UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A

Amendment No. 1



(Mark One)

|S | ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -----------------------------------------------------------------------------------------

For the Fiscal Year Ended December 31,
2013

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: 000-11486



CENTER BANCORP, INC.

(Exact Name of Registrant as Specified in
Its Charter)



|New Jersey                                                              |  | 52-1273725                                   
|----------------------------------------------------------------------- |  | ---------------------------------------------
|(State or Other Jurisdiction of

        Incorporation or Organization) |  | (IRS Employer

        Identification Number)



2455 Morris Avenue, Union, NJ 07083-0007

(Address of Principal Executive Offices,
Including Zip Code)



(908) 688-9500

(Registrant’s Telephone Number, Including
Area Code)



Securities registered pursuant to Section
12(b) of the Exchange Act:



|Title of each class        |  | Name of each exchange on which registered
|-------------------------- |  | -----------------------------------------
|Common Stock, no par value |  | NASDAQ                                   



Securities registered pursuant to Section
12(g) of the Exchange Act: None



Indicate by checkmark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No S



Indicate by checkmark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes £ No S



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 S No £



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Regulation S-T (232,405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant has required to submit and post such files.) Yes S No £



Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment
to the Form 10-K. £









Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities
Exchange Act of 1934.



|Large Accelerated Filer £ | Accelerated
Filer S | Non-Accelerated £ | Small Reporting Company £
|------------------------- | ------------------- | ----------------- | -------------------------



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act) Yes £ or No S



The aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold
or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter, was $149.9 million.



Shares Outstanding on February 28, 2014
Common Stock, no par value: 16,369,012 shares



DOCUMENTS INCORPORATED BY REFERENCE



Definitive proxy statement in connection
with the 2014 Annual Stockholders Meeting to be filed with the Commission pursuant to Regulation 14A is incorporated by reference
in Part III.

-2-





EXPLANATORY
NOTE



Center
Bancorp, Inc. (the “Company”) is filing this Amendment No. 1 (the “Amendment”) to its Annual Report on
Form 10-K for the fiscal year end December 31, 2013, as filed with the Securities and Exchange Commission (the “SEC”)
on March 5, 2014 (the “Original Filing”), for the sole purpose of re-filing the Report of Independent Registered Public
Accounting Firm of ParenteBeard LLC (the “Report”) with the correct date on such Report. The Report was inadvertently
dated March 5, 2014 in the Original Filing, and it should have been dated March 13, 2013.



No
amendments are being made to the Original Filing except as set forth above. This Amendment does not reflect events occurring after
the filing of the Original Filing or modify or update the disclosures contained in the Original Filing in any way other than as
described above.



In
accordance with SEC rules, all of Item 8. Financial Statements and Supplementary Data is set forth herein.

-3-





8. Financial Statements and Supplementary Data





All Financial Statements:





The following financial statements are filed as part of this report under Item 8  “Financial Statements and Supplementary Data.”


|                                                           |  | Page
|---------------------------------------------------------- |  | ----
|Reports of Independent Registered Public Accounting Firms  |  | F-2 
|Consolidated Statements of Condition                       |  | F-4 
|Consolidated Statements of Income                          |  | F-5 
|Consolidated Statements of Comprehensive Income            |  | F-6 
|Consolidated Statements of Changes in Stockholders’ Equity |  | F-7 
|Consolidated Statements of Cash Flows                      |  | F-8 
|Notes to Consolidated Financial Statements                 |  | F-9 





| | F-1 | 
| | --- | 
|





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To theBoard of Directors and StockholdersCenter Bancorp, Inc.





We have audited the accompanying consolidated statement of condition of Center Bancorp, Inc. and subsidiaries (the “Corporation”) as of December 31, 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2013. Center Bancorp, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.





We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Center Bancorp, Inc. and subsidiaries as of December 31, 2013, and the consolidated results of its operations and its cash flows for the year ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.





We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Center Bancorp, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control  Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 5, 2014 expressed an unqualified opinion.





/s/ BDO USA, LLP


BDO USA, LLPPhiladelphia, PennsylvaniaMarch 5, 2014






F-2





Report of Independent Registered Public Accounting Firm





Board of Directors and Stockholders


Center Bancorp, Inc.





We have audited the accompanying consolidated statements of condition of Center Bancorp, Inc. and subsidiaries (the “Corporation”) as of December 31, 2012, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2012. 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 the standards of the Public Company Accounting Oversight Board (United States), 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 consolidated financial position of Center Bancorp, Inc. and subsidiaries as of December 31, 2012, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.





/s/ ParenteBeard LLC


ParenteBeard LLC


Clark, New Jersey


March 13, 2013






| | F-3 | 
| | --- | 
|











CENTER BANCORP, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CONDITION





December 31,2013
  
  2012(In Thousands, Except Share and Per Share Data)ASSETSCash and due from banks
  
  $
  82,692
  
  $
  104,134Interest bearing deposits with banks
  
  
  
  
  
  2,004Total cash and cash equivalents
  
  
  82,692
  
  
  106,138Securities available-for-sale
  
  
  323,070
  
  
  496,815Securities held-to-maturity (fair value of $210,958 and $62,431)
  
  
  215,286
  
  
  58,064Loans held for sale
  
  
  
  
  
  1,491Loans
  
  
  960,943
  
  
  889,672Less: Allowance for loan losses
  
  
  10,333
  
  
  10,237Net loans
  
  
  950,610
  
  
  879,435Restricted investment in bank stocks, at cost
  
  
  8,986
  
  
  8,964Premises and equipment, net
  
  
  13,681
  
  
  13,563Accrued interest receivable
  
  
  6,802
  
  
  6,849Bank owned life insurance
  
  
  35,734
  
  
  34,961Goodwill and other intangible assets
  
  
  16,828
  
  
  16,858Prepaid FDIC assessment
  
  
  
  
  
  811Other real estate owned
  
  
  220
  
  
  1,300Due from brokers for investment securities
  
  
  8,759
  
  
  Other assets
  
  
  10,414
  
  
  4,516Total assets
  
  $
  1,673,082
  
  $
  1,629,765LIABILITIES AND STOCKHOLDERS’ EQUITYDeposits:Non-interest-bearing
  
  $
  227,370
  
  $
  215,071Interest-bearing:Time deposits $100 and over
  
  
  99,444
  
  
  110,835Interest-bearing transaction, savings and time deposits less than      $100
  
  
  1,015,191
  
  
  981,016Total deposits
  
  
  1,342,005
  
  
  1,306,922Long-term borrowings
  
  
  146,000
  
  
  146,000Subordinated debentures
  
  
  5,155
  
  
  5,155Accounts payable and accrued liabilities
  
  
  11,338
  
  
  10,997Total liabilities
  
  
  1,504,498
  
  
  1,469,074Stockholders’ EquityPreferred Stock, $1,000 liquidation value per share:Authorized 5,000,000 shares; issued and outstanding 11,250 shares      of Series B preferred stock at December 31, 2013 and 2012 total      liquidation value of $11,250,000
  
  
  11,250
  
  
  11,250Common stock, no par value:Authorized 25,000,000 shares; issued 18,477,412 shares at      December 31, 2013 and 2012; outstanding 16,369,012 shares at      December 31, 2013 and 16,347,915 at December 31, 2012
  
  
  110,056
  
  
  110,056Additional paid-in capital
  
  
  4,986
  
  
  4,801Retained earnings
  
  
  61,914
  
  
  46,753Treasury stock, at cost (2,108,400 shares at December 31, 2013 and      2,129,497 at December 31, 2012)
  
  
  (17,078)
  
  
  (17,232)Accumulated other comprehensive income (loss)
  
  
  (2,544)
  
  
  5,063Total stockholders’ equity
  
  
  168,584
  
  
  160,691Total liabilities and stockholders’ equity
  
  $
  1,673,082
  
  $
  1,629,765





See the accompanying notes to the consolidated financial statements.






F-4








CENTER BANCORP, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME





Years Ended December 31,2013
  
  2012
  
  2011(Dollars in Thousands, Except per Share Data)Interest income:Interest and fees on loans
  
  $
  40,132
  
  $
  38,921
  
  $
  36,320Interest and dividends on investment securities:Taxable interest income
  
  
  12,189
  
  
  12,269
  
  
  13,278Non-taxable interest income
  
  
  4,422
  
  
  3,507
  
  
  1,700Dividends
  
  
  523
  
  
  567
  
  
  629Interest on federal funds sold and other short-term investment
  
  
  2
  
  
  8
  
  
  Total interest income
  
  
  57,268
  
  
  55,272
  
  
  51,927Interest expense:Interest on certificates of deposit $100 & over
  
  
  866
  
  
  839
  
  
  1,215Interest on other deposits
  
  
  4,353
  
  
  4,569
  
  
  4,305Interest on short-term borrowings
  
  
  
  
  
  
  
  
  79Interest on long-term borrowings
  
  
  5,863
  
  
  6,368
  
  
  6,578Total interest expense
  
  
  11,082
  
  
  11,776
  
  
  12,177Net interest income
  
  
  46,186
  
  
  43,496
  
  
  39,750Provision for loan losses
  
  
  350
  
  
  325
  
  
  2,448Net interest income, after provision for loan losses
  
  
  45,836
  
  
  43,171
  
  
  37,302Other income:Service charges, commissions and fees
  
  
  1,873
  
  
  1,775
  
  
  1,896Annuity and insurance
  
  
  489
  
  
  204
  
  
  110Bank-owned life insurance
  
  
  1,364
  
  
  1,018
  
  
  1,038Loan related fees
  
  
  839
  
  
  510
  
  
  432Net gains on sale of loans held for sale
  
  
  294
  
  
  484
  
  
  251Bargain gain on acquisition
  
  
  
  
  
  899
  
  
  Other
  
  
  281
  
  
  308
  
  
  117Total other-than-temporary impairment losses
  
  
  (652)
  
  
  (870)
  
  
  (342)Net gains on sale on investment securities
  
  
  2,363
  
  
  2,882
  
  
  3,976Net investment securities gains
  
  
  1,711
  
  
  2,012
  
  
  3,634Total other income
  
  
  6,851
  
  
  7,210
  
  
  7,478Other expense:Salaries and employee benefits
  
  
  13,465
  
  
  12,571
  
  
  11,527Occupancy and equipment
  
  
  3,518
  
  
  2,987
  
  
  2,947FDIC Insurance
  
  
  1,098
  
  
  1,154
  
  
  1,712Professional and consulting
  
  
  1,111
  
  
  1,077
  
  
  1,156Stationery and printing
  
  
  333
  
  
  349
  
  
  368Marketing and advertising
  
  
  304
  
  
  186
  
  
  131Computer expense
  
  
  1,422
  
  
  1,419
  
  
  1,312Other real estate owned expense, net
  
  
  137
  
  
  150
  
  
  398Repurchase agreement prepayment and termination fee
  
  
  
  
  
  1,012
  
  
  Acquisition cost
  
  
  
  
  
  482
  
  
  Other
  
  
  3,890
  
  
  3,810
  
  
  3,892Total other expense
  
  
  25,278
  
  
  25,197
  
  
  23,443Income before income tax expense
  
  
  27,409
  
  
  25,184
  
  
  21,337Income tax expense
  
  
  7,484
  
  
  7,677
  
  
  7,411Net income
  
  
  19,925
  
  
  17,507
  
  
  13,926Preferred stock dividends and accretion
  
  
  141
  
  
  281
  
  
  820Net income available to common stockholders
  
  $
  19,784
  
  $
  17,226
  
  $
  13,106Earnings per common share:Basic
  
  $
  1.21
  
  $
  1.05
  
  $
  0.80Diluted
  
  $
  1.21
  
  $
  1.05
  
  $
  0.80Weighted average common shares outstanding:Basic
  
  
  16,349,204
  
  
  16,340,197
  
  
  16,295,761Diluted
  
  
  16,385,692
  
  
  16,351,046
  
  
  16,314,899





See the accompanying notes to the consolidated financial statements.






| | F-5 | 
| | --- | 
|









CENTER BANCORP, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME





Years Ended December 31,2013
  
  2012
  
  2011(Dollars in Thousands)Net income
  
  $
  19,925
  
  $
  17,507
  
  $
  13,926Other comprehensive income, net of tax:Unrealized gains and losses on securities available-for-sale:Reclassification adjustments for OTTI losses included in income
  
  
  652
  
  
  870
  
  
  342Tax effect
  
  
  (178)
  
  
  (265)
  
  
  (119)Net of tax amount
  
  
  474
  
  
  605
  
  
  223Unrealized (losses) gains on available for sale securities
  
  
  (8,741)
  
  
  19,819
  
  
  8,990Tax effect
  
  
  3,578
  
  
  (7,444)
  
  
  (3,486)Net of tax amount
  
  
  (5,163)
  
  
  12,375
  
  
  5,504Reclassification adjustment for realized gains arising during this period
  
  
  (2,363)
  
  
  (2,882)
  
  
  (3,976)Tax effect
  
  
  645
  
  
  879
  
  
  1,380Net of tax amount
  
  
  (1,718)
  
  
  (2,003)
  
  
  (2,596)Unrealized holding (losses) gains on securities transferred from available-for-sale to held-to-maturity securities
  
  
  (2,612)
  
  
  
  
  
  291Tax effect
  
  
  1,064
  
  
  
  
  
  (110)Net of tax amount
  
  
  (1,548)
  
  
  
  
  
  181Amortization of unrealized holding gains on securities transferred from available-for-sale to held-to-maturity securities
  
  
  (58)
  
  
  (2)
  
  
  (46)Tax effect
  
  
  19
  
  
  1
  
  
  28Net of tax amount
  
  
  (39)
  
  
  (1)
  
  
  (18)Pension plan:Actuarial gains (losses)
  
  
  654
  
  
  (790)
  
  
  (1,649)Tax effect
  
  
  (267)
  
  
  323
  
  
  584Net of tax amount
  
  
  387
  
  
  (467)
  
  
  (1,065)Total other comprehensive (loss) income
  
  
  (7,607)
  
  
  10,509
  
  
  2,229Total comprehensive income
  
  $
  12,318
  
  $
  28,016
  
  $
  16,155





See the accompanying notes to the consolidated financial statements.






F-6








CENTER BANCORP, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY





Years Ended December 31, 2013, 2012 and 2011Preferred Stock
  
  Common Stock
  
  Additional Paid In Capital
  
  Retained Earnings
  
  Treasury Stock
  
  Accumulated Other Comprehensive Income (Loss)
  
  Total Stockholders’ Equity(In Thousands, Except Share and per Share Data)Balance, January 1, 2011
  
  $
  9,700
  
  $
  110,056
  
  $
  4,941
  
  $
  21,633
  
  $
  (17,698)
  
  $
  (7,675)
  
  $
  120,957Net income
  
  
  
  
  
  
  
  
  
  
  
  13,926
  
  
  
  
  
  
  
  
  13,926Other comprehensive income
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  2,229
  
  
  2,229Accretion of discount on preferred     stock
  
  
  300
  
  
  
  
  
  
  
  
  (300)
  
  
  
  
  
  
  
  
  Dividends on preferred stock
  
  
  
  
  
  
  
  
  
  
  
  (520)
  
  
  
  
  
  
  
  
  (520)Redemption of series A preferred stock
  
  
  (10,000)
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (10,000)Proceeds from issuance of series B     preferred stock
  
  
  11,250
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  11,250Warrant repurchased
  
  
  
  
  
  
  
  
  (245)
  
  
  
  
  
  
  
  
  
  
  
  (245)Cash dividends declared on common     stock ($0.12 per share)
  
  
  
  
  
  
  
  
  
  
  
  (1,955)
  
  
  
  
  
  
  
  
  (1,955)Issuance cost of common stock
  
  
  
  
  
  
  
  
  
  
  
  (5)
  
  
  
  
  
  
  
  
  (5)Issuance cost of series B preferred     stock
  
  
  
  
  
  
  
  
  
  
  
  (84)
  
  
  
  
  
  
  
  
  (84)Exercise of stock options (42,495     shares)
  
  
  
  
  
  
  
  
  (16)
  
  
  
  
  
  344
  
  
  
  
  
  328Stock-based compensation expense
  
  
  
  
  
  
  
  
  35
  
  
  
  
  
  
  
  
  
  
  
  35Balance, December 31, 2011
  
  
  11,250
  
  
  110,056
  
  
  4,715
  
  
  32,695
  
  
  (17,354)
  
  
  (5,446)
  
  
  135,916Net income
  
  
  
  
  
  
  
  
  
  
  
  17,507
  
  
  
  
  
  
  
  
  17,507Other comprehensive income
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  10,509
  
  
  10,509Dividends on series B preferred stock
  
  
  
  
  
  
  
  
  
  
  
  (253)
  
  
  
  
  
  
  
  
  (253)Cash dividends declared on common     stock ($0.195 per share)
  
  
  
  
  
  
  
  
  
  
  
  (3,188)
  
  
  
  
  
  
  
  
  (3,188)Issuance cost of common stock
  
  
  
  
  
  
  
  
  
  
  
  (8)
  
  
  
  
  
  
  
  
  (8)Exercise of stock options (15,588     shares)
  
  
  
  
  
  
  
  
  19
  
  
  
  
  
  122
  
  
  
  
  
  141Stock-based compensation expense
  
  
  
  
  
  
  
  
  39
  
  
  
  
  
  
  
  
  
  
  
  39Option related tax trueup
  
  
  
  
  
  
  
  
  28
  
  
  
  
  
  
  
  
  
  
  
  28Balance, December 31, 2012
  
  
  11,250
  
  
  110,056
  
  
  4,801
  
  
  46,753
  
  
  (17,232)
  
  
  5,063
  
  
  160,691Net income
  
  
  
  
  
  
  
  
  
  
  
  19,925
  
  
  
  
  
  
  
  
  19,925Other comprehensive loss
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (7,607)
  
  
  (7,607)Dividends on series B preferred stock
  
  
  
  
  
  
  
  
  
  
  
  (169)
  
  
  
  
  
  
  
  
  (169)Cash dividends declared on common     stock ($0.260 per share)
  
  
  
  
  
  
  
  
  
  
  
  (4,581)
  
  
  
  
  
  
  
  
  (4,581)Dividend on restricted stock declared
  
  
  
  
  
  
  
  
  
  
  
  (1)
  
  
  
  
  
  
  
  
  (1)Issuance cost of common stock
  
  
  
  
  
  
  
  
  
  
  
  (13)
  
  
  
  
  
  
  
  
  (13)Issuance of restricted stock award     (18,829 shares)
  
  
  
  
  
  
  
  
  91
  
  
  
  
  
  152
  
  
  
  
  
  243Exercise of stock options (2,268     shares)
  
  
  
  
  
  
  
  
  19
  
  
  
  
  
  2
  
  
  
  
  
  21Stock-based compensation expense
  
  
  
  
  
  
  
  
  59
  
  
  
  
  
  
  
  
  
  
  
  59Option related tax trueup
  
  
  
  
  
  
  
  
  16
  
  
  
  
  
  
  
  
  
  
  
  16Balance, December 31, 2013
  
  $
  11,250
  
  $
  110,056
  
  $
  4,986
  
  $
  61,914
  
  $
  (17,078)
  
  $
  (2,544)
  
  $
  168,584





See the accompanying notes to the consolidated financial statements.






