UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-K





(Mark
One)




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


For the
fiscal year ended December 31, 2009





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 incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)








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
x





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
x
















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 x      No
o




Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes x      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.


x





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                 
         oNon-accelerated
      filer     o
            Smaller
      reporting company   x





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o     No
x





As of
June 30, 2009, the aggregate fair value of the Registrant’s common stock held by
non-affiliates was approximately $38,099,491.





As of
February 28, 2010, 9,256,975 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 26, 2010.  It is anticipated that the
Proxy Statement will be filed with the Securities and Exchange Commission by
April 27, 2010.


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





CENTRALJERSEY BANCORP


INDEX TO FORM
10-K





PART I
            PAGEItem
      1.
            
            Business
            1Item
      1A.
            
            Risk Factors
            15Item
      1B.
            
            Unresolved Staff Comments
            15Item
      2.
            
            Properties
            15Item
      3.
            
            Legal Proceedings
            15Item
      4.
            
            (Removed and Reserved)
            15PART IIItem
      5.
            
            Market for Registrant’s Common Equity, Related Shareholder
      Matters and Issuer Purchases of Equity Securities
            16Item
      6.
            
            Selected Financial Data
            17Item
      7.
            
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            18Item
      7A.
            
            Quantitative and Qualitative Disclosures About Market
      Risk
            47Item
      8.
            
            Financial Statements and Supplementary Data
            47Item
      9.
            
            Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
            47Item
      9A.
            
            Controls and Procedures
            47Item
      9B.
            
            Other Information
            48PART IIIItem
      10.*
            
            Directors, Executive Officers and Corporate
      Governance
            49Item
      11.*
            
            Executive Compensation
            49Item
      12.*
            
            Security Ownership of Certain Beneficial Owners and Management
      and Related Shareholder Matters
            49Item
      13.*
            
            Certain Relationships and Related Transactions, and Director
      Independence
            49Item
      14.*
            
            Principal Accountant Fees and Services
            49


iv
 Index




PART IVItem
      15.
            
            Exhibits and Financial Statement Schedules
            50Signatures
            51





*
            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 26, 2010, and is incorporated herein by
      reference.  It is anticipated that the Proxy Statement will be
      filed with the Securities and Exchange Commission by April 27,
      2010.


v
 Index


PARTI





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 May
26, 2009, Central Jersey Bancorp and OceanFirst Financial Corp., the parent
company of OceanFirst Bank, entered into an Agreement and Plan of Merger (the
“Merger Agreement”) pursuant to which Central Jersey Bancorp had intended to
merge with and into OceanFirst Financial Corp.  Concurrent with the
merger, it was expected that Central Jersey Bank, N.A. would merge with and into
OceanFirst Bank.  The merger of Central Jersey Bancorp and OceanFirst
Financial Corp. was intended to qualify as a tax free reorganization for federal
income tax purposes, with shares of Central Jersey Bancorp exchanged for
OceanFirst Financial Corp. shares on a tax free basis.  The Merger
Agreement was terminated by mutual consent on December 17, 2009 when it became
apparent that the requisite regulatory approvals would not be received in time
for the merger to be completed by December 31, 2009, as contemplated in the
Merger Agreement.





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 reports are available as soon as
reasonably practicable after Central Jersey Bancorp electronically files the
reports 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, Nominating and Corporate Governance Committee Charter, Audit Committee
Charter, Compensation Committee Charter and Luxury Expenditure and Limitation
Policy.  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,
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.


1
 Index


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.





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.


2
 Index


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 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,


3
 Index


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 a third party unaffiliated banking
organization.  Central Jersey Bank, N.A. also maintains coin counting
machines, for the convenience of its customers, in most of its branch
offices.





Competition





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 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 (Senior 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 have each entered into
a change of control agreement with Central Jersey Bancorp.  Including
the aforementioned executive officers, Central Jersey Bancorp had a total of 133
full time equivalent employees as of December 31, 2009.





Holding
Company Operations





Central
Jersey Bancorp serves as the holding company for Central Jersey Bank,
N.A.  The holding company has minimal assets and 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.”  All
banking products and services are, and will be, provided by Central Jersey
Bancorp’s bank subsidiary, Central Jersey Bank, N.A.  For state tax
purposes,


4
 Index


CJB
Investment Company (formerly MCB Investment Company), a New Jersey corporation,
was formed on March 9, 2004 to hold and invest in investment securities in
support of Central Jersey Bank, N.A.  In addition, during 2009 Central
Jersey Bancorp formed Central Delaware Investment Co., a Delaware corporation
and a subsidiary of CJB Investment Company.  Both CJB Investment
Company and Central Delaware Investment Co., are special purpose entities, whose
activities are limited to holding investment securities, collecting earnings,
principal repayments and recognizing other gains/losses
thereon.





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 operations 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.


5
 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 $2.042 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 Capital Purchase Program (the
“Capital Purchase Program”) established as part of the U.S. Department of the
Treasury’s Troubled Asset Relief Program (“TARP”).  In addition,
during 2009 Central Jersey Bancorp declared and paid $505,000 in dividends due
on the 11,300 shares of Fixed Rate Cumulative Perpetual Senior Preferred Stock,
Series A, having a liquidation preference of $1,000 per share (the “Series A
Preferred Shares”), issued by Central Jersey Bancorp to the U.S. Department of
the Treasury as part of the Capital Purchase Program.  Central Jersey
Bank, N.A. declared and paid $320,000 in cash dividends to Central Jersey
Bancorp in order to provide funding for the aforementioned dividend
payment.





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


6
 Index


designated
amounts of specified collateral and are limited to (1) 10% 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.  The standard insurance amount
currently is $250,000 per depositor.  The $250,000 limit is permanent
for certain retirement accounts (includes IRAs) and is temporary for all other
deposit accounts through December 31, 2013.  On January 1, 2014, 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 the most common ownership categories that
apply to individual and family deposits, and assumes that all FDIC requirements
are met.


7
 Index




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





Central
Jersey Bank, N.A. accept deposits, and those deposit have the benefit of FDIC
insurance up to the applicable limits.  The FDIC’s Deposit Insurance
Fund (the “DIF”) is funded by assessments on insured depository institutions,
which depend on the risk category of an institution and the amount of insured
deposits that it holds.  The FDIC may increase or decrease the
assessment rate schedule on a semi-annual basis.





As part
of its efforts to rebuild the DIF, the FDIC adopted a rule imposing a special
assessment of five basis points on each FDIC-insured depository institution’s
assets, minus its Tier 1 Capital, as of June 30, 2009, subject to a cap of 10
basis points of average assessable domestic deposits for the second quarter of
2009.  This special assessment totaled approximately $257,000 for
Central Jersey Bank, N.A.  Additionally, as part of its efforts to
rebuild the DIF, the FDIC also required insured depository institutions,
including Central Jersey Bank, N.A., to prepay their estimated assessments for
the fourth quarter of 2009 and all of 2010, 2011 and 2012.  On
December 30, 2009, Central Jersey Bank, N.A. prepaid an aggregate of $2,684,189
for its estimated quarterly risk-based assessments for these
periods.





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 the 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 June 30, 2010. Coverage
under the TLG Program was available for the first 30 days without
charge.  The fee assessment for coverage of senior unsecured
debt


8
 Index


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.





TARP
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 the Treasury announced TARP, 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, pursuant to the Capital Purchase
Program established as part of TARP, sold the following securities to the U.S.
Department of the Treasury (1) 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”).  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 the Treasury, 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 promulgated
thereunder.





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.  On June 15, 2009, the
U.S. Department of the Treasury issued new regulations under the
AARA.  The amendments and the regulations promulgated thereunder
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
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


9
 Index


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
ARRA also provides that, subject to consultation with the appropriate federal
banking agency, the Secretary of the U.S. Department of the 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 the 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 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, 2009, Central Jersey


10
 Index


Bancorp’s
ratios of Total Capital and Tier 1 Capital to risk-weighted assets were 12.50%
and 13.76%, 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, 2009, Central Jersey Bancorp’s leverage
ratio was 9.68%.  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 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


11
 Index


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, 2009, 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 17 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 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, certain comprehensive anti-terrorism legislation known as the
USA PATRIOT Act of 2001 was enacted.  Title III of the USA PATRIOT Act
substantially broadened the scope of the U.S. anti-money-laundering laws and
regulations by imposing significant compliance and due diligence obligations,
creating additional crimes and penalties and expanding the extra-territorial
jurisdiction of the United States.  The U.S. Department of the
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 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 the Treasury
regulations.


12
 Index


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 August 10, 2009, 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.





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 SEC under the Exchange
Act.





The
Sarbanes-Oxley Act of 2002 includes very specific disclosure requirements and
corporate governance rules, requires the SEC and self regulatory organizations
to adopt extensive additional disclosure, corporate governance and other related
rules and mandates further studies of certain issues by the SEC 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.


13
 Index


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;





·
            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





Financial
regulatory reform continues to be a top priority for President Obama’s
Administration.  The U.S. House of Representatives (the “House”)
passed the “Wall Street Reform and Consumer Protection Act” on December 11,
2009.  The U.S. Senate has not yet enacted legislation in this
area.  The Senate Banking Committee draft bill, “Restoring American
Financial Stability Act of 2009” is still in draft form and currently under
discussion.  Both legislative products focus on measures to improve
financial stability, provide for more effective bank supervision, enhance the
regulation of consumer financial products and services through the establishment
of a Consumer Financial Protection Agency and allow for better coordination
between regulatory agencies.  The House’s bill would establish a
Systemic Dissolution Fund to help wind down financial institutions when
necessary.  The fund would be pre-funded by FDIC assessments on large
financial companies with assets exceeding $50 billion, to pay for the resolution
of a bank holding company, a systemically important financial company, an
insurance company or any other financial company.  The Senate Banking
Committee’s draft proposal has a similar resolution mechanism and sets the
threshold at $10 billion or more.





In
addition to the foregoing, 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.  Further, the U.S.
Department of the 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


14
 Index


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.





Item1A.
            Risk
      Factors





Not
applicable.





Item1B.
            Unresolved Staff
      Comments





None.





Item2.
            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, which 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.





·
            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.





Item3.
            Legal
      Proceedings





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





Item4.
            (Removed and
      Reserved)


15
 Index


PARTII





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 Global Market for the period commencing January 1, 2008 through December
31, 2009.  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 a 5% stock
dividend paid on July 1, 2008.








Year
      Ended December 31, 2009
            
            High
            
            
            LowFirst
      Quarter
            
            $
            7.50
            
            
            $
            4.62Second
      Quarter
            
            
            6.70
            
            
            
            4.90Third
      Quarter
            
            
            6.65
            
            
            
            5.05Fourth
      Quarter
            
            
            6.11
            
            
            
            2.80Year
      Ended December 31, 2008
            
            High
            
            
            LowFirst
      Quarter
            
            $
            8.38
            
            
            $
            7.35Second
      Quarter
            
            
            8.74
            
            
            
            7.66Third
      Quarter
            
            
            8.00
            
            
            
            6.62Fourth
      Quarter
            
            
            7.44
            
            
            
            5.40





As of
March 8, 2010, 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.; Hudson Securities, Inc.;
Susquehanna Financial Group; Automated Trading Desk Financial Services, LLC;
Bloomberg Tradebook LLC; E*Trade Capital Markets Lic; Goldman, Sachs & Co.;
Merrill Lynch, Pierce, Fenner & Smith Incorporated; Stockcross Financial
Services, Inc. and Domestic Securities, Inc.





As of
February 28, 2009, the approximate number of registered holders of Central
Jersey Bancorp’s common stock was 619.





During
2009 Central Jersey Bancorp declared and paid $505,000 in dividends due on the
Series A Preferred Shares, issued by Central Jersey Bancorp to the U.S.
Department of the Treasury as part of the Capital Purchase
Program.  Central Jersey Bank, N.A. declared and paid $320,000 in cash
dividends to Central Jersey Bancorp in order to provide funding for the
aforementioned dividend payment.





Central
Jersey Bancorp has not paid any cash dividends on its common stock and does not
presently intend to declare or pay cash dividends on its common
stock.  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 by our Board of Directors out
of


16
 Index


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 the Treasury until December 23, 2011, which is the third
anniversary of the investment by the U.S. Department of the Treasury in Central
Jersey Bancorp.





Stock
Repurchase Plan





On
January 7, 2008, Central Jersey Bancorp announced a common stock repurchase
program.  Central Jersey Bancorp’s Board of Directors authorized
Central Jersey Bancorp to 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 were to 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 being held in treasury
to be used for general corporate purposes.  Central Jersey Bancorp’s
repurchase activities were 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 $2.042 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.





Item6.
            Selected Financial
      Data





Not
applicable.


17
 Index


Item7.
            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 and results of operations for the
years ended December 31, 2009 and 2008.  The following information
should be read in conjunction with Central Jersey Bancorp’s audited consolidated
financial statements for the years ended December 31, 2009 and 2008 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
“Summary of Significant Accounting Policies” to our consolidated financial
statements for the years ended December 31, 2009 and 2008, 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.  Goodwill is recognized for the excess of the purchase price
over the estimated fair value of acquired net assets in a business
combination.  In accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 350, “Goodwill and Other
Intangibles,” goodwill is not amortized but is subject to impairment
testing at least annually, which the Central Jersey Bancorp performs as of
December 31st of
each year. On an interim basis, Central Jersey Bancorp evaluates whether
circumstances are present that would indicate potential impairment of its
goodwill. These circumstances include prolonged trading value of Central Jersey
Bancorp’s common stock relative to its book value, adverse changes in the
business or legal climate, actions by regulators, or loss of key personnel. When
it is determined that these or other circumstances are present, Central Jersey
Bancorp tests the carrying value of goodwill for impairment at an interim
date.





The
goodwill impairment test is a two step test in which Central Jersey Bancorp
first identifies its reporting units and compares the estimated fair value of
each reporting unit to the carrying amount, inclusive of the goodwill assigned
it. If the carrying amount of a reporting unit exceeds the estimated fair value,
an indicator of goodwill impairment exists and a second step test is performed
to determine if any goodwill impairment exists. In the second step, Central
Jersey Bancorp calculates the implied value of goodwill by emulating a business
combination for each reporting unit. This step subtracts the
estimated


18
 Index


fair
value of net assets in the reporting unit from the step one estimated fair value
to determine the implied value of goodwill. If the implied value of goodwill
exceeds the carrying value of goodwill allocated to the reporting unit, goodwill
is not impaired, but if the implied value of goodwill is less than the carrying
value of the goodwill allocated to the reporting unit, a goodwill impairment
charge is recognized for the difference in the consolidated statement of
operations with a corresponding reduction to goodwill on the consolidated
statement of financial condition. Central Jersey Bancorp’s only reporting unit
is “community banking” for purposes of the goodwill impairment
test.





In
performing its evaluation of goodwill impairment, Central Jersey Bancorp makes
significant judgments, particularly with respect to estimating the fair value of
its reporting unit and if the second step test is required, estimating the fair
value of net assets. Central Jersey Bancorp utilizes a third-party specialist
who assists with valuation techniques to evaluate its reporting unit and
estimates a fair value as though it were an acquirer. The estimate utilizes
historical data, cash flows, and market and industry data specific to the
reporting unit. Industry and market data is used to develop material assumptions
such as transaction multiples, required rates of return, control premiums,
transaction costs and synergies of a transaction, and
capitalization.





Other
intangible assets are specifically identified intangible assets created from a
business combination. Core deposit intangibles represent the value of checking,
savings and other acquired, low cost deposits. Core deposit intangibles are
amortized over the lesser of the estimated lives of deposit accounts or ten
years on an accelerated basis.  Decreases in deposit lives may result
in increased amortization and/or an impairment charge.





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.





FASB ASC
Topic 320, “Investments-Debt
and Equity Securities,” requires that securities be categorized as “held
to maturity,” “trading securities” or “available-for-sale,” based on
management’s intent as to the ultimate disposition of each
security.  FASB ASC Topic 320 allows debt securities to be classified
as “held to maturity” and reported in consolidated financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold these securities to maturity.   When an entity does not intend
to sell the security, and it is more likely than not, the entity will not have
to sell the security before recovery of its cost basis, it will recognize the
credit component of an other-than-temporary impairment of a debt security in
earnings and the remaining portion in other comprehensive
income.  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.Central Jersey Bank,
N.A. does not currently use or maintain a trading account.  Securities
not classified as “held to maturity” are classified as
“available-for-sale.”  These securities are reported at fair value,
and unrealized gains and losses on the securities are excluded from earnings and
reported, net of deferred taxes, as a separate component of
equity.  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.  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.  When an entity does not intend to sell the
security, and it is more likely than not, the entity will not have to sell the
security before recovery of its cost basis, it will recognize the
credit


19
 Index


component
of an other-than-temporary impairment of a debt security in earnings and the
remaining portion in other comprehensive income.  For held-to-maturity
debt securities, the amount of an other-than-temporary impairment recorded in
other comprehensive income for the noncredit portion of a previous
other-than-temporary impairment should be amortized prospectively over the
remaining life of the security on the basis of the timing of future estimated
cash flows of the security.   After evaluation, as of December
31, 2009, Central Jersey Bank, N.A. noted no other-than-temporary impairment
issues.





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 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,


20
 Index


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, 2009.





Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses
from other non-interest expenses.





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 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
(loss) income is segregated into net (loss) income and other comprehensive
(loss) income.  Other comprehensive (loss) income includes items
previously recorded directly to equity, such as unrealized gains and losses on
securities available-for-sale.  Comprehensive (loss) income is
presented in the Consolidated 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.





Central
Jersey Bank, N.A. originates SBA loans and typically sells the U.S. Government
guaranteed portion 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 FASB ASC Topic
860, “Transfers and
Servicing.”  Central Jersey Bank, N.A. records servicing rights
based on the fair values at the date of sale.





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.





Overview





In the
second quarter of 2009, Central Jersey Bancorp recorded a $27.0 million goodwill
impairment charge, resulting in a net loss and a net loss available to common
shareholders of $25.8 million and $26.5 million, respectively, for the year
ended December 31, 2009, as compared to net income and net income available
to


21
 Index


shareholders
of $2.9 million for 2008.  Basic and diluted loss per common share for
the year ended December 31, 2009 were both ($2.91), as compared to basic and
diluted earnings per common share of $0.32 and $0.30, respectively, for
2008.  The net income available to common shareholders figure for the
year ended December 31, 2009, takes into account $565,000in preferred stock
dividends payable to the U.S. Department of the Treasury as part of the Capital
Purchase Program and $178,000 in related preferred stock discount
accretion.  Had Central Jersey Bancorp not realized the $27.0 million
goodwill impairment charge for the year ended December 31, 2009, net income and
net income available to common shareholders would have been $1.2 million and
$446,000, respectively.





The $27.0
million in goodwill was recorded on January 1, 2005 in conjunction with the
combination with Allaire Community Bank.  The goodwill impairment
charge was a non-cash adjustment to Central Jersey Bancorp’s consolidated
financial statements which did not affect cash flows, liquidity, or tangible
capital.  As goodwill is excluded from regulatory capital, the
impairment charge did not impact regulatory capital ratios of Central Jersey
Bancorp or Central Jersey Bank, N.A., both of which remain “well-capitalized”
under regulatory requirements.  The goodwill impairment charge was
recorded in accordance with FASB ASC Topic 350, which requires an interim
goodwill impairment analysis under certain events, including “a
more-likely-than-not expectation that a reporting unit or a significant portion
of a reporting unit will be sold or otherwise disposed of.”





