updated 10/29/2010 2:15:31 AM ET 2010-10-29T06:15:31

UNION, N.J., Oct. 28, 2010 (GLOBE NEWSWIRE) -- Center Bancorp, Inc. (Nasdaq:CNBC) (the "Corporation", or "Center"), parent company of Union Center National Bank, today reported operating results for the third quarter ended September 30, 2010. Net income available to common stockholders amounted to $2.0 million, or $0.14 per fully diluted common share, for the quarter ended September 30, 2010, as compared with net income available to common stockholders of $1.4 million, or $0.11 per fully diluted common share, for the quarter ended September 30, 2009.

"The Corporation's performance for the third quarter of 2010 reflected sustained progress on multiple levels with solid core results that underscores Center's sustained progress in improving growth of revenue streams and balance sheet strength. Results are consistent with the work started in prior quarters and scheduled to continue into 2011. With these actions, we enter the remainder of 2010 with a marked improvement in our balance sheet positioned to expand net interest margins, and with adequate loan loss reserves, good credit quality in the asset portfolios and a strong underpinning to reduce operating overhead and support net income levels," remarked Anthony C. Weagley, President & CEO.

"We are pleased with the performance achieved for the quarter and are optimistic that the Corporation will build its outstanding loan volume from this level through the fourth quarter of 2010. Our pipelines are strong, and we expect that increased activity in the commercial sectors of the portfolio will support our strategic goals of increased loan volume and improving our earning asset mix," said Mr. Weagley.

"Notwithstanding a slowdown in the general markets and a volatile yield curve, we believe that our increased business development efforts and brand recognition offer a unique window of opportunity for Center to expand its franchise as the market and businesses seek a strong community bank with the capacity and commitment to meet their needs. Our emphasis will continue to be on the commercial mortgage, construction and commercial loan sectors of the portfolio." At September 30, 2010, the Corporation had $163.0 million in overall undisbursed loan commitments, which includes largely unused commercial lines of credit, home equity lines of credit and available usage from active construction facilities. Our "Approved, Accepted but Unfunded" pipelines include $12.4 million in commercial and commercial real estate loans expected to fund over the next 90 days.

"Our allowance for loan loss level, our ability to reduce credit exposures and our low credit losses provide us the opportunity to continue to manage risk exposures as we grow the loan portfolio. The increase in this quarter's loan loss provision was primarily related to one large troubled debt restructuring of a commercial real estate loan, which is performing, coupled with some charge-offs in the residential mortgage portfolio. At September 30, 2010, our non-performing loans were 1.67% of total loans, down from 1.80% a year ago. Net charge-offs for the third quarter were an annualized 0.63% of average loans and were an annualized 0.55% for the nine months ended September 30, 2010, well below industry peer levels," added Mr. Weagley.

Earnings for the current quarter included the effects of actions taken to further improve the strength of the Corporation's balance sheet. Certain bank-owned life insurance policies, with insurance carriers that had deteriorated credit ratings and investment yields, were surrendered and the proceeds were reinvested with more creditworthy carriers. The surrender of the policies had the effect of increasing income tax expense by $633,000. In addition, the provision for loan losses for the quarter was higher than anticipated by $670,000, which increased the allowance for loan losses to 1.25% of total loans. The earnings effect of these actions during the quarter was offset in part by a recognized income tax benefit of $204,000 and a recapture of income tax interest reserves of $121,000. Although earnings for the current quarter included these one-time charges and benefits, the results for the quarter and the year to date period nonetheless continue to reflect the core growth in key performance areas of the Corporation: asset growth, margin expansion and a reduction in operating overhead.

For the nine months ended September 30, 2010, net income available to common stockholders amounted to $4.0 million, or $0.27 per fully diluted common share, compared to $3.1 million, or $0.24 per fully diluted common share, for the same period in 2009. The results for the nine months ended September 30, 2010 included various one-time charges and benefits which, if excluded, would have reflected additional net income available to common shareholders of $3.0 million, or $0.21 per fully diluted common share. Such charges and benefits primarily included: $5.1 million in other-than-temporary impairment charges on investment securities; a $594,000 early termination charge incurred to unwind a structured repurchase agreement; a one-time charge of $437,000 in connection with the lease/sale of the Corporation's former operations facility; $633,000 in increased income tax expense due to the surrender of bank-owned life insurance policies; and $1.2 million in recognized income tax benefits.

