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CORRESP 1 filename1.htm Unassociated Document

CENTER BANCORP, INC.

2455 Morris Avenue

Union. New Jersey 07083

January 28, 2010

VIA EDGAR AND OVERNIGHT COURIER

Christian Windsor, Esq.

Special Counsel

Division of Corporation Finance

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Re:

Center Bancorp, Inc.

Form 10-K for the year ended December 31, 2008

Form 10-Q for the quarter ended September 30, 2009

Commission File No. 000-11486

Dear Mr. Windsor:

This letter is submitted on behalf of Center Bancorp, Inc. (the “Registrant”) in connection with the comment letter telecopied by the Staff to the registrant on December 31, 2009. The Staff’s comments have been retyped in italics below, and are followed by responses as authorized by the Registrant. All page references are to the documents as filed by the Registrant with the Commission.

Form 10K for the Fiscal Year Ended December 31, 2008

Cover Page

You indicate that your common stock is registered under Section 12(g) of the Securities Exchange Act of 1934. However, securities listed on the NASDAQ Global Select Market are registered under Section 12(b) of the Securities Exchange Act of 1934 pursuant to the omnibus order for all NASDAQ-listed securities at the time of NASDAQ's conversion to a national securities exchange. Please revise-the cover pages of future Form 10-K-filings accordingly. See Release No. 34-54240 (July 31, 2006).

Response 1: The Registrant will revise the cover page of its future Form 10-K filings to reflect that its Common Stock is registered under Section 12(b) of the Securities Exchange Act of 1934.

2.	Please also revise the cover pages of your reports filed under the Securities Exchange Act of 1934, including your next Form 10-K, to indicate that your Commission file number is 000-11486.

Response 2: The Registrant will revise the cover page of its reports filed under the Securities Exchange Act of 1934, including its next Form 10-K, to indicate that the file number that you reference.

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

Share Repurchase Program. page 19

Item 5(c) of Form. 10-K requires that information regarding any share repurchases be shown on a monthly basis in the chart required by Item 703 of Regulation S-K. While we note that no repurchases were made during the fourth quarter of 2008, we note that repurchases were made during the fourth quarter of 2007, and that disclosures were not made on a monthly basis in your Form 10-K for the fiscal year ended December 31, 2007. Please confirm that you will provide information regarding share repurchases on a monthly basis in future Form 10-K filings.

Response 3: The Registrant confirms that monthly repurchase information will be included in its future Form 10-K filings

Stock Compensation Plan Information, page 20

4.	In future filings, please provide the information required by Item 201(d) of Regulation S-K under Item 12 of Form 10-K rather than Item 5. See Regulation S-K Compliance and Disclosure Interpretation 106.01 for additional information.

Response 4: The Registrant confirms that in future 10-K filings, it will provide the information required by Item 201(d) of Regulation S-K under Item 12 of Form 10-K.

Item 9A. Controls and Procedures, page 54

Confirm that there were no changes to your internal control over financial reporting that occurred during the quarter covered by the report that have materially affected, or are reasonably likely to materially affect, your internal control over financial reporting. Confirm that you will utilize the language required by item 308(e) of Regulation S-K in future filings.

Response 5: The Registrant confirms that there were no changes to its internal control over financial reporting that occurred during the fourth quarter of the fiscal year ended December 31, 2008 that materially affected, or were reasonably likely to materially affect, the Registrant’s internal control over financial reporting. The Registrant also confirms that it will utilize the language required by item 308(e) of Regulation S-K in future filings.

Item 11. Executive Compensation

Definitive Proxy Statement on Schedule 14A Compensation Discussion and Analysis, page 8

Please tell us why you have not disclosed the performance goals utilized in establishing potential and actual payments to your named executive officers for the 2008 fiscal year under the Achievement Incentive Plan. Also, please revise future filings to disclose how actual performance compared to the performance targets set by the committee resulted in the compensation awarded to the named executive officers during the relevant period.

Response 6: Under the Achievement Incentive Plan, performance goals at both the bank-wide level and the individual performance level are impacted by subjective factors and by substantial discretion within the Compensation Committee. Thus, for example, while the bank-wide portion of the performance goals are tied to Union Center National Bank’s strategic plan and budget, after year-end, the Compensation Committee examines not only whether the Bank has reached targeted budget goals but also how the Bank reached the levels that it actually reached. If, in fact, the Bank reaches a budget goal but does so in a manner that is not consistent with certain specific objectives reflected in the strategic plan, bonus amounts payable with respect to bank-wide performance may be reduced or eliminated. In 2008, the amount of incentive available was reduced due to the earnings performance which did not meet plan. With respect to individual performance, other than with respect to the Registrant’s loan officers, whose incentive was tied to their respective loan portfolios, the performance goals are largely subjective. Thus, for example, the goals for the Registrant’s Chief Financial Officer (who joined the Register in 2008) in 2008 were based on (i) his integration as the new CFO, (ii) reducing interest rate risk , (iii) satisfactory SOX and internal audit reviews and (iv) satisfactory regulatory examinations and compliance. The other named officers had similar objectives such as system performance, and outsourcing projects in data processing, and branch and sales performance, deposit growth, and branch performance for branch administration.

While the Registrant was of the view that the performance objectives were too subjective to provide meaningful disclosures, the Registrant confirms that in future filings it will describe the subjective elements and thus disclose how actual performance compared to the performance targets set by the Compensation Committee resulted in the AIP award.

