UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-K





(Mark
One)




ý
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the fiscal year ended December 31,
2008





OR





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the transition period from  to
______





Commission
file number 000-49925








CENTRAL
JERSEY BANCORP


(Exact
name of Registrant as specified in its charter)








New
      Jersey
              
              22-3757709(State
      or other jurisdiction of
              
              (I.R.S.
      Employer Identification No.)incorporation
      or organization)1903
      Highway 35, Oakhurst, New Jersey
              
              07755(Address
      of principal executive offices)
              
              (Zip
      Code)








Registrant’s
telephone number, including area code:     (732)
663-4000





Securities
registered under Section 12(b) of the Act:  None





Securities
registered under Section 12(g) of the Act:





Common Stock, par value
$0.01


(Title of
class)





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes o           No   ý





Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes o           No   ý








Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes   ý        No
o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  ý





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.  (Check one):




Large
      accelerated filer
            o
            Accelerated
      filer
            ýNon-accelerated
      filer
            o
            Smaller
      reporting company
            ý





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     Yes o           No   ý





As of
June 30, 2008, the aggregate fair value of the Registrant’s common stock held by
non-affiliates was approximately $52,850,362.





As of
March 3, 2009, 9,019,368 shares of the Registrant’s common stock were
outstanding.




DOCUMENTS INCORPORATED BY
REFERENCE




Part III
of this Annual Report on Form 10-K incorporates certain information by reference
from the Registrant’s Proxy Statement for the Annual Meeting of Shareholders
scheduled to be held on May 27, 2009.  It is anticipated that the
Proxy Statement will be filed with the Securities and Exchange Commission by
April 24, 2009.






ii








SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS




Certain
information included in this Annual Report on Form 10-K and other filings of the
Registrant under the Securities Act of 1933, as amended (the “Securities Act”),
and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as
well as information communicated orally or in writing between the dates of such
filings, contains or may contain “forward-looking statements” within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange
Act.  Such statements are subject to certain risks, trends and
uncertainties that could cause actual results to differ materially from expected
results.  Among these risks, trends and uncertainties are the effect
of governmental regulation on Central Jersey Bank, National Association, a
nationally chartered commercial bank and wholly-owned subsidiary of the
Registrant, interest rate fluctuations, regional economic and other conditions,
the availability of working capital, the cost of personnel and technology and
the competitive markets in which Central Jersey Bank, N.A.
operates.




In some
cases, forward-looking statements can be identified by terminology such as
“may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative of such terms
or other comparable terminology.  Although the Registrant believes
that the expectations reflected in the forward-looking statements contained
herein are reasonable, the Registrant cannot guarantee future results, levels of
activity, performance or achievements.  Moreover, neither the
Registrant, nor any other person, assumes responsibility for the accuracy and
completeness of such statements.  The Registrant is under no duty to
update any of the forward-looking statements contained herein after the date of
this Annual Report on Form 10-K.






iii











CENTRAL
JERSEY BANCORP


INDEX TO
FORM 10-K





PART I
                  
                  PAGEItem 1.
                  Business
                  1Item 1A.
                  Risk Factors
                  16Item 1B.
                  Unresolved Staff Comments
                  16Item 2.
                  Properties
                  16Item 3.
                  Legal Proceedings
                  17Item 4.
                  Submission of Matters to a Vote of Security
      Holders
                  17PART IIItem 5.
                  Market for Registrant’s Common Equity, Related Shareholder
      Matters and Issuer Purchases of Equity Securities
                  18Item 6.
                  Selected Financial Data
                  20Item 7.
                  Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                  21Item 7A.
                  Quantitative and Qualitative Disclosures About Market
      Risk
                  52Item 8.
                  Financial Statements and Supplementary
Data
                  52Item 9.
                  Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
                  52Item 9A.
                  Controls and Procedures
                  52Item 9B.
                  Other Information
                  53PART IIIItem 10.*
                  Directors, Executive Officers and Corporate
      Governance
                  54Item 11.*
                  Executive Compensation
                  54Item 12.*
                  Security Ownership of Certain Beneficial Owners and Management
      and Related Shareholder Matters
                  54Item 13.*
                  Certain Relationships and Related Transactions, and Director
      Independence
                  54





iv













Item 14.*
              Principal Accountant Fees and Services
              54PART IVItem 15.
              Exhibits and Financial Statement Schedules
              55Signatures
              
              56





*
            The
      information required under this Item is to be contained in the
      Registrant’s Proxy Statement for the Annual Meeting of Shareholders
      scheduled to be held on May 27, 2009, and is incorporated herein by
      reference.  It is anticipated that the Proxy Statement will be
      filed with the Securities and Exchange Commission by April 24,
      2009.








v


Index


PART I





Item
1.                 Business




About
Our Company




Central
Jersey Bancorp is a bank holding company headquartered in Oakhurst, New
Jersey.  The holding company was incorporated in New Jersey on March
7, 2000, and became an active bank holding company on August 31, 2000 through
the acquisition of Monmouth Community Bank, National Association.  On
January 1, 2005, Central Jersey Bancorp completed its strategic business
combination transaction with Allaire Community Bank, a New Jersey
state-chartered bank, pursuant to which Allaire Community Bank became a
wholly-owned bank subsidiary of Central Jersey Bancorp.  On the
effective date of the combination, the name of the holding company was changed
from Monmouth Community Bancorp to Central Jersey Bancorp.




On
December 23, 2008, as part of the Troubled Asset Relief Program (the “Capital
Purchase Program”) of the U.S. Department of Treasury, Central Jersey Bancorp
sold the following securities to the U.S. Department of Treasury for an
aggregate purchase price of $11.3 million:  (1) 11,300 shares of
Central Jersey Bancorp’s Fixed Rate Cumulative Perpetual Senior Preferred Stock,
Series A, having a liquidation preference of $1,000 per share (the “Series A
Preferred Shares”), and (2) a warrant to purchase up to 268,621 shares of
Central Jersey Bancorp’s common stock at an exercise price of $6.31 per share
(the “Warrant”).  Central Jersey Bancorp’s participation in the
Capital Purchase Program was voluntary.  Central Jersey Bancorp is
well-capitalized, profitable and has ample liquidity.  We have elected
to participate in the Capital Purchase Program to ensure that Central Jersey
Bank, N.A. continues to have ample capital and, therefore, lending capacity
during the current, and likely future, difficult economic operating
environment.  See “Government Regulation – Capital Purchase
Program.”




Central
Jersey Bancorp maintains an Internet website at www.cjbna.com.  Through
our website, shareholders may access free of charge our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports, filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act.  These documents are available as soon
as reasonably practicable after Central Jersey Bancorp electronically files
these documents with the Securities and Exchange Commission (the
“SEC”).  We also post on our website our Corporate Governance
Guidelines, Code of Conduct/Ethics Policy, Chief Executive and Chief Financial
Officer Code of Ethics and Nominating and Corporate Governance Committee
Charter.  These reports are also available in print by contacting Mr.
James S. Vaccaro, Chairman, President and Chief Executive Officer, Central
Jersey Bancorp, 1903 Highway 35, Oakhurst, New Jersey 07755.




About
Our Business




In August
of 2005, Central Jersey Bancorp combined its two bank subsidiaries, Monmouth
Community Bank, N.A. and Allaire Community Bank, into a single banking entity,
named Central Jersey Bank, National Association.  Central Jersey Bank,
N.A. offers a full range of retail and commercial banking services primarily to
customers located in Monmouth County and Ocean County, New Jersey. These
services include checking accounts, savings accounts, money market accounts,
certificates of deposit, installment loans, real estate mortgage
loans,




1
 Index


commercial
loans, wire transfers, money orders, traveler’s checks, safe deposit boxes,
night depositories, federal payroll tax deposits, bond coupon redemption, bank
by mail, direct deposit, automated teller services and telephone and internet
banking.  Central Jersey Bank, N.A. has debit card, merchant card and
international services available to its customers through correspondent
institutions.  Central Jersey Bank, N.A. currently has thirteen
full-service branch facilities located in Belmar, Bradley Beach, Long Branch
(2), Manasquan, Point Pleasant, Spring Lake Heights, Little Silver, Neptune
City, Ocean Grove, Oakhurst and Wall Township (2), New Jersey.




Central
Jersey Bank, N.A. is a national association chartered by the Office of the
Comptroller of the Currency (“OCC”).  The deposits of the bank
subsidiary are insured by the Federal Deposit Insurance Corporation
(“FDIC”).  Central Jersey Bank, N.A. provides a broad range of
financial products and services to individual consumers, small businesses and
professionals in its market area.When a customer’s loan
requirements exceedCentral Jersey Bank,
N.A.’s lending limit, it may seek to arrange such loan on a participation basis
with other financial institutions.  In addition, Central Jersey Bank,
N.A. participates in loans originated by other financial
institutions.




Business
Strategy




Central
Jersey Bancorp’s strategy is to provide a competitive range of community banking
services to its market area, in a professional environment, at fair and
reasonable interest rates and fees, at convenient operating hours, with a
commitment to prompt, quality and highly personalized service, which is both
efficient and responsive to local banking needs.  Service to customers
and a commitment to the community are the basic and distinguishing features
offered by Central Jersey Bank, N.A., Central Jersey Bancorp’s bank
subsidiary.




Market
Area




Central
Jersey Bank, N.A. currently operates thirteen full-service branch facilities
located in Belmar, Bradley Beach, Long Branch (2), Manasquan, Point Pleasant,
Spring Lake Heights, Little Silver, Ocean Grove, Neptune City, Oakhurst and Wall
Township (2), New Jersey.  Except for the Point Pleasant branch,
located in Ocean County, New Jersey, each branch is within Monmouth County, New
Jersey, one of the largest counties, by population, in the State of New
Jersey.  The individual branch locations provide a great deal of
exposure and are well-situated to conveniently serve businesses, professionals
and individuals throughout Central Jersey Bancorp’s market area.




Commercial
activity within Central Jersey Bancorp’s market area includes small and medium
sized businesses, corporate offices, professional offices, major retail centers,
resort and recreational businesses along the nearby oceanfront, as well as
numerous industrial establishments specializing in light manufacturing, baking
products, rubber and plastic products, surgical and medical devices, electronics
and telecommunications.  In addition, the market area contains a
variety of major employers, including Monmouth Medical Center, Jersey Shore
University Medical Center and Monmouth University.




2
 Index


Services
Offered




Central
Jersey Bancorp’s bank subsidiary, Central Jersey Bank, N.A., is community
oriented and offers services and products designed to meet the banking needs of
local individuals, businesses and professionals.  Business people and
professionals are offered a broad spectrum of deposit and loan products designed
to satisfy their occupational and personal financial needs.  In
addition, Central Jersey Bank, N.A. provides a broad array of consumer banking
services to the general public residing or working in its market
area.




Deposits.  In order to
attract and retain stable deposit relationships with the commercial
establishments and other businesses within its market area, Central Jersey Bank,
N.A. offers competitive small business cash management
services.  Central Jersey Bank, N.A. believes that the expertise and
experience of its management coupled with the introduction of new technologies
enables the bank subsidiary to maximize the growth of business related
deposits.  The primary deposit services of Central Jersey Bank, N.A.
offered to non-business customers are comprised of demand deposits, savings
deposits (including money markets), time deposits and individual retirement
accounts.




Loans.  Central Jersey
Bank N.A.’s loan portfolio consists primarily of variable-rate and short-term
fixed rate loans, with a significant concentration in commercial purpose
transactions.  Central Jersey Bank, N.A. believes that the familiarity
of its management and the members of its Board of Directors appointed to its
Loan Committee with prospective local borrowers enables Central Jersey Bank,
N.A. to better evaluate the character, integrity and creditworthiness of
prospective borrowers.




Residential
Mortgage Loans.  In order to
effectively penetrate the mortgage market, Central Jersey Bank, N.A., through an
unaffiliated third party vendor, offers a range of residential mortgage products
at competitive rates.  Central Jersey Bank, N.A. closes its originated
residential mortgages in its name and then sells its residential mortgage
production to government agencies and private investors in order to manage
interest rate risk and liquidity.  Central Jersey Bank, N.A. believes
that its policy of closing loans in a time frame that meets the needs of its
borrowers is important to its business.




Commercial
Mortgage/Construction Loans.  Central Jersey
Bank, N.A. originates various types of loans secured with real estate, including
construction loans.  Central Jersey Bank, N.A.’s loan officers work
closely with real estate developers, individual builders and attorneys to offer
construction loans and services to the residential real estate market as well as
to owner-occupied commercial properties and investment
properties.  Construction lending constitutes a minor portion of the
loan portfolio.  In some cases, Central Jersey Bank, N.A. may
originate loans larger than its lending or policy limits and will participate
these loans with other financial institutions.




Consumer
Lending.  Central Jersey
Bank, N.A. offers a full menu of consumer loan products that include home equity
loans and lines of credit, secured and unsecured personal loans, overdraft lines
of credit and auto loans. Central Jersey Bank, N.A. also offers a service to
consumers that allows a consumer to apply for consumer loans via the Internet
and receive a preapproval on their loan request in approximately sixty
seconds.  The ability to complete an




3
 Index


application
on-line allows Central Jersey Bank, N.A. to compete with the national lenders on
a local level.




Small
Business Loans.  Central Jersey
Bank, N.A. generally targets businesses with annual revenues of less than
$25,000,000.  Often, these businesses are ignored by the larger
lending institutions and have experienced the negative effects of the bank
consolidations.  Central Jersey Bank, N.A. offers responsiveness,
flexibility and local decision-making for loan applications of small business
owners, thereby eliminating the delays generally associated with non-local
management.  Central Jersey Bank, N.A. participates in the U.S. Small
Business Administration (SBA) programs through its SBA loan department, which
was established in the fall of 2007, and in programs offered through the New
Jersey Economic Development Authority.  As an independent community
bank, Central Jersey Bank, N.A. serves the business banking needs of
professionals in the legal, medical, accounting, insurance, andreal estate
industries.  Lines of credit, term loans and time loansare tailored to meet the
borrowing needs of Central Jersey Bank, N.A.’s customers in the professional
community.




In 2009,
the SBA awarded Central Jersey Bank, N.A. with Preferred Lender Program Status
(“PLP”), a designation that streamlines access to SBA-guaranteed loans for the
institution’s small business customers.  The SBA approves PLP status
for lending institutions that are experienced with SBA-guaranteed loans and have
demonstrated the ability to process, close, service and liquidate them, as well
as the ability to develop and analyze complete loan packages.  When
the SBA designates a bank as a PLP status lender, it delegates the final credit
decision and most servicing and liquidation authority and responsibility to
those carefully selected banks.




OtherServices.  To further
attract and retain customer relationships, Central Jersey Bank, N.A. provides an
expanded array of financial services, including the following:  the
issuance of money orders, cashier checks and gift checks, wire transfers, U.S.
Savings Bonds sales and redemptions, debit and ATM cards, federal payroll tax
deposits, payroll services, safe deposit boxes, traveler’s checks, night
depositories, bond coupon redemptions, bank-by-mail, direct deposit, business
sweep accounts, automated teller machines, online deposit account and loan
account applications and telephone and internet banking.  Central
Jersey Bank, N.A. offers a variety of personal and business credit
cards.  These credit cards are underwritten and managed by one or more
third party unaffiliated banking organizations.  Central Jersey Bank,
N.A. also maintains coin counting machines, for the convenience of its
customers, in most of its branch offices.




Competition




The
banking business in New Jersey is very competitive.  Central Jersey
Bank, N.A. actively competes for deposits and loans with existing New Jersey and
out-of-state financial institutions.  Central Jersey Bank, N.A.’s
competition includes large financial service companies and other entities, in
addition to traditional banking institutions such as savings banks, commercial
banks, internet banks and credit unions.  Such competition includes
community banks, with banking philosophies similar to those of Central Jersey
Bank, N.A., which are located within or near the market area served by Central
Jersey Bank, N.A.




Many of
Central Jersey Bank, N.A.’s larger competitors have a greater ability to finance
wide ranging advertising campaigns through their greater capital
resources.  Marketing efforts to attract prospective customers depend
heavily upon referrals from Central Jersey Bank, N.A.’s




4
 Index


Board of
Directors, advisory boards, management and shareholders, selective advertising
in local media and direct mail solicitations.  Central Jersey Bank,
N.A. competes for business principally on the basis of high quality, personal
service to customers, customer access to bank decision makers and competitive
interest rates and fees.




In recent
years, intense market demands, technological and regulatory changes and economic
pressures have eroded once clearly defined financial service industry
classifications.  Existing banks have been forced to diversify their
services, increase rates paid on deposits, provide competitive pricing on loans
and become more cost effective, as a result of competition with one another and
with new types of financial service companies, including non-banking
competitors.  Corresponding changes in the regulatory framework have
resulted in increasing homogeneity in the financial services offered by
financial institutions.  Some of the results of these market dynamics
in the financial services industry have been a number of new bank and non-bank
competitors, increased merger activity, and increased customer awareness of
product and service differences among competitors.  These factors may
be expected to affect the business prospects of Central Jersey Bank,
N.A.




Employees




James S.
Vaccaro (Chairman, President and Chief Executive Officer), Robert S. Vuono
(Senior Executive Vice President, Chief Operating Officer and Secretary), and
Anthony Giordano, III (Executive Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary) currently are the executive officers of the
holding company, Central Jersey Bancorp, and its banking subsidiary, Central
Jersey Bank, N.A. Mr. Vaccaro, Mr. Vuono and Mr. Giordano, each have entered
into a change of control agreement with Central Jersey
Bancorp.  Including the aforementioned executive officers, Central
Jersey Bancorp had a total of 140 full time equivalent employees as of December
31, 2008.




Holding
Company Operations




Central
Jersey Bancorp serves as the holding company for Central Jersey Bank,
N.A.  The holding company has no assets or liabilities other than its
investment in Central Jersey Bank, N.A. and its participation in MCBK Capital
Trust I, a special purpose business trust established in March 2004 for the
purpose of issuing $5.0 million of preferred capital securities.  See
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operation – Guaranteed Preferred Beneficial Interest in the Central Jersey
Bancorp Subordinated Debt.”  The holding company does not conduct, nor
does management believe that it will conduct, any business.  All
banking products and services are, and will be, provided by Central Jersey
Bancorp’s bank subsidiary, Central Jersey Bank, N.A.  Moreover, on
March 9, 2004, Monmouth Community Bank, N.A., the original banking subsidiary of
Central Jersey Bancorp, formed MCB Investment Company, a New Jersey
corporation.  For state tax purposes, MCB Investment Company was
formed to hold and invest in investment securities in support of Monmouth
Community Bank, N.A.  Further, on January 10, 2001, Allaire Community
Bank, a former bank subsidiary of Central Jersey Bancorp that was combined with
Monmouth Community Bank, N.A. to form Central Jersey Bank, N.A. in August 2005,
formed Allaire Investment Co., Inc., a New Jersey corporation, for the same
purposes that Monmouth Community Bank, N.A. formed MCB Investment
Company.  Central Jersey Bancorp combined the two New Jersey
investment




5
 Index


subsidiaries
effective January 1, 2006.  The name of the combined investment
subsidiary is CJB Investment Company.




Government
Regulation




Central
Jersey Bancorp and its subsidiaries, including Central Jersey Bank, N.A.,
operate within a system of banking laws and regulations intended to protect bank
customers and depositors.  These laws and regulations govern the
permissible operations and management, activities, reserves, loans and
investments of Central Jersey Bancorp and its subsidiaries.  In
addition, Central Jersey Bancorp is subject to federal and state securities laws
and general federal laws and regulations.  Central Jersey Bancorp and
its non-bank subsidiary also are subject to the corporate laws and regulations
of their respective states of incorporation.  The following
descriptions summarize the key banking and other laws and regulations to which
Central Jersey Bancorp and Central Jersey Bank, N.A. are
subject.  These descriptions are not intended to be complete and are
qualified in their entirety by reference to the full text of the statutes and
regulations discussed.  Future changes in these laws and regulations,
or in the interpretation and application thereof by their administering
agencies, cannot be predicted, but could have a material effect on the business
and results of Central Jersey Bancorp and its subsidiaries.




Central
Jersey Bancorp is a bank holding company under the Federal Bank Holding Company
Act of 1956, as amended by the 1999 financial modernization legislation known as
the Gramm-Leach-Bliley Act, and is subject to the supervision of the Board of
Governors of the Federal Reserve System.  In general, the Bank Holding
Company Act limits the business of bank holding companies to banking, managing
or controlling banks, and performing certain servicing activities for
subsidiaries and, as a result of the Gramm-Leach-Bliley Act amendments to the
Bank Holding Company Act, permits bank holding companies that are also
designated as “financial holding companies” to engage in any activity, or
acquire and retain the shares of any company engaged in any activity, that is
either (1) financial in nature or incidental to such financial activity (as
determined by the Federal Reserve Board in consultation with the OCC), or (2)
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally (as determined by the Federal Reserve Board).  In order for
a bank holding company to engage in the broader range of activities that are
permitted by the Bank Holding Company Act for bank holding companies that are
also financial holding companies, upon satisfaction of certain regulatory
criteria, the bank holding company must file a declaration with the Federal
Reserve Board that it elects to be a financial holding
company.  Central Jersey Bancorp does not intend to seek a financial
holding company designation at this time, and does not believe that the current
decision not to seek a financial holding company designation will adversely
affect its ability to compete in its chosen markets.  Central Jersey
Bancorp does not believe that seeking such a designation at this time would
position it to compete more effectively in the offering of its current products
and services.




Central
Jersey Bank, N.A., the banking subsidiary of Central Jersey Bancorp, is a
national association, and is subject to the regulation, supervision and
examination of the OCC.  In addition, as a national bank, Central
Jersey Bank, N.A. was required to become a member bank of the Federal Reserve
Bank of New York, and is subject to examination and regulation by the Board of
Governors of the Federal Reserve System.  The Federal Reserve Board
regulates aspects of activities conducted by Central Jersey Bancorp and its
subsidiaries, as discussed above.




6
 Index


Dividend
Restrictions




Central
Jersey Bancorp and its subsidiaries are separate legal entities whose finances
are in some ways interconnected.  Central Jersey Bancorp’s principal
source of funds to fulfill its guarantee of trust preferred securities issued by
MCBK Capital Trust I or to pay cash dividends on its common stock, if such
dividends were to be declared, is from cash dividends paid to it by Central
Jersey Bank, N.A.  Certain federal statutes and regulations limit the
payment of dividends to Central Jersey Bancorp by its bank subsidiary without
regulatory approval.




As a
national bank, Central Jersey Bank, N.A. must obtain prior approval from the OCC
to pay a cash dividend if the total of all cash dividends declared by Central
Jersey Bank, N.A. in any calendar year would exceed Central Jersey Bank, N.A.’s
net income for that year, combined with its retained net income for the
preceding two calendar years, less any transfers required by the OCC or to a
fund for retirement of preferred stock.  Additionally, Central Jersey
Bank, N.A. may not declare dividends in excess of net profits on hand, after
deducting the amount by which the principal amount of all loans on which
interest is past due for a period of six months or more exceeds the reserve for
credit losses.




The
payment of dividends is limited further by applicable minimum capital
requirements.  The Federal Reserve Board and the OCC have issued
additional guidelines and policy statements, applicable to Central Jersey
Bancorp and Central Jersey Bank, N.A., requiring bank holding companies and
national banks to continually evaluate the level of cash dividends in relation
to their respective operating income, capital needs, asset quality and overall
financial condition, and limiting dividends to payments out of current operating
earnings.




As an
insured depository institution, Central Jersey Bank, N.A. is subject to the
Federal Deposit Insurance Act which provides that no dividends may be paid by an
insured depository institution if it is in arrears in the payment of any
insurance assessment due to the FDIC.  In addition, under the Federal
Deposit Insurance Act, an insured depository institution may not pay any
dividend if the institution is undercapitalized or if the payment of the
dividend would cause the institution to become undercapitalized, as further
discussed below.  A payment of dividends that would have the effect of
depleting a depository institution’s capital base to an inadequate level could
constitute an unsafe and unsound practice subject to a cease and desist
order.




Prior to
2008, Central Jersey Bank, N.A. had never declared any cash
dividends.  However, on January 15, 2008, Central Jersey Bancorp, the
parent company of Central Jersey Bank, N.A., announced that its Board of
Directors authorized a common stock repurchase program.  Central
Jersey Bank, N.A. declared and paid cash dividends totaling $2.045 million to
Central Jersey Bancorp in order to effectuate the common stock repurchase
program.  As of December 23, 2008, the Company suspended its stock
repurchase program due to its participation in the U.S. Department of Treasury’s
Capital Purchase Program.




Transactions
with Affiliates




Banking
laws and regulations impose certain restrictions on the ability of bank holding
companies and their non-bank subsidiaries to borrow from and engage in other
transactions with their subsidiary or affiliated banks.  Generally,
these restrictions require that any extensions of credit must be secured by
designated amounts of specified collateral and are limited to (1)
10%




7
 Index


of the
bank’s capital stock and surplus per non-bank affiliated borrower, and (2) 20%
of the bank’s capital stock and surplus aggregated as to all non-bank affiliated
borrowers.  In addition, certain transactions with affiliates must be
on terms and conditions, including credit standards, at least as favorable to
the institution as those prevailing for arms-length
transactions.  Central Jersey Bank, N.A. also must comply with
regulations which restrict loans made to directors, executive officers and
principal shareholders of Central Jersey Bancorp and its
subsidiaries.




Liability
of Commonly Controlled Institutions and “Source of Strength”
Doctrine




The
Federal Deposit Insurance Act contains a “cross-guarantee” provision that could
result in any insured depository institution owned by Central Jersey Bancorp
being assessed for losses incurred by the FDIC in connection with assistance
provided to, or the failure of, any other insured depository institution owned
by Central Jersey Bancorp.  Also, under the Bank Holding Company Act
and Federal Reserve Board policy, bank holding companies are expected to
represent a source of financial and managerial strength to their bank
subsidiaries, and to commit resources to support bank subsidiaries in
circumstances where banks may not be in a self sufficient financial
position.  Capital loans by a bank holding company to a bank
subsidiary are subordinate in right of repayment to deposits and other bank
indebtedness.  If a bank holding company declares bankruptcy, any
commitment made to a federal bank regulatory agency by the bank holding company
to sustain the capital of its subsidiary banks will be assumed by the bankruptcy
trustee and entitled to a priority of payment.




In
addition, under the National Bank Act, as amended, if the capital stock of a
subsidiary national bank is impaired, by losses or otherwise, the OCC is
authorized to require payment of the deficiency by assessment upon the bank’s
parent company, and to sell the stock of the bank if such assessment is not
satisfied within three months to the extent necessary to eliminate the
deficiency.




FDIC
Deposit Insurance Coverage




The FDIC
is an independent agency of the United States government that protects against
the loss of insured deposits if an FDIC-insured bank or savings association
fails. FDIC deposit insurance is backed by the full faith and credit of the
United States government.   FDIC insurance covers funds in
deposit accounts, including checking and savings accounts, money market deposit
accounts and certificates of deposit (CDs). FDIC insurance does not, however,
cover other financial products and services that insured banks may offer, such
as stocks, bonds, mutual fund shares, life insurance policies, annuities or
municipal securities.   There is no need for depositors to apply
for FDIC insurance or even to request it. Coverage is automatic. The FDIC
provides separate coverage for deposits held in different account ownership
categories. Unlimited deposit insurance coverage is available through December
31, 2009, for non-interest bearing transaction accounts at institutions
participating in FDIC’s Temporary Liquidity Guarantee Program.  On
January 1, 2010, the standard coverage limit will return to $100,000 for all
deposit categories except IRAs and Certain Retirement Accounts, which will
continue to be insured up to $250,000 per owner.




The
coverage limits shown in the chart below refer to the total of all deposits that
an account holder has in the same ownership categories at each FDIC-insured
bank. The chart shows only




8
 Index




the most
common ownership categories that apply to individual and family deposits, and
assumes that all FDIC requirements are met.




Single
      Accounts (owned by one person)
            $250,000
      per ownerJoint
      Accounts (two or more persons)
            $250,000
      per co-ownerIRAs
      and certain other retirement accounts
            $250,000
      per ownerTrust
      Accounts
            $250,000
      per owner per beneficiary subject to specific limitations and
      requirementsCorporation,
      Partnership and Unincorporated Association Accounts
            $250,000
      per corporation, partnership or unincorporated
  associationEmployee
      Benefit Plan Accounts
            $250,000
      for the non-contingent, ascertainable interest of each
      participantGovernment
      Accounts
            $250,000
      per official custodianNon-interest
      Bearing Transaction Accounts
            Unlimited
      coverage – only at participating FDIC-insured banks and savings
      associations







Temporary
Liquidity Guarantee Program




On
November 21, 2008, the Board of Directors of the FDIC adopted a final rule
relating to the Temporary Liquidity Guarantee Program (“TLG Program”). The
TLG Program was announced by the FDIC on October 14, 2008, preceded by
the determination of systemic risk by the Secretary of the U.S. Department of
Treasury (after consultation with the President), as an initiative to counter
the system-wide crisis in the nation’s financial sector. Under the
TLG Program the FDIC will (1) guarantee, through the earlier of
maturity or June 30, 2012, certain newly issued senior unsecured debt
issued by participating institutions on or after October 14, 2008, and
before June 30, 2009, and (2) provide full FDIC deposit insurance
coverage for non-interest bearing transaction deposit accounts, Negotiable Order
of Withdrawal (“NOW”) accounts paying less than 0.5% interest per annum and
Interest on Lawyers Trust Accounts held at participating FDIC- insured
institutions through December 31, 2009. Coverage under the TLG Program
was available for the first 30 days without charge. The fee assessment for
coverage of senior unsecured debt ranges from 50 basis points to
100 basis points per annum, depending on the initial maturity of the debt.
The fee assessment for deposit insurance coverage is 10 basis points per
quarter on amounts in covered accounts exceeding $250,000. On December 23,
2008, Central Jersey Bancorp elected to participate in both guarantee
programs.







9
 Index


Capital
Purchase Program




On
October 14, 2008, the U.S. government announced a series of initiatives to
strengthen market stability, improve the strength of financial institutions and
enhance market liquidity.  In connection therewith, the U.S.
Department of Treasury announced  the Capital Purchase Program,
pursuant to which qualified U.S. financial institutions could voluntarily build
capital to increase the flow of financing to U.S. businesses and consumers and
to support the U.S. economy.





On
December 23, 2008, Central Jersey Bancorp, as part of the Capital Purchase
Program, sold (1) 11,300 Series A Preferred Shares, and (ii) the
Warrant to purchase up to 268,621 of Central Jersey Bancorp’s common stock at an
exercise price of $6.31 per share.  Central Jersey Bancorp intends to
utilize the $11.3 million in gross investment proceeds for general corporate
purposes and to enhance lending operations.  Both the Series A
Preferred Shares and the Warrant qualify as components of Central Jersey
Bancorp’s regulatory Tier 1 Capital.  The additional Tier 1 Capital
further fortifies Central Jersey Bancorp’s already strong capital position and
provides strategic flexibility.




The
Series A Preferred Shares pay cumulative dividends at a rate of 5% per annum, or
approximately $550,000 annually, and will reset to a rate of 9% at the end of
the fifth year.  The Warrant has a term of 10 years and is
exercisable, in whole or part, at any time during the term.  The
exercise price for the Warrant was the market price of Central Jersey Bancorp’s
common stock at the time of issuance calculated on a 20-trading day trailing
average.  The fair value of the Warrant was estimated on December 23,
2008 using the Black-Scholes option pricing model with the following
weighted-average assumptions used: stock price $6.31, dividend yield of 0%;
expected volatility of 46.50%; risk free interest rate of 1.45%; and expected
life of five years.





Central
Jersey Bancorp is subject to certain requirements regarding executive
compensation and corporate governance during the period in which any obligation
arising from financial assistance provided under the Capital Purchase Program
remains outstanding.  These requirements are set forth in the
Emergency Economic Stabilization Act of 2008 (the “EESA”) and the regulations
promulgated thereunder by the U.S. Department of Treasury (the “Regulations”),
and include the following: (1) Central Jersey Bancorp’s Compensation Committee
is required to review incentive compensation arrangements with senior risk
officers at least annually to ensure that no such arrangement encourages senior
executive officers to take unnecessary and excessive risks that threaten the
value of Central Jersey Bancorp, and the Compensation Committee must provide
certifications to that effect to the OCC; (2) Central Jersey Bancorp is required
to recover any bonus or incentive compensation paid to a senior executive
officer that is based on statements of earnings that are subsequently proven to
be materially inaccurate; and (3) Central Jersey Bancorp is prohibited from
making any “golden parachute payments” as defined in the EESA and the
Regulations.





On
February 17, 2009, President Obama signed the American Recovery and Reinvestment
Act of 2009 (the “ARRA”) into law, which amended the executive compensation and
corporate governance provisions of the EESA.  The amendments elaborate
on the requirements and obligations under the EESA and provide that Capital
Purchase Program participants: (1) may not provide incentives for senior
executive officers to take unnecessary and excessive risks that threaten the
value of the financial institution; (2) must recover any bonus or
incentive


10
 Index


compensation
paid to senior executive officers based on statements of earning that are
subsequently proven to be materially inaccurate; (3) may not make any “golden
parachute payments” to senior executive officers; (4) may not pay any bonus,
retention award or incentive compensation to certain of the most highly
compensated employees, except pursuant to employment contracts executed on or
before February 11, 2009 and except for long-term restricted stock that meets
certain requirements; (5) may not adopt any compensation plan that would
encourage manipulation of reported earnings to enhance the compensation paid to
any employee; (6) must establish a compensation committee of independent
directors to review employee compensation plans; and (7) must provide certain
certifications regarding executive compensation and compliance with the
requirements of the EESA.  The U.S. Department of Treasury has not yet
promulgated new regulations in light of the amendments.  Therefore,
the effect of these amendments on Central Jersey Bancorp is uncertain pending
the promulgation of new regulations.  However, the ARRA also provides
that, subject to consultation with the appropriate federal banking agency, the
Secretary of the U.S. Department of Treasury will permit a participant in the
Capital Purchase Program to repay any assistance previously provided under the
Capital Purchase Program.  The participant will not have to replace
the assistance with Tier I Capital, as originally provided in the Capital
Purchase Program.





Capital
Adequacy




The
Federal Reserve Board and the OCC have substantially similar risk-based capital
and leverage ratio guidelines for banking organizations.  These
guidelines are intended to ensure that banking organizations have adequate
capital given the risk levels of their assets and off-balance sheet financial
instruments.  Under the risk-based capital and leverage ratio
guidelines, assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights.  The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance sheet items.  These risk-based capital requirements
identify concentration of credit risk, and facilitate management of those
risks.




To derive
total risk-weighted assets, bank assets are given risk-weights of 0%, 20%, 50%
and 100%.  In addition, certain off-balance sheet items are converted
to asset equivalent amounts to which an appropriate risk-weight will
apply.  Most loans are assigned to the 100% risk category, except for
performing first mortgage loans fully secured by residential property, which
carry a 50% risk-weighting.  Most investment securities (including,
primarily, general obligation claims of states or other political subdivisions
of the United States) are assigned to the 20% category, except for municipal or
state revenue bonds, which have a 50% risk-weight, and direct obligations of the
U.S. Department of Treasury or obligations backed by the full faith and credit
of the United States government, which have a 0% risk-weight.  In
converting off-balance sheet items, direct credit substitutes, including general
guarantees and standby letters of credit backing financial obligations, are
given a 100% risk-weighting.  Transaction-related contingencies such
as bid bonds, standby letters of credit backing nonfinancial obligations, and
undrawn commitments (including commercial credit lines with an initial maturity
or more than one year) have a 50% risk-weighting.  Short-term
commercial letters of credit have a 20% risk-weighting, and certain short-term
unconditionally cancelable commitments have a 0% risk-weighting.