Central
Jersey Bancorp recorded an income tax benefit of $888,000 on a loss before taxes
of $26.7 million for the year ended December 31, 2009.  For the year
ended December 31, 2008, Central Jersey Bancorp recorded income tax expense of
$1.3 million on income before taxes of $4.2 million, resulting in an effective
tax rate of 30.7%.  The income tax benefit was due to the utilization
of capital tax loss carry-forwards which resulted from the 2007 balance sheet
restructuring initiative.  As a result of the restructuring, a
deferred tax valuation allowance was established against deferred tax assets
generated from the capital tax loss carry-forwards.  Since $772,000 of
the $2.9 million in gains from the sale of available-for-sale investment
securities, recorded during the year ended December 31, 2009, were realized in
CJB Investment Company, a wholly-owned subsidiary of Central Jersey Bank, N.A.,
these gains are considered capital gains and are permitted to be offset against
the remaining capital tax loss carry-forwards.  The federal income tax
benefit is primarily the result of the reversal of the deferred tax valuation
allowance which totaled approximately $262,000 and a significant increase in the
amount of federal tax free interest income derived from municipal bond and note
obligations.





The net
interest margin on a tax equivalent basis was 3.29% for the year ended December
31, 2009, as compared to 3.73% for the year ended December 31,
2008.  The retail and commercial banking markets remain very
competitive for deposit and loan pricing.  The yield on
interest-earning assets was 4.70% for the year ended December 31, 2009, as
compared to 5.84% for the year ended December 31, 2008.  The average
cost of deposits and interest-bearing liabilities was 1.82% for the year ended
December 31, 2009, as compared to 2.70% for the year ended December 31,
2008.  The decrease in both average yield on interest-earning assets
and the cost of deposits and interest-earning liabilities for year ended
December 31, 2009 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
common 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 common
shareholders of record on June 15, 2005, and for the 5% stock dividends paid on
July 1, 2006, July 2, 2007 and July 1, 2008.





Total
assets of $577.7 million, at December 31, 2009, were comprised primarily of
$369.5 million in net loans, $104.2 million in investment securities and $78.3
million in cash and cash equivalents, as compared to total assets of $599.4
million at December 31, 2008, which primarily consisted of $356.3 million in net
loans, $185.4 million in investment securities, and $9.8 million in cash and
cash equivalents.  Total assets at


22
 Index


December
31, 2009 were funded primarily through deposits totaling $467.9 million, a $49.1
million, or 11.7%, increase from deposits totaling $418.8 million at December
31, 2008.





Central
Jersey Bancorp reported an $869,000, or 12.7%, increase in total delinquencies
at December 31, 2009 from the total reported at December 31,
2008.  Delinquencies totaled $7.7 million at December 31, 2009, as
compared to $6.8 million at December 31, 2008.  Non-accrual loans
increased by $5.4 million from $2.5 million at December 31, 2008 to $7.9 million
at December 31, 2009.  Other real estate owned (“OREO”) plus
non-performing loans, which consist of non-accrual loans and loans
delinquent  90+ days and still accruing, increased by $6.3 million
from $3.4 million at December 31, 2008 to $9.7 million at December 31,
2009.





The table
below provides selected performance ratios for the years ended December 31, 2009
and December 31, 2008:





Performance
      Ratios:
            
            2009
            
            
            2008Return
      on average assets
            
            
            (4.35
            %)
            
            
            0.54
            %Return
      on average tangible assets
            
            
            (4.45
            %)
            
            
            0.57
            %Return
      on average equity
            
            
            (44.42
            %)
            
            
            4.20
            %Return
      on average tangible equity
            
            
            (56.58
            %)
            
            
            7.13
            %Shareholders’
      equity to total assets
            
            
            9.61
            %
            
            
            13.76
            %





The table
below provides selected performance ratios for the years ended December 31, 2009
and December 31, 2008, excluding the impact of the previously-disclosed $27.0
million goodwill impairment charge.





Performance
      Ratios:
            
            2009
            
            
            2008Return
      on average assets
            
            
            0.19
            %
            
            
            0.54
            %Return
      on average tangible assets
            
            
            0.20
            %
            
            
            0.57
            %Return
      on average equity
            
            
            1.65
            %
            
            
            4.20
            %Return
      on average tangible equity
            
            
            2.71
            %
            
            
            7.13
            %Shareholders’
      equity to total assets
            
            
            13.64
            %
            
            
            13.76
            %





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 (loss) is also affected by Central Jersey Bank, N.A.’s
provision for loan losses, non-interest income and non-interest
expenses.  Non-interest income consists primarily of service charges
and fees and the gain on sale of securities
available-for-sale.  Non-interest expenses consist primarily of
salaries and employee benefits, occupancy costs and other operating related
expenses.


23
 Index


For
the years ended December 31, 2009 and 2008





Net
Interest Income





Net
interest income for Central Jersey Bank, N.A. totaled $18.2 million for the year
ended December 31, 2009, as compared to $18.4 million for the year ended
December 31, 2008.  Net interest income for the year ended December
31, 2009 was comprised primarily of $20.7 million in interest and fees on loans,
$5.4 million in interest on securities, and $318,000 in interest income on
federal funds sold and due from banks, less interest expense on deposits of $7.0
million, interest expense on borrowed funds of $942,000, and interest expense on
subordinated debentures of $190,000, whereas 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.





Average
interest-earning assets totaled $563.5 million for the year ended December 31,
2009, a $70.4 million, or 14.3%, increase over average interest-earning assets
of $493.1 million for the year ended December 31,
2008.  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, 2009 averaged $442.2 million, of which $365.4
million, or 82.6%, were interest-bearing.  This represents a 10.1%
increase over average total deposits of $401.7 million for the year ended
December 31, 2008, of which $326.5 million, or 81.3%, were
interest-bearing.  Subordinated debentures and other borrowings for
the year ended December 31, 2009, averaged $5.2 million and $73.4 million,
respectively, as compared to $5.2 million and $63.1 million, respectively, for
the year ended December 31, 2008.  The increase in other borrowings
was due to growth in the bank subsidiary’s sweep account product for business
customers.  As of December 31, 2009, borrowings included $26.4 million
bank sweep funds, $15.0 million in Federal Home Loan Bank of New York (“FHLBNY”)
callable advances and $6.2 million in FHLBNY fixed rate advances.





Net
interest margin on a tax equivalent basis was 3.29% for the year ended December
31, 2009, as compared to 3.73% for the year ended December 31,
2008.  The retail and commercial banking markets remain very
competitive for deposit and loan pricing.  The yield on
interest-earning assets was 4.70% for the year ended December 31, 2009, as
compared to 5.84% for the year ended December 31, 2008.  The average
cost of deposits and interest-bearing liabilities was 1.82% for the year ended
December 31, 2009, as compared to 2.70% for the year ended December 31,
2008.  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.


24
 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,
2009 and 2008:





(dollars
      in thousands)
            
            Year
      ended December 31, 2009
            
            
            Year
      ended December 31, 2008AverageBalance
            
            
            Interest
            
            
            AverageYield/Cost
            
            
            AverageBalance
            
            
            Interest
            
            
            AverageYield/CostInterest
      earning assets:Federal
      funds sold
            
            $
            21,488
            
            
            $
            32
            
            
            
            0.15
            %
            
            $
            6,612
            
            
            $
            180
            
            
            
            2.72
            %Loans
      receivable, gross
            
            
            373,041
            
            
            
            20,709
            
            
            
            5.49
            %
            
            
            333,427
            
            
            
            21,084
            
            
            
            6.32
            %Deposits
      with banks
            
            
            4,912
            
            
            
            286
            
            
            
            5.82
            %
            
            
            4,566
            
            
            
            206
            
            
            
            4.51
            %Taxable
      investments
            
            
            106,664
            
            
            
            4,288
            
            
            
            4.02
            %
            
            
            146,567
            
            
            
            7,558
            
            
            
            5.16
            %Tax-exempt
      investments1
            
            
            57,371
            
            
            
            1,426
            
            
            
            2.49
            %
            
            
            1,892
            
            
            
            78
            
            
            
            4.12
            %Total
      interest earning assets
            
            
            563,476
            
            
            
            26,741
            
            
            
            4.70
            %
            
            
            493,064
            
            
            
            29,106
            
            
            
            5.84
            %Cash
      and due from banks
            
            
            14,867
            
            
            
            
            
            
            
            
            
            
            
            9,094Allowance
      for loan losses
            
            
            (7,456
            )
            
            
            
            
            
            
            
            
            
            
            (3,698
            )Other
      assets
            
            
            21,229
            
            
            
            
            
            
            
            
            
            
            
            42,672Total
      assets
            
            $
            592,116
            
            
            
            
            
            
            
            
            
            
            $
            541,132Interest
      bearing liabilities:Interest
      bearing demand
            
            $
            67,368
            
            
            $
            669
            
            
            
            0.99
            %
            
            $
            45,980
            
            
            $
            1,576
            
            
            
            1.92
            %Money
      market
            
            
            78,520
            
            
            
            1,488
            
            
            
            1.90
            %
            
            
            28,526
            
            
            
            772
            
            
            
            2.71
            %Savings
            
            
            56,236
            
            
            
            331
            
            
            
            0.59
            %
            
            
            67,868
            
            
            
            928
            
            
            
            1.37
            %Time
            
            
            163,259
            
            
            
            4,559
            
            
            
            2.79
            %
            
            
            148,173
            
            
            
            5,708
            
            
            
            3.85
            %Total
      interest bearing deposits
            
            
            365,383
            
            
            
            7,047
            
            
            
            1.93
            %
            
            
            326,524
            
            
            
            8,984
            
            
            
            2.75
            %Other
      borrowings
            
            
            73,437
            
            
            
            942
            
            
            
            1.28
            %
            
            
            63,141
            
            
            
            1,325
            
            
            
            2.10
            %Subordinated
      debentures
            
            
            5,155
            
            
            
            190
            
            
            
            3.69
            %
            
            
            5,155
            
            
            
            355
            
            
            
            6.89
            %Total
      interest-bearing liabilities
            
            
            443,975
            
            
            
            8,179
            
            
            
            1.82
            %
            
            
            394,820
            
            
            
            10,664
            
            
            
            2.70
            %Non-interest
      bearing demand
            
            
            76,811
            
            
            
            
            
            
            
            
            
            
            
            75,149Other
      liabilities
            
            
            1,935
            
            
            
            
            
            
            
            
            
            
            
            1,865Shareholders’
      equity
            
            
            69,395
            
            
            
            
            
            
            
            
            
            
            
            69,298Total
      liabilities and shareholders’ equity
            
            $
            592,116
            
            
            
            
            
            
            
            
            
            
            $
            541,132Net
      interest income/Net interest rate spread2
            
            
            
            
            
            $
            18,562
            
            
            
            3.10
            %
            
            
            
            
            
            $
            18,442
            
            
            
            3.53
            %Tax
      equivalent adjustment
            
            
            
            
            
            
            (362
            )
            
            
            
            
            
            
            
            
            
            
            (20
            )Net
      interest income, as reported
            
            
            
            
            
            $
            18,200
            
            
            
            
            
            
            
            
            
            
            $
            18,422Net
      interest margin3
            
            
            
            
            
            
            
            
            
            
            3.23
            %
            
            
            
            
            
            
            
            
            
            
            3.73
            %Tax
      equivalent adjustment
            
            
            
            
            
            
            
            
            
            
            0.06
            %
            
            
            
            
            
            
            
            
            
            
            0.00
            %Net
      interest margin on a fully tax equivalent basis3
            
            
            
            
            
            
            
            
            
            
            3.29
            %
            
            
            
            
            
            
            
            
            
            
            3.73
            %





1
            Interest
      income is presented on a tax equivalent basis using a 34% federal tax
      rate.


2
            Net
      interest rate spread represents the difference between the yield on
      interest-earning assets and the cost of interest-bearing
      liabilities.


3
            Net
      interest margin represents net interest income divided by average
      interest-earning assets.


25
 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, 2009
                Compared
      to
                Year
      ended December 31, 2008Increase
      (Decrease)
                Due
      to Change in:
            
            
            Total
      IncreaseVolume
            
            
            Rate
            
            
            (Decrease)(in
      thousands)
              Interest
      Income:Loans
      receivable, gross
            
            $
            2,354
            
            
            $
            (2,729
            )
            
            $
            (375
            )Securities
            
            
            734
            
            
            
            (2,998
            )
            
            
            (2,264
            )Deposits
      with banks
            
            
            17
            
            
            
            63
            
            
            
            80Federal
      funds sold
            
            
            135
            
            
            
            (283
            )
            
            
            (148
            )Total
      interest-earning assets
            
            
            3,240
            
            
            
            (5,947
            )
            
            
            (2,707
            )Interest
      Expense:Interest-bearing
      demand
            
            
            (138
            )
            
            
            (459
            )
            
            
            (597
            )Savings
      deposits
            
            
            538
            
            
            
            (1,687
            )
            
            
            (1,149
            )Money
      market deposits
            
            
            1,006
            
            
            
            (290
            )
            
            
            716Time
      deposits
            
            
            (244
            )
            
            
            (663
            )
            
            
            (907
            )Total
      interest-bearing deposits
            
            
            1,162
            
            
            
            (3,099
            )
            
            
            (1,937
            )Other
      borrowings
            
            
            191
            
            
            
            (574
            )
            
            
            (383
            )Subordinated
      debentures
            
            
            --
            
            
            
            (165
            )
            
            
            (165
            )Total
      interest-bearing liabilities
            
            
            1,353
            
            
            
            (3,838
            )
            
            
            (2,485
            )Net
      interest income
            
            $
            1,887
            
            
            $
            (2,109
            )
            
            $
            (222
            )





Provision
for Loan Losses





For the
year ended December 31, 2009, the provision for loan losses was $6.2 million, as
compared to $1.3 million for the year ended December 31, 2008.  The
recorded provision for loan losses, for the year ended December 31, 2009,
included $21.2 million in loans which were downgraded in risk rating and/or
placed on non-accrual status during 2009, a $3.6 million increase in the
specific reserve of certain impaired loans and loan net charge-offs totaling
$1.2 million.  The significant increase in the provision for loan
losses is due to the credit deterioration of certain commercial and commercial
real estate loans as a result of general economic conditions.  At
December 31, 2009, two loans were transferred to other real estate owned,
impacting the provision for loan losses by $245,000, and recorded as other real
estate owned at their fair market value less cost to sell of $1.1
million.  Total gross loans outstanding at December 31, 2009 were
$379.1 million, an increase of $18.1 million, or 5.01%, over the December 31,
2008 total of $361.0 million.





Non-Interest
Income





Non-interest
income, which consists of service charges on deposit accounts, gains on the sale
of investment securities available-for-sale, income from bank owned life
insurance and gains on the sale of loans held-for-sale, was $5.1 million for the
year ended December 31, 2009, as compared to $2.7 million for
2008.  Gains on


26
 Index


the sale
of investment securities available-for-sale totaled $2.9 million for the year
ended December 31, 2009, as compared to $739,000 for 2008.  Gains on
the sale of loans held-for-sale totaled $536,000 and $351,000, for the years
ended December 31, 2009 and 2008, respectively, and were primarily attributable
to fees realized from the sale and servicing of SBA loans which totaled $461,000
for the year ended December 31, 2009, as compared to $334,000 for the year ended
December 31, 2008.  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. Gains on sale
of residential mortgage loans totaled $75,000 and $17,000, for the years ended
December 31, 2009 and 2008, respectively.  Service charges on deposit
accounts remained consistent at $1.5 million for the year ended December 31,
2009, which was a nominal decrease of $19,000 from December 31,
2008.  Income on bank owned life insurance increased $12,000, to
$132,000 for the year ended December 31, 2009, as compared to $120,000 for the
year ended December 31, 2008.





Non-Interest
Expense





Excluding
the $27.0 million non-cash goodwill impairment charge recorded for the year
ended December 31, 2009, non-interest expense for the year ended December 31,
2009 was $16.7 million, as compared to $15.6 million for the prior
year.  The $1.1 million increase for 2009 included an $869,000
increase in FDIC deposit insurance expense and $634,000 in non-recurring
expenses related to the terminated Merger Agreement.  Non-interest
expense generally includes costs associated with employee salaries and benefits,
occupancy expenses, data processing fees, core deposit intangible amortization,
and other non-interest expenses.  Central Jersey Bank, N.A. incurred
$413,000 in core deposit intangible amortization expense related to the
combination with Allaire Community Bank for the year ended December 31, 2009, as
compared to $482,000 in 2008.





The $27.0
million in goodwill was recorded as an intangible asset on January 1, 2005 in
conjunction with the combination of Monmouth Community Bancorp (the predecessor
to Central Jersey Bancorp) and Allaire Community Bank.  The goodwill
impairment charge is a non-cash adjustment to Central Jersey Bancorp’s
consolidated financial statements, which has no affect on cash flows, liquidity,
or tangible capital.  As goodwill is excluded from regulatory capital,
the impairment charge had no impact on regulatory capital ratios of Central
Jersey Bancorp or Central Jersey Bank, N.A., both of which remain
“well-capitalized” under regulatory requirements.  The goodwill
impairment charge was recorded in accordance with FASB ASC Topic 350, which
requires an interim goodwill impairment analysis under certain
events.





On
February 27, 2009 the Board of Directors of the FDIC voted to amend the
restoration plan for the Deposit Insurance Fund.  The Board also took
action to ensure the continued strength of the insurance fund by imposing a
special assessment on insured institutions of 5 basis points, implementing
changes to the risk-based assessment system, and setting rates beginning the
second quarter of 2009.  The special assessment payment was made
September 30, 2009; however, in accordance with the rule, the full amount of
$279,000 was accrued in the second quarter of 2009, when the June 30, 2009
deposits were measurable.





Full-time
equivalent employees totaled 133 at December 31, 2009, as compared to 140 at
December 31, 2008.  The decrease in full-time equivalent employees is
due primarily due to the reduction in staff in anticipation of the merger with
OceanFirst Financial Corp.  Subsequent to the termination of the
merger, the organization has reorganized and been reconstituted in a manner that
we believe will, prospectively, result in improved operating
efficiencies.


27
 Index


The table
below presents non-interest expense, excluding the $27.0 million non-cash
goodwill impairment charge, by major category, for the years ended December 31,
2009 and 2008, respectively (in thousands):





Non-interest Expense:
            
            2009
            
            
            2008Salaries
      and employee benefits
            
            $
            7,562
            
            
            $
            7,759Net
      occupancy expenses
            
            
            2,125
            
            
            
            2,059Professional
      fees
            
            
            1,437
            
            
            
            896FDIC
      insurance premiums
            
            
            1,147
            
            
            
            278Data
      processing
            
            
            972
            
            
            
            1,011Outside
      service fees
            
            
            828
            
            
            
            782Furniture,
      fixtures and equipment
            
            
            796
            
            
            
            694Core
      deposit intangible amortization
            
            
            413
            
            
            
            482Stationery,
      supplies and printing
            
            
            205
            
            
            
            239Advertising
            
            
            204
            
            
            
            268Insurance
            
            
            161
            
            
            
            184Telephone
            
            
            108
            
            
            
            133Other
      operating expenses
            
            
            784
            
            
            
            852Total
            
            $
            16,742
            
            
            $
            15,637





Income
Tax Expense





Central
Jersey Bancorp recorded an income tax benefit of $888,000 on a loss before taxes
of $26.7 million for the year ended December 31, 2009.  For the year
ended December 31, 2008, Central Jersey Bancorp recorded income tax expense of
$1.3 million on income before taxes of $4.2 million, resulting in an effective
tax rate of 30.7%.  The income tax benefit was due to the utilization
of capital tax loss carry-forwards which resulted from the 2007 balance sheet
restructuring initiative.  As a result of the restructuring, a
deferred tax valuation allowance was established against deferred tax assets
generated from the capital tax loss carry-forwards.  Since $772,000 of
the $2.9 million in gains from the sale of available-for-sale investment
securities, recorded during the year ended December 31, 2009, were realized in
CJB Investment Company, a wholly-owned subsidiary of Central Jersey Bank, N.A.,
these gains are considered capital gains and are permitted to be offset against
the remaining capital tax loss carry-forwards.  The federal income tax
benefit is primarily the result of the reversal of the deferred tax valuation
allowance which totaled approximately $262,000 and a significant increase in the
amount of federal tax free interest income derived from municipal bond and note
obligations.





