Cape Bancorp 10-Q 2009 Q3 Quarterly report

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, 2009

OR

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                    

Commission File 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. Employer
incorporation 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)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. YESþ NOo

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

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

Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller Reporting Companyo
		(Do not check if smaller reporting company)

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

As of November 6, 2009 there were 13,313,521 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

CAPE BANCORP, INC.
FORM 10-Q

Index

	Page
Part I. Financial Information
Item 1. Financial Statements		3
Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008		3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2009 and September 30, 2008 (unaudited)		4
Consolidated Statements of Changes in Stockholders’ Equity for the Twelve Months Ended December 31, 2008 and Nine Months Ended September 30, 2009 (unaudited)		5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and September 30, 2008 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		36
Item 4. Controls and Procedures		37
Part II. Other Information
Item 1. Legal Proceedings		38
Item 1A. Risk Factors		38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 3. Defaults upon Senior Securities		39
Item 4. Submission of Matters to a Vote of Security Holders		39
Item 5. Other Information		39
Item 6. Exhibits		39
Signature Page		40
Exhibit 31.1
Exhibit 31.2
Exhibit 32

2

Item 1.Financial Statements

CAPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(unaudited)
	September 30,			December 31,
	2009			2008
	(in thousands)
ASSETS
Cash & due from financial institutions	$	9,876		$	10,117
Federal funds sold		—			—
Cash and cash equivalents		9,876			10,117
Interest-earning deposits in other financial institutions		9,631			17,918
Investment securities available for sale, at fair value (amortized cost of $122,495 at September 30, 2009 and $123,831 at December 31, 2008)		111,513			114,655
Investment securities held to maturity (fair value of $46,913 at September 30, 2009 and $49,938 at December 31, 2008)		44,942			48,825
Loans held for sale		862			—
Loans, net of allowance of $13,778 at September 30, 2009 and $11,240 at December 31, 2008		789,622			783,869
Accrued interest receivable		4,732			4,736
Premises and equipment, net		26,619			27,342
Other real estate owned		508			798
Federal Home Loan Bank (FHLB) stock, at cost		8,904			11,602
Bank owned life insurance (BOLI)		26,938			26,446
Goodwill		22,575			22,575
Intangible assets, net		634			786
Assets held for sale		2,026			2,026
Other assets		7,857			19,040
Total assets	$	1,067,239		$	1,090,735
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Noninterest-bearing deposits	$	73,017		$	63,258
Interest-bearing deposits		690,403			647,872
Borrowings		173,532			234,484
Advances from borrowers for taxes and insurance		563			585
Accrued interest payable		794			778
Other liabilities		4,249			3,033
Total liabilities		942,558			950,010
Stockholders’ Equity
Common stock, $.01 par value: authorized 100,000,000 shares; issued and outstanding 13,313,521 shares		133			133
Additional paid-in capital		126,733			126,801
Unearned ESOP shares		(9,913	)		(10,232	)
Accumulated other comprehensive (loss), net		(7,213	)		(6,022	)
Retained earnings		14,941			30,045
Total stockholders’ equity		124,681			140,725
Total liabilities & stockholders’ equity	$	1,067,239		$	1,090,735

See accompanying notes to unaudited consolidated financial statements.

3

CAPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	For the three months						For the nine months
	ended September 30,						ended September 30,
	2009			2008			2009			2008
	(dollars in thousands, except share data)
Interest income:
Interest on loans	$	11,667		$	12,523		$	35,068		$	35,888
Interest and dividends on investments
Taxable		585			1,243			2,272			3,885
Tax-exempt		338			349			1,024			945
Interest on mortgage-backed securities		819			1,039			2,980			2,938
Total interest income		13,409			15,154			41,344			43,656
Interest expense:
Interest on deposits		2,823			4,286			9,808			13,639
Interest on borrowings		1,664			1,798			4,960			4,950
Total interest expense		4,487			6,084			14,768			18,589
Net interest income before provision for loan losses		8,922			9,070			26,576			25,067
Provision for loan losses		9,765			1,309			12,374			2,149
Net interest income (expense) after provision for loan losses		(843	)		7,761			14,202			22,918
Non-interest income:
Service fees		775			898			2,278			2,389
Net gains on sale of loans		38			7			101			31
Net income from BOLI		256			263			768			753
Net rental income		86			83			258			258
Gain (loss) on sales of investment securities held for sale, net		595			—			1,195			2
Loss on disposal of other assets		—			(16	)		—			(149	)
Loss on sale of OREO		(122	)		—			(377	)		—
Other income		59			108			642			333
Gross other-than-temporary impairment losses		(3,103	)		(2,213	)		(7,071	)		(2,414	)
Less: Portion of loss recognized in other comprehensive income		2,304			—			2,230			—
Net other-than-temporary impairment losses		(799	)		(2,213	)		(4,841	)		(2,414	)
Total non-interest income		888			(870	)		24			1,203
Non-interest expense:
Salaries and employee benefits		3,316			3,739			11,748			11,047
Occupancy and equipment		874			964			2,549			2,673
Federal insurance premiums		300			143			1,401			375
Data processing		323			322			903			1,048
Charitable Foundation contribution		—			—			—			6,256
Advertising		47			111			262			509
Telecommunications		226			211			633			670
Professional services		217			285			661			733
OREO expenses		92			—			197			—
Other operating		1,214			947			2,992			3,155
Total non-interest expense		6,609			6,722			21,346			26,466
Income (loss) before income taxes		(6,564	)		169			(7,120	)		(2,345	)
Income tax expense (benefit)		12,571			(424	)		12,011			(2,028	)
Net income (loss)	$	(19,135	)	$	593		$	(19,131	)	$	(317	)
Earnings (loss) per share (see Note 9):
Basic	$	(1.55	)	$	0.05		$	(1.55	)	$	(0.06	)
Diluted	$	(1.55	)	$	0.05		$	(1.55	)	$	(0.06	)
Weighted average number of shares outstanding:
Basic		12,317,638			12,273,615			12,307,455			12,278,695
Diluted		12,317,638			12,273,615			12,307,455			12,278,695

See accompanying notes to unaudited consolidated financial statements.

4

CAPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Year ended December 31, 2008 and nine months ended September 30, 2009

(unaudited)

												Accumulated
						Unearned						Other			Total
	Common		Paid-In			ESOP			Retained			Comprehensive			Stockholders’
	Stock		Capital			Shares			Earnings			Income (Loss)			Equity
	(in thousands)
Balance, January 1, 2008	$	—	$	—		$	—		$	72,536		$	293		$	72,829
Net income (loss)		—		—			—			(42,491	)		—			(42,491	)
Net unrealized losses, net of reclassification adjustments and taxes		—		—			—			—			(6,315	)		(6,315	)
Total comprehensive income (loss)		—		—			—									(48,806	)
Conversion from mutual to stock company and simultaneous acquisition of Boardwalk Bancorp		133		126,832			(10,658	)		—			—			116,307
ESOP shares earned		—		(31	)		426			—			—			395
Balance, December 31, 2008		133		126,801			(10,232	)		30,045			(6,022	)		140,725
Net income (loss)		—		—			—			(19,131	)					(19,131	)
Net unrealized income, net of reclassification adjustments and taxes		—		—			—			—			2,836			2,836
Total comprehensive income (loss)		—		—			—			—						(16,295	)
Cumulative effect adjustment to reclassify non-credit component of previously recorded other-than-temporary impairment		—		—			—			4,027			(4,027	)		—
ESOP shares earned		—		(68	)		319			—			—			251
Balance, September 30, 2009	$	133	$	126,733		$	(9,913	)	$	14,941		$	(7,213	)	$	124,681

See accompanying notes to unaudited consolidated financial statements.

5

CAPE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months ended September 30,
	2009			2008
	(in thousands)
Cash flows from operating activities
Net income (loss)	$	(19,131	)	$	(317	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		12,374			2,149
Net gain on the sale of loans		(101	)		(31	)
Net loss on the sale of other real estate owned		377			—
Loss on impairment of securities		4,841			2,414
Net gain on sale of investments		(1,195	)		(2	)
Earnings on BOLI		(768	)		(753	)
Depreciation and amortization		1,380			728
ESOP compensation expense		251			297
Stock issuance for charitable contribution		—			5,474
Deferred income taxes		11,997			(3,064	)
Changes in assets and liabilities that (used) provided cash:
Origination of loans held for sale		(9,165	)		(1,400	)
Proceeds from sale of loans		8,303			1,750
Accrued interest receivable		4			637
Other assets		(1,914	)		2,111
Accrued interest payable		16			(62	)
Other liabilities		1,216			(2,238	)
Net cash provided by operating activities		8,485			7,693
Cash flows from investing activities
Proceeds from sales of AFS securities		31,708			—
Proceeds from calls, maturities, and principal repayments of HTM securities		6,768			5,416
Proceeds from calls, maturities, and principal repayments of AFS securities		62,503			50,473
Purchases of HTM securities		(2,998	)		(5,956	)
Purchases of AFS securities		(90,002	)		(49,366	)
Redemption (purchase) of Federal Home Loan Bank stock		2,698			(2,951	)
Proceeds from sale of other real estate owned		1,503			—
Decrease in interest-earning deposits in other financial institutions		8,287			523
Increase in loans, net		(20,273	)		(6,394	)
Purchase of property and equipment, net		(416	)		(1,094	)
Acquisition of Boardwalk Bancorp		—			(46,839	)
Net cash used in investing activities		(222	)		(56,188	)
Cash flows from financing activities
Net increase (decrease) in deposits		52,418			(56,075	)
Increase (decrease) in advances from borrowers for taxes and insurance		(22	)		56
Borrowings		45,000			96,775
Payments on borrowings		(105,900	)		(31,458	)
Net proceeds from stock issuance in conversion		—			39,823
Net cash provided by financing activities		(8,504	)		49,121
Net increase (decrease) in cash and cash equivalents		(241	)		626
Cash and cash equivalents at beginning of period		10,117			15,631
Cash and cash equivalents at end of period	$	9,876		$	16,257
Supplementary disclosure of cash flow information:
Cash paid during period for:
Interest	$	14,752		$	18,128
Income taxes, net of refunds	$	3		$	253
Supplementary disclosure of non-cash financing and investing activities:
Stock subscriptions applied to equity	$	—		$	21,500
Issuance of stock to charitable foundation	$	—		$	5,474
Issuance of stock for acquisition of Boardwalk Bancorp	$	—		$	49,461

See accompanying notes to unaudited consolidated financial statements.

