UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

(amending Items 1A, 3, 6, 7, 7A, 8 and 9A and revising certain exhibits)

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Fiscal Year Ended December 31, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Transition Period from _________  to  __________

Commission File Number: 000-11486

CENTER BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

New Jersey	52-1273725
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

2455 Morris Avenue, Union, NJ 07083-0007

(Address of Principal Executive Offices, Including Zip Code)

(908) 688-9500

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Common Stock, No Par Value

(Title of Class)

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes or No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Regulation S-T (232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant has required to submit and post such files.)Yes o No o Not applicable

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large Accelerated Filer o Accelerated Filer x Non-Accelerated o Small Reporting Company o

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter — $78.3 million

Shares Outstanding on March 1, 2010

Common Stock, no par value: 14,574,872 shares

DOCUMENTS INCORPORATED BY REFERENCE

No documents are incorporated by reference in this Annual Report on Form 10-K.

EXPLANATORY NOTE

This Amendment No. 2 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the “Annual Report”) of Center Bancorp, Inc. (the “Company”, the Corporation” or “Center”) filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2010 is filed in order to revise the manner in which Center is accounting for its previously reported loan receivable from Highlands State Bank.

Center has concluded that a restatement of its financial statements for the period ended December 31, 2009, is necessary to conform to bank regulatory reporting positions taken with respect to the previously reported loan receivable from Highlands State Bank (“Highlands”).  As previously reported, this loan participation ended and Union Center National Bank (the “Bank”) made demand for payment from Highlands in 2009.  In the Annual Report as originally filed, Center treated the amount due as a receivable from Highlands rather than as a loan since the participation had ended.  Bank regulators have concluded that solely for purposes of the Consolidated Reports of Condition and Income (“Call Reports”) filed by the Bank with the bank regulators, the item should be accounted for consistent with its classification prior to December 31, 2009, despite the termination of the participation.  After reviewing this matter with the Audit Committee of the Board of Directors of Center and of the Board of Directors of the Bank, the Bank has agreed to account for this item in its Call Reports in the manner proposed by the bank regulators and Center has determined to restate its year-end financial statements filed with the SEC to assure that the financial statements filed with the SEC are consistent with the financial statements filed as part of the Call Reports.  The change resulted in, among other things, (i) an increase in loans outstanding at December 31, 2009 of $4,153,000, (ii) a resultant increase in the allowance for loan losses of $436,000 at December 31, 2009 and (iii) a resultant increase in the provision for loan losses of $1,336,000 for the year ended December 31, 2009.  The increase in the provision for loan losses in turn lowered year-end after-tax net income by $802,000 or $0.06 per fully diluted share.  The Company and its counsel remain confident regarding its legal position with respect to its underlying litigation with Highlands and intend to continue to vigorously pursue its current course of legal action for repayment of the amount payable to the Bank.

Except as described above, no other amendments are being made to the Annual Report.  See Note 21 of the Notes to the Consolidated Financial Statements.  This Form 10-K/A does not reflect events occurring after the March 16, 2010 filing of our Annual Report or modify or update the disclosure contained in the Annual Report in any way other than as required to reflect the amendments discussed above and reflected below.

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TABLE OF CONTENTS

		Page
Item 1A.	Risk Factors	1
Item 3.	Legal Proceedings	6
Item 6.	Selected Financial Data	7
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	42
Item 8.	Financial Statements and Supplementary Data	F-1
	Report of Independent Registered Public Accounting Firm	F-2
	Center Bancorp, Inc. and Subsidiaries:
	Consolidated Statements of Condition	F-3
	Consolidated Statements of Income	F-4
	Consolidated Statements of Changes in Stockholders’ Equity	F-5
	Consolidated Statements of Cash Flows	F-6
	Notes to Consolidated Financial Statements	F-8
Item 9A.	Controls and Procedures	44
Item 15.	Exhibits and Financial Statements Schedules	47
Signatures		50

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Item 1A. Risk Factors

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

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

As described under “Item 1 — Business — Regulation of Bank Subsidiary,” the Bank is subject to a MOU with the OCC, pursuant to which it has agreed to take various actions to improve the Bank’s capital position and profitability. The OCC has also established higher minimum capital ratios for the Bank than the regulatory minimums. While management is committed to addressing and resolving the issues raised by the OCC and has already initiated corrective actions to comply with various requirements of the MOU, no assurances can be given that the OCC will find the Bank’s compliance plan satisfactory, or that the Bank will not be subject to further supervisory action by the OCC. We may at some point need to raise additional capital to assure compliance with mandated capital ratios and to support our continued growth. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability to comply with applicable capital requirements and to further expand our operations through internal growth or acquisitions could be materially impaired.

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

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

• we potentially face increased regulation of our industry and compliance with such regulation may increase our costs and limit our ability to pursue business opportunities;

• customer demand for loans secured by real estate could be reduced due to weaker economic conditions, an increase in unemployment, a decrease in real estate values or an increase in interest rates;

• the process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans; the level of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of the process;

• the value of the portfolio of investment securities that we hold may be adversely affected; and

• we may be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits

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

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

• inflation;

• recession;

• a rise in unemployment;

• tightening money supply; and

• domestic and international disorder and instability in domestic and foreign financial markets.

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

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

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

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

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

Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to market factors or an adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the turmoil faced by banking organizations in the domestic and worldwide credit markets continues. Over the last several years, the financial services industry and the credit markets generally have been materially and adversely affected by significant declines in asset values and by a lack of liquidity. The liquidity issues have been particularly acute for regional and community banks, as many of the larger financial institutions have significantly curtailed their lending to regional and community banks to reduce their exposure to the risks of other banks. In addition, many of the larger correspondent lenders have reduced or even eliminated federal funds lines for their correspondent customers. Furthermore, regional and community banks generally have less access to the capital markets than do the national and super-regional banks because of their smaller size and limited analyst coverage. Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, results of operations and financial condition.

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

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

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

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

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

The documents that we executed with the U.S. Treasury when it purchased our Preferred Shares allow it to unilaterally change the terms of the Preferred Shares or impose additional requirements on the Corporation if there is a change in law. These changes or additional requirements could restrict our ability to conduct business, could subject us to additional cost and expense or could change the terms of the Preferred Shares to the detriment of our common shareholders. While it may be possible for us to redeem the Preferred Shares in the event that the U.S. Treasury imposes any changes or additional requirements that we believe are detrimental, there can be no assurances that our federal regulator will approve such redemption or that we will have the ability to implement such redemption, especially in light of regulatory requirements imposed upon financial institutions seeking to redeem TARP securities.

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

The capital markets have been experiencing unprecedented volatility for more than two years. Such negative developments and disruptions have resulted in uncertainty in the financial market in general with the expectation of a continuing general economic downturn which is continuing in 2010. Bank and bank holding company stock prices have been negatively affected, as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets compared to recent years. If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our business, financial condition and results of operations or our ability to access capital.

We must effectively manage our credit risk.

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

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

Commercial real estate loans were $410.1 million, or approximately 57.0 percent of our total loan portfolio, as of December 31, 2009. Many of these loans are extended to small and medium-sized businesses. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Although many such loans are secured by real estate as a secondary form of collateral, continued adverse developments affecting real estate values in our market area could increase the credit risk associated with our loan portfolio. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties. If the loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time of originating the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition.

We may incur impairments to goodwill.

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

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

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

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

Like all financial institutions, Union Center National Bank maintains an allowance for loan losses to provide for loan defaults and non-performance. If Union Center National Bank’s allowance for loan losses is not adequate to cover actual loan losses, future provisions for loan losses could materially and adversely affect our operating results. Union Center National Bank’s allowance for loan losses is determined by analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan resolution, the opinions of its regulators, changes in the size and composition of the loan portfolio and industry information. Union Center National Bank also considers the impact of economic events, the outcome of which is uncertain. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review Union Center National Bank’s loans and allowance for loan losses. While we believe that Union Center National Bank’s allowance for loan losses in relation to its current loan portfolio is adequate to cover current losses, we cannot assure you that Union Center National Bank will not need to increase its allowance for loan losses or that regulators will not require it to increase this allowance. Either of these occurrences could materially and adversely affect our earnings and profitability.

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

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

• loan delinquencies may increase;

• problem assets and foreclosures may increase;

• demand for our products and services may decline; and

• collateral for loans made by Union Center National Bank may decline in value, in turn reducing Union Center National Bank’s clients’ borrowing power.

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

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

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

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

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

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

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

• potential exposure to unknown or contingent liabilities of banks and businesses we acquire;

• exposure to potential asset quality issues of the acquired bank or related business;

• difficulty and expense of integrating the operations and personnel of banks and businesses we acquire; and

• the possible loss of key employees and customers of the banks and businesses we acquire.

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

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

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

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

Declines in value may adversely impact our investment portfolio.

As of December 31, 2009, we had approximately $298.1 million in available for sale investment securities. We may be required to record impairment charges on our investment securities if they suffer a decline in value that is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could have a negative effect on our investment portfolio in future periods. If an impairment charge is significant enough, it could affect the ability of Union Center National Bank to upstream dividends to us, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders and could also negatively impact our regulatory capital ratios.

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

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

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

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

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

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

Item 3. Legal Proceedings

In December 2009, the Corporation took steps to terminate a participation agreement with another New Jersey bank, Highlands State Bank (“Highlands”), at December 31, 2009. Under the terms of the agreement, the participation ended on December 31, 2009, and, in the Corporation’s view, Highlands, as the lead bank, was required to repurchase the remaining balance. The lead bank questioned our enforcement of the participation agreement. Therefore, the Corporation filed suit in Superior Court of New Jersey Chancery Division in Morris County, New Jersey (Docket No. MRS-C-189-09), for the return of the outstanding principal.  Highlands, in turn, has filed an answer and a counterclaim.

This litigation relates to a participating interest in a construction loan originated by Highlands. This loan was closed, and the participating interest (85%) was acquired, in 2007. Various causes of action are pleaded in this litigation by both parties, including claims for recovery of damages. The primary claim prosecuted by the Bank seeks a judicial determination that the participation agreement executed with Highlands was properly terminated in accordance with its terms on December 31, 2009 and that Highlands is obligated to return the unpaid balance of the loan funds advanced by the Bank during its participation in the loan. The primary claim presented by Highlands is that the Bank’s participation in the loan must continue until it is ultimately retired, which will probably result in a substantial loss that it is claimed must be shared by the Bank. This litigation is in its early stages. The initial pleadings have been filed and the discovery phase will now begin.

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

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Item 6. Selected Financial Data

SUMMARY OF SELECTED STATISTICAL INFORMATION AND FINANCIAL DATA

	Years Ended December 31,
	2009 (Restated)			2008			2007			2006			2005 (3)
	(Dollars in Thousands, Except per Share Data)
Summary of Income
Interest income	$	51,110		$	49,894		$	52,129		$	53,325		$	50,503
Interest expense		22,645			24,095			30,630			28,974			23,296
Net interest income		28,465			25,799			21,499			24,351			27,207
Provision for loan losses		4,597			1,561			350			57			—
Net interest income after provision for loan losses		23,868			24,238			21,149			24,294			27,207
Other income		3,906			2,644			4,372			633			3,836
Other expense		23,057			19,473			24,598			24,358			22,213
Income before income tax expense		4,717			7,409			923			569			8,830
Income tax expense (benefit)		946			1,567			(2,933	)		(3,329	)		1,184
Net income	$	3,771		$	5,842		$	3,856		$	3,898		$	7,646
Net income available to common stockholders	$	3,204		$	5,842		$	3,856		$	3,898		$	7,646
Statement of Financial Condition Data
Investments	$	298,124		$	242,714		$	314,194		$	381,733		$	517,730
Total loans		719,606			676,203			551,669			550,414			505,826
Goodwill and other intangibles		17,028			17,110			17,204			17,312			17,437
Total assets		1,195,488			1,023,293			1,017,645			1,051,384			1,114,829
Deposits		813,705			659,537			699,070			726,771			700,601
Borrowings		269,253			268,440			218,109			206,434			293,963
Stockholders’ equity		101,749			81,713			85,278			97,613			99,489
Dividends
Cash dividends	$	2,434		$	4,675		$	4,885		$	4,808		$	4,518
Dividend payout ratio		75.97	%		80.02	%		126.69	%		123.35	%		59.09	%
Cash Dividends Per Share (1)
Cash dividends	$	0.18		$	0.36		$	0.36		$	0.34		$	0.34
Earnings Per Share (1)
Basic	$	0.24		$	0.45		$	0.28		$	0.28		$	0.60
Diluted	$	0.24		$	0.45		$	0.28		$	0.28		$	0.60
Weighted Average Common Shares Outstanding (1)
Basic		13,382,614			13,048,518			13,780,504			13,959,684			12,678,614
Diluted		13,385,416			13,061,410			13,840,756			14,040,338			12,725,256
Operating Ratios
Return on average assets		0.31	%		0.58	%		0.38	%		0.37	%		0.69	%
Average stockholders’ equity to average assets		7.66	%		8.28	%		9.33	%		9.21	%		7.79	%
Return on average stockholders’ equity		4.02	%		7.03	%		4.09	%		4.04	%		8.91	%
Return on average tangible stockholders’ equity (2)		4.91	%		8.86	%		5.00	%		4.93	%		10.34	%
Book Value
Book value per common share (1)	$	6.32		$	6.29		$	6.48		$	7.02		$	7.05
Tangible book value per common share (1) (2)	$	5.15		$	4.97		$	5.17		$	5.77		$	5.82
Non-Financial Information
Common stockholders of record		605			640			679			717			767
Full-time equivalent staff		160			160			172			214			202

Notes to Selected Financial Data

(1) All common share and per common share amounts have been adjusted for prior stock splits and stock dividends.

(2) Tangible book value per common share, which is a non-GAAP financial measure, is computed by dividing stockholders’ equity less preferred stock, goodwill and other intangible assets by common shares outstanding. The following table provides certain related reconciliations between Generally Accepted Accounting Principles (“GAAP”)measures (stockholders’ equity and book value per common share) and the related non-GAAP financial measures (tangible stockholders’ equity and tangible book value per common share):

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	Years Ended December 31,
	2009 (Restated)		2008		2007		2006		2005
	(Dollars in Thousands, Except per Share Data)
Common shares outstanding		14,572,029		12,991,312		13,155,784		13,910,450		14,103,209
Stockholders’ equity	$	101,749	$	81,713	$	85,278	$	97,613	$	99,489
Less: Preferred Stock		9,619		—		—		—		—
Less: Goodwill and other intangible assets		17,028		17,110		17,204		17,312		17,437
Tangible Stockholders’ Equity	$	75,102	$	64,603	$	68,074	$	80,301	$	82,052
Book value per common share	$	6.32	$	6.29	$	6.48	$	7.02	$	7.05
Less: Goodwill and other intangible assets		1.17		1.32		1.31		1.25		1.23
Tangible Book Value per Common Share	$	5.15	$	4.97	$	5.17	$	5.77	$	5.82

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

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

	Years Ended December, 31
	2009 (Restated)			2008			2007			2006			2005
	(Dollars in Thousands)
Net income	$	3,771		$	5,842		$	3,856		$	3,898		$	7,646
Average stockholders’ equity	$	93,850		$	83,123		$	94,345		$	96,505		$	85,772
Less: Average goodwill and other intangible assets		17,069			17,158			17,259			17,378			11,814
Average Tangible Stockholders’ Equity	$	76,781		$	65,965		$	77,086		$	79,127		$	73,958
Return on average stockholders’ equity		4.02	%		7.03	%		4.09	%		4.04	%		8.91	%
Add: Average goodwill and other intangible assets		0.89			1.83			0.91			0.89			1.43
Return on Average Tangible Stockholders’ Equity		4.91	%		8.86	%		5.00	%		4.93	%		10.34	%

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

(3) The Corporation completed the acquisition of Red Oak Bank as of the close of business on May 20, 2005. The acquisition was accounted for as a purchase and the excess cost over the fair value of net assets acquired (“goodwill”) in the transaction was $14.7 million. The Corporation also recorded a core deposit intangible of $702,617 in connection with the acquisition.

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

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

Cautionary Statement Concerning Forward-Looking Statements

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

Critical Accounting Policies and Estimates

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

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

Allowance for Loan Losses and Related Provision

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

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

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

 Other-Than-Temporary Impairment of Securities

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

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In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FASB ASC 320-10-65 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. Impairment charges on certain investment securities of approximately $4.2 million were recognized in earnings during the year ended December 31, 2009, respectively. Of this amount, $3.4 million related to charges taken on two pooled trust preferred securities owned by the Corporation, $188,000 related to three private label collateralized mortgage obligations, $140,000 on its Lehman bond holding and $113,000 on an equity holding. Additionally, the Corporation recorded a $364,000 charge related to a court order for the liquidation of the Reserve Primary Fund. It is expected that 99 percent of Fund assets will be returned to the Corporation. The Corporation’s approach to determining whether or not other-than-temporary impairment exists for any of these investments was consistent with the accounting guidance in effect at that time. For the year ended December 31, 2009, the Corporation primarily relied upon the guidance in FASB ASC 320-10-65 (previously FAS 115-2 and 124-2), FASB ASC 820-10-65 (previously FASB FAS 157-4) and FASB ASC 310-10-35 (previously FAS 114). Additional information can be found in Note 4 of the Notes to Consolidated Financial Statements.

Impairment charges on certain investment securities of approximately $1.8 million were recognized during the year ended December 31, 2008. As a result of the bankruptcy of Lehman Brothers in September 2008, the Corporation incurred an impairment charge of $1.2 million in its investment securities portfolio during the third quarter of 2008 and an additional $100,000 during the fourth quarter of 2008. These charges were based on the Corporation’s expectation at December 31, 2008 of what the Corporation believed it would receive from the Lehman bankruptcy proceedings as opposed to an attempted sale into an illiquid market. Additionally, the Corporation recorded impairment charges of $461,000 relating to three equity security holdings. This determination was made after certain events during 2008 relating to the financial condition of the issuers caused concern that recovery of the carrying value would not occur in the near term. As such, it was deemed appropriate to mark each applicable security down to fair value. The Corporation’s approach to determining whether or not other-than-temporary impairment exists for any of these investments was consistent with the accounting guidance in effect at that time. For the year ended December 31, 2008, the Corporation primarily relied upon the guidance in FASB ASC 320-10-35 (previously FSP FAS 115-1 and 124-1), FASB ASC 820-10-35 (previously FASB FAS 157-3) and FASB ASC 325-40 (previously EITF 99-20). No impairment charges were recognized during the year ended December 31, 2007. 

Income Taxes

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

Fluctuations in the actual outcome of these future tax consequences could impact the Corporation’s consolidated financial condition or results of operations. Notes 1 and 11 of the Notes to Consolidated Financial Statements include additional discussion on the accounting for income taxes.

Goodwill

The Corporation adopted the provisions of FASB ASC 350-10-05 (previously SFAS No. 142, “Goodwill and Other Intangible Assets”), which requires that goodwill be reported separate from other intangible assets in the Consolidated Statements of Condition and not be amortized but tested for impairment annually or more frequently if impairment indicators arise for impairment. No impairment charge was deemed necessary for the years ended December 31, 2009 and 2008.

Fair Value of Investment Securities

In October 2008, the FASB issued FASB ASC 820-10-35 (previously FASB Staff Position 157-3, “Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active”), to clarify the application of the provisions of FASB ASC 820-10-05 in an inactive market and how an entity would determine fair value in an inactive market. FASB ASC 820-10-35 was applied to the Corporation’s December 31, 2008 consolidated financial statements. Changes in the Corporation’s methodology occurred for the quarter ended June 30, 2009 as new accounting guidance was released in April of 2009 with mandatory adoption required in the second quarter. The Corporation relied upon the guidance in FASB ASC 820-10-65 (previously FASB FAS 157-4) when determining fair value for the Corporation’s pooled trust preferred securities and private issue corporate bond. See Note 18 of the Notes to Consolidated Financial Statements, Fair Value Measurements and Fair Value of Financial Instruments, for further discussion.

Introduction

The following introduction to Management’s Discussion and Analysis highlights the principal factors that contributed to the Corporation’s earnings performance in 2009.

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The year 2009 was a challenging one for the banking industry and for the Corporation. The current global financial crisis and difficult economic climate has created challenges to financial institutions both domestically and abroad. Interest rates in 2009 were reflective of significantly lower short-term interest rates in an effort to stimulate the economy. Competition for deposits in the Corporation’s marketplace remained intense while customers’ preference in seeking safety through full FDIC insured products and more liquidity became paramount in light of the financial crisis. Market conditions remained volatile during 2009, related to global instability in the markets in connection with the sub-prime crises. While we continue to see an improvement in balance sheet strength and core earnings performance, we are still concerned with the credit stability of the broader markets. As a result, the Federal Reserve kept overnight borrowing rates at zero to 25 basis points throughout the course of 2009. Short-term interest rates remained lower than longer term rates resulting in an improved steepening of the yield curve. This resulted in an expansion of the Corporation’s net interest income, which is the Corporation’s primary source of income. The Corporation also took action throughout the year to reduce further exposure to interest rates through a reduction in higher cost funding and non-core balances in the deposit mix and improvement in the earning asset mix. The Corporation’s continued progress in growing and improving its balance sheet earning asset mix has helped to expand its spread and margin. We intend to continue to use a portion of the proceeds of maturing investments to help fund new loan growth.

The Corporation’s net income in 2009 was $3.8 million or $0.24 per fully diluted common share, compared with net income of $5.8 million or $0.45 per fully diluted common share in 2008. A substantial portion of our earnings in 2009 and 2008 was from core operations.

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Earnings for 2009 were positively impacted by net interest income and spread expansion through both balance sheet improvements and a lower cost of funds as well as net securities gains as compared to net securities losses in 2008. These improvements were more than offset by higher loan loss provisions as well as substantially higher FDIC insurance, higher other real estate owned expenses and higher pension expense. Other expense for the twelve months ended December 31, 2009 totaled $23.1 million, an increase of $3.6 million, or 18.4 percent, from the twelve-months ended December 31, 2008 due principally to the above mentioned items.

Higher operating expenses during the twelve month period resulted primarily from increases in salaries and employee benefits, FDIC insurance and OREO expense, offset in part by a decrease in net occupancy expenses, premises and equipment and marketing expenses. The Corporation previously announced a strategic outsourcing agreement with Fiserv to provide core account processing services, which is consistent with the Corporation’s other strategic initiatives to streamline operations, reduce operating overhead and allow the Corporation to focus on core competencies of customer service and product development. This coupled with previously initiated cost reduction plans are intended to improve operating efficiencies, business and technical operations. The core processing transition was consummated during the fourth quarter of 2009. Additionally, the consolidation of the Corporation’s branch office on 392 Springfield Avenue in Summit, New Jersey during the first quarter of 2009 into its new office on 545 Morris Avenue in Summit, New Jersey resulted in improved efficiency and increased customer service.

For the twelve months ended December 31, 2009, total salaries and benefits increased by $1.4 million, or 16.6 percent to $9.9 million. The increase in expense was primarily due to a $755,000 benefit recognized in 2008 relating to the termination of two benefit plans coupled with increased pension expense in 2009 due to both lower asset valuations and the expected rate of return on the Corporation’s defined pension plan, which was frozen back in 2007.

The increased tax rate resulted in part from changes in the Corporation’s business entity structure during 2007 and into 2008 coupled with a higher proportion of taxable income versus tax-exempt income in 2009.

Total non-interest income increased as a percentage of total revenue, which is the sum of interest income and non-interest income, in 2009 largely due to $491,000 in net securities gains as compared to $1.1 million in net securities losses in 2008. For the twelve months ended December 31, 2009, total other income increased $1.3 million as compared with the twelve months ended December 31, 2008, from $2.6 million to $3.9 million. Excluding net securities gains and losses in the respective periods, the Corporation recorded total other income of $3.4 million in the twelve months ended December 31, 2009, compared to $3.8 million in the twelve months ended December 31, 2008, representing a decrease of $335,000 or 8.9 percent. This decrease was primarily attributable to a $180,000 decrease in service charges, commissions and fees as well as lower other income, resulting primarily from lower letters of credit fee income and title insurance income.

Total assets at December 31, 2009 were $1.195 billion, an increase of 16.8 percent from assets of $1.023 billion at December 31, 2008. The increase in assets reflects the growth in our loan and investment securities portfolios as well as a higher level of uninvested excess cash, which reflects inflows in core savings deposits and Certificates of Deposit Account Registry Service (CDARS) Reciprocal deposits, as customers desire for safety and liquidity became paramount in light of the financial crisis. The Corporation has made a concerted effort to reduce non-core balances and, accordingly, its uninvested cash position was reduced by an average of $35 million during the fourth quarter of 2009. Additionally, there has been a concerted effort to reduce higher costing retail deposits.

Loan growth remained strong in 2009, spurred by business development efforts. Overall, the portfolio grew year over year by approximately $70.0 million on average or an 11.2 percent increase from 2008. Strong demand for commercial real estate loans prevailed throughout the year in the Corporation’s market in New Jersey, despite the economic climate at both the state and national levels and market turmoil from the sub-prime markets. The Corporation is encouraged by the strength of loan demand and positive momentum gained this past year in growing that segment of earning assets. However, the Corporation continues to remain concerned with the credit stability of the broader markets due to the weakened economic climate.