F-7












CENTER BANCORP, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS





Years Ended December 31,2013
  
  2012
  
  2011(Dollars in Thousands)Cash flows from operating activities:Net income
  
  $
  19,925
  
  $
  17,507
  
  $
  13,926Adjustments to Reconcile Net Income to Net     Cash Provided by Operating Activities:Depreciation and amortization
  
  
  886
  
  
  914
  
  
  983Provision for loan losses
  
  
  350
  
  
  325
  
  
  2,448Provision for deferred taxes
  
  
  1,739
  
  
  1,912
  
  
  3,406Stock-based compensation expense
  
  
  59
  
  
  39
  
  
  35Net other-than-temporary impairment losses
  
  
  652
  
  
  870
  
  
  342Net gains on sales of available-for-sale securities
  
  
  (2,363)
  
  
  (2,882)
  
  
  (3,976)Net gains on sales of loans held for sale
  
  
  (294)
  
  
  (484)
  
  
  (251)Net loans originated for sale
  
  
  (14,816)
  
  
  (22,013)
  
  
  (14,357)Proceeds from sales of loans held for sale
  
  
  16,601
  
  
  22,024
  
  
  13,923Net gains on disposition of premises and equipment
  
  
  (2)
  
  
  
  
  
  Net loss on sales of other real estate owned
  
  
  75
  
  
  9
  
  
  5Life insurance death benefit
  
  
  (291)
  
  
  
  
  
  Increase in cash surrender value of bank owned life insurance
  
  
  (1,073)
  
  
  (1,018)
  
  
  (1,038)Net amortization of securities
  
  
  3,316
  
  
  4,589
  
  
  4,012Increase in accrued interest receivable
  
  
  (233)
  
  
  (241)
  
  
  (2,085)Decrease in prepaid FDIC insurance assessment
  
  
  811
  
  
  1,073
  
  
  1,698Increase in other assets
  
  
  (397)
  
  
  (2,538)
  
  
  (402)(Decrease) increase in other liabilities
  
  
  (1,792)
  
  
  980
  
  
  (585)Net cash provided by operating activities
  
  
  23,153
  
  
  21,066
  
  
  18,084Cash flows from investing activities:Investment securities available-for-sale:Purchases
  
  
  (155,464)
  
  
  (207,880)
  
  
  (400,644)Sales
  
  
  122,165
  
  
  130,059
  
  
  254,821Maturities, calls and principal repayment
  
  
  46,378
  
  
  48,406
  
  
  48,029Investment securities held-to-maturity:Purchases
  
  
  (23,531)
  
  
  (16,606)
  
  
  (13,118)Maturities and principal repayment
  
  
  3,830
  
  
  30,258
  
  
  7,475Net (purchase) redemption of restricted investment in bank stock
  
  
  (22)
  
  
  319
  
  
  363Net increase in loans
  
  
  (71,761)
  
  
  (83,478)
  
  
  (49,223)Purchases of premises and equipment
  
  
  (973)
  
  
  (842)
  
  
  (316)Purchase of bank-owned life insurance
  
  
  
  
  
  (5,000)
  
  
  Proceeds from life insurance death benefits
  
  
  592
  
  
  
  
  
  Proceeds from sale of premises and equipment
  
  
  2
  
  
  
  
  
  Proceeds from sale of other real estate owned
  
  
  1,230
  
  
  500
  
  
  33Cash and cash equivalent acquired in acquisition
  
  
  
  
  
  6,195
  
  
  Cash consideration paid in acquisition
  
  
  
  
  
  (10,251)
  
  
  Net cash used in investing activities
  
  
  (77,554)
  
  
  (108,320)
  
  
  (152,580)Cash flows from financing activities:Net increase in deposits
  
  
  35,083
  
  
  100,271
  
  
  261,083Net decrease in short-term borrowings
  
  
  
  
  
  
  
  
  (41,855)Payments on long-term borrowings
  
  
  
  
  
  (15,000)
  
  
  (10,000)Cash dividends on common stock
  
  
  (4,254)
  
  
  (2,778)
  
  
  (1,955)Cash dividends on preferred stock
  
  
  (141)
  
  
  (363)
  
  
  (417)Proceeds from issuance of Series B preferred stock
  
  
  
  
  
  
  
  
  11,250Redemption of Series A preferred stock
  
  
  
  
  
  
  
  
  (10,000)Warrant repurchased
  
  
  
  
  
  
  
  
  (245)Issuance cost of common stock
  
  
  (13)
  
  
  (8)
  
  
  (5)Issuance cost of Series B preferred stock
  
  
  
  
  
  
  
  
  (84)Tax expense from stock based compensation
  
  
  16
  
  
  28
  
  
  Issuance of restricted stock award
  
  
  243
  
  
  
  
  
  Proceeds from exercise of stock options
  
  
  21
  
  
  141
  
  
  328Net cash provided by financing activities
  
  
  30,955
  
  
  82,291
  
  
  208,100Net (decrease) increase in cash and cash equivalents
  
  
  (23,446)
  
  
  (4,963)
  
  
  73,604Cash and cash equivalents at beginning of year
  
  
  106,138
  
  
  111,101
  
  
  37,497Cash and cash equivalents at end of year
  
  $
  82,692
  
  $
  106,138
  
  $
  111,101Supplemental disclosures of cash flow information:Noncash activities:Trade date accounting settlement for investments
  
  $
  8,759
  
  $
  
  
  $
  Transfer of loans to other real estate owned
  
  
  236
  
  
  1,300
  
  
  629Transfer from investment securities available-for-sale     to investment securities held-to-maturity
  
  
  138,300
  
  
  
  
  
  66,833Cash paid during year for:Interest paid on deposits and borrowings
  
  $
  10,993
  
  $
  11,894
  
  $
  12,226Income taxes
  
  
  4,727
  
  
  6,280
  
  
  4,484Business combinations:Non-cash assets acquired:Investment securities available-for-sale
  
  $
  
  
  $
  37,143
  
  $
  Loans
  
  
  
  
  
  52,192
  
  
  Premises and equipment, net
  
  
  
  
  
  1,262
  
  
  Accrued interest receivable
  
  
  
  
  
  389
  
  
  Total non-cash assets acquired
  
  $
  
  
  $
  90,986
  
  $
  Liabilities assumed:Deposits
  
  $
  
  
  $
  85,236
  
  $
  Other liabilities
  
  
  
  
  
  795
  
  
  Total liabilities assumed
  
  $
  
  
  $
  86,031
  
  $
  Net non-cash assets acquired
  
  $
  
  
  $
  4,056
  
  $
  Bargain gain on acquisition
  
  $
  
  
  $
  899
  
  $
  Net cash and cash equivalents acquired
  
  $
  
  
  $
  6,195
  
  $
  Cash consideration paid in acquisition
  
  $
  
  
  $
  10,251
  
  $
  





See the accompanying notes to the consolidated financial statements.






F-8










CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 1  Summary of Significant Accounting Policies





Principles of Consolidation





The consolidated financial statements of Center Bancorp, Inc. (the “Parent Corporation”) are prepared on the accrual basis and include the accounts of the Parent Corporation and its wholly owned subsidiary, Union Center National Bank (the “Bank”, and collectively with the Parent Corporation and the Parent Corporation’s other direct and indirect subsidiaries, the “Corporation”). All significant inter-company accounts and transactions have been eliminated from the accompanying consolidated financial statements.





Business





The Parent Corporation is a bank holding company whose principal activity is the ownership and management of Union Center National Bank as mentioned above. The Bank provides a full range of banking services to individual and corporate customers through branch locations in Union, Morris, Bergen and, commencing in May 2013, Mercer counties, New Jersey. Additionally, the Bank originates residential mortgage loans and services such loans for others. The Bank is subject to competition from other financial institutions and the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.





Segments
  
  Center Bancorp, Inc. has one reportable segment, “Community Banking.” All of the Corporation’s activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Corporation supports the others. For example, lending is dependent upon the ability of the Corporation to fund itself with deposits and borrowings while managing the interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Bank as one segment or unit. Basis of Financial Statement Presentation 
 The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles.
 
 Use of Estimates
 
 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 the reported periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill, the income tax provision and the valuation of deferred tax assets.
 
 Cash and Cash Equivalents
 
 Cash and cash equivalents includes cash on hand and balances due from correspondent banks and interest bearing deposits with banks.
 
 Investment Securities
 
 The Corporation accounts for its investment securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-05. Investments are classified into the following categories: (1) held to maturity securities, for which the Corporation has both the positive intent and ability to hold until maturity, which are reported at amortized cost; (2) trading securities, which are purchased and held principally for the purpose of selling in the near term and are 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 and which management believes may be sold prior to maturity due to changes in interest rates, prepayment, risk, liquidity or other factors, and are reported at fair value, with unrealized gains and losses, net of applicable income taxes, reported as a component of accumulated other comprehensive income, which is included in stockholders’ equity and excluded from earnings.
 
 Investment securities are adjusted for amortization of premiums and accretion of discounts, which are recognized on a level yield method, as adjustments to interest income. Investment securities gains or losses are determined using the specific identification method.
   F-9   CENTER BANCORP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1  Summary of Significant Accounting Policies   (continued)
 
 Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. FASB ASC 320-10-65 clarifies the interaction of the factors that should be considered when determining whether a debt security is otherthan-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FASB ASC 320-10-65 changed the presentation and amount of the other-than-temporary impairment recognized in the statement of income. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized through earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized through other comprehensive income. Impairment charges on certain investment securities of approximately $0.7 million, $0.9 million and $0.3 million were recognized in earnings during the years ended December 31, 2013, 2012 and 2011, respectively.
 
 Loans Held for Sale
 
 Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value. For loans carried at the lower of cost or estimated fair value, gains and losses on loan sales (sale proceeds minus carrying value) are recorded in other income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in other income upon sale of the loan.
 
 Loans
 
 Loans are stated at their principal amounts inclusive of net deferred loan origination fees. Interest income is credited as earned except when a loan becomes past due 90 days or more and doubt exists as to the ultimate collection of interest or principal; in those cases the recognition of income is discontinued. Loans that are past due 90 days or more that are both well secured and in the process of collection will remain on an accruing basis. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income.
   F-10   CENTER BANCORP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1  Summary of Significant Accounting Policies   (continued)
 
 Portfolio segments are defined as the level at which an entity develops and documents a systematic methodology to determine its Allowance. Management has determined that the Corporation has two portfolio segments of loans and leases (commercial and consumer) in determining the Allowance. Both quantitative and qualitative factors are used by management at the portfolio segment level in determining the adequacy of the Allowance for the Corporation. Classes of loans and leases are a disaggregation of a Corporation’s portfolio segments. Classes are defined as a group of loans and leases which share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. Management has determined that the Corporation has five classes of loans and leases (commercial and industrial (including lease financing), commercial  real estate, construction, residential mortgage (including home equity) and installment).
  Generally, all classes of commercial and consumer loans and leases are placed on non-accrual status upon becoming contractually past due 90 days or more as to principal or interest (unless loans and leases are adequately secured by collateral, are in the process of collection, and are reasonably expected to result in repayment), when terms are renegotiated below market levels, or where substantial doubt about full repayment of principal or interest is evident. For certain installment loans, the entire outstanding balance on the loan is charged-off when the loan becomes 60 days past due.
 
 Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected. 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 using the level yield method.
 
 Impaired Loans
 
 The Corporation accounts for impaired loans in accordance with FASB ASC 310-10-35. The value of an impaired loan is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or at the fair value of the collateral if the loan is collateral dependent.
 
 The Corporation has defined its population of impaired loans to include all non-accrual and troubled debt restructuring loans. As part of the evaluation, the Corporation reviews all non-homogeneous loans for impairment internally classified as substandard or below, in each instance above an established dollar threshold of $200,000. Smaller impaired non-homogeneous loans and impaired homogeneous loans are not measured for specific reserves and are covered under the Corporation’s general reserve.
 
 A loan is considered impaired when, based on current information and events, it is probable that the Corporation will not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments. Impaired loans include all classes of commercial and consumer non-accruing loans and all loans modified in a troubled debt restructuring (“TDR”).
 
 When a loan has been identified as being impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral-dependent. If the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest, net of deferred loan fees or costs and unamortized premiums or discounts), an impairment is recognized by creating or adjusting an existing allocation of the Allowance, or by recording a partial charge-off of the loan to its fair value. Interest payments made on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest income may be accrued or recognized on a cash basis.
   F-11   CENTER BANCORP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1  Summary of Significant Accounting Policies   (continued)
 
 Loans Modified in a Troubled Debt Restructuring
 
 Loans are considered to have been modified in a TDR when due to a borrower’s financial difficulties, the Corporation makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status.
 
 Reserve for Credit Losses
 
 A consequence of lending activities is that the Corporation may incur losses. The amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers. The Corporation’s reserve for credit losses is comprised of two components, the allowance for loan losses and the reserve for unfunded commitments (the “Unfunded Commitments”). The reserve for credit losses provides for credit losses inherent in lending or commitments to lend and is based on loss estimates derived from a comprehensive quarterly evaluation, reflecting analyses of individual borrowers and historical loss experience, supplemented as necessary by credit judgment to address observed changes in trends, conditions, and other relevant environmental and economic factors.
 
 Allowance for Loan Losses
 
 The Allowance is maintained at a level determined adequate to provide for probable 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. In connection with the determination of the Allowance, management obtains independent appraisals for significant properties.
 
 The ultimate collectability of a substantial portion of the Bank’s loan portfolio is susceptible to changes in the real estate market and economic conditions in the State of New Jersey and the impact of such conditions on the creditworthiness of the borrowers.
 
 Management believes that the allowance for loan losses is adequate. Management uses available information to recognize loan losses; however, future additions to the Allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s Allowance. 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.
   F-12   CENTER BANCORP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1  Summary of Significant Accounting Policies   (continued)
 
 Reserve for Unfunded Commitments
 
 The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities and is included in other liabilities in the consolidated statements of condition. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, and credit risk. Net adjustments to the reserve for unfunded commitments are included in other expense. The balance of the reserve for unfunded commitments was $210,000 as of December 31, 2013 and 2012.
 
 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 a 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 a component of other income or other expenses.
 
 Other Real Estate Owned
 
 Other real estate owned (“OREO”), representing property acquired through foreclosure and held for sale, are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequently, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs relating to holding the assets are charged to expenses.
 
 Mortgage Servicing
 
 The Corporation performs various servicing functions on loans owned by others. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received for those services. At December 31, 2013 and 2012, the Corporation was servicing approximately $8.4 million and $10.2 million, respectively, of loans for others.
 
 The Corporation accounts for its servicing of financial assets in accordance with FASB ASC 860-50. The Corporation originates certain mortgages under plans to sell those loans and service the loans owned by the investor. The Corporation records mortgage servicing rights and the loans based on relative fair values at the date of sale. The balance of mortgage servicing rights at December 31, 2013 and 2012 are immaterial to the Corporation’s consolidated financial statements.
 
 Risk Related to Representation and Warranty Provisions
 
 The Corporation sells residential mortgage loans in the secondary market primarily to Fannie Mae. The Corporation sells residential mortgage loans to Fannie Mae that include various representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the specific representations and warranties vary, they typically cover ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, compliance with loan criteria set forth in the applicable agreement, compliance with applicable federal, state, and local laws, and other matters.
 
 As of December 31, 2013 and 2012, the unpaid principal balance of the Corporation’s portfolio of residential mortgage loans sold to Fannie Mae was $8.4 million and $10.2 million, respectively. These loans are generally sold on a non-recourse basis. The agreements under which the Corporation sells residential mortgage loans require the Corporation to deliver various documents to the investor or its document custodian. Although these loans are primarily sold on a non-recourse basis, the Corporation may be obligated to repurchase residential mortgage loans where required documents are not delivered or are defective. Investors may require the immediate repurchase of a mortgage loan when an early payment default discovered in an underwriting review reveals significant underwriting deficiencies, even if the mortgage loan has subsequently been brought current. As of December 31, 2013, there were no pending repurchase requests related to representation and warranty provisions.
   F-13   CENTER BANCORP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1  Summary of Significant Accounting Policies   (continued)
 
 Employee Benefit Plans
 
 The Corporation has a non-contributory pension plan that covered all eligible employees up until September 30, 2007, at which time the Corporation froze its defined benefit pension plan. As such, all future benefit accruals in this pension plan were discontinued and all retirement benefits that employees would have earned as of September 30, 2007 were preserved. The Corporation’s policy is to fund at least the minimum contribution required by the Employee Retirement Income Security Act of 1974. The costs associated with the plan are accrued based on actuarial assumptions and included in other expense.
 
 The Corporation accounts for its defined benefit pension plan in accordance with FASB ASC 715-30. FASB ASC 715-30 requires that the funded status of defined benefit postretirement plans be recognized on the Corporation’s statement of condition and changes in the funded status be reflected in other comprehensive income. FASB ASC 715-30 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end.
 
 Stock-Based Compensation
 
 Stock compensation accounting guidance (FASB ASC 718, “Compensation-Stock Compensation”) requires that the compensation cost related to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.
 
 Stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options while the market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. See Note 17 of the Notes to Consolidated Financial Statements for a further discussion.
 
 Earnings per Share
 
 Basic Earnings per Share (“EPS”) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g. stock options). The Corporation’s weighted average common shares outstanding for diluted EPS include the effect of stock options outstanding using the Treasury Stock Method, which are not included in the calculation of basic EPS.
   F-14   CENTER BANCORP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1  Summary of Significant Accounting Policies   (continued)
 
 Earnings per common share have been computed based on the following:
 
 Years Ended December 31,2013
  
  2012
  
  2011(In Thousands, Except per Share Amounts)Net income
  
  $
  19,925
  
  $
  17,507
  
  $
  13,926Preferred stock dividends and accretion
  
  
  141
  
  
  281
  
  
  820Net income available to common stockholders
  
  $
  19,784
  
  $
  17,226
  
  $
  13,106Average number of common shares outstanding
  
  
  16,349
  
  
  16,340
  
  
  16,296Effect of dilutive options
  
  
  37
  
  
  11
  
  
  19Average number of common shares outstanding used to     calculate diluted earnings per common share
  
  
  16,386
  
  
  16,351
  
  
  16,315Anti-dilutive common shares outstanding
  
  
  14
  
  
  42
  
  
  79Earnings per common share:Basic
  
  $
  1.21
  
  $
  1.05
  
  $
  0.80Diluted
  
  $
  1.21
  
  $
  1.05
  
  $
  0.80
 
 Treasury Stock
 
 The Parent Corporation, under a stock buyback program last amended in 2008, is authorized to buy back up to 2,039,731 shares of the Parent Corporation’s common stock. Subject to limitations applicable to the Corporation, purchases may be made from time to time as, in the opinion of management, market conditions warrant, in the open market or in privately negotiated transactions. Shares repurchased will be added to the corporate treasury and will be used for future stock dividends and other issuances. As of December 31, 2013, Center Bancorp had 16.4 million shares of common stock outstanding. As of December 31, 2013, the Parent Corporation had purchased 1,386,863 common shares at an average cost per share of $11.44 under the stock buyback program as amended on October 1, 2007 and June 26, 2008. The repurchased shares were recorded as treasury stock, which resulted in a decrease in stockholders’ equity. Treasury stock is recorded using the cost method and accordingly is presented as a reduction of stockholders’ equity. During the years ended December 31, 2013, 2012 and 2011, the Parent Corporation did not purchase any of its shares.
 
 Goodwill
 
 The Corporation adopted the provisions of FASB ASC 350-10 (previously SFAS No. 142, “Goodwill and Other Intangible Assets”), which requires that goodwill be tested for impairment annually, or more frequently if impairment indicators arise for impairment. No impairment charge was deemed necessary for the years ended December 31, 2013, 2012 and 2011.
  As provided by ASU 2011-08 management has evaluated and assessed the following events and circumstances relevant to determining whether it is more likely than not that the fair value of the reporting unit exceeds its carrying value:
 ⋅
  Macroeconomic conditions. ⋅
  Industry and market conditions. ⋅
  Overall financial performance. Comprehensive Income
 
 Total comprehensive income includes all changes in equity during a period from transactions and other events and circumstances from non-owner sources. The Corporation’s other comprehensive income is comprised of unrealized holding gains and losses on securities available-for-sale and unrecognized actuarial gains and losses of the Corporation’s defined benefit pension plan, net of taxes.
  Disclosure of comprehensive income for the years ended December 31, 2013, 2012 and 2011 is presented in the Consolidated Statements of Comprehensive Income and presented in detail in Note 15 of the Notes to Consolidated Financial Statements.
   F-15   CENTER BANCORP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note 1  Summary of Significant Accounting Policies   (continued)
 
 Bank-Owned Life Insurance
 
 The Corporation invests in Bank-Owned Life Insurance (“BOLI”) to help offset the rising cost of employee benefits. The change in the cash surrender value of the BOLI is recorded as a component of other income.
 
 Income Taxes
 
 The Corporation recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases of assets and liabilities, using enacted tax rates expected to be applied to taxable income in the years in which the differences are expected to be settled. Income tax-related interest and penalties are classified as a component of income tax expense.
 
