The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Corporation's results of operations for the periods presented herein and financial condition as of June 30, 2008 and December 31, 2007. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

Cautionary Statement Concerning Forward-Looking Statements

This report includes forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, that involve inherent risks and uncertainties. This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Center Bancorp Inc. and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as "believes," "expects," "anticipates," "plans," "trend," "objective," "continue," "remain," "pattern" or similar expressions or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions may increase significantly; (2) changes in the interest rate environment may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected;
(5) political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions may adversely affect the businesses in which Center Bancorp is engaged; (7) changes and trends in the securities markets may adversely impact Center Bancorp; (8) a delayed or incomplete resolution of regulatory issues could adversely impact planning by Center Bancorp; (9) the impact on reputation risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; and (10) the outcome of regulatory and legal investigations and proceedings may not be anticipated. Further information on other factors that could affect the financial results of Center Bancorp are included in Item 1A of Center Bancorp's Annual Report on Form 10-K and in Center Bancorp's other filings with the Securities and Exchange Commission. These documents are available free of charge at the Commission's website at http://www.sec.gov and/or from Center Bancorp.

Critical Accounting Policies and Estimates

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

The Corporation's accounting policies are fundamental to understanding Management's Discussion and Analysis ("MD&A") of financial condition and results of operations. The most significant accounting policies followed by the Corporation are presented in Note 1 of the Notes to Consolidated Financial Statements. The Corporation has identified its policies on the allowance for loan losses, issues relating to other-than-temporary impairment losses in the securities portfolio and the valuation of deferred tax 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 credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the Consolidated Statements of Condition.

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

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

Other-Than-Temporary Impairment of Securities

Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and the duration of the decline and the intent and ability of the Corporation to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in the fair value. The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. An impairment charge on certain equity investment securities of approximately $101,000 and $191,000 was recognized during the three and six months ended June 30, 2008, respectively. No impairment charge was recognized during the three or six months ended June 30, 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. Note 7 of the Notes to Consolidated Financial Statements include additional discussion on the accounting for income taxes.

Earnings Analysis

Net income for the three months ended June 30, 2008 amounted to $1,408,000 compared to net income of $1,017,000 for the comparable three-month period ended June 30, 2007. The Corporation recorded earnings per diluted common share of $0.11 for the three months ended June 30, 2008 as compared with earnings of $0.07 per diluted common share for the three months ended June 30, 2007. The annualized return on average assets increased to 0.57 percent for the three months ended June 30, 2008 as compared to 0.40 percent for the comparable three-month period in 2007. The annualized return on average stockholders' equity was 6.69 percent for the three-month period ended June 30, 2008 as compared to 4.15 percent for the three months ended June 30, 2007.

For the six months ended June 30, 2008, the Corporation recorded net income of $2,625,000 compared to net income of $2,326,000 for the comparable six-month period ended June 30, 2007. The Corporation recorded earnings per diluted common share of $0.20 for the six months ended June 30, 2008 as compared with earnings of $0.17 per diluted common share for the six months ended June 30, 2007. The annualized return on average assets increased to 0.53 percent for the six months ended June 30, 2008 as compared to 0.45 percent for the comparable six-month period in 2007. The annualized return on average stockholders' equity was 6.14 percent for the six-month period ended June 30, 2008 as compared to 4.76 percent for the six months ended June 30, 2007.

Net Interest Income/Margin

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

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

Net Interest Income
(tax-equivalent basis)

                                   Three Months Ended June 30,                      Six Months Ended June 30,
                                                  Increase     Percent                            Increase     Percent
(Dollars in thousands)      2008       2007      (Decrease)     Change      2008       2007      (Decrease)     Change
Interest income:
Investments               $  3,688   $  4,742   $     (1,054 )   (22.23 ) $  7,774   $  9,974   $     (2,200 )   (22.06 )
Loans, including fees        8,677      8,274            403       4.87     17,148     16,627            521       3.13
Federal funds sold and
securities
purchased under
agreement to resell             30        256           (226 )   (88.28 )      109        481           (372 )   (77.34 )
Restricted investment
in bank stocks, at cost        182        139             43      30.94        337        264             73      27.65
Total interest income     $ 12,577   $ 13,411           (834 )    (6.22 )   25,368     27,346         (1,978 )    (7.23 )
Interest expense:
Time deposits of $100
or more                        537        785           (248 )   (31.59 )    1,212      1,890           (678 )   (35.87 )
All other deposits           2,499      4,484         (1,985 )   (44.27 )    5,868      8,750         (2,882 )   (32.94 )
Borrowings                   2,765      2,450            315      12.86      5,394      4,910            484       9.86
Total interest expense       5,801      7,719         (1,918 )   (24.85 )   12,474     15,550         (3,076 )   (19.78 )
Net interest income on
a fully
tax-equivalent basis         6,776      5,692          1,084      19.04     12,894     11,796          1,098       9.31
Tax-equivalent
adjustment                    (347 )     (467 )          120      25.70       (778 )     (950 )          172      18.11
Net interest income       $  6,429   $  5,225   $      1,204      23.04   $ 12,116   $ 10,846   $      1,270      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.