Grant of Plan-Based Awards, page 18

7.	Please tell us why the awards made under the Achievement Incentive Plan are not discussed in this section and why the table required by Item 402(d) of Regulation S-K is not provided.

Response 7: All of the awards to the named executive officers under the Achievement Incentive Plan were disclosed as bonuses on the Summary Compensation Table and quantified in that table. In future filings, the Registrant will disclose these awards under “Grant of Plan Based Awards” and the Registrant will provide the table required by Item 402(d) of Regulation S-K.

Signatures

8.	Please confirm that the Form 10-K was signed by your principal accounting officer or controller. So indicate in future filings. See General Instruction D(2)(a) of Form 10-K.

Response 8: The Registrant confirms that Mr. Abrahamian was its principal accounting officer at the time that its 2008 Annual Report on Form 10-K was filed and that, accordingly, the 2008 Annual Report on Form 10-K was, in fact, signed by the Registrant’s principal accounting officer. The Registrant confirms that its future files will indicate that its principal accounting officer or controller signed the reports.

Form 10-Q for the Quarterly Period Ended September 30, 2009.

Notes to Consolidated Financial Statements

Note 5 - Investment Securities, page 15.

We note that a significant amount of your unrealized losses on investment securities at September 30, 2009 are attributable to corporate debt securities which include both individual and pooled trust preferred securities. Considering the significant judgment required to determine if a security is other than temporarily impaired and the focus users of financial statements have placed on this area, we believe comprehensive and detailed disclosure is required to meet the disclosure requirements of ASC 320-10-50-1A and ASC 320-10-5-1B and Item 303 of Regulation S-K. Accordingly, you should segregate your mortgage backed securities (e.g., by business sector, vintage, geographic concentration, credit quality, economic characteristics) and your corporate debt obligations into further detail (e.g., by single issuer vs. pooled trust preferred securities) based on the nature and risks of the securities. For each individual and pooled trust preferred security with at least one rating below investment grade, please provide us with, and disclose in future filings, the following information as of the most recent period end (in tabular format):

deal name,

single issuer or pooled;

class/tranche;

book value;

fair value;

unrealized gain/loss;

lowest credit rating assigned;

number of banks currently performing;

actual deferrals and defaults as a percentage of original collateral;

expected deferrals and defaults as a percentage of remaining performing collateral;

excess subordination as a percentage of remaining performing collateral; and

disclose how you calculate excess subordination and discuss what the excess subordination percentage signifies.

Response 9: The Registrant has provided the requested information, as of September 30, 2009, in attachment A to this letter.

10.

In addition to the previous comment, please provide us with a detailed description of the other-than-temporary impairment analysis you performed on these securities as of December 31, 2008 and at each respective interim reporting period during fiscal 2009. Identify all of the evidence you considered, explain the relative significance of each piece of evidence, and identify the primary evidence on which you relied to support a realizable value equal to or greater than the carrying value of the investment. We refer you to FASB ASC 320-10-50-6.

Response 10:

December 31, 2008 (please see attachment B for all supporting documentation):

Due to the extraordinary events that occurred since September 30, 2008, the Registrant applied Level 3 procedures where it was relevant and prudent to use this alternative pricing and not fully rely on the market pricing from normal sources. This was consistent with the prior quarter’s review, as pricing did not properly reflect the value of the securities, but rather represented irrational pricing in a continued weak and faltering market. As a result, the market valuations of certain bonds and groups of bonds were adjusted accordingly in the December 31, 2008 mark-to-market positions. The Registrant identified 14 single issue trust preferred securities, 2 pooled trust preferred securities, one PreTSL bond, 3 variable rate collateralized mortgage obligations and the Lehman bond which were included in Level 3 pricing. Management had ongoing dialogues with the trustees, Cohen and Company, on the pooled TRUPS.

The methodology was consistent with recent publications on fair value and guidance from the regulatory and accounting authorities as to how to deal with the pricing issues as of December 31, 2008. In general, for the quarter and year ended December 31, 2008, the Registrant primarily relied upon guidance in FASB ASC 320-10-35 (previously FSP FAS 115-1 and 124-1), FASB ASC 820-10-35 (previously FASP FAS 157-3) and FASB ASC 325-40 (previously EITF 99-20). The analysis took into consideration the following facts and circumstances:

Credit quality of the security

Current cash flows and certainty of future cash flows

Historic cash flows

Payment assumptions

Any current default activity

For each individual and pooled trust preferred security identified at September 30, 2009 with at least one rating below investment grade, all of these securities at December 31, 2008 were of investment grade, no immediate downgrades were on the horizon, all payments due had been made in a timely manner, and the Registrant’s analysis reflected that all deals had the capacity to continue to make scheduled payments, provide cash flow and withstand some measure of shock to credit defaults and still reflect the ability to provide cash flow in the analysis. None of these securities were deemed to have an impairment that is other than temporary at December 31, 2008.

Of all securities identified at December 31, 2008 as Level 3 securities, the overview results indicated that these securities were investment grade, no immediate downgrades were on the horizon, all payments due had been made in a timely manner, and the Registrant’s analyses reflected that all deals had the capacity to continue to make scheduled payments, provide cash flow and withstand some measure of shock to credit defaults and still reflect the ability to provide cash flow in the analysis. In the case of the PreTSL pool, there was a temporary interruption of conventional cash flow at December 31, 2008.

The analysis considered the structure of the individual deals, the Registrant’s position in the specific deals, current activity related to delinquencies, and credit defaults or deferrals that could affect future values. The results of these tests were interpolated back to pricing levels, which were used to value the TRUPS for the current period.