Under the
capital guidelines, a banking organization’s total capital is divided into
tiers.  “Tier I Capital” consists of common shareholders’ equity,
qualifying preferred stock, and minority interests in the equity accounts of
consolidated subsidiaries, less certain goodwill items and other




11
 Index


intangible
assets.  No more than 25% of qualifying Tier I Capital may consist of
trust preferred securities.  “Tier II Capital” consists of hybrid
capital instruments, perpetual debt, mandatory convertible debt securities, a
limited amount of subordinated debt, and preferred stock that does not qualify
as Tier I Capital, plus a limited amount of loan and lease loss allowances and a
limited amount of unrealized holding gains on equity
securities.  “Tier III Capital” consists of qualifying unsecured
subordinated debt.  “Total Capital” is the sum of Tier I, Tier II and
Tier III Capital.  The sum of Tier II and Tier III Capital may not
exceed the amount of Tier I Capital.




Under the
Federal Reserve Board’s risk-based capital guidelines for bank holding
companies, the required minimum ratio of Total Capital (the sum of Tier I, Tier
II and Tier III Capital) to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) is 8%.  The
required minimum ratio of Tier I Capital to risk-weighted assets is
4%.  At December 31, 2008, Central Jersey Bancorp’s ratios of Total
Capital and Tier 1 Capital to risk-weighted assets were 15.09% and 13.91%,
respectively.




The
Federal Reserve Board also requires bank holding companies to comply with
minimum leverage ratio guidelines.  The leverage ratio is the ratio of
a bank holding company’s Tier I Capital (excluding intangibles) to its total
assets (excluding loan loss reserve, goodwill, and certain other
intangibles).  Bank holding companies normally must maintain a minimum
leverage ratio of 4%, unless the bank holding company has the highest
supervisory rating or has implemented the Federal Reserve Board’s risk-adjusted
measure for market risk, in which case its minimum leverage ratio must be
3%.  Banking organizations undergoing significant growth or
undertaking acquisitions must maintain even higher capital
positions.  At December 31, 2008, Central Jersey Bancorp’s leverage
ratio was 10.20%.  Central Jersey Bank, N.A. is subject to similar
risk-based and leverage capital guidelines, as adopted by the OCC.




Banking
regulators currently are developing proposed revisions to their existing capital
adequacy regulations and standards, based on policy guidelines issued by the
Basel Committee on Banking Supervision, an international committee of central
banks and bank regulators from major industrialized
countries.  Central Jersey Bank, N.A. is analyzing the potential
impact of these proposed revisions on its risk-based capital.




Prompt
Corrective Action




The
Federal Deposit Insurance Act requires federal banking regulators to take prompt
corrective action with respect to depository institutions that do not meet
minimum capital requirements.  Failure to meet minimum requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have an adverse material effect on Central
Jersey Bancorp’s financial condition.  Under the Prompt Corrective
Action Regulations, Central Jersey Bank, N.A. must meet specific capital
guidelines that involve quantitative measures of its assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices.




The
Prompt Corrective Action Regulations define specific capital categories based on
an institution’s capital ratios.  The capital categories, in declining
order, are “well capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized,” and “critically
undercapitalized.”  The Federal Deposit Insurance Act imposes
progressively more restrictive constraints on operations, management and capital
distributions, depending on the capital




12
 Index


category
by which the institution is classified.  Institutions categorized as
“undercapitalized” or worse may be subject to requirements to file a capital
plan with their primary federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on asset growth and executive
compensation, and increased supervisory monitoring, among other
things.  Other restrictions may be imposed on the institution by the
regulatory agencies, including requirements to raise additional capital, sell
assets or sell the entire institution.  Once an institution becomes
“critically undercapitalized,” it generally must be placed in receivership or
conservatorship within 90 days.




The
Prompt Corrective Action Regulations provide that an institution is “well
capitalized” if the institution has a total risk-based capital ratio of 10.0% or
greater, a Tier I risk-based capital ratio of 6.0% or greater, and a leverage
ratio of 5.0% or greater.  The institution also may not be subject to
an order, written agreement, and capital directive or prompt corrective action
directive to meet and maintain a specific level for any capital
measure.  An institution is “adequately capitalized” if it has a total
risk-based capital ratio of 8.0% or greater, a Tier I risk-based capital ratio
of 4.0% or greater, and a leverage ratio of 4.0% or greater (or a leverage ratio
of 3.0% or greater if the institution is rated composite 1 in its most recent
report of examination, subject to appropriate federal banking agency
guidelines), and the institution does not meet the definition of a
well-capitalized institution.  An institution is deemed
“undercapitalized” if it has a total risk-based capital ratio that is less than
8.0%, a Tier I risk-based capital ratio of less than 4.0%, or a leverage ratio
of less than 4.0% (or a leverage ratio of less than 3.0% if the institution is
rated composite 1 in its most recent report of examination, subject to
appropriate federal banking agency guidelines), and the institution does not
meet the definition of a significantly undercapitalized or critically
undercapitalized institution.  An institution is “significantly
undercapitalized” if the institution has a total risk-based capital ratio that
is less than 6.0%, a Tier I risk-based capital ratio of less than 3.0%, or a
leverage ratio less than 3.0% and the institution does not meet the definition
of a critically undercapitalized institution, and is “critically
undercapitalized” if the institution has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.




The
appropriate federal banking agency may, under certain circumstances, reclassify
a well capitalized insured depository institution as adequately
capitalized.  The appropriate agency is also permitted to require an
adequately capitalized or undercapitalized institution to comply with the
supervisory provisions as if the institution were in the next lower category
(but not to treat a significantly undercapitalized institution as critically
undercapitalized) based on supervisory information other than an institution’s
capital levels.




At
December 31, 2008, Central Jersey Bank, N.A. was “well capitalized” based on the
ratios and guidelines noted above.  However, the capital categories of
the bank are determined solely for the purpose of applying the Prompt Corrective
Action Regulations and may not constitute an accurate representation of its
overall financial condition or prospects.  Additional information on
capital amounts and ratios of Central Jersey Bancorp and Central Jersey Bank,
N.A. is found in Note (15) to our consolidated financial statements included
herein.




Unsafe
and Unsound Practices




Notwithstanding
its Prompt Corrective Action category dictated by risk-based capital ratios, the
Federal Deposit Insurance Act permits the appropriate bank regulatory agency to
reclassify an




13
 Index


institution
if it determines, after notice and a hearing, that the condition of the
institution is unsafe or unsound, or if it deems the institution to be engaging
in an unsafe or unsound practice.  Under the Financial Institutions
Supervisory Act, the OCC has the authority to prohibit national banks from
engaging in any activity in the conduct of their business which the OCC believes
constitutes an unsafe or unsound practice.  The Federal Reserve Board
has similar authority with regard to bank holding companies and their non-bank
subsidiaries.




The
USA PATRIOT Act




On
October 26, 2001, the President signed into law certain comprehensive
anti-terrorism legislation known as the USA PATRIOT Act of
2001.  Title III of the USA PATRIOT Act substantially broadened the
scope of the U.S. anti-money-laundering laws and regulations by imposing
significant new compliance and due diligence obligations, creating new crimes
and penalties and expanding the extra-territorial jurisdiction of the United
States.  The U.S. Department of Treasury has issued a number of
implementing regulations which apply various requirements of the USA PATRIOT Act
to financial institutions such as Central Jersey Bank, N.A.  Those
regulations impose new obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent and report
money laundering and terrorist financing.




Failure
of a financial institution to comply with the USA PATRIOT Act’s requirements
could have serious legal consequences for an institution and adversely affect
its reputation.  Central Jersey Bancorp has adopted appropriate
policies, procedures and controls to address compliance with the requirements of
the USA PATRIOT Act under the existing regulations and will continue to revise
and update its policies, procedures and controls to reflect changes required by
the USA PATRIOT Act and by the U.S. Department of Treasury
regulations.




Community
Reinvestment Act




The
Federal Community Reinvestment Act requires banks to respond to the full range
of credit and banking needs within their communities, including the needs of low
and moderate-income individuals and areas.  A bank’s failure to
address the credit and banking needs of all socio-economic levels within its
markets may result in restrictions on growth and expansion opportunities for the
bank, including restrictions on new branch openings, relocation, formation of
subsidiaries, mergers and acquisitions.  In the latest CRA examination
report with respect to Central Jersey Bank, N.A., dated November 10, 2003,
Central Jersey Bank, N.A. received a rating of satisfactory.




Consumer
Privacy




The
privacy provisions of the Gramm-Leach-Bliley Act generally prohibit financial
institutions, including Central Jersey Bancorp and Central Jersey Bank, N.A.,
from disclosing or sharing nonpublic personal financial information to third
parties for marketing or other purposes not related to transactions, unless
customers have an opportunity to “opt out” of authorizing such disclosure, and
have not elected to do so.  It has never been the policy of Central
Jersey Bancorp to release such information except as may be required by
law.  The Fair Credit Reporting Act also restricts information sharing
among affiliates for marketing and other purposes.




14
 Index


Loans
to One Borrower




Federal
banking laws limit the amount a bank may lend to a single borrower to 15% of the
bank’s capital and surplus, plus an additional 10% of capital and surplus if the
amount over the 15% general limit is fully secured by adequate amounts of
readily marketable capital.  However, no loan to one borrower may
exceed 25% of a bank’s statutory capital, notwithstanding collateral pledged to
secure it.  Well-qualified national banks also may be eligible for
certain preferred lending limits within specified loan categories.




Depositor
Preference Statute




Under
federal law, depositors, certain claims for administrative expenses and employee
compensation against an insured depository institution are afforded a priority
over other general unsecured claims against the institution, in the event of a
“liquidation or other resolution” of the institution by a receiver.




Sarbanes-Oxley
Act of 2002




On July
30, 2002, the President of the United States signed into law the Sarbanes-Oxley
Act of 2002.  The stated goals of Sarbanes-Oxley Act of 2002 are to
increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws.  The Sarbanes-Oxley Act
of 2002 generally applies to all companies, both domestic and foreign, that file
or are required to file periodic reports with the Securities and Exchange
Commission under the Exchange Act.




The
Sarbanes-Oxley Act of 2002 includes very specific disclosure requirements and
corporate governance rules, requires the Securities and Exchange Commission and
self regulatory organizations to adopt extensive additional disclosure,
corporate governance and other related rules and mandates further studies of
certain issues by the Securities and Exchange Commission and the Comptroller
General.  The Sarbanes-Oxley Act of 2002 represents significant
federal involvement in matters traditionally left to state regulatory systems,
such as the regulation of the accounting profession, and to state corporate law,
such as the relationship between a board of directors and management and between
a board of directors and its committees.




The
Sarbanes-Oxley Act of 2002 addresses, among other matters:




·
            audit
      committees for all reporting
companies;




·
            certification
      of financial statements by the chief executive officer and the chief
      financial officer;




·
            the
      forfeiture of bonuses or other incentive-based compensation and profits
      from the sale of an issuer’s securities by directors and senior officers
      under certain circumstances;




·
            a
      prohibition on insider trading during pension plan black out
      periods;




·
            disclosure
      of off-balance sheet transactions;




·
            expedited
      filing requirements for certain periodic and current
    reports;




15
 Index


·
            disclosure
      of a code of ethics;




·
            “real
      time” filing of periodic reports;




·
            the
      formation of a public accounting oversight
  board;




·
            auditor
      independence; and




·
            various
      increased criminal penalties for violations of securities
      laws.




Overall
Impact of New Legislation and Regulations




Various
legislative initiatives are from time to time introduced in
Congress.  It cannot be predicted whether or to what extent the
business and condition of Central Jersey Bancorp and its subsidiaries will be
affected by new legislation or regulations, and legislation or regulations as
yet to be proposed or enacted.  In addition, the U.S. Department of
Treasury has the authority to unilaterally change the scope and requirements of
the Capital Purchase Program, which could have an adverse impact on the
operations of Central Jersey Bancorp and its subsidiaries.




Impact
of Monetary Policies




The
earnings of Central Jersey Bank, N.A. will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States government
and its agencies.  The monetary policies of the Federal Reserve Board
have had, and will likely continue to have, an important impact on the operating
results of banks through the Federal Reserve Board’s power to implement national
monetary policy in order, among other things, to curb inflation or combat a
recession.  The Federal Reserve Board has a major effect upon the
levels of bank loans, investments and deposits through its open market
operations in United States government securities and through its regulation of,
among other things, the discount rate on borrowing of member banks and the
reserve requirements against member bank deposits.  It is not possible
to predict the nature and impact of future changes in monetary and fiscal
policies.




Item
1A.               Risk
Factors





Not
applicable.




Item
1B.              Unresolved Staff
Comments




None.




Item
2.                 Properties




Bank
Buildings




The
corporate headquarters of Central Jersey Bank, N.A. is a leased facility,
located in Oakhurst, New Jersey at 1903 Highway 35. The new building includes a
full service branch.




Central
Jersey Bank, N.A. also leases office space or owns the buildings at the
following branch locations:




·
            627
      Second Avenue, Long Branch, New
Jersey.




16
 Index


·
            700
      Allaire Road, Spring Lake Heights, New
Jersey.




·
            700
      Branch Avenue, Little Silver, New
Jersey.




·
            61
      Main Avenue, Ocean Grove, New
Jersey.




·
            444
      Ocean Boulevard, Long Branch, New
Jersey.




·
            2200
      Highway 35, Sea Girt, New Jersey.




·
            155
      Main Street, Manasquan, New Jersey.




·
            Shark
      River Plaza, 300 West Sylvania Avenue, Route 33, Neptune City, New
      Jersey.




·
            2201
      Bridge Avenue, Point Pleasant, New
Jersey.




·
            501
      Main Street, Bradley Beach, New
Jersey.




·
            611
      Main Street, Belmar, New Jersey.




·
            Shop
      Rite Plaza, 2445 Highway 34, Manasquan, New
  Jersey.









Item
3.                 Legal
Proceedings




There are
no material legal, governmental, administrative or other proceedings pending
against Central Jersey Bancorp or Central Jersey Bank, N.A.




Item
4.                 Submission of Matters to a
Vote of Security Holders




At the
Special Meeting of Shareholders of Central Jersey Bancorp held on December 18,
2008, the shareholders approved the proposal to amend Central Jersey Bancorp’s
Certificate of Incorporation to authorize for issuance 10,000,000 shares of
preferred stock in connection with Central Jersey Bancorp’s participation in the
U.S. Department of the Treasury’s Capital Purchase Program.  The vote
on the proposal was as follows:






FOR
                %
                AGAINST
                %
                ABSTAIN
                %3,922,296
                85.0
                664,977
                14.4
                29,107
                0.6












17
 Index


PART II




Item
      5.
            Market for
      Registrant’s Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity
Securities




Effective
February 1, 2007, the common stock of Central Jersey Bancorp commenced trading
on the NASDAQ Global Market under the ticker symbol “CJBK.”  Prior
thereto, the common stock of Central Jersey Bancorp traded on the NASDAQ Capital
Market.




The
following table sets forth, for the periods indicated, the high and low last
sale information for Central Jersey Bancorp’s common stock, as reported on the
NASDAQ Capital Market for the period commencing January 1, 2007 through January
31, 2007, and as reported on the NASDAQ Global Market for the period commencing
February 1, 2007 through December 31, 2008.  Please note that the
information set forth below reflects inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions, and
has been adjusted to reflect 5% stock dividends paid on July 1, 2008 and July 2,
2007.







Year
      Ended December 31, 2008
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  8.38
                  
                  
                  $
                  7.35Second
      Quarter
                  
                  
                  8.74
                  
                  
                  
                  7.66Third
      Quarter
                  
                  
                  8.00
                  
                  
                  
                  6.62Fourth
      Quarter
                  
                  
                  7.44
                  
                  
                  
                  5.40Year
      Ended December 31, 2007
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  11.04
                  
                  
                  $
                  8.70Second
      Quarter
                  
                  
                  11.30
                  
                  
                  
                  8.49Third
      Quarter
                  
                  
                  9.09
                  
                  
                  
                  7.42Fourth
      Quarter
                  
                  
                  8.51
                  
                  
                  
                  6.98




As of
March 7, 2009, the following were market makers for Central Jersey Bancorp’s
common stock: UBS Securities LLC; Citadel Derivatives Group LLC; Susquehanna
Capital Group; Sandler, O’ Neill & Partners, L.P.; Knight Equity Markets,
L.P.; Keefe, Bruyette & Woods, Inc.; Sterne, Agee & Leach, Inc.; NASDAQ
Execution Services LLC; Stifel Nicolaus & Co.; Int’l Securities Exchange;
Hudson Securities, Inc.; Susquehanna Financial Group; and Domestic Securities,
Inc.




As of
March 7, 2009, the approximate number of registered holders of Central Jersey
Bancorp’s common stock was 637.




Central
Jersey Bancorp has not paid any cash dividends on its common stock and does not
presently intend to declare or pay cash dividends.  Our dividend
policy is subject to certain regulatory considerations and the discretion of our
Board of Directors and depends upon a number of factors, including operating
results, financial condition and general business conditions.  Holders
of common stock are entitled to receive dividends as, if and when
declared




18
 Index


by our
Board of Directors out of funds legally available therefore, subject to the
restrictions set forth under the Federal Bank Holding Company
Act.  Subject to the provisions of the Capital Purchase Program
described below, we may pay cash dividends without regulatory approval if net
income available to common shareholders fully funds the proposed dividends, and
the expected rate of earnings retention is consistent with capital needs, asset
quality and overall financial condition.




For so
long as any Series A Preferred Shares are outstanding, Central Jersey Bancorp is
not permitted to declare or pay cash dividends on its common stock unless all
dividends on the Series A Preferred Shares have been paid
in-full.  Further, unless the Series A Preferred Shares are redeemed
or fully transferred to third parties, Central Jersey Bancorp is prohibited from
increasing its common stock dividends without prior approval of the U.S.
Department of Treasury until December 23, 2011, which is the third anniversary
of the investment by the U.S. Department of Treasury in Central Jersey
Bancorp.





Stock
Repurchase Plan





On
January 7, 2008, Central Jersey Bancorp announced a common stock repurchase
program.  As authorized by Central Jersey Bancorp’s Board of
Directors, Central Jersey Bancorp may repurchase up to 5.7%, or 525,000 shares,
of the 9,183,290 shares of its common stock outstanding at the time the
repurchase program was announced.  Repurchases may be made from time
to time, in the open market, in unsolicited negotiated transactions or in such
other manner deemed appropriate by management, at prices not exceeding
prevailing market prices, subject to availability of the shares, over 24 months
ending December 31, 2009, or such shorter or longer period of time as Central
Jersey Bancorp may determine.  The acquired shares are to be held in
treasury to be used for general corporate purposes.  Central Jersey
Bancorp’s repurchase activities are transacted in accordance with SEC safe
harbor rules and guidance for issuer repurchases.  During the year
ended December 31, 2008, Central Jersey Bancorp repurchased 246,448 shares of
its common stock at an average price of $7.29 per share.  Central
Jersey Bank, N.A. declared and paid $2.045 million in cash dividends to Central
Jersey Bancorp in order to effectuate the common stock repurchase
program.  Effective December 23, 2008, Central Jersey Bancorp
suspended its stock repurchase program due to its participation in the Capital
Purchase Program.











19
 Index


Information
regarding Central Jersey Bancorp’s common stock repurchases for the three months
and year ended December 31, 2008 is as follows:





Issuer
Purchases of Equity Securities





Period
                Total
      Number
                  of
      Shares
                  Purchased
                Average
      Price
                  Paid
                  Per
      Share1
                Total
      Number of
                  Shares
      Purchased
                  as
      Part of Publicly
                  Announced
                  Program
                Maximum
      Number
                  of
      Shares that May
                  Yet
      Be Purchased
                  Under
      the ProgramJanuary
      1, 2008
                  through
      September
                  30,
      2008
                174,903
                $
      7.56
                174,903
                350,097October
      1, 2008
                  through
      October
                  31,
      2008
                34,445
                $
      6.91
                209,348
                315,652November
      1, 2008
                  through
      November
                  30,
      2008
                23,100
                $
      6.48
                232,448
                292,552December
      1, 2008
                  through
      December
                  31,
      2008
                14,000
                $
      6.19
                246,448
                278,552Total
      for the year
                  ended
      December 31,
                  2008
                246,448
                $7.29
                246,448
                278,552







1
            Excludes
      the broker commission of $0.04 per share, or $2,862 and $9,858,
      respectively, that was paid by the Company with respect to the shares
      purchased through the common stock repurchase plan for the three months
      and year ended December 31,
2008.









Item
6.                 Selected Financial
Data




Not
applicable.







20
 Index




Item 7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of Operations




The
following discussion and analysis is intended to provide information about
Central Jersey Bancorp’s financial condition for the years ended December 31,
2008 and 2007 and results of operations for the years ended December 31, 2008
and 2007.  The following information should be read in conjunction
with Central Jersey Bancorp’s audited consolidated financial statements for the
years ended December 31, 2008 and 2007 including the related notes thereto,
which begin on page F-1 of this report.




General




Central
Jersey Bancorp (formerly Monmouth Community Bancorp) is a bank holding company
headquartered in Oakhurst, New Jersey.  The holding company was
incorporated in New Jersey on March 7, 2000, and became an active bank holding
company on August 31, 2000 through the acquisition of Central Jersey Bank, N.A.
(formerly Monmouth Community Bank, N.A.).  On January 1, 2005, Central
Jersey Bancorp completed its strategic business combination transaction with
Allaire Community Bank, a New Jersey state-chartered bank, pursuant to which
Allaire Community Bank became a wholly-owned bank subsidiary of Central Jersey
Bancorp.  On the effective date of the combination, the name of the
holding company was changed from Monmouth Community Bancorp to Central Jersey
Bancorp.  In addition, as a part of the combination, each outstanding
share of common stock of Allaire Community Bank was exchanged for one share of
Central Jersey Bancorp common stock.




Critical
Accounting Policies




Note 1 to
our consolidated financial statements for the years ended December 31, 2008 and
2007, contained elsewhere in this report, includes a summary of our significant
accounting policies.  We believe our policy, with respect to the
methodology for our determination of the allowance for loan losses (“ALL”),
involves a high degree of complexity and requires management to make difficult
and subjective judgments which often requires assumptions or estimates about
uncertain matters.  Changes in these judgments, assumptions or
estimates could cause reported results to differ materially.  This
critical policy and its application are periodically reviewed by Central Jersey
Bancorp’s Audit Committee and Board of Directors.




Additional
critical accounting policies relate to judgments about other asset impairments,
including goodwill, investment securities, servicing rights and deferred tax
assets.  Central Jersey Bancorp performs an annual analysis to test
the aggregate balance of goodwill for impairment in accordance with SFAS No.
142, Goodwill and Other
Intangible Assets(“SFAS No. 142”).  For purposes of the
goodwill impairment evaluation, Central Jersey Bancorp is identified as the
reporting unit.  The fair value of goodwill is determined using
standard valuation methodologies similar to those used to determine the fair
value of goodwill in a business combination, including a review of comparable
transactions.  If the carrying amount of goodwill pursuant to this
analysis were to exceed the implied fair value of goodwill, an impairment loss
would be recognized.  No impairment loss was required to be recognized
for the years ended December 31, 2008 and 2007.







21
 Index


For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks with original maturities of three months or less
and overnight federal funds sold.  Federal funds sold are generally
sold for one-day periods.




Investment
securities held-to-maturity are comprised of debt securities that Central Jersey
Bank, N.A. has the intent and ability to hold to maturity.  Such
securities are stated at cost, adjusted for amortization of premiums and
accretion of discounts over the estimated remaining lives of the investment
securities utilizing the level-yield method.Investment securities to
be held for indefinite periods of time and not intended to be held-to-maturity,
including all equity securities, are classified as
available-for-sale.  Investment securities available-for-sale include
investment securities that management intends to use as part of its
asset/liability management strategy and that may be sold in response to changes
in interest rates, resultant prepayment risk and other factors related to
interest rate and resultant prepayment risk changes.  Investment
securities available-for-sale are carried at estimated fair
value.  Unrealized holding gains and losses on such investment
securities available-for-sale are excluded from earnings and reported as a
separate component of shareholders’ equity.  Gains and losses on sales
of investment securities are based on the specific identification method and are
accounted for on a trade date basis.




On a
quarterly basis, Central Jersey Bank, N.A. evaluates investment securities for
other-than-temporary impairment.  For individual investment securities
classified as either available-for-sale or held-to-maturity, a determination is
made as to whether a decline in fair value below the amortized cost basis is
other than temporary.  If the decline in fair value is judged to be
other than temporary, the cost basis of the individual investment security shall
be written down to fair value and the amount of the write-down shall be
recognized in earnings.  After evaluation, as of December 31, 2008,
Central Jersey Bank, N.A. noted no other-than-temporary impairment
issues.  The overall investment security portfolio is in an unrealized
gain position and does not reflect any significant individual investment
security losses.




Loans are
stated at unpaid principal balances, less unearned income and deferred loan fees
and costs.




Interest
on loans is credited to operations based upon the principal amount
outstanding.




Loan
origination and commitment fees and certain direct loan origination costs are
deferred, and the net amount is amortized over the estimated life of the loan as
an adjustment to the loan’s yield using the level-yield method.




A loan is
considered impaired when, based on current information and events, it is
probable that Central Jersey Bank, N.A. will be unable to collect all amounts
due according to the contractual terms of the loan
agreement.  Impaired loans are measured based on the present value of
expected future cash flows, at the loan’s observable market price, or the fair
value of the underlying collateral, if the loan is collateral
dependent.  Conforming residential mortgage loans, home equity and
second mortgages and loans to individuals, are excluded from the definition of
impaired loans as they are characterized as smaller balance, homogeneous loans
and are collectively evaluated.




The
accrual of income on loans, including impaired loans, is generally discontinued
when a loan becomes more than 90 days delinquent as to principal or interest or
when other circumstances indicate that collection is questionable, unless the
loan is well secured and in the process of




22
 Index


collection.  Income
on non-accrual loans, including impaired loans, is recognized only in the period
in which it is collected, and only if management determines that the loan
principal is fully collectible.  Loans are returned to an accrual
status when a loan is brought current as to principal and interest and reasons
for doubtful collection no longer exist.




A loan is
considered past due when a payment has not been received in accordance with the
contractual terms.  Generally, commercial loans are placed on
non-accrual status when they are 90 days past due unless they are well
secured and in the process of collection or, regardless of the past due status
of the loan, when management determines that the complete recovery of principal
and interest is in doubt.  Commercial loans are generally written down
after an analysis is completed which indicates that collectibility of the full
principal balance is in doubt.  Consumer loans are generally written
down after they become one hundred twenty days past
due.  Mortgage loans are not generally placed on a non-accrual status
unless the value of the real estate has deteriorated to the point that a
potential loss of principal or interest exists.  Subsequent payments
are credited to income only if collection of principal is not in
doubt.  If principal and interest payments are brought contractually
current and future collectibility is reasonably assured, loans are returned to
accrual status.  Mortgage loans are generally written down when the
value of the underlying collateral does not cover the outstanding principal
balance.  Loan origination and commitment fees less certain costs are
deferred and the net amount amortized as an adjustment to the related loan’s
yield.  Loans held-for-sale are recorded at the lower of aggregate
cost or fair value.




The ALL
is based upon the Interagency Policy Statement on the Allowance for Loan and
Lease Losses issued jointly by the federal banking agencies on December 13, 2006
(OCC Bulletin 2006-47) and management’s evaluation of the adequacy of the
allowance, including an assessment of:  (a) known and inherent risks
in the loan portfolio; (b) the size and composition of the loan portfolio; (c)
actual loan loss experience; (d) the level of delinquencies; (e) the individual
loans for which full collectibility may not be assured; (f) the existence and
estimated net realizable value of any underlying collateral and guarantees
securing the loans; and (g) the current economic and market conditions. 
Although management uses the best information available, the level of the ALL
remains an estimate that is subject to significant judgment and short-term
change.  Various regulatory agencies, as an integral part of their
examination process, periodically review Central Jersey Bank, N.A.’s ALL. 
Such agencies may require Central Jersey Bank, N.A. to make additional
provisions for loan losses based upon information available to them at the time
of their examination.  Furthermore, the majority of Central Jersey Bank,
N.A.’s loans are secured by real estate in the State of New Jersey. 
Accordingly, the collectibility of a substantial portion of the carrying value
of Central Jersey Bank, N.A.’s loan portfolio is susceptible to changes in local
market conditions and may be adversely affected should real estate values
decline or the Central New Jersey area experience an adverse economic
climate.  Future adjustments to the ALL may be necessary due to economic,
operating, regulatory and other conditions beyond Central Jersey Bank, N.A.’s
control.  Management believes that the ALL is adequate as of December
31, 2008.




Income
taxes are accounted for under the asset and liability method.  Current
income taxes are provided for based upon amounts estimated to be currently
payable, for both federal and state income taxes.  Deferred federal
and state tax assets and liabilities are recognized for the expected future tax
consequences of existing differences between financial statement and tax basis
of existing assets and liabilities.  Deferred tax assets are
recognized for future deductible temporary


23
 Index


differences
and tax loss carry forwards if their realization is
“more-likely-than-not.”  The effect of a change in the tax rate on
deferred taxes is recognized in the period of the enactment date.





Comprehensive
income is segregated into net income and other comprehensive
income.  Other comprehensive income includes items previously recorded
directly to equity, such as unrealized gains and losses on securities
available-for-sale.  Comprehensive income is presented in the
Statements of Changes in Shareholders’ Equity.





Central
Jersey Bank, N.A.’s operations are solely in the financial services industry and
include traditional banking and other financial services.  Central
Jersey Bank, N.A. operates primarily in the geographical region of central New
Jersey.  Management makes operating decisions and assesses performance
based on an ongoing review of Central Jersey Bank, N.A.’s consolidated financial
results.  Therefore, Central Jersey Bancorp has a single operating
segment for financial reporting purposes.




Intangible
assets consist of goodwill, core deposit premiums and servicing
rights.  Goodwill represents the excess of the purchase price over the
estimated fair value of identifiable net assets acquired through purchase
acquisitions.  In accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 142, goodwill with an indefinite useful life is not
amortized, but is evaluated for impairment on an annual basis.





Central
Jersey Bank, N.A. originates SBA loans and typically sells up to 75% of the
outstanding loan balance to investors, with servicing
retained.  Servicing rights fees, which are usually based on a
percentage of the outstanding principal balance of the loan, are recorded for
servicing functions.  Central Jersey Bank, N.A. accounts for its
transfers and servicing of financial assets in accordance with SFAS No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.  Central Jersey Bank, N.A. records servicing
rights based on the fair values at the date of sale.




Core
deposit premiums represent the intangible value of depositor relationships
assumed in purchase acquisitions and are amortized on an accelerated basis over
a period of ten years.  The amortization of the core deposit premiums
is recorded in other operating expenses.




Long-lived
assets including goodwill and certain identifiable intangibles are periodically
evaluated for impairment in value.  Long-lived assets and deferred
costs are typically measured whenever events or circumstances indicate that the
carrying amount may not be recoverable.  No such events have occurred
during the periods reported.  Certain identifiable intangibles and
goodwill are evaluated for impairment at least annually utilizing the “market
approach” as prescribed by SFAS No. 142.  Asset impairment
is recorded when required.





The
determination of whether deferred tax assets will be realizable is predicated on
estimates of future taxable income.  Such estimates are subject to
management’s judgment.  A valuation reserve is established when
management is unable to conclude that it is more likely than not that it will
realize deferred tax assets based on the nature and timing of these
items.





On
January 7, 2008, Central Jersey Bancorp announced a common stock repurchase
program.  As authorized by Central Jersey Bancorp’s Board of
Directors, Central Jersey Bancorp may repurchase up to 5.7%, or 525,000 shares,
of the 9,183,290 shares of its common stock


24
 Index


outstanding
at the time the repurchase program was announced.  Repurchases may be
made from time to time, in the open market, in unsolicited negotiated
transactions or in such other manner deemed appropriate by management, at prices
not exceeding prevailing market prices, subject to availability of the shares,
over 24 months ending December 31, 2009, or such shorter or longer period of
time as Central Jersey Bancorp may determine.  The acquired shares are
to be held in treasury to be used for general corporate
purposes.  Central Jersey Bancorp’s repurchase activities are
transacted in accordance with SEC safe harbor rules and guidance for issuer
repurchases.  During the year ended December 31, 2008, Central Jersey
Bancorp repurchased 246,448 shares of its common stock at an average price of
$7.29 per share.  As of December 23, 2008, Central Jersey Bancorp
suspended its stock repurchase program due to its participation in the Capital
Purchase Program.





Overview





Central
Jersey Bancorp reported net income of $2.9 million for the year ended December
31, 2008, an increase of $2.1 million over the reported net income total of
$844,000 for 2007.  Basic and diluted earnings per share for the year
ended December 31, 2008 were $0.32 and $0.31, respectively, as compared to basic
and diluted earnings per share of $0.09 for 2007.The significant increase
in net income is primarily attributable to a number of key factors including;
(1) net interest margin expansion, which is the result of the 2007 balance sheet
restructuring initiative, lower funding costs and incremental growth in
interest-earning assets; (2) the realization of gains from the sale of
available-for-sale investment securities and SBA loans; and (3) cost savings
initiatives implemented in the latter part of 2007.





During
2007, Central Jersey Bancorp executed a balance sheet restructuring strategy
involving approximately $88.6 million of investment securities held in the
available-for-sale investment portfolio.  The restructuring resulted
in a one-time pre-tax impairment charge of approximately $1.96 million, which
was reflected in Central Jersey Bancorp’s consolidated financial statements for
the three months ended March 31, 2007.  Available-for-sale investment
securities, consisting primarily of lower yielding fixed rate callable agency
investment securities were sold during the second quarter of 2007 and replaced
with higher yielding investment securities with a comparable to modestly shorter
aggregate weighted average life.  The fair value loss that these
investment securities carried at March 31, 2007, was recorded as an
other-than-temporary impairment since Central Jersey Bancorp did not have the
intent to hold these securities to recovery.  The investment
securities Central Jersey Bancorp identified as impaired were primarily fixed
rate government sponsored agency bonds that either had a below market interest
rate coupon or a longer than desired maturity term.  Central Jersey
Bancorp realized a gain on the sale of available-for-sale securities of $87,000,
pre-tax, in conjunction with the balance sheet restructuring during the year
ended December 31, 2007.




For the
year ended December 31, 2008, income tax expense was $1.3 million on income
before taxes of $4.2 million, resulting in an effective tax rate of 30.7%, as
compared to income tax expense of $1.1 million on income before taxes of $2.0
million for the year ended December 31, 2007, resulting in an effective tax rate
of 56.8%.




Central
Jersey Bancorp’s effective tax rate of 56.8% for the year ended December 31,
2007, resulted from the fact that the majority of the investment securities for
which the previously-




25
 Index




mentioned
$1.96 million other-than-temporary impairment was recorded were held by CJB
Investment Company, a wholly-owned subsidiary of Central Jersey Bank,
N.A.  A full valuation allowance was recorded for the deferred tax
assets associated with the impairment of the investment securities sold by CJB
Investment Company.  The impairment of the investment securities at
the investment company level was considered a capital loss for tax purposes
while the impairment of the investment securities held by Central Jersey Bank,
N.A. was considered an ordinary loss for tax purposes.  CJB Investment
Company did not, at the time, have the ability to generate capital gains and
utilize the capital losses and thus a full valuation allowance was required for
the deferred tax assets associated with the investment company’s
available-for-sale securities which were identified as other-than-temporarily
impaired.




The net
interest margin was 3.73% for the year ended December 31, 2008, as compared to
3.58% for the year ended December 31, 2007.  The net interest margin
expansion, for the year ended December 31, 2008, was the result of the 2007
balance sheet restructuring initiative, incremental growth in interest-earning
assets and lower funding costs.  The retail and commercial banking
markets remain very competitive for deposit and loan pricing.The yield on
interest-earning assets was 5.90% for the year ended December 31, 2008, as
compared to 6.54% for the year ended December 31, 2007. The average cost of
deposits and interest-bearing liabilities was 2.70% for the year ended December
31, 2008, as compared to 3.77% for the year ended December 31,
2007.  The decrease in both average yield on interest-earning assets
and the cost of deposits and interest-earning liabilities for year ended
December 31, 2008 was primarily due to the significant reduction in the general
level of short term rates and the 500 basis point reduction in the Prime Rate of
interest which occurred between September 2007 and December 2008.




Per share
earnings have been adjusted in all periods to reflect the two-for-one stock
split, in the form of a stock dividend, paid to shareholders of record on June
15, 2005, for the 5% stock dividends paid on July 1, 2006, July 2, 2007 and July
1, 2008.




