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CENTER BANCORP, INC.
FORM 10-K

PART I

Item 1. Business

Historical Development of Business

This report, in Item 1, Item 7 and elsewhere, includes forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, that involve inherent risks and uncertainties. This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Center Bancorp, Inc. and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions may increase significantly; (2) changes in the interest rate environment may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected; (5) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions may adversely affect the businesses in which Center Bancorp, Inc. is engaged; (7) changes and trends in the securities markets may adversely impact Center Bancorp, Inc; (8) a delayed or incomplete resolution of regulatory issues could adversely impact our planning; (9) difficulties in integrating any businesses that we may acquire, which may increase our expenses and delay the achievement of any benefits that we may expect from such acquisitions; (10) the impact of reputation risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; and (10)(11) the outcome of regulatory and legal investigations and proceedings may not be anticipated. Further information on other factors that could affect the financial results of Center Bancorp, Inc. are included in Item 1A of this Annual Report on Form 10-K and in Center Bancorp’s other filings with the Securities and Exchange Commission. These documents are available free of charge at the Commission’s website athttp://www.sec.gov and/or from Center Bancorp, Inc. Center Bancorp, Inc. assumes no obligation to update forward-looking statements at any time.

Center Bancorp, Inc., a one-bank holding company, was incorporated in the state of New Jersey on November 12, 1982. Upon the acquisition of all outstanding shares of capital stock of Union Center National Bank (the “Bank”), its principal subsidiary, Center Bancorp, Inc., commenced operations on May 1, 1983. The holding company’s sole activity, at this time, is to act as a holding company for the Bank and other subsidiaries. As used herein, the term “Corporation” shall refer to Center Bancorp, Inc. and its direct and indirect subsidiaries and the term “Parent Corporation” shall refer to Center Bancorp, Inc. on an unconsolidated basis. In addition to its principal subsidiary,

Center Bancorp, Inc. owns 100 percent of the voting shares of Center Bancorp, Inc. Statutory Trust II, through which it issued trust preferred securities. Center Bancorp, Inc. Statutory Trust IIThe trust 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 $5.2 million of 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 a consolidated subsidiary.in accordance with Financial Accounting Standards Board (“FASB”) FASB ASC 810-10 “Consolidation of Variable Interest Entities.” Distributions on the subordinated debentures owned by the subsidiary trust have been classified as interest expense in the Consolidated Statements of Income. See Note 1011 of the Consolidated Financial Statements.

TheExcept as described above, the Corporation’s wholly-owned subsidiaries are all included in the consolidated financial statements of Center Bancorp, Inc. These subsidiaries include an advertising subsidiary; an insurance subsidiary offering annuity products, property and casualty, life and health insurance, and various investment subsidiaries which hold, maintain and manage investment assets for the Corporation. In the past, theThe Corporation’s subsidiaries have also includedinclude a real estate investment trust subsidiariessubsidiary (the “REIT” subsidiaries) and two title insurance partnerships. The title insurance partnerships were liquidated and ceased operations in December 2009. During the fourth quarter of 2006, the Corporation effected an internal entity reorganization and adopted a plan of liquidation for its one remaining REIT subsidiary,subsidiary) which was completed on November 16, 2007.

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During 2001 and 2003, the Corporation formed statutory business trusts, which exist for the exclusive purpose of (i) issuing trust securities representing undivided beneficial interests in the assets of a trust; (ii) investing the gross proceedsowns some of the trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Corporation; and (iii) engaging in only those activities necessaryreal estate loans. All subsidiaries mentioned above are directly or incidental thereto. These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements as the statutory business trusts are not consolidated in accordance with Financial Accounting Standards Board (“FASB”) FASB ASC 810-10 (previously FASB interpretation No. 46(R), “Consolidation of Variable Interest Entities.” Distributions on the subordinated debenturesindirectly wholly owned by the subsidiary trusts have been classified as interest expense in the Consolidated Statements of Income.

The Corporation, issued $10.3 million of subordinated debentures in 2001 and $5.2 million of subordinated debentures in 2003. On December 18, 2006,except that the Corporation redeemed $10.3 millionowns less than 100 percent of subordinated debentures and dissolved Center Bancorp, Inc. Statutory Trust I. At December 31, 2010, the $5.2 millionpreferred stock of these securities still outstanding were includedthe REIT subsidiary. Since a REIT must have 100 or more shareholders to quality as a componentREIT, therefore, the REIT has issued less than 20 percent of Tierits outstanding non-voting preferred stock to individuals, primarily bank personnel and directors.

On August 1, Capital for regulatory purposes. The Tier2012, the ‘‘Bank’’ assumed all of the deposits and certain other liabilities and acquired certain assets of Saddle River Valley Bank, a New Jersey State-chartered bank, pursuant to the terms of a Purchase and Assumption Agreement, dated as of February 1, leverage capital ratio was 9.90 percent at December 31, 2010.

During 2002,2012, among the Bank, established two investment subsidiariesSaddle River Valley Bank and Saddle River Valley Bancorp. This purchase and assumption was in keeping with the Bank’s strategy to hold portionsexpand its base of its securities portfolio. At December 2007, under a plan of liquidation adopted by the Bank, one of the investment companies had been liquidated. During 2008, the Corporation formed a new investment company. In January of 2003, the Corporation established an insurance subsidiary for the sale of insurance and annuity products. The Corporation also formed a title insurance partnership during the later part of 2007 that was fully operational in 2008. During the early part of 2008, the Corporation formed a second title partnership that was fully operational during the second half of 2008. Both title insurance partnerships were liquidated during December, 2009 and the Bank no longer provides title insurance.operations into Northern New Jersey.

SEC Reports and Corporate Governance

The Parent Corporation makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments thereto available on its website atwww.centerbancorp.com without charge as soon as reasonably practicable after filing or furnishing them to the SEC. Also available on the website are the Corporation’s corporate code of ethics that applies to all of the Corporation’s employees, including principal officers and directors, and charters for the Audit Committee, Compensation Committee and Nominating Committee.

The Parent Corporation has filed the certifications of the Chief Executive Officer and Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 with respect to the Parent Corporation’s Annual Report on Form 10-K as exhibits to this Report. Center Bancorp’s CEO submitted the required annual CEO’s Certification regarding the NASDAQ’s corporate governance listing standards, Section 12(a) CEO Certification, to the NASDAQ within the required time frame after the 20102012 annual shareholders’ meeting.

Additionally, the Parent Corporation will provide without charge, a copy of its Annual Report on Form 10-K to any shareholder by mail. Requests should be sent to Center Bancorp, Inc, Attention: Shareholder Relations, 2455 Morris Avenue, Union, New Jersey, 07083.

Narrative Description of the Business

The Bank offers a broad range of lending, depository and related financial services to commercial, industrial and governmental customers. In 1999, theThe Bank obtainedhas full trust powers, enabling it to offer a variety of trust services to its customers. In the lending area, the Bank’s services include short and medium term loans, lines of credit, letters of credit, working capital loans, real estate construction loans and mortgage loans. In the depository area, the Bank offers demand deposits, savings accounts and time deposits. In addition, the Bank offers collection services, wire transfers, night depository and lock box services.

The Bank offers a broad range of consumer banking services, including interest bearing and non-interest bearing checking accounts, savings accounts, money market accounts, certificates of deposit, IRA accounts, Automated Teller Machine (“ATM”) accessibility using Star Systems, Inc. service, secured and unsecured loans, mortgage loans, home equity lines of credit, safe deposit boxes, Christmas club accounts, vacation club accounts, money orders and travelers’ checks.

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The Bank, through its subsidiary, Center Financial Group LLC, provides financial services, including brokerage services, insurance and annuities, mutual funds and financial planning. In the fourth quarter of 2007, the Corporation formed a title insurance partnership, Center Title LLC, with Progressive Title Company in Parsippany, New Jersey to provide title services in connection with the closing of real estate transactions. In January 2008, the Corporation formed a title insurance partnership, Union Title LLC, with Elite Title Abstract of West Caldwell, New Jersey to provide title services in connection with the closing of real estate loan transactions. Our partnerships with both title companies were liquidated during December, 2009.

The Bank offers various money market services. It deals in U.S. Treasury and U.S. Governmental agency securities, certificates of deposit, commercial paper and repurchase agreements.

The Bank entered into a limited liability company operating agreement with Morris Property Company, LLC, a New Jersey limited liability company, during the fourth quarter ofin 2008. The purpose of Morris Property Company, LLC is to hold foreclosed assets.

On August 20, 2010, the Bank formed UCNB 1031 Exchange, LLC, for the purpose of providing customers 1031 exchange services. At December 31, 2010 UCNB 1031 Exchange, LLC was active, however its operations to date have had no material impact onIn August of 2011, the operations of the Corporation.Bank liquidated this business.

Competitive pressures affect the Corporation’s manner of conducting business. Competition stems not only from other commercial banks but also from other financial institutions such as savings banks, savings and loan associations, mortgage companies, leasing companies and various other financial service and advisory companies. Many of the financial institutions operating in the Corporation’s primary market are substantially larger and offer a wider variety of products and services than the Corporation.

Supervision and Regulation

The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company’s cost of doing business and limit the options of its management to deploy assets and maximize income. The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on the Corporation or its Bank subsidiary. It is intended only to briefly summarize some material provisions.

Bank Holding Company Regulation

Center Bancorp, Inc. is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “Holding Company Act”). As a bank holding company, the Parent Corporation is supervised by the Board of Governors of the Federal Reserve System (“FRB”) and is required to file reports with the FRB and provide such additional information as the FRB may require. The Parent Corporation and itits subsidiaries are subject to examination by the FRB.

On November 9, 2007, the FRB approved the Parent Corporation’s application to become a Financial Holding Company. A Financial Holding Company may perform the following activities: insurance underwriting, securities dealing and underwriting, financial and investment advisory services, merchant banking and issuing or selling security interests in bank-eligible assets. Financial Holding Companies may also engage in any other activity that the FRB determines to be financial in nature or incidental to financial activities after consultation with the Secretary of the Treasury. A Financial Holding Company may also engage in any non-financial activity that the FRB determines is complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system. As of December 31, 2009 the Parent Corporation officially rescinded its status as a financial services holding company as a result of the discontinuation of its title insurance activities.

The Holding Company Act prohibits the Corporation, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking “as to be a proper incident thereto.” The Holding Company Act requires prior approval by the FRB of the acquisition by Center Bancorp, Inc. of more than five percent of the voting stock of any other bank. Satisfactory capital

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ratios and Community Reinvestment Act ratings and anti-money laundering policies are generally prerequisites to obtaining federal regulatory approval to make acquisitions. The policy of the FRB provides that a bank holding company is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support the subsidiary bank in circumstances in which it might not do so absent that policy.

Acquisitions through Union Center National Bank require approval of the Office of the Comptroller of the Currency of the United States (“OCC”). The Holding Company Act does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The Gramm-Leach-Bliley Act, discussed below, allows the Corporation to expand into insurance, securities, merchant banking activities, and other activities that are financial in nature.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Interstate Banking and Branching Act”) enables bank holding companies to acquire banks in states other than their home state, regardless of applicable state law. The Interstate Banking and Branching Act also authorizes banks to merge across state lines, thereby creating interstate banks with branches in more than one state. Under the legislation, each state had the opportunity to “opt-out” of this provision. Furthermore, a state may “opt-in” with respect tode novo branching, thereby permitting a bank to open new branches in a state in which the bank does not already have a branch. Withoutde novo branching, an out-of-state commercial bank can enter the state only by acquiring an existing bank or branch. The vast majority of states have allowed interstate banking by merger but have not authorizedde novo branching.

New Jersey enacted legislation to authorize interstate banking and branching and the entry into New Jersey of foreign country banks. New Jersey did not authorizede novo branching into the state. However, under federal law, federal savings banks which meet certain conditions may branchde novo into a state, regardless of state law. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), described in more detail below) removes the restrictions on interstate branching contained in the Interstate Banking and Branching Act, and allows national banks and state banks to establish branches in any state if, under the laws of the state in which the branch is to be located, a state bank chartered by that state would be permitted to establish the branch.

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Regulation of Bank Subsidiary

The operations of the Bank are subject to requirements and restrictions under federal law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted, and limitations on the types of investments that may be made and the types of services which may be offered. Various consumer laws and regulations also affect the operations of the Bank. Approval of the Comptroller of the Currency is required for branching, bank mergers in which the continuing bank is a national bank and in connection with certain fundamental corporate changes affecting the Bank. There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, which govern the extent to which a bank subsidiary may finance or otherwise supply funds to its holding company or its holding company’s non-bank subsidiaries. Under federal law, no bank subsidiary may, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent or the non-bank subsidiaries of its parent (other than direct subsidiaries of such bank which are not financial subsidiaries) or take their securities as collateral for loans to any borrower. Each bank subsidiary is also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions.

The BankDodd-Frank Act

The Dodd-Frank Act, adopted in 2010, will continue to have a broad impact on the financial services industry, as a result of the significant regulatory and the OCC have entered into an informal Memorandum of Understanding, or MOU. A memorandum of understanding is characterizedcompliance changes made by the regulatory authorities as an informal action that is not published or publicly available and that is used when circumstances warrant a milder form of action than a formal supervisory action. AmongDodd-Frank Act, including, among other things, under(i) enhanced resolution authority over troubled and failing banks and their holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the MOU, the Bank has agreedFDIC for federal deposit insurance; and (v) numerous other provisions designed to develop a three year capital program, which will include specific plansimprove supervision and oversight of, and strengthening safety and soundness for, the maintenance of adequate capitalfinancial services sector. Additionally, the Dodd-Frank Act establishes a new framework for systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the strengthening ofFinancial Stability Oversight Council, the Bank’s capital structure to meet the Bank’s current and future needs, a profit plan that includes the identification of the major areas and means by which the Board will seek to improve the Bank’s operating performance, and a dividend policy that permits the declaration of a dividend by the Bank only with the prior approval of the OCC. Management is committed to addressing and resolving the issues raised byFederal Reserve, the OCC and has substantially completed corrective actionsthe FDIC. A summary of certain provisions of the Dodd-Frank Act is set forth below:

Together, the Dodd-Frank Act and the recent guidance on compensation may impact the Corporation’s compensation practices.

Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized, many of the new requirements called for have yet to be implemented and will likely be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies, the full extent of the impact such requirements will have on financial institutions’ operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements (which, in turn, could require the Corporation and the Bank to seek additional capital) or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with the MOU. In addition, the OCC has established higher minimum capital ratios for the Bank than thenew statutory and regulatory minimums. See “FDICIA.”requirements.

