Unassociated Document

Other Expense

Total Other expense for the second quarter of 2007 totaled $6.1 million, an increase of $290,000 or 5.03% over the comparable period in 2006. Higher operating expenses during the second quarter resulted primarily from increases in occupancy and premise expense and other general and administrative expenses. The $77,000 increase in occupancy and bank premise expense was largely attributable to the expansion of the branch network in connection with the opening of the Boonton/Mountain Lakes office, while the $416,000 increase in other general and administrative expense attributable to increases in legal, professional consulting, director fees, credit report and appraisal fees, insurance expense and customer related corporate analysis expenses.

Salaries and benefits for the three-months ended June 30, 2007 decreased by $203,000 or 6.68% to $2.8 million, reflecting a decrease in associated salary and benefits expense in comparison to the comparable quarterly period in 2006. Full time equivalent staffing levels were 189 at June 30, 2007 compared to 210 as of June 30, 2006 and 214 at December 31, 2006. The change in staffing levels was primarily due to the previously announced 10% workforce reduction in the first quarter period of 2007.

For the six-months ended June 30, 2007, total salaries and benefits decreased by 5.43% to $6.0 million, reflecting a decrease in associated salary and benefits expense in comparison to the comparable period in 2006 offset in part by increased employee hospitalization expense. Full time equivalent staffing levels were 189 at June 30, 2007 compared to 210 as of June 30, 2006 and 214 at December 31, 2006. The change in staffing levels was primarily due to the previously announced 10% workforce reduction in the first quarter of 2007, offset in part by increases in hospitalization expense for the six-months ended June 2007.

Other expense for the six-months ended June 30, 2007 totaled $12.5 million, an increase of $517,000, or 4.32%, over the comparable period in 2006. Higher operating expenses during the six-month period resulted primarily from increases in occupancy and premise expense and other general and administrative expenses. The $208,000 increase in occupancy and bank premise expense was largely attributable to the expansion of the branch network in connection with the opening of the Boonton/Mountain Lakes branch, while other general and administrative expense increased $652,000 associated with increases in legal, professional consulting, director fees, credit report and appraisal fees, insurance expense and customer related corporate analysis expenses.

The Corporation's other expenses totaled $6.0 million and $12.5 million for the three and six-months ended June 30, 2007, respectively, and were equivalent to 0.59% and 1.21% of average assets, respectively.

Income Tax Expense

The effective tax rate continues to be less than statutory rates. During the second quarter of 2006, the Corporation effected an internal entity reorganization. This reorganization resulted in continued tax savings in both the first and second quarters of 2007, which offset some declines in the level of tax advantaged investments during the second quarter in comparison to the prior year. Tax-free income generated from the Corporation's municipal and other tax advantaged investments continues to reduce the effective tax rate.

The Corporation recorded an income tax benefit of $771,000 in the second quarter of 2007, compared to an expense of $43,000 for the second quarter of 2006. The change was primarily due to the impact of a reduction in pre-tax income and the tax benefits from the entity restructuring. For the three-months ended June 30, 2007, pre-tax income declined to $246,000 compared with $1.4 million for the three-months ended June 30, 2006.

Balance Sheet Summary

The Corporation had total assets of $1.0 billion at June 30, 2007, a decrease of $71.1 million from June 30, 2006 and a $49.8 million decrease from December 31, 2006. The decrease in assets was primarily through reductions in cash and securities. During the six-months ended June 30, 2007, the Corporation experienced a decline of $38.4 million in its deposits and borrowings from December 31, 2006. Net loans totaled $528.7 million and decreased $16.8 million from December 31, 2006. At June 30, 2007, securities totaled $366.2 million, a decline of $15.5 million, or 4.06%, from December 31, 2006.

Deposits totaled $678.0 million at June 30, 2007, a decrease of $48.8 million from December 31, 2006. Total borrowings amounted to $221.9 million at June 30, 2007, an increase of $10.4 million from total borrowings at December 31, 2006, reflecting the Corporation's goal of reducing its reliance on short-term borrowings. Stockholders' equity totaled $95.8 million at June 30, 2007, as compared with $97.6 million at December 31, 2006. Tangible stockholders' equity (representing total stockholders' equity less goodwill and other intangible assets) totaled $78.6 million at June 30, 2007, a decrease of $1.7 million from December 31, 2006.

