ConnectOne Bancorp (CNOB) 8-K Results of Operations and Financial Condition

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Joseph D. Gangemi

Vice President, Investor Relations

(908) 206-2863

Center Bancorp, Inc. Reports Fourth-Quarter Net income Available to Common Shareholders of $3.2 Million or $0.20 Per Share and Full Year 2011 Earnings Available to Common Shareholders of $13.1 Million or $0.80 Per Share

Year-to-Year Net Income Available to Common Shareholders Up 104.1%

UNION, N.J., January 26, 2012 (GLOBE NEWSWIRE) — Center Bancorp, Inc. (Nasdaq: CNBC) (the "Corporation", or "Center"), parent company of Union Center National Bank (“UCNB”), today reported operating results for the fourth quarter ended December 31, 2011. Net income available to common stockholders amounted to $3.2 million, or $0.20 per fully diluted common share, for the quarter ended December 31, 2011, as compared with net income available to common stockholders of $2.4 million, or $0.15 per fully diluted common share, for the quarter ended December 31, 2010 and net income available to common stockholders of $3.6 million, or $0.22 per fully diluted common share, for the quarter ended September 30, 2011. During the fourth quarter of 2011, the Corporation repurchased warrants covering 86,705 shares of common stock granted under the TARP Capital Purchase program. The repurchase resulted in a one-time non-cash reduction in net income available to common shareholders of approximately $225,000, or $0.014 cents per common diluted share, for the fourth quarter of 2011.

Anthony C. Weagley, President and Chief Executive Officer of Center, indicated: "The results for the fourth quarter announced today are improved and decisive in reflecting the continued strength of the Corporation’s performance and balance sheet. Margins held stable during the period despite high levels of liquidity, an already strong balance sheet showed marked improvement and overhead remained controlled. Significant items affecting the Company’s fourth-quarter results included $399,000 (pretax) in other real estate (OREO) expense, resulting from the disposal of real estate properties during the period. Book value per common share rose to $7.63 at December 31, 2011, compared to $6.83 at December 31, 2010 and $7.54 at September 30, 2011. Tangible book value per common share also increased to $6.60 at December 31, 2011, compared to $5.79 at December 31, 2010 and $6.50 at September 30, 2011.”

For the twelve months ended December 31, 2011, net income available to common stockholders amounted to $13.1 million, or $0.80 per fully diluted common share, compared to $6.4 million, or $0.43 per fully diluted common share, for the same period in 2010.

Highlights for the quarter include:

· Net interest income increased to $10.2 million, compared to $8.4 million for the fourth quarter 2010. Net interest margin on a fully taxable equivalent annualized basis increased 32 basis points to 3.50%, compared to 3.18% for the fourth quarter of 2010, driven by a lower cost of funds on the deposits mix and lower rates and volume on borrowings.

· Continued focus on internal processes and expense controls will further improve operating efficiency.  The efficiency ratio for the fourth quarter of 2011 on an annualized basis was 53.7% as compared to 49.5% in the third quarter of 2011 and 63.9% in the fourth quarter of 2010.

· Deposits increased $61.4 million to $1.121 billion at December 31, 2011, from $1.060 billion at September 30, 2011 and increased $261.1 million from the balance reported at December 31, 2010. Growth occurred in noninterest-bearing checking deposits, savings and money market deposit accounts.

· At December 31, 2011, total loans amounted to $756.0 million, an increase of $34.4 million compared to total loans at September 30, 2011.  Total loans increased $47.6 million compared to total loans at December 31, 2010. The increases occurred primarily in the commercial and commercial real estate portfolios.

· Non-performing assets, consisting of non-accrual loans, accruing loans past due 90 days or more, other real estate owned (“OREO”) and other nonperforming assets, amounted to 0.59% of total assets at December 31, 2011, compared to 1.08% at September 30, 2011 and 0.98% at December 31, 2010.  At December 31, 2011, the allowance for loan losses amounted to approximately $9.6 million, or 1.27% of total loans, compared to $9.5 million, or 1.32% of total loans, at September 30, 2011, and $8.9 million, or 1.25% of total loans, at December 31, 2010. The allowance for loan losses as a percentage of total non-performing loans was 121.5% at December 31, 2011 compared to 65.6% at September 30, 2011 and 74.6% at December 31, 2010.

· The Corporation successfully grew its capital base by $2.1 million in the fourth quarter, although certain ratios declined. The Tier 1 leverage capital ratio was 9.29% at December 31, 2011, compared to 9.51% at September 30, 2011, and 9.90% at December 31, 2010, exceeding regulatory guidelines in all periods

· On December 7, 2011, the Corporation repurchased the warrants issued on January 12, 2009 to the U.S. Treasury as part of its participation in the U.S. Treasury's TARP Capital Purchase Program. The Corporation received $10.0 million under the program and, using funds received under the U.S. Government’s Small Business Lending Fund program, repaid the debt in full in September of this year. In the repurchase, the Corporation paid the U.S. Treasury $245,000 for the warrants.

· The increase in fourth quarter 2011 net income was achieved notwithstanding a $399,000 OREO expense charge, resulting primarily from a charge recognized on the disposal of a commercial office property taken into OREO in October 2011 and disposed of two months later.

Mr. Weagley added: "While the economy both on a local and National level continues to moderate and reflect positive trends in key sectors of the economy, we are pleased to see signs of sustained growth in loan demand and credit quality. Our nonperforming loans declined, as did charge-offs for the fourth quarter. Net charge-offs were $234,000 in the fourth quarter, down 88% compared with the prior quarter last year, and nonperforming assets declined by 28.6%. Our overall delinquencies continue to improve with overall credit performance and trends remaining stable."

