SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------ ------ Commission file number 2-81353 ------- CENTER BANCORP, INC. ------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 52-1273725 -------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2455 Morris Avenue, Union, New Jersey 07083 ------------------------------------------------------------------------- (Address of principal executives offices) (Zip Code) (908) 688-9500 ------------------------------------------------------------------------- (Registrant's telephone number, including area code) ------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes|X| No|_| Shares outstanding on March 30, 1996 Common stock no par value - 2,220,384 shares
CENTER BANCORP, INC. INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION PAGE Item I. Financial Statements Consolidated Statements of Condition at March 31, 1996 (Unaudited) and March 31, 1995 2 Consolidated Statements of Income Three and Nine Months Ended March 31, 1996 and 1995 (Unaudited) 3 Consolidated Statements of Cash Flows Nine Months Ended March 31, 1996 and 1995 (Unaudited) 4 In the opinion of Management, all adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods have been made. Such adjustments are of a normal recurring nature. All share and per share amounts have been restated to reflect a 3 for 2 split payable to shareholders of record May 1, 1996, on May 31, 1996. Results for the period ended March 31, 1996 are not necessarily indicative of results for any other interim period or for the entire fiscal year. Reference is made to the Company's Annual Report on Form 10-K for the year ended March 31, 1995 for information regarding accounting principles. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-11 PART II. OTHER INFORMATION------------------------------------------------12-13 SIGNATURES-----------------------------------------------------------14
Consolidated Statements of Condition <TABLE> <CAPTION> March 31, December 31, -------- ------------ 1996 1995 - --------------------------------------------------------------------------------------- Assets: <S> <C> <C> Cash and due from banks $ 12,117 $ 14,172 Federal funds sold 0 16,000 Securities purchased under agreement to resell 0 0 - --------------------------------------------------------------------------------------- Total cash and cash equivalents 12,117 30,172 Investment securities held to maturity (approximate market value of $200,176 in 1996 and $157,449 in 1995) 201,403 156,030 Investment securities available for sale 53,317 53,662 ---------------------- Total investment securities 254,720 209,692 Loans, net of unearned income 98,625 97,570 Less - Allowance for loan losses 1,073 1,073 - --------------------------------------------------------------------------------------- Net loans 97,552 96,497 Premises and equipment, net 7,515 7,462 Accrued interest receivable 4,368 3,643 Other assets 580 311 - --------------------------------------------------------------------------------------- Total assets $ 376,852 $ 347,777 - --------------------------------------------------------------------------------------- Liabilities Deposits: Non-interest bearing 59,173 60,635 Interest bearing: Certificates of deposit $100,000 and over 71,836 39,521 Other 202,863 195,510 - --------------------------------------------------------------------------------------- Total deposits 333,872 295,666 Federal funds purchased and securities sold under 12,705 22,326 agreements to repurchase Accounts payable and accrued liabilities 1,903 2,106 - --------------------------------------------------------------------------------------- Total Liabilities 348,480 320,098 - --------------------------------------------------------------------------------------- Stockholder's equity Common stock, no par value: Authorized 20,000,000 shares; issued 2,256,180 and 2,510,427 shares in 1996 and 1995, respectively 4,261 4,199 Appropriated surplus 3,510 3,510 Retained earnings 22,158 21,368 - -------------------------------------------------------------------------------------- 29,929 29,077 Less - Treasury stock at cost (299,052 shares in 1996 and 1995) 1,814 1,814 Net unrealized (loss) on investment securities available-for-sale, net of taxes 257 416 - -------------------------------------------------------------------------------------- Total stockholders' equity 28,372 27,679 - -------------------------------------------------------------------------------------- Total liabilities and stockholders' equity 376,852 347,777 - -------------------------------------------------------------------------------------- </TABLE> *All share and per share amounts have been restated to reflect a 3-for-2 stock split effective May 1, 1996. Page 2