6

Notes to Financial Statements (Unaudited)

NOTE 1 — ORGANIZATION

On January 31, 2008, Cape Bancorp (“Company”) completed its initial public stock offering in connection with the mutual to stock conversion of Cape Bank and the simultaneous acquisition by Cape Bancorp of Boardwalk Bancorp, Inc. (“Boardwalk Bancorp”), Linwood, New Jersey and its wholly-owned New Jersey-chartered bank subsidiary, Boardwalk Bank (“Boardwalk”).

In the offering, the Company sold 7,820,000 shares of its common stock at $10.00 per share to depositors, Cape Bank’s tax qualified employee benefit plans and the general public in subscription, community and syndicated offerings. The Company also issued 547,400 shares of its common stock and contributed $782,000 in cash to The CapeBank Charitable Foundation. Cape Bancorp loaned $10,658,253 to the Bank’s employee stock ownership plan (ESOP) and the ESOP used these funds to acquire 1,065,082 shares of common stock at an average price of $10.01 per share.

As a result of the transactions, Cape Bancorp has 13,313,521 issued and outstanding shares of common stock.

In the acquisition of Boardwalk Bancorp, Cape Bancorp issued merger consideration of approximately $99.0 million, consisting of 4,946,121 shares of Cape Bancorp common stock and approximately $49.5 million in cash. With the acquisition of Boardwalk Bank, Cape Bank now operates 18 full service branches in Cape May and Atlantic Counties, New Jersey.

Cape Bank is a New Jersey-chartered stock savings bank. The Bank provides a complete line of business and personal banking products through its eighteen full service branch offices located throughout Atlantic and Cape May counties in southern New Jersey.

The Bank competes with other banking and financial institutions in its primary market areas. Commercial banks, savings banks, savings and loan associations, credit unions and money market funds actively compete for savings and time certificates of deposit and all types of loans. Such institutions, as well as consumer financial and insurance companies, may be considered competitors of the Bank with respect to one or more of the services it renders.

The Bank is subject to regulations of certain state and federal agencies, and accordingly, the Bank is periodically examined by such regulatory authorities. As a consequence of the regulation of commercial banking activities, the Bank’s business is particularly susceptible to future state and federal legislation and regulations.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation:The accounting and reporting policies of the Bank conform to accounting principles generally accepted in the United States of America (US GAAP).

We have prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). We have condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) pursuant to such rules and regulations. In the opinion of management, the statements include all adjustments (which include normal recurring adjustments) required for a fair statement of financial position, results of operations and cash flows for the interim periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto included in our latest Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

The consolidated financial statements include the accounts of Cape Bancorp, Inc and its subsidiaries, all of which are wholly-owned. Significant intercompany balances and transactions have been eliminated. The consolidated financial statements, as of and for the periods ended September 30, 2009 and 2008, have not been audited by the Company’s independent registered public accounting firm. In the opinion of management, all accounting entries and adjustments, including normal recurring accruals, necessary for a fair presentation of the financial position and the results of operations for the interim periods have been made. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through November 9, 2009, the date of the filing of the consolidated financial statements with the Securities and Exchange Commission.

7

Use of Estimates:To prepare financial statements in conformity with accounting principles generally accepted in the United States of America (or with U.S. generally accepted accounting principles), management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses, deferred taxes, evaluation of investment securities for other-than-temporary impairment and fair values of financial instruments are particularly subject to change.

Cash and Cash Equivalents:For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, overnight deposits and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and federal funds purchased and repurchase agreements.

Interest-Bearing Deposits in Other Financial Institutions:Interest-bearing deposits in other financial institutions are held to maturity and are carried at cost.

Investment Securities:The Bank classifies investment securities as either held to maturity or available for sale. Investment securities held to maturity are carried at cost, adjusted for amortization of premium and accretion of discount over the term of the related investments using the interest method. Investment securities classified as available for sale are carried at fair value with unrealized gains and losses excluded from earnings and reported in a separate component of equity, net of related income tax effects. The Bank holds a number of securities in its portfolio that may be particularly susceptible to changes in fair value in the near term as a result of market volatility. Gains and losses on sales of investment securities are recognized upon realization utilizing the specific identification method.

When the fair value of a debt security has declined below the amortized cost at the measurement date, an entity that intends to sell a security or is more-likely-than-not to sell the security before the recovery of the security’s cost basis, must recognize the other-than-temporary impairment in earnings. For a debt security with a fair value below the amortized cost at the measurement date where it is more-likely-than-not that an entity will not sell the security before the recovery of its cost basis, but an entity does not expect to recover the entire cost basis of the security, the security is considered other-than-temporarily impaired. The related other-than-temporary impairment loss on the debt security will be recognized in earnings to the extent of the credit losses with the remaining impairment loss recognized in accumulated other comprehensive income. In estimating other-than-temporary losses, management considers: the length of time and extent that fair value has been less than cost, the financial condition and near term prospects of the issuer, cash flow, stress testing analysis on securities when applicable, and the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Loans Held for Sale:Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans and Allowance for Loan Losses:Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal, net of unearned interest, deferred loan fees and costs, and reduced by an allowance for loan losses. Interest on loans is accrued and credited to operations based upon the principal amounts outstanding. The allowance for loan losses is established through a provision for loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.

Income recognition of interest is discontinued when, in the opinion of management, the collectability of such interest becomes doubtful. A commercial loan is classified as nonaccrual when the loan is 90 days or more delinquent. Consumer and residential loans are classified as nonaccrual when the loan is 90 days or more delinquent with a loan to value ratio greater than 70 percent. Loan origination fees and certain direct origination costs are deferred and amortized over the life of the related loans as an adjustment to the yield on loans receivable in a manner which approximates the interest method.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The allowance for loan losses is maintained at an amount management deems adequate to cover probable incurred losses. In determining the level to be maintained, management evaluates many factors including current economic trends, industry experience, historical loss experience, industry loan concentrations, the borrowers’ ability to repay and repayment performance and estimated collateral values. In the opinion of management, the allowance is adequate to absorb probable loan losses. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary based on changes in economic conditions or any of the other factors used in management’s determination. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for losses on loans. Such agencies may require the Bank to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. Charge-offs to the allowance are made when the loan is transferred to other real estate owned or a determination of loss is made.

8

A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

Other Real Estate Owned:Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned and is initially recorded at the lower of cost or estimated fair market value, less the estimated cost to sell, at the date of foreclosure, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Premises and Equipment:Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from 15 to 39 years. Furniture, fixtures and equipment are depreciated using the straight-line (or accelerated) method with useful lives ranging from 3 to 7 years.

Federal Home Loan Bank (FHLB) Stock:The Bank is a member of the FHLB system, specifically the FHLB of New York. Members are required to own a certain amount of stock based on the level of borrowings and other factors. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Bank Owned Life Insurance (BOLI):The Bank has an investment of bank owned life insurance (BOLI). BOLI involves the purchasing of life insurance by the Bank on a chosen group of employees and directors. The Bank is the owner and beneficiary of the policies and in accordance with FASB Accounting Standards Codification (ASC) Topic 325 “Investments in Insurance Contracts”, the amount recorded is the cash surrender value, which is the amount realizable.

Goodwill and Other Intangible Assets:Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment is recognized in the period identified.

Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank acquisitions. They are initially measured at fair value and then are amortized on an accelerated method over their estimated useful lives, which range from 5 to 13 years.

Loan Commitments and Related Financial Instruments:Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Defined Benefit Plan:The Bank participates in a multi-employer defined benefit plan. The plan was amended to freeze participation to new employees commencing January 1, 2008. Employees who became eligible to participate prior to January 1, 2008, will continue to accrue a benefit under the plan. The Bank accrues pension costs as incurred. The plan was further amended to freeze benefits as of December 31, 2008 for all employees eligible to participate prior to January 1, 2008.

401(k) Plan:The Bank maintains a tax-qualified defined contribution plan for all salaried employees of Cape Bank who have satisfied the 401(k) Plan’s eligibility requirements. The Bank’s matching contribution under the Plan is equal to 100% of the participant’s contribution on up to 3% of the participant’s salary contributed to the plan and 50% of contributions on the next 2% of salary contributed by the participant, with a maximum potential matching contribution of 4%.

Employee Stock Ownership Plan (ESOP):The cost of shares issued to the ESOP, but not yet earned is shown as a reduction of equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. As of September 30, 2009 42,603 shares have been allocated to eligible participants in the Cape Bank Employee Stock Ownership Plan. As shares of common stock acquired by the ESOP are committed to be released to each employee, we report compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations.

9

Income Taxes:Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The principal types of accounts resulting in differences between assets and liabilities for financial statement and tax purposes are the allowance for loan losses, deferred compensation, deferred loan fees, charitable contribution carryforwards, depreciation and other-than-temporary impairment charges. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against net deferred tax assets when management has concluded that they are not more likely than not of being realized.

Beginning January 1, 2007, based on FASB guidance, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company records interest related to uncertain tax positions in interest expense and penalties in non-interest expense, to the extent accrued.

10

Comprehensive Income (Loss):Comprehensive income includes net income as well as certain other items which result in a change to equity during the period. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity as follows:

	Before Tax			Tax Benefit			Net of Tax
	Amount			(Expense)			Amount
	(in thousands)
Three months ended September 30, 2009
Unrealized losses on securities
Unrealized holding gains arising during the period	$	3,220		$	(1,095	)	$	2,125
Non-credit related unrealized loss on other-than-temporarily impaired CDOs		(2,304	)		783			(1,521	)
Reclassification adjustment for securities losses realized in net income		204			(70	)		134
Other comprehensive income, net	$	1,120		$	(382	)	$	738
Three months ended September 30, 2008
Unrealized losses on securities
Unrealized holding losses arising during the period	$	(10,864	)	$	3,694		$	(7,170	)
Reclassification adjustment for net losses realized in net income		2,213			(753	)		1,460
Other comprehensive loss, net	$	(8,651	)	$	2,941		$	(5,710	)

	Before Tax			Tax Benefit			Net of Tax
	Amount			(Expense)			Amount
	(in thousands)
Nine months ended September 30, 2009
Unrealized losses on securities
Unrealized holding gains arising during the period	$	2,881		$	(980	)	$	1,901
Non-credit related unrealized loss on other-than-temporarily impaired CDOs		(2,230	)	$	758		$	(1,472	)
Reclassification adjustment for net losses realized in net income		3,646			(1,240	)		2,406
Other comprehensive income, net	$	4,297		$	(1,461	)	$	2,836
Nine months ended September 30, 2008
Unrealized losses on securities
Unrealized holding losses arising during the period	$	(19,743	)	$	6,772		$	(12,970	)
Reclassification adjustment for net losses realized in net income		2,412			(827	)		1,585
Other comprehensive loss, net	$	(17,331	)	$	5,945		$	(11,386	)

11

Operating Segments:While the chief decision makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Recent Accounting Pronouncements:In September 2006, the Financial Accounting Standards Board (FASB) issued guidance that establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB delayed the effective date of measuring fair value for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material. In October 2008, the FASB issued guidance when determining the fair value of a financial asset when the market for that asset is not active.The impact of adoption was not material.

