ConnectOne Bancorp (CNOB) 10-Q 2007 Q2 Quarterly report

UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from  to 

Commission File Number 2-81353

 

CENTER BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

New Jersey	52-1273725
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

2455 Morris Avenue,
Union, New Jersey 07083

(Address of Principal Executive Offices) (Zip Code)

(908) 688-9500

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesx NOo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” (in Rule 12b-12 of the Exchange Act).

Large Accelerated Filero	Accelerated Filerx	Non-accelerated Filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso NOx

 

Common Stock, No Par Value:	13,912,972
(Title of Class)	(Outstanding at July 31, 2007)

INDEX TO FORM 10-Q

	Page
PART I. – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition at June 30, 2007 (unaudited) and December 31, 2006		2
Consolidated Statements of Income for the six months ended June 30, 2007 and 2006 (unaudited)		3
Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2007 and 2006 (unaudited)		4
Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006 (unaudited)		5
Notes to Consolidated Financial Statements		6 – 18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19 – 39
Item 3. Qualitative and Quantitative Disclosures about Market Risks		39
Item 4. Controls and Procedures		40
PART II. – OTHER INFORMATION
Item 1. Legal Proceedings		41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 4. Submission of Matters to a Vote of Securities Holders		41
Item 5. Other Information		42
Item 6. Exhibits		42
Signatures		43
Certifications

i

PART I – FINANCIAL INFORMATION

The following unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2007, or for any other interim period. The Center Bancorp, Inc. 2006 Annual Report on Form 10-K should be read in conjunction with these statements.

1

Item 1. Financial Statements

CENTER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in Thousands)	June 30, 2007			December 31, 2006
	(Unaudited)
ASSETS
Cash and due from banks	$	24,363		$	34,088
Federal funds sold and securities purchased under agreement to resell		0			10,275
Total cash and cash equivalents		24,363			44,363
Investment securities available-for-sale		249,625			250,603
Investment securities held to maturity (approximate market value of $114,311 in 2007 and $130,900 in 2006)		116,599			131,130
Total investment securities		366,224			381,733
Loans, net of unearned income		533,675			550,414
Less — Allowance for loan losses		4,974			4,960
Net Loans		528,701			545,454
Restricted investment in bank stocks, at cost		8,299			7,805
Premises and equipment, net		18,400			18,829
Accrued interest receivable		4,880			4,932
Bank owned life insurance		21,822			21,368
Other Assets		11,677			9,588
Goodwill and other intangible assets		17,256			17,312
Total assets	$	1,001,622		$	1,051,384
LIABILITIES
Deposits:
Non-interest bearing	$	127,797		$	136,453
Interest-bearing
Time deposits $100 and over		67,720			83,623
Interest-bearing transactions, savings and time deposits $100 and less		482,494			506,695
Total deposits		678,011			726,771
Overnight Federal funds and securities sold under agreement to repurchase		50,992			29,443
Short-term borrowings		26,326			2,000
Long-term borrowings		139,521			174,991
Subordinated debentures		5,155			5,155
Accounts payable and accrued liabilities		5,804			15,411
Total liabilities		905,809			953,771
STOCKHOLDERS’ EQUITY
Preferred Stock, no par value:
Authorized 5,000,000 shares; none issued		—			—
Common stock, no par value:
Authorized 20,000,000 shares; issued 15,190,984 shares at June 30, 2007 and December 31, 2006; outstanding 13,910,450 shares at June 30, 2007 and December 31, 2006, respectively		86,902			77,130
Additional paid in capital		4,599			4,535
Retained earnings		16,080			25,989
Treasury stock, at cost (1,280,534 shares in 2007 and 2006)		(6,631	)		(6,631	)
Accumulated other comprehensive loss		(5,137	)		(3,410	)
Total stockholders’ equity		95,813			97,613
Total liabilities and stockholders’ equity	$	1,001,622		$	1,051,384

2

CENTER BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in Thousands, Except Per Share Data)	2007			2006		2007			2006
	(unaudited)					(unaudited)
Interest income:
Interest and fees on loans	$	8,274		$	7,777	$	16,627		$	15,138
Interest and dividends on investment securities:
Taxable interest income		3,259			3,912		6,954			8,401
Non-taxable interest income		789			1,010		1,607			2,026
Dividends		366			214		727			569
Interest on Federal funds sold and securities purchased under agreement to resell		256			141		481			151
Total interest income		12,944			13,054		26,396			26,285
Interest expense:
Interest on certificates of deposit $100 or more		785			1,354		1,890			2,703
Interest on other deposits		4,484			2,819		8,750			4,889
Interest on borrowings		2,450			2,573		4,910			5,985
Total interest expense		7,719			6,746		15,550			13,577
Net interest income		5,225			6,308		10,846			12,708
Provision for loan losses		100			0		100			0
Net interest income after provision for loan losses		5,125			6,308		10,746			12,708
Other income:
Service charges, commissions and fees		436			449		855			887
Other income		110			91		227			210
Annuity and insurance		60			53		123			105
Bank owned life insurance		230			203		453			384
Net Gain (loss) on securities sold		341			77		929			(3,578	)
Total other income (loss)		1,177			873		2,587			(1,992	)
Other expense:
Salaries and employee benefits		2,834			3,037		5,976			6,319
Occupancy, net		629			521		1,352			1,127
Premises and equipment		436			467		898			915
Professional and consulting		599			221		1,138			554
Stationery and printing		115			178		274			389
Marketing and advertising		109			187		272			301
Computer expense		148			169		313			364
Other		1,186			986		2,261			1,998
Total other expense		6,056			5,766		12,484			11,967
Income (loss) before income tax expense (benefit)		246			1,415		849			(1,251	)
Income tax expense (benefit)		(771	)		43		(1,477	)		(1,556	)
Net income	$	1,017		$	1,372	$	2,326		$	305
Earnings per share:
Basic	$	0.07		$	0.10	$	0.17		$	0.02
Diluted	$	0.07		$	0.10	$	0.17		$	0.02
Weighted average common shares outstanding:
Basic		13,910,450			13,940,396		13,910,450			14,023,232
Diluted		13,962,934			14,020,835		13,956,672			14,094,583

All common share and per common share amounts have been adjusted to reflect the 5 percent stock dividend declared on March 29, 2007 payable on June 1, 2007.

3

CENTER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in Thousands, Except Per Share Data)	Common Stock Amount		Additional Paid In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance, December 31, 2005	$	77,130	$	3,787	$	26,915		$	(3,701	)	$	(4,642	)	$	99,489
Cash dividends declared ($0.171 per share)						(2,411	)								(2,411	)
Issuance of common stock						(11	)								(11	)
Exercise of stock option				51					32						83
Purchase of treasury stock									(2,573	)					(2,573	)
Stock based compensation				74											74
Net income						305									305
Other comprehensive (loss)												(738	)		(738	)
Balance, June 30, 2006	$	77,130	$	3,912	$	24,798		$	(6,242	)	$	(5,380	)	$	94,218
Balance, December 31, 2006	$	77,130	$	4,535	$	25,989		$	(6,631	)	$	(3,410	)	$	97,613
Cash dividends declared ($0.171 per share)						(2,453	)								(2,453	)
5 percent stock dividend		9,772				(9,772	)								—
Issuance of common stock						(10	)								(10	)
Stock based compensation				64											64
Net income						2,326									2,326
Other comprehensive (loss)												(1,727	)		(1,727	)
Balance, June 30, 2007	$	86,902	$	4,599	$	16,080		$	(6,631	)	$	(5,137	)	$	95,813

4

CENTER BANCORP, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
(Dollars in Thousands)	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,326		$	305
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and amortization		835			883
Provision for loan losses		100			—
Stock-based compensation expense		64			74
Net (gains) losses on sale of investment securities available-for-sale		(355	)		3,578
Net (gains) on calls/sale of investment securities held to maturity		(574	)		—
Decrease in accrued interest receivable		52			950
Increase in other assets		(2,089	)		(66	)
Decrease in other liabilities		(427	)		(1,078	)
Increase in cash surrender value of bank owned life insurance		(453	)		(384	)
Amortization of premium and accretion of discount on investment securities, net		79			155
Net cash (used in) provided by operating activities		(443	)		4,417
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities available-for-sale		119,845			102,592
Proceeds from maturities, calls and paydowns of securities held to maturity		7,098			4,200
Net (purchases) sales of restricted investment in bank stock		(494	)		4,003
Proceeds from sales of investment securities available-for-sale		41,264			105,261
Proceeds from calls/sales of investment securities held to maturity		9,937			—
Purchase of securities available-for-sale		(170,692	)		(125,394	)
Purchase of securities held to maturity		(2,000	)		—
Net decrease (increase) in loans		16,653			(24,826	)
Property and equipment expenditures, net		(350	)		(903	)
Purchase of bank owned life insurance		—			(2,000	)
Net cash provided by investing activities		21,261			62,933
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits		(48,760	)		72,362
Net increase (decrease) in short-term borrowings		21,599			(39,720	)
Payment on FHLB advances		(11,194	)		(67,188	)
Dividends paid		(2,453	)		(2,411	)
(Expense) proceeds from issuance of common stock		(10	)		72
Purchase of treasury stock		—			(2,573	)
Net cash used in financing activities		(40,818	)		(39,458	)
Net (decrease) increase in cash and cash equivalents		(20,000	)		27,892
Cash and cash equivalents at beginning of year		44,363			19,343
Cash and cash equivalents at end of year	$	24,363		$	47,235
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest paid on deposits and borrowings	$	15,766		$	13,044
Income taxes	$	319		$	108

5

CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation

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

Business

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

Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles.

Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and revenues and expenses for the reported periods. Actual results could differ significantly from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash and due from banks, and federal funds sold and securities purchased under agreement to resell which are generally available within one day.

Investment Securities

The Corporation accounts for its investment securities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115 “Accounting for Certain Investment in Debt and Equity Securities.” Investments are classified into the following categories: (1) held to maturity securities, for which the Corporation has both the positive intent and ability to hold until maturity, which are reported at amortized cost; (2) trading securities, which are purchased and held principally for the purpose of selling in the near term and are reported at fair value with unrealized gains and losses included in earnings; and (3) available-for-sale securities, which do not meet the criteria of the other two categories and which management believes may be sold prior to maturity due to changes in interest rates, prepayment, risk, liquidity or other factors, and are reported at fair value, with unrealized gains and losses, net of applicable income taxes, reported as a component of accumulated other comprehensive income, which is included in stockholders’ equity and excluded from earnings.

Investment securities are adjusted for amortization of premiums and accretion of discounts, which are recognized on a level yield method, as adjustments to interest income. Investment securities gains or losses are determined using the specific identification method.

6

CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies  – (continued)

Loans

Loans are stated at their principal amounts less net deferred loan origination fees. Interest income is credited as earned except when a loan becomes past due 90 days or more and doubt exists as to the ultimate collection of interest or principal; in those cases the recognition of income is discontinued. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income.

Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected. Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the loan as an adjustment to the loan’s yield using the level yield method.

Allowance for Loan Losses

The allowance for loan losses (“allowance”) is maintained at a level determined adequate to provide for potential loan losses. The allowance is increased by provisions charged to operations and reduced by loan charge-offs, net of recoveries. The allowance is based on management’s evaluation of the loan portfolio considering economic conditions, the volume and nature of the loan portfolio, historical loan loss experience and individual credit situations.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties.

The ultimate collectability of a substantial portion of the Bank’s loan portfolio is susceptible to changes in the real estate market and economic conditions in the State of New Jersey and the impact of such conditions on the creditworthiness of the borrowers.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examinations.

The Corporation accounts for impaired loans in accordance with SFAS No. 114 “Accounting by Creditors for Impairment of a Loan”, as amended by SFAS No. 118 “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures.” The value of impaired loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or at the fair value of the collateral if the loan is collateral dependent.

The Corporation has defined its population of impaired loans to include, at a minimum, non-accrual loans and loans internally classified as substandard or below, in each instance above an established dollar threshold of $200,000. All loans below the established dollar threshold are considered homogenous and are collectively evaluated for impairment.

Reserve for Unfunded Commitments

The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities and is included in other liabilities in the consolidated statements of condition. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, and credit risk. Net adjustments to the reserve for unfunded commitments are included in other non-interest expense.

7

CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies  – (continued)

Premises and Equipment

Land is carried at cost and bank premises and equipment at cost less accumulated depreciation based on estimated useful lives of assets, computed principally on a straight-line basis. Expenditures for maintenance and repairs are charged to operations as incurred; major renewals and betterments are capitalized. Gains and losses on sales or other dispositions are recorded as a component of other income or other expenses.

Other Real Estate Owned

Other real estate owned (“OREO”), representing property acquired through foreclosure and held for sale, are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosures, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs relating to holding the assets are charged to expenses.

