##### 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 September 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
(State or other jurisdiction of 
incorporation or organization)
    
    26-1294270
(I.R.S. Employer
Identification Number)225 North Main Street, Cape May Court House, New Jersey
(Address of Principal Executive Offices)
    
    08210
Zip Code
 (609) 465-5600
(Registrants telephone number)
 N/A
(Former name or former address, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if smaller reporting company)
 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 September 30, 2010 (unaudited) and December 31, 2009
    
    
    3Consolidated Statements of Income for the Three and Nine Months Ended September 30,
2010 and September 30, 2009 (unaudited)
    
    
    4Consolidated Statements of Changes in Stockholders Equity for the Twelve Months
Ended December 31, 2009 and Nine Months Ended September 30, 2010 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010
and September 30, 2009 (unaudited)
    
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    44Part II. Other InformationItem 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3. Defaults upon Senior Securities
    
    
    44Item 4. (Reserved)
    
    
    44Item 5. Other Information
    
    
    44Item 6. Exhibits
    
    
    45Signature Page
    
    
    46Exhibit 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)September 30,
    
    
    December 31,2010
    
    
    2009(in thousands)ASSETSCash & due from financial institutions
    
    $
    13,442
    
    
    $
    9,573Interest-bearing bank balances
    
    
    4,853
    
    
    
    3,940Cash and cash equivalents
    
    
    18,295
    
    
    
    13,513Interest-bearing time deposits
    
    
    9,566
    
    
    
    7,451Investment securities available for sale, at fair value (amortized
cost of $163,038 and $162,935 respectively)
    
    
    158,106
    
    
    
    152,815Loans held for sale
    
    
    4,408
    
    
    
    398Loans, net of allowance of $12,621 and $13,311 respectively
    
    
    758,145
    
    
    
    789,473Accrued interest receivable
    
    
    4,050
    
    
    
    4,630Premises and equipment, net
    
    
    25,456
    
    
    
    26,383Other real estate owned
    
    
    4,184
    
    
    
    4,817Federal Home Loan Bank (FHLB) stock, at cost
    
    
    8,392
    
    
    
    10,275Prepaid FDIC insurance premium
    
    
    3,489
    
    
    
    4,377Deferred income taxes
    
    
    5,522
    
    
    
    3,956Bank owned life insurance (BOLI)
    
    
    27,970
    
    
    
    27,210Goodwill
    
    
    22,575
    
    
    
    22,575Intangible assets, net
    
    
    479
    
    
    
    585Assets held for sale
    
    
    494
    
    
    
    1,828Other assets
    
    
    3,087
    
    
    
    2,535Total assets
    
    $
    1,054,218
    
    
    $
    1,072,821LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDepositsNoninterest-bearing deposits
    
    $
    72,915
    
    
    $
    62,365Interest-bearing deposits
    
    
    679,180
    
    
    
    674,222Borrowings
    
    
    162,335
    
    
    
    203,981Advances from borrowers for taxes and insurance
    
    
    557
    
    
    
    542Accrued interest payable
    
    
    710
    
    
    
    807Other liabilities
    
    
    5,111
    
    
    
    4,356Total liabilities
    
    
    920,808
    
    
    
    946,273Stockholders EquityCommon stock, $.01 par value: authorized 100,000,000 shares;
issued 13,324,521 shares
    
    
    133
    
    
    
    133Additional paid-in capital
    
    
    126,753
    
    
    
    126,695Treasury stock at cost - 11,000 shares
    
    
    (85
    )
    
    
    Unearned ESOP shares
    
    
    (9,486
    )
    
    
    (9,806
    )Accumulated other comprehensive loss, net
    
    
    (3,255
    )
    
    
    (6,645
    )Retained earnings
    
    
    19,350
    
    
    
    16,171Total stockholders equity
    
    
    133,410
    
    
    
    126,548Total liabilities & stockholders equity
    
    $
    1,054,218
    
    
    $
    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 nine monthsended September 30,
    
    
    ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands, except share data)Interest income:Interest on loans
    
    $
    11,220
    
    
    $
    11,667
    
    
    $
    34,259
    
    
    $
    35,068Interest and dividends on investmentsTaxable
    
    
    555
    
    
    
    585
    
    
    
    1,035
    
    
    
    2,272Tax-exempt
    
    
    304
    
    
    
    338
    
    
    
    940
    
    
    
    1,024Interest on mortgage-backed securities
    
    
    576
    
    
    
    819
    
    
    
    1,815
    
    
    
    2,980Total interest income
    
    
    12,655
    
    
    
    13,409
    
    
    
    38,049
    
    
    
    41,344Interest expense:Interest on deposits
    
    
    2,105
    
    
    
    2,823
    
    
    
    6,777
    
    
    
    9,808Interest on borrowings
    
    
    1,453
    
    
    
    1,664
    
    
    
    4,485
    
    
    
    4,960Total interest expense
    
    
    3,558
    
    
    
    4,487
    
    
    
    11,262
    
    
    
    14,768Net interest income before provision for loan losses
    
    
    9,097
    
    
    
    8,922
    
    
    
    26,787
    
    
    
    26,576Provision for loan losses
    
    
    2,700
    
    
    
    9,765
    
    
    
    4,652
    
    
    
    12,374Net interest income (expense) after provision for loan losses
    
    
    6,397
    
    
    
    (843
    )
    
    
    22,135
    
    
    
    14,202Non-interest income:Service fees
    
    
    926
    
    
    
    775
    
    
    
    2,543
    
    
    
    2,278Net gains on sale of loans
    
    
    59
    
    
    
    38
    
    
    
    99
    
    
    
    101Net income from BOLI
    
    
    254
    
    
    
    256
    
    
    
    760
    
    
    
    768Net rental income
    
    
    58
    
    
    
    86
    
    
    
    173
    
    
    
    258Gain (loss) on sale of investment securities held for sale, net
    
    
    343
    
    
    
    595
    
    
    
    310
    
    
    
