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, 2012 and December 31, 2011. In order to fully understand 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, sovereign debt problems, 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, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; (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; (10) Center Bancorp's ability to consummate its pending acquisition of the assets of Saddle River Valley Bank and, if consummated, Center Bancorp's ability to integrate Saddle River Valley Bank's operations into its own; and (11) 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 is included in Item 1A. of Center Bancorp's Annual Report on Form 10-K and this Current report on Form 10-Q 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, Inc.

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 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 is provided below.

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 Investment Securities

Investment 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 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 assesses 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.

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.

Fair Value of Investment Securities

FASB ASC 820-10-35 clarifies 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. The Corporation applied the guidance in FASB ASC 820-10-35 when determining fair value for the Corporation's private label collateralized mortgage obligations, pooled trust preferred securities and single name corporate trust preferred securities. See Note 7 of the Notes to Consolidated Financial Statements for further discussion.

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.

Goodwill

The Corporation adopted the provisions of FASB ASC 350-10, 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, 2012 and 2011.

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 11 of the Notes to Consolidated Financial Statements includes additional discussion on the accounting for income taxes.

Earnings

Net income available to common stockholders for the three months ended March 31, 2012 amounted to $4,090,000 compared to $2,872,000 for the comparable three-month period ended March 31, 2011. The Corporation recorded earnings per diluted common share of $0.25 for the three months ended March 31, 2012 as compared with earnings of $0.18 per diluted common share for the same three months in 2011. 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 for both periods. The annualized return on average assets was 1.16 percent for the three months ended March 31, 2012, compared to 0.98 percent for three months ended March 31, 2011. The annualized return on average stockholders' equity was 12.05 percent for the three-month period ended March 31, 2012, compared to 9.86 percent for the three months ended March 31, 2011.

Net Interest Income and 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 borrowings, which support these assets. Net interest income is presented on a fully tax-equivalent basis by adjusting tax-exempt income (primarily interest earned on 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. Net interest margin is defined as net interest income on a fully tax-equivalent basis as a percentage of total average interest-earning assets.

The following table presents the components of net interest income on a fully tax-equivalent basis for the periods indicated.

Net Interest Income
(tax-equivalent basis)

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                                                       Three Months Ended
                                                            March 31,
(dollars in                 2012                   2011                 Increase               Percent
thousands)                                                             (Decrease)               Change
Interest income:
Investment          $         3,576        $         3,552        $           24                    0.68 %
securities AFS
Investment                      729                      -                   729                       -
securities HTM
Loans, including              9,385                  9,217                   168                    1.82
net costs
Restricted
investment in                   121                    143                   (22 )                (15.38 )
bank stocks, at
cost
Total interest               13,811                 12,912                   899                    6.96
income
Interest expense:
Time deposits                   252                    265                   (13 )                 (4.91 )
$100 or more
All other                     1,156                  1,002                   154                   15.37
deposits
Borrowings                    1,642                  1,655                   (13 )                 (0.79 )
Total interest                3,050                  2,922                   128                    4.38
expense
Net interest
income on a fully            10,761                  9,990                   771                    7.72
tax-equivalent
basis
Tax-equivalent                 (416 )                  (45 )                (371 )                824.44
adjustment(1)
Net interest        $        10,345        $         9,945        $          400                    4.02 %
income

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(1) Computed using a federal income tax rate of 35 percent for 2012 and 34 percent for 2011.

Net interest income on a fully tax-equivalent basis increased $0.8 million or 7.72 percent to $10.8 million for the three months ended March 31, 2012 as compared to the same period in 2011. For the three months ended March 31, 2012, the net interest margin contracted 16 basis points to 3.39 percent from 3.55 percent during the three months ended March 31, 2011. For the three months ended March 31, 2012, a decrease in the average yield on interest-earning assets of 23 basis points was partially offset by a decrease in the average cost of interest-bearing liabilities of 16 basis points, resulting in a decrease in the Corporation's net interest spread of 7 basis points for the period. Net interest spread and margin have been impacted by a high level of uninvested excess cash, which accumulated due to strong deposit growth experienced predominantly over the last three months of 2011. This represented growth in the Corporation's customer base and enhanced the Corporation's liquidity position while the Corporation continued to expand its earning assets base.

For the three-month period ended March 31, 2012, interest income on a tax-equivalent basis increased by $899,000 or 6.96 percent compared to the same three-month period in 2011. This increase in interest income was due primarily to a volume increase in investment securities and loans partially offset by a decline in yields due to the lower interest rate environment. Average investment securities volume increased during the current three-month period by $105.4 million, to $506.3 million, compared to the first quarter of 2011. The loan portfolio increased on average $39.2 million, to $755.8 million, from an average of $716.6 million in the same quarter in 2011, reflecting net increases in commercial loans and commercial real estate related sectors of the loan portfolio. Average loans represented approximately 59.5 percent of average interest-earning assets during the first quarter of 2012 compared to 63.6 percent in the same quarter in 2011.

For the three months ended March 31, 2012, interest expense increased $128,000, or 4.38 percent from the same period in 2011. The average rate of interest-bearing liabilities decreased 16 basis points to 1.07 percent for the three months ended March 31, 2012, from 1.23 percent for the three months ended March 31, 2011. At the same time, average interest-bearing liabilities increased by $192.5 million. This increase was primarily in money markets, savings, and other interest-bearing deposits of $158.0 million, $11.0 million and $70.7 million, respectively, and was partially offset by decreases in borrowings of $47.3 million. Since 2009 steps have been taken to improve the Corporation's net interest margin by allowing

the runoff of certain high rate deposits and to position the Corporation for further high-costing cash outflows. The result has been a decline in the Corporation's average cost of funds. For the three months ended March 31, 2012, the Corporation's net interest spread on a tax-equivalent basis decreased to 3.28 percent, from 3.35 percent for the three months ended March 31, 2011.