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Regulation W

The Federal Reserve Board has issued

Regulation W which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with respect to affiliate transactions. Regulation W incorporates the exemption from the affiliate transaction rules but expands the exemption to cover the purchase of any type of loan or extension of credit from an affiliate. Affiliates of a bank include, among other entities, the bank’s holding company and companies that are under common control with the bank. The Parent Corporation is considered to be an affiliate of the Bank. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates:

In addition, a bank and its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, as those prevailing at the time for comparable transactions with nonaffiliated companies. A “covered transaction” includes:

In addition,

Further, under Regulationregulation W:

Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the Federal Reserve Board decides to treat these subsidiaries as affiliates.

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Capital Adequacy Guidelines

The Federal Reserve Board has adopted risk-based capital guidelines. These guidelines establish minimum levels of capital and require capital adequacy to be measured in part upon the degree of risk associated with certain assets. Under these guidelines all banks and bank holding companies must have a core or Tier 1 capital to risk-weighted assets ratio of at least 4% and a total capital to risk-weighted assets ratio of at least 8%. At December 31, 2010,2012, the Corporation’s Tier 1 capital to risk-weighted assets ratio and total capital to risk-weighted assets ratio were 13.2811.39 percent and 14.2912.22 percent, respectively.

In addition, the Federal Reserve Board and the FDIC have approved leverage ratio guidelines (Tier 1 capital to average quarterly assets, less goodwill) for bank holding companies such as the Parent Corporation. These guidelines provide for a minimum leverage ratio of 3% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other holding companies are

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required to maintain a leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The Parent Corporation’s leverage ratio was 9.909.02 percent at December 31, 2010.2012.

Under FDICIA, federal banking agencies have established certain additional minimum levels of capital which accord with guidelines established under that act. In addition, OCC has established higher minimum capital ratios for the Bank effective as of December 31, 2009.capital. See “FDICIA.”“FDICIA”.

FDICIA

Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), each federal banking agency has promulgated regulations, specifying the levels at which a financial institution would be considered “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized,” and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution. To qualify to engage in financial activities under the Gramm-Leach-Bliley Act, all depository institutions must be “well capitalized.” The financial holding company of a national bank will be put under directives to raise its capital levels or divest its activities if the depository institution falls from that level.

The OCC’s regulations implementing these provisions of FDICIA provide that an institution will be classified as “well capitalized” if it (i) has a total risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at least 5.0 percent, and (iv) meets certain other requirements. An institution will be classified as “adequately capitalized” if it (i) has a total risk-based capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 4.0 percent, (iii) has a Tier 1 leverage ratio of (a) at least 4.0 percent or (b) at least 3.0 percent if the institution was rated 1 in its most recent examination, and (iv) does not meet the definition of “well capitalized.” An institution will be classified as “undercapitalized” if it (i) has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1 leverage ratio of (a) less than 4.0 percent or (b) less than 3.0 percent if the institution was rated 1 in its most recent examination. An institution will be classified as “significantly undercapitalized” if it (i) has a total risk-based capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less than 3.0 percent. An institution will be classified as “critically undercapitalized” if it has a tangible equity to total assets ratio that is equal to or less than 2.0 percent. An insured depository institution may be deemed to be in a lower capitalization category if it receives an unsatisfactory examination rating.

The OCC has established higher minimum capital ratios for the Bank effective as of December 31, 2009: Tier 1 Risk-Based Capital of 10.0 percent, Total Risk-Based Capital of 12.0 percent and Tier 1 Leverage Capital of 8.0 percent. At December 31, 2010, the Bank’s capital ratios were all above the minimum levels required.

In addition, significant provisions of FDICIA required federal banking regulators to impose standards in a number of other important areas to assure bank safety and soundness, including internal controls, information systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and interest rate exposure. Under the MOU between the Bank and the OCC, the Bank has agreed to develop a three year capital program, which will include specific plans for the maintenance of adequate capital and the strengthening of the Bank’s capital structure to meet current and future needs.

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Additional Regulation of Capital

The federal regulatory authorities’ risk-based capital guidelines are based upon the 1988 capital accord (“Basel I”) of the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies and regulations to which they apply. Actions of the Committee have no direct effect on banks in participating countries. In 2004, the Basel Committee published a new capital accord (“Basel II”) to replace Basel I. Basel II provides two approaches for setting capital standards for credit risk — an internal ratings-based approach tailored to individual institutions’ circumstances and a standardized approach that bases risk weightings on external credit assessments to a much greater extent than permitted in existing risk-based capital guidelines.

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Basel II also would set capital requirements for operational risk and refine the existing capital requirements for market risk exposures. The Corporation is not required to comply with the advanced approaches of Basel II.

In 2009, the United States Treasury Department issued a policy statement (the “Treasury Policy Statement”) entitled “Principles for Reforming the U.S. and International Regulatory Capital Framework for Banking Firms,” which contemplates changes to the existing regulatory capital regime involving substantial revisions to major parts of the Basel I and Basel II capital frameworks and affecting all regulated banking organizations. The Treasury Policy Statement calls for, among other things, higher and stronger capital requirements for all banking firms, with changes to the regulatory capital framework to be phased in over a period of several years.

On December 17, 2009, the Basel Committee issued a set of proposals (the “2009 Capital Proposals”) that would significantly revise the definitions of Tier 1 capital and Tier 2 capital. Among other things, the 2009 Capital Proposals would re-emphasize that common equity is the predominant component of Tier 1 capital. Concurrently with the release of the 2009 Capital Proposals, the Basel Committee also released a set of proposals related to liquidity risk exposure (the “2009 Liquidity Proposals”). The 2009 Liquidity Proposals include the implementation of (i) a “liquidity coverage ratio” or LCR, designed to ensure that a bank maintains an adequate level of unencumbered, high-quality assets sufficient to meet the bank’s liquidity needs over a 30-day time horizon under an acute liquidity stress scenario and (ii) a “net stable funding ratio” or NSFR, designed to promote more medium and long-term funding of the assets and activities of banks over a one-year time horizon.

The Dodd-Frank Act includes certain provisions, often referred to as the “Collins Amendment,” concerning the capital requirements of the United States banking regulators. These provisions are intended to subject bank holding companies to the same capital requirements as their bank subsidiaries and to eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital. Under the Collins Amendment, trust preferred securities issued by a company, such as Union Center National Bank, with total consolidated assets of less than $15 billion before May 19, 2010 andare treated as regulatory capital, are grandfathered, but any such securities issued later are not eligible as regulatory capital. The banking regulators must develop regulations setting minimum risk-based and leverage capital requirements for holding companies and banks on a consolidated basis that are no less stringent than the generally applicable requirements in effect for depository institutions under the prompt corrective action regulations. The banking regulators also must seek to make capital standards countercyclical so that the required levels of capital increase in times of economic expansion and decrease in times of economic contraction. The Dodd-Frank Act requires these new capital regulations to be adopted by the Federal Reserve in final form 18 months after the date of enactment of the Dodd-Frank Act (July 21, 2010).

In December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity generally referred to as “Basel III.” Although Basel III is intended to be implemented by participating countries for large, internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new regulations applicable to other banks in the United States, including Union Center National Bank. In June 2012, the U.S. banking regulators released notices of proposed rulemaking that would revise regulatory capital rules for U.S. banking organizations. In November 2012, U.S. banking regulators indicated that the implementation of the proposed rules would not become effective on January 1, 2013, as they are continuing to review various views expressed during the comment period. In January 2013, the Basel Committee revised the standard for the Liquidity Coverage Ratio (LCR), including increasing the range of eligible assets that can be held as part of a required “liquidity buffer.” It is not possible to predict when or in what form final regulations may be adopted.

For banks in the United States, among the most significant provisions of Basel III concerning capital (as proposed prior to the delay in implementation) are the following:

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The Basel III provisions on liquidity include complex criteria establishing the LCR and NSFR. Although Basel III is described as a “final text,” it is subject to the resolution of certain issues and to further guidance and modification, as well as to adoption by United States banking regulators, including decisions as to whether and to what extent it will apply to United States banks that are not large, internationally active banks.

Federal Deposit Insurance and Premiums

Substantially all of the deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and are subject to deposit insurance assessments to maintain the DIF. As a result of the Dodd-Frank Act, the basic federal deposit insurance limit was permanently increased from at least $100,000 to at least $250,000. In addition, on November 9, 2010 and January 18, 2011, the FDIC (asAs mandated by Section 343 of the Dodd-Frank Act)Act, the FDIC has adopted rules providing for temporary unlimited deposit insurance for traditional noninterest-bearing transaction accounts and IOLTA accounts beginning December 31, 2010, untilbut these temporary rules expired December 31, 2012. This coverage, which applies to allAs a result, as of January 1, 2013, (i) noninterest-bearing transaction accounts are no longer insured deposit institutions, does not charge any additional FDIC assessment toseparately from depositors’ other accounts at the institution.same FDIC. Furthermore, this unlimited coverage is separate from, and in addition to, the coverage provided to depositors with respect to other accounts held at an insured institution.

Under current regulations, Insured depository and such accounts will instead be added to any of a depositor’s other accounts in the FDIC utilizes a risk-based assessment system that imposesapplicable ownership category, and the aggregate balance insured up to at least the standard maximum deposit insurance premiums based upon a risk matrix that takes into account a bank’s capital levelamount of $250,000 per depositor at each separately chartered FDIC-insured depository institution, and supervisory rating, known as a “CAMEL rating.” The assessment rate(ii) funds deposited in IOLTAs will no longer be insured under Section 343 of the Dodd-Frank Act, but because IOLTAs are fiduciary accounts, they generally qualify for an individual institution is determined according to a formula basedpass-through coverage on a weighted average of the institution’s individual CAMELS component ratings plus six financial ratios. Well-capitalized institutions (generally those with CAMELS composite ratings of 1 or 2) are grouped in Risk Category I and their initial assessment base rate for deposit insurance is set at an annual rate of between 12 and 16 basis points. The initial base assessment rate for institutions in Risk Categories II, III, and IV is set at annual rates of 22, 31 and 50 basis points, respectively. These base rates are then adjusted to a final assessment rate based on an institution’s brokered deposits, secured liabilities and unsecured debt. In 2010 the Bank recognized a total of $1.8 million in FDIC expense of the $5.7 million assessments prepaid in 2009.per-client basis.

On May 22, 2009, the Board of Directors of the FDIC adopted a final rule imposing a special assessment on the entire banking industry. The special assessment was calculated as five basis points times each insured depository institution’s assets minus Tier 1 capital, as reported in the report of condition as of June 30, 2009 and would not exceed ten times the institution’s assessment base for the second quarter of 2009 risk-based assessment. This special assessment, which totaled $1.2 million, was remitted by the Bank on September 30, 2009.

On November 12, 2009, the FDIC adopted the finala rule which required insured depository institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012. On December 30, 2009, the Bank remitted an FDIC prepayment in the amount of $5.7 million. An institution’s prepaid assessment was based on the total base assessment rate that the institution paid for the third quarter of 2009, adjusted quarterly by an estimated annual growth rate of 5% through the end of 2012, plus, for 2011 and 2012, an increase in the total base assessment rate on September 30, 2009 by an annualized

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three basis points. Any prepaid assessment in excess of the amounts that are subsequently determined to be actually due to the FDIC by June 30, 2013, will be returned to the institution at that time. As of December 31, 2012 the Bank recognized a total of $4.9 million in FDIC expense of the $5.7 million assessments prepaid on December 30, 2009.

In November 2010, theThe FDIC has approved a rule to change the assessment base from adjusted domestic deposits to average consolidated total assets minus average tangible equity, as required by the Dodd-Frank Act. These new assessment rates will beginbegan in the second quarter of 2011 and will be payablewere paid at the end of September 2011. Since the new base is larger than the currentprior base, the FDIC’s rule would lowerlowered total base assessment rates to between 2.5 and 9 basis points for banks in the lowest risk category, and 30 to 45 basis points for banks in the highest risk category. The Company paid $1.2 million in total FDIC assessments in 2012, as compared to $1.7 million in 2011.

Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (DRR), that is, the ratio of the DIF to insured deposits. The FDIC has adopted a plan under which it will meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. The FDIC has not yet announced how it will implement this offset.

In addition to deposit insurance assessments, the FDIC is required to continue to collect from institutions payments for the servicing of obligations of the Financing Corporation (“FICO”) that were issued in connection with the resolution of savings and loan associations, so long as such obligations remain outstanding. The Bank paid a FICO premium of $87,000$89,000 in 20102012 and expects to pay a similar premium in 2011.2013.

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 became effective in early 2000. The Modernization Act:(the “Modernization Act”):

The Modernization Act also modified other financial laws, including laws related to financial privacy and community reinvestment.

The Gramm-Leach-Bliley Financial Modernization Act of 1999 became effective in early 2000. The Modernization Act:

The Modernization Act also modified other financial laws, including laws related to financial privacy and community reinvestment.

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Community Reinvestment Act

Under the Community Reinvestment Act (“CRA”), as implemented by OCC regulations, a national bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OCC, in connection with its examination of a national bank, to assess the bank’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such bank.

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USA PATRIOT Act

In response to the events of September 11, 2001, the

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), was signed into law on October 26, 2001. The USA PATRIOT Act gives the federal government powers to address terrorist threats through domestic security measures, surveillance powers, information sharing, and anti-money laundering requirements. By way of amendments to the Bank Secrecy Act, the USA PATRIOT Act encourages information sharinginformation-sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of the USA PATRIOT Act impose affirmative obligations on a broad range of financial institutions, including banks, thrifts,thrift institutions, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act.

Among other requirements, the USA PATRIOT Act imposes the following requirements with respect to financial institutions:

The United States Treasury Department has issued a number of implementing regulations which address various requirements of the USA PATRIOT Act and are applicable to financial institutions such as the Bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers.

Sarbanes-Oxley Act of 2002

The stated goals of the Sarbanes-Oxley Act of 2002 (the “SOA”) arewere to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties by publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

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The SOA generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”).

