Total loans increased to $794.2 million at March 31, 2009 from $783.9 million at December 31, 2008, an increase of $10.3 million or 1.3%. Delinquent loans increased $3.8 million to $37.1 million or 4.6% of total loans at March 31, 2009 from $33.3 million, or 4.2% of total loans at December 31, 2008. Total delinquent loans by portfolio at March 31, 2009 were $30.1 million of commercial loans, $5.8 million of mortgage loans and $1.2 million of consumer loans. Delinquent loan balances by number of days delinquent were: 31 to 59 days - $3.6 million; 60 to 89 days - $3.4 million; and 90 days and greater - $30.1 million.
At March 31, 2009, the Company had $30.1 million in non-performing loans or 3.73% of total gross loans, an increase from $21.1 million or 2.65% at December 31, 2008. Total non-performing loans by portfolio were $26.2 million of commercial loans, $3.5 million of residential loans and $0.4 million of consumer loans. Commercial non-performing loans had collateral type concentrations of 13% in residential, duplex and multi-family related loans, 21% in land and building lot related loans, 6% in retail store related loans, 19% in restaurant related loans, 8% in marina related loans, 7% in auto dealership related loans, 12% in B&B and hotel related loans and 14% in commercial building and equipment related loans. The three largest relationships in this category of non-performing loans are $2.9 million, $2.8 million, and $2.1 million.
We believe we have appropriately charged-off or established adequate loss reserves on problem loans that we have identified. However, we believe that non-performing and delinquent loans will continue to increase as the current recession persists. We are aggressively managing all loan relationships, and where necessary, we will apply our loan work-out experience to protect our collateral position and actively negotiate with borrowers to resolve these non-performing loans.
Total investment securities increased to $175.1 million at March 31, 2009 ($124.8 million classified as available-for-sale or 71.3%) from $163.5 million at December 31, 2008, an increase of $11.6 million or 7.1%. Management evaluates the portfolio for other-than-temporary impairment (OTTI) on a quarterly basis. Factors considered in the analysis include but are not limited to whether an adverse change in cash flows has occurred pursuant to EITF 99-20, the length of time and the extent to which the fair value has been less than cost, the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value, credit rating downgrades, the percentage of performing collateral that would need to default or defer to cause a break in yield or a temporary interest shortfall, and management's assessment of the financial condition of the underlying creditors. During the three month period ended March 31, 2009, the collateralized debt obligation portion of the investment portfolio declined in value by approximately $1.6 million. At March 31, 2009, the cost basis of such securities was $10.3 million with a fair market value of $1.4 million. Market value has been adversely affected by the prolonged existence of an illiquid market for these securities. For the quarter ended March 31, 2009, the Company recognized an other-than-temporary impairment (OTTI) charge of $1.5 million. At March 31, 2009, the Bank's total deposits increased to $790.3 million from $711.1 million at December 31, 2008, an increase of $79.2 million or 11.1%. Certificates of deposit increased $53.4 million, or 15.0%, to $409.6 million at March 31, 2009 from $356.2 million at December 31, 2008. Brokered deposits accounted for $29.8 million of the increase in certificates of deposit. NOW and money market accounts increased $24.1 million, or 11.4%, to $236.3 million at March 31, 2009 from $212.2 million at December 31, 2008. Savings accounts increased $300,000, or 0.4%, to $79.8 million at March 31, 2009 from $79.5 million at December 31, 2008. Non-interest bearing deposits increased $1.3 million, or 2.1%, to $64.6 million at March 31, 2009 from $63.3 million at December 31, 2008. Total non-certificate deposit balances increased $25.8 million, or 7.3%, to $380.7 million at March 31, 2009 from $354.9 million at December 31, 2008.
Borrowings decreased $66.4 million, or 28.3%, to $168.1 million at March 31, 2009 from $234.5 million at December 31, 2008. The decline in borrowings was partially attributable to the use of brokered deposits in the amount of $29.8 million as an alternative funding source. At March 31, 2009, the Company's borrowings to assets ratio decreased to 15.2% from 21.5% at December 31, 2008. Borrowings to total liabilities decreased to 17.4% at March 31, 2009 from 24.7% at December 31, 2008.
At March 31, 2009, the Company's total equity increased to $141.2 million from $140.7 million at December 31, 2008, an increase of $500,000, or 0.4%, primarily resulting from an accumulated other comprehensive loss reduction of $517,000 or 8.6%. Stockholders' equity totaled $141.2 million or 12.77% of period end assets, and tangible equity totaled $117.9 million or 10.89% of period end tangible assets.

