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 March 31, 2009 and December 31, 2008. In order to fully appreciate this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

Cautionary Statement Concerning Forward-Looking Statements

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

Critical Accounting Policies and Estimates

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

The Corporation's accounting policies are fundamental to understanding Management's Discussion and Analysis ("MD&A") of financial condition and results of operations. The most significant accounting policies followed by the Corporation are presented in Note 1 of the Notes to Consolidated Financial Statements. The Corporation has identified its policies on the allowance for loan losses, issues relating to other-than-temporary impairment losses in the securities portfolio, the valuation of deferred tax assets, goodwill and the fair value of investment securities to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies can be found below and in Note 1 of the Notes to Consolidated Financial Statements.

Allowance for Loan Losses and Related Provision

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

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

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

Other-Than-Temporary Impairment of Securities

Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. 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 to fair value and a corresponding charge to earnings is recognized. An impairment charge of $140,000 was recognized during the three months ended March 31, 2009 on its Lehman Brothers bond. No impairment charges were recognized during the three months ended March 31, 2008.

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.

Goodwill

The Corporation adopted the provisions of 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 rather tested for impairment annually, or more frequently if impairment indicators arise. No impairment charge was deemed necessary for the three months ended March 31, 2009 and 2008.

Fair Value of Investment Securities
In October 2008, the FASB issued FSP SFAS No. 157-3, " Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active" ("FSP 157-3"), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to the Corporation's December 31, 2008 and March 31, 2009 financial statements. The Corporation applied the guidance in FSP 157-3 when determining fair value for the Corporation's pooled trust preferred securities and single name corporate trust preferred securities. See Note 5, Fair Value Measurements, for further discussion.

Earnings Analysis

Net income for the three months ended March 31, 2009 amounted to $ 799,000 compared to net income of $1.2 million for the comparable three-month period ended March 31, 2008. The Corporation recorded earnings per diluted common share of $0.05 for the three months ended March 31, 2009 as compared with earnings of $0.09 per diluted common share for the three months ended March 31, 2008. Dividends and accretion relating to the preferred stock issued to the U.S. Treasury reduced earnings by approximately $0.01 per fully diluted common share. The annualized return on average assets decreased to 0.30 percent for the three months ended March 31, 2009 as compared to 0.50 percent for the comparable three-month period in 2008. The annualized return on average stockholders' equity was 3.52 percent for the three-month period ended March 31, 2009 as compared to 5.60 percent for the three months ended March 31, 2008.

Net Interest Income/Margin

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

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

Net Interest Income
(tax-equivalent basis)

                                                         Three Months Ended March 31,
                                                                         Increase         Percent
(Dollars in Thousands)                       2009          2008         (Decrease)         Change
Interest income:
Investments                                $   2,930     $   4,085     $     (1,155 )        (28.27 )
Loans, including fees                          9,102         8,471              631            7.45
Federal funds sold and securities
purchased under agreement to resell                -            79              (79 )       (100.00 )
Restricted investment in bank stocks, at
cost                                              87           155              (68 )        (43.87 )
Total interest income                         12,119        12,790             (671 )         (5.25 )
Interest expense:
Time deposits of $100 or more                    778           675              103           15.26
All other deposits                             2,277         3,369           (1,092 )        (32.41 )
Borrowings                                     2,508         2,629             (121 )         (4.60 )
Total interest expense                         5,563         6,673           (1,110 )        (16.63 )
Net interest income on a fully
tax-equivalent basis                           6,556         6,117              439            7.18
Tax-equivalent adjustment                       (177 )        (430 )            253          (58.84 )
Net interest income                        $   6,379     $   5,687     $        692           12.17

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

Net interest income on a fully tax-equivalent basis increased $439,000 or 7.2 percent to $6.6 million for the three months ended March 31, 2009 as compared to the same period in 2008. For the three months ended March 31, 2009, the net interest margin increased 7 basis points to 2.81 percent from 2.74 percent during the three months ended March 31, 2008, due primarily to lower rates paid on interest-bearing liabilities. For the three months ended March 31, 2009, a decrease in the average yield on interest-earning assets of 55 basis points was more than offset by a decrease in the average cost of interest-bearing liabilities of 82 basis points, which increased the Corporation's net interest spread by 27 basis points for the period. On a quarterly linked sequential basis, net interest spread and margin declined by 13 basis points and 20 basis points, respectively.

