##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the quarterly period ended June 30, 2010
 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 No. 001-33934
 Cape Bancorp, Inc.
 (Exact name of registrant as specified in its charter)
 Maryland
    
    26-1294270(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)225 North Main Street, Cape May Court House, New Jersey
    
    08210(Address of Principal Executive Offices)
    
    Zip Code
 (609) 465-5600
(Registrants telephone number)
 N/A
(Former name or former address, if changed since last report)
 YES þ NO o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if smaller reporting company)
 Act). YES o NO þ




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##### 



CAPE BANCORP, INC.
FORM 10-Q
 Index
 PagePart I. Financial InformationItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009
    
    
    3Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and June 30, 2009
(unaudited)
    
    
    4Consolidated Statements of Changes in Stockholders Equity for the Twelve Months Ended December 31, 2009
and Six Months Ended June 30, 2010 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and June 30, 2009 (unaudited)
    
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    43Part II. Other InformationItem 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3. Defaults upon Senior Securities
    
    
    45Item 4. (Reserved)
    
    
    45Item 5. Other Information
    
    
    45Item 6. Exhibits
    
    
    46Signature Page
    
    
    47Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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##### Table of Contents



Item 1.
    
    Financial Statements
 CAPE BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (unaudited)June 30,
    
    
    December 31,2010
    
    
    2009(in thousands)ASSETSCash & due from financial institutions
    
    $
    14,597
    
    
    $
    9,573Interest-bearing bank balances
    
    
    2,195
    
    
    
    3,940Federal funds sold
    
    
    9,250
    
    
    
    Cash and cash equivalents
    
    
    26,042
    
    
    
    13,513Interest-bearing time deposits
    
    
    9,278
    
    
    
    7,451Investment securities available for sale, at fair value (amortized
cost of $165,511 and $162,935 respectively)
    
    
    159,702
    
    
    
    152,815Loans held for sale
    
    
    585
    
    
    
    398Loans, net of allowance of $11,916 and $13,311 respectively
    
    
    774,477
    
    
    
    789,473Accrued interest receivable
    
    
    4,116
    
    
    
    4,630Premises and equipment, net
    
    
    25,738
    
    
    
    26,383Other real estate owned
    
    
    3,628
    
    
    
    4,817Federal Home Loan Bank (FHLB) stock, at cost
    
    
    7,794
    
    
    
    10,275Prepaid FDIC insurance premium
    
    
    3,786
    
    
    
    4,377Deferred income taxes
    
    
    4,194
    
    
    
    3,956Bank owned life insurance (BOLI)
    
    
    27,716
    
    
    
    27,210Goodwill
    
    
    22,575
    
    
    
    22,575Intangible assets, net
    
    
    513
    
    
    
    585Assets held for sale
    
    
    494
    
    
    
    1,828Other assets
    
    
    1,659
    
    
    
    2,535Total assets
    
    $
    1,072,297
    
    
    $
    1,072,821LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing deposits
    
    $
    70,351
    
    
    $
    62,365Interest-bearing deposits
    
    
    716,165
    
    
    
    674,222Borrowings
    
    
    149,033
    
    
    
    203,981Advances from borrowers for taxes and insurance
    
    
    580
    
    
    
    542Accrued interest payable
    
    
    762
    
    
    
    807Other liabilities
    
    
    4,543
    
    
    
    4,356Total liabilities
    
    
    941,434
    
    
    
    946,273Stockholders EquityCommon stock, $.01 par value: authorized 100,000,000 shares;
issued and outstanding 13,313,521 shares
    
    
    133
    
    
    
    133Additional paid-in capital
    
    
    126,651
    
    
    
    126,695Unearned ESOP shares
    
    
    (9,592
    )
    
    
    (9,806
    )Accumulated other comprehensive loss, net
    
    
    (3,834
    )
    
    
    (6,645
    )Retained earnings
    
    
    17,505
    
    
    
    16,171Total stockholders equity
    
    
    130,863
    
    
    
    126,548Total liabilities & stockholders equity
    
    $
    1,072,297
    
    
    $
    1,072,821
   3




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##### Table of Contents



CAPE BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (unaudited)
 For the three months
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands, except share data)Interest income:Interest on loans
    
    $
    11,433
    
    
    $
    11,774
    
    
    $
    23,039
    
    
    $
    23,401Interest and dividends on investmentsTaxable
    
    
    480
    
    
    
    832
    
    
    
    480
    
    
    
    1,687Tax-exempt
    
    
    322
    
    
    
    341
    
    
    
    636
    
    
    
    686Interest on mortgage-backed securities
    
    
    594
    
    
    
    1,045
    
    
    
    1,239
    
    
    
    2,161Total interest income
    
    
    12,829
    
    
    
    13,992
    
    
    
    25,394
    
    
    
    27,935Interest expense:Interest on deposits
    
    
    2,291
    
    
    
    3,374
    
    
    
    4,672
    
    
    
    6,985Interest on borrowings
    
    
    1,445
    
    
    
    1,700
    
    
    
    3,032
    
    
    
    3,296Total interest expense
    
    
    3,736
    
    
    
    5,074
    
    
    
    7,704
    
    
    
    10,281Net interest income before provision for loan losses
    
    
    9,093
    
    
    
    8,918
    
    
    
    17,690
    
    
    
    17,654Provision for loan losses
    
    
    1,708
    
    
    
    1,864
    
    
    
    1,952
    
    
    
    2,609Net interest income after provision for loan losses
    
    
    7,385
    
    
    
    7,054
    
    
    
    15,738
    
    
    
    15,045Non-interest income:Service fees
    
    
    854
    
    
    
    794
    
    
    
    1,617
    
    
    
    1,503Net gains on sale of loans
    
    
    28
    
    
    
    36
    
    
    
    40
    
    
    
    63Net income from BOLI
    
    
    254
    
    
    
    257
    
    
    
    506
    
    
    
    512Net rental income
    
    
    57
    
    
    
    86
    
    
    
    115
    
    
    
    172Gain (loss) on sale of investment securities held for sale, net
    
    
    (33
    )
    
    
    600
    
    
    
    (33
    )
    
    
    600Net gain (loss) on sale of OREO
    
    
    (17
    )
    
    
    (226
    )
    
    
    248
    
    
    
    (255
    )Other
    
    
    103
    
    
    
    525
    
    
    
    169
    
    
    
    583Gross other-than-temporary impairment losses
    
    
    (545
    )
    
    
    (2,429
    )
    
    
    (2,967
    )
    
    
    (3,968
    )Less: Portion of loss recognized in other comprehensive income
    
    
    31
    
    
    
    (74
    )
    
    
    (118
    )
    
    
    (74
    )Net other-than-temporary impairment losses
    
    
    (514
    )
    
    
    (2,503
    )
    
    
    (3,085
    )
    
    
    (4,042
    )Total non-interest income (expense)
    
    
    732
    
    
    
    (431
    )
    
    
    (423
    )
    