Highlights for the quarter include:

  • Net interest income increased to $8.4 million, compared to $7.4 million for the third quarter 2009. Net interest margin on a fully taxable equivalent basis increased 51 basis points to 3.30%, compared to 2.79% for the third quarter of 2009, primarily the result of lower interest rates on deposits and borrowings and changes in volume mix.
     
  • Deposits increased to $836.9 million at September 30, 2010, or 4.3%, from $802.5 million at June 30, 2010 and decreased $124.3 million from the balance reported at September 30, 2009. The growth in the current quarter was primarily in noninterest-bearing checking deposits, savings and money market deposit accounts, while the decline from a year ago was largely in time deposits.
     
  • At September 30, 2010, total loans amounted to $701.9 million, a decrease of $20.6 million, compared to total loans at June 30, 2010. The decrease occurred primarily in the real estate loan portfolio.  
      
  • Overall credit quality in the loan portfolio declined slightly during the quarter. Non-performing assets, consisting of non-accrual loans, accruing loans past due 90 days or more and other real estate owned ("OREO"), amounted to 1.12% of total assets at September 30, 2010, compared to 0.79% at June 30, 2010 and 0.94% at December 31, 2009. However, in early October the Corporation disposed of $1.8 million in OREO property and recorded a loss of approximately $185,000. Excluding this item from total non-performing assets reported at September 30, 2010, non-performing assets as a percent of total assets would have been 0.97%.   At September 30, 2010, the allowance for loan losses amounted to approximately $8.8 million, or 1.25% of total loans. The allowance for loan losses as a percentage of total non-performing loans was 74.7% at September 30, 2010 compared to 112.4% at June 30, 2010 and 77.2% at December 31, 2009.
      
  • The Corporation added $11.4 million to its capital base as a result of its successful common stock offerings in September 2010. The Tier 1 leverage capital ratio of 9.60% at September 30, 2010, compared to 6.74% at September 30, 2009, and 7.73% at December 31, 2009, exceeding regulatory guidelines. 
      
  • Book value per common share was $6.90 at September 30, 2010, compared to $6.32 at December 31, 2009 and $6.36 at September 30, 2009. Tangible book value per common share was $5.86 at September 30, 2010, compared to $5.15 at December 31, 2009 and $5.04 at September 30, 2009.

Earnings Summary for the Period Ended September 30, 2010

The following presents condensed consolidated statement of income data for the periods indicated. 

Net Interest Income

For the three months ended September 30, 2010, total interest income on a fully taxable equivalent basis decreased $1.5 million or 11.3%, to $12.0 million, compared to the three months ended September 30, 2009. Total interest expense decreased by $2.4 million, or 39.6%, to $3.7 million, for the three months ended September 30, 2010, compared to the same period last year.  Net interest income on a fully taxable equivalent basis was $8.4 million for the three months ended September 30, 2010, increasing $857,000, or 11.4%, from $7.5 million for the comparable period in 2009.

The decrease in interest expense reflects the impact of the sustained low levels in short-term interest rates and lower volume of time deposits.  The combined positive effect was a decrease in the average cost of funds, which declined 60 basis points to 1.58% from 2.18% for the quarter ended September 30, 2009 and on a linked sequential quarter decreased 9 basis points compared to the second quarter of 2010.

For the quarter ended September 30, 2010, the Corporation's net interest spread increased 30 basis points to 3.16% as compared to 2.86% for the same three month period in 2009, and the Corporation's net interest margin (net interest income as a percentage of interest-earning assets) widened by 51 basis points from 2.79% to 3.30%, in all cases on an annualized basis.

For the nine months ended September 30, 2010, net interest income on a fully taxable equivalent basis amounted to $25.6 million, compared to $20.8 million for the same period in 2009. Interest income decreased by $1.2 million while interest expense decreased by $6.0 million from the same period last year. Compared to the same period in 2009, for the nine months ended September 30, 2010, average interest earning assets increased $20.8 million while net interest spread and margin increased on an annualized basis by 47 basis points and 57 basis points, respectively. The Corporation's net interest income and margin were favorably impacted primarily by lower interest rates on deposits and borrowings and changes in volume mix.

Other Income

The following presents the components of other income for the periods indicated. 