Net interest income on a fully tax-equivalent basis increased $1.1 million or 19.0 percent to $6.8 million for the three months ended June 30, 2008 as compared to the same period in 2007. For the three months ended June 30, 2008, the net interest margin increased 57 basis points to 3.00 percent from 2.43 percent during the three months ended June 30, 2007 due primarily to lower rates paid on interest-bearing liabilities. For the three months ended June 30, 2008, a decrease in the average yield on interest-earning assets of 15 basis points was more than offset by a decrease in the average cost of interest-bearing liabilities of 95 basis points, which increased the Corporation's net interest spread by 80 basis points for the period. On a linked sequential basis, net interest spread and margin improved by 33 basis points and 26 basis points, respectively, from the three months ended March 31, 2008 to the three months ended June 30, 2008.

Net interest income on a fully tax-equivalent basis increased $1.1 million or 9.3 percent to $12.9 million for the six months ended June 30, 2008 as compared to the same period in 2007. For the six months ended June 30, 2008, the net interest margin increased 38 basis points to 2.87 percent from 2.49 percent during the six months ended June 30, 2007 due primarily to lower rates paid on interest-bearing liabilities. For the six months ended June 30, 2008, a decrease in the average yield on interest-earning assets of 12 basis points was more than offset by a decrease in the average cost of interest-bearing liabilities of 68 basis points, which increased the Corporation's net interest spread by 56 basis points for the period.

For the three-month period ended June 30, 2008, interest income on a tax-equivalent basis decreased by $0.8 million or 6.2 percent from the comparable three-month period in 2007. This decrease was due primarily to a decline in balances of the Corporation's investment securities portfolio. The Corporation's loan portfolio increased on average $68.9 million to $601.7 million from $532.8 million in the same quarter in 2007, primarily driven by growth in commercial real estate business related sectors of the loan portfolio. The loan portfolio represented approximately 66.6 percent of the Corporation's interest-earning assets on average during the second quarter of 2008 as compared to 56.8 percent in the same quarter in 2007. The increase in loan volume was more than offset by a decline in the volume of the Corporation's investment portfolio. Average investment volume decreased during the period by $92.2 million on average compared to the second quarter of 2007.

For the six-month period ended June 30, 2008, interest income on a tax-equivalent basis decreased by $2.0 million or 7.2 percent from the comparable six-month period in 2007. This decrease was due primarily to a decline in balances of the Corporation's investment securities portfolio. The Corporation's loan portfolio increased on average $46.8 million to $583.7 million from $536.9 million in the same period in 2007, primarily driven by growth in commercial real estate business related sectors of the loan portfolio. The loan portfolio represented approximately 65.0 percent of the Corporation's interest-earning assets on average during the first six months of 2008 as compared to 56.7 percent in the same period in 2007. The increase in loan volume was more than offset by a decline in the volume of the Corporation's investment portfolio. Average investment volume decreased during the period by $88.5 million on average compared to the same period of 2007.

The Federal Reserve Open Market Committee (FOMC) reduced rates four times during the first six months of 2008 in addition to the two rate reductions during the fourth quarter of 2007, for a total of 275 basis points. This action by the FOMC allowed the Corporation to further reduce liability costs in the later part of the first quarter and the second quarter of 2008.

For the three months ended June 30, 2008, interest expense declined by $1.9 million or 24.9 percent from the same period in 2007. The total cost of average interest-bearing liabilities decreased 95 basis points to 2.96 percent for the three months ended June 30, 2008 from 3.91 percent for the three months ended June 30, 2007. At the same time, the average volume of interest-bearing liabilities declined by $6.4 million. The reduction in the average balance of interest-bearing liabilities during the three months ended June 30, 2008 was primarily in savings and time deposits of $53.9 million, and other interest bearing deposits of $47.9 million, partially offset by increases of $22.4 million in money market deposits and $73.0 million in borrowings. Steps were taken during the fourth quarter of 2007 to improve the Corporation's net interest margin by allowing the runoff of certain high rate deposits and to position the Corporation's cash position for further outflows in the first and second quarters of 2008. The result was an improvement in the Corporation's cost of funds and net interest margin. During the first three months of 2008, the Corporation secured approximately $45 million of longer term funding with a weighted average rate of 2.67 percent in an effort to support continued loan growth. As a result of these factors, for the three months ended June 30, 2008, the Corporation's net interest spread on a tax-equivalent basis increased to 2.61 percent from 1.81 percent for the three months ended June 30, 2007.

For the six months ended June 30, 2008, interest expense declined by $3.1 million or 19.8 percent from the same period in 2007. The total cost of average interest-bearing liabilities decreased 68 basis points to 3.21 percent for the six months ended June 30, 2008 from 3.89 percent for the six months ended June 30, 2007. At the same time, the average volume of interest-bearing liabilities declined by $21.5 million. The reduction in the average balance of interest-bearing liabilities during the six months ended June 30, 2008 was primarily in savings and time deposits of $62.6 million, and other interest bearing deposits of $38.8 million, partially offset by increases of $25.4 million in money market deposits and $54.5 million in borrowings. For the six months ended June 30, 2008, the Corporation's net interest spread on a tax-equivalent basis increased to 2.44 percent from 1.88 percent for the six months ended June 30, 2007.

