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. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

As of August 2, 2013 there were 12,673,518 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.

	(unaudited) June 30, 2013			December 31, 2012
	(in thousands)
ASSETS
Cash & due from financial institutions	$	8,346		$	6,867
Interest-bearing bank balances		16,540			17,361
Cash and cash equivalents		24,886			24,228
Interest-bearing time deposits		10,250			9,259
Investment securities available for sale, at fair value (amortized cost of $ 172,986 and $ 171,987 respectively)		166,965			170,857
Loans held for sale		3,530			8,795
Loans, net of allowance of $ 9,786 and $ 9,852 respectively		733,721			714,396
Accrued interest receivable		3,230			3,091
Premises and equipment, net		20,076			20,283
Other real estate owned		7,398			7,221
Federal Home Loan Bank (FHLB) stock, at cost		5,970			5,775
Prepaid FDIC insurance premium		—			635
Deferred income taxes		18,304			17,639
Bank owned life insurance (BOLI)		30,700			30,226
Goodwill		22,575			22,575
Intangible assets, net		256			264
Assets held for sale		286			436
Other assets		2,393			5,118
Total assets	$	1,050,540		$	1,040,798

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Interest-bearing deposits	$	699,988		$	698,325
Noninterest-bearing deposits		95,094			86,266
Federal funds purchased and repurchase agreements		9,932			9,924
Federal Home Loan Bank borrowings		94,010			88,041
Advances from borrowers for taxes and insurance		775			652
Accrued interest payable		114			148
Other liabilities		5,000			6,616
Total liabilities		904,913			889,972

Stockholders’ Equity
Common stock, $.01 par value: authorized 100,000,000 shares; issued 13,344,776 shares at June 30, 2013 and 13,336,776 shares at December 31, 2012; outstanding 12,853,615 shares at June 30, 2013 and 13,336,776 shares at December 31, 2012		133			133
Additional paid-in capital		128,052			127,767
Treasury stock at cost: 491,161 shares at June 30, 2013 and no shares at December 31, 2012		(4,538	)		—
Unearned ESOP shares		(8,315	)		(8,528	)
Accumulated other comprehensive loss, net		(3,616	)		(679	)
Retained earnings		33,911			32,133
Total stockholders’ equity		145,627			150,826
Total liabilities & stockholders’ equity	$	1,050,540		$	1,040,798

	For the three months ended June 30,					For the six months ended June 30,
	2013		2012			2013		2012
	(dollars in thousands, except share data)
Interest income:
Interest on loans	$	9,131	$	9,751		$	18,207	$	19,668
Interest and dividends on investments
Taxable		381		416			806		985
Tax-exempt		131		180			273		380
Interest on mortgage-backed securities		450		588			915		1,191
Total interest income		10,093		10,935			20,201		22,224
Interest expense:
Interest on deposits		787		1,169			1,626		2,457
Interest on borrowings		555		1,052			1,165		2,233
Total interest expense		1,342		2,221			2,791		4,690
Net interest income before provision for loan losses		8,751		8,714			17,410		17,534
Provision for loan losses		313		1,168			610		1,841
Net interest income after provision for loan losses		8,438		7,546			16,800		15,693
Non-interest income:
Service fees		913		968			1,744		1,855
Net gains on sale of loans		313		90			583		173
Net increase from BOLI		238		244			473		488
Gain (loss) on sale of investment securities available for sale, net		—		774			290		962
Net gain (loss) on sale of OREO		19		(338	)		40		(301	)
Gain on sale of bank premises		—		425			—		425
Other		120		467			168		641
Gross other-than-temporary impairment losses		—		—			—		(192	)
Less: Portion of loss recognized in other comprehensive income		—		—			—		184
Net other-than-temporary impairment losses		—		—			—		(8	)
Total non-interest income		1,603		2,630			3,298		4,235
Non-interest expense:
Salaries and employee benefits		4,116		3,410			8,029		6,927
Occupancy expenses, net		412		478			841		870
Equipment expenses		281		299			560		582
Federal insurance premiums		216		389			520		731
Data processing		367		362			712		704
Loan related expenses		393		506			734		1,183
Advertising		199		207			346		371
Telecommunications		332		295			644		576
Professional services		178		218			379		378
OREO expenses		154		567			479		886
Other operating		807		1,943			1,784		2,896
Total non-interest expense		7,455		8,674			15,028		16,104
Income before income taxes		2,586		1,502			5,070		3,824
Income tax expense		1,006		477			1,975		1,261
Net income	$	1,580	$	1,025		$	3,095	$	2,563

Earnings per share (see Note 10):
Basic	$	0.13	$	0.08		$	0.25	$	0.21
Diluted	$	0.13	$	0.08		$	0.25	$	0.21

Weighted average number of shares outstanding:
Basic		12,287,513		12,426,617			12,390,837		12,421,292
Diluted		12,321,791		12,428,458			12,425,116		12,423,049

	For the three months ended June 30,
	2013									2012
	Before Tax Amount			Tax Expense			Net of Tax Amount			Before Tax Amount			Tax Expense			Net of Tax Amount
	(in thousands)

Net income	$	2,586		$	1,006		$	1,580		$	1,502		$	477		$	1,025

Other comprehensive income:
Unrealized holding gain (loss) arising during the period		(3,880	)		(1,551	)		(2,329	)		114			45			69
Non-credit related unrealized gain (loss) on other-than-temporarily impaired CDOs		—			—			—			—			—			—
Less reclassification adjustment for gain on sales of securities realized in net income		—			—			—			(774	)		(309	)		(465	)
Less reclassification adjustment for credit related OTTI realized in net income		—			—			—			—			—			—
Total other comprehensive income (loss)		(3,880	)		(1,551	)		(2,329	)		(844	)		(338	)		(506	)

Total comprehensive income (loss)	$	(1,294	)	$	(544	)	$	(749	)	$	658		$	139		$	519

	For the six months ended June 30,
	2013									2012
	Before Tax Amount			Tax Expense			Net of Tax Amount			Before Tax Amount			Tax Expense			Net of Tax Amount
	(in thousands)

Net income	$	5,070		$	1,975		$	3,095		$	3,824		$	1,261		$	2,563

Other comprehensive income:
Unrealized holding gain (loss) arising during the period		(4,601	)		(1,838	)		(2,763	)		560			224			336
Non-credit related unrealized gain (loss) on other-than-temporarily impaired CDOs		—			—			—			(184	)		(74	)		(110	)
Less reclassification adjustment for gain on sales of securities realized in net income		(290	)		(116	)		(174	)		(962	)		(384	)		(578	)
Less reclassification adjustment for credit related OTTI realized in net income		—			—			—			8			3			5
Total other comprehensive income (loss)		(4,891	)		(1,954	)		(2,937	)		(578	)		(231	)		(347	)

Total comprehensive income (loss)	$	179		$	21		$	158		$	3,246		$	1,030		$	2,216

	Common Stock		Paid-In Capital			Treasury Stock			Unearned ESOP Shares			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
	(in thousands)
Balance, December 31, 2011	$	133	$	127,364		$	(81	)	$	(8,954	)	$	(942	)	$	28,199		$	145,719
Net income		—		—			—			—			—			4,556			4,556
Other comprehensive income (loss)		—		—			—			—			263			—			263
Stock option compensation expense		—		356			—			—			—			—			356
Restricted stock compensation expense		—		10			—			—			—			—			10
Issuance of stock for stock options		—		98			81			—			—			—			179
Dividends on common stock		—		—			—			—			—			(622	)		(622	)
ESOP shares earned		—		(61	)		—			426			—			—			365
Balance, December 31, 2012		133		127,767			—			(8,528	)		(679	)		32,133			150,826
Net income		—		—			—			—			—			3,095			3,095
Other comprehensive income (loss)		—		—			—			—			(2,937	)		—			(2,937	)
Stock option compensation expense		—		238			—			—			—			—			238
Restricted stock compensation expense		—		7			—			—			—			—			7
Issuance of stock for stock options		—		59			—			—			—			—			59
Dividends on common stock		—		—			—			—			—			(1,317	)		(1,317	)
Common stock repurchased – 491,161 shares		—		—			(4,538	)		—			—			—			(4,538	)
ESOP shares earned		—		(19	)		—			213			—			—			194
Balance, June 30, 2013	$	133	$	128,052		$	(4,538	)	$	(8,315	)	$	(3,616	)	$	33,911		$	145,627

	Six months ended June 30,
	2013			2012
	(in thousands)
Cash flows from operating activities
Net income	$	3,095		$	2,563
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		610			1,841
Net (gain) loss on the sale of loans		(583	)		(173	)
Gain on the sale of bank premises		—			(425	)
Net (gain) loss on the sale of other real estate owned		(40	)		301
Write-down of other real estate owned		170			412
Prepayment penalty on debt extinguishment		—			921
Loss on impairment of securities		—			8
Net gain on sale of investments		(290	)		(962	)
Gain on the sale of merchant card business		—			(325	)
Earnings on BOLI		(473	)		(488	)
Originations of loans held for sale		(24,714	)		(14,693	)
Proceeds from sales of loans		21,257			17,389
Depreciation and amortization		1,377			560
ESOP and stock-based compensation expense		439			315
Deferred income taxes		1,313			76
Changes in assets and liabilities that (used) provided cash:
Accrued interest receivable		(139	)		282
Other assets		3,579			1,747
Accrued interest payable		(34	)		(132	)
Other liabilities		(1,925	)		(163	)
Net cash provided by operating activities		3,642			9,054
Cash flows from investing activities
Proceeds from sales of AFS securities		13,140			50,765
Proceeds from calls, maturities, and principal repayments of AFS securities		28,105			28,382
Purchases of AFS securities		(42,124	)		(55,441	)
Redemption (Purchase) of Federal Home Loan Bank stock		(195	)		1,758
Proceeds from the sale of merchant card business		—			350
Proceeds from sale of other real estate owned		3,711			4,256
(Increase) decrease in interest-bearing time deposits		(991	)		536
(Increase) decrease in loans, net		(14,665	)		(10,331	)
Purchases of premises and equipment		(282	)		(913	)
Net cash (used in) provided by investing activities		(13,301	)		19,362
Cash flows from financing activities
Net increase (decrease) in deposits		10,491			15,515
Increase in advances from borrowers for taxes and insurance		122			101
Repayments of long-term borrowings		(15,000	)		(40,921	)
Net change in short-term borrowings		20,500			—
Purchase of Treasury stock		(4,538	)		—
Proceeds from exercise of shares from stock options		59			—
Dividends paid on common stock		(1,317	)		—
Net cash (provided by) used in financing activities		10,317			(25,305	)
Net increase (decrease) in cash and cash equivalents		658			3,111
Cash and cash equivalents at beginning of year		24,228			25,475
Cash and cash equivalents at end of quarter	$	24,886		$	28,586
Supplementary disclosure of cash flow information:
Cash paid during period for:
Interest	$	2,349		$	4,822
Income taxes, net of refunds	$	(1,668	)	$	(432	)
Supplementary disclosure of non-cash investing activities:
AFS investment security sales that settle after quarter end	$	—		$	5,905
Transfers from loans to other real estate owned	$	3,893		$	3,402

Cape Bancorp, Inc. (“Cape Bancorp” or the “Company”) is a Maryland corporation that was incorporated on September 14, 2007 for the purpose of becoming the holding company of Cape Bank (formerly Cape Savings Bank) in connection with Cape Bank’s mutual-to-stock conversion, the Company’s initial public offering and simultaneous acquisition of Boardwalk Bancorp, Inc. (“Boardwalk Bancorp”), Linwood, New Jersey and its wholly-owned New Jersey chartered bank subsidiary, Boardwalk Bank.

Cape Bank (the “Bank”) is a New Jersey-chartered stock savings bank. The Bank provides a complete line of business and personal banking products through its fourteen full service offices located throughout Atlantic and Cape May Counties in Southern New Jersey, one drive-up teller/ATM operation in Atlantic County, and two market development offices (“MDOs”) located in Burlington County, New Jersey and in Radnor, Pennsylvania which services the five county Philadelphia market area. The Mercer County, New Jersey MDO was closed during the second quarter of 2013.

The Bank faces significant competition in attracting deposits and originating loans. Our most direct competition for deposits historically has come from the many financial institutions operating in our market area, including commercial banks, savings banks, savings and loan associations and credit unions, and, to a lesser extent, from other financial service companies, such as brokerage firms and insurance companies. 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.

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” or “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 GAAP pursuant to such rules and regulations. 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. Certain prior period amounts have been reclassified to conform to current year presentations. The consolidated financial statements, as of and for the periods ended June 30, 2013 and 2012, 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 the date of the filing of the consolidated financial statements with the SEC.

Use of Estimates: To prepare financial statements in conformity with GAAP, 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, federal funds sold and interest-bearing bank balances. The Federal Reserve Bank required reserves of $636,000 as of June 30, 2013, and $515,000 as of December 31, 2012 are included in these balances.

Interest-Bearing Time Deposits: Interest-bearing time deposits are held to maturity, are carried at cost and have original maturities greater than three months.

Investment Securities: 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. 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, the entity must recognize the other-than-temporary impairment (“OTTI”) 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 classified as OTTI. The related OTTI 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 OTTI losses, management considers: the length of time and extent that the fair value of the security has been less than the cost of the security, 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 (“HFS”): HFS consists of residential mortgage loans originated and intended for sale in the secondary market and, from time to time, certain loans transferred from the loan portfolio to HFS, all of which are carried at the lower of aggregate cost or fair market value. The fair value of residential mortgage loans is based on the price secondary markets are currently offering for similar loans using observable market data. The fair values of loans transferred from the loan portfolio to HFS are based on the amounts offered for these loans in currently pending sales transactions or as determined by outstanding commitments from investors. Write-downs on loans transferred to HFS are charged to the allowance for loan losses. Subsequent declines in fair value, if any, are charged to operating income and the HFS balance is reduced. Gains and losses on sales of loans are based on the difference between the selling price and the carrying value of the related loans 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. 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. The allowance for loan losses is established through a provision for loan losses charged to operations. The allowance for loan losses is comprised of both loan pool valuation allowances and individual valuation allowances. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely.

Recognition of interest income is discontinued when, in the opinion of management, the collectability of the loan becomes doubtful. A commercial loan is classified as non-accrual when the loan is 90 days or more delinquent, or when in the opinion of management, the collectability of such loan is in doubt. Consumer and residential loans are classified as non-accrual when the loan is 90 days or more delinquent with a loan to value ratio greater than 60 percent.

All interest accrued, but not received, for loans placed on non-accrual, is reversed against interest income. Interest received on such loans is accounted for as a reduction of the principal balance until qualifying for return to accrual. Commercial loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Payments are generally applied to reduce the principal balance but, in certain situations, the application of payments may vary. Consumer and residential loans are returned to accrual status when their delinquency becomes less than 90 days and/or the loan to value ratio is less than 60 percent.

The allowance for loan losses is maintained at an amount management deems appropriate to cover probable incurred losses. In determining the level to be maintained, management evaluates many factors including historical loss experience, the borrowers’ ability to repay and repayment performance, current economic trends, estimated collateral values, industry experience, industry loan concentrations, changes in loan policies and procedures, changes in loan volume, delinquency and troubled asset trends, loan management and personnel, internal and external loan review, total credit exposure of the individual or entity, and external factors including competition, legal, regulatory and seasonal factors. In the opinion of management, the allowance is appropriate to absorb probable loan losses. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary. 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.