    
    (864
    )Non-interest expense:Salaries and employee benefits
    
    
    3,833
    
    
    
    3,705
    
    
    
    7,392
    
    
    
    8,432Occupancy and equipment
    
    
    911
    
    
    
    819
    
    
    
    1,941
    
    
    
    1,675Federal insurance premiums
    
    
    312
    
    
    
    247
    
    
    
    632
    
    
    
    1,101Data processing
    
    
    351
    
    
    
    301
    
    
    
    682
    
    
    
    580Loan related expenses
    
    
    586
    
    
    
    179
    
    
    
    787
    
    
    
    258Advertising
    
    
    102
    
    
    
    164
    
    
    
    197
    
    
    
    215Telecommunications
    
    
    240
    
    
    
    205
    
    
    
    473
    
    
    
    407Professional services
    
    
    121
    
    
    
    221
    
    
    
    323
    
    
    
    444OREO expenses
    
    
    129
    
    
    
    37
    
    
    
    437
    
    
    
    105Other operating
    
    
    833
    
    
    
    775
    
    
    
    1,648
    
    
    
    1,520Total non-interest expense
    
    
    7,418
    
    
    
    6,653
    
    
    
    14,512
    
    
    
    14,737Income (loss) before income taxes
    
    
    699
    
    
    
    (30
    )
    
    
    803
    
    
    
    (556
    )Income tax expense (benefit)
    
    
    
    
    
    
    (133
    )
    
    
    (531
    )
    
    
    (560
    )Net income
    
    $
    699
    
    
    $
    103
    
    
    $
    1,334
    
    
    $
    4Earnings per share (see Note 10):Basic
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    Diluted
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    Weighted average number of shares outstanding:Basic
    
    
    12,349,609
    
    
    
    12,307,619
    
    
    
    12,344,317
    
    
    
    12,302,278Diluted
    
    
    12,349,609
    
    
    
    12,307,619
    
    
    
    12,344,317
    
    
    
    12,302,278
   4




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##### Table of Contents



CAPE BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 Year ended December 31, 2009 and six months ended June 30, 2010
 (unaudited)
 AccumulatedUnearned
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    ESOP
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersStock
    
    
    Capital
    
    
    Shares
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equity(in thousands)Balance, December 31, 2008
    
    $
    133
    
    
    $
    126,801
    
    
    $
    (10,232
    )
    
    $
    (6,022
    )
    
    $
    30,045
    
    
    $
    140,725Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,901
    )
    
    
    (17,901
    )Net unrealized gains, net of
reclassification adjustments and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,404
    
    
    
    
    
    
    
    3,404Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,497
    )Cumulative effect adjustment to reclassify
non-credit component of previously recorded
other-than-temporary impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,027
    )
    
    
    4,027
    
    
    
    ESOP shares earned
    
    
    
    
    
    
    (106
    )
    
    
    426
    
    
    
    
    
    
    
    
    
    
    
    320Balance, December 31, 2009
    
    
    133
    
    
    
    126,695
    
    
    
    (9,806
    )
    
    
    (6,645
    )
    
    
    16,171
    
    
    
    126,548Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,334
    
    
    
    1,334Stock option compensation expense
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Net unrealized gains, net of
reclassification adjustments and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,811
    
    
    
    
    
    
    
    2,811Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,165ESOP shares earned
    
    
    
    
    
    
    (64
    )
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    150Balance, June 30, 2010
    
    $
    133
    
    
    $
    126,651
    
    
    $
    (9,592
    )
    
    $
    (3,834
    )
    
    $
    17,505
    
    
    $
    130,863
   5




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##### Table of Contents



CAPE BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Six months ended June 30,2010
    
    
    2009(in thousands)Cash flows from operating activitiesNet income
    
    $
    1,334
    
    
    $
    4Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    1,952
    
    
    
    2,609Net gain on the sale of loans
    
    
    (40
    )
    
    
    (63
    )Net (gain) loss on the sale of other real estate owned
    
    
    (248
    )
    
    
    255Write-down of other real estate owned
    
    
    226
    
    
    
    68Loss on impairment of securities
    
    
    3,085
    
    
    
    4,042Net (gain) loss on sale of investments
    
    
    33
    
    
    
    (600
    )Earnings on BOLI
    
    
    (506
    )
    
    
    (512
    )Origination of loans held for sale
    
    
    (4,146
    )
    
    
    (5,550
    )Proceeds from sales of loans
    
    
    3,959
    
    
    
    4,938Depreciation and amortization
    
    
    1,017
    
    
    
    933ESOP and stock option compensation expense
    
    
    170
    
    
    
    163Deferred income taxes
    
    
    (1,739
    )
    
    
    (1,242
    )Changes in assets and liabilities that (used) provided cash:Accrued interest receivable
    
    
    514
    
    
    
    (315
    )Other assets
    
    
    2,801
    
    
    
    (1,287
    )Accrued interest payable
    
    
    (45
    )
    
    
    60Other liabilities
    
    
    187
    
    
    
    1,539Net cash provided by operating activities
    
    
    8,554
    
    
    
    5,042Cash flows from investing activitiesProceeds from sales of AFS securities
    
    
    2,788
    
    
    
    14,163Proceeds from calls, maturities, and principal repayments of HTM securities
    
    
    
    
    
    
    4,548Proceeds from calls, maturities, and principal repayments of AFS securities
    
    
    48,379
    
    
    
    43,196Purchases of HTM securities
    
    
    
    
    
    
    (2,998
    )Purchases of AFS securities
    
    
    (56,815
    )
    
    
    (66,375
    )Redemption of Federal Home Loan Bank stock
    
    
    2,481
    
    
    
    740Proceeds from sale of other real estate owned
    
    
    3,412
    
    
    
    475Increase in interest-bearing time deposits
    
    
    (1,827
    )
    
    
    (805
    )(Increase) decrease in loans, net
    
    
    10,621
    
    
    
    (20,779
    )Purchase of property and equipment, net
    
    
    (94
    )
    
    
    (386
    )Net cash provided by (used in) investing activities
    
    
    8,945
    
    
    
    (28,221
    )Cash flows from financing activitiesNet increase in deposits
    
    
    49,942
    
    
    
    33,528Increase in advances from borrowers for taxes and insurance
    
    
    38
    
    
    
    28Increase in long-term borrowings
    
    
    
    
    
    
    45,000Repayments of long-term borrowings
    
    
    (25,000
    )
    
    
    (7,000
    )Net change in short-term borrowings
    
    
    (29,950
    )
    
    
    (55,400
    )Net cash provided by (used in) financing activities
    
    
    (4,970
    )
    
    
    16,156Net increase (decrease) in cash and cash equivalents
    
    
    12,529
    
    
    
    (7,023
    )Cash and cash equivalents at beginning of period
    
    
    13,513
    
    
    
    22,501Cash and cash equivalents at end of period
    
    $
    26,042
    
    
    $
    15,478Supplementary disclosure of cash flow information:Cash paid during period for:Interest
    