 ASC Topic 740, Taxes, provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Corporation has not identified any income tax uncertainties.
 
 Advertising Costs
 
 The Corporation recognizes its marketing and advertising cost as incurred. Advertising costs were $304,000, $186,000 and $131,000 for the years ended December 31, 2013, 2012 and 2011, respectively.
 
 Reclassifications
 
 Certain reclassifications have been made in the consolidated financial footnotes for 2012 and 2011 to conform to the classifications presented in 2013.






Note 2  Recent Accounting Pronouncements





In January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities,” which amended disclosures by requiring improved information about financial instruments and derivative instruments that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet. Reporting entities are required to provide both net and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of international financial reporting standards ("IFRS"). Companies were required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those years. The adoption of this accounting standard did not have a material impact on the Corporation's results of operations, financial position, or liquidity.





In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," to improve the transparency of reporting these reclassifications. ASU No. 2013-02 does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income and separately present reclassification adjustments and current period other comprehensive income. The provisions of ASU No. 2013-02 also requires that entities present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line item affected by the reclassification. The Corporation adopted the provisions of ASU No. 2013-02 effective January 1, 2013. As the Corporation provided these required disclosures in the notes to the Consolidated Financial Statements, the adoption of ASU No. 2013-02 had no impact on the Corporation's consolidated statements of income and condition.





FASB ASU 2014-04: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. EITF Issue 13-E sought to define “in substance repossession or foreclosure” because of the diversity in practice regarding when entities were reclassifying loans receivable to other real estate owned instead of as a loan receivable. The timing of loan reclassifications to OREO may be qualitatively significant to regulators and other financial statement users. “In substance repossession or foreclosure” is clarified by the ASU. A creditor is considered to have received physical possession (resulting from an in substance repossession) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following: a) The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law. b) The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor. The ASU is effective for fiscal years beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Corporation will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.






F-16






CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 3  Cash and Due from Banks





The Bank maintained cash balances reserved to meet regulatory requirements of the Federal Reserve Board of approximately $2,545,000 and $1,337,000 at December 31, 2013 and 2012, respectively.








|
|



Note 4. Business Combinations





On August 1, 2012, the Bank assumed all of the deposits and certain other liabilities and acquired certain assets of Saddle River Valley Bank (“Saddle River”), a New Jersey State-chartered bank, pursuant to the terms of a Purchase and Assumption Agreement, dated as of February 1, 2012, among the Bank, Saddle River Valley Bank and Saddle River Valley Bancorp. This purchase and assumption was in keeping with the Bank’s strategy to expand its base of operations into Northern New Jersey.





The Bank assumed approximately $85.2 million in deposits and acquired approximately $89.3 million in loans and securities from Saddle River. The Bank paid total consideration of $10.3 million in cash. Acquisition costs, totaling $482,000 are reported on the consolidated statements of income.





The following table sets forth assets acquired and liabilities assumed at their estimated fair values, and resulting Bargain gain on acquisition, as of the closing date of the transaction:





August 1, 2012(Dollars in thousands)Assets acquired:Cash and cash equivalents
  
  $
  6,195Investment securities available-for-sale
  
  
  37,143Loans
  
  
  52,192Premises and equipment, net
  
  
  1,262Accrued interest receivable
  
  
  389Total assets acquired
  
  $
  97,181Liabilities assumed:Deposits:
  
  $
  85,236Other liabilities
  
  
  795Total liabilities assumed
  
  $
  86,031Net assets acquired
  
  $
  11,150Cash consideration paid in acquisition
  
  $
  10,251Bargain gain on acquisition
  
  $
  899





Thefair value estimates are subject to change for up to one year after the closing date of the transaction if additional information relative to closing date fair values becomes available.





Fair Value of Measurement of Assets Acquired and Liabilities Assumed





Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the acquisition.





Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts.





Investment securities available-for-sale.The estimated fair values of the investment securities available for sale were calculated utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service and are derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviewed the data and assumptions used in pricing the securities by its third party provider to ensure the highest level of significant inputs are derived from market observable data.






| | F-17 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 4. Business Combinations  (continued)





Loans.A discounted cash flow of each individual loan was calculated. The discounted cash flows, at an account level, were then aggregated together by category type to determine the mark-to-market value of each loan type. The market values of all loan categories were added together to determine the total market value of the loan portfolio. The price of the portfolio is then determined bydividing the market value of the portfolio by the purchased face value of the portfolio. The discountrate utilized for the discounted cash flow of each loan category was based upon Bankrate and asurvey of three local market competitors and the Bank’s offerings.There was no carryover of the allowance for loan losses that had been previously recorded by Saddle River.





Deposits.The discount rate utilized for the discounted cash flow of each time deposit category was calculated based upon the market interest rate for the term nearest to the weighted average remaining maturity for each time deposit category. The time deposit market interest rate was derived from a FinancialMarket Focus Report for New Jersey as of August 1, 2012.





Accrued interest receivable. The carrying amounts of accrued interest approximate fair value.





Other liabilities. The estimated fair values of other liabilities approximate their stated face amounts.





In connection with the Saddle River asset/liability purchase and assumption, the Corporation recorded a net deferred income tax liability of $620,000 related to the tax attributes of the transaction.





The following table presents actual operating results attributable to Saddle River since the August 1, 2012 assumption date through December 31, 2012. This information does not include purchase accounting adjustments or acquisition integration costs.





(Dollars in thousands)Net interest income
  
  $
  1,352Non-interest income
  
  
  15Non-interest expense and income taxes
  
  
  (763)Net income
  
  $
  604





The Corporation has not provided pro forma information for the twelve month periods ended December 31, 2012 as if the asset/liability purchase and assumption of Saddle River had occurred as of January 1, 2012. There is no consistent level base for objective comparison as product balances declined on a steady basis from the agreement date to assumption date and the closing date and accordingly such disclosures are considered impractical. The application of those disclosures would require a significant estimate of amounts, andit is impossible to distinguish objective information about those estimates that both provide evidence of circumstances that existed at the reporting dates, and would have been available when the financial statements for the prior periods were issued.





Certain loans, for which specific credit-related deterioration was identified, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation of the timing and amount of cash flows to be collected. The timing of the sale of loan collateral was estimated for acquired loans deemed impaired and considered collateral dependent. For these collateral dependent impaired loans, the excess of the future expected cash flow over the present value of the future expected cash flow represents the accretable yield, which will be accreted into interest income over the estimated liquidation period using the effective interest method. The aggregate contractual cash flows less the aggregate expected cash flows result in a credit related non-accretable yield amount or difference. The nonaccretable balance at December 31, 2013 and 2012 was approximately $0 and $71,000, respectively. The following table details the loans that are accounted for in accordance with FASB ASC 310-30 as of August 1, 2012:





(Dollars in thousands)Contractually required principal and interest at acquisition
  
  $
  2,101Contractual cash flows not expected to be collected (nonaccretable difference)
  
  
  (982)Expected cash flows at acquisition
  
  
  1,119Interest component of expected cash flows (accretable discount)
  
  
  (161)Fair value of acquired loans accounted for under FASB ASC 310-30
  
  $
  958


The following table presents the changes in accretable discount related to purchased-credit-impaired loans:





December 31,2013
  
  2012(in thousands)Accretable discount balance, beginning of period
  
  $
  130
  
  $
  Additions resulting from acquisition
  
  
  
  
  
  161Accretion to interest income
  
  
  (130)
  
  
  (31)Accretable discount, end of period
  
  $
  
  
  $
  130







Acquired loans not subject to the requirements of FASB ASC 310-30 are recorded at fair value. The fair value mark on each of these loans will be accreted into interest income over the remaining life of the loan. The following table details loans that are not accounted for in accordance with FASB ASC 310-30 as of August 1, 2012:





(Dollars in thousands)Contractually required principal and interest at acquisition
  
  $
  50,917Contractual cash flows not expected to be collected (credit mark)
  
  
  (807)Expected cash flows at acquisition
  
  
  50,110Interest rate premium mark
  
  
  1,313Fair value of acquired loans not accounted for under FASB ASC 310-30
  
  $
  51,423






F-18










CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5  Investment Securities





The following tables present information related to the Corporation’s portfolio of securities available-for-sale and held-to-maturity at December 31, 2013 and 2012.





Amortized Cost
  
  Gross Unrealized Gains
  
  Gross Unrealized Losses
  
  Fair ValueDecember 31, 2013(Dollars in Thousands)Investment Securities Available-for-Sale:U.S. Treasury and agency securities
  
  $
  14,344
  
  $
  
  
  $
  (825)
  
  $
  13,519Federal agency obligations
  
  
  20,567
  
  
  29
  
  
  (655)
  
  
  19,941Residential mortgage pass-through securities
  
  
  48,312
  
  
  791
  
  
  (229)
  
  
  48,874Commercial mortgage pass-through securities
  
  
  7,145
  
  
  3
  
  
  (157)
  
  
  6,991Obligations of U.S. states and political subdivisions
  
  
  30,804
  
  
  711
  
  
  (55)
  
  
  31,460Trust preferred securities
  
  
  19,763
  
  
  150
  
  
  (510)
  
  
  19,403Corporate bonds and notes
  
  
  154,182
  
  
  4,930
  
  
  (482)
  
  
  158,630Asset-backed securities
  
  
  15,733
  
  
  246
  
  
  
  
  
  15,979Certificates of deposit
  
  
  2,250
  
  
  32
  
  
  (20)
  
  
  2,262Equity securities
  
  
  376
  
  
  
  
  
  (89)
  
  
  287Other securities
  
  
  5,671
  
  
  68
  
  
  (15)
  
  
  5,724Total
  
  $
  319,147
  
  $
  6,960
  
  $
  (3,037)
  
  $
  323,070Investment Securities Held-to-Maturity:U.S. Treasury and agency securities
  
  $
  28,056
  
  $
  
  
  $
  (1,019)
  
  $
  27,037Federal agency obligations
  
  
  15,249
  
  
  23
  
  
  (389)
  
  
  14,883Residential mortgage-backed securities
  
  
  2,246
  
  
  
  
  
  (64)
  
  
  2,182Commercial mortgage-backed securities
  
  
  4,417
  
  
  41
  
  
  (62)
  
  
  4,396Obligations of U.S. states and political subdivisions
  
  
  127,418
  
  
  1,303
  
  
  (3,688)
  
  
  125,033Corporate bonds and notes
  
  
  37,900
  
  
  149
  
  
  (622)
  
  
  37,427Total
  
  $
  215,286
  
  $
  1,516
  
  $
  (5,844)
  
  $
  210,958Total investment securities
  
  $
  534,433
  
  $
  8,476
  
  $
  (8,881)
  
  $
  534,028





Amortized Cost
  
  Gross Unrealized Gains
  
  Gross Unrealized Losses
  
  Fair ValueDecember 31, 2012(Dollars in Thousands)Investment Securities Available-for-Sale:U.S. Treasury and agency securities
  
  $
  11,870
  
  $
  62
  
  $
  (23)
  
  $
  11,909Federal agency obligations
  
  
  20,207
  
  
  333
  
  
  (5)
  
  
  20,535Residential mortgage pass-through securities
  
  
  52,400
  
  
  1,385
  
  
  (1)
  
  
  53,784Commercial mortgage pass-through securities
  
  
  9,725
  
  
  244
  
  
  
  
  
  9,969Obligations of U.S. states and political subdivisions
  
  
  103,193
  
  
  4,653
  
  
  (132)
  
  
  107,714Trust preferred securities
  
  
  22,279
  
  
  144
  
  
  (1,174)
  
  
  21,249Corporate bonds and notes
  
  
  228,681
  
  
  9,095
  
  
  (371)
  
  
  237,405Collateralized mortgage obligations
  
  
  2,120
  
  
  
  
  
  
  
  
  2,120Asset-backed securities
  
  
  19,431
  
  
  311
  
  
  
  
  
  19,742Certificates of deposit
  
  
  2,854
  
  
  21
  
  
  (10)
  
  
  2,865Equity securities
  
  
  535
  
  
  
  
  
  (210)
  
  
  325Other securities
  
  
  9,145
  
  
  68
  
  
  (15)
  
  
  9,198Total
  
  $
  482,440
  
  $
  16,316
  
  $
  (1,941)
  
  $
  496,815Investment Securities Held-to-Maturity:Federal agency obligations
  
  $
  4,178
  
  $
  79
  
  $
  
  
  $
  4,257Commercial mortgage-backed securities
  
  
  5,501
  
  
  154
  
  
  (5)
  
  
  5,650Obligations of U.S. states and political subdivisions
  
  
  48,385
  
  
  4,139
  
  
  
  
  
  52,524Total
  
  $
  58,064
  
  $
  4,372
  
  $
  (5)
  
  $
  62,431Total investment securities
  
  $
  540,504
  
  $
  20,688
  
  $
  (1,946)
  
  $
  559,246





The available-for-sale securities are reported at fair value with unrealized gains or losses included in equity, net of taxes. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 19 of the Notes to Consolidated Financial Statements for a further discussion.





During 2013, the Corporation transferred from its available-for-sale category to its held-to-maturity category $138.3 million of securities. Transfers of securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.






| | F-19 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5  Investment Securities   (continued)





The following table presents information for investments in securities available-for-sale and held-to-maturity at December 31, 2013, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.





December 31, 2013Amortized Cost
  
  Fair Value(Dollars in Thousands)Investment Securities Available-for-Sale:Due in one year or less
  
  $
  9,738
  
  $
  9,780Due after one year through five years
  
  
  63,206
  
  
  64,802Due after five years through ten years
  
  
  123,765
  
  
  126,024Due after ten years
  
  
  60,934
  
  
  60,588Residential mortgage pass-through securities
  
  
  48,312
  
  
  48,874Commercial mortgage pass-through securities
  
  
  7,145
  
  
  6,991Equity securities
  
  
  376
  
  
  287Other securities
  
  
  5,671
  
  
  5,724Total
  
  $
  319,147
  
  $
  323,070Investment Securities Held-to-Maturity:Due in one year or less
  
  $
  2,061
  
  $
  2,065Due after one year through five years
  
  
  12,547
  
  
  12,699Due after five years through ten years
  
  
  65,692
  
  
  64,027Due after ten years
  
  
  128,323
  
  
  125,589Residential mortgage-backed securities
  
  
  2,246
  
  
  2,182Commercial mortgage-backed securities
  
  
  4,417
  
  
  4,396Total
  
  $
  215,286
  
  $
  210,958Total investment securities
  
  $
  534,433
  
  $
  534,028





Gross gains and losses from the sales of investment securities for the years ended December 31, 2013, 2012 and 2011 were as follows:





Years Ended December 31,(Dollars in Thousands)
  
  2013
  
  2012
  
  2011Gross gains on sales of investment securities
  
  $
  2,451
  
  $
  2,905
  
  $
  4,045Gross losses on sales of investment securities
  
  
  88
  
  
  23
  
  
  69Net gains on sales of investment securities
  
  $
  2,363
  
  $
  2,882
  
  $
  3,976






| | F-20 | 
| | ---- | 
|











CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5  Investment Securities   (continued)





Other-than-Temporarily Impaired Investments





Summary of Other-than-Temporary Impairment Charges





Years Ended December 31,2013
  
  2012
  
  2011(Dollars in Thousands)One variable rate private label CMO
  $
  
  
  $
  484
  
  $
  18Pooled trust preferred securities
  
  628
  
  
  68
  
  
  Principal losses on a variable rate CMO
  
  24
  
  
  318
  
  
  324Total other-than-temporary impairment charges
  $
  652
  
  $
  870
  
  $
  342





The Corporation performs regular analysis on the available-for-sale securities portfolio to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB ASC 320-10 requires companies to record other-than-temporary impairment (“OTTI”) charges, through earnings, if they have the intent to sell, or more likely than not be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Corporation intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its estimated fair value at the balance sheet date. If the Corporation does not intend to sell the security and it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, and as such, it determines that a decline in fair value is other than temporary, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.





The Corporation reviews all securities for potential recognition of other-than-temporary impairment. The Corporation maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could include credit rating downgrades.





The Corporation’s assessment of whether an investment in the portfolio of assets is other than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses.






| | F-21 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5  Investment Securities   (continued)





The following table presents detailed information for each trust preferred security held by the Corporation at December 31, 2013, of which all but one has at least one rating below investment grade.





Deal Name
  
  Single Issuer or Pooled
  
  Class/ Tranche
  
  Amortized Cost
  
  Fair Value
  
  Gross Unrealized Gain (Loss)
  
  Lowest Credit Rating Assigned
  
  Number of Banks Currently Performing
  
  Deferrals and Defaults as % of Original Collateral
  
  Expected Deferral/Defaults as % of Remaining Performing Collateral(Dollars in Thousands)Countrywide     Capital IV
  
  Single
  
  
  
  
  $
  1,771
  
  $
  1,772
  
  $
  1
  
  BB+
  
  1
  
  None
  
  NoneCountrywide     Capital V
  
  Single
  
  
  
  
  
  2,747
  
  
  2,784
  
  
  37
  
  BB+
  
  1
  
  None
  
  NoneCountrywide     Capital V
  
  Single
  
  
  
  
  
  250
  
  
  253
  
  
  3
  
  BB+
  
  1
  
  None
  
  NoneCitigroup Cap IX
  
  Single
  
  
  
  
  
  992
  
  
  999
  
  
  7
  
  BB+
  
  1
  
  None
  
  NoneCitigroup Cap IX
  
  Single
  
  
  
  
  
  1,906
  
  
  1,927
  
  
  21
  
  BB+
  
  1
  
  None
  
  NoneCitigroup Cap XI
  
  Single
  
  
  
  
  
  246
  
  
  248
  
  
  2
  
  BB+
  
  1
  
  None
  
  NoneNationsbank Cap     Trust III
  
  Single
  
  
  
  
  
  1,574
  
  
  1,275
  
  
  (299)
  
  BB+
  
  1
  
  None
  
  NoneMorgan Stanley     Cap Trust IV
  
  Single
  
  
  
  
  
  2,500
  
  
  2,372
  
  
  (128)
  
  BB+
  
  1
  
  None
  
  NoneMorgan Stanley     Cap Trust IV
  
  Single
  
  
  
  
  
  1,742
  
  
  1,659
  
  
  (83)
  
  BB+
  
  1
  
  None
  
  NoneSaturns  GS     2004-04
  
  Single
  
  
  
  
  
  536
  
  
  536
  
  
  
  
  BB+
  
  1
  
  None
  
  NoneGoldman Sachs
  
  Single
  
  
  
  
  
  999
  
  
  1,011
  
  
  12
  
  BB+
  
  1
  
  None
  
  NoneStifel Financial
  
  Single
  
  
  
  
  
  4,500
  
  
  4,567
  
  
  67
  
  BBB-
  
  1
  
  None
  
  NoneTotal
  
  
  
  
  
  
  $
  19,763
  
  $
  19,403
  
  $
  (360)





The Corporation owned one pooled trust preferred security (“Pooled TRUP”), which consists of securities issued by financial institutions and insurance companies and the Corporation held the mezzanine tranche of such securities. Senior tranches generally are protected from defaults by over-collateralization and cash flow default protection provided by subordinated tranches, with senior tranches having the greatest protection and mezzanine tranches subordinated to the senior tranches. The Corporation’s analysis of this Pooled TRUP falls within the scope of EITF 99-20, ASC 320-40 and uses a discounted cash flow model to determine the total OTTI loss. The model considers the structure and term and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers and the allocation of the payments to the note classes according to a priority of payments specified in the offering circular and indenture. The current estimate of expected cash flows is based on the most recent trustee reports and other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include default rates, default rate timing profile and recovery rates. The Corporation assumes no prepayments as the Pooled TRUP was issued at comparatively tight spreads and as such, there is little incentive, if any, to prepay.






| | F-22 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5  Investment Securities   (continued)





During 2013, the Pooled TRUP, ALESCO VII, incurred its eighteenth interruption of cash flow payments to date. Management determined that an other-than-temporary impairment charge of $628,000 existed on this security for the twelve months ended December 31, 2013, and subsequently sold at its book value in January 2014.