In February 2007, the FASB issued guidance that provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The new standard is effective for the Bank on January 1, 2008. The Bank did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008.

In September 2006, the FASB issued guidance regarding the accounting for deferred compensation and postretirement benefit aspect of endorsement split-dollar life insurance arrangements. This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement continues after participant’s employment or retirement. The required accrued liability will be based on either the post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. This standard is effective for fiscal years beginning after December 15, 2007. The impact of adoption was not material.

Effect of Newly Issued Accounting Standards:In December 2007, the FASB issued guidance for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. This standard is effective for fiscal years beginning on or after December 15, 2008. Earlier adoption was prohibited. The adoption of this standard did not have a material effect on the Company’s results of operations or financial position.

In April 2009, the FASB issued guidance determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly, and additional guidance for estimating fair value when the volume and level of market activity for the asset and liability have significantly decreased. This standard is effective for interim and annual periods ending after June 15, 2009. The impact of adoption was not material.

In April 2009, the FASB issued guidance regarding the recognition and presentation of other-than-temporary impairments, which modified the requirement in existing accounting guidance to demonstrate the intent and ability to hold an investment security for a period of time sufficient to allow for any anticipated recovery in fair value. When the fair value of a debt security has declined below the amortized cost at the measurement date, an entity that intends to sell a security or is more-likely-than-not to sell the security before the recovery of the security’s cost basis, must recognize the other-than-temporary impairment in earnings. For a debt security with a fair value below the amortized cost at the measurement date where it is more-likely-than-not that an entity will not sell the security before the recovery of its cost basis, but an entity does not expect to recover the entire cost basis of the security, the security is considered other-than-temporarily impaired. The related other-than-temporary impairment loss on the debt security will be recognized in earnings to the extent of the credit losses with the remaining impairment loss recognized in accumulated other comprehensive income. This standard is effective for interim and annual periods ending after June 15, 2009. As a result of this standard the Company recorded a cumulative effect adjustment net of tax of $4.1 million to retained earnings for the non-credit portion of OTTI previously recognized as well as recognized a charge to earnings for credit losses incurred in the period of adoption.

In April 2009, the FASB issued guidance regarding the interim disclosures of fair value of financial instruments. This guidance amends previous literature and requires an entity to provide disclosures about fair value of financial instruments in interim financial statements. This guidance is effective for interim and annual periods ending after June 15, 2009, and resulted in additional disclosure about the fair value of financial instruments in connection with the Company’s September 30, 2009 quarterly report on Form 10-Q, but did not have a material impact on its consolidated financial statements.

12

In April 2009, FASB issued guidance on accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies which amends previous literature that provided guidance in respect of initial recognition and measurement, subsequent measurement, and disclosures concerning assets and liabilities arising from pre-acquisition contingencies in a business combination. This standard is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This guidance did not have a material impact on the Company’s consolidated financial statements as of September 30, 2009.

In May 2009, FASB established guidance regarding the accounting for and the disclosure of subsequent events, events that happen after the date of the balance sheet but before the release of the financial statements. This standard is effective for reporting periods that end after June 15, 2009. This standard did not have a material impact on the Corporation’s consolidated financial statements as of September 30, 2009. The Company evaluated subsequent events through November 6, 2009.

In June 2009, FASB issued guidance regarding the accounting for transfers of financial assets to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This guidance is specifically intended to address: (1) practices that have developed since previous guidance on accounting for transfers and servicing of financial assets and extinguishments of liabilities, that are not consistent with the original intent and key requirements of that guidance and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. This standard must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. This standard must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter with early application prohibited. The Company does not anticipate the adoption of this standard to have a material impact on the consolidated financial statements.

In June 2009, FASB issued guidance to improve financial reporting by enterprises involved with variable interest entities. Specifically to address: (1) the effects on certain provisions of previous FASB guidance on the consolidation of variable interest entities, as a result of the elimination of the qualifying special-purpose entity concept referenced in FASB guidance regarding accounting for transfers of financial assets, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. This standard must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes and must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter with early application prohibited. The Company does not anticipate the adoption of this standard to have a material impact on the consolidated financial statements.

In June 2009, FASB issued Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162.” (FASB Accounting Standards Codification (ASC) Topic 105, “Generally Accepted Accounting Principles”). Upon adoption as of September 30, 2009, FASB ASC Topic 105 is the sole source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) recognized by the FASB. FASB ASC Topic 105 does not alter existing GAAP and its adoption as of September 30, 2009 had no impact on the Company’s consolidated financial position or results of operations.

13

NOTE 3 — INVESTMENT SECURITIES

The amortized cost, gross unrealized gains or losses and the fair value of the Bank’s investment securities available for sale and held to maturity are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(in thousands)
September 30, 2009
Investment securities held to maturity
Municipal bonds	$	23,570	$	1,190	$	(13	)	$	24,747
Mortgage-backed securities
GNMA pass-through certificates		12		1		—			13
FHLMC pass-through certificates		1,483		40		—			1,523
FNMA pass-through certificates		9,716		475		—			10,191
Collateralized mortgage obligations		10,161		332		(54	)		10,439
Total mortgage-backed securities		21,372		848		(54	)		22,166
Total securities held to maturity	$	44,942	$	2,038	$	(67	)	$	46,913
Investment securities available for sale
Debt securities
U.S. Government and agency obligations	$	45,998	$	200	$	(4	)	$	46,194
Municipal bonds		11,110		321		(123	)		11,308
Collateralized debt obligations		13,275		94		(11,778	)		1,591
Corporate bonds		12,892		227		—			13,119
Total debt securities		83,275		842		(11,905	)		72,212
Mortgage-backed securities
GNMA pass-through certificates	$	693	$	14	$	—		$	707
FHLMC pass-through certificates		4,343		132		(2	)		4,473
FNMA pass-through certificates		18,193		593		(5	)		18,781
Collateralized mortgage obligations		15,991		271		(922	)		15,340
Total mortgage-backed securities		39,220		1,010		(929	)		39,301
Total securities available for sale	$	122,495	$	1,852	$	(12,834	)	$	111,513

14

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(in thousands)
December 31, 2008
Investment securities held to maturity
Municipal bonds	$	24,582	$	604	$	(32	)	$	25,154
Mortgage-backed securities
GNMA pass-through certificates		17		1		—			18
FHLMC pass-through certificates		2,670		45		—			2,715
FNMA pass-through certificates		10,897		323		(17	)		11,203
Collateralized mortgage obligations		9,922		199		(10	)		10,111
Total mortgage-backed securities		23,506		568		(27	)		24,047
Grantor Trust (money market fund)		737		—		—			737
Total securities held to maturity	$	48,825	$	1,172	$	(59	)	$	49,938
Investment securities available for sale
Debt securities
U.S. Government and agency obligations	$	31,296	$	480	$	(10	)	$	31,766
Municipal bonds		11,024		26		(336	)		10,714
Collateralized debt obligations		11,832		—		(8,799	)		3,033
Corporate bonds		4,975		—		(197	)		4,778
Total debt securities		59,127		506		(9,342	)		50,291
Mortgage-backed securities
GNMA pass-through certificates	$	773	$	2	$	(12	)	$	763
FHLMC pass-through certificates		20,449		352		(31	)		20,770
FNMA pass-through certificates		33,465		472		(539	)		33,398
Collateralized mortgage obligations		10,017		31		(615	)		9,433
Total mortgage-backed securities		64,704		857		(1,197	)		64,364
Total securities available for sale	$	123,831	$	1,363	$	(10,539	)	$	114,655

The Company recognized an other-than-temporary impairment (OTTI) charge of $799,000 during the third quarter of 2009 related to 8 collateralized debt obligation (CDO) securities. On a year-to-date basis, an OTTI charge of $4.8 million has been recognized by the Company. There are a total of 24 securities in the Company’s CDO portfolio of which there are 9 as of September 30, 2009 for which OTTI has not been recorded. The OTTI impairment losses recognized in earnings were determined through the use of an expected cash flow model, consistent with the guidance from the Emerging Issues Task Force (EITF) regarding amendments to the impairment guidance in EITF guidance regarding recognition and presentation of other-than-temporary impairments. The most significant input to the expected cash flow model was the assumed default rate for each impaired pooled trust preferred security. The Company evaluates the financial metrics, such as capital ratios, non-performing asset ratios, delinquencies, and the allowance for loan losses ratios, of each individual financial institution issuer within the pool to estimate the expected default rate for each security. The weighted average default rate for those CDOs which were deemed to be other-than-temporarily impaired due to expected credit losses was approximately 20%.

Beginning with the quarter ending September 30, 2008 through March 31, 2009 the Company recorded OTTI charges for CDO securities of $16.0 million. Upon adoption of FSP guidance regarding recognition and presentation of other-than-temporary impairments, the Company determined that $6.2 million of those OTTI charges were non-credit related. As such, a $4.1 million (net of $2.1 million of taxes) increase to retained earnings and a corresponding decrease to accumulated other comprehensive loss was recorded as the cumulative effect impact of adopting the FSP guidance as of April 1, 2009.

15

The amortized cost and fair value of debt securities and mortgage-backed securities as of September 30, 2009, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
	(in thousands)
Due within one year or less	$	5,993	$	6,005	$	1,919	$	1,940
Due after one year but within five years		51,094		51,484		10,027		10,538
Due after five years but within ten years		2,222		2,244		11,126		11,755
Due after ten years		23,966		12,479		498		514
Mortgage-backed securities		39,220		39,301		21,372		22,166
Total investment securities	$	122,495	$	111,513	$	44,942	$	46,913

The following table presents a summary of the cumulative credit related OTTI charges recognized as components of earnings for CDO securities still held by the Company at September 30, 2009 (in thousands):

	Three Months Ended			Nine Months Ended
	September 30, 2009			September 30, 2009
Beginning balance of cumulative credit losses on CDO securities (1)	$	(12,343	)	$	(9,840	)
Additions for credit losses recorded during the second and third quarters of 2009 which were not previously recognized as components of earnings		(799	)		(3,302	)
Ending balance of cumulative credit losses on CDO securities, September 30, 2009	$	(13,142	)	$	(13,142	)

(1) Amount represents the OTTI charges recorded beginning with the quarter ending September 30, 2008 through March 31, 2009 for CDO securities, net of the Company’s cumulative effect adjustment based upon FASB guidance regarding the recognition and presentation of other-than-temporary impairment, effective April 1, 2009.