    $
    7,749
    
    
    $
    10,221Income taxes, net of refunds
    
    $
    6
    
    
    $
    (518
    )Supplementary disclosure of non-cash financing and investing activities:Transfers from loans to other real estate owned
    
    $
    2,201
    
    
    $
    1,082
  6




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Notes to Financial Statements (Unaudited)
 NOTE 1  ORGANIZATION
     NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Financial Statement Presentation:
   Use of Estimates:
 Cash and Cash Equivalents:
 Interest-Bearing Time Deposits:
  7




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##### Table of Contents



Investment Securities:
  Loans Held for Sale:
 Loans and Allowance for Loan Losses:
      8




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##### Table of Contents



Other Real Estate Owned:
 Premises and Equipment:
 Federal
Home Loan Bank of New York (FHLB) Stock:
 Goodwill and Other Intangible Assets:
  Bank Owned Life Insurance (BOLI):
 Loan Commitments and Related Financial Instruments:
 Defined Benefit Plan:
 4 01(k) Plan:
 Employee Stock Ownership Plan (ESOP):
 Stock Option Plan:
  9




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##### Table of Contents



Income Taxes:
 Accounting for Uncertainty in
Income Taxes, Income Taxes  Overall
  Earnings
Per Share:
  10




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##### Table of Contents



Comprehensive Income (Loss):
 Before Tax
    
    
    Tax Benefit
    
    
    Net of TaxAmount
    
    
    (Expense)
    
    
    Amount(in thousands)Three months ended June 30, 2010Unrealized holding gains arising during the period
    
    $
    650
    
    
    $
    (222
    )
    
    $
    428Non-credit related unrealized loss on other-than-temporarily impaired CDOs
    
    
    (31
    )
    
    
    11
    
    
    
    (20
    )Reclassification adjustment for loss on sale of securities
    
    
    33
    
    
    
    (11
    )
    
    
    22Reclassification adjustment for credit related OTTI included in net income
    
    
    514
    
    
    
    (175
    )
    
    
    339Other comprehensive income, net
    
    $
    1,166
    
    
    $
    (397
    )
    
    $
    769Three months ended June 30, 2009Unrealized holding gains arising during the period
    
    $
    417
    
    
    $
    (142
    )
    
    $
    275Non-credit related unrealized gain on other-than-temporarily impaired CDOs
    
    
    74
    
    
    
    (25
    )
    
    
    49Reclassification adjustment for gain on sale of securities
    
    
    (600
    )
    
    
    204
    
    
    
    (396
    )Reclassification adjustment for credit related OTTI included in net income
    
    
    2,503
    
    
    
    (851
    )
    
    
    1,652Other comprehensive income, net
    
    $
    2,394
    
    
    $
    (814
    )
    
    $
    1,580Six months ended June 30, 2010Unrealized holding gains arising during the period
    
    $
    1,075
    
    
    $
    (400
    )
    
    $
    675Non-credit related unrealized gain on other-than-temporarily impaired CDOs
    
    
    118
    
    
    
    (40
    )
    
    
    78Reclassification adjustment for loss on sale of securities
    
    
    33
    
    
    
    (11
    )
    
    
    22Reclassification adjustment for credit related OTTI included in net income
    
    
    3,085
    
    
    
    (1,049
    )
    
    
    2,036Other comprehensive income, net
    
    $
    4,311
    
    
    $
    (1,500
    )
    
    $
    2,811Six months ended June 30, 2009Unrealized holding losses arising during the period
    
    $
    (339
    )
    
    $
    115
    
    
    $
    (224
    )Non-credit related unrealized gain on other-than-temporarily impaired CDOs
    
    
    74
    
    
    
    (25
    )
    
    
    49Reclassification adjustment for gain on sale of securities
    
    
    (600
    )
    
    
    204
    
    
    
    (396
    )Reclassification adjustment for credit related OTTI included in net income
    
    
    4,042
    
    
    
    (1,374
    )
    
    
    2,668Other comprehensive income, net
    
    $
    3,177
    
    
    $
    (1,080
    )
    
    $
    2,097
  11




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##### Table of Contents



Operating Segments:
 Effect of Newly Issued Accounting Standards:
   12




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##### Table of Contents



NOTE 3  INVESTMENT SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(in thousands)June 30, 2010Investment securities available for saleDebt securitiesU.S. Government and agency obligations
    
    $
    60,992
    
    
    $
    230
    
    
    $
    
    
    
    $
    61,222Municipal bonds
    
    
    31,379
    
    
    
    931
    
    
    
    (424
    )
    
    
    31,886Collateralized debt obligations
    
    
    10,027
    
    
    
    
    
    
    
    (8,463
    )
    
    
    1,564Corporate bonds
    
    
    8,699
    
    
    
    240
    
    
    
    (14
    )
    
    
    8,925Total debt securities
    
    $
    111,097
    
    
    $
    1,401
    
    
    $
    (8,901
    )
    
    $
    103,597Mortgage-backed securitiesGNMA pass-through certificates
    
    $
    2,368
    
    
    $
    53
    
    
    $
    
    
    
    $
    2,421FHLMC pass-through certificates
    
    
    3,849
    
    
    
    151
    
    
    
    
    
    
    
    4,000FNMA pass-through certificates
    
    
    22,990
    
    
    
    1,293
    
    
    
    
    
    
    
    24,283Collateralized mortgage obligations
    
    
    25,207
    
    
    
    637
    
    
    
    (443
    )
    
    
    25,401Total mortgage-backed securities
    
    $
    54,414
    
    
    $
    2,134
    
    
    $
    (443
    )
    
    $
    56,105Total securities available for sale
    
    $
    165,511
    
    
    $
    3,535
    
    
    $
    (9,344
    )
    
    $
    159,702
  13




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##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(in thousands)December 31, 2009Investment securities available for saleDebt securitiesU.S. Government and agency obligations
    
    $
    46,004
    
    
    $
    96
    
    
    $
    (128
    )
    
    $
    45,972Municipal bonds
    
    
    33,901
    
    
    
    953
    
    
    
    (473
    )
    
    
    34,381Collateralized debt obligations
    
    
    13,038
    
    
    
    58
    
    
    
    (11,640
    )
    
    
    1,456Corporate bonds
    
    
    10,851
    
    
    
    195
    
    
    
    
    
    
    
    11,046Total debt securities
    
    $
    103,794
    
    
    $
    1,302
    
    
    $
    (12,241
    )
    
    $
    92,855Mortgage-backed securitiesGNMA pass-through certificates
    
    $
    677
    
    
    $
    16
    
    
    $
    
    
    
    $
    693FHLMC pass-through certificates
    
    
    5,338
    
    
    
    175
    
    
    
    
    
    
    
    5,513FNMA pass-through certificates
    
    
    26,612
    
    
    
    1,001
    
    
    
    (25
    )
    
    
    27,588Collateralized mortgage obligations
    
    
    26,514
    
    
    
    567
    
    
    
    (915
    )
    