    1,195Net gain (loss) on sale of OREO
    
    
    7
    
    
    
    (122
    )
    
    
    255
    
    
    
    (377
    )Other
    
    
    81
    
    
    
    59
    
    
    
    250
    
    
    
    642Gross other-than-temporary impairment losses
    
    
    (1,857
    )
    
    
    (5,952
    )
    
    
    (4,881
    )
    
    
    (6,354
    )Less: Portion of loss recognized in other comprehensive income
    
    
    1,517
    
    
    
    5,153
    
    
    
    1,456
    
    
    
    1,513Net other-than-temporary impairment losses
    
    
    (340
    )
    
    
    (799
    )
    
    
    (3,425
    )
    
    
    (4,841
    )Total non-interest income
    
    
    1,388
    
    
    
    888
    
    
    
    965
    
    
    
    24Non-interest expense:Salaries and employee benefits
    
    
    3,082
    
    
    
    3,316
    
    
    
    10,474
    
    
    
    11,748Occupancy and equipment
    
    
    865
    
    
    
    874
    
    
    
    2,806
    
    
    
    2,549Federal insurance premiums
    
    
    320
    
    
    
    300
    
    
    
    952
    
    
    
    1,401Data processing
    
    
    324
    
    
    
    323
    
    
    
    1,006
    
    
    
    903Loan related expenses
    
    
    735
    
    
    
    434
    
    
    
    1,522
    
    
    
    692Advertising
    
    
    86
    
    
    
    47
    
    
    
    283
    
    
    
    262Telecommunications
    
    
    273
    
    
    
    226
    
    
    
    746
    
    
    
    633Professional services
    
    
    199
    
    
    
    217
    
    
    
    522
    
    
    
    661OREO expenses
    
    
    196
    
    
    
    92
    
    
    
    633
    
    
    
    197Other operating
    
    
    819
    
    
    
    780
    
    
    
    2,467
    
    
    
    2,300Total non-interest expense
    
    
    6,899
    
    
    
    6,609
    
    
    
    21,411
    
    
    
    21,346Income (loss) before income taxes
    
    
    886
    
    
    
    (6,564
    )
    
    
    1,689
    
    
    
    (7,120
    )Income tax expense (benefit)
    
    
    (959
    )
    
    
    12,571
    
    
    
    (1,490
    )
    
    
    12,011Net income (loss)
    
    $
    1,845
    
    
    $
    (19,135
    )
    
    $
    3,179
    
    
    $
    (19,131
    )Earnings (loss) per share (see Note 10):Basic
    
    $
    0.15
    
    
    $
    (1.55
    )
    
    $
    0.26
    
    
    $
    (1.55
    )Diluted
    
    $
    0.15
    
    
    $
    (1.55
    )
    
    $
    0.26
    
    
    $
    (1.55
    )Weighted average number of shares outstanding:Basic
    
    
    12,358,140
    
    
    
    12,317,638
    
    
    
    12,348,861
    
    
    
    12,307,455Diluted
    
    
    12,368,865
    
    
    
    12,317,638
    
    
    
    12,359,770
    
    
    
    12,307,455
   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 nine months ended September 30, 2010
(unaudited)
 AccumulatedUnearned
    
    
    Other
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Treasury
    
    
    ESOP
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersStock
    
    
    Capital
    
    
    Stock
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,179
    
    
    
    3,179Stock option compensation expense
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144Restricted stock compensation expense
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Net unrealized gains, net of
reclassification adjustments and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,390
    
    
    
    
    
    
    
    3,390Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,717Common stock repurchased  11,000 shares
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )ESOP shares earned
    
    
    
    
    
    
    (90
    )
    
    
    
    
    
    
    320
    
    
    
    
    
    
    
    
    
    
    
    230Balance, September 30, 2010
    
    $
    133
    
    
    $
    126,753
    
    
    $
    (85
    )
    
    $
    (9,486
    )
    
    $
    (3,255
    )
    
    $
    19,350
    
    
    $
    133,410
   5




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##### Table of Contents



CAPE BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Nine months ended September 30,2010
    
    
    2009(in thousands)Cash flows from operating activitiesNet income (loss)
    
    $
    3,179
    
    
    $
    (19,131
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Provision for loan losses
    
    
    4,652
    
    
    
    12,374Net gain on the sale of loans
    
    
    (99
    )
    
    
    (101
    )Net (gain) loss on the sale of other real estate owned
    
    
    (255
    )
    
    
    377Write-down of other real estate owned
    
    
    335
    
    
    
    152Loss on impairment of securities
    
    
    3,425
    
    
    
    4,841Net gain on sale of investments
    
    
    (310
    )
    
    
    (1,195
    )Earnings on BOLI
    
    
    (760
    )
    
    
    (768
    )Origination of loans held for sale
    
    
    (13,719
    )
    
    
    (9,165
    )Proceeds from sales of loans
    
    
    9,710
    
    
    
    8,303Depreciation and amortization
    
    
    1,477
    
    
    
    1,380ESOP and stock-based compensation expense
    
    
    378
    
    
    
    251Deferred income taxes
    
    
    (3,366
    )
    
    
    11,997Changes in assets and liabilities that (used) provided cash:Accrued interest receivable
    
    
    580
    
    
    
    4Other assets
    
    
    1,670
    
    
    
    (1,914
    )Accrued interest payable
    
    
    (97
    )
    
    
    16Other liabilities
    
    
    755
    
    
    
    1,216Net cash provided by operating activities
    
    
    7,555
    
    
    
    8,637Cash flows from investing activitiesProceeds from sales of AFS securities
    
    
    6,574
    
    
    
    31,708Proceeds from calls, maturities, and principal repayments of HTM securities
    
    
    
    
    
    
    6,768Proceeds from calls, maturities, and principal repayments of AFS securities
    
    
    88,120
    
    
    
    62,503Purchases of HTM securities
    
    
    
    
    
    
    (2,998
    )Purchases of AFS securities
    
    
    (97,827
    )
    