Other income increased $1.8 million for the third quarter of 2010 compared with the same period in 2009.  During the third quarter of 2010, the Corporation recorded net investment securities gains of $1.0 million compared to $511,000 in net investment securities losses for the same period last year. Excluding net securities gains, the Corporation recorded other income of $1.1 million for the three months ended September 30, 2010 compared to other income, excluding net securities gains, of $825,000 on a sequential linked quarter basis and other income, excluding net securities losses, of $822,000 for the three months ended September 30, 2009.  The increase in other income in the third quarter 2010 when compared to the second quarter 2010 was primarily in service charges on deposit accounts, loan fees and bank-owned life insurance income.

For the nine months ended September 30, 2010, total other income decreased $3.1 million compared to the same period in 2009, primarily as a result of net securities losses including impairment charges taken on investment securities. Excluding net securities losses, the Corporation recorded other income of $2.8 million for the nine months ended September 30, 2010 compared to $2.4 million for the comparable period in 2009, an increase of $375,000 or 15.3%. Increases in other income for the nine months ended September 30, 2010 when compared to the nine months ended September 30, 2009 were primarily in service charges on deposits accounts, loan fees and bank-owned life insurance income.

Other Expense

The following presents the components of other expense for the periods indicated. 

Other expense for the third quarter of 2010 totaled $5.4 million, which was approximately $826,000 lower than other expense for the three months ended June 30, 2010.  Professional and consulting expense for the three months ended September 30, 2010 decreased $269,000 compared to the three months ended June 30, 2010, and there were also decreases in employee benefits, primarily in pension expense of $81,000, and in marketing and advertising expense of $69,000. The increase in other expense for the three months ended September 30, 2010 when compared to the same period in 2009 was approximately $256,000 and was primarily associated with FDIC insurance expense.

For the nine months ended September 30, 2010, total other expense increased $282,000, or 1.6%, compared to the same period in 2009.  A decrease in other real estate owned expense of $1.4 million served to largely offset increases in other expense categories which primarily included $1.0 million in one-time charges incurred with the lease/sale of the Corporation's former operations facility and the early termination of a structure repurchase agreement.

Asset Quality

The following presents the components of non-performing assets and other asset quality data for the periods indicated. 

At September 30, 2010, non-performing assets totaled $13.7 million, or 1.12% of total assets, as compared with $11.3 million, or 0.94%, at December 31, 2009 and $12.9 million, or 0.96%, at September 30, 2009.

The allowance for loan losses at September 30, 2010 amounted to approximately $8.8 million, or 1.25% of total loans compared to 1.21% of total loans at December 31, 2009. The allowance for loan losses as a percentage of total non-performing loans was 74.7% at September 30, 2010 compared to 77.2% at December 31, 2009.

Non-accrual loans increased from $7.3 million at June 30, 2010 to $8.3 million at September 30, 2010. Loans past due 90 days or more and still accruing increased from $336,000 at June 30, 2010 to $3.4 million at September 30, 2010. The increase in this category was primarily attributable to four residential loans totaling $1.4 million that are believed to be temporarily in this category, and a $1.6 million commercial loan currently being reviewed for potential modification. The borrower owns a building occupied by a day care center that has sought rent relief thus straining our borrower's ability to pay per the loan contract. Other real estate owned at September 30, 2010 amounting to $1.9 million consisted of two residential properties, one of which for $1.8 million was disposed of in early October 2010 at a loss of approximately $185,000 and another that is under contract of sale and subject to close in the fourth quarter of 2010. Troubled debt restructured loans, which are performing loans, increased $1.0 million from June 30, 2010 to $10.4 million at September 30, 2010, due to the addition of two restructurings totaling $1.5 million, offset in part by the charge-off of one restructured loan for $473,000.

A discussion of the significant components of non-performing assets at September 30, 2010 is outlined below.

  • A $3.0 million nonaccrual loan secured by a commercial property located in Essex County, New Jersey. This non-accrual loan represents an expired participation with Highlands State Bank. 
      
  • A $2.0 million nonaccrual loan secured by a commercial property located in Monmouth County, New Jersey. At present, the borrower has changed listing brokers to one that specializes in this type of property. Aggressive marketing is anticipated, and the Corporation expects to be repaid in full from the ultimate sale of the property.
     