    
    26,166Total mortgage-backed securities
    
    $
    59,141
    
    
    $
    1,759
    
    
    $
    (940
    )
    
    $
    59,960Total securities available for sale
    
    $
    162,935
    
    
    $
    3,061
    
    
    $
    (13,181
    )
    
    $
    152,815
   Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(in thousands)U.S. Government and agency obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Municipal bonds
    
    
    319
    
    
    
    (6
    )
    
    
    3,751
    
    
    
    (418
    )
    
    
    4,070
    
    
    
    (424
    )Corporate bonds
    
    
    986
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    986
    
    
    
    (14
    )Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    1,564
    
    
    
    (8,463
    )
    
    
    1,564
    
    
    
    (8,463
    )Mortgage-backed securities
    
    
    244
    
    
    
    (3
    )
    
    
    3,093
    
    
    
    (440
    )
    
    
    3,337
    
    
    
    (443
    )Total
temporarily impaired investment securities
    
    $
    1,549
    
    
    $
    (23
    )
    
    $
    8,408
    
    
    $
    (9,321
    )
    
    $
    9,957
    
    
    $
    (9,344
    )
  14




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##### Table of Contents



Less Than 12 Months
    
    
    12 Months or Longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDescription of Securities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(in thousands)U.S. Government and agency obligations
    
    $
    16,877
    
    
    $
    (128
    )
    
    $
    
    
    
    $
    
    
    
    
    16,877
    
    
    $
    (128
    )Municipal bonds
    
    
    578
    
    
    
    (8
    )
    
    
    3,988
    
    
    
    (465
    )
    
    
    4,566
    
    
    
    (473
    )Collateralized debt obligations
    
    
    90
    
    
    
    (3,329
    )
    
    
    1,308
    
    
    
    (8,311
    )
    
    
    1,398
    
    
    
    (11,640
    )Mortgage-backed securities
    
    
    7,496
    
    
    
    (116
    )
    
    
    2,718
    
    
    
    (824
    )
    
    
    10,214
    
    
    
    (940
    )Total temporarily impaired investment
securities
    
    $
    25,041
    
    
    $
    (3,581
    )
    
    $
    8,014
    
    
    $
    (9,600
    )
    
    $
    33,055
    
    
    $
    (13,181
    )
     15




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##### Table of Contents



Pooled Trust Preferred Collateralized Debt Obligations
 ActualDeferrals
    
    
    Excessand
    
    
    SubordinationCurrent
    
    
    Defaults
    
    
    as a % ofMoodys/
    
    
    Number of
    
    
    as a % of
    
    
    CurrentBook
    
    
    Fair
    
    
    Unrealized
    
    
    Realized
    
    
    Fitch
    
    
    Performing
    
    
    Current
    
    
    PerformingDeal
    
    Class
    
    Value
    
    
    Value
    
    
    Loss
    
    
    Loss
    
    
    Ratings
    
    
    Issuers
    
    
    Collateral
    
    
    CollateralPreTSL II
    
    Mezzanine
    
    $
    397
    
    
    $
    18
    
    
    $
    (379
    )
    
    $
    (635
    )
    
    Ca/C
    
    
    22
    
    
    
    38.90
    %
    
    
    0.00
    %PreTSL VI
    
    Mezzanine
    
    
    42
    
    
    
    5
    
    
    
    (37
    )
    
    
    (16
    )
    
    Caa1/CC
    
    
    2
    
    
    
    81.00
    %
    
    
    0.00
    %PreTSL XIX
    
    Mezzanine
    
    
    1,152
    
    
    
    37
    
    
    
    (1,115
    )
    
    
    (614
    )
    
    Ca/C
    
    
    53
    
    
    
    23.20
    %
    
    
    0.00
    %PreTSL XXIV
    
    Mezzanine
    
    
    34
    
    
    
    5
    
    
    
    (29
    )
    
    
    (395
    )
    
    Ca/C
    
    
    64
    
    
    
    33.30
    %
    
    
    0.00
    %I-PreTSL I
    
    Mezzanine
    
    
    1,830
    
    
    
    249
    
    
    
    (1,581
    )
    
    
    
    
    
    NR/BB
    
    
    16
    
    
    
    17.40
    %
    
    
    8.26
    %I-PreTSL II
    
    Mezzanine
    
    
    2,711
    
    
    
    374
    
    
    
    (2,337
    )
    
    
    
    
    
    NR/BB
    
    
    29
    
    
    
    4.90
    %
    
    
    14.33
    %I-PreTSL III
    
    Mezzanine
    
    
    2,696
    
    
    
    374
    
    
    
    (2,322
    )
    
    
    
    
    
    B2/BB
    
    
    24
    
    
    
    11.20
    %
    
    
    9.60
    %I-PreTSL IV
    
    Mezzanine
    
    
    438
    
    
    
    62
    
    
    
    (376
    )
    
    
    
    
    
    Ba2/B
    
    
    31
    
    
    
    4.20
    %
    
    
    9.28
    %MM Comm I
    
    Mezzanine
    
    
    727
    
    
    
    440
    
    
    
    (287
    )
    
    
    (846
    )
    
    Ca/C
    
    
    8
    
    
    
    50.61
    %
    
    
    0.00
    %Total
    
    
    
    
    
    $
    10,027
    
    
    $
    1,564
    
    
    $
    (8,463
    )
    
    $
    (2,506
    )
     16




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##### Table of Contents



Available for SaleAmortizedCost
    
    
    Fair Value(in thousands)Due within one year or less
    
    $
    12,539
    
    
    $
    12,622Due after one year but within five years
    
    
    68,086
    
    
    
    68,921Due after five years but within ten years
    
    
    9,663
    
    
    
    10,026Due after ten years
    
    
    20,809
    
    
    
    12,028Mortgage-backed securities
    
    
    54,414
    
    
    
    56,105Total investment securities
    
    $
    165,511
    
    
    $
    159,702
  17




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2010Beginning balance of cumulative credit losses on CDO securities (1)
    
    $
    (16,064
    )
    
    $
    (13,493
    )Additional credit losses for which other than temporary impairment
was previously recognized
    
    
    (514
    )
    
    
    (3,085
    )Ending balance of cumulative credit losses on CDO securities, June
30, 2010
    
    $
    (16,578
    )
    
    $
    (16,578
    )
 
 (1)
    
    On April 1, 2009, we recognized a cumulative effect adjustment based upon FASB guidance
regarding the recognition and presentation of other-than-temporary impairment and determined that $9.9
million of previously recorded OTTI write-downs represented credit losses. NOTE 4  LOANS RECEIVABLE
  June 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Commercial mortgage
    
    $
    415,094
    
    
    $
    416,575Residential mortgage
    
    
    238,715
    
    
    
    244,897Construction
    
    
    25,140
    
    
    
    28,839Home equity loans and lines of credit
    
    
    47,055
    
    
    
    48,706Commercial business loans
    
    
    59,380
    
    
    
    62,685Other consumer loans
    
    
    1,169
    
    
    
    1,284Loans receivable, gross
    
    
    786,553
    
    
    