    
    (90,002
    )Redemption of Federal Home Loan Bank stock
    
    
    1,882
    
    
    
    2,698Proceeds from sale of other real estate owned
    
    
    4,220
    
    
    
    1,351Increase in interest-bearing time deposits
    
    
    (2,115
    )
    
    
    (2,774
    )(Increase) decrease in loans, net
    
    
    22,733
    
    
    
    (20,273
    )Repurchase of common stock
    
    
    (85
    )
    
    
    Purchase of property and equipment, net
    
    
    (164
    )
    
    
    (416
    )Net cash provided by (used in) investing activities
    
    
    23,338
    
    
    
    (11,435
    )Cash flows from financing activitiesNet increase in deposits
    
    
    15,525
    
    
    
    52,418Increase (decrease) in advances from borrowers for taxes and insurance
    
    
    14
    
    
    
    (22
    )Increase in long-term borrowings
    
    
    5,000
    
    
    
    45,000Repayments of long-term borrowings
    
    
    (30,000
    )
    
    
    (14,000
    )Net change in short-term borrowings
    
    
    (16,650
    )
    
    
    (91,900
    )Net cash provided by (used in) financing activities
    
    
    (26,111
    )
    
    
    (8,504
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,782
    
    
    
    (11,302
    )Cash and cash equivalents at beginning of period
    
    
    13,513
    
    
    
    22,501Cash and cash equivalents at end of period
    
    $
    18,295
    
    
    $
    11,199Supplementary disclosure of cash flow information:Cash paid during period for:Interest
    
    $
    11,359
    
    
    $
    14,752Income taxes, net of refunds
    
    $
    1,465
    
    
    $
    3Supplementary disclosure of non-cash financing and investing activities:Transfers from loans to other real estate owned
    
    $
    3,667
    
    
    $
    1,674
   6




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##### Table of Contents



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 Benefit 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 September 30, 2010Unrealized holding gains arising during the period
    
    $
    2,397
    
    
    $
    (814
    )
    
    $
    1,583Non-credit related unrealized loss on
other-than-temporarily impaired CDOs
    
    
    (1,517
    )
    
    
    516
    
    
    
    (1,001
    )Reclassification adjustment for gain on sale of securities
    
    
    (343
    )
    
    
    116
    
    
    
    (227
    )Reclassification adjustment for credit related OTTI
included in net income
    
    
    340
    
    
    
    (116
    )
    
    
    224Other comprehensive income, net
    
    $
    877
    
    
    $
    (298
    )
    
    $
    579Three months ended September 30, 2009Unrealized holding gains arising during the period
    
    $
    6,069
    
    
    $
    (2,064
    )
    
    $
    4,005Non-credit related unrealized loss on
other-than-temporarily impaired CDOs
    
    
    (5,153
    )
    
    
    1,752
    
    
    
    (3,401
    )Reclassification adjustment for loss on sale of securities
    
    
    (595
    )
    
    
    202
    
    
    
    (393
    )Reclassification adjustment for credit related OTTI
included in net income
    
    
    799
    
    
    
    (272
    )
    
    
    527Other comprehensive income, net
    
    $
    1,120
    
    
    $
    (382
    )
    
    $
    738
 Before Tax
    
    
    Tax Benefit
    
    
    Net of TaxAmount
    
    
    (Expense)
    
    
    Amount(in thousands)Nine months ended September 30, 2010Unrealized
holding gains arising during the period
    
    $
    3,529
    
    
    $
    (1,233
    )
    
    $
    2,296Non-credit related unrealized loss on
other-than-temporarily impaired CDOs
    
    
    (1,456
    )
    
    
    495
    
    
    
    (961
    )Reclassification adjustment for gain on sale of securities
    
    
    (310
    )
    
    
    105
    
    
    
    (205
    )Reclassification adjustment for credit related OTTI
included in net income
    
    
    3,425
    
    
    
    (1,165
    )
    
    
    2,260Other comprehensive income, net
    
    $
    5,188
    
    
    $
    (1,798
    )
    
    $
    3,390Nine months ended September 30, 2009Unrealized
holding losses arising during the period
    
    $
    2,164
    
    
    $
    (735
    )
    
    $
    (1,429
    )Non-credit related unrealized loss on
other-than-temporarily impaired CDOs
    
    
    (1,513
    )
    
    
    514
    
    
    
    (999
    )Reclassification adjustment for loss on sale of securities
    
    
    (1,195
    )
    
    
    406
    
    
    
    (789
    )Reclassification adjustment for credit related OTTI
included in net income
    
    
    4,841
    
    
    
    (1,646
    )
    
    
    3,195Other comprehensive income, net
    
    $
    4,297
    
    
    $
    (1,461
    )
    
    $
    2,836
  11




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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)September 30, 2010Investment securities available for saleDebt securitiesU.S. Government and agency
obligations
    
    $
    61,486
    
    
    $
    198
    
    
    $
    
    
    
    $
    61,684Municipal bonds
    
    
    27,260
    
    
    
    886
    
    
    
    (210
    )
    
    
    27,936Collateralized debt obligations
    
    
    9,704
    
    
    
    27
    
    
    
    (8,174
    )
    
    
    1,557Corporate bonds
    
    
    10,641
    
    
    
    253
    
    
    
    (6
    )
    
    
    10,888Total debt securities
    
    $
    109,091
    
    
    $
    1,364
    
    
    $
    (8,390
    )
    
    $
    102,065Mortgage-backed securitiesGNMA pass-through certificates
    
    $
    2,341
    
    
    $
    60
    
    
    $
    
    
    
    $
    2,401FHLMC pass-through certificates
    
    
    3,598
    
    
    
    155
    
    
    
    
    
    
    
    3,753FNMA pass-through certificates
    
    
    21,026
    
    
    
    1,139
    
    
    
    
    
    
    
    22,165Collateralized mortgage obligations
    
    
    26,982
    
    
    
    796
    
    
    
    (56
    )
    