The SOA includes specific disclosure requirements and corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC. The SOA addresses, among other matters:

Legislation Implemented in Response to Periods of Economic Turmoil

In response to recent unprecedented market turmoil, EESA was enacted on October 3, 2008. EESA authorizes the U.S. Treasury Departmentpreferred stock (the “treasury”“TARP Preferred Stock”) to provide upthe United States Treasury pursuant to $700 billion in funding for the financial services industry. Pursuant to the EESA, the Treasury was initially authorized to use $350 billion for theCongress’ Troubled Asset Relief Program (“TARP”). Of this amount,

On September 15, 2011, the Parent Corporation entered into and consummated the transactions contemplated by a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the Secretary of the Treasury allocated $250(the “Secretary”) under the Small Business Lending Fund program (the “SBLF Program”), a $30 billion fund established under the Small Business Jobs Act of 2010 that is designed to encourage lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. Under the Securities Purchase Agreement, the Parent Corporation issued to the Secretary a total of 11,250 shares of the Parent Corporation’s Senior Non-Cumulative Perpetual Preferred Stock, Series B (the “SBLF Preferred Stock”), having a liquidation value of $1,000 per share, for a total purchase price of $11,250,000. The SBLF Preferred Stock was issued pursuant to a Certificate of Amendment to the Parent Corporation’s Certificate of Incorporation (the “Certificate of Amendment”) filed on September 13, 2011.

The SBLF Preferred Stock qualifies as Tier 1 capital. Non-cumulative dividends are payable quarterly on January 1, April 1, July 1 and October 1 for the SBLF Preferred Stock, commencing on January 1, 2012. The dividend rate is calculated as a percentage of the aggregate liquidation value of the outstanding SBLF Preferred Stock and is based on changes in the level of “Qualified Small Business Lending” or “QSBL” (as defined in the Certificate of Amendment) by the Bank, compared to the Bank’s baseline QSBL level. Based upon the Bank’s initial level of QSBL compared to the baseline, as calculated under the Securities Purchase Agreement, the dividend rate on the SBLF Preferred Stock was set at five percent for the initial dividend period.

For the second through tenth calendar quarters after the closing of the SBLF Program transaction, the dividend rate will fluctuate between one percent and five percent to reflect the amount of change in the Bank’s level of QSBL compared to the initial baseline. More specifically, if the Bank’s QSBL at the end of a quarter has increased as compared to the baseline, then the dividend rate payable on the SBLF Preferred Stock would change as follows: 

From the eleventh through the eighteenth calendar quarters and that portion of the nineteenth calendar quarter which ends immediately prior to the date that is the four and one half years anniversary of the closing of the SBLF Program transaction, the dividend rate on the SBLF Preferred Stock will be fixed at between one percent and seven percent based on the level of QSBL at that time, as compared to the baseline in accordance with the chart below. If any SBLF Preferred Stock remains outstanding after four and one half years following the closing of the SBLF Program transaction, the dividend rate will increase to nine percent. 

The SBLF Preferred Stock is non-voting, except in limited circumstances that could impact the SBLF investment, such as (i) authorization of senior stock, (ii) charter amendments adversely affecting the SBLF Preferred Stock and (iii) extraordinary transactions such as mergers, asset sales, share exchanges and the like (unless the SBLF Preferred Stock remains outstanding and the rights and preferences thereof are not impaired by such transaction).

In the event the Company misses five dividend payments, whether or not consecutive, the holder of the SBLF Preferred Stock will have the right, but not the obligation, to appoint a representative as an “observer” on the Company’s Board of Directors.

Further, the SBLF Preferred Stock may be redeemed by the Company at any time, at a redemption price of 100% of the liquidation amount plus accrued but unpaid dividends for the then current Dividend Period (as defined in the Certificate of Amendment) (plus, the CPP Lending Incentive Fees (as defined in the Certificate of Amendment), if applicable), subject to the approval of the Company’s federal banking regulator.

The SBLF Preferred Stock is not subject to any contractual restrictions on transfer and thus the Secretary may sell, transfer, exchange or enter into other transactions with respect to the SBLF Preferred Stock without the Company’s consent.

The Parent Corporation used the proceeds from the issuance of the SBLF Preferred to redeem from the Treasury all shares issued by the Parent Corporation pursuant to TARP, for a redemption price of $10,041,667, including accrued but unpaid dividends up to the date of redemption. As a result of the redemption of the TARP Preferred Stock, the Company is no longer subject to the limits on executive compensation and other restrictions stipulated under the TARP Capital Purchase Program. On January 15, 2009, the second $350 billion of TARP monies was released to the Treasury. As described elsewhere in this Annual Report on Form 10-K, the Treasury purchased $10,000,000 ofFor an additional $245,000, the Parent Corporation’s non-convertible preferred stock (the “Preferred Shares”)Corporation also bought back the warrants issued under the TARP Capital Purchase Program.TARP.

Participants in the TARP Capital Purchase Program were required to accept several compensation-related limitations associated with this Program. In January 2009, five executive officers of the Corporation agreed in writing to accept the compensation standards in existence at that time under the Capital Purchase Program and thereby cap or eliminate some of their contractual or legal rights. The provisions agreed to were as follows:

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During the CPP Covered Period, the Corporation is not permitted to take federal income tax deductions for compensation paid to the senior executive officers in excess of $500,000 per year, subject to certain exceptions.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the “Stimulus Act”) was enacted. The Stimulus Act contains several provisions designed to establish executive compensation and governance standards for financial institutions (such as the Corporation) that received or will receive financial assistance under TARP. In certain instances, the Stimulus Act modified the compensation-related limitations contained in the TARP Capital Purchase Program; in addition, the Stimulus Act created additional compensation-related limitations and directed the Treasury to establish standards for executive compensation applicable to participants in TARP. In their January 2009 agreements, the Corporation’s executives did not waive their rights with respect to the provisions implemented by the Stimulus Act; other employees now covered by these provisions were not asked and did not agree to waive their rights. The compensation-related limitations applicable to the Corporation which have been added or modified by the Stimulus Act are as follows, which provisions are expected to be included in standards established by the Treasury:

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Recent Regulatory Reform-The Dodd-Frank Act

The Dodd-Frank Act, which was signed into law on July 21, 2010, will have a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years.

Among other things, the Dodd-Frank Act:

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While it is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on the Corporation, management expects that at a minimum the Corporation’s operating and compliance costs will increase, and our interest expense could increase.

Proposed Legislation

From time to time proposals are made in the U.S. Congress and before various bank regulatory authorities, which would alter the policies of and place restrictions on different types of banking operations. It is impossible to predict the impact, if any, of potential legislative trends on the business of the Parent Corporation and the Bank.

Loans to Related Parties

The Corporation’s authority to extend credit to its directors and executive officers, as well as to entities controlled by such persons, is currently governed by the requirements of the National Bank Act, the Sarbanes-Oxley Act of 2002 and Regulation O of the Federal Reserve Bank. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the Corporation’s capital. In addition, the Corporation’s Board of Directors must approve extensions of credit in excess of certain limits. Under the SOA, the Corporation and its subsidiaries, other than Union Center National Bank, may not extend or arrange for any personal loans to its directors and executive officers.

Dividend Restrictions

The Parent Corporation is a legal entity separate and distinct from the Bank. Virtually all of the revenue of the Parent Corporation available for payment of dividends on its capital stock will result from amounts paid to the Parent Corporation by the Bank. All such dividends are subject to various limitations imposed by federal laws and by regulations and policies adopted by federal regulatory agencies. As a national bank, the Bank may not pay a dividend if it would impair the capital of the Bank. Furthermore, prior approval by the Comptroller of the Currency is required if the total of dividends declared in a calendar year exceeds the total

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of the Bank’s net profits for that year combined with the retained profits for the two preceding years. The Bank’s current MOU provides that the Bank cannot declare a dividend without the prior approval of the OCC.

On January 9, 2009, as part of the TARP Capital Purchase Program, the Parent Corporation entered into a Letter Agreement (the “Letter Agreement”) and a Securities Purchase Agreement — Standard Terms attached thereto (the “Securities Purchase Agreement”) with the Treasury, pursuant to which (i)September 15, 2011, the Parent Corporation issued and sold, and$11.25 million in nonvoting senior preferred stock to the Treasury purchased, 10,000under the SBLF Program. Under the Securities Purchase Agreement, the Parent 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 Parent Corporation’sCorporation redeemed from the Treasury, all 10,000 outstanding shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference ofamount $1,000 per share, for an aggregate purchasea redemption price of $10,000,000 in cash, and (ii) the Parent Corporation issued$10,041,667, including accrued but unpaid dividends up to the Treasury a ten-year warrant (the “Warrant”) to purchase up to 173,410 sharesdate of redemption.

The terms of the Corporation’s common stock at an exercise price of $8.65 per share. As a result of the successful completion ofSBLF Preferred Stock impose limits on the Parent Corporation’s rights offering in October 2009, the number of shares underlying the Warrant was reducedability to 86,705 shares, or 50% of the original 173,410 shares. The Securities Purchase Agreement contains limitations on the payment ofpay dividends on the common stock. Specifically, the Parent Corporation is unable to declare dividend payments on theand repurchase shares of its common stock (and certain preferred stock if the Corporation issues additional series of preferred stock)and other securities. More specifically, if the Parent Corporation is in arrears in the payment offails to declare and pay dividends on the SBLF Preferred Shares. Further, untilStock in a given quarter, then during such quarter and for the third anniversary of the investment or when all of the Preferred Shares have been redeemed or transferred,next three quarters following such missed dividend payment, the Parent Corporation ismay not permittedpay dividends on, or repurchase, any common stock or any other securities that are junior to increase(or in parity with) the amountSBLF Preferred Stock, except in very limited circumstances.

Also under the terms of the quarterly cash dividend above $0.09 per share, which was the amount of the last regular dividend declared bySBLF Preferred Stock, the Parent Corporation priormay declare and pay dividends on its common stock or any other stock junior to October 14, 2008.the SBLF Preferred Stock, or repurchase shares of any such stock, only if after payment of such dividends or repurchase of such shares, the Parent Corporation’s Tier 1 Capital would be at least equal to the so-called Tier 1 Dividend Threshold, excluding any subsequent net charge-offs and any redemption of the SBLF Preferred Stock.

If, in the opinion of the OCC, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which could include the payment of dividends), the OCC may require, after notice and hearing, that such bank cease and desist from such practice or, as a result of an unrelated practice, require the bank to limit dividends in the future. The FRB has similar authority with respect to bank holding companies. In addition, the FRB and the OCC have issued policy statements which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Regulatory pressures to reclassify and charge off loans and to establish additional loan loss reserves can have the effect of reducing current operating earnings and thus impacting an institution’s ability to pay dividends. Further, as described herein, the regulatory authorities have established guidelines with respect to the maintenance of appropriate levels of capital by a bank or bank holding company under their jurisdiction. Compliance with the standards set forth in these policy statements and guidelines could limit the amount of dividends which the Parent Corporation and the Bank may pay. Under FDICIA, banking institutions which are deemed to be “undercapitalized” will, in most instances, be prohibited from paying dividends.

Lending Guidelines; Real Estate Credit Management

Credit risks are an inherent part of the lending function. The Corporation has set in place specific policies and guidelines to limit credit risks. The following describes the Corporation’s credit management policy and identifies certain risk elements in its earning assets portfolio.

Credit Management

The maintenance of comprehensive and effective credit policies is a paramount objective of the Corporation. Credit procedures are enforced by the department heads of the different lending units and are maintained at the senior administrative level as well as through internal control procedures.

Prior to extending credit, the Corporation’s credit policy generally requires a review of the borrower’s credit history, repayment capacity, collateral and purpose of each loan. Requests for most commercial and consumer loans are to be accompanied by financial statements and other relevant financial data for evaluation. After the granting of a loan or lending commitment, this financial data is typically updated and evaluated by the credit staff on a periodic basis for the purpose of identifying potential problems. Construction financing requires a periodic submission by the borrowers of sales/leasing status reports regarding their projects, as well as, in most cases, inspections of the project sites by independent engineering firms and/or independent consultants. Advances are normally made only upon the satisfactory completion of periodic phases of construction.

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Certain lending authorities are granted to loan officers based upon each officer’s position and experience. However, large dollar loans and lending lines are reported to and are subject to the approval of the Bank’s loan committees and/or board of directors. Either the Chairman of the Board or President chairs the loan committees.

The Corporation has established its own internal loan-to-value (“LTV”) limits for real estate loans. In general, except as described below, these internal limits are not permitted to exceed the following supervisory limits:

Loan Category		Loan-to-Value Limit
Raw Land			65	%
Land Development			75	%
Commercial, Multifamily and Other Non-residential construction			80	%
Construction: One to Four Family Residential			85	%
Improved Property (excluding One to Four Family Residential)			85	%
Owner-Occupied One to Four Family and Home Equity*			90	%

It may be appropriate in individual cases to originate loans with loan-to-value ratios in excess of the supervisory LTV limits, based on support provided by other credit factors. The President of the Bank must approve such non-conforming loans. The Bank must identify all non-conforming loans and their aggregate amount must be reported at least quarterly to the Directors’ Loan Committee. Non-conforming loans should not exceed 100% of capital, or 30% with respect to non one to four family residential loans. At present, management is unaware of any exceptions to supervisory LTV limits.

Collateral margin guidelines are based on cost, market or other appraised value to maintain a reasonable amount of collateral protection in relation to the inherent risk in the loan. This does not mitigate the fundamental analysis of cash flow from the conversion of assets in the normal course of business or from operations to repay the loan. It is merely designed to provide a cushion to minimize the risk of loss if the ultimate collection of the loan becomes dependent on the liquidation of security pledged.

The Corporation also seeks to minimize lending risk through loan diversification. The composition of the Corporation’s commercial loan portfolio reflects and is highly dependent upon the economy and industrial make-up of the region it serves. Effective loan diversification spreads risk to many different industries, thereby reducing the impact of downturns in any specific industry on overall loan profitability.

Credit quality is monitored through an internal review process, which includes a credit Risk Grading System that facilitates the early detection of problem loans. Under this grading system, all commercial loans and commercial mortgage loans are graded in accordance with the risk characteristics inherent in each loan. Problem loans include non-accrual loans, and loans which conform to the regulatory definitions of criticized and classified loans.

A Problem Asset Report is prepared monthly and is examined by the senior management of the Bank, the Corporation’s Loan and Discount Committee and the Board of Directors. This review is designed to enable management to take such actions as are considered necessary to identify and remedy problems on a timely basis.

The Bank’s internal loan review process is complemented by an independent loan review conducted throughout the year, under the mandate and approval of the Corporation’s Board of Directors. In addition, regularly scheduled audits performed by the Bank’s internal audit function are designed to ensure the integrity of the credit and risk monitoring systems currently in place.