    802,986Less:Allowance for loan losses
    
    
    11,916
    
    
    
    13,311Deferred loan fees
    
    
    160
    
    
    
    202Loans receivable, net
    
    $
    774,477
    
    
    $
    789,473
  18




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##### Table of Contents



Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)
    
    
    (in thousands)Balance at beginning of period
    
    $
    11,876
    
    
    $
    11,924
    
    
    $
    13,311
    
    
    $
    11,240Provisions charged to operations
    
    
    1,708
    
    
    
    1,864
    
    
    
    1,952
    
    
    
    2,609Adjustment for passage of time
on certain impaired loans (1)
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    Charge-offs
    
    
    (1,673
    )
    
    
    (2,099
    )
    
    
    (3,837
    )
    
    
    (2,169
    )Recoveries
    
    
    8
    
    
    
    392
    
    
    
    493
    
    
    
    401Balance at end of period
    
    $
    11,916
    
    
    $
    12,081
    
    
    $
    11,916
    
    
    $
    12,081
 (1)
    
    Certain impaired loans have a valuation allowance determined by discounting expected cash
flows at the respective loans effective interest rate. Accordingly, the valuation allowance for these impaired loans reduces
with the passage of time and is recognized as interest income.
At June 30, 2010, the impairment reserve on troubled debt restructurings (TDRs) was $113,000.  June 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Period-end impaired loans with no allocated allowance for loan losses
    
    $
    21,238
    
    
    $
    26,020Period-end impaired loans with allocated allowance for loan losses
    
    
    14,716
    
    
    
    7,228Total
    
    $
    35,954
    
    
    $
    33,248Amount of the allowance for loan losses allocated
    
    $
    1,652
    
    
    $
    3,016
  Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)
    
    
    (in thousands)Average of individually impaired loans during the period
    
    $
    35,738
    
    
    $
    30,979
    
    
    $
    34,820
    
    
    $
    29,122Interest income recognized during impairment
    
    $
    89
    
    
    $
    8
    
    
    $
    183
    
    
    $
    29Cash basis interest income recognized
    
    $
    28
    
    
    $
    15
    
    
    $
    147
    
    
    $
    30
  19




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##### Table of Contents



NOTE 5  FAIR VALUE
          20




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##### Table of Contents



Assets and Liabilities Measured on a Recurring Basis
  Fair Value Measurements
    
    
    Fair Value Measurementsat June 30, 2010
    
    
    at December 31, 2009Quoted
    
    
    
    
    
    
    
    
    
    
    QuotedPrices
    
    
    
    
    
    
    
    
    
    
    Pricesin Active
    
    
    Significant
    
    
    Significant
    
    
    in Active
    
    
    Significant
    
    
    SignificantMarkets for
    
    
    Other
    
    
    Other
    
    
    Markets for
    
    
    Other
    
    
    OtherIdentical
    
    
    Observable
    
    
    Observable
    
    
    Identical
    
    
    Observable
    
    
    ObservableAssets
    
    
    Inputs
    
    
    Inputs
    
    
    Assets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)
    
    
    (in thousands)Investment securities available
for sale:U.S. Government and agency
obligations
    
    $
    
    
    
    $
    61,222
    
    
    $
    
    
    
    $
    
    
    
    $
    45,972
    
    
    $
    Municipal bonds
    
    
    
    
    
    
    31,886
    
    
    
    
    
    
    
    
    
    
    
    34,381
    
    
    
    Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    1,564
    
    
    
    
    
    
    
    
    
    
    
    1,456Corporate bonds
    
    
    
    
    
    
    8,925
    
    
    
    
    
    
    
    
    
    
    
    11,046
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    56,105
    
    
    
    
    
    
    
    
    
    
    
    59,960
    
    
    
    Total securities available for
sale
    
    $
    
    
    
    $
    158,138
    
    
    $
    1,564
    
    
    $
    
    
    
    $
    151,359
    
    
    $
    1,456
  Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)CDO SecuritiesAvailable for SaleSix months ended June 30,2010
    
    
    2009(in thousands)Beginning balance
    
    $
    1,456
    
    
    $
    3,033Accretion of discount
    
    
    74
    
    
    
    95Payments received
    
    
    
    
    
    
    (2
    )Increase in amortized cost (1)
    
    
    
    
    
    
    6,162Unrealized holding gain (loss)
    
    
    3,119
    
    
    
    (3,270
    )Other-than-temporary impairment included in earnings
    
    
    (3,085
    )
    
    
    (4,042
    )Ending balance
    
    $
    1,564
    
    
    $
    1,976
 (1)
    
    Increase is due to FASB guidance regarding the recognition and presentation of
other-than-temporary impairments.  21




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##### Table of Contents



Assets and Liabilities Measured on a Non-Recurring Basis
  Fair Value Measurements
    
    
    Fair Value Measurementsat June 30, 2010
    
    
    at December 31, 2009Quoted
    
    
    
    
    
    
    
    
    
    
    QuotedPrices
    
    
    
    
    
    
    
    
    
    
    Pricesin Active
    
    
    Significant
    
    
    Significant
    
    
    in Active
    
    
    Significant
    
    
    SignificantMarkets for
    
    
    Other
    
    
    Other
    
    
    Markets for
    
    
    Other
    
    
    OtherIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    Identical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs
    
    
    Assets
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)
    
    
    (in thousands)Assets:Impaired loans (1):Commercial mortgage
    
    $
    
    
    
    $
    24,005
    
    
    $
    
    
    
    $
    
    
    
    $
    25,132
    
    
    $
    Residential mortgage
    
    
    
    
    
    
    5,276
    
    
    
    
    
    
    
    
    
    
    
    3,251
    
    
    
    Construction
    
    
    
    
    
    
    2,609
    
    
    
    
    
    
    
    
    
    
    
    1,298
    
    
    
    Home equity loans
    
    
    
    
    
    
    624
    
    
    
    
    
    
    
    
    
    
    
    482
    
    
    
    Commercial business loans
    
    
    
    
    
    
    3,440
    
    
    
    
    
    
    
    
    
    
    
    3,085
    
    
    
    Total impaired loans
    
    $
    
    
    
    $
    35,954
    
    
    $
    
    
    
    $
    
    
    
    $
    33,248
    
    
    $
    Other real estate owned:Commercial
    
    $
    
    
    
    $
    1,950
    
    
    $
    
    
    
    $
    
    
    
    $
    3,532
    
    
    $
    Residential mortgage
    
    
    
    
    
    
    1,678
    
    
    
    
    
    
    
    
    
    
    
    1,285
    
    
    
    Total other real estate owned
    
    $
    
    
    
    $
    3,628
    
    
    $
    
    
    
    $
    
    
    
    $
    4,817
    
    
    $
    Loans held for sale
    
    
    
    
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    398
    
    
    
    Assets held for sale
    
    
    
    
    
    
    494
    
    
    
    
    
    
    
    
    
    
    
    1,828
    
    
    
    Goodwill
    
    
    