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. Included in the Company’s loan portfolio are modified loans. Per the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic No. 310-40 “Troubled Debt Restructurings by Creditors” (“FASB ASC 310-40”), a loan restructuring is one in which the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that the creditor would not otherwise consider, such as providing for a below market interest rate and/or forgiving principal or previously accrued interest. This restructuring may stem from an agreement or may be imposed by law, and may involve a multiple note structure. Prior to the restructuring, if the loans which are modified as a troubled debt restructuring (“TDR”) are already classified as non-accrual, these loans may only be returned to performing (i.e. accrual status) after considering the borrower’s sustained

repayment performance for a reasonable amount of time, generally six months. This sustained repayment performance may include the period of time just prior to the restructuring. At June 30, 2013, TDRs totaled $6.7 million, of which $3.6 million were accruing TDRs and $3.1 million were non-accruing. This compares to $7.0 million of TDRs at December 31, 2012, of which $3.5 million were accruing TDRs and $3.5 million were non-accruing TDRs. (See Note 4 – Loans Receivable)

Other Real Estate Owned (“OREO”): 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 estimated fair market value, less the estimated cost to sell, at the date of foreclosure, thereby establishing a new cost basis. If the fair value declines subsequent to foreclosure, an OREO write-down is recorded through expense and the OREO balance is lowered to reflect the current fair value. 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 10 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 of New York (“FHLB”) Stock: The Bank is a member of 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. Cash dividends are reported as income.

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 will be recognized in the period identified. The annual goodwill assessment for 2013 will be performed in the fourth quarter.

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. Other intangible assets are assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Bank Owned Life Insurance (“BOLI”): The Bank has an investment in bank owned life insurance. 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 ASC Topic No. 325 “Investments in Insurance Contracts”, the amount recorded is the cash surrender value, which is the amount realizable.

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 the Pentegra Defined Benefit Plan for Financial Institutions (The “Pentegra DB Plan”), a tax-qualified defined benefit pension plan. The Pentegra DB Plan’s Employer Identification Number is 13-5645888, and the Plan Number is 333. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra DB 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. Effective January 1, 2012, the Bank eliminated the matching contribution formula and replaced it with a discretionary form of matching contribution.

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 and the shares become outstanding for earnings per share computations. Dividends on allocated ESOP shares reduce retained

earnings; dividends on unearned ESOP shares are used to reduce the annual ESOP debt service. As of June 30, 2013, 181,423 shares have been allocated to eligible participants in the Cape Bank Employee Stock Ownership Plan.

Stock Benefit Plan: The Company has an Equity Incentive Plan (the “Stock Benefit Plan”) under which incentive and non-qualified stock options, stock appreciation rights (SARs) and restricted stock awards (RSAs) may be granted periodically to certain employees and directors. The fair value of the restricted stock is the market value of the stock on the date of grant. Under the fair value method of accounting for stock options, the fair value is measured on the date of grant using the Black-Scholes option pricing model with market assumptions. This amount is amortized as salaries and employee benefits expense on a straight-line basis over the vesting period. Option pricing models require the use of highly subjective assumptions, including expected stock price volatility, which, if changed, can significantly affect fair value estimates.

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 contributions, depreciation and OTTI 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 it is not more likely than not that a portion or all will be realized. Management considers several factors in determining whether a portion, or all, of the valuation allowance should be reversed such as the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax assets are deductible and tax planning strategies.

Earnings Per Share: Basic earnings (loss) per common share is the net income (loss) 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 common share includes the dilutive effect of additional potential common shares issuable under stock option and restricted stock awards, if any.

Comprehensive Income (Loss): Comprehensive income (loss) 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. See the Consolidated Statement of Comprehensive Income.

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.

Treasury Stock: Stock held in the treasury by the Company is accounted for using the cost method, which treats stock held in treasury as a reduction to total stockholders’ equity.

Effect of Newly Issued Accounting Standards: In December 2011, the FASB issued ASU 2011-11 “Balance Sheet, Disclosure about Offsetting Assets and Liabilities” (Topic No. 210). The objective of this update is to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this Update. The amendments require enhancement disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they offset in accordance with either Section 210-20-45 or Section 815-10-45. These amendments are effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. Adoption of this update did not have a material impact on the Company’s financial position or results of operations.

In January 2013, the FASB issued ASU 2013-01 “Balance Sheet, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (Topic No. 210): The amendments in this update clarify that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with Topic No.815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase

agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. An entity is required to apply the amendments for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. Adoption of this update did not have a material impact on the Company’s financial position or results of operations.

In February 2013, the FASB issued ASU 2013-02 “Comprehensive Income, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (Topic No. 220): The amendments in this update aim to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted the amendments of ASU 2011-12 effective January 1, 2012 and has applied the amendments retrospectively. Adoption of this update did not have a material impact on the Company’s financial position or results of operations.

The amortized cost, gross unrealized gains or losses and the fair value of the Company’s investment securities available for sale at June 30, 2013 and December 31, 2012 are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
June 30, 2013
Investment securities available for sale
Debt securities
U.S. Government and agency obligations	$	40,974	$	—	$	(1,698	)	$	39,276
Municipal bonds		18,879		230		(303	)		18,806
Collateralized debt obligations		8,277		31		(3,461	)		4,847
Corporate bonds		12,077		51		(48	)		12,080
Total debt securities	$	80,207	$	312	$	(5,510	)	$	75,009
Equity securities
CRA Qualified Investment Fund	$	5,000	$	—	$	(206	)	$	4,794
Total equity securities	$	5,000	$	—	$	(206	)	$	4,794
Mortgage-backed securities
GNMA pass-through certificates	$	3,673	$	145	$	—		$	3,818
FHLMC pass-through certificates		5,408		90		(94	)		5,404
FNMA pass-through certificates		15,578		190		(285	)		15,483
Collateralized mortgage obligations		63,120		229		(892	)		62,457
Total mortgage-backed securities	$	87,779	$	654	$	(1,271	)	$	87,162
Total securities available for sale	$	172,986	$	966	$	(6,987	)	$	166,965

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2012
Investment securities available for sale
Debt securities
U.S. Government and agency obligations	$	38,982	$	129	$	(29	)	$	39,082
Municipal bonds		20,307		472		(21	)		20,758
Collateralized debt obligations		8,263		104		(3,685	)		4,682
Corporate bonds		14,103		139		(1	)		14,241
Total debt securities	$	81,655	$	844	$	(3,736	)	$	78,763
Equity securities
CRA Qualified Investment Fund	$	5,000	$	—	$	(9	)	$	4,991
Total equity securities	$	5,000	$	—	$	(9	)	$	4,991
Mortgage-backed securities
GNMA pass-through certificates	$	4,193	$	237	$	—		$	4,430
FHLMC pass-through certificates		5,784		134		—			5,918
FNMA pass-through certificates		17,591		468		—			18,059
Collateralized mortgage obligations		57,764		950		(18	)		58,696
Total mortgage-backed securities	$	85,332	$	1,789	$	(18	)	$	87,103
Total securities available for sale	$	171,987	$	2,633	$	(3,763	)	$	170,857

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at June 30, 2013:

	Less Than 12 Months					12 Months or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
U.S. Government and agency obligations	$	39,276	$	(1,698	)	$	—	$	—		$	39,276	$	(1,698	)
Municipal bonds		8,685		(300	)		225		(3	)		8,910		(303	)
Corporate bonds		5,026		(48	)		—		—			5,026		(48	)
Collateralized debt obligations		—		—			4,762		(3,461	)		4,762		(3,461	)
CRA Qualified Investment Fund		4,794		(206	)		—		—			4,794		(206	)
Mortgage-backed securities		51,352		(1,271	)		1		—			51,353		(1,271	)
Total temporarily impaired investment securities	$	109,133	$	(3,523	)	$	4,988	$	(3,464	)	$	114,121	$	(6,987	)

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2012:

	Less Than 12 Months					12 Months or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
U.S. Government and agency obligations	$	6,968	$	(29	)	$	—	$	—		$	6,968	$	(29	)
Municipal bonds		3,111		(18	)		225		(3	)		3,336		(21	)
Corporate bonds		1,035		(1	)		—		—			1,035		(1	)
Collateralized debt obligations		—		—			4,524		(3,685	)		4,524		(3,685	)
CRA Qualified Investment Fund		4,991		(9	)		—		—			4,991		(9	)
Mortgage-backed securities		1,989		(18	)		—		—			1,989		(18	)
Total temporarily impaired investment securities	$	18,094	$	(75	)	$	4,749	$	(3,688	)	$	22,843	$	(3,763	)

Management evaluates investment securities to determine if they are OTTI 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 No. 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. Additionally, and consistent with FDIC regulations, management, prior to acquiring and periodically thereafter, evaluates various factors of corporate securities that may include but is not limited to the following; evaluate that the risk of default is low and consistent with bonds of similar quality, evaluate the capacity to pay, understand applicable market demographics/economics and understand current levels and trends in operating margins, operating efficiency, profitability, return on assets and return on equity.

At June 30, 2013, the Company’s investment securities portfolio consisted of 281 securities, 97 of which were in an unrealized loss position. The gross unrealized losses in the Company’s investment securities portfolio related primarily to the collateralized debt obligation securities, which are discussed in detail below, and accounted for 49.5% of the total gross unrealized losses at June 30, 2013 compared to 97.9% of the gross unrealized losses at December 31, 2012. The remaining securities with unrealized losses consist of U.S. Government and agency obligations, municipal obligations, corporate bonds, CRA Qualified Investment Fund and mortgage-backed securities. Because the Company has no intention to sell these securities, nor is it more likely than not that it will be required to sell the securities, the Company does not consider these investments to be OTTI.

As of June 30, 2013, the amortized cost of our pooled trust preferred collateralized debt obligations totaled $8.3 million with an estimated fair value of $4.8 million and is comprised of 22 securities. Of those, 14 have been principally issued by bank holding companies (PreTSL deals, MM Community I, and Alesco VI), and 8 have been principally issued by insurance companies (I-PreTSL deals). All of our pooled securities are mezzanine tranches and possess credit ratings below investment grade. As of June 30, 2013, 14 of our securities had no excess subordination and 8 of our securities had excess subordination which ranged from 6.99% to 15.70% of the current performing collateral. Excess subordination is the amount by which the underlying performing collateral exceeds the outstanding bonds in the current class, plus all senior classes. It is a static measure of credit enhancement, but does not incorporate structural elements of the CDO. Management utilizes excess subordination as a measure to identify which tranches are at a greater risk for a future break in cash flows. However, a current subordination deficit or “zero excess subordination” does not indicate the tranche will not ultimately receive all principal and interest due. For example, this measure does not consider the potential for recovery of

issuers that are currently deferring payments. Some issuers have elected to defer payments, which contractually they are permitted to do for a period of up to five years, even though going concern issues may not exist. This supports management’s position that a deferral is not necessarily indicative of a default or that a default is imminent. On average, deferring issuers underlying the bank issued CDOs comprise approximately 64% of the total dollar value related to issuer defaults and deferrals. As such, our assumptions used in the calculation of discounted cash flows anticipate a 15% recovery rate on deferring issuers as compared to no recovery of issuers that have defaulted. The recovery rate assumption represents management’s best estimate based on current facts and circumstances. In addition, due to projected discounted cash flows that do not support the receipt of interest, the Company is not accruing interest on any of the bank issued CDO securities. Accordingly, these securities are considered non-performing assets.

The following table provides additional information related to our pooled trust preferred collateralized debt obligations as of June 30, 2013:

Pooled Trust Preferred Collateralized Debt Obligations
(dollars in thousands)
Deal	Number of Securities		Class		Amortized Cost		Fair Value		Unrealized Loss		Realized Loss		Moody’s/ Fitch Ratings		Current Number of Performing Issuers		Amount of Deferrals and Defaults as a % of Current Collateral			Excess Subordination as a % of Current Performing Collateral
PreTSL II		2		Mezzanine	$	470	$	405	$	(65)	$	(643)		Ca/C		10		51.40	%		0.00	%
PreTSL XIX		1		Mezzanine		54		85		31		(1,759)		C/C		48		22.90	%		0.00	%
I-PreTSL I		2		Mezzanine		1,847		1,097		(750)		—		NR/CCC		14		17.20	%		6.99	%
I-PreTSL II		2		Mezzanine		2,738		1,467		(1,271)		—		NR/B		22		7.50	%		15.70	%
I-PreTSL III		3		Mezzanine		2,725		1,536		(1,189)		—		Ba3/CCC		21		13.20	%		12.59	%
I-PreTSL IV		1		Mezzanine		443		257		(186)		—		Ba2/CCC		33		10.40	%		11.93	%
Total		11			$	8,277	$	4,847	$	(3,430)	$	(2,402)

Lack of liquidity in the market for trust preferred collateralized debt obligations, credit rating downgrades and market uncertainties related to the financial industry are factors contributing to the impairment on these securities. The table above excludes eleven bank-issued CDO securities which have been completely written-off and, therefore, have no book value. The realized loss associated with these securities is $14.5 million.

The following table provides additional information related to our pooled trust preferred collateralized debt obligations as of December 31, 2012:

Pooled Trust Preferred Collateralized Debt Obligations
(dollars in thousands)
Deal	Number of Securities		Class		Amortized Cost		Fair Value		Unrealized Loss			Realized Loss			Moody’s/ Fitch Ratings		Current Number of Performing Issuers		Amount of Deferrals and Defaults as a % of Current Collateral			Excess Subordination as a % of Current Performing Collateral
PreTSL II		2		Mezzanine	$	470	$	406	$	(64	)	$	(643	)		Ca/C		14		47.50	%		0.00	%
PreTSL XIX		1		Mezzanine		54		158		104			(1,759	)		C/C		47		26.10	%		0.00	%
I-PreTSL I		2		Mezzanine		1,844		1,200		(644	)		—			NR/CCC		15		16.50	%		15.68	%
I-PreTSL II		2		Mezzanine		2,733		1,347		(1,386	)		—			NR/B		23		12.60	%		13.79	%
I-PreTSL III		3		Mezzanine		2,720		1,345		(1,375	)		—			Ba3/CCC		23		12.20	%		17.11	%
I-PreTSL IV		1		Mezzanine		442		226		(216	)		—			Ba2/CCC		24		19.70	%		10.43	%
Total		11			$	8,263	$	4,682	$	(3,581	)	$	(2,402	)

On a quarterly basis, we evaluate our investment securities for OTTI. As required by FASB ASC Topic No. 320 “Investments – Debt and Equity Securities,” if we do not intend to sell a debt security, and it is not more likely than not that we will be required to sell the security, an OTTI write-down is separated into a credit loss portion and a portion related to all other factors. The credit loss portion is recognized in earnings as net OTTI losses, and the portion related to all other factors is recognized in accumulated other comprehensive income, net of taxes. The credit loss portion is defined as the difference between the amortized cost of the security and the present value of the expected future cash flows for the security. If the intent is to sell a debt security or if it is more likely than not that we will be required to sell the security, then the security is written down to its fair market value as a net OTTI loss in earnings. The Company has evaluated these securities and determined that the decreases in estimated fair value are temporary. The Company’s estimate of projected cash flows it expected to receive was more than the securities’ carrying value, resulting in no impairment charge to earnings for the six months ended June 30, 2013.

Our CDOs are beneficial interests in securitized financial assets within the scope of FASB ASC Topic No. 325 “Investments – Other,” and are therefore evaluated for OTTI using management’s estimate of future cash flows. If these estimated cash flows determine that it is probable an adverse change in cash flows has occurred, then OTTI would be recognized in accordance with FASB ASC Topic No. 320 “Investments – Debt and Equity Securities,”. The Company uses a third party model, which is validated on an annual basis by another third party, to assist in calculating the present value of current estimated cash flows. This value is compared to the amortized cost to determine the credit loss portion of OTTI. The present value of the expected cash flows is calculated based on the contractual terms of the security, and is discounted at a rate equal to the effective interest rate implicit in the security at the date of acquisition.