The following table presents the gross unrealized losses and estimated fair values of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2009:

	Less Than 12 Months					12 Months or Longer					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(in thousands)
U.S. Government and agency obligations	$	1,004	$	(4	)	$	—	$	—		$	1,004	$	(4	)
Corporate and municipal bonds		—		—			4,288		(136	)		4,288		(136	)
Collateralized debt obligations		114		(3,551	)		1,383		(8,227	)		1,497		(11,778	)
Mortgage-backed securities		7,398		(74	)		2,987		(909	)		10,385		(983	)
	$	8,516	$	(3,629	)	$	8,658	$	(9,272	)	$	17,174	$	(12,901	)

The majority of the $12.9 million unrealized loss as of September 30, 2009 in the table above is attributable to securities classified as available for sale. In addition, the unrealized loss is primarily comprised of CDO securities, which were discussed previously, and mortgage-backed securities (MBS). The unrealized loss in the MBS sector mainly consists of one security, a private label collateralized mortgage obligation. The monthly payments on this security are current, it is over-collateralized and it is protected by several subordinate classes.

16

Management evaluates investment securities to determine if they are other-than-temporarily impaired on at least a quarterly basis. The evaluation process applied to each security includes but is not limited to the following factors: whether the security is performing according to its contractual terms, determining if there has been an adverse change in the expected cash flows for investments within the scope of FASB Accounting Standards Codification (ASC) Topic 325, “Investments Other”, the length of time and the extent to which the fair value has been less than cost, whether the Company intends to sell, or would more-likely-than-not be required to sell an impaired debt security before a recovery of its amortized cost basis, credit rating downgrades, the percentage of performing collateral that would need to default or defer to cause a break in yield and/or a temporary interest shortfall, and a review of the underlying issuers when deemed appropriate. Based on that evaluation, the Company does not consider those investments with unrealized holding losses as of September 30, 2009 to be other-than-temporarily impaired.

NOTE 4 — LOANS RECEIVABLE

Loans receivable consists of the following:

	September 30,		December 31,
	2009		2008
	(in thousands)
Commercial mortgage	$	456,004	$	411,809
Residential mortgage		242,375		226,963
Construction		32,110		54,187
Home equity loans and lines of credit		47,076		46,850
Commercial business loans		24,686		54,319
Other consumer loans		1,380		1,388
Loans receivable, gross		803,631		795,516
Less:
Allowance for loan losses		13,778		11,240
Deferred loan fees		231		407
Loans receivable, net	$	789,622	$	783,869

17

Activity in the allowance for loan losses is as follows:

	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2009			2008			2009			2008
Balance at beginning of period	$	12,081		$	8,708		$	11,240		$	4,121
Allowance from acquired entity		—			—			—			3,791
Provision charged to operations		9,765			1,309			12,374			2,149
Charge-offs		(8,077	)		(75	)		(10,246	)		(132	)
Recoveries		9			7			410			20
Balance at end of period	$	13,778		$	9,949		$	13,778		$	9,949

Individually impaired loans were as follows:

	September 30,		December 31,
	2009		2008
	(in thousands)
Period-end loans with no allocated allowance for loan losses	$	30,877	$	24,998
Period-end loans with allocated allowance for loan losses		5,453		—
Total	$	36,330	$	24,998
Amount of the allowance for loan losses allocated	$	1,696	$	—

	For the three months ended				For the nine months ended
	September 30,		September 30,		September 30,		September 30,
	2009		2008		2009		2008
	(in thousands)				(in thousands)
Average of impaired loans during the period	$	31,682	$	24,047	$	29,512	$	18,814
Interest income recognized during impairment		8		—		37		—
Cash basis interest income recognized		8		—		38		—

NOTE 5 — FAIR VALUE

FASB guidance requires a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

18

Collateralized debt obligation securities which are issued by financial institutions and insurance companies were historically priced using Level 2 inputs, the decline in the level of observable inputs and market activity in this class of investments by the measurement date has been significant and resulted in unreliable external pricing. Broker pricing and bid/ask spreads, when available, vary widely. The once active market has become comparatively inactive. As such, these investments are now priced using Level 3 inputs.

The Bank obtained the pricing for these securities from an independent third party who prepared the valuations using a market valuation approach. Information such as historical and current performance of the underlying collateral, deferral/default rates, collateral coverage ratios, break in yield calculations, cash flow projections, liquidity and credit premiums required by a market participant, and financial trend analysis with respect to the individual issuing financial institutions and insurance companies, are utilized in determining individual security valuations. Due to current market conditions as well as the limited trading activity of these securities, the market value of the securities is highly sensitive to assumption changes and market volatility.

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Financial Assets and Liabilities Measured on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements						Fair Value Measurements
	at September 30, 2009						at December 31, 2008
	Quoted						Quoted
	Prices						Prices
	in Active		Significant		Significant		in Active		Significant		Significant
	Markets for		Other		Other		Markets for		Other		Other
	Identical		Observable		Observable		Identical		Observable		Observable
	Assets		Inputs		Inputs		Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		(Level 1)		(Level 2)		(Level 3)
	(in thousands)						(in thousands)
Available for sale securities:
U.S. Government and agency obligations and municipal bonds	$	57,502	$	—	$	—	$	42,481	$	—	$	—
Corporate bonds and mortgage-backed securities	$	—	$	52,420	$	—	$	—	$	69,141	$	—
Collateralized debt obligations	$	—	$	—	$	1,591	$	—	$	—	$	3,033

19

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2009. There were no level 3 assets measured at fair value for the nine months ended September 30, 2008:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	CDO Securities Available for Sale
	(in thousands)
Beginning balance, January 1, 2009	$	3,033
Accretion/amortization of discount or premium		183
Payments received		(2	)
Increase in amortized cost(1)		6,103
Unrealized holding loss		(2,885	)
Other-than-temporary impairment included in earnings		(4,841	)
Ending balance, September 30, 2009	$	1,591

⁽¹⁾ Increase is due to FASB guidance regarding the recognition and presentation of other-than-temporary impairments.

Financial Assets and Liabilities Measured on a Non-Recurring Basis

Financial assets and liabilities measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements

Fair Value Measurements

at September 30, 2009

at December 31, 2008

Quoted

Quoted

Prices

Prices

in Active

Significant

Significant

in Active

Significant

Significant

Markets for

Other

Other

Markets for

Other

Other

Identical

Observable

Unobservable

Identical

Observable

Unobservable

Assets

Inputs

Inputs

Assets

Inputs

Inputs

(Level 1)

(Level 2)

(Level 3)

(Level 1)

(Level 2)

(Level 3)

(in thousands)

(in thousands)

Assets:

Impaired loans

$

—

$

36,330

$

—

$

—

$

24,998

$

—

Non-Financial Assets and Liabilities Measured on a Non-Recurring Basis

Non-financial assets and liabilities measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements
	at September 30, 2009
	Quoted
	Prices
	in Active		Significant		Significant
	Markets for		Other		Other
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Other real estate owned	$	—	$	—	$	508
Goodwill	$	—	$	—	$	22,575
Other Intangibles	$	—	$	—	$	634

20

Other real estate owned properties are recorded at the lower of cost or estimated fair market value, less the estimated cost to sell, at the date of foreclosure. Fair market value is estimated by using professional real estate appraisals for like properties.

The following disclosure of estimated fair value amounts have been determined by the Bank using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	At September 30, 2009				At December 31, 2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(in thousands)
Assets
Cash and cash equivalents	$	9,876	$	9,876	$	10,117	$	10,117
Interest bearing deposits in other banks		9,631		9,631		17,918		17,918
Investment securities		156,455		158,426		163,480		164,593
Loans held for sale		862		862		—		—
Loans receivable		789,622		803,910		783,869		799,064
FHLB Stock		8,904		8,904		11,602		11,602
Accrued interest receivable		4,732		4,732		4,736		4,736
Liabilities
Savings deposits	$	81,665	$	81,665	$	79,494	$	79,494
NOW, checking and MMDA deposits		317,010		317,010		275,443		275,443
Certificates of deposit		364,745		369,212		356,193		360,717
Borrowings		173,532		170,479		234,484		232,090
Accrued interest payable		794		794		778		778

The carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, and accrued interest receivable and payable.

Investment securities — The fair value is determined as previously described.

Loans — The fair value of loans held for sale is based on market quotes. The fair value of loans is estimated based on present values of expected future cash flows using approximate current interest rates applicable to each category of such financial instruments. The carrying value and fair value of loans include the allowance for loan losses, although no adjustments to fair value have been incorporated for market illiquidity.

FHLB stock — Ownership in equity securities of FHLB of New York is restricted and there is no established market for their resale. The carrying amount is a reasonable estimate of fair value.

Deposits — The fair value of deposits with no stated maturity, such as money market deposit accounts, checking accounts and savings accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate currently offered by the Bank for deposits of similar size, type and maturity.

Borrowings — The fair value of borrowings, which includes Federal Home Loan Bank of New York advances and securities sold under agreement to repurchase, is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate currently offered for borrowings of similar maturity and terms.

The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2009 and December 31, 2008. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date; and therefore, current estimates of fair value may differ significantly from the amounts presented herein.

21

NOTE 6 — OTHER REAL ESTATE OWNED

Other real estate owned (OREO) totaled $508,000 at September 30, 2009 and $798,000 at December 31, 2008. OREO is presented net of an allowance for losses, if any. At September 30, 2009 and December 31, 2008 there was no valuation allowance on foreclosed real estate. At September 30, 2009, OREO was comprised of four properties: one commercial real estate property, one single family house, and two vacant lots. In July 2009, the Company sold two OREO properties with a carrying value of $1.082 million and recognized a loss of $122,000.

For the three and nine months ended September 30, 2009, net losses on sales of foreclosed real estate totaled $122,000 and $377,000, respectively. Net expenses applicable to other real estate owned were $92,000 for the three month period ending September 30, 2009 and $197,000 for the nine months ended September 30, 2009. Included in the nine month period expenses was a $68,000 provision for losses on foreclosed real estate and a write-down of the commercial business property in the third quarter 2009 totaling $84,000. There were no expenses related to real estate owned for the three month or nine month periods ended September 30, 2008.