    
    27,722Total mortgage-backed securities
    
    $
    53,947
    
    
    $
    2,150
    
    
    $
    (56
    )
    
    $
    56,041Total securities available for sale
    
    $
    163,038
    
    
    $
    3,514
    
    
    $
    (8,446
    )
    
    $
    158,106
  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
    
    
    
    
    
    
    
    
    
    
    3,988
    
    
    
    (210
    )
    
    
    3,988
    
    
    
    (210
    )Corporate bonds
    
    
    1,942
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    1,942
    
    
    
    (6
    )Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    1,117
    
    
    
    (8,174
    )
    
    
    1,117
    
    
    
    (8,174
    )Mortgage-backed securities
    
    
    52
    
    
    
    (0
    )
    
    
    3,471
    
    
    
    (56
    )
    
    
    3,523
    
    
    
    (56
    )Total temporarily impaired investment
securities
    
    $
    1,994
    
    
    $
    (6
    )
    
    $
    8,576
    
    
    $
    (8,440
    )
    
    $
    10,570
    
    
    $
    (8,446
    )
  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
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    407
    
    
    $
    14
    
    
    $
    (393
    )
    
    $
    (635
    )
    
    Ca/C
    
    
    23
    
    
    
    37.70
    %
    
    
    0.00
    %PreTSL VI
    
    Mezzanine
    
    
    42
    
    
    
    5
    
    
    
    (37
    )
    
    
    (16
    )
    
    Caa1/D
    
    
    2
    
    
    
    81.00
    %
    
    
    0.00
    %PreTSL XIX
    
    Mezzanine
    
    
    1,161
    
    
    
    36
    
    
    
    (1,125
    )
    
    
    (614
    )
    
    Ca/C
    
    
    52
    
    
    
    24.60
    %
    
    
    0.00
    %I-PreTSL I
    
    Mezzanine
    
    
    1,831
    
    
    
    250
    
    
    
    (1,581
    )
    
    
    
    
    
    NR/BB
    
    
    16
    
    
    
    17.40
    %
    
    
    8.70
    %I-PreTSL II
    
    Mezzanine
    
    
    2,713
    
    
    
    375
    
    
    
    (2,338
    )
    
    
    
    
    
    NR/BB
    
    
    29
    
    
    
    4.90
    %
    
    
    14.33
    %I-PreTSL III
    
    Mezzanine
    
    
    2,699
    
    
    
    375
    
    
    
    (2,324
    )
    
    
    
    
    
    B2/BB
    
    
    24
    
    
    
    11.20
    %
    
    
    10.19
    %I-PreTSL IV
    
    Mezzanine
    
    
    438
    
    
    
    62
    
    
    
    (376
    )
    
    
    
    
    
    Ba2/CCC
    
    
    29
    
    
    
    11.60
    %
    
    
    2.24
    %MM Comm I
    
    Mezzanine
    
    
    413
    
    
    
    440
    
    
    
    27
    
    
    
    (1,153
    )
    
    NR/C
    
    
    7
    
    
    
    72.36
    %
    
    
    0.00
    %Total
    
    
    
    $
    9,704
    
    
    $
    1,557
    
    
    $
    (8,147
    )
    
    $
    (2,418
    )
     16




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##### Table of Contents



Available for SaleAmortized
    
    
    FairCost
    
    
    Value(in thousands)Due within one year or less
    
    $
    9,134
    
    
    $
    9,189Due after one year but within five years
    
    
    65,886
    
    
    
    66,651Due after five years but within ten years
    
    
    13,554
    
    
    
    13,868Due after ten years
    
    
    20,517
    
    
    
    12,357Mortgage-backed securities
    
    
    53,947
    
    
    
    56,041Total investment securities
    
    $
    163,038
    
    
    $
    158,106
  Three
    
    
    NineMonths
    
    
    MonthsEnded
    
    
    EndedSeptember 30, 2010Beginning balance of cumulative credit losses on CDO securities (1)
    
    $
    (16,578
    )
    
    $
    (13,493
    )Additional credit losses for which other than temporary impairment
was previously recognized
    
    
    (340
    )
    
    
    (3,425
    )Ending balance of cumulative credit losses on CDO securities,
September 30, 2010
    
    $
    (16,918
    )
    
    $
    (16,918
    )
 
 (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.  17




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##### Table of Contents



NOTE 4  LOANS RECEIVABLE
  September 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Commercial mortgage
    
    $
    406,047
    
    
    $
    416,575Residential mortgage
    
    
    238,429
    
    
    
    244,897Construction
    
    
    22,678
    
    
    
    28,839Home equity loans and lines of credit
    
    
    48,375
    
    
    
    48,706Commercial business loans
    
    
    54,378
    
    
    
    62,685Other consumer loans
    
    
    1,014
    
    
    
    1,284Loans receivable, gross
    
    
    770,921
    
    
    
    802,986Less:Allowance for loan losses
    
    
    12,621
    
    
    
    13,311Deferred loan fees
    
    
    155
    
    
    
    202Loans receivable, net
    
    $
    758,145
    
    
    $
    789,473
  Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)
    
    
    (in thousands)Balance at beginning of period
    
    $
    11,916
    
    
    $
    12,081
    
    
    $
    13,311
    
    
    $
    11,240Provisions charged to operations
    
    
    2,700
    
    
    
    9,765
    
    
    
    4,652
    
    
    
    12,374Adjustment for passage of time
on
certain impaired loans (1)
    
    
    (10
    )
    
    
    
    
    
    
    (13
    )
    
    
    Charge-offs
    
    
    (2,002
    )
    
    
    (8,077
    )
    
    
    (5,839
    )
    
    
    (10,246
    )Recoveries
    
    
    17
    
    
    
    9
    
    
    
    510
    
    
    
    410Balance at end of period
    
    $
    12,621
    
    
    $
    13,778
    
    
    $
    12,621
    
    
    $
    13,778
 (1)
    
    Certain impaired loans have a valuation allowance determined by discounting expected cash
flows at the respective loans effective interest rate. At September 30, 2010, the impairment reserve on troubled debt restructurings (TDRs) was $402,000.  18