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Risk Elements

The risk elements identified by the Corporation include non-performing loans, loans past due ninety days or more as to interest or principal payments but not placed on a non-accrual status, potential problem loans, other real estate owned, net, and other non-performing interest-earning assets. Additional information regarding these risk elements is presented in Item 7 of this Annual Report.

Item 1A. Risk Factors

An investment in our common stock involves risks. Stockholders should carefully consider the risks described below, together with all other information contained in this Annual Report on Form 10-K, before making any purchase or sale decisions regarding our common stock. If any of the following risks actually occur, our business, financial condition or operating results may be harmed. In that case, the trading price of our common stock may decline, and stockholders may lose part or all of their investment in our common stock.

We are required to take certain actions pursuant to our current MOU with the OCC, and lack of compliance could result in additional regulatory actions.

As described under “Item 1 — Business — Regulation of Bank Subsidiary,” the Bank is subject to a MOU with the OCC, pursuantstringent capital requirements which could require us to which it has agreedseek capital at times when capital may be expensive or unavailable to take various actions to improve the Bank’s capital position and profitability. The OCC has also established higher minimum capital ratios for the Bank than the regulatory minimums. While management is committed to addressing and resolving the issues raised by the OCC and has initiated corrective actions to comply with various requirements of the MOU, no assurances can be given that the OCC will find the Bank’s compliance plan satisfactory, or that the Bank will not be subject to further supervisory action by the OCC. us.

We may at some point needbe required to raise additional capital to assure compliance with mandated capital ratios and to support our continued growth. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to comply with applicable capital requirements and to further expand our operations through internal growth or acquisitions could be materially impaired.

Negative developments in the financial services industry and U.S. and global credit markets in recent years may continue to adversely impact our operations and results.

The general economic downturn experienced duringsince 2008 2009 and portions of 2010 negatively impacted many financial institutions, including the Company.Corporation. Loan portfolio performances deteriorated at many institutions resulting from, among other factors, a weak economy and a decline in the value of the collateral supporting their loans. The competition for our deposits increased significantly due to liquidity concerns at many of these same institutions. Stock prices of bank holding companies, like ours, were negatively affected by the condition of the financial markets, as was our ability, if needed, to raise capital or borrow in the debt markets compared to recent years. While the United States Congress has taken actions to implement important safeguards, there remains a potential for new federal or state laws and regulations regarding lending and funding practices and liquidity standards, and financial institution regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the issuance of many formal enforcement actions. Negative developments in the financial services industry and the impact of new legislation in response to those developments could negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and adversely impact our financial performance. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in connection with these events:

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In addition, the possibility that certain European Union (“EU”) member states may default on their debt obligations have negatively impacted economic conditions and global markets. The continued uncertainty over the outcome of international and the EU’s financial support programs and the possibility that other EU member states may experience similar financial troubles could further disrupt global markets. The negative impact on economic conditions and global markets could also have a material adverse effect on our liquidity, financial condition and results of operations.

We are subject to interest rate risk and variations in interest rates may negatively impact our financial performance.

We are unable to predict actual fluctuations of market interest rates with complete accuracy. Rate fluctuations are affected by many factors, including:

Changes in the interest rate environment may reduce profits. We expect that we will continue to realize income from the differential or “spread” between the interest we earn on loans, securities and other interest-earning assets, and the interest we pay on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, levels of prepayments and cash flows as well as the market value of our securities portfolio and overall profitability.

The downgrade of the U.S. credit rating could have a material adverse effect on our business, financial condition and liquidity.

Standard & Poor’s lowered its long term sovereign credit rating on the United States of America from AAA to AA+ on August 5, 2011. A further downgrade or a downgrade by other rating agencies could have a material adverse impact on financial markets and economic conditions in the United States and worldwide. Any such adverse impact could have a material adverse effect on our liquidity, financial condition and results of operations. Many of our investment securities are issued by U.S. government agencies and U.S. government sponsored entities.

The Federal Reserve’s repeal of the prohibition against payment of interest on demand deposits may increase competition for such deposits and ultimately increase interest expense.

A major portion of our net income comes from our interest rate spread, which is the difference between the interest rates paid by us on amounts used to fund assets and the interest rates and fees we receive on our interest-earning assets. In July 2011, Regulation Q, which had prohibited the payment of interest on demand deposits by institutions that are member banks of the Federal Reserve System, was repealed. As a result, member banks and thrifts are now permitted to offer interest-bearing demand deposit accounts to commercial customers, which could result in increased competition from other financial institutions for these deposits and could result in an increase in our interest expense.

External factors, many of which we cannot control, may result in liquidity concerns for us.

Liquidity risk is the potential that Union Center Nationalthe Bank may be unable to meet its obligations as they come due, capitalize on growth opportunities as they arise, or pay regular dividends because of an inability to liquidate assets or obtain adequate funding in a timely basis, at a reasonable cost and within acceptable risk tolerances.

Liquidity is required to fund various obligations, including credit commitments to borrowers, mortgage and other loan originations, withdrawals by depositors, repayment of borrowings, operating expenses, capital expenditures and dividend payments to shareholders.

Liquidity is derived primarily from deposit growth and retention; principal and interest payments on loans; principal and interest payments on investment securities; sale, maturity and prepayment of investment securities; net cash provided from operations, and access to other funding sources.

Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to market factors or an adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the turmoil faced by banking organizations in the domestic and worldwide credit markets continues.whole. Over the last several years, the financial services industry and the credit markets generally have been materially and adversely affected by significant declines in asset values and by a lack of liquidity. The liquidity issues have been particularly acute for regional and community banks, as many of the larger financial institutions have significantly curtailed their lending to

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regional and community banks to reduce their exposure to the risks of other banks. In addition, many of the larger correspondent lenders have reduced or even eliminated federal funds lines for their correspondent customers. Furthermore, regional and community banks generally have less access to the capital markets than do the national and super-regional banks because of their smaller size and limited analyst coverage. Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, results of operations and financial condition.

The extensive regulation and supervision to which we are subject impose substantial restrictions on our business.

Center Bancorp Inc., primarily through its principal subsidiary, Union Center National Bank, and certain non-bank subsidiaries, are subject to extensive regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole. Such laws are not designed to protect our shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Union Center NationalThe Bank is also subject to a number of federal laws, which, among other things, require it to lend to various sectors of the economy and population, and establish and maintain comprehensive programs relating to anti-money laundering and customer identification. The United States Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes, especially for the TARP Capital Purchase Program (in which the Parent Corporation is a participant).changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputational damage, which could have a material adverse effect on our business, financial condition and results of operations.

Because of our participation in the U.S. Treasury’s Capital Purchase Program, we are subject to several restrictions, including restrictions on our ability to declare or pay dividends and repurchase our shares, as well as restrictions on our executive compensation.

As a result of our participation in the U.S. Treasury’s Capital Purchase Program, our ability to declare or pay dividends on any of our capital stock is subject to restrictions. Specifically, we are unable to declare dividend payments on common, junior preferred orpari passu preferred shares if we are in arrears in the payment of dividends on the Preferred Shares. Further, until the third anniversary of the investment or when all of the Preferred Shares have been redeemed or transferred, we are not permitted to increase the cash dividends on our common stock without the U.S. Treasury’s approval. Additionally, our ability to repurchase our shares of outstanding common stock is restricted. The U.S. Treasury’s consent generally is required for us to make any stock repurchase until the third anniversary of the investment by the U.S. Treasury unless all of the Preferred Shares have been redeemed or transferred. Further, common, junior preferred orpari passu preferred shares may not be repurchased if we are in arrears in the payment of dividends on the Preferred Shares. These restrictions, as well as the dilutive effect of the warrants that we issued to the U.S. Treasury as part of the Capital Purchase Program, may have a negative effect on the market price of our common stock.

Pursuant to the terms by which we participated in the U.S. Treasury’s Capital Purchase Agreement and the terms of the American Recovery and Reinvestment Act of 2009, we and several of our senior employees are subject to substantial limitations on executive compensation and are subject to corporate governance standards imposed pursuant to that Act. Such requirements may adversely affect our ability to attract and retain senior officers and employees who are critical to the operation of our business.

The documents that we executed with the U.S. Treasury when it purchased our Preferred Shares allow it to unilaterally change the terms of the Preferred Shares or impose additional requirements on the Corporation if there is a change in law. These changes or additional requirements could restrict our ability to conduct business, could subject us to additional cost and expense or could change the terms of the Preferred Shares to the detriment of our common shareholders. While it may be possible for us to redeem the Preferred Shares in

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the event that the U.S. Treasury imposes any changes or additional requirements that we believe are detrimental, there can be no assurances that our federal regulator will approve such redemption or that we will have the ability to implement such redemption, especially in light of regulatory requirements imposed upon financial institutions seeking to redeem TARP securities.

Current levels of volatility in the capital markets are unprecedented and may adversely impact our operations and results.

The capital markets have been experiencing unprecedented volatility for more than threeseveral years. Such negative developments and disruptions have resulted in uncertainty in the financial markets. Bank and bank holding company stock prices have been negatively affected, as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets. If the capital markets compared to recent years. If current levels of market disruption and volatility continue or worsen,are volatile, there can be no assurance that we will not experience an adverse effect, which may be material, on our business, financial condition and results of operations or our ability to access capital.

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We must effectively manage our credit risk.

There are risks inherent in making any loan, including risks inherent in dealing with particular borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions. We attempt to minimize our credit risk through prudent loan application approval procedures, careful monitoring of the concentration of our loans within specific industries, a centralized credit administration department and periodic independent reviews of outstanding loans by our loan review department. However, we cannot assure you that such approval and monitoring procedures will reduce these credit risks.

Our loan portfolio includes commercial real estate loans, which involve risks specific to real estate value.

Commercial real estate and construction loans were $421.7$537.7 million, or approximately 59.5%60.4% of our total loan portfolio, as of December 31, 2010.2012. Many of these loans are extended to small and medium-sized businesses. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Although many such loans are secured by real estate as a secondary form of collateral, continued adverse developments affecting real estate values in our market area could increase the credit risk associated with our loan portfolio. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties. If the loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time of originating the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition.

We may incur impairments to goodwill.

We review our goodwill at least annually. Significant negative industry or economic trends, reduced estimates of future cash flows or disruptions to our business, could indicate that goodwill might be impaired. Our valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely on projections of future operating performance. We operate in a competitive environment and projections of future operating results and cash flows may vary significantly from actual results. Additionally, if our analysis results in an impairment to our goodwill, we would be required to record a non-cash charge to earnings in our financial statements during the period in which such impairment is determined to exist. Any such change could have a material adverse effect on our results of operations and our stock price.

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Union Center National Bank’s ability to pay dividends is subject to regulatory limitations, which, to the extent that our holding company requires such dividends in the future, may affect our holding company’s ability to honor its obligations and pay dividends.

As a bank holding company, Center Bancorp, Inc. is a separate legal entity from Union Center National Bank and its subsidiaries and does not have significant operations. We currently depend on Union Center National Bank’s cash and liquidity to pay our operating expenses and to fund dividends to shareholders. We cannot assure you that in the future Union Center National Bank will have the capacity to pay the necessary dividends and that we will not require dividends from Union Center National Bank to satisfy our obligations. Various statutes and regulations limit the availability of dividends from Union Center National Bank. It is possible, depending upon our and Union Center National Bank’s financial condition and other factors, that bank regulators could assert that payment of dividends or other payments by Union Center National Bank are an unsafe or unsound practice. In the event that Union Center National Bank is unable to pay dividends, we may not be able to service our obligations, as they become due, or pay dividends on our capital stock. Consequently, the inability to receive dividends from Union Center National Bank could adversely affect our financial condition, results of operations, cash flows and prospects. Pursuant to the MOU between Union Center National Bank and the OCC, the Bank may not declare dividends without the prior approval of the OCC.

Union Center National Bank’s allowance for loan losses may not be adequate to cover actual losses.

Like all financial institutions, Union Center National Bank maintains an allowance for loan losses to provide for loan defaults and non-performance. If Union Center National Bank’s allowance for loan losses is not adequate to cover actual loan losses, future provisions for loan losses could materially and adversely affect our operating results. Union Center National Bank’s allowance for loan losses is determined by analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan resolution, the opinions of its regulators, changes in the size and composition of the loan portfolio and industry information.

Union Center National Bank also considers the impact of economic events, the outcome of which is uncertain. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review Union Center National Bank’s loans and allowance for loan losses. While we believe that Union Center National Bank’s allowance for loan losses in relation to its current loan portfolio is adequate to cover current losses, we cannot assure you that Union Center National Bank will not need to increase its allowance for loan losses or that regulators will not require it to increase this allowance. Either of these occurrences could materially and adversely affect our earnings and profitability.

Union Center National Bank is subject to various lending and other economic risks that could adversely impact our results of operations and financial condition.

Changes in economic conditions, particularly a significant worsening of the current economic environment, could hurt Union Center National Bank’s business. Union Center National Bank’s business is directly affected by political and market conditions, broad trends in industry and finance, legislative and regulatory changes, and changes in governmental monetary and fiscal policies, all of which are beyond our control. Deterioration in economic conditions, particularly within New Jersey, could result in the following consequences, any of which could hurt our business materially:

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Further deterioration in the real estate market, particularly in New Jersey, could hurt our business. As real estate values in New Jersey decline, our ability to recover on defaulted loans by selling the underlying real estate is reduced, which increases the possibility that we may suffer losses on defaulted loans.

Union Center National Bank may suffer losses in its loan portfolio despite its underwriting practices.

Union Center National Bank seeks to mitigate the risks inherent in its loan portfolio by adhering to specific underwriting practices. Although we believe that Union Center National Bank’s underwriting criteria are appropriate for the various kinds of loans that it makes, Union Center National Bank may incur losses on loans that meet its underwriting criteria, and these losses may exceed the amounts set aside as reserves in its allowance for loan losses.

Union Center National Bank faces strong competition from other financial institutions, financial service companies and other organizations offering services similar to the services that Union Center National Bank provides.

Many competitors offer the same types of loans and banking services that Union Center National Bank offers or similar types of such services. These competitors include other national banks, savings associations, regional banks and other community banks. Union Center National Bank also faces competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In this regard, Union Center National Bank’s competitors include other state and national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations, offer a broader suite of services and mount extensive promotional and advertising campaigns. Our inability to compete effectively may adversely affect our business.

If we pursue acquisitions, we may heighten the risks to our operations and financial condition.