Credit Loss Portion of OTTI Recognized in Earning on Debt Securities





Years Ended December 31,2013
  
  2012
  
  2011(Dollars in Thousands)Balance of credit-related OTTI at January 1,
  
  $
  4,450
  
  $
  6,539
  
  $
  6,197Addition:Credit losses for which other-than-temporary impairment     was not previously recognized
  
  
  652
  
  
  870
  
  
  342Reduction:Credit losses for securities sold during the period
  
  
  (5,102)
  
  
  (2,959)
  
  
  Balance of credit-related OTTI at December 31,
  
  $
  
  
  $
  4,450
  
  $
  6,539





The Corporation held one variable rate private label collateralized mortgage obligation (CMO), which was also evaluated for impairment. The Variable Rate Collateralized Mortgage Obligation was originally issued in 2006 and is 30 year Adjustable Rate Mortgage loan secured by a first lien, fully amortizing one-to-four residential mortgage loans. The tranche purchased was a Super Senior with an original credit rating of AAA/AAA. The top five states geographic concentration comprised in the deal were California 18.2 percent, Arizona 10.5 percent, Virginia 6.1 percent, Florida 6.5 percent and Nevada 6.3 percent. No one state exceeded a 25 percent concentration. These states have been heavily impacted by the financial crises and as such have sustained heavy delinquencies affecting the credit rating of the security. Management had applied aggressive default rates to identify if any credit impairment exists, as these bonds were downgraded to below investment grade. The Corporation recorded $24,000 in principal losses on the bond in 2013, and this security was sold at this book value in January 2013.






| | F-23 | 
| | ---- | 
|













CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5  Investment Securities   (continued)





Temporarily Impaired Investments





For all other securities, the Corporation does not believe that the unrealized losses, which were comprised of 170 and 49 investment securities as of December 31, 2013 and December 31, 2012, respectively, represent an other-than-temporary impairment. The gross unrealized losses associated with mortgage-backed securities, corporate bonds, asset-backed securities and tax-exempt securities are not considered to be other than temporary because their unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.





Factors affecting the market price include credit risk, market risk, interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Corporation’s investment in any one issuer or industry. The Corporation has established policies to reduce exposure through diversification of concentration of the investment portfolio including limits on concentrations to any one issuer. The Corporation believes the investment portfolio is prudently diversified.





The decline in value is related to a change in interest rates and subsequent change in credit spreads required for these issues affecting market price. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. Short to intermediate average durations and in certain cases monthly principal payments should reduce further market value exposure to increases in rates.





The Corporation evaluates all securities with unrealized losses quarterly to determine whether the loss is other than temporary. Unrealized losses in the mortgage-backed securities category consist primarily of U.S. agency and private issue collateralized mortgage obligations. Unrealized losses in the corporate debt securities category consist of single name corporate trust preferred securities, a pooled trust preferred security and corporate debt securities issued by large financial institutions. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. For collateralized mortgage obligations, management reviewed expected cash flows and credit support to determine if it was probable that all principal and interest would be repaid. None of the corporate issuers have defaulted on interest payments. Management concluded that these securities were not other-than-temporarily impaired at December 31, 2013. Future deterioration in the cash flow on collateralized mortgage obligations or the credit quality of these large financial institution issuers of corporate debt securities could result in impairment charges in the future. Obligations of U.S. states and political subdivisions are comprised of intermediate to long-term municipal bonds. A review of the coupon rates and maturity dates validates the unrealized losses due to the changes in interest rates. These bonds were purchased at lower ends of the interest rate cycle and were a part of the Corporation’s overall strategy to use tax-free instruments and to barbell the maturity distribution of bonds. The bonds are conservative in nature and the value decline is related to the changes in interest rates that occurred since the time of purchase and subsequent changes in spreads affecting the market prices. All of the issues carry an A or better underlying credit support and were evaluated on the basis on their underlying fundamentals; included but not limited to annual financial reports, geographic location, population and debt ratios. In certain cases options for calls reduce the effective duration and in turn the future market value fluctuations. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. There have not been disruptions of any payments, associated with any of these municipal securities.





In determining that the securities giving rise to the previously mentioned unrealized losses were not other than temporary, the Corporation evaluated the factors cited above, which the Corporation considers when assessing whether a security is other-than-temporarily impaired. In making these evaluations the Corporation must exercise considerable judgment. Accordingly, there can be no assurance that the actual results will not differ from the Corporation’s judgments and that such differences may not require the future recognition of other-than-temporary impairment charges that could have a material affect on the Corporation’s financial position and results of operations. In addition, the value of, and the realization of any loss on, an investment security is subject to numerous risks as cited above.






| | F-24 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5  Investment Securities   (continued)





The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at December 31, 2013 and 2012:





December 31, 2013Total
  
  Less than 12 Months
  
  12 Months or LongerFair Value
  
  Unrealized Losses
  
  Fair Value
  
  Unrealized Losses
  
  Fair Value
  
  Unrealized Losses(Dollars in Thousands)Investment Securities     Available-for-Sale:U.S. Treasury and     agency securities
  
  $
  13,519
  
  $
  (825)
  
  $
  13,519
  
  $
  (825)
  
  $
  
  
  $
  Federal agency obligation
  
  
  17,200
  
  
  (655)
  
  
  17,200
  
  
  (655)
  
  
  
  
  
  Residential mortgage     pass-through securities
  
  
  18,293
  
  
  (229)
  
  
  18,293
  
  
  (229)
  
  
  
  
  
  Commercial mortgage     pass-through securities
  
  
  2,924
  
  
  (157)
  
  
  2,924
  
  
  (157)
  
  
  
  
  
  Obligations of U.S. states and     political subdivisions
  
  
  4,199
  
  
  (55)
  
  
  4,199
  
  
  (55)
  
  
  
  
  
  Trust preferred securities
  
  
  5,306
  
  
  (510)
  
  
  4,031
  
  
  (211)
  
  
  1,275
  
  
  (299)Corporate bonds and notes
  
  
  32,498
  
  
  (482)
  
  
  30,533
  
  
  (448)
  
  
  1,965
  
  
  (34)Certificates of deposit
  
  
  552
  
  
  (20)
  
  
  552
  
  
  (20)
  
  
  
  
  
  Equity securities
  
  
  287
  
  
  (89)
  
  
  
  
  
  
  
  
  287
  
  
  (89)Other securities
  
  
  985
  
  
  (15)
  
  
  
  
  
  
  
  
  985
  
  
  (15)Total
  
  
  95,763
  
  
  (3,037)
  
  
  91,251
  
  
  (2,600)
  
  
  4,512
  
  
  (437)Investment Securities     Held-to-Maturity:U.S. Treasury and agency     securities
  
  
  27,037
  
  
  (1,019)
  
  
  27,037
  
  
  (1,019)
  
  
  
  
  
  Federal agency obligation
  
  
  13,492
  
  
  (389)
  
  
  13,197
  
  
  (388)
  
  
  295
  
  
  (1)Residential mortgage     pass-through securities
  
  
  2,182
  
  
  (64)
  
  
  2,182
  
  
  (64)
  
  
  
  
  
  Commercial mortgage-backed     securities
  
  
  1,395
  
  
  (62)
  
  
  1,395
  
  
  (62)
  
  
  
  
  
  Obligations of U.S. states     and political subdivisions
  
  
  66,034
  
  
  (3,688)
  
  
  57,072
  
  
  (2,957)
  
  
  8,962
  
  
  (731)Corporate bonds and notes
  
  
  27,210
  
  
  (622)
  
  
  27,210
  
  
  (622)
  
  
  
  
  
  Total
  
  
  137,350
  
  
  (5,844)
  
  
  128,093
  
  
  (5,112)
  
  
  9,257
  
  
  (732)Total Temporarily Impaired     Securities
  
  $
  233,113
  
  $
  (8,881)
  
  $
  219,344
  
  $
  (7,712)
  
  $
  13,769
  
  $
  (1,169)






| | F-25 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5  Investment Securities   (continued)





December 31, 2012Total
  
  Less than 12 Months
  
  12 Months or LongerFair Value
  
  Unrealized Losses
  
  Fair Value
  
  Unrealized Losses
  
  Fair Value
  
  Unrealized Losses(Dollars in Thousands)Investment Securities     Available-for-Sale:U.S. Treasury and agency     securities
  
  $
  4,460
  
  $
  (23)
  
  $
  4,460
  
  $
  (23)
  
  $
  
  
  $
  Federal agency obligation
  
  
  877
  
  
  (5)
  
  
  877
  
  
  (5)
  
  
  
  
  
  Residential mortgage     pass-through securities
  
  
  1,669
  
  
  (1)
  
  
  1,669
  
  
  (1)
  
  
  
  
  
  Obligations of U.S. states     and political subdivisions
  
  
  18,360
  
  
  (132)
  
  
  18,360
  
  
  (132)
  
  
  
  
  
  Trust preferred securities
  
  
  11,740
  
  
  (1,174)
  
  
  10,494
  
  
  (18)
  
  
  1,246
  
  
  (1,156)Corporate bonds and notes
  
  
  26,440
  
  
  (371)
  
  
  18,244
  
  
  (134)
  
  
  8,196
  
  
  (237)Certificates of deposit
  
  
  388
  
  
  (10)
  
  
  388
  
  
  (10)
  
  
  
  
  
  Equity securities
  
  
  325
  
  
  (210)
  
  
  
  
  
  
  
  
  325
  
  
  (210)Other securities
  
  
  985
  
  
  (15)
  
  
  
  
  
  
  
  
  985
  
  
  (15)Total
  
  
  65,244
  
  
  (1,941)
  
  
  54,492
  
  
  (323)
  
  
  10,752
  
  
  (1,618)Investment Securities     Held-to-Maturity:Commercial mortgage-backed     securities
  
  
  932
  
  
  (5)
  
  
  932
  
  
  (5)
  
  
  
  
  
  Total
  
  
  932
  
  
  (5)
  
  
  932
  
  
  (5)
  
  
  
  
  
  Total Temporarily Impaired      Securities
  
  $
  66,176
  
  $
  (1,946)
  
  $
  55,424
  
  $
  (328)
  
  $
  10,752
  
  $
  (1,618)





Investment securities having a carrying value of approximately $109.3 million and $96.1 million at December 31, 2013 and 2012, respectively, were pledged to secure public deposits, short-term borrowings, and FHLB advances and for other purposes required or permitted by law.








Note 6  Loans and the Allowance for Loan Losses





The following table sets forth the composition of the Corporation’s loan portfolio including net deferred fees and costs, at December 31, 2013 and 2012, respectively:





2013
  
  2012(Dollars in Thousands)Commercial and industrial
  
  $
  229,688
  
  $
  181,682Commercial real estate
  
  
  536,539
  
  
  497,392Construction
  
  
  42,722
  
  
  40,277Residential mortgage
  
  
  150,571
  
  
  169,094Installment
  
  
  1,084
  
  
  1,104Subtotal
  
  
  960,604
  
  
  889,549Net deferred loan costs
  
  
  339
  
  
  123Total loans
  
  $
  960,943
  
  $
  889,672






F-26


CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 6  Loans and the Allowance for Loan Losses   (continued)





At December 31, 2013 and 2012, loans to officers and directors aggregated approximately $20,365,000 and $18,977,000, respectively. During the year ended December 31, 2013, the Corporation made new loans to officers and directors in the amount of $11,613,000; payments by such persons during 2013 aggregated $10,225,000. During the year ended December 31, 2012, the Corporation made new loans to officers and directors in the amount of $13,952,000; payments by such persons during 2012 aggregated $5,254,000. On March 30, 2012, the Corporation appointed Frederick S. Fish to the Board of Directors. Mr. Fish had a prior lending relationship with the Bank, the total loan to Mr. Fish of approximately $9,910,000 is included in the amount of new loan to officers and directors.





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.





At December 31, 2013 and 2012, loan balances of approximately $564.7 million and $532.8 million were pledged to secure short term borrowings from the Federal Reserve Bank of New York and Federal Home Loan Bank Advances.





At December 31, 2013 and 2012, the net investment in direct financing lease consists of a minimum lease receivable of $4,483,000 and $4,699,000, respectively, and unearned interest income of $733,000 and $928,000, respectively, for a net investment in direct financing lease of $3,750,000 and $3,771,000, respectively. The net investment in direct financing lease is carried as a component of loans in the Corporation’s consolidated statements of condition.





Minimum future lease receipts of the direct financing lease are as follows:





For years ending December 31,
  
  (Dollars in Thousands)2014
  
  $
  2162015
  
  
  2282016
  
  
  2652017
  
  
  2652018
  
  
  265Thereafter
  
  
  2,511Total minimum future lease receipts
  
  $
  3,750





The following table presents information about loan receivables on non-accrual status at December 31, 2013 and 2012:





2013
  
  2012(Dollars in Thousands)Commercial and industrial
  
  $
  753
  
  $
  214Commercial real estate
  
  
  744
  
  
  354Construction
  
  
  
  
  
  319Residential mortgage
  
  
  1,640
  
  
  2,729Total loans receivable on non-accrual status
  
  $
  3,137
  
  $
  3,616






F-27





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 6  Loans and the Allowance for Loan Losses   (continued)





The Corporation continuously monitors the credit quality of its loans receivable. In addition to the internal staff, the Corporation utilizes the services of a third party loan review firm to rate the credit quality of its loans receivable. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Corporation’s credit position at some future date. Assets are classified “Substandard” if the asset has a well defined weakness that requires management’s attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected. All loans past due 90 days or more and all impaired loans are included in the appropriate category below. The following table presents information about the loan credit quality at December 31, 2013 and 2012:





Credit Quality Indicators





December 31, 2013(Dollars in Thousands)Pass
  
  Special Mention
  
  Substandard
  
  Doubtful
  
  TotalCommercial and industrial
  
  $
  226,013
  
  $
  1,719
  
  $
  1,284
  
  $
  672
  
  $
  229,688Commercial real estate
  
  
  509,679
  
  
  14,544
  
  
  12,316
  
  
  
  
  
  536,539Construction
  
  
  41,492
  
  
  
  
  
  1,230
  
  
  
  
  
  42,722Residential mortgage
  
  
  147,379
  
  
  978
  
  
  2,214
  
  
  
  
  
  150,571Installment
  
  
  964
  
  
  
  
  
  120
  
  
  
  
  
  1,084Total loans
  
  $
  925,527
  
  $
  17,241
  
  $
  17,164
  
  $
  672
  
  $
  960,604





Credit Quality Indicators





December 31, 2012(Dollars in Thousands)Pass
  
  Special Mention
  
  Substandard
  
  Doubtful
  
  TotalCommercial and industrial
  
  $
  176,818
  
  $
  3,281
  
  $
  1,583
  
  $
  
  
  $
  181,682Commercial real estate
  
  
  462,266
  
  
  18,945
  
  
  16,181
  
  
  
  
  
  497,392Construction
  
  
  38,303
  
  
  810
  
  
  1,164
  
  
  
  
  
  40,277Residential mortgage
  
  
  163,769
  
  
  993
  
  
  4,332
  
  
  
  
  
  169,094Installment
  
  
  967
  
  
  
  
  
  137
  
  
  
  
  
  1,104Total loans
  
  $
  842,123
  
  $
  24,029
  
  $
  23,397
  
  $
  
  
  $
  889,549






F-28





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 6  Loans and the Allowance for Loan Losses   (continued)





The following table provides an analysis of the impaired loans at December 31, 2013 and 2012:





December 31, 2013(Dollars in Thousands)No Related Allowance Recorded
  
  Recorded Investment
  
  Unpaid Principal Balance
  
  Related Allowance
  
  Average Recorded Investment
  
  Interest Income RecognizedCommercial and industrial
  
  $
  449
  
  $
  449
  
  $
  
  
  $
  494
  
  $
  25Commercial real estate
  
  
  10,482
  
  
  10,783
  
  
  
  
  
  10,658
  
  
  496Residential mortgage
  
  
  1,858
  
  
  2,000
  
  
  
  
  
  1,892
  
  
  94Installment
  
  
  120
  
  
  120
  
  
  
  
  
  128
  
  
  6Total
  
  $
  12,909
  
  $
  13,352
  
  $
  
  
  $
  13,172
  
  $
  621





With An Allowance Recorded
  
  Recorded Investment
  
  Unpaid Principal Balance
  
  Related Allowance
  
  Average Recorded Investment
  
  Interest Income RecognizedCommercial and industrial
  
  $
  672
  
  $
  672
  
  $
  300
  
  $
  687
  
  $
  43Commercial real estate
  
  
  4,344
  
  
  4,344
  
  
  115
  
  
  4,359
  
  
  200Total
  
  $
  5,016
  
  $
  5,016
  
  $
  415
  
  $
  5,046
  
  $
  243TotalCommercial and industrial
  
  $
  1,121
  
  $
  1,121
  
  $
  300
  
  $
  1,181
  
  $
  68Commercial real estate
  
  
  14,826
  
  
  15,127
  
  
  115
  
  
  15,017
  
  
  696Residential mortgage
  
  
  1,858
  
  
  2,000
  
  
  
  
  
  1,892
  
  
  94Installment
  
  
  120
  
  
  120
  
  
  
  
  
  128
  
  
  6Total (including related     allowance)
  
  $
  17,925
  
  $
  18,368
  
  $
  415
  
  $
  18,218
  
  $
  864





December 31, 2012(Dollars in Thousands)No Related Allowance Recorded
  
  Recorded Investment
  
  Unpaid Principal Balance
  
  Related Allowance
  
  Average Recorded Investment
  
  Interest Income RecognizedCommercial and industrial
  
  $
  731
  
  $
  731
  
  $
  
  
  $
  834
  
  $
  46Commercial real estate
  
  
  5,886
  
  
  6,187
  
  
  
  
  
  6,182
  
  
  349Construction
  
  
  3,600
  
  
  3,600
  
  
  
  
  
  3,600
  
  
  92Residential mortgage
  
  
  422
  
  
  422
  
  
  
  
  
  439
  
  
  22Total
  
  $
  10,639
  
  $
  10,940
  
  $
  
  
  $
  11,055
  
  $
  509





With An Allowance Recorded
  
  Recorded Investment
  
  Unpaid Principal Balance
  
  Related Allowance
  
  Average Recorded Investment
  
  Interest Income RecognizedCommercial real estate
  
  $
  4,180
  
  $
  4,180
  
  $
  493
  
  $
  4,179
  
  $
  138Residential mortgage
  
  
  1,255
  
  
  1,255
  
  
  152
  
  
  1,289
  
  
  40Total
  
  $
  5,435
  
  $
  5,435
  
  $
  645
  
  $
  5,468
  
  $
  178TotalCommercial and industrial
  
  $
  731
  
  $
  731
  
  $
  
  
  $
  834
  
  $
  46Commercial real estate
  
  
  10,066
  
  
  10,367
  
  
  493
  
  
  10,361
  
  
  487Construction
  
  
  3,600
  
  
  3,600
  
  
  
  
  
  3,600
  
  
  92Residential mortgage
  
  
  1,677
  
  
  1,677
  
  
  152
  
  
  1,728
  
  
  62Total (including related     allowance)
  
  $
  16,074
  
  $
  16,375
  
  $
  645
  
  $
  16,523
  
  $
  687






F-29


CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 6  Loans and the Allowance for Loan Losses   (continued)





Loans are considered to have been modified in a troubled debt restructuring when due to a borrower’s financial difficulties, the Corporation makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a troubled debt restructuring remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status. Included in impaired loans at December 31, 2013 are loans that are deemed troubled debt restructurings. Of these loans, $5.7 million or 87.4% at December 31,2013 and $6.2 million or 91.0% at December 31,2012, of which are included in the tables above, are performing under the restructured terms and are accruing interest.