NOTE 7 — ACQUISITION OF BOARDWALK BANCORP

On January 31, 2008, Cape Bancorp, Inc. acquired Boardwalk Bancorp, Inc, as previously discussed in Note 1. As a result of the acquisition, Cape Bancorp expects to further solidify its market share in the southern New Jersey market, expand it customer base to enhance deposit fee income and provide an opportunity to market additional products and services to new customers, including expansion of services to commercial loan customers.

Under the terms of the merger agreement, the shareholders of Boardwalk Bancorp received total merger consideration of approximately $99.0 million, consisting of 4,946,121 shares of Cape Bancorp common stock and approximately $49.5 million in cash. Based on the total elections made by Boardwalk Bancorp shareholders, Boardwalk Bancorp shareholders who properly elected to receive Cape Bancorp, Inc. common stock received 2.3 Cape Bancorp shares for each share of Boardwalk Bancorp common stock, and Boardwalk Bancorp shareholders who properly elected to receive cash received $23 in cash for each share of Boardwalk Bancorp common stock. The purchase price resulted in approximately $54.2 million in goodwill, and $1.0 million in core deposit and customer relationship intangible, none of which is deductible for tax purposes. The intangible asset(s) is amortized over 5-13 years, using an accelerated method. Goodwill will not be amortized but instead evaluated periodically for impairment. For the period ended December 31, 2008 the Bank recorded goodwill impairment in the amount of $31.8 million. Goodwill was evaluated for impairment by a contracted third party as of September 30, 2009 and it was determined that our stated value of goodwill was not impaired.

Boardwalk Bancorp shareholders holding approximately 350,000 shares that did not make proper elections or did not participate in the election received a combination of 0.347775 shares of the Company’s common stock and $19.5245 in cash for each share of Boardwalk Bancorp common stock. The Company paid cash in lieu of fractional shares at a rate of $10 per share.

Net assets acquired are shown in the table below (in thousands).

Securities available for sale	$	92,949
Loans, net		314,471
Goodwill		54,523
Core deposit and other intangibles		1,050
Other assets		40,027
Total assets acquired		503,020
Deposits		(320,520	)
Borrowings		(82,729	)
Other liabilities		(848	)
Total liabilities assumed		(404,097	)
Net assets acquired	$	98,923

22

NOTE 7 — ACQUISITION OF BOARDWALK BANCORP(Continued)

Boardwalk Bancorp Inc.’s results of operations have been reflected in Cape Bancorp’s consolidated statements of income beginning as of the acquisition date. Pro forma condensed consolidated income statement for the nine months ended September 30, 2008 is shown as if the merger occurred as of January 1, 2008:

	Nine months ended
	September 30, 2008
	(in thousands)
Interest and dividend income	$	46,089
Interest expense		19,946
Net interest income		26,143
Provision for loan losses		2,149
Net interest income after provision for loan losses		23,994
Non-interest income		1,233
Non-interest expense		28,994
Income (loss) before income taxes		(3,767	)
Income tax expense (benefit)		(2,235	)
Net income (loss)	$	(1,532	)
Basic EPS	$	(0.12	)

Non-interest expense for the nine months ended September 30, 2008 included a $6.3 million expense ($3.8 million net of tax) for a contribution to The CapeBank Charitable Foundation established and funded in connection with the stock conversion.

NOTE 8 — DEPOSITS

Deposits are as follows:

	September 30,		December 31,
	2009		2008
	(in thousands)
Savings accounts	$	81,665	$	79,494
NOW accounts and money market funds		243,993		212,185
Non-interest bearing checking		73,017		63,258
Certificates of deposit of less than $100,000		215,782		229,533
Certificates of deposit of $100,000 or more		148,963		126,660
Total deposits	$	763,420	$	711,130

23

NOTE 9 — EARNINGS PER SHARE

Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are not considered outstanding for this calculation unless earned. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock option and restricted stock awards, if any. Earnings per share is calculated on earnings since the date of conversion on January 31, 2008.

The following is a reconciliation of the calculation of basic earnings per share for the three and nine month periods ended September 30, 2009, the three months ended September 30, 2008 and for the period January 31, 2008 through September 30, 2008. There are no potentially dilutive common shares at or for the periods ended September 30, 2009 or September 30, 2008.

	For the three months			For the three months
	ended September 30,			ended September 30,
	2009			2008
	(dollars in thousands, except share data)
Net income (loss) post conversion for earnings per share	$	(19,135	)	$	593
Weighted average shares outstanding		12,317,638			12,273,615
Basic earnings per share	$	(1.55	)	$	0.05

	For the nine months			For the eight months
	ended September 30,			ended September 30,
	2009			2008
	(dollars in thousands, except share data)
Net income (loss)	$	(19,131	)	$	(317	)
Less: Net income from January 1, 2008 to January 31, 2008		—			(402	)
Net income (loss) post conversion for earnings per share	$	(19,131	)	$	(719	)
Weighted average shares outstanding		12,307,455			12,278,695
Basic earnings (loss) per share	$	(1.55	)	$	(0.06	)

NOTE 10 — INCOME TAXES

During the third quarter of 2009, the Company established a valuation allowance of $16.0 million against its deferred tax assets after concluding that it was “more likely than not” that the deferred tax asset would not be realized. A valuation allowance was not deemed necessary for the deferred tax asset related to the unrealized investment losses as the realization of this component of the deferred tax asset is not dependent on future taxable income. In evaluating the ability to recover our deferred tax assets, we consider all available positive and negative evidence regarding the ultimate realizability of our deferred tax assets including past operating results and our forecast of future taxable income. This determination was based largely on the negative evidence of a cumulative loss in the most recent three year period ended September 30, 2009, caused primarily by the significant loan loss provisions and OTTI charges made during recent periods. In addition, general uncertainty surrounding the future economic and business conditions have increased the likelihood of volatility in our future earnings. As a result we concluded that a full valuation allowance was required as of September 30, 2009. Our future income tax expense will be reduced to the extent of decreases in our valuation allowance.

24

The components of the net deferred tax asset were as follows:

	September 30,			December 31,
	2009			2008
	(in thousands)
Deferred tax assets:
Other than temporary impairment	$	4,433		$	4,917
Allowance for loan losses		5,108			4,043
Charitable foundation contribution carryforward		2,476			2,527
Purchase accounting adjustments		1,746			1,660
Non-accrual loan interest income		1,860			1,013
Deferred compensation		642			667
Net operating losses		541			913
Net unrealized loss on available for sale securities		3,789			3,155
Capital loss carryforward		—			233
AMT credit carryforward		238			231
Other		364			156
Valuation allowance		(16,001	)		(233	)
		5,196			19,282
Deferred tax liabilities:
Depreciation		(860	)		(837	)
Deferred loan fees		(539	)		(667	)
Pension		—			(175	)
Net unrealized gain on available for sale securities		—			—
Other		(8	)		(356	)
		(1,407	)		(2,035	)
Net deferred tax asset	$	3,789		$	17,247

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

When used in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Such statements are subject to certain risks and uncertainties including changes in general economic conditions, either nationally or in our market areas, that are worse than expected; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; and changes in the financial condition or future prospects of issuers of securities that we own, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution you not to place undue reliance on any such forward-looking statements, which only speak as of the date made. The Company wishes to advise you that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

25

Overview

Cape Bank was organized in 1923. Over the years, we have expanded primarily through internal growth. On January 31, 2008, we completed our mutual-to-stock conversion and initial public stock offering, and our acquisition of Boardwalk Bancorp and Boardwalk Bank. At September 30, 2009, the Company had total assets of $1.067 billion.

Our principal business is acquiring deposits from individuals and businesses in the communities surrounding our offices and using these deposits to fund loans and other investments. We offer personal and business checking accounts, commercial mortgage loans, residential mortgage loans, construction loans, home equity loans and lines of credit and other types of commercial and consumer loans. At September 30, 2009, our retail market area primarily included the area surrounding our 18 offices located in Cape May and Atlantic Counties, New Jersey.

Comparison of Financial Condition at September 30, 2009 and December 31, 2008

At September 30, 2009, the Company’s total assets decreased to $1.067 billion from $1.091 billion at December 31, 2008, a decrease of $23.5 million or 2.15%.

Cash and cash equivalents decreased $241,000, or 2.4%, to $9.9 million at September 30, 2009 from $10.1 million at December 31, 2008.

Interest-earning deposits in other financial institutions decreased to $9.6 million at September 30, 2009 from $17.9 million at December 31, 2008, a decrease of $8.3 million or 46.3%. During the period, these funds were used to invest in higher yielding assets.

Total net loans increased to $789.6 million at September 30, 2009 from $783.9 million at December 31, 2008, an increase of $5.7 million or 0.7%. Delinquent loans increased $3.8 million to $37.1 million or 4.6 % of total loans at September 30, 2009 from $33.3 million, or 4.2% of total loans at December 31, 2008. Total delinquent loans by portfolio at September 30, 2009 were $30.1 million of commercial loans, $5.5 million of mortgage loans and $1.5 million of consumer loans. Delinquent loan balances by number of days delinquent were: 31 to 59 days — $2.3 million; 60 to 89 days — $3.8 million; and 90 days and greater — $31.0 million.

At September 30, 2009, the Company had $34.5 million in non-performing loans or 4.29% of total gross loans, an increase from $21.1 million or 2.65% at December 31, 2008. Total non-performing loans by portfolio were $31.8 million of commercial loans, $2.4 million of residential loans and $195,000 of consumer loans. Additionally, the Company had $1.8 million of loans that were 90 days or more delinquent and still accruing (9 residential mortgage loans for $1.6 million and 1 consumer loan for $250,000). These loans are both well secured and in the process of collection. Of the commercial non-performing loans $4.8 million (17 loans or 15%) were secured by residential, duplex and multi-family related loans, $3.7 million (9 loans or 12%) were secured by land and building lot related loans, $1.3 million (5 loans or 4%) were secured by retail store related loans, $6.3 million (12 loans or 20%) were secured by restaurant related loans, $2.1 million (2 loans or 6%) were secured by marina related loans, $1.7 million (2 loans or 6%) were secured by auto dealership related loans, $2.9 million ( 6 loans or 9%) were secured by B&B and hotel related loans and $9.0 million (19 loans or 28%) were secured by commercial building and equipment related loans. The three largest relationships in this category of non-performing loans are $4.5 million, $2.8 million, and $2.4 million.

26

We believe we have appropriately charged-off or established adequate loss reserves on problem loans that we have identified. However, we believe that non-performing and delinquent loans may continue to increase as the current recession persists. We are aggressively managing all loan relationships, and where necessary, we will apply our loan work-out experience to protect our collateral position and actively negotiate with borrowers to resolve these non-performing loans.