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

                                                   For the Three Months Ended March 31,
                                            2009                                          2008
                                           Interest                                     Interest
                            Average         Income/        Average        Average        Income/        Average
                            Balance         Expense         Yield         Balance        Expense         Yield
                                                          (dollars in thousands)

Assets
Interest-earning
deposits                  $    15,022      $      66           1.76 %    $   7,116      $      74           4.18 %
Investments                   187,947          2,250           4.79 %      172,004          2,332           5.45 %
Loans                         800,169         11,627           5.89 %      677,393         11,048           6.56 %

Total interest-earning
assets                      1,003,138         13,943           5.64 %      856,513         13,454           6.32 %
Noninterest-earning
assets                        106,462                                      124,783
Allowance for loan
losses                        (11,340 )                                     (6,717 )

Total assets              $ 1,098,260                                    $ 974,579


Liabilities and
Stockholders' Equity
Interest-bearing
demand accounts           $   104,083            107           0.42 %    $ 107,782            309           1.15 %
Savings accounts               79,460            117           0.60 %       81,265            313           1.55 %
Money market accounts         117,055            428           1.48 %      109,975            904           3.31 %
Certificates of
deposit                       381,019          2,959           3.15 %      325,059          3,262           4.04 %
Borrowings                    205,162          1,596           3.16 %      141,948          1,429           4.05 %

Total interest-bearing
liabilities                   886,779          5,207           2.38 %      766,029          6,217           3.26 %
Noninterest-bearing
deposits                       63,840                                       56,682
Other liabilities               6,230                                        3,502

Total liabilities             956,849                                      826,213
Stockholders' equity          141,411                                      148,366

Total liabilities &
stockholders' equity      $ 1,098,260                                    $ 974,579

Net interest income                        $   8,736                                    $   7,237

Net interest spread                                            3.26 %                                       3.06 %
Net interest margin                                            3.53 %                                       3.40 %
Net interest income
and margin (tax
equivalent basis) (1)                      $   8,892           3.59 %                   $   7,352           3.45 %

Ratio of average
interest-earning
assets to average
interest-bearing
liabilities                    113.12 %                                     111.81 %

(1) In order to present pre-tax income and resultant yields on tax-exempt investments on a basis comparable to those on taxable investments, a tax equivalent yield adjustment is made to interest income. The tax equilvalent adjustment has been computed using a Federal income tax rate of 34%, and has the effect of increasing interest income by $156,000, and $115,000 for the three month period ended March 31, 2009 and 2008, respectively. The average yield on investments increased to 5.19% from 4.79% for the three month period ended March 31, 2009 and increased to 5.78% from 5.45% for the three month period ended March 31, 2008.

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

                                         For the Three Months Ended March 31, 2009
                                                 Compared to March 31, 2008
                                           Increase (decrease) due to changes in:
                                     Average             Average                Net
                                      Volume               Rate                Change
                                                       (in thousands)
Interest-Earning Assets
Interest-earning deposits          $         50       $          (58 )     $           (8 )
Investments                                 205                 (287 )                (82 )
Loans                                     1,777               (1,198 )                579

Total interest income                     2,032               (1,543 )                489


Interest-Bearing Liabilities
Interest-bearing demand accounts            (10 )               (192 )               (202 )
Savings accounts                             (7 )               (189 )               (196 )
Money market accounts                        53                 (529 )               (476 )
Certificates of deposit                     487                 (791 )               (304 )
Borrowings                                  527                 (359 )                168

