Cape Fear Bank (CAPE) 8-K Results of Operations and Financial Condition

EXHIBIT 99.1

FOR FURTHER INFORMATION:
J. Cameron Coburn	Betty V. Norris
Chairman, President & CEO	SVP & Chief Financial Officer
Tel: 910-509-3901	Tel: 910-509-3914
Email:ccoburn@capefearbank.com	Email:bnorris@capefearbank.com

Cape Fear Bank Corp. Announces Third Quarter EPS of $0.14, Up 27.3 Percent;

Total Assets Surpass $400 Million

WILMINGTON, NC – November 1, 2006 — Cape Fear Bank Corporation (NASDAQ: CAPE) reported third quarter 2006 net income of $533,000 compared with $422,000 for the third quarter of 2005, an increase of 26.3 percent. Diluted earnings per share were $0.14 compared with $0.11 for the prior-year third quarter, an increase of 27.3 percent. Performance reflects solid loan growth and excellent asset quality, partially offset by net interest margin pressure and expenses related to branch expansion.

For the first nine months of 2006, the Company reported net income of $1.6 million, compared with $1.0 million for the same period in 2005, an increase of $563,000, or 53.8 percent. Diluted earnings per share were $0.43 for the 2006 year-to-date period compared with $0.29 for the prior-year period, an increase of 48.3 percent.

Cameron Coburn, Chairman, President and CEO, commented, “This has been an eventful time for us at Cape Fear Bank. Our new name reflects our ongoing expansion in the Cape Fear region. With five full-service banking offices spanning three counties and over $400 million in total assets, our community bank has been gaining in regional stature. We are now the fifth-ranked bank in the Greater Wilmington MSA, up from number seven last year, with a 5.85 percent share of the deposits within that market.”

Total revenue, consisting of net interest income and non-interest income, was $3.6 million for the third quarter, an increase of $885,000, or 32.4 percent over the $2.7 million reported for the prior-year period. Net interest income for the current quarter increased 35.7 percent over 2005 to $3.4 million, reflecting 44.0 percent growth in average earning assets, partially offset by a 21 basis point decline in the net interest margin to 3.33 percent. The net interest margin declined nine basis points from the 3.42 percent reported for the second quarter of 2006.

Third quarter 2006 non-interest income of $267,000 compares with $264,000 for the year-ago period and $337,000 for the second quarter of 2006, which included approximately $91,000 of recovered expenses related to a loan charged off in 2003. Excluding this one-time benefit, third quarter non-interest income increased $21,000, or 8.5 percent from the prior quarter, as newer branches contributed to fee-based income.

Non-interest expense increased $683,000, or 39.4 percent, from $1.7 million for the third quarter of 2005 to $2.4 million this quarter. Expansion-related expenses accounted for the majority of this increase. Salaries and benefits increased to $1.2 million, up $295,000 or 31.6 percent from a year ago, reflecting the addition of 32 full-time equivalent employees, up 59.3 percent year-over-year. In addition, newly-added costs associated with the expensing of stock options were $89,000 year-to-date, and $30,000 for the quarter. Occupancy and equipment expense grew $161,000, or 62.9 percent. Other expenses were $773,000, up $227,000, or 41.6 percent, from last year’s third quarter. Due primarily to the effects of our expansion initiatives, the efficiency ratio deteriorated to 66.8 percent from 63.5 percent for the 2005 period.

Mr. Coburn commented, “Asset quality continues to be exceptionally sound, with minimal charge-offs and a consistently low level of non-performing assets. Although we expect our asset quality to remain strong, we have expanded our loan loss provision in anticipation of a possible slowdown in the economy and the potential impact on our loan portfolio.” For the third quarter of 2006, net recoveries were $1,000, compared with net recoveries of $75,000 for the June 30, 2006 quarter, and net charge-offs of $1,000, for the year-ago quarter. Non-performing assets were $945,000, or 0.22 percent of total assets at September 30, 2006 compared with $920,000, or 0.23 percent of total assets at June 30, 2006, and $764,000, or 0.25 percent, twelve months ago. Loan loss reserves at September 30, 2006 were $4.3 million, or 1.31 percent of total loans compared with 1.23 percent of total loans at June 30, 2006 and 1.28 percent a year ago.

Total assets were $423.2 million at September 30, 2006, an increase of $111.3 million, or 35.7 percent, from twelve months ago. Year-over-year, loans outstanding grew $82.4 million, or 33.4 percent, from $246.8 million a year ago, to $329.2 million for the current quarter. Loans increased $14.1 million, or 4.5 percent, from the previous quarter; construction loans accounted for the majority, $13.7 million, of this growth.

Loan growth over the past twelve months was funded primarily by a $102.8 million or 39.8 percent increase in deposits, to $360.8 million. Compared with the previous quarter, deposits grew $31.6 million, or 9.6 percent. Quarter-over-quarter, core deposits, including retail CDs, increased 4.6 percent, while lower-cost accounts (transaction accounts plus money market and savings) increased by $6.9 million or 8.4 percent and now constitute 24.6 percent of the deposit mix compared to 22.5 percent at December 31, 2005. According to Mr. Coburn, “We are making progress building core deposits as our newer branches mature. We are focused on building profitable relationships by providing our customers with a combination of loan and deposit products along with quality service.”