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 Asset quality continues to remain relatively high and credit culture conservative. Even so, the stability of the economy and credit markets remains uncertain and as such, has had an impact on certain credits within our portfolio. The Corporation continued to make provisions to the allowance for loan losses as efforts are made to stabilize credit quality issues. At December 31, 2009, non-performing assets totaled $11.3 million or 0.94 percent of total assets, as compared with $4.6 million or 0.45 percent at December 31, 2008. The increase in non-performing loans from December 31, 2008 was primarily attributable to the addition of four large commercial loans. In March of 2009, one commercial real estate construction project of industrial warehouses was downgraded to non-accrual status, which was a participation loan with another New Jersey bank. In December of 2009, the Corporation took steps to terminate this participation agreement, as the participation ended on December 31, 2009. The Corporation has filed suit for the return of the outstanding principal, but continues to include this loan in non-accrual status. Other Real Estate Owned (“OREO”) decreased by $3.9 million due solely to the sale of a residential condominium construction project in Union County, New Jersey during the third quarter of 2009.

At December 31, 2009, the total allowance for loan losses amounted to approximately $8.7 million, or 1.21 percent of total loans. The allowance for loan losses as a percent of total non-performing loans amounted to 72.2 percent at December 31, 2009 and 919.7 percent at December 31, 2008. This decrease in the ratio from December 31, 2008 to December 31, 2009 was due to the previously mentioned increase in non-performing loans.

Deposit growth was strong in 2009, reflective of customers’ desire for safety and liquidity and flight to quality in light of the financial crisis. At December 31, 2009, total deposits for the Corporation were $813.7 million. Non-interest-bearing core deposits, a low cost source of funding, continue to be a key funding source. At December 31, 2009, this source of funding amounted to $130.5 million or 12.0 percent of total funding sources and 16.0 percent of total deposits.

Certificates of deposit $100,000 and greater increased to 17.8 percent of total deposits at December 31, 2009 from 15.2 percent one year earlier. With the current turmoil in the financial markets, some of the Corporation’s depositors have become sensitive to obtaining full FDIC insurance for their time deposits. To accommodate its customers, the Corporation began offering Certificates of Deposit Account Registry Service (CDARS) in 2008. As a result of that offering and the temporary increase in insurance coverage by the FDIC to $250,000, the Corporation reported an increase of $44.3 million in certificates of deposit greater than $100,000 at December 31, 2009 as compared to year-end 2008.

Total stockholders’ equity increased 24.5 percent from 2008 to $101.7 million, and represented 8.51 percent of total assets at year-end. Book value per common share (total common stockholders’ equity divided by the number of shares outstanding) increased to $6.32 as compared with $6.29 a year ago, primarily as a result of the $11 million capital raise from the Corporation’s rights offering consummated in October 2009. Tangible book value per common share (which excludes goodwill and other intangibles from common stockholders’ equity) increased to $5.15 from $4.97 a year ago; see Item 6 of this Annual Report on Form 10-K for a reconciliation of tangible book value (which is a non-GAAP financial measure) to book value. Return on average stockholders’ equity for the year ended December 31, 2009 was 4.02 percent compared to 7.03 percent for 2008. This decrease was attributable to lower earnings in 2009 compared with 2008 coupled with higher average equity due primarily to both the capital raised from the rights offering and capital received under the U.S. Treasury Capital Purchase Program. The Tier I Leverage Capital ratio increased to 7.73 percent at December 31, 2009, as compared with 7.71 percent at December 31, 2008.

The Corporation’s capital base includes $11 million in capital raised from the rights offering as well as $10 million of capital received from the U.S. Treasury under the Capital Purchase Program. It also includes $5.2 million in subordinated debentures at December 31, 2009 and December 31, 2008. This issuance of $5.0 million in floating rate MMCapS(SM) Securities occurred on December 19, 2003. These securities presently are included as a component of Tier I Capital for regulatory capital purposes. In accordance with FASB Interpretation No. 46, these securities are classified as subordinated debentures on the Consolidated Statements of Condition.

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The Corporation’s risk-based capital ratios at December 31, 2009 were 11.43 percent for Tier I Risk-Based Capital and 12.44 percent for Total Risk-Based Capital. Tier I Capital increased to approximately $98.5 million at December 31, 2009 from $78.2 million at December 31, 2008. The increase in Tier I Capital primarily reflects the new capital received during 2009.

The Corporation announced an increase in its common stock buyback program on September 28, 2007 and June 26, 2008, under which the Parent Corporation was authorized to purchase up to 2,039,731 shares of Center Bancorp’s outstanding common stock. As of December 31, 2009, the Corporation had repurchased 1,386,863 shares under the program at an average cost of $11.44 per share. Repurchases are now restricted pursuant to the Parent Corporation’s participation in TARP and as such, there were no repurchases during 2009. See Item 5 of this Annual Report on Form 10K.

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

Results of Operations

Net income for the year ended December 31, 2009 was $3,771,000 as compared to $5,842,000 earned in 2008 and $3,856,000 earned in 2007, a decrease of 35.5 percent from 2008 to 2009. Basic and fully diluted earnings per common share were $0.24 per share in 2009 as compared with $0.45 per share in 2008 and $0.28 per share in 2007. All common share and per share information for all periods presented have been retroactively restated for common stock splits and common stock dividends distributed to common stockholders during the periods presented.

For the year ended December 31, 2009, the Corporation’s return on average stockholders’ equity (“ROE”) was 4.02 percent and its return on average assets (“ROA”) was 0.31 percent. The Corporation’s return on average tangible stockholders’ equity (“ROATE”) was 4.91 percent for 2009. The comparable ratios for the year ended December 31, 2008, were ROE of 7.03 percent, ROA of 0.58 percent, and ROATE of 8.86 percent. See the discussion and reconciliation of ROATE, which is a non-GAAP financial measure, under Item 6 of this Annual Report on Form 10-K.

Earnings for 2009 were negatively impacted by an increase in other expense, due primarily to a higher provision for loan losses coupled with increases in FDIC insurance, pension and OREO expense, offset in part by an improvement in net interest income, due primarily to a lower cost of funds, and higher other income, due to net securities gains in 2009 as compared to losses in 2008.

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Net Interest Income

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

	2009									2008									2007
	Amount			Increase (Decrease) from Prior Year			Percentage Change			Amount			Increase (Decrease) from Prior Year			Percentage Change			Amount			Increase (Decrease) from Prior Year			Percentage Change
	(Dollars in Thousands)
Interest income:
Investments	$	14,226		$	(179	)		(1.24	)	$	14,405		$	(4,850	)		(25.19	)	$	19,255		$	(3,215	)		(14.31	)
Loans, including fees		36,751			641			1.78			36,110			2,583			7.70			33,527			1,528			4.78
Federal funds sold and securities purchased under agreements to resell		0			(113	)		(100.00	)		113			(491	)		(81.29	)		604			57			10.42
Restricted investment in bank stocks		643			49			8.25			594			45			8.20			549			42			8.28
Total interest income		51,620			398			0.78			51,222			(2,713	)		(5.03	)		53,935			(1,588	)		(2.86	)
Interest expense:
Deposits		12,308			(979	)		(7.37	)		13,287			(7,548	)		(36.23	)		20,835			2,830			15.72
Borrowings		10,337			(471	)		(4.36	)		10,808			1,013			10.34			9,795			(1,174	)		(10.70	)
Total interest expense		22,645			(1,450	)		(6.02	)		24,095			(6,535	)		(21.34	)		30,630			1,656			5.72
Net interest income on a fully tax-equivalent basis		28,975			1,848			6.81			27,127			3,822			16.40			23,305			(3,244	)		(12.22	)
Tax-equivalent adjustment		(510	)		818			(61.60	)		(1,328	)		478			(26.47	)		(1,806	)		392			(17.83	)
Net interest income	$	28,465		$	2,666			10.33		$	25,799		$	4,300			20.00		$	21,499		$	(2,852	)		(11.71	)

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

Historically, the most significant component of the Corporation’s earnings has been net interest income, which is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid for deposits and borrowings, which support these assets. There were several factors that affected net interest income during 2009, including the volume, pricing, mix and maturity of interest-earning assets and interest-bearing liabilities and interest rate fluctuations.

Net interest income is directly affected by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, which support those assets, as well as changes in the rates earned and paid. Net interest income is presented in this financial review on a tax equivalent basis by adjusting tax-exempt income (primarily interest earned on various obligations of state and political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable issues, and then in accordance with the Corporation’s consolidated financial statements. Accordingly, the net interest income data presented in this financial review differ from the Corporation’s net interest income components of the Consolidated Financial Statements presented elsewhere in this report.

Net interest income, on a fully tax-equivalent basis, for the year ended December 31, 2009 increased $1.9 million, or 6.8 percent, to $29.0 million, from $27.1 million for 2008. The Corporation’s net interest margin decreased 11 basis points to 2.85 percent from 2.96 percent. From 2007 to 2008, net interest income on a tax equivalent basis increased by $3.8 million and the net interest margin increased by 44 basis points. Our net interest margin has been adversely impacted by the high level of uninvested cash, which accumulated due to the strong deposit growth experienced throughout 2009.

-15-

The change in net interest income from 2008 to 2009 was attributable in part to the reduction in short-term interest rates that occurred in 2008 and have remained at historic low levels throughout 2009 coupled with a sustained steepening of the interest rate yield curve. Steps were taken during 2009 to improve the Corporation’s net interest margin by continuing to lower rates in concert with the decline in market benchmark rates. However, in light of the financial crisis, the Corporation experienced significant growth during 2009 in core savings deposits and CDARS Reciprocal deposits, as customers’ desire for safety and liquidity became paramount in light of the investment concerns. During the fourth quarter of 2009, a concerted effort was made to reduce non-core, single service deposits, and accordingly its uninvested cash position, which had an adverse impact on the Corporation’s net interest margin during 2009. However, during the twelve months ended December 31, 2009, the Corporation’s net interest spread improved by 21 basis points as a 52 basis point decrease in the average yield on interest-earning assets was more than offset by a 73 basis point decrease in the average interest rates paid on interest-bearing liabilities.

For the year ended December 31, 2009, average interest-earning assets increased by $102.4 million to $1.018 billion, as compared with the year ended December 31, 2008. The 2009 change in average interest-earning asset volume was primarily due to increased loan and investment volume, which is consistent with the balance sheet strategies of changing and improving the mix of average earning assets. Increased average loan volume in 2009 was funded primarily by deposit growth. Average interest-bearing liabilities increased by $193.9 million, due primarily to increases in core savings deposits and CDARS Reciprocal deposits.

For the year ended December 31, 2008, average interest-earning assets decreased by $8.8 million to $915.8 million, as compared with the year ended December 31, 2007. The 2008 change in average interest-earning asset volume was primarily due to decreased volumes of investment securities and lower short-term investments offset in part by increased loan volume.

The factors underlying the year-to-year changes in net interest income are reflected in the tables presented on pages 36 and 38 , each of which have been presented on a tax-equivalent basis (assuming a 34 percent tax rate). The table on page 38 (Average Statements of Condition with Interest and Average Rates) shows the Corporation’s consolidated average balance of assets, liabilities and stockholders’ equity, the amount of income produced from interest-earning assets and the amount of expense incurred from interest-bearing liabilities, and net interest income as a percentage of average interest-earning assets.

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Net Interest Margin

The following table quantifies the impact on net interest income (on a tax-equivalent basis) resulting from changes in average balances and average rates over the past three years. Any change in interest income or expense attributable to both changes in volume and changes in rate has been allocated in proportion to the relationship of the absolute dollar amount of change in each category.

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

	2009/2008 Increase (Decrease) Due to Change in:									2008/2007 Increase (Decrease) Due to Change in:
	Average Volume			Average Rate			Net Change			Average Volume			Average Rate			Net Change
	(Dollars in Thousands)
Interest-earning assets:
Investment securities:
Taxable	$	3,553		$	(1,355	)	$	2,198		$	(2,835	)	$	(364	)	$	(3,199	)
Non-Taxable		(2,463	)		86			(2,377	)		(1,577	)		(74	)		(1,651	)
Loans, net of unearned discount		3,864			(3,223	)		641			4,807			(2,224	)		2,583
Federal funds sold and securities purchased under agreements to resell		(56	)		(57	)		(113	)		(294	)		(197	)		(491	)
Restricted investment in bank stocks		25			24			49			145			(100	)		45
Total interest-earning assets		4,923			(4,525	)		398			246			(2,959	)		(2,713	)
Interest-bearing liabilities:
Money market deposits		(545	)		(1,298	)		(1,843	)		332			(3,431	)		(3,099	)
Savings deposits		1,017			483			1,500			(53	)		(14	)		(67	)
Time deposits		3,648			(3,050	)		598			(410	)		(2,170	)		(2,580	)
Other interest-bearing deposits		204			(1,438	)		(1,234	)		(1,039	)		(763	)		(1,802	)
Borrowings and subordinated debentures		(463	)		(8	)		(471	)		2,654			(1,641	)		1,013
Total interest-bearing liabilities		3,861			(5,311	)		(1,450	)		1,484			(8,019	)		(6,535	)
Change in net interest income	$	1,062		$	786		$	1,848		$	(1,238	)	$	5,060		$	3,822

Interest income on a fully tax-equivalent basis for the year ended December 31, 2009 increased by approximately $398,000 or 0.8 percent as compared with the year ended December 31, 2008. This increase was due primarily to an increase in balances of the Corporation’s loan and investment securities portfolios offset in part by a decline in rates due to the actions taken by the Federal Reserve to lower market interest rates. The Corporation’s loan portfolio increased on average $70.1 million to $692.6 million from $622.5 million in 2008, primarily driven by growth in commercial loans and commercial real estate.

The loan portfolio represented approximately 68.0 percent of the Corporation’s interest-earning assets (on average) during both 2009 and 2008. Average investment securities increased during 2009 by $36.0 million compared to 2008 as the Corporation has continued to reduce its concentration in tax-exempt securities and focused on purchases of lower risk-based mortgage backed securities. The average yield on interest-earning assets decreased from 5.59 percent in 2008 to 5.07 percent in 2009. The volume of Federal Funds sold and securities purchased under agreement to resell decreased by $4.0 million on average as compared with 2008.

The increase in the volume of loans in 2009 primarily reflected increases in commercial and commercial real estate loans. The increase in the average volume of total interest-earning assets created an increase in interest income of $4.9 million, as compared with a decline of $4.5 million attributable to rate decreases in most interest-earning assets.

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Interest income (fully tax-equivalent) decreased by $2.7 million from 2007 to 2008 primarily due to a decline in yield offset in part by an increase in loan volume. The decrease in average yield on total interest-earning assets created a $3.0 million reduction to interest income as compared with a contribution of $0.2 million attributable to volume increases, principally loans.

The Federal Open Market Committee (“FOMC”) kept the Federal Funds target rate at zero to 0.25 percent throughout 2009. This action by the FOMC allowed the Corporation to reduce liability costs throughout 2009.

Interest expense for the year ended December 31, 2009 was principally impacted by rate related factors. The rate related changes reflected decreased expense on most interest-bearing deposits and borrowings in 2009 coupled with a decline in average volume of money market deposits and borrowings during 2009. For the year ended December 31, 2009, interest expense decreased $1.5 million or 6.0 percent as compared with 2008. During 2009, the Corporation continued to lower rates in concert with the decline in market benchmark rates. The result was an improvement in the Corporation’s cost of funds and net interest spread. Average interest-bearing liabilities increased $193.9 million, primarily in CDARS Reciprocal deposits, our Max Plus savings product and in borrowings.

For the year ended December 31, 2008, interest expense decreased $6.5 million or 21.3 percent as compared with 2007. Total interest-bearing liabilities increased on average $15.4 million, primarily in money market deposits and in borrowings.

The Corporation’s net interest spread on a tax-equivalent basis (i.e., the average yield on average interest-earning assets, calculated on a tax equivalent basis, minus the average rate paid on interest-bearing liabilities) increased 21 basis points to 2.79 percent in 2009 from 2.58 percent for the year ended December 31, 2008. The increase in 2009 reflected an expansion of spreads between yields earned on loans and investments and rates paid for supporting funds. During 2009, spreads improved due in part to monetary policy maintained by the FOMC keeping the Federal funds rate at zero to 0.25 percent throughout 2009 coupled with a steepening of the yield curve that occurred during 2009.

The net interest spread increased 66 basis points in 2008 as compared with 2007, primarily as a result of an expansion of spreads between yields earned on loans and investments and rates paid for supporting funds. During 2008, spreads improved due in part to the monetary policy promulgated by the FOMC decreasing the target Federal funds rate 400 basis points from 4.25 percent at December 31, 2007 to 0.25 percent at December 31, 2008 coupled with a steepening of the yield curve during 2008.

The cost of total average interest-bearing liabilities decreased to 2.28 percent, a decrease of 73 basis points, for the year ended December 31, 2009, from 3.01 percent for the year ended December 31, 2008, which followed a decrease of 90 basis points from 3.91 percent for the year ended December 31, 2007.

The contribution of non-interest-bearing sources (i.e., the differential between the average rate paid on all sources of funds and the average rate paid on interest-bearing sources) decreased to 26 basis points, a decrease of 11 basis points from 2008 to 2009. Comparing 2008 and 2007, there was a decrease of 18 basis points to 37 basis points on average from 55 basis points on average during the year ended December 31, 2007.

The following table, “Average Statements of Condition with Interest and Average Rates”, presents for the years ended December 31, 2009, 2008 and 2007, the Corporation’s average assets, liabilities and stockholders’ equity. The Corporation’s net interest income, net interest spreads and net interest income as a percentage of interest-earning assets (net interest margin) are also reflected.

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AVERAGE STATEMENTS OF CONDITION WITH INTEREST AND AVERAGE RATES

	Years Ended December 31,
	2009									2008									2007
(Tax-Equivalent Basis)	Average Balance			Income/ Expense			Yield/ Rate			Average Balance			Income/ Expense			Yield/ Rate			Average Balance			Income/ Expense			Yield/ Rate
	(Dollars in Thousands)
ASSETS
Interest-earning assets:
Investment securities: (1)
Taxable	$	289,414		$	12,727			4.40	%	$	211,185		$	10,529			4.99	%	$	267,884		$	13,728			5.12	%
Non-taxable		25,677			1,499			5.84	%		67,890			3,876			5.71	%		95,501			5,527			5.79	%
Loans, net of unearned income: (2)		692,562			36,751			5.31	%		622,533			36,110			5.80	%		541,297			33,527			6.19	%
Federal funds sold and securities purchased under agreements to resell		—			—			—			4,047			113			2.79	%		12,050			604			5.01	%
Restricted investment in bank stocks		10,526			643			6.11	%		10,104			594			5.88	%		7,806			549			7.03	%
Total interest-earning assets		1,018,179			51,620			5.07	%		915,759			51,222			5.59	%		924,538			53,935			5.83	%
Non-interest-earning assets:
Cash and due from banks		128,156									16,063									18,586
Bank owned life insurance		24,941									22,627									21,801
Intangible assets		17,069									17,158									17,259
Other assets		42,980									37,602									34,547
Allowance for loan losses		(6,916	)								(5,681	)								(5,002	)
Total non-interest earning assets		206,230									87,769									87,191
Total assets	$	1,224,409								$	1,003,528								$	1,011,729
LIABILITIES & STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Money market deposits	$	123,427		$	1,635			1.32	%	$	150,373		$	3,478			2.31	%	$	142,805		$	6,577			4.61	%
Savings deposits		145,536			2,050			1.41	%		63,192			550			0.87	%		69,289			617			0.89	%
Time deposits		319,639			6,850			2.14	%		178,761			6,252			3.50	%		187,860			8,832			4.70	%
Other interest-bearing deposits		140,890			1,773			1.26	%		131,452			3,007			2.29	%		173,123			4,809			2.78	%
Short-term and long-term borrowings		258,607			10,146			3.92	%		270,390			10,501			3.88	%		205,681			9,384			4.56	%
Subordinated debentures		5,155			191			3.71	%		5,155			307			5.96	%		5,155			411			7.97	%
Total interest-bearing liabilities		993,254			22,645			2.28	%		799,323			24,095			3.01	%		783,913			30,630			3.91	%
Non-interest-bearing liabilities:
Demand deposits		124,966									114,400									127,107
Other non-interest-bearing deposits		333									368									385
Other liabilities		12,003									6,314									5,979
Total non-interest-bearing liabilities		137,302									121,082									133,471
Stockholders’ equity		93,853									83,123									94,345
Total liabilities and stockholders’ equity	$	1,224,409								$	1,003,528								$	1,011,729
Net interest income (tax-equivalent basis)					28,975									27,127									23,305
Net interest spread								2.79	%								2.58	%								1.92	%
Net interest income as percent of earning assets (margin)								2.85	%								2.96	%								2.52	%
Tax-equivalent adjustment (3)					(510	)								(1,328	)								(1,806	)
Net interest income				$	28,465								$	25,799								$	21,499

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

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

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

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Investment Portfolio

For the year ended December 31, 2009, the average volume of investment securities increased by $36.0 million to approximately $315.1 million or 30.9 percent of average earning assets, from $279.1 million on average, or 30.5 percent of average earning assets, in the comparable period in 2008. At December 31, 2009, the total investment portfolio amounted to $298.1 million, an increase of $55.4 million from December 31, 2008. The increase in the average volume of investment securities continues to maintain pace with the rise in the overall level of earning assets. With the strong deposit growth experienced during 2009 and large buildup of liquidity, the Corporation began to prudently expand the size of its investment portfolio in an effort to deploy excess cash into earning assets. At December 31, 2009, the principal components of the investment portfolio are U.S. Treasury and U.S. Government Agency Obligations, Federal Agency Obligations including mortgage-backed securities, Obligations of U.S. states and political subdivision, corporate bonds and notes, and other debt and equity securities.

The Corporation’s investment portfolio also consists of overnight investments that were made in the Reserve Primary Fund (the “Fund”), a money market fund registered with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940. On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation could be effected for the protection of the Fund’s investors. Through December 31, 2009, the Corporation received five distributions from the Fund, totaling approximately 92 percent of its outstanding balance, leaving a remaining outstanding balance in the Fund of $2.943 million. On January 29, 2010, as part of the court ordered liquidation of the Fund, the Corporation received a sixth distribution or $2.446 million, bringing total distributions to date to approximately 99 percent. During the fourth quarter of 2009, the Corporation recorded a $364,000, or approximately 1 percent, other-than-temporary impairment charge to earnings relating to this court ordered liquidation of the Fund. The Corporation’s outstanding carrying balance in the Fund as of January 31, 2010 totaled $133,000.

The volume related factors during the twelve month period ended December 31, 2009 increased investment revenue by $1.1 million, while rate related changes resulted in a decrease in revenue of $1.3 million from December 31, 2008. The tax-equivalent yield on investments decreased by 65 basis points to 4.51 percent from a yield of 5.16 percent during the year ended December 31, 2008. The reductions in the investment portfolio, primarily in the tax-exempt sector, were made to reduce exposure to these particular sectors of the portfolio while continuing to provide cash flow for loan funding and forecasted liability outflows. The yield on the portfolio declined compared to 2008 due primarily to sales as well as the impact that the lower interest rate environment had on higher yielding securities that had either matured, were prepaid, or were called. Improvement in yield has been limited by reinvesting opportunities. Cash flow from the securities was subsequently used primarily to help fund loan growth.

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

The Corporation owns two pooled trust preferred securities (“Pooled TRUPS”), which consists of securities issued by financial institutions and insurance companies and the Corporation holds the mezzanine tranche of such securities. Senior tranches generally are protected from defaults by over-collateralization and cash flow default protection provided by subordinated tranches, with senior tranches having the greatest protection and mezzanine tranches subordinated to the senior tranches. One of the Pooled TRUPS has incurred its third interruption of cash flow payments to date. Management reviewed the expected cash flow analysis and credit support to determine if it was probable that all principal and interest would be repaid, and recorded a $1.1 million other-than-temporary impairment charge for the three months ended December 31, 2009 and $2.5 million for the twelve months ended December 31, 2009, which represents 78.7 percent of the par amount of $3.1 million. The new cost basis for this security has been written down to $665,000. The other Pooled TRUP incurred its first interruption of cash flow payments in the fourth quarter of 2009. Management determined that an other-than-temporary impairment exists on this security as well and recorded a $1.0 million charge during the fourth quarter of 2009, which represents 32.3 percent of the par amount of $3.0 million. The new cost basis for this security has been written down to $2.0 million.

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The Corporation owns three variable rate private label collateralized mortgage obligations (CMOs), which were also evaluated for impairment. Management had applied aggressive default rates to identify if any credit impairment exists, as these bonds were downgraded to below investment grade. These bonds are currently paying with no interruption of cash flow. As such, management determined that an other-than-temporary impairment charge exists and recorded a $188,000 write down to the bonds, which represents 3.4 percent of the par amount of $5.6 million. The new cost basis for these securities has been written down to $5.4 million.

During 2009, the Corporation recorded $113,000 of other-than-temporary impairment charges relating to one equity holding in bank stocks. Due to the deterioration in that bank’s financial condition and that near term prospects in market value recovery appear remote, management determined that the expectation to recover its cost is not temporary. As such, this equity was written down to fair market value at the time of evaluation, which was December 31, 2009.

Securities available-for-sale are a part of the Corporation’s interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, liquidity management and other factors. The Corporation continues to reposition the investment portfolio as part of an overall corporate-wide strategy to produce reasonable and consistent margins where feasible, while attempting to limit risks inherent in the Corporation’s balance sheet.