For the single issue TRUPS, the Registrant reviewed Moody’s, S&P, and Fitch ratings and outlooks. The Registrant’s December 31, 2008 pricing on that particular portfolio was mixed, with some issuers performing better than others, reflective of the volatility still prevalent in the market and credit concerns. Most issues reflected a valuation above $0.59 cents on the dollar value initially. Those that were at that level were revalued using the alternative pricing. The Registrant used a 20% default rate and 100% severity to arrive at an $0.80 cents on the dollar base-case valuation. At December 31, 2008, there had been a marked improvement in the valuation of the single issuer TRUPS from September 30, 2008.

For the variable rate collateralized mortgage obligations (First Horizon Alternative Mortgage Security), a CDR of 16.51% was calculated by applying a 100% severity rating to the collateral percentages listing in bankrupt, in foreclosure or as other real estate owned. When applying these assumptions to the SYT (Super Yield Table) with a discount rate of 6.25%, a fair value of $88.41 was derived.

As stated earlier, all individual and pooled trust preferred securities (TRUPS) and the variable rate collateralized mortgage obligations were performing and cash flowing, with the exception of the temporary interruption of cash flow from the PreTSL pool, as per their individual contractual arrangements. The unrealized loss on these securities was related to general market conditions and the resultant lack of liquidity in the market. The single issue securities are from large money center banks. The pooled TRUPS consist of securities issued by financial institutions; we hold the mezzanine tranche of such securities.

For all other securities, management reviewed expected cash flows and credit support and determined that it was probable that all principal and interest would be repaid. Since there were no material downgrades or credit defaults which have caused any interruption of cash flows or longer-term value, the Registrant has concluded that the current portfolio value decline still remains temporary. The ALESCO deals have suffered credit deferrals and/or defaults within the respective deals as a result of the Indy Mac failure. Current analysis continues to reflect that the securities are structured to support continued credit defaults and/or deferrals without risking any further downgrades or interruption of cash flows. On that basis, we continued to uphold the temporary impairment. All analysis supported a Level 3 price valuation but no other-than-temporary impairment mark.

Lehman Brothers Holdings, Inc. - $2MM par, recognized impairment charges of $1.3 million. The Registrant’s holding of Lehman Brothers Holding, Inc. securities was subject to an impairment charge due to the bankruptcy declared in September 2008. The Registrant continued to follow the media releases related to the liquidation of the firm and any market quotes available on the debt securities that the Registrant owned. The securities themselves fell into the senior debt category. Management believed that the Registrant will achieve a superior value for the bonds from the bankruptcy proceedings rather than trying to sell into an illiquid market. The Registrant monitors the markets and observed very inconsistent and volatile pricing. The Registrant utilized the pricing that was supplied on a true liquidation value that was available at the time the Registrant made an additional writedown. Since that time, the Registrant filed its claims in the bankruptcy proceeding and received notification that Lehman would be afforded a longer time for liquidation than originally announced in order to maximize value returns on the sold assets. The Registrant’s writedown was based on a valuation of $0.35 cents on the dollar for the period ended December 31, 2008. The Registrant believed that it would be able to gain better information after it filed its claims allowing the Registrant further shareholder information related to the bankruptcy proceedings.

March 31, 2009: (please see attachment C for all supporting documentation):

The Registrant applied Level 3 procedures where it was relevant and prudent to use this alternative pricing and not fully rely on the market pricing from normal sources. This was consistent with the prior quarter’s review, as pricing did not properly reflect the value of the securities, but rather represented irrational pricing in a continued weak and faltering market. As a result, the market valuations of certain bonds and groups of bonds were adjusted accordingly in the March 31, 2009 mark-to-market positions. The Registrant identified 19 single issue trust preferred securities, 2 pooled trust preferred securities, one PreTSL bond, one private issue corporate bond and the Lehman bond which were included in Level 3 pricing. Management had ongoing dialogues with Cohen and Company on the pooled TRUPS.

The methodology was consistent with recent publications on fair value and guidance from the regulatory and accounting authorities as to how to deal with the pricing issues as of March 31, 2009. For the quarter ended March 31, 2009, the Registrant primarily relied upon guidance in FASB ASC 320-10-35 (previously FSP FAS 115-1 and 124-1), FASB ASC 820-10-35 (previously FASP FAS 157-3) and FASB ASC 325-40 (previously EITF 99-20-1). The analysis took into consideration the following facts and circumstances:

Credit quality of the security

Current cash flows and certainty of future cash flows

Historic cash flows

Payment assumptions

Any current default activity

For each individual and pooled trust preferred security identified at September 30, 2009 with at least one rating below investment grade, all of these securities at March 31, 2009 were of investment grade by at least one rating agency, no immediate downgrades were on the horizon, all payments due had been made in a timely manner, and the Registrant’s analysis reflected that all deals had the capacity to continue to make scheduled payments, provide cash flow and withstand some measure of shock to credit defaults and still reflect the ability to provide cash flow in the analysis. None of these securities were deemed to have an impairment that is other than temporary at March 31, 2009.

Of all securities identified at March 31, 2009 as Level 3 securities, the overview results indicated that these securities were investment grade by at least one rating agency, no immediate downgrades were on the horizon, all payments due had been made on a timely manner, and the Registrant’s analyses reflected that all deals had the capacity to continue to make scheduled payments, provide cash flow and withstand some measure of shock to credit defaults and still reflect the ability to provide cash flow in the analysis. In the case of the PreTSL pool, there was a temporary interruption of conventional cash flow at March 31, 2009, for two payments to date. The cash flows to the tranche that the Registrant owned were deferred at present. The projected cash flows reflected when the cash flow would commence and the overall value of the discounted cash flows.