Total
assets of $599.4 million, at December 31, 2008, were comprised primarily of
$356.3 million in net loans, $185.4 million in investment securities and $9.8
million in cash and cash equivalents, as compared to total assets of $503.5
million at December 31, 2007, which primarily consisted of $311.8 million in net
loans, $132.3 million in investment securities, and $14.9 million in cash and
cash equivalents.  Total assets at December 31, 2008 were funded
primarily through deposits totaling $418.8 million, a $15.5 million, or 3.8%,
increase from deposits totaling $403.3 million at December 31,
2007.




At
December 31, 2008, non-accrual loans totaled $2.5 million, as compared to
$214,000 at December 31, 2007.  The increase in non-performing loans
was due primarily to four commercial loans totaling $2.36 million which were
placed on non-accrual status during 2008.  These loans were considered
impaired and were evaluated in accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan.  After evaluation, specific reserves were
required for three of the impaired loans.  There were no loan
charge-offs during the year ended December 31, 2008, as compared to $88,000 for
2007.





26
 Index





At
      or For the Year Ended
                    December
      31,Performance
      Ratios:
                
                2008
                
                
                2007Return
      on average assets
                
                
                0.54
                %
                
                
                0.16
                %Return
      on average tangible assets
                
                
                0.57
                %
                
                
                0.17
                %Return
      on average equity
                
                
                4.20
                %
                
                
                1.27
                %Return
      on average tangible equity
                
                
                7.13
                %
                
                
                2.27
                %Shareholders’
      equity to total assets
                
                
                13.76
                %
                
                
                13.68
                %




Results
of Operations




General




Central
Jersey Bancorp’s principal source of revenue is derived from Central Jersey
Bank, N.A.’s net interest income, which is the difference between interest
income on earning assets and interest expense on deposits and other
borrowings.  Interest-earning assets consist principally of loans,
securities and federal funds sold, while the sources used to fund such assets
consist primarily of deposits and other borrowings.  Central Jersey
Bancorp’s net income is also affected by Central Jersey Bank, N.A.’s provision
for loan losses, other income (loss) and operating expenses.  Other
income (loss) consists primarily of service charges and fees and the gain on
sale of securities available-for-sale.  Operating expenses consist
primarily of salaries and employee benefits, occupancy costs and other operating
related expenses.




For
the years ended December 31, 2008 and 2007




Net
Interest Income




Net
interest income for Central Jersey Bank, N.A. totaled $18.4 million for the year
ended December 31, 2008, as compared to $16.7 million for the year ended
December 31, 2007.  Net interest income for the year ended December
31, 2008 was comprised primarily of $21.1 million in interest and fees on loans,
$7.6 million in interest on securities, and $386,000 in interest income on
federal funds sold and due from banks, less interest expense on deposits of $9.0
million, interest expense on borrowed funds of $1.3 million, and interest
expense on subordinated debentures of $355,000, whereas net interest income for
the year ended December 31, 2007 was comprised primarily of $23.0 million in
interest and fees on loans, $6.0 million in interest on securities and $1.5
million in interest income on federal funds sold and due from banks, less
interest expense on deposits of $12.6 million, interest expense on borrowed
funds of $746,000 and interest expense on subordinated debentures of
$439,000.





Average
interest-earning assets totaled $493.1 million for the year ended December 31,
2008, a $26.7 million, or 5.7%, increase over average interest-earning assets of
$466.4 million for the year ended December 31, 2007.  Interest-earning
assets for such periods were funded primarily by deposit inflows and the
proceeds from borrowed funds.  Deposits for the year ended December
31, 2008 averaged $401.7 million, of which $326.5 million, or 81.3%, were
interest-bearing.  This number represents a 3.8% decrease over average
total deposits of $417.4 million for the year ended December 31, 2007, of which
$337.5 million, or 80.9%, were interest-bearing.  Subordinated
debentures and other borrowings for the year ended December 31, 2008,
averaged




27
 Index


$5.2
million and $63.1 million, respectively, as compared to $5.2 million and $22.4
million, respectively, for the year ended December 31, 2007.  The
increase was due to growth in the bank subsidiary’s sweep account product for
business customers and $48.7 million in Federal Home Loan Bank
advances.  As of December 31, 2008, borrowings included $23.0 million
bank sweep funds, $27.5 million in Federal Home Loan Bank overnight advances,
$20.0 million in Federal Home Loan Bank callable advances and $1.2 million in
Federal Home Loan Bank fixed rate advances.




The net
interest margin was 3.73% for the year ended December 31, 2008, as compared to
3.58% for the year ended December 31, 2007.  The net interest margin
expansion, for year ended December 31, 2008, was the result of the 2007 balance
sheet restructuring initiative, incremental growth in interest earning assets
and lower funding costs. The retail and commercial banking markets remain very
competitive for deposit and loan pricing.  The yield on
interest-earning assets decreased to 5.90% for the year ended December 31, 2008,
from 6.54% for the year ended December 31, 2007. The average cost of deposits
and interest-bearing liabilities was 2.70% for the year ended December 31, 2008,
as compared to 3.77% for the year ended December 31, 2007.  The
decrease in both average yield on interest-earning assets and the cost of
deposits and interest-earning liabilities for year ended December 31, 2008 was
primarily due to the significant reduction in the general level of short term
rates and the 500 basis point reduction in the Prime Rate of interest which
occurred between September 2007 and December 2008.



















28
 Index


The
following table presents a summary of the principal components of average
interest-earning assets and average interest-bearing liabilities with the
related interest income and interest expense for the years ended December 31,
2008 and 2007.  No tax equivalent adjustments were made:









(dollars
      in thousands)
                              
                              Year
      ended December 31, 2008
                              
                              
                              Year
      ended December 31, 2007Average
                                Balance
                              
                              
                              Interest
                              
                              
                              Average
                                Yield/Cost
                              
                              
                              Average
                                Balance
                              
                              
                              Interest
                              
                              
                              Average
                                Yield/CostInterest
      earning assets:Federal
      funds sold
                              
                              $
                              6,612
                              
                              
                              $
                              180
                              
                              
                              
                              2.72
                              %
                              
                              $
                              27,039
                              
                              
                              $
                              1,369
                              
                              
                              
                              5.06
                              %Loans
      receivable, gross
                              
                              
                              333,427
                              
                              
                              
                              21,084
                              
                              
                              
                              6.32
                              %
                              
                              
                              314,195
                              
                              
                              
                              22,975
                              
                              
                              
                              7.31
                              %Deposits
      with banks
                              
                              
                              4,566
                              
                              
                              
                              206
                              
                              
                              
                              4.51
                              %
                              
                              
                              3,739
                              
                              
                              
                              161
                              
                              
                              
                              4.31
                              %Securities
                              
                              
                              148,459
                              
                              
                              
                              7,616
                              
                              
                              
                              5.13
                              %
                              
                              
                              121,442
                              
                              
                              
                              5,983
                              
                              
                              
                              4.93
                              %Total interest earning
      assets
                              
                              
                              493,064
                              
                              
                              
                              29,086
                              
                              
                              
                              5.90
                              %
                              
                              
                              466,415
                              
                              
                              
                              30,488
                              
                              
                              
                              6.54
                              %Cash
      and due from banks
                              
                              
                              9,094
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              8,956Allowance
      for loan losses
                              
                              
                              (3,698
                              )
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (3,424
                              )Other
      assets
                              
                              
                              42,672
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              41,244Total
      assets
                              
                              $
                              541,132
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              513,191Interest
      bearing liabilities:Interest
      bearing demand
                              
                              $
                              81,957
                              
                              
                              $
                              1,576
                              
                              
                              
                              1.92
                              %
                              
                              $
                              91,159
                              
                              
                              $
                              2,864
                              
                              
                              
                              3.14
                              %Money
      market
                              
                              
                              28,526
                              
                              
                              
                              772
                              
                              
                              
                              2.71
                              %
                              
                              
                              27,641
                              
                              
                              
                              1,185
                              
                              
                              
                              4.29
                              %Savings
                              
                              
                              67,868
                              
                              
                              
                              928
                              
                              
                              
                              1.37
                              %
                              
                              
                              71,810
                              
                              
                              
                              1,464
                              
                              
                              
                              2.04
                              %Time
                              
                              
                              148,173
                              
                              
                              
                              5,708
                              
                              
                              
                              3.85
                              %
                              
                              
                              146,934
                              
                              
                              
                              7,084
                              
                              
                              
                              4.82
                              %Total interest bearing
      deposits
                              
                              
                              326,524
                              
                              
                              
                              8,984
                              
                              
                              
                              2.75
                              %
                              
                              
                              337,544
                              
                              
                              
                              12,597
                              
                              
                              
                              3.73
                              %Other
      borrowings
                              
                              
                              63,141
                              
                              
                              
                              1,325
                              
                              
                              
                              2.10
                              %
                              
                              
                              22,402
                              
                              
                              
                              746
                              
                              
                              
                              3.33
                              %Subordinated
      debentures
                              
                              
                              5,155
                              
                              
                              
                              355
                              
                              
                              
                              6.89
                              %
                              
                              
                              5,155
                              
                              
                              
                              439
                              
                              
                              
                              8.52
                              %Total
      interest-bearing liabilities
                              
                              
                              394,820
                              
                              
                              
                              10,664
                              
                              
                              
                              2.70
                              %
                              
                              
                              365,101
                              
                              
                              
                              13,782
                              
                              
                              
                              3.77
                              %Non-interest
      bearing demand
                              
                              
                              75,149
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              79,828Other
      liabilities
                              
                              
                              1,865
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              1,915Shareholders’
      equity
                              
                              
                              69,298
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              66,347Total
      liabilities and shareholders’equity
                              
                              $
                              541,132
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              513,191Net
      interest income
                              
                              
                              
                              
                              
                              $
                              18,422
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              16,706Net
      interest rate spread1
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              3.20
                              %
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              2.77
                              %Net
      interest margin2
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              3.73
                              %
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              3.58
                              %






1
            Net
      interest rate spread represents the difference between the yield on
      interest-earning assets and the cost of interest-bearing
      liabilities.


2
            Net
      interest margin represents net interest income divided by average
      interest-earning assets.








29
 Index


Rate/Volume
Analysis





The
following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Central Jersey Bank, N.A.’s interest income and
interest expense during the periods indicated.  Information is
provided in each category with respect to: (1) changes attributable to changes
in volume (changes in volume multiplied by prior rate); (2) changes attributable
to changes in rate (changes in rate multiplied by prior volume); and (3) the net
change.  The changes attributable to the combined impact of volume and
rate have been allocated proportionately to the changes due to volume and the
changes due to rate (in thousands).





Year
      ended December 31, 2008
                    Compared
      to
                    Year
      ended December 31, 2007Increase
      (Decrease)
                    Due
      to Change in:
                
                
                Total
                    Increase
                    (Decrease)Volume
                
                
                Rate(in
      thousands)
                  Interest
      Income:Loans receivable,
      gross
                
                $
                1,347
                
                
                $
                (3,238
                )
                
                $
                (1,891
                )Securities
                
                
                1,377
                
                
                
                255
                
                
                
                1,632Deposits with
    banks
                
                
                37
                
                
                
                8
                
                
                
                45Federal funds
    sold
                
                
                (737
                )
                
                
                (451
                )
                
                
                (1,188
                )Total interest-earning
      assets
                
                
                2,024
                
                
                
                (3,426
                )
                
                
                (1,402
                )Interest
      Expense:Interest-bearing
      demand
                
                
                (266
                )
                
                
                (1,022
                )
                
                
                (1,288
                )Savings deposits
                
                
                (76
                )
                
                
                (460
                )
                
                
                (536
                )Money market
      deposits
                
                
                37
                
                
                
                (450
                )
                
                
                (413
                )Time deposits
                
                
                60
                
                
                
                (1,436
                )
                
                
                (1,376
                )Total
      interest-bearing deposits
                
                
                (245
                )
                
                
                (3,368
                )
                
                
                (3,613
                )Other
      borrowings
                
                
                940
                
                
                
                (361
                )
                
                
                579Subordinated
      debentures
                
                
                --
                
                
                
                (84
                )
                
                
                (84
                )Total interest-bearing
      liabilities
                
                
                695
                
                
                
                (3,813
                )
                
                
                (3,118
                )Net
      interest income
                
                $
                1,329
                
                
                $
                387
                
                
                $
                1,716





Provision
for Loan Losses




For the
year ended December 31, 2008, the provision for loan losses was $1.3 million, as
compared to $165,000 for the year ended December 31, 2007.  The
significant increase in the provision for loan losses is due to required
incremental reserves resulting from the credit deterioration of certain
commercial loans and, to a lesser extent, loan growth that occurred during the
periods presented.  Total gross loans outstanding at December 31, 2008
were $361.0 million, an increase of $45.8 million, or 14.5%, over the December
31, 2007 total of $315.2 million.





Non-Interest
Income (Loss)




Non-interest
income (loss), which consists of service charges on deposit accounts, gains on
the sale of loans held-for-sale, gains on the sale of investment securities
available-for-sale, income from bank owned life insurance and the impairment on
available-for-sale investment securities, was $2.7 million for the year
ended December 31, 2008, as compared to ($217,000) for 2007.  Gains on
the


30
 Index


sale of
investment securities available-for-sale totaled $739,000 for the year ended
December 31, 2008, as compared to $87,000 for 2007.  Gains on the sale
of loans held-for-sale totaled $351,000 and $56,000, respectively, for the years
ended December 31, 2008 and 2007, and were primarily attributable to fees
realized from the sale and servicing of SBA loans.  The origination of
SBA loans, which are generally sold with servicing retained, commenced in the
fourth quarter of 2007, with the initial SBA loan sales occurring during the
first quarter of 2008.  The loss recorded in non-interest income for
the year ended December 31, 2007 was directly related to the one-time balance
sheet restructuring charge of $1.96 million, pre-tax.





Non-Interest
Expense




Non-interest
expense generally includes costs associated with employee salaries and benefits,
occupancy expenses, data processing fees, core deposit intangible amortization,
and other operating expenses.  Non-interest expense for the year ended
December 31, 2008 was $15.6 million, as compared to $14.4 million for the prior
year.  Central Jersey Bank, N.A. incurred $482,000 in core deposit
intangible amortization expense related to the combination with Allaire
Community Bank for the year ended December 31, 2008, as compared to $552,000 in
2007.




Full-time
equivalent employees totaled 140 at December 31, 2008, as compared to 128 at
December 31, 2007.  The increase in full-time equivalent employees is
due primarily to the opening of the Oakhurst branch office.  The table
below presents non-interest expense, by major category, for the years ended
December 31, 2008 and 2007, respectively (in thousands):




Non-interest Expense:
                              
                              2008
                              
                              
                              2007Salaries
      and employee benefits
                              
                              $
                              7,759
                              
                              
                              $
                              7,146Net
      occupancy expenses
                              
                              
                              2,059
                              
                              
                              
                              1,821Data
      processing
                              
                              
                              1,011
                              
                              
                              
                              884Professional
      fees
                              
                              
                              896
                              
                              
                              
                              938Outside
      service fees
                              
                              
                              782
                              
                              
                              
                              856Furniture,
      fixtures and equipment
                              
                              
                              694
                              
                              
                              
                              626Core
      deposit intangible amortization
                              
                              
                              482
                              
                              
                              
                              552Advertising
                              
                              
                              268
                              
                              
                              
                              134Stationery,
      supplies and printing
                              
                              
                              239
                              
                              
                              
                              251Insurance
                              
                              
                              184
                              
                              
                              
                              194Telephone
                              
                              
                              133
                              
                              
                              
                              161Abandonment
      of leasehold improvements
                              
                              
                              --
                              
                              
                              
                              137Other
      operating expenses
                              
                              
                              1,130
                              
                              
                              
                              670Total
                              
                              $
                              15,637
                              
                              
                              $
                              14,370





Income
Tax Expense




For the
year ended December 31, 2008, income tax expense was $1.3 million on income
before taxes of $4.2 million, resulting in an effective tax rate of 30.7%, as
compared to income tax expense of $1.1 million on income before taxes of $2.0
million for the year ended December 31, 2007, resulting in an effective tax rate
of 56.8%. The lower than anticipated income tax rate for the year ended December
31, 2008 was due to the tax treatment applied to gains on the sale of investment
securities.  Since the gains were realized in CJB Investment Company,
the gains are




31
 Index




considered
capital gains and permitted to be offset against the remaining capital loss
carry-forwards resulting from the 2007 balance sheet restructuring
initiative.




Financial
Condition




Cash
and Cash Equivalents




Cash and
cash equivalents consist of cash on hand, amounts due from banks with original
maturities of three months or less, and federal funds sold.  Cash and
cash equivalents were $9.8 million at December 31, 2008, a decrease of $5.1
million, or 34.2%, from the December 31, 2007 total of $14.9
million.  The decrease is due primarily to the timing of cash flows
related to Central Jersey Bank, N.A.’s business activities.




Intangible
Assets




Intangible
assets of Central Jersey Bancorp consist of goodwill and core deposit
premiums.  Goodwill represents the excess of the purchase price over
the estimated fair value of identifiable net assets acquired through purchase
acquisitions.  In accordance with SFAS No. 142, goodwill with an
indefinite useful life is not amortized, but is evaluated for impairment on an
annual basis.  For each of the years ended December 31, 2008 and 2007,
Central Jersey Bancorp had $27.0 million of goodwill related to the combination
with Allaire Community Bank.




Core
deposit premiums represent the intangible value of depositor relationships
assumed in purchase acquisitions and are amortized on an accelerated basis over
a period of ten years.  The amortization of the core deposit premium
is recorded as a component of operating expenses.  For the years ended
December 31, 2008 and 2007, Central Jersey Bancorp had $1.4 million and $1.9
million, respectively, of core deposit intangible related to the combination
with Allaire Community Bank.




Investment
Securities Portfolio




Investment
securities totaled $185.4 million at December 31, 2008, an increase of $53.1
million, or 40.1%, over the December 31, 2007 total of $132.3
million.  The increase was attributable to the purchase of $95.2
million of mortgage-backed securities, $4.7 million of bond anticipation notes,
$32.0 million in government-sponsored agency securities and $4.6 million in SBA
sponsored securities during 2008.  For the year ended December 31,
2008, principal pay downs of mortgage-backed securities totaled $26.0 million,
$6.3 million of fixed rate government-sponsored agency securities, $4.0 million
of bond anticipation notes and $1.0 million of mortgage-backed securities
matured and $47.8 million in mortgage-backed securities were sold.  In
addition, at December 31, 2008, the net change of the unrealized gain on
available-for-sale securities increased by $1.7 million from December 31,
2007.  Fannie Mae and Freddie Mac guarantee the contractual cash flows
of these investment securities.  Since there has not been a decrease
in fair value attributable to changes in credit quality, and because the Company
has the ability and intent to hold these investment securities until a market
price recovery or maturity, these investment securities are not considered
other-than-temporarily impaired.




32
 Index







The
following table summarizes the maturity and weighted average yields in each of
Central Jersey Bank, N.A.’s investment securities portfolios at December 31,
2008:




Maturities
      and weighted average yields:
                                      (dollars
      in thousands)
                                    
                                    Within
                                        1
      Year
                                    
                                    
                                    Over
                                        1
      to 5
                                        Years
                                    
                                    
                                    Over
                                        5
      to 10
                                        Years
                                    
                                    
                                    Over
      10
                                        Years
                                    
                                    
                                    TotalSecurities
      held-to-maturity:Mortgage-backed
      securitiesAmortized cost
                                    
                                    $
                                    86
                                    
                                    
                                    $
                                    2,147
                                    
                                    
                                    $
                                    199
                                    
                                    
                                    $
                                    7,912
                                    
                                    
                                    $
                                    10,344Weighted average
    yield
                                    
                                    
                                    5.50
                                    %
                                    
                                    
                                    4.00
                                    %
                                    
                                    
                                    7.00
                                    %
                                    
                                    
                                    5.23
                                    %
                                    
                                    
                                    5.01
                                    %Obligations
      of U.S. Government agenciesAmortized cost
                                    
                                    
                                    --
                                    
                                    
                                    
                                    487
                                    
                                    
                                    
                                    3,848
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    4,335Weighted average
    yield
                                    
                                    
                                    --
                                    
                                    
                                    
                                    4.00
                                    %
                                    
                                    
                                    4.61
                                    %
                                    
                                    
                                    --
                                    
                                    
                                    
                                    4.54
                                    %Total
      securities held-to-maturityAmortized cost
                                    
                                    $
                                    86
                                    
                                    
                                    $
                                    2,634
                                    
                                    
                                    $
                                    4,047
                                    
                                    
                                    $
                                    7.912
                                    
                                    
                                    $
                                    14,679Weighted average
    yield
                                    
                                    
                                    5.50
                                    %
                                    
                                    
                                    4.00
                                    %
                                    
                                    
                                    4.73
                                    %
                                    
                                    
                                    5.23
                                    %
                                    
                                    
                                    4.87
                                    %Securities
      available-for-sale:Mortgage-backed
      securitiesFair value
                                    
                                    $
                                    1,260
                                    
                                    
                                    $
                                    647
                                    
                                    
                                    $
                                    43,275
                                    
                                    
                                    $
                                    88,740
                                    
                                    
                                    $
                                    133,922Weighted average
    yield
                                    
                                    
                                    5.00
                                    %
                                    
                                    
                                    5.00
                                    %
                                    
                                    
                                    5.14
                                    %
                                    
                                    
                                    5.22
                                    %
                                    
                                    
                                    5.19
                                    %Obligations
      of U.S. Government agenciesFair
      value
                                    
                                    $
                                    22,000
                                    
                                    
                                    $
                                    10,033
                                    
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    32,033Weighted average yield
                                    
                                    
                                    3.67
                                    %
                                    
                                    
                                    3.00
                                    %
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    3.46
                                    %Other
      debt securitiesFair value
                                    
                                    
                                    4,728
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    4,728Weighted average
    yield
                                    
                                    
                                    1.70
                                    %
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    1.70
                                    %Total
      securities available-for-saleFair value
                                    
                                    $
                                    27,988
                                    
                                    
                                    $
                                    10,680
                                    
                                    
                                    $
                                    43,275
                                    
                                    
                                    $
                                    88,740
                                    
                                    
                                    $
                                    170,683Weighted average
    yield
                                    
                                    
                                    3.40
                                    %
                                    
                                    
                                    3.12
                                    %
                                    
                                    
                                    5.14
                                    %
                                    
                                    
                                    5.22
                                    %
                                    
                                    
                                    4.77
                                    %




Other-Than-Temporary
Impairment





During
2007, Central Jersey Bancorp executed a balance sheet restructuring strategy
involving approximately $88.6 million of investment securities held in the
available-for-sale investment portfolio. The restructuring resulted in a
one-time pre-tax impairment charge of approximately $1.96 million, which was
reflected in Central Jersey Bancorp’s consolidated financial statements for the
three months ended March 31, 2007.  Available-for-sale investment
securities, consisting primarily of lower yielding fixed rate callable agency
investment securities were sold during the second quarter of 2007 and replaced
with higher yielding investment securities with a comparable to modestly shorter
aggregate weighted average life.  The fair value loss that these
investment securities carried at March 31, 2007, was recorded as an
other-than-temporary impairment since Central Jersey Bancorp did not have the
intent to hold these securities to recovery.  The investment
securities Central Jersey Bancorp identified as impaired were primarily fixed
rate government sponsored agency bonds that either had a below market interest
rate coupon or a longer than desired maturity term.  Central Jersey
Bancorp realized a gain on the sale of available-for-sale securities of $87,000,
pre-tax, in conjunction with the balance sheet restructuring during the year
ended December 31, 2007.


33
 Index




Investment
Policy




The Board
of Directors has adopted an investment policy to govern the investment function
of Central Jersey Bank, N.A., which includes the purchase of investment
securities for the held-to-maturity and available-for-sale portfolios and the
sale of investment securities from the available-for-sale
portfolio.




The basic
objectives of the investment function are:




·
            to
      keep Central Jersey Bank, N.A.’s funds fully employed at the maximum
      after-tax return;


·
            to
      minimize exposure to credit risk;
and


·
            to
      provide liquidity required by current
  circumstances.




As used
in our investment policy and in other policies of Central Jersey Bank, N.A., the
term “liquidity” refers to the expected cash flow from performing assets and
secondary to borrowings secured by performing assets.  These two
sources of liquidity are expected to fund the operations of Central Jersey Bank,
N.A.  For this reason, unless otherwise indicated, the term
“liquidity” in Central Jersey Bank, N.A.’s policies does not refer to proceeds
from the sale of assets, except for the sale of assets
available-for-sale.




Investment
management therefore emphasizes:




·
            preservation
      of principal;


·
            strong
      cash-flow characteristics;


·
            ready
      availability of credit information;


·
            appropriateness
      of size both as to Central Jersey Bank, N.A. and as to an obligor’s
      outstanding debt;


·
            eligibility
      as collateral for public-agency deposits and customer repurchase-agreement
      accounts; and


·
            broad
      marketability, as an indicator of
quality.




The
purpose of bonds in the held-to-maturity portfolio is to provide earnings
consistent with the safety factors of quality, maturity and risk
diversification.  This purpose is reflected in the accounting
principle that carrying a debt security at amortized cost is appropriate only if
the ALCO/Investment Committee of Central Jersey Bank, N.A. has the intent and
ability to hold that security to maturity.  Management should be
indifferent to price fluctuations unrelated to the continuing ability of an
investment security to contribute to recurring income.  For purposes
of our investment policy, an investment security shall be deemed to have matured
if it is sold:  (1) within three months of maturity or a call date if
exercise of the call is probable; or (2) after collection of at least 85% of the
principal outstanding at acquisition.




Debt
securities that are not positively expected to be held-to-maturity, but rather
for indefinite periods of time, and equity securities, shall be booked to the
available-for-sale portfolio, which shall be monitored daily and reported at
fair value with unrealized holding gains and losses excluded from earnings and
reported as a tax-effected net amount in a separate component of shareholders’
equity.  However, in calculating and reporting regulatory capital,
only net unrealized losses on marketable equity securities is deducted from Tier
1 or core capital.




34
 Index







Loan
Portfolio




Central
Jersey Bank, N.A.’s primary policy goal is to establish a sound credit portfolio
that contributes, in combination with other earning assets, to a satisfactory
return on assets, return on shareholders’ equity and capital to asset
ratio.




Central
Jersey Bank, N.A. conducts both commercial and retail lending
activities.  The loan approval process at Central Jersey Bank, N.A. is
driven by the aggregate indebtedness of the borrower and related
entities.  Executive officers with lending authority and loan officers
have various individual and collective loan approval authorities up to
$500,000.  All credit accommodations exceeding $500,000 are referred
to Central Jersey Bank, N.A.’s Loan Committee for review and
approval.  The Loan Committee is comprised of internal and outside
directors and the senior commercial loan officer.  A loan officer with
a loan application for more than $500,000 (or from a borrowing relationship with
aggregate debt in excess of $500,000) presents a complete analysis of the
proposed credit accommodation to the members of the Loan Committee for their
consideration.




The
analysis includes, among other things, the following:




·
            a
      description of the borrower;


·
            the
      loan purpose and use of proceeds;


·
            the
      requested loan amount;


·
            the
      recommended term;


·
            the
      recommended interest rate;


·
            primary,
      secondary and tertiary sources of
repayment;


·
            proposed
      risk rating;


·
            full
      collateral description;


·
            fees
      (if any);


·
            full
      borrower financial analysis, including comparative balance sheets, income
      statements and statements of cash flows;
and


·
            inherent
      strengths and weaknesses of the requested credit
      accommodation.




A similar
analysis is prepared for those loan requests aggregating in excess of $100,000
but less than the $500,000 threshold.




Central
Jersey Bank, N.A. utilizes a comprehensive approach to loan
underwriting.  The primary quantitative determinants in the
underwriting process include overall creditworthiness of the borrower, cash flow
from operations in relation to debt service requirements and the ability to
secure the credit accommodation with collateral of adequate value.




For
commercial loans, the collateral is somewhat dependent on the loan
type.  Commercial lines of credit, term loans and time notes are
typically secured by a general lien on business assets and qualified (typically
less than 90 days) accounts receivable (based upon an acceptable advance
rate).  Commercial mortgage loans are secured by the underlying
property with an acceptable equity margin.  Personal guarantees from
the principals of a business are generally required.  In general,
Central Jersey Bank, N.A. requires that income available to service debt
repayment requirements be equal to at least 125% of those
requirements.




35
 Index







Commercial
loans are often subject to cyclical economic risks of the underlying
business(es) of the borrower.  Such risks are generally reduced during
the loan approval process.  For example, Central Jersey Bank, N.A.
requires that a loan amount be less than the value of the collateral securing
the loan and that the standard cash flow analysis of the commercial borrower
shows an ample margin for debt service even with significant business
contraction.  Commercial mortgage underwriting also requires that
available funds for debt service exceed debt service requirements.




Retail or
consumer loan credit accommodations include home equity loans, home equity lines
of credit, direct automobile loans and secured and unsecured personal
loans.  Underwriting criteria for home equity products include a loan
to value not to exceed 80% and a debt service to income ratio not to exceed
45%.  Such criteria provide Central Jersey Bank, N.A. with
underwriting comfort without placing the institution in a position of
competitive disadvantage.




There are
a number of risks associated with the granting of consumer
loans.  While income and equity or collateral values are primary
determinants of the loan approval process for consumer loans, Central Jersey
Bank, N.A. also gives much consideration to employment and debt payment history
of the borrower(s).  As with the commercial underwriting process,
consumer loans require both an income cushion and a collateral
cushion.  Such criteria provide for a margin should a borrower’s
income diminish or the collateral securing the loan depreciate in
value.




The
granting of a loan, by definition, contains inherent risks.  Central
Jersey Bank, N.A. attempts to mitigate risks through sound credit
underwriting.  Each loan that Central Jersey Bank, N.A. approves
undergoes credit scrutiny that results in a quantification of risk and then the
assignment of a risk rating.  Individual risk ratings carry with them
a required reserve that is used to fund Central Jersey Bank, N.A.’s
ALL.  The inherent risk associated with each loan is a function of
loan type, collateral, cash flow, credit rating, general economic conditions and
interest rates.




Central
Jersey Bank, N.A. is limited by regulation as to the total amount which may be
committed and loaned to a borrower and its related entities.  Central
Jersey Bank, N.A.’s legal lending limit is equal to 15% of its capital funds,
including capital stock, surplus, retained earnings and the
ALL.  Central Jersey Bank, N.A. may lend an additional 10% of its
capital funds to a borrower and its related entities if the additional loan or
extension of credit is fully secured by readily marketable collateral having a
fair value at least equal to the amount borrowed.  The additional
limitation is separate from, and in addition to, the general limitation of
15%.









36
 Index







The
following table summarizes net loans outstanding by loan category and amount at
December 31, 2008, 2007, 2006, 2005 and 2004.




(in
      thousands)
                            
                            2008
                            
                            
                            2007
                            
                            
                            2006
                            
                            
                            2005
                            
                            
                            2004Commercial
      and industrial loans
                            
                            $
                            37,119
                            
                            
                            $
                            29,384
                            
                            
                            $
                            35,476
                            
                            
                            $
                            32,708
                            
                            
                            $
                            22,392Real
      estate loans – commercial
                            
                            
                            267,705
                            
                            
                            
                            240,370
                            
                            
                            
                            237,234
                            
                            
                            
                            232,570
                            
                            
                            
                            96,2911-4
      family real estate loans
                            
                            
                            2,646
                            
                            
                            
                            3,822
                            
                            
                            
                            4,182
                            
                            
                            
                            4,858
                            
                            
                            
                            --Home
      equity and second mortgages
                            
                            
                            51,688
                            
                            
                            
                            37,832
                            
                            
                            
                            35,573
                            
                            
                            
                            38,153
                            
                            
                            
                            22,014Consumer
      loans
                            
                            
                            1,840
                            
                            
                            
                            3,765
                            
                            
                            
                            2,857
                            
                            
                            
                            2,054
                            
                            
                            
                            638Total
      loans
                            
                            $
                            360,998
                            
                            
                            $
                            315,173
                            
                            
                            $
                            315,322
                            
                            
                            $
                            310,343
                            
                            
                            $
                            141,335Less
      allowance for loan losses
                            
                            
                            4,741
                            
                            
                            
                            3,408
                            
                            
                            
                            3,229
                            
                            
                            
                            3,175
                            
                            
                            
                            1,638Net
      loans
                            
                            $
                            356,257
                            
                            
                            $
                            311,765
                            
                            
                            $
                            312,093
                            
                            
                            $
                            307,168
                            
                            
                            $
                            139,697Loans
      held-for-sale
                            
                            $
                            400
                            
                            
                            $
                            658
                            
                            
                            $
                            242
                            
                            
                            $
                            3,127
                            
                            
                            $
                            --


Loans,
net of the ALL, totaled $356.3 million at December 31, 2008, an increase of
$44.5 million, or 14.2%, from the $311.8 million balance at December 31,
2007.  The increase in loan balances was due primarily to the
origination of commercial real estate loans, consumer home equity loans and
lines of credit during the period.





For the
year ended December 31, 2008, commercial and industrial loans and commercial
real estate loans increased by $35.0 million to $304.8 million, which represents
a 13.0% increase from the balance of $269.8 million at December 31,
2007.




During
2008, home equity and second mortgages increased by $13.9 million to $51.7
million at December 31, 2008, which represents a 36.7% increase over the balance
of $37.8 million at December 31, 2007.




37
 Index


The
following table summarizes the maturities of loans by category and whether such
loans are at a fixed or floating rate at December 31, 2008.




December
      31, 2008Maturity
      and repricing data for loans:
                                            (in
      thousands)
                                          
                                          Within
                                            1
      Year
                                          
                                          Over
      1 to 3
                                            Years
                                          
                                          Over
      3 to 5
                                            Years
                                          
                                          Over
      5 to 15
                                            Years
                                          
                                          Over
      15
                                            Years
                                          
                                          TotalLoans
      secured by 1-4 family residential propertiesFixed rate
                                          
                                          $
                                          1,375
                                          
                                          
                                          $
                                          2,963
                                          
                                          
                                          $
                                          7,567
                                          
                                          
                                          $
                                          9,664
                                          
                                          
                                          $
                                          4,779
                                          
                                          
                                          $
                                          26,348Adjustable rate
                                          
                                          
                                          13,780
                                          
                                          
                                          
                                          --
                                          
                                          
                                          
                                          1,674
                                          
                                          
                                          
                                          --
                                          
                                          
                                          
                                          --
                                          
                                          
                                          
                                          15,454All
      other loans secured by real estateFixed rate
                                          
                                          
                                          19,350
                                          
                                          
                                          
                                          45,457
                                          
                                          
                                          
                                          39,687
                                          
                                          
                                          
                                          46,541
                                          
                                          
                                          
                                          29,296
                                          
                                          
                                          
                                          180,331Adjustable rate
                                          
                                          
                                          91,659
                                          
                                          
                                          
                                          13,387
                                          
                                          
                                          
                                          30,448
                                          
                                          
                                          
                                          3,371
                                          
                                          
                                          
                                          --
                                          
                                          
                                          
                                          138,865Total
                                          
                                          $
                                          126,164
                                          
                                          
                                          $
                                          61,807
                                          
                                          
                                          $
                                          79,376
                                          
                                          
                                          $
                                          59,576
                                          
                                          
                                          $
                                          34,075
                                          
                                          
                                          $
                                          360,998




Non-Performing
Loans




A loan is
considered to be non-performing if it (1) is on a non-accrual basis, (2) is past
due 90 days or more and still accruing interest, or (3) has been renegotiated to
provide a reduction or deferral of interest or principal because of a weakening
in the financial position of the borrower.  A loan, which is past due
90 days or more and still accruing interest, remains on accrual status only
where it is both adequately secured as to principal and is in the process of
collection.  Central Jersey Bank, N.A. had non-performing loans
totaling $2.5 million and $214,000 at December 31, 2008 and 2007,
respectively.  If the non-accrual loans had performed in accordance
with their original terms, interest income would have increased by $55,130 and
$4,359, for the years ended December 31, 2008 and 2007,
respectively.  At December 31, 2008, there are no commitments to
lend additional funds to borrowers whose loans are on non-accrual.