  • A $1.0 million nonaccrual loan for a construction project secured by a commercial property in Union County, New Jersey. The borrower has entered into a contract of sale with a closing expected during the fourth quarter of 2010. From a combination of the net sales proceeds and a restructuring agreement entered into with the borrower, guarantors and affiliated entities, the Corporation expects to be repaid as a result.
      
  • A $1.6 million loan 90 days past due and still accruing secured by a commercial property in Atlantic County, New Jersey. The borrower is renegotiating the lease with its tenants and has been making partial payments regularly and may be looking to restructure the loan with the Corporation.
      
  • Other real estate owned at September 30, 2010 totaled $1.9 million and consisted of two residential properties. One of the properties carried at $1.8 million was disposed of in early October 2010 at a loss of approximately $185,000, and the other property is under contract of sale scheduled to close in the fourth quarter 2010.
     
  • Troubled debt restructured loans at September 30, 2010 totaled $10.4 million, increasing $1.0 million from June 30, 2010.  These loans are all performing according to their restructured terms.

Capital

The Corporation completed a capital offering on September 27, 2010. Center sold an aggregate of 1,715,000 shares of its common stock under its previously filed shelf registration statement, which was declared effective by the Securities and Exchange Commission on May 5, 2010. Center sold, through Stifel Nicolaus Weisel as underwriter, 1,430,000 shares of common stock at a price of $7.00 per share, with underwriting discounts and commissions of $0.39 per share, for gross proceeds from this offering of $10,010,000. Center also sold 285,000 shares of common stock directly to certain of its directors at a price of $7.50 per share, for gross proceeds from this offering of $2,137,500.

At September 30, 2010, total stockholders' equity amounted to $122.2 million, or 10.0% of total assets. Tangible common stockholders' equity was $95.5 million, or 7.93% of tangible assets. Book value per common share was $6.90 at September 30, 2010, compared to $6.36 at September 30, 2009. Tangible book value per common share was $5.86 at September 30, 2010 compared to $5.04 at September 30, 2009.

At September 30, 2010, the Corporation's Tier 1 leverage capital ratio was 9.60%, the Tier 1 risk-based capital ratio was 13.09% and the Total risk-based capital ratio was 14.12%. Tier 1 capital increased to approximately $112.3 million at September 30, 2010 from $89.6 million at September 30, 2009, reflecting the Corporation's proceeds from a rights offering and private placement with its standby purchaser in October 2009, proceeds from the Corporation's common stock offerings in September 2010 and increases in retained earnings.

Statement of Condition Highlights at September 30, 2010

  • Total assets amounted to $1.2 billion at September 30, 2010.
     
  • Total loans were $701.9 million at September 30, 2010, decreasing $14.2 million, or 2.0%, from September 30, 2009.  Total real estate loans declined $36.5 million from the comparable period in 2009 as a result of a decrease in the residential real estate portfolio. Commercial loans increased $22.9 million, or 13.9%, year over year.
     
  • Investment securities totaled $362.7 million at September 30, 2010, decreasing $13.4 million compared to September 30, 2009, and reflecting an increase from December 31, 2009 of $64.6 million.
     
  • Deposits totaled $836.9 million at September 30, 2010, increasing $23.2 million, or 2.9%, since December 31, 2009. Total deposits decreased $124.3 million from September 30, 2009, primarily in time certificates of deposit of $100,000 or more which were CDARS Reciprocal deposits.
     
  • Total deposit funding sources, including overnight repurchase agreements (which agreements are considered part of the demand deposit base), amounted to $873.3 million at September 30, 2010, a decrease of $140.0 million from September 30, 2009, reflecting outflows of CDARS time deposits. The Corporation's core deposit gathering efforts remain strong.
      
  • Borrowings totaled $232.6 million at September 30, 2010, decreasing $41.8 million from December 31, 2009, primarily due to repayment of a Federal Home Loan Bank advance and a structured repurchase agreement, coupled with a reduction in overnight repurchase agreement activity.

The following reflects the composition of the Corporation's loan portfolio as of the dates indicated. 

The following reflects the composition of the Corporation's deposits as of the dates indicated. 

Condensed Statements of Condition

The following tables present condensed statements of condition at or for the periods indicated. 