Loans

Total average loan volume for the second quarter of 2007 increased to $532.8 million, an increase of $22.7 million, 4.44%, from $510.1 million for the comparable quarter of the previous year. On a linked sequential quarter comparison, total average loans decreased by $8.2 million, from $541.0 million on average during the first quarter of 2007. Elevated levels of payoffs during the second quarter contributed to the decline in volume as compared to the prior quarter. During the second quarter of 2007, there was $31.6 million in payoffs received, versus new loan volume booked of $38.3 million.

“The Corporation continues to focus on the transition of the earning asset mix to loans as the key component,” said Mr. Davis. “At present there has been a slow down in the general real estate markets. We are optimistic about continuing our historical growth rates in 2007 into 2008 and see good potential volume in our current pipelines.” At June 30, 2007, the Corporation had $30.9 million in overall loan commitments, which it expected to fund over the next 90 days.

The Corporation had total loans of $533.7 million at June 30, 2007, representing a $16.7 million, or 3.04%, decrease from the Corporation's balance at December 31, 2006. Management expects loan balances to grow during the second half of 2007, based on the strength of the current pipelines.

Asset Quality

Asset quality continued to remain strong during the second quarter of 2007. At June 30, 2007, non-performing assets totaled $1.7 million or .17% of total assets at June 30, 2007, as compared with $700,000 or .07 % at December 31, 2006 and $2.4 million or .23 % at June 30, 2006. The change in non-performing assets at June 30, 2007 was primarily attributed to a commercial loan and a commercial mortgage.

During the second quarter of 2007 there were provisions to the allowance for loan losses in the amount of $100,000. The provisions were primarily related to $90,000 in charges offs made during the period, reflecting write-down on foreclosed property. At June 30, 2007 the Corporation had Other Real Estate Owned amounting to $586,000. The increase in OREO was related to the foreclosure on two residential properties due to personal bankruptcies during the period. At June 30, 2007, the total allowance for loan losses amounted to approximately $5.0 million, or 0.93% of total loans.

Securities

Investment securities reflected a decline of $59.2 million at June 30, 2007 compared to the comparable period in 2006. 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. Securities totaled $366.2 million at June 30, 2007, representing 36.6% of total assets, compared to $425.4 million, representing 39.7% of total assets, at June 30, 2006.

Reflecting the lower balance of the securities portfolio and a moderation in the U.S. Treasury yield curve at June 30, 2007, the net unrealized loss on securities available for sale increased to $7.0 million at June 30, 2007 from $4.7 million at December 31, 2006 and $6.0 million at June 30, 2006.

Deposits/Funding Sources

Deposits totaled $678.0 million at June 30, 2007, a decrease of $94.9 million from June 30, 2006. The decrease in deposits reflects an increase in interest bearing checking and money market deposits offset by decreases in savings deposits and certificates of deposit of $100,000 or more.

Borrowings totaled $222.0 million at June 30, 2007, reflecting an increase of $10.4 million, or 4.92%, from December 31, 2006. Federal Home Loan Bank of New York advances represented approximately $122.8 million of the June 30, 2007 total, with repurchase agreements representing $69.8 million at the same date. Overnight customer repurchase transactions, covering commercial customer sweep accounts, comprised $26.8 million of the securities sold under repurchase agreements figure at June 30, 2007 as compared with $29.4 million at December 31, 2006. The Corporation had $35.0 million in borrowings called during the second quarter and were subsequently replaced with overnight funding.

The Corporation experienced run-off in other time certificates due to its decision not to compete above market with higher promotional rates available in its marketplace.

Stockholders' Equity

Total stockholders' equity amounted to $95.8 million or 9.57% of total assets at June 30, 2007, compared to $97.6 million or 9.28% of total assets at December 31, 2006. The change in stockholders' equity at June 30, 2007 reflects a change in other comprehensive income related to, among other things, the change in unrealized losses on securities and the impact of the recording of a pension curtailment associated with the reduction in workforce. The Corporation recorded a $98,000 net of tax charge to the other comprehensive income component of stockholders' equity associated with the aforementioned pension curtailment. Book value per common share was $6.89 at June 30, 2007, compared to $6.78 at June 30, 2006. Tangible book value (total stockholders' equity less goodwill and other intangible assets) per common share was $5.65 at June 30, 2007, $5.77 at December 31, 2006, and $5.53 at June 30, 2006.

At June 30, 2007, the Corporation's capital ratios continued to exceed the minimum Federal requirements for a bank holding company, and Union Center National Bank's capital ratios continued to exceed each of the minimum levels required for classification as a "well capitalized institution" under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA").