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 $78.3 million at December 31, 2009, an increase of $68.5
million, from the December 31, 2008 total of $9.8 million.  The
increase is due primarily to the timing of cash flows related to Central Jersey
Bank, N.A.’s business activities and the sale of investment securities.





Goodwill
and Other Intangible Assets





Goodwill
and other intangible assets on the consolidated statement of financial condition
decreased $27.4 million, from $28.4 million at December 31, 2008 to $1.0 million
at December 31, 2009. The decrease was primarily due to $27.0 million of
goodwill impairment identified in the “community banking” reporting unit,
accompanied by scheduled amortization of core deposit
intangibles.


28
 Index


Central
Jersey Bancorp’s only reporting unit is “community banking” for purposes of the
goodwill impairment test.  Central Jersey Bancorp performed an interim
impairment test of goodwill during the second quarter of 2009 due to the
presence of indicators of potential impairment which included adverse changes in
economic conditions reflected in the prolonged trading value of common stock
relative to its book value and the tentative merger between Central Jersey
Bancorp and OceanFirst Financial Corp.





In
performing its evaluation of goodwill impairment, management makes significant
judgments, particularly with respect to estimating the fair value of its
reporting unit and, if the second step goodwill impairment test is required,
estimating the fair value of net assets. In addition, management will utilize
third party specialists to assist during the testing process and in developing
assumptions.  The techniques Central Jersey Bancorp employed included
discounted cash flow analysis and the use of two separate marked-based
approaches.  Step one and step two tests incorporated recent declines
in merger and acquisition values, changes to control premiums, synergies
available to a potential acquirer (net of transaction expenses), views on
regulatory matters, and increased expectations for returns given perceived risk
in financial services and banking industry.  In addition, the analysis
incorporated certain financial results, which have been negatively impacted by
credit quality.  The current economic climate was assumed to improve
gradually over time, and existing legislative and regulatory requirements were
assumed to continue for the duration of the analysis.





Prior to
the impairment test, the carrying value of goodwill assigned to the “community
banking” reporting unit was $27.0 million.  Upon testing, the
“community banking” reporting unit failed the step one test, resulting in a
potential indicator of impairment and a required step two test.  The
step two test for the “community banking” reporting unit resulted in $27.0
million of impairment, for which the carrying value of its goodwill was reduced
as of December 31, 2009.  Net income in 2009 was reduced by $27.0
million as a result of the impairment.  The goodwill impairment charge
did not impact income taxes, since all of its goodwill is not
deductible.  As goodwill is excluded from regulatory capital, the
impairment charge had no impact on the regulatory capital ratios of Central
Jersey Bancorp or Central Jersey Bank, N.A., both of which remain
“well-capitalized” under regulatory requirements.





Other
intangible assets are specifically identified intangible assets created from a
business combination. Core deposit intangibles represent the value of checking,
savings and other acquired, low cost deposits. Core deposit intangibles are
amortized over the lesser of the estimated lives of deposit accounts or ten
years on an accelerated basis.  Decreases in deposit lives may result
in increased amortization and/or an impairment charge.





For the
years ended December 31, 2009 and 2008, Central Jersey Bancorp had $1.0 million
and $1.4 million, respectively, of core deposit intangible related to the
combination with Allaire Community Bank.  At December 31, 2009,
Central Jersey Bank N.A. performed an annual analysis to test the core deposit
premium and noted no impairment.





Investment
Securities Portfolio





Investment
securities totaled $104.2 million at December 31, 2009, a decrease of $81.2
million, or 43.8%, from the December 31, 2008 total of $185.4
million.  The decrease was primarily due to the sale of $119.4 million
of mortgage backed securities, $37.1 million of municipal bond and note
obligations and $10.0 million of government-sponsored agency
securities.  For the year ended December 31, 2009, principal pay downs
of securities totaled $30.4 million, purchases of mortgage-backed securities
totaled $43.2 million, purchases of municipal bond and note obligations totaled
$94.6 million, purchases of government-sponsored agency securities totaled $21.8
million, $37.3 million of government-sponsored agency securities were matured
and/or called, $4.7 million of municipal bonds were matured and/or called
and


29
 Index


net
premium/discount amortization totaled $500,000.  In addition, at
December 31, 2009, the net change of the unrealized gain on available-for-sale
securities decreased by $1.5 million from December 31, 2008.





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,
2009:


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
            
            $
            753
            
            
            $
            773
            
            
            $
            2,040
            
            
            $
            3,651
            
            
            $
            7,217Weighted
      average yield
            
            
            4.00
            %
            
            
            4.56
            %
            
            
            4.60
            %
            
            
            5.42
            %
            
            
            4.95
            %Obligations
      of U.S. Government agenciesAmortized
      cost
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Weighted
      average yield
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Total
      securities held-to-maturityAmortized
      cost
            
            $
            753
            
            
            $
            773
            
            
            $
            2,040
            
            
            $
            3,651
            
            
            $
            7,217Weighted
      average yield
            
            
            4.00
            %
            
            
            4.56
            %
            
            
            4.60
            %
            
            
            5.42
            %
            
            
            4.95
            %Securities
      available-for-sale:Mortgage-backed
      securitiesFair
      value
            
            $
            312
            
            
            $
            2
            
            
            $
            17,993
            
            
            $
            16,545
            
            
            $
            34,852Weighted
      average yield
            
            
            5.00
            %
            
            
            5.00
            %
            
            
            4.84
            %
            
            
            5.46
            %
            
            
            5.14
            %Obligations
      of U.S. Government agenciesFair
      value
            
            
            --
            
            
            
            10,906
            
            
            
            --
            
            
            
            --
            
            
            $
            10,906Weighted
      average yield
            
            
            --
            
            
            
            1.58
            %
            
            
            --
            
            
            
            --
            
            
            
            1.58
            %Municipal
      ObligationsFair
      value
            
            
            36,175
            
            
            
            4,924
            
            
            
            3,357
            
            
            
            3,825
            
            
            
            48,281Weighted
      average yield
            
            
            2.40
            %
            
            
            4.89
            %
            
            
            3.93
            %
            
            
            3.71
            %
            
            
            2.86
            %Other
      debt securitiesFair
      value
            
            
            2,691
            
            
            
            217
            
            
            
            --
            
            
            
            --
            
            
            
            2,908Weighted
      average yield
            
            
            2.39
            %
            
            
            2.75
            %
            
            
            --
            
            
            
            --
            
            
            
            2.42
            %Total
      securities available-for-saleFair
      value
            
            $
            39,178
            
            
            $
            16,049
            
            
            $
            21,350
            
            
            $
            20,370
            
            
            $
            96,947Weighted
      average yield
            
            
            2.42
            %
            
            
            2.61
            %
            
            
            4.70
            %
            
            
            5.13
            %
            
            
            3.52
            %





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.


30
 Index


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.





FASB ASC
Topic 320 allows debt securities to be classified as “held to maturity” and
reported in consolidated financial statements at amortized cost only if the
reporting entity has the positive intent and ability to hold these securities to
maturity.   When an entity does not intend to sell the debt security,
and it is more likely than not that the entity will not have to sell the debt
security before recovery of its cost basis, it will recognize the credit
component of an other-than-temporary impairment of a debt security in earnings
and the remaining portion in other comprehensive income.





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.


31
 Index


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.





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.


32
 Index


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%.





The
following table summarizes net loans outstanding by loan category and amount at
December 31, 2009, 2008, 2007, 2006 and 2005.




(in thousands)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Commercial
      and industrial loans
            
            $
            46,160
            
            
            $
            37,119
            
            
            $
            29,384
            
            
            $
            35,476
            
            
            $
            32,708Real
      estate loans – commercial
            
            
            263,170
            
            
            
            267,705
            
            
            
            240,370
            
            
            
            237,234
            
            
            
            232,5701-4
      family real estate loans
            
            
            2,876
            
            
            
            2,646
            
            
            
            3,822
            
            
            
            4,182
            
            
            
            4,858Home
      equity and second mortgages
            
            
            65,116
            
            
            
            51,688
            
            
            
            37,832
            
            
            
            35,573
            
            
            
            38,153Consumer loans
            
            
            1,765
            
            
            
            1,840
            
            
            
            3,765
            
            
            
            2,857
            
            
            
            2,054Total
      loans
            
            $
            379,087
            
            
            $
            360,998
            
            
            $
            315,173
            
            
            $
            315,322
            
            
            $
            310,343Less allowance for loan
    losses
            
            
            9,613
            
            
            
            4,741
            
            
            
            3,408
            
            
            
            3,229
            
            
            
            3,175Net loans
            
            $
            369,474
            
            
            $
            356,257
            
            
            $
            311,765
            
            
            $
            312,093
            
            
            $
            307,168Loans held-for-sale
            
            $
            --
            
            
            $
            400
            
            
            $
            658
            
            
            $
            242
            
            
            $
            3,127





Loans,
net of the ALL, totaled $369.5 million at December 31, 2009, an increase of
$13.2 million, or 3.71%, from the $356.3 million balance at December 31,
2008.  The increase in loan balances was due primarily to the
origination of commercial loans, consumer home equity loans and lines of credit
during the period off set by principal pay downs.





For the
year ended December 31, 2009, commercial and industrial loans and commercial
real estate loans increased by $4.5 million to $309.3 million, which represents
a 1.5% increase over the balance of $304.8 million at December 31,
2008.





During
2009, home equity and second mortgages increased by $13.4 million to $65.1
million at December 31, 2009, which represents a 26.0% increase over the balance
of $51.7 million at December 31, 2008.


33
 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, 2009.





December 31, 2009Maturity
      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
            
            $
            4,066
            
            
            $
            3,082
            
            
            $
            7,232
            
            
            $
            15,628
            
            
            $
            9,751
            
            
            $
            39,759Adjustable
      rate
            
            
            9,491
            
            
            
            751
            
            
            
            1,393
            
            
            
            --
            
            
            
            --
            
            
            
            11,635All
      other loans secured by real estateFixed
      rate
            
            
            50,220
            
            
            
            27,248
            
            
            
            48,413
            
            
            
            50,087
            
            
            
            28,548
            
            
            
            204,516Adjustable
      rate
            
            
            73,648
            
            
            
            15,447
            
            
            
            28,236
            
            
            
            5,846
            
            
            
            --
            
            
            
            123,177Total
            
            $
            137,425
            
            
            $
            46,528
            
            
            $
            85,274
            
            
            $
            71,561
            
            
            $
            38,299
            
            
            $
            379,087





Criticized/classified
assets as of December 31, 2009 and 2008 are summarized as follows (in
thousands):





2009
            
            
            2008Special
      Mention
            
            $
            11,770
            
            
            $
            21,343Substandard
            
            
            23,306
            
            
            
            2,812Doubtful
            
            
            5,052
            
            
            
            50Loss
            
            
            109
            
            
            
            94Total
      criticized/classified assets
            
            $
            40,237
            
            
            $
            24,299





The total
balance of criticized/classified loans at December 31, 2009 and 2008 totaled
$40.2 million and $24.3 million, respectively. The $15.9 million increase was
representative of the changes in the risk profile of the loan
portfolio.  Loans which were risk rated “special mention” decreased by
$9.6 million, to $11.8 million, at December 31, 2009, from $21.3 million at
December 31, 2008.  Loans which were risk rated “substandard”
increased by $20.5 million, to $23.3 million, at December 31, 2009, from $2.8
million at December 31, 2008.  Loans which were risk rated “doubtful”
increased by $5.0 million, to $5.1 million at December 31, 2009, from $50,000 at
December 31, 2008.  A majority of the risk rating downgrades occurred
in the commercial mortgage loan portfolio.


34
 Index


Troubled
asset and delinquency trends at December 31, 2009 and 2008 are summarized as
follows (dollars in thousands):


2009
            
            
            200830-89
      Day
            
            $
            6,912
            
            
            $
            5,96390
      Days + and still accruing
            
            
            775
            
            
            
            855Total
      Delinquencies
            
            $
            7,687
            
            
            $
            6,818Non-Accrual
      Loans
            
            $
            7,868
            
            
            $
            2,545Non-Performing
      Loans (90+; Non-Accrual)
            
            $
            8,643
            
            
            $
            3,400OREO
            
            
            1,055
            
            
            
            -Total
      Non-Performing Loans and OREO
            
            $
            9,698
            
            
            $
            3,400Total
      Delinquencies, Non-Accrual and OREO
            
            $
            16,610
            
            
            $
            9,363ALL
            
            $
            9,613
            
            
            $
            4,741Total
      Loans
            
            $
            379,087
            
            
            $
            360,998Total
      Assets
            
            $
            577,658
            
            
            $
            599,385Total
      Delinquencies / Total Loans
            
            
            2.03
            %
            
            
            1.89
            %Total
      Non-Accrual Loans / Total Loans
            
            
            2.08
            %
            
            
            0.70
            %ALL
      / Total Loans
            
            
            2.54
            %
            
            
            1.31
            %ALL
      / Non-Performing Loans
            
            
            111.2
            %
            
            
            139.4
            %ALL
      / Non-Performing Loans and OREO
            
            
            99.1
            %
            
            
            139.4
            %Non-Performing
      Loans / Total Loans
            
            
            2.3
            %
            
            
            0.9
            %Non-Performing
      Loans and OREO / Total Assets
            
            
            1.7
            %
            
            
            0.6
            %





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 $8.6 million and $3.4 at December 31, 2009 and 2008,
respectively.  Additionally, Central Jersey Bank, NA had $1.1 million
in OREO properties as of December 31, 2009.  If the non-accrual loans
had performed in accordance with their original terms, interest income would
have increased by $524,353 and $55,130, for the years ended December 31,
2009 and 2008, respectively.  At December 31, 2009, there are no
commitments to lend additional funds to borrowers whose loans are on
non-accrual.





Impaired
Loans





When
necessary, Central Jersey Bank, N.A. performs individual loan reviews in
accordance with FASB ASC Topic 310, to determine whether any individually
reviewed loans are impaired and, if impaired, measures a valuation allowance
allocation in accordance with FASB ASC Topic 310.  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 Bank, NA considers loans on non-accrual status
or risk rated “8” or higher as impaired and automatically subject to a FASB ASC
Topic 310 review.  In addition,


35
 Index


any other
loan that management considers possibly impaired due to deteriorating conditions
or for any other reasons, is, at management’s discretion, subject to a FASB ASC
Topic 310 review.





At
December 31, 2009, Central Jersey Bancorp had impaired loans totaling $23.2
million, as compared to $2.7 million at December 31, 2008.  The
increase in impaired loans was due primarily to multiple commercial loans
totaling $21.2 million which were downgraded in risk rating and/or placed on
non-accrual status during 2009.  These loans were considered impaired
and were evaluated in accordance with FASB ASC Topic 310.  After
evaluation, specific reserves were required for fifteen of the impaired
loans.  At December 31, 2009, Central Jersey Bancorp recorded $4.1
million of specific reserves for impaired loans, as compared to $474,000 in
specific reserves for impaired loans at December 31, 2008.





Central
Jersey Bancorp’s policy for interest income recognition on non-accrual 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 non-accrual loans during 2009.  Total cash collected on
non-accrual loans during 2009 was $263,000, as compared to $1.1 million
collected during 2008, all of which was credited to the principal balances
outstanding.





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, Central
Jersey Bancorp utilizes a multidisciplinary approach to the ALL
determination.  That approach considers each of the following
factors:





·
            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


36
 Index


and all
other loans are evaluated by Central Jersey Bank, N.A. in accordance with FASB
ASC Topic 450 “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 loan 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 FASB ASC Topic 450 may, at management’s discretion, be
evaluated under FASB ASC Topic 310 for impairment.  If loans being
evaluated are deemed not to be impaired they will remain in their original FASB
ASC Topic 450 pool.





When
necessary, Central Jersey Bank, N.A. performs individual loan reviews in
accordance with FASB ASC Topic 310, to determine whether any individually
reviewed loans are impaired and, if impaired, measures a valuation allowance
allocation in accordance with FASB ASC Topic 310.





As a
matter of policy, Central Jersey Bank, N.A. values collateral dependent impaired
loans based upon the estimated fair value of the underlying
collateral.  Estimates of fair value, for collateral dependent loans,
are based upon third party independent appraisals, as adjusted for relevant
factors, including, among other things, cost to sell the collateral (including
broker fees, legal, carrying costs, etc.), changes in the collateral’s
condition, and changes in market conditions subsequent to the appraisal date of
the collateral.  Any portion of the recorded investment in a
collateral-dependent loan in excess of the fair value of the collateral that is
identified as uncollectible, and is therefore deemed a confirmed loss, will be
charged off against the ALL.





Before
concluding that an impaired FASB ASC Topic 310 loan needs no associated loss
allowance, Central Jersey Bank, N.A. needs to determine, document and support
that its measurement process was appropriate and that it considered all
available and relevant information.





For
example, for a collateral-dependent loan, the following factors should be
considered in the measurement of impairment under the fair value of collateral
method:


·
            volatility
      of the fair value of the
collateral,


·
            timing
      and reliability of the appraisal or other
  valuation,


·
            timing
      of the institution’s or third party’s inspection of the
      collateral,


·
            confidence
      in the institution’s lien on the
collateral,


·
            historical
      losses on similar loans, and


·
            other
      factors as appropriate for the loan
type.





Some
impaired loans may have risk characteristics in common with other impaired
loans.  In this case, management may aggregate those loans and use
historical statistics such as average recovery period and


37
 Index


average
amount recovered, along with composite effective interest rate as a means of
measuring impairment of those loans.





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 December 31, 2009 and 2008,
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 continued 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, 2009, the provision for loan losses was $6.2 million, as
compared to $1.3 million for the year ended December 31, 2008.  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, 2009
were $379.1 million, an increase of $18.1 million, or 5.0%, over the December
31, 2008 total of $361.0 million.





Loan
portfolio composition changed slightly in 2009, as compared to 2008, with gross
commercial loans totaling $309.1 million, or 81.5%, of total gross loans
outstanding at December 31, 2009, as compared to $304.7 million, or 84.4%, at
December 31, 2008.  Gross loans outstanding totaled $379.1 million at
December 31, 2009, as compared to $361.0 million at December 31, 2008, an
increase of $18.1 million, or 5.01%.





The
following table summarizes Central Jersey Bank, N.A.’s ALL for the years ended
December 31, 2009, 2008, 2007, 2006, and 2005.