Mortgage Servicing

The Corporation performs various servicing functions on loans owned by others. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received for those services. At June 30, 2007 and December 31, 2006, the Corporation was servicing approximately $12.8 million and $13.4 million, respectively, of loans for others.

The Corporation accounts for its transfers and servicing of financial assets in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The Corporation originates mortgages under plans to sell those loans and service the loans owned by the investor. The Corporation records mortgage servicing rights and the loans based on relative fair values at the date of sale. The balance of mortgage servicing rights at June 30, 2007 and December 31, 2006 are immaterial to the Corporation’s consolidated financial statements.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregated costs or estimated fair value. Gains and losses on sales of loans are also accounted for in accordance with SFAS No. 134 “Accounting for Mortgage Securities retained after Securitizations or Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.” At June 30, 2007, the Corporation held $305,600 in loans for sale and at December 31, 2006 had approximately $1.5 million in loans held for sale.

Employee Benefit Plans

The Corporation has a non-contributory pension plan covering all eligible employees. The Corporation’s policy is to fund at least the minimum contribution required by the Employee Retirement Income Security Act of 1974. The costs associated with the plan are accrued based on actuarial assumptions and included in non-interest expense.

The Corporation follows the disclosure provisions of SFAS No. 132 “Employer’s Disclosures about Pensions and Other Post Retirement Benefits” which was revised in December 2004. SFAS No. 132, as revised, required additional employers’ disclosures about pension and other post retirement benefit plans after December 31, 2004. Certain disclosures related to estimated future benefit payments are effective for fiscal years ended after June 15, 2005. Net pension expense consists of service costs, interest cost, return on pension assets and amortization of unrecognized initial net assets.

SFAS No. 158

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB No. 87, 88, 106 and 132(R)” (“SFAS 158”). SFAS 158 requires that the funded status of defined benefit postretirement plans be recognized on the

8

CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies  – (continued)

Corporation’s statement of condition, and changes in the funded status be reflected in other comprehensive income, effective for fiscal years ended after December 15, 2006. SFAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, effective for fiscal years ending after December 15, 2008. The Corporation expects to adopt the measurement provisions of SFAS 158 effective December 31, 2008. Based upon the December 31, 2006 statement of condition and pension disclosures, the impact of adopting SFAS 158 resulted in a pretax increase in the accumulated other comprehensive loss of $815,000.

Stock-Based Compensation

Effective January 1, 2006, the Corporation adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R using the modified prospective transition method and therefore has not restated results for prior periods. Under this transition method, stock-based compensation expense for the twelve-months ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted, but not yet vested, as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 “Accounting for stock-based compensation”. The stock-based compensation expense for all stock-based compensation awards granted after that date is based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. The Corporation will recognize these expenses on a straight-line method over the requisite service period of the stock award, which is the vesting term. Prior to the adoption of SFAS No. 123R, the Corporation recognized stock-based compensation expense in accordance with APB Opinion No. 25. Prior to the adoption of SFAS No. 123R, the Corporation presented all tax benefits of deductions resulting from the exercise of stock options or the issuance of shares under other stock based compensation programs as operating cash flows in the statement of cash flows. SFAS No. 123 requires the cash flows resulting from the tax benefits of deductions in excess of the compensation cost be recognized for stock-based awards to be classified as financing cash flows. In March of 2005, the Securities and Exchange Commission (the “SEC”) issued a Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS No. 123R and the valuation of share-based payments for public companies. The Corporation has applied the provisions of SAB 107 in its adoption of SFAS No. 123R. See Note 2 of the consolidated financial statements for a further discussion.

Earnings Per Share

Basic Earnings per Share (“EPS”) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g. stock options). The Corporation’s weighted average common shares outstanding for diluted EPS include the effect of stock options outstanding using the Treasury Stock Method, which are not included in the calculation of basic EPS.

Treasury Stock

The Corporation announced on March 27, 2006 that its Board of Directors approved an increase in its current share buyback program to 5 percent of outstanding shares, enhancing its current authorization by 425,825 shares. The total buyback authorization was increased to 705,392 shares. Repurchases may be made from time to time as, in the opinion of management, market conditions warrant, in the open market or in privately negotiated transactions. Shares repurchased will be added to the corporate treasury and will be used for future stock dividends and other issuances. As of June 30, 2007, Center Bancorp had 13.9 million shares of common stock outstanding. As of June 30, 2007, the Corporation has purchased 343,253 common shares at an average cost per share of $11.38 under the stock buyback program as amended on March 27, 2006. The repurchased shares were recorded as Treasury Stock, which resulted in a decrease in stockholders’ equity.

Treasury stock is recorded using the cost method and accordingly is presented as a reduction of stockholders’ equity.

9

CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies  – (continued)

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired. Goodwill is tested at least annually for impairment. No impairment of goodwill was recorded for the quarters ended June 30, 2007 and 2006.

Comprehensive Income

Total comprehensive income includes all changes in equity during a period from transactions and other events and circumstances from non-owner sources. The Corporation’s other comprehensive income is comprised of unrealized holding gains and losses on securities available-for-sale and an additional minimum pension liability.

Disclosure of comprehensive income for the six months ended June 30, 2007 and 2006 is presented in the Consolidated Statements of Changes in Stockholders’ Equity and presented in detail in Note 5.

Bank Owned Life Insurance

During 2001, the Corporation invested $12.5 million in Bank Owned Life Insurance (“BOLI”) to help offset the rising cost of employee benefits, and made subsequent investments in 2004 of $2.5 million and in 2006 of $2.0 million. The change in the cash surrender value of the BOLI was recorded as a component of other income and amounted to $453,000 for the first six months of 2007 and $384,000 in the comparable 2006 period.

Income Taxes

The Corporation recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statement and tax bases of assets and liabilities, using enacted tax rates expected to be applied to taxable income in the years in which the differences are expected to be settled.

Advertising Costs

The Corporation recognizes its marketing and advertising cost as incurred. Advertising costs were $272,000 and $301,000 for the six months ended June 30, 2007 and 2006, respectively.

Reclassifications

Certain reclassifications have been made in the consolidated financial statements for 2006 to conform to the classifications presented in 2007.

Note 2 — Stock Based Compensation

At June 30, 2007, the Corporation had four stock-based compensation plans, which are described more fully below. Through December 31, 2005, the Corporation accounted for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees, and related interpretations.”

Stock Option Plans

At June 30, 2007, the Corporation maintained two stock-based compensation plans from which new grants could be issued. The Corporation’s Stock Option Plans permit Parent Corporation common stock to be issued to key employees and directors of the Corporation and its subsidiaries. The options granted under the plans are intended to be either Incentive Stock Options or Non-qualified Options. Under the 1999 Employee Stock Incentive Plan, an aggregate of 228,151 shares remain available under the plan and are authorized for issuance. Under the 2004 Non-Employee Director Stock Option Plan an aggregate total of 453,534 shares remain. Such shares may be treasury shares, newly issued shares or a combination thereof.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Stock Based Compensation  – (continued)

Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options are exercisable starting one year after the date of grant and generally expire ten years from the date of grant.

The total compensation expense related to these plans was $64,847 and $73,552 for the six months ended June 30, 2007 and June 30, 2006, respectively. Prior to December 31, 2005, the Corporation accounted for those plans under the recognition and measurement provisions of APB 25. Accordingly, the Corporation generally recognized compensation expense only when it granted options with a discounted exercise price. As a result during that period, no stock-based employee compensation expense or any resulting compensation expense was recognized ratably over the associated service period, which was generally the option vesting term.

Effective January 1, 2006, the Corporation adopted the fair value recognition provisions of SFAS 123R, using the modified prospective transition method and therefore has not restated prior period results. Under this transition method, stock-based compensation expense for the first six months of fiscal 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. Stock-based compensation expense for all share-based payment awards granted after December 31, 2005 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The Corporation recognizes these compensation costs net of a forfeiture rate and recognizes the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of 3 years. The Corporation estimated the forfeiture rate for the first six months of fiscal 2006 based on its historical experience during the preceding seven fiscal years.

For the six months ended June 30, 2007, the Corporation’s income before income taxes and net income was reduced by $64,847 and $38,948, respectively, as a result of the compensation expense related to stock options. The increase to the loss for the six months ended June 30, 2006 was $73,552 before income taxes and $44,176 after tax.

Under the principal option plans, the Corporation may grant restricted stock awards to certain employees. Restricted stock awards are non-vested stock awards. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. Such awards generally vest within 30 days to five years from the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock has the same cash dividend and voting rights as other common stock and is considered to be currently issued and outstanding. The Corporation expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse.

There were 38,203 and 33,075 shares granted on June 1, 2007, and 2006, respectively. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values:

	Stock Options			Stock Options
	Six-Months Ended June 30, 2007			Six-Months Ended June 30, 2006
Weighted average fair value of grants	$	6.48		$	5.53
Risk-free interest rate		4.92	%		5.03 %
Dividend yield		2.51	%		2.70	%
Expected volatility		47.4	%		49.5 %
Expected life in months		72			72

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CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Stock Based Compensation  – (continued)

Option activity under the principal option plans as of June 30, 2007 and changes during the six months ended June 30, 2007 were as follows:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In Thousands)		(In Years)
Outstanding at December 31, 2006		340,850	$	6.07 – 15.12			$	1,584,857
Granted		38,203	$	15.73
Exercised		—		—
Forfeited/cancelled/expired		15,464	$	10.50 – 12.54		5.17		50,873
Outstanding at June 30, 2007		363,589	$	6.07 – 15.73		9.06	$	1,533,984
Exercisable at June 30, 2007		284,034	$	6.07 – $15.12		5.17	$	1,402,561

Restated for 5 percent common stock dividend.

The aggregate intrinsic value of options above represents the total pretax intrinsic value (the difference between the Parent Corporation’s closing stock price on the last trading day of the second quarter of fiscal 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2007. This amount is based on the fair market value of the Corporation’s stock.

As of June 30, 2007, $477,776 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.56 years.

Note 3 — Acquisitions

On March 16, 2007, the Parent Corporation announced that it signed a definitive merger agreement to acquire Beacon Trust Company, a privately held limited purpose trust company with $1.3 billion in managed assets based in Madison, New Jersey. Once completed, the transaction will introduce for the first time to the Corporation’s customers a full range of trust and investment services, including investment management, executorship, trusteeship, estate planning, pension and profit sharing, and custodian capabilities. The merger is expected to add to other income and diversify the Corporation’s earnings stream.

Terms of the transaction call for the Parent Corporation to acquire Beacon Trust for approximately $5.6 million in cash and an additional $4.7 million in stock, giving the transaction a total equity value of approximately $10.3 million. The companies expect to close the transaction during the third or fourth calendar quarter of 2007, contingent upon receiving regulatory and shareholder approvals.

Note 4 — Recent Accounting Pronouncements

SOP 07-1

In June 2007, the AICPA issued Statement of Position (“SOP”) No. 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 addresses when the accounting principles of the AICPA Audit and Accounting GuideInvestment Companies must be applied by an entity and whether those accounting principles must be retained by a parent company in consolidation or by an investor in the application of the equity method of accounting. The SOP is effective for fiscal years beginning on or after December 15, 2007, with earlier application encouraged. The Corporation is evaluating the effect of adopting SOP 07-1 on its Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Recent Accounting Pronouncements  – (continued)

FSP FIN 46(R)-7

In May 2007, the FASB directed the FASB Staff to issue FASB Staff Position No. FIN 46(R)-7, “Application of FASB Interpretation No. 46(R) to Investment Companies” (“FSP FIN 46(R)-7”). FSP FIN 46(R)-7 makes permanent the temporary deferral of the application of the provisions of FIN 46(R) to unregistered investment companies, and extends the scope exception from applying FIN 46(R) to include registered investment companies. FSP FIN 46(R)-7 is effective upon adoption of SOP 07-1. The Corporation is evaluating the effect of adopting FSP FIN 46(R)-7 on its Consolidated Financial Statements.

FSP FIN 48-1

In May 2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1 “Definition of Settlement in FASB Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how to determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective retroactively to January 1, 2007. The implementation of this standard did not have a material impact on its consolidated financial position or results of operations.

FIN 48

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that companies recognize in their financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Corporation adopted FIN 48 as of January 1, 2007.

The Corporation adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not impact the Corporation’s consolidated financial condition, results of operations or cash flows. At January 1, 2007, the Corporation had unrecognized tax benefits of $1.1 million, which primarily related to uncertainty regarding the sustainability of certain deductions to be taken in 2007 and future U.S. Federal income tax returns related to the liquidation of the Corporation’s New Jersey REIT subsidiaries. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate in a future period. At June 30, 2007 the Corporation had recorded as a component of tax expense approximately $22,000 in interest expense related to the above.