The model also takes into account individual defaults and deferrals that have already occurred by any participating issuer within the pool of entities that make up the security’s underlying collateral. With regard to expected defaults and deferrals, the Company performs an ongoing analysis of these securities utilizing both readily available market data and analytical models obtained from the third party. On a quarterly basis, we evaluate the underlying collateral of each pooled trust preferred security in our portfolio to determine the appropriate default/deferral assumptions to use in our calculation of discounted cash flows. This process entails obtaining each security’s issuer list which include the most recent financial and credit quality metrics. We then identify issuers that have metrics that are similar to those that have defaulted or are deferring payments. As part of our evaluation, we consider such measures as liquidity, capital adequacy, profitability, and credit quality and analyze ratios such as return on average assets (“ROAA”), net interest margin, Tier 1 risk based capital, tangible equity to tangible assets, Texas ratio, reserves to loans and non-performing loans to loans. Our evaluation also takes into consideration current economic indicators as well as recent default/deferral trends of underlying issuers. Management then develops a projected default/deferral rate for each security based on this analysis. This rate is then applied to the cash flow model developed by the third party to calculate the present value of discounted cash flows for each security. The model assumptions relative to expected recoveries of defaulted issuers and deferring issuers were discussed earlier in this Note. Furthermore, we perform back-testing by comparing actual default/deferral rates to previous projections. The results are used to refine future projections on a continuous basis. Lastly, we continually evaluate the securities for the potential of future impairment by reviewing the FDIC failed bank list and deferral announcements made by the underlying issuers of each CDO security in our portfolio.

In general, CDOs are callable within five to ten years of issuance with a quarterly call frequency. Due to current market conditions, the cost to refinance or issue capital at a lower rate than what is currently outstanding, and the limited history of CDOs, prepayments are difficult to predict. The model assumes that prepayments will be limited to those issuers that are acquired. A 1% annual prepayment assumption has been used in the model and is indicative of management’s belief that consolidation in the banking industry will occur over the next several years. Additionally, commencing with a date ten years from the issuance date, the Trustee can solicit bids in an auction format for the purchase of all the outstanding collateral securities. The highest bid will be accepted that is at least equal to the sum of the outstanding liabilities at par plus accrued and unpaid interest. However, given the uncertain future of the CDO market, credit quality issues with the underlying issuers, and a depressed market value, the model assumes that a successful call auction is highly unlikely. Therefore, the model expects that the securities will extend through their full 30 year maturity.

The amortized cost and fair value of debt securities and mortgage-backed securities available for sale at June 30, 2013, by contractual maturities, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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 June 30, 2013 and 2012:

The following table summarizes activity related to the allowance for loan losses by category for the three months ended June 30, 2013:

	At or for the three months ended June 30, 2013
	(in thousands)
	Commercial Secured by Real Estate			Commercial Term Loans			Construction		Other Commercial (1)			Residential Mortgage			Home Equity & Lines of Credit			Other Consumer			Unallocated			Total
Balance at beginning of period	$	6,207		$	491		$	60	$	848		$	1,213		$	214		$	13		$	635		$	9,681
Charge-offs		(152	)		—			—		(107	)		(77	)		—			(8	)		—			(344	)
Recoveries		126			—			—		4			—			—			6			—			136
Provision for loan losses		526			(52	)		39		(82	)		33			(14	)		(2	)		(135	)		313
Balance at end of period	$	6,707		$	439		$	99	$	663		$	1,169		$	200		$	9		$	500		$	9,786

Impairment evaluation
Allowance for loan losses
Individually evaluated	$	187		$	—		$	—	$	—		$	51		$	4		$	—		$	—		$	242
Collectively evaluated		6,520			439			99		663			1,118			196			9			500			9,544
Total allowance for loan losses	$	6,707		$	439		$	99	$	663		$	1,169		$	200		$	9		$	500		$	9,786
Loans
Individually evaluated	$	13,759		$	—		$	141	$	307		$	3,035		$	921		$	—		$	—		$	18,163
Collectively evaluated		383,122			23,366			2,761		35,283			238,069			41,677			1,258			—			725,536
Total loans	$	396,881		$	23,366		$	2,902	$	35,590		$	241,104		$	42,598		$	1,258		$	—		$	743,699

The following table summarizes activity related to the allowance for loan losses by category for the six months ended June 30, 2013:

	At or for the six months ended June 30, 2013
	(in thousands)
	Commercial Secured by Real Estate			Commercial Term Loans			Construction		Other Commercial (1)			Residential Mortgage			Home Equity & Lines of Credit			Other Consumer			Unallocated			Total
Balance at beginning of period	$	6,321		$	457		$	58	$	815		$	1,300		$	249		$	17		$	635		$	9,852
Charge-offs		(588	)		—			—		(106	)		(113	)		(24	)		(10	)		—			(841	)
Recoveries		141			—			—		6			—			1			17			—			165
Provision for loan losses		833			(18	)		41		(52	)		(18	)		(26	)		(15	)		(135	)		610
Balance at end of period	$	6,707		$	439		$	99	$	663		$	1,169		$	200		$	9		$	500		$	9,786

Impairment evaluation
Allowance for loan losses
Individually evaluated	$	187		$	—		$	—	$	—		$	51		$	4		$	—		$	—		$	242
Collectively evaluated		6,520			439			99		663			1,118			196			9			500			9,544
Total allowance for loan losses	$	6,707		$	439		$	99	$	663		$	1,169		$	200		$	9		$	500		$	9,786
Loans
Individually evaluated	$	13,759		$	—		$	141	$	307		$	3,035		$	921		$	—		$	—		$	18,163
Collectively evaluated		383,122			23,366			2,761		35,283			238,069			41,677			1,258			—			725,536
Total loans	$	396,881		$	23,366		$	2,902	$	35,590		$	241,104		$	42,598		$	1,258		$	—		$	743,699

The following table summarizes activity related to the allowance for loan losses by category for the year ended December 31, 2012:

	At or for the Year ended December 31, 2012
	(in thousands)
	Commercial Secured by Real Estate			Commercial Term Loans			Construction			Other Commercial (1)			Residential Mortgage			Home Equity & Lines of Credit			Other Consumer			Unallocated			Total
Balance at beginning of year	$	8,058		$	124		$	744		$	338		$	1,909		$	349		$	16		$	1,115		$	12,653
Charge-offs		(6,070	)		(27	)		(602	)		(137	)		(450	)		(171	)		(33	)		—			(7,490	)
Recoveries		182			—			11			4			—			5			26			—			228
Provision for loan losses		4,151			360			(95	)		610			(159	)		66			8			(480	)		4,461
Balance at end of year	$	6,321		$	457		$	58		$	815		$	1,300		$	249		$	17		$	635		$	9,852

Impairment evaluation
Allowance for loan losses
Individually evaluated	$	550		$	—		$	—		$	57		$	5		$	—		$	—		$	—		$	612
Collectively evaluated		5,771			457			58			758			1,295			249			17			635			9,240
Total allowance for loan losses	$	6,321		$	457		$	58		$	815		$	1,300		$	249		$	17		$	635		$	9,852
Loans
Individually evaluated	$	17,452		$	—		$	141		$	515		$	4,430		$	841		$	—		$	—		$	23,379
Collectively evaluated		370,596			19,443			1,624			32,233			231,491			44,417			1,317			—			701,121
Total loans	$	388,048		$	19,443		$	1,765		$	32,748		$	235,921		$	45,258		$	1,317		$	—		$	724,500

The following table summarizes activity related to the allowance for loan losses by category for the three months ended June 30, 2012:

	At or for the three months ended June 30, 2012
	(in thousands)
	Commercial Secured by Real Estate			Commercial Term Loans		Construction		Other Commercial (1)			Residential Mortgage			Home Equity & Lines Of Credit			Other Consumer			Unallocated			Total
Balance at beginning of period	$	7,732		$	220	$	509	$	926		$	1,599		$	289		$	21		$	1,065		$	12,361
Charge-offs		(761	)		—		—		(64	)		(32	)		(92	)		(13	)		—			(962	)
Recoveries		95			—		—		—			—			—			7			—			102
Provision for loan losses		663			222		89		342			17			95			5			(265	)		1,168
Balance at end of period	$	7,729		$	442	$	598	$	1,204		$	1,584		$	292		$	20		$	800		$	12,669

Impairment evaluation
Allowance for loan losses
Individually evaluated	$	1,516		$	—	$	—	$	132		$	38		$	6		$	—		$	—		$	1,692
Collectively evaluated		6,213			442		598		1,072			1,546			286			20			800			10,977
Total allowance for loan losses	$	7,729		$	442	$	598	$	1,204		$	1,584		$	292		$	20		$	800		$	12,669
Loans
Individually evaluated	$	22,945		$	—	$	1,131	$	750		$	5,853		$	771		$	—		$	—		$	31,450
Collectively evaluated		361,353			13,243		9,409		32,036			240,858			44,733			1,302			—			702,934
Total loans	$	384,298		$	13,243	$	10,540	$	32,786		$	246,711		$	45,504		$	1,302		$	—		$	734,384

The following table summarizes activity related to the allowance for loan losses by category for the six months ended June 30, 2012:

	At or for the six months ended June 30, 2012
	(in thousands)
	Commercial Secured by Real Estate			Commercial Term Loans			Construction			Other Commercial (1)			Residential Mortgage			Home Equity & Lines Of Credit			Other Consumer			Unallocated			Total
Balance at beginning of period	$	8,058		$	124		$	744		$	338		$	1,909		$	349		$	16		$	1,115		$	12,653
Charge-offs		(863	)		(27	)		(602	)		(68	)		(238	)		(145	)		(22	)		—			(1,965	)
Recoveries		121			—			—			4			—			—			15			—			140
Provision for loan losses		413			345			456			930			(87	)		88			11			(315	)		1,841
Balance at end of period	$	7,729		$	442		$	598		$	1,204		$	1,584		$	292		$	20		$	800		$	12,669

Impairment evaluation
Allowance for loan losses
Individually evaluated	$	1,516		$	—		$	—		$	132		$	38		$	6		$	—		$	—		$	1,692
Collectively evaluated		6,213			442			598			1,072			1,546			286			20			800			10,977
Total allowance for loan losses	$	7,729		$	442		$	598		$	1,204		$	1,584		$	292		$	20		$	800		$	12,669
Loans
Individually evaluated	$	22,945		$	—		$	1,131		$	750		$	5,853		$	771		$	—		$	—		$	31,450
Collectively evaluated		361,353			13,243			9,409			32,036			240,858			44,733			1,302			—			702,934
Total loans	$	384,298		$	13,243		$	10,540		$	32,786		$	246,711		$	45,504		$	1,302		$	—		$	734,384

(1) Non-accrual loans in the table above include TDRs totaling $3.1 million at June 30, 2013 and $3.5 million at December 31, 2012. Total impaired loans do not include loans held for sale. Loans held for sale include $856,000 and $911,000 of loans that are on non-accrual status at June 30, 2013 and December 31, 2012, respectively.

At June 30, 2013, non-performing loans had a principal balance of $14.1 million compared to $19.4 million at December 31, 2012. Loan balances past due 90 days or more and still accruing interest, but which management expects will eventually be paid in full, amounted to approximately $1.1 million at June 30, 2013 and $1.6 million at December 31, 2012.

Impaired loans include loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties. In accordance with applicable accounting guidance FASB ASC No. 310 “Receivables”, these modified loans are considered TDRs. See Note 2 of the Notes to Consolidated Financial Statements for further information regarding TDRs.

The following table presents new TDRs for the six months ended June 30, 2013 and 2012:

The following tables present, by class of loans, information regarding the types of concessions granted on accruing and non-accruing loans that were restructured during the six months ended June 30, 2013 and during the year ended December 31, 2012:

	For the six months ended June 30, 2013
	(dollars in thousands)
	Reductions in Interest Rate and Maturity Date				Reductions in Interest Rate and Principal Amount				Maturity Date Extension				Maturity Date Extension and Interest Rate Reduction				Deferral of Principal Amount Due and Shortened Maturity Date				Total Concessions Granted
	No. of Loans		Amount		No. of Loans		Amount		No. of Loans		Amount		No. of Loans		Amount		No. of Loans		Amount		No. of Loans		Amount
Accruing TDRs:
Commercial secured by real estate		—	$	—		—	$	—		1	$	54		1	$	2,194		—	$	—		2	$	2,248
Residential mortgage		—		—		—		—		2		805		1		212		—		—		3		1,017
Total accruing TDRs		—	$	—		—	$	—		3	$	859		2	$	2,406		—	$	—		5	$	3,265

Non-accruing TDRs:
Commercial secured by real estate		—	$	—		—	$	—		1	$	111		—	$	—		—	$	—		1	$	111
Residential mortgage		—		—		—		—		—		—		—		—		—		—		—		—
Total non-accruing TDRs		—	$	—		—	$	—		1	$	111		—	$	—		—	$	—		1	$	111

Total TDRs:
Commercial secured by real estate		—	$	—		—	$	—		2	$	165		1	$	2,194		—	$	—		3	$	2,359
Residential mortgage		—		—		—		—		2		805		1		212		—		—		3		1,017
Total non-accruing TDRs		—	$	—		—	$	—		4	$	970		2	$	2,406		—	$	—		6	$	3,376

	Year ended December 31, 2012
	(dollars in thousands)
	Reductions in Interest Rate and Maturity Date				Reductions in Interest Rate and Principal Amount				Maturity Date Extension				Maturity Date Extension and Interest Rate Reduction				Deferral of Principal Amount Due and Shortened Maturity Date				Total Concessions Granted
	No. of Loans		Amount		No. of Loans		Amount		No. of Loans		Amount		No. of Loans		Amount		No. of Loans		Amount		No. of Loans		Amount
Accruing TDRs:
Commercial secured by real estate		1	$	2,207		—	$	—		—	$	—		1	$	342		—	$	—		2	$	2,549
Residential mortgage		—		—		—		—		—		—		—		—		—		—		—		—
Total accruing TDRs		1	$	2,207		—	$	—		—	$	—		1	$	342		—	$	—		2	$	2,549

Non-accruing TDRs:
Commercial secured by real estate		1	$	1,064		—	$	—		—	$	—		—	$	—		2	$	460		3	$	1,524
Residential mortgage		—		—		—		—		—		—		—		—		—		—		—		—
Total non-accruing TDRs		1	$	1,064		—	$	—		—	$	—		—	$	—		2	$	460		3	$	1,524

Total TDRs:
Commercial secured by real estate		2	$	3,271		—	$	—		—	$	—		1	$	342		2	$	460		5	$	4,073
Residential mortgage		—		—		—		—		—		—		—		—		—		—		—		—
Total non-accruing TDRs		2	$	3,271		—	$	—		—	$	—		1	$	342		2	$	460		5	$	4,073

The following table presents TDRs that defaulted within the six months ended June 30, 2013 and 2012, where the loan had been modified within twelve months:

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses. These potential incremental losses have been factored into our overall allowance for loan losses estimate. The level of any re-defaults will likely be affected by future economic conditions. Once a loan becomes a TDR, it will

continue to be reported as a TDR until it is repaid in full, reclassified to loans held for sale, foreclosed, sold or it meets the criteria to be removed from TDR status. Included in the allowance for loan losses at June 30, 2013 and December 31, 2012 was an impairment reserve for TDRs in the amount of $113,000 and $79,000, respectively.