Total investment securities decreased to $156.5 million at September 30, 2009 from $163.5 million at December 31, 2008, a decrease of $7.0 million or 4.3%. The investment portfolio is comprised primarily of securities classified as available-for-sale, which decreased to $111.5 million, or 71.3% of the portfolio at September 30, 2009 from $114.7 million, or 70.1% of the investment portfolio, at December 31, 2008. As discussed previously, interest earning deposits in other financial institutions were used to invest in higher yielding securities to maximize interest income. Conversely, during the nine month period ended September 30, 2009, the collateralized debt obligation portion of the investment portfolio declined in value by $1.4 million. At September 30, 2009, the cost basis of such securities was $13.3 million with a fair market value of $1.6 million. The market value of this sector of the investment portfolio has been adversely affected by the prolonged existence of an illiquid market as well as several securities which are currently deferring interest payments. For the three months and nine months ended September 30, 2009, the Company recognized OTTI charges of $799,000 and $4.8 million, respectively.

At September 30, 2009, the Bank’s total deposits increased to $763.4 million from $711.1 million at December 31, 2008, an increase of $52.3 million or 7.4%. Certificates of deposit increased $8.5 million, or 2.4%, to $364.7 million at September 30, 2009 from $356.2 million at December 31, 2008. NOW and money market accounts increased $31.8 million, or 15.0%, to $244.0 million at September 30, 2009 from $212.2 million at December 31, 2008. Savings accounts increased $2.2 million, or 2.7%, to $81.7 million at September 30, 2009 from $79.5 million at December 31, 2008. Non-interest bearing deposits increased $9.7 million, or 15.4%, to $73.0 million at September 30, 2009 from $63.3 million at December 31, 2008. Total non-certificate deposit balances increased $43.8 million, or 12.3%, to $398.7 million at September 30, 2009 from $354.9 million at December 31, 2008.

Borrowings decreased $61.0 million, or 26.0%, to $173.5 million at September 30, 2009 from $234.5 million at December 31, 2008. The decline in borrowings was partially attributable to the use of brokered deposits in the amount of $31.3 million as of September 30, 2009 as a less expensive alternative funding source. At September 30, 2009, the Company’s borrowings to assets ratio decreased to 16.3% from 21.5% at December 31, 2008. Borrowings to total liabilities decreased to 18.4% at September 30, 2009 from 24.7% at December 31, 2008.

At September 30, 2009, the Company’s total equity decreased to $124.7 million from $140.7 million at December 31, 2008, a decrease of $16.0 million, or 11.4%. The decrease in equity is attributable to the $19.1 million net loss partially offset by a decrease in accumulated other comprehensive loss, net of tax of $2.8 million. This change excludes the effect of the reclassification between retained earnings and accumulated other comprehensive income (loss), pursuant to the FASB guidance regarding the recognition and presentation of other-than-temporary impairment. Stockholders’ equity totaled $124.7 million or 11.68% of period end assets, and tangible equity totaled $101.5 million or 9.72% of period end tangible assets.

27

The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. Yields and rates have been annualized.

	For the Three Months Ended September 30,
	2009								2008
				Interest								Interest
	Average			Income/		Average			Average			Income/		Average
	Balance			Expense		Yield			Balance			Expense		Yield
	(dollars in thousands)
Assets
Interest-earning deposits	$	10,107		$	61		2.36	%	$	7,689		$	53		2.74	%
Investments		184,235			1,681		3.57	%		201,637			2,578		5.09	%
Loans		809,878			11,667		5.72	%		789,943			12,523		6.31	%
Total interest-earning assets		1,004,220			13,409		5.30	%		999,269			15,154		6.03	%
Noninterest-earning assets		105,390								146,135
Allowance for loan losses		(12,259	)							(8,855	)
Total assets	$	1,097,351							$	1,136,549
Liabilities and Stockholders’ Equity
Interest-bearing demand accounts	$	111,591			105		0.37	%	$	109,780			296		1.07	%
Savings accounts		81,138			91		0.44	%		83,574			273		1.30	%
Money market accounts		127,436			406		1.26	%		126,621			782		2.46	%
Certificates of deposit		370,273			2,221		2.38	%		345,384			2,935		3.38	%
Borrowings		181,785			1,664		3.63	%		205,655			1,798		3.48	%
Total interest-bearing liabilities		872,223			4,487		2.04	%		871,014			6,084		2.78	%
Noninterest-bearing deposits		73,492								75,890
Other liabilities		6,860								6,896
Total liabilities		952,575								953,800
Stockholders’ equity		144,776								182,749
Total liabilities & stockholders’ equity	$	1,097,351							$	1,136,549
Net interest income				$	8,922							$	9,070
Net interest spread							3.26	%							3.25	%
Net interest margin							3.52	%							3.61	%
Net interest income and margin (tax equivalent basis) (1)				$	9,070		3.58	%				$	9,224		3.66	%
Ratio of average interest-earning assets to average interest-bearing liabilities		115.13	%							114.72	%

(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 equivalent adjustment has been computed using a Federal income tax rate of 35%, and has the effect of increasing interest income by $148,000, and $154,000 for the three month period ended September 30, 2009 and 2008, respectively. The average yield on investments increased to 3.94% from 3.57% for the three month period ended September 30, 2009 and increased to 5.41% from 5.09% for the three month period ended September 30, 2008.

28

												��
	For the Nine Months Ended September 30,
	2009								2008
				Interest								Interest
	Average			Income/		Average			Average			Income/		Average
	Balance			Expense		Yield			Balance			Expense		Yield
	(dollars in thousands)
Assets
Interest-earning deposits	$	13,688		$	186		1.79	%	$	9,029		$	216		3.20	%
Investments		188,259			6,090		4.27	%		197,535			7,552		5.11	%
Loans		806,676			35,068		5.81	%		758,193			35,888		6.32	%
Total interest-earning assets		1,008,623			41,344		5.48	%		964,757			43,656		6.04	%
Noninterest-earning assets		105,065								135,843
Allowance for loan losses		(12,063	)							(7,960	)
Total assets	$	1,101,625							$	1,092,640
Liabilities and Stockholders’ Equity
Interest-bearing demand accounts	$	106,610			308		0.39	%	$	105,894			822		1.04	%
Savings accounts		80,231			295		0.49	%		82,661			845		1.37	%
Money market accounts		124,952			1,257		1.34	%		119,309			2,462		2.76	%
Certificates of deposit		377,598			7,948		2.81	%		352,717			9,510		3.60	%
Borrowings		193,914			4,960		3.42	%		184,233			4,950		3.59	%
Total interest-bearing liabilities		883,305			14,768		2.24	%		844,814			18,589		2.94	%
Noninterest-bearing deposits		68,321								68,922
Other liabilities		6,984								5,866
Total liabilities		958,610								919,602
Stockholders’ equity		143,015								173,038
Total liabilities & stockholders’ equity	$	1,101,625							$	1,092,640
Net interest income				$	26,576							$	25,067
Net interest spread							3.24	%							3.10	%
Net interest margin							3.52	%							3.47	%
Net interest income and margin (tax equivalent basis) (1)				$	27,064		3.59	%				$	25,479		3.53	%
Ratio of average interest-earning assets to average interest-bearing liabilities		114.19	%							114.20	%

(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 equivalent adjustment has been computed using a Federal income tax rate of 35%, and has the effect of increasing interest income by $488,000, and $433,000 for the nine month period ended September 30, 2009 and 2008, respectively. The average yield on investments increased to 4.67% from 4.27% for the nine month period ended September 30, 2009 and increased to 5.52% from 5.11% for the nine month period ended September 30, 2008.

29

Rate/Volume Analysis

The following tables present the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net change column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

	For the Three Months Ended September 30, 2009
	Compared to September 30, 2008
	Increase (decrease) due to changes in:
	Average			Average			Net
	Volume			Rate			Change
	(in thousands)
Interest-Earning Assets
Interest-earning deposits	$	15		$	(7	)	$	8
Investments		(208	)		(689	)		(897	)
Loans		310			(1,166	)		(856	)
Total interest income		117			(1,862	)		(1,745	)
Interest-Bearing Liabilities
Interest-bearing demand accounts		5			(196	)		(191	)
Savings accounts		(8	)		(174	)		(182	)
Money market accounts		5			(381	)		(376	)
Certificates of deposit		200			(914	)		(714	)
Borrowings		(215	)		81			(134	)
Total interest expense		(13	)		(1,584	)		(1,597	)
Total net interest income	$	130		$	(278	)	$	(148	)

30

	For the Nine Months Ended September 30, 2009
	Compared to September 30, 2008
	Increase (decrease) due to changes in:
	Average			Average			Net
	Volume			Rate			Change
	(in thousands)
Interest-Earning Assets
Interest-earning deposits	$	85		$	(115	)	$	(30	)
Investments		(348	)		(1,114	)		(1,462	)
Loans		2,151			(2,971	)		(820	)
Total interest income		1,888			(4,200	)		(2,312	)
Interest-Bearing Liabilities
Interest-bearing demand accounts		6			(520	)		(514	)
Savings accounts		(24	)		(526	)		(550	)
Money market accounts		110			(1,315	)		(1,205	)
Certificates of deposit		626			(2,188	)		(1,562	)
Borrowings		244			(234	)		10
Total interest expense		962			(4,783	)		(3,821	)
Total net interest income	$	926		$	583		$	1,509

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2009 and 2008

General.The three months ended September 30, 2009 reflected a net loss of $19.1 million compared to net income of $593,000 for the same period in 2008. The nine months ended September 30, 2009 reflected a net loss of $19.1 million compared to a net loss of $317,000 reported for the nine months ended September 30, 2008. The following is a recap of certain significant pre-tax income and expense events that occurred during the third quarter of 2009: gains on sales of investments of $595,000; loan loss provision of $9.8 million; an OTTI charge related to the CDO investment portfolio of $799,000. The nine months ended September 30, 2009 reflected an other-than-temporary impairment charge on CDOs totaling $4.8 million, loan loss provisions of $12.4 million, a $1.3 million charge related to payments made under the employment agreement of the Company’s former President and CEO, gains on sales of investments of $1.2 million, BOLI benefit proceeds of $460,000, and a $375,000 compensation pay-out to the current President and CEO. In addition, both the three and nine months ended September 30, 2009 included income tax expense of $12.6 million primarily related to the establishment of a $16.0 million valuation allowance related to the deferred tax asset. The net loss for the nine months ended September 30, 2008 resulted, in part, from the Company’s contribution of $3.8 million, net of taxes, to The CapeBank Charitable Foundation, approximately $785,000 of expenses, net of taxes, associated with the Bank’s name change and costs associated with the acquisition of Boardwalk Bank, and OTTI charges of $2.4 million on investment securities. These expenses were partially offset by a tax benefit of $2.0 million and increased net income resulting from the acquisition of Boardwalk Bank.