The following table quantifies the impact on net interest income on a tax-equivalent basis resulting from changes in average balances and average rates during the three and nine month periods presented. 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 Changes in Volume and Rates

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                                                Three Months Ended
                                              March 31, 2012 and 2011
                                       Increase (Decrease) Due to Change In:
(tax-equivalent                Average                Average                  Net
basis, in thousands)           Volume                   Rate                  Change
Interest-earning
assets:
Investment
securities:
Available for sale
Taxable                 $          (162 )       $          (451 )      $         (613 )
Tax-exempt                          649                     (12 )                 637
Held to maturity
Taxable                             310                       -                   310
Tax-exempt                          419                       -                   419
Total investment                  1,216                    (463 )                 753
securities
Loans                               614                    (446 )                 168
Restricted investment                 1                     (23 )                 (22 )
in bank stocks
Total
interest-earning                  1,831                    (932 )                 899
assets
Interest-bearing
liabilities:
Money market deposits               193                     (27 )                 166
Savings deposits                     14                     (57 )                 (43 )
Time deposits                         1                       -                     1
Other
interest-bearing                     89                     (72 )                  17
deposits
Total
interest-bearing                    297                    (156 )                 141
deposits
Borrowings and
subordinated                       (415 )                   402                   (13 )
debentures
Total
interest-bearing                   (118 )                   246                   128
liabilities
Change in net           $         1,949         $        (1,178 )      $          771
interest income

The following tables, "Average Statements of Condition with Interest and Average Rates", present for the three months ended March 31, 2012 and 2011, the Corporation's average assets, liabilities and stockholders' equity. The Corporation's net interest income, net interest spread and net interest margin are also reflected.

        Average Statements of Condition with Interest and Average Rates

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                                                                         Three Months Ended March 31,
                                                   2012                                                                 2011
(tax-equivalent           Average               Interest                Average                Average               Interest                Average
basis)                    Balance               Income/                  Rate                  Balance               Income/                  Rate
                                                Expense                                                              Expense
                                                                            (dollars in thousands)
Assets
Interest-earning
assets:
Investment
securities(1):
Available for
sale
Taxable             $        371,766      $         2,806                   3.02 %       $        391,022      $         3,419                   3.50 %
Tax-exempt                    62,110                  770                   4.96                    9,833                  133                   5.40
Held to maturity
Taxable                       43,693                  310                   2.84                        -                    -                      -
Tax-exempt                    28,708                  419                   5.84                        -                    -                      -
Total investment             506,277                4,305                   3.40                  400,855                3,552                   3.54
securities
Loans(2)                     755,813                9,385                   4.97                  716,568                9,217                   5.15
Restricted
investment in                  9,233                  121                   5.24                    9,158                  143                   6.22
bank stocks
Total
interest-earning           1,271,323               13,811                   4.35                1,126,581               12,912                   4.58
assets
Non
interest-earning
assets:
Cash and due from            122,191                                                               34,074
banks
Bank-owned life               29,049                                                               28,010
insurance
Intangible assets             16,897                                                               16,952
Other assets                  31,494                                                               32,653
Allowance for                 (9,683 )                                                             (9,139 )
loan losses
Total non
interest-earning             189,948                                                              102,550
assets
Total assets        $      1,461,271                                                     $      1,229,131
Liabilities and
Stockholders'
Equity
Interest-bearing
liabilities:
Money market        $        324,924      $           391                   0.48 %       $        166,875      $           225                   0.54 %
deposits
Savings deposits             183,965                  194                   0.42                  173,010                  237                   0.55
Time deposits                203,984                  524                   1.03                  203,948                  523                   1.02
Other
interest-bearing             264,085                  299                   0.45                  193,363                  282                   0.58
deposits
Total
interest-bearing             976,958                1,408                   0.58                  737,196                1,267                   0.69
deposits
Short-term and
long-term                    161,220                1,600                   3.97                  208,509                1,629                   3.12
borrowings
Subordinated                   5,155                   42                   3.26                    5,155                   26                   2.02
debentures
Total
interest-bearing           1,143,333                3,050                   1.07                  950,860                2,922                   1.23
liabilities
Non
interest-bearing
liabilities:
Demand deposits              167,921                                                              152,074
Other liabilities              9,606                                                                3,705
Total non
interest-bearing             177,527                                                              155,779
liabilities
Stockholders'                140,411                                                              122,492
equity
Total liabilities
and stockholders'   $      1,461,271                                                     $      1,229,131
equity
Net interest
income                                             10,761                                                                9,990
(tax-equivalent
basis)
Net interest                                                                3.28 %                                                               3.35 %
spread
Net interest                                                                3.39 %                                                               3.55 %
margin(3)
Tax-equivalent                                       (416 )                                                                (45 )
adjustment(4)
Net interest                              $        10,345                                                      $         9,945
income

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(1) Average balances are based on amortized cost.

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

(3) Represents net interest income as a percentage of total average interest-earning assets.

(4) Computed using a federal income tax rate of 35 percent for 2012 and 34 percent for 2011.

Investment Portfolio

At March 31, 2012, the principal components of the investment securities . . .