June 30, 2013 (1)	Recorded Investment (2)		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(in thousands)
Impaired loans with a related allowance
Commercial secured by real estate	$	2,870	$	3,181	$	187	$	2,827	$	61
Commercial term loans		—		—		—		—		—
Construction		—		—		—		—		—
Other commercial		—		—		—		—		—
Residential mortgage		411		411		51		245		5
Home equity loans and lines of credit		41		41		4		7		1
Other consumer loans		—		—		—		—		—
Impaired loans with a related allowance	$	3,322	$	3,633	$	242	$	3,079	$	67

Impaired loans with no related allowance
Commercial secured by real estate	$	10,889	$	14,550	$	—	$	10,493	$	18
Commercial term loans		—		—		—		—		—
Construction		141		208		—		141		—
Other commercial		307		342		—		309		—
Residential mortgage		2,624		2,741		—		2,636		43
Home equity loans and lines of credit		880		948		—		789		50
Other consumer loans		—		—		—		—		—
Impaired loans with no related allowance	$	14,841	$	18,789	$	—	$	14,368	$	111

Total impaired loans
Commercial secured by real estate	$	13,759	$	17,731	$	187	$	13,320	$	79
Commercial term loans		—		—		—		—		—
Construction		141		208		—		141		—
Other commercial		307		342		—		309		—
Residential mortgage		3,035		3,152		51		2,881		48
Home equity loans and lines of credit		921		989		4		796		51
Other consumer loans		—		—		—		—		—
Total impaired loans	$	18,163	$	22,422	$	242	$	17,447	$	178

December 31, 2012 (1)	Recorded Investment (2)		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(in thousands)
Impaired loans with a related allowance
Commercial secured by real estate	$	6,281	$	9,021	$	550	$	7,106	$	149
Commercial term loans		—		—		—		—		—
Construction		—		—		—		—		—
Other commercial		116		122		57		128		—
Residential mortgage		47		47		5		47		—
Home equity loans and lines of credit		—		—		—		—		—
Other consumer loans		—		—		—		—		—
Impaired loans with a related allowance	$	6,444	$	9,190	$	612	$	7,281	$	149

Impaired loans with no related allowance
Commercial secured by real estate	$	11,171	$	16,748	$	—	$	8,702	$	3
Commercial term loans		—		—		—		—		—
Construction		141		208		—		140		—
Other commercial		399		436		—		361		—
Residential mortgage		4,383		4,754		—		3,792		72
Home equity loans and lines of credit		841		901		—		505		87
Other consumer loans		—		—		—		—		—
Impaired loans with no related allowance	$	16,935	$	23,047	$	—	$	13,500	$	162

Total impaired loans
Commercial secured by real estate	$	17,452	$	25,769	$	550	$	15,808	$	152
Commercial term loans		—		—		—		—		—
Construction		141		208		—		140		—
Other commercial		515		558		57		489		—
Residential mortgage		4,430		4,801		5		3,839		72
Home equity loans and lines of credit		841		901		—		505		87
Other consumer loans		—		—		—		—		—
Total impaired loans	$	23,379	$	32,237	$	612	$	20,781	$	311

June 30, 2013	30-59 Days Delinquent		60-89 Days Delinquent		90 Days or More Delinquent and Accruing		Total Delinquent and Accruing		Non-accrual (1)		Current		Total Loans
	(in thousands)
Commercial secured by real estate	$	438	$	—	$	—	$	438	$	10,982	$	385,461	$	396,881
Commercial term loans		—		—		—		—		—		23,366		23,366
Construction		—		—		141		141		—		2,761		2,902
Other commercial		—		—		—		—		307		35,283		35,590
Residential mortgage		746		351		590		1,687		1,171		238,246		241,104
Home equity loans and lines of credit		—		118		389		507		532		41,559		42,598
Other consumer loans		—		—		—		—		—		1,258		1,258
Total	$	1,184	$	469	$	1,120	$	2,773	$	12,992	$	727,934	$	743,699

December 31, 2012	30-59 Days Delinquent		60-89 Days Delinquent		90 Days or More Delinquent and Accruing		Total Delinquent and Accruing		Non-accrual (1)		Current		Total Loans
	(in thousands)
Commercial secured by real estate	$	—	$	517	$	—	$	517	$	14,329	$	373,202	$	388,048
Commercial term loans		—		—		—		—		—		19,443		19,443
Construction		—		—		141		141		—		1,624		1,765
Other commercial		—		—		—		—		515		32,233		32,748
Residential mortgage		532		253		1,056		1,841		2,487		231,593		235,921
Home equity loans and lines of credit		87		195		429		711		412		44,135		45,258
Other consumer loans		20		24		—		44		—		1,273		1,317
Total	$	639	$	989	$	1,626	$	3,254	$	17,743	$	703,503	$	724,500

Our policies provide for the classification of loans based on an analysis of the credit conditions of the borrower and the value of the collateral when appropriate. There is no specific credit metrics used to determine the risk rating.

Risk Rating 1-5—Acceptable credit quality ranging from High Pass (cash or near cash as collateral) to Management Attention/Pass (acceptable risk) with some deficiency in one or more of the following areas: management experience, debt service coverage levels, balance sheet leverage, earnings trends, the industry of the borrower and annual receipt of current borrower financial information.

Risk Rating 6— Special Mention reflects loans that management believes warrant special consideration and may be loans that are delinquent or current in their payments. These loans have potential weakness which increases their risk to the Bank and have shown some signs of weakness but have fallen short of being a Substandard loan.

Management believes that the Substandard category is best considered in four discrete classes: RR 7.0 “performing substandard loans;” RR 7.5; RR 7.8 and RR 7.9.

Risk Rating 7.0—The class is mostly populated by customers that have a history of repayment (less than 2 delinquencies in the past year) but exhibit a well-defined weakness.

Risk Rating 7.5—These are loans that share many of the characteristics of the RR 7.0 loans as they relate to cash flow and/or collateral, but have the further negative of chronic delinquencies. These loans have not yet declined in quality to require a FASB ASC Topic No. 310 “Receivables” analysis, but nonetheless this class has a greater likelihood of migration to a more negative risk rating.

Risk Rating 7.8—These loans are impaired loans, are current and accruing, and in some cases are TDRs. They have had a FASB ASC Topic No. 310 “Receivables” analysis completed.

Risk Rating 7.9—These loans are predominately non-accrual loans that have undergone a FASB ASC Topic No. 310 “Receivables” analysis. For those that have a FASB ASC Topic No. 310 “Receivables” analysis, no general reserve is allowed. More often than not, those loans in this class with specific reserves have had the reserve placed by management pending information to complete a FASB ASC Topic No. 310 “Receivables” analysis. Upon completion of the FASB ASC Topic No. 310 “Receivables” analysis reserves are adjusted or charged-off.

For homogeneous loan pools, such as residential mortgages, home equity lines of credit and term loans, and other consumer loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a daily basis by the Bank’s collection area and on a monthly basis with respect to determining the adequacy of the allowance for loan losses. The payment status of these homogeneous pools at June 30, 2013 and December 31, 2012 is included in the aging of the recorded investment of past due loans table. In addition, the total non-performing portion of these homogeneous loan pools at June 30, 2013 and December 31, 2012 is presented in the recorded investment in nonaccrual loans.

	Risk Ratings
June 30, 2013	Grades 1-5		Grade 6		Grade 7		Grade 7.5		Grade 7.8		Grade 7.9		Total
	(in thousands)
Commercial secured by real estate	$	379,322	$	1,295	$	1,992	$	513	$	2,777	$	10,982	$	396,881
Commercial term loans		23,366		—		—		—		—		—		23,366
Construction		2,761		—		—		—		—		141		2,902
Other commercial		35,283		—		—		—		—		307		35,590
Total	$	440,732	$	1,295	$	1,992	$	513	$	2,777	$	11,430	$	458,739

	Risk Ratings
December 31, 2012	Grades 1-5		Grade 6		Grade 7		Grade 7.5		Grade 7.8		Grade 7.9		Total
	(in thousands)
Commercial secured by real estate	$	363,460	$	3,845	$	2,717	$	574	$	3,123	$	14,329	$	388,048
Commercial term loans		19,443		—		—		—		—		—		19,443
Construction		1,624		—		—		—		—		141		1,765
Other commercial		32,233		—		—		—		—		515		32,748
Total	$	416,760	$	3,845	$	2,717	$	574	$	3,123	$	14,985	$	442,004

The following outlines the Company’s loan segments and the methodology used in determining credit risk.

Commercial Mortgage Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one-to-four family residential mortgage loans. Of primary concern in commercial mortgage lending is the borrower’s creditworthiness and cash flow. To monitor cash flows on income-producing properties, we require borrowers and loan guarantors, if any, to provide annual financial statements and rent rolls, where applicable. In reaching a decision whether to make a commercial mortgage loan, we consider and review a cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property.

Residential Mortgage Loans. Our general policy is not to make high loan-to-value residential loans (defined as loans with a loan-to-value ratio of 80% or more) without mortgage insurance; however, we do offer loans with loan-to-value ratios of up to 95% with mortgage insurance. We require all properties securing residential mortgage loans to be appraised. We require title insurance on all first mortgage loans secured by a residence, and borrowers must obtain hazard insurance. Additionally, we require flood insurance for loans on properties located in a flood zone.

Commercial Business Loans. When making commercial business loans, we consider the financial statements of the borrower and guarantors, the borrower’s payment history of both corporate and personal debt, the debt service capabilities of the borrower and guarantors, the projected cash flows of the business, the viability of the industry in which the customer operates and the value of the collateral, if any. Commercial business loans have greater risk and typically are made on the basis of the borrower’s ability to repay from the cash flow of the borrower’s business. We have generally required these loans to have debt service coverage ratio of at least 1.20, and we generally require personal guarantees.

Construction Loans. Our construction program offers construction/permanent loans. The maximum loan-to-value ratio for residential construction will be 80% of the appraised value. For commercial construction loans, the term is a maximum of 24 months.

Home Equity Loans and Lines of Credit. We generally offer home equity loans and lines of credit with a maximum combined loan-to-value ratio of 80%. We hold a first or second mortgage position on the homes that secure our home equity loans and lines of credit.

Other Consumer Loans. We offer consumer loans secured by certificates of deposit held at Cape Bank, the pricing of which is based upon the rate of the certificate of deposit. We will offer such loans up to 90% of the principal balance of the certificate of deposit. The procedures for underwriting consumer loans include an assessment of the applicant’s creditworthiness, payment history on other debts, ability to meet existing obligations and payments on the proposed loan, and a comparison of the value of the collateral to the proposed loan amount.

FASB ASC Topic No. 820, “Fair Value Measurements and Disclosures” establishes 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.

Fair value measurement of securities available for sale is based upon quoted prices, if available. If quoted prices are not available, fair values are generally measured using independent pricing models or other model-based valuation techniques that include market inputs, such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data and industry and economic events. Level 1 securities include an investment fund that is traded by dealers or brokers in active over-the-counter markets. Level 2 securities include securities issued by government sponsored agencies, securities issued by certain state and political subdivisions, residential mortgage-backed securities, collateralized mortgage obligations, and corporate bonds

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 Company 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, is 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.

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

	Fair Value Measurements at June 30, 2013						Fair Value Measurements at December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)
			(in thousands)						(in thousands)
Investment securities available for sale:
U.S. Government and agency obligations	$	—	$	39,276	$	—	$	—	$	39,082	$	—
Municipal bonds		—		18,806		—		—		20,758		—
Collateralized debt obligations		—		—		4,847		—		—		4,682
Corporate bonds		—		12,080		—		—		14,241		—
CRA Qualified Investment Fund		4,794		—		—		4,991		—		—
Mortgage-backed securities		—		87,162		—		—		87,103		—
Total securities available for sale	$	4,794	$	157,324	$	4,847	$	4,991	$	161,184	$	4,682

The fair value of the collateralized debt obligation securities in the table above was determined by utilizing Level 3 inputs. The value was derived from a discounted cash flow model using significant unobservable inputs such as, a discount margin to calculate the present value of the cash flows, and assumptions about the underlying collateral including default rate, and prepayment speeds. At

June 30, 2013 and December 31, 2012, the discount margin used for each security ranged from 2.2% to 9.5%. The range for the default rate at June 30, 2013 was 0.75% to 1.00% compared to a default rate range of 0.25% to 2.00% at December 31, 2012. A 15.00% recovery rate and an annual prepayment speed of 1.00% were assumed for June 30, 2013 and December 31, 2012. Significant increases in any of those rates would result in a significantly lower fair value measurement.

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 six months ended June 30, 2013 and 2012:

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

	Fair Value Measurements at June 30, 2013						Fair Value Measurements at December 31, 2012
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(in thousands)						(in thousands)
Assets:
Impaired loans (1):
Commercial secured by real estate	$	—	$	—	$	11,187	$	—	$	8,389	$	9,063
Commercial term loans		—		—		—		—		—		—
Construction		—		—		141		—		141		—
Other commercial		—		—		307		—		400		115
Residential mortgage		—		—		1,206		—		3,133		1,297
Home equity loans		—		—		259		—		841		—
Total impaired loans	$	—	$	—	$	13,100	$	—	$	12,904	$	10,475
Other real estate owned:
Commercial	$	—	$	—	$	471	$	—	$	3,648	$	—
Residential mortgage		—		—		136		—		3,573		—
Total other real estate owned	$	—	$	—	$	607	$	—	$	7,221	$	—
Loans held for sale	$	—	$	3,530	$	—	$	—	$	8,795	$	—
Assets held for sale	$	—	$	286	$	—	$	—	$	436	$	—

At the time a loan is considered impaired, it is valued at the lower of cost or fair value. This value 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 may relate to location, square footage, condition, amenities, market rate of leases, if any, as well as the timing of comparable sales. Such adjustments averaged 11% of the appraised value and typically result in a Level 3 classification of the inputs for determining fair value. The fair value of the loan is compared to the carrying value to determine if any write-down or specific reserve is required. On a quarterly basis, impaired loans are evaluated for additional impairment and adjusted accordingly.

Fair valued impaired loans with allocated allowance for loan losses at June 30, 2013, had a carrying amount of $13.1 million, which is made up of the outstanding balance of $13.2 million, net of a valuation allowance of $129,000. These balances do not include $3.3 million of impaired loans that are measured using the discounted cash flow method and are not collateral dependent.

Other real estate owned properties are recorded at the 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, subject to similar adjustments previously mentioned and may be subsequently adjusted based upon real estate broker opinions.

As discussed above, the fair value of impaired loans and other real estate owned is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable.

The following disclosure of estimated fair value amounts has been determined by the Company 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 Company 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 June 30, 2013
			Fair Value Measurements
	At June 30, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	Carrying Amount				Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(in thousands)
Assets
Cash and cash equivalents	$	24,886	$	8,346	$	16,540	$	—
Interest-bearing time deposits	$	10,250	$	—	$	10,310	$	—
Loans held for sale	$	3,530	$	—	$	3,530	$	—
Loans receivable	$	733,721	$	—	$	10,650	$	735,098
FHLB Stock	$	5,970		n/a		n/a		n/a
Accrued interest receivable	$	3,230	$	—	$	669	$	2,561

Liabilities
Savings deposits	$	96,439	$	—	$	96,439	$	—
Checking and money market deposits	$	445,801	$	95,094	$	350,707	$	—
Certificates of deposit	$	252,842	$	—	$	254,045	$	—
Borrowings	$	103,942	$	—	$	107,121	$	—
Accrued interest payable	$	114	$	—	$	114	$	—

			At December 31, 2012
			Fair Value Measurements
	At December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	Carrying Amount				Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(in thousands)
Assets
Cash and cash equivalents	$	24,228	$	6,867	$	17,361	$	—
Interest-bearing time deposits	$	9,259	$	—	$	9,259	$	—
Loans held for sale	$	8,795	$	—	$	8,795	$	—
Loans receivable	$	714,396	$	—	$	12,904	$	725,116
FHLB Stock	$	5,775	$	—		n/a	$	—
Accrued interest receivable	$	3,091	$	—	$	627	$	2,464
Liabilities
Savings deposits	$	96,160	$	—	$	96,160	$	—
Checking and money market deposits	$	449,809	$	86,266	$	363,543	$	—
Certificates of deposit	$	238,622	$	—	$	238,622	$	—
Borrowings	$	97,965	$	—	$	97,965	$	—
Accrued interest payable	$	148	$	—	$	148	$	—

The carrying amount is the estimated fair value for cash and cash equivalents, interest bearing deposits, and accrued interest receivable and payable. Noninterest-bearing cash and cash equivalents and noninterest-bearing deposit liabilities are classified as Level 1, whereas interest-bearing cash and cash equivalents and interest-bearing deposit liabilities are classified as Level 2. Accrued interest receivable and payable are classified as either Level 2 or Level 3 based on the classification level of the asset or liability with which the accrued interest is associated.