Interest Income.Interest income decreased $1.7 million, or 11.5%, to $13.4 million for the three months ended September 30, 2009, from $15.1 million for the three months ended September 30, 2008. This decrease is primarily the result of decreases in yields on the loan and investment portfolios. The average yield on the loan portfolio declined from 6.31% for the three months ended September 30, 2008 to 5.72% for the three months ended September 30, 2009. The decrease in the average yield reflected a lower interest rate environment and to a lesser extent an increase in non-performing loans from $22.3 million at September 30, 2008 to $36.3 million at September 30, 2009. Average loans for the three month period ended September 30, 2009 were $809.9 million compared to $789.9 million for the three month period ended September 30, 2008 an increase of $20.0 million, or 2.5%. The average yield on the investment portfolio declined from 5.09% for the three months ended September 30, 2008 to 3.57% for the three months ended September 30, 2009. The decline in the average yield was primarily a result of falling market interest rates which negatively impacted both the repricing of our adjustable rate MBS portfolio and U.S. Government and agency obligations where called securities were replaced at lower coupon rates as well as the charge-off of $157,000 in interest receivables related to three CDO securities which were fully written off. The average balance of investment securities decreased $17.4 million, or 8.6% to $184.2 million for the three months ended September 30, 2009, compared to $201.6 million for the three months ended September 30, 2008. This decrease is mainly attributed to the sale of $14.1 million of securities in June, 2009 and of $16.9 million in August, 2009.

31

For the nine months ended September 30, 2009, interest income decreased $2.3 million or 5.3% to $41.3 million from $43.6 million for the nine months ended September 30, 2008. This decrease is primarily the result of decreases in yields on the loan and investment portfolios. The yield on the loan portfolio declined from 6.32% for the nine months ended September 30, 2008 to 5.81% for the nine months ended September 30, 2009 while the yield on the investment portfolio declined from 5.11% to 4.27% over the same two periods. The same factors discussed above that contributed to the declines in the average yields for loans and investments for the three month comparison also impacted the decreases experienced from the nine months ended September 30, 2008 to the nine months ended September 30, 2009. For the nine months ended September 30, 2009, average loans increased $48.5 million, or 6.4%, to $806.7 million from $758.2 million for the nine months ended September 30, 2008. The increase in average loans was partially from loan growth and partially from the nine months ended September 30, 2008 balance including only eight months of post-merger Boardwalk Bank loan balances. The average balance of investment securities for the nine month period ended September 30, 2009 was $188.3 million compared to $197.5 million for the nine month period ended September 30, 2008, a decrease of $9.2 million, or 4.7%.

Interest Expense.Interest expense decreased $1.6 million, or 26.2%, to $4.5 million for the three months ended September 30, 2009, from $6.1 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, interest expense declined $3.8 million, or 20.6%, to $14.8 million from $18.6 million for the nine months ended September 30, 2008.

Interest expense on NOW (interest bearing demand accounts) and money market accounts decreased $567,000, or 52.6%, to $511,000 for the three months ended September 30, 2009, from $1.1 million for the three months ended September 30, 2008, and interest expense on certificates of deposit decreased $714,000, or 24.3%, to $2.2 million for the three months ended September 30, 2009, from $2.9 million for the three months ended September 30, 2008. This decline of interest expense is primarily the result of a reduction in interest rates paid on all categories of interest bearing deposit accounts as general economic market conditions pushed interest rates down nationally. The most significant monetary impact regarding the decline of interest rates paid on deposits was within the certificates of deposit portfolio where the cost of these deposits declined from 3.38% for the three months ended September 30, 2008 to 2.38% for the three months ended September 30, 2009. The next most significant decline of cost of funds was within the money market deposits which had a 120 basis point decline of their cost of funds, dropping from 2.46% for the three month period ended September 30, 2008 to 1.26% for the three month period ended September 30, 2009. The slight change in the average balance of these interest bearing deposit accounts had little influence on the change of the interest expense related to these accounts.

Interest expense on NOW (interest bearing demand accounts) and money market accounts decreased $1.7 million, or 52.3%, to $1.6 million for the nine months ended September 30, 2009, from $3.3 million for the nine months ended September 30, 2008, and interest expense on certificates of deposit decreased $1.6 million, or 16.4%, to $9.5 million for the nine months ended September 30, 2009, from $7.9 million for the nine months ended September 30, 2008. This decline of interest expense is primarily the result of a reduction in interest rates paid on all categories of interest bearing deposit accounts as general economic market conditions pushed interest rates down nationally. The most significant impact of declining interest rates paid on deposits was within the certificate of deposits portfolio where the costs of these deposits declined from 3.60% for the nine months ended September 30, 2008 to 2.81% for the nine months ended September 30, 2009. The next most significant decline of cost of funds was within the money market deposits which had a 142 basis point decline of their cost of funds, dropping from 2.76% for the nine month period ended September 30, 2008 to 1.34% for the nine month period ended September 30, 2009. Both certificates of deposit and money market accounts had an increase in average balances for the nine month period ended September 30, 2009 as compared to the nine month period ended September 30, 2008 which partially offset the interest expense reduction resulting from lower interest rates.

Interest expense on borrowings (Federal Home Loan Bank of New York advances) declined $134,000 or 7.5 %, to $1.7 million for the three months ended September 30, 2009 from $1.8 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, interest expense on borrowings increased $10,000, or 0.2%, to $4.960 million from $4.950 million for the nine months ended September 30, 2008. This increase of interest expense was the result of higher average balances of borrowings for the nine month period ended September 30, 2009 compared to the nine month period ended September 30, 2008. This volume increase was partially offset by a decline of the cost to borrow funds.

32

Net Interest Income.Net interest income decreased $148,000, or 1.6%, to $8.9 million for the three months ended September 30, 2009, from $9.1 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, net interest income increased $1.5 million, or 6.0% to $26.6 million from $25.1 million for the nine months ended September 30, 2008.

We experienced an increase in our net interest rate spread of 1 basis point, to 3.26% for the three months ended September 30, 2009, from 3.25% for the three months ended September 30, 2008, and a decline in our net interest margin of 9 basis points, to 3.52% for the three months ended September 30, 2009, from 3.61% for the three months ended September 30, 2008. For the nine months ended September 30, 2009, the net interest spread increased 14 basis points, to 3.24% from 3.10% for the nine months ended September 30, 2008, and an increase in our net interest margin of 5 basis points, to 3.52% for the nine months ended September 30, 2009, from 3.47% for the nine months ended September 30, 2008. The increase in our net interest spread and net interest margin was a result of having more rate-sensitive liabilities than assets tied to short term interest rates, which declined during the period.

Provision for Loan Losses.We establish provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. In determining the level of the allowance for loan losses, we consider, among other things, past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of delinquent loans. The amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for loan losses and make provisions for loan losses on a quarterly basis.

At September 30 2009, the Company’s allowance for loans losses increased to $13.8 million from $11.2 million at December 31, 2008, an increase of $2.6 million or 22.6%. The allowance for loan loss ratio to gross loans increased to 1.71% at September 30, 2009, from 1.41% at December 31, 2008. The allowance for loan losses to non-performing loans coverage ratio declined to 39.9% at September 30, 2009, from 53.4% at December 31, 2008.

We recorded a provision for loan losses of $9.8 million for the three months ended September 30, 2009 compared to $1.3 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, the provision for loan losses was $12.4 million compared to $2.1 million for the nine months ended September 30, 2008. For the quarter ended September 30, 2009, net charge-offs were $8.1 million compared to $31,000 for the quarter ended September 30, 2008. A significant portion ($6.6 million) of the charge-offs for the quarter stem from two credit relationships. The first of these is a $9.8 million commercial relationship for which the Company is taking a $5.3 million charge, and the second relationship is a $2.1 million loan for which the Company is taking a $1.3 million charge prompted by the collapse of a state funded purchase of the real estate project. For the nine months ended September 30, 2009, net charge-offs totaled $9.8 million compared to $112,000 for the nine months ended September 30, 2008. The increase in the provision for losses over the prior year correlates to management’s analysis of non-performing loans. This analysis included a detailed review by management of the loan portfolios to ensure that all loans were properly classified regarding the need for a general or specific reserve.

Non-Interest Income.Non-interest income totaled $888,000 for the three months ended September 30, 2009, an increase of $1.76 million from a loss of $870,000 for the three months ended September 30, 2008. The increase for the three month period ended September 30, 2009 resulted from the Company recognizing an OTTI charge to non-interest income on CDOs totaling $799,000 for the three months ended September 30, 2009 compared to a similar charge of $2.2 million for the three months ended September 30, 2008. In addition, for the three months ended September 30, 2009, gains realized from the sale of investment securities totaled $595,000 and losses on OREO sales totaled $122,000.

33

For the nine month period ended September 30, 2009, non-interest income declined $1.2 million. The decrease for the nine month period ended September 30, 2009 resulted from the Company recognizing an OTTI charge to non-interest income on CDOs totaling $4.8 million compared to a similar charge for the nine months ended September 30, 2008 of $2.4 million. In addition, for the current nine month period losses related to the sale of OREO totaled $377,000 and gains realized from the sale of investment securities totaled $1.2 million.

Non-Interest Expense.Non-interest expense decreased $113,000, or 1.7%, to $6.6 million for the three months ended September 30, 2009 from $6.7 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, non-interest expense decreased $5.1 million, or 19.3%, to $21.4 million from $26.5 million. The 2008 year-to-date period included a $6.3 million previously reported expense related to the formation of The CapeBank Charitable Foundation and increased expenses directly related to the Boardwalk acquisition. The nine months ended September 30, 2009 did not include these charges but did include increased compensation expenses resulting from a $1.3 million expense related to payments made pursuant to the Company’s employment agreement with its former President and CEO, increased expense of $1.0 million resulting from the Federal deposit insurance premium increases and special assessment, $375,000 related to a compensation pay-out to the current President and CEO, expenses on foreclosed real estate of $197,000 and loan expenses totaling $570,000. Advertising costs declined $247,000 during the current year-to-date period as a result of a higher level of advertising in the prior period related to the name change after the acquisition of Boardwalk Bank.

