ConnectOne Bancorp 10Q 2009 Q3 Quarterly report

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2009

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. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨ Not applicable to the Registrant.

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

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

(Do not check if smaller

reporting company)

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Common Stock, No Par Value:	14,572,029
(Title of Class)	(Outstanding at October 31, 2009)

INDEX TO FORM 10-Q

		Page

PART I. – FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Consolidated Statements of Condition at September 30, 2009 (unaudited) and December 31, 2008	2

	Consolidated Statements of Income for the three and nine months ended September 30, 2009 and 2008 (unaudited)	3

	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2009 and 2008 (unaudited)	4

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (unaudited)	5

	Notes to Consolidated Financial Statements	6-27

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28-47

Item 3.	Qualitative and Quantitative Disclosures about Market Risks	47

Item 4.	Controls and Procedures	48

PART II. – OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 6.	Exhibits	49

Signatures		50

Certifications

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 three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2009, or for any other interim period. The Center Bancorp, Inc. 2008 Annual Report on Form 10-K should be read in conjunction with these financial statements.

Item 1. Financial Statements

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

(Dollars in Thousands, Except Per Share Data)	September 30, 2009			December 31, 2008
	(unaudited)
ASSETS
Cash and due from banks	$	172,401		$	15,031
Investment securities available-for-sale		376,097			242,714
Loans		716,100			676,203
Less: Allowance for loan losses		7,142			6,254
Net loans		708,958			669,949
Restricted investment in bank stocks, at cost		10,673			10,230
Premises and equipment, net		18,155			18,488
Accrued interest receivable		4,642			4,154
Bank owned life insurance		26,162			22,938
Other real estate owned		—			3,949
Goodwill and other intangible assets		17,047			17,110
Other assets		15,381			18,730
Total assets	$	1,349,516		$	1,023,293
LIABILITIES
Deposits:
Non-interest bearing	$	126,205		$	113,319
Interest-bearing
Time deposits $100 and over		265,999			100,493
Interest-bearing transactions, savings and time deposits $100 and less		568,953			445,725
Total deposits		961,157			659,537
Short-term borrowings		52,171			45,143
Long-term borrowings		223,183			223,297
Subordinated debentures		5,155			5,155
Accounts payable and accrued liabilities		9,189			8,448
Due to brokers for investment securities		6,434			—
Total liabilities		1,257,289			941,580
STOCKHOLDERS’ EQUITY
Preferred stock, $1,000 liquidation value per share:
Authorized 5,000,000 shares; issued 10,000 shares in 2009 and none in 2008		9,599			—
Common stock, no par value:
Authorized 20,000,000 shares; issued 15,190,984 shares in 2009 and 2008; outstanding 13,000,601 shares in 2009 and 12,991,312 shares in 2008		86,908			86,908
Additional paid in capital		5,652			5,204
Retained earnings		17,459			16,309
Treasury stock, at cost (2,190,383 shares in 2009 and 2,199,672 shares in 2008)		(17,720	)		(17,796	)
Accumulated other comprehensive loss		(9,671	)		(8,912	)
Total stockholders’ equity		92,227			81,713
Total liabilities and stockholders’ equity	$	1,349,516		$	1,023,293

See the accompanying notes to the consolidated financial statements

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in Thousands, Except Per Share Data )	2009			2008			2009			2008
Interest income:
Interest and fees on loans	$	9,255		$	9,427		$	27,568		$	26,575
Interest and dividends on investment securities:
Taxable interest income		3,874			2,514			9,333			7,914
Non-taxable interest income		185			559			773			2,036
Dividends		177			189			465			645
Interest on Federal funds sold and securities purchased under agreement to resell		—			—			—			109
Total interest income		13,491			12,689			38,139			37,279
Interest expense:
Interest on certificates of deposit $100 or more		1,077			618			2,844			1,830
Interest on other deposits		2,362			2,434			7,191			8,302
Interest on borrowings		2,611			2,777			7,657			8,171
Total interest expense		6,050			5,829			17,692			18,303
Net interest income		7,441			6,860			20,447			18,976
Provision for loan losses		280			465			1,857			1,136
Net interest income after provision for loan losses		7,161			6,395			18,590			17,840
Other income:
Service charges, commissions and fees		464			484			1,353			1,526
Annuities and insurance		17			35			102			90
Bank owned life insurance		273			507			748			956
Other		68			96			244			307
Total other-than-temporary impairment losses		(1,878	)		(1,200	)		(2,018	)		(1,391	)
Less: Portion of loss recognized in other comprehensive income (before taxes)		478			—			478			—
Net other-than-temporary impairment losses		(1,400	)		(1,200	)		(1,540	)		(1,391	)
Net gains on sale of investment securities		889			125			3,339			541
Net investment securities gains (losses)		(511	)		(1,075	)		1,799			(850	)
Total other income		311			47			4,246			2,029
Other expense:
Salaries and employee benefits		2,529			1,919			7,429			6,795
Occupancy, net		539			803			1,919			2,296
Premises and equipment		323			352			963			1,074
FDIC insurance		320			28			1,625			68
Professional and consulting		190			189			638			551
Stationery and printing		81			87			253			300
Marketing and advertising		75			145			346			493
Computer expense		220			238			662			605
OREO expense (benefit), net		30			(44	)		1,438			20
Other		879			861			2,546			2,517
Total other expense		5,186			4,578			17,819			14,719
Income before income tax expense		2,286			1,864			5,017			5,150
Income tax expense		751			346			1,482			1,007
Net income		1,535			1,518			3,535			4,143
Preferred stock dividends and accretion		148			—			425			—
Net income available to common stockholders	$	1,387		$	1,518		$	3,110		$	4,143
Earnings per common share:
Basic	$	0.11		$	0.12		$	0.24		$	0.32
Diluted	$	0.11		$	0.12		$	0.24		$	0.32
Weighted average common shares outstanding :
Basic		13,000,601			12,990,441			12,995,481			13,068,400
Diluted		13,005,101			13,003,954			12,998,211			13,083,112

See the accompanying notes to the consolidated financial statements

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

(Dollars in Thousands, Except Per Share Data)	Preferred Stock		Common Stock		Additional Paid In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance, December 31, 2007	$	-	$	86,908	$	5,133		$	15,161		$	(16,100	)	$	(5,824	)	$	85,278
Comprehensive income:
Net income									4,143									4,143
Other comprehensive loss, net of taxes															(3,682	)		(3,682	)
Total comprehensive income																		461
Cash dividends declared on common stock ($0.27 per share)									(3,506	)								(3,506	)
Issuance cost of common stock									(14	)								(14	)
Exercise of stock options (25,583 shares)						20						203						223
Stock based compensation expense						105												105
Treasury stock purchased (193,083 shares)												(1,923	)					(1,923	)
Balance, September 30, 2008	$	-	$	86,908	$	5,258		$	15,784		$	(17,820	)	$	(9,506	)	$	80,624

Balance, December 31, 2008	$	-	$	86,908	$	5,204		$	16,309		$	(17,796	)	$	(8,912	)	$	81,713
Comprehensive income:
Net income									3,535									3,535
Other comprehensive loss, net of taxes															(759	)		(759	)
Total comprehensive income																		2,776
Proceeds from issuance of preferred stock & warrants		9,539				461												10,000
Accretion of discount on preferred stock		60							(60	)								-
Dividends on preferred stock									(365	)								(365	)
Cash dividends declared on common stock ($0.15 per share)									(1,950	)								(1,950	)
Issuance cost of common stock									(10	)								(10	)
Exercise of stock options (9,289 shares)						(19	)					76						57
Taxes related to stock based compensation						(57	)											(57	)
Stock based compensation expense						63												63
Balance, September 30, 2009	$	9,599	$	86,908	$	5,652		$	17,459		$	(17,720	)	$	(9,671	)	$	92,227

See the accompanying notes to the consolidated financial statements

CENTER BANCORP, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended September 30,
(Dollars In Thousands)	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,535		$	4,143
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and amortization		1,092			1,357
Stock based compensation expense		63			105
Provision for loan losses		1,857			1,136
Provision for deferred taxes		57			—
Net gains on investment securities		(1,799	)		850
Net loss on premises, equipment and OREO		905			83
Increase in accrued interest receivable		(488	)		(20	)
Decrease (increase) in other assets		3,349			(65	)
Increase (decrease) in other liabilities		1,963			(2,872	)
Life insurance death benefit		—			(230	)
Increase in cash surrender value of bank owned life insurance		(748	)		(726	)
Amortization of premium and accretion of discount on investment securities, net		532			61
Net cash provided by operating activities		10,318			3,822
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, calls and paydowns of investment securities available-for-sale		40,647			36,143
Net purchases of restricted investment in bank stock		(443	)		(1,810	)
Proceeds from sales of investment securities available-for-sale		422,569			286,491
Purchase of investment securities available-for-sale		(590,224	)		(300,579	)
Net increase in loans		(40,866	)		(109,707	)
Purchases of premises and equipment		(697	)		(2,486	)
Capital expenditure addition to OREO		(476	)		—
Purchase of bank owned life insurance		(2,475	)		—
Proceeds from life insurance death benefit		—			527
Proceeds from the sale of branch facility, equipment & premises and OREO		3,521			2,884
Net cash used in investing activities	��	(168,444	)		(88,537	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits		301,620			(21,926	)
Net increase in short-term borrowings		7,028			2,893
Proceeds from long term borrowings		—			55,000
Payment on long term borrowings		(114	)		(111	)
Proceeds from issuance of preferred stock and warrants		10,000			—
Cash dividends on common stock		(2,728	)		(3,506	)
Cash dividends on preferred stock		(300	)		—
Issuance cost of common stock		(10	)		(14	)
Proceeds from exercise of stock options		57			223
Taxes related to stock based compensation		(57	)		—
Purchase of treasury stock		—			(1,923	)
Net cash provided by financing activities		315,496			30,636
Net increase (decrease) in cash and cash equivalents		157,370			(54,079	)
Cash and cash equivalents at beginning of period		15,031			70,031
Cash and cash equivalents at end of period	$	172,401		$	15,952
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non cash investment activities:
Trade date accounting settlements for investments, net	$	6,417		$	—
Cash paid during year for:
Interest paid on deposits and borrowings	$	17,557		$	17,966
Income taxes	$	254		$	2,353

See the accompanying notes to the consolidated financial statements

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 financial services 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. In the lending area, the Bank’s services include short and medium term loans, lines of credit, letters of credit, working capital, real estate and mortgage loans. In the depository area, the Bank offers demand deposits, savings accounts and time deposits. In addition, the Bank offers collection services, wire transfers, night depository and lock box services. The Bank 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. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the valuation of deferred tax assets.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks.

Investment Securities

The Corporation accounts for its investment securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-05 (previously 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.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

During the fourth quarter of 2007, the Corporation reclassified all of its held-to-maturity investment securities to available-for-sale. The transfer of these securities to available-for-sale will allow the Corporation greater flexibility in managing its investment portfolio. Investment securities with a total of $113.4 million and a fair value of $112.9 million were transferred to available-for-sale during the fourth quarter of 2007. The unrealized loss on these securities was recorded, net of tax, as accumulated other comprehensive income, an adjustment to stockholders’ equity. As a result, the Corporation will not classify any future purchases of investment securities as held-to-maturity for at least two years from the date of transfer.

Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. FASB ASC 320-10-65 (previously FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Investments”), clarifies the interaction of the factors that should be considered when determining whether a debt security is other–than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FASB ASC 320-10-65 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Impairment charges on certain investment securities of approximately $1.4 million and $1.5 million were recognized in earnings during the three and nine months ended September 30, 2009, respectively. Impairment charges of approximately $1.2 million and $1.4 million were recognized in earnings during the three and nine months ended September 30, 2008, respectively.