Further commenting on financial results, Mr. Weagley said “We are pleased with the execution on our business plans to grow and build shareholder value. Despite the headwinds that still exist for the banking sector, Center continues to sustain a quality balance sheet. The Corporation’s returns on average tangible equity for the fourth quarter of 2011 and the full year 2011 were 12.25% and 12.34%, respectively. We believe these returns were reasonable given the environment, although the return for the fourth quarter was modestly disappointing due to the large liquidity pool that was carried during the period. In the current environment, it is challenging to expand profit margins through asset deployment. We have strong pipelines that we believe will absorb excess cash as we move forward into 2012.”

Selected Financial Ratios

(unaudited; annualized where applicable)

As of or for the quarter ended:	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Return on average assets		1.03	%		1.10	%		1.10	%		0.98	%		0.86	%
Return on average equity		10.72	%		11.12	%		11.17	%		9.86	%		8.34	%
Net interest margin (tax equivalent basis)		3.50	%		3.54	%		3.53	%		3.55	%		3.18	%
Loans / deposits ratio		67.42	%		68.07	%		72.30	%		76.62	%		82.35	%
Stockholders’ equity / total assets		9.49	%		9.72	%		9.95	%		9.67	%		10.02	%
Efficiency ratio (1)		53.7	%		49.5	%		52.8	%		54.8	%		63.9	%
Book value per common share	$	7.63		$	7.54		$	7.39		$	7.05		$	6.83
Return on average tangible stockholders’ equity (1)		12.25	%		12.74	%		12.86	%		11.44	%		9.68	%
Tangible common stockholders’ equity / tangible assets (1)		7.61	%		7.79	%		8.02	%		7.70	%		7.92	%
Tangible book value per common share (1)	$	6.60		$	6.50		$	6.35		$	6.01		$	5.79

 (1)Information reconciling non-GAAP measures to GAAP measures is presented elsewhere in this press release.

Mr. Weagley noted, “In recapping the year, during 2011, the Corporation demonstrated strong performance and continued to move forward with its strategic business plans and produced significant results. We took aggressive actions in reducing credit issues which served to buttress an already strong balance sheet. We ended the year with Tier 1 common equity of $124.7 million and strong reserve coverage ratio (allowance for loan losses to non-performing loans) of 121.5 % of non-performing loans. Looking forward into 2012, we expect to continue to see improvement in nonperforming assets and continued momentum in key areas, including restraint of operating overhead, margins and future credit exposures.”

Net Interest Income

For the three months ended December 31, 2011, total interest income on a fully taxable equivalent basis increased $2.1 million or 18.2%, to $13.6 million, compared to the three months ended December 31, 2010. Total interest expense decreased by $37,000, or 1.2%, to $3.1 million, for the three months ended December 31, 2011, compared to the same period last year. Net interest income on a fully taxable equivalent basis was $10.5 million for the three months ended December 31, 2011, increasing $2.1 million, or 25.5%, from $8.4 million for the comparable period in 2010. Compared to 2010, for the three months ended December 31, 2011, average interest earning assets increased $150.6 million while net interest spread and margin, on a tax-equivalent basis, increased on an annualized basis by 40 basis points and 32 basis points, respectively. The Corporation’s net interest income and margin were favorably impacted primarily by lower interest rates on deposits and borrowings and changes in volume mix.

The decrease in interest expense reflects the impact of the sustained low levels in short-term interest rates coupled with a favorable shift in the deposit mix in spite of higher volumes of time deposits. The combined positive effect was a decrease in the average cost of funds, which declined 24 basis points to 1.13% from 1.37% for the quarter ended December 31, 2010 and on a linked sequential quarter decreased 5 basis points compared to the third quarter of 2011.

For the quarter ended December 31, 2011, the Corporation’s net interest spread increased 40 basis points to 3.40% as compared to 3.00% for the same three month period in 2010, while the Corporation’s net interest margin (net interest income as a percentage of interest-earning assets) increased by 32 basis points from 3.18% to 3.50%, in all cases on an annualized tax-equivalent basis.

For the twelve months ended December 31, 2011, net interest income on a fully taxable equivalent basis amounted to $40.6 million, compared to $34.0 million for 2010. For the twelve month period ended December 31, 2011, interest income increased by $4.0 million while interest expense decreased by $2.6 million from last year. Compared to 2010, for the twelve months ended December 31, 2011, average interest earning assets increased $121.5 million while net interest spread and margin increased on an annualized tax-equivalent basis by 26 basis points and 23 basis points, respectively. The Corporation’s net interest income and margin were favorably impacted primarily by lower interest rates on deposits and borrowings and changes in volume mix.

Earnings Summary for the Period Ended December 31, 2011

The following tables present condensed consolidated statement of income data for the periods indicated.

        Condensed Consolidated Statements of Income (unaudited)

        (dollars in thousands, except per share data) 

For the quarter ended:	12/31/11		9/30/11		6/30/11		3/31/11		12/31/10
Net interest income	$	10,162	$	9,850	$	9,793	$	9,945	$	8,381
Provision for loan losses		300		1,020		250		878		2,048
Net interest income after  provision for loan losses		9,862		8,830		9,543		9,067		6,333
Other income		1,866		2,283		1,732		1,597		1,304
Other expense		6,222		5,529		5,757		5,935		5,997
Income before income tax expense		5,506		5,584		5,518		4,729		1,640
Income tax expense (benefit)		1,884		1,882		1,934		1,711		(930	)
Net income	$	3,622	$	3,702	$	3,584	$	3,018	$	2,570
Net income available to common stockholders	$	3,238	$	3,557	$	3,439	$	2,872	$	2,426
Earnings per common share:
Basic	$	0.20	$	0.22	$	0.21	$	0.18	$	0.15
Diluted	$	0.20	$	0.22	$	0.21	$	0.18	$	0.15
Weighted average common shares outstanding:
Basic		16,311,193		16,290,700		16,290,700		16,290,391		16,289,832
Diluted		16,327,990		16,313,366		16,315,667		16,300,604		16,290,071

Other Income

The following tables present the components of other income for the periods indicated.