Income Tax Expense (Benefit).For the three months ended September 30, 2009 income tax expense was $12.6 million, compared to a tax benefit of $424,000 for the three months ended September 30, 2008. For the nine months ended September 30, 2009 income tax expense was $12.0 million compared to a tax benefit of $2.0 million for the nine months ended September 30, 2008. The change in both periods resulted from the tax expense associated with the recording of a deferred tax asset allowance, as previously discussed, after it was determined that it was “more likely than not” that the deferred tax asset would not be realized.

Liquidity

Liquidity is the ability to fund assets and meet obligations as they come due, and management believes that sources of liquidity are particularly important in the current weak economic environment. Our primary sources of funds consist of deposit inflows, loan repayments, repurchase agreements with and advances from the Federal Home Loan Bank of New York, and maturities and sales of securities. In addition, we have the ability to collateralize borrowings in the wholesale markets as well as utilize the Federal Reserve Bank Discount Window. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies.

Any bank, including Cape Bank, may experience liquidity pressures under certain market scenarios including rapid asset growth or deposit losses as a result of deteriorating asset quality or other significant internal or external events. As part of Cape Bank’s liquidity management program to ensure adequate levels of liquidity to meet both predictable and unexpected cash needs, we may rely on or access additional funding sources, including the Federal Home Loan Bank of New York. In the event Federal Home Loan Bank advances are limited or restricted, Cape Bank has other funding sources available to meet liquidity needs.

We regularly adjust our investments in liquid assets based upon our assessment of:

(i) expected loan demand;

(ii) expected deposit flows;

(iii) yields available on interest-earning deposits and securities; and

(iv) the objectives of our asset/liability management program.

Excess cash is invested generally in interest-earning deposits and short- and intermediate-term securities.

Capital

Cape Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2009 and December 31, 2008, Cape Bank exceeded all regulatory capital requirements. Cape Bank is considered “well capitalized” under regulatory guidelines. See “Supervision and Regulation—Federal Banking Regulation—Capital Requirements”.

34

All of the Bank’s regulatory capital ratios declined during the nine month period from December 31, 2008 to September 30, 2009. The primary reason for this decline was the decrease in Tier I capital as a result of the recorded third quarter net loss of $19.1 million.

						Per Regulatory Guidelines
	Actual					Minimum					“Well Capitalized”
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
September 30, 2009
Risk based capital ratios:
Tier I	$	96,948		10.89	%	$	35,610		4.00	%	$	53,415		6.00	%
Total capital	$	108,113		12.14	%	$	71,244		8.00	%	$	89,055		10.00	%
Leverage ratio	$	96,948		9.03	%	$	42,945		4.00	%	$	53,681		5.00	%
December 31, 2008
Risk based capital ratios:
Tier I	$	108,922		13.00	%	$	33,514		4.00	%	$	50,272		6.00	%
Total capital	$	119,403		14.25	%	$	67,033		8.00	%	$	83,792		10.00	%
Leverage ratio	$	108,922		9.87	%	$	44,143		4.00	%	$	55,178		5.00	%

Critical Accounting Policies

In the preparation of our consolidated financial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States. Our significant accounting policies are described in the Note 1 to our Consolidated Financial Statements.

Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for Loan Losses.We consider the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment.

In evaluating the allowance for loan losses, management considers historical loss factors, the mix of the loan portfolio (types of loans and amounts), geographic and industry concentrations, current national and local economic conditions, external factors such as competition, legal and regulatory, lending staff as it relates to changes in experience, ability and depth of lending management, changes in loan policies, changes in volume of the loan portfolios, changes in terms of loans, changes in the loan review system and other factors related to the collectability of the loan portfolio, including underlying collateral values and estimated future cash flows. Economic factors are incorporated by considering the national and local economies and the deterioration these economies have had on specific sectors (hospitality, restaurant, retail stores etc) of our loan portfolios. All of these estimates are susceptible to significant change. Groups of homogeneous loans are evaluated in the aggregate under FASB guidance regarding accounting for contingencies using the factors previously discussed. These groups are as follows: Construction Loans, both commercial and residential, Commercial Loans secured by real estate, Commercial Loans secured by other than real estate ie; accounts receivable, business equipment, inventory and other business assets, Commercial Lines of Credit secured by real estate accounts receivable, business equipment, inventory and other business assets, Commercial Unsecured Loans, Home Equity Loans both fixed term and lines of credit, Consumer Loans including account secured loans, auto, personal and overdrawn account balances, and Residential Mortgage Loans. Large balance and/or more complex loans, such as multi-family and commercial real estate loans, commercial business loans, and construction loans are evaluated individually for impairment in accordance with FASB guidance regarding accounting by creditors for impairment of a loan and income recognition and disclosures. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

35

Management reviews the level of the allowance quarterly. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

Securities Impairment. We periodically perform analyses to determine whether there has been an other-than-temporary decline in the value of one or more of our securities. Our available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Our held-to-maturity securities portfolio, consisting of debt securities for which we have a positive intent and ability to hold to maturity, is carried at amortized cost. We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If such decline is deemed other-than-temporary, we would adjust the cost basis of the security by writing down the security to estimated fair market value through a charge to current period operations. The market values of our securities are affected by changes in interest rates.

Goodwill Impairment. The Company follows the FASB guidance regarding goodwill and other intangibles, and performs an impairment test at least annually or when circumstances indicate that an event has occurred during an interim period. Goodwill was evaluated for impairment by a contracted third party as of September 30, 2009 and it was determined that our stated value of goodwill was not impaired.

Income Taxes.The Company maintains significant net deferred tax assets for deductible temporary differences. Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that the deferred tax asset will not be realized. The determination of the realizability of the deferred tax asset is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, the forecasts for future income, applicable tax planning strategies, and assessments of current and future economic and business conditions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General. The majority of our assets and liabilities are monetary in nature. A significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage-related assets, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. Accordingly, we have an Interest Rate Risk Management Committee of the Board as well as an Asset/Liability Committee, comprised of our Chief Executive Officer, EVP/Chief Operating Officer, EVP/Chief Lending Officer, SVP/Chief Financial Officer, SVP of Residential Lending, and our Controller. The Interest Rate Risk Management Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for recommending to our Board of Directors the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk:

• originating commercial mortgage loans that generally tend to have shorter maturities or rate resets;

• investing in shorter duration investment grade corporate securities, government agency debt and mortgage-backed securities;

• originating adjustable-rate and short-term consumer loans;

• selling our long-term residential mortgage loans to our correspondent banks;

• utilizing both fixed term advances and an overnight line of credit with the Federal Home Loan Bank of New York;

• utilizing low cost short-term brokered deposits as an alternative funding source; and

• obtaining general financing through lower cost deposits.

36

Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans, as well as loans with variable interest rates, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates.

Net Interest Income Analysis.We analyze our sensitivity to changes in interest rates through our net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. In our model, we estimate what our net interest income would be for a twelve month period. We then calculate what the net interest income would be for the same period under the assumption that interest rates experience an instantaneous and sustained increase of 100 or 200 basis points or decrease of 100 or 200 basis points.

The table below sets forth, as of September 30, 2009, our calculation of the estimated changes in our net interest income that would result from the designated instantaneous and sustained changes in interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

	Net Interest Income
Change in	Estimated		Increase (Decrease) in
Interest Rates	Net Interest		Estimated Net Interest Income
(basis points)(1)	Income		Amount			Percent
	(dollars in thousands)
+200	$	39,617	$	(1,106	)		-2.72	%
+100		40,241		(482	)		-1.18	%
0		40,723
-100		40,478		(245	)		-0.60	%
-200		39,454		(1,269	)		-3.12	%

⁽¹⁾ Assumes an instantaneous and sustained uniform change in interest rates at all maturities.

The table above indicates that at September 30, 2009, in the event of a 100 basis point increase in interest rates, we would experience a $482,000 decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would experience a $245,000 decrease in net interest income.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net interest income. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income information presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

During the quarter ended September 30, 2009, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

37

Part II — Other Information

Item 1. Legal Proceedings

The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

Item 1A. Risk Factors

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors represent material updates and additions to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2008 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, as filed with the Securities and Exchange Commission. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The FDIC Has Proposed a Rule That Would Require Us to Prepay Insurance Premiums

On September 29, 2009, the Federal Deposit Insurance Corporation issued a proposed rule pursuant to which all insured depository institutions would be required to prepay their estimated assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. Under the proposed rule, this pre-payment would be due on December 30, 2009. Under the proposed rule, the assessment rate for the fourth quarter of 2009 and for 2010 would be based on each institution’s total base assessment rate for the third quarter of 2009, and the assessment rate for 2011 and 2012 would be equal to the third quarter assessment rate plus an additional 3 basis points. In addition, each institution’s base assessment rate for each period would be calculated using its third quarter assessment base, adjusted quarterly for an estimated 5% annual growth rate in the assessment base through the end of 2012. Based on our deposits and assessment rate at September 30, 2009, we estimate that our prepayment amount will be approximately $4.7 million. We expect that we will be able to make the prepayment from available cash on hand.

A Legislative Proposal Has Been Introduced That Would Eliminate Cape Bancorp., Inc.’s Primary Federal Regulator And Subject Cape Bancorp To Be Treated as a Bank Holding Company Regulated By The Federal Reserve Board

The House Financial Services Committee has released a draft of proposed restructuring legislation that would implement sweeping changes to the current bank regulatory structure. The proposed legislation, developed in conjunction with the U.S. Treasury Department, would establish a Financial Services Oversight Council and merge Cape Bancorp, Inc.’s primary regulator, the Office of Thrift Supervision, into the Office of the Comptroller of the Currency, the primary federal regulator for national banks. The proposal, if adopted, also would subject Cape Bancorp, Inc. to be regulated as a bank holding company, which would include being subject to the Federal Reserve Board’s consolidated capital requirements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)	There were no sales of unregistered securities during the period covered by this Report.
(b)	Not applicable.
(c)	There were no issuer repurchases of securities during the period covered by this Report.

38

Item 3. Defaults Upon Senior Securities

Not applicable.

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

None

Item 5. Other Information

Not applicable

Item 6. Exhibits

The following exhibits are either filed as part of this report or are incorporated herein by reference:

3.1	Charter 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 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	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.

39

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CAPE BANCORP, INC.
Date: November 9, 2009	/s/ Michael D. Devlin
	Michael D. Devlin
	President and Chief Executive Officer
Date: November 9, 2009	/s/ Guy Hackney
	Guy Hackney
	Senior Vice President and Chief Financial Officer

40

EXHIBIT INDEX

Exhibit No.		Description
	3.1	Charter 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 2002
	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	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.

41