Notes to Financial Statements

General

The Union Center National Bank 401(k) Profit Sharing Plan, as amended, (the “Plan”) is a 401(k) plan covering all eligible employees of Union Center National Bank (the “Company”, “Employer” or “Plan Sponsor”). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).

The following brief description of the Plan is provided for general information purposes only. Participants should refer to the Plan document for more complete information.

Eligibility

All employees age 21 and over are eligible for participation in the Plan on the first available entry date after date of hire. For employer matching contributions, employees must have completed one year of service for participation as of the first anniversary of their hire date provided they complete at least 1,000 hours of service during the 12 month period beginning on their first day of employment.

Participant Contributions

Participants may contribute between 2% to 90% of pre-tax annual compensation, subject to Internal Revenue Service limitations. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans.

Employer Contributions

For the years ended December 31, 2012 and 2011, the Company’s contribution was $1.00 for each $1.00 of a participant’s contribution up to 6% of the participant’s earnings, as defined in the Plan.

Vesting

A participant is fully vested at all times in his or her contributions and earnings, including unrealized income or losses thereon. Employer contributions and income thereon vest at the rate of 20% for each year of service, as defined in the Plan. After five years of participation, a participant is 100% vested in employer contributions and earnings, including unrealized appreciation, depreciation or losses thereon.

Payment of Benefits

A participant’s vested interest in the Plan’s assets is distributable generally upon termination, disability, retirement or death. Participants may withdraw from their individual accounts pursuant to specific guidelines as set forth in the Plan.

Participant Accounts

Each participant’s account is credited with the participant’s contribution and allocations of a) the Company’s contribution and b) Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined in the plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account. Investments are participant-directed. For 2012, investment options include a varied selection of pooled separate accounts, investment in insurance contracts and Center Bancorp, Inc. common stock.

Administrative Expenses

Some of the expenses related to the administration of the Plan are paid by the Company.

Forfeitures

Any amounts not vested upon the termination of a participant may be used to make future employer matching contributions. At December 31, 2012 and 2011, forfeited non-vested accounts amounted to $8,956 and $9,370, respectively.

Union Center National Bank 401(k) Profit Sharing Plan

Notes to Financial Statements

Notes receivable from Participants

The Plan permits participants to borrow from their vested account balance. A participant is permitted to borrow a minimum of $1,000 up to a maximum equal to the lesser of 50% of his or her vested account balance, or $50,000. Loans must be fully repaid through payroll deductions within five years or in excess of five years for the purchase of a primary residence. The loans are secured by the balance in the participant’s account and bear interest at a rate equal to the current prime rate plus 1/2 percentage point. Interest rates ranged from 3.25% to 8.25% at December 31, 2012.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosures of contingent assets and liabilities reported in the financial statements. Actual results could differ from those estimates.

Investment Valuation and Income Recognition

Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 5 for a discussion of fair value measurements.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.

Notes receivable from participants

Notes receivable from participants are stated at their unpaid principal balance plus accrued unpaid interest.

Investment Fees

Net investment returns reflect certain fees paid by the investment funds to their affiliated investment advisors, transfer agents, and others as further described in each fund prospectus or other published documents. These fees are deducted prior to allocation of the Plan’s investment earnings activity and thus are not separately identifiable as an expense in the statement of changes in net assets available for benefits.

Basis of Accounting

The financial statements of the Plan are prepared on the accrual basis of accounting.

As described in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946-210 and ASC 962-325, investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan.

The statement of net assets available for benefits presents the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The statement of changes in net assets available for benefits is prepared on a contract value basis.

Union Center National Bank 401(k) Profit Sharing Plan

Notes to Financial Statements

Payment of Benefits

Benefit payments to participants are recorded when paid. Upon retirement, disability, or death, distributions will be paid as soon as administratively possible in a lump sum or as an annuity. Upon termination of service other than by retirement, disability, or death, the participant will receive a lump sum payment if the total of his or her vested account balance does not exceed $1,000. If the vested account balance exceeds $1,000, the assets will generally be held in a trust until the participant’s normal or early retirement date .

New Accounting Standard

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs . ASU 2011-04 amended ASC 820, Fair Value Measurement; to converge the fair value measurement guidance in US generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRSs). Some of the amendments clarify the application of existing fair value measurement requirements, while other amendments change a particular principle in ASC 820. In addition, ASU 2011-04 requires additional fair value disclosures. The amendments are to be applied prospectively and are effective for annual periods beginning on or after January 1, 2012. The Plan adopted this standard in 2012 which did not materially impact the Plan’s statements of net assets available for benefits and changes in net assets available for benefits.

Prior to 2011 the Plan entered into a fully benefit-responsive investment contract with Nationwide Life Insurance Company (“Nationwide”). Nationwide maintained the contributions in a general account. The account was credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. In October of 2011 the Plan entered into a contract with Northeast Retirement Services (“NRS”) to provide the same services and expand on product offerings to employees, as these features were not provided by Nationwide, and the Nationawide contract was terminated. In June 2012, the Plan entered into a contract with ING and terminated the contract with NRS.

The ING Fixed Account is available through a group funding contract issued by ING Life Insurance and Annuity Company (ILIAC). The Fixed Account is an obligation of ILIAC’s general account which supports all of the company’s insurance and annuity commitments. It is not a portfolio of contracts whose yields are based on changes in fair value of underlying assets as would be found in stable value fund.