SFAS No. 155

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (SFAS 155), which amends Statement No. 133 to simplify the accounting for certain derivatives embedded in other financial instruments (hybrid financial instruments) by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise required bifurcation, provided that the entire hybrid financial instrument is accounted for on a fair value basis. SFAS 155 also establishes the requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, which replaces the interim guidance in Derivative Instrument Group Issue D1, Recognition and Measurement of Derivatives: Application of Statement No. 133 to Beneficial Interests in Securitized Financial Assets. SFAS 155 amends SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities — a replacement of FASB Statement No. 125 (SFAS 140), to allow a qualifying special-purpose entity to hold a derivative financial instrument that pertains to beneficial interests other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the first fiscal year

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CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Recent Accounting Pronouncements  – (continued)

that begins after September 15, 2006, with earlier adoption allowed. The Corporation adopted SFAS 155 effective January 1, 2007 and it did not have a material effect on its consolidated financial condition, results of operations or cash flows.

SFAS No. 156

In March 2006, the FASB issued SFAS No. 156 Accounting for Servicing of Financial Assets: an amendment of SFAS No. 140 (SFAS 156). This statement requires all separately recognized servicing rights to be initially measured at fair value, if practicable. For each class of separately recognized servicing assets and liabilities, this statement permits the Corporation to choose either to report servicing assets and liabilities at fair value or at amortized cost. Under the fair value approach, servicing assets and liabilities are recorded at fair value at each reporting date with changes in fair value recorded in earnings in the period in which the changes occur. Under the amortized cost method, servicing assets and liabilities are amortized in proportion to and over the period of net servicing income or net servicing loss and are assessed for impairment based on fair value at each reporting date. Adoption of this statement is required for fiscal years beginning after September 15, 2006. The Corporation adopted SFAS 156 effective January 1, 2007 and is applying the requirements for recognition and initial measurement of servicing assets and liabilities prospectively to all transactions. The Corporation is using the amortized cost method for subsequent measurement of servicing rights. Adoption of SFAS 156 did not have a material effect on the Corporation’s consolidated financial condition, results of operations or cash flows.

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Corporation is currently assessing the impact of SFAS No. 157 on its consolidated financial position and results of operations.

FSP FAS 158-1

In February 2007, the FASB issued FASB Staff Position (FSP) FAS 158-1, “Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88, and No 106 and to the Related Staff Implementation Guides.” This FSP makes conforming amendments to other FASB statements and staff implementation guides and provides technical corrections to SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” The conforming amendments in this FSP shall be applied upon adoption of SFAS No. 158. The Corporation believes its adoption of FSP FAS 158-1 will not have a material impact on its consolidated financial statements or disclosures.

SFAS No. 159

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115 (SFAS159). SFAS159 provides all entities with the option of reporting selected financial assets and liabilities at fair value. The objective of SFAS 159 is to improve financial reporting by providing opportunities to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Most of the provisions in this statement apply only to entities which elect SFAS159. However the amendment to FASB Statement No. 115, Accounting for Certain Investment in Debt and Equity Securities, applies to entities with available for sale and trading securities, and requires an entity to present separately fair value and non-fair value securities. SFAS159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. The Corporation has not determined the effect of adopting SFAS159 on its consolidated financial condition, results of operations or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Recent Accounting Pronouncements  – (continued)

EITF 06-4

In September 2006, the Emerging Issues Task Force Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements”, was ratified. This EITF Issue addresses accounting for separate agreements which split life insurance policy benefits between an employer and employee. The Issue requires the employer to recognize a liability for future benefits payable to the employee under these agreements. The effects of applying this Issue must be recognized through either a change in accounting principle through an adjustment to equity or through the retrospective application to all prior periods. For calendar year companies, the Issue is effective beginning January 1, 2008. The Corporation does not expect the adoption of the Issue to have a material effect on the Corporation’s consolidated financial statements.

EITF 06-5

In September 2006, EITF Issue No. 06-5,“Accounting for Purchases of Life Insurance — Determining the Amount ThatCould Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance” was issued. The Task Force reached a consensus that a policyholder should consider any additional amounts included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract.

The Task Force also reached a consensus that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). Furthermore, the Task Force reached a consensus that the cash surrender value should not be discounted when contractual limitations on the ability to surrender a policy exist if the policy continues to operate under its normal terms (continues to earn interest) during the restriction period. The consensus is effective for fiscal years beginning after December 15, 2006. The Corporation has adopted the Issue as of January 1, 2007 and the adoption of the Issue has had no material impact on the consolidated financial statements, results of operations or cash flows of the Corporation.

EITF 06-10

In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The Corporation is currently assessing the impact of EITF 06-10 on its consolidated financial position and results of operations.

EITF 06-11

In March 2007, the FASB ratified EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for nonvested equity-classified employee share-based payment awards as an increase to additional paid-in capital. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. The Corporation does not expect EITF 06-11 will have a material impact on its financial position, results of operations or cash flows.

Note 5 — Comprehensive Income

Total comprehensive income includes all changes in equity during a period from transactions and other events and circumstances from non-owner sources. The Corporation’s other comprehensive income (loss) is comprised of unrealized holding gains and losses on securities available-for-sale and the effects of the pension liability.

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CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Comprehensive Income  – (continued)

The table below provides a reconciliation of the components of other comprehensive income to the disclosure provided in the statements of changes in stockholders’ equity.

The changes in the components of other comprehensive income, net of taxes, were as follows for the following fiscal periods:

(Dollars in Thousands)	Before Tax Amount			Tax Benefit (Expense)			Net of Tax Amount
For the six month period ended June 30, 2007:
Net unrealized gains on available for sale securities
Net unrealized holding losses arising during period	$	(4,060	)	$	1,624		$	(2,436	)
Less reclassification adjustment for net gains arising during the period		929			(318	)		611
Net realized losses	$	(3,131	)	$	1,306		$	(1,825	)
Change in pension liability due to settlement of pension curtailment		163			(65	)		98
Other comprehensive income, net	$	(2,968 )		$	1,241		$	(1,727	)
For the six month period ended June 30, 2006:
Net unrealized losses on available for sale securities
Net unrealized holding losses arising during period	$	(4,786	)	$	1,914		$	(2,872	)
Less reclassification adjustment for net losses arising during the period		3,578			(1,444	)		2,134
Net unrealized losses	$	(1,208	)	$	470		$	(738	)
Other comprehensive income, net	$	(1,208 )		$	470		$	(738	)

Note 6 — Earnings per Share Reconcilement

Basic Earnings per Share (“EPS”) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g. stock options). The Corporation’s weighted average common shares outstanding for diluted EPS include the effect of stock options outstanding using the Treasury Stock Method, which are not included in the calculation of basic EPS.

Earnings per common share have been computed based on the following:

	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands, Except Per Share Amounts)	2007		2006		2007		2006
Net Income	$	1,017	$	1,372	$	2,326	$	305
Average number of common shares outstanding		13,911		13,940		13,911		14,023
Effect of dilutive options		52		81		46		72
Average number of common shares outstanding used to calculate diluted earnings per common share		13,963		14,021		13,957		14,095
Net income per share
Basic	$	0.07	$	0.10	$	0.17	$	0.02
Diluted	$	0.07	$	0.10	$	0.17	$	0.02

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CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 — Components of Net Period Benefit Cost

The following table sets forth changes in projected benefit obligation, changes in fair value of plan assets, funded status, and amounts recognized in the consolidated statements of condition for the Corporation’s pension plans for the three and six months ending June 30, 2007 and 2006. The pension figures for the three and six months period ended June 30, 2007 reflect the effects of a settlement of a pension curtailment resulting from the workforce reduction implemented in the first quarter of 2007.

	Three Months Ended June 30,										Six Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits				Pension Benefits						Other Postretirement Benefits
(Dollars in Thousands)	2007			2006			2007		2006		2007			2006			2007		2006
Service cost	$	243		$	236		$	14	$	14	$	507		$	472		$	28	$	28
Interest cost		163			134			22		22		323			268			44		43
Expected return on plan assets		(182	)		(148	)		—		—		(359	)		(296	)		—		—
Amortization of prior service cost		1			1			—		1		2			2			—		2
Amortization of the net loss		—			1			2		27		9			3			4		54
Net periodic benefit cost	$	225		$	224		$	38	$	64	$	482		$	449		$	76	$	127

Contributions

The Corporation previously disclosed in its consolidated financial statements for the year ended December 31, 2006, that it expected to contribute $850,000 to its pension plans in 2007. For the six months ended June 30, 2007, the Corporation contributed $408,000 to the plan. However, based on the freezing of its pension plan effective September 30, 2007, the Corporation presently does not anticipate making any further contributions for the year to fund its pension plan obligations in 2007.

Note 8 — Income Taxes

In June 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Parent Corporation and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Corporation is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2002. The Corporation’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses.

Accrued interest and penalties in the amount of $22,000 are accrued at June 30, 2007 and carried in other liabilities. The Corporation believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

The Corporation adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not impact the Corporation’s consolidated financial condition, results of operations or cash flows. At January 1, 2007, the Corporation had unrecognized tax benefits of $1.1 million compared to $1.6 million at June 30, 2007, which primarily related to uncertainty regarding the sustainability of certain deductions to be taken in

17

CENTER BANCORP, INC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Income Taxes  – (continued)

2006 and future U.S. Federal income tax returns related to the liquidation of the Corporation’s New Jersey REIT subsidiary. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate in a future period. At June 30, 2007 the Corporation recorded approximately $22,000 in interest expense as a component of tax expense related to the above.

Note 9 — Variable Interest Entities

During 2001 and 2003, the Corporation issued $10.3 million and $5.2 million, respectively, of subordinated debentures and formed statutory business trusts, which exist for the exclusive purpose of (i) issuing trust securities representing undivided beneficial interests in the assets of the trusts; (ii) investing the gross proceeds of the trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Corporation; and (iii) engaging in only those activities necessary or incidental thereto.

These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements as the statutory business trusts are not consolidated in accordance with FASB interpretation No. 46 “Consolidation of Variable interest Entities.” Distributions on the subordinated debentures owned by the subsidiary trust are classified as interest expense in the Corporation’s consolidated statement of income.

On December 18, 2006 the Corporation dissolved its Statutory Trust I, in connection with the redemption of $10.3 million of subordinated debentures. The characteristics of the business trusts and capital securities have not changed with the deconsolidation of the trusts. The capital securities provide an attractive source of funds since they constitute Tier 1 capital for regulatory purposes, but have the same tax advantages as debt for Federal income tax purposes.

On March 1, 2005, the Board of Governors of the Federal Reserve System adopted a final rule that allows the continued inclusion of outstanding and prospective issuances of trust preferred securities in the Tier I capital of bank holding companies, subject to stricter quantitative limits and qualitative standards. The new quantitative limits become effective after a five-year transition period ending March 31, 2009. Under the final rules, trust preferred securities and other restricted core capital elements are limited to 25 percent of all core capital elements. Amounts of restricted core capital elements in excess of these limits may be included in Tier II Capital. At June 30, 2007, the only restricted core capital element owned by the Corporation is trust preferred securities. Based on a preliminary review of the final rule, the Corporation believes that its trust preferred issues qualify as Tier I Capital. However, in the event that the trust preferred issues would not qualify as Tier I Capital, the Corporation would remain well capitalized.

As of June 30, 2007, assuming the Corporation were not allowed to include the $5.2 million in subordinated debentures in Tier 1 capital, the Corporation would have had a Tier 1 capital ratio of 12.72 percent and a total risk based capital ratio of 13.48 percent.

To the extent that the trusts have funds available to make payments, as guarantor, the Corporation continues to unconditionally guarantee payment of: required distributions on the capital securities; the redemption price when a capital security is redeemed; and the amounts due if a Trust is liquidated or terminated. During the first six months of 2007, the business trusts did not repurchase any capital securities or related debentures.

Note 10 — Stockholder’s Equity

On March 29, 2007, the Corporation declared a 5 percent common stock dividend payable to common stockholders of record May 1, 2007 on June 1, 2007, the issued common shares have been reflected in stockholder’s equity at June 30, 2007.

18

Item 2. 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 elsewhere in this report.

Cautionary Statement Concerning Forward-Looking Statements

This report 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:

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; (8) a delayed or incomplete resolution of regulatory issues could adversely impact planning by Center Bancorp; (9) the impact on reputation risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; and (10) 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 Center Bancorp’s 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 at http://www.sec.gov and/or from Center Bancorp.

Critical Accounting Policies and Estimates

The accounting and reporting policies followed by Center Bancorp, Inc. and its subsidiaries (the “Corporation”) conform, in all material respects, to U.S. generally accepted accounting principles. 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 for the periods indicated in the statements of operations. Actual results could differ significantly from those estimates.

The Corporation’s accounting policies are fundamental to understanding Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations. 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, 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.

The allowance for loan losses represents management’s estimate of probable credit 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

19

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 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.

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 4 and 8 of the Notes to Consolidated Financial Statements include additional discussion on the accounting for income taxes.