(in thousands, unaudited)
For the quarter ended:	12/31/11		9/30/11		6/30/11		3/31/11		12/31/10
Service charges on deposit accounts	$	344	$	369	$	328	$	328	$	427
Loan related fees		248		203		145		87		132
Annuities and insurance commissions		29		42		33		6		4
Debit card and ATM fees		137		135		133		121		124
Bank-owned life insurance		258		260		261		260		269
Net investment securities gains		817		1,250		801		766		315
Other service charges and fees		33		24		31		29		33
Total other income	$	1,866	$	2,283	$	1,732	$	1,597	$	1,304

Other income increased $562,000 for the fourth quarter of 2011 compared with the same period in 2010. During the fourth quarter of 2011, the Corporation recorded net investment securities gains of $817,000 compared to $315,000 in net investment securities gains for the same period last year. Excluding net securities gains, the Corporation recorded other income of $1,049,000 for the three months ended December 31, 2011 compared to other income, excluding net securities gains, of $1,033,000 for the third quarter of 2011 and $989,000 for the three months ended December 31, 2010. The increase in other income in the fourth quarter 2011 when compared to the fourth quarter 2010 (excluding securities gains) was primarily from an increase of $116,000 in loan related fees, and $25,000 in commissions on Annuities and Insurance contracts offset by declines in service charges on Deposits of $83,000 and a decline in Bank Owned Life Insurance income of $11,000.

For the twelve months ended December 31, 2011, total other income increased $5.0 million compared to 2010, primarily as a result of net securities gains, net of impairment charges taken on investment securities in 2011. Excluding net securities gains and losses, the Corporation recorded other income of $3.84 million for the twelve months ended December 31, 2011 compared to $3.81 million for 2010, an increase of $33,000 or 0.87%.

Other Expense

The following tables present the components of other expense for the periods indicated.

(in thousands, unaudited)
For the quarter ended:	12/31/11		9/30/11		6/30/11		3/31/11			12/31/10
Salaries	$	2,290	$	2,235	$	2,253	$	2,208		$	2,132
Employee benefits		619		613		650		659			527
Occupancy and equipment		701		713		667		866			804
Professional and consulting		351		319		245		241			272
Stationery and printing		95		73		99		101			74
FDIC Insurance		328		328		528		528			540
Marketing and advertising		15		30		65		21			34
Computer expense		323		300		350		339			366
Bank regulatory related expenses		108		102		100		98			97
Postage and delivery		42		67		51		76			69
ATM related expenses		58		60		57		58			55
Other real estate owned expense		399		—		—		(1	)		221
Amortization of core deposit intangible		12		12		16		16			16
All other expenses		881		677		676		725			790
Total other expense	$	6,222	$	5,529	$	5,757	$	5,935		$	5,997

Other expense for the fourth quarter of 2011 amounted to $6.2 million, which was approximately $693,000 or 12.53 percent higher than other expense for the three months ended September 30, 2011. Employee salaries and benefits increased by $61,000 or 2.14 percent, primarily driven by increases in salaries and benefits expense as compared to the quarter ended September 30, 2011. OREO expense increased $399,000 while other expense increased $204,000 primarily due to a charge on the disposal of a commercial office property taken into OREO in October 2011, and disposed of in December 2011.

The increase in other expense for the three months ended December 31, 2011, when compared to the quarter ended December 31, 2010, was approximately $225,000 and was primarily associated with increases of $250,000 in salaries and benefits, $79,000 in professional and consulting fees, OREO expense of $178,000, and miscellaneous other expenses of $91,000. These increases were partially offset by decreases of $212,000 in FDIC Insurance and $103,000 in occupancy and equipment expenses.

For the twelve months ended December 31, 2011, total other expense decreased $656,000, or 2.72%, compared to 2010.

Decreases primarily included $427,000 in one-time charges incurred in 2010 with the lease/sale of the Corporation’s former operations facility, $414,000 in FDIC Insurance and $594,000 from the early termination of a structured repurchase agreement in 2010. These decreases were partially offset by an increase in salaries and employee benefits of $762,000, OREO expense of $114,000 and other expense of $241,000.

Statement of Condition Highlights at December 31, 2011

· Total assets amounted to $1.4 billion at December 31, 2011.

· Total loans were $756.0 million at December 31, 2011, increasing $47.6 million, or 6.71%, from December 31, 2010.  Total real estate loans increased $35.4 million or 7.00%, from December 31, 2010. Commercial loans increased $12.5 million, or 6.20%, year over year.

· Investment securities totaled $486.7 million at December 31, 2011, reflecting an increase of $108.7 million from December 31, 2010.

· Deposits totaled $1.1 billion at December 31, 2011, increasing $261.1 million, or 30.3%, since December 31, 2010.  Total Demand, Savings, Money Market, and certificates of deposit less than $100,000 increased $242.7 million or 32.8% from December 31, 2010. Time certificates of deposit of $100,000 or more also increased by $18.3 million or 15.3% from December 31, 2010. These increases were attributable to continued core deposit growth in overall segments of the deposits base and in niche areas, such as municipal government, private schools and universities.

· Borrowings totaled $166.2 million at December 31, 2011, decreasing $51.9 million from December 31, 2010, primarily due to repayment of Federal Home Loan Bank advances and a structured repurchase agreement in 2010.