Consolidated Statements of Income (unaudited) Three Months Ended March 31, ------------------ (in thousands, except per share data) 1996 1995 - -------------------------------------------------------------------------------- Interest income: Interest and fees on loans $ 1,974 $ 1,780 Interest and dividends on investment securities: Taxable interest income 3,606 3,043 Nontaxable interest income 284 369 Interest on Federal funds sold 96 14 - ------------------------------------------------------------------- ------- Total interest income 5,960 5,206 - ------------------------------------------------------------------- ------- Interest expense: Interest on certificates of deposit $100,000 or more 868 523 Interest on other deposits 1,501 1,459 Interest on short-term borrowings 135 88 - ------------------------------------------------------------------- ------- Total interest expense 2,504 2,070 - ------------------------------------------------------------------- ------- Net interest income 3,456 3,136 Provision for loan losses 0 0 - ------------------------------------------------------------------- ------- Net interest income after provision for loan losses 3,456 3,136 - ------------------------------------------------------------------- ------- Other income: Service charges, commissions and fees 114 124 Other income 31 35 Gain on securities sold 0 0 - ------------------------------------------------------------------- ------- Total other income 145 159 - ------------------------------------------------------------------- ------- Other expense: Salaries and employee benefits 1,094 1,007 Occupancy expense, net 235 169 Premises and equipment expense 194 186 Stationery and printing expense 67 63 Correspondent fees expense 0 0 Computer expense 0 0 FDIC Insurance expense 1 162 Other expenses 403 386 - ------------------------------------------------------------------- ------- Total other expense 1,994 1,973 - ------------------------------------------------------------------- ------- Income before income tax expense 1,607 1,322 Income tax expense 372 322 - ------------------------------------------------------------------- ------- Net income 1,235 $ 1,000 - ------------------------------------------------------------------- ------- Earnings per share: (on 2,225,718 average shares outstanding in 1996, and 2,213,506 in 1995) Net income per share $ 0.55 $ 0.45 - ------------------------------------------------------------------- ------- *All share and per share amounts have been restated to reflect a 3-for-2 stock split effective May 1, 1996. Page 3
Consolidated Statements of Cash Flows <TABLE> <CAPTION> March 31, -------------------- (Dollars in thousands) 1996 1995 - ----------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: <S> <C> <C> Net income $ 1,235 $ 1,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 184 174 Provision for loan losses 0 0 (Increase) in accrued interest receivable (725) (34) (Increase) in other assets (269) (254) Increase (decrease) in other liabilities (203) 378 Amortization of premium and accretion of discount on investment securities, net 148 173 - ---------------------------------------------------------------------------- ----------- Net cash provided by operating activities 370 1,437 - ---------------------------------------------------------------------------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available-for-sale 1,005 4,311 Proceeds from maturities of securities held-to-maturity 12,346 6,556 Proceeds from sales of investment securities available-for-sale 30,932 0 Purchase of securities available-for-sale (35,358) (3,661) Purchase of securities held-to-maturity (54,259) (3,886) Net (increase) decrease in loans (1,055) (4,448) Property and equipment expenditures, net (237) (38) - ---------------------------------------------------------------------------- ------------ Net cash used in investing activities (46,626) (1,166) - ---------------------------------------------------------------------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 38,206 24,427 Dividends paid (446) (443) Proceeds from issuance of common stock 62 51 Net increase (decrease) in short term borrowings (9,621) (7,131) - ---------------------------------------------------------------------------- ----------- Net cash provided by financing activities 28,201 16,904 - ---------------------------------------------------------------------------- ----------- Net increase in cash and cash equivalents (18,055) 17,175 - ---------------------------------------------------------------------------- ----------- Cash and cash equivalents at beginning of period 30,172 18,305 - ---------------------------------------------------------------------------- ----------- Cash and cash equivalents at end of period $ 12,117 $ 35,480 - ---------------------------------------------------------------------------- ----------- Supplemental disclosures of cash flow information: Interest paid on deposits and short-term borrowings $ 2,512 $ 2,205 Income taxes $ 217 $ 0 Transfers from securities held-to-maturity to securities available-for-sale $ 0 $ 0 Transfers from securities available-for-sale to securities held-to-maturity $ 0 $ 0 </TABLE> Page 4
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income for the three months ended March 31, 1996 increased 23.5 percent to $1,235,000 as compared to $1,000,000 earned for the comparable three month period of 1995. On a per share basis, earnings increased 20.3 percent to $0.55 as compared to $0.45 earned for the three months ended March 31, 1995. The annualized return on average assets was 1.30 percent for the three months ended March 31, 1996 as compared with 1.18 percent for the comparable period ended March 31, 1995, while the annualized return on average stockholders' equity was 17.5 percent and 15.8 percent, respectively. Earnings performance for the three months ended March 31, 1996 primarily reflected an increased net interest margin offset by an increase in income tax expense and, to a lesser extent, other non-interest expense. All share and per share amounts have been restated to reflect the 3 for 2 stock split which will take place on May 1, 1996. Net interest income is the difference between