Shareholders’ equity at September 30, 2006 was $26.4 million, a twelve-month increase of $2.2 million, or 9.1 percent. The Company’s total risk-based capital ratio at quarter-end was 11.77 percent. Total shares outstanding at September 30, 2006 were 3,586,780. Mr. Coburn concluded, “We continue to benefit from a committed customer base and a solid regional economy. We are pleased with our progress and look forward to fulfilling the banking needs of the Cape Fear region.”

About the Company

Cape Fear Bank (the “Bank”), formerly known as Bank of Wilmington, was established in 1998 as a community bank, developed and managed by local residents of the communities it serves, who are committed to improving the quality of life and the quality of the local banking experience. Cape Fear Bank Corporation, the parent company, was formed in June 2005. The Bank serves the southeastern North Carolina market area with five full-service banking offices, including two in New Hanover County, two in Pender County, and one in Brunswick County. The Company’s stock is listed on the Nasdaq Capital Market under the symbol CAPE.

Forward-Looking Statements

Statements in this news release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results, and other statements that are not descriptions of historical facts, may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in reports we file with the U. S. Securities and Exchange Commission from time to time. Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential” or “continue,” or similar terms or the negative of these terms, or other statements concerning opinions or judgments of our management about future events. Factors that could influence the accuracy of those forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, customer acceptance of our services, products and fee structure, the competitive nature of the financial services industry and our ability to compete effectively against other financial institutions in our banking market, actions of government regulators, our ability to manage our growth and to underwrite increasing volumes of loans, the impact on our profits of increased staffing and expenses resulting from expansion; the level of market interest rates and our ability to manage our interest rate risk, weather and similar conditions, particularly the effect of hurricanes on our banking and operations facilities and on our customers and the coastal communities in which we do business, changes in general economic conditions and the real estate market in our banking market (particularly changes that affect our loan portfolio, the abilities of our borrowers to repay their loans, and the values of loan collateral), and other developments or changes in our business that we do not expect. Although our management believes that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements.

# # # #

CAPE FEAR BANK CORPORATION

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

	Quarterly											Year to Date
	2006 3rd Qtr			2006 2nd Qtr		2006 1st Qtr		2005 4th Qtr		2005 3rd Qtr		2006		2005
	(Dollars in thousands except per share data)
EARNINGS
Net interest income	$	3,351		3,170		3,087		2,797		2,469		9,606		6,502
Provision for loan and lease losses	$	436		391		293		388		355		1,120		1,112
NonInterest income	$	267		337		240		292		264		846		758
NonInterest expense	$	2,418		2,305		2,099		1,794		1,735		6,822		4,587
Net income	$	533		497		579		637		422		1,609		1,046
*Basic earnings per share	$	0.15		0.14		0.16		0.18		0.12		0.45		0.29
*Diluted earnings per share	$	0.14		0.13		0.16		0.17		0.11		0.43		0.29
*Average shares outstanding		3,586,743		3,586,518		3,586,518		3,586,518		3,586,518		3,586,594		3,586,190
*Average diluted shares outstanding		3,725,888		3,712,586		3,680,149		3,678,552		3,684,443		3,706,209		3,669,306
*Actual common shares outstanding		3,586,780		3,586,518		3,586,518		3,586,518		3,586,518		3,586,780		3,586,518
PERFORMANCE RATIOS
Return on average assets		0.52	%	0.52	%	0.63	%	0.77	%	0.59	%	0.83	%	0.55	%
Return on average common equity		8.28	%	7.99	%	9.17	%	10.34	%	6.92	%	12.72	%	5.81	%
Net interest margin(fully tax-equivalent)		3.33	%	3.42	%	3.49	%	3.47	%	3.54	%	3.41	%	3.57	%
Efficiency ratio		66.83	%	65.73	%	63.09	%	58.08	%	63.48	%	65.27	%	63.18	%
Full-time equivalent employees		86		74		73		62		54		86		54
CAPITAL
Equity to assets		6.25	%	6.32	%	6.58	%	7.18	%	7.78	%	6.25	%	7.78	%
Regulatory leverage ratio		8.80	%	9.14	%	9.33	%	10.69	%	8.59	%	8.80	%	8.59	%
Tier 1 capital ratio		10.24	%	10.68	%	11.23	%	12.09	%	9.43	%	10.24	%	9.43	%
Total risk-based capital ratio		11.77	%	12.23	%	12.80	%	13.29	%	10.65	%	11.77	%	10.65
*Book value per share	$	7.37		7.00		7.00		6.87		6.76		7.37		6.76
ASSET QUALITY
Gross loan charge-offs	$	3		0		402		53		45		405		131
Net loan charge-offs (recoveries)	$	(1	)	(75	)	401		42		1		325		53
Net loan charge-offs to average loans		0.00	%	-0.10	%	0.56	%	0.06	%	0.00	%	0.21	%	0.03	%
Allowance for loan losses	$	4,305		3,868		3,402		3,510		3,165		4,305		3,165
Allowance for losses to total loans		1.31	%	1.23	%	1.17	%	1.26	%	1.28	%	1.31	%	1.28	%
Nonperforming loans	$	329		920		948		1,174		751		329		751
Other real estate and repossessed assets	$	616		0		0		0		13		616		13
Nonperforming assets to total assets		0.22	%	0.23	%	0.25	%	0.34	%	0.25	%	0.22	%	0.25	%
END OF PERIOD BALANCES
Loans	$	329,163		315,113		290,524		278,386		246,757		329,163		246,757
Total earning assets(before allowance)	$	410,667		386,167		371,661		334,053		303,134		410,667		303,134
Total assets	$	423,151		397,321		381,777		343,327		311,813		423,151		311,813
Deposits	$	360,846		329,248		322,634		284,134		258,084		360,846		258,084
Shareholders’ equity	$	26,443		25,097		25,110		24,635		24,245		26,443		24,245
AVERAGE BALANCES
Loans	$	325,044		302,759		285,654		261,652		230,140		304,630		202,760
Total earning assets(before allowance)	$	398,712		371,984		358,991		320,139		276,848		376,708		243,302
Total assets	$	407,156		383,697		368,403		329,152		285,444		386,561		251,748
Deposits	$	343,788		318,983		308,702		269,824		238,439		323,953		212,332
Shareholders’ equity	$	25,737		24,894		25,270		24,642		24,383		25,302		24,007