Condensed Statements of Condition

The following tables present condensed statements of condition as of the dates indicated.

       Condensed Consolidated Statements of Condition (unaudited)

(in thousands)
At quarter ended:	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Cash and due from banks	$	111,101		$	113,080		$	109,467		$	80,129		$	37,497
Investment securities
Available for sale		414,507			388,858			377,214			410,376			378,080
Held to maturity		72,233			70,142			41,804			—			—
Loans		756,010			721,608			698,148			716,096			708,444
Allowance for loan losses		(9,602	)		(9,536	)		(9,836	)		(9,591	)		(8,867	)
Restricted investment in bank stocks, at cost		9,233			9,194			9,194			9,146			9,596
Premises and equipment, net		12,327			12,386			12,578			12,747			12,937
Goodwill		16,804			16,804			16,804			16,804			16,804
Core deposit intangible		98			111			123			138			155
Bank-owned life insurance		28,943			28,685			28,426			28,165			27,905
Other real estate owned		591			—			—			—			—
Other assets		20,493			25,185			23,516			24,636			24,834
Total assets	$	1,432,738		$	1,376,517		$	1,307,438		$	1,288,646		$	1,207,385
Deposits	$	1,121,415		$	1,060,022		$	965,676		$	934,646		$	860,332
Borrowings		166,155			166,155			198,529			202,072			218,010
Other liabilities		9,252			16,532			13,129			27,344			8,086
Stockholders' equity		135,916			133,808			130,104			124,584			120,957
Total liabilities and stockholders’ equity	$	1,432,738		$	1,376,517		$	1,307,438		$	1,288,646		$	1,207,385

The following tables reflect the composition of the Corporation’s deposits as of the dates indicated.

Deposits (unaudited)
(in thousands)
At quarter ended:	12/31/11		9/30/11		6/30/11		3/31/11		12/31/10
Demand:
Non interest-bearing	$	167,164	$	161,340	$	158,689	$	154,910	$	144,210
Interest-bearing		215,523		224,052		190,944		179,900		186,509
Savings		200,930		237,900		204,051		200,195		196,291
Money market		351,237		245,787		191,277		178,956		159,200
Time		186,561		190,943		220,665		220,595		174,122
Total deposits	$	1,121,415	$	1,060,022	$	965,676	$	934,646	$	860,332

Loans

Outstanding loan balances increased during the fourth quarter and additional lending opportunities continued to fuel the Corporation’s pipelines. While the overall economy has been restrictive and somewhat constrained by the uncertain economic environment, the Corporation’s growth in loans continued in the quarter. Enhanced visibility in its markets coupled with the aggressive business development activities of its sales team has continued to enhance its image and business prospects. The Corporation continues to see economic instability in the near term and therefore expects to move cautiously in the growth process into 2012. For both the quarter and twelve months ended December 31, 2011, the Corporation’s credit trends have improved and the Corporation expects credit trends to continue to improve further over the next few quarters.

The Corporation experienced growth of $99.4 million in new loans and advances during the fourth quarter offset in part by prepayments of $34.7 million coupled with scheduled payments and payoffs of $ 30.4 million. Average loans during the fourth quarter totaled $726.0 million as compared to $692.2 million during the fourth quarter of 2010, representing a 4.9 percent increase.

At December 31, 2011, the Corporation had $184.4 million in overall undisbursed loan commitments, which includes largely unused commercial lines of credit, home equity lines of credit and available usage from active construction facilities. Included in the overall undisbursed commitments are the Corporation's "Approved, Accepted but Unfunded" pipeline, which includes $26.9 million in commercial and commercial real estate loans and $5.5 million in residential mortgages expected to fund over the next 90 days.  

The Corporation’s net loans in the fourth quarter of 2011 increased $34.3 million, to $746.4 million at December 31, 2011, from $712.1 million at September 30, 2011. The loan volume increase for the period was $19.2 million in commercial loans, $15.0 million in residential mortgage loans and of $0.1 million in consumer loans.  At December 31, 2010, net loans totaled $699.6 million. Commercial real estate, commercial and construction loans represented 79.9% of the loan portfolio at December 31, 2011, compared to 78.0% at December 31, 2010.

The following reflects the composition of the Corporation’s loan portfolio as of the dates indicated. 

Loans (unaudited)
(in thousands)
At quarter ended:	12/31/11		9/30/11		6/30/11		3/31/11		12/31/10
Real estate loans:
Residential	$	151,767	$	158,625	$	150,271	$	147,833	$	154,909
Commercial		358,245		328,096		310,475		321,367		301,284
Construction		31,378		39,621		40,421		46,310		49,752
Total real estate loans		541,390		526,342		501,167		515,510		505,945
Commercial loans		214,167		194,923		196,464		200,018		201,663
Consumer and other loans		436		298		434		361		577
Total loans before deferred fees and costs		755,993		721,563		698,065		715,889		708,185
Deferred costs, net		17		45		83		207		259
Total loans	$	756,010	$	721,608	$	698,148	$	716,096	$	708,444

Mr. Weagley noted that “During the fourth quarter of 2011, we gained further momentum in reducing non—performing loans. During the fourth quarter of 2011, we reduced non-performing loans by a net of $6.6 million, of which $0.7 million returned to performing status, $2.3 million was received in payments, $4.0 million was transferred to OREO, and $0.2 million was charged off. This was offset by new non-performing loans of $0.6 million. Other real estate owned (OREO) peaked at $4.0 million during the fourth quarter of 2011. By December 31, 2011, this was reduced by $3.4 million to $0.6 million resulting in additional expense during the period of $399,000. Less than $100,000 of performing loans went non-accrual during the fourth quarter of 2011. Despite sporadic legacy issues within the portfolio, we are well positioned from an asset quality perspective with continued improving trends. Moreover, we are focused on moving languishing foreclosures to conclusion, which will significantly decrease our level of non-performers as we dispose of properties.” Regarding the $3.5 million participation loan placed into non-accrual status during the third quarter of 2011, the investor group received a deed in lieu of foreclosure and the Corporation placed its pro rata share of that property into OREO on October 5, 2011. The Corporation’s share of that property was sold prior to December 31, 2011.