Loans held for sale — The fair value of residential mortgage loans is based on the price secondary markets are currently offering for similar loans using observable market data. The fair value is equal to the carrying value, since the time from when a loan is closed and settled is generally not more than two weeks. The fair value of loans transferred from the loan portfolio to loans held for sale is based on the amounts offered for these loans in currently pending sales transactions, outstanding commitments from investors, or current market valuation appraisals. Loans held for sale are not included in non-performing loans.

Loans — The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. The fair values of loans not impaired is estimated by discounting the estimated future cash flows using the Company’s interest rates currently offered for loans with similar terms to borrowers of similar credit quality which is not an exit price under FASB ASC Topic No. 820 “Fair Value Measurements and Disclosures”. The carrying value and fair value of loans include the allowance for loan losses.

FHLB stock — It is not practical to determine the fair value of FHLB stock due to restrictions placed on transferability.

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 Company 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 Company’s unused loan commitments, standby letters of credit and undisbursed loans have no carrying amount and have been estimated to have no realizable fair value. Historically, a majority of the unused loan commitments have not been drawn upon.

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2013. 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.

At June 30, 2013, other real estate owned (OREO) totaled $7.4 million and consisted of twenty-nine residential properties and fourteen commercial properties. At December 31, 2012, OREO totaled $7.2 million and consisted of thirty-five residential and thirteen commercial properties.

For the three months ended June 30, 2013, the Company sold three commercial OREO properties and seven residential OREO properties with an aggregate carrying value totaling $1.1 million. The Company recorded net gains on the sale of OREO of $19,000 in the second quarter of 2013 compared to net losses of $338,000 recorded in the second quarter of 2012. For the six months ended June 30, 2013, the Company sold five commercial OREO properties and ten residential OREO properties with an aggregate carrying value totaling $3.7 million. For the six months ended June 30, 2013, the Company recorded net gains on the sale of OREO of $40,000 compared to net losses of $301,000 for the six months ended June 30, 2012. During the current quarter, the Company added three commercial properties and four residential properties to OREO with an aggregate carrying value of $2.3 million.

Net expenses applicable to OREO were $126,000 for the three month period ending June 30, 2013, which included OREO valuation write-downs of $8,000, taxes and insurance totaling $75,000, net gains on the sale of OREO of $19,000 and $62,000 of miscellaneous expenses, net of OREO rental income. For the three months ended June 30, 2012, net expenses applicable to OREO of $819,000 included OREO valuation write-downs totaling $318,000, taxes and insurance totaling $130,000, net losses on the sale of OREO of $338,000 and $33,000 of miscellaneous expenses, net of rental income. For the six months ended June 30, 2013, net expenses applicable to OREO of $412,000 included OREO valuation write-downs of $170,000, taxes and insurance totaling $160,000, $122,000 of miscellaneous expenses, net of rental income, and net gains on the sale of OREO of $40,000. For the six months ended June 30, 2012, net expenses applicable to OREO of $1.0 million included OREO valuation write-downs of $412,000, taxes and insurance totaling $230,000, net losses on the sale of OREO of $301,000, and $76,000 of miscellaneous expenses, net of rental income.

As of the date of this filing, the Company has agreements of sale for eighteen OREO properties, including thirteen residential building lots, with an aggregate carrying value totaling $1.8 million, although there can be no assurance that these sales will be completed. In addition, from June 30, 2013 until the date of this filing, the Company has sold four residential OREO properties with a carrying value of $296,000. No gains or losses were recorded by the Company related to these third quarter 2013 sales.

The Bank’s FHLB borrowings totaled $94.0 million and $88.0 million at June 30, 2013 and December 31, 2012, respectively, and repurchase agreements totaled $9.9 million for both periods.

For the three months ended June 30, 2013, the Company recorded a net tax expense of $1.0 million compared to a net tax expense of $477,000 for the three months ended June 30, 2012. For the six months ended June 30, 2013, the Company recorded a net tax expense of $2.0 million compared to a net tax expense of $1.3 million for the six months ended June 30, 2012. As of June 30, 2013, the balance of the deferred tax valuation allowance was approximately $1.9 million, which represented the expected expiration of the deferred tax asset related to the contribution to establish the CapeBank Charitable Foundation. Management considered several

factors, such as the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax assets are deductible and tax planning strategies in determining the amount of the deferred tax asset that was more likely than not realizable.

For more information about our income taxes, read Note 11, “Income Taxes,” in our 2012 Annual Report to Shareholders.

The Company has an Equity Incentive Plan under which incentive and non-qualified stock options, stock appreciation rights (SARs), and restricted stock awards (RSAs) may be granted periodically to certain employees and directors. Generally, stock options are granted with an exercise price equal to fair market value at the date of grant and expire in 10 years from the date of grant. Generally, stock options granted vest over a five-year period commencing on the first anniversary of the date of grant. Under the plan, 1,331,352 stock options are available to be issued. Forfeited options are returned to the plan and are available for issuance.

Under the fair value method of accounting for stock options, the fair value for all stock options granted under the Equity Incentive Plan is measured on the date of grant using the Black-Scholes option pricing model with market assumptions. This amount is amortized as salaries and employee benefits expense on a straight-line basis over the vesting period. Option pricing models require the use of highly subjective assumptions, including expected stock price volatility, which, if changed, can significantly affect fair value estimates.

During the first six months of 2013, the Company issued 10,000 incentive stock options to certain employees at a grant price of $8.93 per share. During the first six months of 2012, the Company issued 10,000 incentive stock options to certain employees at a grant price of $8.43 per share.

Stock option activity for the six months ended June 30, 2013 and 2012 was as follows:

	For the six months ended June 30,
	2013							2012
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding at January 1		711,290		$	7.54				833,010		$	7.54
Granted		10,000		$	8.93				10,000		$	8.43
Forfeited		(10,000	)	$	8.90				(108,360	)	$	7.28
Exercised		(8,000	)	$	7.28				—		$	—
Outstanding at June 30		703,290		$	7.64		7.2 years		734,650		$	7.59		8.0 years
Exercisable at June 30		369,316		$	7.40		7.0 years		251,258		$	7.28		8.0 years
Aggregate Intrinsic Value at June 30	$	774,595						$	259,032

The expected average risk-free rate is based on the U.S. Treasury yield curve on the day of grant. The expected average life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and expected option exercise activity. Expected volatility is based on historical volatilities of the Company’s common stock as well as the historical volatility of the stocks of the Company’s peer banks. The expected dividend yield is based on the expected dividend yield over the life of the option and the Company’s historical information.

The following table presents the weighted average per share fair value of options granted during the periods presented, and the assumptions used based on the Black-Sholes option pricing methodology:

Restricted stock activity for the six months ended June 30, 2013 and 2012 was as follows:

At June 30, 2013, unrecognized compensation costs on unvested stock options and restricted stock awards was $1.1 million which will be amortized on a straight-line basis over the remaining vesting period.

Stock-based compensation expense and related tax effects recognized in connection with unvested stock options and restricted stock awards for the three and six months ended June 30, 2013 and 2012 was as follows:

As of June 30, 2013, 878,600 options were issued and 594,882 options were available for issuance. As of June 30, 2013, based on the option agreements, there were 369,316 incentive stock options exercisable.

Basic earnings per common share is the net income (loss) 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.

As of June 30, 2013, options to purchase 703,290 shares were outstanding and dilutive, and accordingly, were included in determining diluted earnings per common share. In addition, 4,950 shares of restricted stock were outstanding and dilutive, and

accordingly, were included in determining diluted earnings per common share. As of June 30, 2012, options to purchase 734,650 shares were outstanding and dilutive, and accordingly, were included in determining diluted earnings per common share. In addition, 7,700 shares of restricted stock were outstanding and dilutive, and accordingly were included in determining diluted earnings per common share.

The following is the calculation of basic earnings per share for the three and six months ended June 30, 2013 and 2012.

On April 11, 2011, the Company entered into an Agreement of Sale to sell the Cape Bank main office complex and an adjoining vacant lot located in Cape May Court House, NJ. The sale was consummated on May 31, 2011. The selling price of the properties was $7.2 million dollars with net cash proceeds of $6.8 million received at time of sale. The Bank entered into six separate lease agreements, each for a discrete portion of the original complex with initial three year terms, all ending in 2014. The net book value of the property at the time of closing was $3.8 million, resulting in a gain of $3.4 million. This gain is being recognized under the full accrual method and as an operating lease in accordance with FASB ASC Topic No. 840-40 “Sale Leaseback Transactions” which permits $1.8 million of the gain to be recognized at the time of sale and the remaining portion of the gain, $1.6 million, to be recognized evenly over the initial three-year lease period.

During the second quarter of 2012, the Bank vacated portions of their leased premises. In accordance with FASB ASC Topic No. 840-40 “Sale Leaseback Transactions”, the Bank recognized an additional portion of the deferred gain in the amount of $425,000. At June 30, 2013, the remaining balance of the deferred gain to be recognized totaled $297,000.

As of June 30, 2013, the Bank was categorized as “Well-Capitalized” under the regulatory framework for prompt corrective action. To be categorized as “Well-Capitalized”, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios. The Bank’s capital ratios at June 30, 2013 were as follows: Tier I risk based capital 13.72%; Total risk based capital 14.97%; Tier I leverage ratio 10.12%.

The following is a summary of the accumulated other comprehensive income (loss) balances, net of tax for the three months ended June 30, 2013 and 2012:

The following represents the reclassifications out of accumulated other comprehensive income for the three months ended June 30, 2013 and 2012:

The following is a summary of the accumulated other comprehensive income (loss) balances, net of tax for the six months ended June 30, 2013 and 2012:

The following represents the reclassifications out of accumulated other comprehensive income for the six months ended June 30, 2013 and 2012:

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

Certain statements contained herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

Cape Bancorp wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers 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.

Cape Bancorp, Inc. (“Cape Bancorp” or the “Company”) is a Maryland corporation that was incorporated on September 14, 2007 for the purpose of becoming the holding company of Cape Bank (formerly Cape Savings Bank) (the “Bank”) in connection with Cape Bank’s mutual-to-stock conversion, Cape Bancorp’s initial public offering and simultaneous acquisition of Boardwalk Bancorp, Inc. (“Boardwalk Bancorp”), Linwood, New Jersey and its wholly-owned New Jersey chartered bank subsidiary, Boardwalk Bank.

The merger of Cape Bank and Boardwalk Bank on January 31, 2008 resulted in a well-capitalized community oriented bank with a significant commercial loan presence. For the three years prior to the merger both banks had experienced strong asset quality and financial performance. At the time of this merger, the United States was in the early stages of what has become one of the most severe recessions in its history. Interest rates have subsequently dropped to historically low levels; the national unemployment rate increased to above 9.0% and has remained at elevated levels for an extended period of time. The federal government provided direct financial assistance to major corporations as well as provided significant liquidity to the financial markets.

Cape Bank is a New Jersey chartered savings bank originally founded in 1923. We are a community bank focused on providing deposit and loan products to retail customers and to small and mid-sized businesses from our main office located at 225 North Main Street, Cape May Court House, New Jersey 08210, our 13 branch offices located in Atlantic and Cape May Counties, New Jersey and our market development offices (“MDOs”). We attract deposits from the general public and use those funds to originate a variety of

loans, including commercial mortgages, commercial business loans, residential mortgage loans, home equity loans and lines of credit and construction loans. Our retail and business banking deposit products include checking accounts, money market accounts, and certificates of deposit with terms ranging from 30 days to 84 months and savings accounts.

At June 30, 2013, the Company had total assets of $1.050 billion compared to $1.041 billion at December 31, 2012. For the three months ended June 30, 2013 and 2012, the Company had total revenues (interest income plus non-interest income) of $11.7 million and $13.6 million, respectively. Net income for the three months ended June 30, 2013 totaled $1.6 million, or $0.13 per common and fully diluted share, compared to net income of $1.0 million, or $0.08 per share, for the three months ended June 30, 2012. For the six months ended June 30, 2013 and 2012, the Company had total revenues of $23.5 million and $26.5 million, respectively. Net income for the six months ended June 30, 2013 totaled $3.1 million, or $0.25 per common and fully diluted share, compared to net income of $2.6 million, or $0.21 per share, for the six months ended June 30, 2012.

We offer banking services to individuals and businesses predominantly located in our primary market area of Cape May and Atlantic Counties, New Jersey and through our MDOs located in Burlington County, New Jersey and in Radnor, Pennsylvania, servicing the five county Philadelphia market area. The Mercer County, New Jersey MDO was closed during the second quarter of 2013. Our business and results of operations are significantly affected by local and national economic conditions, as well as market interest rates. The continued economic weakness in the local and national economies during 2012 and through the second quarter of 2013 has affected our level of non-performing assets and loan foreclosure activity. However, we have made progress in improving our credit quality ratios. Non-performing loans as a percentage of total gross loans decreased to 1.90% at June 30, 2013 from 2.67% at December 31, 2012. The Company’s Adversely Classified Asset Ratio (Classified Assets/Tier I Capital plus the allowance for loan losses) at June 30, 2013 was 25%, an improvement from 30% at December 31, 2012. Non-performing assets (non-performing loans, other real estate owned and non-accruing investment securities) as a percentage of total assets decreased to 2.09% at June 30, 2013 from 2.67% at December 31, 2012. For the periods ended, and as of June 30, 2013 and December 31, 2012, loans held for sale (“HFS”) are excluded from delinquencies, non-performing loans, non-performing assets, impaired loans and all related ratio calculations. The ratio of our allowance for loan losses to total loans decreased to 1.32% at June 30, 2013, from 1.36% at December 31, 2012, while the ratio of our allowance for loan losses to non-performing loans increased to 69.34% at June 30, 2013 from 50.86% at December 31, 2012. For the three months ended June 30, 2013, loan charge-offs totaled $344,000 compared to loan charge-offs of $962,000 for the three months ended June 30, 2012. Of the $344,000 of loan charge-offs during the second quarter of 2013, none of these were fully reserved for as of December 31, 2012. Our total loan portfolio increased from $724.2 million at December 31, 2012 to $743.5 million at June 30, 2013. Commercial loans increased $15.7 million, net of $3.0 million of commercial loans transferred to OREO and $694,000 of charge-offs during the first six months, and residential mortgage loans increased $6.3 million, while consumer loans declined $2.7 million. At June 30, 2013, 90.8% of our loan portfolio was secured by real estate and 61.4% of our portfolio was commercial related loans. The increase in mortgage loans resulted from the Bank retaining a larger portion of mortgage loans originated during the first six months in the portfolio. We believe our existing loan underwriting practices are appropriate in the current market environment while continuing to address the local credit needs. Total deposits increased $10.5 million from $784.6 million at December 31, 2012 to $795.1 million at June 30, 2013 primarily resulting from an increase in certificates of deposit of $14.2 million, of which $18.2 million was attributable to an increase in brokered certificates of deposit. Interest-bearing checking accounts decreased $12.8 million while non-interest bearing checking accounts increased $8.8 million and savings accounts increased $279,000. We also maintain an investment portfolio.

Our principal business is generating both commercial and retail loans in the communities surrounding our offices and MDOs and using the deposits we acquire from the same market areas as a primary funding source. We offer personal and business checking, savings and money market 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 June 30, 2013, our market area primarily included the area surrounding our 14 offices located in Cape May and Atlantic Counties, New Jersey and our MDOs located in Burlington County, New Jersey and Radnor, Pennsylvania. Additionally, on-line account opening is available for the following consumer deposit products: checking, savings, money market deposit and certificates of deposit and we offer an on-line mortgage application service.