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Period-end impaired loans with no allocated allowance for loan
losses
    
    $
    44,072
    
    
    $
    26,020Period-end impaired loans with allocated allowance for loan losses
    
    
    7,088
    
    
    
    7,228Total
    
    $
    51,160
    
    
    $
    33,248Amount of the allowance for loan losses allocated
    
    $
    2,470
    
    
    $
    3,016
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)
    
    
    (in thousands)Average of individually impaired loans
during the period
    
    $
    43,503
    
    
    $
    31,682
    
    
    $
    37,714
    
    
    $
    29,512Interest income recognized during impairment
    
    $
    284
    
    
    $
    8
    
    
    $
    467
    
    
    $
    37Cash basis interest income recognized
    
    $
    
    
    
    $
    8
    
    
    $
    147
    
    
    $
    38
 NOTE 5  FAIR VALUE
          19




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##### Table of Contents



Assets and Liabilities Measured on a Recurring Basis
  Fair Value Measurements
    
    
    Fair Value Measurementsat September 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
    
    $
    
    
    
    $
    61,684
    
    
    $
    
    
    
    $
    
    
    
    $
    45,972
    
    
    $
    Municipal bonds
    
    
    
    
    
    
    27,936
    
    
    
    
    
    
    
    
    
    
    
    34,381
    
    
    
    Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    1,557
    
    
    
    
    
    
    
    
    
    
    
    1,456Corporate bonds
    
    
    
    
    
    
    10,888
    
    
    
    
    
    
    
    
    
    
    
    11,046
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    56,041
    
    
    
    
    
    
    
    
    
    
    
    59,960
    
    
    
    Total securities
available for
sale
    
    $
    
    
    
    $
    156,549
    
    
    $
    1,557
    
    
    $
    
    
    
    $
    151,359
    
    
    $
    1,456
  Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)CDO SecuritiesAvailable for SaleNine months ended September 30,2010
    
    
    2009(in thousands)Beginning balance
    
    $
    1,456
    
    
    $
    3,033Accretion of discount
    
    
    91
    
    
    
    183Payments received
    
    
    
    
    
    
    (2
    )Increase in amortized cost (1)
    
    
    
    
    
    
    6,103Unrealized holding gain (loss)
    
    
    3,435
    
    
    
    (2,885
    )Other-than-temporary impairment
included in earnings
    
    
    (3,425
    )
    
    
    (4,841
    )Ending balance
    
    $
    1,557
    
    
    $
    1,591
 (1)
    
    Increase is due to FASB guidance regarding the recognition and presentation of
other-than-temporary impairments.  20




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##### Table of Contents



Assets and Liabilities Measured on a Non-Recurring Basis
  Fair Value Measurements
    
    
    Fair Value Measurementsat September 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
    
    $
    
    
    
    $
    35,873
    
    
    $
    
    
    
    $
    
    
    
    $
    25,132
    
    
    $
    Residential mortgage
    
    
    
    
    
    
    4,769
    
    
    
    
    
    
    
    
    
    
    
    3,251
    
    
    
    Construction
    
    
    
    
    
    
    3,917
    
    
    
    
    
    
    
    
    
    
    
    1,298
    
    
    
    Home equity loans
    
    
    
    
    
    
    795
    
    
    
    
    
    
    
    
    
    
    
    482
    
    
    
    Commercial business
loans
    
    
    
    
    
    
    5,806
    
    
    
    
    
    
    
    
    
    
    
    3,085
    
    
    
    Total impaired loans
    
    $
    
    
    
    $
    51,160
    
    
    $
    
    
    
    $
    
    
    
    $
    33,248
    
    
    $
    Other real estate owned:Commercial
    
    $
    
    
    
    $
    3,108
    
    
    $
    
    
    
    $
    
    
    
    $
    3,532
    
    
    $
    Residential mortgage
    
    
    
    
    
    
    1,076
    
    
    
    
    
    
    
    
    
    
    
    1,285
    
    
    
    Total other real estate
owned
    
    $
    
    
    
    $
    4,184
    
    
    $
    
    
    
    $
    
    
    
    $
    4,817
    
    
    $
    Loans held for sale
    
    $
    
    
    
    $
    4,408
    
    
    $
    
    
    
    $
    
    
    
    $
    398
    
    
    $
    Assets held for sale
    
    $
    
    
    
    $
    494
    
    
    $
    
    
    
    $
    
    
    
    $
    1,828
    
    
    $
    Goodwill
    
    $
    
    
    
    $
    
    
    
    $
    22,575
    
    
    $
    
    
    
    $
    
    
    
    $
    22,575Other intangibles
    
    $
    
    
    
    $
    
    
    
    $
    479
    
    
    $
    
    
    
    $
    
    
    
    $
    585
 (1)
    
    Includes loans delinquent 90 days, loans less than 90 days delinquent but not accruing and
troubled debt restructured loans.   21




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##### Table of Contents



At September 30, 2010
    
    
    At December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(in thousands)
    
    
    (in thousands)AssetsCash and cash equivalents
    
    $
    18,295
    
    
    $
    18,295
    
    
    $
    13,513
    
    
    $
    13,513Interest-bearing time deposits
    
    
    9,566
    
    
    
    9,643
    
    
    
    7,451
    
    
    
    7,539Investment securities
    
    
    158,106
    
    
    
    158,106
    
    
    
    152,815
    
    
    
    152,815Loans held for sale
    
    
    4,408
    
    
    
    4,408
    
    
    
    398
    
    
    
    398Loans receivable
    
    
    758,145
    
    
    
    768,469
    
    
    
    789,473
    
    
    
    788,421FHLB Stock
    
    
    8,392
    
    
    
    8,392
    
    
    
    10,275
    
    
    
    10,275Bank owned life insurance
    
    
    27,970
    
    
    
    27,970
    
    
    
    27,210
    
    
    
    27,210Accrued interest receivable
    
    
    4,050
    
    
    