For the single issue TRUPS, the Registrant reviewed Moody’s, S&P and Fitch ratings and outlooks. The Registrant’s March 31, 2009 pricing on that particular portfolio was mixed, with some issuers performing better than others, reflective of the volatility still prevalent in the market and credit concerns. Certain single issue trust preferreds priced above $0.70 cents on the dollar, reflecting an improvement in the market values, were not classified as Level 3. Those cited for Level 3 were revalued using the alternative pricing methodology that was used at December 31, 2008. The Registrant applied a 20% default rate and 100% severity to come up with a $0.80 cents on the dollar base-case valuation.

For the pooled TRUPS and the PreTSL holding from First Tennessee, the Registrant reviewed Moody’s, S&P and Fitch ratings and outlooks. The Registrant applied the same default and severity rates to the ALESCO pools and there was a separate analysis on the PreTSL holding. The underlying firms were relatively stable and, with the exception of the PreTSL, the Registrant’s tranches were currently paying. However, there were some defaults and deferrals on a few of the firms in the tranches. For the ALESCO’s, as there has been no interruption in cash flows, the Registrant used no default rate, no prepayments and a 8% discount rate to arrive at a Level 3 fair value of $69.66 for the ALESCO 6A and a fair value of $67.05 for the ALESCO 7A. For the PreTSL, the Registrant used a constant default rate (CDR) of 75 basis points applied annually, 15% recoveries with 2 year lag and with an 8% discount rate. Prepayments were 2% annually with 100% at maturity. This produced a fair value of $61.19.

As stated earlier, all individual and pooled trust preferred securities (TRUPS) were performing and cash flowing, with the exception of the temporary interruptions of cash flow from the PreTSL pool, as per their individual contractual arrangements. The unrealized loss on these securities is related to general market conditions and the resultant lack of liquidity in the market. The single issue securities are from large money center banks. The pooled TRUPS consist of securities issued by financial institutions and the Registrant holds the mezzanine tranche of such securities.

For all other securities, management reviewed expected cash flows and credit support and determined that it was probable that all principal and interest would be repaid. Since no material downgrades or credit defaults, which have caused any interruption of cash flows or longer-term value, the Registrant has concluded that the current portfolio value decline still remains temporary. The ALESCO deals have suffered credit deferrals and/or defaults within the respective deals as a result of the Indy Mac failure. Current analysis continues to reflect that the securities are structured to support continued credit defaults and/or deferrals without risking any further downgrades or interruption of cash flows. On that basis, we continued to uphold the temporary impairment. We believe that the bailout plan will help strengthen the deals. All analysis supported a Level 3 price valuation but no other-than-temporary impairment mark.

Lehman Brothers Holdings, Inc. - $2MM par, recognized impairment charges of $1.440 million; During the third quarter of 2008, the Registrant recorded a $1.2 million other than temporary impairment charge on a Lehman Brothers corporate bond as a result of Lehman Brothers’ September 2008 bankruptcy filing. The Registrant deemed it prudent to mark the security down to what the Registrant believed it would receive from the bankruptcy proceedings as opposed to an attempted sale into an illiquid market. During the fourth quarter of 2008, the Registrant took an additional impairment charge of $100,000 on the same bond. The Registrant filed its claims in connection with the Lehman bankruptcy and determined that Lehman would be afforded a longer time for liquidation than originally announced in order to maximize value returns on the sold assets. Management determined to monitor the liquidation process, re-test values during that period and adjust carrying value accordingly if it should see any change in the current information.

Management believed that in light of the longer period afforded to Lehman, quoted market pricing from Reuters for Lehman improved $0.0375 on the dollar from December 31, 2008 to March 31, 2009. The Registrant’s write down for the first quarter of 2009 of $140,000 was made on the basis of a valuation of $0.28 on the dollar for the period ended March 31, 2009. The Registrant continued to follow the bankruptcy proceedings in determining any change in value. This represented the higher end of the pricing range adjusted for the deep discounts that were being attached to the bids in the marketplace.

Since the Registrant continued to monitor a fluid situation subject to continual changes, management advised the Board that it will be necessary to continue to monitor the liquidation, re-test values during that period and adjust the carrying value accordingly if the Registrant sees any change in the information or determines that there would be a material adjustment to what the Registrant had already written the bond value down at March 31, 2009.

June 30, 2009: (please see attachment D for all supporting documentation):

The Registrant applied Level 3 procedures where it was relevant and prudent to use this alternative pricing and not fully rely on the market pricing from normal sources. This was consistent with the prior quarter’s review, as pricing did not properly reflect the value of the securities, but rather represented irrational pricing in a continued weak and faltering market. As a result, the market valuations of certain bonds and groups of bonds were adjusted accordingly in the June 30, 2009 mark-to-market positions. The Registrant identified 9 single issue trust preferred securities, 2 pooled trust preferred securities, one PreTSL bond, 3 variable rate collateralized mortgage obligations, one private issue corporate bond and the Lehman bond which were included in Level 3 pricing. Management had ongoing dialogues with Cohen and Company on the pooled TRUPS.