    
    
    
    
    
    
    
    22,575
    
    
    
    
    
    
    
    
    
    
    
    22,575Other intangibles
    
    
    
    
    
    
    
    
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    585
 (1)
    
    Includes loans delinquent 90 days, loans less than 90 days delinquent but not accruing and troubled debt restructured loans.   22




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##### Table of Contents



At June 30, 2010
    
    
    At December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(in thousands)AssetsCash and cash equivalents
    
    $
    26,042
    
    
    $
    26,042
    
    
    $
    13,513
    
    
    $
    13,513Interest-bearing time deposits
    
    
    9,278
    
    
    
    9,352
    
    
    
    7,451
    
    
    
    7,539Investment securities
    
    
    159,702
    
    
    
    159,702
    
    
    
    152,815
    
    
    
    152,815Loans held for sale
    
    
    585
    
    
    
    585
    
    
    
    398
    
    
    
    398Loans receivable
    
    
    774,477
    
    
    
    777,678
    
    
    
    789,473
    
    
    
    788,421FHLB Stock
    
    
    7,794
    
    
    
    7,794
    
    
    
    10,275
    
    
    
    10,275Bank owned life insurance
    
    
    27,716
    
    
    
    27,716
    
    
    
    27,210
    
    
    
    27,210Accrued interest receivable
    
    
    4,116
    
    
    
    4,116
    
    
    
    4,630
    
    
    
    4,630LiabilitiesSavings deposits
    
    $
    83,269
    
    
    $
    83,269
    
    
    $
    79,368
    
    
    $
    79,368NOW, checking and MMDA deposits
    
    
    334,224
    
    
    
    334,224
    
    
    
    320,308
    
    
    
    320,308Certificates of deposit
    
    
    369,023
    
    
    
    372,599
    
    
    
    336,911
    
    
    
    340,084Borrowings
    
    
    149,033
    
    
    
    155,022
    
    
    
    203,981
    
    
    
    199,718Accrued interest payable
    
    
    762
    
    
    
    762
    
    
    
    807
    
    
    
    807
           23




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##### Table of Contents



NOTE 6  OTHER REAL ESTATE OWNED
    NOTE
7  DEPOSITS
  June 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Savings accounts
    
    $
    83,269
    
    
    $
    79,368NOW accounts and money market funds
    
    
    263,873
    
    
    
    257,943Non-interest bearing checking
    
    
    70,351
    
    
    
    62,365Certificates of deposit of less than $100,000
    
    
    191,074
    
    
    
    201,303Certificates of deposit of $100,000 or more
    
    
    177,949
    
    
    
    135,608$
    786,516
    
    
    $
    736,587
  24




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##### Table of Contents



NOTE 8  INCOME TAXES
  Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Income taxes
    
    (in thousands)
    
    
    (in thousands)Pre-tax income (loss)
    
    $
    699
    
    
    $
    (30
    )
    
    $
    803
    
    
    $
    (556
    )Income tax benefit
    
    $
    
    
    
    $
    (133
    )
    
    $
    (531
    )
    
    $
    (560
    )
 2009 Annual
Report to Shareholders
 NOTE 9  STOCK OPTION PLAN
    Assumption
    
    June 30, 2010Expected average risk-free interest rate
    
    
    2.47
    %Expected average life (in years)
    
    
    6.50Expected volatility
    
    
    41.64
    %Expected dividend yield
    
    
    0.00
    %
     25




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##### Table of Contents



NOTE 10  EARNINGS PER SHARE
   Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except share data)Net income
    
    $
    699
    
    
    $
    103
    
    
    $
    1,334
    
    
    $
    4Weighted average shares outstanding
    
    
    12,349,609
    
    
    
    12,307,619
    
    
    
    12,344,317
    
    
    
    12,302,278Basic earnings per share
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    Diluted weighted average shares outstanding
    
    
    12,349,609
    
    
    
    12,307,619
    
    
    
    12,344,317
    
    
    
    12,302,278Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
   Overview
    26




---



##### Table of Contents



1)
    
    Managing our credit underwriting and administration through the economic
recovery.
 2)
    
    Managing non-performing assets to performing status or disposal.
 3)
    
    Managing net interest income
and interest rate risk in an uncertain rate environment.
 Managing our credit underwriting and administration through the economic recovery:
     27




---



##### Table of Contents



Managing non-performing assets to performing status or disposal:
    Managing
net interest income and interest rate risk in a potentially rising rate environment:
   28




---



##### Table of Contents



2010 Outlook
        Comparison of Financial Condition at June 30, 2010 and December 31, 2009
      29




---



##### Table of Contents



30




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31




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##### Table of Contents



For the Three Months Ended June 30,2010
    
    
    2009Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Yield
    
    
    Balance
    
    
    Expense
    
    
    Yield(dollars in thousands)AssetsInterest-earning deposits
    
    $
    13,462
    
    
    $
    40
    
    
    
    1.19
    %
    
    $
    15,989
    
    
    $
    52
    
    
    
    1.29
    %Investments
    
    
    177,188
    
    
    
    1,356
    
    
    
    3.03
    %
    
    
    192,063
    
    
    
    2,166
    
    
    
    4.46
    %Loans
    
    
    792,176
    
    
    
    11,433
    
    
    
    5.79
    %
    
    
    808,545
    
    
    
    11,774
    
    
    
    5.84
    %Total interest-earning assets
    
    
    982,826
    
    
    
    12,829
    
    
    
    5.24
    %
    
    
    1,016,597
    
    
    
    13,992
    
    
    
    5.52
    %Noninterest-earning assets
    
    
    100,364
    
    
    
    
    
    
    
    
    
    
    
    105,256Allowance for loan losses
    
    
    (12,135
    )
    
    
    
    
    
    
    
    
    
    
    (12,579
    )Total assets
    
    $
    1,071,055
    
    
    
    
    
    
    
    
    
    
    $
    1,109,274Liabilities and Stockholders
EquityInterest-bearing demand accounts
    
    $
    110,036
    
    
    
    106
    
    
    
    0.39
    %
    
    $
    104,075
    
    
    
    95
    
    
    
    0.37
    %Savings accounts
    
    
    81,554
    
    
    
    89
    
    
    
    0.44
    %
    
    
    80,078
    
    
    
    87
    
    
    
    0.44
    %Money market accounts
    
    
    153,990
    
    
    
    489
    
    
    
    1.27
    %
    
    
    130,250
    
    
    
    424
    
    
    
    1.31
    %Certificates of deposit
    
    
    371,275
    
    
    
    1,607
    
    
    
    1.74
    %
    
    
    381,616
    
    
    
    2,768
    
    
    
    2.91
    %Borrowings
    
    
    151,104
    
    
    
    1,445
    
    
    
    3.83
    %
    
    
    195,052
    
    
    
    1,700
    
    
    
    3.50
    %Total interest-bearing liabilities
    
    
    867,959
    
    
    
    3,736
    
    
    
    1.73
    %
    
    
    891,071
    
    
    