Impaired
Loans





When
necessary, Central Jersey Bancorp performs individual loan reviews in accordance
with SFAS No. 114, Accounting
by Creditors for Impairment of a Loan, to determine whether any
individually reviewed loans are impaired and, if impaired, measures a SFAS No.
114 allowance allocation in accordance with the standard.  A loan is
recognized as impaired when it is probable that principal and/or interest are
not collectible in accordance with the loan’s contractual
terms.  Central Jersey Bancorp considers loans on non-accrual status
as impaired and automatically subject to SFAS No. 114 review.  In
addition, any other loan that management considers possibly impaired due to
deteriorating conditions or for any other reasons, is, at management’s
discretion, subject to SFAS No. 114 review.




At
December 31, 2008, Central Jersey Bancorp had impaired loans totaling $2.69
million, as compared to $214,000 at December 31, 2007.  The increase
in impaired loans was due primarily to four commercial loans totaling $2.36
million which were placed on non-accrual status during




38
 Index


2008.  These
loans were considered impaired and were evaluated in accordance with SFAS No.
114.  After evaluation, specific reserves were required for three of
the impaired loans.  At December 31, 2008, Central Jersey Bancorp
recorded $474,000 of specific reserves for impaired loans as compared to no
specific reserves for impaired loans at December 31, 2007.




Central
Jersey Bancorp’s policy for interest income recognition on impaired loans is to
recognize income on currently performing restructured loans under the accrual
method. Central Jersey Bancorp recognizes income on non-accrual loans under the
accrual basis when the principal payments on the loans become current and the
collateral on the loan is sufficient to cover the outstanding obligation to
Central Jersey Bancorp. If these factors do not exist, Central Jersey Bancorp
does not recognize income. There was no income recognized on impaired loans
during 2008. Total cash collected on impaired loans during 2008 was
$1.1 million, all of which was credited to the principal balance
outstanding.




Potential
Problem Loans




In
addition to non-performing loans, Central Jersey Bank, N.A. maintains a “watch
list” of loans which are subject to heightened scrutiny and more frequent review
by management.  Loans may be placed on the “watch list” because of
documentation deficiencies, or because management has identified “structural
weaknesses” which potentially could cause such loans to become non-performing in
future periods.




As of
December 31, 2008 and 2007, there were no loans identified as having structural
weaknesses on the “watch list.”  The total balance of loans on the
“watch list” at December 31, 2008 and 2007 totaled $24.2 million and $6.0
million, respectively. The $18.2 million increase was representative of the
changes in the risk profile of the loan portfolio.  Loans which were
risk rated “special mention” increased by $16.2 million, to $21.3 million, at
December 31, 2008, from $5.1 million at December 31, 2007.  Loans
which were risk rated “substandard” increased by $1.8 million, to $2.8 million,
at December 31, 2008, from $974,000 at December 31, 2007.  Loans which
were risk rated “doubtful” increased to $50,000 at December 31, 2008 from no
loans risk rated “doubtful” at December 31, 2007.  A majority of the
risk rating downgrades occurred in the commercial mortgage loan
portfolio.




Allowance
for Loan Losses and Related Provision




ALL is a
valuation account that reflects an evaluation of the probable losses in the loan
portfolio.  The determination of the adequacy of the ALL is a critical
accounting policy of Central Jersey Bank, N.A., due to the inherently subjective
nature of the evaluation.  Credit losses primarily arise from Central
Jersey Bank, N.A.’s loan portfolio, but also may be derived from other
credit-related sources, including commitments to extend
credit.  Additions are made to the allowance through periodic
provisions which are charged to expense.  All losses of principal are
charged to the allowance when incurred or when a determination is made that a
loss is expected.  Subsequent recoveries, if any, are credited to the
allowance.




In order
to comprehensively address periodic provisioning and the resultant ALL, the
Company utilizes a multidisciplinary approach to the ALL
determination.  That approach considers each of the following
factors:


39
 Index


·
            Historical Realized
      Losses in the credit
portfolio.





·
            Delinquency
      Trends currently experienced in the credit
    portfolio.





·
            Internal Risk Rating
      System (“IRR”) that assigns a risk factor, and specific reserve, to
      every outstanding credit exposure.





·
            External Independent
      Assessment of ALL adequacy and the entire credit management
      function periodically performed by loan review and regulatory
      authorities.





·
            Current and
      Anticipated Environmental Conditions that could affect borrowers’
      ability to continually meet their contractual repayment
      obligations.







Individually
evaluated loans that are not determined to be impaired but have specific
characteristics that indicate it is probable that there would be an incurred
loss in a group of loans with those characteristics and all other loans are
evaluated by Central Jersey Bank, N.A. in accordance with SFAS No. 5, Accounting for
Contingencies.





The loss
factors utilized in calculating a reasonable estimate are inherently subjective
and require material estimates that may by susceptible to significant
change.  Central Jersey Bank, N.A. formally evaluates loss factors
utilized in evaluating its unimpaired loans on no less than a quarterly basis,
and more frequently, if in management’s judgment, circumstances indicate the
revaluation of such loss reserves is prudent.   After the loss
factors have been applied to each loan in the portfolio, further segmentation is
required to adequately differentiate the risk in the
portfolio.  Therefore, the loan portfolio is segmented by both loan
type and credit risk rating to capture common risk characteristics for each
pool.





The
reserve allocation for SFAS No. 5 pools are based on Central Jersey Bank, N.A.’s
historical loss experience of the particular group, adjusted for changes in
trends, conditions, and other relevant qualitative factors that affect repayment
of the loans as of the evaluation date.  Qualitative and/or
environmental factors are used to adjust historical loss rates which require
significant judgment by management.  In the event that Central Jersey
Bank, N.A. must make adjustments to historical loss rates, management will
explain how the adjustments reflect current information, events, circumstances,
and conditions in the loss measurement.





Certain
loans classified under SFAS No. 5 may, at management’s discretion, be evaluated
under SFAS No. 114 for impairment.  If loans being evaluated are
deemed not to be impaired they will remain in a SFAS No. 5 pool.





When
necessary, Central Jersey Bank, N.A. performs individual loan reviews in
accordance with SFAS No. 114 to determine whether any individually reviewed
loans are impaired and, if impaired, measures a SFAS No. 114 allowance
allocation in accordance with the standard.




Our
primary lending emphasis is the origination of commercial real estate loans,
commercial and industrial loans, and to a lesser extent, home equity and second
mortgages.  As a result of our strategic plans and lending emphasis,
we have a loan concentration in commercial loans at




40
 Index


December
31, 2008 and 2007, the majority of which are secured by real property located in
New Jersey.




Based on
the composition of our loan portfolio and the growth in our loan portfolio over
the past five years, we believe the primary risks inherent in our portfolio are
possible increases in interest rates, a possible decline in the economy,
generally, and a possible decline in real estate fair values.  Any one
or a combination of these events may adversely affect our loan portfolio
resulting in increased delinquencies and loan losses.




For the
year ended December 31, 2008, the provision for loan losses was $1.3 million, as
compared to $165,000 for the year ended December 31, 2007.  The
significant increase in the provision for loan losses is due to required
incremental reserves resulting from the credit deterioration of certain
commercial loans and, to a lesser extent, loan growth that occurred during the
periods presented.  Total gross loans outstanding at December 31, 2008
were $361.0 million, an increase of $45.8 million, or 14.5%, over the December
31, 2007 total of $315.2 million.





Loan
portfolio composition remained consistent in 2008, as compared to 2007, with
commercial loans comprising 84.4% of total loans outstanding at December 31,
2008, as compared to 85.6% at December 31, 2007.  Gross loans
outstanding totaled $361.0 million at December 31, 2008, as compared to $315.2
million at December 31, 2007, an increase of $45.8 million, or
14.5%.




The
following table summarizes Central Jersey Bank, N.A.’s ALL for the years ended
December 31, 2008, 2007, 2006, 2005 and 2004.




(dollars
      in thousands)
                                              2008
                                              
                                              
                                              2007
                                              
                                              
                                              2006
                                              
                                              
                                              2005
                                              
                                              
                                              2004Balance,
      beginning of year
                                              $
                                              3,408
                                              
                                              
                                              $
                                              3,229
                                              
                                              
                                              $
                                              3,175
                                              
                                              
                                              $
                                              1,638
                                              
                                              
                                              $
                                              1,378Provision
      charged to expense
                                              
                                              1,319
                                              
                                              
                                              
                                              165
                                              
                                              
                                              
                                              500
                                              
                                              
                                              
                                              426
                                              
                                              
                                              
                                              260Charge-offs
                                              
                                              --
                                              
                                              
                                              
                                              (88
                                              )
                                              
                                              
                                              (455
                                              )
                                              
                                              
                                              (92
                                              )
                                              
                                              
                                              --Allaire
      Community Bank combination
                                              
                                              --
                                              
                                              
                                              
                                              --
                                              
                                              
                                              
                                              --
                                              
                                              
                                              
                                              1,203
                                              
                                              
                                              
                                              --Recoveries
                                              
                                              14
                                              
                                              
                                              
                                              102
                                              
                                              
                                              
                                              9
                                              
                                              
                                              
                                              --
                                              
                                              
                                              
                                              --Balance,
      end of year
                                              $
                                              4,741
                                              
                                              
                                              $
                                              3,408
                                              
                                              
                                              $
                                              3,229
                                              
                                              
                                              $
                                              3,175
                                              
                                              
                                              $
                                              1,638Ratio
      of allowance for loan losses to total loans
                                              
                                              1.31
                                              %
                                              
                                              
                                              1.08
                                              %
                                              
                                              
                                              1.02
                                              %
                                              
                                              
                                              1.02
                                              %
                                              
                                              
                                              1.1
                                              %Ratio
      of net recoveries (charge-offs) to average
      loans outstanding
                                              
                                              0.004
                                              %
                                              
                                              
                                              0.004
                                              %
                                              
                                              
                                              (0.14
                                              %)
                                              
                                              
                                              (0.03
                                              %)
                                              
                                              
                                              0.00
                                              %





41
 Index


The
following table sets forth Central Jersey Bank, N.A.’s percent of ALL to total
allowance and the percent of loans to total loans in each of the categories
listed at the dates indicated (dollars in thousands):




December
      31, 2008
                        
                        
                        December
      31, 2007
                        
                        
                        December
      31, 2006Loan Type
                        
                        Amount
                        
                        
                        Percent
      of
                          allowance
                          to
      total
                          allowance
                        
                        
                        Percent
                          of
      loans
                          to
      total
                          loans
                        
                        
                        Amount
                        
                        
                        Percent
      of
                          allowance
                          to
      total
                          allowance
                        
                        
                        Percent
                          of
      loans
                          to
      total
                          loans
                        
                        
                        Amount
                        
                        
                        Percent
      of
                          allowance
                          to
      total
                          allowance
                        
                        
                        Percent
                          of
      loans
                          to
      total
                          loansCommercial
                        
                        $
                        4,293
                        
                        
                        
                        90.6
                        %
                        
                        
                        84.4
                        %
                        
                        $
                        2,999
                        
                        
                        
                        88.0
                        %
                        
                        
                        85.6
                        %
                        
                        $
                        2,811
                        
                        
                        
                        87.1
                        %
                        
                        
                        86.5
                        %Consumer
                        
                        
                        448
                        
                        
                        
                        9.4
                        %
                        
                        
                        15.6
                        %
                        
                        
                        409
                        
                        
                        
                        12.0
                        %
                        
                        
                        14.4
                        %
                        
                        
                        418
                        
                        
                        
                        12.9
                        %
                        
                        
                        13.5
                        %Total
                        
                        $
                        4,741
                        
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
                        
                        $
                        3,408
                        
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
                        
                        $
                        3,229
                        
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
  December
      31, 2005
                    
                    
                    December
      31, 2004Loan Type
                    
                    Amount
                    
                    
                    Percent
      of
                      allowance
                      to
      total
                      allowance
                    
                    
                    Percent
                      of
      loans
                      to
      total
                      loans
                    
                    
                    Amount
                    
                    
                    Percent
      of
                      allowance
                      to
      total
                      allowance
                    
                    
                    Percent
                      of
      loans
                      to
      total
                      loansCommercial
                    
                    $
                    2,749
                    
                    
                    
                    86.6
                    %
                    
                    
                    85.5
                    %
                    
                    $
                    1,403
                    
                    
                    
                    85.7
                    %
                    
                    
                    84.0
                    %Consumer
                    
                    
                    426
                    
                    
                    
                    13.4
                    %
                    
                    
                    14.5
                    %
                    
                    
                    235
                    
                    
                    
                    14.3
                    %
                    
                    
                    16.0
                    %Total
                    
                    $
                    3,175
                    
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    $
                    1,638
                    
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %







Restricted
Stock




Restricted
stock, which represents required investments in the common stock of
correspondent banks, is carried at cost and as of December 31, 2008 and 2007,
consisted of the common stock of  the Federal Home Loan Bank of
New York (“FHLBNY”), the Federal Reserve Bank of New York (“FRB”) and Atlantic
Central Bankers Bank (“ACBB”).




Management evaluates the
restricted stock for impairmentin accordance withthe AICPA
Accounting Standards Executive Committee (“AcSEC”)Statement of Position
(“SOP”) 01-6,Accounting
by Certain Entities (Including Entities With Trade Receivables) That Lend to or
Finance the Activities of Others.  Management’s
determination of whether these investments are impaired is based on their
assessment of the ultimate recoverability ofthe investments’cost rather
than by recognizingtemporary declines in
value.The determination of whether a decline affects the
ultimate recoverability of the investments’ cost is influenced by criteria such
as (1) the significance of the decline in net assets of the FHLBNY, as compared
to the capital stock amount for the FHLBNY and the length of time this situation
has persisted, (2) commitments by the FHLBNY to make payments required by law or
regulation and the level of such payments in relation to the operating
performance of the FHLBNY, and (3) the impact of legislative and regulatory
changes on institutions and, accordingly, on the customer base of the
FHLBNY.




Management
believes no impairment charge is necessary related to the restricted stock as of
December 31, 2008.


42
 Index


Deposits





One of
Central Jersey Bank, N.A.’s primary strategies is the accumulation and retention
of core deposits.  Core deposits are defined as all deposits except
certificates of deposits with balances in excess of $100,000.




Total
deposits were $418.8 million at December 31, 2008, an increase of $15.5 million,
or 3.8%, from the year ended December 31, 2007 total of $403.3
million.  Core deposits as a percentage of total deposits were 82.5%
at December 31, 2008, as compared to 84.8% at December 31, 2007.The modest increase in
deposit balances was reflective of the competitive deposit pricing environment
and general economic slowdown.





The
following table represents categories of Central Jersey Bank, N.A.’s deposits at
December 31, 2008 and 2007.




(in
      thousands)
                  
                  December 31,
                    2008
                  
                  
                  December 31,
                    2007Demand
      deposits, non-interest bearing
                  
                  $
                  75,947
                  
                  
                  $
                  73,955Savings,
      N.O.W. and money market accounts
                  
                  
                  190,475
                  
                  
                  
                  187,354Certificates
      of deposit of less than $100,000
                  
                  
                  78,949
                  
                  
                  
                  80,587Certificates
      of deposit of $100,000 or more
                  
                  
                  73,444
                  
                  
                  
                  61,394Total
      deposits
                  
                  $
                  418,815
                  
                  
                  $
                  403,290







The
following table represents categories of Central Jersey Bank, N.A.’s average
deposit balances and weighted average interest rates for the years ended
December 31, 2008 and 2007 (dollars in thousands):




December 31,
                    2008
                  
                  
                  December 31,
                    2007Average
                      Balance
                  
                  
                  Weighted
                      Average
                      Rate
                  
                  
                  Average
                      Balance
                  
                  
                  Weighted
                      Average
                      RateDemand
      deposits, non-interest bearing
                  
                  $
                  75,149
                  
                  
                  
                  0.00
                  %
                  
                  $
                  79,828
                  
                  
                  
                  0.00
                  %Savings,
      N.O.W. and money market accounts
                  
                  
                  178,351
                  
                  
                  
                  1.84
                  %
                  
                  
                  190,610
                  
                  
                  
                  2.89
                  %Certificates
      of deposit of less than $100,000
                  
                  
                  79,867
                  
                  
                  
                  3.80
                  %
                  
                  
                  81,497
                  
                  
                  
                  4.78
                  %Certificates
      of deposit of $100,000 or more
                  
                  
                  68,306
                  
                  
                  
                  3.95
                  %
                  
                  
                  65,437
                  
                  
                  
                  4.88
                  %Total
      deposits
                  
                  $
                  401,673
                  
                  
                  
                  2.24
                  %
                  
                  $
                  417,372
                  
                  
                  
                  3.02
                  %





43
 Index







At
December 31, 2008, Central Jersey Bank, N.A. had $152.4 million in time deposits
maturing as follows (in thousands):




3
      months or
                      less
                    
                    
                    Over
      3 to
                      12
      months
                    
                    
                    Over
      1 year
                      to
      3 years
                    
                    
                    Over
      3
                      years
                    
                    
                    TotalLess
      than $100,000
                    
                    $
                    23,242
                    
                    
                    $
                    49,670
                    
                    
                    $
                    4,826
                    
                    
                    $
                    1,211
                    
                    
                    $
                    78,949Equal
      to or more than $100,000
                    
                    
                    14,373
                    
                    
                    
                    53,399
                    
                    
                    
                    1,973
                    
                    
                    
                    3,699
                    
                    
                    
                    73,444Total
                    
                    $
                    37,615
                    
                    
                    $
                    103,069
                    
                    
                    $
                    6,799
                    
                    
                    $
                    4,910
                    
                    
                    $
                    152,393





Borrowings





Borrowings
were $71.7 million at December 31, 2008, as compared to $24.6 million at
December 31, 2007, an increase of $47.1 million, or
191.4%.  Borrowings typically include wholesale borrowing arrangements
as well as arrangements with deposit customers of Central Jersey Bank, N.A. to
sweep funds into short-term borrowings.  As of December 31, 2008,
borrowings included $23.0 million bank sweep funds, $27.5 million in Federal
Home Loan Bank overnight advances, $20.0 million in Federal Home Loan Bank
callable advances and $1.2 million in Federal Home Loan Bank fixed rate
advances.  The increase was due to growth in the bank subsidiary’s
sweep account product for business customers and $48.7 million in Federal Home
Loan Bank advances.  The Federal Home Loan Bank advances were used to
fund loan growth and the purchase of mortgage-backed securities during the
period.





Commitments
and Conditional Obligations





In the
ordinary course of business to meet the financial needs of Central Jersey Bank,
N.A.’s customers, Central Jersey Bank, N.A. is party to financial instruments
with off-balance sheet risk.  These financial instruments include
unused lines of credit and involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the consolidated financial
statements.  The contract or notional amounts of these instruments
express the extent of involvement Central Jersey Bank, N.A. has in each category
of financial instruments.




Central
Jersey Bank, N.A.’s exposure to credit loss from nonperformance by the other
party to the above-mentioned financial instruments is represented by the
contractual amount of those instruments.  Central Jersey Bank, N.A.
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.  The contract or notional
amount of financial instruments which represent credit risk at December 31, 2008
and December 31, 2007 is as follows (in thousands):




2008
                    
                    
                    2007Standby
      letters of credit
                    $
                    2,206
                    
                    
                    $
                    1,446Outstanding
      loan and credit line commitments
                    $
                    65,079
                    
                    
                    $
                    78,464





Standby
letters of credit are conditional commitments issued by Central Jersey Bank,
N.A. which guarantee performance by a customer to a third party.  The
credit risk and underwriting procedures involved in issuing letters of credit
are essentially the same as that involved in extending loan facilities to
customers.  All of Central Jersey Bank, N.A.’s outstanding standby
letters of credit are performance standby letters within the scope of the
Financial Accounting Standards Board (“FASB”) Interpretation No.
45.  These are irrevocable undertakings by Central




44
 Index


Jersey
Bank, N.A., as guarantor, to make payments in the event a specified third party
fails to perform under a non-financial contractual obligation.  Most
of Central Jersey Bank, N.A.’s performance standby letters of credit arise in
connection with lending relationships and have terms of one year or
less.  The maximum potential future payments Central Jersey Bank, N.A.
could be required to make equals the face amount of the letters of
credit.  Central Jersey Bank, N.A.’s liability for performance standby
letters of credit was immaterial at December 31, 2008 and December 31,
2007.




Outstanding
loan commitments represent the unused portion of loan commitments available to
individuals and companies as long as there is no violation of any condition
established in the contract.  Outstanding loan commitments generally
have a fixed expiration date of one year or less, except for home equity loan
commitments which generally have an expiration date of up to 15
years.  Central Jersey Bank, N.A. evaluates each customer’s
creditworthiness on a case-by-case basis.  The amount of collateral
obtained, if any, upon extension of credit is based upon management’s credit
evaluation of the customer.  Various types of collateral may be held,
including property and marketable securities.  The credit risk
involved in these financial instruments is essentially the same as that involved
in extending loan facilities to customers.




Liquidity
and Capital Resources




Liquidity
defines the ability of Central Jersey Bank, N.A. to generate funds to support
asset growth, meet deposit withdrawals, maintain reserve requirements and
otherwise operate on an ongoing basis.  An important component of a
bank’s asset and liability management structure is the level of liquidity, which
are net liquid assets available to meet the needs of its customers and
regulatory requirements.  The liquidity needs of Central Jersey Bank,
N.A. have been primarily met by cash on hand, loan and investment amortizations
and borrowings.  Central Jersey Bank, N.A. invests funds not needed
for operations (excess liquidity) primarily in daily federal funds
sold.  During 2008, Central Jersey Bank, N.A. continued to maintain a
large secondary source of liquidity known as Investment Securities
available-for-sale.  The fair value of that portfolio was $170.7
million and $114.8 million at December 31, 2008 and 2007,
respectively.




It has
been Central Jersey Bank, N.A.’s experience that its core deposit base (which is
defined as transaction accounts and term deposits of less than $100,000) is
primarily relationship-driven.  Non-core deposits (which are defined
as term deposits of $100,000 or greater) are much more interest rate
sensitive.  In any event, adequate sources of reasonably priced
on-balance sheet funds, such as overnight federal funds sold, amounts due from
banks and short-term investments maturing in less than one year, must be
continually accessible for contingency purposes.  This is accomplished
primarily by the daily monitoring of certain accounts for sufficient balances to
meet future loan commitments, as well as measuring Central Jersey Bank, N.A.’s
liquidity position on a monthly basis.




Supplemental
sources of liquidity include large certificates of deposit, wholesale and retail
repurchase agreements, and federal funds purchased from correspondent
banks.  Correspondent banks, which are typically referred to as
“banker’s banks,” offer essential services such as cash letter processing,
investment services, loan participation support, wire transfer operations and
other traditional banking services.  Brokered deposits, which are
deposits obtained, directly or indirectly, from or through the mediation or
assistance of a deposit broker, may be utilized as supplemental sources of
liquidity in accordance with Central Jersey Bank, N.A.’s balance
sheet




45
 Index


management
policy.  Contingent liquidity sources may include off-balance sheet
funds, such as advances from both the Federal Home Loan Bank and the Federal
Reserve Bank, and federal funds purchase lines with “upstream”
correspondents.  An additional source of liquidity is made available
by curtailing loan activity and instead using the available cash to fund
short-term investments such as overnight federal funds sold or other approved
investments maturing in less than one year.  In addition, future
expansion of Central Jersey Bank, N.A.’s retail banking network is expected to
create additional sources of liquidity from new deposit customer
relationships.




Central
Jersey Bank, N.A. is subject to various regulatory capital requirements
administered by federal banking agencies.  Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on Central Jersey Bank, N.A.’s financial
statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Central Jersey Bank, N.A. must meet
specific capital guidelines that involve quantitative measures of Central Jersey
Bank, N.A.’s assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices.  Central Jersey
Bank, N.A.’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
See “Item 1. Business-Government Regulation.”




Quantitative
measures established by regulation to ensure capital adequacy require Central
Jersey Bank, N.A. to maintain minimum amounts and ratios (set forth in the
following table) of Total Capital and Tier 1 Capital to risk weighted assets and
of Tier 1 Capital to average assets (leverage ratio).  As of December
31, 2008, Central Jersey Bank, N.A. met all capital adequacy requirements to
which it is subject.




As of
December 31, 2008, the most recent notification from the OCC categorized Central
Jersey Bank, N.A. as “well capitalized” under the regulatory framework for
prompt corrective action.  There are no conditions or events since
that notification that we believe have changed Central Jersey Bank, N.A.’s
category.




The
following is a summary of Central Jersey Bancorp and Central Jersey Bank, N.A.’s
actual capital ratios as of December 31, 2008 and 2007, compared to the minimum
capital adequacy requirements and the requirements for classification as a
“well-capitalized” institution:




Tier
      I
                          Capital
      to
                          Average
      Assets Ratio
                          (Leverage
      Ratio)
                        
                        
                        Tier
      I
                          Capital
      to
                          Risk
      Weighted
                          Asset
      Ratio
                        
                        
                        Total
      Capital to
                          Risk
      Weighted
                          Asset
      RatioActual Ratios
                        
                        2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007Central
      Jersey Bancorp
                        
                        
                        10.20
                        %
                        
                        
                        9.08
                        %
                        
                        
                        13.91
                        %
                        
                        
                        12.74
                        %
                        
                        
                        15.09
                        %
                        
                        
                        13.73
                        %Central
      Jersey Bank, N.A.
                        
                        
                        10.33
                        %
                        
                        
                        9.34
                        %
                        
                        
                        14.05
                        %
                        
                        
                        12.94
                        %
                        
                        
                        15.24
                        %
                        
                        
                        13.93
                        %Required Regulatory Ratios“Adequately
      capitalized” institution (under federal regulations)
                        
                        
                        4.00
                        %
                        
                        
                        4.00
                        %
                        
                        
                        4.00
                        %
                        
                        
                        4.00
                        %
                        
                        
                        8.00
                        %
                        
                        
                        8.00
                        %“Well
      capitalized” institution
                          (under
      federal regulations)
                        
                        
                        5.00
                        %
                        
                        
                        5.00
                        %
                        
                        
                        6.00
                        %
                        
                        
                        6.00
                        %
                        
                        
                        10.00
                        %
                        
                        
                        10.00
                        %







46
 Index


Guaranteed
Preferred Beneficial Interest in Central Jersey Bancorp Subordinated
Debt




In March
2004, MCBK Capital Trust I, a special purpose business trust of Central Jersey
Bancorp, issued an aggregate of $5.0 million of trust preferred securities to
ALESCO Preferred Funding III, a pooled investment vehicle.  Sandler
O’Neill & Partners, L.P. acted as placement agent in connection with the
offering of the trust preferred securities.  The securities issued by
MCBK Capital Trust I are fully guaranteed by Central Jersey Bancorp with respect
to distributions and amounts payable upon liquidation, redemption or
repayment.  These securities have a floating interest rate equal to
the three-month LIBOR plus 285 basis points, which resets
quarterly.  The securities mature on April 7, 2034 and may be called
at par by Central Jersey Bancorp any time after April 7, 2009.  These
securities were placed in a private transaction exempt from registration under
the Securities Act.




The
entire proceeds to MCBK Capital Trust I from the sale of the trust preferred
securities were used by MCBK Capital Trust I in order to purchase $5.1 million
of subordinated debentures from Central Jersey Bancorp.  The
subordinated debentures bear a variable interest rate equal to LIBOR plus 285
basis points.  Although the subordinated debentures are treated as
debt of Central Jersey Bancorp, they currently qualify as Tier I Capital
investments, subject to the 25% limitation under risk-based capital guidelines
of the Federal Reserve.  The portion of the trust preferred securities
that exceeds this limitation qualifies as Tier II Capital of Central Jersey
Bancorp.  At December 31, 2008, $5.0 million of the trust preferred
securities qualified for treatment as Tier I Capital.  Central Jersey
Bancorp is using the proceeds it received from the subordinated debentures to
support the general balance sheet growth of Central Jersey Bancorp and to
maintain Central Jersey Bank, N.A.’s required regulatory capital
ratios.




On March
1, 2005, the Federal Reserve adopted a final rule that allows the continued
inclusion of outstanding and prospective issuances of trust preferred securities
in the Tier I Capital of bank holding companies, subject to stricter
quantitative limits and qualitative standards.  The new quantitative
limits become effective after a five-year transition period ending March 31,
2009.  Under the final rules, trust preferred securities and other
restricted core capital elements are limited to 25% of all core capital
elements.  Amounts of restricted core capital elements in excess of
these limits may be included in Tier II Capital.  At December 31,
2008, the only restricted core capital element owned by Central Jersey Bancorp
is trust preferred securities.  Central Jersey Bancorp believes that
its trust preferred issues qualify as Tier I Capital.  However, in the
event that the trust preferred issues do not qualify as Tier I Capital, Central
Jersey Bank, N.A. would remain well capitalized.




Recent
Accounting Pronouncements




FAS
140-3





In
February 2008, the FASB issued a FASB Staff Position (“FSP”) FAS 140-3, Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions.  This
FSP addresses the issue of whether or not these transactions should be viewed as
two separate transactions or as one "linked" transaction.  The FSP
includes a "rebuttable presumption" that presumes linkage of the two
transactions unless the presumption can be overcome by meeting certain
criteria.  The FSP will be effective for fiscal years beginning after
November 15, 2008 and will apply only to original transfers made after that
date; early adoption will not be allowed.  Central
Jersey


47
 Index


Bancorp
is currently evaluating the potential impact this new pronouncement will have on
its consolidated financial condition and results of operations.





SFAS
No. 161





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133,
(Statement 161).  SFAS No. 161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives
and strategies for using such instruments, as well as any details of
credit-risk-related contingent features contained within
derivatives.  SFAS No. 161 also requires entities to disclose
additional information about the amounts and location of derivatives located
within the financial statements, how the provisions of SFAS No. 133 has been
applied, and the impact that hedges have on an entity’s financial position,
financial performance, and cash flows.  SFAS No. 161 is effective for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged.  Central Jersey Bancorp is currently
evaluating the potential impact this new pronouncement will have on its
consolidated financial condition and results of operations.





SFAS
No. 162





In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles. SFAS No. 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with U.S. generally accepted accounting principles
(“GAAP”). The hierarchy of authoritative accounting guidance is not expected to
change current practice but is expected to facilitate the FASB's plan to
designate as authoritative its forthcoming codification of accounting standards.
This Statement is effective 60 days following the SEC's approval of the Public
Company Accounting Oversight Board's (“PCAOB”) related amendments to AU Section
411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles, to
remove the GAAP hierarchy from its auditing standards.The hierarchical guidance
provided by SFAS No. 162 is not expected to have a significant impact on
Central Jersey Bancorp’s consolidated financial condition or results of
operations.





FSP
APB 14-1





In May
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).FSP APB 14-1 requires issuers of convertible debt
that may be settled wholly or partly in cash to account for the debt and equity
components separately. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and interim periods within those
years, and must be applied retrospectively to all periods presented. Early
adoption is prohibited. Central Jersey Bancorp is currently evaluating the
potential impact this new pronouncement will have on its consolidated financial
condition and results of operations.





EITF
Issue No. 08-3





In June
2008, the EITF of the FASB discussed public comments received on EITF Issue No.
08-3, Accounting by Lessees
for Nonrefundable Maintenance Deposits.The Task Force reached
a consensus that lessees should account for nonrefundable maintenance deposits
as deposit assets


48
 Index


if it is
probable that maintenance activities will occur and the deposit is therefore
realizable. Amounts on deposit that are not probable of being used to fund
future maintenance activities should be charged to expense. The consensus is
effective for fiscal years beginning after December 15, 2008, and should be
initially applied by recording a cumulative-effect adjustment to opening
retained earnings in the period of adoption. Early application is not
permitted.  Central Jersey Bancorp is currently evaluating the
potential impact this new pronouncement will have on its consolidated financial
condition and results of operations.





FSP
133-1 and FIN 45-4





In
September 2008, the FASB issued FSP 133-1 and FIN 45-4, Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement
No. 161 (FSP 133-1 and FIN 45-4).  FSP 133-1 and FIN 45-4
amends and enhances disclosure requirements for sellers of credit derivatives
and financial guarantees.  It also clarifies that the disclosure
requirements of SFAS No. 161 are effective for quarterly periods beginning after
November 15, 2008, and fiscal years that include those periods.  FSP
133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending
after November 15, 2008.  The implementation of this standard did not
have a material impact on Central Jersey Bancorp’s consolidated financial
condition or results of operations.





EITF
Issue No. 08-5





In
September 2008, the FASB ratified EITF Issue No. 08-5, Issuer’s Accounting for Liabilities
Measured at Fair Value With a Third-Party Credit Enhancement (EITF
08-5).  EITF 08-5 provides guidance for measuring liabilities issued
with an attached third-party credit enhancement (such as a
guarantee).  It clarifies that the issuer of a liability with a
third-party credit enhancement should not include the effect of the credit
enhancement in the fair value measurement of the liability.  EITF 08-5
is effective for the first reporting period beginning after December 15,
2008.  The implementation of this standard did not have a material
impact on Central Jersey Bancorp’s consolidated financial condition or results
of operations.





FSP
SFAS No. 157-3





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 our September 30, 2008 financial
statements.  The application of the provisions of FSP 157-3 did
not materially affect Central Jersey Bancorp’s consolidated financial condition
or results of operations.





FSP
FAS 140-4 and FIN 46(R)-8




In
December 2008, the FASB issued FSP SFAS No. 140-4 and FASB Interpretation (FIN)
46(R)-8, “Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities” (FSP SFAS 140-4 and FIN 46(R)-8). FSP SFAS
140-4




49
 Index




and FIN
46(R)-8 amends FASB SFAS 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” to
require public entities to provide additional disclosures about transfers of
financial assets. It also amends FIN 46(R), “Consolidation of Variable Interest
Entities,” to require public enterprises, including sponsors that have a
variable interest in a variable interest entity, to provide additional
disclosures about their involvement with variable interest entities.
Additionally, this FSP requires certain disclosures to be provided by a public
enterprise that is (a) a sponsor of a qualifying special purpose entity (SPE)
that holds a variable interest in the qualifying SPE but was not the transferor
of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE
that holds a significant variable interest in the qualifying SPE but was not the
transferor of financial assets to the qualifying SPE. The disclosures required
by FSP SFAS 140-4 and FIN 46(R)-8 are intended to provide greater transparency
to financial statement users about a transferor’s continuing involvement with
transferred financial assets and an enterprise’s involvement with variable
interest entities and qualifying SPEs. FSP SFAS 140-4 and FIN 46(R) is effective
for reporting periods (annual or interim) ending after December 15, 2008. The
implementation of this standard did not have a material impact on Central Jersey
Bancorp’s consolidated financial condition or results of
operations.




FSP
EITF 99-20-1




In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment of
Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF 99-20-1
amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets,” to
achieve more consistent determination of whether an other-than-temporary
impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the
objective of an other-than-temporary impairment assessment and the related
disclosure requirements in SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities,” and other related guidance. FSP EITF
99-20-1 is effective for interim and annual reporting periods ending after
December 15, 2008, and shall be applied prospectively. Retrospective application
to a prior interim or annual reporting period is not permitted. The
implementation of this standard did not have a material impact on Central Jersey
Bancorp’s consolidated financial condition or results of
operations.




International
Financial Reporting Standards




In
November 2008, the SEC released a proposed roadmap regarding the potential use
by U.S. issuers of financial statements prepared in accordance with
International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive
series of accounting standards published by the International Accounting
Standards Board (“IASB”). Under the proposed roadmap, Central Jersey Bancorp may
be required to prepare financial statements in accordance with IFRS as early as
2014. The SEC will make a determination in 2011 regarding the mandatory adoption
of IFRS.  Central Jersey Bancorp is currently assessing the impact
that this potential change would have on its consolidated financial statements,
and it will continue to monitor the development of the potential implementation
of IFRS.







50
 Index




FSP
FAS 132(R)-1




In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’Disclosures about
Postretirement Benefit
Plan Assets.”  This FSP amends
SFAS 132(R), “Employers’Disclosures about Pensions and
Other Postretirement Benefits,” to provide guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan.  The disclosures about plan assets required by
this FSP shall be provided for fiscal years ending after December 15,
2009.  Central Jersey Bancorp is currently reviewing the effect this
new pronouncement will have on its consolidated financial statements and results
of operations.