(dollars in thousands)
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Balance,
      beginning of year
            
            $
            4,741
            
            
            $
            3,408
            
            
            $
            3,229
            
            
            $
            3,175
            
            
            $
            1,638Provision
      charged to expense
            
            
            6,214
            
            
            
            1,319
            
            
            
            165
            
            
            
            500
            
            
            
            426Charge-offs
            
            
            (1,494
            )
            
            
            --
            
            
            
            (88
            )
            
            
            (455
            )
            
            
            (92
            )Allaire
      Community Bank combination
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            1,203Recoveries
            
            
            152
            
            
            
            14
            
            
            
            102
            
            
            
            9
            
            
            
            --Balance, end of year
            
            $
            9,613
            
            
            $
            4,741
            
            
            $
            3,408
            
            
            $
            3,229
            
            
            $
            3,175Ratio
      of allowance for loan losses to total loans
            
            
            2.54
            %
            
            
            1.31
            %
            
            
            1.08
            %
            
            
            1.02
            %
            
            
            1.02
            %Ratio
      of net recoveries (charge-offs) to average loans
    outstanding
            
            
            (0.36
            %)
            
            
            0.004
            %
            
            
            0.004
            %
            
            
            (0.14
            %)
            
            
            (0.03
            %)


38
 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, 2009
            
            
            December
      31, 2008
            
            
            December
      31, 2007Loan 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
            
            $
            8,932
            
            
            
            92.9
            %
            
            
            74.5
            %
            
            $
            4,293
            
            
            
            90.6
            %
            
            
            84.4
            %
            
            $
            2,999
            
            
            
            88.0
            %
            
            
            85.6
            %Consumer
            
            
            681
            
            
            
            7.1
            %
            
            
            25.5
            %
            
            
            448
            
            
            
            9.4
            %
            
            
            15.6
            %
            
            
            409
            
            
            
            12.0
            %
            
            
            14.4
            %Total
            
            $
            9,613
            
            
            
            100.0
            %
            
            
            100.0
            %
            
            $
            4,741
            
            
            
            100.0
            %
            
            
            100.0
            %
            
            $
            3,408
            
            
            
            100.0
            %
            
            
            100.0
            %





December
      31, 2006
            
            
            December
      31, 2005Loan type
            
            Amount
            
            
            Percent of allowance tototal allowance
            
            
            Percent of loans to total
    loans
            
            
            Amount
            
            
            Percent of allowance to total
      allowance
            
            
            Percent of loans to total
    loansCommercial
            
            $
            2,811
            
            
            
            87.1
            %
            
            
            86.5
            %
            
            $
            2,749
            
            
            
            86.6
            %
            
            
            85.5
            %Consumer
            
            
            418
            
            
            
            12.9
            %
            
            
            13.5
            %
            
            
            426
            
            
            
            13.4
            %
            
            
            14.5
            %Total
            
            $
            3,229
            
            
            
            100.0
            %
            
            
            100.0
            %
            
            $
            3,175
            
            
            
            100.0
            %
            
            
            100.0
            %





Other
Real Estate Owned





Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses
from other non-interest expenses.





At
December 31, 2009, two loans were transfer to other real estate owned, impacting
the provision for loan losses by $245,000, and recorded as other real estate
owned at their fair market value less cost to sell of $1.1 million.





Restricted
Stock





Restricted
stock, which represents required investments in the common stock of
correspondent banks, is carried at cost and as of December 31, 2009 and 2008,
consisted of the common stock of the 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


39
 Index


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, 2009.





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 $467.9 million at December 31, 2009, an increase of $49.1 million,
or 11.7%, over the year ended December 31, 2008 total of $418.8
million.  Core deposits as a percentage of total deposits were 82.8%
at December 31, 2009, as compared to 82.5% at December 31, 2008.  The
increase in deposit balances was reflective of continued core deposit growth
that occurred throughout Central Jersey Bank, N.A.’s retail
franchise.





The
following table represents categories of Central Jersey Bank, N.A.’s deposits at
December 31, 2009 and 2008.





(in
      thousands)
            
            December 31,
              2009
            
            
            December 31,
              2008Demand
      deposits, non-interest bearing
            
            $
            80,500
            
            
            $
            75,947Savings,
      N.O.W. and money market accounts
            
            
            226,729
            
            
            
            190,475Certificates
      of deposit of less than $100,000
            
            
            72,089
            
            
            
            78,949Certificates
      of deposit of $100,000 or more
            
            
            88,560
            
            
            
            73,444Total
      deposits
            
            $
            467,878
            
            
            $
            418,815





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, 2009 and 2008 (dollars in thousands):





December 31,
              2009
            
            
            December 31,
              2008Average
                Balance
            
            
            Weighted
                Average
                Rate
            
            
            Average
                Balance
            
            
            Weighted
                Average
                RateDemand
      deposits, non-interest bearing
            
            $
            76,811
            
            
            
            0.00
            %
            
            $
            75,149
            
            
            
            0.00
            %Savings,
      N.O.W. and money market accounts
            
            
            202,124
            
            
            
            1.23
            %
            
            
            178,351
            
            
            
            1.84
            %Certificates
      of deposit of less than $100,000
            
            
            75,755
            
            
            
            2.62
            %
            
            
            79,867
            
            
            
            3.80
            %Certificates
      of deposit of $100,000 or more
            
            
            87, 504
            
            
            
            2.84
            %
            
            
            68,306
            
            
            
            3.95
            %Total
      deposits
            
            $
            442,194
            
            
            
            1.93
            %
            
            $
            401,673
            
            
            
            2.24
            %


40
 Index


At
December 31, 2009, Central Jersey Bank, N.A. had $160.6 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
            
            $
            17,097
            
            
            $
            41,158
            
            
            $
            13,598
            
            
            $
            236
            
            
            $
            72,089Equal
      to or more than $100,000
            
            
            11,260
            
            
            
            52,819
            
            
            
            23,994
            
            
            
            487
            
            
            
            88,560Total
            
            $
            28,357
            
            
            $
            93,977
            
            
            $
            37,592
            
            
            $
            723
            
            
            $
            160,649





Borrowings





Borrowings
were $47.6 million at December 31, 2009, as compared to $71.7 million at
December 31, 2008, a decrease of $24.1 million, or 33.6%.  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, 2009, borrowings included $26.4
million bank sweep funds, $15.0 million in FHLBNY callable advances and $6.2
million in FHLBNY fixed rate advances.  The decrease was primarily due
to a decrease in overnight borrowings as a result of cash generated from deposit
growth and the sale of investment securities available-for-sale.





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, 2009
and December 31, 2008 is as follows (in thousands):





2009
            
            
            2008Standby
      letters of credit
            
            $
            2,140
            
            
            $
            2,206Outstanding
      loan and credit line commitments
            
            $
            67,122
            
            
            $
            65,079





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 FASB ASC
Topic 952.  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 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, 2009 and December 31,
2008.


41
 Index


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.





At
December 31, 2009, the Central Jersey Bancorp was obligated under non-cancelable
lease agreements for 10 branch office leases and two leases for office and
storage space.  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):





2010
            
            $
            1,045,7472011
            
            
            947,3492012
            
            
            891,6612013
            
            
            535,2692014
      and thereafter
            
            
            663,119Total
            
            $
            4,083,145




Total
rent expense was $1.1 million in both 2009 and 2008.





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 2009, 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 $96.9
million and $170.7 million at December 31, 2009 and 2008,
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


42
 Index


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
management policy.  Contingent liquidity sources may include
off-balance sheet funds, such as advances from both the FHLBNY 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, 2009, Central Jersey Bank, N.A. met all capital adequacy requirements to
which it is subject.





As of
December 31, 2009, 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, 2009 and 2008, 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
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Central
      Jersey Bancorp
            
            
            9.68
            %
            
            
            10.20
            %
            
            
            12.50
            %
            
            
            13.91
            %
            
            
            13.76
            %
            
            
            15.09
            %Central
      Jersey Bank, N.A.
            
            
            7.89
            %
            
            
            10.33
            %
            
            
            10.19
            %
            
            
            14.05
            %
            
            
            14.00
            %
            
            
            15.24
            %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
            %


43
 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, 2009, $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,
2009, 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





FASB
ASC Topic 860





In
October 2009, the FASB issued ASU Topic 860, “Transfers and Servicing – Accounting
for Transfers of Financial Assets.”  This Update amends the
Codification for the issuance of FASB Statement No. 166, “Accounting for Transfers of
Financial Assets-an amendment of FASB Statement No. 140.”  The
amendments in this update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets.  In addition, the amendments require
enhanced disclosures about the risks that a transferor continues to be exposed
to because of its continuing involvement in transferred financial
assets.  Comparability and consistency in accounting for transferred
financial assets will also be improved through clarifications of the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting.  This update is effective at the
start of a reporting entity’s first fiscal year beginning after November 15,
2009.  Early application is not permitted.  Central Jersey
Bancorp does not


44
 Index


expect
the adoption of this pronouncement to have a material impact on its consolidated
financial position, results of operations or cash flows.





FASB
ASC Topic 810





In
October 2009, the FASB issued ASU Topic 810, “Consolidations – Improvements to
Financial Reporting by Enterprises Involved with Variable Interest
Entities.”  This update amends the Codification for the
issuance of FASB Statement No. 167, “Amendments to FASB Interpretation
No. 46(R).”  The amendments in this update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity.  An approach that is expected to be primarily qualitative will
be more effective for identifying which reporting entity has a controlling
financial interest in a variable interest entity.  The amendments in
this update also require additional disclosures about a reporting entity’s
involvement in variable interest entities, which will enhance the information
provided to users of financial statements.  This update is effective
at the start of a reporting entity’s first fiscal year beginning after November
15, 2009.  Early application is not permitted.  Central
Jersey Bancorp does not expect the adoption of this pronouncement to have a
material impact on its consolidated financial position, results of operations or
cash flows.





FASB
ASC Topic 105





In
June 2009, the FASB issued guidance now codified as FASB ASC Topic 105,
“Generally Accepted Accounting
Principle,” as the single source of authoritative nongovernmental U.S.
GAAP. FASB ASC Topic 105 does not change current U.S. generally accepted
accounting principles (“U.S. GAAP”), but is intended to simplify user access to
all authoritative U.S. GAAP by providing all authoritative literature related to
a particular topic in one place. All existing accounting standard documents will
be superseded and all other accounting literature not included in the ASC will
be considered non-authoritative. These provisions of FASB ASC Topic 105 are
effective for interim and annual periods ending after September 15, 2009
and, accordingly, are effective for Central Jersey Bancorp for the current
fiscal reporting period. The adoption of this pronouncement did not have an
impact on Central Jersey Bancorp’s consolidated financial condition, results of
operations or cash flows, but impacted our financial reporting process by
eliminating all references to pre-codification standards. On the effective date
of this Statement, ACS superseded all then-existing non-SEC accounting and
reporting standards, and all other non-grandfathered non-SEC accounting
literature not included in the ACS became non-authoritative.





FASB
ASC Topic 855





In
May 2009, the FASB issued guidance now codified as FASB ASC Topic 855,
“Subsequent Events,”
which establishes general standards of accounting for, and disclosures of,
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This pronouncement is effective for
interim or fiscal periods ending after June 15, 2009. Accordingly, Central
Jersey Bancorp adopted these provisions of FASB ASC Topic 855. The adoption of
this pronouncement did not have a material impact on Central Jersey Bancorp’s
consolidated financial position, results of operations or cash flows. However,
the provisions of FASB ASC Topic 855 resulted in additional disclosures with
respect to subsequent events. See Note 1, Basis of Presentation,for
this additional disclosure.


45
 Index


FASB
ASC Topic 825





In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 825,
“Financial Instruments,”which amends previous Topic 825 guidance to require disclosures about
fair value of financial instruments in interim as well as annual financial
statements.  This pronouncement is effective for periods ending after
June 15, 2009. Accordingly, Central Jersey Bancorp adopted these provisions
of FASB ASC Topic 825 on March 29, 2009.  The adoption of this
pronouncement did not have a material impact on Central Jersey Bancorp’s
consolidated financial position, results of operations or cash
flows.  However, these provisions of FASB ASC Topic 825 resulted in
additional disclosures with respect to the fair value of Central Jersey
Bancorp’s financial instruments. See Note 14, Fair Value Measurements,for
these additional disclosures.





FASB
ASC Topic 320





In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 320,
“Investments — Debt and Equity
Securities” and Topic 325 “Investments — Other,” which
is designed to create greater clarity and consistency in accounting for and
presenting impairment losses on securities.  The pronouncement is
effective for periods ending after June 15, 2009.  Accordingly,
Central Jersey Bancorp adopted this pronouncement on March 29,
2009.  The adoption of this guidance did not have a material impact on
our consolidated financial position, results of operations or cash
flows.  However, the provisions of FASB ASC Topic 320 resulted in
additional disclosures with respect to the fair value of Central Jersey
Bancorp’s investments with unrealized losses that are not deemed
other-than-temporarily impaired. See Note 14, Fair Value Measurements,for
these additional disclosures.





FASB
ASC Topic 820





In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 820,
“Fair Value Measurements and
Disclosures.”  This guidance defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements.  This guidance establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset.  The
pronouncement is effective for periods ending after June 15,
2009.  Accordingly, Central Jersey Bancorp adopted this pronouncement
on March 29, 2009.  The adoption of this guidance did not have a
material impact on our consolidated financial position, results of operations or
cash flows.  However, the provisions of FASB ASC Topic 320 resulted in
additional disclosures with respect to the fair value of Central Jersey
Bancorp’s investments with unrealized losses that are not deemed
other-than-temporarily impaired. See Note 14, Fair Value Measurements,for
these additional disclosures.





Impact
of Inflation





The
consolidated financial statements and related financial data presented in this
report have been prepared in accordance with U.S. 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.


46
 Index


Item7A.
            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.





Item9.
            Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosure





None.





Item9A.
            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 Senior 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 Senior Executive
Vice President and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.





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 U.S. 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.


47
 Index


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, 2009.  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, 2009, Central Jersey Bancorp’s internal control over
financial reporting is effective based on those criteria.





Item9B.
            Other
      Information





On March
24, 2010, Central Jersey Bancorp entered into a Second Amended and Restated
Change of Control Agreement with Anthony Giordano, III, Senior Executive Vice
President, Chief Financial Officer, Treasurer and Assistant Secretary of Central
Jersey Bancorp.  Mr. Giordano’s existing change of control agreement
was amended and restated to (i) provide that the benefits payable to him
thereunder would be equal to his monthly compensation (including monthly salary,
the cash equivalent of the monthly benefits provided to him, and annual bonus
compensation prorated over 12 months) multiplied by 30 (“Severance”) and not by
24 as set forth in his prior agreement and (ii) provide that Mr. Giordano will
be entitled to receive Severance from either Central Jersey Bancorp or a
Successor Entity (as defined in the agreement), as the case may be, if Mr.
Giordano is either (a) not retained by a Successor Entity for a period of at
least 36 months (an increase from 24 months) following the occurrence of a
Change of Control Event (as defined in the agreement) or (b) terminated by a
Successor Entity within 36 months (an increase from 30 months) following the
occurrence of a Change of Control Event after accepting employment with such
Successor Entity as of the effective date of the Change of Control
Event.  The terms of Mr. Giordano’s Second Amended and Restated Change
of Control Agreement are consistent with the terms of the change of control
agreements between Central Jersey Bancorp and its other named executive
officers.  Mr. Giordano’s Second Amended and Restated Change of
Control Agreement is furnished herewith as Exhibit 10.7.


48
 Index


PARTIII





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 26, 2010, under the captions “Election of Directors,” “Section 16(a)
Beneficial Ownership Reporting Compliance” and “Executive Officers,” and is
incorporated herein by reference.





Item11.
            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 26, 2010, 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 Shareholder
      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 26, 2010, 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.





Item13.
            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 26, 2010, under the caption “Certain Relationships and Related Party
Transactions” and “Director Independence” and is incorporated herein by
reference.





Item14.
            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 26, 2010, 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.


49
 Index


PARTIV





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.




50
 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
      30, 2010
            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
      30, 2010James
      S. Vaccaro
            
            Executive
      Officer (Principal Executive Officer) and Director/s/
      Robert S. Vuono
            
            Senior
      Executive Vice President,
            
            March
      30, 2010Robert
      S. Vuono
            
            Chief
      Operating Officer, Secretary and Director/s/
      Anthony Giordano, III
            
            Senior
      Executive Vice President,
            
            March
      30, 2010Anthony
      Giordano, III
            
            Chief
      Financial Officer, Treasurer and Assistant Secretary (Principal Financial
      and Accounting Officer)


51
 Index


Signatures
            
            Title
            
            Date/s/
      James G. Aaron
            
            Director
            
            March
      30, 2010James
      G. Aaron/s/
      Mark R. Aikins
            
            Director
            
            March
      30, 2010Mark
      R. Aikins/s/
      John A. Brockriede
            
            Director
            
            March
      30, 2010John
      A. Brockriede/s/
      George S. Callas
            
            Director
            
            March
      30, 2010George
      S. Callas/s/
      Paul A. Larson, Jr.
            
            Director
            
            March
      30, 2010Paul
      A. Larson, Jr.Director
            
            March
      30, 2010John
      F. McCann/s/
      Carmen M. Penta
            
            Director
            
            March
      30, 2010Carmen
      M. Penta/s/
      Mark G. Solow
            
            Director
            
            March
      30, 2010Mark
      G. Solow


52
 Index


CENTRAL
JERSEY BANCORP


AND
SUBSIDIARY





Consolidated
Financial Statements





Contents





December
31, 2009





Report
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Statements of Financial Condition at December 31, 2009 and
      2008
            F-3Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008
            F-4Consolidated
      Statements of Changes in Shareholders’ Equity for the years ended December
      31, 2009 and 2008
            F-5Consolidated
      Statement of Cash Flows for the years ended December 31, 2009 and
      2008
            F-6Notes
      to Consolidated Financial Statements
            F-7


F-1
 Index


Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and


Shareholders
of Central Jersey Bancorp





We have
audited the accompanying consolidated statement of financial condition of
Central Jersey Bancorp and subsidiary (the “Company”) as of December 31,
2009 and 2008, and the related consolidated statements of operations, changes in
shareholders’ equity, comprehensive income, and cash flows for the years 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 audits.





We
conducted our audits 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting.  Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated 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 audits provide 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, 2009 and 2008, and the results of their
operations and their cash flows for the years then ended December 31, 2009
in conformity with accounting principles generally accepted in the United States
of America.





/s/
ParenteBeard LLC





ParenteBeard
LLC


Malvern,
Pennsylvania





March 30,
2010


F-2
 Index


CENTRAL
JERSEY BANCORP


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


(dollars
in thousands, except per share amounts)





December 31,2009
            
            
            2008ASSETSCash
      and due from banks
            
            $
            9,789
            
            
            $
            9,306Federal
      funds sold
            
            
            68,526
            
            
            
            461Cash
      and cash equivalents
            
            
            78,315
            
            
            
            9,767Investment
      securities available-for-sale, at fair value
            
            
            96,947
            
            
            
            170,683Investment
      securities held-to-maturity (fair value of $7,462 and $15,124,
      respectively, at December 31, 2009 and December 31, 2008)
            
            
            7,217
            
            
            
            14,679Federal
      Reserve Bank stock
            
            
            1,848
            
            
            
            1,960Federal
      Home Loan Bank stock
            
            
            1,820
            
            
            
            2,940Loans
      held-for-sale
            
            
            --
            
            
            
            400Loans
            
            
            379,087
            
            
            
            360,998Less:
      Allowance for loan losses
            
            
            9,613
            
            
            
            4,741Loans,
      net
            
            
            369,474
            
            
            
            356,257Accrued
      interest receivable
            
            
            2,285
            
            
            
            2,251Other
      real estate owned
            
            
            1,055
            
            
            
            --Premises
      and equipment
            
            
            5,946
            
            
            
            6,303Bank
      owned life insurance
            
            
            3,817
            
            
            
            3,685Goodwill
            
            
            --
            
            
            
            26,957Core
      deposit intangible
            
            
            1,031
            
            
            
            1,444FDIC
      prepaid insurance
            
            
            2,684
            
            
            
            --Other
      assets
            
            
            5,219
            
            
            
            2,059Total
      assets
            
            $
            577,658
            
            
            $
            599,385LIABILITIES AND SHAREHOLDERS’
      EQUITYDeposits:Non-interest
      bearing
            
            $
            80,500
            
            
            $
            75,947Interest
      bearing
            
            
            387,378
            
            
            
            342,868467,878
            
            
            
            418,815Borrowings
            
            
            47,575
            
            
            
            71,741Subordinated
      debentures
            
            
            5,155
            
            
            
            5,155Accrued
      expenses and other liabilities
            
            
            1,531
            
            
            
            1,546Investment
      securities purchased not settled
            
            
            --
            
            
            
            19,676Total
      liabilities
            
            
            522,139
            
            
            
            516,933Shareholders’
      equity:Common
      stock, par value $0.01 per share. Authorized 100,000,000
      shares, 9,256,975 and 9,000,531 shares outstanding, and 9,503,423 and
      9,246,979 shares issued, respectively, at December 31, 2009 and December
      31, 2008
            
            
            92
            
            
            
            90Preferred
      stock, liquidation value $1,000 per share.  Authorized
      10,000,000 shares and issued and outstanding 11,300 shares at December 31,
      2009 and December 31, 2008
            
            
            11,300
            
            
            
            11,300Additional
      paid-in capital
            
            
            64,981
            
            
            
            64,502Accumulated
      other comprehensive income, net of tax expense
            
            
            1,022
            
            
            
            1,925Treasury
      stock – 246,448 shares at December 31, 2009 and December 31,
      2008
            
            
            (1,806
            )
            
            
            (1,806
            )(Accumulated
      deficit)/retained earnings
            
            
            (20,070
            )
            
            
            6,441Total
      shareholders’ equity
            
            
            55,519
            
            
            
            82,452Total
      liabilities and shareholders’ equity
            
            $
            577,658
            
            
            $
            599,385


See
accompanying notes to consolidated financial statements.