the interest earned on the portfolio of earnings assets (principally loans and investments) and the interest paid for deposits and short-term borrowings which support these assets. Net interest income is presented below first in accordance with the Company's consolidated financial statements and then on a fully tax-equivalent basis by adjusting tax-exempt income (primarily interest earned on various obligations of state and political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable issues. NET INTEREST INCOME ================================================================================ (dollars in thousands) Three months ended Percent March 31, Change --------------------- ------------ 1996 1995 -------- -------- Interest income: Investments $3,890 $3,412 14.0% Loans, including fees 1,974 1,780 10.9% Federal funds sold 96 14 585.7% Total interest income 5,960 5,206 14.5% - ------------------------------------------------- ------ ------- Interest expense: Certificates $100,000 or more 868 523 66.0% Deposits 1,501 1,459 2.9% Short-term borrowings 135 88 53.4% Total interest expense 2,504 2,070 21.0% - ------------------------------------------------- ------ NET INTEREST INCOME* 3,456 3,136 10.2% - ------------------------------------------------- ------ ------- Tax-equivalent adjustment 146 190 -23.2% Net interest income on a fully tax-equivalent basis $3,602 $3,326 8.3% - ------------------------------------------------- ------ ------- * Before the provision for loan losses. NOTE: The tax-equivalent adjustment was computed based on an assumed statutory Federal income tax rate of 34 percent. Adjustments were made for interest accrued on securities of state and political subdivisions. Net interest income on a fully tax-equivalent basis for the three months ended March 31, 1996 increased $276,000 or 8.30 percent as compared with the three months ended March 31, 1995. Although there was a favorable increase in the overall yield on average interest-earning assets of 9 basis points reflected in the rise in interest rates, as compared to the comparable period ended March 31, 1995, the primary factor contributing to the change was the $38.8 million increase in the volume of average interest-earning assets. This was offset in part by a $26.5 increase in the volume of average interest-bearing liabilities and by a greater increase in average interest rates on interest-bearing deposit liabilities, 20 basis points, than the increase in the corresponding average yield on interest-earning assets, 2 basis points. Page 5
Interest income on a fully tax-equivalent basis increased by $710,000 or 13.1 percent for the first three months of 1996, as compared with the three months ended March 31, 1996. The key factor in this change was the increased income from taxable investment securities and loans reflecting increases in the volume of average taxable investment securities and loans. This was offset in part by a decrease in the average volume of tax-exempt investment securities carried in the investment portfolio as compared with the three month period ended March 31, 1995. Investment income generated form the investment portfolio for the 3 month period ended March 31, 1996 improved by $101.00 or 2.97% over the comparable three month period of 1995. The positive impact of more favorable interest rates and increased average volume in the portfolio were sufficient to sustain an average portfolio yield of 6.44% as compared to 6.48% for the period ended March 31, 1995. The primary component of the improved earnings from the investment portfolio were the volume related factors. For the three months ended March 31, 1996 average loan volume increased $8.6 million while the portfolio yield increased by only 1 basis point, compared with the three months ended March 31, 1995. Average loan volume increased to $99.9 million at an average yield of 7.90 percent during the first three months of 1996, as compared to $91.3 million with a yield of 7.89 percent for the three month period ended March 31, 1995. The stabilization in yield was a result of a competitive rate structure to attract loan business in the market to increase portfolio volume offset in part by some continued refinancing activity in the mortgage portfolio. Interest expense increased during the first three months of 1996, primarily as a result of rising funding costs as market rates climbed and banks became more competitive as a result of these deposit pricing pressures. For the three months ended March 31, 1996, interest expense increased by $434,000 or 21 percent as compared with the three months ended March 31, 1995. The average cost of funds increased by 39 basis points reflecting an increasing rate environment and changes in the liability mix, (i.e., increased volumes of more costly interest-bearing liabilities). The growth in interest-bearing liabilities has been primarily in jumbo certificates of deposit and interest rate sensitive public fund deposits. For the three months ended March 31, 1996, the Corporation's net interest spread on a tax-equivalent basis (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 3.42 percent annualized as compared to 3.46 percent annualized for the three months ended March 31, 1995. The decline was primarily due to a narrowing of spreads between yields earned on loans and investments and rates paid for supporting funds. As previously noted, there was a favorable change in the mix of interest-earning assets, primarily the increased