EITF
08-6




In
November 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue
No. 08-6,“Equity Method Investment Accounting
Considerations.” EITF 08-6 clarifies
the accounting for certain transactions and impairment considerations involving
equity method investments. EITF 08-6 is effective for fiscal years
beginning after December 15, 2008, with early adoption prohibited.
 Central Jersey Bancorp is currently reviewing the effect this new
pronouncement will have on its consolidated financial statements and results of
operations.




EITF
08-7





In
November 2008, the FASB ratified Emerging Issues Task Force Issue
No. 08-7, “Accounting for Defensive Intangible
Assets.” EITF 08-7 clarifies
the accounting for certain separately identifiable intangible assets which an
acquirer does not intend to actively use but intends to hold to prevent its
competitors from obtaining access to them. EITF 08-7 requires an acquirer
in a business combination to account for a defensive intangible asset as a
separate unit of accounting which should be amortized to expense over the period
the asset diminishes in value. EITF 08-7 is effective for fiscal years
beginning after December 15, 2008, with early adoption
prohibited.  This new pronouncement will impact Central Jersey
Bancorp’s accounting for any defensive intangible assets acquired in a business
combination completed beginning January 1, 2009.





Impact
of Inflation




The
consolidated financial statements and related financial data presented in this
report have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of money over time
due to inflation.  The primary impact of inflation on the operation of
Central Jersey Bancorp and Central Jersey Bank, N.A. is reflected in increased
operating costs.  Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in
nature.  As a result, the effects of general levels of inflation are
primarily reflected in the interest rate paid in liabilities and earned on
interest earning assets.  Interest rates do not necessarily move in
the same magnitude as the prices of goods and services.  We believe
that continuation of our efforts to manage the rates, liquidity and interest
sensitivity of our assets and liabilities is necessary to generate an acceptable
return on assets.









51
 Index


Item
      7A.
            Quantitative and
      Qualitative Disclosures about Market
Risk




Not
applicable.




Item8.
            Financial Statements
      and Supplementary Data




The
consolidated financial statements and supplementary data of Central Jersey
Bancorp called for by this item are submitted under a separate section of this
report.  Reference is made to the Index of Consolidated Financial
Statements contained on page F-1 herein.




Item 9.
            Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosure







None.




Item 9A.
            Controls and
      Procedures




As
required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this Annual Report on Form 10-K, Central Jersey Bancorp carried out
an evaluation of the effectiveness of the design and operation of Central Jersey
Bancorp’s disclosure controls and procedures.  This evaluation was
carried out under the supervision and with the participation of Central Jersey
Bancorp’s management, including Central Jersey Bancorp’s Chairman, President and
Chief Executive Officer and Central Jersey Bancorp’s Executive Vice President
and Chief Financial Officer, who concluded that Central Jersey Bancorp’s
disclosure controls and procedures are effective.  There has been no
significant change in Central Jersey Bancorp’s internal controls during the last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, Central Jersey Bancorp’s internal control over financial
reporting.




Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in Central Jersey Bancorp’s
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in Central Jersey Bancorp’s reports filed under the Exchange Act
is accumulated and communicated to management, including Central Jersey
Bancorp’s Chairman, President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.




52
 Index


Management’s Annual Report
on Internal Control Over Financial Reporting




The
management of Central Jersey Bancorp is responsible for establishing and
maintaining adequate internal control over financial
reporting.  Central Jersey Bancorp’s internal control system is a
process designed to provide reasonable assurance to the company’s management and
Board of Directors regarding the preparation and fair presentation of published
financial statements.




Central
Jersey Bancorp’s internal control over financial reporting includes policies and
procedures that pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets;
provide reasonable assurances that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that
receipts and expenditures are being made only in accordance with authorizations
of management and the directors of Central Jersey Bancorp; and provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of Central Jersey Bancorp’s assets that could
have a material effect on our consolidated financial statements.




All
internal control systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




Management
assessed the effectiveness of Central Jersey Bancorp’s internal control over
financial reporting as of December 31, 2008.  In making this
assessment, we used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated
Framework (COSO).  Based on the assessment management believes that,
as of December 31, 2008, Central Jersey Bancorp’s internal control over
financial reporting is effective based on those criteria.




Attestation Report of the
Independent Registered Public Accounting Firms




Central
Jersey Bancorp’s independent registered public accounting firm that audited the
consolidated financial statements for the year ended December 31, 2008 has
issued an audit report on the effectiveness of Central Jersey Bancorp’s internal
control over financial reporting as of December 31, 2008.  This report
appears on page F-3.




Item
      9B.
            Other
      Information




None




53
 Index


PART III




Item
      10.
            Directors, Executive
      Officers and Corporate Governance




The
information required under this Item with respect to Central Jersey Bancorp’s
directors and executive officers will be contained in Central Jersey Bancorp’s
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 27, 2009, under the captions “Election of Directors,” “Section 16(a)
Beneficial Ownership Reporting Compliance” and “Executive Officers,” and is
incorporated herein by reference.




Item
      11.
            Executive Compensation




The
information required under this Item with respect to executive compensation will
be contained in Central Jersey Bancorp’s Proxy Statement for the Annual Meeting
of Shareholders scheduled to be held on May 27, 2009, under the captions
“Executive Compensation” and “Director Compensation,” and is incorporated herein
by reference.




Item
      12.
            Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters




The
information required by this Item will be contained in Central Jersey Bancorp’s
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 27, 2009, under the captions “Securities Authorized for Issuance under
Equity Compensation Plans” and “Security Ownership of Certain Beneficial Owners
and Management,” and is incorporated herein by reference.




Item
      13.
            Certain Relationships,
      Related Transactions and Director Independence




The
information required by this item will be contained in Central Jersey Bancorp’s
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 27, 2009, under the caption “Certain Relationships and Related Party
Transactions” and “Director Independence” and is incorporated herein by
reference.




Item
      14.
            Principal Accountant
      Fees and Services




The
information required by this item will be contained in Central Jersey Bancorp’s
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 27, 2009, under the captions “Audit Fees,” “Audit Related Fees,” “Tax Fees,”
“All Other Fees,” and “Policy on Pre-Approval of Audit and Permissible Non-Audit
Services,” and is incorporated herein by reference.




54
 Index


PART IV




Item
      15.
            Exhibits and Financial
      Statement Schedules




(a)
            Exhibits




Reference
is made to the Index of Exhibits beginning on page E-1 herein.




(b)
            Financial Statement
      Schedules:




Reference
is made to the Index of Consolidated Financial Statements on page F-1
herein.  No schedules are included with the consolidated financial
statements because the required information is inapplicable or is presented in
the consolidated financial statements or notes thereto.



















55
 Index


SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.







CENTRAL
      JERSEY BANCORPDate:  March
      13, 2009
                    By:
                    /s/ James S. VaccaroJames
      S. VaccaroChairman,
      President and Chief Executive Officer


KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints James S. Vaccaro and Robert S. Vuono and each of them,
his or her true and lawful attorneys-in-fact and agents for him or her and in
his or her name, place an stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents may lawfully do or cause
to be done by virtue hereof.




In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed by the following persons in the capacities and
on the dates stated.




Signatures
                        Title
                        Date/s/
      James S. Vaccaro
                        Chairman,
      President and Chief
                        March
      13, 2009James
      S. Vaccaro
                        Executive
      Officer (Principal
                          Executive
      Officer) and Director/s/
      Robert S. Vuono
                        Senior
      Executive Vice
                        March
      13, 2009Robert
      S. Vuono
                        President,
      Chief Operating Officer, Secretary and Director/s/
      Anthony Giordano, III
                        Executive
      Vice President,
                        March
      13, 2009Anthony
      Giordano, III
                        Chief
      Financial Officer,
                          Treasurer
      and Assistant
                          Secretary
      (Principal Financial
                          and
      Accounting Officer)







56
 Index


Signatures
                                Title
                                Date/s/
      James G. Aaron
                                Director
                                March
      13, 2009James
      G. Aaron/s/
      Mark R. Aikins
                                Director
                                March
      13, 2009Mark
      R. Aikins/s/
      John A. Brockriede
                                Director
                                March
      13, 2009John
      A. Brockriede/s/
      George S. Callas
                                Director
                                March
      13, 2009George
      S. Callas/s/
      Paul A. Larson, Jr.
                                Director
                                March
      13, 2009Paul
      A. Larson, Jr./s/
      John F. McCann
                                Director
                                March
      13, 2009John
      F. McCann/s/
      Carmen M. Penta
                                Director
                                March
      13, 2009Carmen
      M. Penta/s/
      Mark G. Solow
                                Director
                                March
      13, 2009Mark
      G. Solow


57
 Index


CENTRAL
JERSEY BANCORP


AND
SUBSIDIARY





Consolidated
Financial Statements








Contents











December
31, 2008











Reports
      of Beard Miller Company LLP
            F-2Report
      of KPMG, LLP
            F-4Consolidated
      Statements of Financial Condition at December 31, 2008 and
      2007
            F-5Consolidated
      Statements of Income for the years ended December 31, 2008 and
      2007
            F-6Consolidated
      Statements of Changes in Shareholders’ Equity for the
yearsended
      December 31, 2008 and 2007
            F-7Consolidated
      Statement of Cash Flows for the years endedDecember
      31, 2008 and 2007
            F-8Notes
      to Consolidated Financial Statements
            F-9





F-1
 Index
  Report
of Independent Registered Public Accounting Firm
 
 The Board
of Directors and Shareholders
 Central
Jersey Bancorp:
  We have
audited the accompanying consolidated statement of financial condition of
Central Jersey Bancorp (the “Company”) as of December 31, 2008, and the related
consolidated statement of income, changes in shareholders’ equity and cash flows
for the year then ended. The Company’s management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial statements
of Central Jersey Bancorp and subsidiary as of December 31, 2007 and for the
year then ended, were audited by other auditors whose report thereon, dated
March 14, 2008, expressed an unqualified opinion.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
  In our
opinion, the 2008 financial statements referred to above present fairly, in all
material respects, the financial position of Central Jersey Bancorp as of
December 31, 2008, and the results of its operations and its cash flows for the
year then ended December 31, 2008 in conformity with accounting principles
generally accepted in the United States of America.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Central Jersey Bancorp’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 12, 2009 expressed an
unqualified opinion.
 
 
 /s/ Beard
Miller Company LLP
 Malvern,
PA
 March 12,
2009
   F-2
 Index
 
 
 Report
of Independent Registered Public Accounting Firm
 On
Internal Control Over Financial Reporting
 
 
 The Board
of Directors and Shareholders
 Central
Jersey Bancorp:
  We have
audited Central Jersey Bancorp’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Central Jersey Bancorp’s management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
  A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  In our
opinion, Central Jersey Bancorp maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
  We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the statement of financial position and the
related statements of income, shareholders’ equity and comprehensive income, and
cash flows of Central Jersey Bancorp, and our report dated March 12, 2009
expressed an unqualified opinion.
 
 
 /s/ Beard
Miller Company LLP
 Malvern,
PA
 March 12,
2009
   F-3
 Index
  Report
of Independent Registered Public Accounting Firm
 
 
 The Board
of Directors and Shareholders
 Central
Jersey Bancorp:
 
 We have
audited the accompanying consolidated statement of financial condition of
Central Jersey Bancorp and subsidiary as of December 31, 2007, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the year ended December 31, 2007. These consolidated financial
statements are the responsibility of Central Jersey Bancorp's
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.   We
believe that our audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidated  financial statements referred to above
present fairly, in all
material  respects,  the  financial  position
of Central  Jersey
Bancorp  and  subsidiary  as of
December  31, 2007,  and the results of
their  operations  and their cash flows for the year
ended  December 31,
2007,  in  conformity  with U.S. generally
accepted accounting principles.
 
 
 /s/ KPMG,
LLP
 Short
Hills, New Jersey
 March 14,
2008
  F-4
 Index
  CENTRAL
JERSEY BANCORP
 CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
 (dollars in thousands,
except per share amounts)
 
 December
      31,2008
                                                                    
                                                                    
                                                                    2007ASSETSCash
      and due from banks
                                                                    
                                                                    $
                                                                    9,306
                                                                    
                                                                    
                                                                    $
                                                                    11,198Federal
      funds sold
                                                                    
                                                                    
                                                                    461
                                                                    
                                                                    
                                                                    
                                                                    3,679Cash
      and cash equivalents
                                                                    
                                                                    
                                                                    9,767
                                                                    
                                                                    
                                                                    
                                                                    14,877Investment
      securities available-for-sale, at fair value
                                                                    
                                                                    
                                                                    170,683
                                                                    
                                                                    
                                                                    
                                                                    114,824Investment
      securities held-to-maturity (fair value of $15,124 and
                                                                      $17,379,
      respectively, at December 31, 2008 and 2007)
                                                                    
                                                                    
                                                                    14,679
                                                                    
                                                                    
                                                                    
                                                                    17,430Federal
      Reserve Bank stock
                                                                    
                                                                    
                                                                    1,960
                                                                    
                                                                    
                                                                    
                                                                    1,960Federal
      Home Loan Bank stock
                                                                    
                                                                    
                                                                    2,940
                                                                    
                                                                    
                                                                    
                                                                    550Loans
      held-for-sale
                                                                    
                                                                    
                                                                    400
                                                                    
                                                                    
                                                                    
                                                                    658Loans
                                                                    
                                                                    
                                                                    360,998
                                                                    
                                                                    
                                                                    
                                                                    315,173Less:
      Allowance for loan losses
                                                                    
                                                                    
                                                                    4,741
                                                                    
                                                                    
                                                                    
                                                                    3,408Loans,
      net
                                                                    
                                                                    
                                                                    356,257
                                                                    
                                                                    
                                                                    
                                                                    311,765Accrued
      interest receivable
                                                                    
                                                                    
                                                                    2,251
                                                                    
                                                                    
                                                                    
                                                                    2,218Premises
      and equipment
                                                                    
                                                                    
                                                                    6,303
                                                                    
                                                                    
                                                                    
                                                                    4,626Bank
      owned life insurance
                                                                    
                                                                    
                                                                    3,685
                                                                    
                                                                    
                                                                    
                                                                    3,565Goodwill
                                                                    
                                                                    
                                                                    26,957
                                                                    
                                                                    
                                                                    
                                                                    26,957Core
      deposit intangible
                                                                    
                                                                    
                                                                    1,444
                                                                    
                                                                    
                                                                    
                                                                    1,926Other
      assets
                                                                    
                                                                    
                                                                    2,059
                                                                    
                                                                    
                                                                    
                                                                    2,150Total
      assets
                                                                    
                                                                    $
                                                                    599,385
                                                                    
                                                                    
                                                                    $
                                                                    503,506LIABILITIES AND SHAREHOLDERS’
      EQUITYDeposits:Non-interest
      bearing
                                                                    
                                                                    $
                                                                    75,947
                                                                    
                                                                    
                                                                    $
                                                                    73,955Interest
      bearing
                                                                    
                                                                    
                                                                    342,868
                                                                    
                                                                    
                                                                    
                                                                    329,335418,815
                                                                    
                                                                    
                                                                    
                                                                    403,290Borrowings
                                                                    
                                                                    
                                                                    71,741
                                                                    
                                                                    
                                                                    
                                                                    24,564Subordinated
      debentures
                                                                    
                                                                    
                                                                    5,155
                                                                    
                                                                    
                                                                    
                                                                    5,155Accrued
      expenses and other liabilities
                                                                    
                                                                    
                                                                    21,222
                                                                    
                                                                    
                                                                    
                                                                    1,611Total
      liabilities
                                                                    
                                                                    
                                                                    516,933
                                                                    
                                                                    
                                                                    
                                                                    434,620Shareholders’
      equity:Common
      stock, par value $0.01 per share. Authorized100,000,000
      shares and issued and outstanding 9,000,531 and9,183,290
      shares, respectively, at December 31, 2008 and December 31,
      2007
                                                                    
                                                                    
                                                                    90
                                                                    
                                                                    
                                                                    
                                                                    91Preferred
      stock, par value $1,000 per share.  Authorized 10,000,000
      shares
                                                                      and
      issued and outstanding 11,300 and 0 shares, respectively, at
                                                                      December
      31, 2008 and December 31, 2007
                                                                    
                                                                    
                                                                    11,300
                                                                    
                                                                    
                                                                    
                                                                    --Warrants
      – common stock
                                                                    
                                                                    
                                                                    1,040
                                                                    
                                                                    
                                                                    
                                                                    --Discount
      – preferred stock
                                                                    
                                                                    
                                                                    (1,040
                                                                    )
                                                                    
                                                                    
                                                                    --Additional
      paid-in capital
                                                                    
                                                                    
                                                                    64,502
                                                                    
                                                                    
                                                                    
                                                                    60,787Accumulated
      other comprehensive income, net of tax expense
                                                                    
                                                                    
                                                                    1,925
                                                                    
                                                                    
                                                                    
                                                                    848Treasury
      stock – 246,448 shares at December 31, 2008
                                                                    
                                                                    
                                                                    (1,806
                                                                    )
                                                                    
                                                                    
                                                                    --Retained
      earnings
                                                                    
                                                                    
                                                                    6,441
                                                                    
                                                                    
                                                                    
                                                                    7,160Total
      shareholders’ equity
                                                                    
                                                                    
                                                                    82,452
                                                                    
                                                                    
                                                                    
                                                                    68,886Total
      liabilities and shareholders’ equity
                                                                    
                                                                    $
                                                                    599,385
                                                                    
                                                                    
                                                                    $
                                                                    503,506See
      accompanying notes to consolidated financial statements.
 
  F-5
 Index
  CENTRAL
JERSEY BANCORP
 CONSOLIDATED
STATEMENTS OF INCOME
 (dollars in thousands,
except per share amounts)
 
 December
      31,2008
                                    
                                    
                                    2007Interest
      and dividend income:Interest
      and fees on loans
                                    
                                    $
                                    21,084
                                    
                                    
                                    $
                                    22,975Interest
      on securities available-for-sale
                                    
                                    
                                    6,952
                                    
                                    
                                    
                                    5,100Interest
      on securities held-to-maturity
                                    
                                    
                                    664
                                    
                                    
                                    
                                    883Interest
      on federal funds sold and due from banks
                                    
                                    
                                    386
                                    
                                    
                                    
                                    1,530Total
      interest and dividend income
                                    
                                    
                                    29,086
                                    
                                    
                                    
                                    30,488Interest
      expense:Interest
      expense on deposits
                                    
                                    
                                    8,984
                                    
                                    
                                    
                                    12,597Interest
      expense on borrowings
                                    
                                    
                                    1,325
                                    
                                    
                                    
                                    746Interest
      expense on subordinated debentures
                                    
                                    
                                    355
                                    
                                    
                                    
                                    439Total
      interest expense
                                    
                                    
                                    10,664
                                    
                                    
                                    
                                    13,782Net
      interest income
                                    
                                    
                                    18,422
                                    
                                    
                                    
                                    16,706Provision
      for loan losses:
                                    
                                    
                                    1,319
                                    
                                    
                                    
                                    165Net
      interest income after provision for loan losses
                                    
                                    
                                    17,103
                                    
                                    
                                    
                                    16,541Other
      income (loss):
                                      Service
      charges on deposit accounts
                                    
                                    
                                    1,522
                                    
                                    
                                    
                                    1,479Gain
      on sale of available-for-sale securities
                                    
                                    
                                    739
                                    
                                    
                                    
                                    87Gain
      on sale of loans held-for-sale
                                    
                                    
                                    351
                                    
                                    
                                    
                                    56Income
      on bank owned life insurance
                                    
                                    
                                    120
                                    
                                    
                                    
                                    118Impairment
      on available-for-sale securities
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (1,957
                                    )Total
      other income (loss)
                                    
                                    
                                    2,732
                                    
                                    
                                    
                                    (217
                                    )Operating
      expenses:Salaries
      and employee benefits
                                    
                                    
                                    7,759
                                    
                                    
                                    
                                    7,146Net
      occupancy expenses
                                    
                                    
                                    2,059
                                    
                                    
                                    
                                    1,821Data
      processing fees
                                    
                                    
                                    1,011
                                    
                                    
                                    
                                    884Net
      occupancy fees
                                    
                                    
                                    896
                                    
                                    
                                    
                                    938Outside
      service fees
                                    
                                    
                                    782
                                    
                                    
                                    
                                    856Furniture,
      fixtures and equipment
                                    
                                    
                                    694
                                    
                                    
                                    
                                    626Core
      deposit intangible amortization
                                    
                                    
                                    482
                                    
                                    
                                    
                                    552Advertising
                                    
                                    
                                    268
                                    
                                    
                                    
                                    134Stationery,
      supplies and printing
                                    
                                    
                                    239
                                    
                                    
                                    
                                    251Insurance
                                    
                                    
                                    184
                                    
                                    
                                    
                                    194Telephone
                                    
                                    
                                    133
                                    
                                    
                                    
                                    161Abandonment
      of leasehold improvements
                                    
                                    
                                    --
                                    
                                    
                                    
                                    137Other
      operating expenses
                                    
                                    
                                    1,130
                                    
                                    
                                    
                                    670Total
      operating expenses
                                    
                                    
                                    15,637
                                    
                                    
                                    
                                    14,370Income
      before provision for income taxes
                                    
                                    
                                    4,198
                                    
                                    
                                    
                                    1,954Income
      taxes
                                    
                                    
                                    1,288
                                    
                                    
                                    
                                    1,110Net
      income
                                    
                                    $
                                    2,910
                                    
                                    
                                    $
                                    844Preferred
      stock dividend
                                    
                                    
                                    12
                                    
                                    
                                    
                                    --Net
      income available to common shareholders
                                    
                                    $
                                    2,898
                                    
                                    
                                    $
                                    844Basic
      earnings per share
                                    
                                    $
                                    0.32
                                    
                                    
                                    $
                                    0.09Diluted
      earnings per share
                                    
                                    $
                                    0.30
                                    
                                    
                                    $
                                    0.09Average
      basic shares outstanding
                                    
                                    
                                    9,092,180
                                    
                                    
                                    
                                    9,146,408Average
      diluted shares outstanding
                                    
                                    
                                    9,523,891
                                    
                                    
                                    
                                    9,589,411See
      accompanying notes to consolidated financial statements.
 F-6
 Index
 CENTRAL
JERSEY BANCORP
 CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
 (dollars in thousands,
except share amounts)
 
 
 AccumulatedWarrants
      -
                                      
                                      
                                      Discount
      -
                                      
                                      
                                      Additional
                                      
                                      
                                      otherCommon
                                      
                                      
                                      Preferred
                                      
                                      
                                      common
                                      
                                      
                                      preferred
                                      
                                      
                                      paid-in
                                      
                                      
                                      comprehensive
                                      
                                      
                                      Treasury
                                      
                                      
                                      Retainedstock
                                      
                                      
                                      stock
                                      
                                      
                                      stock
                                      
                                      
                                      stock
                                      
                                      
                                      capital
                                      
                                      
                                      (loss)
      income
                                      
                                      
                                      stock
                                      
                                      
                                      earnings
                                      
                                      
                                      TotalBalance
      at December 31, 2006
                                      
                                      $
                                      87
                                      
                                      
                                      $
                                      --
                                      
                                      
                                      $
                                      --
                                      
                                      
                                      $
                                      --
                                      
                                      
                                      $
                                      60,501
                                      
                                      
                                      $
                                      (1,409
                                      )
                                      
                                      $
                                      --
                                      
                                      
                                      $
                                      6,316
                                      
                                      
                                      $
                                      65,495Comprehensive
      income:Net
      income
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      844
                                      
                                      
                                      
                                      844Unrealized
      gain on securities
                                        available-for-sale,
      net of tax of $686
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      896
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      896Reclassification
      adjustment for gains
                                        included
      in net income,
                                        net
      of tax of ($37)
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      50
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      50Impairment
      on securities
                                        available-for-sale,
      net of tax of ($646)
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      1,311
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      1,311Total
      comprehensive income
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      3,101Exercise
      of stock options – 83,184
                                        shares,
      including tax benefit $15
                                      
                                      
                                      4
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      290
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      294Cash
      paid for fractional shares
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (4
                                      )
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (4
                                      )Balance
      at December 31, 2007
                                      
                                      $
                                      91
                                      
                                      
                                      $
                                      --
                                      
                                      
                                      $
                                      --
                                      
                                      
                                      $
                                      --
                                      
                                      
                                      $
                                      60,787
                                      
                                      
                                      $
                                      848
                                      
                                      
                                      $
                                      --
                                      
                                      
                                      $
                                      7,160
                                      
                                      
                                      $
                                      68,886Comprehensive
      income:Net
      income
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      2,910
                                      
                                      
                                      
                                      2,910Unrealized
      gain on securities
                                        Available-for-sale,
      net of tax of $648
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      1,077
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      1,077Total
      comprehensive income
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      3,987Exercise
      of stock options – 64,177
                                        shares,
      including tax benefit $94
                                      
                                      
                                      1
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      329
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      330Purchase
      of 246,448 shares outstanding
                                        stock;
      placed in treasury
                                      
                                      
                                      (2
                                      )
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (1,806
                                      )
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (1,808
                                      )5%
      stock dividend – 437,400 shares
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      3,390
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (3,390
                                      )
                                      
                                      
                                      --Preferred
      stock
                                      
                                      
                                      --
                                      
                                      
                                      
                                      11,300
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      11,300Warrants
      – common stock
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      1,040
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      1,040Discount
      – preferred stock
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (1,040
                                      )
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (1,040
                                      )Cash
      dividends accrued on preferred stock
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (12
                                      )
                                      
                                      
                                      (12
                                      )Cumulative
      effect adjustment
                                        adoption
      of EITF 06-4
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (227
                                      )
                                      
                                      
                                      (227
                                      )Cash
      paid for fractional shares
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (4
                                      )
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      (4
                                      )Balance
      at December 31, 2008
                                      
                                      $
                                      90
                                      
                                      
                                      $
                                      11,300
                                      
                                      
                                      $
                                      1,040
                                      
                                      
                                      $
                                      (1,040
                                      )
                                      
                                      $
                                      64,502
                                      
                                      
                                      $
                                      1,925
                                      
                                      
                                      $
                                      (1,806
                                      )
                                      
                                      $
                                      6,441
                                      
                                      
                                      $
                                      82,452
 
 See
accompanying notes to consolidated financial statements.
 
  F-7
 Index
  CENTRAL
JERSEY BANCORP
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (dollars in
thousands)
 
 December
      31,2008
                                      
                                      
                                      2007Cash
      flows from operating activities:Net
      income available to common shareholders
                                      
                                      $
                                      2,898
                                      
                                      
                                      $
                                      844Adjustments
      to reconcile net income to net cash provided by operating
      activities:Earnings
      on cash surrender value of life insurance
                                      
                                      
                                      (120
                                      )
                                      
                                      
                                      (118
                                      )Deferred
      tax expense (benefit)
                                      
                                      
                                      (210
                                      )
                                      
                                      
                                      (815
                                      )Provision
      for loan losses
                                      
                                      
                                      1,319
                                      
                                      
                                      
                                      165Net
      discount accretion on held-to-maturity securities
                                      
                                      
                                      (15
                                      )
                                      
                                      
                                      (11
                                      )Net
      (discount accretion) premium amortization on available-for-sale
      securities
                                      
                                      
                                      (11
                                      )
                                      
                                      
                                      35Depreciation
      and amortization
                                      
                                      
                                      676
                                      
                                      
                                      
                                      705(Increase)
      decrease in accrued interest receivable
                                      
                                      
                                      (33
                                      )
                                      
                                      
                                      395Core
      deposit intangible amortization
                                      
                                      
                                      482
                                      
                                      
                                      
                                      552Impairment
      on available-for-sale securities
                                      
                                      
                                      --
                                      
                                      
                                      
                                      1,957Abandonment
      of leasehold improvements
                                      
                                      
                                      --
                                      
                                      
                                      
                                      137Gain
      on sale of securities available-for-sale
                                      
                                      
                                      (739
                                      )
                                      
                                      
                                      (87
                                      )Gain
      on the sale of loans held-for-sale
                                      
                                      
                                      (351
                                      )
                                      
                                      
                                      (56
                                      )Origination
      of loans held-for-sale
                                      
                                      
                                      (4,233
                                      )
                                      
                                      
                                      (19,825
                                      )Proceeds
      from sale of loans held-for-sale
                                      
                                      
                                      4,508
                                      
                                      
                                      
                                      19,465(Increase)
      decrease in other assets
                                      
                                      
                                      (2,089
                                      )
                                      
                                      
                                      1,374Increase
      in accrued expenses and other liabilities
                                      
                                      
                                      19,383
                                      
                                      
                                      
                                      353Net
      cash provided by  operating activities
                                      
                                      
                                      21,465
                                      
                                      
                                      
                                      5,070Cash
      flows from investing activities:Purchase
      of investment securities available-for-sale
                                      
                                      
                                      (131,616
                                      )
                                      
                                      
                                      (115,585
                                      )Purchase of investment securities held-to-maturity
                                      
                                      
                                      (4,982
                                      )
                                      
                                      
                                      --Maturities
      of and paydowns on investment securities held-to-maturity
                                      
                                      
                                      7,748
                                      
                                      
                                      
                                      3,401Maturities,
      sales of and paydowns on investment securities
      available-for-sale
                                      
                                      
                                      77,584
                                      
                                      
                                      
                                      96,848Decrease
      in due from broker
                                      
                                      
                                      --
                                      
                                      
                                      
                                      3,527Net
      (increase) decrease in loans
                                      
                                      
                                      (45,477
                                      )
                                      
                                      
                                      163Purchases
      of premises and equipment, net
                                      
                                      
                                      (2,353
                                      )
                                      
                                      
                                      (111
                                      )Net
      cash used in investing activities
                                      
                                      
                                      (99,096
                                      )
                                      
                                      
                                      (11,757
                                      )Cash
      flows from financing activities:Proceeds
      from stock options exercised
                                      
                                      
                                      330
                                      
                                      
                                      
                                      294Net
      increase (decrease) in non-interest bearing deposits
                                      
                                      
                                      1,992
                                      
                                      
                                      
                                      (9,527
                                      )Net
      increase (decrease)  in interest bearing
deposits
                                      
                                      
                                      13,533
                                      
                                      
                                      
                                      (14,460
                                      )Net
      (decrease) increase in other borrowings
                                      
                                      
                                      (1,528
                                      )
                                      
                                      
                                      7,465Proceeds
      from Federal Home Loan Bank advances
                                      
                                      
                                      48,740
                                      
                                      
                                      
                                      --Repayment of Federal Home Loan Bank advances
                                      
                                      
                                      (34
                                      )
                                      
                                      
                                      --Cash
      paid for fractional shares
                                      
                                      
                                      (4
                                      )
                                      
                                      
                                      (4
                                      )Purchase
      of outstanding stock; placed in treasury
                                      
                                      
                                      (1,808
                                      )
                                      
                                      
                                      --Issuance
      of preferred stock and warrants
                                      
                                      
                                      11,300
                                      
                                      
                                      
                                      --Net
      cash provided by (used in) by financing activities
                                      
                                      
                                      72,521
                                      
                                      
                                      
                                      (16,232
                                      )Decrease
      in cash and cash equivalents
                                      
                                      
                                      (5,110
                                      )
                                      
                                      
                                      (22,919
                                      )Cash
      and cash equivalents at beginning of period
                                      
                                      
                                      14,877
                                      
                                      
                                      
                                      37,796Cash
      and cash equivalents at end of period
                                      
                                      $
                                      9,767
                                      
                                      
                                      $
                                      14,877Cash
      paid during the period for:Interest
                                      
                                      $
                                      10,754
                                      
                                      
                                      $
                                      13,766Taxes
                                      
                                      $
                                      2,199
                                      
                                      
                                      $
                                      1,612
 
 See
accompanying notes to consolidated financial statements.
   F-8
 Index
 Central
Jersey Bancorp and Subsidiary
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 
 NOTE
1 - Summary of Significant Accounting Policies
 
 Business
  Effective
August 31, 2000, Central Jersey Bancorp, a newly formed corporation, acquired
all of the shares of Central Jersey Bank, N.A.  Each share of $5 par
value common stock of Central Jersey Bank, N.A. was exchanged for one share of
$0.01 par value common stock of Central Jersey Bancorp.  The
reorganization was accounted for as if it were a pooling of
interests.  Central Jersey Bancorp and Central Jersey Bank, N.A. are
collectively referred to herein as the “Company.”
  In August
of 2005, Central Jersey Bancorp combined its two bank subsidiaries, Monmouth
Community Bank, N.A. and Allaire Community Bank, into a single banking entity,
named Central Jersey Bank, National Association.  Central Jersey Bank,
N.A. offers a full range of retail and commercial banking services primarily to
customers located in Monmouth County and Ocean County, New Jersey. These
services include checking accounts, savings accounts, money market accounts,
certificates of deposit, installment loans, real estate mortgage loans,
commercial loans, wire transfers, money orders, traveler’s checks, safe deposit
boxes, night depositories, federal payroll tax deposits, bond coupon redemption,
bank by mail, direct deposit, automated teller services and telephone and
internet banking.  Central Jersey Bank, N.A. has debit card, merchant
card and international services available to its customers through correspondent
institutions.  Central Jersey Bank, N.A. currently has thirteen
full-service branch facilities located in Belmar, Bradley Beach, Long Branch
(2), Manasquan, Point Pleasant, Spring Lake Heights, Little Silver, Neptune
City, Ocean Grove, Oakhurst and Wall Township (2), New Jersey.
  Central
Jersey Bank, N.A. is a national association chartered by the Office of the
Comptroller of the Currency (“OCC”).  The deposits of the bank
subsidiary are insured by the Federal Deposit Insurance Corporation
(“FDIC”).  Central Jersey Bank, N.A. provides a broad range of
financial products and services to individual consumers, small businesses and
professionals in its market area.When a customer’s loan
requirements exceedCentral Jersey Bank,
N.A.’s lending limit, it may seek to arrange such loan on a participation basis
with other financial institutions.  In addition, Central Jersey Bank,
N.A. participates in loans originated by other financial
institutions.
  Central
Jersey Bancorp paid a 5% stock dividend on July 1, 2008.  As of
December 31, 2008, there were 9,000,531 issued and outstanding shares of Central
Jersey Bancorp common stock.  Central Jersey Bancorp paid a 5% stock
dividend on July 1, 2007.  As of December 31, 2007, there were
9,183,290 issued and outstanding shares of Central Jersey Bancorp common stock.
All prior period amounts have been retroactively restated to reflect the
aforementioned stock splits and stock distributions.
  Basis
of Financial Statement Presentation
  The
accompanying consolidated financial statements include the accounts of Central
Jersey Bancorp and its wholly-owned bank subsidiary, Central Jersey Bank,
N.A.  All significant inter-company accounts and transactions have
been eliminated in consolidation.  The consolidated financial
statements of the Company have been prepared in conformity with U.S. generally
accepted accounting principles (“GAAP”).  In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
dates of the consolidated statements of financial condition and results of
operations for the periods indicated.  Actual results could differ
significantly from those estimates.
  Material
estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses (“ALL”) as
well as the other-than-temporary impairment of investment
securities.
  While
management uses available information to recognize estimated losses on loans,
such estimates may be adjusted to account for changes in economic
conditions.  In addition, various regulatory agencies, as an integral
part of their
   F-9
 Index
  examination
process, periodically review the Company’s ALL.  Such agencies may
require the Company to increase such allowance based, in their judgment, on the
information available to them at the time of their examination.
  Earnings
per share, average shares outstanding, stock options, stock appreciation rights
and related amounts set forth herein for all periods presented have been
adjusted to reflect the 5% stock dividends, paid on July 1, 2008 and July 2,
2007.
 
 On
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair Value
Measurements.  SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in GAAP and expands disclosures about fair
value measurements (see Note 13 – Fair Value Measurements).
 
 On
January 1, 2008, the Company changed its accounting policy and recognized a
cumulative-effect adjustment to retained earnings totaling
$227,000.  This adjustment, related to accounting for certain
endorsements split-dollar insurance arrangements, was made in accordance with
Emerging Issues Task Force (“EITF”) Issue No. 06-4, Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements (see Note 14 - Post Retirement Benefits).
 