The methodology was consistent with recent standards on fair value and guidance from the regulatory and accounting authorities as to how to deal with the pricing issues as of June 30, 2009. Changes in the Registrant’s methodology occurred for the quarter ended June 30, 2009 as new accounting guidance was release in April of 2009 with mandatory adoption required in the second quarter. For the quarter ended June 30, 2009, the Registrant relied upon the guidance in FASB ASC 320-10-65 (previously FSP FAS 115-2 and 124-2), FASB ASC 820-10-65 (previously FSP FAS 157-4) and FASB ASC 310-10-35 (previously FAS 114). The analysis took into consideration the following facts and circumstances:

Credit quality of the security

Current cash flows and certainty of future cash flows

Historic cash flows

Payment assumptions

Any current default activity

For each individual and pooled trust preferred security identified at September 30, 2009 with at least one rating below investment grade, with the exception of the ALESCO pools, all of these other securities at June 30, 2009 were of investment grade by at least one rating agency, no immediate downgrades were on the horizon, all payments due had been made in a timely manner, and the Registrant’s analysis reflected that all deals had the capacity to continue to make scheduled payments, provide cash flow and withstand some measure of shock to credit defaults and still reflect the ability to provide cash flow in the analysis. None of these securities were deemed to have an impairment that is other than temporary as of June 30, 2009 (see attachment D for the OTTI supporting documentation on the ALESCO deals).

Of all securities identified at March 31, 2009 as Level 3 securities, the overview results indicated that these securities, with the exception of the ALESCO pools, which were downgraded to Ca by Moodys, were investment grade, no immediate downgrades were on the horizon, all payments due had been made on a timely manner, and the Registrant’s analyses reflected that all deals had the capacity to continue to make scheduled payments, provide cash flow and withstand some measure of shock to credit defaults and still reflect the ability to provide cash flow in the analysis. In the case of the PreTSL pool, there was a temporary interruption of conventional cash flow at March 31, 2009, for three payments to date. The cash flows to the tranche that the Registrant owned were deferred at that time. Additionally, the ALESCO 6A pool incurred a temporary interruption of cash flow in the analysis, as its June payment to the tranche that the Registrant owned was deferred. An increase in non-performing assets from March 31, 2009 to June 30, 2009 triggered the deferral. The projected cash flows reflected when the cash flow would commence and the overall value of the discounted cash flows.

The analysis considered the structure of the individual deals, the Registrant’s position in the specific deals, and current activity related to delinquencies, credit defaults or deferrals that could affect future values. The results of these tests were interpolated back to pricing levels, which were used to value the TRUPS for the current period.

For the single issue TRUPS, the Registrant reviewed Moody’s, S&P and Fitch ratings and outlooks. The Registrant’s June 30, 2009 pricing on that particular portfolio performed better than the prior quarter, reflective of the volatility still prevalent in the market and credit concerns. There was an improvement in most of the single issue trust preferred’s priced above the $0.70 cents on the dollar valuation. These issues were not classified as Level 3. Those cited for Level 3 were revalued using the alternative pricing methodology that was used at December 31, 2008. The Registrant applied a 20% default rate and 100% severity to arrive at a $0.80 cents on the dollar base-case valuation.

For the pooled TRUPS and PreTSL holding from First Tennessee, the Registrant reviewed Moody’s, S&P and Fitch ratings and outlooks. The Registrant applied the same default and severity rates to the ALESCO pools and there was a separate analysis on the PRETSL holding. The underlying firms were relatively stable and, with the exception of the PreTSL, the Registrant’s tranches were currently paying. However, there were some defaults and deferrals on a few of the firms in the tranches. For the ALESCO 6A, the Registrant used a 1% default rate, 15% recovery on deferrals and defaults, no prepayments and the current coupon as the discount rate to determine that no other-than-temporary impairment charge was necessary. For fair value pricing, the Registrant used an 8% discount rate to arrive at a Level 3 fair value of $71.44. For the ALESCO 7A, the Registrant used a 0.75% default rate, 15% recovery on deferrals and defaults, no prepayments and the current coupon as the discount rate to determine that no other-than-temporary impairment charge was necessary. For fair value pricing, the Registrant used an 8% discount rate to arrive at a Level 3 fair value of $73.06. For the PreTSL, the Registrant used a constant default rate (CDR) of 75 basis points applied annually, 15% recoveries with 2 year lag. Prepayments were 0% annually, 100% at maturity and the Registrant used the current coupon as the discount rate to determine that no other-than-temporary impairment charge was necessary. For fair value pricing, the Registrant used a 6.75% discount rate to arrive at a Level 3 fair value of $41.15.

For the variable rate collateralized mortgage obligations (First Horizon Alternative Mortgage Security), a CDR of 27.43% was calculated by applying a 100% severity rating to the collateral percentages listing in bankrupt, in foreclosure or as other real estate owned. When applying these assumptions to the SYT (Super Yield Table) with a discount rate of 6.25%, a fair value of $82.90 was derived.

As stated earlier, all individual and pooled trust preferred securities (TRUPS) were performing and cash flowing, with the exception of the temporary interruptions of cash flow from the PreTSL pool, in accordance with their individual contractual arrangements. The unrealized loss on these securities was related to general market conditions and the resultant lack of liquidity in the market. The single issue securities were from large money center banks. The pooled TRUPS consisted of securities issued by financial institutions; the Registrant holds the mezzanine tranche of these securities.