    4,050
    
    
    
    4,630
    
    
    
    4,630LiabilitiesSavings deposits
    
    $
    83,803
    
    
    $
    83,803
    
    
    $
    79,368
    
    
    $
    79,368NOW, checking and MMDA
deposits
    
    
    346,342
    
    
    
    346,342
    
    
    
    320,308
    
    
    
    320,308Certificates of deposit
    
    
    321,950
    
    
    
    325,921
    
    
    
    336,911
    
    
    
    340,084Borrowings
    
    
    162,335
    
    
    
    169,646
    
    
    
    203,981
    
    
    
    199,718Accrued interest payable
    
    
    710
    
    
    
    710
    
    
    
    807
    
    
    
    807
           22




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##### Table of Contents



NOTE 6  OTHER REAL ESTATE OWNED
    NOTE 7 DEPOSITS
  September 30,
    
    
    December 31,2010
    
    
    2009(in thousands)Savings accounts
    
    $
    83,803
    
    
    $
    79,368NOW accounts and money market funds
    
    
    273,427
    
    
    
    257,943Non-interest bearing checking
    
    
    72,915
    
    
    
    62,365Certificates
of deposit of less than $100,000
    
    
    182,063
    
    
    
    201,303Certificates of deposit of $100,000 or more
    
    
    139,887
    
    
    
    135,608$
    752,095
    
    
    $
    736,587
  23




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##### Table of Contents



NOTE 8  INCOME TAXES
  Three months ended September 30,
    
    
    Nine months ended September 30,Income taxes
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)
    
    
    (in thousands)Pre-tax income (loss)
    
    $
    886
    
    
    $
    (6,564
    )
    
    $
    1,689
    
    
    $
    (7,120
    )Income tax expense
(benefit)
    
    $
    (959
    )
    
    $
    12,571
    
    
    $
    (1,490
    )
    
    $
    12,011
 2009
Annual Report to Shareholders
  24




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##### Table of Contents



NOTE 9  STOCK BENEFIT PLAN
    Assumption
    
    September 30, 2010Expected average risk-free interest rate
    
    
    2.46
    %Expected average life (in years)
    
    
    6.5Expected volatility
    
    
    41.64
    %Expected dividend yield
    
    
    0.00
    %
  WeightedWeighted
    
    
    
    
    
    
    AverageAverage
    
    
    Aggregate
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    Intrinsic
    
    
    ContractualOptions
    
    
    Price
    
    
    Value
    
    
    LifeOutstanding at January 1
    
    
    
    
    
    $
    Granted
    
    
    753,600
    
    
    
    7.28Forfeited
    
    
    
    
    
    
    Outstanding at
September 30
    
    
    753,600
    
    
    $
    7.28
    
    
    
    
    
    
    9.7 yearsExercisable at
September 30
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
   Restricted
    
    
    Weighted AverageCommon
    
    
    Fair Value atShares
    
    
    Grant DateOutstanding at January 1
    
    
    
    
    
    $
    Granted
    
    
    11,000
    
    
    
    7.68Forfeited
    
    
    
    
    
    
    Outstanding at September 30
    
    
    11,000
    
    
    $
    7.68
  25




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##### Table of Contents



Three
    
    
    NineMonths
    
    
    MonthsEnded
    
    
    Ended(in thousands)
    
    September 30, 2010Compensation expense:Common stock options
    
    $
    124
    
    
    $
    144Restricted common stock
    
    
    4
    
    
    
    4Total compensation expense
    
    
    128
    
    
    
    148Tax benefit
    
    
    3
    
    
    
    3Net income effect
    
    $
    125
    
    
    $
    145
  NOTE 10  EARNINGS PER SHARE
   Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except share data)Net income (loss)
    
    $
    1,845
    
    
    $
    (19,135
    )
    
    $
    3,179
    
    
    $
    (19,131
    )Weighted average shares outstanding
    
    
    12,358,140
    
    
    
    12,317,638
    
    
    
    12,348,861
    
    
    
    12,307,455Basic earnings (loss) per share
    
    $
    0.15
    
    
    $
    (1.55
    )
    
    $
    0.26
    
    
    $
    (1.55
    )Diluted weighted average shares
outstanding
    
    
    12,368,865
    
    
    
    12,317,638
    
    
    
    12,359,770
    
    
    
    12,307,455Diluted earnings (loss) per share
    
    $
    0.15
    
    
    $
    (1.55
    )
    
    $
    0.26
    
    
    $
    (1.55
    )
  26




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
   Overview
       27




---



##### 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:
      Managing non-performing assets to performing status or disposal:
   28




---



##### Table of Contents



Managing net interest income and interest rate risk in a potentially rising rate environment:
  2010 Overview
      29




---



##### Table of Contents



Comparison of Financial Condition at September 30, 2010 and December 31, 2009
        30




---



##### Table of Contents



31




---



##### Table of Contents



For the Three Months Ended September 30,2010
    
    
    2009Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Yield
    
    
    Balance
    
    
    Expense
    
    
    Yield(dollars in thousands)AssetsInterest-earning deposits
    
    $
    15,470
    
    
    $
    40
    
    
    
    1.03
    %
    
    $
    10,107
    
    
    $
    61
    
    
    
    2.36
    %Investments
    
    
    171,632
    
    
    
    1,395
    
    
    
    3.18
    %
    
    
    184,235
    
    
    
    1,681
    
    
    
    3.57
    %Loans
    
    
    783,044
    
    
    
    11,220
    
    
    
    5.68
    %
    
    
    809,878
    
    
    
    11,667
    
    
    
    5.72
    %Total interest-earning assets
    
    
    970,146
    
    
    
    12,655
    
    
    
    5.18
    %
    
    
    1,004,220
    
    
    
    13,409
    
    
    
    5.30
    %Noninterest-earning assets
    
    
    104,568
    
    
    
    
    
    
    
    
    
    
    
    105,390Allowance for loan losses
    
    
    (12,462
    )
    
    
    