 Cash
and Cash Equivalents
  For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks with original maturities of three months or less
and overnight federal funds sold.  Federal funds sold are generally
sold for one-day periods.
  Investment
Securities
  Investment
securities held-to-maturity are comprised of debt securities that the Company
has the intent and ability to hold to maturity.  Such securities are
stated at cost, adjusted for amortization of premiums and accretion of discounts
over the estimated remaining lives of the securities as an adjustment to the
yield using the level-yield method.  Securities to be held for
indefinite periods of time and not intended to be held-to-maturity, including
all equity securities, are classified as
available-for-sale.  Securities available-for-sale include securities
that management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates,
resultant prepayment risk and other factors related to interest rate and
resultant prepayment risk changes.  Securities available-for-sale are
carried at fair value.  Unrealized holding gains and losses on such
securities available-for-sale are excluded from earnings and reported as a
separate component of shareholders’ equity.  Gains and losses on sales
of securities are based on the specific identification method and are accounted
for on a trade date basis.
  On a
quarterly basis, the Company evaluates investment securities for
other-than-temporary impairment.  For individual investment securities
classified as either available-for-sale or held-to-maturity, a determination is
made as to whether a decline in fair value below the amortized cost basis is
other than temporary.  If the decline in fair value is judged to be
other than temporary, the cost basis of the individual investment security shall
be written down to fair value as a new cost basis and the amount of the
write-down shall be recognized in earnings.
  Loans
Held-for-Sale
  Loans
held-for-sale are carried at the lower of cost or fair value.
  Loans
  Loans are
stated at unpaid principal balances, adjusted for unearned income and deferred
loan fees and costs.
  Interest
on loans is credited to operations based upon the principal amount
outstanding.
  Loan
origination and commitment fees and certain direct loan origination costs are
deferred, and the net amount is amortized over the estimated life of the loan as
an adjustment to the loan’s yield using the level-yield method.
   F-10
 Index
  The
Company originates SBA loans and typically sells up to 75% of the outstanding
loan balance to investors, with servicing retained.  Servicing rights
fees, which are usually based on a percentage of the outstanding principal
balance of the loan, are recorded for servicing functions. The Company accounts
for its transfers and servicing of financial assets in accordance with SFAS No.
140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. The
Company records servicing rights based on the fair values at the date of
sale.  These servicing rights are recorded as other assets in the
Consolidated Statements of Financial Condition.  As of December 31,
2008, the Company recorded $133,000 in servicing rights.
  An
impaired loan is defined as a loan for which, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan
agreement.  Impaired loans are measured based on the present value of
expected future cash flows, at the loan’s observable market price, or the fair
value of the underlying collateral, if the loan is collateral
dependent.  The accrual of income on loans, including impaired loans,
is generally discontinued when a loan becomes more than 90 days delinquent as to
principal or interest or when other circumstances indicate that collection is
questionable, unless the loan is well secured and in the process of
collection.  Income on non-accrual loans, including impaired loans, is
recognized only in the period in which it is collected, and only if management
determines that the loan principal is fully collectible.  Loans are
returned to an accrual status when a loan is brought current as to principal and
interest and reasons indicating doubtful collection no longer
exists.
  A loan is
considered past due when a payment has not been received in accordance with the
contractual terms.  Generally, commercial loans are placed on
non-accrual status when they are 90 days past due unless they are well
secured and in the process of collection or, regardless of the past due status
of the loan, when management determines that the complete recovery of principal
and interest is in doubt.  Commercial loans are generally written down
after an analysis is completed which indicates that collectibility of the full
principal balance is in doubt.  Consumer loans are generally charged
off after they become 120 days past due.  Commercial mortgage
loans are not generally placed on a non-accrual status unless the value of the
real estate has deteriorated to the point that a potential loss of principal or
interest exists.  Subsequent payments are credited to income only if
collection of principal is not in doubt.  If principal and interest
payments are brought contractually current and future collectibility is
reasonably assured, loans are returned to accrual status.  Commercial
mortgage loans are generally written down when the value of the underlying
collateral does not cover the outstanding principal balance.  Loan
origination and commitment fees less certain costs are deferred and the net
amount amortized as an adjustment to the related loan’s yield.  Loans
held for sale are recorded at the lower of cost or fair value.
  The ALL
is based upon the Interagency Policy Statement on the Allowance for Loan and
Lease Losses issued jointly by the federal banking agencies on December 13, 2006
(OCC Bulletin 2006-47) and management’s evaluation of the adequacy of the
allowance, including an assessment of:  (a) known and inherent risks
in the loan portfolio; (b) the size and composition of the loan portfolio; (c)
actual loan loss experience; (d) the level of delinquencies; (e) the individual
loans for which full collectibility may not be assured; (f) the existence and
estimated net realizable value of any underlying collateral and guarantees
securing the loans; and (g) the current economic and market conditions. 
Although management uses the best information available, the level of the ALL
remains an estimate that is subject to significant judgment and short-term
change.  Various regulatory agencies, as an integral part of their
examination process, periodically review Central Jersey Bank, N.A.’s ALL. 
Such agencies may require Central Jersey Bank, N.A. to make additional
provisions for loan losses based upon information available to them at the time
of their examination.  Furthermore, the majority of Central Jersey Bank,
N.A.’s loans are secured by real estate in the State of New Jersey. 
Accordingly, the collectibility of a substantial portion of the carrying value
of Central Jersey Bank, N.A.’s loan portfolio is susceptible to changes in local
market conditions and may be adversely affected should real estate values
decline or the Central New Jersey area experience an adverse economic
climate.  Future adjustments to the ALL may be necessary due to economic,
operating, regulatory and other conditions beyond Central Jersey Bank, N.A.’s
control.  Management believes that the ALL is adequate as of December
31, 2008.
  The
provision for loan losses charged to operating expense is determined by
management and is based upon a periodic review of the loan portfolio, past
experience, the economy, and other factors that may affect a borrower’s ability
to repay a loan.  The provision is based on management’s estimates and
actual losses may vary from these estimates.  Estimates are reviewed
and adjustments, as they become necessary, are reported in the periods in which
they become known.
   F-11
 Index
  Premises
and Equipment
  Premises
and equipment are stated at cost less accumulated depreciation and
amortization.  Depreciation and amortization is charged to operations
on a straight-line basis over the estimated useful lives of the assets or, in
the case of leasehold improvements, the lease period, if
shorter.  Depreciable lives range from three to ten years for
furniture, fixtures and equipment and five to 15 years for leasehold
improvements.  Gains or losses on dispositions are reflected in
current operations.  Maintenance and repairs are charged to expense as
incurred.
  Bank-Owned
Life Insurance
  The
Company is the beneficiary of insurance policies on the lives of certain
officers, employees, and directors of the Company.  Bank-owned life
insurance is accounted for using the cash surrender value method and is recorded
at its net realizable value.  The change in the net asset value is
included as a component of non-interest income.
  401(k)
Plan
  The
Company has a 401(k) plan covering substantially all of its
employees.  The Company may contribute an amount equal to 100% of the
first 3% of the employee deferral and then 50% of the next 2% of the employee
deferral.  The Company’s matching contribution, if any, is determined
by the Board of Directors in its sole discretion.
 
 Income
Taxes
  Income
taxes are accounted for under the asset and liability method.  Current
income taxes are provided for based upon amounts estimated to be currently
payable, for both federal and state income taxes.  Deferred federal
and state tax assets and liabilities are recognized for the expected future tax
consequences of existing differences between financial statement and tax bases
of existing assets and liabilities.  Deferred tax assets are
recognized for future deductible temporary differences and tax loss
carryforwards if their realization is “more likely than not.”  The
effect of a change in the tax rate on deferred taxes is recognized in the period
of the enactment date.
 
 Comprehensive
Income
  Comprehensive
income is segregated into net income and other comprehensive
income.  Other comprehensive income includes items previously recorded
directly to equity, such as unrealized gains and losses on securities
available-for-sale, net of tax.  Comprehensive income is presented in
the Statements of Changes in Shareholders’ Equity.
 
 Segment
Reporting
  The
Company’s operations are solely in the financial services industry and include
providing to its customers traditional banking and other financial
services.  The Company operates primarily in the geographical region
of Central New Jersey.  Management makes operating decisions and
assesses performance based on an ongoing review of the Company’s consolidated
financial results.  Therefore, the Company has a single operating
segment for financial reporting purposes.
  Net
Income Per Share
  Basic and
diluted net income per share for the year ended December 31, 2008 was calculated
by dividing the net income available to common shareholders (which is equal to
net income less dividends on preferred stock) of $2.9 million by the weighted
average number of shares outstanding of 9,092,180 (as to the basic net income
per share determination) and 9,523,891 (as to the diluted net income per share
determination).  Basic and diluted net income per share for the year
ended December 31, 2007 was calculated by dividing the net income available to
common shareholders of $844,000 by the weighted average number of shares
outstanding of 9,146,408 (as to the basic net income per share determination)
and 9,589,411 (as to the diluted net income per share
determination).  Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
(such as stock options) were exercised or resulted in the issuance of common
stock.  These potentially dilutive shares would then be included in
the weighted
   F-12
 Index
  average
number of shares outstanding for the period using the treasury stock
method.  Shares issued and shares reacquired during the period are
weighted for the portion of the period that they were outstanding.
  The
following tables reconcile shares outstanding for basic and diluted earnings per
share for the years ended December 31, 2008 and 2007:
  December
      31, 2008(dollars
      in thousands, except for per share data)
                    
                    Income
                      (numerator)
                    
                    
                    Average
      shares
                      (denominator)
                    
                    
                    Per
      share
                      amountBasic
      EPSNet
      income available to common shareholders
                    
                    $
                    2,898
                    
                    
                    
                    9,092
                    
                    
                    $
                    0.32Effect
      of dilutive securities:Stock
      options and warrants
                    
                    
                    --
                    
                    
                    
                    432
                    
                    
                    
                    --Diluted
      EPSNet
      income available to common shareholders, plusassumed
      exercise of options and warrants
                    
                    $
                    2,898
                    
                    
                    
                    9,524
                    
                    
                    $
                    0.30
 
  December
      31, 2007(dollars
      in thousands, except for per share data)
                    
                    Income
                      (numerator)
                    
                    
                    Average
      shares
                      (denominator)
                    
                    
                    Per
      share
                      amountBasic
      EPSNet
      income available to common shareholders
                    
                    $
                    844
                    
                    
                    
                    9,146
                    
                    
                    $
                    0.09Effect
      of dilutive securities:Stock
      options
                    
                    
                    --
                    
                    
                    
                    443
                    
                    
                    
                    --Diluted
      EPSNet
      income available to common shareholders, plusassumed
      exercise of options
                    
                    $
                    844
                    
                    
                    
                    9,589
                    
                    
                    $
                    0.09
 
  Options
to purchase 100,020, 143,661 and 6,576 shares of common stock at weighted
average prices of $10.39, $8.57 and $7.56 per share, respectively, were
outstanding and were not included in the computation of diluted earnings per
share for the year ended December 31, 2008, because these were anti-dilutive
stock options.
 
 Options
to purchase 116,689 shares of common stock and 165,834 shares of common stock at
a weighted average price of $9.90 per share and $8.57 per share, respectively,
were outstanding and were not included in the computation of diluted earnings
per share for the year ended December 31, 2007, because these were anti-dilutive
stock options.
  Intangible
Assets
 
 Intangible
assets of the Company consist of goodwill and core deposit
premiums.  Goodwill represents the excess of the purchase price over
the estimated fair value of identifiable net assets acquired through purchase
acquisitions.  In accordance with SFAS No. 142,Goodwill and Other Intangible
Assets, goodwill with an indefinite useful life is not amortized, but is
evaluated for impairment on an annual basis.
 
 Core
deposit premiums represent the intangible value of depositor relationships
assumed in purchase acquisitions and are amortized on an accelerated basis over
a period of ten years.  The amortization of the core deposit premium
is recorded as a component of operating expenses.
  
  F-13
 Index
  Impairment
 
 Long-lived
assets including goodwill and certain identifiable intangibles are periodically
evaluated for impairment in value.  Long-lived assets and deferred
costs are typically measured whenever events or circumstances indicate that the
carrying amount may not be recoverable.  No such events have occurred
during the periods reported.  Certain identifiable intangibles and
goodwill are evaluated for impairment at least annually utilizing the “market
approach” as prescribed by SFAS No. 142.  Asset impairment
is recorded when required.
 
 Stock
Based Compensation
  Effective
January 1, 2006, the Company began recording compensation expense associated
with stock options in accordance with SFAS No. 123(R), Share-Based
Payment.  Prior to January 1, 2006, the Company accounted for
stock-based compensation related to stock options under the recognition and
measurement principles of Accounting Principle Board Opinion No. 25; therefore,
the Company measured compensation expense for its stock option plans using the
intrinsic value method, that is, the excess, if any, of the fair value of the
Company’s stock at the grant date over the amount required to be paid to acquire
the stock, and provided the disclosures required by SFAS No. 123(R) and SFAS No.
148, Accounting for
Stock-Based Compensation.
 
 As a
result of the adoption of SFAS No. 123(R), the Company has incurred no
compensation expense related to the Company’s stock compensation plans for the
years ended December 31, 2008 and 2007, as no stock options were granted during
2008 or 2007 and all stock options were fully vested prior to January 1,
2006.
  There
were no new employee or director stock option grants during 2008 and
2007.
  Stock
Appreciation Rights
 
 On
January 31, 2006, the Company granted under its 2005 Equity Incentive Plan,
173,644 Stock Appreciation Rights (“SARS”) (98,398 were granted to employees and
75,246 were granted to directors), each with an exercise price of
$9.87.  These SARS can only be settled in cash.  The SARS
vest over a four year period and expire February 1, 2016.
  The fair
value of SARS granted was estimated on December 31, 2008 using the Black-Scholes
option pricing model with the following weighted-average assumptions used: stock
price $6.35, dividend yield of 0%; expected volatility of 56.03%; risk free
interest rate of 1.55%; and expected life of seven years.  These SARS
had a fair value of approximately $3.02 per share at December 31,
2008.  The Company recorded, as a component of salaries and employee
benefits expense, share based payment expense of approximately $69,000, net of
tax, related to the granting of SARS during the year ended December 31,
2008.  As of December 31, 2008, total unvested compensation expense
was approximately $107,000 (pre-tax) and will vest over 13 months.
  The fair
value of SARS granted was estimated on December 31, 2007 using the Black-Scholes
option pricing model with the following weighted-average assumptions used: stock
price $7.57, dividend yield of 0%; expected volatility of 41.17%; risk free
interest rate of 3.45%; and expected life of seven years.  These SARS
had a fair value of approximately $3.18 per share at December 31,
2007.  The Company recorded, as a component of salaries and employee
benefits expense, share based payment expense of approximately $80,000, net of
tax, related to the granting of SARS during the year ended December 31,
2007.  As of December 31, 2007, total unvested compensation expense
was approximately $279,000 (pre-tax) and will vest over 25 months.
 
  F-14
 Index
  A summary
of the status of the Company’s SARS as of December 31, 2008 and 2007, is
presented below:
 
  December
      31, 2008
                    
                    
                    December
      31, 2007SARS
                    
                    
                    Weighted
                      average
                      exercise
                      price
                    
                    
                    SARS
                    
                    
                    Weighted
                      average
                      exercise
                      priceOutstanding
      at beginning of year
                    
                    
                    167,857
                    
                    
                    $
                    9.40
                    
                    
                    
                    167,857
                    
                    
                    $
                    9.40Granted
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --Forfeited
                    
                    
                    (37,046
                    )
                    
                    $
                    9.40
                    
                    
                    
                    --
                    
                    
                    
                    --Exercised
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --Outstanding
      at period end
                    
                    
                    130,811
                    
                    
                    $
                    9.40
                    
                    
                    
                    167,857
                    
                    
                    $
                    9.40SARS
      exercisable at period end
                    
                    
                    98,108
                    
                    
                    $
                    9.40
                    
                    
                    
                    83,928
                    
                    
                    $
                    9.40Weighted
      average fair value of
                      SARS
      granted
                    
                    $
                    3.02
                    
                    
                    
                    
                    
                    
                    $
                    3.18
 
 Capital
Purchase Program
  On
October 14, 2008, the U.S. government announced a series of initiatives to
strengthen market stability, improve the strength of financial institutions and
enhance market liquidity.  In connection therewith, the U.S.
Department of Treasury announced  the Troubled Asset Relief Program
(the “Capital Purchase Program”), pursuant to which qualified U.S. financial
institutions could voluntarily build capital to increase the flow of financing
to U.S. businesses and consumers and to support the U.S. economy.
 
 On
December 23, 2008, Central Jersey Bancorp, as part of the Capital Purchase
Program, sold (1) 11,300 shares of Central Jersey Bancorp’s Fixed Rate
Cumulative Perpetual Senior Preferred Stock, Series A, having a liquidation
preference of $1,000 per share (the “Series A Preferred Shares”), and
(ii) a warrant to purchase up to 268,621 of Central Jersey Bancorp’s common
stock at an exercise price of $6.31 per share (the
“Warrant”).  Central Jersey Bancorp intends to utilize the $11.3
million in gross investment proceeds for general corporate purposes and to
enhance lending operations.  Both the Series A Preferred Shares and
the Warrant qualify as components of Central Jersey Bancorp’s regulatory Tier 1
Capital.  The additional Tier 1 Capital further fortifies Central
Jersey Bancorp’s already strong capital position and provides strategic
flexibility.
  The
Series A Preferred Shares pay cumulative dividends at a rate of 5% per annum, or
approximately $550,000 annually, and will reset to a rate of 9% at the end of
the fifth year.  The Warrant has a term of 10 years and is
exercisable, in whole or part, at any time during the term.  The
exercise price for the Warrant was the market price of Central Jersey Bancorp’s
common stock at the time of issuance calculated on a 20-trading day trailing
average.  The fair value of the Warrant was estimated on December 23,
2008 using the Black-Scholes option pricing model with the following
weighted-average assumptions used: stock price $6.31, dividend yield of 0%;
expected volatility of 46.50%; risk free interest rate of 1.45%; and expected
life of five years.
 
 Reclassifications
  Certain
reclassifications have been made to the prior period amounts to conform to the
current period presentation.
   F-15
 Index
  NOTE
2 - Cash and Due from Banks
  
 As of
December 31, 2008, the Company was not required to maintain any reserve
balances.
 
  NOTE
3 - Investment Securities
  The
amortized cost, gross unrealized gains and losses, and fair value of investment
securities held-to-maturity and securities available-for-sale at December 31,
2008 and 2007 are as follows (in thousands):
 
 2008Gross
                      
                      
                      GrossAmortized
                      
                      
                      unrealized
                      
                      
                      unrealized
                      
                      
                      Faircost
                      
                      
                      gains
                      
                      
                      losses
                      
                      
                      valueInvestment
      securities held-to-maturity:Obligations
      of U.S. Governmentsponsored
      agencies
                      
                      $
                      4,335
                      
                      
                      $
                      168
                      
                      
                      $
                      --
                      
                      
                      $
                      4,503Mortgage-backed
      securities of U.S. Governmentsponsored
      agencies
                      
                      
                      10,344
                      
                      
                      
                      277
                      
                      
                      
                      --
                      
                      
                      
                      10,621Total
                      
                      $
                      14,679
                      
                      
                      $
                      445
                      
                      
                      $
                      --
                      
                      
                      $
                      15,124Investment
      securities available-for-sale:Obligations
      of U.S. Governmentsponsored
      agencies
                      
                      $
                      32,000
                      
                      
                      $
                      33
                      
                      
                      $
                      --
                      
                      
                      $
                      32,033Mortgage-backed
      securities of U.S. Governmentsponsored
      agencies
                      
                      
                      130,868
                      
                      
                      
                      3,059
                      
                      
                      
                      5
                      
                      
                      
                      133,922Other
      debt securities
                      
                      
                      4,728
                      
                      
                      
                      --
                      
                      
                      
                      -
      -
                      
                      
                      
                      4,728Total
                      
                      $
                      167,596
                      
                      
                      $
                      3,092
                      
                      
                      $
                      5
                      
                      
                      $
                      170,683
 
 
 2007Gross
                          
                          
                          GrossAmortized
                          
                          
                          unrealized
                          
                          
                          unrealized
                          
                          
                          Faircost
                          
                          
                          gains
                          
                          
                          losses
                          
                          
                          valueInvestment
      securities held-to-maturity:Obligations
      of U.S. Governmentsponsored
      agencies
                          
                          $
                          10,690
                          
                          
                          $
                          13
                          
                          
                          $
                          38
                          
                          
                          $
                          10,665Mortgage-backed
      securities of U.S. Governmentsponsored
      agencies
                          
                          
                          6,740
                          
                          
                          
                          27
                          
                          
                          
                          53
                          
                          
                          
                          6,714Total
                          
                          $
                          17,430
                          
                          
                          $
                          40
                          
                          
                          $
                          91
                          
                          
                          $
                          17,379Investment
      securities available-for-sale:Mortgage-backed
      securities of U.S. Governmentsponsored
      agencies
                          
                          $
                          109,452
                          
                          
                          $
                          1,400
                          
                          
                          $
                          38
                          
                          
                          $
                          110,814Other
      debt securities
                          
                          
                          4,010
                          
                          
                          
                          --
                          
                          
                          
                          --
                          
                          
                          
                          4,010Total
                          
                          $
                          113,462
                          
                          
                          $
                          1,400
                          
                          
                          $
                          38
                          
                          
                          $
                          114,824
 
 The
amortized cost and fair value of investment securities held-to-maturity and
investment securities available-for-sale at December 31, 2008 by contractual
maturity are shown below (in thousands).  Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
  F-16
 Index
  
 
 Amortized
                      
                      
                      Faircost
                      
                      
                      valueInvestment
      securities held-to-maturity:
                        Due
      in one year or less
                      
                      $
                      86
                      
                      
                      $
                      86Due
      after one year through fifth year
                      
                      
                      2,635
                      
                      
                      
                      2,680Due
      after fifth year through tenth year
                      
                      
                      4,047
                      
                      
                      
                      4,208Due
      after tenth year
                      
                      
                      7,911
                      
                      
                      
                      8,150Total
                      
                      $
                      14,679
                      
                      
                      $
                      15,124Investment
      securities available-for-sale:
                        Due
      in one year or less
                      
                      $
                      27,991
                      
                      
                      $
                      27,988Due
      after one year through fifth year
                      
                      
                      10,648
                      
                      
                      
                      10,680Due
      after fifth year through tenth year
                      
                      
                      41,974
                      
                      
                      
                      43,275Due
      after tenth year
                      
                      
                      86,983
                      
                      
                      
                      88,740Total
                      
                      $
                      167,596
                      
                      
                      $
                      170,683
 
 Proceeds
from the sale of investment securities available-for-sale during 2008 was $53.1
million, resulting in gross gains of $739,000, as compared to $88.6 million,
resulting in gross gains and gross losses of $87,000 and $1.96 million,
respectively, in 2007.
  During
2007, the Company recorded an other-than-temporary impairment charge of $1.96
million, pre-tax, related to a reduction in the fair value of investment
securities available-for-sale.  Prior to the charge, the impairment
was considered temporary and was recorded as an unrealized loss on investment
securities available-for-sale and reflected as a reduction of equity, net of
tax, through accumulated other comprehensive income.
  At
December 31, 2008 and 2007, there were $126.9 million and $86.9 million,
respectively, of investment securities pledged as collateral for short term
borrowings, to secure public funds or for any other purposes required by
law.
  Gross
unrealized losses on both investment securities held-to-maturity and investment
securities available-for-sale and their fair values, aggregated by security
category and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2008 and 2007, were as follows (in
thousands):
 
 Less
      than 12 months
                    
                    
                    12
      months or more
                    
                    
                    Total2008
                      Investment
      securities
                    
                    Unrealized
                      losses
                    
                    
                    Fair
      value
                    
                    
                    Unrealized
                      losses
                    
                    
                    Fair
      value
                    
                    
                    Unrealized
                      losses
                    
                    
                    Fair
      valueMortgage-backed
      securities
                    
                    $
                    5
                    
                    
                    $
                    1,934
                    
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    5
                    
                    
                    $
                    1,934Total
                    
                    $
                    5
                    
                    
                    $
                    1,934
                    
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    5
                    
                    
                    $
                    1,934
 
 Less
      than 12 months
                    
                    
                    12
      months or more
                    
                    
                    Total2007
                      Investment
      securities
                    
                    Unrealized
                      losses
                    
                    
                    Fair
      value
                    
                    
                    Unrealized
                      losses
                    
                    
                    Fair
      value
                    
                    
                    Unrealized
                      losses
                    
                    
                    Fair
      valueU.S.
      Government sponsored agencies
                    
                    $
                    25
                    
                    
                    $
                    6,516
                    
                    
                    $
                    13
                    
                    
                    $
                    2,235
                    
                    
                    $
                    38
                    
                    
                    $
                    8,751Mortgage-backed
      securities
                    
                    
                    1
                    
                    
                    
                    190
                    
                    
                    
                    90
                    
                    
                    
                    10,034
                    
                    
                    
                    91
                    
                    
                    
                    10,224Total
                    
                    $
                    26
                    
                    
                    $
                    6,706
                    
                    
                    $
                    103
                    
                    
                    $
                    12,269
                    
                    
                    $
                    129
                    
                    
                    $
                    18,975
 
  U.S. Government sponsored agencies –The unrealized losses in U.S. Government sponsored agencies were caused
by general interest rate increases.  Since the decrease in fair value
is attributable to changes in interest rates and not credit quality, and because
the Company has the ability and intent to hold these securities until a market
price recovery or maturity, these securities are not considered
other-than-temporarily impaired.
  Mortgage-backed securities –The unrealized losses on mortgage-backed securities were caused by
general interest rate increases.  At December 31, 2008, there
were five securities in the less than 12 months category and no
securities
   F-17
 Index
  in the 12
or more months category.  Fannie Mae and Freddie Mac guarantee the
contractual cash flows of these investment securities.  Since the
decrease in fair value is attributable to changes in interest rates and not
credit quality, and because the Company has the ability and intent to hold these
securities until a market price recovery or maturity, these investment
securities are not considered other-than-temporarily impaired.
  NOTE
4 - Loans
  Loans at
December 31, 2008 and 2007 are summarized as follows (in
thousands):
 
 2008
                                
                                
                                2007Commercial
      and industrial loans
                                
                                $
                                37,111
                                
                                
                                $
                                29,371Construction
      loans
                                
                                
                                20,956
                                
                                
                                
                                16,073Real
      estate loans – commercial
                                
                                
                                246,617
                                
                                
                                
                                224,1831-4
      family real estate loans
                                
                                
                                2,646
                                
                                
                                
                                3,822Home
      equity and second mortgages
                                
                                
                                51,688
                                
                                
                                
                                37,832Consumer
      loans
                                
                                
                                1,647
                                
                                
                                
                                3,654Subtotal
                                
                                
                                360,665
                                
                                
                                
                                314,935Net
      deferred costs
                                
                                
                                333
                                
                                
                                
                                238Less
      allowance for loan losses
                                
                                
                                4,741
                                
                                
                                
                                3,408Net
      loans
                                
                                $
                                356,257
                                
                                
                                $
                                311,765
 
 A
substantial portion of the Company’s loans are secured by real estate and made
to borrowers located in New Jersey, primarily in Monmouth and Ocean
Counties.  Accordingly, as with most financial institutions in the
Company’s market area, the ultimate collectibility of a substantial portion of
the Company’s loan portfolio is susceptible to changes in market conditions in
the market area.
  Activity
in the ALL for the years ended December 31, 2008 and 2007 is summarized as
follows (dollars in thousands):
  2008
                                
                                
                                2007Balance,
      beginning of year
                                
                                $
                                3,408
                                
                                
                                $
                                3,229Provision
      charged to expense
                                
                                
                                1,319
                                
                                
                                
                                165Charge-offs
                                
                                
                                --
                                
                                
                                
                                (88
                                )Recoveries
                                
                                
                                14
                                
                                
                                
                                102Balance,
      end of year
                                
                                $
                                4,741
                                
                                
                                $
                                3,408Ratio
      of ALL to total loans
                                
                                
                                1.31
                                %
                                
                                
                                1.08
                                %
  Non-Performing
Loans
  At
December 31, 2008 and 2007, the Company had non-accrual loans totaling $2.5
million and $214,000, respectively.  There were no loans 90 days or
greater past due and still accruing interest at December 31, 2008 and
2007.  If the non-accrual loans had performed in accordance with their
original terms, interest income would have increased by $55,130 and $4,359, for
the years ended December 31, 2008 and 2007, respectively.  At
December 31, 2008, there were no commitments to lend additional funds to
borrowers whose loans are non-accrual.
    F-18
 Index
  
  Impaired
Loans
  Impaired
loans for the years ended December 31, 2008 and 2007 are summarized as follows
(dollars in thousands):
  2008
                      
                      
                      2007Balance
      of impaired loans with no allowance allocation
                      
                      $
                      683
                      
                      
                      $
                      --Balance
      of impaired loans with an allocated allowance
                      
                      
                      2,007
                      
                      
                      
                      214Total
      recorded investment in impaired loans
                      
                      $
                      2,690
                      
                      
                      $
                      214Amount
      of the allowance allocated to impaired loans
                      
                      $
                      474
                      
                      
                      $
                      54Average
      balance of impaired loans
                      
                      $
                      1,286
                      
                      
                      $
                      1,121
  At
December 31, 2008, Central Jersey Bancorp had impaired loans totaling $2.69
million, as compared to $214,000 at December 31, 2007.  The increase
in impaired loans was due primarily to four commercial loans totaling $2.36
million which were placed on non-accrual status during 2008.  These
loans were considered impaired and were evaluated in accordance with SFAS No.
114.  After evaluation, specific reserves were required for three of
the impaired loans.  At December 31, 2008, Central Jersey Bancorp
recorded $474,000 of specific reserves for impaired loans, as compared to
no specific reserves for impaired loans at December 31, 2007.
  The
Company’s policy for interest income recognition on impaired loans is to
recognize income on currently performing restructured loans under the accrual
method. The Company recognizes income on non-accrual loans under the accrual
basis when the principal payments on the loans become current and the collateral
on the loan is sufficient to cover the outstanding obligation to the Company. If
these factors do not exist, the Company does not recognize income. No interest
income was recognized on impaired loans subsequent to classification as impaired
in 2008. Total cash collected on impaired loans during 2008 was
$1.1 million, all of which was credited to the principal balance
outstanding.
  Off-Balance
Sheet Risk
  In the
ordinary course of business to meet the financial needs of the Company’s
customers, the Company is party to financial instruments with off-balance sheet
risk.  These financial instruments include unused lines of credit and
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated financial statements.  The contract or
notional amounts of these instruments express the extent of involvement the
Company has in each category of financial instruments.
  The
Company’s exposure to credit loss from nonperformance by the other party to the
above-mentioned financial instruments is represented by the contractual amount
of those instruments.  The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments.  The contract or notional amount of financial instruments
which represent credit risk at December 31, 2008 and 2007 is as follows (in
thousands):
  2008
                          
                          
                          2007Standby
      letters of credit
                          
                          $
                          2,206
                          
                          
                          $
                          1,446Outstanding
      loan and credit line commitments
                          
                          $
                          65,079
                          
                          
                          $
                          78,464
 
 Standby
letters of credit are conditional commitments issued by the Company which
guarantee performance by a customer to a third party.  The credit risk
and underwriting procedures involved in issuing letters of credit are
essentially the same as that involved in extending loan facilities to
customers.  All of Central Jersey Bank, N.A.’s outstanding standby
letters of credit are performance standby letters within the scope of the
Financial Accounting Standards Board (“FASB”) Interpretation No.
45.  These are irrevocable undertakings by Central Jersey Bank, N.A.,
as guarantor, to make payments in the event a specified third party fails to
perform under a non-financial contractual
   F-19
 Index
  obligation.  Most
of Central Jersey Bank, N.A.’s performance standby letters of credit arise in
connection with lending relationships and have terms of one year or
less.  The maximum potential future payments Central Jersey Bank, N.A.
could be required to make equals the face amount of the letters of credit shown
above.  Central Jersey Bank, N.A.’s liability for performance standby
letters of credit was immaterial at December 31, 2008 and 2007.
  Outstanding
loan commitments represent the unused portion of loan commitments available to
individuals and companies as long as there is no violation of any condition
established in the contract.  Outstanding loan commitments generally
have a fixed expiration date of one year or less, except for home equity loan
commitments which generally have an expiration date of up to 15
years.  The Company evaluates each customer’s creditworthiness on a
case-by-case basis.  The amount of collateral obtained, if any, upon
extension of credit is based upon management’s credit evaluation of the
customer.  Various types of collateral may be held, including property
and marketable securities.  The credit risk involved in these
financial instruments is essentially the same as that involved in extending loan
facilities to customers.
  At
December 31, 2008 and 2007, loans to officers, directors and related parties
amounted to approximately $4.3 million and $4.1 million,
respectively.  During the years ended December 31, 2008 and 2007,
$113,000 and $757,000, respectively, in new loans to officers, directors and
related parties were originated and repayments totaled approximately $181,000
and $1.2 million, respectively.
  NOTE
5 - Premises and Equipment
  Premises
and equipment at December 31, 2008 and 2007 are summarized as follows (in
thousands):
 
 2008
                            
                            
                            2007Land
                            
                            $
                            1,503
                            
                            
                            $
                            1,074Buildings
      and improvements
                            
                            
                            1,365
                            
                            
                            
                            1,367Leasehold
      improvements
                            
                            
                            3,611
                            
                            
                            
                            2,985Equipment
                            
                            
                            5,247
                            
                            
                            
                            3,985Auto
                            
                            
                            65
                            
                            
                            
                            5011,791
                            
                            
                            
                            9,461Accumulated
      depreciation and amortization
                            
                            
                            (5,488
                            )
                            
                            
                            (4,835
                            )$
                            6,303
                            
                            
                            $
                            4,626
 
 Depreciation
and amortization expense amounted to $676,000 and $705,000 in 2008 and 2007,
respectively.  As a result of the closing of two branch offices during
the third quarter of 2007, the Company recorded during the year ended December
31, 2007 one-time charges for abandonment of leasehold improvements totaling
$137,000, pre-tax, and lease payment accruals totaling $53,000, pre-tax
(included in net occupancy expense), in accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities.
  NOTE
6 - Intangible Assets
  Intangible
assets at December 31, 2008 and 2007 are summarized as follows (in
thousands):
  2008
                          
                          
                          2007Goodwill
                          
                          $
                          26,957
                          
                          
                          $
                          26,957Core
      deposit intangible
                          
                          
                          3,785
                          
                          
                          
                          3,785Less:
      accumulated amortization
                          
                          
                          (2,341
                          )
                          
                          
                          (1,859
                          )Core
      deposit intangible, net
                          
                          
                          1,444
                          
                          
                          
                          1,926Total
                          
                          $
                          28,401
                          
                          
                          $
                          28,883
 
   F-20
 Index
  
  
  Amortization
expense of intangible assets for the years ended December 31, 2008 and 2007
is as follows (in thousands):
  2008
                      
                      
                      2007Core
      deposit intangible amortization
                      
                      $
                      482
                      
                      
                      $
                      552
 
  Scheduled
amortization of core deposit intangibles is as follows (in
thousands):
  2009
                        
                        $
                        4132010
                        
                        
                        3442011
                        
                        
                        2752012
                        
                        
                        2062013
      and thereafter
                        
                        
                        206
 
  NOTE
7 – Restricted Stock
  Restricted
stock, which represents required investments in the common stock of
correspondent banks, is carried at cost and as of December 31, 2008 and 2007,
consisted of the common stock of  the Federal Home Loan Bank of New
York (“FHLBNY”), the Federal Reserve Bank of New York (“FRB”) and Atlantic
Central Bankers Bank (“ACBB”).
  Management evaluates the
restricted stock for impairment in accordance with the AICPA Accounting
Standards Executive Committee (“AcSEC”) Statement of Position (“SOP”) 01-6,Accounting
by Certain Entities (Including Entities With Trade Receivables) That Lend to or
Finance the Activities of Others.  Management’s
determination of whether these investments are impaired is based on their
assessment of the ultimate recoverability of the investments’ cost rather than
by recognizing temporary declines in value.The determination
of whether a decline affects the ultimate recoverability of the investments’
cost is influenced by criteria such as (1) the significance of the decline in
net assets of the FHLBNY as compared to the capital stock amount for the FHLBNY
and the length of time this situation has persisted, (2) commitments by the
FHLBNY to make payments required by law or regulation and the level of such
payments in relation to the operating performance of the FHLBNY, and (3) the
impact of legislative and regulatory changes on institutions and, accordingly,
on the customer base of the FHLBNY.
  Management
believes no impairment charge is necessary related to the restricted stock as of
December 31, 2008.
 