The Corporation accounts for goodwill and other identifiable intangible assets in accordance with SFAS No. 142, “Goodwill and intangible assets.” SFAS No. 142 includes requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them. The Corporation has tested the goodwill and at June 30, 2007, there was no goodwill impairment.

Recent Developments

On August 9, 2007, the Corporation announced today that as part of its ongoing effort to reduce operating expense, it has frozen its defined benefit pension plan and that it redesigned its 401(k) savings plan, effective September 30, 2007. The changes are consistent with cost reduction strategies and shift the focus of future savings of retirement benefits toward the more predictable cost structure of a 401(k) plan and away from its legacy costs of a defined benefit pension plan. The changes include; stopping the accrual of future benefits in the Corporation’s defined benefit pension plan, and fully preserving all retirement benefits that employees will have earned as of September 30, 2007; redesigning its 401(k) savings plan by giving current pension plan participants an annual company-funded contribution of as much as 6 percent of their pay. To provide this benefit through its 401(k) Plan, the Corporation plans to double the current company match to dollar-for-dollar on up to 6 percent of salary deferrals.

The Corporation is still in the process of reviewing the impact on its consolidated financial statements, but anticipates it will record a one-time pre-tax benefit related to these pension plan changes of approximately $900,000 in the third quarter of 2007 as a result of the curtailment of the defined benefit plan. The Corporation expects the plan changes announced today, will result in retirement-related expense savings of $900,000 to $1.0 million for 2008, based on current 2007 pension assumptions.

20

Earnings Analysis

Net income for the three months ended June 30, 2007 amounted to $1,017,000 compared to $1,372,000 for the comparable three-month period ended June 30, 2006. The Corporation recorded earnings per fully diluted common share of $.07 for the three months ended June 30, 2007 as compared with $.10 per fully diluted common share for the three months ended June 30, 2006. The annualized return on average assets decreased to .40 percent for the three months ended June 30, 2007 compared with 0.54 percent for the comparable three-month period in 2006. The annualized return on average stockholders’ equity was 4.15 percent for the three-month period ended June 30, 2007 as compared to 5.75 percent for the three months ended June 30, 2006.

For the six months ended June 30, 2007 the Corporation recorded net income of $2,326,000 compared to $305,000 during the comparable six months of 2006. In March 2006, the Corporation restructured its statement of condition and sold $86.3 million of available for sale securities, which had resulted in a charge of $3.6 million ($2.4 million net of tax). The Corporation recorded earnings per fully diluted common share of $.17 for the six months ended June 30, 2007 as compared with $.02 per fully diluted common share for the six months ended June 30, 2006. The annualized return on average assets increased to .45 percent for the six months ended June 30, 2007 compared with 0.06 percent for the comparable six-month period in 2006. The annualized return on average stockholders’ equity was 4.76 percent for the six-month period ended June 30, 2007 as compared to 0.63 percent for the six months ended June 30, 2006.

Net Interest Income/Margin

Net interest income is the difference between the interest earned on the portfolio of earning-assets (principally loans and investments) and the interest paid for deposits and wholesale borrowings, which support these assets. Net interest income is presented below first on a fully tax-equivalent basis by adjusting tax-exempt income (primarily interest earned on various obligations of state and political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable issues and then in accordance with the Corporation’s consolidated financial statements.

Financial institutions typically analyze earnings performance on a tax-equivalent basis as a result of certain disclosure obligations, which require the presentation of tax-equivalent data and in order to assist financial statement readers in comparing data from period to period.

21

Net Interest Income

	Three Months Ended June 30,												Six Months Ended June 30,
(Dollars in Thousands)	2007 Amount			2006 Amount			Amount Increase (Decrease)			Percent Change			2007 Amount			2006 Amount			Amount Increase (Decrease)			Percent Change
Interest Income:
Investments	$	4,742		$	5,515		$	(773	)		(14.02	)	$	9,974		$	11,786		$	(1,812	)		(15.37	)
Loans, including fees		8,274			7,777			497			6.39			16,627			15,138			1,489			9.84
Federal funds sold and securitiespurchased under agreement to resell		256			141			115			81.56			481			151			330			218.54
Restricted investment in bank stocks, at cost		139			146			(7	)		(4.79	)		264			291			(27	)		(9.28	)
Total interest income	$	13,411		$	13,579			(168	)		(1.24	)		27,346			27,366			(20	)		(0.073	)
Interest expense:
Time deposits of $100 or more		785			1,354			(569	)		(42.02	)		1,890			2,703			(813	)		(30.08	)
Deposits		4,484			2,819			1,665			59.06			8,750			4,889			3,861			78.97
Borrowings		2,450			2,573			(123	)		(4.78	)		4,910			5,985			(1,075	)		(17.96	)
Total interest expense		7,719			6,746			973			14.42			15,550			13,577			1,973			14.53
Net interest income on a fully tax-equivalent basis		5,692			6,833			(1,141	)		(16.70	)		11,796			13,789			(1,993	)		(14.45	)
Tax-equivalent adjustment		(467	)		(525	)		58			(11.05	)		(950	)		(1,081	)		131			(12.12	)
Net interest income*	$	5,225		$	6,308		$	(1,083	)		(17.17	)	$	10,846		$	12,708		$	(1,862	)		(14.65	)

* Before the provision for loan losses

NOTE: The tax-equivalent adjustment was computed based on an assumed statutory Federal income tax rate of 34 percent. Adjustments were made for interest earned on securities of state and political subdivisions.

Net interest income on a fully tax-equivalent basis decreased $1.1 million or 16.70 percent to $5.7 million for the three months ended June 30, 2007 as compared to the comparable period in 2006. For the three months ended June 30, 2007, the net interest margin decreased 49 basis points to 2.43 percent from 2.92 percent due primarily to higher rates paid on interest-bearing liabilities. For the three months ended June 30, 2007, an increase in the average cost of interest-bearing liabilities of 47 basis points coupled with a decline in yield on interest-earning assets of 8 basis points reduced the Corporation’s net interest spread by 55 basis points for the period.

Net interest income on a fully tax-equivalent basis decreased by approximately $2.0 million or 14.45 percent to $13.8 million for the six months ended June 30, 2007 as compared to the comparable period in 2006. For the six months ended June 30, 2007, the net interest margin decreased 34 basis points to 2.49 percent from 2.83 percent due primarily to higher rates paid on interest-bearing liabilities. For the six months ended June 30, 2007, an increase in the average yield on interest-earning assets of 15 basis points was not sufficient to offset the increase in the average cost of interest-bearing liabilities of 56 basis points, which reduced the Corporation’s net interest spread by 41 basis points for the period.

For the three-month period ended June 30, 2007, interest income on a tax-equivalent basis decreased by $168,000 or 1.24 percent over the comparable three-month period in 2006. This decrease principally reflects a decrease in investment volume and associated interest income. The Corporation’s loan portfolio increased on average $22.7 million to $532.8 million from $510.1 million in the same quarter in 2006, primarily driven by growth in commercial business related sectors of the loan portfolio. The loan portfolio represented approximately 56.8 percent of the Corporation’s interest-earning assets (on average) during the second quarter of 2007 as compared to 54.5 percent in the same quarter in 2006. The increase in loan volume offset a decline in the volume of the Corporation’s investment portfolio. Average investment volume decreased during the period by $29.2 million compared to the second quarter of 2006.

22

For the six-month period ended June 30, 2007, interest income on a tax-equivalent basis remained relatively even, decreasing $20,000 or .07 percent over the comparable six-month period in 2006. An increase in average loan volume was offset by a decrease in investment volume in the mix of average earning assets. The Corporation’s loan portfolio increased on average $30.5 million to $536.9 million from $506.4 million in the same period in 2006, primarily driven by growth in commercial business related sectors of the loan portfolio. The loan portfolio represented approximately 56.7 percent of the Corporation’s interest earning assets (on average) during the first six months of 2007 and 52.0 percent in the same period in 2006. Average investment volume decreased during the period by $67.1 million compared to the first six months of 2006.

The factors underlying the quarter-to-quarter changes in net interest income are reflected in the tables appearing on pages 24, 25 and 26, each of which has been presented on a tax-equivalent basis (assuming 34 percent tax rates). The tables on pages 25 and 26 (Average Statements of Condition with Interest and Average Rates) show the Corporation’s consolidated average balance of assets, liabilities, and stockholders’ equity, the amount of income produced from interest-earning assets and the amount of expense resulting from interest-bearing liabilities and the interest income as a percentage of average interest-earning assets, for the three and six month periods ended June 30, 2007 and 2006.

The table presented below (Analysis of Variance in Net Interest Income Due to Volume and Rates) quantifies the impact on net interest income resulting from changes in average balances and average rates over the periods presented; any change in interest income or expense attributable to both changes in volume and changes in rate has been allocated in proportion to the relationship of the absolute dollar amount of change in each category.

The Federal Reserve Open Market Committee has not increased rates during the past year. The yield on average interest-earning assets decreased to 5.72 percent during the three months ended June 30, 2007 from 5.80 percent in the comparable period of 2006, a change of 8 basis points. This change was offset by higher rates paid for average interest-bearing liabilities coupled with a change in the mix of average interest-bearing liabilities. The total cost of average interest-bearing liabilities increased to 3.91 percent, a change of 47 basis points, for the three months ended June 30, 2007 from 3.44 percent for the three months ended June 30, 2006. At the same time the average volume of interest-bearing liabilities increased by $6.0 million. The change in the average balance of interest-bearing liabilities during the three months ended June 30, 2007 was primarily a reduction in savings and time deposits of $78.7 million, and $16.8 million on average in borrowings offset by increases in money market and other interest bearing deposits. The shift in deposit mix, driven by customer demand, is reflected in the increase in higher yielding money market and other interest bearing demand deposits. These deposits increased on average $101.4 million for the second quarter of 2007 as compared with the comparable period in 2006 and accounted for 40.5 percent of the interest-bearing funding mix as compared to 27.9 percent in the comparable period of 2006. As a result of these factors, for the three months ended June 30, 2007, the Corporation’s net interest spread on a tax-equivalent basis decreased to 1.81 percent from 2.36 percent for the three months ended June 30, 2006.

For the six months ended June 30, 2007, the Corporation’s yield on average interest-earning assets increased to 5.77 percent from 5.62 percent in the comparable period of 2006, a change of 15 basis points. This change was offset by higher rates paid for average interest-bearing liabilities coupled with a change in the mix of average interest-bearing liabilities. The total cost of average interest-bearing liabilities increased to 3.89 percent, a change of 56 basis points, for the six months ended June 30, 2007 from 3.33 percent for the six months ended June 30, 2006. At the same time the average volume of interest-bearing liabilities declined by $17.2 million. The reduction in the average balance of interest-bearing liabilities during the six months ended June 30, 2007 was primarily in savings and time deposits of $68.1 million, and $63.9 million on average in borrowings offset by increases in money market and other interest bearing deposits. The shift in deposit mix, driven by customer demand, is reflected in the increase in higher yielding money market and other interest bearing demand deposits. These deposits increased on average $114.9 million for the first six months of 2007 as compared with the comparable period in 2006 and accounted for 39.4 percent of the interest-bearing funding mix as compared to 24.5 percent in the comparable period of 2006. As a result of these factors, for the six months ended June 30, 2007, the Corporation’s net interest spread on a tax-equivalent basis decreased to 1.88 percent from 2.29 percent for the six months ended June 30, 2006.

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The following table, “Analysis of Variance in Net Interest Income Due to Volume and Rates”, analyzes net interest income by segregating the volume and rate components of various interest-earning assets and liabilities and the changes in the rates earned and paid by the Corporation.

Analysis of Variance in Net Interest Income Due to Volume and Rates

	Three Months Ended June 30, 2007/2006 Increase (Decrease) Due to Change In:									Six Months Ended June 30, 2007/2006 Increase (Decrease) Due to Change In:
Tax-Equivalent (Dollars in Thousands)	Average Volume			Average Rate			Net Change			Average Volume			Average Rate			Net Change
Interest-earning assets:
Investment securities:
Taxable	$	(224	)	$	(446	)	$	(670	)	$	(1,387	)	$	(146	)	$	(1,533	)
Non-Taxable		(171	)		68			(103	)		(329	)		50			(279	)
Loans, net of unearned discounts		350			147			497			932			557			1,489
Federal funds sold and securities purchased under agreement to resell		105			10			115			318			12			330
Restricted investment in bank stock		5			(12	)		(7	)		(48	)		21			(27	)
Total interest-earning assets	$	65		$	(233	)	$	(168	)	$	(514	)	$	494		$	(20	)
Interest-bearing liabilities:
Money market deposits		390			566			956			1,086			1,170			2,256
Savings deposits		(123	)		26			(97	)		(273	)		69			(204	)
Time deposits		(627	)		252			(375	)		(904	)		780			(124	)
Other interest-bearing deposits		269			343			612			468			652			1,120
Borrowings		(70	)		182			112			(1,169	)		555			(614	)
Trust preferred		(210	)		(24	)		(235	)		(414	)		(47	)		(461	)
Total interest-bearing liabilities		(371	)		1,344			973			(1,206	)		3,179			1,973
Change in net interest income	$	436		$	(1,577	)	$	(1,141	)	$	692		$	(2,685	)	$	(1,993	)

24

The following table, “Average Statement of condition with Interest and Average Rates”, presents for the six months ended June 30, 2007 and 2006 the Corporation’s average assets, liabilities and stockholders’ equity. The Corporation’s net interest income, net interest spreads and net interest income as a percentage of interest-earning assets (net interest margin) are also reflected.