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 FASB ASC 948-10 (previously SFAS No. 134 “Accounting for Mortgage Securities retained after Securitizations or Mortgage Loans Held for Sale by a Mortgage Banking Enterprise”). At September 30, 2009 and 2008, the Corporation had no loans held for sale.

Loans are stated at their principal amounts less net deferred loan origination costs. 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.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Allowance for Loan Losses

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

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance 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 FASB ASC 310-10-35 (previously 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 all non-accrual and troubled debt restructuring loans. As part of the evaluation, the Corporation reviews for impairment all commercial loans internally classified as substandard or below, in each instance above an established dollar threshold of $200,000, as well as all commercial loans greater than $1.0 million. Smaller impaired commercial loans and impaired retail loans are not measured for specific reserves and are covered under the Corporation’s general reserve.

Reserve for Unfunded Commitments

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

Premises and Equipment

Land is carried at cost and bank premises and equipment at cost less accumulated depreciation based on the 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. During the third quarter of 2009, the Corporation sold the residential real estate condominium project in Union County, New Jersey, which was carried as other real estate owned. At September 30, 2009, the Corporation had no OREO. The decrease from December 31, 2008 represented a writedown of the carrying value and the subsequent sale of the project in the third quarter of 2009.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 September 30, 2009 and December 31, 2008, the Corporation was servicing approximately $8.5 million and $10.0 million, respectively, of loans for others.

Employee Benefit Plans

The Corporation had a non-contributory pension plan covering all eligible employees up until September 30, 2007, at which time the Corporation froze its defined benefit pension plan. The Corporation’s policy is to fund at least the minimum contribution required by the Employee Retirement Income Security Act of 1974. The costs associated with the plan are accrued based on actuarial assumptions and included in other expense.

On August 9, 2007, the Corporation froze its defined benefit pension plan. As such, all future benefit accruals in this pension plan were discontinued and all retirement benefits that employees would have earned as of September 30, 2007 were preserved.

Earnings per Common Share

Basic Earnings per Common 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 September 30,				Nine Months Ended September 30,
(In thousands, except per share amounts)	2009		2008		2009		2008

Net income	$	1,535	$	1,518	$	3,535	$	4,143
Preferred stock dividends and accretion		148		—		425		—
Net income available to common shareholders	$	1,387	$	1,518	$	3,110	$	4,143
Average number of common share outstanding		13,001		12,990		12,995		13,068
Effect of dilutive options		4		14		3		15
Average number of common shares outstanding used to calculate diluted earnings per common share		13,005		13,004		12,998		13,083
Earning per common share:
Basic	$	0.11	$	0.12	$	0.24	$	0.32
Diluted	$	0.11	$	0.12	$	0.24	$	0.32

Treasury Stock

The Corporation announced on March 27, 2006 that its Board of Directors approved an increase in its then current share buyback program to 5 percent of outstanding shares, enhancing its then current authorization by 425,825 shares to 684,965 shares. The Corporation announced on October 1, 2007 that its Board of Directors approved an additional increase in its current share buyback program to 5 percent of outstanding shares, enhancing its current authorization by 684,627 shares. On June 26, 2008, the Corporation announced that its Board of Directors approved an additional buyback of 649,712 shares. The total buyback authorization has been increased to 2,039,731 shares. Subject to limitations applicable to the Corporation, purchases may be made from time to time as, in the opinion of management, market conditions warrant, in the open market or in privately negotiated transactions. Shares repurchased will be added to the corporate treasury and will be used for future stock dividends and other issuances. As of September 30, 2009, the Corporation had 13.0 million shares of common stock outstanding. As of September 30, 2009, the Corporation had purchased 1,386,863 common shares at an average cost per share of $11.44 under the stock buyback program as amended on October 1, 2007 and June 26, 2008. Treasury stock is recorded using the cost method and accordingly is presented as a reduction of stockholders’ equity. For the nine months ended September 30, 2009, the Corporation did not purchase any of its common shares.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Goodwill

The Corporation adopted the provisions of FASB ASC 350-10-05 (previously SFAS No. 142, “Goodwill and Other Intangible Assets”), which requires that goodwill be reported separate from other intangible assets in the Consolidated Statements of Condition and not be amortized but tested for impairment annually, or more frequently if impairment indicators arise for impairment. No impairment charge was deemed necessary for the nine months ended September 30, 2009 and 2008.

Comprehensive Income

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

Disclosure of comprehensive income (loss) for the nine months ended September 30, 2009 and 2008 is presented in the Consolidated Statements of Changes in Stockholders’ Equity and presented in detail in Note 4 of the Notes to Consolidated Financial Statements.

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. During the second quarter of 2009, the Corporation purchased two additional policies for $2.5 million. The change in the cash surrender value of the BOLI was recorded as a component of other income and amounted to $748,000 and $726,000 in the nine months ended September 30, 2009 and 2008, respectively. During the third quarter of 2008, the Corporation recognized $230,000 in tax-free proceeds in excess of contract value on its BOLI due to the death of one insured participant.

Income Taxes

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

Advertising Costs

The Corporation recognizes its marketing and advertising cost as incurred. Advertising costs were $346,000 and $493,000 for the nine months ended September 30, 2009 and 2008, respectively.

CENTER BANCORP, INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Stock Based Compensation

The Corporation maintains 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. Since the 1999 Employee Stock Incentive Plan expired on April 13, 2009, a proposal with respect to a new plan was approved by the stockholders at the Corporation’s 2009 annual meeting of shareholders. Under the new 2009 Equity Incentive Plan, an aggregate of 400,000 shares are available for issuance. Under the 2003 Non-Employee Director Stock Option Plan, an aggregate total of 452,864 shares remain available for grant under the plan as of September 30, 2009 and are authorized for issuance. Such shares may be treasury shares, newly issued shares or a combination thereof.

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

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 FASB ASC 718-10-10 (previously SFAS No. 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 based on its historical experience during the preceding seven fiscal years.

For the nine months ended September 30, 2009, the Corporation’s income before income taxes and net income was reduced by $63,000 and $38,000, respectively, as a result of the compensation expense related to stock options. For the nine months ended September 30, 2008, the Corporation’s income before income taxes and net income was reduced by $105,000 and $63,000, respectively, as a result of such expense.

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 no restricted stock awards outstanding at September 30, 2009 and 2008.

There were 38,203 shares of common stock underlying options that were granted during both the nine months ended September 30, 2009 and 2008. 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 at the time the grants were awarded:

	Nine Months Ended September 30,
	2009			2008

Weighted average fair value of grants	$	1.48		$	3.10
Risk-free interest rate		1.90	%		3.03	%
Dividend yield		4.69	%		2.43	%
Expected volatility		32.9	%		30.2	%
Expected life in months		69			88

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 September 30, 2009 and changes during the nine months ended September 30, 2009 were as follows:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
						(In Years)

Outstanding at December 31, 2008		185,164		$	10.45
Granted		38,203			7.67
Exercised		(9,289	)		6.07
Forfeited/cancelled/expired		(22,076	)		11.04
Outstanding at September 30, 2009		192,002		$	10.04		6.07	$	—
Exercisable at September 30, 2009		124,271		$	10.05		4.61	$	—

The aggregate intrinsic value of options above represents the total pretax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of the second quarter of 2009 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 September 30, 2009. This amount changes based on the fair market value of the Corporation’s stock.

As of September 30, 2009, there was approximately $131,000 of total unrecognized compensation expense relating to unvested stock options. These costs are expected to be recognized over a weighted average period of 2.5 years.

Note 3 — Recent Accounting Pronouncements

On June 29, 2009, the FASB issued FASB ASC 105-10-65 (previously SFAS No. 168, “Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”(“Codification”)). This Codification is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities. On the effective date, all non-SEC accounting and reporting standards will be superseded. The Corporation adopted the Codification for the quarterly period ended September 30, 2009, as required, and there was not a material impact on the Corporation’s financial statements taken as a whole. In order to ease the transition to the Codification, the Corporation has provided the Codification cross-reference along side the references to the standards issued and adopted prior to the adoption of the Codification.

In April 2009, the FASB issued three amendments to the fair value measurement, disclosure and other-than-temporary impairment standards:

•

FASB ASC 820-10-65 (previously FAS 157-4 , “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are Not Orderly”).

•

FASB ASC 320-10-65 (previously FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”).

•

FASB ASC 825-10 (previously FAS 107 and APB 28-1, “Interim Disclosure about Fair Value of Financial Instruments”).

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 — Recent Accounting Pronouncements – (continued)

FASB ASC 820-10-05 (previously FASB SFAS No. 157, “Fair Value Measurements”) defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FASB ASC 820-10-05 provides additional guidance on identifying circumstances when a transaction may not be considered orderly.

FASB ASC 820-10-65 provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with FASB ASC 820-10-05.

FASB ASC 820-10-65 clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of evidence to determine whether the transaction is orderly. It also provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

FASB ASC 320-10-65 amends other-than-temporary impairment guidance for debt securities and expands disclosure requirements for other-than-temporarily impaired debt and equity securities. FASB ASC 320-10-65 requires companies to record other-than-temporary impairment charges, through earnings, if they have the intent to sell, or will more likely than not be required to sell, an impaired debt security before a recovery of its amortized cost basis. In addition, FASB ASC 320-10-65 requires companies to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis. Non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as a company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis. Finally, FASB 320-10-65 requires companies to record all previously recorded non-credit related other-than-temporary impairment charges for debt securities as cumulative effect adjustments to retained earnings as of the beginning of the period of adoption.

FASB ASC 825-10-65 (previously FAS 107-1 and APB 28-1) requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FASB ASC 825-10 also requires those disclosures in summarized financial information at interim reporting periods.

All three FASB ASC’s discussed herein include substantial additional disclosure requirements. The effective date for these new ASC’s is the same: interim and annual reporting periods ended after June 15, 2009. The Corporation adopted these ASC’s at June 30, 2009 and there was not a material impact on its consolidated financial statements.

On May 28, 2009, the FASB issued FASB ASC 855-10-05 (previously SFAS No. 165, “Subsequent Events”). Under FASB ASC 855-10-05, companies are required to evaluate events and transactions that occur after the balance sheet date but before the date the financial statements are issued, or available to be issued in the case of non-public entities. FASB ASC 855-10-05 requires entities to recognize in the financial statements the effect of all events or transactions that provide additional evidence of conditions that existed at the balance sheet date, including the estimates inherent in the financial preparation process. Entities shall not recognize the impact of events or transactions that provide evidence about conditions that did not exist at the balance sheet date but arose after that date. FASB ASC 855-10-05 also requires entities to disclose the date through which subsequent events have been evaluated. FASB ASC 855-10-05 was effective for interim and annual reporting periods ending after June 15, 2009. The Corporation adopted the provisions of FASB ASC 855-10-05 for the quarter ended June 30, 2009. Management has reviewed events occurring through November 9, 2009, the date the financial statements were issued, and has concluded that no additional subsequent events have occurred requiring accrual or disclosure.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 — Recent Accounting Pronouncements – (continued)

On June 12, 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets” (“FAS 166”), and SFAS No.167, “Amendments to FASB Interpretation No. 46(R)” (“FAS 167”), which change the way entities account for securitizations and special-purpose entities.

FAS 166 is a revision to FASB ASC 860-10-05 (previously FAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”) and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. FAS 166 also eliminates the concept of a “qualifying special-purpose entity”, changes the requirements for derecognizing financial assets and requires additional disclosures.

FAS 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

Both FAS 166 and FAS 167 will be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and measurement provisions of FAS 166 shall be applied to transfers that occur on or after the effective date. The Corporation will adopt both FAS 166 and FAS 167 on January 1, 2010, as required. The Corporation is currently assessing the impact this adoption may have on the Corporation’s consolidated financial statements.