Asset Quality

The following tables present the components of non-performing assets and other asset quality data for the periods indicated.

(dollars in thousands, unaudited)
As of or for the quarter ended:	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Non-accrual loans	$	6,871		$	14,083		$	10,137		$	12,336		$	11,174
Loans 90 days or more past due and still accruing		1,029			451			1,013			687			714
Total non-performing loans		7,900			14,534			11,150			13,023			11,888
Other non-performing assets		—			327			327			327			—
Other real estate owned		591			—			—			—			—
Total non-performing assets	$	8,491		$	14,861		$	11,477		$	13,350		$	11,888
Performing troubled debt restructured loans	$	7,459		$	8,898		$	8,223		$	7,035		$	7,035
Non-performing assets / total assets		0.59	%		1.08	%		0.88	%		1.04	%		0.98	%
Non-performing loans / total loans		1.04	%		2.01	%		1.60	%		1.82	%		1.68	%
Net charge-offs	$	234		$	1,320		$	5		$	154		$	1,950
Net charge-offs / average loans (1)		0.13	%		0.75	%		0.003	%		0.09	%		1.13	%
Allowance for loan losses / total loans		1.27	%		1.32	%		1.41	%		1.34	%		1.25	%
Allowance for loan losses / non-performing loans		121.5	%		65.6	%		88.2	%		73.6	%		74.6	%
Total assets	$	1,432,738		$	1,376,517		$	1,307,438		$	1,288,646		$	1,207,385
Total loans		756,010			721,608			698,148			716,096			708,444
Average loans		725,974			707,935			701,056			716,568			692,166
Allowance for loan losses		9,602			9,536			9,836			9,591			8,867

(1) Annualized.

Non-accrual loans decreased from $14.1 million at September 30, 2011 to $6.9 million at December 31, 2011. Loans past due 90 days or more and still accruing increased from $451,000 at September 30, 2011 to $1.0 million at December 31, 2011. Other real estate owned (OREO) at December 31, 2011 was $591,000. Troubled debt restructured loans, which are performing loans, decreased from $8.9 million at September 30, 2011 to $7.5 million at December 31, 2011, reflecting the return to original contractual repayment terms for 2 residential mortgages totaling $1.5 million offset by the inclusion of 1 new residential mortgage of under $100 thousand.Interest income lost on loans placed into non-accrual during the three and twelve months ended December 31, 2011 amounted to $101,000 and $378,000, respectively. 

At December 31, 2011, non-performing assets totaled $8.5 million, or 0.59% of total assets, as compared with $11.9 million, or 0.98%, at December 31, 2010 and $14.9 million, or 1.08%, at September 30, 2011. The decrease from December 31, 2010 was achieved notwithstanding the addition of several new residential loans (totaling approximately $2.6 million) and commercial loans (totaling approximately $1.4 million) into non-performing status. This was more than offset by decreases from pay-downs of $5.0 million, total charge-offs of $0.7 million of existing loans, and the transfer to performing troubled debt restructured from non-accrual status of $1.7 million.

The allowance for loan losses at December 31, 2011 amounted to approximately $9.6 million, or 1.27% of total loans, compared to 1.25% of total loans at December 31, 2010. The allowance for loan losses as a percentage of total non-performing loans was 121.5% at December 31, 2011 compared to 74.6% at December 31, 2010.

A discussion of the significant components of non-performing assets at December 31, 2011 is outlined below.

· Two non-accrual relationships totaling $2,111,000 and $611,000, respectively, secured by senior liens on three separate residential properties, located in Morris and Somerset counties in New Jersey, respectively, are currently in foreclosure; no loss to the Corporation is anticipated, although no assurance can be made with respect to the outcome at this time.  The Somerset County loan has been modified; the related foreclosure action was suspended; the loan is currently performing and should come out of nonaccrual status in the second quarter of 2012 with performance under the modified terms.

· Collection of a $3.0 million loan, representing the Bank’s portion of a non-accrual participation loan secured by an operating oceanfront property in Nassau County, NY, has been stalled due to the borrower’s third quarter 2011 bankruptcy filing. Counsel representing the interests of all participant banks has filed a motion to convert the bankruptcy case to a liquidation matter. As an alternative to the bankruptcy conversion, the borrower, on January 9, 2012, signed a term sheet proposed by counsel for the participating banks, which, among other things, provides for the payment of all delinquent real estate taxes and the pledging of sufficient cash to be able to make interest payments for a 24 month period. Formal documentation memorializing the agreement is expected during the first quarter of 2012 and presentation to the bankruptcy court for confirmation is expected during the second quarter of 2012.

Capital

At December 31, 2011, total stockholders' equity amounted to $135.9 million, or 9.49% of total assets. Tangible common stockholders' equity was $107.8 million, or 7.61% of tangible assets, compared to 7.92% at December 31, 2010. Book value per common share was $7.63 at December 31, 2011, compared to $6.83 at December 31, 2010. Tangible book value per common share was $6.60 at December 31, 2011 compared to $5.79 at December 31, 2010.