F-30


















CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 6  Loans and the Allowance for Loan Losses   (continued)





The following table provides an analysis of the aging of loans, excluding deferred fees and costs, that are past due at December 31, 2013 and 2012:





Aging Analysis





December 31, 2013(Dollars in Thousands)30  59 Days Past Due
  
  60  89 Days Past Due
  
  Greater Than 90 Days
  
  Total Past Due
  
  Current
  
  Total Loans Receivable
  
  Loans Receivable > 90 Days And AccruingCommercial and     Industrial
  
  $
  18
  
  $
  
  
  $
  753
  
  $
  771
  
  $
  228,917
  
  $
  229,688
  
  $
  Commercial Real     Estate
  
  
  221
  
  
  
  
  
  744
  
  
  965
  
  
  535,574
  
  
  536,539
  
  
  Construction
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  42,722
  
  
  42,722
  
  
  Residential     Mortgage
  
  
  990
  
  
  258
  
  
  1,640
  
  
  2,888
  
  
  147,683
  
  
  150,571
  
  
  Installment
  
  
  5
  
  
  
  
  
  
  
  
  5
  
  
  1,079
  
  
  1,084
  
  
  Total
  
  $
  1,234
  
  $
  258
  
  $
  3,137
  
  $
  4,629
  
  $
  955,975
  
  $
  960,604
  
  $
  





Aging Analysis





December 31, 2012(Dollars in Thousands)30  59 Days Past Due
  
  60  89 Days Past Due
  
  Greater Than 90 Days
  
  Total Past Due
  
  Current
  
  Total Loans Receivable
  
  Loans Receivable > 90 Days And AccruingCommercial and     Industrial
  
  $
  590
  
  $
  
  
  
  216
  
  
  806
  
  $
  180,876
  
  $
  181,682
  
  $
  Commercial Real     Estate
  
  
  1,012
  
  
  703
  
  
  354
  
  
  2,069
  
  
  495,323
  
  
  497,392
  
  
  Construction
  
  
  
  
  
  
  
  
  319
  
  
  319
  
  
  39,958
  
  
  40,277
  
  
  Residential     Mortgage
  
  
  2,017
  
  
  628
  
  
  2,784
  
  
  5,429
  
  
  163,665
  
  
  169,094
  
  
  55Installment
  
  
  23
  
  
  
  
  
  
  
  
  23
  
  
  1,081
  
  
  1,104
  
  
  Total
  
  $
  3,642
  
  $
  1,331
  
  $
  3,673
  
  $
  8,646
  
  $
  880,903
  
  $
  889,549
  
  $
  55






F-31


CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 6  Loans and the Allowance for Loan Losses   (continued)





The following table details the amount of loans receivable that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan loss that is allocated to each loan portfolio segment:





Allowance for loan and lease losses





December 31, 2013 (Dollars in Thousands)C & I
  
  Comm R/E
  
  Construction
  
  Res Mtge
  
  Installment
  
  Unallocated
  
  TotalAllowance for     loan and lease     losses:Individually     evaluated for     impairment
  
  $
  300
  
  $
  115
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  415Collectively     evaluated for     impairment
  
  
  1,398
  
  
  5,631
  
  
  362
  
  
  990
  
  
  146
  
  
  1,391
  
  
  9,918Total
  
  $
  1,698
  
  $
  5,746
  
  $
  362
  
  $
  990
  
  $
  146
  
  $
  1,391
  
  $
  10,333Loans ReceivableIndividually     evaluated for     impairment
  
  $
  1,121
  
  $
  14,826
  
  $
  
  
  $
  1,858
  
  $
  120
  
  $
  
  
  $
  17,925Collectively     evaluated for     impairment
  
  
  226,450
  
  
  505,361
  
  
  41,493
  
  
  135,031
  
  
  839
  
  
  
  
  
  909,174Loans acquired     with discounts     related to credit     quality
  
  
  2,117
  
  
  16,352
  
  
  1,229
  
  
  13,682
  
  
  125
  
  
  
  
  
  33,505Total
  
  $
  229,688
  
  $
  536,539
  
  $
  42,722
  
  $
  150,571
  
  $
  1,084
  
  $
  
  
  $
  960,604





Allowance for loan and lease losses





December 31, 2012 (Dollars in Thousands)C & I
  
  Comm R/E
  
  Construction
  
  Res Mtge
  
  Installment
  
  Unallocated
  
  TotalAllowance for     loan and lease     losses:Individually     evaluated for     impairment
  
  $
  
  
  $
  493
  
  $
  
  
  $
  152
  
  $
  
  
  $
  
  
  $
  645Collectively     evaluated for     impairment
  
  
  2,419
  
  
  4,719
  
  
  313
  
  
  1,376
  
  
  114
  
  
  651
  
  
  9,592Total
  
  $
  2,419
  
  $
  5,212
  
  $
  313
  
  $
  1,528
  
  $
  114
  
  $
  651
  
  $
  10,237Loans ReceivableIndividually     evaluated for     impairment
  
  $
  731
  
  $
  10,066
  
  $
  3,600
  
  $
  1,677
  
  $
  
  
  $
  
  
  $
  16,074Collectively     evaluated for     impairment
  
  
  176,913
  
  
  466,411
  
  
  34,572
  
  
  146,508
  
  
  973
  
  
  
  
  
  825,377Loans acquired     with discounts     related to credit     quality
  
  
  4,038
  
  
  20,915
  
  
  2,105
  
  
  20,909
  
  
  131
  
  
  
  
  
  48,098Total
  
  $
  181,682
  
  $
  497,392
  
  $
  40,277
  
  $
  169,094
  
  $
  1,104
  
  $
  
  
  $
  889,549





The Corporation’s allowance for loan losses is analyzed quarterly and many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other factors inherent in the extension of credit. There have been no material changes to the allowance for loan loss methodology as disclosed in the Corporation’s previous Annual Reports.






F-32












CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 6  Loans and the Allowance for Loan Losses   (continued)





A summary of the activity in the allowance for loan losses is as follows:





Year Ended December 31, 2013(Dollars in thousands)C & I
  
  Comm R/E
  
  Construction
  
  Res Mtg
  
  Installment
  
  Unallocated
  
  TotalBalance at January 1,
  
  $
  2,424
  
  $
  5,323
  
  $
  313
  
  $
  1,532
  
  $
  113
  
  $
  532
  
  $
  10,237Loans charged-off
  
  
  (6)
  
  
  (126)
  
  
  
  
  
  (175)
  
  
  (22)
  
  
  
  
  
  (329)Recoveries
  
  
  41
  
  
  28
  
  
  
  
  
  
  
  
  6
  
  
  
  
  
  75Provision for loan losses
  
  
  (761)
  
  
  521
  
  
  49
  
  
  (367)
  
  
  49
  
  
  859
  
  
  350Balance at December 31,
  
  $
  1,698
  
  $
  5,746
  
  $
  362
  
  $
  990
  
  $
  146
  
  $
  1,391
  
  $
  10,333





Year Ended December 31, 2012(Dollars in thousands)C & I
  
  Comm R/E
  
  Construction
  
  Res Mtg
  
  Installment
  
  Unallocated
  
  TotalBalance at January 1,
  
  $
  1,527
  
  $
  5,972
  
  $
  707
  
  $
  1,263
  
  $
  51
  
  $
  82
  
  $
  9,602Loans charged-off
  
  
  
  
  
  (57)
  
  
  
  
  
  (454)
  
  
  (16)
  
  
  
  
  
  (527)Recoveries
  
  
  
  
  
  80
  
  
  540
  
  
  210
  
  
  7
  
  
  
  
  
  837Provision for loan losses
  
  
  892
  
  
  (783)
  
  
  (934)
  
  
  509
  
  
  72
  
  
  569
  
  
  325Balance at December 31,
  
  $
  2,419
  
  $
  5,212
  
  $
  313
  
  $
  1,528
  
  $
  114
  
  $
  651
  
  $
  10,237





For the Year Ended December 31,2013
  
  2012
  
  2011(Dollars in Thousands)Balance at the beginning of year
  
  $
  10,237
  
  $
  9,602
  
  $
  8,867Provision for loan losses
  
  
  350
  
  
  325
  
  
  2,448Loans charged-off
  
  
  (329)
  
  
  (527)
  
  
  (2,028)Recoveries on loans previously charged-off
  
  
  75
  
  
  837
  
  
  315Balance at the end of year
  
  $
  10,333
  
  $
  10,237
  
  $
  9,602





The amount of interest income that would have been recorded on non-accrual loans in 2013, 2012 and 2011 had payments remained in accordance with the original contractual terms was $104,000, $187,000 and $378,000, respectively.





At December 31, 2013, there were no commitments to lend additional funds to borrowers whose loans were non-accrual or contractually past due in excess of 90 days and still accruing interest, or whose terms have been modified in troubled debt restructurings.





The policy of the Corporation is to generally grant commercial, mortgage and installment loans to New Jersey residents and businesses within its market 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 lender’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Corporation. The Corporation is therefore subject to risk of loss. The Corporation 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/or personal guarantees are required for a large majority of the Corporation’s loans.






| | F-33 | 
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|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 6  Loans and the Allowance for Loan Losses   (continued)





The following tables present information about the troubled debt restructurings (TDRs) by class transacted during the period indicated:





Year Ended December 31, 2013Number of Loans
  
  Pre-restructuring Outstanding Recorded Investment
  
  Post-restructuring Outstanding Recorded Investment(Dollars in Thousands)Troubled debt restructurings:Commercial Real Estate
  
  
  
  
  $
  
  
  $
  Residential Mortgage
  
  
  
  
  
  
  
  
  Installment
  
  
  
  
  
  
  
  
  Total
  
  
  
  
  $
  
  
  $
  





Year Ended December 31, 2012Number of Loans
  
  Pre-restructuring Outstanding Recorded Investment
  
  Post-restructuring Outstanding Recorded Investment(Dollars in Thousands)Troubled debt restructurings:Commercial Real Estate
  
  
  1
  
  $
  225
  
  $
  225Residential Mortgage
  
  
  1
  
  
  714
  
  
  675Installment
  
  
  1
  
  
  1,354
  
  
  1,354Total
  
  
  3
  
  $
  2,293
  
  $
  2,254





The Corporation had no loans charged off in connection with loan modifications at the time of the modification during the twelve months ended December 31, 2013 and 2012.




The Corporation had no loan modified as a TDR within the previous twelve months that subsequently defaulted during the twelve months ended December 31, 2013. The Corporation had one loan that defaulted during the twelve months ended December 31, 2012 that had previously been modified as a TDR within the previous twelve months.





ASU No. 2011-02 provides guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. In general, a modification or restructuring of a loan constitutes a TDR if the Corporation grants a concession to a borrower experiencing financial difficulty. Loans modified in TDRs are placed on non-accrual status until the Corporation determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status.





Loans modified in a troubled debt restructuring totaled $6.6 million at December 31, 2013 of which $826,000 were on non-accrual status. The remaining loans modified were current at the time of the restructuring and have complied with the terms of their restructure agreement.





In an effort to proactively manage delinquent loans, the Corporation has selectively extended to certain borrowers concessions such as rate reductions, extension of maturity dates, principal or interest forgiveness, adjusted repayment terms, forbearance agreements, or combinations of two or more of these concessions. As of December 31, 2013, loans on which concessions were made with respect to adjusted repayment terms amounted to $1.5 million. Loans on which combinations of two or more concessions were made amounted to $5.1 million. The concessions granted included principal concessions, rate reduction, adjusted repayment, extended maturity and payment deferral.






| | F-34 | 
| | ---- | 
|









CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 7  Premises and Equipment





Premises and equipment are summarized as follows:





EstimatedUseful Life(Years)
  
  2013
  
  2012(Dollars in Thousands)Land
  
  
  
  $
  2,403
  
  $
  2,403Buildings
  
  5  40
  
  
  13,675
  
  
  13,434Furniture, fixtures and equipment
  
  2  20
  
  
  17,604
  
  
  17,226Leasehold improvements
  
  5  30
  
  
  3,184
  
  
  2,900Subtotal
  
  
  
  
  36,866
  
  
  35,963Less: accumulated depreciation and      amortization
  
  
  
  
  23,185
  
  
  22,400Total premises and equipment, net
  
  
  
  $
  13,681
  
  $
  13,563





Depreciation and amortization expense of premises and equipment for the three years ended December 31, amounted to $855,000 in 2013, $868,000 in 2012 and $926,000 in 2011.














Note 8  Goodwill and Other Intangible Assets





A goodwill impairment test is required under ASC 350, Intangibles  Goodwill and Other, and the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment,” allowing an initial qualitative assessment of goodwill commonly known as step zero impairment testing. In general, the step zero test allows an entity to first assess qualitative factors to determine whether it is more likely than not (i.e., more than 50%) that the fair value of a reporting unit is less than its carrying value. If a step zero impairment test results in the conclusion that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, then no further testing is required.





While step zero impairment testing is an assessment of qualitative factors that affect the likelihood of impairment. Based upon management’s review, the Corporation’s intangible assets were not impaired and there has been no impairment through December 31, 2013. Management concludes that the ASC 350 goodwill step zero test has been passed, and no further testing is required.





Goodwill





Goodwill allocated to the Corporation as of December 31, 2013 and 2012 was $16,804,000. There were no changes in the carrying amount of goodwill during the fiscal years ended December 31, 2013 and 2012.





The table below provides information regarding the carrying amounts and accumulated amortization of amortized intangible assets as of the dates set forth below.





Gross Carrying Amount
  
  Accumulated Amortization
  
  Net Carrying Amount(Dollars in Thousands)As of December 31, 2013:Core deposits
  
  $
  703
  
  $
  (679)
  
  $
  24Total intangible assets
  
  
  703
  
  
  (679)
  
  
  24As of December 31, 2012:Core deposits
  
  $
  703
  
  $
  (649)
  
  $
  54Total intangible assets
  
  
  703
  
  
  (649)
  
  
  54





The current year and estimated future amortization expense for amortized intangible assets was $30,000 for 2013 and $19,000, and $5,000, respectively, for 2014 and 2015.







| | F-35 | 
| | ---- | 
|













CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 9  Deposits





Time Deposits





As of December 31, 2013 and 2012, the Corporation's total time deposits were $152.0 million and $170.9 million, respectively. As of December 31, 2013, the contractual maturities of these time deposits were as follows:





(dollars in thousands)
  
  Amount2014
  
  $
  102,1062015
  
  
  25,6722016
  
  
  19,7652017
  
  
  4,3762018
  
  
  34Thereafter
  
  
  Total
  
  $
  151,953





The amount of time deposits with balances of $100,000 or more was $99.4 million and $110.8 million as of December 31, 2013 and 2012, respectively. As of December 31, 2013, the contractual maturities of these time deposits were as follows:





(dollars in thousands)
  
  AmountThree Months or Less
  
  $
  15,301Over Three Months through Six Months
  
  
  28,401Over Six Months through Twelve Months
  
  
  18,771Over Twelve Months
  
  
  36,971Total
  
  $
  99,444








Note 10  Borrowed Funds:





Long-term borrowings at December 31, 2013 and 2012 consisted of the following:





2013
  
  2012(Dollars in Thousands)FHLB long-term advances
  
  $
  115,000
  
  $
  115,000Securities sold under agreements to repurchase
  
  
  31,000
  
  
  31,000Total long-term borrowings
  
  $
  146,000
  
  $
  146,000





Securities sold under agreements to repurchase had average balances of $31.0 million and $38.2 million for the years ended December 31, 2013 and 2012, respectively. The maximum amount outstanding at any month end during 2013 and 2012 was $31.0 million and $41.0 million, respectively. The average interest rate paid on securities sold under agreements to repurchase were 5.99 percent, 5.54 percent and 3.39 percent for the years ended December 31, 2013, 2012 and 2011, respectively.






| | F-36 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 10  Borrowed Funds:   (continued)





The weighted average interest rates on long term borrowings at December 31, 2013 and 2012 were 3.82 percent and 3.97 percent, respectively. The maximum amount outstanding at any month-end during 2013 and 2012 was $161.0 million. The average interest rates paid on Federal Home Loan Bank advances were 3.46 percent and 3.51 percent for the years ended December 31, 2013 and 2012, respectively. The maximum borrowing capacity with the Federal Home Loan Bank is limited to 25 percent of the Corporation’s total assets.





At December 31, 2013 and 2012, advances from the Federal Home Loan Bank of New York (“FHLB”) amounted to $115.0 million. The FHLB advances had a weighted average interest rate of 3.26 percent and 3.44 percent at December 31, 2013 and 2012, respectively. These advances are secured by pledges of FHLB stock, 1  4 family residential mortgages, commercial real estate mortgages and U.S. Government and Federal Agency obligations. The advances are subject to quarterly call provisions at the discretion of the FHLB and at December 31, 2013 and 2012, are contractually scheduled for repayment as follows:





2013
  
  2012(Dollars in Thousands)2016
  
  $
  
  
  $
  20,0002017
  
  
  35,000
  
  
  55,0002018
  
  
  40,000
  
  
  40,0002020
  
  
  40,000
  
  
  Total
  
  $
  115,000
  
  $
  115,000





The securities sold under repurchase agreements to other counterparties included in long-term debt totaled $31.0 million at December 31, 2013 and 2012. The weighted average rates were 5.90 percent at December 31, 2013 and 2012. The schedule for contractual repayment is as follows:





2013
  
  2012(Dollars in Thousands)2017
  
  $
  15,000
  
  $
  15,0002018
  
  
  16,000
  
  
  16,000Total
  
  $
  31,000
  
  $
  31,000










Note 11  Subordinated Debentures:





During 2003, the Corporation formed a statutory business trust, which exists for the exclusive purpose of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Corporation; and (iii) engaging in only those activities necessary or incidental thereto. These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements as the statutory business trust is not consolidated in accordance with FASB ASC 810-10. Distributions on the subordinated debentures owned by the subsidiary trust have been classified as interest expense in the Consolidated Statements of Income.






| | F-37 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 11  Subordinated Debentures:   (continued)





The following table summarizes the mandatory redeemable trust preferred securities of the Corporation’s Statutory Trust II at December 31, 2013 and 2012.





Issuance Date
  
  Securities Issued
  
  Liquidation Value
  
  Coupon Rate
  
  Maturity
  
  Redeemable by Issuer Beginning12/19/2003
  
  $
  5,000,000
  
  $1,000 per Capital Security
  
  Floating 3-month LIBOR + 285 Basis Points
  
  01/23/2034
  
  01/23/2009










Note 12  Income Taxes





The current and deferred amounts of income tax expense for the years ended December 31, 2013, 2012 and 2011, respectively, are as follows:





2013
  
  2012
  
  2011(Dollars in Thousands)Current:Federal
  
  $
  5,658
  
  $
  5,506
  
  $
  3,818State
  
  
  87
  
  
  259
  
  
  187Subtotal
  
  
  5,745
  
  
  5,765
  
  
  4,005Deferred:Federal
  
  
  1,906
  
  
  1,085
  
  
  2,157State
  
  
  (167)
  
  
  827
  
  
  1,249Subtotal
  
  
  1,739
  
  
  1,912
  
  
  3,406Income tax expense
  
  $
  7,484
  
  $
  7,677
  
  $
  7,411





Reconciliation between the amount of reported income tax expense and the amount computed by applying the statutory Federal income tax rate is as follows:





2013
  
  
  2012
  
  
  2011(Dollars in Thousands)Income before income tax expense
  
  $
  27,409
  
  
  $
  25,184
  
  
  $
  21,337Federal statutory rate
  
  
  35
  %
  
  
  35
  %
  
  
  35
  %Computed “expected” Federal income tax     expense
  
  
  9,593
  
  
  
  8,814
  
  
  
  7,468State tax, net of Federal tax benefit
  
  
  (53)
  
  
  
  706
  
  
  
  933Bank owned life insurance
  
  
  (477)
  
  
  
  (356)
  
  
  
  (363)Tax-exempt interest and dividends
  
  
  (1,645)
  
  
  
  (1,228)
  
  
  
  (595)Bargain gain on Saddle River Valley Bank     acquisition
  
  
  
  
  
  
  (314)
  
  
  
  Other, net
  
  
  66
  
  
  
  55
  
  
  
  (32)Income tax
  
  $
  7,484
  
  
  $
  7,677
  
  
  $
  7,411






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|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 12  Income Taxes   (continued)





The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability at December 31, 2013 and 2012 are presented in the following table:





2013
  
  2012(Dollars in Thousands)Deferred tax assets:Impaired assets
  
  $
  1,221
  
  $
  1,967Allowance for loan losses
  
  
  4,118
  
  
  4,040Employee benefit plans
  
  
  
  
  
  64Pension actuarial losses
  
  
  2,206
  
  
  2,473Other
  
  
  466
  
  
  454NJ NOL
  
  
  399
  
  
  NJ AMA credits
  
  
  137
  
  
  131Total deferred tax assets
  
  $
  8,547
  
  $
  9,129Deferred tax liabilities:Employee benefit plans
  
  $
  1,281
  
  $
  Depreciation
  
  
  416
  
  
  294Market discount accretion
  
  
  200
  
  
  148Deferred loan costs, net of fees
  
  
  385
  
  
  330Purchase accounting
  
  
  522
  
  
  608Unrealized gains on securities available-for-sale
  
  
  547
  
  
  5,675Total deferred tax liabilities
  
  
  3,351
  
  
  7,055Net deferred tax asset
  
  $
  5,196
  
  $
  2,074





Based on the Corporation’s historical and current taxable income and the projected future taxable income, management believes it is more likely than not that the Corporation will realize the benefit of the net deductible temporary differences existing at December 31, 2013 and 2012, respectively.