F-3
 Index


CENTRAL
JERSEY BANCORP


CONSOLIDATED
STATEMENTS OF OPERATIONS


(dollars
in thousands, except per share amounts)





December 31,2009
            
            
            2008Interest
      and dividend income:Interest
      and fees on loans
            
            $
            20,709
            
            
            $
            21,084Interest
      on securities available-for-sale:Taxable
      interest income
            
            
            3,334
            
            
            
            6,894Non-taxable
      interest income
            
            
            1,426
            
            
            
            58Interest
      on securities held-to-maturity
            
            
            592
            
            
            
            664Interest
      on federal funds sold and due from banks
            
            
            318
            
            
            
            386Total
      interest and dividend income
            
            
            26,379
            
            
            
            29,086Interest
      expense:Interest
      expense on deposits
            
            
            7,047
            
            
            
            8,984Interest
      expense on borrowings
            
            
            942
            
            
            
            1,325Interest
      expense on subordinated debentures
            
            
            190
            
            
            
            355Total
      interest expense
            
            
            8,179
            
            
            
            10,664Net
      interest income
            
            
            18,200
            
            
            
            18,422Provision
      for loan losses
            
            
            6,214
            
            
            
            1,319Net
      interest income after provision for loan losses
            
            
            11,986
            
            
            
            17,103Non-interest
      income:Gain
      on sale of available-for-sale securities
            
            
            2,885
            
            
            
            739Service
      charges on deposit accounts
            
            
            1,504
            
            
            
            1,522Gain
      on sale of loans held-for-sale
            
            
            536
            
            
            
            351Income
      on bank owned life insurance
            
            
            132
            
            
            
            120Total
      non-interest income
            
            
            5,057
            
            
            
            2,732Non-interest
      expense:Salaries
      and employee benefits
            
            
            7,562
            
            
            
            7,759Net
      occupancy expenses
            
            
            2,125
            
            
            
            2,059Professional
      fees
            
            
            1,437
            
            
            
            896FDIC
      insurance premiums
            
            
            1,147
            
            
            
            278Data
      processing fees
            
            
            972
            
            
            
            1,011Outside
      service fees
            
            
            828
            
            
            
            782Furniture,
      fixtures and equipment
            
            
            796
            
            
            
            694Core
      deposit intangible amortization
            
            
            413
            
            
            
            482Stationery,
      supplies and printing
            
            
            205
            
            
            
            239Advertising
            
            
            204
            
            
            
            268Insurance
            
            
            161
            
            
            
            184Telephone
            
            
            108
            
            
            
            133Goodwill
      impairment
            
            
            26,957
            
            
            
            --Other
      operating expenses
            
            
            784
            
            
            
            852Total
      non-interest expenses
            
            
            43,699
            
            
            
            15,637(Loss)
      income before provision for income taxes
            
            
            (26,656
            )
            
            
            4,198Income
      tax (benefit) expense
            
            
            (888
            )
            
            
            1,288Net
      (loss) income
            
            $
            (25,768
            )
            
            $
            2,910Preferred
      stock dividend
            
            
            565
            
            
            
            12Preferred
      stock discount amortization
            
            
            178
            
            
            
            --Net
      (loss) income available to common shareholders
            
            $
            (26,511
            )
            
            $
            2,898Basic
      (loss) earnings per common share
            
            $
            (2.91
            )
            
            $
            0.32Diluted
      (loss) earnings per common share
            
            $
            (2.91
            )
            
            $
            0.30Average
      basic shares outstanding
            
            
            9,117,428
            
            
            
            9,092,180Average
      diluted shares outstanding
            
            
            9,117,428
            
            
            
            9,523,891





See
accompanying notes to consolidated financial statements.


F-4
 Index


CENTRAL
JERSEY BANCORP


CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


(dollars
in thousands, except share amounts)





Accumulated
            
            
            
            
            
            RetainedAdditional
            
            
            other
            
            
            
            
            
            earnings/Common
            
            
            Preferred
            
            
            paid-in
            
            
            comprehensive
            
            
            Treasury
            
            
            (accumulatedstock
            
            
            stock
            
            
            capital
            
            
            income
      (loss)
            
            
            stock
            
            
            deficit)
            
            
            TotalBalance
      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 reclassification adjustment
      of $739 and tax effect 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
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            11,300Cash
      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
            
            
            $
            64,502
            
            
            $
            1,925
            
            
            $
            (1,806
            )
            
            $
            6,441
            
            
            $
            82,452Comprehensive
      loss:Net
      loss
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (25,768
            )
            
            
            (25,768
            )Unrealized
      loss on securities available-for-sale, net of
      reclassification  adjustment of $2,885 and tax effect of
      ($561)
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (903
            )
            
            
            --
            
            
            
            --
            
            
            
            (903
            )Total
      comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (26,671
            )Exercise
      of stock options – 256,444 shares, including tax benefit
    $170
            
            
            2
            
            
            
            --
            
            
            
            479
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            481Discount
      – preferred stock
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (178
            )
            
            
            (178
            )Cash
      dividends accrued on preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (565
            )
            
            
            (565
            )Balance
      at December 31, 2009
            
            $
            92
            
            
            $
            11,300
            
            
            $
            64,981
            
            
            $
            1,022
            
            
            $
            (1,806
            )
            
            $
            (20,070
            )
            
            $
            55,519





See
accompanying notes to consolidated financial statements.


F-5
 Index


CENTRAL
JERSEY BANCORP


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(dollars
in thousands)





2009
            
            
            2008Cash
      flows from operating activities:Net
      (loss) income
            
            $
            (25,768
            )
            
            $
            2,898Adjustments
      to reconcile net (loss) income to net cash provided by operating
      activities:Goodwill
      impairment charge
            
            
            26,957
            
            
            
            --Earnings
      on cash surrender value of life insurance
            
            
            (132
            )
            
            
            (120
            )Deferred
      tax benefit
            
            
            (1,987
            )
            
            
            (210
            )Provision
      for loan losses
            
            
            6,214
            
            
            
            1,319Depreciation
      and amortization
            
            
            529
            
            
            
            676Net
      premium amortization (discount accretion) on held-to-maturity
      securities
            
            
            166
            
            
            
            (15
            )Net
      premium amortization (discount accretion) on available-for-sale
      securities
            
            
            334
            
            
            
            (11
            )Core
      deposit intangible amortization
            
            
            413
            
            
            
            482Gain
      on sale of securities available-for-sale
            
            
            (2,885
            )
            
            
            (739
            )Gain
      on the sale of loans held-for-sale
            
            
            (536
            )
            
            
            (351
            )Originations
      of loans held-for-sale
            
            
            (13,336
            )
            
            
            (4,233
            )Proceeds
      from the sale of loans held-for-sale
            
            
            14,272
            
            
            
            4,508Increase
      in accrued interest receivable
            
            
            (34
            )
            
            
            (33
            )Increase  in
      other assets
            
            
            (2,803
            )
            
            
            (2,089
            )Decrease
      in accrued expenses and other liabilities
            
            
            (75
            )
            
            
            (293
            )Net
      cash provided by operating activities
            
            
            1,329
            
            
            
            1,789Cash
      flows from investing activities:Maturities
      and paydowns on investment securities held-to-maturity
            
            
            7,296
            
            
            
            7,748Maturities
      and paydowns on investment securities available-for-sale
            
            
            72,966
            
            
            
            24,437Proceeds
      from sale of investment securities available-for-sale
            
            
            166,451
            
            
            
            53,147Purchase
      of investment securities available-for-sale
            
            
            (183,709
            )
            
            
            (131,616
            )Purchase
      of investment securities held-to-maturity
            
            
            --
            
            
            
            (4,982
            )Investment
      securities purchased not settled
            
            
            --
            
            
            
            19,676Net
      increase in loans
            
            
            (20,486
            )
            
            
            (45,477
            )Purchases
      of premises and equipment
            
            
            (172
            )
            
            
            (2,353
            )Net
      cash provided by (used in) investment activities
            
            
            42,346
            
            
            
            (79,420
            )Cash
      flows from financing activities:Proceeds
      from stock options exercised
            
            
            481
            
            
            
            330Net
      increase in non-interest bearing deposits
            
            
            4,553
            
            
            
            1,992Net
      increase in interest bearing deposits
            
            
            44,510
            
            
            
            13,533Net
      increase (decrease) in other borrowings
            
            
            3,405
            
            
            
            (1,528
            )Net
      (decrease) increase in Federal Home Loan Bank advances
            
            
            (27,499
            )
            
            
            48,740Repayment
      of Federal Home Loan Bank advances
            
            
            (72
            )
            
            
            (34
            )Cash
      dividend paid on preferred stock
            
            
            (505
            )
            
            
            --Purchase
      of outstanding stock; placed in treasury
            
            
            --
            
            
            
            (1,808
            )Cash
      paid for fractional shares
            
            
            --
            
            
            
            (4
            )Issuance
      of preferred stock and warrants
            
            
            --
            
            
            
            11,300Net
      cash provided by financing activities
            
            
            24,873
            
            
            
            72,521Increase
      (decrease) in cash and cash equivalents
            
            
            68,548
            
            
            
            (5,110
            )Cash
      and cash equivalents at beginning of period
            
            
            9,767
            
            
            
            14,877Cash
      and cash equivalents at end of period
            
            $
            78,315
            
            
            $
            9,767Supplementary
      cash flow information:Interest
      paid
            
            $
            8,194
            
            
            $
            10,754Income
      taxes paid
            
            $
            1,724
            
            
            $
            2,199Loans
      receivable transferred to other real estate owned
            
            $
            1,055
            
            
            $
            --





See
accompanying notes to consolidated financial statements.


F-6
 Index


Central
Jersey Bancorp and Subsidiary


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009 and 2008





NOTE
1 - Summary of Significant Accounting Policies





Business





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.  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, N. A.  Central Jersey Bancorp and Central
Jersey Bank, N.A. are collectively referred to herein as the
“Company.”





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.





On May
26, 2009, Central Jersey Bancorp and OceanFirst Financial Corp., the parent
company of OceanFirst Bank, entered into a Agreement and Plan of Merger (the
“Merger Agreement”) pursuant to which Central Jersey Bancorp had intended to
merge with and into OceanFirst Financial Corp.  Concurrent with the
merger, it was expected that Central Jersey Bank, N.A. would merge with and into
OceanFirst Bank.  The merger of Central Jersey Bancorp and OceanFirst
Financial Corp. was intended to qualify as a tax free reorganization for federal
income tax purposes, with shares of Central Jersey Bancorp exchanged for
OceanFirst Financial Corp. shares on a tax free basis.  The Merger
Agreement was terminated by mutual consent on December 17, 2009 when it became
apparent that the requisite regulatory approvals would not be received in time
for the merger to be completed by December 31, 2009, as contemplated in the
Merger Agreement.





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, 2009, there were 9,256,975 outstanding shares of Central Jersey
Bancorp common stock.  As of December 31, 2008, there were 9,000,531
outstanding shares of Central Jersey Bancorp common stock.  All prior
period amounts have been retroactively restated to reflect the aforementioned
stock dividend.


F-7
 Index


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 (“U.S. GAAP”).





Use
of Estimates





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 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.





New
Account Standards





Effective
April 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”)
guidance now codified as FASB Accounting Standards Codification (“ASC”) Topic
855, “Subsequent Events.”  This guidance establishes general standards for accounting
and for disclosure of events that occur after the balance sheet date but before
financial statements are issued.  The subsequent event guidance sets
forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition in the financial statements, identifies the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in the financial statements, and the disclosures that
should be made about events or transactions that occur after the balance sheet
date.  The Company has evaluated events and transactions occurring
subsequent to the balance sheet date of December 31, 2009, for items that should
potentially be recognized or disclosed in the accompanying audited consolidated
financial statements.





In
June 2009, the FASB issued guidance now codified as FASB ASC Topic 105,
“Generally Accepted Accounting
Principles,” as the single source of authoritative nongovernmental U.S.
GAAP.  FASB ASC Topic 105 does not change current U.S. GAAP, but is
intended to simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other
accounting literature not included in the FASB Codification will be considered
non-authoritative.  These provisions of FASB ASC Topic 105 are
effective for interim and annual periods ending after September 15, 2009
and, accordingly, are effective for the Company for the current reporting
period.  The adoption of this pronouncement did not have an impact on
the Company’s financial condition or results of operations, but impacted our
financial reporting process by eliminating all references to pre-codification
standards.  On the effective date of this Statement, the Codification
superseded all then-existing non-SEC accounting and reporting standards, and all
other non-grandfathered non-SEC accounting literature not included in the
Codification became non-authoritative.





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. The Company maintains cash deposits in other
depository institutions that occasionally exceed the amount of deposit insurance
available.


F-8
 Index


Investment
Securities





Management
determines the appropriate classification of debt securities at the time of
purchase and re-evaluates such designation as of each balance sheet
date.





Investments
in debt securities that the Company has the positive intent and ability to hold
to maturity are classified as held to maturity securities and reported at
amortized cost.  Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized holding gains and
losses included in earnings.  Debt and equity securities not
classified as trading securities, nor as held to maturity securities are
classified as available for sale securities and reported at fair value, with
unrealized holding gains or losses, net of deferred income taxes, reported in
the accumulated other comprehensive income component of shareholders’
equity.  The Company held no trading securities at December 31,
2009 and 2008.  Discounts and premiums are accreted/amortized to
income by use of the level-yield method.  Gain or loss on sales of
securities available for sale is based on the specific identification
method.





FASB
recently issued accounting guidance related to the recognition and presentation
of other-than-temporary impairment, which the Company adopted effective
June 30, 2009 (“Pending Content” of FASB ASC Topic
320-1).  This recent accounting guidance amends the recognition
guidance for other-than-temporary impairments of debt securities and expands the
financial statement disclosures for other-than-temporary impairment losses on
debt and equity securities.  The recent guidance replaced the “intent
and ability” indication in current guidance by specifying that (a) if a company
does not have the intent to sell a debt security prior to recovery and, (b) it
is more likely than not that it will not have to sell the debt security prior to
recovery, the security would not be considered other-than-temporarily impaired
unless there is a credit loss.





When an
entity does not intend to sell the security, and it is more likely than not, the
entity will not have to sell the security before recovery of its cost basis, it
will recognize the credit component of an other-than-temporary impairment of a
debt security in earnings and the remaining portion in other comprehensive
income.  For held-to-maturity debt securities, the amount of an
other-than-temporary impairment recorded in other comprehensive income for the
noncredit portion of a previous other-than-temporary impairment should be
amortized prospectively over the remaining life of the security on the basis of
the timing of future estimated cash flows of the security.





Prior to
the adoption of the recent accounting guidance on June 30, 2009, management
considered, in determining whether other-than-temporary impairment exists (1)
the length of time and the extent to which the fair value has been less than
amortized cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to retain the investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.





Restricted
Stock





Restricted
stock, which represents required investments in the common stock of
correspondent banks, is carried at cost and as of December 31, 2009 and 2008,
consisted of the common stock of the Federal Home Loan Bank of New York
(“FHLBNY”), the Federal Reserve Bank of New York and Atlantic Central Bankers
Bank.





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, 2009.


F-9
 Index


Loans
Held-for-Sale





Loans
originated and intended for sale in the secondary market are carried at the
lower of cost or fair value (“LOCOM”) or fair value under the fair value option
accounting guidance for financial instruments. For loans carried at LOCOM, gains
and losses on loan sales (sales proceeds minus carrying value) are recorded in
noninterest income, and direct loan origination costs and fees are deferred at
origination of the loan and are recognized in noninterest income upon sale of
the loan.





Loans
and Allowance for Loan Losses





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.





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


F-10
 Index


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, 2009.





The
provision for loan losses charged to non-interest 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.





Other
Real Estate Owned





Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses
from other real estate owned.





Servicing





Mortgage
servicing assets are recognized separately when rights are acquired through
purchase or through sale of financial assets.  Under the servicing
assets and liabilities accounting guidance in FASB ASC Topic 860-50, servicing
rights resulting from the sale or securitization of loans originated by the
Company are initially measured at fair value at the date of transfer. The
Company subsequently measures each class of servicing asset using either the
fair value or the amortization method. The Company has elected to initially and
subsequently measure the mortgage servicing rights for U.S. Small Business
Administration (“SBA”)loans using the amortization
method.  Under the amortization method, servicing rights are amortized
in proportion to and over the period of estimated net servicing income. The
amortized assets are assessed for impairment or increased obligation based on
fair value at each reporting date.  The Company originates SBA
loans and typically sells the U.S. Government guaranteed portion 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. These servicing rights are recorded as other assets in the
Consolidated Statements of Financial Condition.  As of December 31,
2009, the Company recorded $289,000 in servicing rights.





Fair
value is based on market prices for comparable mortgage servicing contracts,
when available, or alternatively, is based on a valuation model that calculates
the present value of estimated future net servicing income. The valuation model
incorporates assumptions that market participants would use in estimating future
net servicing income, such as the cost to service, the discount rate, the
custodial earnings rate, an inflation rate, ancillary income, prepayment speeds
and default rates and losses. These variables change from quarter to quarter as
market conditions and projected interest rates change, and may have an adverse
impact on the value of the mortgage servicing right and result in a reduction to
noninterest income.





Each
class of separately recognized servicing assets subsequently measured using the
amortization method are evaluated and measured for impairment. Impairment is
determined by stratifying rights into tranches based on predominant
characteristics, such as interest rate, loan type and investor type. Impairment
is recognized through a valuation allowance for an individual tranche, to the
extent that fair value is less than the carrying amount of the servicing assets
for that tranche. The valuation allowance is adjusted to reflect changes in the
measurement of impairment after the initial measurement of
impairment.  Changes in valuation allowances are reported with
gain/(loss) on sale of loans held-for-sale on the income
statement.  Fair value in excess of the carrying amount of servicing
assets for that stratum is not recognized.