At December 31, 2009, the net unrealized loss carried as a component of accumulated other comprehensive income and included in stockholders’ equity, net of tax, amounted to a net unrealized loss of $8.4 million as compared with a net unrealized loss of $6.5 million at December 31, 2008, resulting from changes in market conditions and interest rates at period-end December 31, 2009. As a result of the inactive condition of the markets amidst the financial crisis, the Corporation elected to treat certain securities under a permissible alternate valuation approach at December 31, 2009 and 2008. For additional information regarding the Corporation’s investment portfolio, see Note 4 and Note 18 of the Notes to the Consolidated Financial Statements.

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The following table illustrates the maturity distribution and weighted average yield on a tax-equivalent basis for investment securities at December 31, 2009, on a contractual maturity basis.

	U.S. Treasury & Agency Securities			Federal Agency Obligations			Obligations of U.S. States & Political Subdivisions			Other Debt and Equity Securities			Total
	(Dollars in Thousands)
Due in 1 year or less
Amortized Cost	$	150		$	—		$	979		$	723		$	1,852
Market Value		150			—			981			726			1,857
Weighted Average Yield		0.16	%		—			2.69	%		3.48	%		2.79	%
Due after one year through five years
Amortized Cost	$	—		$	—		$	4,103		$	3,000		$	7,103
Market Value		—			—			4,132			2,100			6,232
Weighted Average Yield		—			—			3.57	%		2.80	%		3.24	%
Due after five years through ten years
Amortized Cost	$	1,939		$	23,506		$	4,253		$	22,957		$	52,655
Market Value		1,939			23,226			4,255			21,930			51,350
Weighted Average Yield		3.72	%		3.13	%		3.89	%		4.70	%		3.90	%
Due after ten years
Amortized Cost	$	—		$	193,134		$	10,353		$	46,977		$	250,464
Market Value		—			191,359			9,913			37,413			238,685
Weighted Average Yield		—			4.06	%		4.10	%		4.57	%		4.16	%
Total
Amortized Cost	$	2,089		$	216,640		$	19,688		$	73,657		$	312,074
Market Value		2,089			214,585			19,281			62,169			298,124
Weighted Average Yield		3.46	%		3.96	%		3.87	%		4.53	%		4.08	%

For information regarding the carrying value of the investment portfolio, see Note 4 and Note 18 of the Notes to the Consolidated Financial Statements.

The securities listed in the table above are either rated investment grade by Moody’s and/or Standard and Poor’s or have shadow credit ratings from a credit agency supporting investment grade and conform to the Corporation’s investment policy guidelines. There were no municipal securities of any single issuer exceeding 10 percent of stockholders’ equity at the end of 2009.

Equity securities included in other debt and equity securities do not have a contractual maturity and are included in the Due after ten years maturity in the table above.

The following table sets forth the carrying value of the Corporation’s investment securities, as of December 31 for each of the last three years.

	2009		2008		2007
	(Dollars in Thousands)
Securities Available-for-Sale:
U.S. Treasury & Agency Securities	$	2,089	$	100	$	101
Federal Agency Obligations		214,585		82,797		108,991
Obligations of U.S. States and political subdivisions		19,281		52,094		83,337
Trust Preferred Securities		26,715		31,771		30,468
Other debt securities		29,921		59,362		83,478
Other equity securities		5,533		16,590		7,819
Total Investment Securities Available-for-Sale	$	298,124	$	242,714	$	314,194

For other information regarding the Corporation’s investment securities portfolio, see Note 4 and Note 18 of the Notes to the Consolidated Financial Statements.

-22-

Loan Portfolio

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

At December 31, 2009, total loans amounted to $719.6 million, an increase of 6.4 percent or $43.4 million as compared to December 31, 2008. The $0.6 million or 1.8 percent increase in interest income on loans for the twelve months ended December 31, 2009 was the result of the increase in volume during 2009, offset in part by a lower interest rate environment as compared with 2008. Even though the Corporation continues to be challenged with heightened competition for lending relationships that exists within its market, strong growth has been achieved through successful lending sales efforts to build on continued customer relationships while striving to maintain asset quality and underwriting standards. The FOMC decreased the target Federal Funds rate seven times during 2008 to zero to 0.25 percent and the target rate has remained at this level throughout 2009.

Total average loan volume increased $70.1 million or 11.2 percent in 2009, while the portfolio yield decreased by 49 basis points compared with 2008. The increased total average loan volume was due primarily to increased repeat customer activity and new lending relationships. The volume related factors during the period contributed increased revenue of $3.9 million, while the rate related changes decreased revenue by $3.2 million. Total average loan volume increased to $692.6 million with a net interest yield of 5.31 percent, compared to $622.5 million with a yield of 5.80 percent for the year ended December 31, 2008. The Corporation seeks to create growth in commercial lending by offering products and competitive pricing and by capitalizing on new and existing relationships in its market area. Products are offered to meet the financial requirements of the Corporation’s clients. It is the objective of the Corporation’s credit policies to diversify the commercial loan portfolio to limit concentrations in any single industry.

The following table presents information regarding the components of the Corporation’s loan portfolio on the dates indicated.

	December 31,
	2009 (Restated)		2008		2007		2006		2005
	(Dollars in Thousands)
Real estate – residential mortgage	$	191,199	$	240,885	$	266,251	$	269,486	$	261,028
Real estate – commercial mortgage		410,056		358,394		219,356		206,044		164,841
Commercial and industrial		117,912		75,415		65,493		74,179		79,006
Installment		439		1,509		569		705		951
Total loans		719,606		676,203		551,669		550,414		505,826
Less:
Allowance for loan losses		8,711		6,254		5,163		4,960		4,937
Net loans	$	710,895	$	669,949	$	546,506	$	545,454	$	500,889

Included in the loan balances above are net deferred loan costs of $391,000, $572,000 and $579,000 at December 31, 2009, 2008 and 2007, respectively.

Over the past five years, demand for the Bank’s commercial and commercial real estate loan products has increased.

The increase in commercial loans in 2009 was a result of the expansion of the Corporation’s customer base, aggressive business development and marketing programs coupled with positive market trends for the Corporation. While certain sectors of the markets, such as consumer real estate products, lagged as market conditions changed during most of 2008, the Corporation experienced an increase in its lending sales efforts during 2009 as it continued to benefit from the Corporation’s primary core customer base.

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Average commercial loans, which include commercial real estate and construction, increased to $476.1 million or by approximately $110.6 million or 30.1 percent in 2009 compared with 2008. The Corporation seeks to create growth in the commercial lending sector by offering competitive products and pricing and by capitalizing on new relationships in its market area. Over the last several years, the expansion of the Bank’s marketplace has aided in this growth. Products are offered to meet the financial requirements of the Corporation’s clients. It is an objective of the Corporation’s credit policies to diversify the commercial loan portfolio to limit concentrations in any single industry.

The Corporation’s commercial loan portfolio includes, in addition to real estate development, loans to manufacturing, automobile, professional and retail trade sectors, and to specialized borrowers, such as operators of private educational facilities, for example. A large proportion of the Corporation’s commercial loans have interest rates which reprice with changes in short-term market interest rates or mature in one year or less.

Average commercial real estate loans, which amounted to $269.3 million in 2009, increased $58.0 million or 27.5 percent as compared with average commercial real estate loans of $211.3 million in 2008 (which reflected a 54.5 percent increase over 2007). The Corporation’s long-term mortgage portfolio includes both residential and commercial financing. Growth during the past two years largely reflected brisk activity in new lending activity and mortgage financing. The interest rates on a portion of the Corporation’s commercial mortgages adjust to changes in indices such as the 5 and 10-year Treasury Notes, and the Federal Home Loan Bank of New York 5 and 10-year advance rate. Interest rate changes usually occur at each five-year anniversary of the loan.

The average volume of residential mortgage loans, including home equity loans, in 2009 declined $39.8 million or 15.6 percent as compared to 2008. During 2009, residential loan growth was affected by the slowdown in the housing market, brisk refinancing activity into fixed rate loans due principally to the current historic low rate environment and competition among lenders. Fixed rate residential and home equity loans have recently become a popular choice among homeowners, either through refinancing or new loans, as consumers wish to lock in historically low fixed rates.

Average construction loans and other temporary mortgage financing increased from 2008 to 2009 by $1.4 million to $49.4 million. The average volume of such loans decreased by $6.3 million from 2007 to 2008. The change in construction and other temporary mortgage lending in 2009 was generated by a slowdown in market activity of the Corporation’s customers, several of whom engage in residential and commercial development throughout New Jersey. Interest rates on such mortgages are generally tied to key short-term market interest rates. Funds are typically advanced to the builder or developer during various stages of construction and upon completion of the project. It is contemplated that the loans will be repaid by cash flows derived from sales within the project or, where appropriate, conversion to permanent financing.

Loans to individuals include personal loans, student loans, and home improvement loans, as well as financing for automobiles and other vehicles. Such loans averaged $773,000 in 2009, compared with $973,000 in 2008 and $881,000 million in 2007. The decrease in loans to individuals during 2009 was due in part to decreases in volumes of new personal loans (single-pay).

Home equity loans, inclusive of home equity lines, as well as traditional secondary mortgage loans, have become popular with consumers due to their tax advantages over other forms of consumer borrowing. Home equity loans and secondary mortgages averaged $82.2 million in 2009, a decrease of $27.4 million or 25.0 percent compared to an average of $109.6 million in 2008 and $111.4 million in 2007. Interest rates on floating rate home equity lines are generally tied to the prime rate while most other loans to individuals, including fixed rate home equity loans, are medium-term (ranging between one-to-ten years) and carry fixed interest rates. The decrease in home equity loans outstanding during 2009 was due in part to the recent slowdown in the housing market and lower consumer spending. Additionally, floating rate home equity lines and close-end fixed rate home equity loans became less attractive during 2009 as consumers took advantage of historically low interest rates or opted to take advantage of converting these loan balances into fixed rate loan products.

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At December 31, 2009, the Corporation had total loan commitments outstanding of $167.5 million, of which approximately 61.9 percent were for commercial loans, commercial real estate loans and construction loans.

The maturities of loans at December 31, 2009 are listed below.

	At December 31, 2009, Maturing
	In One Year or Less		After One Year through Five Years		After Five Years		Total
	(Restated, Dollars in Thousands)
Construction loans	$	30,071	$	14,028	$	7,000	$	51,099
Commercial real estate loans		47,241		168,302		143,414		358,957
Commercial loans		59,927		48,644		9,341		117,912
All other loans		42,013		24,488		125,137		191,638
Total loans	$	179,252	$	255,462	$	284,892	$	719,606
Loans with:
Fixed rates	$	47,258	$	98,739	$	258,834	$	404,831
Variable rates		131,994		156,723		26,058		314,775
Total loans	$	179,252	$	255,462	$	284,892	$	719,606

For additional information regarding loans, see Note 5 of the Notes to the Consolidated Financial Statements.

Allowance for Loan Losses and Related Provision

The purpose of the allowance for loan losses (“allowance”) is to absorb the impact of probable losses inherent in the loan portfolio. Additions to the allowance are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The allowance for loan losses is maintained at an amount considered adequate by management to provide for potential credit losses based upon a periodic evaluation of the risk characteristics of the loan portfolio. In establishing an appropriate allowance, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies and problem loans are considered. Such factors as the level and trend of interest rates, current economic conditions and peer group statistics are also reviewed. At year-end 2009, the level of the allowance was $8,711,000 as compared to a level of $6,254,000 at December 31, 2008. The Corporation made loan loss provisions of $4,597,000 in 2009 compared with $1,561,000 in 2008 and $350,000 in 2007. The level of the allowance during the respective annual periods of 2009 and 2008 reflects the change in average volume, credit quality within the loan portfolio, the level of charge-offs, loan volume recorded during the periods and the Corporation’s focus on the changing composition of the commercial and residential real estate loan portfolios.

At December 31, 2009, the allowance for loan losses amounted to 1.21 percent of total loans. In management’s view, the level of the allowance at December 31, 2009 is adequate to cover losses inherent in the loan portfolio. Management’s judgment regarding the adequacy of the allowance constitutes a “Forward Looking Statement” under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the allowance.

Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to increase the allowance based on their analysis of information available to them at the time of their examination. Furthermore, the majority of the Corporation’s loans are secured by real estate in the State of New Jersey. Future adjustments to the allowance may be necessary due to economic factors impacting New Jersey real estate and further deterioration of the economic climate as well as operating, regulatory and other conditions beyond the Corporation’s control. The allowance for loan losses as a percentage of total loans amounted to 1.21 percent, 0.92 percent and 0.94 percent at December 31, 2009, 2008 and 2007, respectively.

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Net charge-offs were $2,140,000 in 2009, $470,000 in 2008 and $147,000 in 2007. During 2009, the Corporation experienced an increase in charge-offs compared to 2008, principally related to charge-offs taken on four commercial and commercial real estate credits totaling $1.1 million, including a $900,000 charge-off in connection with a $5.1 million commercial real estate construction project of industrial warehouses, which was placed in non-accrual status during the first quarter of 2009 and which is the subject of the Highlands litigation described under Item 3 of this Annual Report. As previously disclosed, during the fourth quarter of 2009, the Corporation took steps to terminate a participation agreement with Highlands relating to this commercial real estate construction project, as the participation ended on December 31, 2009. Highlands objected to the Corporation’s interpretation of the agreement and subsequent actions. Accordingly, the Corporation filed suit for the return of the outstanding principal. The net amount of $4.2 million is included in the Company’s non-accrual loans balance as of December 31, 2009.

Five-Year Statistical Allowance for Loan Losses

The following table reflects the relationship of loan volume, the provision and allowance for loan losses and net charge-offs (recoveries) for the past five years.

	Years Ended December 31,
	2009 (Restated)			2008			2007			2006			2005
	(Dollars in Thousands)
Average loans outstanding	$	692,562		$	622,533		$	541,297		$	522,352		$	454,372
Total loans at end of period	$	719,606		$	676,203		$	551,669		$	550,414		$	505,826
Analysis of the Allowance for Loan Losses
Balance at the beginning of year	$	6,254		$	5,163		$	4,960		$	4,937		$	3,781
Charge-offs:
Commercial		2,122			50			45			—			49
Residential		4			414			80			—			—
Installment		26			35			31			79			33
Total charge-offs		2,152			499			156			79			82
Recoveries:
Commercial		2			10			2			19			—
Residential		4			—			—			—			—
Installment		6			19			7			26			28
Total recoveries		12			29			9			45			28
Net charge-offs		2,140			470			147			34			54
Addition of Red Oak Bank’s allowance		—			—			—			—			1,210
Provision for loan losses		4,597			1,561			350			57			—
Balance at end of year	$	8,711		$	6,254		$	5,163		$	4,960		$	4,937
Ratio of net charge-offs during the year to average loans outstanding during the year		0.31	%		0.08	%		0.03	%		0.01	%		0.01	%
Allowance for loan losses as a percentage of total loans at end of year		1.21	%		0.92	%		0.94	%		0.90	%		0.98	%

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Implicit in the lending function is the fact that loan losses will be experienced and that the risk of loss will vary with the type of loan being made, the creditworthiness of the borrower and prevailing economic conditions. The allowance for loan losses has been allocated in the table below according to the estimated amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within the following categories of loans at December 31, for each of the past five years.

The table below shows, for three types of loans, the amounts of the allowance allocable to such loans and the percentage of such loans to total loans.

	Commercial				Residential Mortgage			Installment				Unallocated
	Amount of Allowance		Loans to Total Loans %		Amount of Allowance		Loans to Total Loans %	Amount of Allowance		Loans to Total Loans %		Amount of Allowance		Total
	(Dollars in Thousands)
2009 (Restated)	$	7,314		73.3	$	1,242	25.6	$	56		0.1	$	99	$	8,711
2008		5,473		64.2		651	35.6		60		0.2		70		6,254
2007		4,167		51.6		727	48.3		49		0.1		220		5,163
2006		3,972		50.9		707	49.0		45		0.1		236		4,960
2005		3,453		48.2		594	51.6		55		0.2		835		4,937

Asset Quality

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

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

Non-Performing Assets and Troubled Debt Restructured Loans

Non-performing loans include non-accrual loans and accruing loans which are contractually past due 90 days or more. Non-accrual loans represent loans on which interest accruals have been suspended. It is the Corporation’s general policy to consider the charge-off of loans when they become contractually past due 90 days or more as to interest or principal payments or when other internal or external factors indicate that collection of principal or interest is doubtful. Non-performing assets include non-performing loans and other real estate owned.

Troubled debt restructured loans represent loans on which a concession was granted to a borrower, such as a reduction in interest rate which is lower than the current market rate for new debt with similar risks, and which are currently performing in accordance with the modified terms.  The Corporation previously reported performing troubled debt restructured loans as a component of non-performing assets.

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The following tables set forth, as of the dates indicated, the amount of the Corporation’s non-accrual loans, accruing loans past due 90 days or more, other real estate owned (“OREO”) and troubled debt restructured loans. The “Restated” table reflects (i) the change in presentation of non-performing assets and troubled debt restructured loans for all dates indicated; and (ii) the restatement of the non-accrual loans amount from what was previously reported at December 31, 2009.

(Restated:)	At December 31,
	2009		2008		2007		2006		2005
	(Dollars in Thousands)
Non-accrual loans	$	11,245	$	541	$	3,907	$	475	$	387
Accruing loans past due 90 days or more		39		139		—		225		179
Total non-performing loans		11,284		680		3,907		700		566
OREO		—		3,949		501		—		—
Total non-performing assets	$	11,284	$	4,629	$	4,408	$	700	$	566
Troubled debt restructured loans	$	966	$	93	$	—	$	—	$	—

(As previously reported:)	At December 31,
	2009		2008		2007		2006		2005
	(Dollars in Thousands)
Non-accrual loans	$	7,092	$	541	$	3,907	$	475	$	387
Accruing loans past due 90 days or more		39		139		—		225		179
Troubled debt restructuring		966		93		—		—		—
Total non-performing loans		8,097		773		3,907		700		566
OREO		—		3,949		501		—		—
Total non-performing assets	$	8,097	$	4,722	$	4,408	$	700	$	566

The increase in non-accrual loans of $10.7 million in 2009 from 2008 was primarily attributable to the addition of four large commercial credits. In March of 2009, one commercial real estate construction project of industrial warehouses was downgraded to non-accrual status. The loan was a participation loan with another New Jersey bank. In December of 2009, the Corporation took steps to terminate this participation agreement, as the participation ended on December 31, 2009. The Corporation filed suit for the return of the outstanding principal. The $966,000 carried as troubled debt restructured loans at December 31, 2009 represents the total modified amount required to be paid by two different one-to-four family residential developers and four one-to-four family residential mortgage homeowners. The repayment terms were restructured to meet each borrower’s financial circumstances. These loans are secured by real estate located in New Jersey.

The components of accruing loans which are contractually past due 90 days or more as to principal or interest payments are as follows:

	December 31,
	2009		2008		2007		2006		2005
	(Dollars in Thousands)
Commercial	$	—	$	—	$	—	$	225	$	179
Residential		39		139		—		—		—
Installment		—		—		—		—		—
Total accruing loans 90 days or more past due	$	39	$	139	$	—	$	225	$	179

Other known “potential problem loans” (as defined by SEC regulations) as of December 31, 2009 have been identified and internally risk rated as assets especially mentioned or substandard. Such loans amounted to $20,048,000, $9,401,000 and $5,776,000 at December 31, 2009, 2008 and 2007, respectively. The increase at December 31, 2009 reflects continued deterioration in the quality of certain loans. The risk rating of assets is a dynamic environment wherein through on-going examination certain assets may be downgraded or upgraded as circumstances warrant. The Corporation’s construction portfolio experienced a decline in potential problem loans from December 31, 2008 to December 31, 2009 as the addition of one new relationship of $3.6 million was offset by the removal of another relationship amounting to $4.7 million. The Corporation’s commercial portfolio experienced an increase in potential problem loans with the addition of six lending relationships while shedding two for a net increase of $12.7 million in this segment. This increase was mitigated somewhat by principal payments made on many of these accounts. All such loans are currently performing. The Corporation has no foreign loans.

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During the first quarter of 2010, the Corporation reevaluated several loans which resulted in the downgrade of two lending relationships totaling $4.8 million into risk rating categories associated with “potential problem loans” that had not previously been characterized as such by the Corporation. Further, $725,000 was placed on non-accrual status.

At December 31, 2009, other than the loans set forth above, the Corporation is not aware of any loans which present serious doubts as to the ability of its borrowers to comply with present loan repayment terms and which are expected to fall into one of the categories set forth in the tables or description above.

At December 31, 2009, the Corporation had no OREO, as compared with approximately $3.9 million at December 31, 2008 and approximately $501,000 at December 31, 2007. The decrease in the OREO balance from December 31, 2008 represented a write down of the carrying value and the subsequent sale of a residential condominium project during the third quarter of 2009.

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

With respect to concentrations of credit within the Corporation’s loan portfolio at December 31, 2009, $22.6 million of the commercial loan portfolio or 4.3 percent of $528.0 million, represented outstanding working capital loans to various real estate developers. All but $8.0 million of these loans are secured by mortgages on land and on buildings under construction.

For additional information regarding risk elements in the Corporation’s loan portfolio, see Note 5 of the Notes to Consolidated Financial Statements.

Other Income

The following table presents the principal categories of non-interest income for each of the years in the three-year period ended December 31, 2009.

	Years Ended December 31,
	2009		2008			Percentage Change			2008			2007		Percentage Change
	(Dollars in Thousands)
Service charges, commissions and fees	$	1,835	$	2,015			(8.93	)%	$	2,015		$	1,824		10.47	%
Annuity & insurance commissions		126		112			12.50			112			298		(62.42	)
Bank-owned life insurance		1,156		1,203			(3.91	)		1,203			893		34.71
Net securities gains (losses)		491		(1,106	)		144.39			(1,106	)		900		(222.89	)
Other		298		420			(29.05	)		420			457		(8.10	)
Total other income	$	3,906	$	2,644			47.73	%	$	2,644		$	4,372		(39.52	)%

For the year ended December 31, 2009, total other income increased $1.3 million compared to 2008, primarily as a result of net securities gains compared to net securities losses in 2008. Excluding net securities gains and losses in the respective periods, the Corporation recorded other income of $3.4 million in the year ended December 31, 2009, compared to $3.8 million in 2008, a decrease of 8.9 percent. This decrease was primarily attributable to a $180,000 decrease in service charges, commissions and fees as well as lower other income, resulting primarily from lower letters of credit fee income and title insurance income. Additionally, in 2009 and 2008, the Corporation recognized $136,000 and $230,000, respectively, in tax-free proceeds in excess of contract value on the Corporation’s bank-owned life insurance due to the death of insured participants.

During 2009, the Corporation recorded net securities gains of $491,000 compared to net securities losses of $1.1 million in 2008 and net gains of $900,000 recorded in 2007. In 2009, total other-than-temporary impairment charges of $4.2 million were more than offset by net gains on securities sold of $4.7 million. These impairment charges consisted of $3.4 million relating to two pooled trust preferred securities, $364,000 relating to the Corporation’s investment in the Reserve Primary Fund, $188,000 relating to three variable rate private label CMOs, a $140,000 charge relating to the Corporation’s Lehman Brothers bond and a $113,000 write down relating to one equity holding in bank stocks. In 2008, total other-than-temporary impairment charges of $1.8 million were partially offset by net gains on securities sold of $655,000. During 2008, the Corporation recorded a $1.3 million other-than-temporary impairment charge related to its Lehman Brothers corporate bond and $461,000 of write downs related to three equity holdings in bank stocks. In 2009, the sales of securities were made in the normal course of business and proceeds were primarily reinvested into the loan and investment portfolios. In 2008 and 2007, the sales of securities were made in the normal course of business and proceeds were primarily reinvested into the loan portfolio.

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Other Expense

Total other expense includes salaries and employee benefits, net occupancy expense, premises and equipment expense, professional and consulting expense, stationery and printing expense, marketing and advertising expense, computer expense and other operating expense. Other operating expense includes such expenses as telephone, insurance, audit, bank correspondent fees and the amortization of core deposit intangibles.

The following table presents the principal categories of other expense for each of the years in the three-year period ended December 31, 2009.

	Year Ended December 31,
	2009		2008		Percentage Change			2008		2007		Percentage Change
	(Dollars in Thousands)
Salaries and employee benefits	$	9,915	$	8,505		16.58	%	$	8,505	$	11,436		(25.63	)%
Occupancy, net		2,536		3,279		(22.66	)		3,279		2,843		15.34
Premises and equipment		1,263		1,436		(12.05	)		1,436		1,777		(19.19	)
FDIC Insurance		2,055		217		847.00			217		86		152.33
Professional and consulting		811		703		15.36			703		2,139		(67.13	)
Stationery and printing		339		397		(14.61	)		397		465		(14.62	)
Marketing and advertising		366		637		(42.54	)		637		603		5.64
Computer expense		964		834		15.59			834		614		35.83
OREO Expense, net		1,438		31		4538.71			31		110		(71.82	)
Other		3,370		3,434		(1.86	)		3,434		4,525		(24.11	)
Total other expense	$	23,057	$	19,473		18.40	%	$	19,473	$	24,598		(20.84	)%

Total other expense increased $3.6 million, or 18.4 percent, in 2009 from 2008 as compared with a decrease of $5.1 million, or 20.8 percent, from 2007 to 2008. The level of operating expenses during 2009 increased in three major expense categories, with the largest increases occurring in FDIC insurance, up $1.8 million, OREO expenses, up $1.4 million and salaries and employee benefits, up $1.4 million. Total other expense decreased in 2008 from 2007 across several expense categories, with the largest decrease occurring in salaries and benefit expense.