loan volumes; however, this was impacted by the change in the mix of interest-bearing liabilities to more costly funding. The contribution of non-interest-bearing sources (i.e. the differential between the average rate paid on all sources of funds and the average rate paid on interest-bearing sources) increased favorably to 61 basis points during the first three months of 1996 from 42 basis points during the first three months of 1995. This change has helped to absorb the pressure on margins. Short-term borrowings can be used to satisfy daily funding needs. Balances in these accounts fluctuate significantly on a day-to-day basis. The Corporation's principal short-term funding sources are securities sold under agreement to repurchase. Average short-term borrowings during the first three months of 1996 were $11.2 million, an increase from $5.8 million in average short-term borrowings during the comparable three months ended March 31, 1995. This change was due to insufficient funding liquidity from deposit activity. Investments Page 6
The average volume of investment securities increased by $45 million for the three month period ended March 31, 1996 as compared to the comparable period ended March 31, 1995. The tax-equivalent yield on investments decreased to 6.44 percent or by 4 basis points from a yield of 6.48 percent during the three month period ended March 31, 1995. The yield on the investment portfolio was sustained due to higher market rates on the increased volume of purchases and existing cashflows available for reinvestment made to replace investments which had matured. The impact of repricing activity on yields was lessened by a change made in the mix of investment maturities sought and the current disparity in the yield curve, resulting in narrowed spreads, due to the change in investment strategies brought about by the current uncertainty of rates. Securities available for sale are a part of the Corporation's interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, liquidity management and other factors. At March 31, 1996, the net unrealized gain carried as a component of shareholders' equity amounted to $257,000, as compared with $416,000 at December 31, 1995. At March 31, 1996, the total investment portfolio excluding overnight investments, was $250.0 million, or 70.1 percent of earning assets, as compared to $205.4 million or 64.7 percent at March 31, 1995. The principal components of the investment portfolio continue to be U.S. Government Treasury and Federal Agency and Agency-backed securities. OTHER NON-INTEREST INCOME The following table presents the principal categories of non-interest income for the three month periods ended March 31, 1996 and 1995. ================================================================================ (dollars in thousands) Three months ended March 31, ----------------------- 1996 1995 % change --------- -------- Other income: Service charges, commissions and fees $114 $124 (8.06%) Other income. 31 35 (11.4%) Gain on securities sold 0 0 0% ---- ---- Total other income $145 $159 (8.80%) - -------------------------------------------------------------------------------- For the three months ended March 31, 1996 total other (non-interest) income, decreased $14,000 or 8.8 percent as compared to the three months ended March 31, 1995. The decline in service charges, commissions and fees is primarily a result of a decline in business activity. Page 7
Other Non-Interest Expense The following table presents the principal categories of non-interest expense for the three month periods ended March 31, of 1996 and 1995. ================================================================================ (dollars in thousands) Three months ended March 31, ---------------------- Other expense: 1996 1995 % change ------- -------- ---------- Salaries and employee benefits $1,094 $1007 8.6% Occupancy expense, net 235 169 39.1% Premise & equipment expense 194 186 4.3% Stationery and printing expense 67 63 6.3% FDIC Insurance expense 1 162 99.4% Other expenses 403 386 4.4% ------- ------ ----- Total other expense $1,994 $1,973 1.1% - ---------------------------------------------------------------------------- For the three month period ended March 31, 1996 total other (non-interest) expenses increased only $21,000 or 1.1 percent over the comparable three months ended March 31, 1995. Salaries and employee benefits cost coupled with occupancy comprised the primary components of the total increase for the period. The primary offsetting factor contributing to the stabilization of expense was the reduction in FDIC insurance assessments and general control of operating overhead. Salaries and employees benefits increased $87,000 or 8.6 percent in 1996 over the comparable three month period ended March 31, 1995. This increase is primarily attributed to increases arising from merit and promotional raises and higher benefit costs. Staffing levels overall amounted to 136 at March 31, 1996 as compared to 135 full time equivalent employees at March 31, 1995. Occupancy expense for the three month period ended March 31, 1996 increased sharply $66,000 or 39 percent as compared with the three months ended March 31, 1995. This change reflects the severe weather conditions experienced in 1996 as compared to 1995. The small increase in bank premise and equipment expenses were also a result of weather related occurrences. The decrease of $161,000 in FDIC insurance expense reflects revisions in FDIC deposit