Servicing
fee income is recorded for fees earned for servicing loans. The fees are based
on a contractual percentage of the outstanding principal; or a fixed amount per
loan and are recorded as income when earned. The amortization of mortgage
servicing rights is netted against loan servicing fee income.


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.





Advertising
Costs





Advertising
costs are expensed as incurred.





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





The
Company accounts for income taxes in accordance with income tax accounting
guidance FASB ASC Topic 740 “Income Taxes.”  The
Company adopted the recent accounting guidance related to accounting for
uncertainty in income taxes, which sets out a consistent framework to determine
the appropriate level of tax reserves to maintain for uncertain tax
positions.





The
income tax accounting guidance results in two components of income tax expense:
current and deferred. Current income tax expense reflects taxes to be paid or
refunded for the current period by applying the provisions of the enacted tax
law to the taxable income or excess of deductions over revenues. The Company
determines deferred income taxes using the liability (or balance sheet) method.
Under this method, the net deferred tax asset or liability is based on the tax
effects of the differences between the book and tax bases of assets and
liabilities, and enacted changes in tax rates and laws are recognized in the
period in which they occur.





Deferred
income tax expense results from changes in deferred tax assets and liabilities
between periods. Deferred tax assets are recognized if it is more likely than
not, based on the technical merits, that the tax position will be realized or
sustained upon examination. The term more likely than not means a likelihood of
more than 50%; the terms examined and upon examination also include resolution
of the related appeals or litigation processes, if any. A tax position that
meets the more-likely-than-not recognition threshold is initially and
subsequently measured as the largest amount of tax benefit that has a greater
than 50% likelihood of being realized upon settlement with a taxing authority
that has full knowledge of all relevant information. The determination of
whether or not a tax position has met the more-likely-than-not recognition
threshold considers the facts,circumstances, and
information available at the reporting date and is subject to management’s
judgment. Deferred tax assets are reduced by a valuation allowance if, based on
the weight of evidence available, it is more likely than not that some portion
or all of a deferred tax asset will not be realized.





The
Company recognizes interest and penalties on income taxes as a component of
income tax expense.





Comprehensive
(Loss) Income





Comprehensive
(loss) income is segregated into net (loss) income and other comprehensive
(loss) income.  Other comprehensive (loss) income includes items
previously recorded directly to equity, such as unrealized gains and
losses


F-12
 Index


on
securities available-for-sale, net of tax.  Comprehensive (loss)
income is presented in the Statements of Changes in Shareholders’
Equity.





Fair
Value of Financial Instruments





Fair
values of financial instruments are estimated using relevant market information
and other assumptions, as more fully disclosed in Note 14. Fair value estimates
involve uncertainties and matters of significant judgment. Changes in
assumptions or in market conditions could significantly affect the
estimates.





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.





Treasury
Stock





Common
stock shares repurchased are recorded as treasury stock at cost.





Net
(Loss) Income Per Common Share





Basic net
loss per common share for the year ended December 31, 2009 was calculated by
dividing the net loss available to common shareholders (which is equal to net
loss less dividends on preferred stock) of $26.5 million by the weighted average
number of shares outstanding of 9,117,428 (as to the basic net income per common
share determination).  For the  year ended December 31,
2009, the effect of dilutive securities related to the Company's employee and
director stock option plans totaled 146,730, which, when added to the average
basic common
shares  outstanding  totaling  9,117,428, would
have resulted in average diluted common shares outstanding
totaling  9,264,158.  However, in accordance with FASB ASC
Topic 260, “Earnings per
Share,” due to the Company reporting a net loss for the year ended
December 31, 2009, including potential common shares in the denominator of a
diluted per-share computation would result in an antidilutive per-share
amount.  Basic and diluted net income per common share for the year
ended December 31, 2008 was calculated by dividing the net income available to
common shareholders of $2.9 million by the weighted average number of common
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).  Diluted earnings per common 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 average number of common 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.





Earnings
per common share, average common 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 dividend, paid on July 1,
2008.


F-13
 Index


The
following tables reconcile shares outstanding for basic and diluted earnings per
common share for the years ended December 31, 2009 and 2008:





December
      31, 2009(dollars
      in thousands, except for per share data)
            
            Income (numerator)
            
            
            Average shares
(denominator)
            
            
            Per share amountBasic
      EPSNet
      loss available to common shareholders
            
            $
            (26,511
            )
            
            
            9,117
            
            
            $
            (2.91
            )Effect
      of dilutive securities:Stock
      options and warrants
            
            
            --
            
            
            
            --
            
            
            
            --Diluted
      EPSNet
      loss available to common shareholders, plus assumed exercise of options
      and warrants
            
            $
            (26,511
            )
            
            
            9,117
            
            
            $
            (2.91
            )





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, plus assumed exercise of options
      and warrants
            
            $
            2,898
            
            
            
            9,524
            
            
            $
            0.30





Options
to purchase 100,020, 137,755, 5,480, 52,512 and 44,484 shares of common stock at
weighted average prices of $9.90, $8.57, $7.56, $5.32 and $5.04 per share,
respectively, were outstanding and were not included in the computation of
diluted earnings per common share for the year ended December 31, 2009, because
these were anti-dilutive stock options.





Goodwill
and Other Intangible Assets





Goodwill
is recognized for the excess of the purchase price over the estimated fair value
of acquired net assets in a business combination.  In accordance with
FASB ASC Topic 350, “Goodwill
and Other Intangibles,” goodwill is not amortized but is subject to
impairment testing at least annually, which the Central Jersey Bancorp performs
as of December 31st of each year. On an interim basis, Central Jersey Bancorp
evaluates whether circumstances are present that would indicate potential
impairment of its goodwill. These circumstances include prolonged trading value
of Central Jersey Bancorp’s common stock relative to its book value, adverse
changes in the business or legal climate, actions by regulators, or loss of key
personnel. When it is determined that these or other circumstances are present,
Central Jersey Bancorp tests the carrying value of goodwill for impairment at an
interim date.





The
goodwill impairment test is a two step test in which Central Jersey Bancorp
first identifies its reporting units and compares the estimated fair value of
each reporting unit to the carrying amount, inclusive of the goodwill assigned
it. If the carrying amount of a reporting unit exceeds the estimated fair value,
an indicator of goodwill impairment exists and a second step test is performed
to determine if any goodwill impairment exists. In the second step, Central
Jersey Bancorp calculates the implied value of goodwill by emulating a business
combination for each reporting unit. This step subtracts the estimated fair
value of net assets in the reporting unit from the step one estimated fair value
to determine the implied value of goodwill. If the implied value of goodwill
exceeds the carrying value of goodwill


F-14
 Index


allocated
to the reporting unit, goodwill is not impaired, but if the implied value of
goodwill is less than the carrying value of the goodwill allocated to the
reporting unit, a goodwill impairment charge is recognized for the difference in
the consolidated statement of operations with a corresponding reduction to
goodwill on the consolidated statement of financial condition. Central Jersey
Bancorp’s only reporting unit is “community banking” for purposes of the
goodwill impairment test.





In
performing its evaluation of goodwill impairment, Central Jersey Bancorp makes
significant judgments, particularly with respect to estimating the fair value of
its reporting unit and if the second step test is required, estimating the fair
value of net assets. Central Jersey Bancorp utilizes a third-party specialist
who assists with valuation techniques to evaluate its reporting unit and
estimates a fair value as though it were an acquirer. The estimate utilizes
historical data, cash flows, and market and industry data specific to the
reporting unit. Industry and market data is used to develop material assumptions
such as transaction multiples, required rates of return, control premiums,
transaction costs and synergies of a transaction, and
capitalization.





A
goodwill impairment charge of $27.0 million was realized during the year ended
December 31, 2009.  The $27.0 million in goodwill was recorded on
January 1, 2005 in conjunction with the combination with Allaire Community
Bank.The goodwill
impairment charge was a non-cash adjustment to Central Jersey Bancorp’s
financial statements which has no affect on cash flows, liquidity, or tangible
capital.  As goodwill is excluded from regulatory capital, the
impairment charge had no impact on the regulatory capital ratios of Central
Jersey Bancorp or Central Jersey Bank, N.A., both of which remain
“well-capitalized” under regulatory requirements.  The goodwill
impairment charge was recorded in accordance with FASB ASC Topic 350, which
requires an interim goodwill impairment analysis under certain events, including
“a more-likely-than-not expectation that a reporting unit or a significant
portion of a reporting unit will be sold or otherwise disposed of.”





Other
intangible assets are specifically identified intangible assets created from a
business combination. Core deposit intangibles represent the value of checking,
savings and other acquired, low cost deposits. Core deposit intangibles are
amortized over the lesser of the estimated lives of deposit accounts or ten
years on an accelerated basis.  Decreases in deposit lives may result
in increased amortization and/or an impairment charge.





For the
years ended December 31, 2009 and 2008, Central Jersey Bancorp had $1.0 million
and $1.4 million, respectively, of core deposit intangible related to the
combination with Allaire Community Bank.  At December 31, 2009,
Central Jersey Bank N.A. performed an annual analysis to test the core deposit
premium and noted no impairment.





Stock
Based Compensation





Stock
compensation accounting guidance, FASB ASC Topic 718, “Compensation—Stock
Compensation,” requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements. That
cost will be measured based on the grant date fair value of the equity or
liability instruments issued. The stock compensation accounting guidance covers
a wide range of sharebased compensation arrangements including stock options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans.





The stock
compensation accounting guidance requires that compensation cost for all stock
awards be calculated and recognized over the employees’ service period,
generally defined as the vesting period. For awards with graded-vesting,
compensation cost is recognized on a straight-line basis over the requisite
service period for the entire award. A Black-Sholes model is used to estimate
the fair value of stock options, while the market price of the Company’s common
stock at the date of grant is used for restricted stock awards.





There
were no new employee or director stock option grants during 2009 and
2008.


F-15
 Index


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, 2009 using the Black-Scholes
option pricing model with the following weighted-average assumptions used: stock
price $2.99, dividend yield of 0%; expected volatility of 81.17%; risk free
interest rate of 2.69%; and expected life of seven years.  These SARS
had a fair value of approximately $1.70 per share at December 31,
2009.  The Company recorded, as a component of salaries and employee
benefits expense, $64,000, net of tax, share based payment expense for the year
ended December 31, 2009, related to the granting of the SARS.  As of
December 31, 2009, total unvested compensation expense was approximately $4,000
(pre-tax) and will vest over 1 month.





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.





A summary
of the status of the Company’s SARS as of December 31, 2009 and 2008, is
presented below:





December 31, 2009
            
            
            December 31, 2008SARS
            
            
            Weighted
              average
              exercise
              price
            
            
            SARS
            
            
            Weighted
              average
              exercise
              priceOutstanding
      at beginning of year
            
            
            130,811
            
            
            $
            9.40
            
            
            
            167,857
            
            
            $
            9.40Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
            
            
            (17,363
            )
            
            
            --
            
            
            
            (37,046
            )
            
            
            --Exercised
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Outstanding at period end
            
            
            113,448
            
            
            $
            9.40
            
            
            
            130,811
            
            
            $
            9.40SARS
      exercisable at period end
            
            
            85,086
            
            
            $
            9.40
            
            
            
            65,405
            
            
            $
            9.40Weighted
      average fair value of SARS granted
            
            $
            1.70
            
            
            
            
            
            
            $
            3.02





Transfers
of Financial Assets





Transfers
of financial assets are accounted for as sales, when control over the assets has
been surrendered. Control over transferred assets is deemed to be surrendered
when (1) the assets have been isolated from the Company—put presumptively beyond
the reach of the transferor and its creditors, even in bankruptcy or other
receivership, (2) the


F-16
 Index


transferee
obtains the right (free of conditions that constrain it from taking advantage of
that right) to pledge or exchange the transferred assets, and (3) the Company
does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity or the ability to
unilaterally cause the holder to return specific assets.





Reclassifications





Certain
reclassifications have been made to the prior period amounts to conform to the
current period presentation.  These reclassifications had no effect on
results of operations.





NOTE
2 – Restrictions on Cash and Amounts Due From Banks





Central
Jersey Bank, N.A. is required to maintain average balances on hand or with the
Federal Reserve Bank of New York. At December 31, 2009 and 2008, these reserve
balances amounted to $276,000 and $411,000, respectively.





NOTE
3 - 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 the Treasury announced the Troubled Asset Relief Program (“TARP”),
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, pursuant to the Capital Purchase
Program established as part of TARP, sold the following securities to the U.S.
Department of the Treasury (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”).  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 $565,000 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.


F-17
 Index


NOTE
4 - Investment Securities





The
amortized cost, gross unrealized gains and losses, and fair value of investment
securities held-to-maturity and investment securities available-for-sale at
December 31, 2009 and 2008 are as follows (in thousands):





2009Gross
            
            
            GrossAmortized
            
            
            unrealized
            
            
            unrealized
            
            
            Faircost
            
            
            gains
            
            
            losses
            
            
            valueInvestment
      securities held-to-maturity:Mortgage-backed securities of U.S. Government
      sponsored agencies
            
            $
            7,217
            
            
            $
            245
            
            
            $
            --
            
            
            $
            7,462Total
            
            $
            7,217
            
            
            $
            245
            
            
            $
            --
            
            
            $
            7,462Investment
      securities available-for-sale:Obligations
      of U.S. Government sponsored agencies
            
            $
            14,996
            
            
            $
            140
            
            
            $
            8
            
            
            $
            15,128Municipal
      Obligations
            
            
            48,222
            
            
            
            130
            
            
            
            71
            
            
            
            48,281Mortgage-backed
      securities of U.S. Government sponsored agencies
            
            
            29,198
            
            
            
            1,432
            
            
            
            --
            
            
            
            30,630Other debt securities
            
            
            2,908
            
            
            
            --
            
            
            
            --
            
            
            
            2,908Total
            
            $
            95,324
            
            
            $
            1,702
            
            
            $
            79
            
            
            $
            96,947





2008Gross
            
            
            GrossAmortized
            
            
            unrealized
            
            
            unrealized
            
            
            Faircost
            
            
            gains
            
            
            losses
            
            
            valueInvestment
      securities held-to-maturity:Obligations
      of U.S. Government sponsored agencies
            
            $
            4,335
            
            
            $
            168
            
            
            $
            --
            
            
            $
            4,503Mortgage-backed securities of U.S. Government
      sponsored agencies
            
            
            10,344
            
            
            
            277
            
            
            
            --
            
            
            
            10,621Total
            
            $
            14,679
            
            
            $
            445
            
            
            $
            --
            
            
            $
            15,124Investment
      securities available-for-sale:Obligations
      of U.S. Government sponsored agencies
            
            $
            32,000
            
            
            $
            33
            
            
            $
            --
            
            
            $
            32,033Mortgage-backed
      securities of U.S. Government sponsored agencies
            
            
            130,868
            
            
            
            3,059
            
            
            
            5
            
            
            
            133,922Other debt securities
            
            
            4,728
            
            
            
            --
            
            
            
            - -
            
            
            
            4,728Total
            
            $
            167,596
            
            
            $
            3,092
            
            
            $
            5
            
            
            $
            170,683





The
available for sale securities are reported at fair value with unrealized gains
or losses included in equity, net of taxes.  Accordingly, the carrying
value of such securities reflects their fair value at the balance sheet date.
Fair value is based upon either quoted market prices, or in certain cases where
there is limited activity in the market for a particular instrument, assumptions
are made to determine their fair values. See Note 14, Fair Value Measurements,for
these additional disclosures.


F-18
 Index


The
amortized cost and fair value of investment securities held-to-maturity and
investment securities available-for-sale at December 31, 2009 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.





Amortized
            
            
            Faircost
            
            
            valueInvestment
      securities held-to-maturity:Due
      in one year or less
            
            $
            753
            
            
            $
            754Due
      after one year through fifth year
            
            
            773
            
            
            
            802Due
      after fifth year through tenth year
            
            
            2,040
            
            
            
            2,128Due
      after tenth year
            
            
            3,651
            
            
            
            3,778Total
            
            $
            7,217
            
            
            $
            7,462Investment
      securities available-for-sale:Due
      in one year or less
            
            $
            39,128
            
            
            $
            39,177Due
      after one year through fifth year
            
            
            15,984
            
            
            
            16,050Due
      after fifth year through tenth year
            
            
            20,609
            
            
            
            21,350Due
      after tenth year
            
            
            19,603
            
            
            
            20,370Total
            
            $
            95,324
            
            
            $
            96,947





FASB
recently issued accounting guidance related to the recognition and presentation
of other-than-temporary impairment, which the Company adopted effective
June 30, 2009 (“Pending Content” of FASB ASC Topic
320-10).  This recent accounting guidance amends the recognition
guidance for other-than-temporary impairments of debt securities and expands the
financial statement disclosures for other-than-temporary impairment losses on
debt and equity securities.  The recent guidance replaced the “intent
and ability” indication in current guidance by specifying that (a) if a company
does not have the intent to sell a debt security prior to recovery and, (b) it
is more likely than not that it will not have to sell the debt security prior to
recovery, the security would not be considered other-than-temporarily impaired
unless there is a credit loss.





When an
entity does not intend to sell the security, and it is more likely than not, the
entity will not have to sell the security before recovery of its cost basis, it
will recognize the credit component of an other-than-temporary impairment of a
debt security in earnings and the remaining portion in other comprehensive
income.  For held-to-maturity debt securities, the amount of an
other-than-temporary impairment recorded in other comprehensive income for the
noncredit portion of a previous other-than-temporary impairment should be
amortized prospectively over the remaining life of the security on the basis of
the timing of future estimated cash flows of the security.





Prior to
the adoption of the recent accounting guidance on June 30, 2009, management
considered, in determining whether other-than-temporary impairment exists (1)
the length of time and the extent to which the fair value has been less than
amortized cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to retain the investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.





Proceeds
from the sale of investment securities available-for-sale during 2009 was $73.0
million, resulting in gross gains of $2.9 million, as compared to $53.1 million
and $739,000, respectively, in 2008.





At
December 31, 2009 and 2008, there were $76.5 million and $126.9 million,
respectively, of investment securities pledged as collateral for short term
borrowings, to secure public funds or for any other purposes required by
law.


F-19
 Index


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, 2009 and 2008, were as follows (in
thousands):





Less
      than 12 months
            
            
            12
      months or more
            
            
            Total2009
              Investment
      securities
            
            Unrealized
              losses
            
            
            Fair
      value
            
            
            Unrealized
              losses
            
            
            Fair
      value
            
            
            Unrealized
              losses
            
            
            Fair
      valueMortgage-backed
      securities
            
            $
            71
            
            
            $
            7,652
            
            
            $
            --
            
            
            $
            --
            
            
            $
            71
            
            
            $
            7,652Obligations
      of US Government sponsored    agencies
            
            
            8
            
            
            
            4,992
            
            
            
            --
            
            
            
            --
            
            
            
            8
            
            
            
            4,992Total
            
            $
            79
            
            
            $
            12,644
            
            
            $
            --
            
            
            $
            --
            
            
            $
            79
            
            
            $
            12,644





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





Mortgage-backed securities –
The unrealized losses on the Company's investment mortgage-backed securities
were caused by interest rate increases.  At December 31, 2009,
there were twelve securities in the less than 12 months category and no
securities in the 12 months or more category.  The Company purchased
those investments at a discount relative to their face amount, and the
contractual cash flows of those investments are guaranteed by an agency of the
U.S. Government. Accordingly, it is expected that the securities would not be
settled at a price less than the amortized cost bases of the Company’s
investments. Because the decline in market value is attributable to changes in
interest rates and not credit quality, and because the Company does not intend
to sell the investments and it is not more likely than not that the Company will
be required to sell the investments before recovery of their amortized cost
bases, which may be maturity, the Company does not consider those investments to
be other-than-temporarily impaired at December 31, 2009.