At December 31, 2011, the Corporation’s Tier 1 leverage capital ratio was 9.29%, the Tier 1 risk-based capital ratio was 12.00% and the total risk-based capital ratio was 12.89%. Tier 1 capital increased to approximately $129.4 million at December 31, 2011 from $116.6 million at December 31, 2010, reflecting an increase in retained earnings.

At December 31, 2011, the Corporation's capital ratios continued to exceed the minimum Federal requirements for a bank holding company, and Union Center National Bank's capital ratios continued to exceed each of the minimum levels required for classification as a "well capitalized institution" under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA").

Non-GAAP Financial Measures 

Reported amounts are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Corporation's management believes that the supplemental non-GAAP information provided in this press release is utilized by market analysts and others to evaluate a company's financial condition and, therefore, that such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures presented by other companies.

“Return on average tangible stockholders’ equity” is a non-GAAP financial measure and is defined as net income as a percentage of tangible stockholders’ equity. Tangible stockholders’ equity is defined as common stockholders’ equity less goodwill and other intangible assets. The return on average tangible stockholders’ equity measure may be important to investors that are interested in analyzing the Corporation’s return on equity excluding the effect of changes in intangible assets on equity.

The following tables present a reconciliation of average tangible stockholders’ equity and a reconciliation of return on average tangible stockholders’ equity for the periods presented.

(dollars in thousands)
For the quarter ended:	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Net income	$	3,622		$	3,702		$	3,584		$	3,018		$	2,570
Average stockholders’ equity	$	135,142		$	133,151		$	128,391		$	122,492		$	123,218
Less: Average goodwill and other intangible assets		16,910			16,922			16,936			16,952			16,968
Average tangible stockholders’ equity	$	118,232		$	116,229		$	111,455		$	105,540		$	106,250
Return on average stockholders’ equity		10.72	%		11.12	%		11.17	%		9.86	%		8.34	%
Add: Average goodwill and other intangible assets		1.53	%		1.62	%		1.70	%		1.58	%		1.34	%
Return on average tangible stockholders’ equity		12.25	%		12.74	%		12.86	%		11.44	%		9.68	%

“Tangible book value per common share” is a non-GAAP financial measure and represents tangible stockholders’ equity (or tangible book value) calculated on a per common share basis. The disclosure of tangible book value per common share may be helpful to those investors who seek to evaluate the Corporation’s book value per common share without giving effect to goodwill and other intangible assets.

The following tables present a reconciliation of book value per common share to tangible book value per common share as of the dates presented.

(dollars in thousands, except per share data)
At quarter ended:	12/31/11		9/30/11		6/30/11		3/31/11		12/31/10
Common shares outstanding		16,332,327		16,290,700		16,290,700		16,290,700		16,289,832
Stockholders’ equity	$	135,916	$	133,808	$	130,104	$	124,584	$	120,957
Less: Preferred stock		11,250		11,012		9,741		9,721		9,700
Less: Goodwill and other intangible assets		16,902		16,915		16,927		16,942		16,958
Tangible common stockholders’ equity	$	107,764	$	105,881	$	103,436	$	97,921	$	94,299
Book value per common share	$	7.63	$	7.54	$	7.39	$	7.05	$	6.83
Less: Goodwill and other intangible assets		1.03		1.04		1.04		1.04		1.04
Tangible book value per common share	$	6.60	$	6.50	$	6.35	$	6.01	$	5.79

"Tangible common stockholders' equity/tangible assets" is a non-GAAP financial measure and is defined as tangible common stockholders' equity as a percentage of total assets minus goodwill and other intangible assets. This measure may be important to investors that are interested in analyzing the financial condition of the Corporation without consideration of intangible assets, inasmuch as tangible common stockholders' equity and tangible assets both exclude goodwill and other intangible assets.

The following tables present a reconciliation of total assets to tangible assets and a reconciliation of total stockholders' equity/total assets to tangible common stockholders' equity/tangible assets as of the dates presented.

(dollars in thousands)
At quarter ended:	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Total assets	$	1,432,738		$	1,376,517		$	1,307,438		$	1,288,646		$	1,207,385
Less: Goodwill and other intangible assets		16,902			16,915			16,927			16,942			16,958
Tangible assets	$	1,415,836		$	1,359,602		$	1,290,511		$	1,271,704		$	1,190,427
Total stockholders' equity / total assets		9.49	%		9.72	%		9.95	%		9.67	%		10.02	%
Tangible common stockholders'  equity / tangible assets		7.61	%		7.79	%		8.02	%		7.70	%		7.92	%

 Other income is presented in the table below including and excluding net securities gains. We believe that many investors desire to evaluate other income without regard for securities gains.

(in thousands)
For the quarter ended:	12/31/11		9/30/11		6/30/11		3/31/11		12/31/10
Other income	$	1,866	$	2,283	$	1,732	$	1,597	$	1,304
Less: Net investment securities gains		817		1,250		801		766		315
Other income, excluding net investment securities gains	$	1,049	$	1,033	$	931	$	831	$	989

“Efficiency ratio” is a non-GAAP financial measure and is defined as other expense as a percentage of net interest income on a tax equivalent basis plus other income, excluding net securities gains, calculated as follows:

(dollars in thousands)
For the quarter ended:	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Other expense	$	6,222		$	5,529		$	5,757		$	5,935		$	5,997
Net interest income (tax equivalent basis)	$	10,531		$	10,130		$	9,974		$	9,990		$	8,394
Other income, excluding net investment securities gains		1,049			1,033			931			831			989
Total	$	11,580		$	11,163		$	10,905		$	10,821		$	9,383
Efficiency ratio		53.7	%		49.5	%		52.8	%		54.8	%		63.9	%