assessment rates. PROVISION FOR INCOME TAXES The effective tax rate for the three month period ended March 31, 1996 remained relatively stable at 23.1 percent as compared to 24.4 percent for the three months ended March 31, 1995. The effective tax rate continues to be substantially less than the statutory Federal tax rate of 34 percent. The difference between the statutory and the effective tax rates primarily reflects the tax-exempt status of interest income on obligations of states and political subdivisions. RISK ELEMENTS The purpose of the allowance for loan losses is to absorb the impact of losses inherent in the loan portfolio. Additions to the allowance are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The level of the allowance is determined at an amount that the Corporation believes is adequate to cover losses in the loan portfolio. In establishing an appropriate allowance, an assessment of the individual borrower, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies, and questionable loans are considered. Such factors as the level and trend of interest rates and current economic conditions are also reviewed. Additionally, various regulatory agencies, as an Page 8
integral part of their examination process, periodically review the Corporation's allowance for such loan losses. Such agencies may require the Corporation to increase the allowance based on their judgments of information available to them at the time of their examination. Historically, the Corporation's allowance for loan losses has been more than adequate to meet the volume of charge-offs and problem credits. At March 31, 1996, the allowance for loan losses amounted to $1,073,000 or 1.08 percent of total loans. In management's view, the level of the allowance was more than adequate to cover any loss experience and therefore has not warranted any additions to the allowance during 1996. Changes in the allowance for possible loans losses for the period ended March 31, 1996 and 1995, respectively, are set forth below. ALLOWANCE FOR LOAN LOSSES (in thousands) ================================================================================ Three months ending March 31, ----------------------------- 1996 1995 -------- -------- Average loans outstanding $ 99,916 $ 91,638 - ------------------------------------------------------------------------------- Total loans at end of period 98,625 93,249 - ------------------------------------------------------------------------------- Analysis of the allowance for loan losses Balance at the beginning of year 1,073 1,073 Charge-offs: Commercial 0 0 Real estate-mortgage 0 0 Installment loans 0 5 - ------------------------------------------------------------------------------- Total charge-offs 0 5 Recoveries: Commercial 0 0 Real estate-mortgage 0 0 Installment loans 0 1 - ------------------------------------------------------------------------------- Total recoveries 0 1 Net Charge-offs: 0 4 Additions charged to Operations 0 0 - ------------------------------------------------------------------------------- Balance at end of period $ 1,073 $ 1,069 - ------------------------------------------------------------------------------- Ratio of net charge-offs during the period to average loans outstanding during the period 0.00% 0.00% - ------------------------------------------------------------------------------- Allowance for loan losses as a percentage of total loans $ 1.09 1.15% - ------------------------------------------------------------------------------- ASSET QUALITY The Corporation manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analyses of credit requests and ongoing examination of outstandings and delinquencies, with particular attention to portfolio dynamics. The Corporation strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values, and to maintain an adequate allowance for loan losses at all times. These practices have protected the Corporation during economic downturns; the Corporation was not significantly impacted by the recent extended recession. It is generally the Corporation's policy to discontinue interest accruals once a loan is past due as to interest/or principal payments for a period of 90 days. Page 9
At March 31, 1996, the Corporation had no non-accrual or restructured loans. Loans past due 90 days or more amounted to $40,000 and are comprised entirely of guaranteed student loans. Additionally, the Corporation did not have any other real estate owned (OREO) at March 31, 1996. 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 accomodate possible deposit outflows and to meet customers' requests for loans. Such needs can be satisfied by scheduled principal loan prepayments, maturing investments and short-term liquid assets. Anticipated cash flows at March 31, 1996 which provide the Bank with liquidity remain strong with approximately $79.8 million in repayments and maturities over the next 12 months. The Corporation derives a significant proportion of its liquidity from its stable core deposit base. For the three month period ended March 31, 1996 average core deposits (comprised of total demand and savings accounts plus money market and time deposit accounts under $100,000) represented 66.0 percent of total deposits. More volatile rate sensitive deposits, concentrated in Certificates of deposit $100,000 and greater, comprised on average during the first three months of 1996 16.6 percent of total deposits, as compared with 8.7 percent during the first three months