In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). Under the proposed roadmap, the Company may be required to prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.

In December 2008, the FASB issued FASB ASC 715-20-76 (previously FSP FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets”). This ASC amends FASB ASC 715-20-65 (previously SFAS 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”) to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by this ASC shall be provided for fiscal years ending after December 15, 2009. The Corporation is currently reviewing the effect this new ASC will have on its consolidated financial statements.

Note 4 — 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.

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

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Comprehensive Income – (continued)

The changes in the components of other comprehensive income (loss), 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 nine month period ended September 30, 2009:
Net unrealized losses on available for sale securities
Net unrealized holding gains arising during period	$	491			(151	)	$	340
Less reclassification adjustment for net gains arising during the period		1,799			(700	)		1,099
Net unrealized losses		(1,308	)		549			(759	)
Other comprehensive loss, net	$	(1,308	)		549			(759	)

For the nine month period ended September 30, 2008:
Net unrealized losses on available for sale securities
Net unrealized holding losses arising during the period	$	(7,729	)	$	3,535		$	(4,194	)
Less reclassification adjustment for net losses arising during the period		(850	)		338			(512	)
Net unrealized losses		(6,879	)		3,197			(3,682	)
Other comprehensive loss, net	$	(6,879	)	$	3,197		$	(3,682	)

Note 5 — Investment Securities

The following tables present the amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of the Corporation’s portfolio of securities available-for-sale at September 30, 2009 and December 31, 2008.

	September 30, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
			(Dollars in Thousands)
Securities Available-for-Sale:
U.S. Treasury and Agency Securities	$	150	$	—	$	—		$	150
Federal agency obligations		238,616		1,026		(921	)		238,721
Obligations of U.S. states and political subdivisions		17,755		257		(16	)		17,996
Other debt securities		108,890		189		(11,974	)		97,105
Equity securities		22,626		53		(554	)		22,125
Total	$	388,037	$	1,525	$	(13,465	)	$	376,097

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Investment Securities – (continued)

	December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
			(Dollars in Thousands)
Securities Available-for-Sale:
U.S. Treasury and Agency Securities	$	100	$	—	$	—		$	100
Federal agency obligations		81,919		1,087		(209	)		82,797
Obligations of U.S. states and political subdivisions		51,926		436		(268	)		52,094
Other debt securities		102,154		82		(11,103	)		91,133
Equity securities		17,247		—		(657	)		16,590
Total	$	253,346	$	1,605	$	(12,237	)	$	242,714

All of the Corporation’s investment securities are classified as available-for-sale at September 30, 2009 and December 31, 2008. The available-for-sale securities are reported at fair value with unrealized gains or losses included in equity, net of taxes. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value.

The following table presents securities available-for-sale at September 30, 2009, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	4,343	$	4,345
Due after one year through five years		28,197		27,673
Due after five years through ten years		59,443		57,223
Due after ten years		273,428		264,731
Equity securities		22,626		22,125
Total	$	388,037	$	376,097

For the nine months ended September 30, 2009, securities sold from the Corporation’s available for sale portfolio amounted to approximately $422.6 million. The gross realized gains amounted to $4.5 million and the gross realized losses amounted to $1.2 million. During the first nine months of 2009, the Corporation incurred an additional $140,000 impairment charge relating to the Lehman Brothers corporate bond and $1.4 million other-than-temporary impairment charge on a pooled trust preferred security.

For the nine months ended September 30, 2008, securities sold from the Corporation’s available-for-sale portfolio amounted to approximately $286.5 million. The gross realized gains on securities sold amounted to approximately $701,000 and the gross realized losses on sales amounted to $160,000. During the first nine months of 2008, the Corporation incurred $1.4 million of other than temporary impairment charges relating to two equity holdings in bank stocks and the Lehman Brothers corporate bond.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Investment Securities – (continued)

Temporarily Impaired Investments

Summary of Other-Than-Temporary Impairment Charges

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	(Dollars in Thousands)

Equity securities charges		$	—		$	—		$	—		$	191
Debt securities			1,400			1,200			1,540			1,200
Total other-than-temporary impairment charges		$	1,400		$	1,200		$	1,540		$	1,391

The Corporation performs regular analysis on the available for sale securities portfolio to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10-65. FASB ASC 320-10-65 requires companies to record other-than-temporary impairment charges, through earnings, if they have the intent to sell, or more likely than not be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Corporation determines that a decline in fair value is other-than-temporary, the credit portion of the impairment write-down is recognized in current earnings and the noncredit portion is recognized in accumulated other comprehensive income.

During the third quarter of 2009, the $1.4 million other-than-temporary impairment charge for a pooled trust preferred security recognized in earnings was determined through the use of an expected cash flow model, consistent with FASB ASC 320-10-65. The most significant input to the expected cash flows model was the assumed default rate for the pooled trust preferred security. The Corporation also evaluates the financial metrics, such as capital ratios and non-performing levels, of each of the participating banks in the pool in determining whether a credit loss exists.

During the third and fourth quarters of 2008, the Corporation recognized a $1.3 million other than temporary impairment charge on a Lehman Brothers corporate bond as a result of Lehman Brothers’ September bankruptcy filing. The Corporation deemed it prudent to mark the security down to what the Corporation believed it would receive from the bankruptcy proceedings as opposed to an attempted sale into an illiquid market. During the first quarter of 2009, the Corporation incurred an additional $140,000 impairment charge relating to the Lehman Brothers corporate bond. As part of the Corporation’s tax strategies, management elected to sell the Lehman bond during the third quarter of 2009.

During the three and nine months ended September 30, 2008, the Corporation recorded $1.2 million and $1.4 million, respectively, of other than temporary impairment charges relating to two equity holdings in bank stocks and the Lehman Brothers bond. The equities were written down to fair value.

The Corporation’s investment portfolio also consists of overnight investments that were made into the Reserve Primary Fund (the “Fund”), a money market fund registered with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940. On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation could be effected for the protection of the Fund’s investors. To date, the Corporation has received five distributions from the Fund, totaling approximately 92 percent of its outstanding balance. The Fund announced that it has applied to participate in the United States Department of Treasury’s Temporary Money Market Fund Guarantee Program, participation in which is subject to approval of the Treasury Department. While the Corporation expects to recover substantially all of its current holdings in the Fund, the Corporation cannot predict when this will occur and cannot be certain as to the extent of the recovery.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Investment Securities – (continued)

The Corporation does not believe that the unrealized losses, which were comprised of 82 investment securities, as of September 30, 2009, represent an other than temporary impairment. The gross unrealized losses associated with U.S. Treasury and Agency securities and Federal agency obligations, mortgage-backed securities, corporate bonds and tax-exempt securities are not considered to be other-than-temporary because their unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.

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

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

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

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

The Corporation evaluates all securities with unrealized losses quarterly to determine whether the loss is other-than-temporary. Unrealized losses in the mortgage-backed securities category consist primarily of U.S. agency and private issue collateralized mortgage obligations. Unrealized losses in the corporate debt securities category consist of single name corporate trust preferred securities, pooled trust preferred securities and corporate debt securities issued by large financial institutions. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. For collateralized mortgage obligations, management reviewed expected cash flows and credit support to determine if it was probable that all principal and interest would be repaid. None of the corporate issuers have defaulted on interest payments. Management concluded that these securities, other than the previously mentioned pooled trust preferred security, were not other-than-temporarily impaired at September 30, 2009. Future deterioration in the cash flow on collateralized mortgage obligations or the credit quality of these large financial institution issuers of corporate debt securities could result in impairment charges in the future.

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

The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at September 30, 2009 and December 31, 2008:

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Investment Securities – (continued)

	September 30, 2009
	Total					Less Than 12 Months							12 Months or Longer
	Fair Value		Unrealized Losses			Fair Value			Unrealized Losses				Fair Value		Unrealized Losses
						(Dollars in Thousands)
Available-for-Sale:
Federal agency obligations	$	106,800	$	(921	)		$	106,694		$	(920	)	$	106	$	(1	)
Other debt securities		76,323		(11,974	)			5,204			(500	)		71,119		(11,474	)
Obligations of U.S. states and political subdivisions		896		(16	)			—			—			896		(16	)
Equity securities		1,334		(554	)			979			(21	)		355		(533	)
Total temporarily impaired securities	$	185,353	$	(13,465	)		$	112,877		$	(1,441	)	$	72,476	$	(12,024	)

	December 31, 2008
	Total					Less Than 12 Months							12 Months or Longer
	Fair Value		Unrealized Losses			Fair Value			Unrealized Losses				Fair Value		Unrealized Losses
						(Dollars in Thousands)
Available-for-Sale:
Federal agency obligations	$	16,118	$	(209	)		$	2,477		$	(1	)	$	13,641	$	(208	)
Other debt securities		76,311		(11,103	)			17,843			(1,556	)		58,468		(9,547	)
Obligations of U.S. states and political subdivisions		9,542		(268	)			8,740			(155	)		802		(113	)
Equity securities		500		(657	)			—			—			500		(657	)
Total temporarily impaired securities	$	102,471	$	(12,237	)		$	29,060		$	(1,712	)	$	73,411	$	(10,525	)

Investment securities having a carrying value of approximately $188.1 million and $149.8 million at September 30, 2009 and December 31, 2008, respectively, were pledged to secure public deposits, short-term borrowings, and FHLB advances and for other purposes required or permitted by law.

Note 6 — Fair Value Measurements and Fair Value of Financial Instruments

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

In September 2006, the FASB issued FASB ASC 820-10-05 (previously SFAS No. 157, “Fair Value Measurements”). FASB ASC 820-10-05 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

In December 2007, the FASB issued FASB ASC 820-10-15 (previously FASB Statement Position 157-2, “Effective Date of FASB Statement No. 157”). FASB ASC 820-10-15 delays the effective date of FASB ASC 820-10-05 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. As such, the Corporation adopted the provisions of FASB ASC 820-10-05 relating to non-financial assets and liabilities in 2009. In October 2008, the FASB issued FASB ASC 820-10-35 (previously FASB Staff Position 157-3, “Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active”), to clarify the application of the provisions of FASB ASC 820-10-05 in an inactive market and how an entity would determine fair value in an inactive market. FASB ASC 820-10-35 was applied to the Corporation’s December 31, 2008 consolidated financial statements.

FASB ASC 820-10-65 provides additional guidance for estimating fair value in accordance with FASB ASC 820-10-05 when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly. This ASC is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FASB ASC 820-10-65 was applied to the Corporation’s consolidated financial statements, effective June 30, 2009.

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

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

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2009 and December 31, 2008 are as follows:

				Fair Value Measurements at Reporting Date Using
	September 30, 2009			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
				(Dollars in Thousands)
Assets Measured at Fair Value on a Recurring Basis:
Securities available-for-sale		$	376,097		$	53,951		$	316,484		$	5,662

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

				Fair Value Measurements at Reporting Date Using
	December 31, 2008			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
				(Dollars in Thousands)
Assets Measured at Fair Value on a Recurring Basis:
Securities available-for-sale		$	242,714		$	22,696		$	196,464		$	23,554

The following table presents the changes in securities available-for-sale with significant unobservable inputs (Level 3) for the nine months ended September 30, 2009 and year ended December 31, 2008:

	2009
	(Dollars in Thousands)
Beginning balance, January 1,	$	23,554
Transfers in (out) of Level 3		(19,856	)
Principal interest deferrals		83
Total net losses included in net income		(2,369	)
Total net unrealized gains		4,250
Ending balance, September 30,	$	5,662

	2008
	(Dollars in Thousands)
Beginning balance, January 1,	$	—
Transfers in (out) of Level 3		27,629
Principal paydowns		(309	)
Total net unrealized losses		(3,766	)
Ending balance, December 31,	$	23,554

The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Corporation’s assets measured at fair value on a recurring basis at September 30, 2009 and December 31, 2008:

Securities Available-For-Sale

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

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

At September 30, 2009, the table above includes two pooled trust preferred securities and one private issue single name trust preferred security. During the third quarter of 2009, there was a marked improvement in the pricing of financial institutions debt securities. As a result, all private label collateralized mortgage obligations (“CMOs”), and all but one of the single issuer trust preferred securities, were transferred back to Level 2 pricing. Market pricing for these Level 3 securities varied widely from one pricing service to another based on the lack of trading. As such, these securities were considered to no longer have readily observable market data that was accurate to support a fair value as prescribed by FASB ASC 820-10-05. The fair value measurement objective remained the same in that the price received by the Corporation would result from an orderly transaction (an exit price notion) and that the observable transactions considered in fair value were not forced liquidations or distressed sales at the measurement date.