At December 31, 2013, the Corporation has approximately $6.8 million state income tax loss carry forwards which expire in 2033.





In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income, and tax planning strategies in making this assessment. During 2013 and 2012, based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Corporation believes the net deferred tax assets are more likely than not to be realized.





The Corporation’s federal income tax returns are open and subject to examination from the 2010 tax return year and forward. The Corporation’s state income tax returns are generally open from the 2009 and later tax return years based on individual state statutes of limitations.






| | F-39 | 
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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 13  Commitments, Contingencies and Concentrations of Credit Risk





In the normal course of business, the Corporation has outstanding commitments and contingent liabilities, such as standby and commercial letters of credit, unused portions of lines of credit and commitments to extend various types of credit. 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 the 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 secured by real estate located in New Jersey. Accordingly, the collectability of a substantial portion of the loan portfolio of the Bank is susceptible to changes in the New Jersey real estate market.





The following table provides a summary of financial instruments with off-balance sheet risk at December 31, 2013 and 2012:





2013
  
  2012(Dollars in Thousands)Commitments under commercial loans and lines of credit
  
  $
  109,661
  
  $
  129,797Home equity and other revolving lines of credit
  
  
  41,836
  
  
  46,795Outstanding commercial mortgage loan commitments
  
  
  48,129
  
  
  30,955Standby letters of credit
  
  
  9,655
  
  
  1,700Performance letters of credit
  
  
  21,844
  
  
  27,743Outstanding residential mortgage loan commitments
  
  
  1,858
  
  
  2,207Overdraft protection lines
  
  
  5,273
  
  
  5,666Total
  
  $
  238,256
  
  $
  244,863





Occupancy and equipment expense includes rentals for premises and equipment of $1,094,000 in 2013, $805,000 in 2012 and $710,000 in 2011. At December 31, 2013, the Corporation was obligated under a number of non-cancelable leases for premises and equipment, many of which provide for increased rentals based upon increases in real estate taxes and the cost of living index. These leases, most of which have renewal provisions, are principally operating leases. Minimum rentals under the terms of these leases for the years 2014 through 2018 are $920,000, $932,000, $803,000, $796,000 and $803,000, respectively. Minimum rentals due 2019 and after are $7,289,000.





The Corporation is subject to claims and lawsuits that arise in the ordinary course of business. Based upon the information currently available 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, results of operations, or liquidity of the Corporation.














Note 14  Stockholders’ Equity and Regulatory Requirements





On January 12, 2009, the Corporation issued $10 million in nonvoting senior preferred stock to the U.S. Department of Treasury under the Capital Purchase Program. As part of the transaction, the Corporation also issued warrants to the U.S. Treasury to purchase 173,410 shares of common stock of the Corporation at an exercise price of $8.65 per share. As a result of the successful completion of a rights offering in October 2009, the number of shares underlying the warrants held by the U.S. Treasury was reduced to 86,705 shares, or 50 percent of the original 173,410 shares as outlined by the provisions of the Capital Purchase Program.






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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 14  Stockholders’ Equity and Regulatory Requirements   (continued)





On September 15, 2011, the Corporation issued $11.25 million in nonvoting senior preferred stock to the Treasury under the Small Business Lending Fund Program (“SBLF Program”). Under the Securities Purchase Agreement, the Corporation issued to the Treasury a total of 11,250 shares of the Corporation’s Senior Non-Cumulative Perpetual Preferred Stock, Series B, having a liquidation value of $1,000 per share. Simultaneously, using the proceeds from the issuance of the SBLF Preferred Stock, the Corporation redeemed from the Treasury, all 10,000 outstanding shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, liquidation amount $1,000 per share, for a redemption price of $10,041,667, including accrued but unpaid dividends up to the date of redemption. The investment in the SBLF program provides the Corporation with approximately $1.25 million additional Tier 1 capital. The capital received under the program will allow the Corporation to continue to serve its small business clients through the commercial lending program.





On December 7, 2011, the Corporation repurchased the warrants issued on January 12, 2009 to the U.S. Treasury as part of its participation in the U.S. Treasury’s TARP Capital Purchase Program. In the repurchase, the Corporation paid the U.S. Treasury $245,000 for the warrants.





Federal Deposit Insurance Corporation (“FDIC”) and the Board of Governors of the Federal Reserve System (“FRB”) regulations require banks to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 2013 (but subject to the enhanced requirement described below), the Bank was required to maintain (i) a minimum leverage ratio of Tier I capital to total adjusted assets of 4.00 percent, and (ii) minimum ratios of Tier I and total capital to risk-weighted assets of 4.00 percent and 8.00 percent, respectively.





Under its prompt corrective action regulations, the regulators are required to take certain supervisory actions with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution’s financial statements. The regulations establish a framework for the classification of financial institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well capitalized if it has a leverage (Tier I) capital ratio of at least 5.00 percent; a Tier I risk-based capital ratio of at least 6.00 percent; and a total risk-based capital ratio of at least 10.00 percent.





The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about capital components, risk weightings and other factors.





At December 31, 2013, management believes that the Bank and the Parent Corporation met all capital adequacy requirements to which they are subject.





The following is a summary of the Bank’s and the Parent Corporation’s actual capital amounts and ratios as of December 31, 2013 and 2012, compared to the FRB and FDIC minimum capital adequacy requirements and the FRB and FDIC requirements for classification as a well-capitalized institution.






| | F-41 | 
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|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 14  Stockholders’ Equity and Regulatory Requirements   (continued)





Union Center National Bank
  
  Minimum Capital Adequacy
  
  For Classification Under Corrective Action Plan as Well CapitalizedAmount
  
  Ratio
  
  Amount
  
  Ratio
  
  Amount
  
  Ratio(Dollars in Thousands)December 31, 2013      Leverage (Tier 1)      capital
  
  $
  159,431
  
  9.69
  %
  
  $
  65,813
  
  4.00
  %
  
  $
  82,266
  
  5.00
  %Risk-Based      Capital:Tier 1
  
  $
  159,431
  
  12.10
  %
  
  $
  52,704
  
  4.00
  %
  
  $
  79,057
  
  6.00
  %Total
  
  
  169,974
  
  12.91
  %
  
  
  105,329
  
  8.00
  %
  
  
  131,661
  
  10.00
  %December 31, 2012      Leverage (Tier 1)      capital
  
  $
  143,294
  
  8.99
  %
  
  $
  63,757
  
  4.00
  %
  
  $
  79,696
  
  5.00
  %Risk-Based      Capital:Tier 1
  
  $
  143,294
  
  11.35
  %
  
  $
  50,500
  
  4.00
  %
  
  $
  75,750
  
  6.00
  %Total
  
  
  153,776
  
  12.18
  %
  
  
  101,002
  
  8.00
  %
  
  
  126,253
  
  10.00
  %





Parent Corporation
  
  Minimum Capital Adequacy
  
  For Classification as Well CapitalizedAmount
  
  Ratio
  
  Amount
  
  Ratio
  
  Amount
  
  Ratio(Dollars in Thousands)December 31, 2013      Leverage (Tier 1)      capital
  
  $
  159,316
  
  9.69
  %
  
  $
  65,765
  
  4.00
  %
  
  $
  N/A
  
  N/A
  %Risk-Based      Capital:Tier 1
  
  $
  159,316
  
  12.10
  %
  
  $
  52,666
  
  4.00
  %
  
  $
  N/A
  
  N/A
  %Total
  
  
  169,894
  
  12.90
  %
  
  
  105,361
  
  8.00
  %
  
  
  N/A
  
  N/ADecember 31, 2012      Leverage (Tier 1)      capital
  
  $
  143,824
  
  9.02
  %
  
  $
  63,780
  
  4.00
  %
  
  $
  N/A
  
  N/A
  %Risk-Based      Capital:Tier 1
  
  $
  143,824
  
  11.39
  %
  
  $
  50,509
  
  4.00
  %
  
  $
  N/A
  
  N/A
  %Total
  
  
  154,271
  
  12.22
  %
  
  
  100,996
  
  8.00
  %
  
  
  N/A
  
  N/A





The Corporation issued $5.2 million of subordinated debentures in 2003. These securities are included as a component of Tier 1 Capital for regulatory purposes.






| | F-42 | 
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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 15  Comprehensive Income





Total comprehensive income includes all changes in equity during a period from transactions and other events and circumstances from non-owner sources. The Corporation’s other comprehensive income (loss) is comprised of unrealized holding gains and losses on securities available-for-sale, obligations for defined benefit pension plan and an adjustment to reflect the curtailment of the Corporation’s defined benefit pension plan, net of taxes.





Affected Line Item in theDetails about Accumulated Other
  
  Amounts Reclassified from Accumulated
  
  Statement Where Net Income isComprehensive Income Components
  
  Other Comprehensive Income
  
  PresentedTwelve Months EndedDecember 31,(Dollars in thousands)
  
  2013
  
  2012
  
  2011OTTI losses
  
  $
  (652)
  
  $
  (870)
  
  $
  (342)
  
  Net investment securities gains178
  
  
  265
  
  
  119
  
  Tax benefit(474)
  
  
  (605)
  
  
  (223)
  
  Net of taxSale of investment securities available-for-sale
  
  
  2,363
  
  
  2,882
  
  
  3,976
  
  Net investment securities gains(645)
  
  
  (879)
  
  
  (1,380)
  
  Tax expense1,718
  
  
  2,003
  
  
  2,596
  
  Net of taxAmortization of unrealized holding gains on securities transferred from available-for-sale to held-to-maturity
  
  
  58
  
  
  2
  
  
  46
  
  Interest income(19)
  
  
  (1)
  
  
  (28)
  
  Tax expense39
  
  
  1
  
  
  18
  
  Net of taxPension plan actuarial (gains) losses
  
  
  (654)
  
  
  790
  
  
  1,649
  
  Before tax267
  
  
  (323)
  
  
  (584)
  
  Tax benefit (expense)(387)
  
  
  467
  
  
  1,065
  
  Net of taxTotal reclassification
  
  $
  896
  
  $
  1,866
  
  $
  3,456
  
  Net of tax





Accumulated other comprehensive income (loss) at December 31, 2013 and 2012 consisted of the following:





2013
  
  2012(Dollars in Thousands)Investment securities available for sale, net of tax
  
  $
  2,374
  
  $
  8,781Unamortized component of securities transferred from     available-for-sale to held-to-maturity, net of tax
  
  
  (1,425)
  
  
  162Defined benefit pension and post-retirement plans, net of tax
  
  
  (3,493)
  
  
  (3,880)Total
  
  $
  (2,544)
  
  $
  5,063








| | F-43 | 
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|



















CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 16  Pension and Other Benefits





Defined Benefit Plans





The Corporation maintained a non-contributory pension plan for substantially all of its employees until September 30, 2007, at which time the Corporation froze its defined benefit pension plan. The benefits are based on years of service and the employee’s compensation over the prior five-year period. The plan’s benefits are payable in the form of a ten year certain and life annuity. The plan is intended to be a tax-qualified defined benefit plan under Section 401(a) of the Internal Revenue Code. The pension plan generally covers employees of Union Center National Bank and the Parent Corporation who had attained age 21 and completed one year of service prior to September 30, 2007. Payments may be made under the Pension Plan once attaining the normal retirement age of 65 and are generally equal to 44 percent of a participant’s highest average compensation over a 5-year period.





The following table sets forth changes in projected benefit obligation, changes in fair value of plan assets, funded status, and amounts recognized in the consolidated statements of condition for the Corporation’s pension plans at December 31, 2013 and 2012.





2013
  
  2012(Dollars in Thousands)Change in Benefit Obligation:Projected benefit obligation at beginning of year
  
  $
  13,533
  
  $
  12,345Interest cost
  
  
  529
  
  
  555Actuarial loss
  
  
  255
  
  
  1,389Benefits paid
  
  
  (748)
  
  
  (756)Projected benefit obligation at end of year
  
  $
  13,569
  
  $
  13,533Change in Plan Assets:Fair value of plan assets at beginning year
  
  $
  7,034
  
  $
  6,762Actual return on plan assets
  
  
  1,040
  
  
  681Employer contributions
  
  
  3,700
  
  
  347Benefits paid
  
  
  (748)
  
  
  (756)Fair value of plan assets at end of year
  
  $
  11,026
  
  $
  7,034Funded status
  
  $
  (2,543)
  
  $
  (6,499)





Amounts related to unrecognized actuarial losses for the plan, on a pre-tax basis, that have been recognized in accumulated other comprehensive loss amounted to $5,699,000 and $6,354,000 at December 31, 2013 and 2012, respectively.






| | F-44 | 
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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 16  Pension and Other Benefits   (continued)





The net periodic pension cost for 2013, 2012 and 2011 includes the following components:





2013
  
  2012
  
  2011(Dollars in Thousands)Interest cost
  
  $
  529
  
  $
  555
  
  $
  589Expected return on plan assets
  
  
  (488)
  
  
  (377)
  
  
  (381)Net amortization
  
  
  375
  
  
  294
  
  
  179Net periodic pension expense
  
  $
  416
  
  $
  472
  
  $
  387





The following table presents the assumptions used to calculate the projected benefit obligation in each of the last three years.





2013
  
  
  2012
  
  
  2011Discount rate
  
  
  4.84
  %
  
  
  4.03
  %
  
  
  4.64
  %Rate of compensation increase
  
  
  N/A
  
  
  
  N/A
  
  
  
  N/AExpected long-term rate of return on plan assets
  
  
  5.50
  %
  
  
  5.50
  %
  
  
  5.50
  %





The following information is provided for the year ended December 31:





2013
  
  2012
  
  2011(Dollars in Thousands)Weighted average assumptions used to determine net     periodic benefit cost for years ended December 31Discount rate
  
  4.03
  %
  
  4.64
  %
  
  5.25
  %Expected long-term return on plan assets
  
  5.50
  %
  
  5.50
  %
  
  5.50
  %Rate of compensation increase
  
  N/A
  
  
  N/A
  
  
  N/A





The process of determining the overall expected long-term rate of return on plan assets begins with a review of appropriate investment data, including current yields on fixed income securities, historical investment data, historical plan performance and forecasts of inflation and future total returns for the various asset classes. This data forms the basis for the construction of a best-estimate range of real investment return for each asset class. An average, weighted real-return range is computed reflecting the plan’s expected asset mix, and that range, when combined with an expected inflation range, produces an overall best-estimate expected return range. Specific factors such as the plan’s investment policy, reinvestment risk and investment volatility are taken into consideration during the construction of the best estimate real return range, as well as in the selection of the final return assumption from within the range.





Plan Assets





The Union Center National Bank Pension Trust’s weighted-average asset allocation at December 31, 2013, 2012 and 2011, by asset category, is as follows:





Asset Category
  
  2013
  
  
  2012
  
  
  2011Equity securities (domestic and international)
  
  
  53
  %
  
  
  60
  %
  
  
  47
  %Debt and/or fixed income securities
  
  
  39
  %
  
  
  39
  %
  
  
  41
  %Alternative investments, including commodities, foreign currency and real estate
  
  
  
  %
  
  
  1
  %
  
  
  4
  %Cash and other alternative investments, including hedge funds, equity structured notes
  
  
  8
  %
  
  
  
  %
  
  
  8
  %Total
  
  
  100
  %
  
  
  100
  %
  
  
  100
  %






| | F-45 | 
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|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 16  Pension and Other Benefits   (continued)





The general investment policy of the Pension Trust is for the fund to experience growth in assets that will allow the market value to exceed the value of benefit obligations over time. Appropriate diversification on a total fund basis is achieved by following an allowable range of commitment within asset category, as follows:





Range
  
  
  TargetEquity securities
  
  
  42  48
  %
  
  
  45
  %Debt and/or fixed income securities
  
  
  37  43
  %
  
  
  40
  %International equity
  
  
  12  18
  %
  
  
  15
  %Short term
  
  
  N/A
  
  
  
  N/AOther
  
  
  N/A
  
  
  
  N/A





The fair values of the Corporation’s pension plan assets at December 31, 2013 and 2012, by asset category, are as follows:





December 31, 2013
  
  Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets for Identical Assets (Level 1)
  
  Significant Other Observable Inputs (Level 2)
  
  Significant Unobservable Inputs (Level 3)(Dollars in Thousands)Cash
  
  $
  865
  
  $
  865
  
  $
  
  
  $
  Equity securities:U.S. companies
  
  
  4,310
  
  
  4,310
  
  
  
  
  
  International     companies
  
  
  1,495
  
  
  1,495
  
  
  
  
  
  Debt and/or fixed     income securities
  
  
  4,356
  
  
  4,356
  
  
  
  
  
  Total
  
  $
  11,026
  
  $
  11,026
  
  $
  
  
  $
  





December 31, 2012
  
  Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets for Identical Assets (Level 1)
  
  Significant Other Observable Inputs (Level 2)
  
  Significant Unobservable Inputs (Level 3)(Dollars in Thousands)Cash
  
  $
  42
  
  $
  42
  
  $
  
  
  $
  Equity securities:U.S. companies
  
  
  3,154
  
  
  3,154
  
  
  
  
  
  International     companies
  
  
  1,051
  
  
  1,051
  
  
  
  
  
  Debt and/or fixed     income securities
  
  
  2,787
  
  
  2,787
  
  
  
  
  
  Total
  
  $
  7,034
  
  $
  7,034
  
  $
  
  
  $
  






| | F-46 | 
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|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 16  Pension and Other Benefits   (continued)





The investment manager is not authorized to purchase, acquire or otherwise hold certain types of market securities (subordinated bonds, real estate investment trusts, limited partnerships, naked puts, naked calls, stock index futures, oil, gas or mineral exploration ventures or unregistered securities) or to employ certain types of market techniques (margin purchases or short sales) or to mortgage, pledge, hypothecate, or in any manner transfer as security for indebtedness, any security owned or held by the Plan.





Cash Flows





Contributions





The Bank expects to contribute $400,000 to its Pension Trust in 2014.





The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, signed into law on June 25, 2010, permits single employer and multiple employer defined benefit plan sponsors to elect to extend the plan’s amortization period of a Shortfall Amortization Base over either a nine year period or a fifteen year period, rather than the seven year period required under the Pension Protection Act of 2006. The relief was available for any two Plan Years 2008 through 2011.





The Bank has elected to apply the Pension Relief Act fifteen year amortization of the Shortfall Amortization Bases established for the 2009 and 2011 Plan Years.





The Moving Ahead for Progress in the 21st Century Act which was enacted on July 6, 2012 contained special rules related to funding stabilization for single employer defined benefit plans. Under these provisions, the interest rates used to calculate the plan’s funding percentages and minimum required contribution are adjusted as necessary to fall within a specified range that is determined based on an average of rates for the 25 year period ending on September 30 of the calendar year preceding the first day of the Plan year. For Plan years beginning in 2013, the range is 85% - 115% of the 25 year average. The application of the adjusted rates produced a 2013 required minimum contribution to the Plan to approximately $400,000. However, a decision was made to contribute a total of $3,700,000 for the 2013 plan year in order to make significant progress toward fully funding Plan liabilities and that amount has been contributed for the 2013 Plan Year.





Estimated Future Benefit Payments





The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in each year 2014, 2015, 2016, 2017, 2018 and years 2019-2023, respectively: $761,489, $762,957, $765,263, $747,835, $743,646 and $3,882,812.





