The $1.17 billion-asset Center Bancorp Inc. of Union, N.J., has joined the tide of community banking companies restructuring their balance sheets.
It said Monday that it expects to close the year with $508 million of securities in its investment portfolio, $75 million less than on Sept. 30, and to shrink the portfolio by $90 million next year.
Anthony C. Weagley, a vice president and Center Bancorp's treasurer, said the possibility of further interest rate hikes next year "forced us to accelerate some strategies to be defensive," on the balance sheet.
During the third quarter Center Bancorp's net interest margin fell 5 basis points from the second quarter and 35 basis points from a year earlier, to 2.88%.
The cash flow and other proceeds from the sale of investment securities will be used to fund loan growth and reduce the company's short-term borrowings, the company said. It said it expects to build interest-earning assets by 10% over the next 12 months.
Mr. Weagley said it will focus on increasing commercial loans.
The company guided analyst estimates lower; it now expects per-share earnings to range between 11 cents and 13 cents this quarter. For the year, it expects to earn between 60 cents and 63 cents per share.
Only two analysts cover the company. One had predicted 14 cents for the quarter and 64 cents for the year, the other 16 cents and 65 cents.
Center Bancorp, the parent company of the 14-branch Union Center National Bank in northern New Jersey, will not take a charge this quarter as a result of the rebalancing announcement.
But some other community banks have announced charges in tandem with restructurings this month.
On Dec. 9, ESB Financial Corp. of Ellwood City, Pa., said it had sold $75 million of adjustable and fixed-rate mortgage-backed securities and would use the proceeds to purchase a mix of higher-yielding fixed and adjustable-rate mortgages. The $1.8 billion-asset company expects to take a $2.5 million loss this quarter.
A day earlier F.N.B. Corp. of Hermitage, Pa. said it planned to sell $570 million worth of securities to pay down borrowings and invest in higher-yielding securities. The $5.7 billion-asset company will take an $11.2 million charge for the fourth quarter.
Also in early December, Banner Corp. of Walla Walla, Wash., said it expects to take an $8.9 million after-tax charge and report a net loss of $3.1 million to $3.6 million this quarter to pay down $200 million of debt. The $3.2 billion-asset company said that it was reducing its reliance on Federal Home Loan bank advances.
Chris Stulpin, an analyst at Cohen Bros. & Co., said that Center Bancorp's move will hurt the company for the next two quarters, but that it will ultimately benefit. Center is "trying to move the balance sheet from being liability-sensitive to something more neutral," he said.
Wilson L. Smith, an analyst at Boenning & Scattergood Inc. said Center Bancorp "has had a pretty large investment portfolio for a long time."
"They've managed it pretty well, but when the yield curve started to flatten out" the company shortened the duration of securities, he said.
Shares of Center Bancorp were up 0.1% in late trading Monday.