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

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

                                 Three Months Ended June 30,               Six Months Ended June 30,
                                2008/2007 Increase (Decrease)            2008/2007 Increase (Decrease)
                                      Due to Change In:                        Due to Change In:
                              Average        Average        Net        Average        Average        Net
(Dollars in Thousands)        Volume          Rate        Change       Volume          Rate        Change
Interest-earning assets:
Investment securities:
Taxable                     $      (784 )  $       156   $    (628 ) $    (1,677 )  $       170   $  (1,507 )
Non-Taxable                        (412 )          (14 )      (426 )        (644 )          (49 )      (693 )
Loans, net of unearned
income                            1,019           (616 )       403         1,401           (880 )       521
Federal funds sold and
securities
purchased under agreement
to resell                          (124 )         (102 )      (226 )        (200 )         (172 )      (372 )
Restricted investment in
bank stock                           44             (1 )        43            74             (1 )        73
Total interest-earning
assets                      $      (257 )  $      (577 ) $    (834 ) $    (1,046 )  $      (932 ) $  (1,978 )
Interest-bearing
liabilities:
Money market deposits               227         (l,007 )      (780 )         501         (1,540 )    (1,039 )
Savings deposits                    (34 )         (201 )      (235 )         (84 )         (393 )      (477 )
Time deposits                       583         (1,455 )      (872 )      (1,151 )         (565 )    (1,717 )
Other interest-bearing
deposits                           (268 )          (78 )      (346 )        (476 )          149        (327 )
Borrowings and
subordinated debentures             742           (427 )       315         1,133           (650 )       484
Total interest-bearing
liabilities                       1,250         (3,168 )    (1,918 )         (77 )       (2,999 )    (3,076 )
Change in net interest
income                      $    (1,507 )  $     2,591   $   1,084   $      (969 )  $     2,067   $   1,098

The following table, "Average Statement of condition with Interest and Average Rates", presents for the three and six months ended June 30, 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.

        Average Statements of Condition with Interest and Average Rates

                                                     Three Months Ended June 30,
                                           2008                                     2007
                                         Interest     Average                      Interest     Average
(Tax-Equivalent Basis,       Average     Income/       Yield/         Average      Income/       Yield/
Dollars in Thousands)        Balance     Expense        Rate          Balance      Expense        Rate

Assets:
Interest-earning assets:
Investment securities:(1)
Taxable                     $ 214,866   $    2,666         4.96 %   $   278,573   $    3,294         4.73 %
Tax-exempt                     70,528        1,022         5.79          99,023        1,448         5.85
Loans, net of unearned
income(2)                     601,655        8,677         5.77         532,799        8,274         6.21
Federal funds sold and
securities purchased
under agreement to resell       5,540           30         2.16          19,635          256         5.22
Restricted investment in
bank stocks                    10,185          182         7.15           7,744          139         7.18
Total interest-earning
assets                        902,774       12,577         5.57         937,774       13,411         5.72
Non-interest-earning
assets:
Cash and due from banks        15,146                                    18,212
Bank owned life insurance      22,574                                    21,687
Intangible assets              17,169                                    17,272
Other assets                   36,741                                    34,867
Allowance for loan losses      (5,404 )                                  (4,986 )
Total non-interest
earning assets                 86,226                                    87,052
Total assets                $ 989,000                               $ 1,024,826
Liabilities and
stockholders' equity
Interest-bearing
liabilities:
Money market deposits       $ 162,145   $      834         2.06 %   $   139,738   $    1,614         4.62 %
Savings deposits               63,659          136         0.85          70,735          371         2.10
Time deposits                 141,047        1,340         3.80         187,906        2,211         4.71
Other interest-bearing
deposits                      132,491          727         2.19         180,440        1,073         2.38
Short-term borrowings and
FHLB advances                 279,109        2,691         3.86         206,073        2,346         4.55
Subordinated debentures         5,155           74         5.71           5,155          104         8.07
Total interest-bearing
liabilities                   783,606        5,801         2.96         790,047        7,719         3.91
Non-interest-bearing
liabilities:
Demand deposits               114,333                                   130,291
Other
non-interest-bearing
deposits                          411                                       410
Other liabilities               6,508                                     6,159
Total
non-interest-bearing
liabilities                   121,252                                   136,860
Stockholders' equity           84,142                                    97,919
Total liabilities and
stockholders' equity        $ 989,000                               $ 1,024,826
Net interest income
(tax-equivalent basis)                  $    6,776                                $    5,692
Net interest spread                                        2.61 %                                    1.81 %
Net interest income as
percent of earning-assets
(net interest margin)                                      3.00 %                                    2.43 %
Tax-equivalent
adjustment(3)                                 (347 )                                    (467 )
Net interest income                     $    6,429                                $    5,225

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

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

        Average Statements of Condition with Interest and Average Rates

. . .