 Condensed Consolidated Average Statements of Condition (unaudited)

(in thousands)
For the quarter ended:	12/31/11			9/30/11			6/30/11			3/31/11			12/31/10
Investment securities
Available for sale	$	409,480		$	365,422		$	390,391		$	410,014		$	362,312
Held to maturity		69,587			71,789			38,985			—			—
Loans		725,974			707,935			701,056			716,568			692,166
Allowance for loan losses		(9,506	)		(10,383	)		(9,601	)		(9,139	)		(8,843	)
All other assets		214,984			206,857			180,753			111,688			149,377
Total assets	$	1,410,519		$	1,341,620		$	1,301,584		$	1,229,131		$	1,195,012
Non interest-bearing deposits	$	166,027		$	161,744		$	157,002		$	152,074		$	151,038
Interest-bearing deposits		934,774			838,508			805,752			737,196			697,619
Borrowings		166,155			199,747			202,902			213,664			216,483
Other liabilities		8,421			8,470			7,537			3,705			6,654
Stockholders’ equity		135,142			133,151			128,391			122,492			123,218
Total liabilities and stockholders’ equity	$	1,410,519		$	1,341,620		$	1,301,584		$	1,229,131		$	1,195,012

About Center Bancorp

Center Bancorp, Inc. is a bank holding company, which operates Union Center National Bank, its main subsidiary. Chartered in 1923, Union Center National Bank is one of the oldest national banks headquartered in the state of New Jersey and now ranks as the third largest national bank headquartered in the state. Union Center National Bank is currently the largest commercial bank headquartered in Union County. Its primary market niche is its commercial banking business. The Bank focuses its lending activities on commercial lending to small and medium-sized businesses, real estate developers and high net worth individuals.

The Bank, through its Private Wealth Management Division, which includes its wholly-owned subsidiary, Center Financial Group LLC, provides financial services including brokerage services, insurance and annuities, mutual funds, financial planning, estate and tax planning, trust, elder care and benefit plan administration.

The Bank currently operates 13 banking locations in Union and Morris Counties in New Jersey. Banking centers are located in Union Township (6 locations), Berkeley Heights, Boonton/Mountain Lakes, Madison, Millburn/Vauxhall, Morristown, Springfield, and Summit, New Jersey. The Bank also operates remote ATM locations in the Chatham and Madison New Jersey Transit train stations, and the Boys and Girls Club of Union.

While the Bank's primary market area is comprised of Union and Morris Counties, New Jersey, the Corporation has expanded to northern and central New Jersey. At December 31, 2011, the Corporation had total assets of $1.4 billion, total deposits of $1.1 billion and stockholders' equity of $135.9 million.

Forward-Looking Statements

All non-historical statements in this press release (including statements regarding anticipated growth in loan demand, anticipated improvement in credit quality, the future quality of the Corporation’s statement of condition, the Corporation’s loan and business pipelines, future credit trends, overall corporate growth, the emergence of certain loans from non-accrual status and future foreclosure proceedings) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may use forward-looking terminology such as "expect," "look," "believe," "plan," "anticipate," "may," "will" or similar statements or variations of such terms or otherwise express views concerning trends and the future. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, the direction of interest rates, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, as well as the effects of international, national, regional and local economic conditions and legal and regulatory barriers and structure, including those relating to economic recovery and the deregulation of the financial services industry, and other risks cited in the Corporation's most recent Annual Report on Form 10-K and other reports filed by the Corporation with the Securities and Exchange Commission. Actual results may differ materially from such forward-looking statements. Center Bancorp, Inc. assumes no obligation for updating any such forward-looking statement at any time.

For further information regarding Center Bancorp, Inc., visit our web site at http://www.centerbancorp.com or call (800) 862-3683. For information regarding Union Center National Bank, visit our web site at http://www.ucnb.com.

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

(Unaudited)

(in thousands, except for share data)	December 31, 2011			December 31, 2010
ASSETS
Cash and due from banks	$	111,101		$	37,497
Investment securities
Available for sale		414,507			378,080
Held to maturity (fair value of $74,922 in 2011 and $0 in 2010)		72,233			—
Loans		756,010			708,444
Less: Allowance for loan losses		9,602			8,867
Net loans		746,408			699,577
Restricted investment in bank stocks, at cost		9,233			9,596
Premises and equipment, net		12,327			12,937
Accrued interest receivable		6,219			4,134
Bank-owned life insurance		28,943			27,905
Goodwill		16,804			16,804
Prepaid FDIC assessments		1,884			3,582
Other real estate owned		591			—
Other assets		12,488			17,273
Total assets	$	1,432,738		$	1,207,385
LIABILITIES
Deposits:
Non-interest bearing	$	167,164		$	144,210
Interest-bearing:
Time deposits $100 and over		137,998			119,651
Interest-bearing transaction, savings and time deposits $100 and less		816,253			596,471
Total deposits		1,121,415			860,332
Short-term borrowings		—			41,855
Long-term borrowings		161,000			171,000
Subordinated debentures		5,155			5,155
Accounts payable and accrued liabilities		9,252			8,086
Total liabilities		1,296,822			1,086,428
STOCKHOLDERS’ EQUITY
Preferred stock, $1,000 liquidation value per share, authorized 5,000,000 shares; issued 11,250 shares Series B at December 31, 2011 and 10,000 shares Series A at December 31, 2010		11,250			9,700
Common stock, no par value, authorized 25,000,000 shares; issued 18,477,412 shares at December 31, 2011 and  December 31, 2010; outstanding 16,332,327 shares at December 31, 2011 and 16,289,832 shares at December 31, 2010		110,056			110,056
Additional paid in capital		4,715			4,941
Retained earnings		32,695			21,633
Treasury stock, at cost (2,145,085 common shares at December 31, 2011 and 2,187,580 common shares at December 31, 2010)		(17,354	)		(17,698	)
Accumulated other comprehensive loss		(5,446	)		(7,675	)
Total stockholders’ equity		135,916			120,957
Total liabilities and stockholders’ equity	$	1,432,738		$	1,207,385