For all other securities, management reviewed expected cash flows and credit support and determined that it was probable that all principal and interest would be repaid. Since there were no material downgrades or credit defaults which caused any interruption of cash flows or longer-term value, the Registration concluded that the current portfolio value decline still remained temporary. The ALESCO deals suffered credit deferrals and/or defaults within the respective deals as a result of the Indy Mac failure. Current analysis continued to reflect that the securities were structured to support continued credit defaults and/or deferrals without risking any further downgrades or interruption of cash flows. On that basis, the registrant continued to uphold the temporary impairment. The Registrant believed that the bailout plan would help strengthen the registrant’s deals. Management’s analysis supported a Level 3 price valuation but no other-than-temporary impairment mark.

Lehman Brothers Holdings, Inc. - $2MM par, recognized impairment charges of $1.440 million. During the third quarter of 2008, the Registrant recorded a $1.2 million other than temporary impairment charge on a Lehman Brothers corporate bond as a result of Lehman Brothers’ September 2009 bankruptcy filing. The Registrant 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 fourth quarter of 2008, the Registrant took an additional impairment charge of $100,000 on the same bond. The Registrant had filed its claims in connection with the Lehman bankruptcy and received notification that Lehman would be afforded a longer time for liquidation than originally announced in order to maximize value returns on the sold assets. Management had determined to continue to monitor the liquidation process, re-test values during that period and adjust the carrying value accordingly if it should see any change in the current information.

Management remained confident that the Registrant would net a superior value for the bonds from the bankruptcy proceedings rather than trying to sell into an illiquid market. The Registrant continued to monitor the markets and continued to receive very inconsistent and volatile pricing.

Management believed that in light of the longer period afforded to Lehman, quoted market pricing from Reuters for Lehman improved $0.0375 on the dollar from December 31, 2008 to March 31, 2009. The Registrant’s write down for the first quarter of 2009 of $140,000 was made on a valuation of $0.28 on the dollar for the period ended March 31, 2009. The Registrant continued to follow the bankruptcy proceedings in determining change in value. This represented the higher end of the pricing range, adjusted for the deep discounts that were being attached to the bids in the marketplace.

Since the Registrant continued to have a fluid situation that was subject to continual changes, management advised the Board that it would be prudent to continue to monitor the liquidation, re-test values during that period and adjust the carrying value accordingly if the Registrant saw any change in the current information or determined that there would be a material adjustment to what the Registrant had written the bond value down to at June 30, 2009.

September 30, 2009: (please see attachment E for all supporting documentation):

The Registrant applied Level 3 procedures where it was relevant and prudent to use this alternative pricing and not fully rely on the market pricing from normal sources. This was consistent with the prior quarter’s review, as pricing did not properly reflect the value of the securities, but rather represented irrational pricing in a continued weak and faltering market. As a result, the market valuations of certain bonds and groups of bonds were adjusted accordingly in the September 30, 2009 mark-to-market positions. During the third quarter 2009, there was a marked improvement in the pricing. In response, all single issue trust preferreds and private label collateralized mortgage obligations were transferred back to Level 2 pricing, all of which continue to cash flow as scheduled. The Registrant identified only the 2 pooled trust preferred securities and the one private issue corporate bond in Level 3 pricing. Management had ongoing dialogues with Cohen and Company on the pooled TRUPS.

The methodology was consistent with recent standards on fair value and guidance from the regulatory and accounting authorities as to how to deal with the pricing issues as of September 30, 2009. For the quarter ended September 30, 2009, the Corporation primarily relied upon the guidance in FASB ASC 820-10-65 (previously FAS 157-4), FASB ASC 320-10-65 (previously FAS 115-2 and FAS 124-2) and FASB ASC 310-10-35 (previously FAS 114). The analysis took into consideration the following facts and circumstances:

Credit quality of the security

Current cash flows and certainty of future cash flows

Historic cash flows

Payment assumptions

Any current default activity

For each individual and pooled trust preferred security identified at September 30, 2009 with at least one rating below investment grade, with the exception of the ALESCO pools, all of these other securities at September 30, 2009 were of investment grade by at least one rating agency, no immediate downgrades were on the horizon, all payments due had been made in a timely manner, and the Registrant’s analysis reflected that all deals had the capacity to continue to make scheduled payments, provide cash flow and withstand some measure of shock to credit defaults and still reflect the ability to provide cash flow in the analysis. With the exception of the ALESCO 6A pool, none of the other securities were deemed to have an impairment that is other than temporary as of September 30, 2009 (see attachment E for the OTTI supporting documentation on the ALESCO deals).

With the exception of the ALESCO 6A pooled trust preferred, all payments due had been made on a timely basis. The analysis reflected that the deals had the capacity to continue to make scheduled payments, provide cash flows and withstand some measure of shock to credit defaults and still reflect the ability to continue to provide cash flow. The ALESCO 6A pool incurred its second temporary interruption of cash flow, as both its June and September payments to the tranche owned by the Registrant were deferred. An increase in non-performing assets from March 31, 2009 to June 30, 2009 triggered the deferral, with further deterioration in total non-performing assets at September 30, 2009. Due to this deterioration in the financial status of the participating banks and the fact that the issue had now endured two deferred payments, management has determined that a credit loss most likely exists, which was supported by the cash flow analysis performed. The calculation bifurcated the credit component of impairment from the loss relating to all other factors, such as interest rates, lack of liquidity, etc. The discount rate used to accrete the beneficial interest was the current yield, as outlined in FAS 115-2. As a result, an other-than-temporary impairment charge of $1.4 million was taken on this bond, bringing the new cost basis down to $1.7 million from $3.1 million, which equated to a price of $54.59. For determining the fair value, the expected cash flows were discounted using 8%, which calculated a fair value price of $39.08. The difference between the new amortized coast basis and the fair value was charged to other comprehensive income (OCI). For this bond, we applied more distressed default and severity rates. Management used a 10% CDR for year 1, with 40 basis points thereafter and no prepayments. In light of this, the ALESCO 7A bond was analyzed for potential impairment. The bond continues to cash flow as scheduled with no interruption or deferral of payments to date and, as such, an altered scenario of default rates was utilized. Management used 1% CDR for 4 years. Utilizing the current coupon as the discount rate, Management had determined that no other-than-temporary impairment existed at that time. Management will continue to monitor and evaluate any and all developments during the fourth quarter of 2009 and will make a determination at that time if an other-than-temporary impairment is necessary. For fair value pricing, the expected cash flows were discounted using 8%, which calculated a fair value price of $68.56.