At June 30, 2007, the Corporation's Tier 1 Capital Leverage ratio was 8.82%, the Corporation's total Tier 1 Risk Based Capital ratio was 13.50% and the Corporation's total Risk Based Capital ratio was 14.26%. Total Tier 1 capital increased to approximately $88.8 million at June 30, 2007 from $88.0 million at December 31, 2006 but decreased from $97.5 million at June 30, 2006. The reduction in Tier 1 Capital at June 30, 2007 and December 31, 2006 compared to June 30, 2006 reflects the Corporation's redemption of Trust Preferred securities by its subsidiary Center Bancorp, Inc. Statutory Trust I on December 18, 2006. The Trust redeemed $10 million of its floating rate capital trust pass through securities due December 18, 2031.

About Center Bancorp

Center Bancorp, Inc., through its wholly owned subsidiary, Union Center National Bank, Union, New Jersey, currently operates 15 banking locations. Banking centers are located in Union Township (6 locations), Berkeley Heights, Boonton/Mountain Lakes, Madison, Millburn/Vauxhall, Morristown (3 locations), Springfield, and Summit, New Jersey. Construction will begin shortly on a new banking location in Florham Park, New Jersey and plans are underway to add a branch in Cranford, New Jersey as well. The Bank also operates remote ATM locations in the Union, Chatham and Madison New Jersey Transit train stations, Union Hospital and the Boys and Girls Club of Union.

Union Center National Bank is the largest commercial bank headquartered in Union County; it was chartered in 1923 and is a full-service banking company.

For further information regarding Center Bancorp, Inc., call 1-(800)-862-3683. For information regarding Union Center National Bank, visit our web site at http://www.centerbancorp.com

Non-GAAP Financial Measures

The Corporation's reference to its total other income, exclusive of the losses recorded on securities sales, may constitute a "non-GAAP financial measure." The Corporation has provided a reconciliation by also reporting its total other income for the applicable periods. The Corporation believes that the above-mentioned reference enhances the public's ability to compare results between the applicable periods in 2006 and 2007.

Tangible book value is a non-GAAP financial measure and represents total stockholders' equity less goodwill and other intangible assets, calculated on a per common share basis. The Corporation has provided reconciliation by also reporting its total book value per share. The Corporation believes that a disclosure of tangible book value per share may be helpful for those investors who seek to evaluate the Corporation's book value per share without giving effect to goodwill and other intangible assets.

Forward-Looking Statements

All non-historical statements in this press release (including statements regarding the Corporation's anticipated loan and general growth, anticipated growth into Florham Park and Chatham, New Jersey, the Corporation’s long-term prospects, the Corporation’s strategic plan, anticipated returns, cost of funds in 2007, the Corporation's net interest margin for 2007, the impact of the pending Beacon acquisition and planned initiative constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may use such forward-looking terminology as "expect," "look," "believe," "plan," "anticipate," "may," "will" or similar statements or variations of such terms or otherwise express views concerning trends and the future. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, the direction of interest rates, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, as well as the effects of international, national, regional and local economic conditions and legal and regulatory barriers and structure, including those relating to the deregulation of the financial services industry, and other risks cited in reports filed by the Corporation with the Securities and Exchange Commission. Actual results may differ materially from such forward-looking statements. Center Bancorp, Inc. assumes no obligation for updating any such forward-looking statement at any time.

Investor Inquiries:

Anthony C. Weagley

Vice President and Treasurer

Center Bancorp, Inc.