The variable funds are pooled separate accounts that invest directly in designated mutual funds or, in some cases, collective investment trusts. The separate account owns and holds the underlying mutual fund or collective trust shares which are valued daily at their net asset values (NAV). Plans and participants hold “units of participation” in the separate account. The “accumulation unit value” (AUV) is the value of each unit in the separate account and the separate account is valued daily as the number of accumulation units held multiplied by the AUV. The AUV is first established when a new fund starts (typically the beginning AUV is $10.00) and is then determined daily based on the net asset value of the shares of the underlying fund, the fund’s dividends and the contract’s separate account charges.

Union Center National Bank 401(k) Profit Sharing Plan

Notes to Financial Statements

The individual investments that represent five percent or more of the Plan’s net assets available for benefits are as follows:

* Amount represents fair value. As of December 31, 2011, contract value was $990,444.

During 2012 and 2011, the Plan’s investments, including gains and losses on investments bought and sold, as well as held during the year, appreciated (depreciated) in fair value as follows:

The Plan measures on a recurring basis its investments at fair value in accordance with FASB codification "Fair Value Measurement", which provides the framework for measuring fair value. That framework provides fair value hierarchy used to classify the inputs used in measuring fair value. That hierarchy prioritizes the inputs used in determining valuations into three levels. The levels of fair value hierarchy are as follows:

An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Union Center National Bank 401(k) Profit Sharing Plan

Notes to Financial Statements

Following is a description of the valuation methodologies used for assets measured at fair value. There have been no significant changes in the methodologies used during the years ended December 31, 2012 or 2011.

The objective of the stable value fund is to provide a diversified group of investments offering competitive levels of yield consistent with stable fixed income methodology and the careful and prudent assumption of investment risk providing for the preservation of capital, stability and predictability of returns, liquidity to pay plan benefits and high credit quality. The fund seeks to achieve this objective by investing in conventional, synthetic and separate account investment contracts (collectively contracts) issued by life insurance companies, banks, and other financial institutions. Characteristics of these contracts allow for their principal value to remain stable regardless of the volatility of the financial markets. For liquidity purposes the Fund may have all or a portion of its assets invested in high quality money market instruments, investment companies and collective investment trusts that met the investment objectives. The underlying investments of the stable value fund consist primarily of level 2 inputs consisting of inputs either directly or indirectly observable for substantially the full term of the asset through corroboration with observable market data.

The value of the Fixed Account investment contract with the insurance company is determined by the daily crediting of interest which is subject to minimum contractual guarantees. The Fixed Account does not have a maturity date. Investment transfers to and from the Fixed Account, and withdrawals to pay participant benefits (as defined in the contract) are made at book (i.e. “contract”) value. Non-benefit surrenders from the Fixed Account would either be subject to a market value adjustment (MVA) or paid in installments as elected by the contract holder.

The unit value of the pooled separate account is based upon significant observable inputs, although it is not based upon quoted market prices in an active market. The underlying investments of the pooled separate accounts consist solely of mutual funds, each of which follows a separate investment strategy as noted in the table below. Due to the nature of these securities, there are no unfunded commitments or redemption restrictions.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The tables below set forth a summary of changes in the fair value of the Plan’s Level 3 assets for the year ended December 31, 2011:

Union Center National Bank 401(k) Profit Sharing Plan

Notes to Financial Statements

The Plan’s latest determination letter is dated January 11, 2002, in which the Internal Revenue Service states that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan’s tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code and therefore believe that the Plan is qualified and the related trust is tax-exempt.

Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the plan and recognize a tax liability if the organization has taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan administrator has analyzed the tax positions taken by the plan and has concluded that as of December 31, 2012, there are no uncertain positions taken, or expected to be taken, that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2009.

ING Life Insurance and Annuity Company, the investment and service provider for the Plan, manages certain Plan investments, which include pooled separate accounts and an investment contract with an insurance company. The Plan maintains a checking account at the Company and invests in Center Bancorp, Inc. common stock, the parent corporation of the Company. In addition, the Plan issues loans to participants, which are secured by the balances in the participants’ accounts. Therefore, related transactions qualify as party-in-interest transactions. All other transactions which may be considered party-in-interest transactions relate to normal plan management and administrative services, and the related payment of fees.

The Plan’s investments are concentrated in funds that invest in various investment securities. Such securities are subject to various risks that determine the value of the funds. Due to the level of risk associated with certain equity securities and the level of uncertainty related to changes in the value of these securities, it is at least reasonably possible that changes in market conditions in the near term could materially affect participants’ account balances and the value of investments reported in the financial statements.

The Plan also holds investments in Center Bancorp, Inc.’s common stock and accordingly, Plan participants’ accounts that hold shares of Center Bancorp, Inc.’s common stock are exposed to market risk in the event of a significant decline in the value of such stock. At December 31, 2012 and 2011, the Plan held shares totaling 176,990 and 159,732 shares, respectively.

Although it has not expressed any intent to do so, the Plan Sponsor has the right under the Plan to amend, alter, or terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, Plan participants will become 100% vested in their employer contributions and will be entitled to full distribution of such amounts.

The Plan was amended effective January 1, 2013 to add a 3% non-elective safe harbor contribution which will be contributed for those participants who have attained age 21 and completed one 1,000 hour year of service. The entry date for these safe harbor contributions is the January 1 nearest the satisfaction of these eligibility requirements. The addition of the safe harbor provisions will eliminate the excess contribution refunds as the plan will be deemed to pass the average deferral percentage non-discrimination testing. In conjunction with the addition of the safe harbor contribution, the matching contribution was changed to a discretionary match and a discretionary profit sharing contribution subject to general non-discrimination testing was added.

Supplemental Schedule

Union Center National Bank 401(k) Profit Sharing Plan

Schedule of Assets (Held at End of Year)

(Line 4i of Schedule H to the 2011 Form 5500)

EIN: 22-1342912 - Plan Number: 002

December 31, 2012