Average Statements of Condition with Interest and Average Rates

	Six Months Ended June 30,
	2007									2006
(Tax-Equivalent Basis, Dollars in Thousands)	Average Balance			Interest Income/ Expense			Average Yield/ Rate			Average Balance		Interest Income/ Expense			Average Yield/ Rate
Assets:
Interest-earning assets:
Investment securities:(1)
Taxable	$	282,874		$	7,026			4.97	%	$	338,639	$	8,559			5.05	%
Tax-exempt		101,267			2,948			5.82			112,585		3,227			5.73
Loans, net of unearned income(2)		536,863			16,627			6.19			506,365		15,138			5.98
Federal funds sold and securities purchased under agreement to resell		18,582			481			5.18			6,255		151			4.83
Restricted investment in bank stocks		7,800			264			6.77			9,258		291			6.29
Total interest-earning assets		947,386			27,346			5.77			973,102		27,366			5.62
Non-interest-earning assets:
Cash and due from banks		20,230									21,811
Bank owned life insurance		21,576									19,275
Intangible assets		17,286									17,408
Other assets		34,230									28,088
Allowance for loan losses		(4,973	)										(4,936	)
Total non-interest earning assets		88,349									81,646
Total assets	$	1,035,735								$	1,054,748
Liabilities and stockholders’ equity
Interest-bearing liabilities:
Money market deposits	$	142,320		$	3,214			4.52	%	$	79,022	$	958			2.42	%
Savings deposits		72,449			753			2.08			99,090		957			1.93
Time deposits		198,325			4,675			4.71			239,851		4,799			4.00
Other interest-bearing deposits		172,316			1,998			2.32			120,766		878			1.45
Short-term borrowings and FHLB advances		208,047			4,705			4.52			261,670		5,319			4.07
Subordinated debentures		5,155			205			7.95			15,465		666			8.61
Total interest-bearing liabilities		798,612			15,550			3.89			815,864		13,577			3.33
Non-interest-bearing liabilities:
Demand deposits		132,512									135,509
Other non-interest-bearing deposits		406									2,547
Other liabilities		6,511									3,697
Total non-interest-bearing liabilities		139,429									141,753
Stockholders’ equity		97,694									97,131
Total liabilities and stockholders’ equity	$	1,035,735								$	1,054,748
Net interest income (tax-equivalent basis)				$	11,796							$	13,789
Net interest spread								1.88	%							2.29	%
Net interest income as percent of earning-assets (net interest margin)								2.49	%							2.83	%
Tax-equivalent adjustment(3)					(950	)							(1,081	)
Net interest income				$	10,846							$	12,708

(1) Average balances for available-for-sale securities are based on amortized cost

(2) Average balances for loans include loans on non-accrual status

(3) The tax-equivalent adjustment was computed based on a statutory Federal income tax rate of 34 percent.

25

The following table, “Average Statement of condition with Interest and Average Rates”, presents for the three months ended June 30, 2007 and 2006 the Corporation’s average assets, liabilities and stockholders’ equity. The Corporation’s net interest income, net interest spreads and net interest income as a percentage of interest-earning assets (net interest margin) are also reflected.

Average Statements of Condition with Interest and Average Rates

	Three Months Ended June 30,
	2007									2006
(Tax-Equivalent Basis, Dollars in Thousands)	Average Balance			Interest Income/ Expense			Average Yield/ Rate			Average Balance			Interest Income/ Expense			Average Yield/ Rate
Assets:
Interest-earning assets:
Investment securities:(1)
Taxable	$	278,573		$	3,294			4.73	%	$	295,952		$	3,964			5.36	%
Tax-exempt		99,023			1,448			5.85			110,872			1,551			5.60
Loans, net of unearned income(2)		532,799			8,274			6.21			510,126			7,777			6.10
Federal funds sold and securities purchased under agreement to resell		19,635			256			5.22			11,553			141			4.88
Restricted investment in bank stocks		7,744			139			7.18			7,469			146			7.82
Total interest-earning assets		937,774			13,411			5.72			935,972			13,579			5.80
Non-interest-earning assets:
Cash and due from banks		18,212									23,272
Bank owned life insurance		21,687									19,884
Intangible assets		17,272									17,393
Other assets		34,867									27,800
Allowance for loan losses		(4,986	)								(4,936	)
Total non-interest earning assets		87,052									83,413
Total assets	$	1,024,826								$	1,019,385
Liabilities and stockholders’ equity
Interest-bearing liabilities:
Money market deposits	$	139,738		$	1,614			4.62	%	$	95,371		$	658			2.76	%
Savings deposits		70,735			371			2.10			94,498			468			1.98
Time deposits		187,906			2,211			4.71			242,804			2,586			4.26
Other interest-bearing deposits		180,440			1,073			2.38			123,348			461			1.49
Short-term borrowings and FHLB advances		206,073			2,346			4.55			212,549			2,234			4.20
Subordinated debentures		5,155			104			8.07			15,465			339			8.77
Total interest-bearing liabilities		790,047			7,719			3.91			784,035			6,746			3.44
Non-interest-bearing liabilities:
Demand deposits		130,291									135,299
Other non-interest-bearing deposits		410									1,803
Other liabilities		6,159									2,782
Total non-interest-bearing liabilities		136,860									139,884
Stockholders’ equity		97,919									95,466
Total liabilities and stockholders’ equity	$	1,024,826								$	1,019,385
Net interest income (tax-equivalent basis)				$	5,692								$	6,833
Net interest spread								1.81	%								2.36 %
Net interest income as percent of earning-assets(net interest margin)								2.43	%								2.92	%
Tax-equivalent adjustment(3)					(467	)								(525	)
Net interest income				$	5,225								$	6,308

(1) Average balances for available-for-sale securities are based on amortized cost

(2) Average balances for loans include loans on non-accrual status

(3) The tax-equivalent adjustment was computed based on a statutory Federal income tax rate of 34 percent.

26

Investment Portfolio

For the three months ended June 30, 2007, the average volume of investment securities decreased by $29.2 million to approximately $377.6 million or 40.3 percent of average earning assets from $406.8 million on average, or 43.5 percent of earning-assets, in the comparable period in 2006. The decrease in the average volume of investment securities largely reflects maturities, calls, sales and payments and reinvestment of that cash flow into other components of the earning-asset mix. At June 30, 2007, the principal components of the investment portfolio are U.S. Treasury and U.S. Government Agency Obligations, Federal Agency Obligations including Mortgage-backed securities, Obligations of U.S. states and political subdivision, corporate bonds and notes, and other debt securities. The volume related factors during the three-month period ended June 30, 2007 reflected decreased revenue by $395,000, while rate related changes resulted in a decrease in revenue of $378,000. The tax-equivalent yield on investments decreased by 40 basis points to 5.02 percent from a yield of 5.42 percent during the comparable period ended June 30, 2006. The 40 basis points decrease in the tax equivalent yield in investments was attributable to the decline in the volume of securities coupled with maturities of higher yielding bonds within the securities portfolio, which were not replaced.

For the six months ended June 30, 2007, the average volume of investment securities decreased by $67.1 million to approximately $384.1 million or 40.55 percent of average earning assets from $451.2 million on average, or 46.4 percent of earning-assets, in the comparable period in 2006. The tax-equivalent yield on investments decreased by 3 basis points to 5.19 percent from a yield of 5.22 percent during the six-month period ended June 30, 2006. The higher rate environment favorably impacted purchases made to replace securities, which had matured, were prepaid, or were called. There was some portfolio extension where risk is relatively minimal within the portfolio, resulting in wider spreads, specifically with certain corporate and tax-free municipal securities added to the portfolio during 2006 and 2007. The volume related figures during the six-month period ended June 30, 2007 contributed a decrease in revenue of $1.7 million while rate related changes amounted to a decrease in revenue of $96,000.

Securities available-for-sale is a part of the Corporation’s interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, liquidity management and other factors. During the three and six month periods ended June 30, 2007, approximately $20.2 million and $41.3 million in securities were sold from the Corporation’s available-for-sale portfolio, respectively. The cash flow from the sale of investment securities was in part invested back into the portfolio. The Corporation’s sales from its available-for-sale portfolio were made in the ordinary course of business and resulted in gains in the amount of $355,000. Calls and sales from the Corporation’s held-to-maturity portfolio resulted in a gain of $574,000, and those securities which had been sold from the held-to-maturity portfolio were sold in anticipation of imminent calls of the securities permissible in accordance with FASB No. 115.

At June 30, 2007 the net unrealized loss carried as a component of other comprehensive income and included in stockholders’ equity, net of tax, amounted to a net unrealized loss of $7.0 million as compared with a net unrealized loss of $4.2 million at December 31, 2006, and $5.2 million at June 30, 2006, resulting from a change in interest rates that occurred at the market value measurement date June 30, 2007 compared with June 30, 2006.

Loan Portfolio

Lending is one of the Corporation’s primary business activities. The Corporation’s loan portfolio consists of both retail and commercial loans, serving the diverse customer base in its market area. The composition of the Corporation’s loan portfolio continues to change due to the local economy. Factors such as the economic climate, interest rates, real estate values and employment all contribute to these changes. Loan growth has been generated through business development efforts and entry, through branching, into new markets.

At June 30, 2007 total loans amounted to $533.7 million, an increase of $3.0 million or .57 percent as compared to June 30, 2006. The increase in yield on loans for the quarter was the result of the increase in interest rates as compared with 2006, lessened to some extent by the competitive rate pricing structure and tighter spreads in the market on loans which has been driven by the heightened competition for lending relationships that exists in the Corporation’s market. Loan growth during the quarter ended June 30, 2007 occurred primarily in the commercial and commercial real estate sector of the loan portfolio.

27

Total average loan volume increased $22.7 million or 4.44 percent for the three months ended June 30, 2007, while portfolio yield increased to 6.21 basis points as compared with 2006. The increased total average loan volume was due primarily to increased customer activity, new lending relationships and new markets. The volume related factors during the period, contributed increased revenue of $350,000, while the rate related changes contributed $147,000. The Corporation seeks to create growth in commercial lending by offering products and competitive pricing and by capitalizing on the positive trends in its market area. Products are offered to meet the financial requirements of the Corporation’s clients. It is the objective of the Corporation’s credit policies to diversify the commercial loan portfolio to limit concentrations in any single industry.

For the six months ended June 30, 2007, average loan volume increased $30.5 million or 6.02 percent, while portfolio yield increased by 21 basis points as compared with the same period in 2006. The volume related factors during the period contributed revenue of $932,000 and rate related changes amounted to an improvement in revenue of $557,000. Total average loan volume increased to $536.9 million with a yield of 6.19 percent, as compared to $506.4 million with a yield of 5.98 percent for the six months ended June 30, 2006. The increased portfolio yield was a result of increased volume and a more favorable interest rate environment during the first six months of 2007, compared with the similar period of 2006.

Allowance for Loan Losses and Related Provision

The purpose of the allowance for loan losses (“allowance”) is to absorb the impact of losses inherent in the loan portfolio. Additions to the allowance are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The allowance for loan losses is maintained at an amount considered adequate by management to provide for potential credit losses based upon a periodic evaluation of the risk characteristics of the loan portfolio. In establishing an appropriate allowance, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies and problem loans are considered. Such factors as the level and trend of interest rates and current economic conditions and peer group statistics are also reviewed. At June 30, 2007 the level of the allowance was $4,974,000 as compared to a level of $4,935,000 at June 30, 2006 and $4,960,000 at December 31, 2006. The Corporation added $100,000 to the provision for allowance for loan losses during the three-month period ended June 30, 2007. No provision was added for the three-month period ending June 30, 2006. The level of the allowance during the respective quarterly periods of 2007 and 2006 reflects the credit quality within the loan portfolio, the loan volume recorded during the periods and the Corporation’s focus on the changing composition of the commercial and residential real estate loan portfolios.

At June 30, 2007, the allowance for loan losses amounted to 0.93 percent of total loans. In management’s view, the level of the allowance at June 30, 2007, is adequate to cover losses inherent in the loan portfolio. Management’s judgment regarding the adequacy of the allowance constitutes a “Forward Looking Statement” under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the allowance.

Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to increase the allowance based on their analysis of information available to them at the time of their examination. Furthermore, the majority of the Corporation’s loans are secured by real estate in the State of New Jersey. Future adjustments to the allowance may be necessary due to economic factors impacting New Jersey real estate as well as operating, regulatory and other conditions beyond the Corporation’s control. The allowance for loan losses as a percentage of total loans amounted to 0.93 percent, 0.90 percent and 0.93 percent at June 30, 2007, December 31, 2006 and June 30, 2006, respectively. Net charge-offs were $86,000 and $2,000 during the six months ended June 30, 2007 and 2006, respectively. Changes in the allowance for loan losses are set forth below.

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	Six Months Ended June 30,
(Dollars in Thousands)	2007			2006
Average loans outstanding	$	536,863		$	506,365
Total loans at end of period	$	533,675		$	530,650
Analysis of the Allowance for Loan Losses
Balance at the beginning of year	$	4,960		$	4,937
Charge-offs:
Residential loans		13			0
Installment loans		77			15
Total charge-offs		90			15
Recoveries:
Commercial		1			—
Installment loans		3			13
Total recoveries		4			13
Net charge-offs		86			2
Provision for loan losses		100			—
Balance at end of period	$	4,974		$	4,935
Ratio of net charge-offs during the period to average loans outstanding during the period		.02	%		N/M
Allowance for loan losses as a percentage of total loans at end of period		0.93	%		0.93 %

N/M – not meaningful

Asset Quality

The Corporation manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans and delinquencies, with particular attention to portfolio dynamics and mix. The Corporation strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values, and to maintain an adequate allowance for loan losses at all times. These practices have protected the Corporation during economic downturns and periods of uncertainty.

It is generally the Corporation’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may be restored to an accruing basis when it again becomes well secured all past due amounts have been collected, and the borrower continues to make payments for the next six months on a timely basis. Accruing loans past due 90 days or more are generally well secured and in the process of collection.

Non-performing and Past Due Loans, OREO

Non-performing loans include non-accrual loans, accruing loans past due 90 days or more and troubled debt restructurings. Non-accrual loans represent loans on which interest accruals have been suspended. It is the Corporation’s general policy to consider the charge-off of loans when they become contractually past due ninety days or more as to interest or principal payments or when other internal or external factors indicate that collection of principal or interest is doubtful. Troubled debt restructurings represent loans on which a concession was granted to a borrower, such as a reduction in interest rate, which is lower than the current market rate for new debt with similar risks. At June 30, 2007 the Corporation had approximately $586,000 in other real estate owned (OREO) and no troubled debt restructurings. The Corporation had no other real estate owned or troubled debt restructuring at June 30, 2006.

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The following table sets forth, as of the dates indicated, the amount of the Corporation’s non-accrual loans, accruing loans past due 90 days or more and other real estate owned. The Corporation had no restructured loans on any of such dates.

Non-Performing Assets

(Dollars in Thousands)	June 30, 2007		December 31, 2006		June 30, 2006
Non-accrual loans	$	1,070	$	475	$	431
Trouble debt restructuring		—		—		—
Other real estate owned		586		—		—
Accruing loans past due 90 days or more		—		225		2,000
Total non-performing assets and accruing loans past due 90 days or more	$	1,656	$	700	$	2,431

The Corporation had non-performing assets of $1.7 million at June 30, 2007, as compared with $700,000 at December 31, 2006 and $2,431,000 at June 30, 2006.

The increase in non-accrual loans of $595,000 at June 30, 2007 from December 31, 2006 was due to the addition of one commercial mortgage and one commercial loan. All of these loans are real estate secured.

Other known “potential problem loans” (as defined by SEC regulations) as of June 30, 2007 have been identified and internally risk rated as other assets especially mentioned or substandard. Such loans amounted to $861,000, $1.399 million and $1.952 million at June 30, 2007, December 31, 2006, and June 30, 2006 respectively. The Corporation has no foreign loans.

At June 30, 2007, other than the loans set forth above, the Corporation is not aware of any loans which present serious doubts as to the ability of its borrowers to comply with present loan repayment terms and which are expected to fall into one of the categories set forth in the tables or descriptions above.

In general, it is the policy of management to consider the charge-off of loans at the point they become past due in excess of 90 days, with the exception of loans that are secured by cash or marketable securities or mortgage loans, which are in the process of foreclosure.

Other Income

The following table presents the principal categories of other income during the three and six months ended June 30, 2007, and 2006

	Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in Thousands)	2007		2006		Amount Increase (Decrease)			Percent Change			2007		2006			Amount Increase (Decrease)			Percent Change
Service charges, commissions and fees	$	436	$	449	$	(13	)		(2.90	)	$	855	$	887		$	(32	)		3.61
Other income		110		91		19			20.88			227		210			17			8.10
Annuity & Insurance		60		53		7			13.21			123		105			18			17.14
Bank owned life insurance		230		203		27			13.30			453		384			69			17.97
Net gain/(loss) on securities sold		341		77		264			342.86			929		(3,578	)		4,507			125.96
Total other income	$	1,177	$	873	$	304			34.82		$	2,587	$	(1,992	)	$	4,579			229.87

For the three-month period ended June 30, 2007, other income, exclusive of net gains/(losses) on securities sold, increased $40,000 or 5.03 percent from the comparable quarter of 2006. Other income, including net gains/ (losses) on securities sold, increased $304,000 for the second quarter 2007 compared with the

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comparable quarter in 2006. The increase in total other income for the period resulted from the increased gains on securities sold and increased annuity and insurance sales fees and change in cash surrender value on bank owned life insurance while service charges decreased. The slight decline of $13,000 in service charges, commissions and fees was the result of a decline in fees related to overdrafts.

For the six-month period ended June 30, 2007, other income, exclusive of net gains/(losses) on securities sold, increased $72,000 or 4.54 percent from the six-month period of 2006. Other income, including net gains/ (losses) on securities sold, increased $4.6 million for the first six-months of 2007 compared with the comparable period in 2006. The increase in total other income for the period resulted from the increased gains on securities sold and increased annuity and insurance sales fees and change in cash surrender value on bank owned life insurance, while service charges decreased. The modest decline of $32,000 in service charges, commissions and fees was a result of a decline in fees related to overdrafts.

For the three-month period ended June 30, 2007, the Corporation recorded a gain of $341,000 on securities sold from the available-for-sale investment portfolio compared to a net gain of $77,000 for the three-month period ended June 30, 2006. The gains from sales in the second quarter of 2007 were made in the ordinary course of business. During the six-month period ended June 30, 2007 the Corporation recorded a net gain of $929,000 on securities sold from the available-for-sale investment portfolio compared to losses of $3.6 million in the comparable period of 2006. The losses in 2006 were from sales in March 2006,which were made as part of the Company’s decision to deleverage its statement of condition to improve the Company’s interest rate profile. The proceeds from the sales were used to pay down borrowings as part of that restructuring transaction.

Other Expense

The following table presents the principal categories of other expense during the three months ended June 30, 2007 and 2006.

	Three Months Ended June 30,										Six Months Ended June 30,
(Dollars in thousands)	2007		2006		Amount Increase (Decrease)			Percent Change			2007		2006		Amount Increase (Decrease)			Percent Change
Salaries and employee benefits	$	2,834	$	3,037	$	(203	)		(6.68	)	$	5,976	$	6,319		($ 343	)		(5.43	)
Occupancy, net		629		521		108			20.73			1,352		1,127		225			19.96
Premises and equipment		436		467		(31	)		(6.64	)		898		915		(17	)		(1.86	)
Professional and consulting		599		221		378			171.01			1,138		554		584			105.42
Stationery and printing		115		178		(63	)		(35.39	)		274		389		(115	)		(29.56	)
Marketing and advertising		109		187		(78	)		(41.71	)		272		301		(29	)		(9.63	)
Computer		148		168		(20	)		(11.90	)		313		364		(51	)		(14.01	)
Other		1,186		987		199			20.16			2,261		1,998		263			13.16
Total other non-interest expense	$	6,056	$	5,766	$	290			5.03		$	12,484	$	11,967	$	517			4.32

For the three months ended June 30, 2007, total other expenses increased $290,000 or 5.03 percent over the comparable quarterly period ended June 30, 2006.

The increases for the period are primarily related to the increases in professional and consulting fees, occupancy and bank premise expense and other operating expenses, offset in part by a decline of $203,000 in salary and benefit expense as compared to the comparable period in 2006. The Corporation’s ratio of other expenses (annualized) to average assets increased to 2.36 percent for the second quarter of 2007 from 2.26 for the comparable quarter of 2006.

Salaries and employee benefits decreased $203,000 or 6.68 percent for the three months ended June 30, 2007 as compared to the comparable three-month period ended June 30, 2006. This decrease is primarily attributable to costs associated with a decline in staffing levels, offset in part by certain merit and promotional pay increases and increased hospitalization expense. Salary and benefit expense for the three months ended June 30, 2007 includes compensation expense of $35,000 for share-based payments pursuant to FASB 123R. Staffing levels decreased to 189 full-time equivalent employees at June 30, 2007 as compared to 217 full-time

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equivalent employees at June 30, 2006. In March 2007 the Company reduced its overall staffing level by approximately 10 percent through attrition, layoffs and voluntary resignations, and took a one-time, pre-tax charge of approximately $140,000 in the first quarter of 2007 related to termination benefits. The Corporation expects these initiatives to reduce salary and benefit expenses by $1.1 million annually and expects to reach that annualized run rate of savings by the end of the first quarter of 2008. This projection represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially as a result of unanticipated needs for additional personnel or other unanticipated factors.

For the three months ended June 30, 2007, occupancy and premises expenses increased $77,000 or 7.79 percent over the comparable three-month period in 2006. The increase in occupancy and equipment expenses reflects higher operating costs (utilities, rent, real-estate taxes and general repair and maintenance) of the Corporation’s expanded facilities, as well as depreciation expense associated with the expanded bank facilities, which includes the new Boonton / Mountain Lakes office which opened in October 2006.

Professional and consulting fees for the three months ended June 30, 2007 increased $378,000 or 171.01 percent over the comparable period in 2006 due to an increase in expenses attributable to the annual meeting and contested proxy, advisory service and consulting associated with conversions.

Stationery and printing expense for the three months ended June 30, 2007 decreased $63,000 or 35.4 percent over the comparable period in 2006 due to a decline in expense related to marketing and advertising printing materials. Marketing and advertising expense decreased by $78,000 or 41.7 percent compared to the three-month period ended June 30, 2006 due to decreased media and advertising.

Computer expense for the three-month period ended June 30, 2007 decreased $20,000 or 11.9 percent compared to the comparable quarter of 2006 due to a decrease in fees for ADP payroll and other computer services.

Other expense for the second quarter of 2007 totaled $1.2 million, an increase of $199,000 or 20.16 percent over the comparable period in 2006. The increase is such expense was primarily attributable to higher levels of operating expenses during the second quarter resulted primarily from increases in other general and administrative expense associated with increases in compliance, audit fees, and insurance expense and customer related corporate analysis charges.

Salaries and employee benefits decreased $343,000 or 5.43 percent for the six months ended June 30, 2007 as compared to the comparable six-month period ended June 30, 2006. This decrease is primarily attributable to costs associated with a decline in staffing levels, offset in part by certain merit and promotional pay increases and increased hospitalization expense premiums. Salary and benefit expense for the six months ended June 30, 2007 includes compensation expense of $64,847 for share-based payments pursuant to FASB 123R as well as $5,517 associated with the settlement of a pension curtailment resulting from the reduction in workforce.

For the six months ended June 30, 2007, occupancy and premises expenses increased $208,000 or 10.19 percent over the comparable six-month period in 2006. The increase in occupancy and equipment expenses reflects higher operating costs (utilities, rent, real-estate taxes and general repair and maintenance) of the Corporation’s expanded facilities, as well as depreciation expense associated with the expanded bank facilities.

Professional and consulting fees for the six months ended June 30, 2007 increased $584,000 or 105.42 percent over the comparable period in 2006 due to an increase in expenses attributable to the annual meeting and contested proxy, advisory service and consulting fees associated with conversions of bank applications.

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Stationery and printing expense for the six months ended June 30, 2007 decreased $115,000 or 29.6 percent over the comparable period in 2006 due to a decline in expense related to marketing and advertising printing materials. Marketing and advertising expense increased by $29,000 or 9.63 percent compared to the six-month period ended June 30, 2006 due to increased media and advertising.

Computer expense for the six-month period ended June 30, 2007 decreased $51,000 or 14.01 percent compared to the comparable six-month period of 2006 due to a decrease in fees for ADP payroll and other computer services. Other expense for the first six months of 2007 totaled $2.3 million, an increase of $263,000 or 13.16 percent over the comparable period in 2006. The increase is such expense was primarily attributable to higher other general and administrative expense reflecting increases in director fees, telephone, insurance and customer related expenses.