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

Quoted prices in active markets for similar TRUPS with insignificant adjustments for differences between the TRUPS that the Corporation holds and similar TRUPS.

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

Since June 30, 2008, the market for these TRUPS has become increasingly inactive. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these TRUPS trade and then by a significant decrease in the volume of trades relative to historical levels as well as other relevant factors. At September 30, 2009, the Corporation determined that the market for similar TRUPS is not active. That determination was made considering that there are few observable transactions for similar TRUPS, the prices for those transactions that have occurred are not current or represent fair value, and the observable prices for those transactions vary substantially over time, thus reducing the potential relevance of those observations. Consequently, the Corporation’s three TRUPS at September 30, 2009 have been classified within Level 3 because the Corporation determined that significant adjustments using unobservable inputs are required to determine a true fair value at the measurement date.

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

The fair value as of September 30, 2009 was determined by discounting the expected cash flows over the life of the security. The discount rate was determined by deriving a discount rate when the markets were considered more active for this type of security. To this estimated discount rate, additions were made for more liquid markets and increased credit risk as well as assessing the risks in the security, such as default risk and severity risk. With the exception of one pooled trust preferred security, for which a $1.4 million impairment charge was taken to earnings during the third quarter of 2009, the securities continue to make scheduled cash flows and no material cash flow payment defaults have occurred to date.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Loans Held for Sale

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

Assets Measured at Fair Value on a Non-Recurring Basis

For assets measured at fair value on a non-recurring basis, the fair value measurements used at September 30, 2009 are as follows:

			Fair Value Measurements at Reporting Date Using
	September 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Assets Measured at Fair Value on a Non-Recurring Basis:
Impaired loans	$	12,418		$	—		$	—	$	12,418
Other real estate owned		—			—			—		—

At September 30, 2009 and December 31, 2008, impaired loans totaled $12.4 million and $541,000, respectively. The amount of related valuation allowances was $746,000 at September 30, 2009 and none at December 31, 2008.

The Corporation had no financial assets or liabilities measured at fair value on a non-recurring basis for the year ended December 31, 2008.

The following methods and assumptions were used to estimate the fair values of the Corporation’s assets measured at fair value on a non-recurring basis at September 30, 2009 and December 31, 2008:

Impaired Loans

The value of an impaired loan is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio. The Corporation’s impaired loans are primarily collateral dependent. Impaired loans are individually assessed to determine that each loan’s carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows.

Other Real Estate Owned

Certain assets such as other real estate owned (“OREO”) are measured at fair value less cost to sell. The Corporation believes that the fair value component in its valuation follows the provisions of FASB ASC 820-10-05. Fair value of OREO is determined by sales agreements or appraisals by qualified licensed appraisers approved and hired by the Corporation. Costs to sell associated with OREO is based on estimation per the terms and conditions of the sales agreements or appraisal. At September 30, 2009, the Corporation held no OREO as the residential real estate condominium project was sold during the third quarter of 2009.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

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

Estimated fair values have been determined by the Corporation using the best available data and an estimation methodology suitable for each category of financial instruments. For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate the recorded book balances. The estimation methodologies used, the estimated fair values, and the recorded book balances at September 30, 2009 and December 31, 2008, were as follows:

	September 30, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in Thousands)
FINANCIAL ASSETS:
Cash and cash equivalents	$	172,401	$	172,401	$	15,031	$	15,031
Investment securities available-for-sale		376,097		376,097		242,714		242,714
Net loans		708,958		712,929		669,949		673,976
Restricted investment in bank stocks		10,673		10,673		10,230		10,230
Accrued interest receivable		4,642		4,642		4,154		4,154
FINANCIAL LIABILITIES:
Non-interest-bearing deposits		126,205		126,205		113,319		113,319
Interest-bearing deposits		834,952		835,892		546,218		548,747
Short-term borrowings		52,171		52,171		45,143		45,143
Long-term borrowings		223,183		234,298		223,297		251,001
Subordinated debentures		5,155		5,155		5,155		4,875
Accrued interest payable		2,336		2,336		2,201		2,201

Financial instruments actively traded in a secondary market have been valued using quoted available market prices. Cash and due from banks, interest-bearing time deposits in other banks, federal funds sold, loans held-for-sale and interest receivable are valued at book value, which approximates fair value.

Financial liability instruments with stated maturities have been valued using a present value discounted cash flow analysis with a discount rate approximating current market for similar liabilities. Interest payable is valued at book value, which approximates fair value.

Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the recorded book balance.

The net loan portfolio has been valued using a present value discounted cash flow. The discount rate used in these calculations is the current rate at which similar loans would be made to borrowers with similar credit ratings, same remaining maturities, and assumed prepayment risk.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

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

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

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

Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the subsidiary bank has a large fiduciary services department that contributes net fee income annually. The fiduciary services department is not considered a financial instrument, and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial assets or liabilities include the mortgage banking operation, brokerage network, deferred taxes, premises and equipment, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

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

Note 7 — Components of Net Periodic Pension Cost

The following table sets forth the net periodic pension cost for the pension plan for the three and nine months ended September 30, 2009 and 2008.

	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in Thousands)	2009				2008				2009				2008

Interest cost		$	152			$	175			$	456			$	525
Expected return on plan assets			—				(165	)			—				(494	)
Net amortization and deferral			(37	)			—				(111	)			—
Net periodic pension cost		$	115			$	10			$	345			$	31

Contributions

The Corporation previously disclosed in its consolidated financial statements for the year ended December 31, 2008, that it expected to contribute $596,000 to its Pension Trust in 2009. Due to recent changes by the Internal Revenue Service in the Worker, Retiree and Employer Recovery Act of 2008, the minimum required contribution for the 2009 plan year had been revised and was expected to amount to $498,000 if contributed by December 31, 2009. For the nine months ended September 30, 2009, the Corporation contributed $474,000 to its Pension Trust.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Income Taxes

In June 2006, the FASB issued FASB ASC 740-10 (previously Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”), which clarifies the accounting for uncertainty in tax positions.

The Corporation adopted the provisions of FASB ASC 740-10 as of January 1, 2007. The adoption of FASB ASC 740-10 did not impact the Corporation’s consolidated financial condition, results of operations or cash flows. At September 30, 2009 and December 31, 2008, the Corporation had unrecognized tax benefits of $2.5 million, respectively, which primarily related to uncertainty regarding the sustainability of certain deductions taken in 2008 and to be taken in 2009 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. For the nine months ended September 30, 2009, the Corporation recorded approximately $113,000 in interest expense as a component of tax expense related to the unrecognized tax benefit.

Note 9 — Borrowed Funds

Short-Term Borrowings:

Short-term borrowings, which consist primarily of securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances and Federal funds purchased generally have maturities of less than one year. The details of these borrowings are presented in the following table.

(Dollars in Thousands)	September 30, 2009
Short-term borrowings:
Average interest rate:
At quarter end		1.36	%
For the quarter		1.42	%
Average amount outstanding during the quarter:	$	38,474
Maximum amount outstanding at any month end:	$	52,171
Amount outstanding at quarter end:	$	52,171

Long-Term Borrowings:

Long-term borrowings, which consist primarily of FHLB advances and securities sold under agreements to repurchase, totaled $223.2 million and mature within one to ten years. The FHLB advances are secured by pledges of FHLB stock, 1-4 family mortgage and U.S. government and Federal agency obligations. At September 30, 2009, the FHLB advances and securities sold under agreements to repurchase had a weighted average interest rate of 4.09 percent and 5.23 percent, respectively, and are contractually scheduled for repayment as follows:

(Dollars in Thousands)	September 30, 2009
2010	$	40,183
2011		22,000
2013		5,000
Thereafter		156,000
Total	$	223,183

Note 10 — Stockholders’ Equity

On January 12, 2009, the Corporation issued $10 million in nonvoting senior preferred stock to the U.S. Department of Treasury under the Capital Purchase Program. As part of the transaction, the Corporation also issued warrants to the Treasury to purchase 173,410 shares of common stock of the Corporation at an exercise price of $8.65 per share. As previously announced, the Corporation's voluntary participation in the Capital Purchase Program represented approximately 50 percent of the dollar amount that the Corporation qualified to receive under the Treasury program. The Corporation believes that its participation in this program will strengthen its current well-capitalized position. The funding will be used to support future loan growth.

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 — Stockholders’ Equity – (continued)

The Corporation’s senior preferred stock and the warrant issued under the Capital Purchase Program qualify and are accounted for as equity on the statements of condition. Of the $10 million in issuance proceeds, $9.5 million and $0.5 million were allocated to the senior preferred shares and the warrant, respectively, based upon their estimated relative fair values as of January 12, 2009. The discount of the $0.5 million recorded for the senior preferred shares is being amortized to retained earnings over a five year estimated life of the securities based on the likelihood of their redemption by the Corporation within that timeframe.

On April 24, 2009, the Board of Directors of Center Bancorp, Inc. unanimously voted to reduce its current quarterly common stock dividend from $0.09 per share to $0.03 per share, beginning with the second quarter dividend declaration.

In July 2009, the Corporation announced that its Board of Directors had authorized a rights offering of up to approximately $11 million of common stock to its existing stockholders. As a result of the rights offering, as of October 1, 2009, the Company issued 1,137,896 shares of its common stock, at a subscription price of $7.00 per share and for gross proceeds of approximately $8.0 million, to the holders of record of its common stock as of the close of business on September 1, 2009 who exercised their subscription rights. In addition, on October 6, 2009, the Company sold 433,532 shares of common stock to standby purchasers for $7.00 per share and for gross proceeds of approximately $3.0 million. The standby purchaser consisted of Lawrence B. Seidman, an existing shareholder and member of the Corporation's Board of Directors, and certain of his affiliates.

Note 11 — Subordinated Debentures

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 ASC 810-10 (previously 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.

The subordinated debentures are redeemable in whole or part prior to maturity on January 23, 2034. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85 percent and reprices quarterly. The rate at September 30, 2009 was 3.34 percent.

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 the periods presented herein and financial condition as of September 30, 2009 and December 31, 2008. 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: (1) competitive pressures among depository institutions may increase significantly; (2) changes in the interest rate environment may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected; (5) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions may adversely affect the businesses in which Center Bancorp 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 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, issues relating to other-than-temporary impairment losses in the securities portfolio, the valuation of deferred tax assets, goodwill and the fair value of investment securities 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 below and in Note 1 of the Notes to Consolidated Financial Statements.

Allowance for Loan Losses and Related Provision

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

Other-Than-Temporary Impairment of Securities

Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. FASB ASC 320-10-65 clarifies the interaction of the factors that should be considered when determining whether a debt security is other–than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FASB ASC 320-10-65 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Impairment charges on certain investment securities of approximately $1.5 million were recognized in earnings during the nine months ended September 30, 2009 in connection with a pooled trust preferred security and the further writedown on a Lehman Brothers bond. During the nine months ended September 30, 2008, the Corporation recorded $1.4 million of other than temporary impairment charges relating to two equity holdings in bank stocks and the Lehman Brothers bond.