Our market area has been affected by the recession and the modest recovery. Unemployment in Atlantic and Cape May County was 12.7% and 11.7% respectively, as of May 2013 compared to 12.4% and 11.9%, respectively, as of May 2012. Traditionally, unemployment rates are favorably influenced by the summer season. Median sale prices of single-family homes sold during the first quarter of 2013 decreased compared to the same period in 2012 in both Atlantic and Cape May Counties. The median sale prices decreased by 5.7% and 6.1%, in Atlantic and Cape May Counties, respectively, while the number of homes sold decreased 4.6% and 1.7% in Atlantic and Cape May Counties. The number of residential building permits issued increased in 2013 in Cape May County compared to the first quarter of 2012 while the number of residential building permits issued in Atlantic County declined during the same period.

During 2012, and through the second quarter of 2013, Cape Bank was able to make significant strides in reducing non-performing assets and classified items. Many troubled credits finally made their way through the slow foreclosure process, permitting

the Bank to take title and sell the collateral. This helped reduce non-earning assets and the costs relating to problem loans. Management intends to continue these efforts for the remainder of 2013 with the goal of reducing classified items to levels that would fall more within industry norms.

Management believes that more effort needs to be placed in expense control. In this regard, if management is successful in reducing troubled credits as planned, there will be a corresponding reduction in the costs related to these loans as they go through the work-out process.

During the remainder of 2013, Cape Bank will continue to focus on the following initiatives:

Despite the Company’s problems with credit since the recession, we were able to maintain a strong capital position. With troubled assets posing a reduced concern, the Company reassessed its capital position and determined that a more active management of its capital was warranted. In the fourth quarter of 2012, the Company paid its first cash dividend of $0.05 per common share. In addition, in February 2013 and May 2013, the Company declared a $0.05 per common share cash dividends. Those dividends were paid on March 22, 2013 and June 6, 2013 to shareholders of record on March 8, 2013 and May 22, 2013, respectively. And, on July 15, 2013, the Board of Directors of the Company declared a $0.05 per common share cash dividend to shareholders of record as of July 29, 2013, payable on August 12, 2013. Also, on April 18, 2013, the Company announced that the Board of Directors authorized a stock repurchase plan under which the Company would repurchase up to 5%, or approximately 667,239 shares, of the Company’s issued and outstanding shares. The stock repurchase was completed on July 16, 2013. On July 19, 2013, the Company announced that the Board of Directors authorized a second stock repurchase program for the repurchase of up to 5%, or approximately 633,877 shares, of the Company’s issued and outstanding shares.

During the economic downturn, Bank values were often a reflection of the perceived adequacy of equity often through the metric of tangible book value. Uncertainty with the economy in general, and with credit in particular, made capital a handy heuristic to gauge the soundness of a Bank. These macro-economic concerns have been receding as more financial institutions appear to have improved their financial position. As a result, valuations have begun to focus on earnings as a driver of value. In particular, it appears that core earnings are becoming an increasingly important metric.

Management recognizes this development and has made growth in core earnings an integral part of the Company’s 2013 Strategic Plan.

Management was able to reduce the level of non-performing assets during 2012 and through the second quarter of 2013 and believes that continued efforts to reduce them further will provide value to the Company’s shareholders. Several of the larger troubled credits have moved to OREO as the Bank attempts to move these properties off of the Company’s balance sheet promptly. Management will continue to focus on improving the level of non-performing assets for the remainder of 2013.

Complete the transition to a new core processing provider and broaden digital delivery:

The contract with the Bank’s core processor ends in October 2013. Throughout 2012, the Bank conducted a review of processors and systems features, and in late 2012 signed a contract with FISERV. Work has begun on orchestrating a smooth transition to this new system and we expect completion in the month of October 2013. As consumers increasingly embrace digital channels, we focused our due diligence on systems that will further digital delivery of consumer services.

Net interest income will benefit if we are successful in increasing earning assets through growth in the loan portfolio. Early signs of activity are positive but with a fragile recovery, exogenous factors could undermine our efforts.

The net interest margin increased to 3.76% for the six months ended June 30, 2013, an increase of 3 basis points from the six months ended June 30, 2012. The increase of 3 basis points was the result of the cost of funds on interest-bearing liabilities declining 43 basis points while the yield on interest-earning assets declined 36 basis points.

The impact of changes in interest rates on the Bank’s net interest income is discussed in more detail in Item 3 – Quantitative and Qualitative Disclosures About Market Risk.

At June 30, 2013, the Company’s total assets were $1.050 billion, an increase of $9.7 million, or 0.94%, from the December 31, 2012 level of $1.041 billion.

Cash and cash equivalents increased $658,000, or 2.72%, to $24.9 million at June 30, 2013 from $24.2 million at December 31, 2012.

Interest-bearing time deposits increased $991,000, or 10.70%, from $9.3 million at December 31, 2012 to $10.3 million at June 30, 2013. The Company invests in time deposits of other banks generally for terms of one year to five years and not to exceed $250,000, which is the amount currently insured by the Federal Deposit Insurance Corporation.

Total loans increased to $743.5 million at June 30, 2013 from $724.2 million at December 31, 2012, an increase of $19.3 million or 2.66%. Net loans increased $19.3 million, net of a decrease in the allowance for loan losses of $66,000, primarily resulting from increases in commercial loans of $15.7 million and increases in mortgage loans totaling $6.3 million partially offset by a decline in consumer loans of $2.7 million. Delinquent loans decreased $2.5 million to $13.5 million, or 1.81% of total gross loans, at June 30, 2013 from $16.0 million, or 2.20% of total gross loans at December 31, 2012. Total delinquent loans by portfolio at June 30, 2013 were $9.1 million of commercial mortgage and $307,000 commercial business loans, $2.9 million of residential mortgage loans, $1.0 million of consumer loans and $141,000 of construction loans. At June 30, 2013, delinquent loan balances by number of days delinquent were: 31 to 59 days – $1.3 million; 60 to 89 days – $654,000; and 90 days and greater – $11.5 million.

At June 30, 2013, the Company had $14.1 million in non-performing loans, or 1.90% of total gross loans, a decrease of $5.3 million from $19.4 million, or 2.67% of total gross loans at December 31, 2012. Non-performing loans do not include loans held for sale. Loans held for sale include $856,000 of loans that are on non-accrual status. At June 30, 2013, non-performing loans by loan portfolio category were as follows: $11.3 million of commercial loans, $1.9 million of residential mortgage loans, and $921,000 of consumer loans. Of these stated delinquencies, the Company had $1.1 million of loans that were 90 days or more delinquent and still accruing (10 residential mortgage loans for $731,000 and 8 consumer loans totaling $389,000). These loans are well secured, in the process of collection and we anticipate no losses will be incurred.

At June 30, 2013, commercial non-performing loans had collateral type concentrations of $4.7 million (13 loans or 42%) secured by retail stores, $1.4 million (8 loans or 12%) secured by residential related commercial loans, $1.4 million (2 loans or 13%) secured by restaurant properties, $1.3 million (8 loans or 12%) secured by commercial buildings and equipment, $1.2 million (1 loan or 10%) secured by marina/recreational properties, $1.1 million (3 loans or 10%) secured by hotels and B&B’s and $172,000 (1 loan or 1%) secured by land and building lots. The three largest commercial non-performing loan relationships are $1.8 million, $1.3 million, and $1.2 million.

We believe we have appropriately charged-off, written-down or established adequate loss reserves on problem loans that we have identified. For 2013, we anticipate a gradual decrease in the amount of problem assets. This improvement is due, in part, to our disposing of assets collateralizing loans that have gone through foreclosure. We are aggressively managing all loan relationships, and where necessary, we will continue to apply our loan work-out experience to protect our collateral position and actively negotiate with mortgagors to resolve these non-performing loans.

Total investment securities decreased $3.9 million, or 2.3%, to $167.0 million at June 30, 2013 from $170.9 million at December 31, 2012. At June 30, 2013 and December 31, 2012 all of the Company’s investment securities were classified as available-for-sale (AFS). The Company also experienced additional OTTI related to its bank-issued CDOs portfolio during the six months ended June 30, 2012 and recorded an $8,000 charge to earnings related to the credit loss portion of impairment. There was no OTTI for the six months ended June 30, 2013.

Other real estate owned (“OREO”) increased $177,000 from $7.2 million at December 31, 2012 to $7.4 million at June 30, 2013, and consisted at June 30, 2013 of fourteen commercial properties and twenty-nine residential properties (including twenty-two building lots). During the quarter ended June 30, 2013, the Company added three commercial properties and four residential properties to OREO with an aggregate carrying value of $1.1 million. In addition, three commercial OREO properties and seven residential OREO properties with aggregate carrying values totaling $1.1 million were sold during the quarter ended June 30, 2013 with recognized net gains of $19,000. As of the date of this filing, the Company has agreements of sale for nineteen OREO properties, including fourteen residential building lots, with an aggregate carrying value totaling $1.9 million, although there can be no assurance that these sales will be completed.

Total deposits increased $10.5 million, or 1.34% from $784.6 million at December 31, 2012 to $795.1 million at June 30, 2013 primarily resulting from an increase in certificates of deposit of $14.2 million, of which $18.2 million was attributable to an increase in brokered certificates of deposit. Certificates of deposit totaled $252.8 million at June 30, 2013 compared to $238.6 million at December 31, 2012. Non-interest bearing deposits increased $8.8 million, or 10.23%, from $86.3 million at December 31, 2012 to $95.1 million at June 30, 2013. Interest-bearing checking accounts decreased $12.8 million, or 3.53% to $350.7 million at June 30, 2013 from $363.5 million at December 31, 2012. Savings accounts increased $279,000 to $96.4 million at June 30, 2013 from $96.2 million at December 31, 2012.

Borrowings increased $6.0 million from $97.9 million at December 31, 2012 to $103.9 million at June 30, 2013.

Cape Bancorp’s total equity decreased $5.2 million, or 3.45%, to $145.6 million at June 30, 2013 from $150.8 million at December 31, 2012, which primarily resulted from a $4.5 million decrease related to the previously mentioned stock repurchase program, an increase in the accumulated other comprehensive loss, partially offset by a net increase of $1.8 million (earnings less dividends declared). At June 30, 2013, stockholders’ equity totaled $145.6 million, or 13.86% of period-end assets and tangible equity totaled $122.8 million, or 11.95% of period-end tangible assets. At June 30, 2013, Cape Bank’s regulatory capital ratios for Tier I Leverage Ratio, Tier I Risk-Based Capital and Total Risk-Based Capital were 10.12%, 13.72% and 14.97%, respectively, all of which exceed well capitalized status.

The following tables set 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 and loans held for sale 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 June 30,
	2013								2012
	Average Balance			Interest Income/ Expense		Average Yield			Average Balance			Interest Income/ Expense		Average Yield
	(dollars in thousands)
Assets
Interest-earning deposits	$	24,000		$	25		0.42	%	$	16,598		$	30		0.73	%
Investments		178,021			937		2.11	%		189,611			1,154		2.43	%
Loans		735,365			9,131		4.98	%		734,586			9,751		5.34	%
Total interest-earning assets		937,386			10,093		4.32	%		940,795			10,935		4.67	%
Noninterest-earning assets		108,358								126,259
Allowance for loan losses		(9,715	)							(12,322	)
Total assets	$	1,036,029							$	1,054,732
Liabilities and Stockholders’ Equity
Interest-bearing demand accounts	$	200,878		$	115		0.23	%	$	157,204			150		0.38	%
Savings accounts		97,309			16		0.07	%		91,414			44		0.19	%
Money market accounts		162,513			66		0.16	%		165,663			183		0.44	%
Certificates of deposit		234,356			590		1.01	%		270,663			792		1.18	%
Borrowings		96,817			555		2.30	%		135,139			1,052		3.13	%
Total interest-bearing liabilities		791,873			1,342		0.68	%		820,083			2,221		1.09	%
Noninterest-bearing deposits		85,213								79,740
Other liabilities		8,951								6,513
Total liabilities		886,037								906,336
Stockholders’ equity		149,992								148,396
Total liabilities & stockholders’ equity	$	1,036,029							$	1,054,732
Net interest income				$	8,751							$	8,714
Net interest spread							3.64	%							3.58	%
Net interest margin							3.74	%							3.73	%
Net interest income and margin (tax equivalent basis) (1)				$	8,818		3.77	%				$	8,805		3.76	%
Ratio of average interest-earning assets to average interest-bearing liabilities		118.38	%							114.72	%

	For the six months ended June 30,
	2013								2012
	Average Balance			Interest Income/ Expense		Average Yield			Average Balance			Interest Income/ Expense		Average Yield
	(dollars in thousands)
Assets
Interest-earning deposits	$	24,815		$	54		0.44	%	$	18,055		$	70		0.78	%
Investments		176,886			1,940		2.19	%		193,121			2,486		2.57	%
Loans		730,898			18,207		5.02	%		733,002			19,668		5.40	%
Total interest-earning assets		932,599			20,201		4.37	%		944,178			22,224		4.73	%
Noninterest-earning assets		109,266								126,098
Allowance for loan losses		(9,830	)							(12,624	)
Total assets	$	1,032,035							$	1,057,652
Liabilities and Stockholders’ Equity
Interest-bearing demand accounts	$	195,497		$	235		0.24	%	$	159,477			303		0.38	%
Savings accounts		96,402			32		0.07	%		89,938			88		0.20	%
Money market accounts		168,221			155		0.19	%		165,046			368		0.45	%
Certificates of deposit		232,732			1,204		1.04	%		272,939			1,698		1.25	%
Borrowings		96,090			1,165		2.44	%		138,429			2,233		3.24	%
Total interest-bearing liabilities		788,942			2,791		0.71	%		825,829			4,690		1.14	%
Noninterest-bearing deposits		83,069								77,837
Other liabilities		9,265								6,195
Total liabilities		881,276								909,861
Stockholders’ equity		150,759								147,791
Total liabilities & stockholders’ equity	$	1,032,035							$	1,057,652
Net interest income				$	17,410							$	17,534
Net interest spread							3.66	%							3.59	%
Net interest margin							3.76	%							3.73	%
Net interest income and margin (tax equivalent basis) (1)				$	17,550		3.79	%				$	17,726		3.78	%
Ratio of average interest-earning assets to average interest-bearing liabilities		118.21	%							114.33	%

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The average rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The average 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 June 30, 2013 compared to June 30, 2012
	Increase (decrease) due to changes in:
	Average Volume			Average Rate			Net Change
				(in thousands)
Interest-Earning Assets
Interest-earning deposits	$	11		$	(16	)	$	(5	)
Investments		(72	)		(145	)		(217	)
Loans		10			(630	)		(620	)
Total interest income		(51	)		(791	)		(842	)
Interest-Bearing Liabilities
Interest-bearing demand accounts		35			(70	)		(35	)
Savings accounts		3			(31	)		(28	)
Money market accounts		(3	)		(114	)		(117	)
Certificates of deposit		(98	)		(104	)		(202	)
Borrowings		(257	)		(240	)		(497	)
Total interest expense		(320	)		(559	)		(879	)
Total net interest income	$	269		$	(232	)	$	37

	For the six months ended June 30, 2013 compared to June 30, 2012
	Increase (decrease) due to changes in:
	Average Volume			Average Rate			Net Change
				(in thousands)
Interest-Earning Assets
Interest-earning deposits	$	21		$	(37	)	$	(16	)
Investments		(208	)		(338	)		(546	)
Loans		(58	)		(1,403	)		(1,461	)
Total interest income		(245	)		(1,778	)		(2,023	)
Interest-Bearing Liabilities
Interest-bearing demand accounts		58			(126	)		(68	)
Savings accounts		6			(62	)		(56	)
Money market accounts		7			(220	)		(213	)
Certificates of deposit		(232	)		(262	)		(494	)
Borrowings		(591	)		(477	)		(1,068	)
Total interest expense		(752	)		(1,147	)		(1,899	)
Total net interest income	$	507		$	(631	)	$	(124	)

Comparison of Operating Results for the Three and Six Months Ended June 30, 2013 and 2012

General. Net income for the three months ended June 30, 2013 was $1.5 million, or $0.13 per common and fully diluted share, compared to net income of $1.0 million, or $0.08 per common and fully diluted share for the three months ended June 30, 2012. The loan loss provision for the second quarter of 2013 totaled $313,000 compared to $1.2 million for the second quarter ended June 30, 2012. Net gains on the sales of loans totaled $313,000 for the three months ended June 30, 2013 compared to $90,000 for the same period in 2012 as the Company sold 60% of the residential mortgages originated in the second quarter of 2013 compared to 55% in the same period last year. The second quarter of 2012 included net gains on sales of investment securities of $774,000. There were no net securities gains or losses in the second quarter of 2013. The second quarter of 2012 included an additional gain on the sale of bank premises of $425,000 resulting from the vacating of leased space in the second quarter of 2012. Loan related expenses (real estate taxes, insurance, legal and other) totaled $393,000 for the second quarter ended June 30, 2013 compared to $506,000 for the same period in 2012. Net interest income increased $37,000 in the second quarter of 2013 compared to the second quarter of 2012. The net interest margin increased 1 basis point from 3.73% for the quarter ended June 30, 2012 to 3.74% for the quarter ended June 30, 2013.