For the three-month period ended March 31, 2009, interest income on a tax-equivalent basis decreased by $671,000 or 5.2 percent from the comparable three-month period in 2008. This decrease was due primarily to a decline in balances of the Corporation's investment securities portfolio coupled with a decline in rates due to the actions taken by the Federal Reserve to lower market interest rates over the past year. The Corporation's loan portfolio increased on average $114.3 million to $680.0 million from $565.7 million in the same quarter in 2008, primarily driven by growth in commercial real estate business related sectors of the loan portfolio. The loan portfolio represented approximately 72.8 percent of the Corporation's interest-earning assets on average during the first quarter of 2009 as compared to 63.4 percent in the same quarter in 2008. The increase in loan volume was partially offset by the above-mentioned decline in the volume of the Corporation's investment portfolio. Average investment volume decreased during the current three month period by $62.6 million compared to the first quarter of 2008.

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

For the three months ended March 31, 2009, interest expense declined by $1.1 million or 16.6 percent from the same period in 2008. The average rate of interest-bearing liabilities decreased 82 basis points to 2.64 percent for the three months ended March 31, 2009 from 3.46 percent for the three months ended March 31, 2008. At the same time, the average volume of interest-bearing liabilities increased by $73.3 million. The increase in the average balance of interest-bearing liabilities during the three months ended March 31, 2009 was primarily in time deposits (CDARS Reciprocal deposits) of $113.4 million and in savings deposits of $23.6 million, partially offset by decreases of $59.5 million in money market deposits and $8.3 million in other interest bearing deposits. Steps were taken throughout 2008 to improve the Corporation's net interest margin by allowing the runoff of certain high rate deposits and to position the Corporation for further cash outflows during the year. The result was a steady improvement in the Corporation's cost of funds and net interest margin during 2008. As a result of these factors, for the three months ended March 31, 2009, the Corporation's net interest spread on a tax-equivalent basis increased to 2.55 percent from 2.28 percent for the three months ended March 31, 2008.

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 March 31,
                                                            2009/2008 Increase (Decrease)
                                                                  Due to Change In:
                                                      Average           Average          Net
(Dollars in Thousands)                                 Volume             Rate         Change
Interest-earning assets:
Investment securities:
Taxable                                              $     (136 )      $     (251 )   $    (387 )
Non-Taxable                                                (757 )             (11 )        (768 )
Loans, net of unearned income                             1,592              (961 )         631
Federal funds sold and securities purchased under
agreement to resell                                         (79 )               -           (79 )
Restricted investment in bank stock                           6               (74 )         (68 )
Total interest-earning assets                               626            (1,297 )        (671 )
Interest-bearing liabilities:
Money market deposits                                      (370 )            (522 )        (892 )
Savings deposits                                             65               110           175
Time deposits                                               924              (763 )         161
Other interest-bearing deposits                             (54 )            (379 )        (433 )
Borrowings and subordinated debentures                       41              (162 )        (121 )
Total interest-bearing liabilities                          606            (1,716 )      (1,110 )
Change in net interest income                        $       20        $      419     $     439

The following table, "Average Statement of condition with Interest and Average Rates", presents for the three months ended March 31, 2009 and 2008 the Corporation's average assets, liabilities and stockholders' equity. The Corporation's net interest income, net interest spreads and net interest income as a percentage of interest-earning assets (net interest margin) are also reflected.