Income Taxes

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

Fluctuations in the actual outcome of these future tax consequences could impact the Corporation’s consolidated financial condition or results of operations. Note 8 of the Notes to Consolidated Financial Statements include additional discussion on the accounting for income taxes.

Goodwill

The Corporation adopted the provisions of FASB ASC 350-10, which requires that goodwill be reported separate from other intangible assets in the Consolidated Statements of Condition and not be amortized but rather tested for impairment annually or more frequently if impairment indicators arise. No impairment charge was deemed necessary for the nine months ended September 30, 2009 and 2008.

Fair Value of Investment Securities

FASB ASC 820-10-35 clarifies the application of the provisions of FASB ASC 820-10-05 in an inactive market and how an entity would determine fair value in an inactive market. FASB ASC 820-10-35 is effective immediately and applies to the Corporation’s December 31, 2008 and September 30, 2009 financial statements. The Corporation applied the guidance in FASB ASC 820-10-35 when determining fair value for the Corporation’s private label collateralized mortgage obligations, pooled trust preferred securities and single name corporate trust preferred securities. See Note 6, Fair Value Measurements, for further discussion.

Earnings Analysis

Net income for the three months ended September 30, 2009 amounted to $1.5 million compared to net income of $1.5 million for the comparable three-month period ended September 30, 2008. The Corporation recorded earnings per diluted common share of $0.11 for the three months ended September 30, 2009 as compared with earnings of $0.12 per diluted common share for the three months ended September 30, 2008. Dividends and accretion relating to the preferred stock issued to the U.S. Treasury reduced earnings by approximately $0.01 per fully diluted common share. The annualized return on average assets increased to 0.46 percent for the three months ended September 30, 2009 as compared to 0.40 percent for the second quarter of 2009 but was down as compared to 0.60 percent for three months ended September 30, 2008. The annualized return on average stockholders’ equity was 6.77 percent for the three-month period ended September 30, 2009 as compared to 5.35 percent for the second quarter of 2009 and 7.55 percent for the three months ended September 30, 2008.

Net income for the nine months ended September 30, 2009 amounted to $3.5 million compared to net income of $4.1 million for the comparable nine-month period ended September 30, 2008. The Corporation recorded earnings per diluted common share of $0.24 for the nine months ended September 30, 2009 as compared with earnings of $0.32 per diluted common share for the nine months ended September 30, 2008. Dividends and accretion relating to the preferred stock issued to the U.S. Treasury reduced earnings by approximately $0.03 per fully diluted common share. The annualized return on average assets decreased to 0.39 percent for the nine months ended September 30, 2009 as compared to 0.56 percent for the comparable nine-month period in 2008. The annualized return on average stockholders’ equity was 5.21 percent for the nine-month period ended September 30, 2009 as compared to 6.59 percent for the nine months ended September 30, 2008.

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 in this Quarterly Report 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.

Net Interest Income

(tax-equivalent basis)

	Three Months Ended September 30,												Nine Months Ended September 30,
							Increase			Percent									Increase			Percent
(Dollars in Thousands)	2009			2008			(Decrease)			Change			2009			2008			(Decrease)			Change
Interest income:
Investments	$	4,154		$	3,389		$	765			22.6		$	10,504		$	11,164		$	(660	)		(5.9	)
Loans, including net costs		9,255			9,427			(172	)		(1.8	)		27,568			26,575			993			3.7
Federal funds sold and securities purchased under agreement to resell		—			—			—			—			—			109			(109	)		(100.0	)
Restricted investment in bank stocks, at cost		177			161			16			9.9			465			497			(32	)		(6.4	)
Total interest income		13,586			12,977			609			4.7			38,537			38,345			192			0.5
Interest expense:
Time deposits of $100 or more		1,077			618			459			74.3			2,844			1,830			1,014			55.4
All other deposits		2,362			2,434			(72	)		(3.0	)		7,191			8,302			(1,111	)		(13.4	)
Borrowings		2,611			2,777			(166	)		(6.0	)		7,657			8,171			(514	)		(6.3	)
Total interest expense		6,050			5,829			221			3.8			17,692			18,303			(611	)		(3.3	)
Net interest income on a fully tax-equivalent basis		7,536			7,148			388			5.4			20,845			20,042			803			4.0
Tax-equivalent adjustment		(95	)		(288	)		193			67.0			(398	)		(1,066	)		668			62.7
Net interest income	$	7,441		$	6,860		$	581			8.5		$	20,447		$	18,976		$	1,471			7.8

Note: The tax-equivalent adjustment was computed on an assumed statutory Federal income tax rate of 34 percent. Adjustments were made for interest earned on tax-advantaged instruments.

Net interest income on a fully tax-equivalent basis increased $388,000 or 5.4 percent to $7.5 million for the three months ended September 30, 2009 as compared to the same period in 2008. For the three months ended September 30, 2009, the net interest margin decreased 30 basis points to 2.79 percent from 3.09 percent during the three months ended September 30, 2008. For the three months ended September 30, 2009, a decrease in the average yield on interest-earning assets of 57 basis points was more than offset by a decrease in the average cost of interest-bearing liabilities of 70 basis points, which increased the Corporation’s net interest spread by 13 basis points for the period. On a quarterly linked sequential basis, net interest spread increased 19 basis points and net interest margin increased by 6 basis points, respectively. Net interest margin has been impacted by the high level of uninvested excess cash, which accumulated due to the strong deposit growth experienced predominantly over the past nine months of 2009. This represented growth in the Corporation’s customer base and enhanced the Corporation’s liquidity position while the Corporation continued to expand its earning asset base in a prudent manner.

Net interest income on a fully tax-equivalent basis increased $0.8 million or 4.0 percent to $20.8 million for the nine months ended September 30, 2009 as compared to the same period in 2008. For the nine month period ended September 30, 2009, the net interest margin decreased 18 basis points to 2.77 percent from 2.95 percent during the nine months ended September 30, 2008 due primarily to the high level of uninvested excess cash, which accumulated due to the strong deposit growth experienced during the year. For the nine months ended September 30, 2009, a decrease in the average yield on interest-earning assets of 51 basis points was more than offset by a decrease in the average cost of interest-bearing liabilities of 68 basis points, which increased the Corporation’s net interest spread by 17 basis points for the period.

For the three-month period ended September 30, 2009, interest income on a tax-equivalent basis increased by $609,000 or 4.7 percent from the comparable three-month period in 2008. This increase was due primarily to both an increase in balances of the Corporation’s investment securities and loan portfolios offset in part by a decline in rates due to the actions taken by the Federal Reserve to lower market interest rates over the past year. Average investment volume, including short-term investments and restricted investment in bank stocks, increased during the current three month period by $111.9 million (to $385.3 million) compared to the third quarter of 2008. The Corporation’s loan portfolio increased on average $41.9 million to $693.7 million from $651.8 million in the same quarter in 2008, primarily driven by growth in commercial real estate business related sectors of the loan portfolio. The loan portfolio represented approximately 64.3 percent of the Corporation’s interest-earning assets on average during the third quarter of 2009 as compared to 70.5 percent in the same quarter in 2008.

For the nine month period ended September 30, 2009, interest income on a tax-equivalent basis increased by $0.2 million or 0.5 percent from the comparable nine-month period in 2008. This increase was due primarily to an increase in balances of the Corporation’s loan and investment securities portfolios coupled with a decline in rates due to the actions taken by the Federal Reserve to lower market interest rates over the past year. The Corporation’s loan portfolio increased on average $80.3 million to $686.8 million from $606.5 million in the same period in 2008, primarily driven by growth in commercial real estate business related sectors of the loan portfolio. The loan portfolio represented approximately 68.6 percent of the Corporation’s interest-earning assets on average during the first nine months of 2009 as compared to 66.9 percent in the same period in 2008. Average investment volume, including short-term investments and restricted investment in bank stocks, increased during the period by $14.7 million on average (to $314.9 million) compared to the same period of 2008.

The Federal Open Market Committee (FOMC) reduced rates seven times during 2008 for a total of 400 basis points. This action by the FOMC has allowed the Corporation to further reduce liability costs during 2008 and throughout 2009.

For the three months ended September 30, 2009, interest expense increased by $0.2 million or 3.8 percent from the same period in 2008. The average rate of interest-bearing liabilities decreased 70 basis points to 2.18 percent for the three months ended September 30, 2009 from 2.88 percent for the three months ended September 30, 2008. At the same time, the average volume of interest-bearing liabilities increased by $302.9 million. The increase in the average balance of interest-bearing liabilities during the three months ended September 30, 2009 was primarily in time deposits (CDARS Reciprocal deposits) of $193.0 million, in savings deposits of $118.3 million and in other interest bearing deposits of $25.8 million partially offset by a decline of $13.1 million in money market deposits and a decline of $21.2 million in other borrowings. Steps were taken throughout 2008 and into 2009 to improve the Corporation’s net interest margin by allowing the runoff of certain high rate deposits and to position the Corporation for further high cost cash outflows during the year. The result was an improvement in the Corporation’s cost of funds. As a result of these factors, for the three months ended September 30, 2009, the Corporation’s net interest spread on a tax-equivalent basis increased to 2.86 percent from 2.73 percent for the three months ended September 30, 2008.

For the nine months ended September 30, 2009, interest expense declined by $0.6 million or 3.3 percent from the same period in 2008. The total cost of average interest-bearing liabilities decreased 68 basis points to 2.42 percent for the nine months ended September 30, 2009 from 3.10 percent for the nine months ended September 30, 2008. At the same time, the average volume of interest-bearing liabilities increased by $188.3 million. The increase in the average balance of interest bearing liabilities during the nine months ended September 30, 2009 was primarily in savings, other interest bearing and time deposits of $242.3 million, partially offset by a decrease in money market deposits of $38.0 million and a decrease in borrowings of $16.0 million. For the nine months ended September 30, 2009, the Corporation’s net interest spread on a tax-equivalent basis increased to 2.71 percent from 2.54 percent for the nine months ended September 30, 2008.

The following table quantifies the impact on net interest income (on a tax-equivalent basis) resulting from changes in average balances and average rates over the three and nine month periods presented herein. 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.