of 1995. This change has been brought about due to the sharp rise in short-term rates during the first three months of 1996. The increase in average funding sources during the three months ended March 31, 1996 resulted primarily from an increase in business and public fund deposits offset by a decrease of $9.6 million in Federal funds purchased and securities sold under agreement to repurchase. Non-interest bearing funding sources as a percentage of the funding mix decreased to 17.9 percent as compared to 18.7 percent for the three month period ended March 31, 1995. Demand deposits as a percentage of the funding mix continue to be replaced by more expensive interest-bearing core deposits. The consolidated statements of cash flows present the changes in cash and cash equivalents from operating, investing and financing activites. During the three months ended March 31, 1996, cash and cash equivalents (which decreased overall by $18.1) were provided (on a net basis) by operating and financing activities. The cash flow provided by the $38.2 million net increase in deposits supported a $45.3 million net increase in the investment portfolio at period end, and a $1.1 million net increase in the loan portfolio. Cash flow from operating activities resulted primarily from net income. Shareholders' Equity and Dividends Shareholders' Equity Shareholders' equity averaged $28.3 million for the three month period ended March 31, 1996, an increase of $25.7 million, or 10.1 percent, as compared to 1995. The Corporation's dividend reinvestment and optional stock purchase plan has raised $62,000 in new capital for the three months ended March 31, 1996. That plan together with internal capital generation, may enhance the Corporation's equity position during 1996. Book value per common share restated to reflect the 3-for-2 stock split effective May 1, 1996 payable May 31, 1996 was $12.78 at March 31, 1996 as compared to $12.50 at March 31, 1995. 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 shareholders with an attractive long term return on their investment. Page 10
The Federal Reserve Board has established a minimum leverage test which requires banking institutions to maintain a 3.00 percent minimum of Tier I (defined as tangible Stockholders' Equity for common stock and perpetual preferred stock) capital to total assets. The 3.00 percent minimum applies only to the most highly rated banks. All other institutions are expected to maintain an additional percentage of at least 100 to 200 basis points above the minimum. At March 31, 1996, Stockholders' Equity amounted to $26.4 million. Total Tier I capital as a percentage of average total assets for the three months ended March 31, 1996 was 7.53 percent, as compared with 7.33 percent for the comparable three month period in 1995. At March 31, 1996, total capital (defined as Tier I capital and Tier II capital, which includes a portion of the Allowance for Loan Losses, certain qualifying long term debt and preferred stock which does not qualify as Tier I capital) as a percentage of total assets amounted to approximately 7.81 percent. United States bank regulators have additionally issued guidelines establishing minimum capital standards related to the level of assets and off balance-sheet exposures adjusted for credit risk. Specifically, these guidelines categorize assets and off-balance sheet items into four risk-weightings and require banking institutions to maintain a minimum ratio of capital to risk weighted assets. At March 31, 1996, the Company's estimated Tier I to risk-adjusted assets and total risk-based capital ratios were 21.1 percent and 22.0 percent, respectively. These ratios are well above the minimum guidelines (in effect as of June 30, 1994) of 4 percent for Tier I capital and the 8 percent minimum for the aggregate of Tier I and Tier II capital to risk adjusted assets. Page 11
II. OTHER INFORMATION Item 1 Legal Proceedings Item 2 Changes in Securities None Item 3 Defaults Upon Senior Securities None Item 4 Submission of Matters to Vote of Security Holders a) The Annual Meeting of shareholders was held on Tuesday, April 16, 1996. b) The following class 1 Director was elected for two years based on the following share votes. For Withheld Brenda Curtis 1,156,674 13,796 The Following Class 3 Directors' were re-elected for three years based on the following share votes For Withheld Robert L. Bischoff 1,156,674 13,796 Paul Lomakin, Jr. 1,156,674 13,796 Herbert Schiller 1,156,674 13,796 The Following Class 2 Directors' terms continue until the Annual meeting 1997 Hugo Barth, III Stanley R. Sommer Alexander A. Bol William A. Thompson The following Class 1 Directors' terms continue until the 1998 Annual meeting John J. Davis Donald G. Kein Charles P. Woodward Item 5 Other Information None Page 12
Item 6 Exhibits and Reports on Form 8-K a) Exhibits 10.1 Agreement and plan of merger by and between Center Bancorp Inc. and Lehigh Savings & Loan dated as of February 14, 1996 as amended on March 19, 1996 and April 30, 1996 10.2 Inducement Agreement dated February 14, 1996 b) Reports on Form 8-K A current report on Form 8K dated 2/20/96 was filed by the Corporation discussing (under item 5). The execution of an agreement relating to the acquisition of Lehigh Savings & Loan. Page 13
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. CENTER BANCORP, INC. DATE: /s/ Anthony C. Weagley - ---- ---------------------- Anthony C. Weagley, Treasurer (Chief Financial Officer) Page 14