To the extent that we undertake acquisitions (such as our recently completed Saddle River Valley Bank transaction) or new branch openings, we may experience the effects of higher operating expenses relative to operating income from the new operations, which may have a material adverse effect on our levels of reported net income, return on average equity and return on average assets. Other effects of engaging in such growth strategies may include potential diversion of our management’s time and attention and general disruption to our business. To the extent that we grow through acquisitions and branch openings, we cannot assure you that we will be able to adequately and profitably manage this growth. Acquiring other banks and businesses involve similar risks to those commonly associated with branching, but may also involve additional risks, including:

Attractive acquisition opportunities may not be available to us in the future.

We expect that other banking and financial service companies, many of which have significantly greater resources than us, will compete with us in acquiring other financial institutions if we pursue such acquisitions. This competition could increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that we believe is in our best interests. Among other things, our regulators will consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill when considering acquisition and expansion proposals. Any acquisition could be dilutive to our earnings and shareholders’ equity per share of our common stock.

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Further increases in FDIC premiums could have a material adverse effect on our future earnings.

The FDIC insures deposits at FDIC insured financial institutions, including Union Center National Bank. The FDIC charges the insured financial institutions premiums to maintain the Deposit Insurance Fund at an adequate level. In lightperiods of current economic conditions,difficulties, the FDIC has increasedmay increase its assessment rates and imposedimpose special assessments. The FDIC may further increase these rates and impose additional special assessments in the future, which could have a material adverse effect on future earnings.

Declines in value may adversely impact our investment portfolio.

As of December 31, 2010,2012, we had approximately $378.1$496.8 million in available for sale investment securities. We may be required to record impairment charges on our investment securities if they suffer a decline in value that is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities, absence of reliable pricing information foror investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could have a negative effect on our investment portfolio in future periods. If an impairment charge is significant enough, it could affect the ability of Union Center National Bank to upstream dividends to us,the Parent Corporation, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders and could also negatively impact our regulatory capital ratios.

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Concern of customers over deposit insurance may cause a decrease in deposits.

With recent increased concerns about bank failures, customers increasingly are concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the amount they have on deposit with their bank is fully insured. Decreases in deposits may adversely affect our funding costs and net income.

We have a continuing need for technological change and we may not have the resources to effectively implement new technology.

The financial services industry is constantly undergoing rapid technological changes with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to reduce costs, in addition to providing better service to customers. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we grow. We cannot provideassure you with assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.

System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. A failure of the security measures we use could have a material adverse effect on our financial condition and results of operations.

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Recently enacted legislative reforms

The Dodd-Frank Act and future regulatory reforms required by such legislation could have a significant impact on our business, financial condition and results of operations.

On July 21, 2010, President Obama signed the Dodd-Frank Act into law.

The Dodd-Frank Act will have a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most are and will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies, the full extent of the impact such requirements will have on our operations is unclear. Among other things, the Dodd-Frank Act:

While it is difficult to predict at this time what specific impact the Dodd-Frank Act newly written implementing rules and regulations and yet to be written implementing rules and regulations will have on us, we expect that at a minimum our operating and compliance costs will increase, and our interest expense could increase.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Bank’s operations are located at ten sites in Union County, New Jersey, consisting of six sites in Union Township, one in Springfield Township, one in Berkeley Heights, one in Vauxhall and one in Summit, New Jersey. The Bank also has three branch offices in Morris County, New Jersey, consisting of one site in Madison, one site in Boonton/Mountain Lakes, and one site in Morristown, New Jersey. During 2012, the Corporation acquired two bank occupancies from Saddle River Valley Bank and opened a office in Englewood, New Jersey. As a result of its acquisition of assets of Saddle River Valley Bank in 2012, the Bank has three branch offices in Bergen County, New Jersey. The Bank’s principal office is located at 2455 Morris Avenue, Union, New Jersey. The principal office is a two story building constructed in 1993. On October 9, 2004, the Bank opened a 19,555 square foot office facility on Springfield Road in Union, New Jersey, which served as the Bank’s Operations and Data Center, until January 12, 2010 when the Bank entered into a sales purchase agreement for this facility. On February 27, 2008 the Corporation signed an agreement to lease premises at 105 North Avenue, Cranford, New Jersey to be used to construct a full service branch facility. Subsequently, the Corporation notified the landlord that it wanted to terminate the commitment and completed the termination in the first quarter of 2009.

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The following table sets forth certain information regarding the Bank’s leased locations.

Branch Location
Branch Location		Term
356 Chestnut Street, Union, New Jersey		Term expires in 2028 with renewal options
Career Center Branch located in Union High School, Union, New Jersey		Term expired in October 2008, currently on month to month lease
300 Main Street, Madison, New Jersey		Term expires June 6, 2015 and is subject to renewal at the Bank’s option
2933 Vauxhall Road, Vauxhall, New Jersey		Term expires January 31, 20132020 and is subject to renewal at the Bank’s option
392 Springfield Avenue, Summit, New Jersey		Term expired March 31, 2009 and was subject to renewal at the Bank’s option; however, the Bank advised the landlord that it did not intend to renew this lease.
545 Morris Avenue, Summit, New Jersey		Term expires February 1, 2024, subject to renewal at the Bank’s option
Ely Place, Boonton, New Jersey		Term expires August 29, 2021, and is subject to renewal at the Bank’s option
171 E. Saddle River Road, Saddle River, New Jersey		Term expires December 31, 2013
Route 202 and Allerman Road Oakland, New Jersey		Term expires November 9, 2027
10 E. Palisade Avenue, Englewood, New Jersey		Term expires July 31, 2022

The Bank operates a Drive In/Walk Up located at 2022 Stowe Street, Union, New Jersey, adjacent to a part of the Center Office facility. The

On October 9, 2004, the Bank also operates an Autobanking Center located at Bonnel Court,opened a 19,555 square foot office facility on Springfield Road in Union, New Jersey. The Bank has three off-site ATM locations. Two are located atJersey, which served as the ChathamBank’s operations and Madison New Jersey Transit stations and one is located at the Boys and Girls Club of Union, 1050 Jeanette Avenue, Union, New Jersey.

data center until 2010. During the second quarter of 2010, the Corporation entered into a lease of its former operations facility under a direct financing lease. The lease has a 15 year term with no renewal options. According to the terms of the lease, the lessee has an obligation to purchase the property underlying the lease in either year seven, (7), ten (10) or fifteen (15) at predetermined prices for those years as provided in the lease. The structure of the minimum lease payments and the purchase prices as provided in the lease provide an inducement to the lessee to purchase the property in year seven (7).seven.

Item 3. Legal Proceedings

In December 2009, the Corporation took steps to terminate a participation agreement with another New Jersey bank at December 31, 2009. Under the terms of the agreement, the participation ended on December 31, 2009, and, in the Corporation’s view, the lead bank is required to repurchase the remaining balance. The lead bank questioned our enforcement of the participation agreement. Therefore, the Corporation filed suit in Superior Court of New Jersey Chancery Division in Morris County, New Jersey, for the return of the outstanding principal.

Union Center has instituted a suit against Highlands State Bank (“Highlands”) in the Superior Court of New Jersey (Docket No. MRS-C-189-09). This litigation relates to a participating interest in a construction loan originated by Highlands. This loan was closed, and the participating interest (85%) was acquired, in 2007. Various causes of action are pleaded in this litigation by both parties, including claims for recovery of damages. The primary claim prosecuted by Union Center seeks a judicial determination that the Participation Agreement executed with Highlands was properly terminated in accordance with its terms on December 31, 2009 and that Highlands is obligated to return the unpaid balance of the loan funds advanced by Union Center during its participation in the loan. The primary claim presented by Highlands is that Union Center’s participation in the loan must continue until it is ultimately retired, which will probably result in a substantial loss that it is claimed must be shared by Union Center. This litigation is in its early stages. The initial pleadings have been filed and the discovery phase will now begin. As of December 31, 2010 no significant progress has been made regarding a decision resulting from the discovery or depositions taken during 2010.

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There are no other significant pending legal proceedings involving the Corporation other than those arising out of routine operations. Management does not anticipate that the ultimate liability, if any, arising out of such litigationproceedings will have a material effect on the financial condition or results of operations of the Corporation on a consolidated basis. Such statement constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from this statement as a result of various factors, including the uncertainties arising in proving facts within the judicial process.

Item 3A. Executive Officers of the Registrant

The following table sets forth the name and age of each executive officer of the Parent Corporation, the period during which each such person has served as an officer of the Parent Corporation or the Bank and each such person’s business experience (including all positions with the Parent Corporation and the Bank) for the past five years:

Name and Age		Officer Since		Business Experience
Name and Anthony C. Weagley Age – 51		Officer Since		Business Experience
Anthony C. Weagley Age – 49		1996 the Parent Corporation 1985 the Bank		President and Chief Executive Officer of the Parent Corporation (April 2008 – Present); President, Chief Executive Officer and Chief Financial Officer of the Parent Corporation (August 2007 – March 2008); President and Chief Executive Officer of the Bank (March 2008 – Present); President, Chief Executive Officer and Chief Financial Officer of the Bank (August 2007 – February 2008); Vice President & Treasurer of the Parent Corporation (1996 –  August 2007); Senior Vice President & Cashier of the Bank (1996 – August 2007); Vice President & Cashier of the Bank (1991 – 1996)
Mark S. Cardone Age – 4850		2001 the Parent Corporation 2001 the Bank		Vice President of the Parent Corporation and Senior Vice President & Branch Administrator of the Bank (2001 – Present)
Joseph D. Gangemi Age – 3032		2008 the Parent Corporation 2004 the Bank		Vice President and Assistant Portfolio Manager of the Parent Corporation and the Bank (December 31, 2010 – Present);: Executive Assistant to the Chief Executive Officer, Investor Relations Officer and Corporate Secretary of the Parent Corporation and the Bank (June 2008 –  Present); Executive Assistant to the Chief Executive Officer and Investor Relations Officer of the Bank (January 2008 – June 2008); Executive Assistant to the Chief Executive Officer of the Bank (August 2007 – January 2008); Executive Assistant to the Chief Financial Officer of the Bank (August 2005 – August 2007)
John J. Lukens Age – 6365		2009 the Parent Corporation 2004 the Bank		Vice President and Senior Credit Administrator of the Parent Corporation and Senior Vice President and Senior Credit Administrator of the Bank (December 2009 – Present)December 2012); Vice President of the Bank (September 2004 – December 2009)

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Name and James W. Sorge Age – 60		Officer Since		Business Experience
Francis R. Patryn Age – 61		2006 the Parent Corporation 2006 the Bank		Vice President, Chief Financial Officer and Comptroller of the Parent Corporation and Vice President and Chief Financial Officer and Comptroller of the Bank (November 2010 – Present); Vice President and Comptroller of the Bank (October 2006 – Present)
James W. Sorge Age – 58		2010 the Parent Corporation 2010 the Bank		Vice President and Compliance Officer of the Parent Corporation and Senior Vice President and Compliance Officer of the Bank (March 2010 – Present); Vice President and Director, PNC Global Investment Servicing (May 2008 – March 2010); Vice President, BSA/AML/OFAC Officer, Yardville National Bank (June 2005 – April 2008)

Name and Age		Officer Since		Business Experience
George J. Theiller Age – 6062		2009 the Parent Corporation 2005 the Bank		Vice President and Senior Auditor of the Parent Corporation and Senior Vice President and Senior Auditor of the Bank (December 2009 – Present); Vice President and Senior Auditor of the Bank (April 2005 – December 2009)
Vincent N. Tozzi Age – 62		2011 the Parent Corporation 2011 the Bank		Vice President, Treasurer and Chief Financial Officer of the Parent Corporation (March 2011 – Present); Senior Vice President and Chief Financial Officer of the Bank (February 2011 – Present); Consultant to the Bank’s Financial Division (December 2010 – February 2011); Partner and Chief Financial Officer, Aztec Environmental Energy Management (January 2008 –  Present); Senior Vice President and Chief Financial Officer of The Bank of Princeton (October 2006 –  January 2008).
Arthur M. Wein Age – 6062		2009 the Parent Corporation 2009 the Bank		Vice President and Chief Operating Officer of the Parent Corporation and Senior Vice President and Chief Operating Officer of the Bank (October 2009 – Present); Vice President and Business Development Officer of the Summit Region of the Bank (April 2009 –  October 2009); President and Chief Executive Officer of UTZ Technologies, Inc. (manufacturer of thick film hybrid screens) (December 2003 – March 2009)

Item 4. Reserved

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Not applicable.

PART II

Item 5. Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

Security Market Information

The common stock of the Parent Corporation is traded on the NASDAQ Global Select Market. The Corporation’s symbol is CNBC. As of December 31, 2010,2012, the Corporation had 592551 stockholders of record. This does not include beneficial owners for whom CEDE & Company or others act as nominees. On December 31, 2010,2012, the closing low market bid and askedsale price were $8.10 and $8.15, respectively.was $11.58.

The following table sets forth the high and low bidclosing sales price, and the dividends declared, on a share of the Corporation’s common stock for the years ended December 31, 20102012 and 2009.2011. All amounts are adjusted for prior stock splits and stock dividends.

		Common Stock Price
		2010								2009								Common Dividends Declared
		High Bid				Low Bid				High Bid				Low Bid				2010				2009
Fourth Quarter		$	8.11			$	7.30			$	9.20			$	7.36			$	0.03			$	0.03
Third Quarter			7.67				7.05				10.16				7.53				0.03				0.03
Second Quarter			9.07				6.94				9.15				6.88				0.03				0.03
First Quarter			9.09				8.31				8.50				6.43				0.03				0.09
Total																		$	0.12			$	0.18

		Common Stock Price
		2012								2011								Common Dividends Declared
		High				Low				High				Low				2012				2011
Fourth Quarter		$	11.93			$	10.89			$	10.00			$	8.91			$	0.055			$	0.030
Third Quarter			11.99				10.82				10.93				8.51				0.055				0.030
Second Quarter			11.25				9.75				10.50				9.51				0.055				0.030
First Quarter			10.45				9.50				9.59				7.86				0.030				0.030
Total																		$	0.195			$	0.120

Share Repurchase Program

Historically, repurchases have been made from time to time as, in the opinion of management, market conditions warranted, in the open market or in privately negotiated transactions. Shares repurchased were used for stock dividends and other issuances. No repurchases were made of the Parent Corporation’s common stock during 2009 and 20102012 or 2011.