  NOTE
8 - Deposits
  Total
deposits at December 31, 2008 and 2007 consist of the following (in
thousands):
  2008
                          
                          
                          2007Savings,
      N.O.W. and money market accounts
                          
                          $
                          190,475
                          
                          
                          $
                          187,354Certificates
      of deposit less than $100,000
                          
                          
                          78,949
                          
                          
                          
                          80,587Certificates
      of deposit of $100,000 or more
                          
                          
                          73,444
                          
                          
                          
                          61,394Subtotal
      of interest bearing deposits
                          
                          $
                          342,868
                          
                          
                          $
                          329,335Demand
      deposits
                          
                          
                          75,947
                          
                          
                          
                          73,955Total
      deposits
                          
                          $
                          418,815
                          
                          
                          $
                          403,290
 
 At
December 31, 2008, certificates of deposit mature as follows: 2009 - $140.7
million; 2010 - $5.7 million; 2011 - $1.1 million; and 2012 - $4.9
million.
  F-21
 Index
  
 Interest
expense on deposits for the years ended December 31, 2008 and 2007 is
summarized as follows (in thousands):
  2008
                          
                          
                          2007Savings,
      N.O.W. and money market accounts
                          
                          $
                          3,276
                          
                          
                          $
                          5,513Certificates
      of deposit
                          
                          
                          5,708
                          
                          
                          
                          7,084Total
      interest expense on deposits
                          
                          $
                          8,984
                          
                          
                          $
                          12,597
 
  NOTE
9 - Borrowings
  Borrowed
funds at December 31, 2008 and 2007 are summarized as follows (in
thousands):
  2008
                        
                        
                        2007Borrowings
                        
                        $
                        71,741
                        
                        
                        $
                        24,564Total
                        
                        $
                        71,741
                        
                        
                        $
                        24,564
  Borrowings
typically include wholesale borrowing arrangements as well as arrangements with
deposit customers of Central Jersey Bank, N.A. to sweep funds into short-term
borrowings.  At December 31, 2008, borrowings included $23.0 million
in bank sweep funds, $27.5 million in Federal Home Loan Bank overnight advances,
$20.0 million in Federal Home Loan Bank callable advances and $1.2 million in
Federal Home Loan Bank fixed rate advances.  At December 31, 2007,
borrowings included $24.6 million in bank sweep funds.  These
borrowings were used to fund interest-earning assets.  Central Jersey
Bank, N.A. uses investment securities to pledge as collateral for repurchase
agreements.  At December 31, 2008 and December 31, 2007, Central
Jersey Bank, N.A. had unused lines of credit with the Federal Home Loan Bank of
$33.8 million and $8.9 million, respectively.
  At
December 31, 2008, Central Jersey Bank, N.A. had outstanding Federal Home Loan
Bank callable advances as follows (dollars in thousands):
  Date
                                      
                                      Amount
                                      
                                      
                                      Rate
                                      
                                      Term
                                      Call
      Feature1/24/2008
                                      
                                      $
                                      10,000
                                      
                                      
                                      
                                      2.710
                                      %
                                      10
      year non-call
                                        2
      years
                                      One
      Time2/01/2008
                                      
                                      
                                      5,000
                                      
                                      
                                      
                                      2.380
                                      %
                                      5
      year non-call
                                        1
      year
                                      One
      Time2/01/2008
                                      
                                      
                                      5,000
                                      
                                      
                                      
                                      2.903
                                      %
                                      7
      year non-call
                                        3
      years
                                      One
      Time$
                                      20,000
                                      
                                      
                                      
                                      2.676
                                      %
  At
December 31, 2008, Central Jersey Bank, N.A. had the following outstanding
Federal Home Loan Bank fixed rate advance (dollars in thousands):
  Date
                    Amount
                    Rate
                    Term
                    Maturity5/28/2008
                    $      1,205
                    4.940%
                    13
      years
                    5/28/2021
 
  NOTE
10 - Subordinated Debentures
  In March
2004, MCBK Capital Trust I, a special purpose business trust of Central Jersey
Bancorp, issued an aggregate of $5.0 million of trust preferred securities to
ALESCO Preferred Funding III, a pooled investment vehicle.  Sandler
O’Neill & Partners, L.P. acted as placement agent in connection with the
offering of the trust preferred securities.  The securities issued by
MCBK Capital Trust I are fully guaranteed by Central Jersey Bancorp with respect
to distributions and amounts payable upon liquidation, redemption or
repayment.  These securities have a floating interest rate equal
to
   F-22
 Index
  the
three-month LIBOR plus 285 basis points, which resets quarterly.  The
securities mature on April 7, 2034 and may be called at par by Central Jersey
Bancorp any time after April 7, 2009.  These securities were placed in
a private transaction exempt from registration under the Securities Act of 1933,
as amended.
  The
entire proceeds to MCBK Capital Trust I from the sale of the trust preferred
securities were used by MCBK Capital Trust I in order to purchase $5.1 million
of subordinated debentures from Central Jersey Bancorp.  The
subordinated debentures bear a variable interest rate equal to LIBOR plus 285
basis points.  Although the subordinated debentures are treated as
debt of Central Jersey Bancorp, they currently qualify as Tier I Capital
investments, subject to the 25% limitation under risk-based capital guidelines
of the Federal Reserve.  The portion of the trust preferred securities
that exceeds this limitation qualifies as Tier II Capital of Central Jersey
Bancorp.  At December 31, 2008, $5.0 million of the trust preferred
securities qualified for treatment as Tier I Capital.  Central Jersey
Bancorp is using the proceeds it received from the subordinated debentures to
support the general balance sheet growth of Central Jersey Bancorp and to
maintain Central Jersey Bank, N.A.’s required regulatory capital
ratios.
  On March
1, 2005, the Federal Reserve adopted a final rule that allows the continued
inclusion of outstanding and prospective issuances of trust preferred securities
in the Tier I Capital of bank holding companies, subject to stricter
quantitative limits and qualitative standards.  The new quantitative
limits become effective after a five-year transition period ending March 31,
2009.  Under the final rules, trust preferred securities and other
restricted core capital elements are limited to 25% of all core capital
elements.  Amounts of restricted core capital elements in excess of
these limits may be included in Tier II Capital.  At December 31,
2008, the only restricted core capital element owned by Central Jersey Bancorp
is trust preferred securities.  Central Jersey Bancorp believes that
its trust preferred issues qualify as Tier I Capital.  However, in the
event that the trust preferred issues do not qualify as Tier I Capital, Central
Jersey Bank, N.A. would remain well capitalized.
 
 NOTE
11 - Other-Than-Temporary Impairment
 
 During
2007, Central Jersey Bancorp executed a balance sheet restructuring strategy
involving approximately $88.6 million of investment securities held in the
available-for-sale investment portfolio.  The restructuring resulted
in a one-time pre-tax impairment charge of approximately $1.96 million, which
was reflected in Central Jersey Bancorp’s consolidated financial statements for
the three months ended March 31, 2007.  Available-for-sale investment
securities, consisting primarily of lower yielding fixed rate callable agency
investment securities were sold during the second quarter of 2007 and replaced
with higher yielding investment securities with a comparable to modestly shorter
aggregate weighted average life.  The fair value loss that these
investment securities carried at March 31, 2007, was recorded as an
other-than-temporary impairment since Central Jersey Bancorp did not have the
intent to hold these securities to recovery.  The investment
securities the Company identified as impaired were primarily fixed rate
government sponsored agency bonds that either had a below market interest rate
coupon or a longer than desired maturity term.  Central Jersey Bancorp
realized a gain on the sale of available-for-sale securities of $87,000,
pre-tax, in conjunction with the balance sheet restructuring during the year
ended December 31, 2007.
  The
Company’s effective tax rate of 56.8% for the year ended December 31, 2007,
resulted from the fact that the majority of the investment securities for which
the previously-mentioned $1.96 million other-than-temporary impairment was
recorded were held by CJB Investment Company, a wholly-owned subsidiary of
Central Jersey Bank, N.A.  A full valuation allowance was recorded for
the deferred tax assets associated with the impairment of the investment
securities sold by CJB Investment Company.  The impairment of the
investment securities at the investment company level was considered a capital
loss for tax purposes while the impairment of the investment securities held by
Central Jersey Bank, N.A. was considered an ordinary loss for tax
purposes.  CJB Investment Company did not, at the time have the
ability to generate capital gains and utilize the capital losses and thus a full
valuation allowance was required for the deferred tax assets associated with the
investment company’s available-for-sale securities which were identified as
other-than-temporarily impaired.
  
   F-23
 Index
  
  NOTE
12 - Income Taxes
  Components
of income tax expense for the years ended December 31, 2008 and 2007 are as
follows (in thousands):
  2008
                        
                        
                        2007Current
      income tax expense:Federal
                        
                        $
                        1,228
                        
                        
                        $
                        1,640State
                        
                        
                        270
                        
                        
                        
                        2851,498
                        
                        
                        
                        1,925Deferred
      income tax benefit:Federal
                        
                        
                        (47
                        )
                        
                        
                        (614
                        )State
                        
                        
                        (163
                        )
                        
                        
                        (201
                        )(210
                        )
                        
                        
                        (815
                        )$
                        1,288
                        
                        
                        $
                        1,110
 
 A
reconciliation between the reported income taxes and income taxes which would be
computed by applying the normal federal income tax rate of 34% to income before
taxes follows (in thousands):
  2008
                        
                        
                        2007Federal
      income tax
                        
                        $
                        1,424
                        
                        
                        $
                        664State
      income tax effect, net of federal tax effect
                        
                        
                        71
                        
                        
                        
                        56Bank-owned
      life insurance
                        
                        
                        (41
                        )
                        
                        
                        (40
                        )Valuation
      reserve
                        
                        
                        (158
                        )
                        
                        
                        417Other
                        
                        
                        (8
                        )
                        
                        
                        13Provision
      charged to expense
                        
                        $
                        1,288
                        
                        
                        $
                        1,110
 
 The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007
are as follows (in thousands):
  2008
                                        
                                        
                                        2007Deferred
      tax assets:Allowance
      for loan losses
                                        
                                        $
                                        1,887
                                        
                                        
                                        $
                                        1,344Impaired
      investment securities
                                        
                                        
                                        282
                                        
                                        
                                        
                                        702New
      Jersey NOL carry forwards
                                        
                                        
                                        43
                                        
                                        
                                        
                                        52Allowance
      for uncollected interest
                                        
                                        
                                        160
                                        
                                        
                                        
                                        120Net
      purchase accounting adjustments
                                        
                                        
                                        360
                                        
                                        
                                        
                                        240Depreciation
                                        
                                        
                                        127
                                        
                                        
                                        
                                        371AMA
                                        
                                        
                                        4
                                        
                                        
                                        
                                        4Stock
      options / SARS
                                        
                                        
                                        130
                                        
                                        
                                        
                                        102Other
                                        
                                        
                                        41
                                        
                                        
                                        
                                        3Gross
      deferred tax asset
                                        
                                        
                                        3,034
                                        
                                        
                                        
                                        2,938Less:
      valuation reserve
                                        
                                        
                                        (324
                                        )
                                        
                                        
                                        (515
                                        )Deferred
      tax assets, net
                                        
                                        
                                        2,710
                                        
                                        
                                        
                                        2,423Deferred
      tax liabilities:Deferred
      loan costs
                                        
                                        
                                        153
                                        
                                        
                                        
                                        95Discount
      accretion
                                        
                                        
                                        19
                                        
                                        
                                        
                                        --Unrealized
      gain  - securities available-for-sale
                                        
                                        
                                        1,162
                                        
                                        
                                        
                                        514Gross
      deferred tax liabilities
                                        
                                        
                                        1,334
                                        
                                        
                                        
                                        609Net
      deferred tax assets
                                        
                                        $
                                        1,376
                                        
                                        
                                        $
                                        1,814
 
 Based
upon current facts concerning taxes paid in the carryback period and projections
of future taxable income, management has determined that it is more likely than
not that the deferred tax assets will be realized, except for certain New Jersey
net operating losses by Central Jersey Bancorp and the capital loss carryforward
of investment
   F-24
 Index
  securities,
for which management has reserved against these deferred tax
assets.  However, there can be no assurances about the level of future
earnings.  As of December 31, 2008, Central Jersey Bancorp had
approximately $1.8 million of net operating loss carryforwards that will expire
between 2009 and 2015.
  As of
January 1, 2008, there were no amounts recorded for unrecognized tax benefits or
for the payment of interest or penalties.  Furthermore, no amounts
were accrued for the year ended December 31, 2008.  The tax years that
remain subject to examination are 2007, 2006 and 2005 for
federal.  Accruals of interest and penalties related to unrecognized
tax benefits, when applicable, are recognized in income tax
expense.
  NOTE
13 - Fair Value Measurements
  Effective
January 1, 2008, the Company adopted the provisions of
SFAS No. 157, Fair
Value Measurements, for financial assets and financial
liabilities.  In accordance with the FASB Staff Position
No. 157-2, Effective Date
of FASB Statement No. 157, the Company will delay application of
SFAS No. 157 for non-financial assets and non-financial liabilities until
January 1, 2009.  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP and expands disclosures
about fair value measurements.  The adoption of SFAS No. 157 for
financial assets and financial liabilities did not have a significant impact on
the Company’s consolidated financial condition or results of
operations.  The adoption of SFAS No. 157 for non-financial assets and
non-financial liabilities is not expected to have a significant impact on the
Company’s consolidated financial condition or results of
operations.
  Beginning
January 1, 2008, financial assets and financial liabilities recorded at fair
value in the consolidated statement of financial condition are categorized based
upon the level of judgment associated with the inputs used to measure their fair
value.  SFAS No. 157 establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair
value.  The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs.  A financial instrument’s level
within the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement.  The three levels of the
fair value hierarchy under SFAS No. 157 are described below:
  Basis of Fair Value
Measurement
 
 Level I
                
                Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or liabilities;Level
      II
                
                Quoted
      prices in markets that are not active, or inputs that are observable
      either directly or indirectly, for substantially the full term of the
      asset or liability;Level
      III
                
                Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (i.e., supported by little or
      no market activity).
 
 A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below.  These valuation
methodologies were applied to all of the Company's financial assets and
financial liabilities carried at fair value, effective January 1,
2008.
 
 In
general, fair value is based upon quoted market prices, where
available.  If such quoted market prices are not available, fair value
is based upon internally developed models that primarily use, as inputs,
observable market-based parameters.  Valuation adjustments may be made
to ensure that financial instruments are recorded at fair
value.  These adjustments may include amounts to reflect counterparty
credit quality, the Company's creditworthiness, among other things, as well as
unobservable parameters.  Any such valuation adjustments are applied
consistently over time.
 
 Investment securities
available-for-sale – Investment securities classified as
available-for-sale are reported at fair value utilizing Level II
inputs.  For these investment securities, the Company obtains fair
value measurements from an
  F-25
 Index
  independent
pricing service.  The fair value measurements consider observable data
that may include dealer quotes, market spreads, cash flows, the U.S. Treasury
yield curve, live trading levels, trade execution data, market consensus
prepayment speeds, credit information and the investment security’s terms and
conditions, among other things.
 
 Loans held-for-sale – The
fair value of loans held-for-sale is determined, when possible, using quoted
secondary-market prices.  If no such quoted price exists, the fair
value of a loan is determined using quoted prices for a similar asset or assets,
adjusted for the specific attributes of that loan.
 
 Impaired loans - Certain
impaired loans are reported at the fair value of the underlying collateral if
repayment is expected solely from the collateral.  Collateral values
are estimated using Level III inputs based on customized net present value
discounting criteria.
 
 Servicing rights – The fair
value of mortgage servicing rights is based on a valuation model that calculates
the present value of estimated net servicing income.  The valuation
model incorporates assumptions that market participants would use in estimating
future net servicing income.  The Company is able to compare the
valuation model inputs and results to widely available published industry data
for reasonableness.
 
 The
following table summarizes financial assets measured at fair value on a
recurring basis at December 31, 2008, segregated by the level of valuation
inputs within the fair value hierarchy utilized to measure fair value (in
thousands):
 
 Level
      I
                        
                        
                        Level
      II
                        
                        
                        Level
      III
                        
                        
                        Total
                          fair
      valueInvestment
      securities available-for-sale
                        
                        $
                        --
                        
                        
                        $
                        170,683
                        
                        
                        $
                        --
                        
                        
                        $
                        170,683Total assets measured fair value on a recurring basis
                        
                        $
                        --
                        
                        
                        $
                        170,683
                        
                        
                        $
                        --
                        
                        
                        $
                        170,683
 
 Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment).
 
 The
following table summarizes financial assets measured at fair value on a
nonrecurring basis at December 31, 2008, segregated by the level of valuation
inputs within the fair value hierarchy utilized to measure fair value (in
thousands):
 
 Level
      I
                      
                      
                      Level
      II
                      
                      
                      Level
      III
                      
                      
                      Total
                        fair
      valueImpaired
      loans
                      
                      $
                      --
                      
                      
                      
                      --
                      
                      
                      
                      1,533
                      
                      
                      $
                      1,533Servicing
      rights
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      133
                      
                      
                      
                      133Total
      assets measured fair value on a  nonrecurring
    basis
                      
                      $
                      --
                      
                      
                      $
                      --
                      
                      
                      $
                      1,666
                      
                      
                      $
                      1,666
  Certain
non-financial assets and non-financial liabilities measured at fair value on a
recurring basis include reporting units measured at fair value in the first step
of a goodwill impairment test. Certain non-financial assets measured at fair
value on a non-recurring basis include non-financial assets and non-financial
liabilities measured at fair value in the second step of a goodwill impairment
test, as well as intangible assets and other non-financial, long-lived assets
measured at fair value for impairment assessment. As stated above, SFAS 157
will be applicable to these fair value measurements beginning January 1,
2009.
 
 The
following information should not be interpreted as an estimate of the fair value
of the entire Company since a fair value calculation is only provided for a
limited portion of the Company’s assets and liabilities.  Due to a
wide range of valuation techniques and the degree of subjectivity used in making
the estimates, comparisons between the Company’s disclosures and those of
other companies may not be meaningful.  The following methods and
assumptions were used to estimate the fair values of the Company’s financial
instruments at December 31, 2008 and 2007:
   F-26
 Index
  
  Cash
and Cash Equivalents (Carried at Cost)
  The
carrying amounts reported in the Consolidated Statements of Financial Condition
for cash and short-term instruments approximate those assets’ fair
values.
  Securities
  The fair
value of securities available-for-sale (carried at fair value) and
held-to-maturity (carried at amortized cost) are determined by obtaining quoted
market prices on nationally recognized securities exchanges (Level 1), or
matrix pricing (Level 2), which is a mathematical technique used widely in the
industry to value debt securities without relying exclusively on quoted market
prices for the specific securities but rather by relying on the securities’
relationship to other benchmark quoted prices.  For certain securities
which are not traded in active markets or are subject to transfer restrictions,
valuations are adjusted to reflect illiquidity and/or non-transferability, and
such adjustments are generally based on available market evidence (Level
3).  In the absence of such evidence, management’s best estimate is
used.  Management’s best estimate consists of both internal and
external support on certain Level 3 investments.  Internal cash flow
models using a present value formula that includes assumptions market
participants would use along with indicative exit pricing obtained from
broker/dealers (where available) were used to support fair values of certain
Level 3 investments.
  Loans
Receivable (Carried at Cost)
  The fair
values of loans are estimated using discounted cash flow analyses, using market
rates at the Consolidated Statements of Financial Condition date that
reflect the credit and interest rate-risk inherent in the
loans.  Projected future cash flows are calculated based upon
contractual maturity or call dates, projected repayments and prepayments of
principal.  Generally, for variable rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values.
  Loans
Held for Sale (Carried at Lower of Cost or Fair Value)
  The fair
value of loans held for sale is determined, when possible, using quoted
secondary-market prices.  If no such quoted prices exist, the fair
value of a loan is determined using quoted prices for a similar loan or loans,
adjusted for the specific attributes of that loan.
  Impaired
Loans (Generally Carried at Fair Value)
  Impaired
loans are those that are accounted for under FASB Statement No. 114,Accounting by Creditors for
Impairment of a Loan,in which the Company has measured impairment
generally based on the fair value of the loan’s collateral.  Fair
value is generally determined based upon independent third-party appraisals of
the properties, or discounted cash flows based upon the expected
proceeds.  These impaired loans are included as Level 3 fair values,
based upon the lowest level of input that is significant to the fair value
measurements.  The fair value of these impaired loans consists of the
loan balances of $2.7 million, net of a valuation allowance of
$474,000.  Additional provisions for loan losses of $845,000 were
recorded during the year ended December 31, 2008.
  Servicing
Rights (Carried at Lower of Cost or Fair Value)
  The fair
value of mortgage servicing rights is based on a valuation model that calculates
the present value of estimated net servicing income.  The valuation
incorporates assumptions that market participants would use in estimating future
net servicing income.  The Company is able to compare the valuation
model inputs and results to widely available published industry date for
reasonableness.
  Restricted
Investment in Bank Stock (Carried at Cost)
  The
carrying amount of restricted investment in bank stock approximates fair value,
and considers the limited marketability of such securities.
  Accrued
Interest Receivable and Payable (Carried at Cost)
  The
carrying amount of accrued interest receivable and accrued interest payable
approximates its fair value.
   F-27
 Index
  
  Deposit
Liabilities (Carried at Cost)
  The fair
values disclosed for demand deposits (e.g., interest and noninterest checking,
passbook savings and money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying
amounts).  Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered in the market on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
  Borrowings
(Carried at Cost)
  Fair
values of Federal Home Loan Bank advances are estimated using discounted cash
flow analysis, based on quoted prices for new Federal Home Loan Bank advances
with similar credit risk characteristics, terms and remaining
maturity.  These prices obtained from this active market represent a
fair value that is deemed to represent the transfer price if the liability were
assumed by a third party.
  Subordinated
Debt (Carried at Cost)
  The fair
value of the subordinated debentures is assumed to approximate book value since
the securities are variable rate.
  Off-Balance
Sheet Financial Instruments (Disclosed at Cost)
  Fair
values for the Company’s off-balance sheet financial instruments (lending
commitments and letters of credit) are based on fees currently charged in the
market to enter into similar agreements, taking into account, the remaining
terms of the agreements and the counterparties’ credit standing.
  Limitations
  Fair
value estimates were made at December 31, 2008 and 2007, based upon pertinent
market data and relevant information on each financial
instrument.  These estimates do not include any premium or discount
that could result from an offer to sell the Company’s entire holdings of a
particular financial instrument or category thereof at one
time.  Since no market exists for a substantial portion of the
Company’s financial instruments, fair value estimates were necessarily based on
judgments with respect to future loss experience, current economic conditions,
risk assessments of various financial instruments involving a myriad of
individual borrowers, and other factors.  Given the subjective nature
of these estimates, the uncertainties surrounding them and other matters of
significant judgment that must be applied, these fair value estimations cannot
be calculated with precision.  Modifications in such
assumptions could meaningfully alter these estimates.  Since
these fair value approximations were made solely for the Consolidated Statements
of Financial Condition financial instruments at December 31, 2008 and 2007, no
attempt was made to estimate the value of anticipated future business or the
value of non-financial statement assets or liabilities.  Furthermore,
certain tax implications related to the realization of the unrealized gains and
losses could have a substantial impact on these fair value estimates and have
not been incorporated into the estimates.
  
   F-28
 Index
  
  
  The
estimated fair values of the Company’s financial instruments were as follows at
December 31, 2008 and 2007 (dollars in thousands):
  2008
                                      
                                      
                                      2007Book
                                        value
                                      
                                      
                                      Fair
                                        value
                                      
                                      
                                      Book
                                        value
                                      
                                      
                                      Fair
                                        valueFinancial
      Assets:Cash
      and cash equivalents
                                      
                                      $
                                      9,767
                                      
                                      
                                      $
                                      9,767
                                      
                                      
                                      $
                                      14,877
                                      
                                      
                                      $
                                      14,877Investment
      securities available-for-sale
                                      
                                      
                                      170,683
                                      
                                      
                                      
                                      170,683
                                      
                                      
                                      
                                      114,824
                                      
                                      
                                      
                                      114,824Investment
      securities held-to-maturity
                                      
                                      
                                      14,679
                                      
                                      
                                      
                                      15,124
                                      
                                      
                                      
                                      17,430
                                      
                                      
                                      
                                      17,379Loans,
      net
                                      
                                      
                                      356,257
                                      
                                      
                                      
                                      364,684
                                      
                                      
                                      
                                      311,765
                                      
                                      
                                      
                                      312,292Loans
      held-for-sale
                                      
                                      
                                      400
                                      
                                      
                                      
                                      400
                                      
                                      
                                      
                                      658
                                      
                                      
                                      
                                      658Impaired
      loans, net
                                      
                                      
                                      1,533
                                      
                                      
                                      
                                      1,533
                                      
                                      
                                      
                                      160
                                      
                                      
                                      
                                      160Servicing
      rights
                                      
                                      
                                      133
                                      
                                      
                                      
                                      133
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --Restricted
      stock
                                      
                                      
                                      4,982
                                      
                                      
                                      
                                      4,982
                                      
                                      
                                      
                                      2,592
                                      
                                      
                                      
                                      2,592Accrued
      interest receivable
                                      
                                      
                                      2,251
                                      
                                      
                                      
                                      2,251
                                      
                                      
                                      
                                      2,218
                                      
                                      
                                      
                                      2,218Financial
      Liabilities:Deposits
                                      
                                      
                                      418,815
                                      
                                      
                                      
                                      408,391
                                      
                                      
                                      
                                      403,290
                                      
                                      
                                      
                                      403,519Borrowings
                                      
                                      
                                      71,741
                                      
                                      
                                      
                                      72,679
                                      
                                      
                                      
                                      24,564
                                      
                                      
                                      
                                      24,564Accrued
      interest payable
                                      
                                      
                                      217
                                      
                                      
                                      
                                      217
                                      
                                      
                                      
                                      126
                                      
                                      
                                      
                                      126Subordinated
      debentures
                                      
                                      
                                      5,155
                                      
                                      
                                      
                                      5,167
                                      
                                      
                                      
                                      5,155
                                      
                                      
                                      
                                      5,153Off-balance
      sheet financial instruments
                                      
                                      $
                                      67,285
                                      
                                      
                                      $
                                      67,285
                                      
                                      
                                      $
                                      79,910
                                      
                                      
                                      $
                                      79,910
  NOTE
14 - Post Retirement Benefits
 
 In
September 2006, the EITF of the FASB discussed public comments received on two
issues: (1) EITF Issue No. 06-4, Accounting for Deferred Compensation
and Post-Retirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements, and (2) EITF Issue 06-5, Accounting for Purchases of Life
Insurance -- Determining the Amount that could be Realized in Accordance with
FASB Technical Bulletin 85-4 (Accounting for Purchases of Life
Insurance).  On September 7, the EITF agreed to clarify certain
points based on public comments.  The EITF reached a consensus that an
employer should recognize a liability for future benefits under SFAS No. 106,
Employers’ Accounting for
Postretirement Benefits Other Than Pensions, or APB Opinion No. 12, Omnibus Opinion – 1967, for
an endorsement split-dollar life insurance arrangement subject to the EITF Issue
No. 06-4.  This liability is to be based on the substantive agreement
with the employee.  The consensus is effective for fiscal years
beginning after December 15, 2007.  Entities should recognize the
effects of applying the consensus on this issue as a change in accounting
principle through a cumulative-effect adjustment to retained earnings or to
other components of equity or net assets in the statement of financial position
as of the beginning of the year of adoption.  Retrospective
application to all prior periods is permitted.
  F-29
 Index
  During
the year ended December 31, 2008, Central Jersey Bancorp recognized and recorded
a deferred compensation liability of $227,000 for future benefits related to an
endorsement split-dollar life insurance arrangement subject to EITF Issue No.
06-4.
  NOTE
15 - Branch Office Closings
  Effective
September 14, 2007, Central Jersey Bancorp closed two of its branch offices –
Highway 35, Neptune City and Highway 33, Neptune Township.  The
customer relationships from both of these branch offices were transferred to the
West Sylvania, Neptune City branch office.  As a result of the closing
of these two branch offices, the Company recorded during the year ended December
31, 2007 one-time charges for abandonment of leasehold improvements totaling
$137,000, pre-tax, and lease payment accruals totaling $53,000, pre-tax
(included in net occupancy expense), in accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities.  In addition, for the year ended
December 31, 2007, the Company recorded $35,000, pre-tax (included in salaries
and employee benefits expense), in one-time employee termination expenses
related to the branch office consolidations in accordance with SFAS No.
146.
 
 NOTE
16 - Commitments and Contingencies
  At
December 31, 2008, the Company was obligated under non-cancelable lease
agreements for 12 premises.  The leases provide for increased rentals
based upon increases in real estate taxes and the cost of living index. Minimum
rental payments under the terms of these leases are as follows (in
thousands):
  2009
                          
                          $
                          959,5182010
                          
                          
                          762,6022011
                          
                          
                          639,0522012
                          
                          
                          582,6092013
      and thereafter
                          
                          
                          243,945Total
                          
                          $
                          3,187,726
 
 Total
rent expense was $1.1 million and $846,000 in 2008 and 2007,
respectively.
  Litigation
  Central
Jersey Bank, N.A. may, in the ordinary course of business, become a party to
litigation involving collection matters, contract claims and other legal
proceedings relating to the conduct of its business.  Central Jersey
Bank, N.A. may also have various commitments and contingent liabilities which
are not reflected in the accompanying consolidated balance sheets.
  Related
Party Transactions
  The
Company leased administrative office space at 6 West End Court, Long Branch, New
Jersey, through August 31, 2008.  Certain members of the Board of
Directors of Central Jersey Bancorp hold an ownership interest in the leased
property.  The negotiations with respect to the leased space were
conducted at arms-length and the lease amount to be paid by Central Jersey Bank,
N.A. was determined by an independent appraiser to be at fair market
value.  Total lease payments for 2008 and 2007 were $43,000 and
$61,000, respectively.
  NOTE
17 - Regulatory Matters
  Subject
to applicable law and the Capital Purchase Program, the Board of Directors of
Central Jersey Bank, N.A. may provide for the payment of cash
dividends.  Prior approval of the OCC is required to the extent that
the total of all cash dividends to be declared by Central Jersey Bank, N.A. in
any calendar year exceeds net profits, as defined, for that year combined with
its retained net profits from the preceding two calendar years less any
transfers to capital surplus.
   F-30
 Index
  For so
long as any Series A Preferred Shares are outstanding, Central Jersey Bancorp is
not permitted to declare or pay cash dividends on its common stock unless all
dividends on the Series A Preferred Shares have been paid
in-full.  Further, unless the Series A Preferred Shares are redeemed
or fully transferred to third parties, Central Jersey Bancorp is prohibited from
increasing its common stock dividends without prior approval of the U.S.
Department of Treasury until December 23, 2011, which is the third anniversary
of the investment by the U.S. Department of Treasury in Central Jersey
Bancorp.
 
 Central
Jersey Bank, N.A. and Central Jersey Bancorp are subject to various regulatory
capital requirements administered by federal banking
agencies.  Failure to meet minimum requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company’s financial
statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Central Jersey Bank, N.A. and Central
Jersey Bancorp must meet specific capital guidelines that involve quantitative
measures of Central Jersey Bank, N.A.’s and Central Jersey Bancorp’s assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices.  The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
  The
prompt corrective action regulations define specific capital categories based on
an institution’s capital ratios.  The capital categories, in declining
order, are “well capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized” and “critically
undercapitalized.”  An institution categorized as “undercapitalized”
or worse is subject to certain restrictions, including the requirement to file a
capital plan with its primary federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on asset growth and executive
compensation and increased supervisory monitoring, among other
things.  Other restrictions may be imposed on the institution by the
applicable regulatory agencies, including requirements to raise additional
capital, sell assets or sell the entire institution.  Once an
institution becomes “critically undercapitalized,” it must generally be placed
in receivership or conservatorship within ninety days.  An institution
is deemed to be “critically undercapitalized” if it has a tangible equity ratio,
as defined, of 2% or less.
  To be
considered “well capitalized,” an institution must generally have a leverage
ratio (Tier 1 capital to total assets) of at least 5%, a Tier 1 risk-based
capital ratio of at least 6%, and a total risk-based capital ratio of at least
10%.  Management believes that, as of December 31, 2008 and 2007,
Central Jersey Bank, N.A. and Central Jersey Bancorp meet all capital adequacy
requirements of their regulators.  Further, the most recent regulatory
notification categorized Central Jersey Bank, N.A. and Central Jersey Bancorp as
well-capitalized under the prompt corrective action regulations.
  