On October 25, 2007, the Corporation announced that the Boards of Directors of the Corporation and Beacon Trust Company mutually agreed to terminate their Agreement and Plan of Merger dated as of March 15, 2007. Concurrently, the parties agreed to a dismissal of litigation commenced by Beacon Trust Company in October 2007 to compel consummation of the merger. During the fourth quarter of 2007, the Corporation recognized merger-related expenses, reflecting the cost of the transaction from the outset of negotiations, in an amount of approximately $600,000.

Prudent management of operating expenses has and will continue to be a key objective of management in an effort to improve earnings performance. The Corporation’s ratio of other expenses to average assets decreased to 1.88 percent in 2009 compared to 1.94 percent in 2008 and 2.43 percent in 2007.

Salaries and employee benefits increased $1.4 million or 16.6 percent in 2009 compared to 2008 and decreased $2.9 million or 25.6 percent from 2007 to 2008. The increase in 2009 was primarily attributable to a $755,000 benefit recognized in 2008 relating to the termination of two benefit plans. During the third quarter of 2008, the Corporation recognized a $272,000 benefit relating to the lump-sum payment and termination of the directors retirement plan. During the fourth quarter of 2008, the Corporation recognized a $483,000 benefit relating to a lump-sum payment and termination of a benefit equalization plan. These benefits represented the difference between the actuarial present value of the lump-sum payment and the accrued liability previously recorded on the Corporation’s statement of condition. Additionally, pension plan expense increased $514,000 in 2009 from 2008 due to both lower asset valuations and a lower expected rate of return on the Corporation’s defined pension plan, which was frozen back in 2007. On August 9, 2007, the Corporation announced that as part of its ongoing effort to reduce operating expense, it had frozen its defined benefit pension plan and that it redesigned its 401(k) savings plan, effective September 30, 2007. The changes were consistent with cost reduction strategies and a shift in the focus of future savings of retirement benefits toward the more predictable cost structure of a 401(k) plan and away from the legacy costs of a defined benefit pension plan. The changes included stopping the accrual of future benefits in the Corporation’s defined benefit pension plan, and fully preserving all retirement benefits that employees have earned as of September 30, 2007; and redesigning the Corporation’s 401(k) plan by granting current pension plan participants an annual company-funded matching contribution of as much as 6 percent of their pay, which is an increase from the existing 3 percent match. As a result, the Corporation recorded a one-time pre-tax benefit related to these pension plan changes of approximately $1.2 million in the third quarter of 2007, reflecting the curtailment of the defined benefit plan. For the twelve months ended December 31, 2007, the plan changes resulted in retirement-related expense savings of $1.2 million.

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Salaries and employee benefits accounted for 43.0 percent of total non-interest expense in 2009, as compared to 43.7 percent and 46.5 percent in 2008 and 2007, respectively.

In 2009, the Corporation announced a strategic outsourcing agreement with Fiserv to provide core account processing services, which is consistent with the Corporation’s other strategic initiatives to streamline operations, reduce operating overhead and allow the Corporation to focus on core competencies of customer service and product development. The core processing transition was consummated during the fourth quarter of 2009. In 2008, the Corporation announced a series of strategic outsourcing agreements to aid in the realization of its goal to reduce operating overhead and shrink the infrastructure of the Corporation. The cost reduction plans resulted in the reduction of workforce by 12 staff positions, which in turn resulted in a one-time pre-tax charge of $145,000 in the second quarter of 2008 for severance and termination benefits. In March 2007, the Corporation reduced its overall staffing level by approximately 10 percent through attrition, layoffs and voluntary resignations, and took a one-time, pre-tax charge of approximately $140,000 in the first quarter of 2007 and $1.6 million in the third quarter of 2007 related to termination benefits.

Occupancy and premises and equipment expense for the year ended December 31, 2009 decreased $916,000, or 19.4 percent, from 2008. The decrease in occupancy and premises and equipment expense in 2009 was due primarily to lower operating costs (utilities, rent, real estate taxes, general repair and maintenance) of the Corporation’s facilities, due in part to branch closures and consolidations coupled with a $200,000 charge taken during the fourth quarter of 2008 relating to the termination of the Corporation’s lease obligation to build a branch in Cranford, New Jersey. The increase in such expenses of $95,000, or 2.1 percent, in 2008 over 2007 was primarily attributable to the $200,000 lease termination charge.

In May 2009, the FDIC adopted a final special assessment rule that assessed the banking industry 5 basis points on total assets less Tier I capital. The Corporation was required to accrue the charge during the second quarter of 2009, which amounted to approximately $630,000, even though the FDIC collected the fee at the end of the third quarter when the regular quarterly assessments for the second were collected. Additionally, in December 2008, the FDIC adopted a final rule increasing the risk-based assessment rates beginning in the first quarter of 2009. As a result of these changes coupled with the one-time assessment credits recognized in 2008, FDIC insurance expense increased $1.8 million for 2009 compared to 2008.

Professional and consulting expense for 2009 increased $108,000 due to higher legal costs in 2009, principally related to the rights offering capital raise and the TARP Capital Purchase Program. Expenses decreased in 2008 from 2007 primarily due to $960,000 of professional and consulting expenses in 2007 associated with the termination of the Beacon Trust acquisition coupled with the 2007 annual meeting and proxy contest.

Stationery and printing expenses for 2009 decreased $58,000, or 14.6 percent, compared to 2008, due primarily to better cost containment measures relating to stationery and printing materials. The decrease in such expenses of $68,000 or 14.6 percent in 2008 from 2007 reflected improved cost containment in the purchasing of supplies.

Marketing and advertising expenses for the year ended December 31, 2009 decreased $271,000, or 42.5 percent, from the comparable twelve-month period in 2008. The decrease in 2009 compared with 2008 was primarily due to reduced spending in media and advertising. These expenses increased $34,000 or 5.6 percent in 2008 compared with 2007.

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Computer expense increased $130,000 during 2009 compared to 2008 and increased $220,000 in 2008 compared to 2007, due primarily to fees paid to the Corporation’s outsourced information technology service provider. This previously announced strategic outsourcing agreement has significantly improved operating efficiencies and reduced overhead, primarily in salaries and benefits.

OREO expense for 2009 increased by $1.4 million over 2008 due primarily to the recognition of a $926,000 write down coupled with the continued build out costs relating to the residential real estate condominium project in Union County, New Jersey. The Corporation sold the project during the third quarter of 2009.

Other expense decreased in 2009 by approximately $64,000 or 1.9 percent compared to 2008. Other expense decreased in 2008 by $1.1 million, or 24.1 percent, compared to 2007. This decrease in 2008 was primarily due to the charge-off of the Beacon Trust transaction in 2007. Amortization of core deposit intangibles accounted for $82,000 and $94,000 of other expense for the years 2009 and 2008, respectively.

Provision for Income Taxes

The Corporation recorded income tax expense of $946,000 in 2009 compared to $1.6 million in 2008 and a tax benefit of $2.9 million in 2007. The recorded tax benefits in 2007 resulted largely from a change in the Corporation’s business entity structure, which led to the recognition of a $1.3 million tax benefit in 2007 and a $1.4 million tax benefit in 2006. These tax benefits were attributable to a plan of liquidation adopted by the Corporation for its REIT subsidiary, which was completed on November 30, 2007. As a result of the further liquidation of certain other subsidiaries relating to the business entity restructuring, the Corporation began to provide for income tax expense in 2008. The effective tax rates for the Corporation for the years ended December 31, 2009, 2008 and 2007 were 20.1 percent, 21.1 percent and (317.8) percent, respectively. The Corporation adjusts its expected annual tax rate on a quarterly basis based on the current projections of non-deductible expenses, tax-exempt interest income, increase in the cash surrender value of bank owned life insurance and pre-tax net earnings.

Tax-exempt interest income on a fully tax equivalent basis decreased by $2.4 million, or 61.3 percent, from 2008 to 2009, and decreased by $1.7 million, or 29.9 percent, from 2007 to 2008. The Corporation recorded income related to the cash surrender value of bank-owned life insurance as a component of other income in the amount of $1,156,000, $1,203,000 and $893,000 for 2009, 2008 and 2007, respectively.

Recent Accounting Pronouncements

Note 2 of the Notes to Consolidated Financial Statements discusses new accounting policies recently issued or proposed but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable sections of the financial review and notes to the consolidated financial statements.

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

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

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

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

• FASB ASC 825-10-65 (previously SFAS 107 and APB 28-1, “Interim Disclosure about Fair Value of Financial Instruments”).

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

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

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

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

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

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

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

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

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

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

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

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

Asset and Liability Management

Asset and liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing At December 31, 2009, thmaintenance and planning of liquidity and capital. The composition of the Corporation’s statement of condition is planned and monitored by the Asset and Liability Committee (“ALCO”). In general, management’s objective is to optimize net interest income and minimize market risk and interest rate risk by monitoring these components of the statement of condition.

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

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

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

At December 31, 2009, the Corporation reflected a positive interest sensitivity gap (or an interest sensitivity ratio of 1.10:1.00) at the cumulative one-year position. Based on management’s perception that interest rates will continue to be volatile, projected increased levels of prepayments on the earning asset portfolio and the current level of interest rates, emphasis has been, and is expected to continue to be, placed on interest-sensitivity matching with the objective of continuing to stabilize the net interest spread and margin during 2010. However, no assurance can be given that this objective will be met.

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The following table depicts the Corporation’s interest rate sensitivity position at December 31, 2009:

	Expected Maturity/Principal Repayment at December 31,
	Average Interest Rate			2010			2011			2012			2013			2014				2015 and Thereafter			Total Balance			Estimated Fair Value
	(Dollars in Thousands)
Interest-Earning Assets:
Loans, net		5.30	%	$	345,130		$	90,254		$	74,772		$	90,302		$	54,959			$	55,478		$	710,895		$	717,191
Investments		4.10	%		54,407			40,772			37,460			20,014			14,566				130,905			298,124			298,124
Total interest-earning assets				$	399,537		$	131,026		$	112,232		$	110,316		$	69,525			$	186.383		$	1.009.019		$	1,015,315
Interest-Bearing Liabilities:
Time certificates of deposit of $100 or greater		1.38	%	$	141,827		$	2,119		$	753		$	103		$	—			$	—		$	144,802		$	145,219
Time certificates of deposit of less than $100		1.75	%		69,688			6,836			3,391			258			—				—			80,173			80,543
Other interest-bearing deposits		0.84	%		60,770			60,770			68,842			59,256			100,302				108,272			458,212			458,212
Subordinated debentures		3.23	%		5,155			—			—			—			—				—			5,155			5,155
Securities sold under agreements to repurchase and Fed Funds Purchased		3.35	%		46,109			12,000			—			—			—				41,000			99,109			101,555
Term borrowings		4.09	%		40,144			10,000			—			5,000			—				115,000			170,144			177,664
Total interest-bearing liabilities				$	363,693		$	91,725		$	72,986		$	64,617		$	100,302			$	264,272		$	957,595		$	968,348
Cumulative interest-earning assets				$	399,537		$	530,563		$	642,795		$	753,111		$	822,636		$		1,009,019		$	1,009,019
Cumulative interest-bearing liabilities					363,693			455,418			528,404			593,021			693,323				957,595			957,595
Rate sensitivity gap					35,844			39,301			39,246			45,700			(30,777	)			(77,889	)		51,424
Cumulative rate sensitivity gap					35,844			75,145			114,391			160,091			129,314				51,424			51,424
Cumulative gap ratio					1.10	%		1.17	%		1.22	%		1.27	%		1.19	%			1.05	%		1.05	%

Estimates of Fair Value

The estimation of fair value is significant to a number of the Corporation’s assets, including loans held for sale, and available-for-sale investment securities. These are all recorded at either fair value or the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, expected cash flows, credit quality, discount rates, or market interest rates. Fair values for most available for sale investment securities are based on quoted market prices. If quoted market prices are not available, fair values are based on judgments regarding future expected loss experience, current economic condition risk characteristics of various financial instruments, and other factors. See Note 18 of the Notes to Consolidated Financial Statements for additional discussion.

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

Impact of Inflation and Changing Prices

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

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Liquidity

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

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

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

Liquidity is measured and monitored for the Corporation’s bank subsidiary, Union Center National Bank (the “Bank”). The Corporation reviews its net short-term mismatch. This measures the ability of the Corporation to meet obligations should access to Bank dividends be constrained. At December 31, 2009, the Parent Corporation had $3.2 million in cash and short-term investments compared to $2.2 million at December 31, 2008. Expenses at the Parent Corporation are moderate and management believes that the Parent Corporation has adequate liquidity to fund its obligations.

Certain provisions of long-term debt agreements, primarily subordinated debt, prevent the Corporation from creating liens on, disposing of or issuing voting stock of subsidiaries. As of December 31, 2009, the Corporation was in compliance with all covenants and provisions of these agreements.

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

Based on anticipated cash flows at December 31, 2009 projected to December 31, 2010, the Corporation believes that the Bank’s liquidity should remain strong, with an approximate projection of $367.1 million in anticipated cash flows over the next twelve months. This projection represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from this projection depending upon a number of factors, including the liquidity needs of the Bank’s customers, the availability of sources of liquidity and general economic conditions.

On September 30, 2009, the FDIC proposed a rule that required insured institutions to prepay their estimated quarterly assessments through December 31, 2012 to strengthen the cash position of the Deposit Insurance Fund. The cash prepayment was made on December 30, 2009 and amounted to approximately $5.7 million, which included the 2009 fourth quarter assessment. The prepayment did not have a significant impact on the Corporation’s future cash position or operations.

Deposits

Total deposits increased to $813.7 million on December 31, 2009 from $659.5 million at December 31, 2008, an increase of $154.2 million, or 23.4 percent.

Total non interest-bearing deposits increased from $113.3 million at December 31, 2008 to $130.5 million at December 31, 2009, an increase of $17.2 million or 15.2 percent. Time, savings and interest-bearing transaction accounts increased from $546.2 million on December 31, 2008 to $683.2 million at December 31, 2009, an increase of $137.0 million or 25.1 percent. The increase in deposits was reflective of customers’ desire for safety and liquidity and flight to quality in light of the financial crisis.

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Certificates of deposit $100,000 and over increased to 17.8 percent of total deposits at December 31, 2009 from 15.2 percent one year earlier. With the current turmoil in the financial markets, some of the Corporation’s depositors have become sensitive to obtaining full FDIC insurance for their time deposits. To accommodate its customers, the Corporation began offering Certificates of Deposit Account Registry Service (CDARS) in 2008. As a result of this offering and the temporary increase in insurance coverage by the FDIC to $250,000, the Corporation reported an increase of $44.3 million in certificates of deposit greater than $100,000 at December 31, 2009 compared to year-end 2008.

At December 31, 2009, the Corporation had a total of $111.3 million with a weighted average rate of 1.24 percent in CDARS Reciprocal deposits compared to $87.9 million with a weighted average rate of 2.52 percent at December 31, 2008. Based on the Bank’s participation in Promontory Interfinancial Network, LLC, customers who are FDIC insurance sensitive are able to place large dollar deposits with the Corporation and the Corporation uses CDARS to place those funds into certificates of deposit issued by other banks in the Network. This occurs in increments of less than the FDIC insurance limits so that both the principal and interest are eligible for complete FDIC protection. The FDIC currently considers these funds as brokered deposits. All brokered deposits are classified in time deposits. It became apparent during the latter half of 2008 that customers’ preference in seeking safety and more liquidity became paramount in light of the financial crisis, as customers sought full FDIC insured bank products as a safe haven.

The Corporation derives a significant proportion of its liquidity from its core deposit base. For the year ended December 31, 2009, core deposits, comprised of total demand deposits, savings and money market accounts, decreased by $166.4 million or 38.7 percent from December 31, 2008 to $596.7 million. At December 31, 2009, core deposits were 73.3 percent of total deposits compared to 66.6 percent at year-end 2008. Alternatively, the Corporation uses a more stringent calculation for the management of its liquidity positions internally which consists of total demand and savings accounts (excluding money market accounts greater than $100,000) and excludes time deposits as part of core deposits as a percentage of total deposits. This number represented 46.6 percent of total deposits at December 31, 2009 as compared with 53.0 percent at December 31, 2008. The Corporation expects its deposit gathering efforts to remain strong, supported in part by the recent actions by the FDIC in temporarily raising the deposit insurance limits. The Corporation is a participant in the FDIC’s Transaction Account Guarantee Program. Under this program, all non-interest bearing deposit transaction accounts are fully guaranteed by the FDIC, regardless of dollar amount, through June 30, 2010.

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

	December 31,
	2009					2008
	Amount		Percentage			Amount		Percentage		Net Change Volume 2009 vs. 2008
	(Dollars in Thousands)
Demand Deposits	$	130,518		34.4	%	$	113,319	32.4	%	$	17,199
Interest-Bearing Demand		156,738		41.3			139,349	39.9			17,389
Regular Savings		58,240		15.4			56,431	16.1			1,809
Money Market Deposits under $100		33,795		8.9			40,419	11.6			(6,624	)
Total core deposits	$	379,291		100.0	%	$	349,518	100.0	%	$	29,773
Total deposits	$	813,705				$	659,537			$	154,168
Core deposits to total deposits				46.61	%			52.99	%

Short-Term Borrowings

Short-term borrowings can be used to satisfy daily funding needs. Balances in those accounts fluctuate on a day-to-day basis. The Corporation’s principal short-term funding sources are Federal Funds purchased and securities sold under agreements to repurchase. Short-term borrowings, including Federal Funds purchased and securities sold under agreements to repurchase, amounted to $46.1 million at year-end 2009, an increase of $966,000 or 2.1 percent from year-end 2008.

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The following table is a summary of short-term securities sold under repurchase agreements for each of the last three years.

	December 31,
	2009			2008			2007
	(Dollars in Thousands)
Short-term securities sold under repurchase agreements:
Average interest rate:
At year end		0.97	%		1.98	%		3.85	%
For the year		1.38	%		2.39	%		3.60	%
Average amount outstanding during the year	$	35,392		$	43,973		$	33,683
Maximum amount outstanding at any month end	$	58,515		$	52,992		$	48,541
Amount outstanding at year end	$	46,109		$	30,143		$	48,541

Long-Term Borrowings

Long-term borrowings consist of Federal Home Loan Bank of New York (“FHLB”) advances and securities sold under agreements to repurchase that have contractual maturities over one year. Long-term borrowings amounted to $223.1 million at December 31, 2009, a decrease of $153,000 from year-end 2008.

Cash Flows

The consolidated statements of cash flows present the changes in cash and cash equivalents from operating, investing and financing activities. During 2009, cash and cash equivalents (which increased overall by $74.1 million) were provided on a net basis by operating activities and financing activities and used on a net basis by investing activities. Cash flows from financing activities, primarily due to a net increase in deposits, were partially offset by an increase in financing activities, primarily resulting from an increase in securities and loans.

During 2008, cash and cash equivalents (which decreased overall by $55.0 million) were used on a net basis by operating activities and investing activities and provided on a net basis by financing activities. Cash flows from investing activities, primarily due to a net decrease in securities, were partially offset by an increase in financing activities, primarily resulting from an increase in borrowings.

During 2007, cash and cash equivalents (which increased overall by $25.7 million) were provided on a net basis by operating and investing activities and used on a net basis by financing activities. Cash flows from investing activities, primarily due to a net decrease in securities, were partially offset by a decrease in financing activities, primarily resulting from a reduction in deposits, as well as funding dividends paid and the purchase of treasury stock.

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Contractual Obligations and Other Commitments

The following table summarizes contractual obligations at December 31, 2009 and the effect such obligations are expected to have on liquidity and cash flows in future periods.

	Total		Less Than 1 Year		1 – 3 Years		4 – 5 Years		After 5 Years
	(Dollars in Thousands)
Contractual Obligations
Operating lease obligations	$	7,714	$	592	$	1,232	$	1,033	$	4,857
Total contracted cost obligations	$	7,714	$	592	$	1,232	$	1,033	$	4,857
Other Long-term Liabilities/Long-term Debt
Time Deposits	$	224,974	$	213,400	$	11,213	$	361	$	—
Federal Home Loan Bank advances and repurchase agreements		269,253		86,253		22,000		5,000		156,000
Subordinated debentures		5,155		5,155		—		—		—
Total Other Long-term Liabilities/Long-term Debt	$	499,382	$	304,808	$	33,213	$	5,361	$	156,000
Other Commercial Commitments – Off Balance Sheet
Commitments under commercial loans and lines of credit	$	70,076	$	70,076	$	—	$	—	$	—
Home equity and other revolving lines of credit		54,572		54,572		—		—		—
Outstanding commercial mortgage loan commitments		33,659		20,596		13,063		—		—
Standby letters of credit		1,676		1,676		—		—		—
Performance letters of credit		11,466		11,466		—		—		—
Outstanding residential mortgage loan commitments		4,153		4,153		—		—		—
Overdraft protection lines		5,058		5,058		—		—		—
Other consumer		11		11		—		—		—
Total off balance sheet arrangements and contractual obligations	$	180,671	$	167,608	$	13,063	$	—	$	—
Total contractual obligations and other commitments	$	687,767	$	473,008	$	47,508	$	6,394	$	160,857

Stockholders’ Equity

Stockholders’ equity amounted to $101.7million at December 31, 2009, an increase of $20.0 million or 24.5 percent, compared to year-end 2008. At December 31, 2008, stockholders’ equity totaled $81.7 million, a decrease of $3.6 million from December 31, 2007.

On January 12, 2009, the Corporation issued $10 million in nonvoting senior preferred stock to the U.S. Department of Treasury under the Capital Purchase Program. As part of the transaction, the Corporation also issued warrants to the U.S. Treasury to purchase 173,410 shares of common stock of the Corporation at an exercise price of $8.65 per share. As previously announced, the Corporation’s voluntary participation in the Capital Purchase Program amounted to approximately 50 percent of what the Corporation had qualified for under the U.S. Treasury program. The funding was used to support the balance sheet. As a result of the successful completion of the Rights Offering in October 2009, the number of shares underlying the warrant held by the U.S. Treasury was reduced to 86,705 shares or 50 percent of the original 173,410 shares.

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In July 2009, the Corporation announced that its Board of Directors had authorized a rights offering of up to approximately $11 million of common stock to its existing stockholders. In October, the Corporation successfully raised total gross proceeds of approximately $11 million in its rights offering and a private placement with its standby purchaser.

Book value per share at year-end 2009 was $6.32 compared to $6.29 at year-end 2008. Tangible book value at year-end 2009 was $5.15 compared to $4.97 at year-end 2008; see Item 6 for a reconciliation of this non-GAAP financial measure of book value.

During the year of 2009, the Corporation made no purchases of common stock. At December 31, 2009, there were 652,868 shares available for repurchase under the Corporation’s stock buyback program.

Capital

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

Risk-Based Capital/Leverage

Tier I Capital at December 31, 2009 (defined as tangible stockholders’ equity and Trust Preferred Capital Securities) amounted to $98.5 million, or a Tier 1 Leverage ratio of 7.73 percent when measured as a percentage of average total assets for leverage capital purposes. At December 31, 2008, the Corporation’s Tier I Capital amounted to $78.2 million and the Tier 1 Leverage ratio was 7.71 percent. Tier I Capital excludes the effect of FASB ASC 320-10-05, which amounted to $8.4 million of net unrealized losses, after tax, on securities available-for-sale (reported as a component of accumulated other comprehensive income which is included in stockholders’ equity), and is reduced by goodwill and intangible assets of $17.0 million as of December 31, 2009. For information on goodwill and intangible assets, see Note 1 to the Consolidated Financial Statements.

United States bank regulators have issued guidelines establishing minimum capital standards related to the level of assets and off balance-sheet exposures adjusted for credit risk. Specifically, these guidelines categorize assets and off balance-sheet items into four risk-weightings and require banking institutions to maintain a minimum ratio of capital to risk-weighted assets. At December 31, 2009, the Corporation’s Tier I Risk-Based Capital and Total Risk-Based Capital ratios were 11.43 percent and 12.44 percent, respectively. For information on risk-based capital and regulatory guidelines for the Parent Corporation and its bank subsidiary, see Note 13 to the Consolidated Financial Statements.

The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the bank regulators regarding capital components, risk weightings and other factors. The OCC has established higher minimum capital ratios for the Bank effective as of December 31, 2009: Tier 1 Risk-Based Capital of 10 percent, Total Risk-Based Capital of 12 percent and Tier 1 Leverage Capital of 8 percent. As of December 31, 2009, management believes that each of the Bank and the Parent Corporation meet all capital adequacy requirements to which it is subject, other than the Tier 1 Leverage Capital ratio for the Bank, which at 7.56 percent was below the 8 percent established by the OCC for the Bank. Under the MOU between the Bank and the OCC, the Bank has agreed to develop a three year capital program, which will include specific plans for the maintenance of adequate capital and the strengthening of the Bank’s capital structure to meet current and future needs.

Subordinated Debentures

On December 19, 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of Center Bancorp, Inc., issued $5.0 million of, MMCapS capital securities to investors due on January 23, 2034. The capital securities presently qualify as Tier I capital. The trust loaned the proceeds of this offering to the Corporation and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or in part, prior to maturity but after January 23, 2009. The floating interest rate on the subordinate debentures is three-month LIBOR plus 2.85 percent and reprices quarterly. The rate at December 31, 2009 was 3.13 percent.