For the six months ended June 30, 2013 net income was $3.1 million, or $0.25 per common and fully diluted share. This compares to net income of $2.6 million, or $0.21 per common and fully diluted share for the six months ended June 30, 2012. The loan loss provision totaled $610,000 for the six months ended June 30, 2013 compared to $1.8 million for the six months ended June 30, 2012. Net gains on the sale of loans totaled $583,000 for the six months ended June 30, 2013 compared to net gains of $173,000 for the same period in 2012 as the Company sold 58% of the residential mortgages originated during the six months ended June 30, 2013 compared to 50% in the same period last year. Net gains on the sales of investment securities totaled $290,000 for the six months ended June 30, 2013 compared to $962,000 in net securities gains for the six months ended June 30, 2012. Included in other income for the six months ended June 30, 2013 is an $83,000 write-down on an asset held for sale. An additional gain on the sale of bank premises totaling $425,000 was recognized in the six month period ending June 30, 2012 as a result of vacating leased space in the second quarter. OREO rental income totaled $27,000 for the six months ended June 30, 2013 compared to $168,000 for the same six month period in 2012. OREO expenses were $479,000 for the six months ended June 30, 2012 compared to $886,000 for the six months ended June 30, 2012. Included in these expenses were OREO write-downs totaling $170,000 for the six months ended June 30, 2013 compared to $412,000 for the six months ended June 30, 2012. Loan related expenses were $734,000 for the six months ended June 30, 2013 compared to $1.2 million for the same period in 2012. Other operating expenses for the six months ended June 30, 2012 included the previously reported $921,000 penalty on the prepayment of fixed rate term borrowings.

Interest Income. Interest income decreased $842,000, or 7.70%, to $10.1 million for the three months ended June 30, 2013, from $10.9 million for the three months ended June 30, 2012. The decrease consists of a $620,000 decrease in interest income on loans and a $222,000 decrease in interest income on investment securities. Average loan balances for the three month period ended June 30, 2013 increased $779,000, or 0.11%, to $735.4 million from $734.6 million for the three month period ended June 30, 2012. The average yield of the loan portfolio decreased 36 basis points to 4.98% for the three months ended June 30, 2013 from 5.34% for the three months ended June 30, 2012, reflecting a lower interest rate environment and the impact of non-accruing loans on interest income.

The average balance of the investment portfolio decreased $11.6 million, or 6.11%, to $178.0 million for the three month period ended June 30, 2013 from $189.6 million for the three month period ended June 30, 2012. The decrease in the investment portfolio is primarily a result of investment security sales. A portion of those proceeds was used by the Company to restructure the balance sheet in June 2012 as $20.0 million in FHLB fixed rate term borrowings were extinguished. The average yield on the investment portfolio decreased 32 basis points to 2.11% for the three months ended June 30, 2013 from 2.43% for the three months ended June 30, 2012. The decline in the investment portfolio yield is largely due to the impact of reinvesting proceeds from higher yielding securities into securities that have lower coupon rates.

For the six months ended June 30, 2013, interest income totaled $20.2 million, a decrease of $2.0 million, or 9.1%, from the six months ended June 30, 2012 total of $22.2 million. The decrease consists of a $1.5 million decrease related to interest income on loans and a decrease of $562,000 in interest income on investment securities. Average loan balances for the six month period ended June 30, 2013 declined $2.1 million, or 0.29%, to $730.9 million from $733.0 million for the six month period ended June 30, 2012. The average balance of the investment portfolio decreased $16.2 million, or 8.4%, to $176.9 million for the six month period ended June 30, 2013 from $193.1 million for the six month period ended June 30, 2012.

Interest Expense. Interest expense decreased $879,000, or 39.58%, to $1.3 million for the three months ended June 30, 2013, from $2.2 million for the three months ended June 30, 2012. The decrease resulted primarily from lower interest rates being paid on deposits and a shift in deposit funding from higher costing certificates of deposit to lower costing core deposits like interest-bearing demand accounts, savings accounts and money market accounts. In addition, $20.0 million of fixed rate term advances with an average rate of 3.56% matured during the first quarter of 2012 and were replaced with less costly FHLB overnight advances which have not had an interest rate that has exceeded 0.46% since the end of the first quarter of 2012. The average rate paid on certificates of deposit decreased 17 basis points to 1.01% for the three months ended June 30, 2013 from 1.18% for the three months ended June 30, 2012 while the average balance of certificates of deposit decreased $36.3 million, or 13.41%, to $234.4 million from $270.7 million for the same period resulting in a combined interest expense savings of $202,000.

The average balance of borrowings declined $38.3 million, or 28.36%, to $96.8 million for the three months ended June 30, 2013 from $135.1 million for the three months ended June 30, 2012, and the average cost of borrowings declined 83 basis points from 3.13% for the three months ended June 30, 2012 to 2.30% for the three months ended June 30, 2013 resulting in a combined interest expense savings of $497,000. The decline in the average balance and the interest rate paid on borrowings is a direct result of the Company extinguishing $20.0 million of fixed rate term FHLB borrowings in June 2012 and the continued restructuring of $54.0 million in borrowings in August 2012.

For the six months ended June 30, 2013, interest expense decreased $1.9 million, or 40.49%, to $2.8 million from $4.7 million for the six months ended June 30, 2012, resulting from interest expense reductions of $494,000 on certificates of deposit, $1.1 million on borrowings and $213,000 on money market accounts. Interest rates paid on certificates of deposit declined to 1.04% for the six months ended June 30, 2013 from 1.25% for the six months ended June 30, 2012. The average balance for certificates of deposit declined $40.2 million to $232.7 million for the six months ended June 30, 2013 from $272.9 million for the six months ended

June 30, 2012. The cost of borrowings declined 80 basis points to 2.44% for the six months ended June 30, 2013 from 3.24% for the six months ended June 30, 2012. Average borrowings declined $42.3 million to $96.1 million for the six months ended June 30, 2013 from $138.4 million for the six months ended June 30, 2012.

Net Interest Income. Net interest income increased $37,000, or 0.42%, to $8.751 million for the three months ended June 30, 2013, from $8.714 million for the three months ended June 30, 2012. The net interest margin increased 1 basis point to 3.74% for the three months ended June 30, 2013 from 3.73% for the three months ended June 30, 2012. The ratio of average interest-earning assets to average interest-bearing liabilities increased to 118.38% for the three months ended June 30, 2013, from 114.72% for the three months ended June 30, 2012. For the six months ended June 30, 2013, net interest income declined $124,000 to $17.4 million from $17.5 million for the six months ended June 30, 2012. The net interest margin increased 3 basis points to 3.76% for the six months ended June 30, 2013 from 3.73% for the six months ended June 30, 2012. For the six months ended June 30, 2013, the ratio of average interest-earning assets to average interest-bearing liabilities increased to 118.21% from 114.33% for the six months ended June 30, 2012.

Provision for Loan Losses. In accordance with FASB ASC Topic No. 450 “Contingencies”, 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, external factors such as competition and regulatory, 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 management’s judgment of probable losses, 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.

We recorded a provision for loan losses of $313,000 for the three months ended June 30, 2013 compared to $1.2 million for the three months ended June 30, 2012. Loan charge-offs for the second quarter of 2013 totaled $344,000 compared to $962,000 for the second quarter of 2012. For the six months ended June 30, 2013, the provision for loan losses totaled $610,000 compared to $1.8 million for the six months ended June 30, 2012. Loan charge-offs totaled $841,000 for the six months ended June 30, 2013 compared to $2.0 million for the six months ended June 30, 2012. The ratio of the allowance for loan losses to non-performing loans (coverage ratio) increased to 69.34% at June 30, 2013, from 50.86% at December 31, 2012. The amount of non-performing loans for which the full loss has been charged-off to total loans is 0.06%. The amount of non-performing loans for which the full loss has been charged-off to total non-performing loans is 3.18%. Loan loss recoveries for the three months ended June 30, 2013 were $136,000 compared to $102,000 for the three months ended June 30, 2012. For the six months ended June 30, 2013, loan loss recoveries totaled $165,000 compared to loan loss recoveries of $140,000 for the six months ended June 30, 2012.

The allowance for loan losses decreased $66,000, or 0.67%, to $9.786 million at June 30, 2013, from $9.852 million at December 31, 2012. The ratio of our allowance for loan losses to total loans decreased to 1.32% at June 30, 2013 from 1.36% of total loans at December 31, 2012. Certain impaired loans (troubled debt restructurings) have a valuation allowance determined by discounting expected cash flows at the respective loan’s effective interest rate. Included in the allowance for loan losses at June 30, 2013 was an impairment reserve for TDRs in the amount of $113,000 compared to $79,000 at December 31, 2012.

Non-Interest Income. Non-interest income totaled $1.6 million for the three months ended June 30, 2013 compared to $2.6 million for the three months ended June 30, 2012. Net gains on the sales of loans totaled $313,000 for the three months ended June 30, 2013 compared to $90,000 for the same period in 2012 as the Company sold 60% of the residential mortgages originated in the second quarter of 2013 compared to 55% in the same period last year. There were no net securities gains or losses for the three months ended June 30, 2013 compared to net gains of $774,000 for the same period in 2012.in the second quarter of 2013. The second quarter and six month period of 2012 included an additional gain on the sale of bank premises of $425,000 and there were no gains or losses for the same periods ended in 2013. The additional gain resulted from the vacating of leased space in the second quarter of 2012. Also, the three and six month period ended June 30, 2012 included a gain of $325,000 on the sale of the Company’s merchant card business. For the six months ended June 30, 2013, non-interest income totaled $3.3 million compared to $4.2 million for the six months ended June 30, 2012. Net gains on the sale of loans totaled $583,000 and $173,000 for the six months ended June 30, 2013 and 2012, respectively. Gains on the sale of investment securities totaled $290,000 for the six months ended June 30, 2013 and $962,000 for the six months ended June 30, 2012.

Non-Interest Expense. Non-interest expense decreased $1.2 million, or 14.05%, to $7.5 million for the three months ended June 30, 2013 from $8.7 million for the three months ended June 30, 2012. Increases in employment costs of $706,000 (salaries, hospitalization costs and incentive based compensation expense) were partially offset by a reduction in loan related expenses of $113,000 and deposit insurance premiums of $173,000. The three and six month periods ended June 30, 2012 included the previously reported prepayment penalty of $921,000 related to the extinguishment of debt. For the six months ended June 30, 2013, non-interest expense totaled $15.0 million compared to $16.1 million for the six months ended June 30, 2012. Increases in salaries and employee

benefits were more than offset by reduced loan related expenses, deposit insurance premiums and the previously mentioned prepayment penalty on debt extinguishment.

Income Tax Expense (Benefit). For the three months ended June 30, 2013, the Company recorded a net tax expense of $1.0 million compared to a net tax expense of $477,000 for the three months ended June 30, 2012. For the six months ended June 30, 2013, the Company recorded a net tax expense of $2.0 million compared to a net tax expense of $1.3 million for the six months ended June 30, 2012.

Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers as well as our operating cash needs with cost-effective funding. We generate funds to meet these needs primarily through our core deposit base and the maturity or repayment of loans and other interest-earning assets, including investments. Proceeds from the maturity, redemption, and return of principal of investment securities totaled $28.1 million through June 30, 2013 and were used either for liquidity or to invest in securities of similar quality as our current investment portfolio. We also have available unused wholesale sources of liquidity, including overnight federal funds and repurchase agreements, advances from the FHLB of New York, borrowings through the discount window at the Federal Reserve Bank of Philadelphia and access to certificates of deposit through brokers. We can also raise cash through the sale of earning assets, such as loans and marketable securities. As of June 30, 2013, the Company’s entire investment portfolio, with a fair market value of $167.0 million, was classified as available-for-sale. The Company has no intention to sell these securities, nor is it more likely than not that we will be required to sell any securities prior to their recovery in fair market value.

Liquidity risk arises from the possibility that we may not be able to meet our financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, our Board of Directors has approved a Liquidity Management Policy and Contingency Funding Plan that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity, and quantifies minimum liquidity requirements based on approved limits. This policy designates our Asset/Liability Committee (“ALCO”) as the body responsible for meeting these objectives. The ALCO, which includes members of executive management, reviews liquidity on a periodic basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Liquidity is centrally managed on a daily basis by our Chief Financial Officer and our Treasury function. Liquidity stress testing is performed annually, unless circumstance dictates more frequently, and all testing results are reported to the Board of Directors through the ALCO minutes.

Cape Bank’s long-term liquidity source is a large core deposit base and a strong capital position. Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer. The level of deposits during any period is sometimes influenced by factors outside of management’s control, such as the level of short-term and long-term market interest rates and yields offered on competing investments, such as money market mutual funds. Deposits increased $10.5 million, or 1.34%, during the first six months of 2013, and comprised 87.86% of total liabilities at June 30, 2013, as compared to 88.16% at December 31, 2012.

In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

The final rule becomes effective for the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. The final rule also implements consolidated capital requirements for savings and loan holding companies, such as the Company, effective January 1, 2015.

Regulatory Matters. Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of June 30, 2013, the Company and Bank meet all capital adequacy requirements to which it is subject.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Bank’s Board of Directors has established a Capital Plan to ensure the Bank is managed to provide an appropriate level of capital. This plan includes strategies which enable the Bank to maintain targeted capital ratios in excess of the regulatory definition of “well capitalized”, identify sources of additional capital and evaluate on a quarterly basis the impact on capital resulting from certain potential significant financial events (stress testing). Additionally, a Contingency Plan exists which identifies scenarios that require specific actions in the event capital falls below certain levels.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).

As of June 30, 2013, the Bank was categorized as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category as of June 30, 2013.

On April 18, 2013, the Company announced that the Board of Directors authorized a stock repurchase plan under which the Company would repurchase up to 5%, or approximately 667,239 shares, of the Company’s issued and outstanding shares. The repurchase was completed on July 16, 2013. On July 19, 2013, the Company announced that the Board of Directors authorized a second stock repurchase program for the repurchase of up to 5%, or approximately 633,877 shares, of the Company’s issued and outstanding shares. Also, on May 8, 2013, the Company declared a $0.05 per common share dividend to shareholders of record on May 22, 2013. The dividend was payable on June 6, 2013. Additionally, on July 16, 2013, the Board of Directors declared a cash dividend of $0.05 per common share payable on August 12, 2013 to shareholders of record on July 29, 2013.