Non-GAAP Financial Measures

Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Corporation's management believes that the supplemental non-GAAP information is utilized by market analysts and others to evaluate a company's financial condition and, therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

"Return on average tangible stockholders' equity" is a non-GAAP financial measure and is defined as net income as a percentage of tangible stockholders' equity. Tangible stockholders' equity is defined as common stockholders' equity less goodwill and other intangible assets. The return on average tangible stockholders' equity measure may be important to investors that are interested in analyzing our return on equity excluding the effect of changes in intangible assets on equity.

The following presents a reconciliation of average tangible stockholders' equity and a reconciliation of return on average tangible stockholders' equity for the periods presented. 

"Tangible book value per common share" is a non-GAAP financial measure and represents tangible stockholders' equity (or tangible book value) calculated on a per common share basis. The disclosure of tangible book value per common share may be helpful to those investors who seek to evaluate the Corporation's book value per common share without giving effect to goodwill and other intangible assets.

The following presents a reconciliation of book value per common share to tangible book value per common share as of the dates presented. 

"Tangible common stockholders' equity/tangible assets" is a non-GAAP financial measure and is defined as tangible common stockholders' equity as a percentage of total assets minus goodwill and other intangible assets. This measure may be important to investors that are interested in analyzing the financial condition of the Corporation without consideration of intangible assets, inasmuch as tangible common stockholders' equity and tangible assets both exclude goodwill and other intangible assets.

The following presents a reconciliation of total assets to tangible assets and a reconciliation of total stockholders' equity/total assets to tangible common stockholders' equity/tangible assets as of the dates presented. 

Other income is presented in the table below including and excluding net securities gains (losses). We believe that many investors desire to evaluate other income without regard for securities gains (losses). 

"Efficiency ratio" is a non-GAAP financial measure and is defined as other expense as a percentage of net interest income on a tax equivalent basis plus other income, excluding net securities gains (losses), calculated as follows: 

About Center Bancorp

Center Bancorp, Inc. is a bank holding company which operates Union Center National Bank, its main subsidiary. Chartered in 1923, Union Center National Bank is one of the oldest national banks headquartered in the state of New Jersey and currently the largest commercial bank headquartered in Union County. Its primary market niche is its commercial banking business. The Bank focuses its lending activities on commercial lending to small and medium-sized businesses, real estate developers and high net worth individuals.

The Bank, through its Private Wealth Management Division, which includes its wholly-owned subsidiary, Center Financial Group LLC, provides financial services including brokerage services, insurance and annuities, mutual funds, financial planning, estate and tax planning, trust, elder care and benefit plan administration.

The Bank currently operates 13 banking locations in Union and Morris Counties in New Jersey. Banking centers are located in Union Township (6 locations), Berkeley Heights, Boonton/Mountain Lakes, Madison, Millburn/Vauxhall, Morristown, Springfield, and Summit, New Jersey. The Bank also operates remote ATM locations in the Chatham and Madison New Jersey Transit train stations, and the Boys and Girls Club of Union.

While the Bank's primary market area is comprised of Union and Morris Counties, New Jersey, the Corporation has expanded to northern and central New Jersey. At September 30, 2010, the Corporation had total assets of $1.2 billion, total deposit funding sources, which includes overnight repurchase agreements, of $873.3 million and stockholders' equity of $122.2 million. For further information regarding Center Bancorp, Inc., visit our web site at http://www.centerbancorp.com or call (800) 862-3683. For information regarding Union Center National Bank, visit our web site at http://www.ucnb.com .

Forward-Looking Statements

All non-historical statements in this press release (including statements regarding work started in prior quarters and scheduled to continue into 2011, future net interest margins, future loan volumes, including future commercial loan volumes, the potential expansion of the Corporation's franchise, the Corporation's intention to focus on the commercial mortgage, construction and commercial loan sectors, the future funding of undisbursed loan commitments and the Corporation's ability to manage risk exposures in the future) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may use forward-looking terminology such as "expect," "look," "believe," "plan," "anticipate," "may," "will" or similar statements or variations of such terms or otherwise express views concerning trends and the future. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, the direction of interest rates, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, as well as the effects of international, national, regional and local economic conditions and legal and regulatory barriers and structure, including those relating to the protracted global financial crisis and the deregulation of the financial services industry, and other risks cited in the Corporation's most recent Annual Report on Form 10-K and other reports filed by the Corporation with the Securities and Exchange Commission. Actual results may differ materially from such forward-looking statements. Center Bancorp, Inc. assumes no obligation for updating any such forward-looking statement at any time.

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