As noted elsewhere herein, on

On January 9, 2009, as part of the U.S. Department of the Treasury’s Troubled Asset Relief Program (“TARP”), the Parent Corporation entered into an agreement with the U.S. Treasury (the “Stock Purchase Agreement”) pursuant to which (i) the Parent Corporation issued and sold, and the U.S. Treasury purchased, 10,000 shares (the “Preferred Shares”) of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share for an aggregate purchase price of $10 million in cash, and (ii) the Parent Corporation issued to the U.S. Treasury a ten-year warrant (the “Warrant”) to purchase up to 173,410 shares of the Parent Corporation’s common stock at an exercise price of $8.65 per share. As a result of the successful completion of the Rights Offeringa rights offering in October 2009, the number of shares underlying the warrant held by the U.S. Treasury was reduced to 86,705 shares or 50 percent of the original 173,410 shares. UntilOn September 15, 2011, the third anniversaryCorporation issued $11.25 million in nonvoting senior preferred stock to the Treasury under the Small Business Lending Fund Program. Simultaneously, 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 issuancedate of redemption. On December 7, 2011, the Preferred Shares,Corporation repurchased the consent ofoutstanding warrants. In the repurchase, the Corporation paid the U.S. Treasury will be required$245,000 for any increase in the dividends on the Parent Corporation’s common stock or for any stock repurchases unless the Preferred Shares have been redeemed in their entirety or the U.S. Treasury has transferred the Preferred Shares to third parties. See “Dividends” below for additional restrictions on the payment of dividends.warrants.

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Dividends

Federal laws and regulations contain restrictions on the ability of the Parent Corporation and Union Center National Bank to pay dividends. For information regarding restrictions on dividends, see Part I, Item 1, “Business — Dividend Limitations” and Part II, Item 8, “Financial Statements and Supplementary Data —  Dividend and Other Restrictions,”, Note 1718 of the Notes to Consolidated Financial Statements.” Pursuant to the MOU between Union Center National Bank and the OCC, the Bank may not declare dividends without the prior approval of the OCC. In addition, underUnder the terms of the trust preferred securities issued by Center Bancorp, Inc. Statutory Trust II, the Parent Corporation can not pay dividends on its common stock if the Corporation defers payments on the junior subordinateddebentures which provide the cash flow for the payments on the trust preferred securities. Further, pursuant to the Stock Purchase Agreement,If the Parent Corporation is unablefails to declare and pay dividends on the SBLF Preferred Stock in a given quarter, then during such quarter and for the next three quarters followings such missed dividend paymentspayment, the Parent Corporation may not pay dividends on, or repurchase, any common stock or any other securities that are Junior to (or in parity with) the SBLF Preferred Stock, except in very limited circumstances. Also under the terms of the SBLF Preferred Stock, the Parent Corporation may declare and pay dividends on its common stock or any other stock junior to the SBLF Preferred Stock, or repurchase shares of any such stock, only if after payment of such dividends or repurchase of such shares, the Parent Corporation’s common stock (and certain

TABLE OF CONTENTSTier 1 Capital would be at least equal to the Tier 1 Dividend Threshold (as defined), excluding any subsequent net charge-offs and any redemption of the SBLF Preferred Stock.

preferred stock if the Parent Corporation issues additional series of preferred stock) if the Parent Corporation is in arrears in the payment of dividends

Stockholders Return Comparison

Set forth on the Preferred Shares issued to the U.S. Treasury. Further, until the third anniversary of the U.S. Treasury’s investment or when all of the Preferred Shares have been redeemed or transferred, the Parent Corporation is not permitted to increase the amount of the quarterly cash dividend above $0.09 per share, which was the amount of the last regular dividend declared by the Parent Corporation prior to October 14, 2008.

Stockholders Return Comparison

Set forth belowfollowing page is a line graph presentation comparing the cumulative stockholder return on the Parent Corporation’s common stock, on a dividend reinvested basis, against the cumulative total returns of the Standard & Poor’s Composite and the SNL Mid-Atlantic Bank Index for the period from January 1, 20062008 through December 31, 2010.2012.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CENTER BANCORP INC.,
S&P COMPOSITE AND SNL MID-ATLANTIC BANK INDEX

Assumes $100 invested on January 1, 20062008
Assumes dividends reinvested
Year ended December 31, 2010

2012

COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS

		Fiscal Year Ending
Company/Index/Market		12/31/2005				12/31/2006				12/31/2007				12/31/2008				12/31/2009				12/31/2010
Center Bancorp, Inc.			100.00				148.38				111.68				85.74				96.47				89.46
S&P Composite			100.00				115.33				121.64				76.97				103.96				122.30
SNL Mid-Atlantic Bank Index			100.00				120.02				90.76				50.00				52.63				61.40

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Item 6. Selected Financial Data

The following tables set forth selected consolidated financial data as of the dates and for the periods presented. The selected consolidated statement of financial condition data as of December 31, 20102012 and 20092011 and the selected consolidated summary of income data for the years ended December 31, 2010, 20092012, 2011 and 20082010 have been derived from our audited consolidated financial statements and related notes that we have included elsewhere in this Annual Report. The selected consolidated statement of financial condition data as of December 31, 2008, 20072010, 2009 and 20062008 and the selected consolidated summary of income data for the years ended December 31, 20072009 and 20062008 have been derived from audited consolidated financial statements that are not presented in this Annual Report.

The selected historical consolidated financial data as of any date and for any period are not necessarily indicative of the results that may be achieved as of any future date or for any future period. You should read the following selected statistical and financial data in conjunction with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes that we have presented elsewhere in this Annual Report.

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On August 1, 2012, the Bank assumed all of the deposits and certain other liabilities and acquired certain assets of Saddle River Valley Bank. In this transaction, the Bank assumed $85.2 million in deposits and acquired $89.3 million in loans and securities from Saddle River Valley Bank. See Note 4 of the Notes to the Consolidated Financial Statements. The assumed liabilities and acquired assets are reflected in the table below for the year ended December 31, 2012. The Corporation’s results of operations for 2012 give effect to this acquisition from the date of the acquisition.

SUMMARY OF SELECTED STATISTICAL INFORMATION AND FINANCIAL DATA

		Years Ended December 31,
		2010				2009				2008				2007				2006
		(Dollars in Thousands, Except per Share Data)
Summary of Income
Interest income		$	48,714			$	51,110			$	49,894			$	52,129			$	53,325
Interest expense			14,785				22,645				24,095				30,630				28,974
Net interest income			33,929				28,465				25,799				21,499				24,351
Provision for loan losses			5,076				4,597				1,561				350				57
Net interest income after provision for loan losses			28,853				23,868				24,238				21,149				24,294
Other income			2,472				3,906				2,644				4,372				633
Other expense			24,099				23,057				19,473				24,598				24,358
Income before income tax expense			7,226				4,717				7,409				923				569
Income tax expense (benefit)			222				946				1,567				(2,933	)			(3,329	)
Net income		$	7,004			$	3,771			$	5,842			$	3,856			$	3,898
Net income available to common stockholders		$	6,423			$	3,204			$	5,842			$	3,856			$	3,898
Statement of Financial Condition Data
Investments		$	378,080			$	298,124			$	242,714			$	314,194			$	381,733
Total loans			708,444				719,606				676,203				551,669				550,414
Goodwill and other intangibles			16,959				17,028				17,110				17,204				17,312
Total assets			1,207,385				1,195,488				1,023,293				1,017,645				1,051,384
Deposits			860,332				813,705				659,537				699,070				726,771
Borrowings			212,855				269,253				268,440				218,109				206,434
Stockholders’ equity			120,957				101,749				81,713				85,278				97,613
Dividends
Cash dividends		$	1,852			$	2,434			$	4,675			$	4,885			$	4,808
Dividend payout ratio			28.83	%			75.97	%			80.02	%			126.69	%			123.35	%
Cash Dividends Per Share(1)
Cash dividends		$	0.12			$	0.18			$	0.36			$	0.36			$	0.34
Earnings Per Share(1)
Basic		$	0.43			$	0.24			$	0.45			$	0.28			$	0.28
Diluted		$	0.43			$	0.24			$	0.45			$	0.28			$	0.28
Weighted Average Common Shares Outstanding(1)
Basic			15,025,870				13,382,614				13,048,518				13,780,504				13,959,684
Diluted			15,027,159				13,385,416				13,061,410				13,840,756				14,040,338
Operating Ratios
Return on average assets			0.59	%			0.31	%			0.58	%			0.38	%			0.37	%
Average stockholders’ equity to average assets			9.38	%			7.66	%			8.28	%			9.33	%			9.21	%
Return on average stockholders’ equity			6.30	%			4.02	%			7.03	%			4.09	%			4.04	%
Return on average tangible stockholders’ equity(2)			7.44	%			4.91	%			8.86	%			5.00	%			4.93	%
Book Value
Book value per common share(1)		$	6.83			$	6.32			$	6.29			$	6.48			$	7.02
Tangible book value per common share(1)(2)		$	5.79			$	5.15			$	4.97			$	5.17			$	5.77
Non-Financial Information
Common stockholders of record			592				605				640				679				717
Full-time equivalent staff			159				160				160				172				214

		Years Ended December 31,
		2012				2011				2010				2009				2008
		(Dollars in Thousands, Except per Share Data)
Summary of Income
Interest income		$	55,272			$	51,927			$	48,714			$	51,110			$	49,894
Interest expense			11,776				12,177				14,785				22,645				24,095
Net interest income			43,496				39,750				33,929				28,465				25,799
Provision for loan losses			325				2,448				5,076				4,597				1,561
Net interest income after provision for loan losses			43,171				37,302				28,853				23,868				24,238
Other income			7,210				7,478				2,472				3,906				2,644
Other expense			25,197				23,443				24,099				23,057				19,473
Income before income tax expense (benefit)			25,184				21,337				7,226				4,717				7,409
Income tax expense (benefit)			7,677				7,411				222				946				1,567
Net income		$	17,507			$	13,926			$	7,004			$	3,771			$	5,842
Net income available to common stockholders		$	17,226			$	13,106			$	6,423			$	3,204			$	5,842
Statement of Financial Condition Data
Investments available for sale		$	496,815			$	414,507			$	378,080			$	298,124			$	242,714
Investments held to maturity			58,064				72,233				—				—				—
Loans held for sale			1,491				1,018				333				—				—
Total loans			889,672				754,992				708,111				719,606				676,203
Allowance for loan losses			10,237				9,602				8,867				8,711				6,254
Goodwill and other intangible assets			16,858				16,902				16,959				17,028				17,110
Total assets			1,629,765				1,432,738				1,207,385				1,195,488				1,023,293
Deposits			1,306,922				1,121,415				860,332				813,705				659,537
Borrowings			146,000				161,000				212,855				269,253				268,440
Stockholders’ equity			160,691				135,916				120,957				101,749				81,713
Dividends
Cash dividends on Common Stock		$	2,778			$	1,955			$	1,800			$	2,434			$	4,675
Dividend payout ratio			16.13	%			14.92	%			28.02	%			75.97	%			80.02	%
Cash Dividends Per Share
Cash dividends		$	0.195			$	0.12			$	0.12			$	0.18			$	0.36
Earnings Per Share
Basic		$	1.05			$	0.80			$	0.43			$	0.24			$	0.45
Diluted		$	1.05			$	0.80			$	0.43			$	0.24			$	0.45
Weighted Average Common Shares Outstanding
Basic			16,340,197				16,295,761				15,025,870				13,382,614				13,048,518
Diluted			16,351,046				16,314,899				15,027,159				13,385,416				13,061,410
Operating Ratios
Return on average assets			1.14	%			1.05	%			0.59	%			0.31	%			0.58	%
Average stockholders’ equity to average assets			9.73	%			9.83	%			9.38	%			7.66	%			8.28	%
Return on average stockholders’ equity			11.69	%			10.73	%			6.30	%			4.02	%			7.03	%
Return on average tangible stockholders’ equity(1)			13.18	%			12.33	%			7.44	%			4.91	%			8.86	%
Book Value
Book value per common share		$	9.14			$	7.63			$	6.83			$	6.32			$	6.29
Tangible book value per common share(1)		$	8.11			$	6.60			$	5.79			$	5.15			$	4.97
Non-Financial Information
Common stockholders of record			551				563				592				605				640
Full-time equivalent staff			178				163				159				160				160

Notes to Selected Financial Data

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		2010				2009				2008				2007				2006				2012				2011				2010				2009				2008
		(Dollars in Thousands, Except per Share Data)																				(Dollars in Thousands, Except per Share Data)
Common shares outstanding			16,289,832				14,572,029				12,991,312				13,155,784				13,910,450				16,347,915				16,332,327				16,289,832				14,572,029				12,991,312
Stockholders’ equity		$	120,957			$	101,749			$	81,713			$	85,278			$	97,613			$	160,691			$	135,916			$	120,957			$	101,749			$	81,713
Less: Preferred Stock			9,700				9,619				—	��			—				—				11,250				11,250				9,700				9,619				—
Less: Goodwill and other intangible assets			16,959				17,028				17,110				17,204				17,312				16,858				16,902				16,959				17,028				17,110
Tangible Stockholders’ Equity		$	94,298			$	75,102			$	64,603			$	68,074			$	80,301			$	132,583			$	107,764			$	94,298			$	75,102			$	64,603
Book value per common share		$	6.83			$	6.32			$	6.29			$	6.48			$	7.02			$	9.14			$	7.63			$	6.83			$	6.32			$	6.29
Less: Goodwill and other intangible assets			1.04				1.17				1.32				1.31				1.25				1.03				1.03				1.04				1.17				1.32
Tangible Book Value per Common Share		$	5.79			$	5.15			$	4.97			$	5.17			$	5.77			$	8.11			$	6.60			$	5.79			$	5.15			$	4.97

All per common share amounts reflect all prior stock splits and dividends.

Return on average tangible stockholders’ equity, which is a non-GAAP financial measure, is computed by dividing net income by average stockholders’ equity less average goodwill and average other intangible assets. The following table reflects a reconciliation between average stockholders’ equity and average tangible stockholders’ equity and a reconciliation between return on stockholders’ equity and return on average tangible stockholders’ equity.