-41-

The additional capital raised with respect to the issuance of the floating rate capital pass-through securities was used to bolster the Corporation’s capital and for general corporate purposes, including capital contributions to Union Center National Bank. Additional information regarding the capital treatment of these securities is contained in Note 10 of the Notes to the Consolidated Financial Statements.

Looking Forward

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

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

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

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

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

This “Looking Forward” description constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the Corporation’s forward-looking statements due to numerous known and unknown risks and uncertainties, including the factors referred to above, in Item 1A of this Annual Report on Form 10K and in other sections of this Annual Report on Form 10K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Sensitivity

Market Risk

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

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

-42-

The primary tool used by management to measure and manage interest rate exposure is a simulation model. Use of the model to perform simulations reflecting changes in interest rates over one and two-year time horizons has enabled management to develop and initiate strategies for managing exposure to interest rate risk. In its simulations, management estimates the impact on net interest income of various changes in interest rates. Projected net interest income sensitivity to movements in interest rates is modeled based on both an immediate rise and fall in interest rates (“rate shock”), as well as gradual changes in interest rates over a twelve-month time period. The model is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities. The model incorporates assumptions regarding earning asset and deposit growth, prepayments, interest rates and other factors.

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

Based on the results of the interest simulation model as of December 31, 2009, and assuming that management does not take action to alter the outcome, the Corporation would expect a decrease of 0.52 and 1.66 percent in net interest income if interest rates increased by 200 and 300 basis points, respectively, from current rates in a gradual and parallel rate ramp over a twelve month period. As market rates declined to historic lows at December 31, 2009, the Corporation did not feel that modeling a down rate scenario was realistic in the current environment.

The declining rates and steepening of the yield curve during 2009 affected net interest margins. Based on management’s perception that interest rates will continue to be volatile, projected increased levels of prepayments on the earning asset portfolio and the current level of interest rates, emphasis has been, and is expected to continue to be, placed on interest-sensitivity matching with the objective of stabilizing the net interest spread during 2010. However, no assurance can be given that this objective will be met.

Equity Price Risk

The Corporation is also exposed to equity price risk inherent in its portfolio of publicly traded equity securities, which had an estimated fair value of $0.3 million at December 31, 2009 and $0.5 million at December 31, 2008. The Corporation monitors its equity investments for impairment on a periodic basis. In the event that the carrying value of the equity investment exceeds its fair value, and the Corporation determines the decline in value to be other than temporary, the Corporation reduces the carrying value to its current fair value. During 2009 and 2008, the Corporation recorded $113,000 and $461,000, respectively, of other-than-temporary impairment charges relating to equity holdings in bank stocks. These equities were written down to fair value.

-43-

Item 8. Financial Statements and Supplementary Data

All Financial Statements:

The following financial statements are filed as part of this report under Item 8 — “Financial Statements and Supplementary Data.”

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Condition		F-3
Consolidated Statements of Income		F-4
Consolidated Statements of Changes in Stockholders’ Equity		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Center Bancorp, Inc.:

We have audited the consolidated statements of condition of Center Bancorp, Inc. and subsidiaries (the “Corporation”) as of December 31, 2009 and 2008, and the related statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2009. Center Bancorp, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Center Bancorp, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 21 to the consolidated financial statements, the December 31, 2009 consolidated financial statements have been restated to (i) reclassify the presentation of receivables, and (ii) record changes in the allowance for loan losses pursuant to the reclassification of receivables.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Center Bancorp, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated May 3, 2010 expressed an unqualified opinion.

/s/ ParenteBeard LLC

ParenteBeard LLC

Reading, Pennsylvania

March 16, 2010 (except for Note 21, as to which the date is May 3, 2010)

F-2

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

	December 31,
(In Thousands, Except Share Data)	2009 (Restated)			2008
ASSETS
Cash and due from banks	$	89,168		$	15,031
Investment securities available-for-sale		298,124			242,714
Loans		719,606			676,203
Less: Allowance for loan losses		8,711			6,254
Net loans		710,895			669,949
Restricted investment in bank stocks, at cost		10,672			10,230
Premises and equipment, net		17,860			18,488
Accrued interest receivable		4,033			4,154
Bank-owned life insurance		26,304			22,938
Other real estate owned		—			3,949
Goodwill and other intangible assets		17,028			17,110
Prepaid FDIC assessment		5,374			—
Other assets		16,030			18,730
Total assets	$	1,195,488		$	1,023,293
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non interest-bearing	$	130,518		$	113,319
Interest-bearing:
Time deposits $100 and over		144,802			100,493
Interest-bearing transaction, savings and time deposits $100 and less		538,385			445,725
Total deposits		813,705			659,537
Short-term borrowings		46,109			45,143
Long-term borrowings		223,144			223,297
Subordinated debentures		5,155			5,155
Accounts payable and accrued liabilities		5,626			8,448
Total liabilities		1,093,739			941,580
Stockholders’ Equity:
Preferred Stock, $1,000 liquidation value per share:
Authorized 5,000,000 shares; issued 10,000 shares in 2009 and none in 2008		9,619			—
Common stock, no par value:
Authorized 20,000,000 shares; issued 16,762,412 shares in 2009 and 15,190,984 in 2008; outstanding 14,572,029 shares in 2009 and 12,991,312 in 2008		97,908			86,908
Additional paid-in capital		5,650			5,204
Retained earnings		17,068			16,309
Treasury stock, at cost (2,190,383 in 2009 and 2,199,672 shares in 2008)		(17,720	)		(17,796	)
Accumulated other comprehensive loss		(10,776	)		(8,912	)
Total stockholders’ equity		101,749			81,713
Total liabilities and stockholders’ equity	$	1,195,488		$	1,023,293

See the accompanying notes to the consolidated financial statements.

F-3

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Years Ended December 31,
	2009 (Restated)			2008			2007
Interest income:
Interest and fees on loans	$	36,751		$	36,110		$	33,527
Interest and dividends on investment securities:
Taxable interest income		12,727			10,353			13,585
Non-taxable interest income		989			2,547			3,171
Dividends		643			771			1,242
Interest on federal funds sold and securities purchased under agreements to resell		—			113			604
Total interest income		51,110			49,894			52,129
Interest expense:
Interest on certificates of deposit $100 and over		3,551			2,411			3,964
Interest on other deposits		8,757			10,876			16,871
Interest on short-term borrowings		449			1,295			1,948
Interest on long-term borrowings		9,888			9,513			7,847
Total interest expense		22,645			24,095			30,630
Net interest income		28,465			25,799			21,499
Provision for loan losses		4,597			1,561			350
Net interest income, after provision for loan losses		23,868			24,238			21,149
Other income:
Service charges, commissions and fees		1,835			2,015			1,824
Annuity and insurance		126			112			298
Bank-owned life insurance		1,156			1,203			893
Other		298			420			457
Total other-than-temporary impairment losses		(9,066	)		(1,761	)		—
Less: Portion of loss recognized in other comprehensive income (before taxes)		4,828			—			—
Net other-than-temporary impairment losses		(4,238	)		(1,761	)		—
Net gains on sale on investment securities		4,729			655			900
Net investment securities gains (losses)		491			(1,106	)		900
Total other income		3,906			2,644			4,372
Other expense:
Salaries and employee benefits		9,915			8,505			11,436
Occupancy, net		2,536			3,279			2,843
Premises and equipment		1,263			1,436			1,777
FDIC Insurance		2,055			217			86
Professional and consulting		811			703			2,139
Stationery and printing		339			397			465
Marketing and advertising		366			637			603
Computer expense		964			834			614
OREO expense, net		1,438			31			110
Other		3,370			3,434			4,525
Total other expense		23,057			19,473			24,598
Income before income tax expense (benefit)		4,717			7,409			923
Income tax expense (benefit)		946			1,567			(2,933	)
Net income		3,771			5,842			3,856
Preferred stock dividends and accretion		567			—			—
Net income available to common stockholders	$	3,204		$	5,842		$	3,856
Earnings per common share:
Basic	$	0.24		$	0.45		$	0.28
Diluted	$	0.24		$	0.45		$	0.28
Weighted average common shares outstanding:
Basic		13,382,614			13,048,518			13,780,504
Diluted		13,385,416			13,061,410			13,840,756

See the accompanying notes to the consolidated financial statements.

F-4

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	Years Ended December 31, 2009, 2008 and 2007
	Preferred Stock		Common Stock		Additional Paid In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	(In Thousands, Except Share and per Share Data)
Balance, December 31, 2006	$	—	$	77,130	$	4,535		$	25,989		$	(6,631	)	$	(3,410	)	$	97,613
Comprehensive income:
Net income									3,856									3,856
Other comprehensive loss, net of taxes															(2,414	)		(2,414	)
Total comprehensive income																		1,442
Cash dividends declared on common stock ($0.36 per share)									(4,885	)								(4,885	)
5 percent stock dividend				9,778					(9,778	)								—
Issuance cost of common stock									(21	)								(21	)
Exercise of stock options (95,861 shares)						292						558						850
Stock-based compensation expense						151												151
Tax benefit related to stock-based compensation						155												155
Treasury stock purchased (850,527 shares)												(10,027	)					(10,027	)
Balance, December 31, 2007	$	—	$	86,908	$	5,133		$	15,161		$	(16,100	)	$	(5,824	)	$	85,278
Comprehensive income:
Net income									5,842									5,842
Other comprehensive loss, net of taxes															(3,088	)		(3,088	)
Total comprehensive income																		2,754
Cash dividends declared on common stock of ($0.36 per share)									(4,675	)								(4,675	)
Issuance cost of common stock									(19	)								(19	)
Restricted stock award (3,028 shares)												25						25
Exercise of stock options (25,583 shares)						21						203						224
Stock-based compensation expense						128												128
Taxes related to stock-based compensation						(78	)											(78	)
Treasury stock purchased (193,083 shares)												(1,924	)					(1,924	)

Balance, December 31, 2008	$	—	$	86,908	$	5,204		$	16,309		$	(17,796	)	$	(8,912	)	$	81,713
Comprehensive income:
Net income									3,771									3,771
Other comprehensive loss, net of taxes															(1,864	)		(1,864	)
Total comprehensive income																		1,907
Issuance of preferred stock (10,000 shares) and warrants (86,705 shares)		9,539				461												10,000
Accretion of discount on preferred stock		80							(80	)								—
Dividends on preferred stock									(487	)								(487	)
Proceeds from rights offering (1,571,428 shares)				11,000														11,000
Cash dividends declared on common stock ($0.18 per share)									(2,434	)								(2,434	)
Issuance cost of common stock									(11	)								(11	)
Exercise of stock options (9,289 shares)						(19	)					76						57
Stock-based compensation expense						77												77
Taxes related to stock-based compensation						(73	)											(73	)
Balance, December 31, 2009 (Restated)	$	9,619	$	97,908	$	5,650		$	17,068		$	(17,720	)	$	(10,776	)	$	101,749

See the accompanying notes to the consolidated financial statements.

F-5

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2009  (Restated)			2008			2007
	(Dollars in Thousands)
Cash flows from operating activities:
Net income	$	3,771		$	5,842		$	3,856
Adjustments to reconcile net income to net cash (provided by) used in operating activities:
Depreciation and amortization		1,451			1,832			1,700
Provision for loan losses		4,597			1,561			350
Provision (benefit) for deferred taxes		819			1,221			(4,939	)
Stock-based compensation expense		77			128			151
Proceeds from restricted stock		—			25			—
Net other-than-temporary impairment losses		4,238			1,761			—
Net gains on available-for-sale securities		(4,729	)		(655	)		(312	)
Net gains on sale of held-to-maturity securities		—			—			(588	)
Net loss on premises and equipment		—			51			—
Net loss on OREO		905			26
Life insurance death benefit		(136	)		(230	)		—
Increase in cash surrender value of bank-owned life insurance		(1,020	)		(973	)		(893	)
Net amortization of securities		793			90			162
Decrease in accrued interest receivable		121			381			397
Increase in other assets		(1,732	)		(7,332	)		(2,055	)
(Decrease) increase in other liabilities		(480)			(4,432	)		4,057
Net cash provided by (used in)  operating activities		8,675			(704	)		1,886
Cash flows from investing activities:
Proceeds from maturities of investment securities available-for-sale		58,206			52,702			186,371
Proceeds from maturities, calls and paydowns of securities held to maturity		—			—			9,206
Net purchases of restricted investment in bank stock		(442	)		(1,763	)		(662	)
Proceeds from sales of investment securities available-for-sale		665,828			330,808			56,331
Proceeds from sales of investment securities held to maturity		—			—			10,312
Purchase of securities available-for-sale		(785,044	)		(315,899	)		(204,238	)
Purchase of securities held to maturity		—			—			(2,000	)
Net increase in loans		(45,543	)		(125,004	)		(1,402	)
Purchases of premises and equipment		(742	)		(2,882	)		(182	)
Purchase of bank-owned life insurance		(2,475	)		—			—
Proceeds from life insurance death benefits		266			526			—
Capital expenditure addition to OREO		(476	)		—			—
Proceeds from sale of premises and equipment		1			24			—
Proceeds from sale of branch facility		—			2,414			—
Proceeds from sale of OREO		3,520			452			—
Net cash (used in) provided by investing activities		(106,901	)		(58,622	)		53,736

See the accompanying notes to the consolidated financial statements.

F-6

CENTER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (continued)

	Years Ended December 31,
	2009 (Restated)			2008			2007
Cash flows from financing activities:
Net increase (decrease) in deposits		154,168			(39,533	)		(27,701	)
Net increase (decrease) in short-term borrowings		966			(4,521	)		(8,325	)
Proceeds from long-term borrowings		—			55,000			55,000
Payments on long-term borrowings		(153	)		(148	)		(35,000	)
Cash dividends on common stock		(3,166	)		(4,675	)		(4,885	)
Cash dividends on preferred stock		(425	)		—			—
Issuance cost of common stock		(11	)		(19	)		(21	)
Proceeds from issuance of preferred stock and warrants		10,000			—			—
Proceeds from issuance of shares from rights offering		11,000			—			—
Tax (expense) benefit from stock based compensation		(73	)		(78	)		155
Proceeds from exercise of stock options		57			224			850
Purchase of treasury stock		—			(1,924	)		(10,027	)
Net cash provided by (used in) financing activities		172,363			4,326			(29,954	)
Net increase (decrease) in cash and cash equivalents		74,137			(55,000	)		25,668
Cash and cash equivalents at beginning of year		15,031			70,031			44,363
Cash and cash equivalents at end of year	$	89,168		$	15,031		$	70,031
Supplemental disclosures of cash flow information:
Noncash activities:
Trade date accounting settlement for investments	$	1,979		$	3,514		$	—
Transfer of loans to other real estate owned		—			3,949			—
Reclassification of held-to-maturity investment securities to available-for-sale		—			—			113,413
Reclassification of office building from premises to other assets		—			—			2,398
Cash paid during year for:
Interest paid on deposits and borrowings	$	23,021		$	23,615		$	30,726
Income taxes		344			2,370			515

See the accompanying notes to the consolidated financial statements.

F-7

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

 Principles of Consolidation

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

Business

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

Basis of Financial Statement Presentation

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

Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of condition and revenues and expenses for the reported periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the valuation of deferred tax assets.

Cash and Due From Banks

Cash and Due From Banks includes cash on hand and balances due from correspondent banks including the Federal Reserve Bank.

Investment Securities

The Corporation accounts for its investment securities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-05 (previously SFAS No. 115, “Accounting for Certain Investment in Debt and Equity Securities”). Investments are classified into the following categories: (1) held to maturity securities, for which the Corporation has both the positive intent and ability to hold until maturity, which are reported at amortized cost; (2) trading securities, which are purchased and held principally for the purpose of selling in the near term and are reported at fair value with unrealized gains and losses included in earnings; and (3) available-for-sale securities, which do not meet the criteria of the other two categories and which management believes may be sold prior to maturity due to changes in interest rates, prepayment, risk, liquidity or other factors, and are reported at fair value, with unrealized gains and losses, net of applicable income taxes, reported as a component of accumulated other comprehensive income, which is included in stockholders’ equity and excluded from earnings.

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

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

During the fourth quarter of 2007, the Corporation reclassified all of its held-to-maturity investment securities to available-for-sale. The transfer of these securities to available-for-sale allowed the Corporation greater flexibility in managing its investment portfolio. Investment securities with a total of $113.4 million and a fair value of $112.9 million were transferred to available-for-sale during the fourth quarter of 2007. The unrealized loss on these securities was recorded, net of tax, as accumulated other comprehensive income, an adjustment to stockholders’ equity.

Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. In April 2009, the FASB issued FASB ASC 320-10-65 (previously SFAS No. 115-2 and SFAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Investments”), which was adopted as of June 30, 2009. The accounting standard clarifies the interaction of the factors that should be considered when determining whether a debt security is other–than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Prior to the June 30, 2009 adoption, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FASB ASC 320-10-65 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized through earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized through other comprehensive income. Impairment charges on certain investment securities of approximately $4.2 million and $1.8 million were recognized in earnings during the years ended December 31, 2009 and 2008, respectively. No impairment charges were recognized during the year ended December 31, 2007.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of costs or estimated fair value or fair value under the fair value option accounting guidance for financial instruments. For loans carried at the lower of cost or estimated fair value, gains and losses on loan sales (sale proceeds minus carrying value) are recorded in other income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in other income upon sale of the loan. At December 31, 2009 and 2008, the Corporation held no loans for sale.

Loans

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

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Allowance for Loan Losses

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

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

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

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

The Corporation accounts for impaired loans in accordance with FASB ASC 310-10-35 (previously SFAS No. 114, “Accounting by Creditors for Impairment of a Loan” as amended by SFAS No. 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures”). The value of impaired loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or at the fair value of the collateral if the loan is collateral dependent.

The Corporation has defined its population of impaired loans to include all non-accrual and troubled debt restructuring loans. As part of the evaluation, the Corporation reviews for impairment all non-homogeneous loans internally classified as substandard or below, in each instance above an established dollar threshold of $200,000, as well as all non-homogeneous loans greater than $1.0 million. Smaller impaired non-homogeneous loans and impaired homogeneous loans are not measured for specific reserves and are covered under the Corporation’s general reserve.

Reserve for Unfunded Commitments

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

Premises and Equipment

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

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

losses on sales or other dispositions are recorded as a component of other income or other expenses. In September 2007, the Corporation reclassified its Florham Park office building from premises to held-for-sale, which was included in other assets, and entered into a contract to sell that property. On February 29, 2008, the Corporation completed the sale of the property for $2.4 million, which approximated the carrying value.

Other Real Estate Owned

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

During the third quarter of 2009, the Corporation sold the residential condominium project in Union County, New Jersey, which was carried as OREO. At December 31, 2009, the Corporation had no OREO. The decrease from December 31, 2008 represented a write down of $926,000 of the carrying value and subsequent sale of the project in the third quarter of 2009.

Mortgage Servicing

The Corporation performs various servicing functions on loans owned by others. A fee, usually based on a percentage of the outstanding principal balance of the loan, is received for those services. At December 31, 2009 and 2008, the Corporation was servicing approximately $7.6 million and $10.0 million, respectively, of loans for others.

The Corporation accounts for its servicing of financial assets in accordance with FASB ASC 860-50. The Corporation originates mortgages under plans to sell those loans and service the loans owned by the investor. The Corporation records mortgage servicing rights and the loans based on relative fair values at the date of sale. The balance of mortgage servicing rights at December 31, 2009 and 2008 are immaterial to the Corporation’s consolidated financial statements.

Employee Benefit Plans

The Corporation has a non-contributory pension plan covering all eligible employees up until September 30, 2007, at which time the Corporation froze its defined benefit pension plan. As such, all future benefit accruals in this pension plan were discontinued and all retirement benefits that employees would have earned as of September 30, 2007 were preserved. The Corporation’s policy is to fund at least the minimum contribution required by the Employee Retirement Income Security Act of 1974. The costs associated with the plan are accrued based on actuarial assumptions and included in other expense.

The Corporation accounts for its defined benefit pension plan in accordance with FASB ASC 715-30. FASB ASC 715-30 requires that the funded status of defined benefit postretirement plans be recognized on the Corporation’s statement of condition and changes in the funded status be reflected in other comprehensive income. FASB ASC 715-30 also requires companies to measure the funded status of the plan as of the date of its fiscal year-end, effective for fiscal years ended after December 15, 2008. Early adoption was encouraged. The Corporation had early adopted this statement and the adoption did not have a material effect on the Corporation’s consolidated financial statements.

Stock-Based Compensation

Stock compensation accounting guidance (FASB ASC 718, “Compensation-Stock Compensation”) requires that the compensation cost related to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options while the market price of the Corporation’s common stock at the date of grant is used for restricted stock awards. See Note 16 of the Notes to Consolidated Financial Statements for a further discussion.

Earnings per Share

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

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

	Years Ended December 31,
	2009 (Restated)		2008		2007
	(In Thousands, Except per Share Amounts)
Net income	$	3,771	$	5,842	$	3,856
Preferred stock dividends and accretion		567		—		—
Net income available to common stockholders	$	3,204	$	5,842	$	3,856
Average number of common shares outstanding		13,382		13,049		13,781
Effect of dilutive options		3		12		60
Average number of common shares outstanding used to calculate diluted earnings per common share		13,385		13,061		13,841
Earnings per common share:
Basic	$	0.24	$	0.45	$	0.28
Diluted	$	0.24	$	0.45	$	0.28

Treasury Stock

The Corporation announced on March 27, 2006 that its Board of Directors approved an increase in its then current share buyback program to 5 percent of outstanding shares, enhancing its then current authorization by 425,825 shares to 684,965 shares. The Corporation announced on October 1, 2007 that its Board of Directors approved an additional increase in its current share buyback program to 5 percent of outstanding shares, enhancing its current authorization by 684,627 shares. On June 26, 2008, the Corporation announced that its Board of Directors approved an additional buyback of 649,712 shares. The total buyback authorization has been increased to 2,039,731 shares. Subject to limitations applicable to the Corporation, purchases may be made from time to time as, in the opinion of management, market conditions warrant, in the open market or in privately negotiated transactions. Shares repurchased will be added to the corporate treasury and will be used for future stock dividends and other issuances. As of December 31, 2009, Center Bancorp had 14.6 million shares of common stock outstanding. As of December 31, 2009, the Corporation had purchased 1,386,863 common shares at an average cost per share of $11.44 under the stock buyback program as amended on October 1, 2007 and June 26, 2008. The repurchased shares were recorded as Treasury Stock, which resulted in a decrease in stockholders’ equity. Treasury stock is recorded using the cost method and accordingly is presented as a reduction of stockholders’ equity. For the year ended December 31, 2009, the Corporation did not purchase any of its shares.

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Goodwill

The Corporation adopted the provisions of FASB ASC 350-10 (previously SFAS No. 142, “Goodwill and Other Intangible Assets”), which requires that goodwill to be tested for impairment annually, or more frequently if impairment indicators arise for impairment. No impairment charge was deemed necessary for the years ended December 31, 2009, 2008 and 2007.

Comprehensive Income

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

Disclosure of comprehensive income for the years ended December 31, 2009, 2008 and 2007 is presented in the Consolidated Statements of Changes in Stockholders’ Equity and presented in detail in Note 14 of the Notes to Consolidated Financial Statements.

Bank-Owned Life Insurance

During 2001, the Corporation invested $12.5 million in Bank-Owned Life Insurance (“BOLI”) to help offset the rising cost of employee benefits, and made subsequent investments in 2004 of $2.5 million and in 2006 of $2.0 million. During 2009, the Corporation invested $2.5 million in additional BOLI policies. The change in the cash surrender value of the BOLI was recorded as a component of other income and amounted to $1,020,000, $973,000 and $893,000 in 2009, 2008 and 2007, respectively. During 2009 and 2008, the Corporation recognized $136,000 and $230,000, respectively, in tax-free proceeds in excess of contract value on its BOLI due to the death of insured participants.

Income Taxes

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

Advertising Costs

The Corporation recognizes its marketing and advertising cost as incurred. Advertising costs were $366,000, $637,000 and $603,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

Reclassifications

Certain reclassifications have been made in the consolidated financial statements for 2008 and 2007 to conform to the classifications presented in 2009.

F-13

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Recent Accounting Pronouncements

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

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

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

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

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

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

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

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

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

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Recent Accounting Pronouncements – (continued)

impaired security before a recovery of amortized cost basis. Finally, FASB 320-10-65 requires companies to record all previously recorded non-credit related other-than-temporary impairment charges for debt securities as cumulative effect adjustments to retained earnings as of the beginning of the period of adoption.

FASB ASC 825-10-65 (previously SFAS No. 107-1 and APB 28-1) requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FASB ASC 825-10 also requires those disclosures in summarized financial information at interim reporting periods.

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

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

On June 12, 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets” (“FAS 166”), which was incorporated into ASC 860 “Transfers and Servicing”, and SFAS No.167, “Amendments to FASB Interpretation No. 46(Revised), which was incorporated into ASC 810 “Consolidation” (“FAS 167”), which change the way entities account for securitizations and special-purpose entities.

FAS 166 is a revision to FASB ASC 860-10 (previously SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”) and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. FAS 166 also eliminates the concept of a “qualifying special-purpose entity”, changes the requirements for derecognizing financial assets and requires additional disclosures.