The actual capital amounts, ratios and minimum regulatory guidelines for Cape Bank are as follows:

						Per Regulatory Guidelines
	Actual					Minimum					“Well Capitalized”
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)
June 30, 2013
Risk based capital ratios:
Tier I risk based capital	$	102,709		13.72	%	$	29,944		4.00	%	$	44,916		6.00	%
Total risk based capital	$	112,071		14.97	%	$	59,891		8.00	%	$	74,864		10.00	%
Tier I leverage ratio	$	102,709		10.12	%	$	40,596		4.00	%	$	50,746		5.00	%
December 31, 2012
Risk based capital ratios:
Tier I risk based capital	$	104,015		14.12	%	$	29,466		4.00	%	$	44,199		6.00	%
Total risk based capital	$	113,229		15.38	%	$	58,897		8.00	%	$	73,621		10.00	%
Tier I leverage ratio	$	104,015		10.36	%	$	40,160		4.00	%	$	50,200		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 Note 2- Summary of Significant Accounting Policies—of the Notes to 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 probable incurred losses 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 and other factors related to the collectability of the loan portfolio, including underlying collateral values and estimated future cash flows. All of these estimates are susceptible to significant change. Groups of homogeneous loans are evaluated in the aggregate under FASB ASC Topic No. 450 “Contingencies”, using historical loss factors adjusted for economic conditions and other environmental factors. Other environmental factors include trends in delinquencies and classified loans, loan concentrations by loan category and by property type, seasonality of the portfolio, internal and external analysis of credit quality, and single and total credit exposure. Certain loans that indicate underlying credit or collateral concerns may be evaluated individually for impairment in accordance with FASB ASC Topic No. 310 “Receivables”. If a loan is impaired and repayment is expected solely from the collateral, the difference between the outstanding balance and the value of the collateral will be charged-off. For potentially impaired loans where the source of repayment may include other sources of repayment, the evaluation may factor these potential sources of repayment and indicate the need for a specific reserve for any potential shortfall. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available or as projected events change.

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 FDIC 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. See Note 2 – Summary of Significant Accounting Policies—of the Notes to Consolidated Financial Statements.

Securities Impairment. The Company’s investment portfolio includes twenty-two securities in pooled trust preferred collateralized debt obligations, fourteen of which have been principally issued by bank holding companies, and eight of which have been principally issued by insurance companies. All of these securities have below investment grade credit ratings. These investments may pose a higher risk of future impairment charges by the Company in a weakened U.S. economy and its potential negative effect on the future performance of the bank issuers and underlying mortgage loan collateral.

Through June 30, 2013, all fourteen of the bank-issued pooled trust preferred collateralized debt obligation securities have had OTTI recognized in earnings due to credit impairment. Of these securities, eleven have been completely written-off and the three remaining bank-issued CDOs have a total book value of $524,000 and a fair value of $490,000 at June 30, 2013. These write-downs were a direct result of the impact that the credit crisis has had on the underlying collateral of the securities. Consequently, many bank issuers have failed causing them to default on their security obligations while recent stress tests and potential recommendations by the U.S. Government and the banking regulators have resulted in some bank trust preferred issuers electing to defer future payments of interest on such securities. At June 30, 2013, the CDO securities principally issued by insurance companies, none of which have OTTI, had an aggregate book value of $7.8 million and a fair value of $4.4 million. A continuation of issuer defaults and elections to defer payments could adversely affect valuations and result in future impairment charges.

Income Taxes. The Company is subject to the income and other tax laws of the United States and the State of New Jersey. These laws are complex and are subject to different interpretations by the taxpayer and the various taxing authorities. In determining the provisions for income and other taxes, management must make judgments and estimates about the application of these inherently complex laws, related regulations and case law. In the process of preparing the Company provision and tax returns, management attempts to make reasonable interpretations of applicable tax laws. These interpretations are subject to challenge by the taxing authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case law.

The Company and its subsidiaries file a consolidated federal income tax return and separate entity state income tax returns. The provision for federal and state income taxes is based on income and expenses, as reported in the consolidated financial statements, rather than amounts reported on the Company’s federal and state income tax returns. When income and expenses are recognized in different periods for tax purposes than for book purposes, applicable deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 as income or expense in the period that includes the enactment date. Deferred federal and state tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of June 30, 2013, a valuation allowance of approximately $1.9 million had been established against the Company’s deferred tax assets representing no change from December 31, 2012. See Note 9 to the Financial Statements for further details in determining the amount of the deferred tax asset that was more likely than not realizable.

On a quarterly basis, management assesses the reasonableness of its effective federal and state tax rate based upon its current best estimate of net income and the applicable taxes expected for the full year.

Effect of Newly Issued Accounting Standards: See Note 2 – Summary of Significant Accounting Policies—of the Notes to Consolidated Financial Statements.

General. The majority of our assets and liabilities are monetary in nature. Consequently, interest rate risk is a significant risk to our net interest income and earnings. 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 Committee of the Board, which meets quarterly, as well as an Asset/Liability Committee which meets monthly. The Interest Rate Risk 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 consider the use of the following strategies to manage our interest rate risk:

By 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, it 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 June 30, 2013, 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 Portfolio Value								Net Interest Income
Changes in Interest Rates (basis points) (1)	Estimated NPV (2)		Increase (decrease) in Estimated NPV						Estimated Net Interest Income		Increase (decrease) in Estimated Net Interest Income
Changes in Interest Rates (basis points) (1)	Estimated NPV (2)		Amount			Percent			Estimated Net Interest Income		Amount			Percent
(dollars in thousands)
+200	$	169,965	$	(15,515	)		-8.40	%	$	33,195	$	(1,965	)		-5.60	%
+100	$	179,933	$	(5,547	)		-3.00	%	$	34,319	$	(841	)		-2.40	%
0	$	185,430							$	35,160
-100	$	174,698	$	(10,782	)		-5.80	%	$	33,431	$	(1,729	)		-4.90	%
-200	$	161,916	$	(23,564	)		-12.70	%	$	32,163	$	(2,997	)		-8.50	%

The table above indicates that at June 30, 2013, in the event of a 100 basis point increase in interest rates, we would experience an $841,000 decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would experience a $1.7 million 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.

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal 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 June 30, 2013 (the “Evaluation Date”). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic SEC filings.

There were no significant changes made in our internal control over financial reporting during the Company’s second fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

The Company does not believe its risks have materially changed from those risks included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2013.

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

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.

Maryland		26-1294270
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

225 North Main Street, Cape May Court House, New Jersey		08210
(Address of Principal Executive Offices)		Zip Code

Large accelerated filer	¨	Accelerated filer	x	Non-accelerated filer ¨		Smaller Reporting Company	¨
				(Do not check if smaller reporting company)

		Page
Part I. Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Year Ended December 31, 2012 and Six Months Ended June 30, 2013 (unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and June 30, 2012 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50
Part II. Other Information
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51
	Signature Page	53

	Available for Sale
	Amortized Cost		Fair Value
	(in thousands)
Due within one year or less	$	5,215	$	5,257
Due after one year but within five years		19,707		19,636
Due after five years but within ten years		43,282		41,478
Due after ten years		17,003		13,432
Mortgage-backed securities		87,779		87,162
Total investment securities	$	172,986	$	166,965

	For the three months ended June 30,
	2013			2012
	(in thousands)
Beginning balance of cumulative credit losses on CDO securities	$	(18,383	)	$	(18,383	)
Additional credit losses for which other than temporary impairment was previously recognized		—			—
Ending balance of cumulative credit losses on CDO securities	$	(18,383	)	$	(18,383	)

	For the six months ended June 30,
	2013			2012
	(in thousands)
Beginning balance of cumulative credit losses on CDO securities	$	(18,383	)	$	(18,375	)
Additional credit losses for which other than temporary impairment was previously recognized		—			(8	)
Ending balance of cumulative credit losses on CDO securities	$	(18,383	)	$	(18,383	)

	June 30,		December 31,
	2013		2012
	(in thousands)
Commercial secured by real estate	$	396,881	$	388,048
Commercial term loans		23,366		19,443
Construction		2,902		1,765
Other commercial		35,590		32,748
Residential mortgage		241,104		235,921
Home equity loans and lines of credit		42,598		45,258
Other consumer loans		1,258		1,317
Loans receivable, gross		743,699		724,500
Less:
Allowance for loan losses		9,786		9,852
Deferred loan fees		192		252
Loans receivable, net	$	733,721	$	714,396

	June 30, 2013						December 31, 2012
Troubled Debt Restructurings	Non-accruing		Accruing		Total		Non-accruing		Accruing		Total
	(in thousands)						(in thousands)
Commercial secured by real estate	$	3,073	$	2,337	$	5,410	$	3,112	$	2,651	$	5,763
Residential mortgage		—		1,274		1,274		363		887		1,250
Total TDRs	$	3,073	$	3,611	$	6,684	$	3,475	$	3,538	$	7,013

	For the six months ended June 30, 2013						For the six months ended June 30, 2012
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Contracts		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(dollars in thousands)						(dollars in thousands)
Commercial secured by real estate		3	$	2,371	$	2,359		—	$	—	$	—
Residential mortgage		3		1,023		1,017		—		—		—
Total		6	$	3,394	$	3,376		—	$	—	$	—

	For the six months ended June 30, 2013				For the six months ended June 30, 2012
Troubled Debt Restructurings That Subsequently Defaulted	Number of contracts		Recorded Investment		Number of contracts		Recorded Investment
	(dollars in thousands)				(dollars in thousands)
Commercial secured by real estate		2	$	449	$	1	$	219
Residential mortgage		—		—		—		—
Total		2	$	449	$	1	$	219

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	CDO Securities Available for Sale
	For the six months ended June 30,
	2013		2012
	(in thousands)
Beginning balance	$	4,682	$	3,584
Accretion of discount		14		26
Payments received		—		(15	)
Realized gain on PreTSL VI redemption		—		22
Unrealized holding gain (loss)		151		(21	)
Other-than-temporary impairment included in earnings		—		(8	)

Ending balance	$	4,847	$	3,588

	June 30, 2013		December 31, 2012
	(in thousands)
Savings accounts	$	96,439	$	96,160
Interest-bearing checking and money market deposits		350,707		363,543
Non-interest bearing checking		95,094		86,266
Certificates of deposit of less than $100,000		124,585		129,709
Certificates of deposit of $100,000 or more		128,257		108,913
	$	795,082	$	784,591

	For the three months ended June 30,				For the six months ended June 30,
Income taxes	2013		2012		2013		2012
	(in thousands)
Pre-tax income	$	2,586	$	1,502	$	5,070	$	3,824
Income tax expense (benefit)	$	1,006	$	477	$	1,975	$	1,261

	June 30,
Assumption	2013			2012
Expected average risk-free interest rate		1.20	%		1.44	%
Expected average life (in years)		6.5			6.5
Expected volatility		40.27	%		41.19	%
Expected dividend yield		2.24	%		0.00	%
Weighted average per share fair value	$	2.87		$	3.61

	Balance at 3/31/13			Other Comprehensive Income Before Reclassifications			Amount Reclassified from Accumulated Other Comprehensive Income		Other Comprehensive Income Three Months ended 06/30/13			Balance at 06/30/13
	(in thousands)
Net unrealized holding gain (loss) on securities available for sale, net of tax	$	(1,286	)	$	(2,330	)	$	—	$	(2,330	)	$	(3,616	)
Accumulated other comprehensive income (loss) net of tax	$	(1,286	)	$	(2,330	)	$	—	$	(2,330	)	$	(3,616	)

	Balance at 3/31/12			Other Comprehensive Income Before Reclassifications			Amount Reclassified from Accumulated Other Comprehensive Income			Other Comprehensive Income Three Months ended 06/30/12			Balance at 06/30/12
	(in thousands)
Net unrealized holding gain (loss) on securities available for sale, net of tax	$	(783	)	$	(41	)	$	(465	)	$	(506	)	$	(1,289	)
Accumulated other comprehensive income (loss) net of tax	$	(783	)	$	(41	)	$	(465	)	$	(506	)	$	(1,289	)

	Three Months Ended June 30,
	2013		2012			Affected Line Item in Statements of Income
	(in thousands)
Unrealized gains (losses) on securities available for sale:
Realized gain on securities sales	$	—	$	774		Gain (loss) on sale of investment securities, net
OTTI realized		—		—		Net-other-than-temporary impairment losses
Income tax expense		—		(309	)	Income taxes
Total reclassifications net of tax	$	—	$	465

	Balance at 12/31/12			Other Comprehensive Income Before Reclassifications			Amount Reclassified from Accumulated Other Comprehensive Income			Other Comprehensive Income Six Months ended 06/30/13			Balance at 06/30/13
	(in thousands)
Net unrealized holding gain (loss) on securities available for sale, net of tax	$	(679	)	$	(2,763	)	$	(174	)	$	(2,937	)	$	(3,616	)
Accumulated other comprehensive income (loss) net of tax	$	(679	)	$	(2,763	)	$	(174	)	$	(2,937	)	$	(3,616	)

	Balance at 12/31/11			Other Comprehensive Income Before Reclassifications		Amount Reclassified from Accumulated Other Comprehensive Income			Other Comprehensive Income Six Months ended 06/30/12			Balance at 06/30/12
	(in thousands)
Net unrealized holding gain (loss) on securities available for sale, net of tax	$	(942	)	$	226	$	(573	)	$	(347	)	$	(1,289	)
Accumulated other comprehensive income (loss) net of tax	$	(942	)	$	226	$	(573	)	$	(347	)	$	(1,289	)

•	Continue efforts to effectively manage the Bank’s capital
•	Build core earnings
•	Continue efforts to reduce non-performing assets
•	Complete the transition to a new core processing provider and broaden digital delivery
•	Increase net income through growth in our loan portfolio

•	originating commercial loans that generally tend to have shorter maturity or repricing periods and higher interest rates than residential mortgage loans;
•	investing in shorter duration investment grade corporate securities, U.S. Government agency obligations and collateralized mortgage-backed securities;
•	obtaining general financing through lower cost deposits, brokered deposits and advances from the Federal Home Loan Bank; implementation of derivatives such as, but not limited to, interest rate swaps and interest rate caps;
•	selling a portion of our newly originated long-term residential mortgage loans; and
•	lengthening the terms of borrowings and deposits.

PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
4/24/13-4/30/13	10,200	$	8.97		10,200		657,039
5/1/13-5/31/13	358,494	$	9.25		358,494		298,545
6/3/13-6/27/13	122,467	$	9.23		122,467		176,078
Total	491,161	$	9.24		491,161


3.1		Articles of Incorporation of Cape Bancorp, Inc.⁽¹⁾

3.2		Amended and Restated Bylaws of Cape Bancorp, Inc.⁽²⁾

4		Form of Common Stock Certificate of Cape Bancorp, Inc.⁽¹⁾

10.1		Form of Employee Stock Ownership Plan ⁽¹⁾

10.2		Employment Agreement for Michael D. Devlin ⁽⁵⁾

10.3		Change in Control Agreement for Guy Hackney ⁽³⁾

10.4		Change in Control Agreement for James McGowan, Jr. ⁽³⁾

10.5		Change in Control Agreement for Michele Pollack ⁽³⁾

10.6		Change in Control Agreement for Charles L. Pinto ⁽⁴⁾

10.7		Form of Director Retirement Plan ⁽¹⁾

10.8		2008 Equity Incentive Plan ⁽⁶⁾

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

101		The following financial information from Cape Bancorp, Inc.’s Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2013 formatted in XBRL: (i) Consolidated Balance Sheets as of June 30, 2013 (unaudited) and December 31, 2012; (ii) Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012 (unaudited); (iii) Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and June 30, 2012 (unaudited); (iv) Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2013 (unaudited) and Year Ended December 31, 2012; (v) Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and June 30, 2012 (unaudited); and (vi) Notes to Consolidated Financial Statements (unaudited) ⁽⁷⁾

		CAPE BANCORP, INC.

Date: August 2, 2013		/s/ Michael D. Devlin
		Michael D. Devlin
		President and Chief Executive Officer

Date: August 2, 2013		/s/ Guy Hackney
		Guy Hackney
		Executive Vice President and Chief Financial Officer