* Restated for 5% stock dividend for shareholders of record 6/22/06, paid out effective 6/30/06

CAPE FEAR BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 30, 2006 (Unaudited)			December 31, 2005*
	(In thousands, except share data)
ASSETS
Cash and due from banks	$	3,330		$	1,854
Interest earning deposits in other banks		16,159			5,419
Investment securities available for sale, at fair value		63,326			48,655
Time deposits in other banks		298			199
Loans		329,163			278,386
Allowance for loan losses		(4,305	)		(3,510	)
NET LOANS		324,858			274,876
Accrued interest receivable		2,158			1,645
Premises and equipment, net		2,790			1,845
Stock in Federal Home Loan Bank of Atlanta, at cost		1,721			1,394
Foreclosed real estate and repossessions		616			—
Bank owned life insurance		5,440			5,296
Other assets		2,455			2,144
TOTAL ASSETS	$	423,151		$	343,327
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Demand	$	34,791		$	26,025
Savings		7,972			2,594
Money market and NOW		46,055			35,339
Time		272,028			220,176
TOTAL DEPOSITS		360,846			284,134
Long-term borrowings		33,310			32,310
Accrued interest payable		834			457
Accrued expenses and other liabilities		1,718			1,791
TOTAL LIABILITIES		396,708			318,692
Shareholders’ Equity
Common stock, $3.50 par value, 12,500,000 shares authorized; 3,586,780 and 3,416,068 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively		12,554			11,956
Additional paid-in capital		12,710			11,052
Accumulated retained earnings		1,592			2,153
Accumulated other comprehensive loss		(413	)		(526	)
TOTAL SHAREHOLDERS’ EQUITY		26,443			24,635
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	423,151		$	343,327

* Derived from audited financial statements

CAPE FEAR BANK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
	(In thousands, except share and per share data)
INTEREST INCOME
Loans	$	6,647	$	3,985	$	18,032	$	9,947
Investment securities available for sale		733		376		2,017		961
Federal funds sold and interest-earning deposits		97		57		350		141
TOTAL INTEREST INCOME		7,477		4,418		20,399		11,049
INTEREST EXPENSE
Money market, NOW and savings deposits		466		177		1,144		393
Time deposits		3,177		1,553		8,285		3,755
Short-term borrowings		46		45		103		84
Long-term borrowings		437		174		1,261		315
TOTAL INTEREST EXPENSE		4,126		1,949		10,793		4,547
NET INTEREST INCOME		3,351		2,469		9,606		6,502
PROVISION FOR LOAN LOSSES		436		355		1,120		1,112
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		2,915		2,114		8,486		5,390
NON-INTEREST INCOME		267		264		846		758
NON INTEREST EXPENSE
Salaries and employee benefits		1,228		933		3,511		2,484
Occupancy and equipment		417		256		1,118		695
Other		773		546		2,193		1,408
TOTAL NON-INTEREST EXPENSE		2,418		1,735		6,822		4,587
INCOME BEFORE INCOME TAXES		764		643		2,510		1,561
INCOME TAXES		231		221		901		515
NET INCOME	$	533	$	422	$	1,609	$	1,046
NET INCOME PER COMMON SHARE*
Basic	$	0.15	$	0.12	$	0.45	$	0.29
Diluted	$	0.14	$	0.11	$	0.43	$	0.29
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING*
Basic		3,586,743		3,586,518		3,586,594		3,586,190
Effect of dilutive stock options		139,145		97,925		119,615		83,116
Diluted		3,725,888		3,684,443		3,706,209		3,669,306

* All per share and outstanding share data has been restated for the 5% stock dividend distributed 6/30/06