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

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

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 — Recent Accounting Pronouncements – (continued)

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

In December 2008, the FASB issued FASB ASC 715-20-65-2 (previously FSP FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets”). This ASC amends FASB ASC 715-20-65-2 (previously SFAS 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”) to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The disclosures about plan assets required by this ASC shall be provided for fiscal years ending after December 15, 2009. The Corporation has adopted this standard and the adoption had no material impact on the Corporation’s consolidated financial statements.

Note 3 — Cash and Due from Banks

The subsidiary bank, Union Center National Bank, maintained cash balances reserved to meet regulatory requirements of the Federal Reserve Board of approximately $4,050,000 and $2,900,000 at December 31, 2009 and 2008, respectively.

Note 4 — Investment Securities

The following tables present information related to the Corporation’s portfolio of securities available-for-sale at December 31, 2009 and 2008.

	December 31, 2009
					Gross Unrealized Losses
	Amortized Cost		Gross Unrealized Gains		Non-Credit OTTI			Other			Estimated Fair Value
	(Dollars in Thousands)
Securities Available-for-Sale:
U.S. Treasury and agency securities	$	2,089	$	—	$	—		$	—		$	2,089
Federal agency obligations		216,640		592		—			(2,647	)		214,585
Obligations of U.S. states and political subdivisions		19,688		77		—			(484	)		19,281
Trust preferred securities		34,404		113		(2,457	)		(5,345	)		26,715
Other debt securities		33,317		76		(2,371	)		(1,101	)		29,921
Equity securities		5,936		42		—			(445	)		5,533
Total	$	312,074	$	900	$	(4,828	)	$	(10,022	)	$	298,124

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Investment Securities – (continued)

	December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in Thousands)
Securities Available-for-Sale:
U.S. Treasury and agency securities	$	100	$	—	$	—		$	100
Federal agency obligations		81,919		1,087		(209	)		82,797
Obligations of U.S. states and political subdivisions		51,926		436		(268	)		52,094
Trust preferred securities		39,050		—		(7,279	)		31,771
Other debt securities		63,104		82		(3,824	)		59,362
Equity securities		17,247		—		(657	)		16,590
Total	$	253,346	$	1,605	$	(12,237	)	$	242,714

All of the Corporation’s investment securities are classified as available-for-sale at December 31, 2009 and 2008. The available-for-sale securities are reported at fair value with unrealized gains or losses included in equity, net of taxes. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 18 of the Notes to Consolidated Financial Statements for a further discussion.

The following table presents information for investments in securities available-for-sale at December 31, 2009, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

	Available-for-Sale
	Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Due in one year or less	$	1,852	$	1,857
Due after one year through five years		7,103		6,232
Due after five years through ten years		52,655		51,350
Due after ten years		244,528		233,153
Equity securities		5,936		5,532
Total investment securities	$	312,074	$	298,124

During 2009, securities sold from the Corporation’s available-for-sale portfolio amounted to approximately $665.8 million. The gross realized gains on securities sold amounted to approximately $5,897,000, while the gross realized losses amounted to approximately $1,168,000 in 2009. During 2009, the Corporation recorded a $140,000 other-than-temporary impairment charge on its Lehman Brothers corporate bond, $3,433,000 on two pooled trust preferred securities, $188,000 on three variable rate private label CMOs, $364,000 on charge to earnings relating to the court ordered liquidation of the Reserve Primary Fund, and $113,000 of write-downs relating to one equity holding in bank stocks. During 2008, securities sold from the Corporation’s available-for-sale portfolio amounted to approximately $330.8 million. The gross realized gains on securities sold amounted to approximately $818,000, while the gross realized losses amounted to approximately $163,000 in 2008. During 2008, the Corporation incurred a $1.3 million charge relating to a Lehman Brothers corporate bond and $461,000 of write-downs relating to three equity holdings in bank stocks.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Investment Securities – (continued)

Other-than-Temporarily Impaired Investments

Summary of Other-than-Temporary Impairment Charges

	Years Ended December 31,
	2009		2008
	(Dollars in Thousands)
Equity securities	$	113	$	461
Debt securities		4,125		1,300
Total other-than-temporary impairment charges	$	4,238	$	1,761

The Corporation performs regular analysis on the available-for-sale securities portfolio to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB ASC 320-10 requires companies to record other-than-temporary impairment (“OTTI”) charges, through earnings, if they have the intent to sell, or more likely than not be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Corporation intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its estimated fair value at the balance sheet date. If the Corporation does not intend to sell the security and it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, and as such, it determines that a decline in fair value is other than temporary, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

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

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

F-18

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Investment Securities – (continued)

The following table presents detailed information for each trust preferred security held by the Corporation which has at least one rating below investment grade.

Deal Name	Single Issuer or Pooled	Class/ Tranche		Book Value		Estimated Fair Value		Gross Unrealized Gain (Loss)			Lowest Credit Rating Assigned		Number of Banks Currently Performing		Deferrals and Defaults as % of Original Collateral			Expected Deferral/Defaults as % of Remaining Performing Collateral
	(Dollars in Thousands)
Countrywide Capital IV	Single		—	$	1,769	$	1,519	$	(250	)		BB		1		None			None
Countrywide Capital V	Single		—		2,747		2,366		(381	)		BB		1		None			None
Countrywide Capital V	Single		—		250		215		(35	)		BB		1		None			None
NPB Capital Trust II	Single		—		898		754		(144	)		NR		1		None			None
Citigroup Cap IX	Single		—		991		736		(255	)		B+		1		None			None
Citigroup Cap IX	Single		—		1,901		1,420		(481	)		B+		1		None			None
Citigroup Cap XI	Single		—		245		184		(61	)		B+		1		None			None
IBC Cap Fin II	Single		—		667		333		(334	)		NR		1		None			None
BFC Capital Trust	Single		—		1,348		1,461		113			NR		1		None			None
BAC Capital Trust X	Single		—		2,496		2,004		(492	)		BB		1		None			None
Nationsbank Cap Trust III	Single		—		1,568		1,095		(473	)		BB		1		None			None
Bank of Florida Junior Sub Debt	Single		—		3,000		2,100		(900	)		NR		1		None			None
ALESCO Preferred Funding VI	Pooled		C2		665		34		(631	)		Ca		68		31.4	%		62.4	%
ALESCO Preferred Funding VII	Pooled		C1		2,041		215		(1,826	)		Ca		69		22.9	%		53.2	%

At December 31, 2009, excess subordination as a percentage of remaining performing collateral for the ALESCO Preferred Funding VI and VII investments were -31.1 percent and -21.0 percent, respectively. Excess subordination is the amount of performing collateral above the amount of outstanding collateral underlying each class of the security. The Excess Subordination as a Percent of Remaining Performing Collateral reflects the difference between the performing collateral and the collateral underlying each security divided by the performing collateral. A negative number results when the paying collateral is less than the collateral underlying each class of the security. A low or negative number decreases the likelihood of full repayment of principal and interest accordingly to original contractual terms.

The Corporation owns two pooled trust preferred securities (“Pooled TRUPS”), which consists of securities issued by financial institutions and insurances companies and the Corporation holds the mezzanine tranche of such securities. Senior tranches generally are protected from defaults by over-collateralization and cash flow default protection provided by subordinated tranches, with senior tranches having the greatest protection and mezzanine tranches subordinated to the senior tranches. Our analysis of these Pooled TRUPS falls within the scope of EITF 99-20 and uses a discounted cash flow model to determine the total OTTI loss. The model

F-19

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Investment Securities – (continued)

considers the structure and term and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers and the allocation of the payments to the note classes according to a priority of payments specified in the offering circular and indenture. The current estimate of expected cash flows is based on the most recent trustee reports and other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include defaults rates, default rate timing profile and recovery rates. We assume no prepayments as these Pooled TRUPS were issued at comparatively tight spreads and as such, there is little incentive if any to prepay.

One of the Pooled TRUPS has incurred its third interruption of cash flow payments to date. Management reviewed the expected cash flow analysis and credit support to determine if it was probable that all principal and interest would be repaid, and recorded a $1.060 million other-than-temporary impairment charge for the three months ended December 31, 2009 and $2.460 million for the twelve months ended December 31, 2009, which represents 79.7 percent of the par amount of $3.1 million. The new cost basis for this security has been written down to $665,000. The other Pooled TRUP incurred its first interruption of cash flow payment in the fourth quarter of 2009. Management determined that an other-than-temporary impairment exists on this security as well and recorded a $973,000 charge during the fourth quarter of 2009, which represents 32.3 percent of the par amount of $3.0 million. The new cost basis for this security has been written down to $2.0 million.

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

Credit Loss Portion of OTTI Recognized in Earning on Debt Securities

	(Dollars in Thousands)
Balance of credit-related OTTI at January 1, 2009	$	—
Addition:
Credit losses for which other-than-temporary impairment was not previously recognized		3,761
Reduction:
Credit losses for securities sold during the period		(140	)
Balance of credit-related OTTI at December 31, 2009	$	3,621

The Corporation owns three variable rate private label collateralized mortgage obligations (CMOs), which were also evaluated for impairment. The Variable Rate Collateralized Mortgage Obligations were originally issued in 2006 and are 30 year Adjustable Rate Mortgage loans secured by a first lien, fully amortizing one-to-four residential mortgage loans. The tranche purchased was a Super Senior with an original credit rating of AAA/AAA. The top five states geographic concentration comprised in the deal were California 18.2 percent, Arizona 10.5 percent, Virginia 6.1 percent, Florida 6.5 percent and Nevada 6.3 percent. No one state exceeded a 25 percent concentration. These states have been heavily impacted by the financial crises and as such have sustained heavy delinquencies affecting the credit rating of the security. Management had applied aggressive default rates to identify if any credit impairment exists, as these bonds were downgraded to below investment grade. These bonds are currently paying with no interruption of cash flow. As such, management determined that an other-than-temporary impairment charge exists and recorded a $188,000 write down to the bonds, which represents 3.4 percent of the par amount of $5.6 million. The new cost basis for these securities has been written down to $5.4 million.

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Investment Securities – (continued)

During 2009, the Corporation recorded $113,000 of other-than-temporary impairment charges relating to one equity holding in bank stocks. Due to the deterioration in the bank’s financial condition and that near term prospects in market value recovery appear remote, management determined that the expectation to recover its cost is not temporary. As such, this equity was written down to fair market value at the time of evaluation, which was December 31, 2009.

The Corporation’s investment portfolio also consists of overnight investments that were made into the Reserve Primary Fund (the “Fund”), a money market fund registered with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940. On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation could be effected for the protection of the Fund’s investors. Through December 31, 2009, the Corporation has received five distributions from the Fund, totaling approximately 92 percent of its outstanding balance, leaving a remaining outstanding balance in the Fund of $2.943 million. On January 29, 2010, as part of the court order liquidation of the Fund, the Corporation received a sixth distribution or $2.446 million, bringing total distributions to date to approximately 99 percent. During the fourth quarter of 2009, the Corporation recorded a $364,000, or approximately 1 percent, other-than-temporary impairment charge to earnings relating to this court order liquidation of the Fund. The Corporation’s outstanding carrying balance in the Fund as of January 31, 2010 totaled $133,000.

During the third quarter of 2008, the Corporation recognized a $1.2 million other-than-temporary impairment charge on a Lehman Brothers corporate bond as a result of Lehman Brothers’ September bankruptcy filing. The Corporation deemed it prudent to mark the security down to what the Corporation believes it would receive from the bankruptcy proceedings as opposed to an attempted sale into an illiquid market. During the fourth quarter, the Corporation took an additional impairment charge of $100,000 on the same bond. The Corporation filed its claims under the Bankruptcy and received notification that Lehman will be afforded a longer time for liquidation than originally announced in order to maximize value returns on the sold assets. Management will continue to monitor the liquidation process, re-test values during that period and adjust carrying value if necessary.

During 2008, the Corporation recorded $461,000 of other-than-temporary impairment charges relating to three equity holdings in bank stocks. These equities were written down to fair value.

Temporarily Impaired Investments

For all other securities, the Corporation does not believe that the unrealized losses, which were comprised of eighty investment securities as of December 31, 2009, represent an other-than-temporary impairment. The gross unrealized losses associated with U.S. Treasury and Agency securities and Federal agency obligations, mortgage-backed securities, corporate bonds and tax-exempt securities are not considered to be other than temporary because their unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.

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

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

F-21

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Investment Securities – (continued)

The Corporation evaluates all securities with unrealized losses quarterly to determine whether the loss is other than temporary. Unrealized losses in the mortgage-backed securities category consist primarily of U.S. agency and private issue collateralized mortgage obligations. Unrealized losses in the corporate debt securities category consist of single name corporate trust preferred securities, pooled trust preferred securities and corporate debt securities issued by large financial institutions. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. For collateralized mortgage obligations, management reviewed expected cash flows and credit support to determine if it was probable that all principal and interest would be repaid. None of the corporate issuers have defaulted on interest payments. Management concluded that these securities, other than the previously mentioned two Pooled TRUPS, two private label CMOs, one equity holding and its investment in the Primary Reserve Funds, were not other-than-temporarily impaired at December 31, 2009. Future deterioration in the cash flow on collateralized mortgage obligations or the credit quality of these large financial institution issuers of corporate debt securities could result in impairment charges in the future.

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

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

	December 31, 2009
	Total					Less Than 12 Months					12 Months or Longer
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available-for-Sale:
Federal Agency Obligations	$	120,504	$	(2,647	)	$	120,402	$	(2,646	)	$	102	$	(1	)
Obligations of U.S. states and political subdivisions		7,181		(484	)		6,297		(458	)		884		(26	)
Trust preferred securities		25,253		(7,802	)		3,717		(1,234	)		21,536		(6,568	)
Other debt securities		22,815		(3,472	)		11,864		(55	)		10,951		(3,417	)
Equity securities		1,317		(445	)		—		—			1,317		(445	)
Total temporarily impaired securities	$	177,070	$	(14,850	)	$	142,280	$	(4,393	)	$	34,790	$	(10,457	)

F-22

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 — Investment Securities – (continued)

	December 31, 2008
	Total					Less than 12 Months					12 Months or Longer
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Available-for-Sale:
Federal Agency Obligations	$	16,118	$	(209	)	$	2,477	$	(1	)	$	13,641	$	(208	)
Obligations of U.S. states and political subdivisions		9,542		(268	)		8,740		(155	)		802		(113	)
Trust preferred securities		28,103		(7,279	)		1,485		(16	)		26,618		(7,263	)
Other debt securities		48,208		(3,824	)		16,358		(1,540	)		31,850		(2,284	)
Equity securities		500		(657	)		—		—			500		(657	)
Total temporarily impaired securities	$	102,471	$	(12,237	)	$	29,060	$	(1,712	)	$	73,411	$	(10,525	)

Investment securities having a carrying value of approximately $185.9 million and $149.8 million at December 31, 2009 and 2008, respectively, were pledged to secure public deposits, short-term borrowings, and FHLB advances and for other purposes required or permitted by law.

Note 5 — Loans and the Allowance for Loan Losses

The following table sets forth the composition of the Corporation’s loan portfolio, net of deferred fees and costs, at December 31, 2009 and 2008, respectively:

	2009 (Restated)		2008
	(Dollars in Thousands)
Real estate – residential mortgage	$	191,199	$	240,885
Real estate – commercial		410,056		358,394
Commercial and industrial		117,912		75,415
Installment		439		1,509
Total loans	$	719,606	$	676,203

Included in the loan balances above are net deferred loan costs of $391,000 and $572,000 at December 31, 2009 and 2008, respectively.

At December 31, 2009 and 2008, loans to officers and directors aggregated approximately $9,006,000 and $3,893,000, respectively. During the year ended December 31, 2009, the Corporation made new loans to officers and directors in the amount of $6,075,000; payments by such persons during 2009 aggregated $962,000.

Management is of the opinion that the above loans were made on the same terms and conditions as those prevailing for comparable transactions with non-related borrowers.

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 — Loans and the Allowance for Loan Losses – (continued)

A summary of the activity in the allowance for loan losses is as follows:

	2009 (Restated)			2008			2007
	(Dollars in Thousands)
Balance at the beginning of year	$	6,254		$	5,163		$	4,960
Provision for loan losses		4,597			1,561			350
Loans charged-off		(2,152	)		(499	)		(156	)
Recoveries on loans previously charged-off		12			29			9
Balance at the end of year	$	8,711		$	6,254		$	5,163

The amount of interest income that would have been recorded on non-accrual loans in 2009, 2008 and 2007 had payments remained in accordance with the original contractual terms was $431,000, $37,000 and $160,000, respectively.

At December 31, 2009, total impaired loans were approximately $12,211,000 as compared to $634,000 at December 31, 2008. The amount of related valuation allowances was $1,565,000 at December 31, 2009 and none at December 31, 2008. The amount of impaired loans with specific reserves was $6,756,000 while $5,455,000 of impaired loans had no specific reserves. The Corporation’s total average impaired loans were $6,253,000 during 2009, $525,000 during 2008, and $1,548,000 during 2007.

At December 31, 2009, there were no commitments to lend additional funds to borrowers whose loans were non-accrual or contractually past due in excess of 90 days and still accruing interest.

The policy of the Corporation is to generally grant commercial, mortgage and installment loans to New Jersey residents and businesses within its market area. The borrowers’ abilities to repay their obligations are dependent upon various factors including the borrowers’ income and net worth, cash flows generated by the borrowers’ underlying collateral, value of the underlying collateral, and priority of the Bank’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Corporation. The Corporation is therefore subject to risk of loss. The Corporation believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for virtually all loans.

Note 6 — Premises and Equipment

Premises and equipment are summarized as follows:

	Estimated Useful Life (Years)		2009		2008
	(Dollars in Thousands)
Land			$	3,447	$	3,447
Buildings		5 – 40		16,200		16,182
Furniture, fixtures and equipment		2 – 20		16,222		15,933
Leasehold improvements		5 – 30		1,839		1,735
Subtotal				37,708		37,297
Less: accumulated depreciation and amortization				19,848		18,809
Total premises and equipment, net			$	17,860	$	18,488

F-24

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Premises and Equipment – (continued)

Depreciation and amortization expense of premises and equipment for the three years ended December 31, 2009 amounted to $1,369,000 in 2009, $1,738,000 in 2008 and $1,592,000 in 2007, respectively.

Note 7 — Goodwill and Other Intangible Assets

Goodwill

Goodwill allocated to the Corporation as of December 31, 2009 and 2008 was $16,804,000. There were no changes in the carrying amount of goodwill during the fiscal years ended December 31, 2009 and 2008.

The table below provides information regarding the carrying amounts and accumulated amortization of amortized intangible assets as of the noted periods ended.

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(Dollars in Thousands)
As of December 31, 2009:
Core deposits	$	703	$	(479	)	$	224
Total intangible assets		703		(479	)		224
As of December 31, 2008:
Core deposits	$	703	$	(397	)	$	306
Total intangible assets		703		(397	)		306
As of December 31, 2007:
Core deposits	$	703	$	(303	)	$	400
Total intangible assets	$	703	$	(303	)	$	400

The current year and estimated future amortization expense for amortized intangible assets was $82,000 for 2009 and $69,000, $56,000, $44,000, $31,000 and $18,000, respectively, for the subsequent five-year periods of 2010, 2011, 2012, 2013 and 2014.

Note 8 — Deposits

The table below provides information regarding the aggregate amount and maturity of time certificates of deposit of $100,000 or more as of December 31, 2009.

	Amount
	(Dollars in Thousands)
Due in one year or less	$	141,827
Due in 2011		2,119
Due in 2012		753
Due in 2013		103
Total certificates of deposit $100 or more	$	144,802

F-25

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 — Borrowed Funds

Short-term borrowings at December 31, 2009 and 2008 consisted of the following:

	2009		2008
	(Dollars in Thousands)
Securities sold under agreements to repurchase	$	46,109	$	30,143
Federal funds purchased and FHLB short-term advances		—		15,000
Total short-term borrowings	$	46,109	$	45,143

The weighted average interest rate for short-term borrowings at December 31, 2009 and 2008 was 1.38 percent and 1.51 percent, respectively.

Long-term borrowings at December 31, 2009 and 2008 consisted of the following:

	2009		2008
	(Dollars in Thousands)
FHLB long-term advances	$	170,144	$	170,297
Securities sold under agreements to repurchase		53,000		53,000
Total long-term borrowings	$	223,144	$	223,297

Securities sold under agreements to repurchase had average balances of $87.9 million and $94.9 million for the years ended December 31, 2009 and 2008, respectively. The maximum amount outstanding at any month end during 2009 and 2008 was $111.5 million and $106.0 million, respectively. The average interest rate paid on securities sold under agreements to repurchase were 3.52 percent and 3.70 percent for the years ended December 31, 2009 and 2008, respectively. Overnight federal funds purchased averaged $0.5 million during 2009 as compared to $14.1 million during 2008.

The weighted average interest rates on long term borrowings at December 31, 2009 and 2008 were 4.36 percent and 4.34 percent, respectively. The maximum amount outstanding at any month-end during 2009 and 2008 was $223.3 million and $223.3 million, respectively. The average interest rates paid on Federal Home Loan Bank advances were 4.09 percent and 4.18 percent for the years ended December 31, 2009 and 2008, respectively.

At December 31, 2009 and 2008, advances from the Federal Home Loan Bank of New York (“FHLB”) amounted to $170.1 million and $170.3 million, respectively. The FHLB advances had a weighted average interest rate of 4.09 percent and 4.09 percent at December 31, 2009 and 2008, respectively. These advances are secured by pledges of FHLB stock, 1–4 family residential mortgages, commercial real estate mortgages and U.S. Government and Federal Agency obligations. The advances are subject to quarterly call provisions at the discretion of the FHLB and at December 31, 2009 and 2008, are contractually scheduled for repayment as follows:

	2009		2008
	(Dollars in Thousands)
2010	$	40,144	$	40,297
2011		10,000		10,000
2013		5,000		5,000
2016		20,000		20,000
2017		55,000		55,000
2018		40,000		40,000
Total	$	170,144	$	170,297

F-26

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 — Borrowed Funds – (continued)

The securities sold under repurchase agreements to other counterparties included in long-term debt totaled $53.0 million at December 31, 2009 and $53.0 million at December 31, 2008. The weighted average rate at December 31, 2009 and 2008 was 5.23 percent and 4.54 percent, respectively. The schedule for contractual repayment is as follows:

	2009		2008
	(Dollars in Thousands)
2011	$	12,000	$	12,000
2015		10,000		10,000
2017		15,000		15,000
2018		16,000		16,000
Total	$	53,000	$	53,000

Note 10 — Subordinated Debentures

During 2003, the Corporation formed a statutory business trust, which exists for the exclusive purpose of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of the Corporation; and (iii) engaging in only those activities necessary or incidental thereto. These subordinated debentures and the related income effects are not eliminated in the consolidated financial statements as the statutory business trust is not consolidated in accordance with FASB ASC 810-10 (previously FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities”). Distributions on the subordinated debentures owned by the subsidiary trusts below have been classified as interest expense in the Consolidated Statements of Income.

The following table summarizes the mandatory redeemable trust preferred securities of the Corporation’s Statutory Trust II at December 31, 2009.

Issuance Date	Securities Issued		Liquidation Value		Coupon Rate	Maturity		Redeemable by Issuer Beginning
12/19/03	$	5,000,000	$	1,000 per Capital Security	Floating 3-month LIBOR + 285 Basis Points		01/23/2034		01/23/2009

Note 11 — Income Taxes

The current and deferred amounts of income tax expense (benefit) for the years ended December 31, 2009, 2008 and 2007, respectively, are as follows:

	2009 (Restated)			2008		2007
	(Dollars in Thousands)
Current:
Federal	$	(19	)	$	104	$	1,693
State		146			242		313
Subtotal		127			346		2,006
Deferred:
Federal		824			1,184		(3,731	)
State		(5	)		37		(1,208	)
Subtotal		819			1,221		(4,939	)
Income tax expense (benefit)	$	946		$	1,567	$	(2,933	)

F-27

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Income Taxes – (continued)

During the fourth quarter of 2006, the Corporation effected an internal entity structure reorganization of its subsidiary companies to streamline and consolidate the various subsidiary companies. We simplified our structure by reducing the number of operating subsidiary entities. Plans of liquidation were adopted and affected for 2006 and this resulted in a $2.6 million federal tax benefit of which $1.4 million is reflected in the 2006 current net tax benefit. The liquidation was completed in November of 2007 and as a result for the year ended December 31, 2007, the Corporation recognized an additional $2.4 million federal tax benefit of which $1.3 million is reflected in the 2007 current net tax benefit.