Total interest expense                    1,050               (2,060 )             (1,010 )


Total net interest income          $        982       $          517       $        1,499

Comparison of Operating Results for the Three Months Ended March 31, 2009 and 2008
General. The net loss for the three months ended March 31, 2009 was $99,000 compared to a net loss of $2.2 million for the same period in 2008. The March 31, 2008 quarter net loss resulted, in part, from the Company's contribution of $3.8 million, net of taxes, to The CapeBank Charitable Foundation, and approximately $235,000 of expenses, net of taxes, associated with the Bank's name change and costs associated with the acquisition of Boardwalk Bank during the period. The results for the 2009 quarter were impacted by a $1.3 million charge related to the employment agreement of the Company's former President/CEO, and a $1.5 million other-than-temporary impairment charge on Collateralized Debt Obligations (CDO).
Interest Income. Interest income increased $489,000, or 3.6%, to $13.9 million for the three months ended March 31, 2009, from $13.5 million for the three months ended March 31, 2008 primarily from an increase of $579,000 in interest income on loans resulting from higher volumes associated with the acquisition of Boardwalk Bank effective January 31, 2008. Average loans for the three month period ended March 31, 2009 were $800.2 million compared to $677.4 million for the three month period ended March 31, 2009.
The average balance of investments increased $15.9 million, or 9.3% to $187.9 million for the three months ended March 31, 2009, compared to $172.0 million for the three months ended March 31, 2008. The average yield on investments decreased 66 basis points to 4.79% for the three months ended March 31, 2009, from 5.45% for the three months ended March 31, 2008. The increase in the average balance was a result of several factors including the three months ending March 31, 2008 balance reflecting only two months of post-merger Boardwalk Bank investment balances, and an increase in mortgage-backed securities (MBS) due to purchases partially offset by the OTTI write-down of several CDO securities. The decline in the average yield was primarily a result of falling market interest rates which negatively impacted both the repricing of our adjustable rate MBS portfolio and U.S. Government and agency obligations where called securities were replaced at lower coupon rates. Those declines were slightly offset by an increase in the yield of the CDO portfolio due to the previously discussed OTTI write-down.
Interest Expense. Interest expense decreased $1.0 million, or 16.2%, to $5.2 million for the three months ended March 31, 2009, from $6.2 million for the three months ended March 31, 2008.
Interest expense on NOW (interest bearing demand accounts) and money market accounts decreased $678,000, or 55.9%, to $535,000 for the three months ended March 31, 2009, from $1.2 million for the three months ended March 31, 2008, and interest expense on certificates of deposit decreased $303,000, or 9.3%, to $3.0 million for the three months ended March 31, 2009, from $3.3 million for the three months ended March 31, 2008.
Interest expense on borrowings (Federal Home Loan Bank of New York advances) increased $167,000, or 11.8%, to $1.6 million for the three months ended March 31, 2009 from $1.4 million for the three months ended March 31, 2008. The increase in average borrowings of $63.2 million primarily resulted from the acquisition of Boardwalk Bank.
Net Interest Income. Net interest income increased $1.5 million, or 20.7%, to $8.7 million for the three months ended March 31, 2009, from $7.2 million for the three months ended March 31, 2008.
We experienced an increase in our net interest rate spread of 20 basis points, to 3.26% for the three months ended March 31, 2009, from 3.06% for the three months ended March 31, 2008, and an increase in our net interest margin of 13 basis points, to 3.53% for the three months ended March 31, 2009, from 3.40% for the three months ended March 31, 2008. The increase in our net interest spread was a result of having more rate-sensitive liabilities than assets tied to short term interest rates, which declined during the period.
Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. In determining the level of the allowance for loan losses, we consider, among other things, past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower's ability to repay a loan and the levels of delinquent loans. The amount of the allowance is based on estimates, and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for loan losses and make provisions for loan losses on a monthly basis.
At March 31, 2009, the Company's allowance for loans losses increased to $11.9 million from $11.2 million at December 31, 2008, an increase of $684,000 or 6.1%. The allowance for loan loss ratio increased to 1.48% of gross loans at March 31, 2009, from 1.41% of gross loans at December 31, 2008. The allowance for loan losses to non-performing loans coverage ratio declined to 39.7% at March 31, 2009, from 53.4% at December 31, 2008.