U.S. Government and federal agency
obligations. The unrealized losses on the one investment in U.S.
Government obligations and direct obligations of U.S. government agencies were
caused by interest rate increases. The contractual term of that investment does
not permit the issuer to settle the security at a price less than the amortized
cost base of the investment. Because the Company does not intend to sell the
investment and it is not more likely than not that the Company will be required
to sell the investment before recovery of their amortized cost bases, which may
be maturity, the Company does not consider that investment to be
other-than-temporarily impaired at December 31, 2009.





NOTE
5 - Loans





Loans at
December 31, 2009 and 2008 are summarized as follows (in
thousands):





2009
            
            
            2008Real
      estate loans – commercial
            
            $
            248,403
            
            
            $
            246,617Home
      equity and second mortgages
            
            
            65,116
            
            
            
            51,688Commercial
      and industrial loans
            
            
            46,160
            
            
            
            37,111Construction
      loans
            
            
            14,565
            
            
            
            20,9561-4
      family real estate loans
            
            
            2,876
            
            
            
            2,646Consumer
      loans
            
            
            1,475
            
            
            
            1,647Subtotal
            
            
            378,595
            
            
            
            360,665Net
      deferred costs
            
            
            492
            
            
            
            333Less:
      allowance for loan losses
            
            
            9,613
            
            
            
            4,741Net
      loans
            
            $
            369,474
            
            
            $
            356,257


F-20
 Index


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, 2009 and 2008 is summarized as
follows (dollars in thousands):





2009
            
            
            2008Balance,
      beginning of year
            
            $
            4,741
            
            
            $
            3,408Provision
      charged to expense
            
            
            6,214
            
            
            
            1,319Charge-offs
            
            
            (1,494
            )
            
            
            --Recoveries
            
            
            152
            
            
            
            14Balance, end of year
            
            $
            9,613
            
            
            $
            4,741Ratio of ALL to total loans
            
            
            2.54
            %
            
            
            1.31
            %





Impaired
Loans





When
necessary, Central Jersey Bancorp performs individual loan reviews in accordance
with FASB ASC Topic 310 to determine whether any individually reviewed loans are
impaired and, if impaired, measures a valuation allowance allocation in
accordance with FASB ASC Topic 310.  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.  The Company considers
loans on non-accrual status or risk rated “8” or higher as impaired and
automatically subject to a FASB ASC Topic 310 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
a FASB ASC Topic 310 review.





At
December 31, 2009, Central Jersey Bancorp had impaired loans totaling $23.2
million, as compared to $2.7 million at December 31, 2008.  The
increase in impaired loans was due primarily to multiple commercial loans
totaling $21.2 million which were downgraded in risk rating and/or placed on
non-accrual status during 2009.  These loans were considered impaired
and were evaluated in accordance with FASB ASC Topic 310.  After
evaluation, specific reserves were required for fifteen of the impaired
loans.  At December 31, 2009, Central Jersey Bancorp recorded $4.1
million of specific reserves for impaired loans, as compared to $474,000 in
specific reserves for impaired loans at December 31, 2008.





Central
Jersey Bancorp’s policy for interest income recognition on non-accrual 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 non-accrual loans during 2009.  Total cash collected on
non-accrual loans during 2009 was $263,000, as compared to $1.1 million
collected during 2008, all of which was credited to the principal balances
outstanding.








F-21
 Index




Impaired loans for the
years ended December 31, 2009 and 2008 are summarized as follows (dollars in
thousands):




2009
            
            
            2008Balance
      of impaired loans with no allowance allocation
            
            $
            4,035
            
            
            $
            683Balance
      of impaired loans with an allocated allowance
            
            
            19,140
            
            
            
            2,007Total
      recorded investment in impaired loans
            
            $
            23,175
            
            
            $
            2,690Amount
      of the allowance allocated to impaired loans
            
            $
            4,085
            
            
            $
            474Average
      balance of impaired loans
            
            $
            14,689
            
            
            $
            1,286








At
December 31, 2009 and 2008, loans to officers, directors and related parties
amounted to approximately $2.4 million and $4.3 million,
respectively.  During the year ended December 31, 2009 and 2008,
$498,000 and $113,000, respectively, in new loans to officers, directors and
related parties were originated and repayments totaled approximately $2.4
million and $181,000, respectively.





NOTE
6 – Other Real Estate Owned





Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses
from other non-interest expenses.





The
following table represents the balance of other real estate owned at December
31, 2009 and 2008 (in thousands):





2009
            
            
            2008Other
      real estate owned
            
            $
            1,055
            
            
            $
            --





At
December 31, 2009, two loans were transfered to other real estate owned,
impacting the provision for loan losses by $245,000, and recorded as other real
estate owned at their initial fair market value less cost to sell of $1.1
million.





NOTE
7 - Financial Instruments with Off-Balance Sheet Risk and Concentrations of
Credit 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, 2009 and 2008 is as follows (in
thousands):




2009
            
            
            2008Standby
      letters of credit
            
            $
            2,140
            
            
            $
            2,206Outstanding
      loan and credit line commitments
            
            $
            67,122
            
            
            $
            65,079





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


F-22
 Index


outstanding
standby letters of credit are performance standby letters within the scope of
FASB ASC Topic 952.  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
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, 2009
and 2008.





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.





NOTE
8 - Premises and Equipment





Premises
and equipment at December 31, 2009 and 2008 are summarized as follows (in
thousands):





2009
            
            
            2008Equipment
            
            $
            5,390
            
            
            $
            5,247Leasehold
      improvements
            
            
            3,647
            
            
            
            3,611Land
            
            
            1,503
            
            
            
            1,503Buildings
      and improvements
            
            
            1,358
            
            
            
            1,365Auto
            
            
            65
            
            
            
            6511,963
            
            
            
            11,791Accumulated depreciation and
      amortization
            
            
            (6,017
            )
            
            
            (5,488
            )$
            5,946
            
            
            $
            6,303





Depreciation
and amortization expense amounted to $723,000 and $676,000 in 2009 and 2008,
respectively.





NOTE
9 – Goodwill and Other Intangible Assets





Goodwill
and other intangible assets at December 31, 2009 and 2008 are summarized as
follows (in thousands):





2009
            
            
            2008Goodwill
            
            $
            26,957
            
            
            $
            26,957Less:
      goodwill impairment
            
            
            (26,957
            )
            
            
            --Goodwill,
      net
            
            
            --
            
            
            
            26,957Core
      deposit intangible
            
            
            3,785
            
            
            
            3,785Less:
      accumulated amortization
            
            
            (2,754
            )
            
            
            (2,341
            )Core
      deposit intangible, net
            
            
            1,031
            
            
            
            1,444Total
            
            $
            1,031
            
            
            $
            28,401





Goodwill
and other intangible assets on the consolidated statement of financial condition
decreased $27.4 million, from $28.4 million at December 31, 2008 to $1.0 million
at December 31, 2009. The decrease was primarily due to $27.0 million of
goodwill impairment identified in the “community banking” reporting unit,
accompanied by scheduled amortization of core deposit
intangibles.


F-23
 Index


The
Company performed an interim impairment test during the second quarter ending
June 30th of
its goodwill due to the presence of indicators of potential impairment.
Specifically, the circumstances present included adverse changes in the business
climate which was reflected in the prolonged trading value of the Company’s
common stock relative to its book value, and the tentative merger between
Central Jersey Bancorp and OceanFirst Financial Corp.





The
Company’s only reporting unit is “community banking” for purposes of the
goodwill impairment test. As of June 30, 2009, the carrying value of goodwill
assigned to the “community banking” reporting unit was $27.0 million. Upon
testing, the “community banking” reporting unit failed the step one test,
resulting in a potential indicator of impairment.





The step
two test for the “community banking” reporting unit resulted in $27.0 million of
impairment, for which the carrying value of goodwill was reduced to zero as of
December 31, 2009 and a corresponding decrease to net income was recorded for
2009. There was no impact on income taxes for the period, as a result of the
goodwill impairment charge.





Amortization
expense of intangible assets for the years ended December 31, 2009 and 2008
is as follows (in thousands):





2009
            
            
            2008Core
      deposit intangible amortization
            
            $
            413
            
            
            $
            482





Scheduled
amortization of core deposit intangibles is as follows (in
thousands):


2010
            3442011
            2752012
            2062013
            1382014
            69





NOTE
10 - Deposits





Total
deposits at December 31, 2009 and 2008 consist of the following (in
thousands):





2009
            
            
            2008Savings,
      N.O.W. and money market accounts
            
            $
            226,729
            
            
            $
            190,475Certificates
      of deposit less than $100,000
            
            
            72,089
            
            
            
            78,949Certificates
      of deposit of $100,000 or more
            
            
            88,560
            
            
            
            73,444Subtotal
      of interest bearing deposits
            
            $
            387,378
            
            
            $
            342,868Demand
      deposits
            
            
            80,500
            
            
            
            75,947Total
      deposits
            
            $
            467,878
            
            
            $
            418,815





At
December 31, 2009, certificates of deposit mature as follows: 2010 - $122.3
million; 2011 - $28.1 million; 2012 - $9.5 million; 2013 - $697,000; and 2014 -
$26,000.





Interest
expense on deposits for the years ended December 31, 2009 and 2008 is
summarized as follows (in thousands):





2009
            
            
            2008Savings,
      N.O.W. and money market accounts
            
            $
            2,488
            
            
            $
            3,276Certificates
      of deposit
            
            
            4,559
            
            
            
            5,708Total
      interest expense on deposits
            
            $
            7,047
            
            
            $
            8,984


F-24
 Index


NOTE
11 - Borrowings





Borrowed
funds at December 31, 2009 and 2008 are summarized as follows (in
thousands):





2009
            
            
            2008Borrowings
            
            $
            47,575
            
            
            $
            71,741





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, 2009, borrowings included $26.4 million
in bank sweep funds, $15.0 million in FHLBNYcallable advances and
$6.2 million in FHLBNY fixed rate advances.  At December 31, 2008,
borrowings included $23.0 million in bank sweep funds, $27.5 million in FHLBNY
overnight advances, $20.0 million in FHLBNY callable advances and $1.2 million
in FHLBNY fixed rate advances.  At December 31, 2009 and December 31,
2008, Central Jersey Bank, N.A. had unused lines of credit with the FHLBNY of
$26.2 million and $33.8 million, respectively.





At
December 31, 2009, Central Jersey Bank, N.A. had outstanding FHLBNY callable
advances as follows (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
            
            
            
            2.903
            %
            7
      year non-call3
      years
            One
      Time$
            15,000
            
            
            
            2.774
            %





At
December 31, 2009, Central Jersey Bank, N.A. had the following outstanding
FHLBNY fixed rate advances (in thousands):





Date
            
            Amount
            
            
            Rate
            
            Term
            Maturity2/01/2008
            
            $
            5,000
            
            
            
            2.380
            %
            5
      years
            2/01/20135/28/2008
            
            
            1,152
            
            
            
            4.940
            %
            13
      years
            5/28/2021$
            6,152
            
            
            
            2.871
            %





NOTE
12 - 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
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, 2009, $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.


F-25
 Index


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.  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, 2009, 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
13 - Income Taxes





Components
of income tax expense (benefit) for the years ended December 31, 2009 and 2008
are as follows (in thousands):




2009
            
            
            2008Current
      income tax expense:Federal
            
            $
            919
            
            
            $
            1,228State
            
            
            180
            
            
            
            2701,099
            
            
            
            1,498Deferred
      income tax benefit:Federal
            
            
            (1,456
            )
            
            
            (47
            )State
            
            
            (531
            )
            
            
            (163
            )(1,987
            )
            
            
            (210
            )$
            (888
            )
            
            $
            1,288





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):





2009
            
            
            2008Federal
      income tax
            
            $
            (9,065
            )
            
            $
            1,424State
      income tax effect, net of federal tax effect
            
            
            (232
            )
            
            
            71Bank-owned
      life insurance
            
            
            (46
            )
            
            
            (41
            )Tax-exempt
      interest
            
            
            (451
            )
            
            
            --Non
      deductible expenses
            
            
            5
            
            
            
            --Goodwill
      impairment
            
            
            9,165
            
            
            
            --Valuation
      reserve
            
            
            (253
            )
            
            
            (158
            )Other
            
            
            (11
            )
            
            
            (8
            )Provision
      charged to expense
            
            $
            (888
            )
            
            $
            1,288


F-26
 Index


The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2009 and 2008
are as follows (in thousands):





2009
            
            
            2008Deferred
      tax assets:Allowance
      for loan losses
            
            $
            3,840
            
            
            $
            1,887Impaired
      investment securities
            
            
            --
            
            
            
            282Discount
      accretion
            
            
            70
            
            
            
            --New
      Jersey NOL carry forwards
            
            
            43
            
            
            
            43Allowance
      for uncollected interest
            
            
            374
            
            
            
            160Net
      purchase accounting adjustments
            
            
            104
            
            
            
            360Depreciation
            
            
            35
            
            
            
            127Alternative
      minimum assessment
            
            
            4
            
            
            
            4Stock
      options / SARS
            
            
            156
            
            
            
            130Other
            
            
            96
            
            
            
            41Gross
      deferred tax asset
            
            
            4,722
            
            
            
            3,034Less: valuation reserve
            
            
            (43
            )
            
            
            (324
            )Deferred tax assets, net
            
            
            4,679
            
            
            
            2,710Deferred
      tax liabilities:Deferred
      loan costs
            
            
            (153
            )
            
            
            (153
            )Impaired
      investment securities
            
            
            (1
            )
            
            
            --Discount
      accretion
            
            
            --
            
            
            
            (19
            )Unrealized gain  - securities
      available-for-sale
            
            
            (602
            )
            
            
            (1,162
            )Gross deferred tax
    liabilities
            
            
            (756
            )
            
            
            (1,334
            )Net deferred tax assets
            
            $
            3,923
            
            
            $
            1,376





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
state income tax net operating losses by Central Jersey Bancorp, 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, 2009, Central Jersey Bancorp had approximately $1.8 million of New Jersey
net operating loss carryforwards that will expire between 2009 and
2029.





As of
January 1, 2009, 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, 2009.  The tax years that remain
subject to examination at the federal level are 2009, 2008, 2007 and 2006. 
Accruals of interest and penalties related to unrecognized tax benefits, when
applicable, are recognized in income tax expense.








F-27
 Index




NOTE 14 -
Fair Value Measurements


The
Company adopted the provisions of FASB ASC Topic 820, “Fair Value Measurements and
Disclosures,” for financial assets and financial
liabilities.  FASB ASC Topic 820 defines fair value, establishes a
framework for measuring fair value in GAAP and expands disclosures about fair
value measurements.  The adoption of FASB ASC Topic 820 for financial
assets and financial liabilities and non-financial assets and non-financial
liabilities did not have a significant impact on the Company’s consolidated
financial position, results of operations or cash flows.





Beginning
January 1, 2008, financial assets and financial liabilities recorded at fair
value in the Consolidated Statements of Financial Condition are categorized
based upon the level of judgment associated with the inputs used to measure
their fair value.  Under the guidance, fair value measurements are not
adjusted for transaction costs.  FASB ASC Topic 820 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 FASB ASC Topic 820 are described
below.





Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation
technique.  Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amount the
Company could have realized in a sales transaction on the dates
indicated.  The estimated fair value amounts have been measured as of
their respective period ends and have not been re-evaluated or updated for
purposes of these financial statements subsequent to those respective
dates.  As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each period-end.





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; and





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, as
noted above.





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 independent pricing service.  The fair
value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Department of the 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.





Impaired loans - Loans that
the Bank has measured impairment generally based on fair value of the loan’s
collateral.  Fair value is generally determined based upon independent
third-party appraisals of the properties, or discounted cash


F-28
 Index


flows
based upon the expected proceeds.  These assets are included as Level
III fair values, based upon the lowest level of input that is significant to the
fair value measurements.





Other Real Estate Owned –Real estate owned is adjusted to fair value less estimated selling costs
upon transfer of the loans to real estate owned.  Subsequently, real
estate owned assets are carried at the lower of carrying value or fair
value.  Fair value is based upon independent market prices, appraised
values of collateral or management’s estimation of the value of the
collateral.  These assets are included as Level III fair
values.





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, 2009, segregated by the level of valuation
inputs within the fair value hierarchy utilized to measure fair value (in
thousands):








At December 31,
      2009Level I
            
            
            Level II
            
            
            Level
III
            
            
            Total
              fair
    valueInvestment
      securities available-for-sale:Obligations
      of U.S. Government sponsored agencies
            
            $
            --
            
            
            $
            15,128
            
            
            $
            --
            
            
            $
            15,128Municipal
      obligations
            
            
            --
            
            
            
            48,281
            
            
            
            --
            
            
            
            48,821Mortgage-backed
      securities of U.S. Government sponsored agencies
            
            
            --
            
            
            
            38,092
            
            
            
            --
            
            
            
            38,092Other
      securities
            
            
            --
            
            
            
            2,908
            
            
            
            --
            
            
            
            2,908Total
      assets measured fair value on a recurring basis
            
            $
            --
            
            
            $
            104,409
            
            
            $
            --
            
            
            $
            104,409





At December 31,
      2008Level I
            
            
            Level II
            
            
            Level
III
            
            
            Total
              fair
    valueInvestment
      securities available-for-sale:Obligations
      of U.S. Government sponsored agencies
            
            $
            --
            
            
            $
            32,033
            
            
            $
            --
            
            
            $
            32,033Municipal
      obligations
            
            
            --
            
            
            
            4,728
            
            
            
            --
            
            
            
            4,728Mortgage-backed
      securities of U.S. Government sponsored agencies
            
            
            --
            
            
            
            129,411
            
            
            
            --
            
            
            
            129,411Other
      securities
            
            
            --
            
            
            
            4,511
            
            
            
            --
            
            
            
            4,511Total
      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).








F-29
 Index




The following tables
summarize financial assets measured at fair value on a nonrecurring basis at
December 31, 2009 and December 31, 2008, segregated by the level of valuation
inputs within the fair value hierarchy utilized to measure fair value (in
thousands):




At December 31,
      2009Level I
            
            
            Level II
            
            
            Level
III
            
            
            Total
              fair
    valueImpaired
      loans
            
            $
            --
            
            
            $
            --
            
            
            $
            15,055
            
            
            $
            15,055Other
      real estate owned
            
            
            
            
            
            
            
            
            
            
            1,055
            
            
            
            1,055Servicing
      rights
            
            
            --
            
            
            
            --
            
            
            
            289
            
            
            
            289Total
      assets measured fair value on a nonrecurring basis
            
            $
            --
            
            
            $
            --
            
            
            $
            16,399
            
            
            $
            16,399





At December 31,
      2008Level 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





The
following information should not be interpreted as an estimate of the fair value
of the entire Companysince 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, 2009 and December 31, 2008:





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.





Investment
Securities


The fair
value of investment 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 I), or matrix
pricing (Level II), which is a mathematical technique used widely in the
industry to value debt securities without relying exclusively on quoted market
prices for the specific investment securities but rather by relying on the
investment securities’ relationship to other benchmark quoted prices. For
certain investment securities which are not traded in active markets or are
subject to transfer restrictions, valuations are adjusted to reflect illiquidity
and/or nontransferability, and such adjustments are generally based on available
market evidence (Level III).  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 III
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 III investments.





Loans
Receivable (Carried at Cost)


The fair
values of loans are estimated using discounted cash flow analyses, using market
rates at the dates of the Consolidated Statements of Financial Condition 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.








F-30
 Index


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.