The analysis considered the structure of the individual deals, the registrant’s position in the specific deals, and current activity related to delinquencies, credit defaults or deferrals that could affect future values. The results of these tests were interpolated back to pricing levels, which were used to value the TRUPS for the current period.

As for the Bank of Florida (BOFL) private issue corporate bond, shadow pricing was utilized to determine a fair value. Management reviewed a listing of all banks in the Southeast which had ratings and looked at those companies to see what similar debt was traded. Synovus had an issue maturing in 2013 which was being offered with more than a 1,000 basis points spread to the 3-year Treasury. That was used to price the BOFL bond using a 14% rate (taking into account subordinated debt and lack of liquidity), which provided a fair value of $81.61. As such, an $80 fair value price level was used. It should be noted that since BOFL was a private issue, this fair value price is not a live bid or a bid transaction.

For all other securities, management reviewed expected cash flows and credit support and determined that it was probable that all principal and interest would be repaid. Since management was not aware of any material downgrades or credit defaults, which had caused any interruption of cash flows or longer-term value, the Registrant concluded that the current portfolio value decline still remains temporary.

11.

Please provide us your calculation of the present value of cash flows expected to be collected from the corporate trust preferred securities held. Confirm that you use the same methodology for all of your preferred securities and identify all of the key assumptions and explain how you determined the assumptions were appropriate and consistent with ASC 320-10-50 and related guidance. Specifically address the following related to the assumptions used in your calculation of the present value of cash flows expected to be collected:

Response: We had used data provided by Cohen and Company. Primary considerations in our analysis include default rates, default timing, recovery rates as well as our purchase price and yield.

Discount rate: tell us the discount rate used and how you determined it.

Response: As provided in the attached ALESCO cash flows at September 30, 2009, (see attachment E – ALESCO cash flows) the current spread/coupon was used for discounting in determining any other-than-temporary impairment charge (credit charge to earnings) while an 8% discount rate was utilized in determining the fair value pricing component (non-credit charge to OCI). The discount rate used to determine the credit portion of the OTTI is equal to the current yield on the issuances as prescribed under EITF 99-20 (FASB ASC 325-40). In all future filings, we will ensure that our disclosures are complete in regards to our collateral analyses along with the assumptions underlying the cash flow projections, discount rates and how they were determined. The discount rate used to determine fair values are intended to reflect the uncertainty inherent in the projection of the issuance’s cash flows. Therefore, we chose spreads that are comparable to spreads observed currently on the market for similar rated instruments and are intended to reflect general market discounts currently applied to structured credit products.

Deferrals and defaults:

Tell us in detail how you developed your estimate of future deferrals and defaults. Specifically tell us if and how you considered the specific collateral underlying each individual security and tell us whether you had different estimates of deferrals and defaults for each security;

Response: As per the attached cash flows (see attached E- ALESCO 6A & 7A cashflows) and the fact that the ALESCO 6A incurred its second deferral of interest payments, more distressed default and severity rate assumptions were utilized when modeling the cash flows. The Registrant utilized 10% CDR for year 1 with 40 basis points every year thereafter. For the ALESCO 7A pool, an altered scenario was utilized as the registrant was situated higher in the mezzanine tranche and this tranche continued to provide cash flow (no interruption). The Registrant utilized 1% CDR for 4 years. Cohen and Company provided scenarios for eight default assumptions for the ALESCO 6A and six default assumptions for the ALESCO 7A for the September 30, 2009 analysis.

ii.

Tell us the actual amount and percentage of deferrals and defaults experienced by the trust by quarter;

Response: Please see Attachment F (“ALESCO 6 and 7 Defaults and Deferrals by Deal Paydate”)

iii.

Tell us your estimate of future deferrals and defaults and compare your estimate to the actual amounts experienced to date;

Response:

ALESCO 6A:

$77,992,704.36 estimate of future defaults versus $10,500,000 actually experienced from September 23, 2009 to December 23, 2009.

ALESCO 7A:

$19,443,031.99 estimate of future defaults versus $12,500,000 actually experienced from September 23, 2009 to December 23, 2009.

iv.

Tell us how you treat deferrals (e.g., do you treat deferrals the same as defaults), and

Response: No distinction is made between a deferring issuer and a defaulted issuer. Both result in non-payment and removal from the trust; there is no curing of deferrals.

Tell as about your recovery rate.

Response: Management utilized a 15% recovery rate, which occurs 24 months after the default date. Management believes that this was within reasonable limits.

Prepayment rate:

Based on the terms of your security, explain to us how prepayments can occur (e.g., call dates, auction dates, etc.);

Response: For both the ALESCO 6A and 7A, there is an optional redemption, or trigger, at the direction of equity holders and an auction call. Both require noteholders to be paid in full so neither mechanism is relevant because of the poor performance of the deals. If this trigger were to be effectuated, it would improve the value of the tranche and any OTTI would be zero since that is, by definition, the criterion required for the deal to liquidate before maturity.

ii.