We recorded a provision for loan losses of $745,000 for the three months ended March 31, 2009 compared to $283,000 for the three months ended March 31, 2008. The increase in the provision for losses over the prior year correlates to management's analysis of non-performing loans. For the quarter ended March 31, 2009, net charge-offs were $61,000 compared to $19,000 for the quarter ended March 31, 2008.
Non-Interest Income. Non-interest income decreased $1.5 million or 139.4%, to a loss of $433,000 for the three months ended March 31, 2009, from $1.1 million for the three months ended March 31, 2008. The decrease resulted from the Company recognizing an other-than-temporary impairment charge to non-interest income on CDO's totaling $1.5 million for the three month period ended March 31, 2009. In addition, during the current quarter, the Company recognized $29,000 in losses related to the sale of foreclosed real estate.
Non-Interest Expense. Non-interest expense decreased $4.2 million to $8.1 million for the three months ended March 31, 2009. The 2008 quarter included a $6.3 million previously reported expense related to the formation of The CapeBank Charitable Foundation and increased expenses directly related to the Boardwalk acquisition. The 2009 quarter did not include these charges but did include increased compensation expenses resulting from a $1.3 million expense related to the employment agreement of the Company's former President/CEO, increased expense of $702,000 primarily resulting from the Federal deposit insurance premium increases, and a provision for losses on foreclosed real estate of $68,000. Advertising costs declined during the current period as a result of a higher level of advertising in the prior period related to the name change after the acquisition of Boardwalk Bank.
Income Tax Benefit. For the three months ended March 31, 2009 the income tax benefit was $427 thousand, compared to an income tax benefit of $2.0 million for the three months ended March 31, 2008, a change of $1.6 million. The effective tax rate was a benefit of 81.2% for the three months ended March 31, 2009 compared to a benefit of 46.8% for the three months ended March 31, 2008. The change in the effective tax rate from the prior year is a result of an increase in non-taxable items relative to pretax income including interest on tax-exempt securities, BOLI income and other permanent differences between income for financial reporting purposes versus taxable income. Critical Accounting Policies
In the preparation of our consolidated financial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States. Our significant accounting policies are described in the Note 1 to our Consolidated Financial Statements.
Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.
Allowance for Loan Losses. We consider the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. In evaluating the allowance for loan losses, management considers historical loss factors, the mix of the loan portfolio (types of loans and amounts), geographic and industry concentrations, current national and local economic conditions and other factors related to the collectability loan portfolio, including underlying collateral values and estimated future cash flows. All of these estimates are susceptible to significant change. Large groups of smaller balance homogeneous loans, such as residential real estate, home equity loans, and consumer loans, are evaluated in the aggregate under Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies, using historical loss factors adjusted for economic conditions and other factors. Other 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, peer group data, and single and total credit exposure. Large balance and/or more complex loans, such as multi-family and commercial real estate loans, commercial business loans, and construction loans are evaluated individually for impairment in accordance with SFAS No. 114 "Accounting by Creditors for Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15"and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, an Amendment of SFAS No. 114". 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. 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 monthly. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.
Securities Impairment. We periodically perform analyses to determine whether there has been an other-than-temporary decline in the value of one or more of our securities. Our available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholder's equity. Our held-to-maturity securities portfolio, consisting of debt securities for which we have a positive intent and ability to hold to maturity, is carried at amortized cost. We conduct a quarterly review and evaluation of the securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If such decline is deemed other-than-temporary, we would adjust the cost basis of the security by writing down the security to estimated fair market value through a charge to current period operations. The market . . .