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

	Three Months Ended September 30, 2009/2008 Increase (Decrease) Due to Change In:									Nine Months Ended September 30, 2009/2008 Increase (Decrease) Due to Change In:
	Average			Average			Net			Average			Average			Net
(Dollars in Thousands)	Volume			Rate			Change			Volume			Rate			Change
Interest-earning assets:
Investment securities:
Taxable	$	1,643		$	(311	)	$	1,332		$	2,268		$	(997	)	$	1,271
Non-Taxable		(412	)		(155	)		(567	)		(1,992	)		61			(1,931	)
Loans		585			(757	)		(172	)		3,337			(2,344	)		993
Federal funds sold and securities purchased under agreement to resell		—			—			—			(54	)		(55	)		(109	)
Restricted investment in bank stock		9			7			16			21			(53	)		(32	)
Total interest-earning assets		1,825			(1,216	)		609			3,580			(3,388	)		192
Interest-bearing liabilities:
Money market deposits		(64	)		(275	)		(339	)		(592	)		(983	)		(1,575	)
Savings deposits		400			189			589			690			535			1,225
Time deposits		(1,050	)		1,400			350			3,306			(2,168	)		1,138
Other interest-bearing deposits		116			(329	)		(213	)		128			(1,013	)		(885	)
Borrowings and subordinated debentures		(206	)		40			(166	)		(475	)		(39	)		(514	)
Total interest-bearing liabilities		(804	)		1,025			221			3,057			(3,668	)		(611	)
Change in net interest income	$	2,629		$	(2,241	)	$	388		$	523		$	280		$	803

The following table, “Average Statement of Condition with Interest and Average Rates”, presents for the three and nine months ended September 30, 2009 and 2008 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 September 30,
	2009									2008
(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	$	349,479		$	3,874			4.43	%	$	203,775		$	2,542			4.99	%
Tax-exempt		25,117			280			4.46			59,425			847			5.70
Loans (2)		693,670			9,255			5.34			651,766			9,427			5.79
Federal funds sold and securities purchased under agreement to resell		-			-			-			-			-			-
Restricted investment in bank stocks		10,674			177			6.63			10,136			161			6.35
Total interest-earning assets		1,078,940			13,586			5.04			925,102			12,977			5.61
Non-interest-earning assets:
Cash and due from banks		187,646									16,533
Bank owned life insurance		26,002									22,789
Intangible assets		17,058									17,145
Other assets		43,397									37,069
Allowance for loan losses		(6,978	)								(5,840	)
Total non-interest earning assets		267,125									87,696
Total assets	$	1,346,065								$	1,012,798
Liabilities and stockholders’ equity
Interest-bearing liabilities:
Money market deposits	$	131,453		$	418			1.27	%	$	144,559		$	756			2.09	%
Savings deposits		180,948			721			1.59			62,618			132			0.84
Time deposits		380,185			1,849			1.95			187,207			1,501			3.21
Other interest-bearing deposits		152,918			451			1.18			127,076			663			2.09
Short-term and long-term borrowings		261,670			2,567			3.92			282,847			2,705			3.83
Subordinated debentures		5,155			44			3.41			5,155			72			5.59
Total interest-bearing liabilities		1,112,329			6,050			2.18			809,462			5,829			2.88
Non-interest-bearing liabilities:
Demand deposits		129,274									118,251
Other non-interest-bearing deposits		318									372
Other liabilities		13,411									4,320
Total non-interest-bearing liabilities		143,003									122,943
Stockholders’ equity		90,733									80,393
Total liabilities and stockholders’ equity	$	1,346,065								$	1,012,798
Net interest income (tax-equivalent basis)				$	7,536								$	7,148
Net interest spread								2.86	%								2.73	%
Net interest income as percent of earning-assets (net interest margin)								2.79	%								3.09	%
Tax-equivalent adjustment (3)					(95	)								(288	)
Net interest income				$	7,441								$	6,860

(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.

Average Statements of Condition with Interest and Average Rates

	Nine Months Ended September 30,
	2009									2008
(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	$	277,655		$	9,333			4.48	%	$	212,461		$	8,062			5.06	%
Tax-exempt		26,750			1,171			5.84			72,277			3,102			5.72
Loans (2)		686,816			27,568			5.35			606,524			26,575			5.84
Federal funds sold and securities purchased under agreement to resell		-			-			-			5,406			109			2.69
Restricted investment in bank stocks		10,477			465			5.92			10,040			497			6.60
Total interest-earning assets		1,001,698			38,537			5.13			906,708			38,345			5.64
Non-interest-earning assets:
Cash and due from banks		119,870									15,770
Bank owned life insurance		24,495									22,571
Intangible assets		17,079									17,169
Other assets		44,897									37,246
Allowance for loan losses		(6,753	)								(5,495	)
Total non-interest earning assets		199,588									87,261
Total assets	$	1,201,286								$	993,969
Liabilities and stockholders’ equity
Interest-bearing liabilities:
Money market deposits	$	121,968		$	1,356			1.48	%	$	159,924		$	2,931			2.44	%
Savings deposits		134,627			1,633			1.62			63,147			408			0.86
Time deposits		322,217			5,597			2.32			158,992			4,459			3.74
Other interest-bearing deposits		138,895			1,449			1.39			131,295			2,334			2.37
Short-term and long-term borrowings		253,355			7,507			3.95			269,390			7,943			3.93
Subordinated debentures		5,155			150			3.88			5,155			228			5.90
Total interest-bearing liabilities		976,217			17,692			2.42			787,903			18,303			3.10
Non-interest-bearing liabilities:
Demand deposits		121,934									115,072
Other non-interest-bearing deposits		323									365
Other liabilities		12,334									6,823
Total non-interest-bearing liabilities		134,591									122,260
Stockholders’ equity		90,478									83,806
Total liabilities and stockholders’ equity	$	1,201,286								$	993,969
Net interest income (tax-equivalent basis)				$	20,845								$	20,042
Net interest spread								2.71	%								2.54	%
Net interest income as percent of earning-assets (net interest margin)								2.77	%								2.95	%
Tax-equivalent adjustment (3)					(398	)		��						(1,066	)
Net interest income				$	20,447								$	18,976

(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.

Investment Portfolio

For the three months ended September 30, 2009, the average volume of investment securities increased by $111.4 million to approximately $374.6 million, or 34.7 percent of average earning assets, from $263.2 million on average, or 28.5 percent of average earning assets, in the comparable period in 2008. For the nine months ended September 30, 2009, the average volume of investment securities increased by $19.7 million to approximately $304.4 million, or 30.4 percent of average earning assets, from $284.7 million on average, or 31.4 percent of average earning assets, in the comparable period in 2008. The change in volume and performance for the nine month period is consistent with maintaining the balance sheet strategies the Corporation has previously outlined in seeking to reduce the overall size of the investment securities portfolio, as a percentage of the earning asset mix. The focus instead has been on increasing loans. The change in the volume of the portfolio continues to maintain pace with the rise in the overall level of earning-assets. With the strong deposit growth experienced predominantly over the past nine months of 2009 and large buildup of liquidity, the Corporation began to prudently expand the size of its investment portfolio in an effort to deploy excess cash into earning assets.

At September 30, 2009, 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 and equity securities. The Corporation’s investment portfolio also consists of overnight investments that were made into the Reserve Primary Fund (the “Fund”), a money market fund registered with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940. On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation could be effected for the protection of the Fund’s investors. To date, the Corporation has received five distributions from the Fund, totaling approximately 92 percent of its outstanding balance. The Fund announced that it has applied to participate in the United States Department of Treasury’s Temporary Money Market Fund Guarantee Program, participation in which is subject to approval of the Treasury Department. While the Corporation expects to recover substantially all of its current holdings in the Fund, the Corporation cannot predict when this will occur and cannot be certain as to the extent of the recovery.

During the three-month period ended September 30, 2009, the volume related factors applicable to the investment portfolio increased revenue by $1,231,000 while rate related changes resulted in a decrease in revenue of $466,000 from the same period in 2008. The tax-equivalent yield on investments decreased by 71 basis points to 4.44 percent from a yield of 5.15 percent during the comparable period in 2008.

During the nine-month period ended September 30, 2009, the volume related factors applicable to the investment portfolio increased revenue by $276,000, while rate related changes resulted in a decrease in revenue of $936,000 from the same period in 2008. The tax-equivalent yield on investments decreased by 63 basis points to 4.60 percent from a yield of 5.23 percent during the comparable period in 2008.

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. On November 16, 2007, the Corporation transferred $113.4 million in securities classified as held-to-maturity to its available for sale portfolio. As a result of this action in the fourth quarter of 2007, the entire securities portfolio has been classified as available for sale.

During the first quarter of 2009, the Corporation recorded a $140,000 other than temporary impairment charge on its Lehman Brothers bond holding. To date through June 30, 2009, other than temporary impairment charges taken on this bond amounted to $1,440,000. As part of the Corporation’s tax strategies, Management elected to sell the Lehman bond holding during the third quarter of 2009.

During the nine months ended September 30, 2009, approximately $422.6 million in debt securities were sold from the Corporation’s available-for-sale portfolio. The cash flow from the sale of investment securities was used to purchase new securities and fund loans. The Corporation’s sales from its available-for-sale portfolio were made in the ordinary course of business.

At September 30, 2009, the net unrealized loss on securities available-for-sale, which is carried as a component of other comprehensive loss and included in stockholders’ equity, net of tax, amounted to a net unrealized loss of $7.2 million as compared with a net unrealized loss of $6.5 million at December 31, 2008. The gross unrealized losses associated with U.S. Treasury and Agency securities and Federal agency obligations, mortgage-backed securities, corporate bonds and tax-exempt securities are not considered to be other-than-temporary because their unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.

Loan Portfolio

Lending is one of the Corporation’s primary business activities. The Corporation’s loan portfolio consists of commercial, residential and retail 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, repeat customer requests for new financings, penetration into existing markets and entry into new markets.

At September 30, 2009, total loans amounted to $716.1 million, an increase of $39.9 million or 5.9 percent as compared to December 31, 2008. Loans during the quarter ended September 30, 2009 increased by $21.9 million, which occurred primarily in the commercial and commercial real estate sectors of the loan portfolio. Total gross loans originated during the quarter included $56.3 million of new loans and $14.7 million in advances, principally offset by payoffs and principal payments of $49.1 million.

Total average loan volume increased $41.9 million or 6.4 percent for the three months ended September 30, 2009 as compared to the same period in 2008, while the portfolio yield decreased by 45 basis points as compared with 2008. 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 $585,000, while the rate related changes decreased revenue by $757,000. The decrease in yield on loans for the three month period of 2009 compared to 2008 was the result of a decrease in market interest rates as compared with 2008, coupled with a 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 within the Corporation’s market. At September 30, 2009, the Corporation had $22.2 million in overall undisbursed loan commitments which are expected to fund over the next 90 days.

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 customers. It is the objective of the Corporation’s credit policies to diversify the commercial loan portfolio to limit concentrations in any single industry.

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. Given the extraordinary economic volatility impacting national, regional and local markets, the Corporation’s analysis of its allowance for loan losses takes into consideration the potential impact that current trends may have on the Corporation’s borrowing base. At September 30, 2009, the level of the allowance was $7,142,000 as compared to $6,254,000 at December 31, 2008 and $6,080,000 at September 30, 2008. The Corporation had total provisions to the allowance for the nine-month period ended September 30, 2009 in the amount of $1,857,000 as compared to $1,136,000 for the comparable period in 2008. The higher loan loss provision covered a $900,000 charge-off taken during the first quarter of 2009 in connection with a $4.9 million commercial real estate construction project of industrial warehouses, which was downgraded to non-accrual status, in addition to changes in the risk ratings related to certain loans that were downgraded during the first quarter. During the second quarter of 2009, three of these downgraded loans were upgraded to pass status. During the third quarter of 2009, two additional loans were upgraded to pass status. The level of the allowance during the respective periods of 2009 and 2008 reflects the credit quality within the loan portfolio, the loan volume recorded during the periods, the Corporation’s focus on the changing composition of the commercial and residential real estate loan portfolios and other related factors.

At September 30, 2009, the allowance for loan losses amounted to 1.00 percent of total loans. In management’s view, the level of the allowance at September 30, 2009 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 and the economy in general, 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 1.00 percent, 0.92 percent and 0.92 percent at September 30, 2009, December 31, 2008 and September 30, 2008.

Net charge-offs were $55,000 and $45,000 during the three months ended September 30, 2009 and 2008, respectively, bringing the Corporation’s net charge-offs to $969,000 for the first nine months of 2009 compared to $219,000 for the same period in 2008. The higher charge-offs for the 2009 period resulted from the previously mentioned loan placed into non-accrual status during the first quarter.

Changes in the allowance for loan losses are set forth below.