Reconciliation between the amount of reported income tax expense and the amount computed by applying the statutory Federal income tax rate is as follows:

	2009 (Restated)			2008			2007
	(Dollars in Thousands)
Income before income tax expense	$	4,717		$	7,409		$	923
Federal statutory rate		34	%		34	%		34	%
Computed “expected” Federal income tax expense		1,604			2,519			314
State tax, net of Federal tax benefit		93			184			(591	)
Bank-owned life insurance		(393	)		(409	)		(313	)
Tax-exempt interest and dividends		(334	)		(798	)		(1,080	)
Internal entity reorganization of subsidiaries		—			—			(1,285	)
Other, net		(24)	)		71			22
Income tax expense (benefit)	$	946		$	1,567		$	(2,933	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability at December 31, 2009 and 2008 are presented below:

	2009 (Restated)		2008
	(Dollars in Thousands)
Deferred tax assets:
Impaired assets	$	1,661	$	676
Allowance for loan losses		3,296		2,314
Employee benefit plans		54		165
Unrealized loss on securities available-for-sale and tax benefits related to adoption of FASB ASC 715-10 (previously known as FASB No. 158)		7,088		5,800
Other		507		406
Federal NOL and AMT credits		4,777		7,426
State NOL and AMA credits		1,866		2,152
Total deferred tax assets	$	19,249	$	18,939
Deferred tax liabilities:
Depreciation	$	243	$	235
Market discount accretion		61		108
Deferred loan costs, net of fees		502		581
Purchase accounting		89		130
Total deferred tax liabilities		895		1,054
Net deferred tax asset	$	18,354	$	17,885

F-28

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Income Taxes – (continued)

Based on the Corporation’s historical and current taxable income and the projected future taxable income, management believes it is more likely than not that the Corporation will realize the benefit of the net deductible temporary differences existing at December 31, 2009 and 2008, respectively.

At December 31, 2009, the Corporation has federal income tax loss carry forwards of approximately $8.0 million, which have expirations beginning in the year 2020 and has state income tax loss carry forwards of approximately $27.8 million, which have expirations beginning in the year 2011.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependant upon the generation of future taxable income during periods in which those temporary differences become deductible, Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income, and tax planning strategies in making this assessment. During 2009 and 2008, based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Corporation believes the net deferred tax assets are more likely than not to be realized.

The Corporation’s federal income tax returns are open and subject to examination from the 2006 tax return year and forward. The Corporation’s state income tax returns are generally open from the 2006 and later tax return years based on individual state statute of limitations.

Note 12 — Commitments, Contingencies and Concentrations of Credit Risk

In the normal course of business, the Corporation has outstanding commitments and contingent liabilities, such as standby and commercial letters of credit, unused portions of lines of credit and commitments to extend various types of credit. Commitments to extend credit and standby letters of credit generally do not exceed one year.

These financial instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated financial statements. The commitment or contract amount of these financial instruments is an indicator of the Corporation’s level of involvement in each type of instrument as well as the exposure to credit loss in the event of non-performance by the other party to the financial instrument.

The Corporation controls the credit risk of these financial instruments through credit approvals, limits and monitoring procedures. To minimize potential credit risk, the Corporation generally requires collateral and other credit-related terms and conditions from the customer. In the opinion of management, the financial condition of the Corporation will not be materially affected by the final outcome of these commitments and contingent liabilities.

A substantial portion of the Bank’s loans is secured by real estate located in New Jersey. Accordingly, the collectability of a substantial portion of the loan portfolio of the Bank is susceptible to changes in the real estate market.

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 — Commitments, Contingencies and Concentrations of Credit Risk – (continued)

The following table provides a summary of financial instruments with off-balance sheet risk at December 31, 2009 and 2008:

	2009		2008
	(Dollars in Thousands)
Commitments under commercial loans and lines of credit	$	70,076	$	71,271
Home equity and other revolving lines of credit		54,572		61,886
Outstanding commercial mortgage loan commitments		33,659		31,831
Standby letters of credit		1,676		2,357
Performance letters of credit		11,466		13,745
Outstanding residential mortgage loan commitments		4,153		1,588
Overdraft protection lines		5,058		4,480
Other consumer		11		36
Total	$	180,671	$	187,194

Other expenses include rentals for premises and equipment of $704,000 in 2009, $1,092,000 in 2008 and $1,004,000 in 2007. At December 31, 2006, the Corporation was obligated under a number of non-cancelable leases for premises and equipment, many of which provide for increased rentals based upon increases in real estate taxes and the cost of living index. These leases, most of which have renewal provisions, are principally operating leases. Minimum rentals under the terms of these leases for the years 2010 through 2014 are $592,000, $607,000, $625,000, $500,000 and $533,000, respectively. Minimum rentals due 2015 and after are $4,857,000.

The Corporation is subject to claims and lawsuits that arise in the ordinary course of business. Based upon the information currently available in connection with such claims, it is the opinion of management that the disposition or ultimate determination of such claims will not have a material adverse impact on the consolidated financial position, results of operations, or liquidity of the Corporation.

Note 13 — Stockholders’ Equity, Regulatory Requirements and Subsequent Event

On January 12, 2009, the Corporation issued $10 million in nonvoting senior preferred stock to the U.S. Department of Treasury under the Capital Purchase Program. As part of the transaction, the Corporation also issued warrants to the U.S. Treasury to purchase 173,410 shares of common stock of the Corporation at an exercise price of $8.65 per share. As previously announced, the Corporation’s voluntary participation in the Capital Purchase Program amounted to approximately 50 percent of what the Corporation had qualified for under the U.S. Treasury program. The Corporation believes that its participation in this program will strengthen its current well-capitalized position. The funding will be used to support future loan growth. As a result of the successful completion of the rights offering in October 2009, the number of shares underlying the warrants held by the U.S. Treasury was reduced to 86,705 shares, or 50 percent of the original 173,410 shares as outlined by the provisions of the Capital Purchase Program.

Federal Deposit Insurance Corporation (“FDIC”) and the Board of Governors of the Federal Reserve System (“FRB”) regulations require banks to maintain minimum levels of regulatory capital. Under the regulations in effect at December 31, 2009, the Bank was required to maintain (i) a minimum leverage ratio of Tier I capital to total adjusted assets of 4.00 percent, and (ii) minimum ratios of Tier I and total capital to risk-weighted assets of 4.00 percent and 8.00 percent, respectively.

Under its prompt corrective action regulations, the regulators are required to take certain supervisory actions with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution’s financial statements. The regulations establish a framework for the classification of financial

F-30

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Stockholders’ Equity, Regulatory Requirements and Subsequent Event – (continued)

institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well capitalized if it has a Tier 1 Leverage Capital ratio of at least 5.00 percent; a Tier I Risk-Based Capital ratio of at least 6.00 percent; and a total Risk-Based Capital ratio of at least 10.00 percent.

The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about capital components, risk weightings and other factors. The Comptroller of the Currency (“OCC”) has established higher minimum capital ratios for the Bank effective as of December 31, 2009: Tier 1 Risk-Based Capital of 10.0 percent, Total Risk-Based Capital of 12.0 percent and Tier 1 Leverage Capital of 8.0 percent. Similar categories apply to bank holding companies. At December 31, 2009, the Bank’s capital ratios were all above the minimum levels required, other than the Tier 1 Leverage Capital ratio, which was below the 8.0 percent established by the OCC for the Bank.

At December 31, 2009, management believes that the Bank and the Parent Corporation met all capital adequacy requirements to which they are subject, other than the Tier 1 Leverage Capital ratio for the Bank, which was below the 8.0 percent established by the OCC for the Bank.

The following is a summary of the Bank’s and the Parent Corporation’s actual capital amounts and ratios as of December 31, 2009 and 2008, compared to the FRB and FDIC minimum capital adequacy requirements and the FRB and FDIC requirements for classification as a well-capitalized institution.

	Union Center National Bank					Minimum Capital Adequacy					For Classification as Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
December 31, 2009 Leverage (Tier 1) capital (Restated)	$	96,314		7.56	%	$	52,133		4.00	%	$	64,315		5.00	%
Risk-Based Capital:
Tier 1 (Restated)	$	96,314		11.17	%	$	34,485		4.00	%	$	51,727		6.00	%
Total (Restated)		105,036		12.18	%		68,970		8.00	%		86,212		10.00	%
December 31, 2008 Leverage (Tier 1) capital	$	76,598		7.54	%	$	41,655		4.00	%	$	51,214		5.00	%
Risk-Based Capital:
Tier 1	$	76,598		9.99	%	$	30,672		4.00	%	$	46,008		6.00	%
Total		82,852		10.80	%		61,344		8.00	%		76,680		10.00	%

F-31

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Stockholders’ Equity, Regulatory Requirements and Subsequent Event – (continued)

	Parent Corporation					Minimum Capital Adequacy					For Classification as Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
December 31, 2009 Leverage (Tier 1) capital (Restated)	$	98,536		7.73	%	$	52,143		4.00	%	$	64,327		5.00	%
Risk-Based Capital:
Tier 1 (Restated)	$	98,536		11.43	%	$	34,498		4.00	%	$	51,747		6.00	%
Total (Restated)		107,247		12.44	%		68,996		8.00	%		N/A		N/A
December 31, 2008 Leverage (Tier 1) capital	$	78,237		7.71	%	$	41,619		4.00	%	$	51,618		5.00	%
Risk-Based Capital:
Tier 1	$	78,237		10.20	%	$	30,675		4.00	%	$	46,013		6.00	%
Total		84,491		11.02	%		61,350		8.00	%		N/A		N/A

The Corporation issued $5.2 million of subordinated debentures in 2003. These securities are included as a component of Tier 1 Capital for regulatory purposes.

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

Note 14 — Comprehensive Income

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

Disclosure of comprehensive income for the years ended December 31, 2009, 2008 and 2007 is presented in the Consolidated Statements of Changes in Stockholders’ Equity. The table below provides a reconciliation of the components of other comprehensive income to the disclosure provided in the statement of changes in stockholders’ equity.

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — Comprehensive Income – (continued)

The components of other comprehensive income (loss), net of taxes, were as follows for the following fiscal years ended December 31:

	Years Ended December 31,
	2009			2008			2007
	(Dollars in Thousands)
Unrealized losses on debt securities for which a portion of the impairment has been recognized in income	$	(1,830	)	$	—		$	—
Reclassification adjustments of OTTI losses included in income		(4,238	)		—			—
Unrealized losses on other available for sale securities		(1,979	)		(3,328	)		(4,079	)
Reclassification adjustment for net gain/(loss) arising during this period		4,729			655			312
Net unrealized losses		(3,318	)		(2,673	)		(3,767	)
Tax effect		1,354			1,584			1,163
Net of tax amount		(1,964	)		(1,089	)		(2,604	)
Change in minimum pension liability		25			—			—
Tax effect		(10	)		—			—
Net of tax amount		15			—			—
Net actuarial gains (losses)		142			(3,332	)		(583	)
Tax effect		(57	)		1,333			233
Net of tax amount		85			(1,999	)		(350	)
Change in pension plan – curtailment		—			—			1,353
Tax effect		—			—			(541	)
Net of tax amount		—			—			812
Market value adjustment on securities transferred from held-to-maturity to available-for-sale		—			—			(459	)
Tax effect		—			—			187
Net of tax amount		—			—			(272	)
Other comprehensive loss, net of tax	$	(1,864	)	$	(3,088	)	$	(2,414	)

Accumulated other comprehensive loss at December 31, 2009 and 2008 consisted of the following:

	2009			2008
	(Dollars in Thousands)
Investment securities available-for-sale, net of tax	$	(8,428	)	$	(6,464	)
Defined benefit pension and post-retirement plans, net of tax		(2,348	)		(2,448	)
Total	$	(10,776	)	$	(8,912	)

Note 15 — Pension and Other Benefits

Defined Benefit Plans

The Corporation maintained a non-contributory pension plan for substantially all of its employees until September 30, 2007, at which time the Corporation froze its defined benefit pension plan. The benefits are based on years of service and the employee’s compensation over the prior five-year period. The plan’s benefits are payable in form of a ten year certain and life annuity. The plan is intended to be a tax-qualified defined benefit plan under Section 401(a) of the Internal Revenue Code. The Pension Plan, which has been in effect since March 15, 1950, generally covers employees of Union Center National Bank and the Parent Corporation

F-33

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Pension and Other Benefits – (continued)

who have attained age 21 and completed one year of service. Payments may be made under the Pension Plan once attaining the normal retirement age of 65 and is generally equal to 44 percent of a participant’s highest average compensation over a 5-year period.

In addition, the Corporation has a non-qualified retirement plan that is designed to supplement the pension plan for key employees. The plan is known as the Union Center National Bank Benefit Equalization Plan, or “BEP”. The BEP is a nonqualified, unfunded supplemental retirement plan, which is designed to replace the benefits that cannot be provided under the terms of the Pension Plan solely due to certain compensation and benefit limits placed on tax-qualified pension plans under the Internal Revenue Code. Benefits under the BEP Plan were paid out in 2009.

On August 9, 2007, the Corporation froze its defined benefit pension plan and redesigned its 401(k) savings plan, effective September 30, 2007. The changes are consistent with ongoing cost reduction strategies and shift the focus of future savings of retirement benefits toward the more predictable cost structure of a 401(k) plan and away from the legacy costs of a defined benefit pension plan. The changes included a discontinuation of the accrual of future benefits in the Corporation’s defined benefit pension plan and fully preserving all retirement benefits that employees will have earned as of September 30, 2007, and the redesigning of the Corporation’s 401(k) plan to provide a dollar-for-dollar matching contribution up to six percent of salary deferrals. The Corporation also froze all other defined benefit plans. As a result, the Corporation recorded a one-time pre-tax benefit related to these pension plan changes of approximately $1.2 million in 2007 as a result of the curtailment of the defined benefit plan.

In 1999, the Corporation adopted a Director’s Retirement Plan, which is designed to provide retirement benefits for members of the Board of Directors. There was no recorded expense associated with the plan in 2009, 2008 and 2007. During the third quarter of 2008, the Corporation recognized a $272,000 benefit relating to a lump-sum payment and termination of the Directors Retirement Plan. This benefit represented the difference between the actuarial present value of the lump-sum payments and the accrued liability previously recorded on the Corporation’s balance sheet.

F-34

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Pension and Other Benefits – (continued)

The following table sets forth changes in projected benefit obligation, changes in fair value of plan assets, funded status, and amounts recognized in the consolidated statements of condition for the Corporation’s pension plans at December 31, 2009 and 2008.

	2009			2008
	(Dollars in Thousands)
Change in Benefit Obligation:
Projected benefit obligation at beginning of year	$	9,923		$	11,497
Service cost		—			—
Interest cost		606			676
Actuarial loss		617			107
Benefits paid		(486	)		(663	)
Curtailments		—			(719	)
Settlement		—			(975	)
Projected benefit obligation at end of year	$	10,660		$	9,923
Change in Plan Assets:
Fair value of plan assets at beginning year	$	5,734		$	9,008
Actual return on plan assets		930			(2,728	)
Employer contributions		474			1,092
Benefits paid		(486	)		(663	)
Settlement		—			(975	)
Fair value of plan assets at end of year	$	6,652		$	5,734
Funded status	$	(4,008	)	$	(4,189	)

Amounts related to unrecognized actuarial losses for the plan, on a pre-tax basis, that have been recognized in accumulated other comprehensive loss at December 31, 2009 and 2008 amounted to $3,914,000 and $4,082,000, respectively.

The net periodic pension cost for 2009, 2008 and 2007 includes the following components:

	2009			2008			2007
	(Dollars in Thousands)
Service cost	$	—		$	—		$	627
Interest cost		606			701			707
Expected return on plan assets		(288	)		(658	)		(674	)
Net amortization and deferral		—			—			13
Recognized curtailment gain		—			—			(1,155	)
Net periodic pension expense (benefit)	$	318		$	43		$	(482	)

The following table presents the assumptions used to calculate the projected benefit obligation in each of the last three years.

	2009			2008			2007
Discount rate		5.75	%		6.25	%		5.75	%
Rate of compensation increase		N/A			N/A			4.25	%
Expected long-term rate of return on plan assets		5.00	%		7.50	%		7.50	%

F-35

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Pension and Other Benefits – (continued)

The following information is provided at December 31:

	2009			2008			2007
	(Dollars in Thousands)
Information for Plans With a Benefit Obligation in Excess of Plan Assets
Projected benefit obligation	$	10,660		$	9,923		$	11,497
Accumulated benefit obligation		10,660			9,923			11,497
Fair value of plan assets		6,652			5,734			9,008
Assumptions
Weighted average assumptions used to determine benefit obligation at December 31
Discount rate		6.25	%		6.25	%		6.25	%
Rate of compensation increase		N/A			N/A			N/A
Weighted average assumptions used to determine net periodic benefit cost for years ended December 31
Discount rate		6.25	%		6.25	%		5.75	%
Expected long-term return on plan assets		5.00	%		7.50	%		7.50	%
Rate of compensation increase		N/A			N/A			4.25	%

The process of determining the overall expected long-term rate of return on plan assets begins with a review of appropriate investment data, including current yields on fixed income securities, historical investment data, historical plan performance and forecasts of inflation and future total returns for the various asset classes. This data forms the basis for the construction of a best-estimate range of real investment return for each asset class. An average, weighted real-return range is computed reflecting the Plan’s expected asset mix, and that range, when combined with an expected inflation range, produces an overall best-estimate expected return range. Specific factors such as the Plan’s investment policy, reinvestment risk and investment volatility are taken into consideration during the construction of the best estimate real return range, as well as in the selection of the final return assumption from within the range.

Plan Assets

The Union Center National Bank Pension Trust’s weighted-average asset allocation at December 31, 2009, 2008 and 2007, by asset category, is as follows:

Asset Category	2009			2008			2007
Equity securities		44	%		48	%		80	%
Debt and/or fixed income securities		46	%		34	%		20	%
Alternative investments, including commodities, foreign currency and real estate		5	%		9	%		—
Cash and other alternative investments, including hedge funds, equity structured notes		5	%		9	%		—
Total		100	%		100	%		100	%

F-36

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Pension and Other Benefits – (continued)

The general investment policy of the Pension Trust is for the fund to experience growth in assets that will allow the market value to exceed the value of benefit obligations over time. Appropriate diversification on a total fund basis is achieved by following an allowable range of commitment within asset category, as follows:

	Range			Target
Equity securities		36 – 52	%		44	%
Debt and/or fixed income securities		38 – 54	%		46	%
International equity		N/A			N/A
Short term		N/A			N/A
Other		7 – 14	%		10	%

The fair value of the Corporation’s pension plan assets at December 31, 2009, by asset category, are as follows:

			Fair Value Measurements at Reporting Date Using
	December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Cash	$	1,020	$	1,020	$	—	$	—
Equity Securities:
U.S. companies		1,327		1,327		—		—
International companies		1,163		1,163		—		—
U.S. Treasury securities		2,301		2,301		—		—
Corporate bonds		340		340		—		—
Commodities		170		170		—		—
Hedge funds		331		—		—		331
Total	$	6,652	$	6,321	$	—	$	331

The following table presents the changes in pension plan asset with significant unobservable inputs (Level 3) for the year ended December 31:

	2009
	(Dollars in Thousands)
Beginning balance, January 1,	$	663
Actual return on plan assets:
Relating to assets still held at the reporting date		88
Relating to assets sold during the period		—
Purchases, sales and settlements		—
Transfers out of Level 3		(420	)
Ending balance, December 31,	$	331

The investment manager is not authorized to purchase, acquire or otherwise hold certain types of market securities (subordinated bonds, commodities, real estate investment trusts, limited partnerships, naked puts, naked calls, stock index futures, oil, gas or mineral exploration ventures or unregistered securities) or to employ certain types of market techniques (margin purchases or short sales) or to mortgage, pledge, hypothecate, or in any manner transfer as security for indebtedness, any security owned or held by the Plan.

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Pension and Other Benefits – (continued)

Cash Flows

Contributions

The Bank expects to contribute $646,000 to its Pension Trust in 2010.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in each year 2010, 2011, 2012, 2013, 2014 and years 2015-2019, respectively: $641,464, $655,491, $740,493, $768,895, $803,473 and $4,124,112.

401(k) Benefit Plan

The Corporation maintains a 401(k) employee savings plan to provide for defined contributions which covers substantially all employees of the Corporation. Prior to October 1, 2007, the Corporation’s contributions to the plan were limited to fifty percent of a matching percentage of each employee’s contribution up to six percent of the employee’s salary. Effective October 1, 2007, the Corporation redesigned its 401(k) plan to provide a dollar-for-dollar matching contribution up to six percent of salary deferrals. For 2009, 2008 and 2007, employer contributions amounted to $266,000, $281,000 and $193,000, respectively.

Note 16 — Stock Based Compensation

Stock Option Plans

At December 31, 2009, the Corporation maintained two stock-based compensation plans from which new grants could be issued. The 2009 Equity Incentive Plan permits the grant of “incentive stock options” as defined under the Internal Revenue Code, non-qualified stock options, restricted stock awards and restricted stock unit awards to employees, including officers, and consultants of the Corporation and its subsidiaries. The 2003 Non-Employee Director Stock Option Plan permits the grant of non-qualified stock options to the Corporation’s non-employee directors. An aggregate of 400,000 shares remain available for grant under the 2009 Equity Incentive Plan and an aggregate of 452,874 shares remain available for grant under the 2003 Non-Employee Director Stock Option Plan. Such shares may be treasury shares, newly issued shares or a combination thereof.

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

The total compensation expense related to these plans was $77,000, $128,000 and $151,000 for the years ended December 31, 2009, 2008 and 2007, respectively.

For the year ended December 31, 2009, the Corporation’s income before income taxes and net income was reduced by $77,000 and $51,000, respectively, as a result of the compensation expense related to stock options. For the year ended December 31, 2008, the Corporation’s income before income taxes and net income was reduced by $128,000 and $84,000, respectively. For the year ended December 31, 2007, the Corporation’s income before income taxes and net income was reduced by $151,000 and $100,000, respectively.

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

F-38

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 — Stock Based Compensation – (continued)

ratably over the period during which the restrictions lapse. During 2009, no shares were awarded while in 2008, there were 3,028 shares awarded. During 2007, no shares were awarded. All shares were issued from Treasury shares. In 2009, there were no compensation costs related to restricted stock awards included in salary expense. The amount of compensation cost related to restricted stock awards included in salary expense was approximately $25,000 in 2008 and none in 2007. As of December 31, 2009, all shares of restricted stock awards were vested. Thus, there were no restricted stock awards outstanding at December 31, 2009 and 2008.

Options covering 38,203, 38,203 and 38,203 shares were granted on March 1, 2009, March 1, 2008 and June 1, 2007, respectively. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values:

	2009			2008			2007
Weighted average fair value of grants	$	1.48		$	3.10		$	6.48
Risk-free interest rate		1.90	%		3.03	%		4.92	%
Dividend yield		4.69	%		2.43	%		2.51	%
Expected volatility		33.0	%		30.2	%		47.4	%
Expected life in months		69			88			72

Option activity under the principal option plans as of December 31, 2009 and changes during the twelve months ended December 31, 2009 were as follows:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2008		185,164		$	10.45
Granted		38,203			7.67
Exercised		(9,289	)		6.07
Forfeited/cancelled/expired		(22,076	)		11.04
Outstanding at December 31, 2009		192,002		$	10.04		5.82	$	91,679
Exercisable at December 31, 2009		124,271		$	10.05		4.36	$	48,267

The aggregate intrinsic value of options above represents the total pre-tax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of the twelve-months of fiscal 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2009. This amount changes based on the fair market value of the Parent Corporation’s stock.

F-39

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16 — Stock Based Compensation – (continued)

As of December 31, 2009, $143,000 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.1 years. Changes in options outstanding during the past three years were as follows:

Stock Option Plan	Shares			Exercise Price Range per Share
Outstanding, December 31, 2006 (262,527 shares exercisable)		340,850		$	6.07 to $15.12
Granted during 2007		38,203		$	15.73
Exercised during 2007		(95,861	)	$	6.07 to $10.66
Expired or canceled during 2007		(18,937	)	$	10.50 to$15.73
Outstanding, December 31, 2007 (188,273 shares exercisable)		264,255		$	6.07 to $15.73
Granted during 2008		38,203		$	11.15
Exercised during 2008		(25,583	)	$	6.07 to $10.66
Expired or canceled during 2008		(91,711	)	$	6.07 to $15.73
Outstanding, December 31, 2008 (125,468 shares exercisable)		185,164		$	6.07 to $15.73
Granted during 2009		38,203		$	7.67
Exercised during 2009		(9,289	)	$	6.07
Expired or canceled during 2009		(22,076	)	$	6.07 to $15.73
Outstanding, December 31, 2009 (124,271 shares exercisable)		192,002		$	7.67 to $15.73

Under the Director Stock Option Plan, there were stock options granted with a weighted average fair value of 38,203 and $1.48, 38,203 and $3.10 and 38,203 and $6.48 during the years ended December 31, 2009, 2008 and 2007, respectively. There were no stock options granted under the Employee Stock Incentive Plan during the years ended December 31, 2009, 2008 and 2007.

Note 17 — Dividends and Other Restrictions

Certain restrictions, including capital requirements, exist on the availability of undistributed net profits of the Bank for the future payment of dividends to the Parent Corporation. A dividend may not be paid if it would impair the capital of the Bank. Furthermore, prior approval by the Comptroller of the Currency is required if the total of dividends declared in a calendar year exceeds the total of the Bank’s net profits for that year combined with the retained profits for the two preceding years. Pursuant to a Memorandum of Understanding (“MOU”) between the Bank and the Office of the Comptroller of the Currency (“OCC”), the Bank may not declare dividends without prior approval of the OCC. At December 31, 2009, approximately $4.4 million was available for payment of dividends based on the preceding guidelines.

Note 18 — Fair Value Measurements and Fair Value of Financial Instruments

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

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

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CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

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

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

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

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

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

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

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

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

Cash and Cash Equivalents

The carrying amounts for cash and cash equivalents approximate those assets’ fair value.

