOSITS> 295,666
<SHORT-TERM> 22,326
<LIABILITIES-OTHER> 2,106
<LONG-TERM> 0
<COMMON> 4,199
0
0
<OTHER-SE> 23,480
<TOTAL-LIABILITIES-AND-EQUITY> 347,777
<INTEREST-LOAN> 7,526
<INTEREST-INVEST> 13,930
<INTEREST-OTHER> 293
<INTEREST-TOTAL> 21,749
<INTEREST-DEPOSIT> 8,685
<INTEREST-EXPENSE> 102
<INTEREST-INCOME-NET> 12,962
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 49
<EXPENSE-OTHER> 8,138
<INCOME-PRETAX> 5,556
<INCOME-PRE-EXTRAORDINARY> 5,556
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,040
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.73
<YIELD-ACTUAL> 6.92
<LOANS-NON> 0
<LOANS-PAST> 48
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,073
<CHARGE-OFFS> 10
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,073
<ALLOWANCE-DOMESTIC> 675
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 397
</TABLE>