Provision for Income Taxes

For the three-month ended June 30, 2007, the Corporation recorded an income tax benefit of $771,000, as compared with an expense of $43,000 for the quarter ended June 30, 2006. For the six months ended June 30, 2007, the Corporation recorded a benefit of $1.5 million for income taxes compared to a benefit of $1.6 million for the comparable six months of 2006. In the 2006 period, the Corporation recognized a pre-tax net loss on securities sales of $3.6 million. In the 2007 period, the tax benefit resulted in part from change in the Corporation’s business entity structure, which led to the recognition of a $1.4 tax benefit. The effective tax rates for the Corporation for the respective six-month periods ended June 30, 2007 and 2006 were (173.97) percent and (124.4) percent, respectively. The effective tax rate continues to be less than the combined statutory Federal tax rate of 34 percent and the New Jersey State tax rate of 9 percent. The Corporation adjusts its expected annual tax rate on a quarterly basis based on the current projections of non-deductible expenses, tax- exempt interest income, increase in the cash surrender value of bank owned life insurance and pre-tax net earnings.

Tax-exempt interest income on a fully tax equivalent basis decreased by $103,000, or 6.64 percent, from the second quarter of 2007 to the comparable period in 2006. The Corporation recorded income related to the cash surrender value of bank owned life insurance as a component of other income during the period in the amount of $230,000 in 2007 and $203,000 during the second quarter of 2006. During the six months ended June 30, 2007 tax -exempt income on a fully tax equivalent basis decreased by $279,000, or 8.65 percent from the comparable six-month period of 2006. The Corporation recorded income related to the cash surrender value of bank owned life insurance as a component of other income during the period in the amount of $453,000 for the six months ended June 30, 2007 and $384,000 for the comparable period of 2006.

The Corporation has adopted the provisions of FASB Interpretation No.48 “Accounting for Uncertainty in Income taxes” on January 1, 2007. As a result of the implementation of Interpretation 48, the Corporation did not recognize an increase in the liability for unrecognized tax benefits to the provision for income taxes. Included in the balance at June 30, 2007 are $1.7 million of tax positions, an increase from $1.1 million at December 31, 2006, for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

The total unrecognized benefits, that, if recognized would affect the effective tax rate was $1.7 million. Because of the impact of deferred tax accounting, to amounts other than interest and penalties, the disallowance of the shorter deductibility periods would not only affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

Recent Accounting Pronouncements

Note 4 of the Consolidated Financial Statements discusses new accounting policies adopted by the Corporation during 2007 and the expected impact of accounting policies recently issued or proposed but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition results of operations or liquidity, the impacts are discussed in the applicable sections of this financial review and notes to the consolidated financial statements.

Asset and Liability Management

Asset and Liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital. The

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composition of the Corporation’s statement of condition is planned and monitored by the Asset and Liability Committee (“ALCO”). In general, management’s objective is to optimize net interest income and minimize market risk and interest rate risk by monitoring these components of the statement of condition.

Short-term interest rate exposure analysis is supplemented with an interest sensitivity gap model. The Corporation utilizes interest sensitivity analysis to measure the responsiveness of net interest income to changes in interest rate levels. Interest rate risk arises when an earning-asset matures or when its interest rate changes in a time period different than that of a supporting interest-bearing liability, or when an interest-bearing liability matures or when its interest rate changes in a time period different than that of an earning-asset that it supports. While the Corporation matches only a small portion of specific assets and liabilities, total earning assets and interest-bearing liabilities are grouped to determine the overall interest rate risk within a number of specific time frames. The difference between interest sensitive assets and interest sensitive liabilities is referred to as the interest sensitivity gap. At any given point in time, the Corporation may be in an asset-sensitive position, whereby its interest-sensitive assets exceed its interest-sensitive liabilities, or in a liability-sensitive position, whereby its interest-sensitive liabilities exceed its interest-sensitive assets, depending in part on management’s judgment as to projected interest rate trends.

The Corporation’s rate sensitivity position in each time frame may be expressed as assets less liabilities, as liabilities less assets, or as the ratio between rate sensitive assets (“RSA”) and rate sensitive liabilities (“RSL”). For example, a short funded position (liabilities repricing before assets) would be expressed as a net negative position, when period gaps are computed by subtracting repricing liabilities from repricing assets. When using the ratio method, a RSA/RSL ratio of 1 indicates a balanced position, a ratio greater than 1 indicates an asset sensitive position and a ratio less than 1 indicates a liability sensitive position.

A negative gap and/or a rate sensitivity ratio less than 1, tends to expand net interest margins in a falling rate environment and to reduce net interest margins in a rising rate environment. Conversely, when a positive gap occurs, generally margins expand in a rising rate environment and contract in a falling rate environment. From time to time, the Corporation may elect to deliberately mismatch liabilities and assets in a strategic gap position.

At June 30, 2007, the Corporation reflects a negative interest sensitivity gap (or an interest sensitivity ratio of .55:1.00) at the cumulative one-year position. For the six months ended June 30, 2007 and for all of 2006 and 2005, the Corporation had a negative interest sensitivity gap. The rising rates and a flattening of the yield curve during 2006 affected net interest margins. Based on management’s perception that interest rates will continue to be volatile, projected increased levels of prepayments on the earning-asset portfolio and the current level of interest rates, emphasis has been, and is expected to continue to be, placed on interest-sensitivity matching with the objective of stabilizing the net interest spread during 2007. However, no assurance can be given that this objective will be met.

Estimates of Fair Value

The estimation of fair value is significant to a number of the Corporation’s assets, including loans held for sale, other real estate owned and available for sale investment securities. These are all recorded at either fair value or lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates, or market interest rates. Fair values for most available for sale investment securities are based on quoted market prices. If quoted market prices are not available, fair values are based on judgments regarding future expected loss experience, current economic condition risk characteristics of various financial instruments, and other factors.

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These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Impact of Inflation and Changing Prices

The financial statements and notes thereto presented elsewhere herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the operations; unlike most industrial companies, nearly all of the Corporation’s assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Liquidity

The liquidity position of the Corporation is dependent on successful management of its assets and liabilities so as to meet the needs of both deposit and credit customers. Liquidity needs arise principally to accommodate possible deposit outflows and to meet customers’ requests for loans. Scheduled principal loan repayments, maturing investments, short-term liquid assets and deposit in-flows, can satisfy such needs. The objective of liquidity management is to enable the Corporation to maintain sufficient liquidity to meet its obligations in a timely and cost-effective manner.

Management monitors current and projected cash flows, and adjusts positions as necessary to maintain adequate levels of liquidity. By using a variety of potential funding sources and staggering maturities, the risk of potential funding pressure is reduced. Management also maintains a detailed liquidity contingency plan designed to respond adequately to situations which could lead to liquidity concerns.

Management believes that the Corporation has the funding capacity to meet the liquidity needs arising from potential events. In addition to pledgeable securities, the Corporation also maintains borrowing capacity through the Federal Discount Window and the Federal Home Loan Bank of New York secured with loans and marketable securities.

Liquidity is measured and monitored for the Corporation’s bank subsidiary, Union Center National Bank (the “Bank”). The Corporation reviews its net short-term mismatch. This measures the ability of the Corporation to meet obligations should access to Bank dividends be constrained. At June 30, 2007, the Parent Corporation had $383,000 in cash and short-term investments compared to $8.8 million at June 30, 2006. The change in cash at the Parent Corporation level was due in part to the use of funds for the Corporation’s common stock buyback program and the redemption of $10.3 million of subordinated debt. Expenses at the Parent Corporation are moderate and management believes that the Parent Corporation has adequate liquidity to fund its obligations.

Certain provisions of long-term debt agreements, primarily subordinated debt, prevent the Corporation from creating liens on, disposing of or issuing voting stock of subsidiaries. As of June 30, 2007 the Corporation was in compliance with all covenants and provisions of these agreements.

Management monitors current and projected cash flows, and adjusts positions as necessary to maintain adequate levels of liquidity. By using a variety of potential funding sources and staggering maturities, the risk of potential funding pressure is somewhat reduced. Management also maintains a detailed liquidity contingency plan designed to adequately respond to situations which could lead to liquidity concerns.

Anticipated cash-flows at June 30, 2007, projected to July 1, 2008, indicates that the Bank’s liquidity should remain strong, with an approximate projection of $196.9 million in anticipated cash flows over the next twelve months. This projection represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from this projection depending upon a number of factors, including the liquidity needs of the Bank’s customers, the availability of sources of liquidity and general economic conditions.

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Deposits

Total deposits decreased to $678.0 million on June 30, 2007 from $726.8 million at December 31, 2006 and $773.0 million at June 30, 2006. The $95.0 million decrease or 12.28 percent from June 2006 was attributable to the decrease in time deposits and non-interest bearing deposits.

Total non-interest-bearing deposits decreased from $136.3 million at December 31, 2006 to $127.8 million at June 30, 2007, a decrease of $8.8 million or 6.46 percent. The decline is attributable to fluctuations in business activity. Interest bearing demand, savings and time deposits decreased $32.8 million at June 30, 2007 as compared to $515.3 million, at June 30, 2006. During the six months ended June 30, 2007 as compared to the comparable period in 2006, the Corporation experienced a shift in its deposit mix to more costly interest-bearing deposits, driven by the changes that occurred in interest rates. In 2006, the Corporation introduced a new product line, “Ultimate” accounts, which comprised both money market and checking products. Time deposits $100,000 and over decreased $15.9 million to $67.7 million for the six-month period ended June 30, 2007.

The Corporation derives a significant proportion of its liquidity from its core deposit base. For the six-month period ended June 30, 2007, core deposits, comprised of total demand deposits, savings and money market accounts, increased by $9.7 million or 1.91 percent from June 30, 2006 to $518.3 million at June 30, 2007. At June 30, 2007, core deposits were 76.45 percent of total deposits, compared to 72.6 percent at year-end 2006. Alternatively, the Corporation uses a more stringent calculation for the management of its liquidity positions internally, which consists of total demand and savings accounts (excluding money market accounts greater than $100,000) and excludes time deposits as part of core deposits as a percentage of total deposits. This number represented 52.1 percent of total deposits at June 30, 2007 as compared with 44.2 percent at June 30, 2006.

More volatile rate sensitive deposits, concentrated in certificates of deposit $100,000 and greater, decreased to 9.99 percent of total deposits at June 30, 2007 from 16.3 percent at June 30, 2006. This change was due primarily to increased rates and enhanced market competition for certificates of deposit $100,000 and greater in 2007 compared to 2006. As such, the Corporation elected to continue to reduce its reliance on this segment of deposits in the current rate environment.

Core Deposit Mix

The following table depicts the Corporation’s core deposit mix at June 30, 2007 and 2006.

	June 30,										Net Change Volume 2007 vs. 2006
	2007					2006
	Amount			Percentage		Amount			Percentage
	(Dollars in Thousands)
Demand Deposits	$	127,479			36.1	$	131,722			38.5	$	(4,243 )
Interest-Bearing Demand		126,112			35.7		101,376			29.7		24,736
Regular Savings		52,123			14.8		64,382			18.8		(12,259	)
Money Market Deposits under $100		47,444			13.4		44,351			13.0		3,093
Total core deposits	$	353,158			100.0	$	341,831			100.0	$	11,327
Total deposits	$	678,011				$	772,963					(94,952	)
Core deposits to total deposits		52.1	%				44.2	%

Short-Term Borrowings

Short-term borrowings can be used to satisfy daily funding needs. Balances in those accounts fluctuate on a day-to-day basis. The Corporation’s principal short-term funding sources are Federal funds purchased and securities sold under agreement to repurchase. Average short-term borrowings, including federal funds purchased, during the first six months of 2007 amounted to approximately $222.0 million, an increase of $19.5 million or 2.08 percent from the first six months of 2006.

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The following table is a summary of securities sold under repurchase agreements for the six-month periods ended.

	June 30,
	2007			2006
Securities sold under repurchase agreements:
Average interest rate:
At period end		4.76	%		3.69	%
For the period		4.24	%		3.77	%
Average amount outstanding during the period:	$	100,698		$	136,672
Maximum amount outstanding at any month end:	$	119,042		$	195,103
Amount outstanding at period end:	$	119,042		$	96,873

Operating, Investing and Financing Cash Flow

The consolidated statements of cash flows present the changes in cash and cash equivalents from operating, investing and financing activities. During the six months ended June 30, 2007, cash and cash equivalents (which decreased overall by $20.0 million) were provided (on a net basis) by investing activities in the amount of approximately $21.3 million, primarily from a decrease in loans and a as result of net securities cash flow, offset by cash used in financing activities in the amount of approximately $40.8 million, primarily due to a decline in deposits, dividend payments offset in part with a net increase in borrowings of $10.4 million. Net cash used in operating activities amounted to $443,000. At June 30, 2007, the Corporation had no commitments to settle sales or purchase of securities under trade date accounting.