  
   F-31
 Index
  
  
  The
following is a summary of Central Jersey Bank, N.A.’s and Central Jersey
Bancorp’s actual capital amounts and ratios as of December 31, 2008 and 2007,
compared to the minimum capital adequacy requirements and the requirements for
classification as a “well-capitalized” institution (dollars in
thousands):
  Tier
      I
                                                        Capital
      to
                                                        Average
      Assets Ratio
                                                        (Leverage
      Ratio)
                                                      
                                                      Tier
      I
                                                        Capital
      to
                                                        Risk
      Weighted
                                                        Asset
      Ratio
                                                      
                                                      Total
      Capital to
                                                        Risk
      Weighted
                                                        Asset
      Ratio2008
                                                      
                                                      2007
                                                      
                                                      2008
                                                      
                                                      2007
                                                      
                                                      2008
                                                      
                                                      2007Actual RatiosCentral
      Jersey Bank, N.A.
                                                      
                                                      
                                                      10.33
                                                      %
                                                      
                                                      
                                                      9.34
                                                      %
                                                      
                                                      
                                                      14.05
                                                      %
                                                      
                                                      
                                                      12.94
                                                      %
                                                      
                                                      
                                                      15.24
                                                      %
                                                      
                                                      
                                                      13.93
                                                      %Required Regulatory Ratios“Adequately
      capitalized”
                                                        institution
      (under federal
                                                        regulations)
                                                      
                                                      
                                                      4.00
                                                      %
                                                      
                                                      
                                                      4.00
                                                      %
                                                      
                                                      
                                                      4.00
                                                      %
                                                      
                                                      
                                                      4.00
                                                      %
                                                      
                                                      
                                                      8.00
                                                      %
                                                      
                                                      
                                                      8.00
                                                      %“Well
      capitalized” institution
                                                        (under
      federal regulations)
                                                      
                                                      
                                                      5.00
                                                      %
                                                      
                                                      
                                                      5.00
                                                      %
                                                      
                                                      
                                                      6.00
                                                      %
                                                      
                                                      
                                                      6.00
                                                      %
                                                      
                                                      
                                                      10.00
                                                      %
                                                      
                                                      
                                                      10.00
                                                      %
 
 Tier
      I
                                                    Capital
      to
                                                    Average
      Assets Ratio
                                                    (Leverage
      Ratio)
                                                  
                                                  Tier
      I
                                                    Capital
      to
                                                    Risk
      Weighted
                                                    Asset
      Ratio
                                                  
                                                  Total
      Capital to
                                                    Risk
      Weighted
                                                    Asset
      Ratio2008
                                                  
                                                  2007
                                                  
                                                  2008
                                                  
                                                  2007
                                                  
                                                  2008
                                                  
                                                  2007Actual AmountsCentral
      Jersey Bank, N.A.
                                                  
                                                  $
                                                  56,542
                                                  
                                                  
                                                  $
                                                  44,696
                                                  
                                                  
                                                  $
                                                  56,542
                                                  
                                                  
                                                  $
                                                  44,696
                                                  
                                                  
                                                  $
                                                  61,299
                                                  
                                                  
                                                  $
                                                  48,104Required Regulatory Amounts“Adequately
      capitalized”
                                                    institution
      (under federal
                                                    regulations)
                                                  
                                                  
                                                  21,901
                                                  
                                                  
                                                  
                                                  19,143
                                                  
                                                  
                                                  
                                                  16,092
                                                  
                                                  
                                                  
                                                  13,817
                                                  
                                                  
                                                  
                                                  32,184
                                                  
                                                  
                                                  
                                                  27,634“Well
      capitalized” institution
                                                    (under
      federal regulations)
                                                  
                                                  
                                                  27,376
                                                  
                                                  
                                                  
                                                  23,929
                                                  
                                                  
                                                  
                                                  24,138
                                                  
                                                  
                                                  
                                                  20,726
                                                  
                                                  
                                                  
                                                  40,231
                                                  
                                                  
                                                  
                                                  34,543
 
 Tier
      I
                                                      Capital
      to
                                                      Average
      Assets Ratio
                                                      (Leverage
      Ratio)
                                                    
                                                    Tier
      I
                                                      Capital
      to
                                                      Risk
      Weighted
                                                      Asset
      Ratio
                                                    
                                                    Total
      Capital to
                                                      Risk
      Weighted
                                                      Asset
      Ratio2008
                                                    
                                                    2007
                                                    
                                                    2008
                                                    
                                                    2007
                                                    
                                                    2008
                                                    
                                                    2007Actual RatiosCentral
      Jersey Bancorp
                                                    
                                                    
                                                    10.20
                                                    %
                                                    
                                                    
                                                    9.08
                                                    %
                                                    
                                                    
                                                    13.91
                                                    %
                                                    
                                                    
                                                    12.74
                                                    %
                                                    
                                                    
                                                    15.09
                                                    %
                                                    
                                                    
                                                    13.73
                                                    %Required Regulatory Ratios“Adequately
      capitalized”
                                                      institution
      (under federal
                                                      regulations)
                                                    
                                                    
                                                    4.00
                                                    %
                                                    
                                                    
                                                    4.00
                                                    %
                                                    
                                                    
                                                    4.00
                                                    %
                                                    
                                                    
                                                    4.00
                                                    %
                                                    
                                                    
                                                    8.00
                                                    %
                                                    
                                                    
                                                    8.00
                                                    %“Well
      capitalized” institution
                                                      (under
      federal regulations)
                                                    
                                                    
                                                    5.00
                                                    %
                                                    
                                                    
                                                    5.00
                                                    %
                                                    
                                                    
                                                    6.00
                                                    %
                                                    
                                                    
                                                    6.00
                                                    %
                                                    
                                                    
                                                    10.00
                                                    %
                                                    
                                                    
                                                    10.00
                                                    %
 
  F-32
 Index
  
 Tier
      I
                                                    Capital
      to
                                                    Average
      Assets Ratio
                                                    (Leverage
      Ratio)
                                                  
                                                  Tier
      I
                                                    Capital
      to
                                                    Risk
      Weighted
                                                    Asset
      Ratio
                                                  
                                                  Total
      Capital to
                                                    Risk
      Weighted
                                                    Asset
      Ratio2008
                                                  
                                                  2007
                                                  
                                                  2008
                                                  
                                                  2007
                                                  
                                                  2008
                                                  
                                                  2007Actual AmountsCentral
      Jersey Bancorp
                                                  
                                                  $
                                                  55,740
                                                  
                                                  
                                                  $
                                                  43,835
                                                  
                                                  
                                                  $
                                                  55,740
                                                  
                                                  
                                                  $
                                                  43,835
                                                  
                                                  
                                                  $
                                                  60,497
                                                  
                                                  
                                                  $
                                                  47,243Required Regulatory Amounts“Adequately
      capitalized” institution (under federal regulations)
                                                  
                                                  
                                                  21,864
                                                  
                                                  
                                                  
                                                  19,305
                                                  
                                                  
                                                  
                                                  16,033
                                                  
                                                  
                                                  
                                                  13,766
                                                  
                                                  
                                                  
                                                  32,067
                                                  
                                                  
                                                  
                                                  27,531“Well
      capitalized” institution
                                                    (under
      federal regulations)
                                                  
                                                  
                                                  27,330
                                                  
                                                  
                                                  
                                                  24,131
                                                  
                                                  
                                                  
                                                  24,050
                                                  
                                                  
                                                  
                                                  20,649
                                                  
                                                  
                                                  
                                                  40,084
                                                  
                                                  
                                                  
                                                  34,414
 
 NOTE
18 - Benefit Plans
 
 Stock
Option Plan
 
 In 2000,
the Company established an Employee and Director Stock Option Plan (the
“Plan”).  As of December 31, 2008, stock options to purchase in
aggregate up to 1,289,948 shares of the Company’s common stock were
outstanding.  During 2008 and 2007, no options were
granted.  Effective January 1, 2005, as a result of the combination
with Allaire Community Bank, all outstanding options granted under the Plan
became fully vested.  The Company does not anticipate granting any
further stock options under the Plan.
 
 A summary
of the status of the Company’s stock options as of and for the years ended
December 31, 2008 and 2007 is presented below:
 
 2008
                                      
                                      
                                      2007Shares
                                      
                                      
                                      Weighted
                                        average
                                        exercise
                                        price
                                      
                                      
                                      Shares
                                      
                                      
                                      Weighted
      average exercisepriceOutstanding
      at beginning of year
                                      
                                      
                                      1,410,349
                                      
                                      
                                      $
                                      4.77
                                      
                                      
                                      
                                      1,501,296
                                      
                                      
                                      $
                                      4.70Granted
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --Forfeited
                                      
                                      
                                      (56,224
                                      )
                                      
                                      
                                      7.56
                                      
                                      
                                      
                                      (7,763
                                      )
                                      
                                      
                                      6.23Exercised
                                      
                                      
                                      (64,177
                                      )
                                      
                                      
                                      3.67
                                      
                                      
                                      
                                      (83,184
                                      )
                                      
                                      
                                      3.52Outstanding
      at end of year
                                      
                                      
                                      1,289,948
                                      
                                      
                                      
                                      4.71
                                      
                                      
                                      
                                      1,410,349
                                      
                                      
                                      
                                      4.77Options
      exercisable at year end
                                      
                                      
                                      1,289,948
                                      
                                      
                                      
                                      4.71
                                      
                                      
                                      
                                      1,410,349
                                      
                                      
                                      
                                      4.77Weighted
      average fair value of
                                        options
      granted during the year
                                      
                                      
                                      
                                      
                                      
                                      $
                                      --
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      --
  No
additional compensation expense is projected for future years on stock options
outstanding at December 31, 2008.
  F-33
 Index
 
  
  The
following table summarizes information about stock options outstanding at
December 31, 2008:
 
 Options
      Outstanding and ExercisableDecember
      31, 2008Number
                    outstanding
                  Exercisable
                  Weighted
                    average
                    remaining
                    contractual
      life
                  Range
      of
                    exercise
                    prices297,304
                  297,304
                  13
      Months
                  $       2.72
      –2.97587,197
                  587,197
                  32
      Months
                  $       3.06
      –3.92102,678
                  102,678
                  48
      Months
                  $       4.97
      –4.97302,769
                  302,769
                  64
      Months
                  $       7.73
      –9.90
  The
aggregate intrinsic value for stock options outstanding and stock options
exercisable at December 31, 2008 is $2.1 million for both, based upon a market
price of $6.35 per share and a weighted average exercise price of $4.71 per
share.  The aggregate intrinsic value of stock options exercised
during 2008 and 2007 was $233,000 and $355,000, respectively.  There were
no stock options granted during 2008 or 2007.
  401(k)
Plan
 
 The
Company has a 401(k) plan covering substantially all of its
employees.  The Company may contribute an amount equal to 100% of the
first 3% of the employee deferral and then 50% of the next 2% of the employee
deferral.  The Company’s matching contribution, if any, is determined
by the Board of Directors in its sole discretion.  The Company’s
aggregate contributions to the 401(k) Plan for 2008 and 2007 were $158,000 and
$147,000, respectively.
  NOTE
19 - Condensed Financial Statements of Central Jersey Bancorp (Central Jersey
Bancorp only)
  The
following information with respect to Central Jersey Bancorp (parent company
only) should be read in conjunction with the notes to the consolidated financial
statements (in thousands):
  Statements
      of Financial Condition
                              
                              2008
                              
                              
                              2007Assets:Cash
                              
                              $
                              238
                              
                              
                              $
                              --Investment
      in subsidiary
                              
                              
                              86,044
                              
                              
                              
                              73,535Total
      assets
                              
                              
                              86,282
                              
                              
                              
                              73,535Liabilities:Other
      liabilities
                              
                              
                              373
                              
                              
                              
                              342Subordinated
      debentures
                              
                              
                              5,155
                              
                              
                              
                              5,155Total
      liabilities
                              
                              
                              5,528
                              
                              
                              
                              5,497Shareholders’
      Equity:Common
      stock
                              
                              
                              90
                              
                              
                              
                              91Preferred
      stock
                              
                              
                              11,300
                              
                              
                              
                              --Warrants
      – common stock
                              
                              
                              1,040
                              
                              
                              
                              --Discount
      – preferred stock
                              
                              
                              (1,040
                              )
                              
                              
                              --Additional
      paid-in capital
                              
                              
                              64,502
                              
                              
                              
                              60,787Treasury
      stock
                              
                              
                              (1,806
                              )
                              
                              
                              --Retained
      earnings
                              
                              
                              6,668
                              
                              
                              
                              7,160Total
      shareholders’ equity
                              
                              $
                              80,754
                              
                              
                              $
                              68,038Total
      liabilities and shareholders’ equity
                              
                              $
                              86,282
                              
                              
                              $
                              73,535
 
  F-34
 Index
  
 Statements
      of Income
                        
                        2008
                        
                        
                        2007Equity
      in undistributed earnings of the bank
                          subsidiary
                        
                        $
                        3,253
                        
                        
                        $
                        1,283Interest
      expense on subordinated debt
                        
                        
                        (355
                        )
                        
                        
                        (439
                        )Net
      income
                        
                        $
                        2,898
                        
                        
                        $
                        844
 
 Statements
      of Cash Flows
                                                                
                                                                2008
                                                                
                                                                
                                                                2007Cash
      Flow From Operating ActivitiesNet
      income available to common shareholders
                                                                
                                                                $
                                                                2,898
                                                                
                                                                
                                                                $
                                                                844Less
      equity in undistributed earnings of the bank
                                                                  subsidiary
                                                                
                                                                
                                                                (3,253
                                                                )
                                                                
                                                                
                                                                (1,283
                                                                )Increase
      in other liabilities
                                                                
                                                                
                                                                31
                                                                
                                                                
                                                                
                                                                149Net
      cash used in operating activities
                                                                
                                                                
                                                                (324
                                                                )
                                                                
                                                                
                                                                (290
                                                                )Cash Flow From
      Investing ActivitiesProceeds
      from issuance of preferred stockdownstreamed
      to subsidiary
                                                                
                                                                
                                                                (11,300
                                                                )
                                                                
                                                                
                                                                --Net
      cash used in investment activities
                                                                
                                                                
                                                                (11,300
                                                                )
                                                                
                                                                
                                                                --Cash
      Flow From Financing ActivitiesProceeds
      from exercise of stock options, net
                                                                
                                                                
                                                                330
                                                                
                                                                
                                                                
                                                                294Fractional
      shares paid in cash
                                                                
                                                                
                                                                (4
                                                                )
                                                                
                                                                
                                                                (4
                                                                )Proceeds
      from issuance of subordinated debt
                                                                
                                                                
                                                                --
                                                                
                                                                
                                                                
                                                                --Proceeds
      from issuance of preferred stock
                                                                
                                                                
                                                                11,300
                                                                
                                                                
                                                                
                                                                --Cash
      dividend from subsidiary
                                                                
                                                                
                                                                2,042
                                                                
                                                                
                                                                
                                                                --Purchase
      of outstanding stock; placed in treasury
                                                                
                                                                
                                                                (1,806
                                                                )
                                                                
                                                                
                                                                --Net
      cash provided by financing activities
                                                                
                                                                
                                                                11,862
                                                                
                                                                
                                                                
                                                                290Cash
      and cash equivalents at beginning of period
                                                                
                                                                
                                                                --
                                                                
                                                                
                                                                
                                                                --Cash
      and cash equivalents at the end of period
                                                                
                                                                $
                                                                238
                                                                
                                                                
                                                                $
                                                                --
 
 
 NOTE
20 - Recent Accounting Pronouncements
  FAS
140-3
 
 In
February 2008, the FASB issued a FASB Staff Position (“FSP”) FAS 140-3, Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions.  This
FSP addresses the issue of whether or not these transactions should be viewed as
two separate transactions or as one "linked" transaction.  The FSP
includes a "rebuttable presumption" that presumes linkage of the two
transactions unless the presumption can be overcome by meeting certain
criteria.  The FSP will be effective for fiscal years beginning after
November 15, 2008 and will apply only to original transfers made after that
date; early adoption will not be allowed.  The Company is currently
evaluating the potential impact this new pronouncement will have on its
consolidated financial condition and results of operations.
 
 SFAS
No. 161
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133,
(Statement 161).  SFAS No. 161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives
and strategies for using such instruments, as well as any details of
credit-risk-related contingent features contained within
derivatives.  SFAS No. 161 also requires entities to disclose
additional information about the amounts and location of derivatives located
within the financial statements, how the provisions of SFAS No. 133 has been
applied, and the impact that hedges have on an entity’s financial position,
financial performance, and cash flows.  SFAS No. 161 is effective for
fiscal years and interim
  F-35
 Index
  periods
beginning after November 15, 2008, with early application
encouraged.  The Company is currently evaluating the potential impact
this new pronouncement will have on its consolidated financial condition and
results of operations.
 
 SFAS
No. 162
 
 In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles. SFAS No. 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with GAAP. The hierarchy of authoritative accounting
guidance is not expected to change current practice but is expected to
facilitate the FASB's plan to designate as authoritative its forthcoming
codification of accounting standards. This Statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board's
(“PCAOB”) related amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles, to remove the
GAAP hierarchy from its auditing standards.  The hierarchical guidance
provided by SFAS No. 162 is not expected to have a significant impact on
the Company's consolidated financial condition or results of
operations.
 
 FSP
APB 14-1
 
 In May
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).FSP APB 14-1 requires issuers of convertible debt
that may be settled wholly or partly in cash to account for the debt and equity
components separately. The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and interim periods within those
years, and must be applied retrospectively to all periods presented. Early
adoption is prohibited. The Company is currently evaluating the potential impact
this new pronouncement will have on its consolidated financial condition and
results of operations.
 
 EITF
Issue No. 08-3
 
 In June
2008, the EITF of the FASB discussed public comments received on EITF Issue No.
08-3, Accounting by Lessees
for Nonrefundable Maintenance Deposits.The Task Force reached
a consensus that lessees should account for nonrefundable maintenance deposits
as deposit assets if it is probable that maintenance activities will occur and
the deposit is therefore realizable. Amounts on deposit that are not probable of
being used to fund future maintenance activities should be charged to expense.
The consensus is effective for fiscal years beginning after December 15, 2008,
and should be initially applied by recording a cumulative-effect adjustment to
opening retained earnings in the period of adoption. Early application is not
permitted.  The Company is currently evaluating the potential impact
this new pronouncement will have on its consolidated financial condition and
results of operations.
 
 FSP
133-1 and FIN 45-4
 
 In
September 2008, the FASB issued FSP 133-1 and FIN 45-4, Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement
No. 161 (FSP 133-1 and FIN 45-4).  FSP 133-1 and FIN 45-4
amends and enhances disclosure requirements for sellers of credit derivatives
and financial guarantees.  It also clarifies that the disclosure
requirements of SFAS No. 161 are effective for quarterly periods beginning after
November 15, 2008, and fiscal years that include those periods.  FSP
133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending
after November 15, 2008.  The implementation of this standard did not
have a material impact on the Company’s consolidated financial condition or
results of operations.
 
 EITF
Issue No. 08-5
 
 In
September 2008, the FASB ratified EITF Issue No. 08-5, Issuer’s Accounting for Liabilities
Measured at Fair Value With a Third-Party Credit Enhancement (EITF
08-5).  EITF 08-5 provides guidance for measuring liabilities issued
with an attached third-party credit enhancement (such as a
guarantee).  It clarifies that the issuer of a liability with
a
  F-36
 Index
  third-party
credit enhancement should not include the effect of the credit enhancement in
the fair value measurement of the liability.  EITF 08-5 is effective
for the first reporting period beginning after December 15, 2008.  The
implementation of this standard will not have a material impact on the Company’s
consolidated financial condition or results of operations.
 
 FSP
SFAS No. 157-3
 
 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 our September 30, 2008 financial
statements.  The application of the provisions of FSP 157-3 did
not materially affect the Company’s consolidated financial condition or results
of operations.
 
 FSP
FAS 140-4 and FIN 46(R)-8
 
 In
December 2008, the FASB issued FSP SFAS No. 140-4 and FASB Interpretation (FIN)
46(R)-8, “Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities” (FSP SFAS 140-4 and FIN 46(R)-8). FSP SFAS
140-4 and FIN 46(R)-8 amends FASB SFAS 140 “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” to
require public entities to provide additional disclosures about transfers of
financial assets. It also amends FIN 46(R), “Consolidation of Variable Interest
Entities,” to require public enterprises, including sponsors that have a
variable interest in a variable interest entity, to provide additional
disclosures about their involvement with variable interest entities.
Additionally, this FSP requires certain disclosures to be provided by a public
enterprise that is (a) a sponsor of a qualifying special purpose entity (SPE)
that holds a variable interest in the qualifying SPE but was not the transferor
of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE
that holds a significant variable interest in the qualifying SPE but was not the
transferor of financial assets to the qualifying SPE. The disclosures required
by FSP SFAS 140-4 and FIN 46(R)-8 are intended to provide greater transparency
to financial statement users about a transferor’s continuing involvement with
transferred financial assets and an enterprise’s involvement with variable
interest entities and qualifying SPEs. FSP SFAS 140-4 and FIN 46(R) is effective
for reporting periods (annual or interim) ending after December 15,
2008.  The implementation of this standard did not have a material
impact on the Company’s consolidated financial condition or results of
operations.
  FSP
EITF 99-20-1
  In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment of
Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF 99-20-1
amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and
Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets,” to
achieve more consistent determination of whether an other-than-temporary
impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the
objective of an other-than-temporary impairment assessment and the related
disclosure requirements in SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities,” and other related
guidance.  FSP EITF 99-20-1 is effective for interim and annual
reporting periods ending after December 15, 2008, and shall be applied
prospectively. Retrospective application to a prior interim or annual reporting
period is not permitted.  The implementation of this standard did not
have a material impact on the Company’s consolidated financial condition or
results of operations.
  International
Financial Reporting Standards
  In
November 2008, the SEC released a proposed roadmap regarding the potential use
by U.S. issuers of financial statements prepared in accordance with
International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive
series of accounting standards published by the International Accounting
Standards Board (“IASB”). Under the proposed roadmap, the Company may be
required to prepare financial statements in accordance with IFRS as early as
2014. The SEC will make a determination in 2011 regarding the mandatory adoption
of IFRS. The Company is currently assessing the impact that this potential
change would have on its consolidated financial statements, and it will continue
to monitor the development of the potential implementation of
IFRS.
  F-37
 Index
  FSP
FAS 132(R)-1
  In
December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’Disclosures about Postretirement
Benefit Plan Assets.”  This FSP amends
SFAS 132(R), “Employers’Disclosures about Pensions and
Other Postretirement Benefits,” to provide guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan.  The disclosures about plan assets required by
this FSP shall be provided for fiscal years ending after December 15,
2009.  The Company is currently reviewing the effect this new
pronouncement will have on its consolidated financial statements and results of
operations.
  EITF
08-6
  In
November 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue
No. 08-6,“Equity Method Investment Accounting
Considerations.” EITF 08-6 clarifies
the accounting for certain transactions and impairment considerations involving
equity method investments. EITF 08-6 is effective for fiscal years
beginning after December 15, 2008, with early adoption prohibited. The
Company is currently reviewing the effect this new pronouncement will have on
its consolidated financial statements and results of operations.
  EITF
08-7
 
 In
November 2008, the FASB ratified Emerging Issues Task Force Issue
No. 08-7, “Accounting for Defensive Intangible
Assets.” EITF 08-7 clarifies the accounting for certain separately
identifiable intangible assets which an acquirer does not intend to actively use
but intends to hold to prevent its competitors from obtaining access to them.
EITF 08-7 requires an acquirer in a business combination to account for a
defensive intangible asset as a separate unit of accounting which should be
amortized to expense over the period the asset diminishes in value.
EITF 08-7 is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited.  This new pronouncement will
impact the Company’s accounting for any defensive intangible assets acquired in
a business combination completed beginning January 1, 2009.
 
 
 
   F-38
 Index
  
  NOTE
21 - Selected Quarterly Financial Data (Unaudited)
  The
following tables are a summary of certain quarterly financial data for the years
ended December 31, 2008 and 2007, respectively.
  2008
      Quarter EndedMarch
      31
                            
                            
                            June
      30
                            
                            
                            September
      30
                            
                            
                            December
      31(dollars
      in thousands, except per share data)Interest
      income
                            
                            $
                            7,252
                            
                            
                            $
                            7,023
                            
                            
                            $
                            7,428
                            
                            
                            $
                            7,383Interest
      expense
                            
                            
                            3,092
                            
                            
                            
                            2,544
                            
                            
                            
                            2,469
                            
                            
                            
                            2,559Net
      interest income
                            
                            
                            4,160
                            
                            
                            
                            4,479
                            
                            
                            
                            4,959
                            
                            
                            
                            4,824Provision
      for loan losses
                            
                            
                            65
                            
                            
                            
                            81
                            
                            
                            
                            253
                            
                            
                            
                            920Net
      interest income afterprovision
      for loan losses
                            
                            
                            4,095
                            
                            
                            
                            4,398
                            
                            
                            
                            4,706
                            
                            
                            
                            3,904Non-interest
      income
                            
                            
                            613
                            
                            
                            
                            539
                            
                            
                            
                            845
                            
                            
                            
                            735Non-interest
      expense
                            
                            
                            3,823
                            
                            
                            
                            3,876
                            
                            
                            
                            3,990
                            
                            
                            
                            3,948Income
      before income taxes
                            
                            
                            885
                            
                            
                            
                            1,061
                            
                            
                            
                            1,561
                            
                            
                            
                            691Income
      tax expense
                            
                            
                            304
                            
                            
                            
                            350
                            
                            
                            
                            536
                            
                            
                            
                            98Net
      income
                            
                            $
                            581
                            
                            
                            $
                            711
                            
                            
                            $
                            1,025
                            
                            
                            $
                            593Preferred
      stock dividend
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            12Net
      income available to common shareholders
                            
                            $
                            581
                            
                            
                            $
                            711
                            
                            
                            $
                            1,025
                            
                            
                            $
                            581Earnings
      per share:Basic
                            
                            $
                            0.06
                            
                            
                            $
                            0.08
                            
                            
                            $
                            0.11
                            
                            
                            $
                            0.06Diluted
                            
                            $
                            0.06
                            
                            
                            $
                            0.07
                            
                            
                            $
                            0.11
                            
                            
                            $
                            0.06Weighted
      average shares
                              outstanding:Basic
                            
                            
                            9,165,344
                            
                            
                            
                            9,116,813
                            
                            
                            
                            9,074,977
                            
                            
                            
                            9,012,650Diluted
                            
                            
                            9,569,088
                            
                            
                            
                            9,549,876
                            
                            
                            
                            9,504,798
                            
                            
                            
                            9,351,516
 
 
 
  F-39
 Index
  
 
 
 2007
      Quarter EndedMarch
      31
                                
                                
                                June
      30
                                
                                
                                September
      30
                                
                                
                                December
      31(dollars
      in thousands, except per share data)Interest
      income
                                
                                $
                                7,398
                                
                                
                                $
                                7,729
                                
                                
                                $
                                7,792
                                
                                
                                $
                                7,569Interest
      expense
                                
                                
                                3,371
                                
                                
                                
                                3,587
                                
                                
                                
                                3,544
                                
                                
                                
                                3,280Net
      interest income
                                
                                
                                4,027
                                
                                
                                
                                4,142
                                
                                
                                
                                4,248
                                
                                
                                
                                4,289Provision
      for loan losses
                                
                                
                                125
                                
                                
                                
                                40
                                
                                
                                
                                --
                                
                                
                                
                                --Net interest income afterprovision for loan losses
                                
                                
                                3,902
                                
                                
                                
                                4,102
                                
                                
                                
                                4,248
                                
                                
                                
                                4,289Non-interest
      (loss) income
                                
                                
                                (1,568
                                )
                                
                                
                                509
                                
                                
                                
                                417
                                
                                
                                
                                425Non-interest
      expense
                                
                                
                                3,651
                                
                                
                                
                                3,445
                                
                                
                                
                                3,703
                                
                                
                                
                                3,571(Loss)
      income before income taxes
                                
                                
                                (1,317
                                )
                                
                                
                                1,166
                                
                                
                                
                                962
                                
                                
                                
                                1,143Income
      tax
                                  (benefit)/expense
                                
                                
                                (55
                                )
                                
                                
                                431
                                
                                
                                
                                331
                                
                                
                                
                                403Net
      (loss) income
                                
                                $
                                (1,262
                                )
                                
                                $
                                735
                                
                                
                                $
                                631
                                
                                
                                $
                                740Earnings
      per share:Basic
                                
                                $
                                (0.14
                                )
                                
                                $
                                0.08
                                
                                
                                $
                                0.07
                                
                                
                                $
                                0.08Diluted
                                
                                $
                                (0.14
                                )
                                
                                $
                                0.08
                                
                                
                                $
                                0.07
                                
                                
                                $
                                0.08Weighted
      average shares
                                  outstanding:Basic
                                
                                
                                9,101,747
                                
                                
                                
                                9,119,695
                                
                                
                                
                                9,181,602
                                
                                
                                
                                9,182,589Diluted
                                
                                
                                9,101,747
                                
                                
                                
                                9,613,088
                                
                                
                                
                                9,612,559
                                
                                
                                
                                9,595,986
 
 
 
 
  F-40
 Index
   INDEX
OF EXHIBITS
  
  Exhibit
      No.
                  Description of
      Exhibit2.1
                  Plan
      of Acquisition of all of the outstanding stock of Monmouth Community Bank
      by Central Jersey Bancorp (formerly Monmouth Community Bancorp) (the
      “Registrant”), entered into as of March 16, 2000 by Monmouth Community
      Bank and the Registrant (Incorporated by reference to Exhibit 2.1 to the
      Registrant’s Registration Statement on Form SB-2 (Registration No.
      333-87352), effective July 23, 2002).2.2
                  Agreement
      and Plan of Acquisition, dated as of June 30, 2004, by and between the
      Registrant and Allaire Community Bank (“Allaire”):  Upon the
      request of the Securities and Exchange Commission (the “SEC”), the
      Registrant agrees to furnish a copy of Exhibit A –
      Voting Agreement of Allaire Stockholders and Voting Agreement of the
      Registrant’s Shareholders; Exhibit B –
      Allaire Affiliate Agreement, Exhibit C –
      Opinion of Giordano, Halleran & Ciesla, P.C., as counsel to the
      Registrant, and Exhibit D –
      Opinion of Frieri Conroy & Lombardo, LLC, as counsel to Allaire, and
      the following Schedules:  Schedule
      1.10(a) – Composition of the Registrant’s Board of Directors; Schedule
      1.10(b) – Composition of Allaire and Monmouth Community Bank Boards
      of Directors; Schedule
      1.10(c) - Executive Officers of the Registrant, Allaire and
      Monmouth Community Bank; Schedule
      3.02(a) – Stock Options (Allaire); Schedule
      3.02(b) – Subsidiaries (Allaire); Schedule 3.08 –
      Absence of Changes or Events (Allaire); Schedule 3.09 –
      Loan Portfolio (Allaire); Schedule 3.10 –
      Legal Proceedings (Allaire); Schedule 3.11 –
      Tax Information (Allaire); Schedule
      3.12(a) – Employee Benefit Plans (Allaire); Schedule
      3.12(b) – Defined Benefit Plans (Allaire); Schedule
      3.12(h) – Payments or Obligations (Allaire); Schedule
      3.12(m) – Grantor or “Rabbi” Trusts (Allaire); Schedule
      3.12(n) – Retirement Benefits (Allaire); Schedule
      3.13(c) – Buildings and Structures (Allaire); Schedule
      3.14(a) – Real Estate (Allaire); Schedule
      3.14(b) – Leases (Allaire); Schedule
      3.16(a) – Material Contracts (Allaire); Schedule
      3.16(c) – Certain Other Contracts (Allaire); Schedule
      3.16(d) – Effect on Contracts and Consents (Allaire); Schedule 3.18 –
      Registration Obligations (Allaire); Schedule 3.20 –
      Insurance (Allaire); Schedule
      3.21(b) – Benefit or Compensation Plans (Allaire); Schedule
      3.21(d) – Labor Relations (Allaire); Schedule 3.22 –
      Compliance with Applicable Laws (Allaire); Schedule 3.23 –
      Transactions with Management (Allaire); Schedule 3.25 –
      Deposits (Allaire); Schedule
      4.02(a) – Stock Options (Registrant); Schedule
      4.02(b) – Subsidiaries (Registrant); Schedule 4.08 –
      Absence of Changes or Events (Registrant); Schedule 4.09 –
      Loan Portfolio (Registrant); Schedule 4.10 –
      Legal Proceedings (Registrant); Schedule 4.11 –
      Tax Information (Registrant); Schedule
      4.12(a) – Employee Benefit Plans (Registrant); Schedule
      4.12(b) – Defined Benefit Plans (Registrant); Schedule
      4.12(g) – Payments or Obligations (Registrant); Schedule
      4.12(l) – Grantor or “Rabbi” Trusts (Registrant); Schedule
      4.12(m) – Retirement Benefits (Registrant); Schedule
 
  E-1
 Index
  
 4.13(c) –
      Buildings and Structures; (Registrant) Schedule 4.14(a) and
      4.14(b) – Real Estate and Leases (Registrant); Schedule
      4.16(a) – Material Contracts (Registrant); Schedule
      4.16(c) – Certain Other Contracts (Registrant); Schedule
      4.16(d) – Effect on Contracts and Consents (Registrant); Schedule 4.18 –
      Registration Obligations (Registrant); Schedule 4.20 –
      Insurance (Registrant); Schedule
      4.21(b) – Benefit or Compensation Plans (Registrant); Schedule
      4.21(d) – Labor Relations (Registrant); Schedule 4.22 –
      Compliance with Applicable Laws (Registrant); Schedule 4.23 –
      Transactions with Management (Registrant); Schedule 4.25 –
      Deposits (Registrant); Schedule
      6.18(a) – Notice of Deadlines (Allaire); and Schedule
      6.18(b) – Notice of Deadlines (Registrant) (Incorporated by
      reference to Exhibit 2.2 to the Registrant’s Quarterly Report on Form
      10-QSB for the quarter ended June 30, 2004 filed with the SEC on August
      16, 2004).3.1
                                Amended
      and Restated Certificate of Incorporation of the Registrant (Incorporated
      by reference to Exhibit 3.1 to the Registrant’s Current Report on Form
      8-K, dated December 23, 2008 and filed with the SEC on December 31,
      2008).3.2
                                Certificate
      of Amendment to the Amended and Restated Certificate of Incorporation of
      the Registrant (Incorporated by reference to Exhibit 3.2 to the
      Registrant’s Current Report on Form 8-K, dated December 23, 2008 and filed
      with the SEC on December 31, 2008).3.3
                                By-laws
      of the Registrant, as amended and restated on January 1, 2005
      (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual
      Report on Form 10-KSB for the year ended December 31, 2004, filed with the
      SEC on March 31, 2005).4.1
                                Specimen
      certificate representing the Registrant’s common stock, par value $0.01
      per share (Incorporated by reference to Exhibit 4 to Amendment No. 1 to
      the Registrant’s Registration Statement on Form SB-2 (Registration No.
      333-87352), effective July 23, 2002).4.2
                                Warrant
      to Purchase Common Stock, dated December 23, 2008 (Incorporated by
      reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K,
      dated December 23, 2008 and filed with the SEC on December 31,
      2008).10.1
                                Registrant’s
      Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the
      Registrant’s Registration Statement on Form SB-2 (Registration No.
      333-87352), effective July 23, 2002).10.2
                                Indenture
      between Registrant and Wilmington Trust Company, dated March 25, 2004
      (Incorporated by reference to Exhibit 10.10 to the Registrant’s Annual
      Report on Form 10-KSB for the year ended December 31, 2003, filed with the
      SEC on March 30, 2004).
 
  E-2
 Index
  
 10.3
                                Amended
      and Restated Declaration of Trust of MCBK Capital Trust I, dated March 25,
      2004 (Incorporated by reference to Exhibit 10.11 to the Registrant’s
      Annual Report on Form 10-KSB for the year ended December 31, 2003, filed
      with the SEC on March 30, 2004).10.4
                                Guarantee
      Agreement by Registrant and Wilmington Trust Company, dated March 25, 2004
      (Incorporated by reference to Exhibit 12 to the Registrant’s Annual Report
      on Form 10-KSB for the year ended December 31, 2003, filed with the SEC on
      March 30, 2004).10.5*
                                Amended
      and Restated Change of Control Agreement, dated December 23, 2008, by and
      between James S. Vaccaro and Central Jersey Bancorp (Incorporated by
      reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K,
      dated December 23, 2008 and filed with the SEC on December 31,
      2008).10.6*
                                Amended
      and Restated Change of Control Agreement, dated December 23, 2008, by and
      between Robert S. Vuono and Central Jersey Bancorp (Incorporated by
      reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K,
      dated December 23, 2008 and filed with the SEC on December 31,
      2008).10.7*
                                Amended
      and Restated Change of Control Agreement, dated December 23, 2008, by and
      between Anthony Giordano III and Central Jersey Bancorp (Incorporated by
      reference to Exhibit 10.10 to the Registrant’s Current Report on Form 8-K,
      dated December 23, 2008 and filed with the SEC on December 31,
      2008).10.8*
                                Senior
      Executive Officer Agreement, dated December 19, 2008, by and between James
      S. Vaccaro and Central Jersey Bancorp (Incorporated by reference to
      Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, dated
      December 23, 2008 and filed with the SEC on December 31,
      2008).10.9*
                                Senior
      Executive Officer Agreement, dated December 19, 2008, by and between
      Robert S. Vuono and Central Jersey Bancorp (Incorporated by reference to
      Exhibit 10.6 to the Registrant’s Current Report on Form 8-K, dated
      December 23, 2008 and filed with the SEC on December 31,
      2008).10.10*
                                Senior
      Executive Officer Agreement, dated December 19, 2008, by and between
      Anthony Giordano III and Central Jersey Bancorp (Incorporated by reference
      to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, dated
      December 23, 2008 and filed with the SEC on December 31,
      2008).10.11
                                Registrant’s
      2005 Equity Incentive Plan (Incorporated by reference to exhibit 10.10 to
      the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March
      31, 2005 and filed with the SEC on May 16,
  2005).
 
  E-3
 Index
  
 10.12
                                Letter
      Agreement, dated December 23, 2008, including the Securities Purchase
      Agreement – Standard Terms attached thereto, by and between the U.S.
      Department of Treasury and the Registrant (Incorporated by reference to
      Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, dated
      December 23, 2008 and filed with the SEC on December 31,
      2008).14.1
                                Chief
      Executive and Senior Financial Officer Code of Ethics (Incorporated by
      reference to Exhibit 14.1 to the Registrant’s Annual Report on Form 10-KSB
      for the year ended December 31, 2003 and filed with the SEC on March 30,
      2004).21.1
                                Subsidiaries
      of the Registrant.23.1
                                Consent
      of Beard Miller Company LLP, as to the Registrant’s consolidated financial
      statements for the year ended December 31, 2008.23.2
                                Consent
      of KPMG LLP, as to the Registrant’s consolidated financial statements for
      the year ended December 31, 2007.31.1
                                Section
      302 Certification of Chief Executive Officer.31.2
                                Section
      302 Certification of Chief Financial Officer.32.1
                                Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350.32.2
                                Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section
    1350.
 
 -------------------------------------------------
  *Constitutes
a management contract.
   E-4