(908) 206-2886

CENTER BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

	June 30,			December 31,
(dollars in thousands)	2007			2006
	(unaudited)
ASSETS
Cash and due from banks	$	24,363		$	34,088
Federal funds sold and securities purchased under agreement to resell		—			10,275
Total cash and cash equivalents		24,363			44,363
Investment securities available-for-sale		249,625			250,603
Investment securities held to maturity (approximate market value of $114,311 in 2007 and $130,900 in 2006)		116,599			131,130
Total investment securities		366,224			381,733
Loans, net of unearned income		533,675			550,414
Less - Allowance for loan losses		4,974			4,960
Net Loans		528,701			545,454
Restricted investment in bank stocks		8,299			7,805
Premises and equipment, net		18,400			18,829
Accrued interest receivable		4,880			4,932
Bank owned life insurance		21,822			21,368
Other assets		11,677			9,588
Goodwill and other intangible assets		17,256			17,312
Total assets	$	1,001,622		$	1,051,384
LIABILITIES
Deposits:
Non-interest bearing	$	127,797		$	136,453
Interest-bearing
Certificates of deposit $100 and over		67,720			83,623
Interest-bearing transactions, savings and time deposits $100 and less		482,494			506,695
Total deposits		678,011			726,771
Overnight Federal funds and securities sold under agreement to repurchase		50,992			29,443
Short-term borrowings		26,326			2,000
Long-term borrowings		139,521			174,991
Subordinated debentures		5,155			5,155
Accounts payable and accrued liabilities		5,804			15,411
Total liabilities		905,809			953,771
STOCKHOLDERS’ EQUITY
Preferred Stock, no par value:
Authorized 5,000,000 shares; none issued		—			—
Common stock, no par value:
Authorized 20,000,000 shares; issued 15,190,984 shares at June 30, 2007 and December 31, 2006; outstanding 13,910,450 at June 30, 2007 and December 31, 2006 respectively		86,902			77,130
Additional paid in capital		4,599			4,535
Retained earnings		16,080			25,989
Treasury stock at cost (1,280,534 in 2007 and 2006)		(6,631	)		(6,631	)
Accumulated other comprehensive loss		(5,137	)		(3,410	)
Total stockholders’ equity		95,813			97,613
Total liabilities and stockholders’ equity	$	1,001,622		$	1,051,384

CENTER BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Three-Months Ended June 30,					Six-Months Ended June 30,
(dollars in thousands, except per share data)	2007			2006		2007			2006
	(Unaudited)					(Unaudited)
Interest income:
Interest and fees on loans	$	8,274		$	7,777	$	16,627		$	15,138
Interest and dividends on investment securities:
Taxable interest income		3,259			3,912		6,954			8,401
Non-taxable interest income		789			1,010		1,607			2,026
Dividends		366			214		727			569
Interest on Federal funds sold and securities purchased under agreement to resell		256			141		481			151
Total interest income		12,944			13,054		26,396			26,285
Interest expense:
Interest on certificates of deposit $100 or more		785			1,354		1,890			2,703
Interest on other deposits		4,484			2,819		8,750			4,889
Interest on borrowings		2,450			2,573		4,910			5,985
Total interest expense		7,719			6,746		15,550			13,577
Net interest income		5,225			6,308		10,846			12,708
Provision for loan losses		100			—		100			—
Net interest income, after provision for loan losses		5,125			6,308		10,746			12,708
Other income:
Service charges, commissions and fees		436			449		855			887
Other income		110			91		227			210
Annuity and insurance		60			53		123			105
Bank owned life insurance		230			203		453			384
Net gain (loss) on securities sold		341			77		929			(3,578	)
Total other income		1,177			873		2,587			(1,992	)
Other expense:
Salaries and employee benefits		2,834			3,037		5,976			6,319
Occupancy, net		629			521		1,352			1,127
Premises and equipment		436			467		898			915
Professional and Consulting		599			221		1,138			554
Stationery and printing		115			178		274			389
Marketing and advertising		109			187		272			301
Computer Expense		148			169		313			364
Other		1,186			986		2,261			1,998
Total other expense		6,056			5,766		12,484			11,967
Income before income tax (benefit) expense		246			1,415		849			(1,251	)
Income tax (benefit) expense		(771	)		43		(1,477	)		(1,556	)
Net income	$	1,017		$	1,372	$	2,326		$	305
Earnings per share:
Basic	$	0.07		$	0.10	$	0.17		$	0.02
Diluted	$	0.07		$	0.10	$	0.17		$	0.02
Weighted average common shares outstanding:
Basic		13,910,450			13,940,396		13,910,450			14,023,232
Diluted		13,962,934			14,020,835		13,956,672			14,094,583

All common share and per common share amounts have been adjusted to reflect the 5 percent stock dividend declared on March 29, 2007 payable on June 1, 2007.

Average Statements of Condition with Interest and Average Rates

Three Month Period Ended June 30,

2007

2006

Interest

Average

Interest

Average

(tax-equivalent basis, dollars in

Average

Income/

Yield/

Average

Income/

Yield/

thousands)