401(k) Benefit Plan





The Corporation maintains a 401(k) employee savings plan to provide for defined contributions which covers substantially all employees of the Corporation. Prior to 2013, the Corporation’s contribution to its 401(k) plan provided a dollar-for-dollar matching contribution up to six percent of salary deferrals for the periods presented. Beginning with the 2013 Plan Year, the Plan was amended to provide for a 3% non-elective safe harbor contribution for all participants. For 2013, 2012 and 2011, employer contributions amounted to $265,000, $405,000 and $358,000, respectively.






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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 17  Stock Based Compensation





Stock Option Plans





At December 31, 2013, the Corporation maintained two stock-based compensation plans from which new grants could be issued. The 2009 Equity Incentive Plan permits the grant of “incentive stock options” as defined under the Internal Revenue Code, non-qualified stock options, restricted stock awards and restricted stock unit awards to employees, including officers, and consultants of the Corporation and its subsidiaries. The 2003 Non-Employee Director Stock Option Plan permits the grant of non-qualified stock options to the Corporation’s non-employee directors. An aggregate of 363,081 shares remain available for grant under the 2009 Equity Incentive Plan and an aggregate of 406,527 shares remain available for grant under the 2003 Non-Employee Director Stock Option Plan. Such shares may be treasury shares, newly issued shares or a combination thereof.





Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options vest over a three year vesting period starting one year after the date of grant and generally expire ten years from the date of grant.





The total compensation expense related to these plans was $59,000, $39,000 and $35,000 for the years ended December 31, 2013, 2012 and 2011, respectively.





As a result of the compensation expense related to stock options: (i) for the year ended December 31, 2013, the Corporation’s income before income taxes and net income was reduced by $59,000 and $35,000, respectively; (ii) for the year ended December 31, 2012, the Corporation’s income before income taxes and net income was reduced by $39,000 and $23,000, respectively; and (iii) for the year ended December 31, 2011, the Corporation’s income before income taxes and net income was reduced by $35,000 and $21,000, respectively.





Under the principal option plans, the Corporation may grant restricted stock awards to certain employees. Restricted stock awards are non-vested stock awards. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. Such awards generally vest during a period specified at the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock has the same cash dividend and voting rights as other common stock and is considered to be currently issued and outstanding. The Corporation expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse. During 2013, 18,829 shares were awarded while in 2012, 2,125 shares were awarded. During 2011, 2,780 shares were awarded. 2013 shares were issued from treasury stock, while 2012 and 2011 shares were purchased in the open market. The amount of compensation cost related to restricted stock awards included in salary expense was $24,000, $25,000 and $25,000 in 2013, 2012 and 2011, respectively. As of December 31, 2013, all shares relating to 2012 and 2011 restricted stock awards were vested.





Options covering 41,639 shares were granted on August 27 and March 1, 2013, while 27,784 and 27,784 shares were granted on March 1, 2012 and March 1, 2011, respectively. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values:





2013
  
  
  2012
  
  
  2011Weighted average fair value of grants
  
  $
  2.50  5.87
  
  
  $
  2.03
  
  
  $
  1.89Risk-free interest rate
  
  
  1.86  2.29
  %
  
  
  2.03
  %
  
  
  2.19
  %Dividend yield
  
  
  1.76  2.11
  %
  
  
  1.24
  %
  
  
  1.32
  %Expected volatility
  
  
  23.21  33.74
  %
  
  
  22.04
  %
  
  
  22.25
  %Expected life in months
  
  
  69  90
  
  
  
  68
  
  
  
  65






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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 17  Stock Based Compensation   (continued)





Option activity under the principal option plans as of December 31, 2013 and changes during the twelve months ended December 31, 2013 were as follows:





Shares
  
  Weighted- Average Exercise  Price
  
  Weighted- Average Remaining  Contractual  Term (In Years)
  
  Aggregate Intrinsic ValueOutstanding at December 31, 2012
  
  
  183,574
  
  $
  10.04Granted
  
  
  41,639
  
  
  12.95Exercised
  
  
  (2,268)
  
  
  9.14Forfeited/cancelled/expired
  
  
  (34,565)
  
  
  10.81Outstanding at December 31, 2013
  
  
  188,380
  
  $
  10.55
  
  
  5.99
  
  $
  1,546,129Exercisable at December 31, 2013
  
  
  113,751
  
  $
  10.14
  
  
  4.40
  
  $
  980,102





The aggregate intrinsic value of options above represents the total pre-tax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of 2013 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2013. This amount changes based on the fair market value of the Parent Corporation’s stock.





As of December 31, 2013, $266,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 3.9 years. Changes in options outstanding during the past three years were as follows:





Stock Option Plan
  
  Shares
  
  Exercise Price Range per ShareOutstanding, December 31, 2010 (138,898 shares exercisable)
  
  
  198,946
  
  
  $7.67 to $15.73Granted during 2011
  
  
  27,784
  
  $
  9.11Exercised during 2011
  
  
  (42,495)
  
  $
  7.71Expired or canceled during 2011
  
  
  (12,857)
  
  $
  10.50 to $15.73Outstanding, December 31, 2011 (105,388 shares exercisable)
  
  
  171,378
  
  
  $7.67 to $15.73Granted during 2012
  
  
  27,784
  
  $
  9.64Exercised during 2012
  
  
  (15,588)
  
  
  $7.67 to $10.50Expired or canceled during 2012
  
  
  
  
  $
  0.00Outstanding, December 31, 2012 (117,111 shares exercisable)
  
  
  183,574
  
  
  $7.67 to $15.73Granted during 2013
  
  
  41,639
  
  $
  12.52 to $14.24Exercised during 2013
  
  
  (2,268)
  
  
  $7.67 to $10.66Expired or canceled or forfeited during 2013
  
  
  (34,565)
  
  $
  7.67 to $15.73Outstanding, December 31, 2013 (113,751 shares exercisable)
  
  
  188,380
  
  
  $7.67 to $15.73





Under the Director Stock Option Plan, there were stock options granted with a weighted average fair value of 31,257 and $2.50, 27,784 and $2.03 and 27,784 and $1.89 during the years ended December 31, 2013, 2012 and 2011, respectively. There were 18,829, 2,125 and 2,780 restricted stock awards granted under the Employee Stock Incentive Plan during the years ended December 31, 2013, 2012 and 2011, respectively. In addition, during 2013 10,382 stock options with a weighted average fair value of $5.87 were granted under the Employee Stock Incentive Plan.






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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 18  Dividends and Other Restrictions





Certain restrictions, including capital requirements, exist on the availability of undistributed net profits of the Bank for the future payment of dividends to the Parent Corporation. A dividend may not be paid if it would impair the capital of the Bank. Furthermore, prior approval by the OCC is required if the total of dividends declared in a calendar year exceeds the total of the Bank’s net profits for that year combined with the retained profits for the two preceding years. At December 31, 2013, approximately $45.1 million was available for payment of dividends based on the preceding guidelines.








Note 19  Fair Value Measurements and Fair Value of Financial Instruments





Management uses its best judgment in estimating the fair value of the Corporation’s financial and non-financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial and non-financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial and non-financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.





FASB ASC 820-10-05 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.





FASB ASC 820-10-65 provides additional guidance for estimating fair value in accordance with FASB ASC 820-10-05 when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly.





FASB ASC 820-10-05 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820-10-05 are as follows:




| | ⋅ | Level 1:   Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------




| | ⋅ | Level 2:   Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | ⋅ | Level 3:   Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (for example, supported with little or no market activity).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.






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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 19  Fair Value Measurements and Fair Value of Financial Instruments   (continued)





The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Corporation’s assets measured at fair value on a recurring basis at December 31, 2013 and December 31, 2012:





Cash and Cash Equivalents





The carrying amounts for cash and cash equivalents approximate those assets’ fair value.





Securities Available-for-Sale





Where quoted prices are available in an active market, securities are classified with Level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments, which would generally be classified within Level 2 of the valuation hierarchy, include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine their fair value and are classified as Level 3. Due to the inactive condition of the markets amidst the financial crisis, the Corporation treated certain securities as Level 3 securities in order to provide more appropriate valuations. For assets in an inactive market, the infrequent trades that do occur are not a true indication of fair value. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Corporation’s evaluations are based on market data and the Corporation employs combinations of these approaches for its valuation methods depending on the asset class.





At December 31, 2012, the Corporation’s pooled trust preferred security, ALESCO VII, was classified as Level 3. Market pricing for the Level 3 securities varied widely from one pricing service to another based on the lack of trading. As such, these securities were considered to no longer have readily observable market data that was accurate to support a fair value as prescribed by FASB ASC 820-10-05. The fair value measurement objective remained the same in that the price received by the Corporation would result from an orderly transaction (an exit price notion) and that the observable transactions considered in fair value were not forced liquidations or distressed sales at the measurement date.





In regards to the pooled trust preferred security (“pooled TRUPS”), the Corporation was able to determine fair value of the TRUPS using a market approach validation technique based on Level 2 inputs that did not require significant adjustments. The Level 2 inputs included:





| | (a) | Quoted prices in active markets for similar TRUPS with insignificant adjustments for differences between the TRUPS that the Corporation holds and similar TRUPS.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------




| | (b) | Quoted prices in markets that are not active that represent current transactions for the same or similar TRUPS that do not require significant adjustment based on unobservable inputs.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Since June 30, 2008, the market for these TRUPS has become increasingly inactive. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these TRUPS trade and then by a significant decrease in the volume of trades relative to historical levels as well as other relevant factors. At December 31, 2013, the Corporation determined that the market for similar TRUPS had stabilized. That determination was made considering that there are more observable transactions for similar TRUPS, the prices for those transactions that have occurred are current and or represent fair value, and the observable prices for those transactions have stabilized over time, thus increasing the potential relevance of those observations. However, the Corporation’s one TRUPS at December 31, 2012 has been classified within Level 3 because the Corporation determined that significant adjustments using unobservable inputs are required to determine a true fair value at the measurement date.






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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 19  Fair Value Measurements and Fair Value of Financial Instruments   (continued)





The Corporation held one variable rate private label collateralized mortgage obligation (CMO), which was also evaluated for impairment. The Variable Rate Collateralized Mortgage Obligation was originally issued in 2006 and is 30 year Adjustable Rate Mortgage loan secured by a first lien, fully amortizing one-to-four residential mortgage loans. The tranche purchased was a Super Senior with an original credit rating of AAA/AA. The top five states geographic concentration comprised in the deal were California 18.2 percent, Arizona 10.5 percent, Virginia 6.1 percent, Florida 6.5 percent and Nevada 6.3 percent. No one state exceeded a 25 percent concentration. These states have been heavily impacted by the financial crises and as such have sustained heavy delinquencies affecting the credit rating of the security. Management applied aggressive default rates to identify if any credit impairment exists, as these bonds were downgraded to below investment grade. The Corporation recorded $24,000 in principal losses on the bond in 2013, and this security was sold at this book value in January 2013.





The Corporation determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at the prior measurement dates. As a result, the Corporation used the discount rate adjustment technique to determine fair value.





The fair value as of December 31, 2013 was determined by discounting the expected cash flows over the life of the security. The discount rate was determined by deriving a discount rate when the markets were considered more active for this type of security. To this estimated discount rate, additions were made for more liquid markets and increased credit risk as well as assessing the risks in the security, such as default risk and severity risk. The securities continue to make scheduled cash flows and no material cash flow payment defaults have occurred to date.





Securities Held-to-Maturity





The fair value of the Corporation’s investment securities held-to-maturity was primarily measured using information from a third-party pricing service. Level 1 investment securities are comprised of debt securities issued by the U.S. Treasury as quoted prices were available, unadjusted, for identical securities in active markets. If quoted prices were not available, fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Corporation’s third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.





Loans Held for Sale





Loans held for sale are required to be measured at the lower of cost or fair value. Under FASB ASC 820-10-05, market value is to represent fair value. Management obtains quotes or bids on all or part of these loans directly from the purchasing financial institutions.





Loans Receivable





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 risks inherent in the loan. The estimate of maturity is based on the historical experience of the Bank 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.






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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 19  Fair Value Measurements and Fair Value of Financial Instruments   (continued)





Restricted Stocks





The carrying amount of restricted investments in bank stocks, which includes stock of the Federal Home Loan Bank of New York, Federal Reserve Bank of New York and Atlantic Central Bankers Bank, approximates fair value, and considers the limited marketability of such securities.





Accrued Interest Receivable and Payable





The carrying value of accrued interest receivable and accrued interest payable approximates its fair value.





Deposits





The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings and interest-bearing checking accounts, and money market and checking accounts, is equal to the amount payable on demand as of December 31, 2013 and 2012. 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.





Short-Term Borrowings





Short-term borrowings that mature within six months and securities sold under agreements to repurchase have fair values which approximate carrying value.





Long-Term Borrowings





Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.





Subordinated Debt





The fair value of subordinated debentures is estimated by discounting the estimated future cash flows, using market discount rates of financial instruments with similar characteristics, terms and remaining maturity.





Off-Balance Sheet Financial Instruments





The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rate and the committed rates.





The fair value of financial standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties.





Assets and Liabilities Measured at Fair Value on a Recurring Basis





For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2013 and December 31, 2012 are as follows:






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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 19  Fair Value Measurements and Fair Value of Financial Instruments   (continued)





December 31, 2013
  
  Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets for Identical Assets (Level 1)
  
  Significant Other Observable Inputs (Level 2)
  
  Significant Unobservable Inputs (Level 3)(Dollars in Thousands)Financial Instruments Measured at Fair Value on a     Recurring Basis:U.S. treasury and agency securities
  
  $
  13,519
  
  $
  13,519
  
  $
  
  
  $
  Federal agency obligations
  
  
  19,941
  
  
  
  
  
  19,941
  
  
  Residential mortgage pass-through     securities
  
  
  48,874
  
  
  
  
  
  48,874
  
  
  Commercial mortgage pass-     through securities
  
  
  6,991
  
  
  
  
  
  6,991
  
  
  Obligations of U.S. states and     political subdivision
  
  
  31,460
  
  
  
  
  
  31,460
  
  
  Trust preferred securities
  
  
  19,403
  
  
  
  
  
  19,403
  
  
  Corporate bonds and notes
  
  
  158,630
  
  
  
  
  
  158,630
  
  
  Asset-backed securities
  
  
  15,979
  
  
  
  
  
  15,979
  
  
  Certificates of deposit
  
  
  2,262
  
  
  
  
  
  2,262
  
  
  Equity securities
  
  
  287
  
  
  287
  
  
  
  
  
  Other securities
  
  
  5,724
  
  
  5,724
  
  
  
  
  
  Securities available-for-sale
  
  $
  323,070
  
  $
  19,530
  
  $
  303,540
  
  $
  





December 31, 2012
  
  Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets for Identical Assets (Level 1)
  
  Significant Other Observable Inputs (Level 2)
  
  Significant Unobservable Inputs (Level 3)(Dollars in Thousands)Financial Instruments Measured at Fair Value on a     Recurring Basis:U.S. treasury and agency securities
  
  $
  11,909
  
  $
  11,909
  
  $
  
  
  $
  Federal agency obligations
  
  
  20,535
  
  
  
  
  
  20,535
  
  
  Residential mortgage pass-     through securities
  
  
  53,784
  
  
  
  
  
  53,784
  
  
  Commercial mortgage pass-     through securities
  
  
  9,969
  
  
  
  
  
  9,969
  
  
  Obligations of U.S. states and     political subdivision
  
  
  107,714
  
  
  469
  
  
  107,245
  
  
  Trust preferred securities
  
  
  21,249
  
  
  
  
  
  21,213
  
  
  36Corporate bonds and notes
  
  
  237,405
  
  
  
  
  
  237,405
  
  
  Collateralized mortgage     obligations
  
  
  2,120
  
  
  
  
  
  2,120
  
  
  Asset-backed securities
  
  
  19,742
  
  
  
  
  
  19,742
  
  
  Certificates of deposit
  
  
  2,865
  
  
  
  
  
  2,865
  
  
  Equity securities
  
  
  325
  
  
  325
  
  
  
  
  
  Other securities
  
  
  9,198
  
  
  9,198
  
  
  
  
  
  Securities available-for-sale
  
  $
  496,815
  
  $
  21,901
  
  $
  474,878
  
  $
  36








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CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 19  Fair Value Measurements and Fair Value of Financial Instruments   (continued)





The fair values used by the Corporation are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1 inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2). The fair values of the federal agency obligations, obligations of states and political subdivision and corporate bonds and notes measured at fair value using Level 1 inputs at December 31, 2013 and 2012 represented the purchase price of the securities since they were acquired near year-end 2013 and 2012.





The following table presents the changes in securities available-for-sale with significant unobservable inputs (Level 3) for the year ended December 31, 2013 and December 31, 2012:





2013
  
  2012(Dollars in Thousands)Beginning balance, January 1,
  
  $
  36
  
  $
  2,115Transfers out of Level 3
  
  
  (260)
  
  
  (2,120)Principal interest deferrals
  
  
  58
  
  
  116Principal paydown
  
  
  
  
  
  (272)Total net losses included in net income
  
  
  (628)
  
  
  (68)Total net unrealized gains
  
  
  794
  
  
  265Ending balance, December 31,
  
  $
  
  
  $
  36





Assets Measured at Fair Value on a Non-Recurring Basis





The Corporation may be required periodically to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or impairment write-downs of individual assets. The Corporation primarily utilized appraisal value less cost to sell and other unobservable market inputs to determine fair value of assets, and therefore, is classified as a Level 3 measurement. For assets measured at fair value on a non-recurring basis, the fair value measurements at December 31, 2013 and 2012 are as follows:





|Impaired Loans          |  | Valuation Techniques           |  | Range of Unobservable Inputs                                                                                       
|----------------------- |  | ------------------------------ |  | -------------------------------------------------------------------------------------------------------------------
|Residential             |  | Appraisals of collateral value |  | Adjustment for age of comparable sales, generally a decline of 0-25%                                               
|Commercial              |  | Discounted cash flow model     |  | Discount rate from 0% to 6%                                                                                        
|Commercial real estate  |  | Appraisals of collateral value |  | Market capitalization rates between 8% to 12%. Market rental rates for similar properties                          
|Construction            |  | Appraisals of collateral value |  | Adjustment for age comparable sales. Generally a decline of 5% to no change                                        
|                        |  |                                |  |                                                                                                                    
|Other Real Estate Owned |  |                                |  |                                                                                                                    
|Residential             |  | Appraisals of collateral value |  | Adjustment for age of comparable sales, generally a decline of 0-25% and estimated selling costs of 6-8%           
|Commercial              |  | Appraisals of collateral value |  | Adjustment for age of comparable sales, generally a decline of 15% to no change and estimated selling costs of 6-8%




For assets measured at fair value on a non-recurring basis, the unobservable inputs used to derive fair value measurements at December 31, 2013 and December 31, 2012 were as follows:


December 31, 2013
  
  Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets for Identical  Assets (Level 1)
  
  Significant Other Observable Inputs (Level 2)
  
  Significant Unobservable Inputs (Level 3)(Dollars in Thousands)Assets Measured at Fair Value     on a Non-Recurring Basis:Impaired loans
  
  $
  4,601
  
  $
  
  
  $
  
  
  $
  4,601Other real estate owned
  
  
  220
  
  
  
  
  
  
  
  
  220





December 31, 2012
  
  Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets for Identical  Assets (Level 1)
  
  Significant Other Observable Inputs (Level 2)
  
  Significant Unobservable Inputs (Level 3)(Dollars in Thousands)Assets Measured at Fair Value     on a Non-Recurring Basis:Impaired loans
  
  $
  4,790
  
  $
  
  
  $
  
  
  $
  4,790Other real estate owned
  
  
  1,300
  
  
  
  
  
  
  
  
  1,300






| | F-55 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 19  Fair Value Measurements and Fair Value of Financial Instruments   (continued)





The following methods and assumptions were used to estimate the fair values of the Corporation’s assets measured at fair value on a non-recurring basis at December 31, 2013 and 2012:





Impaired Loans.The value of an impaired loan is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio. The Corporation’s impaired loans are primarily collateral dependent. Impaired loans are individually assessed to determine that each loan’s carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows. At December 31, 2013 and 2012, impaired loans with related valuation allowance totaled $5,016,000 and $5,435,000, respectively. The amount of related valuation allowances was $415,000 at December 31, 2013 and $645,000 at December 31, 2012.