		2010				2009				2008				2007				2006				2012				2011				2010				2009				2008
		(Dollars in Thousands)																				(Dollars in Thousands)
Net income		$	7,004			$	3,771			$	5,842			$	3,856			$	3,898			$	17,507			$	13,926			$	7,004			$	3,771			$	5,842
Average stockholders’ equity		$	111,136			$	93,850			$	83,123			$	94,345			$	96,505			$	149,714			$	129,838			$	111,136			$	93,850			$	83,123
Less: Average goodwill and other intangible assets			16,993				17,069				17,158				17,259				17,378				16,879				16,930				16,993				17,069				17,158
Average Tangible Stockholders’ Equity		$	94,143			$	76,781			$	65,965			$	77,086			$	79,127			$	132,835			$	112,908			$	94,143			$	76,781			$	65,965
Return on average stockholders’ equity			6.30	%			4.02	%			7.03	%			4.09	%			4.04	%			11.69	%			10.73	%			6.30	%			4.02	%			7.03	%
Add: Average goodwill and other intangible assets			1.14				.89				1.83				0.91				0.89				1.49				1.61				1.14				0.89				1.83
Return on Average Tangible Stockholders’ Equity			7.44	%			4.91	%			8.86	%			5.00	%			4.93	%			13.18	%			12.33	%			7.44	%			4.91	%			8.86	%

The Corporation believes that in comparing financial institutions, investors desire to analyze tangible stockholders’ equity rather than stockholders’ equity, as they discount the significance of goodwill and other intangible assets.

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Item 7. Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations

The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Corporation’s results of operations for each of the past three years and financial condition for each of the past two years. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing under Item 8 of this report, and statistical data presented in this document.

Cautionary Statement Concerning Forward-Looking Statements

See Item 1 of this Annual Report on Form 10-K for information regarding forward-looking statements.

Critical Accounting Policies and Estimates

The accounting and reporting policies followed by the Corporation conform, in all material respects, to U.S. GAAP. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and results of operations for the periods indicated. Actual results could differ significantly from those estimates.

The Corporation’s accounting policies are fundamental to understanding this MD&A. The most significant accounting policies followed by the Corporation are presented in Note 1 of the Notes to Consolidated Financial Statements. The Corporation has identified its policies on the allowance for loan losses, other than temporaryother-than-temporary impairment of securities, income tax liabilities and goodwill and other identifiable intangible assets to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies can be found in Note 1 of the Notes to Consolidated Financial Statements.

Allowance for Loan Losses and Related Provision

The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the Corporation’s Consolidated Statements of Condition.

The evaluation of the adequacy of the allowance for loan losses includes, among other factors, an analysis of historical loss rates by loan category applied to current loan totals. However, actual loan losses may be higher or lower than historical trends, which vary. Actual losses on specified problem loans, which also are provided for in the evaluation, may vary from estimated loss percentages, which are established based upon a limited number of potential loss classifications.

The allowance for loan losses is established through a provision for loan losses charged to expense. Management believes that the current allowance for loan losses will be adequate to absorb loan losses on existing loans that may become uncollectible based on the evaluation of known and inherent risks in the loan portfolio. The evaluation takes into consideration such factors as changes in the nature and size of the portfolio, overall portfolio quality, and specific problem loans and current economic conditions which may affect the borrowers’ ability to pay. The evaluation also details historical losses by loan category and the resulting loan loss rates which are projected for current loan total amounts. Loss estimates for specified problem loans are also detailed. All of the factors considered in the analysis of the adequacy of the allowance for loan losses may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses may be required that could materially adversely impact earnings in future periods. Additional information can be found in Note 1 of the Notes to Consolidated Financial Statements.

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Other-Than-Temporary Impairment of Securities

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, (previously FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Investments”), 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. Previously, this assessment required management to assert that it hashad both the intent and the ability to hold a security for a period of time sufficient to allow for anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

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 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. 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 inthrough earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Impairment charges on certain investment securities of approximately $5.6 million$870,000 were recognized in earnings during the year ended December 31, 2010.2012. Of this amount, $1.8 million$68,000 related to charges taken on twoa pooled trust preferred securities owned by the Corporation, $360,000 onsecurity (or “TRUP”), $484,000 related to a variable rate private label collateralized mortgage obligation (“CMO”), $398,000 in and $318,000 related to principal losses on a variable rate private label CMO and $3.0 million on a trust preferred security.CMO. The Corporation’s approach to determining whether or not other-than-temporary impairment exists for any of these investments was consistent with the accounting guidance in effect at that time. For the year ended December 31, 2010,2012, the Corporation primarily relied upon the guidance in FASB ASC 320-10-65, (previously FAS 115-2 and 124-2), FASB ASC 820-10-65 (previously FASB FAS 157-4) and FASB ASC 310-10-35 (previously FAS 114).310-10-35. Additional information can be found in Note 45 of the Notes to Consolidated Financial Statements.

Impairment charges on certain investment securities of approximately $4.2 million$342,000 were recognized during the year ended December 31, 2009.2011. Of this amount, $3.4 million related to charges taken on two pooled trust preferred securities owned by the Corporation, $188,000$18,000 related to a variable rate private label CMO, $140,000collateralized mortgage obligation (“CMO”) and $324,000 in principal losses on a Lehman holding and $113,000 on an equity holding; additionally, the Corporation recorded a $364,000 charge related to a court order for the liquidation of the Reserve Primary Fund.variable rate private label CMO. The Corporation’s approach to determining whether or not other-than-temporary impairment exists for any of these investments was consistent with the accounting guidance in effect at that time. For the year ended December 31, 2009,2011, the Corporation primarily relied upon the guidance in FASB ASC 320-10-35 (previously FSP FAS 115-1 and 124-1),320-10-65, FASB ASC 820-10-35 (previously FASB FAS 157-3)820-10-65 and FASB ASC 325-40 (previously EITF 99-20).325-10-35.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Corporation’s consolidated financial statements or tax returns.

Fluctuations in the actual outcome of these future tax consequences could impact the Corporation’s consolidated financial condition or results of operations. Notes 1 (under the caption “Use of Estimates”) and 1112 of the Notes to Consolidated Financial Statements include additional discussion on the accounting for income taxes.

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Goodwill

The Corporation adopted the provisions of FASB ASC 350-10-05, (previously SFAS No. 142, “Goodwill and Other Intangible Assets”), which requires that goodwill be reported separate from other intangible assets in the Consolidated Statements of Condition and not be amortized but 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, 20102012 and 2009.2011.

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Fair Value of Investment Securities

In October 2008, the FASB issued FASB ASC 820-10-35, (previously FASB Staff Position 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active”), to clarify the application of the provisions of FASB ASC 820-10-05 in an inactive market and how an entity would determine fair value in an inactive market. FASB ASC 820-10-35 was applied to the Corporation’s December 31, 2008 consolidated financial statements. Changes in the Corporation’s methodology occurred for the quarter ended June 30, 2009 as new accounting guidance was released in April of 2009 with mandatory adoption required in the second quarter. The Corporation relied upon the guidance in FASB ASC 820-10-65 (previously FASB FAS 157-4) when determining fair value for the Corporation’s pooled trust preferred securities and private issue corporate bond. See Note 1819 of the Notes to Consolidated Financial Statements,Fair Value Measurements and Fair Value of Financial Instruments, for further discussion.

Introduction

The following introduction to Management’s Discussion and Analysis highlights the principal factors that contributed to the Corporation’s earnings performance in 2010.2012.

The year 20102012 was a challenging onenot only for the banking industry andin general but also for the Corporation.Corporation in particular. The current domestic economic issues, ongoing global financial crisisuncertainty and difficult economic climate hascontinued headwinds from new regulatory requirements created challenges to financial institutions both domestically and abroad. Interest rates in 20102012 and 20092011 were reflective of significantly lower short-term interest rates, in an effortas the Federal Reserve maintained its policy stance and continued to expand monetary policy with Quantitative Easing 3, or QE3, to further stimulate the economy. Competition for deposits in the Corporation’s marketplace remained intense while customers’ preference in seeking safety through full FDIC insured productseconomy and more liquidity became paramount in light of the financial crisis. Market conditions remained volatile during 2010 and 2009, related to global instability in the markets in connection with the sub-prime crises. While we continue to see an improvement in balance sheet strength and core earnings performance, we are still concerned with the credit stability of the broader markets.employment. As a result, the Federal Reserve kept overnight borrowing rates at zero to 25 basis points throughout the course of 2010.2012. Short-term interest rates remained lower than longer term rates, resulting in ana somewhat improved steepening of the yield curve. This resultedHistorically, such an improvement in an expansion ofyield curve has benefitted the Corporation’s net interest income, which is the Corporation’s primary source of income.

The Corporation also took actionwas proactive with its balance sheet strategies throughout the year2012 in order to reduce further exposure to interest rates through a reduction in higher cost funding and non-core balances in the deposit mix andcoupled with an improvement in the earning asset mix. The Corporation’s continued progress in growing and improving its balance sheet earning asset mix has helped to expand its spread and margin. We intend to continue to use a portion of the proceeds of maturing investments to help fund new loan growth.

The Corporation’s net income in 20102012 was $7.0$17.5 million or $0.43$1.05 per fully diluted common share, compared with net income of $3.8$13.9 million or $0.24$0.80 per fully diluted common share in 2009. A substantial portion2011. The growth in earnings performance in 2012 (as well as in 2011) was primarily attributable to earnings from core operations. Earnings for 2012 and associated operating performance was characterized by solid revenue growth, strong organic loan generation and a continuation of our earnings in 2010stable and 2009 was from core operations.

favorable asset quality profile. Earnings for 2010 were positively impacted by growth in net interest income, and spread expansion through bothprimarily from an increase in the average balance sheet improvements andof earning assets of $216.7 million, which was partially offset by a decline of 40 basis points in yield. The decline in yield on earning assets was somewhat offset by a decline of 20 basis points from a lower cost of funds as compared to 20092011, and reductions in other real estate owned, marketing expenses and occupancy expenses. These improvements were somewhat offset by higher loan loss provisions, as well as higher salaries and employee benefits,OREO expense, FDIC insurance, professionalOCC assessments and consulting fees and computer expenses. Other expense foroperating overhead.

For the twelve-monthsyear ended December 31, 2010 totaled $24.12012, net interest income on a fully taxable equivalent basis amounted to $45.4 million, an increase of $1.0compared to $40.6 million or 4.5 percent,for the same period in 2011. For 2012, interest income increased by $4.4 million while interest expense decreased by $401,000 from the twelve-months ended December 31, 2009 due principallylast year. Compared to the items mentioned above.

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The Corporation previously announced2011, for 2012, as noted above average interest earning assets increased $216.7 million while net interest spread and margin decreased on a strategic outsourcing agreement with Fiserv to provide core account processing services, which is consistent withtax-equivalent basis by 20 basis points and 21 basis points, respectively. For 2012, the Corporation’s other strategic initiativesnet interest margin decreased to streamline operations, reduce operating overhead and allow the Corporation3.32 percent as compared to focus on core competencies of customer service and product development. This coupled with previously initiated cost reduction plans are intended to improve operating efficiencies, business and technical operations. The core processing transition was consummated during3.53 percent for 2011.

Net interest margins reflected improvement in the fourth quarter of 2009. Additionally,2012, as prior action on reducing the consolidationcost of the Corporation’s branch office on 392 Springfield Avenue in Summit, New Jerseyfunds coupled with offsetting compression primarily as result of a continued high liquidity pool carried during the first quarterperiods took root and started to abate further compression. The Corporation still expects an improvement in margin, principally given the continued volume of 2009asset deployment into its new office on 545 Morris Avenue in Summit, New Jersey resulted in improved efficiencyloans from cash and increased customer service.elimination of temporary factors holding the margin down.

For the twelve months ended December 31, 2010, total salaries and benefits increased by $850,000 or 8.6 percent to $10.8 million primarily attributable to additions to official staff and merit increases for existing staff of approximately $720,000 and increased medical insurance expense of $130,000.

The decreased tax rate resulted in part from the measurement and reassessment of the technical merits which led the Corporation to conclude that its position of the recognition of $2.6 million on a previously unrecognized tax benefit was sustainable. This in turn resulted in recognition of tax benefits previously unrecognized due to changes in the Corporation’s business entity structure during 2007 and into 2008 offset by a higher proportion of taxable income versus tax-exempt income in 2010 versus 2009. The decreased tax rate benefit was offset, in part, due to the surrender of Bank Owned Life Insurance Policies resulting in a $633,000 income tax expense in 2010.

Total non-interest income decreaseddeclined as a percentage of total revenue, which is the sum of interest income and non-interest income, in 20102012 largely due to $1.3 milliona reduction in net securities lossesgains; $2.0 million in 2012 as compared to $491,000$3.6 million in net securities gains in 2009 as gains from sales of $4.9 million in 2010 were offset by losses of $6.2 million.2011. For the twelve months ended December 31, 2010,2012, total other income decreased $1.4 million$268,000 as compared with the twelve months ended December 31, 2009,2011, from $3.9$7.5 million to $2.5$7.2 million. Excluding net securities gains and losses and the bargain gain on acquisition of $899,000 in the respective periods, the Corporation recorded total other income of $4.3 million and $3.8 million in the twelve months ended December 31, 2010, compared to $3.4 million in2012 and 2011, respectively.

For the twelve months ended December 31, 2009, representing an increase of $396,0002012, total other expense increased $1.8 million, or 11.6 percent. This7.5 percent, compared to the year ended December 31, 2011. Excluding a repurchase agreement termination fee and acquisition cost, the increase was $260,000 and 1.1 percent. Increases primarily attributable toincluded salaries and employee benefits of $1.0 million, $40,000 in occupancy and equipment, $55,000 in marketing and advertising and $107,000 in computer expense. These increases were partially offset by decreases of $189,000$558,000 in FDIC insurance expense, $79,000 in professional and $140,000consulting fees, $19,000 in stationery and printing expense, $248,000 in OREO expense and $82,000 in all other income and service charges, commissions and fees respectively. Increases in other incomeexpenses. The Corporation’ s efficiency ratio for the twelve months ended December 31, 2010 were recorded primarily2012 was 46.9 percent as compared to 53.7 percent in loan fees2011.

Our continued performance put the Corporation at a competitive advantage while the competition for deposits in the Corporation’s marketplace remained intense. The Corporation expanded its client base and market share, as customers seek safety through high quality organizations to satisfy liquidity and safety and soundness ,which became paramount in light of $137,000the protracted financial crisis. With that competitive advantage, the Corporation continues to move forward with momentum in expanding our presence in key markets. With the acquisition of Saddle River Valley Bank and bank-owned life insurance incomethe opening of $70,000.our Englewood office, we are working to solidify and expand the service relationship with our new customers. We remain excited by the potential to create incremental shareholder value from our strategic growth. We believe that this type of sequential earnings performance demonstrates the Corporation’s commitment to achieving meaningful growth in earnings performance, an essential component of providing consistent and favorable long-term returns to our shareholders. However, while we continue to see an improvement in balance sheet strength and core earnings performance, we still remain cautious about the credit stability of the broader markets.  