	Nine Months Ended September 30,
(Dollars in Thousands)	2009			2008
Average loans outstanding	$	686,816		$	606,524
Total loans at end of period	$	716,100		$	661,157
Analysis of the Allowance for Loan Losses
Balance at the beginning of year	$	6,254		$	5,163
Charge-offs:
Commercial loans		(954	)		( 194	)
Residential		—			—
Installment loans		(23	)		( 48	)
Total charge-offs		(977	)		( 242	)
Recoveries:
Commercial		—			6
Installment loans		8			17
Total recoveries		8			23
Net charge-offs		(969	)		(219	)
Provision for loan losses		1,857			1,136
Balance at end of period	$	7,142		$	6,080
Ratio of net charge-offs during the period to average loans outstanding during the period (1)		0.19	%		0.05	%
Allowance for loan losses as a percentage of total loans at end of period		1.00	%		0.92	%

(1) Annualized

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 and OREO

Non-performing loans include non-accrual loans, troubled debt restructuring and accruing loans past due 90 days or more. Non-accrual loans represent loans on which interest accruals have been suspended. 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 both well-secured and in the process of collection. 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 or modified repayment terms.

The following table sets forth, as of the dates indicated, the amount of the Corporation’s non-accrual loans, troubled debt restructurings, accruing loans past due 90 days or more and other real estate owned.

(Dollars in Thousands)	September 30, 2009		December 31, 2008		September 30, 2008

Non-accrual loans	$	11,448	$	541	$	541
Troubled debt restructuring		970		93		95
Accruing loans past due 90 days or more		1,477		139		18
Total non-performing loans		13,895		773		654
Other real estate owned		—		3,949		—
Total non-performing assets	$	13,895	$	4,722	$	654

The increase in non-accrual loans of $10.9 million at September 30, 2009 from December 31, 2008 was primarily attributable to the addition of four credits. The largest credit, representing 32.7 percent of non-accrual loans at September 30, 2009, related to one commercial real estate construction project of industrial warehouses, which was downgraded to non-accrual status during the first quarter. The Corporation is currently working with the borrower and the participating bank that is involved with the project, in an effort to sell or lease the remaining industrial warehouse units. Proceeds from the current units under contract, as well as remaining units, will be used to make further principal reductions to the Corporation's loan. The remaining three credits are generally well-secured. The $970,000 carried as troubled debt restructuring represents modifications to residential mortgage loans, which are all performing according to the term in their respective modification agreements. The $1.5 million carried as loans past due 90 days or more and still accruing represents two credits which are well secured and in the process of collection.

Overall credit quality in the Bank’s portfolio remains high, even though the economic weakness has impacted several potential problem loans. Other known “potential problem loans” (as defined by SEC regulations), other than those loans identified in the table above, as of September 30, 2009 have been identified and internally risk rated as other assets specially mentioned or substandard. Such loans amounted to $10.0 million, $9.4 million and $9.3 million at September 30, 2009, December 31, 2008, and September 30, 2008 respectively. The change in internally risk rated assets at September 30, 2009 was attributable to certain loans that were downgraded during the first quarter of 2009 due mainly to a variety of changing conditions, including general economic conditions and/or conditions applicable to the specific borrowers. During the second quarter of 2009, three of these downgraded loans were upgraded to pass status. During the third quarter of 2009, two previously downgraded loans were upgraded to pass status and another such downgraded loan was paid in full during the third quarter of 2009. All such loans are currently performing. The Corporation has no foreign loans.

At September 30, 2009, 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.

At September 30, 2009, the Corporation had no other real estate owned (“OREO”) as compared to $3.9 million at December 31, 2008 and none at September 30, 2008. The decrease in the OREO balance from December 31, 2008 represented a writedown of the carrying value and the subsequent sale of a residential condominium project during the third quarter of 2009.

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 both well-secured and in the process of collection.

Other Income

The following table presents the principal categories of other income.

	Three Months Ended September 30,												Nine Months Ended September 30,
							Increase			Percent								Increase			Percent
(Dollars in Thousands)	2009			2008			(Decrease)			Change			2009		2008			(Decrease)			Change

Service charges, commissions and fees	$	464		$	484		$	(20	)		(4.1	)	$	1,353	$	1,526		$	(173	)		(11.3	)
Annuities and insurance		17			35			(18	)		(51.4	)		102		90			12			13.3
Bank owned life insurance		273			507			(234	)		(46.2	)		748		956			(208	)		(21.8	)
Net investment securities gains (losses)		(511	)		(1,075	)		564			52.5			1,799		(850	)		2,649			311.6
Other		68			96			(28	)		(29.2	)		244		307			(63	)		(20.5	)
Total other income	$	311		$	47		$	264			561.7		$	4,246	$	2,029		$	2,217			109.3

N/M = not meaningful

For the three-month period ended September 30, 2009, total other income increased $264,000 as compared with the comparable quarter of 2008, primarily as a result of lower net investment securities losses. During the third quarter of 2009, the Corporation recorded net investment securities losses of $511,000 as compared to $1.1 million for the same period last year. Investment securities losses in the third quarter of 2009 included $889,000 of net gains on the sale of securities, offset by a $1.4 million other-than-temporary impairment charge related to a pooled trust preferred security. During the third quarter of 2008, the Corporation recorded a $1.2 million other-than-temporary charge related to its Lehman Brothers corporate bond. Excluding net investment securities losses, the Corporation recorded other income of $822,000 in the three months ended September 30, 2009, compared to $1.1 million in the three months ended September 30, 2008, a decrease of $300,000 or 26.7 percent. During the third quarter of 2008, the Corporation recognized $230,000 in tax free proceeds in excess of contract value on the Corporation’s bank owned life insurance (BOLI) due to the death of one insured participant.

For the nine-month period ended September 30, 2009, total other income increased $2.2 million compared to the same period in 2008, primarily as a result of net investment securities gains (losses). Excluding net investment securities gains (losses), the Corporation recorded other income of $2.4 million for the nine months ended September 30, 2009 compared to $2.9 million for the comparable period in 2008, a decrease of $432,000 or 15.0 percent. This decrease was due primarily attributable to the $230,000 in tax-free proceeds in excess of contract value on the Corporation’s BOLI due to the death of one insured participant, which was recorded in the third quarter of 2008.

Other Expense

The following table presents the principal categories of other expense.

	Three Months Ended September 30,											Nine Months Ended September 30,
						Increase			Percent							Increase			Percent
(Dollars in Thousands)	2009		2008			(Decrease)			Change			2009		2008		(Decrease)			Change

Salaries and employee benefits	$	2,529	$	1,919		$	610			31.8		$	7,429	$	6,795	$	634			9.3
Occupancy, net		539		803			(264	)		(32.9	)		1,919		2,296		(377	)		(16.4	)
Premises and equipment		323		352			(29	)		(8.2	)		963		1,074		(111	)		(10.3	)
FDIC insurance		320		28			292			1,042.9			1,625		68		1,557			2,289.7
Professional and consulting		190		189			1			0.5			638		551		87			15.8
Stationery and printing		81		87			(6	)		(6.9	)		253		300		(47	)		(15.7	)
Marketing and advertising		75		145			(70	)		(48.3	)		346		493		(147	)		(29.8	)
Computer expense		220		238			(18	)		(7.6	)		662		605		57			9.4
OREO expense (benefit), net		30		(44	)		74			168.2			1,438		20		1,418			7,090.0
Other		879		861			18			2.1			2,546		2,517		29			1.2
Total other expense	$	5,186	$	4,578		$	608			13.3		$	17,819	$	14,719	$	3,100			21.1

For the three months ended September 30, 2009, total other expense increased $608,000, or 13.3 percent, from the comparable three months ended September 30, 2008. For the nine months ended September 30, 2009, total other expenses increased $3.1 million, or 21.1%, from the same period in 2008. Expense in 2009 was negatively impacted as a result of an increase in FDIC insurance expense and OREO expense.

Salary and employee benefit expense for the quarter ended September 30, 2009 increased $610,000 or 31.8% over the comparable period last year. For the nine months ended September 30, 2009, salary and employee benefit expense increased $634,000, or 9.3 percent, from the comparative period in 2008. During the third quarter of 2008, the Corporation recognized a $272,000 benefit relating to the lump-sum payment and termination of the directors retirement plan. This benefit represented the difference between the actuarial present value of the lump-sum payment and the accrued liability previously recorded on the Corporation’s balance sheet. Additionally, there was increased expense of $107,000 and $331,000 for the three and nine months ended September 30, 2009 as compared to the same respective periods in 2008 resulting from changes in the asset valuation and expected rate of return on the Corporation’s defined pension plan, which was frozen in 2007. Full-time equivalent staffing levels were 165 at September 30, 2009 compared to 161 as of December 31, 2008 and 156 at September 30, 2008.

Occupancy and premises and equipment expenses for the quarter ended September 30, 2009 decreased $293,000, or 25.4 percent, from the comparable three-month period in 2008. For the nine month period ended September 30, 2009, occupancy and premises and equipment expense decreased $488,000, or 14.5 percent, from the same period last year. The decrease was primarily attributable to expense reductions due to branch closures and consolidations.

In May 2009, the FDIC adopted a final special assessment rule that assessed the industry 5 basis points on total assets less Tier I capital. The Corporation was required to accrue the charge during the second quarter of 2009, which amounted to approximately $630,000, even though the FDIC collected the fee at the end of the third quarter when the regular quarterly assessments for the second quarter were collected. Additionally, in December 2008, the FDIC adopted a final rule increasing risk-based assessment rates beginning in the first quarter of 2009. As a result of these changes coupled with one-time assessment credits recognized in 2008, FDIC insurance expense increased $292,000 and $1.6 million for the three and nine months ended September 30, 2009, respectively, over the comparable periods in 2008.

Professional and consulting expense for the three month period ended September 30, 2009 was essentially unchanged compared to the comparable quarter of 2008. For the nine months ended September 30, 2009, professional and consulting expense increased $87,000, or 15.8 percent, from the comparable period in 2008. The increase in the nine-month period is primarily attributable to higher legal expenses in 2009.

Marketing and advertising expense for the three months ended September 30, 2009 decreased $70,000, or 48.3 percent, from the comparable period in 2008. For the nine months ended September 30, 2009, marketing and advertising expense was down $147,000, or 29.8 percent, from the same period 2008.

Computer expense for the three-month period ended September 30, 2009 decreased $18,000, or 7.6 percent, compared to the same quarter of 2008. For the nine months ended September 30, 2009, computer expenses were up $57,000, or 9.4 percent, from the same period last year. The increase was due primarily to fees paid to the Corporation’s outsourced information technology service provider. This previously announced strategic outsourcing agreement has significantly improved operating efficiencies and reduced overhead, primarily in salaries and benefits.

OREO expense for the three and nine months ended September 30, 2009 increased by $74,000 and $1.4 million compared to the same three and nine month periods last year, respectively. The increase in the nine-month period was due primarily to the recognition of a $926,000 writedown coupled with the continued buildout costs relating to the residential real estate condominium project in Union County, New Jersey. The Corporation sold the project during the third quarter of 2009.

Other expense for the third quarter of 2009 totaled $879,000, an increase of $18,000, or 2.1 percent, from the comparable period in 2008. On a nine month basis, other expense increased $29,000, or 1.2 percent, from the same period last year.

As previously announced in September 2009, the Corporation signed a strategic outsourcing agreement with Fiserv (NASDAQ: FISV) to provide core account processing services, which is consistent with the Corporation’s other strategic initiatives to streamline operations, reduce operating overhead and allow the Corporation to focus on core competencies of customer service and product development. This and previously initiated cost reduction plans, are expected to improve operating efficiencies, business and technical operations.

Provision for Income Taxes

For the quarter ended September 30, 2009, the Corporation recorded an income tax expense of $751,000, as compared with an income tax expense of $346,000 for the quarter ended September 30, 2008. The effective tax rates for the Corporation for the respective quarterly periods ended September 30, 2009 and 2008 were 32.9 percent and 18.6 percent, respectively. The effective tax rates for the first nine months of 2009 and 2008 were 29.5 percent compared to 19.6 percent, respectively. The increases in the effective tax rate were primarily due to a business entity restructuring which was fully completed in 2008 coupled with a higher proportion of taxable income versus non-taxable income partly due to the reduced size of the Corporation’s municipal securities portfolio.