In comparison, the consolidated statements of cash flows for the six months ended June 30, 2006, cash and cash equivalents (which increased overall by $27.9 million) were provided (on a net basis) by operating activities in the amount of approximately $4.4 million and investing activities in the amount of approximately $62.9 million, primarily due to $105.3 million in proceeds from the sale of investment securities available for sale and another $102.6 million in proceeds from maturing investment securities available for sale offset by purchases of $125.4 million of securities available for sale and a $24.8 million increase in loans. Financing activities primarily consisted of cash provided by increases in deposits of $73.4 million offset by a decrease in borrowings of $39.7 million and payments on Federal Home Loan Bank advances of $67.2 million

Stockholders’ Equity

Total stockholders’ equity amounted to $95.8 million or 9.57 percent of total assets at June 30, 2007, compared to $97.6 million or 9.28 percent of total assets at December 31, 2006. The change in stockholders’ equity at June 30, 2007 included, among other things, the impact of the recording of a pension curtailment associated with the reduction in workforce under which the Corporation recorded a $98,000 net of tax charge to the other comprehensive income component of stockholders’ equity. Book value per common share was $6.89 at June 30, 2007, compared to $6.78 at June 30, 2006. Tangible book value (i.e., total stockholders’ equity less goodwill and other intangible assets) per common share was $5.65 at June 30, 2007, and $5.76 at December 31, 2006, and $5.53 at June 30, 2006. Tangible book value is a non-GAAP financial measure and represents total stockholders’ equity less goodwill and other intangible assets, calculated on a per common share basis. The Corporation has provided a reconciliation by also reporting its total book value per share. The Corporation believes that a disclosure of tangible book value per share may be helpful for those investors who seek to evaluate the Corporation’s book value per share without giving effect to goodwill and other intangible assets.

The Corporation had no share repurchases of common stock during the first six months of 2007. In the comparable six months of 2006, the Corporation repurchased 218,719 shares at an average cost per share of $11.77 per share under its buy back program. The Corporation repurchased a total of 343,253 common shares during the twelve-months ended December 31, 2006 at an average cost per share of $11.38 per share. At June 30, 2007, there were 362,139 shares still available for repurchase under the Corporation’s stock buyback program.

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Capital

The maintenance of a solid capital foundation continues to be a primary goal for the Corporation. Accordingly, capital plans and dividend policies are monitored on an ongoing basis. The most important objective of the capital planning process is to balance effectively the retention of capital to support future growth and the goal of providing stockholders with an attractive long-term return on their investment.

Risk-Based Capital/Leverage

The Tier I leverage capital at June 30, 2007 (defined as tangible stockholders’ equity for common stock and Trust Preferred Capital Securities) amounted to $88.8 million or 8.87 percent of total assets. At June 30, 2007, the Corporation’s Tier I leverage risk-based capital amounted to $88.8 million or 8.82 percent of average total assets.

Tier I capital excludes the effect of SFAS No. 115, which amounted to $4.2 million of net unrealized losses, after tax, on securities available-for-sale (reported as a component of accumulated other comprehensive income which is included in stockholders’ equity), $815,000 of net unrealized losses related to the adoption of FASB No. 158, and goodwill and intangible assets of $17.3 million as of June 30, 2007. For information on goodwill and intangible assets, see Note 1 to the Consolidated Financial Statements.

United States bank regulators have issued guidelines establishing minimum capital standards related to the level of assets and off balance-sheet exposures adjusted for credit risk. Specifically, these guidelines categorize assets and off balance-sheet items into four risk-weightings and require banking institutions to maintain a minimum ratio of capital to risk-weighted assets.

At December 31, 2006, the Corporation’s Tier 1 and total risk-based capital ratios were 13.50 percent and 14.26 percent, respectively. These ratios are well above the minimum guidelines of capital to risk-adjusted assets in effect as of June 30, 2007.

The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-statement of condition items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the bank regulators regarding capital components, risk weightings and other factors. As of June 30, 2007, management believes that each of the Bank and the Parent Corporation meet all capital adequacy requirements to which it is subject.

Subordinated Debentures

On December 19, 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of Center Bancorp, Inc., issued $5.0 million of, MMCapS capital securities to investors due on January 23, 2034.

The capital securities presently qualify as Tier I capital. The trust loaned the proceeds of this offering to the Corporation and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or part, prior to maturity but after January 23, 2009. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85 percent and reprices quarterly. The rate at June 30, 2007 was 8.21 percent.

On December 18, 2001, Center Bancorp Statutory Trust I, a statutory business trust and wholly-owned subsidiary of Center Bancorp, Inc., issued $10.0 million of floating rate capital trust pass through securities to investors due on December 18, 2031. The trust loaned the proceeds of this offering to the Corporation and received in exchange $10.3 million of the Parent Corporation’s subordinated debentures. The subordinated debentures were redeemed in whole on December 18, 2006. Prior to redemption on December 18, 2006, the floating interest rate on the subordinated debentures was three-month LIBOR plus 3.85 percent and repriced quarterly.

The additional capital raised with respect to the issuance of the floating rate capital pass through securities was used to bolster the Corporation’s capital and for general corporate purposes, including capital contributions to Union Center National Bank.

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Looking Forward

One of the Corporation’s primary objectives is to achieve balanced asset and revenue growth, and at the same time expand market presence and diversify its financial products. However, it is recognized that objectives, no matter how focused, are subject to factors beyond the control of the Corporation, which can impede its ability to achieve these goals. The following factors should be considered when evaluating the Corporation’s ability to achieve its objectives:

The financial market place is rapidly changing. Banks are no longer the only place to obtain loans, nor the only place to keep financial assets. The banking industry has lost market share to other financial service providers. The future is predicated on the Corporation’s ability to adapt its products, provide superior customer service and compete in an ever-changing marketplace.

Net interest income, the primary source of earnings, is impacted favorably or unfavorably by changes in interest rates. Although the impact of interest rate fluctuations is mitigated by ALCO strategies, significant changes in interest rates can have a material adverse impact on profitability.

The ability of customers to repay their obligations is often impacted by changes in the regional and local economy. Although the Corporation sets aside loan loss provisions toward the allowance for loan losses when the Board determines such action to be appropriate, significant unfavorable changes in the economy could impact the assumptions used in the determination of the adequacy of the allowance.

Technological changes will have a material impact on how financial service companies compete for and deliver services. It is recognized that these changes will have a direct impact on how the marketplace is approached and ultimately on profitability. The Corporation has taken steps to improve its traditional delivery channels. However, continued success will likely be measured by the ability to anticipate and react to future technological changes.

This “Looking Forward” description constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the Corporation’s forward-looking statements due to numerous known and unknown risks and uncertainties, including the factors referred to in this quarterly report and in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006.

Item 3. Qualitative and Quantitative Disclosures about Market Risks

Market Risk

The Corporation’s profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest rates may adversely affect the Corporation’s earnings to the extent that the interest rates borne by assets and liabilities do not similarly adjust. The Corporation’s primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Corporation’s net interest income and capital, while structuring the Corporation’s asset-liability structure to obtain the maximum yield-cost spread on that structure. The Corporation relies primarily on its asset-liability structure to control interest rate risk. The Corporation continually evaluates interest rate risk management opportunities, including the use of derivative financial instruments. The management of the Corporation believes that hedging instruments currently available are not cost-effective, and, therefore, has focused its efforts on increasing the Corporation’s yield-cost spread through wholesale and retail growth opportunities.

The Corporation monitors the impact of changes in interest rates on its net interest income using several tools. One measure of the Corporation’s exposure to differential changes in interest rates between assets and liabilities is the Corporation’s analysis of its interest rate sensitivity. This test measures the impact on net interest income and on net portfolio value of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities and off-statement of condition contracts.

The primary tool used by management to measure and manage interest rate exposure is a simulation model. Use of the model to perform simulations reflecting changes in interest rates over one and two-year time horizons has enabled management to develop and initiate strategies for managing exposure to interest rate risk. In its simulations, management estimates the impact on net interest income of various changes in

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interest rates. Projected net interest income sensitivity to movements in interest rates is modeled based on a ramped rise and fall in interest rates based on a parallel yield curve shift over a 12 month time horizon an then maintained at those levels over the remainder of the model time horizon, which provides a rate shock to the two year period and beyond. The model is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities. The model incorporates assumptions regarding earning-asset and deposit growth, prepayments, interest rates and other factors.

Management believes that both individually and taken together, these assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not an absolutely precise calculation of exposure. For example, estimates of future cash flows must be made for instruments without contractual maturity or payment schedules.

In prior years, the low level of interest rates had necessitated a modification of the Corporation’s standard rate scenario of a movement down 200 basis points over 12 months to down 100 basis points over a 12-month period. However given the recent rise in rates for the year ended December 31, 2006 the Corporation has returned to a -200 basis point change down over a 12-month period.

Based on the results of the interest simulation model as of June 30, 2007, and assuming that management does not take action to alter the outcome, the Corporation would expect an increase of 13.6 percent in net interest income if interest rates decreased 200 basis points from the current rates in a change as noted above over a 12-month period. In a rising rate environment, based on the results of the model as of June 30, 2007, the Corporation would expect a decrease of 14.0 percent in net interest income if interest rates increased by 200 basis points from current rates in a gradual change over a twelve month period.

The rising rates and a flattening of the yield curve during 2007 affected net interest margins. Based on management’s perception that interest rates will continue to be volatile, projected increased levels of prepayments on the earning-asset portfolio and the current level of interest rates, emphasis has been, and is expected to continue to be, placed on interest-sensitivity matching with the objective of stabilizing the net interest spread during 2007. However, no assurance can be given that this objective will be met.

Equity Price Risk

The Corporation is exposed to equity price risk inherent in its portfolio of publicly traded equity securities, which had an estimated fair value of $2.6 million at June 30, 2007 and $4.9 million at June 30, 2006. The Corporation monitors its equity investments for impairment on a periodic basis. In the event that the carrying value of the equity investment exceeds its fair value, and the Corporation determines the decline in value to be other than temporary, the Corporation will reduce the carrying value to its current fair value.

Item 4. Controls and Procedures

a)Disclosure controls and procedures.  As of the end of the Corporation’s most recently completed fiscal quarter covered by this report, the Corporation carried out an evaluation, with the participation of the Corporation’s management, including the Corporation’s chief executive officer and chief financial officer, of the effectiveness of the Corporation’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Corporation’s chief executive officer and chief financial officer concluded that the Corporation’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

b)Changes in internal controls over financial reporting:  There have been no changes in the Corporation’s internal controls over financial reporting that occurred during the Corporation’s last fiscal quarter to which this report relates that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Corporation is subject to claims and lawsuits, which arise primarily in the ordinary course of business. Based upon the information currently available, it is the opinion of management that the disposition or ultimate determination of such claims will not have a material adverse impact on the consolidated financial position, results of operations, or liquidity of the Corporation. This statement represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from this statement, primarily due to the uncertainties involved in proving facts within the context of the legal processes.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

As of June 30, 2007, the Corporation has purchased 345,253 common shares at an average cost per share of $11.38 under the stock buyback program amended on March 27, 2006 for the repurchase of up to 705,392 shares of the Corporation’s outstanding common stock. The repurchased shares were recorded as Treasury Stock, which resulted in a decrease in stockholder’s equity. During the six-months ended June 30, 2007 there were no shares repurchased.

Item 4. Submission of Matters to a Vote of Securities Holders

The Annual Meeting of shareholders was held on Tuesday, May 15, 2007

The following Class 1 Directors, whose three-year terms will expire in 2010, were elected with the following share votes:

	For		Authority Withheld
Brenda Curtis		10,830,031		167,652
Larry Seidman		6,216,135		59,091
Raymond Vanaria		6,197,559		77,667
Harold Schecter		6,070,667		204,559

The following Class 2 Directors, have terms which continue until the 2009 Annual Meeting:

Hugo Barth, III
Alexander A. Bol
John J. DeLaney, Jr.
Eugene V. Malinowski
William A. Thompson

The following Class 3 Directors, have terms which continue until the 2008 Annual Meeting:

Kenneth W. Battiato
James J. Kennedy
Stephen J. LaMont
Paul Lomakin, Jr.
Herbert Schiller

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Item 5. Other Information

None

Item 6. Exhibits

Exhibit 31.1	Certification of the Chief Executive Officer of the Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of the Chief Financial Officer of the Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of the Chief Executive Officer of the Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2	Certification of the Chief Financial Officer of the Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.

CENTER BANCORP, INC.

By: /s/ ANTHONY C. WEAGLEY

Anthony C. Weagley, Treasurer
(Chief Financial Officer)

Date: August 9, 2007

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