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended December 31,						Twelve Months Ended December 31,
(in thousands, except for share data)	2011			2010			2011			2010
Interest income
Interest and fees on loans	$	9,197		$	9,035		$	36,320		$	37,200
Interest and dividends on investment securities:
Taxable		3,199			2,251			13,278			10,588
Tax-exempt		717			26			1,700			220
Dividends		150			207			629			706
Total interest income		13,263			11,519			51,927			48,714
Interest expense
Interest on certificates of deposit $100 or more		270			265			1,215			1,301
Interest on other deposits		1,172			993			4,305			4,705
Interest on borrowings		1,659			1,880			6,657			8,779
Total interest expense		3,101			3,138			12,177			14,785
Net interest income		10,162			8,381			39,750			33,929
Provision for loan losses		300			2,048			2,448			5,076
Net interest income after provision for loan losses		9,862			6,333			37,302			28,853
Other income
Service charges, commissions and fees		481			551			1,896			1,975
Annuities and insurance commissions		29			4			110			123
Bank-owned life insurance		258			269			1,038			1,226
Other		281			165			800			487
Other-than-temporary impairment losses on investment securities		(39	)		(228	)		(342	)		(8,953	)
Portion of losses recognized in other comprehensive income, before taxes		—			—			—			3,377
Net other-than-temporary impairment losses on investment securities		(39	)		(228	)		(342	)		(5,576	)
Net gains on sale of investment securities		856			543			3,976			4,237
Net investment securities gains (losses)		817			315			3,634			(1,339	)
Total other income		1,866			1,304			7,478			2,472
Other expense
Salaries and employee benefits		2,909			2,659			11,527			10,765
Occupancy and equipment		701			804			2,947			3,181
FDIC insurance		328			540			1,712			2,126
Professional and consulting		351			272			1,156			1,121
Stationery and printing		95			74			368			316
Marketing and advertising		15			34			131			268
Computer expense		323			366			1,312			1,366
Other real estate owned, net		399			221			398			284
Loss on fixed assets, net		—			—			—			427
Repurchase agreement termination fee		—			—			—			594
Other		1,101			1,027			3,892			3,651
Total other expense		6,222			5,997			23,443			24,099
Income before income tax expense (benefit)		5,506			1,640			21,337			7,226
Income tax expense (benefit)		1,884			(930	)		7,411			222
Net Income		3,622			2,570			13,926			7,004
Preferred stock dividends and accretion		384			145			820			582
Net income available to common stockholders	$	3,238		$	2,425		$	13,106		$	6,422
Earnings per common share
Basic	$	0.20			0.15		$	0.80		$	0.43
Diluted	$	0.20			0.15		$	0.80		$	0.43
Weighted Average Common Shares Outstanding
Basic		16,311,193			16,289,832			16,295,761			15,025,870
Diluted		16,327,990			16,290,071			16,314,899			15,027,159

CENTER BANCORP, INC. AND SUBSIDIARIES

SELECTED QUARTERLY FINANCIAL AND STATISTICAL DATA

(Unaudited)

	Three Months Ended
(in thousands, except for share data)	12/31/2011			9/30/2011			12/31/2010
Statements of Income Data
Interest income	$	13,263		$	12,919		$	11,519
Interest expense		3,101			3,069			3,138
Net interest income		10,162			9,850			8,381
Provision for loan losses		300			1,020			2,048
Net interest income after provision for loan losses		9,862			8,830			6,333
Other income		1,866			2,283			1,304
Other expense		6,222			5,529			5,997
Income before income tax expense (benefit)		5,506			5,584			1,640
Income tax expense (benefit)		1,884			1,882			(930	)
Net income	$	3,622		$	3,702		$	2,570
Net income available to common stockholders	$	3,238		$	3,557		$	2,425
Earnings per Common Share
Basic	$	0.20		$	0.22		$	0.15
Diluted	$	0.20		$	0.22		$	0.15
Statements of Condition Data (Period-End)
Investment securities
Available for sale	$	414,507		$	388,858		$	378,080
Held for maturity( fair value $74,922, $72,371, and $0)		72,233			70,142			—
Loans		756,010			721,608			708,444
Assets		1,432,738			1,376,517			1,207,385
Deposits		1,121,415			1,060,022			860,332
Borrowings		166,155			166,155			218,010
Stockholders' equity		135,916			133,808			120,957
Common Shares Dividend Data
Cash dividends	$	489		$	489		$	489
Cash dividends per share	$	0.03		$	0.03		$	0.03
Dividend payout ratio		15.10	%		13.75	%		20.16	%
Weighted Average Common Shares Outstanding
Basic		16,311,193			16,290,700			16,289,832
Diluted		16,327,990			16,313,366			16,290,071
Operating Ratios
Return on average assets		1.03	%		1.10	%		0.86	%
Return on average equity		10.72	%		11.12	%		8.34	%
Return on average tangible equity		12.25	%		12.74	%		9.68	%
Average equity / average assets		9.58	%		9.92	%		10.31	%
Book value per common share (period-end)	$	7.63		$	7.54		$	6.83
Tangible book value per common share (period-end)	$	6.60		$	6.50		$	5.79
Non-Financial Information (Period-End)
Common stockholders of record		563			570			592
Full-time equivalent staff		163			161			159