Other Real Estate Owned.Certain assets such as OREO are measured at fair value less cost to sell. The Corporation believes that the fair value component in its valuation follows the provisions of FASB ASC 820-10-05. Fair value of OREO is determined by sales agreements or appraisals by qualified licensed appraisers approved and hired by the Corporation. Costs to sell associated with OREO are based on estimation per the terms and conditions of the sales agreements or appraisal.





Fair Value of Financial Instruments





FASB ASC 825-10 requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities. For the Corporation, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825-10. Many of the Corporation’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Corporation’s general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale. Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Corporation for the purposes of this disclosure.





Investment Securities Held-to-Maturity.The fair value of the Corporation’s investment securities held-to-maturity was primarily measured using information from a third-party pricing service. If quoted prices were not available, fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Corporation’s third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.





Loans.The fair value of the Corporation’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were segregated by types such as commercial, residential and consumer loans. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.





Interest-Bearing Deposits. The fair values of the Corporation’s interest-bearing deposits were estimated using discounted cash flow analyses. The discounted rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Corporation’s interest-bearing deposits do not take into consideration the value of the Corporation’s long-term relationships with depositors, which may have significant value.





Term Borrowings and Subordinated Debentures. The fair value of the Corporation’s long-term borrowings and subordinated debentures were calculated using a discounted cash flow approach and applying discount rates currently offered based on weighted remaining maturities.





Accrued Interest Receivable/Payable.The carrying amounts of accrued interest approximate fair value resulting in a level 2 or level 3 classification based on the level of the asset or liability with which the accrual is associated.






| | F-56 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 19  Fair Value Measurements and Fair Value of Financial Instruments   (continued)





The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of December 31, 2013 and December 31, 2012.





Fair Value MeasurementsCarrying Amount
  
  Fair Value
  
  Quoted Prices in Active Markets for Identical Assets (Level 1)
  
  Significant Other Observable Inputs  (Level 2)
  
  Significant Unobservable Inputs (Level 3)(in thousands)December 31, 2013Financial assetsCash and due from banks
  
  $
  82,692
  
  $
  82,692
  
  $
  82,692
  
  $
  
  
  $
  Investment securities available-for-sale
  
  
  323,070
  
  
  323,070
  
  
  19,530
  
  
  303,540
  
  
  Investment securities held-to-maturity
  
  
  215,286
  
  
  210,958
  
  
  27,037
  
  
  164,940
  
  
  18,981Restricted investment in bank stocks
  
  
  8,986
  
  
  8,986
  
  
  
  
  
  8,986
  
  
  Net loans
  
  
  950,610
  
  
  948,606
  
  
  
  
  
  
  
  
  948,606Accrued interest receivable
  
  
  6,802
  
  
  6,802
  
  
  
  
  
  4,136
  
  
  2,666Financial liabilitiesNon interest-bearing deposits
  
  
  227,370
  
  
  227,370
  
  
  
  
  
  227,370
  
  
  Interest-bearing deposits
  
  
  1,114,635
  
  
  1,115,781
  
  
  
  
  
  1,115,781
  
  
  Long-term borrowings
  
  
  146,000
  
  
  157,440
  
  
  
  
  
  157,440
  
  
  Subordinated debentures
  
  
  5,155
  
  
  5,143
  
  
  
  
  
  5,143
  
  
  Accrued interest payable
  
  
  963
  
  
  963
  
  
  
  
  
  963
  
  
  December 31, 2012Financial assetsCash and due from banks
  
  $
  104,134
  
  $
  104,134
  
  $
  104,134
  
  $
  
  
  $
  Interest bearing deposits with banks
  
  
  2,004
  
  
  2,004
  
  
  2,004
  
  
  
  
  
  Investment securities available-for-sale
  
  
  496,815
  
  
  496,815
  
  
  21,901
  
  
  474,878
  
  
  36Investment securities held-to-maturity
  
  
  58,064
  
  
  62,431
  
  
  
  
  
  53,247
  
  
  9,184Restricted investment in bank stocks
  
  
  8,964
  
  
  8,964
  
  
  
  
  
  8,964
  
  
  Loans held for sale
  
  
  1,491
  
  
  1,491
  
  
  1,491
  
  
  
  
  
  Net loans
  
  
  879,435
  
  
  897,030
  
  
  
  
  
  
  
  
  897,030Accrued interest receivable
  
  
  6,849
  
  
  6,849
  
  
  
  
  
  4,465
  
  
  2,384Financial liabilitiesNon interest-bearing deposits
  
  
  215,071
  
  
  215,071
  
  
  
  
  
  215,071
  
  
  Interest-bearing deposits
  
  
  1,091,851
  
  
  1,092,822
  
  
  
  
  
  1,092,822
  
  
  Long-term borrowings
  
  
  146,000
  
  
  162,992
  
  
  
  
  
  162,992
  
  
  Subordinated debentures
  
  
  5,155
  
  
  5,046
  
  
  
  
  
  5,046
  
  
  Accrued interest payable
  
  
  874
  
  
  874
  
  
  
  
  
  874
  
  
  






| | F-57 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 19  Fair Value Measurements and Fair Value of Financial Instruments   (continued)





The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.





Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.





The Corporation’s remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than has been customary with historical cost accounting. No disclosure of the relationship value of the Corporation’s core deposit base is required by FASB ASC 825-10.





Fair value estimates are based on existing 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. For example, there are certain significant assets and liabilities that are not considered financial assets or liabilities, such as the brokerage network, deferred taxes, premises and equipment, and goodwill. 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 in the estimates.





Management believes that reasonable comparability between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which must be made, given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.








Note 20  Parent Corporation Only Financial Statements





The Parent Corporation 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 subsidiaries and dividends paid reduce the investment in the subsidiaries. The ability of the Parent 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 18 of the Notes to Consolidated Financial Statements).








| | F-58 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 20  Parent Corporation Only Financial Statements   (continued)





Condensed financial statements of the Parent Corporation only are as follows:





Condensed Statements of Condition





At December 31,2013
  
  2012(Dollars in Thousands)ASSETSCash and cash equivalents
  
  $
  285
  
  $
  629Investment in subsidiaries
  
  
  173,658
  
  
  165,351Securities available for sale
  
  
  442
  
  
  543Other assets
  
  
  271
  
  
  41Total assets
  
  $
  174,656
  
  $
  166,564LIABILITIES AND STOCKHOLDERS’ EQUITYOther liabilities
  
  $
  917
  
  $
  718Subordinated debentures
  
  
  5,155
  
  
  5,155Stockholders’ equity
  
  
  168,584
  
  
  160,691Total liabilities and stockholders’ equity
  
  $
  174,656
  
  $
  166,564





Condensed Statements of Income





For Years Ended December 31,2013
  
  2012
  
  2011(Dollars in Thousands)Income:Dividend income from subsidiaries
  
  $
  4,393
  
  $
  2,079
  
  $
  785Other income
  
  
  6
  
  
  15
  
  
  7Net gains on available for sale securities
  
  
  22
  
  
  26
  
  
  Management fees
  
  
  353
  
  
  409
  
  
  294Total Income
  
  
  4,774
  
  
  2,529
  
  
  1,086Expenses
  
  
  (765)
  
  
  (731)
  
  
  (615)Income before equity in undistributed earnings     of subsidiaries
  
  
  4,009
  
  
  1,798
  
  
  471Equity in undistributed earnings of subsidiaries
  
  
  15,916
  
  
  15,709
  
  
  13,455Net Income
  
  $
  19,925
  
  $
  17,507
  
  $
  13,926






| | F-59 | 
| | ---- | 
|





CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 20  Parent Corporation Only Financial Statements   (continued)





Condensed Statements of Comprehensive Income





Consolidated Subsidiaries
  
  Parent
  
  Consolidated Total(Dollars in Thousands)For the year ended 2013:Net income
  
  $
  19,925
  
  $
  
  
  $
  19,925Other comprehensive (loss) income, net of tax:Net unrealized loss on investment securities
  
  
  (8,073)
  
  
  79
  
  
  (7,994)Actuarial gain
  
  
  387
  
  
  
  
  
  387Total other comprehensive (loss) income
  
  
  (7,686)
  
  
  79
  
  
  (7,607)Total comprehensive income
  
  $
  12,239
  
  $
  79
  
  $
  12,318For the year ended 2012:Net income
  
  $
  17,507
  
  $
  
  
  $
  17,507Other comprehensive income, net of tax:Net unrealized gain on investment securities
  
  
  10,935
  
  
  41
  
  
  10,976Actuarial loss
  
  
  (467)
  
  
  
  
  
  (467)Total other comprehensive income
  
  
  10,468
  
  
  41
  
  
  10,509Total comprehensive income
  
  $
  27,975
  
  $
  41
  
  $
  28,016For the year ended 2011:Net income
  
  $
  13,926
  
  $
  
  
  $
  13,926Other comprehensive income, net of tax:Net unrealized gain (loss) on investment securities
  
  
  3,301
  
  
  (7)
  
  
  3,294Actuarial loss
  
  
  (1,065)
  
  
  
  
  
  (1,065)Total other comprehensive income (loss)
  
  
  2,236
  
  
  (7)
  
  
  2,229Total comprehensive income
  
  $
  16,162
  
  $
  (7)
  
  $
  16,155





Condensed Statements of Cash Flows





For Years Ended December 312013
  
  2012
  
  2011(Dollars in Thousands)Cash flows from operating activities:Net income
  
  $
  19,925
  
  $
  17,507
  
  $
  13,926Adjustments to reconcile net income to net cash     provided by operating activities:Net gains on available for sale securities
  
  
  (22)
  
  
  (26)
  
  
  Equity in undistributed earnings of subsidiary
  
  
  (15,916)
  
  
  (15,709)
  
  
  (13,455)Change in deferred tax asset
  
  
  
  
  
  
  
  
  3(Increase) decrease in other assets
  
  
  (167)
  
  
  563
  
  
  (298)(Decrease) increase in other liabilities
  
  
  (276)
  
  
  (772)
  
  
  220Stock based compensation
  
  
  59
  
  
  39
  
  
  35Net cash provided by operating activities
  
  
  3,603
  
  
  1,602
  
  
  431Cash flows from investing activities:Proceeds from sales of available-for-sale securities
  
  
  181
  
  
  375
  
  
  Purchase of available-for-sale securities
  
  
  
  
  
  (410)
  
  
  Investments in subsidiaries
  
  
  
  
  
  
  
  
  (1,250)Net cash provided by (used in) investing activities
  
  
  181
  
  
  (35)
  
  
  (1,250)Cash flows from financing activities:Net decrease in borrowings
  
  
  
  
  
  
  
  
  (310)Cash dividends on common stock
  
  
  (4,254)
  
  
  (2,778)
  
  
  (1,955)Cash dividends on preferred stock
  
  
  (141)
  
  
  (363)
  
  
  (417)Proceeds from issuance of Series B preferred stock
  
  
  
  
  
  
  
  
  11,250Redemption of Series A preferred stock
  
  
  
  
  
  
  
  
  (10,000)Warrant repurchased
  
  
  
  
  
  
  
  
  (245)Issuance of restricted stock award
  
  
  243
  
  
  
  
  
  Issuance cost of common stock
  
  
  (13)
  
  
  (8)
  
  
  (5)Issuance cost of Series B preferred stock
  
  
  
  
  
  
  
  
  (84)Proceeds from exercise of stock options
  
  
  21
  
  
  141
  
  
  328Tax expense from stock based compensation
  
  
  16
  
  
  28
  
  
  Net cash used in financing activities
  
  
  (4,128)
  
  
  (2,980)
  
  
  (1,438)Decrease in cash and cash equivalents
  
  
  (344)
  
  
  (1,413)
  
  
  (2,257)Cash and cash equivalents at beginning of year
  
  
  629
  
  
  2,042
  
  
  4,299Cash and cash equivalents at the end of year
  
  $
  285
  
  $
  629
  
  $
  2,042






| | F-60 | 
| | ---- | 
|













CENTER BANCORP, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 21  Quarterly Financial Information of Center Bancorp, Inc. (Unaudited)





20134th Quarter
  
  3rd Quarter
  
  2nd Quarter
  
  1st Quarter(Dollars in Thousands, Except per Share Data)Total interest income
  
  $
  14,644
  
  $
  14,541
  
  $
  13,979
  
  $
  14,104Total interest expense
  
  
  2,778
  
  
  2,819
  
  
  2,751
  
  
  2,734Net interest income
  
  
  11,866
  
  
  11,722
  
  
  11,228
  
  
  11,370Provision for loan losses
  
  
  350
  
  
  
  
  
  
  
  
  Total other income, net of securities     gains
  
  
  1,307
  
  
  1,200
  
  
  1,107
  
  
  1,526Net securities gains
  
  
  449
  
  
  343
  
  
  600
  
  
  319Other expense
  
  
  6,459
  
  
  6,205
  
  
  6,076
  
  
  6,538Income before income taxes
  
  
  6,813
  
  
  7,060
  
  
  6,859
  
  
  6,677Provision from income taxes
  
  
  1,829
  
  
  1,966
  
  
  1,936
  
  
  1,753Net income
  
  $
  4,984
  
  $
  5,094
  
  $
  4,923
  
  $
  4,924Net income available to common     stockholders
  
  $
  4,955
  
  $
  5,066
  
  $
  4,895
  
  $
  4,868Earnings per share:Basic
  
  $
  0.30
  
  $
  0.31
  
  $
  0.30
  
  $
  0.30Diluted
  
  $
  0.30
  
  $
  0.31
  
  $
  0.30
  
  $
  0.30Weighted average common shares     outstanding:Basic
  
  
  16,350,183
  
  
  16,349,480
  
  
  16,348,915
  
  
  16,348,215Diluted
  
  
  16,396,931
  
  
  16,385,155
  
  
  16,375,774
  
  
  16,373,588





20124th Quarter
  
  3rd Quarter
  
  2nd Quarter
  
  1st Quarter(Dollars in Thousands, Except per Share Data)Total interest income
  
  $
  14,263
  
  $
  14,118
  
  $
  13,496
  
  $
  13,395Total interest expense
  
  
  2,841
  
  
  2,935
  
  
  2,950
  
  
  3,050Net interest income
  
  
  11,422
  
  
  11,183
  
  
  10,546
  
  
  10,345Provision for loan losses
  
  
  100
  
  
  225
  
  
  (107)
  
  
  107Total other income, net of securities     gains
  
  
  1,217
  
  
  1,872
  
  
  1,091
  
  
  1,018Net securities (losses) gains
  
  
  (201)
  
  
  763
  
  
  513
  
  
  937Other expense
  
  
  6,193
  
  
  7,507
  
  
  5,690
  
  
  5,807Income before income taxes
  
  
  6,145
  
  
  6,086
  
  
  6,567
  
  
  6,386Provision from income taxes
  
  
  1,676
  
  
  1,632
  
  
  2,214
  
  
  2,155Net income
  
  $
  4,469
  
  $
  4,454
  
  $
  4,353
  
  $
  4,231Net income available to common     stockholders
  
  $
  4,441
  
  $
  4,426
  
  $
  4,269
  
  $
  4,090Earnings per share:Basic
  
  $
  0.27
  
  $
  0.27
  
  $
  0.26
  
  $
  0.25Diluted
  
  $
  0.27
  
  $
  0.27
  
  $
  0.26
  
  $
  0.25Weighted average common shares     outstanding:Basic
  
  
  16,347,564
  
  
  16,347,088
  
  
  16,333,653
  
  
  16,332,327Diluted
  
  
  16,363,698
  
  
  16,362,635
  
  
  16,341,767
  
  
  16,338,162








| | F-61 | 
| | ---- | 
|





Note:  Due to rounding, quarterly earnings per share may not sum to reported annual earnings per share.








Note 22  Subsequent Event





On January 20, 2014, the Parent Corporation entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ConnectOne Bancorp, Inc., a New Jersey corporation (“ConnectOne Bancorp”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, ConnectOne Bancorp will merge with and into the Parent Corporation, with the Parent Corporation continuing as the surviving corporation (the “Merger”), and the Parent Corporation will change its name to ConnectOne Bancorp. The Merger Agreement also provides that immediately following the consummation of the Merger, the Bank will merge with and into ConnectOne Bank (the “Bank Merger”), a New Jersey-chartered commercial bank (“ConnectOne Bank”) and a wholly-owned subsidiary of ConnectOne Bancorp, with ConnectOne Bank continuing as the surviving bank. Subject to the terms and conditions of the Merger Agreement, upon completion of the Merger (the “Effective Time”), each share of common stock, no par value per share, of ConnectOne Bancorp (“ConnectOne Common Stock”), issued and outstanding immediately prior to the Effective Time will be converted into and become the right to receive 2.6 shares of the Parent’s Corporation’s common stock. The Merger and the Bank Merger are subject to the receipt of all necessary regulatory approvals, the approvals of the shareholders of the Parent Corporation and ConnectOne Bancorp and other conditions. The parties contemplate that the merger will be consummated during the second or third quarters of 2014, provided that all conditions are satisfied or, where permitted, waived.






| | F-62 | 
| | ---- | 
|





Item
15. Exhibits and Financial Statement Schedules





|Exhibit No. |  | Description                                                                                                    
|----------- |  | ---------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                
|23.1*       |  | Consent of BDO USA, LLP                                                                                        
|            |  |                                                                                                                
|23.2*       |  | Consent of ParenteBeard LLC                                                                                    
|            |  |                                                                                                                
|31.1*       |  | Personal certification of the chief executive officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
|            |  |                                                                                                                
|31.2*       |  | Personal certification of the chief financial officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
|            |  |                                                                                                                
|32.1**      |  | Personal certification of the chief executive officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
|            |  |                                                                                                                
|32.2**      |  | Personal certification of the chief financial officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002










* Filed
herewith.



** Furnished
herewith.

-5-







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.





| | April 14, 2014 | CENTER BANCORP, INC. |                                      
| | -------------- | -------------------- | -------------------------------------
| |                |                      |                                      
| |                | By:                  | /s/ Anthony C. Weagley               
| |                |                      | Anthony C. Weagley                   
| |                |                      | President and Chief Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of Center Bancorp, Inc., in the capacities
described below, have signed this report on April 14, 2014.



|Signatures             |  | Title                                      |  | Date          
|---------------------- |  | ------------------------------------------ |  | --------------
|                       |  |                                            |  |               
|/s/ Anthony C. Weagley |  | Director, President and Chief Executive    |  | April 14, 2014
|Anthony C. Weagley     |  | Officer (Principal Executive Officer)      |  |               
|                       |  |                                            |  |               
|/s/ Francis R. Patryn* |  | (Principal Financial Officer and Principal |  | April 14, 2014
|Francis R. Patryn      |  | Accounting Officer)                        |  |               
|                       |  |                                            |  |               
|/s/ Alexander Bol*     |  | Director                                   |  | April 14, 2014
|Alexander Bol          |  |                                            |  |               
|                       |  |                                            |  |               
|/s/ Frederick Fish*    |  | Director                                   |  | April 14, 2014
|Frederick Fish         |  |                                            |  |               
|                       |  |                                            |  |               
|/s/ Harold Kent*       |  | Director                                   |  | April 14, 2014
|Harold Kent            |  |                                            |  |               
|                       |  |                                            |  |               
|/s/ Nicholas Minoia*   |  | Director                                   |  | April 14, 2014
|Nicholas Minoia        |  |                                            |  |               
|                       |  |                                            |  |               
|Harold Schechter       |  | Director                                   |  |               

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|/s/ Lawrence B. Seidman* |  | Director |  | April 14, 2014
|------------------------ |  | -------- |  | --------------
|Lawrence B. Seidman      |  |          |  |               
|                         |  |          |  |               
|/s/ William Thompson*    |  | Director |  | April 14, 2014
|William Thompson         |  |          |  |               
|                         |  |          |  |               
|/s/ Raymond Vanaria*     |  | Director |  | April 14, 2014
|Raymond Vanaria          |  |          |  |               



|*By: |                        | 
|---- | ---------------------- | 
|     | /s/ Anthony C. Weagley | 
|     | (Anthony C. Weagley    | 
|     | Attorney-in-fact)      | 



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