        Average Statements of Condition with Interest and Average Rates

                                                                                Three Months Ended March 31,
                                                                   2009                                              2008
                                                                 Interest         Average                          Interest         Average
                                                 Average         Income/           Yield/          Average         Income/           Yield/
(Tax-Equivalent Basis, Dollars in Thousands)     Balance         Expense            Rate           Balance         Expense            Rate

Assets:
Interest-earning assets:
Investment securities:(1)
Taxable                                        $   207,814     $      2,410             4.64 %   $   218,836     $      2,797             5.11 %
Tax-exempt                                          35,402              520             5.88          87,018            1,288             5.92
Loans, net of unearned income(2)                   679,953            9,102             5.35         565,654            8,471             5.99
Federal funds sold and securities purchased
under agreement to resell                                -                -                -          10,745               79             2.94
Restricted investment in bank stocks                10,229               87             3.40           9,798              155             6.33
Total interest-earning assets                      933,398           12,119             5.19         892,051           12,790             5.74
Non-interest-earning assets:
Cash and due from banks                             47,130                                            15,623
Bank owned life insurance                           23,035                                            22,349
Intangible assets                                   17,101                                            17,194
Other assets                                        44,595                                            37,922
Allowance for loan losses                           (6,384 )                                          (5,237 )
Total non-interest earning assets                  125,477                                            87,851
Total assets                                   $ 1,058,875                                       $   979,902
Liabilities and stockholders' equity
Interest-bearing liabilities:
Money market deposits                          $   112,392     $        449             1.60 %   $   171,843     $      1,341             3.12 %
Savings deposits                                    86,559              315             1.46          62,965              140             0.89
Time deposits                                      261,771            1,780             2.72         148,411            1,619             4.36
Other interest-bearing deposits                    127,823              511             1.60         136,076              944             2.77
Short-term and long-term borrowings                250,114            2,450             3.92         246,067            2,547             4.14
Subordinated debentures                              5,155               58             4.50           5,155               82             6.36
Total interest-bearing liabilities                 843,814            5,563             2.64         770,517            6,673             3.46
Non-interest-bearing liabilities:
Demand deposits                                    115,274                                           112,276
Other non-interest-bearing deposits                    320                                               419
Other liabilities                                    8,568                                             9,769
Total non-interest-bearing liabilities             124,162                                           122,464
Stockholders' equity                                90,899                                            86,921
Total liabilities and stockholders' equity     $ 1,058,875                                       $   979,902
Net interest income (tax-equivalent basis)                     $      6,556                                      $      6,117
Net interest spread                                                                     2.55 %                                            2.28 %
Net interest income as percent of
earning-assets (net interest margin)                                                    2.81 %                                            2.74 %
Tax-equivalent adjustment(3)                                           (177 )                                            (430 )
Net interest income                                            $      6,379                                      $      5,687


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

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

Investment Portfolio

For the three months ended March 31, 2009, the average volume of investment securities decreased by $62.6 million to approximately $243.2 million, or 26.1 percent of average earning assets, from $305.9 million on average, or 34.3 percent of average earning assets, in the comparable period in 2008. The decline is consistent with maintaining the balance sheet strategies the Corporation has previously outlined in seeking to reduce the size of its investment securities portfolio while increasing loans as a percentage of the earning-asset mix. The reduction was made in anticipation of providing cash flow for loan funding and forecasted liability outflows.

At March 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 into the Reserve Primary Fund (the "Fund"), a money market fund registered with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940. On September 22, 2008, the Fund announced that redemptions of shares of the Fund were suspended pursuant to an SEC order so that an orderly liquidation could be effected for the protection of the Fund's investors. To date, the Corporation has received four distributions from the Fund, totaling approximately 90 percent of its outstanding balance. The Fund announced that it has applied to participate in the United States Department of Treasury's Temporary Money Market Fund Guarantee Program, participation in which is subject to approval of the Treasury Department. While the Corporation expects to recover substantially all of its current holdings in the Fund, the Corporation cannot predict when this will occur and cannot be certain as to the extent of the recovery.

During the three-month period ended March 31, 2009, the volume related factors applicable to the investment portfolio decreased revenue by $893,000, while rate related changes resulted in a decrease in revenue of $262,000 from the same period in 2008. The tax-equivalent yield on investments decreased by 52 basis points to 4.82 percent from a yield of 5.34 percent during the comparable period in 2008.

. . .