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 data 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 the fair value of such interest receivable and interest
payable.





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 FHLBNY advances are estimated using a discounted cash flow analysis,
based on quoted prices for new FHLBNY 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 subordinated debentures is estimated by discounting the estimated
future cash flows, using market discount rates of financial instruments with
similar characteristics, terms and remaining maturity.





Off-Balance
Sheet Financial Instruments (Disclosed at Notional Amounts)


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, 2009 and December 31, 2008, 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 financial instruments included in the Consolidated Statements of
Financial Condition at December 31, 2009 and December 31, 2008, 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-31
 Index


The
estimated fair values of the Company’s financial instruments were as follows at
December 31, 2009 and 2008 (dollars in thousands):




2009
              
              
              2008Carrying
      amount
              
              
              Fair
                value
              
              
              Carrying
      amount
              
              
              Fair
                valueFinancial
      Assets:Cash
      and cash equivalents
              
              $
              78,315
              
              
              $
              78,315
              
              
              $
              9,767
              
              
              $
              9,767Investment
      securities available-for-sale
              
              
              96,947
              
              
              
              96,947
              
              
              
              170,683
              
              
              
              170,683Investment
      securities held-to-maturity
              
              
              7,217
              
              
              
              7,462
              
              
              
              14,679
              
              
              
              15,124Loans,
      net
              
              
              369,474
              
              
              
              377,183
              
              
              
              356,257
              
              
              
              364,684Loans
      held-for-sale
              
              
              --
              
              
              
              --
              
              
              
              400
              
              
              
              400Servicing
      rights
              
              
              289
              
              
              
              289
              
              
              
              133
              
              
              
              133Restricted
      stock
              
              
              3,750
              
              
              
              3,750
              
              
              
              4,982
              
              
              
              4,982Accrued
      interest receivable
              
              
              2,285
              
              
              
              2,285
              
              
              
              2,251
              
              
              
              2,251Financial
      Liabilities:Deposits
              
              
              467,878
              
              
              
              452,193
              
              
              
              418,815
              
              
              
              408,391Borrowings
              
              
              47,575
              
              
              
              48,655
              
              
              
              71,741
              
              
              
              72,679Accrued
      interest payable
              
              
              231
              
              
              
              231
              
              
              
              217
              
              
              
              217Subordinated
      debentures
              
              
              5,155
              
              
              
              1,804
              
              
              
              5,155
              
              
              
              5,167Off-balance
      sheet financial instruments
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --




NOTE
15 - Post Retirement Benefits





A
consensus was reached that an employer should recognize a liability for future
benefits under FASB ASC Topic 715, “Compensation Retirement
Benefits,” for an endorsement split-dollar life insurance
arrangement.  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





F-32
 Index





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.





During
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 FASB ASC Topic 715.





NOTE
16 - Commitments and Contingencies





At
December 31, 2009, the Company was obligated under non-cancelable lease
agreements for 10 branch office leases and two leases for office and storage
space.  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):





2010
            
            $
            1,045,7472011
            
            
            947,3492012
            
            
            891,6612013
            
            
            535,2692014
      and thereafter
            
            
            663,119Total
            
            $
            4,083,145





Total
rent expense was $1.1 million in both 2009 and 2008.





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 Statements of Financial
Condition.





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 paid by Central Jersey Bank, N.A.
was determined by an independent appraiser to be at fair market
value.  The lease was terminated in 2008 and total lease payments for
2008 were $43,000.





NOTE
17 - Regulatory Capital Requirements





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.





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


F-33
 Index


is
prohibited from increasing its common stock dividends without prior approval of
the U.S. Department of the Treasury until December 23, 2011, which is the third
anniversary of the investment by the U.S. Department of the 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, 2009 and 2008,
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.





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, 2009 and 2008,
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
      Ratio2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Actual RatiosCentral
      Jersey Bank, N.A.
            
            
            7.89
            %
            
            
            10.33
            %
            
            
            10.19
            %
            
            
            14.05
            %
            
            
            14.00
            %
            
            
            15.24
            %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-34
 Index




Tier
      I
              Capital
      to
              Average
      Assets Ratio
              (Leverage
      Ratio)
            
            
            Tier
      I
              Capital
      to
              Risk
      Weighted
              Asset
      Ratio
            
            
            Total
      Capital to
              Risk
      Weighted
              Asset
      Ratio2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Actual AmountsCentral
      Jersey Bank, N.A.
            
            $
            45,801
            
            
            $
            56,542
            
            
            $
            45,801
            
            
            $
            56,542
            
            
            $
            62,948
            
            
            $
            61,299Required Regulatory Amounts“Adequately
      capitalized” institution (under federal regulations)
            
            $
            23,217
            
            
            $
            21,901
            
            
            $
            17,984
            
            
            $
            16,092
            
            
            $
            35,967
            
            
            $
            32,184“Well
      capitalized” institution (under federal regulations)
            
            $
            29,021
            
            
            $
            27,376
            
            
            $
            26,975
            
            
            $
            24,138
            
            
            $
            44,958
            
            
            $
            40,231





Tier
      I
              Capital
      to
              Average
      Assets Ratio
              (Leverage
      Ratio)
            
            
            Tier
      I
              Capital
      to
              Risk
      Weighted
              Asset
      Ratio
            
            
            Total
      Capital to
              Risk
      Weighted
              Asset
      Ratio2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Actual RatiosCentral
      Jersey Bancorp
            
            
            9.68
            %
            
            
            10.20
            %
            
            
            12.50
            %
            
            
            13.91
            %
            
            
            13.76
            %
            
            
            15.09
            %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
      Ratio2009
            
            
            2008
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Actual AmountsCentral
      Jersey Bancorp
            
            $
            56,180
            
            
            $
            55,740
            
            
            $
            56,180
            
            
            $
            55,740
            
            
            $
            61,850
            
            
            $
            60,497Required Regulatory Amounts“Adequately
      capitalized” institution (under federal regulations)
            
            $
            23,217
            
            
            $
            21,864
            
            
            $
            17,984
            
            
            $
            16,033
            
            
            $
            35,967
            
            
            $
            32,067“Well
      capitalized” institution (under federal regulations)
            
            $
            29,021
            
            
            $
            27,330
            
            
            $
            26,975
            
            
            $
            24,050
            
            
            $
            44,959
            
            
            $
            40,084


F-35
 Index


NOTE
18 - Benefit Plans





Stock
Option Plans





As of
December 31, 2009, stock options to purchase in aggregate up to 1,023,442 shares
of the Company’s common stock were outstanding under the plans maintained by the
Company.  During 2009 and 2008, no stock options were
granted.  Effective January 1, 2005, as a result of the combination
with Allaire Community Bank, all outstanding stock options  became
fully vested.





A summary
of the status of the Company’s stock options as of and for the years ended
December 31, 2009 and 2008 is presented below:





2009
            
            
            2008Shares
            
            
            Weighted
              average
              exercise
              price
            
            
            Shares
            
            
            Weighted
      average exercisepriceOutstanding
      at beginning of year
            
            
            1,289,948
            
            
            $
            4.71
            
            
            
            1,410,349
            
            
            $
            4.77Granted
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Forfeited
            
            
            (10,062
            )
            
            
            7.39
            
            
            
            (56,224
            )
            
            
            7.56Exercised
            
            
            (256,444
            )
            
            
            3.21
            
            
            
            (64,177
            )
            
            
            3.67Outstanding at end of year
            
            
            1,023,442
            
            
            
            5.29
            
            
            
            1,289,948
            
            
            
            4.71Options
      exercisable at year end
            
            
            1,023,442
            
            
            
            5.29
            
            
            
            1,289,948
            
            
            
            4.71Weighted 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, 2009.





The
following table summarizes information about stock options outstanding at
December 31, 2009:





Options
      Outstanding and ExercisableDecember
      31, 2009Numberoutstanding
            
            
            Exercisable
            
            Weightedaverageremainingcontractual
      life
            
            Range
      ofexerciseprices122,856
            
            
            
            122,856
            
            5
      Months
            
            $
            2.72
      – 2.72514,390
            
            
            
            514,390
            
            20
      Months
            
            $
            3.06
      – 3.9290,429
            
            
            
            90,429
            
            36
      Months
            
            $
            4.97
      – 4.97295,767
            
            
            
            295,767
            
            52
      Months
            
            $
            7.56
      – 9.90


F-36
 Index


The
aggregate intrinsic value for stock options outstanding and stock options
exercisable at December 31, 2009 is $33,000 for both, based upon a market price
of $2.99 per share and a weighted average exercise price of $2.72 per
share.  The aggregate intrinsic value of stock options exercised
during 2009 and 2008 was $640,000 and $233,000, respectively.  There were
no stock options granted during 2009 or 2008.





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 2009 and 2008 were $172,000 and
$158,000, respectively.





NOTE
19 - Condensed Financial Statements of Central Jersey Bancorp (Parent Company
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
            
            2009
            
            
            2008Assets:Cash
            
            $
            91
            
            
            $
            238Investment
      in subsidiary
            
            
            60,944
            
            
            
            86,044Total
      assets
            
            $
            61,035
            
            
            $
            86,282Liabilities:Other
      liabilities
            
            
            361
            
            
            
            373Subordinated
      debentures
            
            
            5,155
            
            
            
            5,155Total
      liabilities
            
            $
            5,516
            
            
            $
            5,528Shareholders’
      Equity:Common
      stock
            
            
            92
            
            
            
            90Preferred
      stock
            
            
            11,300
            
            
            
            11,300Accumulated
      other comprehensive income
            
            
            1,022Additional
      paid-in capital
            
            
            64,981
            
            
            
            64,502Treasury
      stock
            
            
            (1,806
            )
            
            
            (1,806
            )(Accumulated
      deficit)/retained earnings
            
            
            (20,070
            )
            
            
            6,668Total
      shareholders’ equity
            
            $
            55,519
            
            
            $
            80,754Total
      liabilities and shareholders’ equity
            
            $
            61,035
            
            
            $
            86,282





Statements
      of Income
            
            2009
            
            
            2008Equity
      in undistributed (losses) earnings of the bank subsidiary
            
            $
            (26,318
            )
            
            $
            3,253Interest
      expense on subordinated debt
            
            
            (193
            )
            
            
            (355
            )Net
      (loss) income available to common shareholders
            
            $
            (26,511
            )
            
            $
            2,898


F-37
 Index




Statements
      of Cash Flows
            
            2009
            
            
            2008Cash
      Flow From Operating Activities:Net
      (loss) income available to common shareholders
            
            $
            (26,511
            )
            
            $
            2,898Less:
      equity in undistributed (losses) earnings of the bank
      subsidiary
            
            
            26,318
            
            
            
            (3,253
            )(Decrease)
      increase in other liabilities
            
            
            (12
            )
            
            
            31Net
      cash used in operating activities
            
            
            (205
            )
            
            
            (324
            )Cash
      Flow From Investing Activities:Proceeds
      from issuance of preferred stock downstreamed to
subsidiary
            
            
            --
            
            
            
            (11,300
            )Net
      cash used in investment activities
            
            
            --
            
            
            
            (11,300
            )Cash
      Flow From Financing ActivitiesProceeds
      from exercise of stock options, net
            
            
            481
            
            
            
            330Fractional
      shares paid in cash
            
            
            --
            
            
            
            (4
            )Proceeds
      from issuance of subordinated debt
            
            
            --
            
            
            
            --Proceeds
      from issuance of preferred stock
            
            
            --
            
            
            
            11,300Cash
      dividend from subsidiary
            
            
            320
            
            
            
            2,042Cash
      dividend paid on preferred stock
            
            
            (505
            )
            
            
            --Purchase
      of outstanding stock; placed in treasury
            
            
            --
            
            
            
            (1,806
            )Net
      cash provided by financing activities
            
            
            296
            
            
            
            11,892Cash
      and cash equivalents at beginning of period
            
            
            238
            
            
            
            --Cash
      and cash equivalents at the end of period
            
            $
            91
            
            
            $
            238





NOTE
20 - Recent Accounting Pronouncements





FASB
ASC Topic 860





In
October 2009, the FASB issued ASC Topic 860, “Transfers and Servicing – Accounting
for Transfers of Financial Assets.”  This update amends the ASC
for the issuance of FASB Statement No. 166, “Accounting for Transfers of
Financial Assets-an amendment of FASB Statement No. 140.”The
amendments in this update improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets.  In addition, the amendments require
enhanced disclosures about the risks that a transferor continues to be exposed
to because of its continuing involvement in transferred financial
assets.  Comparability and consistency in accounting for transferred
financial assets will also be improved through clarifications of the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting.  This update is effective at the
start of a reporting entity’s first fiscal year beginning after November 15,
2009.  Early application is not permitted.  The Company does
not expect the adoption of this pronouncement to have a material impact on the
Company’s consolidated financial position, results of operations or cash
flows.








F-38
 Index







In
October 2009, the FASB issued ASU Topic 810, “Consolidations – Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities.”  This update amends the Codification for the issuance of FASB
Statement No. 167, “Amendments
to FASB Interpretation No. 46(R).”  The amendments in this
update replace the quantitative-based risks and rewards calculation for
determining which reporting entity, if any, has a controlling financial interest
in a variable interest entity with an approach focused on identifying which
reporting entity has the power to direct the activities of a variable interest
entity that most significantly impact the entity’s economic performance and (1)
the obligation to absorb losses of the entity or (2) the right to receive
benefits from the entity.  An approach that is expected to be
primarily qualitative will be more effective for identifying which reporting
entity has a controlling financial interest in a variable interest
entity.  The amendments in this update also require additional
disclosures about a reporting entity’s involvement in variable interest
entities, which will enhance the information provided to users of financial
statements.  This update is effective at the start of a reporting
entity’s first fiscal year beginning after November 15, 2009.  Early
application is not permitted.  The Company does not expect the
adoption of this pronouncement to have a material impact on the Company’s
consolidated financial position, results of operations or cash
flows.





FASB
ASC Topic 825





In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 825,
“Financial Instruments,”which amends previous Topic 825 guidance to require disclosures about
fair value of financial instruments in interim as well as annual financial
statements.  This pronouncement is effective for periods ending after
June 15, 2009.  Accordingly, the Company adopted these provisions
of FASB ASC Topic 825 on March 29, 2009. The adoption of this pronouncement
did not have a material impact on the Company’s consolidated financial position,
results of operations or cash flows. However, these provisions of FASB ASC Topic
825 resulted in additional disclosures with respect to the fair value of the
Company’s financial instruments. See Note 14, Fair Value Measurements,for
these additional disclosures.





FASB
ASC Topic 320





In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 320,
“Investments — Debt and Equity
Securities” and Topic 325 “Investments — Other,” which
is designed to create greater clarity and consistency in accounting for and
presenting impairment losses on securities.  The pronouncement is
effective for periods ending after June 15, 2009.  Accordingly,
the Company adopted this pronouncement on March 29, 2009.  The
adoption of this guidance did not have a material impact on the Company’s
consolidated financial position, results of operations or cash
flows.  However, the provisions of FASB ASC Topic 320 resulted in
additional disclosures with respect to the fair value of the Company’s
investments with unrealized losses that are not deemed other-than-temporarily
impaired.  See Note 14, Fair Value Measurements,for
these additional disclosures.





FASB
ASC Topic 820





In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 820,
“Fair Value Measurements and
Disclosures.”  This guidance defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements.  This guidance establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset. The
pronouncement is effective for periods ending after June 15,
2009.  Accordingly, the Company adopted this pronouncement on
March 29, 2009.  The adoption of this guidance did not have a
material impact on the Company’s consolidated financial position, results of
operations or cash flows. However, the provisions of FASB ASC Topic 320 resulted
in additional disclosures with respect to the fair value of the Company’s
investments with unrealized losses that are not deemed other-than-temporarily
impaired.  See Note 14, Fair Value Measurements,for
these additional disclosures.




F-39
 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, 2009 and 2008, respectively.





2009 Quarter EndedMarch 31
            
            
            June 30
            
            
            September 30
            
            
            December 31(dollars
      in thousands, except per share data)Interest
      income
            
            $
            7,009
            
            
            $
            6,533
            
            
            $
            6,651
            
            
            $
            6,186Interest
      expense
            
            
            2,286
            
            
            
            2,207
            
            
            
            1,935
            
            
            
            1,751Net
      interest income
            
            
            4,723
            
            
            
            4,326
            
            
            
            4,716
            
            
            
            4,435Provision
      for loan losses
            
            
            3,135
            
            
            
            316
            
            
            
            1,058
            
            
            
            1,705Net
      interest income after provision for loan losses
            
            
            1,588
            
            
            
            4,010
            
            
            
            3,658
            
            
            
            2,730Non-interest
      income
            
            
            2,166
            
            
            
            894
            
            
            
            1,466
            
            
            
            531Non-interest
      expense
            
            
            4,045
            
            
            
            30,950
            
            
            
            4,068
            
            
            
            4,636(Loss)
      income before income taxes
            
            
            (291
            )
            
            
            (26,046
            )
            
            
            1,056
            
            
            
            (1,375
            )Income
      tax (benefit) expense
            
            
            (601
            )
            
            
            258
            
            
            
            136
            
            
            
            (681
            )Net
      income (loss)
            
            $
            310
            
            
            $
            (26,304
            )
            
            $
            920
            
            
            $
            (694
            )Preferred
      stock dividend
            
            
            141
            
            
            
            142
            
            
            
            141
            
            
            
            141Preferred
      stock discount amortization
            
            
            44
            
            
            
            44
            
            
            
            45
            
            
            
            45Net
      income (loss) available to common shareholders
            
            $
            125
            
            
            $
            (26,490
            )
            
            $
            734
            
            
            $
            (880
            )Earnings
      (loss) per common share:Basic
            
            $
            0.01
            
            
            $
            (2.92
            )
            
            $
            0.08
            
            
            $
            (0.10
            )Diluted
            
            $
            0.01
            
            
            $
            (2.92
            )
            
            $
            0.08
            
            
            $
            (0.10
            )Weighted
      average shares outstanding:Basic
            
            
            9,027,282
            
            
            
            9,108,068
            
            
            
            9,192,514
            
            
            
            9,220,655Diluted
            
            
            9,000,531
            
            
            
            9,108,068
            
            
            
            9,000,531
            
            
            
            9,220,655


F-40
 Index




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 after provision 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-41
 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).2.3.1
              
              Agreement
      and Plan of Merger, dated as of May 26, 2009, between OceanFirst Financial
      Corp. and the Registrant (Incorporated by reference to Exhibit 2.1 to the
      Registrant’s Current Report on Form 8-K, dated May 26, 2009 and filed with
      the SEC on May 27, 2009).2.3.2
              
              Termination
      Agreement, dated December 17, 2009, between OceanFirst Financial Corp. and
      the Registrant (Incorporated by reference to Exhibit 2.1 to the
      Registrant’s Current Report on Form 8-K, dated December 18, 2009 and filed
      with the SEC on that same date).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).  E-2
 Index
  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).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*
              
              Second
      Amended and Restated Change of Control Agreement, dated March 29, 2010, by
      and between Anthony Giordano III and Central Jersey
    Bancorp.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).  E-3
 Index
  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).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 the 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,
      2009).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 Independent Registered Public Accounting Firm.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
    1350.99.1
              
              Certification
      of Principal Executive Officer Pursuant to Section 111(b)(4) of the
      Emergency Economic Stabilization Act of 2008 and 31 CFR
    30.15.99.2
              
              Certification
      of Principal Financial Officer Pursuant to Section 111(b)(4) of the
      Emergency Economic Stabilization Act of 2008 and 31 CFR
    30.15.





-------------------------------------------------


*Constitutes
a management contract.






E-4