Tell us the prepayment rate used as of September 30, 2009, June 30, 2009, March 30, 2009 and December 31, 2008;

Response: September 2009: 0% prepayments; June 2009: 0% prepayments; March 2009: 5% of the deal in December 2009 and 2% per annum thereafter; December 2008: 0% prepayments.

iii.

Tell us how you determined the rate, provide us the information on which you relied[ to determine] the rate and tell us why you believe it is appropriate and reasonable considering the information provided in a. above;

Response: A prepayment rate of 0% was used due to the difference between borrower coupon rates and available refinancing abilities of the borrowers in current environment. These pooled TRUPS were issued at comparatively, tight spreads; as such, there is little incentive, if any , to prepay and certainly more incentive to exactly the opposite – defer payments. We do not foresee prepayments as a variable having a large impact on the tranches we owned, given there junior positioning in the capital structure and the fact that prepayments – if they were to occur – would typically be very slow as is the nature of the TRUPS (as opposed to loans, which often prepay).

iv.

If your assumption changed from one period to the next, tell us why you changed it and detail the key information on which you relied to support your change;

Response: Management had changed its prepayment assumptions in March 2009 to 5% of the deal in December 2009 and 2% per annum thereafter. Prior to that, Management had been using and continues to currently use 0%, other than for the March period. When both ALESCO deals were originated and structured back in 2004 and 2005, this was the expected prepayments assumptions provided. Prepayments have not been prevalent in these pooled issues, as mentioned in iii. above, and 0% should have been utilized back in March. As such, the March analysis picked up the original deal assumptions as noted.

If you used 0% as your assumption at September 30, 2009, explain to us why you believe this is reasonable considering that FASB ASC 320-10 (i.e. FAS FSP 115-2) is an expected loss model and presumably there is some likelihood that some amounts will be prepaid before maturity; and

Response: A prepayment rate of 0% was used due to the difference between borrower coupon rates and available refinancing abilities of the borrowers in the current environment. Due to the bad macro environment today and gridlock in the capital markets, it has become increasing difficult for these types of institutions to refinance more cheaply today.

vi.

If you used 0% as your assumption at September 30, 2009, provide us with a sensitivity analysis of the amount of credit loss that would have been recorded at September 30, 2009 had you used other reasonable assumptions and provide supporting explanation for the change in credit loss or lack of change in credit loss (e.g. if prepayments increased and credit loss did not increase, explain why that makes sense).

Response: As mentioned above, the registrant believes that 0% prepayments make sense for the ALESCO pools and have not considered running these pools using any prepayments.

12.	Tell us and disclose in future filings the amount of the remaining investment in the Reserve Primary Fund.

Response 12: As of September 30, 2009, the remaining investment in the Reserve Primary Fund was $2,943,905. The Reserve Funds issued a press release on November 27, 2009 announcing that on November 25, 2009, the U.S. District Court issued an Order on an application made by the SEC concerning the distribution of the Primary Fund’s remaining assets. The order provides for a pro-rata distribution of the remaining funds and enjoins certain claims against the Primary Fund and other parties named as defendants in litigation involving the Primary Fund. The terms of the plan are set forth in the Order and Opinion dated November 25, 2009.

The SEC and the Independent Trustees estimate that if all remaining Primary Fund assets are distributed on a pro-rata basis to all shareholders, investors will recover approximately 99 cents per share. The terms of this are outlined in the Opinion. As such, an other-than-temporary impairment charge of $0.01 cents, or $364,280, was taken to earnings in November 2009. Accordingly, as of December 31, 2009, our remaining carrying value in the Reserve Primary Fund was $2,579,625. These steps will be described in future filings.

Management's Discussion and Analysis

13.

Over the past year you have seen a significant increase in larger CDs, largely driven by your participation in the CDARS program. In your next Form 10-K, revise your management's discussion and analysis to provide management's view of any material impacts on your operating strategy and liquidity risk from using larger certificates, particularly in the event you encounter financial difficulty.

Consider adding risk factor disclosure in your Form 10-K based upon your response.

Response 13: In the “Management’s Discussion and Analysis” section of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, the Registrant will provide management's view of any material impacts on the Registrant’s operating strategy and liquidity risk from using larger certificates, particularly in the event that the Registrant encounters financial difficulty. The Registrant will also consider whether a risk factor disclosure is appropriate.

The Registrant acknowledges that:

the Registrant is responsible for the adequacy and accuracy of the disclosure in its reports filed under the Securities Exchange Act of 1934;

Staff comments or changes to disclosure in response to Staff comments do not foreclose the SEC from taking any action with respect to any report filed by the Registrant under the Securities Exchange Act of 1934; and

The Registrant may not assert Staff comments as a defense in any proceeding initiated by the SEC or any person under the federal securities laws of the United States.

Should the Staff have questions or comments regarding this letter, please feel free to contact our counsel, Peter H. Ehrenberg, at 973-597-2350.

	Very truly yours,


	CENTER BANCORP, INC.

	By:	/s/ Anthony C. Weagley
		Anthony C. Weagley
		President and Chief Executive Officer

Michael Seaman, Esq.

Mr. William Schroeder

Mr. Marc Thomas

Peter H. Ehrenberg, Esq,

Mr. A. Richard Abrahamian