Recent Accounting Pronouncements

Note 3 of the Consolidated Financial Statements discusses the expected impact of accounting pronouncements recently issued or proposed but not yet required to be adopted.

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 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 September 30, 2009, the Corporation reflects a positive interest sensitivity gap (or an interest sensitivity ratio of 1.16:1.00) at the cumulative one-year position. 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 2009. 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, and available for sale investment securities. These are all recorded at either fair value or the 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. 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 September 30, 2009, the Parent Corporation had $3.1 million in cash and short-term investments compared to $2.2 million at December 31, 2008. 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 September 30, 2009, 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 September 30, 2009, projected to July 1, 2010, indicates that the Bank’s liquidity should remain strong, with an approximate projection of $424.5 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 alternative sources of liquidity and general economic conditions.

On September 30, 2009, the FDIC proposed a rule that would require insured institutions to prepay their estimated quarterly assessments through December 31, 2012 to strengthen the cash position of the Deposit Insurance Fund. Once final, the rule would require the cash prepayment on December 30, 2009. Management believes the prepayment (estimated to be approximately $4.5 million) will not have a significant impact on the Corporation’s future cash position or operations.

Deposits

Total deposits increased $301.7 million, or 45.7 percent, to $961.2 million on September 30, 2009 from $659.5 million at December 31, 2008. Total non-interest-bearing deposits increased from $113.3 million at December 31, 2008 to $126.2 million at September 30, 2009, an increase of $12.9 million or 11.4 percent. Interest bearing demand, savings and time deposits increased $288.7 million at September 30, 2009 as compared to December 31, 2008. The increase in total deposits was primarily the result of an inflow in core savings deposits and CDARS Reciprocal deposits, as customers sought safety and more liquidity in light of the financial crisis. Time certificates of deposit of $100,000 or more increased $165.5 million as compared to year-end 2008 due to an increase in CDARS Reciprocal deposits.

The Corporation derives a significant proportion of its liquidity from its core deposit base. Total demand deposits, savings and money market accounts of $609.9 million at September 30, 2009 increased by $179.6 million, or 41.7 percent, from December 31, 2008. At September 30, 2009, total demand deposits, savings and money market accounts were 63.5 percent of total deposits compared to 65.8 percent at year-end 2008. Alternatively, the Corporation uses a more stringent calculation for the management of its liquidity positions internally, which calculation consists of total demand, savings accounts and money market accounts (excluding money market accounts greater than $100,000 and time deposits) as a percentage of total deposits. This number increased by $6.2 million, or 1.8 percent, from $349.5 million at December 31, 2008 to $355.7 million at September 30, 2009 and represented 37.0 percent of total deposits at September 30, 2009 as compared with 53.0 percent at December 31, 2008.

Certificates of deposit $100,000 and greater, increased to 27.7 percent of total deposits at September 30, 2009 from 15.2 percent at December 31, 2008 due to the increase in CDARS Reciprocal deposits.

Core Deposit Mix

The following table depicts the Corporation’s core deposit mix at September 30, 2009 and December 31, 2008.

											Net Change
	September 30, 2009					December 31, 2008					Volume
(Dollars in Thousands)	Amount			Percentage		Amount			Percentage		2009 vs. 2008

Non-interest bearing deposits	$	126,205			35.5	$	113,319			32.4	$	12,886
Interest-bearing demand		136,070			38.3		139,349			39.9		(3,279	)
Regular savings		57,774			16.2		56,431			16.1		1,343
Money market deposits under $100		35,656			10.0		40,419			11.6		(4,763	)
Total core deposits	$	355,705			100.0	$	349,518			100.0	$	6,187
Total deposits	$	961,157				$	659,537				$	301,620
Core deposits to total deposits		37.0	%				53.0	%

Borrowings

Total borrowings amounted to $280.5 million at September 30, 2009, reflecting an increase of $6.9 million from December 31, 2008. Overnight customer repurchase transactions covering commercial customer sweep accounts totaled $52.2 million at September 30, 2009 as compared with $30.1 million at December 31, 2008. This shift in the volume of repurchase agreements also accounted for a portion of the change in non-interest bearing commercial checking accounts during the period.

Cash Flows

The consolidated statements of cash flows present the changes in cash and cash equivalents from operating, investing and financing activities. During the nine months ended September 30, 2009, cash and cash equivalents (which increased overall by $157.4 million) were used on a net basis by investing activities in the amount of approximately $168.4 million, primarily from an increase in the investment and loan portfolios, offset in part by maturities and sales of investment securities. Net cash of $315.5 million was provided by financing activities, primarily due to an increase in deposits and overnight customer repurchase transactions. Net cash of $10.3 million was provided by operating activities, principally as a result of net income of $3.5 million, a $1.9 million provision for loan losses, a $2.0 million increase in other liabilities and a $3.3 million decrease in other assets.

Stockholders’ Equity

Total stockholders’ equity amounted to $92.2 million, or 6.83 percent of total assets, at September 30, 2009, compared to $81.7 million or 7.99 percent of total assets at December 31, 2008. Book value per common share was $6.36 at September 30, 2009, compared to $6.29 at December 31, 2008. Tangible book value (i.e., total stockholders’ equity less preferred stock, goodwill and other intangible assets) per common share was $5.04 at September 30, 2009 compared to $4.97 at December 31, 2008.

In July 2009, the Corporation announced that its Board of Directors had authorized a rights offering of up to approximately $11 million of common stock to its existing stockholders. As previously announced, in October, the Corporation successfully raised total gross proceeds of approximately $11 million in its rights offering and private placement with its standby purchaser. The Corporation intends to use the net proceeds from the rights offering to purchase the shares of preferred stock and the warrant to purchase shares of common stock issued to the U.S. Department of the Treasury in January 2009 under the TARP Capital Purchase Program.

Tangible book value per share is a non-GAAP financial measure and represents tangible stockholders’ equity (or tangible book value) calculated on a per common share basis. 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 following table presents a reconciliation of total book value per share to tangible book value per share as of September 30, 2009 and December 31, 2008.

	September 30,		December 31,
(Dollars in Thousands, Except per Share Data	2009		2008
Common shares outstanding		13,000,601		12,991,312
Stockholders’ equity	$	92,227	$	81,713
Less: Preferred Stock		9,599		—
Less: Goodwill and other intangible assets		17,047		17,110
Tangible common stockholders’ equity	$	65,581	$	64,603
Book value per common share	$	6.36	$	6.29
Less: Goodwill and other intangible assets		1.32		1.32
Tangible book value per common share	$	5.04	$	4.97

During the three and nine months ended September 30, 2009, the Corporation had no purchases of common stock associated with its buy back program. For the three and nine months ended September 30, 2008, the Corporation purchased 31,500 shares of common stock at an average cost per share of $8.95 per share and a total of $193,083 shares of common stock at an average price of $9.96 per share. At September 30, 2009, there were 652,868 shares available for repurchase under the Corporation’s stock buyback program. As described in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2008, the Corporation is restricted from repurchasing its Common Stock while its newly issued preferred stock is held by the Treasury.

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 effectively balance the retention of capital to support future growth and the goal of providing stockholders with an attractive long-term return on their investment.

In early October 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law. The Act has numerous provisions designed to aid the availability of credit, the domestic economy and the financial institution industry. One recently announced facet of EESA’s implementation is the capital injection program for banks and bank holding companies offered by the U.S. Department of Treasury.

Risk-Based Capital/Leverage

The Tier I leverage capital at September 30, 2009 (defined as tangible stockholders’ equity for common stock and Trust Preferred Capital Securities) amounted to $89.7 million, or 6.75 percent of average total assets. At December 31, 2008, the Corporation’s Tier I leverage risk-based capital amounted to $78.2 million or 7.71 percent of average total assets. The increase reflects the Corporation's participation in the United States Government's Capital Purchase Program.

Tier I capital excludes the effect of FASB ASC 320-10-05, which amounted to $7.2 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) and goodwill and intangible assets of $17.0 million as of September 30, 2009.

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 September 30, 2009, the Corporation’s Tier 1 and total risk-based capital ratios were 10.23 percent and 11.04 percent, respectively. These ratios are well above the minimum guidelines of capital to risk-adjusted assets in effect as of September 30, 2009.

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 September 30, 2009, management believes that each of Union Center National Bank and Center Bancorp, Inc. 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. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85% and reprices quarterly. The rate at September 30, 2009 was 3.34%.

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 and currently is in flux. The U.S. Treasury and banking regulators are implementing a number of programs under relatively new legislation to address capital and liquidity issues in the banking system. It is difficult to assess whether Congress’ intervention will have short-term and/or long-term positive effects.

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, 2008.

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 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.

Based on the results of the interest simulation model as of September 30, 2009, and assuming that management does not take action to alter the outcome, the Corporation would expect an increase of 0.59 percent in net interest income if interest rates increased by 200 basis points from current rates in a gradual and parallel rate ramp over a twelve month period. As market rates declined to historic lows at September 30, 2009, the Corporation did not feel that modeling a further down rate scenario was realistic in the current environment.

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 2009. However, no assurance can be given that this objective will be met.

Equity Price Risk

We are also exposed to equity price risk inherent in our portfolio of publicly traded equity securities, which had an estimated fair value of $0.4 million at September 30, 2009 and $0.7 million at December 31, 2008. We monitor our equity investments for impairment on a periodic basis. In the event that the carrying value of the equity investment exceeds its fair value, and we determine the decline in value to be other than temporary, we reduce the carrying value to its current fair value. During 2009, the Corporation recorded no other than temporary impairment charges on its equity security holdings.

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 Corporation’s internal control over financial reporting.

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 September 30, 2009, the Corporation had purchased 1,386,863 common shares at an average cost per share of $11.44 under stock buyback programs announced in 2006 and 2007. The repurchased shares were recorded as Treasury Stock, which resulted in a decrease in stockholders’ equity. During the three and nine months ended September 30, 2009, there were no shares repurchased.

Information concerning the third quarter 2009 stock repurchases is set forth below.

Period	Total Number of Shares (or Units) Purchased		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (1)

July 1 through July 31, 2009		—	$	—		1,386,863		652,868
August 1 through August 31, 2009		—		—		1,386,863		652,868
September 1 through September 30, 2009		—		—		1,386,863		652,868
Total		—	$	—		1,386,863		652,868

(1)

On June 26, 2008, the Board approved an increase in its current share buyback program to an additional 5% of outstanding shares, enhancing its current authorization by 649,712 shares. Any purchases by the Corporation may be made, from time to time, in the open market, in privately negotiated transactions or otherwise, subject to restrictions under the Capital Purchase Program.

On January 12, 2009, the Corporation issued $10 million in nonvoting senior preferred stock to the U.S. Department of Treasury under the Capital Purchase Program. As part of the transaction, the Corporation also issued warrants to the Treasury to purchase 173,410 shares of common stock of the Corporation at an exercise price of $8.65 per share. These securities were not registered under the Securities Act of 1933, but rather we issued pursuant to an exemption from such requirements (pursuant Section 4(2) of the Securities Act of 1933) afforded to the private placement of securities. There was a single investor in this issuance - the United States Treasury.

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

SIGNATURES

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	By:	/s/ A. Richard Abrahamian
	Anthony C. Weagley, President and Chief Executive Officer		A. Richard Abrahamian, Treasurer and Chief Financial Officer

	Date: November 9, 2009		Date: November 9, 2009

EXHIBIT INDEX

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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ConnectOne Bancorp (CNOB) 10-Q2009 Q3 Quarterly report

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