    
    
    
    
    
    
    
    (12,259
    )Total assets
    
    $
    1,062,252
    
    
    
    
    
    
    
    
    
    
    $
    1,097,351Liabilities and Stockholders
EquityInterest-bearing demand accounts
    
    $
    112,075
    
    
    
    98
    
    
    
    0.35
    %
    
    $
    111,591
    
    
    
    105
    
    
    
    0.37
    %Savings accounts
    
    
    83,830
    
    
    
    79
    
    
    
    0.37
    %
    
    
    81,138
    
    
    
    91
    
    
    
    0.44
    %Money market accounts
    
    
    161,795
    
    
    
    457
    
    
    
    1.12
    %
    
    
    127,436
    
    
    
    406
    
    
    
    1.26
    %Certificates of deposit
    
    
    335,050
    
    
    
    1,471
    
    
    
    1.74
    %
    
    
    370,273
    
    
    
    2,221
    
    
    
    2.38
    %Borrowings
    
    
    154,669
    
    
    
    1,453
    
    
    
    3.73
    %
    
    
    181,785
    
    
    
    1,664
    
    
    
    3.63
    %Total interest-bearing liabilities
    
    
    847,419
    
    
    
    3,558
    
    
    
    1.67
    %
    
    
    872,223
    
    
    
    4,487
    
    
    
    2.04
    %Noninterest-bearing deposits
    
    
    72,778
    
    
    
    
    
    
    
    
    
    
    
    73,492Other liabilities
    
    
    9,409
    
    
    
    
    
    
    
    
    
    
    
    6,860Total liabilities
    
    
    929,606
    
    
    
    
    
    
    
    
    
    
    
    952,575Stockholders equity
    
    
    132,646
    
    
    
    
    
    
    
    
    
    
    
    144,776Total liabilities & stockholders
equity
    
    $
    1,062,252
    
    
    
    
    
    
    
    
    
    
    $
    1,097,351Net interest income
    
    
    
    
    
    $
    9,097
    
    
    
    
    
    
    
    
    
    
    $
    8,922Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.51
    %
    
    
    
    
    
    
    
    
    
    
    3.26
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.72
    %
    
    
    
    
    
    
    
    
    
    
    3.52
    %Net interest income and margin (tax
equivalent basis) (1)
    
    
    
    
    
    $
    9,247
    
    
    
    3.78
    %
    
    
    
    
    
    $
    9,070
    
    
    
    3.58
    %Ratio of average interest-earning
assets to average interest-bearing
liabilities
    
    
    114.48
    %
    
    
    
    
    
    
    
    
    
    
    115.13
    %
 (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 $150,000, and $148,000
for the three month period ended September 30, 2010 and 2009, respectively. The average yield on investments increased to
3.57% from 3.18% for the three month period ended September 30, 2010 and increased to 3.94% from 3.57% for the
three month period ended September 30, 2009.  32




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##### Table of Contents



For the Nine Months Ended September 30,2010
    
    
    2009Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Yield
    
    
    Balance
    
    
    Expense
    
    
    Yield(dollars in thousands)AssetsInterest-earning deposits
    
    $
    13,806
    
    
    $
    119
    
    
    
    1.15
    %
    
    $
    13,688
    
    
    $
    186
    
    
    
    1.79
    %Investments
    
    
    173,844
    
    
    
    3,671
    
    
    
    2.78
    %
    
    
    188,259
    
    
    
    6,090
    
    
    
    4.27
    %Loans
    
    
    792,580
    
    
    
    34,259
    
    
    
    5.78
    %
    
    
    806,676
    
    
    
    35,068
    
    
    
    5.81
    %Total interest-earning assets
    
    
    980,230
    
    
    
    38,049
    
    
    
    5.19
    %
    
    
    1,008,623
    
    
    
    41,344
    
    
    
    5.48
    %Noninterest-earning assets
    
    
    102,131
    
    
    
    
    
    
    
    
    
    
    
    105,065Allowance for loan losses
    
    
    (12,702
    )
    
    
    
    
    
    
    
    
    
    
    (12,063
    )Total assets
    
    $
    1,069,659
    
    
    
    
    
    
    
    
    
    
    $
    1,101,625Liabilities and Stockholders EquityInterest-bearing demand accounts
    
    $
    111,488
    
    
    
    301
    
    
    
    0.36
    %
    
    $
    106,610
    
    
    
    308
    
    
    
    0.39
    %Savings accounts
    
    
    81,633
    
    
    
    256
    
    
    
    0.42
    %
    
    
    80,231
    
    
    
    295
    
    
    
    0.49
    %Money market accounts
    
    
    153,205
    
    
    
    1,416
    
    
    
    1.24
    %
    
    
    124,952
    
    
    
    1,257
    
    
    
    1.34
    %Certificates of deposit
    
    
    355,323
    
    
    
    4,804
    
    
    
    1.81
    %
    
    
    377,598
    
    
    
    7,948
    
    
    
    2.81
    %Borrowings
    
    
    162,749
    
    
    
    4,485
    
    
    
    3.68
    %
    
    
    193,914
    
    
    
    4,960
    
    
    
    3.42
    %Total interest-bearing liabilities
    
    
    864,398
    
    
    
    11,262
    
    
    
    1.74
    %
    
    
    883,305
    
    
    
    14,768
    
    
    
    2.24
    %Noninterest-bearing deposits
    
    
    65,135
    
    
    
    
    
    
    
    
    
    
    
    68,321Other liabilities
    
    
    9,161
    
    
    
    
    
    
    
    
    
    
    
    6,984Total liabilities
    
    
    938,694
    
    
    
    
    
    
    
    
    
    
    
    958,610Stockholders equity
    
    
    130,965
    
    
    
    
    
    
    
    
    
    
    
    143,015Total liabilities & stockholders
equity
    
    $
    1,069,659
    
    
    
    
    
    
    
    
    
    
    $
    1,101,625Net interest income
    
    
    
    
    
    $
    26,787
    
    
    