    5,074
    
    
    
    2.28
    %Noninterest-bearing deposits
    
    
    66,266
    
    
    
    
    
    
    
    
    
    
    
    67,527Other liabilities
    
    
    5,625
    
    
    
    
    
    
    
    
    
    
    
    7,857Total liabilities
    
    
    939,850
    
    
    
    
    
    
    
    
    
    
    
    966,455Stockholders equity
    
    
    131,205
    
    
    
    
    
    
    
    
    
    
    
    142,819Total liabilities & stockholders
equity
    
    $
    1,071,055
    
    
    
    
    
    
    
    
    
    
    $
    1,109,274Net interest income
    
    
    
    
    
    $
    9,093
    
    
    
    
    
    
    
    
    
    
    $
    8,918Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.51
    %
    
    
    
    
    
    
    
    
    
    
    3.24
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.71
    %
    
    
    
    
    
    
    
    
    
    
    3.52
    %Net interest income and margin (tax equivalent basis) (1)
    
    
    
    
    
    $
    9,251
    
    
    
    3.78
    %
    
    
    
    
    
    $
    9,080
    
    
    
    3.58
    %Ratio of average interest-earning assets to average
interest-bearing liabilities
    
    
    113.23
    %
    
    
    
    
    
    
    
    
    
    
    114.09
    %
 (1)
    
    In order to present pre-tax income and resultant yields on tax-exempt investments on a basis comparable to those on
taxable investments, a tax equivalent yield adjustment is made to interest income. The tax equilvalent adjustment has been
computed using a Federal income tax rate of 35%, and has the effect of increasing interest income by $158,000, and $162,000
for the three month period ended June 30, 2010 and 2009, respectively. The average yield on investments increased to
3.43% from 3.03% for the three month period ended June 30, 2010 and increased to 4.86% from 4.46% for the
three month period ended June 30, 2009.  32




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##### Table of Contents



For the Six Months Ended June 30,2010
    
    
    2009Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Yield
    
    
    Balance
    
    
    Expense
    
    
    Yield(dollars in thousands)AssetsInterest-earning deposits
    
    $
    12,962
    
    
    $
    80
    
    
    
    1.24
    %
    
    $
    15,508
    
    
    $
    119
    
    
    
    1.53
    %Investments
    
    
    174,968
    
    
    
    2,275
    
    
    
    2.59
    %
    
    
    189,579
    
    
    
    4,415
    
    
    
    4.63
    %Loans
    
    
    797,427
    
    
    
    23,039
    
    
    
    5.83
    %
    
    
    804,380
    
    
    
    23,401
    
    
    
    5.87
    %Total interest-earning assets
    
    
    985,357
    
    
    
    25,394
    
    
    
    5.20
    %
    
    
    1,009,467
    
    
    
    27,935
    
    
    
    5.58
    %Noninterest-earning assets
    
    
    100,888
    
    
    
    
    
    
    
    
    
    
    
    106,293Allowance for loan losses
    
    
    (12,823
    )
    
    
    
    
    
    
    
    
    
    
    (11,963
    )Total assets
    
    $
    1,073,422
    
    
    
    
    
    
    
    
    
    
    $
    1,103,797Liabilities and Stockholders
EquityInterest-bearing demand accounts
    
    $
    111,209
    
    
    
    211
    
    
    
    0.38
    %
    
    $
    104,079
    
    
    
    202
    
    
    
    0.39
    %Savings accounts
    
    
    80,516
    
    
    
    176
    
    
    
    0.44
    %
    
    
    79,771
    
    
    
    204
    
    
    
    0.52
    %Money market accounts
    
    
    148,838
    
    
    
    951
    
    
    
    1.29
    %
    
    
    123,689
    
    
    
    852
    
    
    
    1.39
    %Certificates of deposit
    
    
    365,628
    
    
    
    3,334
    
    
    
    1.84
    %
    
    
    381,319
    
    
    
    5,727
    
    
    
    3.03
    %Borrowings
    
    
    166,856
    
    
    
    3,032
    
    
    
    3.66
    %
    
    
    200,079
    
    
    
    3,296
    
    
    
    3.32
    %Total interest-bearing liabilities
    
    
    873,047
    
    
    
    7,704
    
    
    
    1.78
    %
    
    
    888,937
    
    
    
    10,281
    
    
    
    2.33
    %Noninterest-bearing deposits
    
    
    64,588
    
    
    
    
    
    
    
    
    
    
    
    65,694Other liabilities
    
    
    5,678
    
    
    
    
    
    
    
    
    
    
    
    7,047Total liabilities
    
    
    943,313
    
    
    
    
    
    
    
    
    
    
    
    961,678Stockholders equity
    
    
    130,109
    
    
    
    
    
    
    
    
    
    
    
    142,119Total liabilities & stockholders
equity
    
    $
    1,073,422
    
    
    
    
    
    
    
    
    
    
    $
    1,103,797Net interest income
    
    
    
    
    
    $
    17,690
    
    
    
    
    
    
    
    
    
    
    $
    17,654Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.42
    %
    
    
    
    
    
    
    
    
    
    
    3.25
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.62
    %
    
    
    
    
    
    
    
    
    
    
    3.53
    %Net interest income and margin
(tax equivalent basis) (1)
    
    
    
    
    
    $
    18,001
    
    
    
    3.68
    %
    
    
    
    
    
    $
    17,979
    
    
    
    3.59
    %Ratio of average interest-earning
assets to average
interest-bearing liabilities
    
    
    112.86
    %
    
    
    
    
    
    
    
    
    
    
    113.56
    %
 (1)
    
    In order to present pre-tax income and resultant yields on tax-exempt investments on a basis comparable to those on
taxable investments, a tax equivalent yield adjustment is made to interest income. The tax equilvalent adjustment has been
computed using a Federal income tax rate of 35%, and has the effect of increasing interest income by $311,000, and
$325,000
for the six month period ended June 30, 2010 and 2009, respectively. The average yield on investments increased to
2.98% from 2.59% for the six month period ended June 30, 2010 and increased to 5.04% from 4.63% for the
six month period ended June 30, 2009.  33




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Rate/Volume Analysis
  For the Three Months Ended June 30, 2010Compared to June 30, 2009Increase (decrease) due to changes in:Average
    
    
    Average
    
    
    NetVolume
    
    
    Rate
    
    
    Change(in thousands)Interest-Earning AssetsInterest-earning deposits
    
    $
    (8
    )
    
    $
    (4
    )
    
    $
    (12
    )Investments
    
    
    (161
    )
    
    
    (649
    )
    
    
    (810
    )Loans
    
    
    (237
    )
    
    
    (104
    )
    
    
    (341
    )Total interest income
    
    
    (406
    )
    
    
    (757
    )
    
    
    (1,163
    )Interest-Bearing LiabilitiesInterest-bearing demand
accounts
    
    
    5
    
    
    
    6
    
    
    
    11Savings accounts
    
    
    2
    
    
    
    0
    
    
    
    2Money market accounts
    
    
    75
    
    
    