Total assets at December 31, 20102012 were $1.207$1.630 billion, an increase of 1.0013.8 percent from assets of $1.195$1.433 billion at December 31, 2009.2011. The increase in assets reflects the growth of $80$134.7 million in our investment securitiesloan portfolio as the Corporation soughtcontinued to adjustexpand its client base and loan production, deploying cash from increased deposit production into a more efficient earning asset mix to improve its return in the face of soft loan demand.mix. The growth in the investment securitiesearning asset portfolio was funded primarily through reductionsdeposit growth of $185.5 million, which also resulted in cash and due from banks of $51.7 million andincreases in loans net of the allowance for loan losses and loans available for sale of $11.3$134.0 million. The Corporation has made a concerted effort to reduce non-core balances and, as mentioned in the preceding sentence, its uninvested cash position was reduceddecreased by $51.7$5.0 million in 2010.2012. Additionally, there has been a concerted effort to reduce higher costing retail deposits.

Loan demand slowedcontinued to expand in 2010.2012. Overall, the portfolio declinedincreased year over year by approximately $11.3$134.7 million or 1.5917.8 percent from 2009. While the year end balance in the net loan portfolio declined it should be noted that the average balance for the year actually increased by $15.9 million or 2.3 percent in the same period.2011. Demand for both commercial loans and real estate loans prevailed throughout the year in the Corporation’s market in New Jersey, despite the economic climate at both the state and national levels and market turmoil from the sub-prime markets. Thelevels.The Corporation is encouraged by loan demand and positive momentum is expected to returncontinue in growing that segment of earning assets in 2011.2013. However, the Corporation continues to remain concerned with the credit stability of the broader markets due to the weakened economic climate.climate and continues to maintain a conservative credit culture and at the same time, we continue to cautiously maintain our reserves for any potential future loan losses. At December 31, 2012, the Corporation had $244.9 million in overall undisbursed loan commitments, which includes largely unused commercial lines of credit, home equity lines of credit and available usage from active construction facilities. Included in the overall undisbursed commitments are the Corporation's "Approved, Accepted but Unfunded" pipeline, which includes approximately $58.1 million in commercial and commercial real estate loans and $10.9 million in residential mortgages expected to fund over the next 90 days.

Asset quality continues to remainremains high and credit culture conservative.a primary focus of the Corporation. Even so, the stability of the economy and credit markets remains uncertain and as such, has had an impact on certain credits within our portfolio. The Corporation continuedDespite that, the Corporation’s asset quality continues to make provisionsimprove and our actions in 2012 related to asset quality have placed us near the allowance for loan losses as efforts are made to stabilize credit quality issues. top of all publicly traded banks and thrifts in the state of New Jersey.At December 31, 2010,2012, non-performing assets totaled $11.9$5.0 million or 0.980.31 percent of total assets, as compared with $13.7a decline from $8.5 million or 1.12 percent, at September 30, 2010 and

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$11.3 million or 0.940.59 percent at December 31, 2009.2011. The increasedecrease in non-performing assets from December 31, 20092011 was primarily attributable toachieved notwithstanding the addition of three largeseveral new residential loans (totaling approximately $1.2 million) and commercial loans (totaling approximately $1.0 million) into non-performing status. This was more than offset by decreases from pay-downs of $1.7 million, total charge-offs of $175,000 of existing loans, and an increase inthe transfer to performing troubled debt restructurings.restructuring from non-accrual status of $1.3 million.

At December 31, 2010,2012, the total allowance for loan losses amounted to approximately $8.9$10.2 million, or 1.251.15 percent of total loans. The allowance for loan losses as a percent of total non-performing loans amounted to 74.6278.9 percent at December 31, 2010 as compared with 74.7 percent at September 30, 20102012 and 77.2121.5 percent at December 31, 2009.2011. This decreaseincrease in the ratio from December 31, 20092011 to December 31, 20102012 was due to the increasedecrease in the level of non performingnon-performing assets, offset by increasesalong with an increase in the provisionallowance for loan loss of $479,000 in 2010 over 2009.

Deposit growth was strong in 2010, reflective of customers’ desire for safety and liquidity and flight to quality in light of the financial crisis. At December 31, 2010, total deposits for the Corporation were $860.3 million. Non-interest-bearing core deposits, a low cost source of funding, continue to be a key funding source. At December 31, 2010, this source of funding amounted to $144.2from $9.6 million or 13.4 percent of total funding sources and 16.8 percent of total deposits.

Certificates of deposit $100,000 and greater decreased to 13.9 percent of total deposits at December 31, 2010 from 17.8 percent one year earlier. With the current turmoil in the financial markets, some2011.

Deposit grew strongly during 2012, with total deposits of the Corporation’s depositors have become sensitive to obtaining full FDIC insurance for their time deposits. To accommodate its customers, the Corporation began offering Certificates of Deposit Account Registry Service (CDARS) in 2008. As a result of that offering$1.3 billion at December 31, 2012, increasing $185.5 million, or 16.5%, since December 31, 2011. Total Demand, Savings, Money Market, and the temporary increase in insurance coverage by the FDIC to $250,000, the Corporation reported a decrease of $25.1 million in certificates of deposit greaterless than $100,000 increased $212.7 million or 21.6% from December 31, 2011, underscoring the strength of core growth. These increases were attributable to continued core deposit growth in overall segments of the deposit base, as well as in niche areas, such as municipal government, private schools and universities, together with the Saddle River Valley Bank transaction. Time certificates of deposit of $100,000 or more at December 31, 2010 as compared to year-end 2009.2012, decreased by $27.2 million or 19.7% from December 31, 2011.  

Total stockholders’ equity increased 18.918.2 percent in 20102012 to $121.0$160.7 million, and represented 10.029.86 percent of total assets at year-end. Book value per common share (total common stockholders’ equity divided by the number of shares outstanding) increased to $6.83$9.14 as compared with $6.32$7.63 a year ago, primarily as a result of the $12.1 million capital raise from the Corporation’s stock offering consummated in September 2010 and earnings of $7.0$17.5 million in 2010.2012. Tangible book value per common share (which excludes goodwill and other intangibles from common stockholders’ equity) increased to $5.79$8.11 from $5.15$6.60 a year ago; see Item 6 of this Annual Report on Form 10-K for a reconciliation of tangible book value (which is a non-GAAP financial measure) to book value. Return on average tangible stockholders’ equity for the year ended December 31, 20102012 was 6.3013.18 percent compared to 4.0212.33 percent for 2009.2011. This increase was attributable to higher earnings in 20102012 compared with 2009 coupled with2011 partially offset by higher average equity due primarily to both the capital raise from the 2010 stock offering and a full year benefit from the capital received under the U.S. Treasury Capital Purchase Program and a rights offering during 2009.SBLF program. The Tier I Leverage capital ratio increaseddecreased to 9.909.02 percent of total assets at December 31, 2010,2012, as compared with 7.739.29 percent at December 31, 2009.2011, as an increase in retained earnings was offset by the increased asset base in 2012.

The Corporation’s capital base includes $12.1 and $11.0the $11.25 million inof capital raisedreceived from the U.S. Treasury under the Small Business Lending Fund Program in 2011 and simultaneously, using the proceed from the issuance of SBLF preferred stock and rights offerings completed in 2010 and 2009 respectively, as well asto redeem the $10 million of capital received from the U.S. Treasury under the Capital Purchase Program.TARP. It also includes $5.2 million in subordinated debentures at December 31, 20102012 and December 31, 2009.2011. This issuance of $5.0 million in floating rate MMCapS^(SM)MMCapS(SM) Securities occurred on December 19, 2003. These securities presently are included as a component of Tier I capital for regulatory capital purposes. In accordance with FASB ASC 810, these securities are classified as subordinated debentures on the Corporation’s Consolidated Statements of Condition.

The Corporation’s risk-based capital ratios at December 31, 20102012 were 13.2811.39 percent for Tier I capital and 14.2912.22 percent for total risk-based capital. Total Tier I capital increased to approximately $116.6$143.8 million at December 31, 20102012 from $98.5$129.4 million at December 31, 2009.2011. The increase in Tier I capital primarily reflects the new capital received during 2010.earnings.

The Corporation announced an increase in its common stock buyback program on September 28, 2007 and June 26, 2008, under which the Parent Corporation was authorized to purchase up to 2,039,731 shares of Center Bancorp’s outstanding common stock. As of

At December 31, 2010,2012, the Corporation had repurchased

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1,386,863 sharesCorporation's capital ratios continued to exceed the minimum Federal requirements for a bank holding company, and Union Center National Bank's capital ratios continued to exceed each of the minimum levels required for classification as a "well capitalized institution" under the program at an average cost of $11.44 per share. As repurchases are now restricted pursuant to the Parent Corporation’s participation in TARP there were no repurchases during 2010. See Item 5 of this Annual Report on Form 10K.Federal Deposit Insurance Corporation Improvement Act ("FDICIA").

The following sections discuss the Corporation’s Results of Operations, Asset and Liability Management, Liquidity and Capital Resources.

Results of Operations

Net income for the year ended December 31, 20102012 was $7,004,000$17,507,000 as compared to $3,771,000$13,926,000 earned in 20092011 and $5,842,000$7,004,000 earned in 2008,2010, an increase of 85.7325.7 percent from 20092011 to 2010.2012. For 2010,2012, the basic and fully diluted earnings per common share was $0.43$1.05 per share as compared with $0.24$0.80 per share in 20092011 and $0.45$0.43 per share in 2008.2010.

For the year ended December 31, 2010,2012, the Corporation’s return on average stockholders’ equity (“ROE”) was 6.3011.69 percent and its return on average assets (“ROA”) was 0.591.14 percent. The Corporation’s return on average tangible stockholders’ equity (“ROATE”) was 7.4413.18 percent for 2010.2012. The comparable ratios for the year ended December 31, 2009,2011, were ROE of 4.0210.73 percent, ROA of 0.311.05 percent, and ROATE of 4.9112.33 percent. See the discussion and reconciliation of ROATE, which is a non-GAAP financial measure, under Item 6 of this Annual Report on Form 10-K.

Earnings for 2010 were negatively impacted by an increase2012 benefitted from increases in other expense, due primarilynet interest income and one time increases to a highernon interest income and from decreases in the provision for loan losses coupled withloss. The increase in non-interest expenses was due to increases in salaries and benefits, occupancy expenses, marketing and advertising expenses and computer expenses, together with costs related to the acquisition of Saddle River Valley Bank and repurchase agreement prepayment and termination fees to terminate certain fixed rate long-term borrowings from Citi Global Market and the FHLB. These increases were partially offset by reductions in FDIC insurance, OREO expenses and professional and consulting fees, computer expense and other expenses and a reduction in non-interest income due to net securities losses in 2010 as compared to gains in 2009. These factors were offset, in part, by an improvement in net interest income, due primarily to a lower cost of funds. Earnings in 2010 also benefitted from reductions in occupancy expense, marketing and OREO expense.expenses.

Net Interest Income

The following table presents the components of net interest income on a tax-equivalent basis for the past three years

		2010												2009												2008												2012												2011												2010
		Amount				Increase (Decrease) from Prior Year				Percent Change				Amount				Increase (Decrease) from Prior Year				Percent Change				Amount				Increase (Decrease) from Prior Year				Percent Change				Amount				Increase (Decrease) from Prior Year				Percent Change				Amount				Increase (Decrease) from Prior Year				Percent Change				Amount				Increase (Decrease) from Prior Year				Percent Change
		(Dollars in Thousands)																																				(Dollars in Thousands)
Interest income:
Investments		$	11,059			$	(3,279	)			(22.9	)		$	14,338			$	(67	)			(0.47	)		$	14,405			$	(4,850	)			(25.19	)
Investment available-for-sale																																						$	15,067			$	1,018				7.25			$	14,049			$	2,990				27.04			$	11,059			$	(3,279	)			(2.29	)
Investment held-to-maturity																																							2,713				743				37.72				1,970				1,970				100.00				—				—				—
Loans, including fees			37,200				449				1.22				36,751				641				1.78				36,110				2,583				7.70				38,921				2,601				7.16				36,320				(880	)			(2.37	)			37,200				449				1.22
Federal funds sold and securities purchased under agreements to resell			0				0				0.00				0				(113	)			(100.00	)			113				(491	)			(81.29	)
Other interest-bearing deposits																																							8				8				—				—				—				—				—				—				—
Restricted investment in bank stocks			568				37				6.97				531				(63	)			(10.61	)			594				45				8.20				452				(12	)			(2.59	)			464				(104	)			(18.31	)			568				37				6.97
Total interest income			48,827				(2,793	)			(5.41	)			51,620				398				0.78				51,222				(2,713	)			(5.03	)			57,161				4,358				8.25				52,803				3,976				8.14				48,827				(2,793	)			(5.41	)
Interest expense:
Deposits			6,006				(6,302	)			(51.20	)			12,308				(979	)			(7.37	)			13,287				(7,548	)			(36.23	)			5,408				(112	)			(2.03	)			5,520				(486	)			(8.09	)			6,006				(6,302	)			(51.20	)
Borrowings			8,779				(1,558	)			(15.07	)			10,337				(471	)			(4.36	)			10,808				1,013				10.34				6,368				(289	)			(4.34	)			6,657				(2,122	)			(24.17	)			8,779				(1,558	)			(15.07	)
Total interest expense			14,785				(7,860	)			(34.71	)			22,645				(1,450	)			(6.02	)			24,095				(6,535	)			(21.34	)			11,776				(401	)			(3.29	)			12,177				(2,608	)			(17.64	)			14,785				(7,860	)			(34.71	)
Net interest income on a fully tax-equivalent basis			34,042				5,067				17.49				28,975				1,848				6.81				27,127				3,822				16.40				45,385				4,759				11.71				40,626				6,584				19.34				34,042				5,067				17.49
Tax-equivalent adjustment			(113	)			397				(77.84	)			(510	)			818				(61.60	)			(1,328	)			478				(26.47	)			(1,889	)			(1,013	)			(115.64	)			(876	)			(763	)			675.22				(113	)			397				(77.84	)
Net interest income		$	33,929			$	5,464				19.20			$	28,465			$	2,666				10.33			$	25,799			$	4,300				20.00			$	43,496			$	3,746				9.42			$	39,750			$	5,821				17.16			$	33,929			$	5,464				19.20