Securities Available-for-Sale

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

F-41

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

At December 31, 2009, the Corporation’s two pooled trust preferred securities and one private issue single name trust preferred security were classified as Level 3. During 2009, there was a marked improvement in the pricing of financial institutions debt securities. As a result, all private label collateralized mortgage obligations (“CMOs”), and all but one of the single issuer trust preferred securities, were transferred back to Level 2 pricing. Market pricing for these Level 3 securities varied widely from one pricing service to another based on the lack of trading. As such, these securities were considered to no longer have readily observable market data that was accurate to support a fair value as prescribed by FASB ASC 820-10-05. The fair value measurement objective remained the same in that the price received by the Corporation would result from an orderly transaction (an exit price notion) and that the observable transactions considered in fair value were not forced liquidations or distressed sales at the measurement date.

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

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

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

Since June 30, 2008, the market for these TRUPS has become increasingly inactive. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these TRUPS trade and then by a significant decrease in the volume of trades relative to historical levels as well as other relevant factors. At December 31, 2009, the Corporation determined that the market for similar TRUPS had stabilized. That determination was made considering that there are more observable transactions for similar TRUPS, the prices for those transactions that have occurred are current and or represent fair value, and the observable prices for those transactions have stabilized over time, thus increasing the potential relevance of those observations. However, the Corporation’s three TRUPS at December 31, 2009 have been classified within Level 3 because the Corporation determined that significant adjustments using unobservable inputs are required to determine a true fair value at the measurement date.

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

The fair value as of December 31, 2009 was determined by discounting the expected cash flows over the life of the security. The discount rate was determined by deriving a discount rate when the markets were considered more active for this type of security. To this estimated discount rate, additions were made for more liquid markets and increased credit risk as well as assessing the risks in the security, such as default risk and severity risk. With the exception of the two pooled trust preferred securities, for which $3.4 million of impairment charges were taken to earnings during 2009, the securities continue to make scheduled cash flows and no material cash flow payment defaults have occurred to date.

F-42

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Loans Held for Sale

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

Loans Receivable

The fair value of performing loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate inherent in the loan. The estimate of maturity is based on the historical experience of the Bank with prepayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs.

Restricted Stocks

The carrying amount of restricted investment in bank stocks, which includes stock of the Federal Home Loan Bank of New York, Federal Reserve Bank of New York and Atlantic Central Bankers Bank, approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable

The carrying value of accrued interest receivable and accrued interest payable approximates its fair value.

Deposits

The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings and interest-bearing checking accounts, and money market and checking accounts, is equal to the amount payable on demand as of December 31, 2009 and 2008. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Short-Term Borrowings

Short-term borrowings that mature within six months and securities sold under agreements to repurchase have fair values which approximate carrying value.

Long-Term Borrowings

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Subordinated Debt

The fair value of subordinated debentures is estimated by discounting the estimated future cash flows, using market discount rates of financial instruments with similar characteristics, terms and remaining maturity.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credits is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rate and the committed rates. The fair value of financial standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties.

F-43

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

			Fair Value Measurements at Reporting Date Using
	December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Financial Instruments Measured at Fair Value on a Recurring Basis:
U.S. Treasury & Agency Securities	$	2,089	$	2,089	$	—	$	—
Federal Agency Obligations		214,585		55,470		159,115		—
Obligations of U.S. States and Political Subdivision		19,281		—		19,281		—
Trust preferred securities		26,715		—		24,366		2,349
Other debt securities		29,921		7,248		22,673		—
Equity securities		5,533		5,533		—		—
Securities available-for-sale	$	298,124	$	70,340	$	225,435	$	2,349

			Fair Value Measurements at Reporting Date Using
	December 31, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Financial Instruments Measured at Fair Value on a Recurring Basis:
U.S. Treasury & Agency Securities	$	100	$	100	$	—	$	—
Federal Agency Obligations		82,797		—		82,797		—
Obligations of U.S. States and Political Subdivision		52,094		2,190		49,904		—
Trust preferred securities		31,771		—		14,713		17,058
Other debt securities		59,362		3,816		49,050		6,496
Equity securities		16,590		16,590		—		—
Securities available-for-sale	$	242,714	$	22,696	$	196,464	$	23,554

F-44

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

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

	2009
	(Dollars in Thousands)
Beginning balance, January 1,	$	23,554
Transfers out of Level 3		(19,855	)
Principal interest deferrals		139
Total net losses included in net income		(4,403	)
Total net unrealized gains		2,914
Ending balance, December 31,	$	2,349

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

Assets Measured at Fair Value on a Non-Recurring Basis

For assets measured at fair value on a non-recurring basis, the fair value measurements at December 31, 2009 are as follows:

			Fair Value Measurements at Reporting Date Using
(Restated)	December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Assets Measured at Fair Value on a Non-Recurring Basis:
Impaired loans	$	5,455	$	—	$	—	$	5,455

At December 31, 2009 and 2008, impaired loans totaled $6,756,000 and $634,000, respectively. The amount of related valuation allowances was $1,436,000 at December 31, 2009 and none at December 31, 2008.

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

Impaired Loans

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

F-45

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Other Real Estate Owned

Certain assets such as other real estate owned (“OREO”) are measured at fair value less cost to sell. The Corporation believes that the fair value component in its valuation follows the provisions of FASB ASC 820-10-05. Fair value of OREO is determined by sales agreements or appraisals by qualified licensed appraisers approved and hired by the Corporation. Costs to sell associated with OREO is based on estimation per the terms and conditions of the sales agreements or appraisal. At December 31, 2009, the Corporation held no OREO as the residential real estate condominium project was sold during the third quarter of 2009.

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

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

	December 31,
	2009 (Restated)				2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in Thousands)
FINANCIAL ASSETS:
Cash and cash equivalents	$	89,168	$	89,168	$	15,031	$	15,031
Investment securities available-for-sale		298,124		298,124		242,714		242,714
Net loans		710,895		717,191		669,949		673,976
Restricted investment in bank stocks		10,672		10,672		10,230		10,230
Accrued interest receivable		4,033		4,033		4,154		4,154
FINANCIAL LIABILITIES:
Non interest-bearing deposits		130,518		130,518		113,319		113,319
Interest-bearing deposits		683,187		683,974		546,218		548,747
Federal funds purchased, securities sold under agreement to repurchase and FHLB advances		269,253		279,219		268,440		296,144
Subordinated debentures		5,155		5,155		5,155		4,875
Accrued interest payable		1,825		1,825		2,201		2,201

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

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

Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, there are certain significant assets and liabilities that are not considered

F-46

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18 — Fair Value Measurements and Fair Value of Financial Instruments – (continued)

financial assets or liabilities, such as the brokerage network, deferred taxes, premises and equipment, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

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

Note 19 — Parent Corporation Only Financial Statements

The Parent Corporation operates its wholly-owned subsidiary, Union Center National Bank. The earnings of this subsidiary are recognized by the Corporation using the equity method of accounting. Accordingly, earnings are recorded as increases in the Corporation’s investment in the subsidiaries and dividends paid reduce the investment in the subsidiaries. The ability of the Parent Corporation to pay dividends will largely depend upon the dividends paid to it by the Bank. Dividends payable by the Bank to the Corporation are restricted under supervisory regulations (see Note 17 of the Notes to Consolidated Financial Statements).

Condensed financial statements of the Parent Corporation only are as follows:

Condensed Statements of Condition

	At December 31,
	2009 (Restated)		2008
	(Dollars in Thousands)
ASSETS
Cash and cash equivalents	$	2,683	$	922
Investment in subsidiaries		104,144		85,229
Securities available for sale		501		1,255
Other assets		248		1,306
Total assets	$	107,576	$	88,712
LIABILITIES AND STOCKHOLDERS’ EQUITY
Other liabilities	$	280	$	1,041
Securities sold under repurchase agreement		392		803
Subordinated debentures		5,155		5,155
Stockholders’ equity		101,749		81,713
Total liabilities and stockholders’ equity	$	107,576	$	88,712

Condensed Statements of Income

	For Years Ended December 31,
	2009 (Restated)			2008			2007
	(Dollars in Thousands)
Income:
Dividend income from subsidiaries	$	2,474		$	4,675		$	7,074
Other income		3			37			58
Net securities gains (losses)		(325	)		(413	)		95
Management fees		298			275			221
Total income		2,450			4,574			7,448
Expenses		(604	)		(623	)		(1,718	)
Income before equity in undistributed earnings (loss) of subsidiaries		1,846			3,951			5,730
Equity in undistributed earnings (loss) of subsidiaries		1,925			1,891			(1,874	)
Net income	$	3,771		$	5,842		$	3,856

F-47

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19 — Parent Corporation Only Financial Statements – (continued)

Condensed Statements of Cash Flows

	For Years Ended December 31,
	2009 (Restated)			2008			2007
	(Dollars in Thousands)
Cash flows from operating activities:
Net income	$	3,771		$	5,842		$	3,856
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Net securities losses (gains)		325			413			(95	)
Equity in undistributed (earnings) loss of subsidiary		(1,925	)		(1,891	)		1,874
Change in deferred tax asset		(111	)		(1,542	)		—
Decrease in other assets		1,838			41			1,516
(Decrease) increase in other liabilities		(844	)		1,610			(1,114	)
Stock-based compensation		77			128			151
Net cash provided by operating activities		3,131			4,601			6,188
Cash flows from investing activities:
Purchases of available-for-sale securities		—			(579	)		(5,070	)
Maturity of available-for-sale securities		659			938			6,887
(Investments in subsidiaries) and return of capital from subsidiaries		(19,000	)		3,500			3,500
Net cash (used in) provided by investing activities		(18,341	)		3,859			5,317
Cash flows from financing activities:
Net (decrease) increase in borrowings		(411	)		(1,197	)		2,000
Cash dividends paid on common stock		(3,166	)		(4,675	)		(4,885	)
Proceeds from exercise of stock options		57			224			850
Proceeds from restricted stock		—			25			—
Proceeds from issuance of preferred stock and warrants		10,000			—			—
Cash dividends paid on preferred stock		(425	)		—			—
Proceeds from issuance of shares from rights offering		11,000			—			—
Purchase of treasury stock		—			(1,924	)		(10,027	)
Issuance cost of common stock		(11	)		(19	)		(21	)
Tax (expense) benefit from stock-based compensation		(73	)		(78	)		155
Net cash provided by (used in) financing activities		16,971			(7,644	)		(11,928	)
Increase (decrease) in cash and cash equivalents		1,761			816			(423	)
Cash and cash equivalents at beginning of year		922			106			529
Cash and cash equivalents at the end of year	$	2,683		$	922		$	106

F-48

CENTER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20 — Quarterly Financial Information of Center Bancorp, Inc. (Unaudited)

	2009
	4th Quarter (Restated)(1)			3rd Quarter			2nd Quarter		1st Quarter
	(Dollars in Thousands, Except per Share Data)
Total interest income	$	12,971		$	13,491		$	12,706	$	11,942
Total interest expense		4,953			6,050			6,079		5,563
Net interest income		8,018			7,441			6,627		6,379
Provision for loan losses		2,740			280			156		1,421
Total other income, net of securities gains		968			822			841		784
Net securities gains (losses)		(1,308	)		(511	)		1,710		600
Other expense		5,238			5,186			7,314		5,319
Income before income taxes		(300	)		2,286			1,708		1,023
Income tax expense (benefit)		(536	)		751			507		224
Net income	$	236		$	1,535		$	1,201	$	799
Net income available to common stockholders	$	94		$	1,387		$	1,053	$	670
Earnings per share:
Basic	$	0.01		$	0.11		$	0.08	$	0.05
Diluted	$	0.01		$	0.11		$	0.08	$	0.05
Weighted average common shares outstanding:
Basic		14,531,387			13,000,601			12,994,429		12,991,312
Diluted		14,534,255			13,005,101			12,996,544		12,993,185
(1) See Note 21 to the Consolidated Financial Statements.

	2008
	4th Quarter			3rd Quarter			2nd Quarter		1st Quarter
	(Dollars in Thousands, Except per Share Data)
Total interest income	$	12,615		$	12,689		$	12,230	$	12,360
Total interest expense		5,792			5,829			5,801		6,673
Net interest income		6,823			6,860			6,429		5,687
Provision for loan losses		425			465			521		150
Total other income, net of securities gains		871			1,122			891		866
Net securities gains (losses)		(256	)		(1,075	)		225		0
Other expense		4,754			4,578			5,188		4,953
Income before income taxes		2,259			1,864			1,836		1,450
Income tax expense		560			346			428		233
Net income	$	1,699		$	1,518		$	1,408	$	1,217
Earnings per share:
Basic	$	0.13		$	0.12		$	0.11	$	0.09
Diluted	$	0.13		$	0.12		$	0.11	$	0.09
Weighted average common shares outstanding:
Basic		12,989,304			12,990,441			13,070,868		13,144,747
Diluted		12,995,134			13,003,954			13,083,558		13,163,586

  Note: Due to rounding, quarterly earnings per share may not sum to reported annual earnings per share.

F-49

 Note 21—Restatement of Consolidated Financial Statements

Reclassification adjustment related to presentation of receivable

Subsequent to issuance of the Corporation’s December 31, 2009 financial statements, the Corporation received notice that it was necessary to conform to regulatory reporting positions taken, with respect to the previously reported loan receivable from Highlands State Bank (“Highlands”).  As previously reported, this loan participation ended and Union Center National Bank (the “Bank”) made demand for payment from Highlands.  In the Corporation’s Annual Report on Form 10-K as originally reported, the Corporation treated the amount due of approximately $5,053,000 as a receivable from Highlands rather than as a loan since the participation had ended.  Bank regulators have concluded that solely for purposes of the Consolidated Reports of Condition and Income (“Call Reports”) filed by the Bank with the bank regulators, the item should be accounted for consistent with its classification prior to December 31, 2009, despite the termination of the participation.  After reviewing this matter with the Audit Committee of the Board of Directors of the Corporation and of the Board of Directors of the Bank, the Bank has agreed to account for this item in its Call Reports in the manner proposed by the bank regulators and the Corporation has determined to restate its year-end financial statements filed with the SEC to assure that the financial statements filed with the SEC are consistent with the financial statements filed as part of the Call Reports.

Subsequent change in the provision and the allowance for loan losses pursuant to reclassification of receivable

By conforming at December 31, 2009 to the previous regulatory reporting classification, management determined that (i) a $900,000 charge-off that was reversed at the time the loan was originally reclassified to a receivable would be required to be reinstated to the loan balance; and (ii) a  FASB ASC 350-10 (previously SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”) impairment evaluation was necessary on the net loan at December 31, 2009, which resulted in an increase in the provision and the allowance for loan losses.  The effect on net income for the year ended December 31, 2009 was a decrease of $802,000.

	At or For the Year Ended December 31, 2009
	As Previously Reported			Reclassification			Adjustment			Restated
	(In Thousands, Except Per Share Data )
Consolidated Statement of Condition Data
Loans	$	715,453		$	5,053		$	(900	)	$	719,606
Allowance for loan losses		8,275			—			436			8,711
Net loans		707,178			5,053			(1,336	)		710,895
Other assets		21,083			(5,053	)		—			16,030
Total assets		1,196,824			—			(1,336	)		1,195,488
Accounts payable and accrued liabilities		6,160			—			(534	)		5,626
Total liabilities		1,094,273			—			(534	)		1,093,739
Retained earnings		17,870			—			(802	)		17,068
Total stockholders’ equity		102,551			—			(802	)		101,749
Total liabilities and stockholder’s equity		1,196,824			—			(1,336	)		1,195,488
Consolidated Statement of Income Data
Provision for loan losses	$	3,261		$	—		$	1,336		$	4,597
Net interest income, after provision for loan losses		25,204			—			(1,336	)		23,868
Income before income tax expense		6,053			—			(1,336	)		4,717
Income tax expense		1,480			—			(534	)		946
Net income		4,573			—			(802	)		3,771
Net income available to common stockholders		4,006			—			(802	)		3,204
Earnings per common share:
Basic	$	0.30		$	—		$	(0.06	)	$	0.24
Diluted		0.30			—			(0.06	)		0.24
Consolidated Statement of Cash Flows Data
Net income	$	4,573		$	—		$	(802	)	$	3,771
Cash flows from operating activities:
Provision for loan losses		3,261			—			1,336			4,597
Provision for deferred taxes		1,353						(534)			819
Increase in other assets		(7,319	)		—			5,587			(1,732	)
Increase (decrease)  in other liabilities		54			—			(534	)		(480	)
Net cash provided by operating activities		3,622			—			5,053			8,675
Net increase in loans		(40,490	)		(5,053	)		—			(45,543	)
Net cash (used in) investing activities		(101,848	)		(5,053	)		—			(106,901	)
Supplemental disclosures of cash flow information:
Transfer of loan participation to other receivables	$	5,054		$	(5,054	)	$	1		$	—

F-50

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information required to be disclosed by the Corporation in its Exchange Act reports is accumulated and communicated to management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of its management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, the Corporation evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) as of December 31, 2009. Based upon that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of such date as described below in Management’s Report on Internal Control Over Financial Reporting (Item 9A(b)).

(b) Management’s Report on Internal Control Over Financial Reporting

The Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) of the Exchange Act. The Corporation’s internal control system is a process designed to provide reasonable assurance to the Corporation’s management, Board of Directors and shareholders regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Corporation; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on our financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As part of the Corporation’s program to comply with Section 404 of the Sarbanes-Oxley Act of 2002, our management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2009 (the “Assessment”). In making this Assessment, management used the control criteria framework of the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission published in its report entitled Internal Control — Integrated Framework. Management’s Assessment included an evaluation of the design of the Corporation’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its Assessment with the Audit Committee.

Based on this Assessment, management determined that, as of December 31, 2009, the Corporation’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

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ParenteBeard LLC, the independent registered public accounting firm that audited the Corporation’s consolidated financial statements included in this Annual Report on Form 10-K, has issued an audit report on the Corporation’s internal control over financial reporting as of December 31, 2009. The report, which expresses an opinion on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2009, is included in this item under the heading “Report of Independent Registered Public Accounting Firm.”

(c) Attestation Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Center Bancorp, Inc.

We have audited Center Bancorp, Inc.’s (the “Corporation”) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Center Bancorp, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A corporation’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Center Bancorp, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition of Center Bancorp, Inc. and subsidiaries and the related consolidated statement of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2009 and our report dated March 16, 2010 (except for Note 21, as to which the date is May 3, 2010) expressed an unqualified opinion.

/s/ ParenteBeard LLC

ParenteBeard LLC

Reading, Pennsylvania

May 3, 2010

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(d) Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting identified in the Assessment that occurred during the last fiscal quarter to which this Annual Report on Form 10-K relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Item 15. Exhibits, Financial Statement Schedules

(a) (1) Financial Statements and Schedules:

The following Financial Statements and Supplementary Data are filed as part of this annual report:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Condition

Consolidated Statements of Income

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(b) Exhibits (numbered in accordance with Item 601 of Regulation S-K) filed herewith or incorporated by reference as part of this annual report. (Note: only Exhibit Nos.  12.1, 23.1, 31.1 and 31.2 are being filed with this Amendment No. 2.)

Exhibit No.	Description
3.1	The Registrant’s Certificate of Incorporation, including the Registrant’s Certificate of Amendment, dated January 8, 2009, is incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated January 13, 2010.
3.2	By-Laws of the Registrant is incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10K for the year ended December 31, 1998.
4.1	Warrant to Purchase up to 173,410 shares of Common Stock, dated January 9, 2009, is incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated January 13, 2010.
10.1	Letter Agreement, dated January 9, 2010, including the Securities Purchase Agreement  — Standard Terms attached thereto, between the Registrant and the United States Department of the Treasury is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated January 13, 2010.
10.2	The Registrant’s 1993 Employee Stock Option Plan is incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993.
10.3	The Registrant’s 1993 Outside Director Stock Option Plan is incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993.
10.5	The Registrant’s Annual Incentive Plan is incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006.
10.6	Amended and restated employment agreement among the Registrant, its bank subsidiary and Anthony C. Weagley, effective as of January 1, 2008 is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 22, 2008.
10.7	Amended and restated employment agreement among the Registrant, its bank subsidiary and Lori A. Wunder, effective as of January 1, 2007 is incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 26, 2007. See also Exhibit 10.27.
10.8	A change in control agreement among the Registrant, its bank subsidiary and A. Richard Abrahamian, effective as of February 19, 2008, is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on April 22, 2008.
10.9	Directors’ Retirement Plan is incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998.

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Exhibit No.	Description
10.10	Center Bancorp, Inc. 1999 Stock Incentive Plan is incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999.
10.11	Registrant’s Placement Agreement dated December 12, 2003 with Sandler O’Neill & Partners, L.P. to issue and sell $5 million aggregate liquidation amount of floating rate MMCapS(SM) Securities is incorporated by reference to Exhibit 10.15 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.
10.12	Indenture dated as of December 19, 2003, between the Registrant and Wilmington Trust Company relating to $5.0 million aggregate principal amount of floating rate debentures is incorporated by reference to Exhibit 10.16 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.
10.13	Amended and restated Declaration of Trust of Center Bancorp Statutory Trust II, dated as of December 19, 2003 is incorporated by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.
10.14	Guarantee Agreement between Registrant and Wilmington Trust Company dated as of December 19, 2003 is incorporated by reference to Exhibit 10.18 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.
10.16	Form of Waiver, executed by each of Lori A. Wunder, A. Richard Abrahamian, Ronald M. Shapiro, William J. Boylan and Anthony C. Weagley is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated January 13, 2009.
10.17	Form of Executive Waiver Agreement, executed by each of Lori A. Wunder, A. Richard Abrahamian, Ronald M. Shapiro, William J. Boylan and Anthony C. Weagley is incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated January 13, 2009.
10.18	Registration Rights Agreement, dated September 29, 2004, relating to securities issued in a September 2004 private placement of securities, is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated October 1, 2004.
10.19	The Registrant’s Amended and Restated 2003 Non-Employee Director Stock Option Plan, as amended and restated, is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 5, 2008.
10.20	Amended and restated employment agreement among the Registrant, its bank subsidiary and Julie D’Aloia, effective as of January 1, 2007, is incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006. See also Exhibit 10.25.
10.21	Amended and restated Employment Agreement among the Registrant, its bank subsidiary and Mark S. Cardone, effective as of January 1, 2007, is incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 26, 2007. See also Exhibit 10.26.
10.22	Registration Rights Agreement, dated June 30, 2005, relating to securities issued in a June 2005 private placement of securities, is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated June 30, 2005.
10.23	Open Market Share Purchase Incentive Plan is incorporated by reference to exhibit 10.1 to registrant’s Current Report on Form 8-K dated January 26, 2006.
10.24	Deferred Compensation Plan is incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006.
10.25	Amendment to Employment Agreement among the Registrant, its bank subsidiary and Julie D’Aloia, dated December 3, 2007, is incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated December 20, 2007.

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Exhibit No.	Description
10.26	Amendment to Employment Agreement among the Registrant, its bank subsidiary and Mark Cardone, dated December 3, 2007, is incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated December 20, 2007.
10.27	Amendment to Employment Agreement among the Registrant, its bank subsidiary and Lori A. Wunder, dated December 3, 2007, is incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated December 20, 2007.
10.28	Change in Control Agreement among the Registrant, its bank subsidiary and Ronald M. Shapiro is incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008.
11.1	Statement regarding computation of per share earnings is omitted because the computation can be clearly determined from the material incorporated by reference in this Report.
12.1	Statement of Ratios of Earnings to Fixed Charges.
14.1	Code of Ethics is incorporated by reference to Exhibit 14.1 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	Personal certification of the chief executive officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Personal certification of the chief financial officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.2	Personal certification of the acting chief financial officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Certification of Chief Executive Officer and Acting Chief Financial Officer pursuant to Section 111 (b) (4) of the Emergency Economic Stabilization Act of 2008.
99.3	Code of Conduct is incorporated by reference to Exhibit 99.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.

(c) Financial Statement Schedules

All financial statement schedules are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Center Bancorp, Inc. has duly caused this Amendment No. 2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 to be signed on its behalf by the undersigned, thereunto duly authorized.

	CENTER BANCORP, INC.
May 3, 2010	By:	/s/ Anthony C. Weagley
		Anthony C. Weagley
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant, in the capacities described below on May 3, 2010 have signed this report below.

/s/ Alexander A. Bol*	Chairman of the Board
Alexander A. Bol
/s/ John J. DeLaney, Jr.*	Director
John J. DeLaney, Jr.
/s/ James J. Kennedy*	Director
James J. Kennedy
/s/ Howard Kent*	Director
Howard Kent
/s/ Phyllis S. Klein *	Director
Phyllis S. Klein
/s/ Elliot I. Kramer*	Director
Elliot I. Kramer
/s/ Nicolas Minoia*	Director
Nicholas Minoia
/s/ Harold Schechter*	Director
Harold Schechter
/s/ Lawrence B. Seidman*	Director
Lawrence B. Seidman
/s/ William A. Thompson*	Director
William A. Thompson
/s/ Raymond Vanaria*	Director
Raymond Vanaria
/s/ Anthony C. Weagley	President and Chief Executive Officer
Anthony C. Weagley
/s/ Stephen J. Mauger	Vice President, Treasurer and Chief Financial Officer
Stephen J. Mauger

*By:	/s/ Anthony C. Weagley
	Anthony C. Weagley
	Attorney-in-fact

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