Balance

Expense

Rate

Balance

Expense

Rate


Assets
Interest-earning assets:
Investment securities(1):
Taxable	$	278,573		$	3,294		4.73	%	$	295,952		$	3,964		5.36	%
Tax-exempt		99,023			1,448		5.85	%		110,872			1,551		5.60	%
Loans, net of unearned income(2)		532,799			8,274		6.21	%		510,126			7,777		6.10	%
Federal funds sold and securities
purchased under agreement to resell		19,635			256		5.22	%		11,553			141		4.88	%
Restricted investment in bank stock		7,744			139		7.18	%		7,469			146		7.82	%
Total interest-earning assets		937,774			13,411		5.72	%		935,972			13,579		5.80	%
Non-interest-earning assets
Cash and due from banks		18,212								23,272
Bank owned life insurance		21,687								19,884
Intangible assets		17,272								17,393
Other assets		34,867								27,800
Allowance for loan losses		(4,986	)							(4,936	)
Total non-interest-earning assets		87,052								83,413
Total assets	$	1,024,826							$	1,019,385
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	139,738		$	1,614		4.62	%	$	95,371		$	658		2.76	%
Savings deposits		70,735			371		2.10	%		94,498			468		1.98	%
Time deposits		187,906			2,211		4.71	%		242,804			2,586		4.26	%
Other interest-bearing deposits		180,440			1,073		2.38	%		123,348			461		1.49	%
Short-term borrowings and FHLB
advances		206,073			2,346		4.55	%		212,549			2,234		4.20	%
Subordinated debentures		5,155			104		8.07	%		15,465			339		8.77	%
Total interest-bearing liabilities		790,047			7,719		3.91	%		784,035			6,746		3.44	%
Non-interest-bearing liabilities:
Demand deposits		130,291								135,299
Other non-interest-bearing deposits		410								1,803
Other liabilities		6,159								2,782
Total non-interest-bearing liabilities		136,860								139,884
Stockholders’ equity		97,919								95,466
Total liabilities and stockholders’ equity	$	1,024,826							$	1,019,385
Net interest income (tax-equivalent
basis)				$	5,692							$	6,833
Net interest spread							1.81	%							2.36	%
Net interest income as percent of
earning-assets (net interest margin)							2.43	%							2.92	%
Tax-equivalent adjustment(3)					(467	)							(525	)
Net interest income				$	5,225							$	6,308

(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

Average Statements of Condition with Interest and Average Rates

	Six Month Period Ended June 30,
				2007									2006
				Interest			Average						Interest			Average
(tax-equivalent basis, dollars in	Average			Income/			Yield/			Average			Income/			Yield/
thousands)	Balance			Expense			Rate			Balance			Expense			Rate

Assets
Interest-earning assets:
Investment securities(1):
Taxable	$	282,874		$	7,026			4.97	%	$	338,639		$	8,559			5.05	%
Tax-Exempt		101,267			2,948			5.82	%		112,585			3,227			5.73	%
Loans, net of unearned income(2)		536,863			16,627			6.19	%		506,365			15,138			5.98	%
Federal funds sold and securities
purchased under agreement to resell		18,582			481			5.18	%		6,255			151			4.83	%
Restricted investment in bank stock		7,800			264			6.77	%		9,258			291			6.29	%
Total interest-earning assets		947,386			27,346			5.77	%		973,102			27,366			5.62	%
Non-interest-earning assets
Cash and due from banks		20,230									21,811
Bank owned life insurance		21,576									19,275
Intangible Assets		17,286									17,408
Other assets		34,230									28,088
Allowance for loan losses		(4,973	)								(4,936	)
Total non-interest-earning assets		88,349									81,646
Total assets	$	1,035,735								$	1,054,748
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	142,320		$	3,214			4.52	%	$	79,022		$	958			2.42	%
Savings deposits		72,449			753			2.08	%		99,090			957			1.93	%
Time deposits		198,325			4,675			4.71	%		239,851			4,799			4.00	%
Other interest-bearing deposits		172,316			1,998			2.32	%		120,766			878			1.45	%
Short-term borrowings & FHLB
advances		208,047			4,705			4.52	%		261,670			5,319			4.07	%
Subordinated debentures		5,155			205			7.95	%		15,465			666			8.61	%
Total interest-bearing liabilities		798,612			15,550			3.89	%		815,864			13,577			3.33	%
Non-interest-bearing liabilities:
Demand deposits		132,512									135,509
Other non-interest-bearing deposits		406									2,547
Other liabilities		6,511									3,697
Total non-interest-bearing liabilities		139,429									141,753
Stockholders’ equity		97,694									97,131
Total liabilities and stockholders’ equity	$	1,035,735								$	1,054,748
Net interest income (tax-equivalent
basis)				$	11,796								$	13,789
Net interest spread								1.88	%								2.29	%
Net interest income as percent of
earning-assets (net interest margin)								2.49	%								2.83	%
Tax-equivalent adjustment(3)					(950	)								(1,081	)
Net interest income				$	10,846								$	12,708

(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