    (10
    )
    
    
    65Certificates of deposit
    
    
    (73
    )
    
    
    (1,088
    )
    
    
    (1,161
    )Borrowings
    
    
    (409
    )
    
    
    154
    
    
    
    (255
    )Total interest expense
    
    
    (400
    )
    
    
    (938
    )
    
    
    (1,338
    )Total net interest income
    
    $
    (6
    )
    
    $
    181
    
    
    $
    175
 For the Six Months Ended June 30, 2010Compared to June 30, 2009Increase (decrease) due to changes in:Average
    
    
    Average
    
    
    NetVolume
    
    
    Rate
    
    
    Change(in thousands)Interest-Earning AssetsInterest-earning deposits
    
    $
    (18
    )
    
    $
    (21
    )
    
    $
    (39
    )Investments
    
    
    (323
    )
    
    
    (1,817
    )
    
    
    (2,140
    )Loans
    
    
    (201
    )
    
    
    (161
    )
    
    
    (362
    )Total interest income
    
    
    (542
    )
    
    
    (1,999
    )
    
    
    (2,541
    )Interest-Bearing LiabilitiesInterest-bearing demand
accounts
    
    
    14
    
    
    
    (5
    )
    
    
    9Savings accounts
    
    
    2
    
    
    
    (30
    )
    
    
    (28
    )Money market accounts
    
    
    164
    
    
    
    (65
    )
    
    
    99Certificates of deposit
    
    
    (227
    )
    
    
    (2,166
    )
    
    
    (2,393
    )Borrowings
    
    
    (583
    )
    
    
    319
    
    
    
    (264
    )Total interest expense
    
    
    (630
    )
    
    
    (1,947
    )
    
    
    (2,577
    )Total net interest income
    
    $
    88
    
    
    $
    (52
    )
    
    $
    36
  34




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##### Table of Contents



Comparison of Operating Results for the Three and Six Months Ended June 30, 2010 and 2009
 General.
 Interest Income.
  Interest Expense.
  35




---



##### Table of Contents



Net Interest Income.
 Provision for Loan Losses.
      36




---



##### Table of Contents



Non-Interest Income.
  Non-Interest Expense .
  Income Tax Expense (Benefit).
 Liquidity and Capital Resources
   37




---



##### Table of Contents



38




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##### Table of Contents



Per Regulatory GuidelinesActual
    
    
    Minimum
    
    

Well
CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(dollars in thousands)June 30, 2010Risk based capital ratios:Tier I
    
    $
    99,843
    
    
    
    11.87
    %
    
    $
    33,645
    
    
    
    4.00
    %
    
    $
    50,468
    
    
    
    6.00
    %Total capital
    
    $
    110,375
    
    
    
    13.12
    %
    
    $
    67,302
    
    
    
    8.00
    %
    
    $
    84,127
    
    
    
    10.00
    %Leverage ratio
    
    $
    99,843
    
    
    
    9.53
    %
    
    $
    41,907
    
    
    
    4.00
    %
    
    $
    52,384
    
    
    
    5.00
    %December 31, 2009Risk based capital ratios:Tier I
    
    $
    98,256
    
    
    
    11.45
    %
    
    $
    34,325
    
    
    
    4.00
    %
    
    $
    51,488
    
    
    
    6.00
    %Total capital
    
    $
    109,013
    
    
    
    12.71
    %
    
    $
    68,616
    
    
    
    8.00
    %
    
    $
    85,769
    
    
    
    10.00
    %Leverage ratio
    
    $
    98,256
    
    
    
    9.37
    %
    
    $
    41,945
    
    
    
    4.00
    %
    
    $
    52,431
    
    
    
    5.00
    %
 Critical Accounting Policies
 Note 2 of the Notes to
Consolidated Financial Statements.
  Allowance for Loan Losses.
   39




---



##### Table of Contents



See Note 2  Summary of Significant Accounting Policies of the Notes to Consolidated Financial
Statements.
 Securities Impairment .
  Income Taxes .
   40




---



##### Table of Contents



Effect of Newly Issued Accounting Standards.
   41




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 General
  
    
    originating commercial loans that generally tend to have shorter repricing or reset
periods and higher interest rates than residential mortgage loans;
 
    
    investing in shorter duration investment grade corporate securities and
mortgage-backed securities;
 
    
    originating adjustable rate and short-term consumer loans;
 
    
    selling a portion of our long-term residential mortgage loans;
 
    
    obtaining general financing through lower cost deposits and advances from the Federal
Home Loan Bank;
 
    
    lengthening the terms of borrowings and deposits; and
 
    
    reclassifying our investment securities portfolio as
available-for-sale.
  42




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##### Table of Contents



Net Interest Income Analysis.
  Net Interest IncomeChange in
    
    Estimated
    
    
    Increase (Decrease) inInterest Rates
    
    Net Interest
    
    
    Estimated Net Interest Income(basis points)(1)
    
    Income
    
    
    Amount
    
    
    Percent(dollars in thousands)+200
    
    $
    34,088
    
    
    $
    (3,265
    )
    
    
    -8.74
    %+100
    
    
    35,756
    
    
    
    (1,597
    )
    
    
    -4.28
    %0
    
    
    37,353
    
    
    
        
    
    
    
        -100
    
    
    37,897
    
    
    
    544
    
    
    
    1.46
    %-200
    
    
    37,396
    
    
    
    43
    
    
    
    0.12
    %
 
 (1)
    
    Assumes an instantaneous and sustained uniform change in interest rates at all
maturities.   
 Item 4. Controls and Procedures
    43




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##### Table of Contents



Part II  Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
    44




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Reserved
 
 Item 5. Other Information
   45




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##### Table of Contents



Item 6. Exhibits
  3.1
    
    

Articles
of Incorporation of Cape Bancorp, Inc. *3.2
    
    
    Amended and Restated Bylaws of Cape Bancorp, Inc. * *4
    
    
    Form of Common Stock Certificate of Cape Bancorp, Inc. *10.1
    
    
    Form of Employee Stock Ownership Plan *10.2
    
    
    Form of Change in Control Agreement *10.3
    
    
    Amended and Restated Phantom Incentive Stock Option Plan *10.4
    
    
    Amended and Restated Phantom Restricted Stock Plan *10.5
    
    
    Form of Director Retirement Plan *10.6
    
    
    Benefit Equalization Plan *31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 *
    
    Filed as exhibits to the Companys Registration Statement on Form S-1, and any amendments
thereto, with the Securities and Exchange Commission (Registration No. 333-146178).**
    
    Filed as an exhibit to the Companys Current Report Form 8-K with the Securities and Exchange
Commission on July 18, 2008.  46




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##### Table of Contents



SIGNATURES
  CAPE BANCORP, INC.Date: August 3, 2010
    /s/ Michael D. DevlinMichael D. DevlinPresident and Chief Executive OfficerDate: August 3, 2010
    /s/ Guy HackneyGuy HackneySenior Vice President and Chief Financial Officer  47