    
    
    
    
    
    
    
    $
    26,576Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.45
    %
    
    
    
    
    
    
    
    
    
    
    3.24
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.65
    %
    
    
    
    
    
    
    
    
    
    
    3.52
    %Net interest income and margin
(tax
equivalent basis) (1)
    
    
    
    
    
    $
    27,248
    
    
    
    3.72
    %
    
    
    
    
    
    $
    27,064
    
    
    
    3.59
    %Ratio of average interest-earning
assets to average interest-bearing
liabilities
    
    
    113.40
    %
    
    
    
    
    
    
    
    
    
    
    114.19
    %
 (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 $461,000, and $488,000
for the nine month period ended September 30, 2010 and 2009, respectively. The average yield on investments increased to
3.18% from 2.78% for the nine month period ended September 30, 2010 and increased to 4.67% from 4.27% for the
nine month period ended September 30, 2009.  33




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##### Table of Contents



Rate/Volume Analysis
  For the Three Months Ended September 30, 2010Compared to September 30, 2009Increase (decrease) due to changes in:Average
    
    
    Average
    
    
    NetVolume
    
    
    Rate
    
    
    Change(in thousands)Interest-Earning AssetsInterest-earning deposits
    
    $
    23
    
    
    $
    (44
    )
    
    $
    (21
    )Investments
    
    
    (118
    )
    
    
    (168
    )
    
    
    (286
    )Loans
    
    
    (384
    )
    
    
    (63
    )
    
    
    (447
    )Total interest income
    
    
    (479
    )
    
    
    (275
    )
    
    
    (754
    )Interest-Bearing LiabilitiesInterest-bearing demand accounts
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )Savings accounts
    
    
    3
    
    
    
    (15
    )
    
    
    (12
    )Money market accounts
    
    
    101
    
    
    
    (50
    )
    
    
    51Certificates of deposit
    
    
    (196
    )
    
    
    (554
    )
    
    
    (750
    )Borrowings
    
    
    (254
    )
    
    
    43
    
    
    
    (211
    )Total interest expense
    
    
    (347
    )
    
    
    (583
    )
    
    
    (930
    )Total net interest income
    
    $
    (132
    )
    
    $
    308
    
    
    $
    175
 For the Nine Months Ended September 30, 2010Compared to September 30, 2009Increase (decrease) due to changes in:Average
    
    
    Average
    
    
    NetVolume
    
    
    Rate
    
    
    Change(in thousands)Interest-Earning AssetsInterest-earning deposits
    
    $
    2
    
    
    $
    (69
    )
    
    $
    (67
    )Investments
    
    
    (447
    )
    
    
    (1,972
    )
    
    
    (2,419
    )Loans
    
    
    (610
    )
    
    
    (199
    )
    
    
    (809
    )Total interest income
    
    
    (1,055
    )
    
    
    (2,240
    )
    
    
    (3,295
    )Interest-Bearing LiabilitiesInterest-bearing demand accounts
    
    
    14
    
    
    
    (21
    )
    
    
    (7
    )Savings accounts
    
    
    5
    
    
    
    (44
    )
    
    
    (39
    )Money market accounts
    
    
    267
    
    
    
    (108
    )
    
    
    159Certificates of deposit
    
    
    (445
    )
    
    
    (2,699
    )
    
    
    (3,144
    )Borrowings
    
    
    (839
    )
    
    
    364
    
    
    
    (475
    )Total interest expense
    
    
    (998
    )
    
    
    (2,508
    )
    
    
    (3,506
    )Total net interest income
    
    $
    (57
    )
    
    $
    268
    
    
    $
    211
  34




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##### Table of Contents



Comparison of Operating Results for the Three and Nine Months Ended September 30, 2010 and
2009
 General.
 Interest Income.
   35




---



##### Table of Contents



Interest Expense.
  Net Interest Income.
 Provision for Loan Losses.
     36




---



##### Table of Contents



Non-Interest Income.
  Non-Interest Expense .
  Income Tax Expense (Benefit).
  37




---



##### Table of Contents



Liquidity and Capital Resources
         38




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##### Table of Contents



Per Regulatory GuidelinesActual
    
    
    Minimum
    
    

Well
CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(dollars in thousands)September 30, 2010Risk based capital ratios:Tier I
    
    $
    101,970
    
    
    
    12.32
    %
    
    $
    33,107
    
    
    
    4.00
    %
    
    $
    49,661
    
    
    
    6.00
    %Total capital
    
    $
    112,345
    
    
    
    13.57
    %
    
    $
    66,231
    
    
    
    8.00
    %
    
    $
    82,789
    
    
    
    10.00
    %Leverage ratio
    
    $
    101,970
    
    
    
    9.81
    %
    
    $
    41,578
    
    
    
    4.00
    %
    
    $
    51,972
    
    
    
    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




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##### Table of Contents



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




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##### 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;
 
    
    re-pricing existing deposits to current market rates;
 
    
    obtaining funds 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
    
    $
    33,661
    
    
    $
    (2,370
    )
    
    
    -6.58
    %+100
    
    
    35,122
    
    
    
    (909
    )
    
    
    -2.52
    %0
    
    
    36,031
    
    
    
    
    
    
    
    -100
    
    
    36,154
    
    
    
    123
    
    
    
    0.34
    %-200
    
    
    35,891
    
    
    
    (140
    )
    
    
    -0.39
    %
 
 (1)
    
    Assumes an instantaneous and sustained uniform change in interest rates
at all maturities.    43




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##### Table of Contents



Item 4.
    
    Controls and Procedures
     
 Part II  Other Information
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
   
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Reserved
 
 Item 5.
    
    Other Information
   44




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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.  45




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##### Table of Contents



SIGNATURES
  CAPE BANCORP, INC.Date: November 2, 2010
    /s/ Michael D. DevlinMichael D. DevlinPresident and Chief Executive Officer Date: November 2, 2010
    /s/ Guy HackneyGuy HackneySenior Vice President and Chief Financial Officer  46